Defense Inventory
Army Needs to Strengthen Internal Controls for Items Shipped to Repair Contractors Gao ID: GAO-06-209 December 13, 2005GAO has previously reported that the lack of control over inventory shipments increases the Department of Defense's (DOD) vulnerability to undetected loss or theft. GAO evaluated the Army's effectiveness in maintaining accountability of inventory shipped to repair contractors. To conduct its review, GAO analyzed shipment data for fiscal year 2004, surveyed repair contractors that were recipients of inventory shipments, and assessed the Army's adherence to internal control procedures. Inventory shipments included both secondary repair items--components, assemblies, and subassemblies, other than major end items, which may be sent to commercial facilities for repair, alteration, or modification--and government-furnished materiel--assemblies, parts, and other items provided in support of this work.
The Army has not maintained accurate accountability for inventory shipped to repair contractors, thereby placing these assets at risk of loss or theft. Although DOD policy requires the military services to confirm receipt of all assets shipped to contractors, the Army is not consistently recording shipment receipts in its inventory management systems. In an analysis of fiscal year 2004 shipment data obtained from two Army inventory control points, GAO could not reconcile shipment records with receipt records for 42 percent of the unclassified secondary repair item shipments, with a value of $481.7 million, or for 37 percent of the classified secondary repair item shipments, with a value of $8.1 million. These data show that the Army cannot confirm that all inventory items shipped to repair contractors were received. The Army's data contained no receipts for government-furnished materiel. GAO survey results showed that repair contractors could confirm receipt of most, but not all, of the shipments. Specifically, on the basis of its survey results and follow-up work, GAO estimated that about 15 percent of the unclassified secondary repair item shipments in the survey population could not be confirmed as being received. GAO estimated that these lost or unaccounted for shipments have a value of approximately $68 million. All shipments of classified government-furnished materiel and secondary repair items were reported as received by the contractors in our survey. For shipments of unclassified government-furnished materiel, almost all shipments were reported by the contractors in our survey as being received. The Army's accountability for shipments of items sent to repair contractors is impeded by three internal control weaknesses. First, Army inventory control points lack systematic procedures for (1) obtaining and documenting contractor receipt of shipments of secondary repair items, (2) following up in cases where receipt was not confirmed by the contractors, and (3) providing advance notification of shipments to contractors. Second, the Army does not confirm receipt of government-furnished materiel shipments, reflecting a discrepancy between the Army's practices and DOD regulations regarding the need to confirm receipt of these shipments. DOD regulations require receipts for all shipments, including government-furnished materiel. Third, inventory control points do not provide the Defense Contract Management Agency with required quarterly reports that show the status of government-furnished materiel shipments. As a result, Defense Contract Management Agency officials may lack data to corroborate contractor-generated data during their inventory audits. These weaknesses in the Army's ability to account for inventory shipped to repair contractors increase the risk of undetected loss or theft. Moreover, inaccurate receipt records can diminish asset visibility and distort on-hand inventory balances, leading to unnecessary procurement of items.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-06-209, Defense Inventory: Army Needs to Strengthen Internal Controls for Items Shipped to Repair Contractors
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Report to Congressional Requesters:
December 2005:
Defense Inventory:
Army Needs to Strengthen Internal Controls for Items Shipped to Repair
Contractors:
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-209]
GAO Highlights:
Highlights of GAO-06-209, a report to congressional requesters:
Why GAO Did This Study:
GAO has previously reported that the lack of control over inventory
shipments increases the Department of Defense‘s (DOD) vulnerability to
undetected loss or theft. GAO evaluated the Army‘s effectiveness in
maintaining accountability of inventory shipped to repair contactors.
To conduct its review, GAO analyzed shipment data for fiscal year 2004,
surveyed repair contractors that were recipients of inventory
shipments, and assessed the Army‘s adherence to internal control
procedures. Inventory shipments included both secondary repair
items”components, assemblies, and subassemblies, other than major end
items, which may be sent to commercial facilities for repair,
alteration, or modification”and government-furnished
materiel”assemblies, parts, and other items provided in support of this
work.
What GAO Found:
The Army has not maintained accurate accountability for inventory
shipped to repair contractors, thereby placing these assets at risk of
loss or theft. Although DOD policy requires the military services to
confirm receipt of all assets shipped to contractors, the Army is not
consistently recording shipment receipts in its inventory management
systems. In an analysis of fiscal year 2004 shipment data obtained from
two Army inventory control points, GAO could not reconcile shipment
records with receipt records for 42 percent of the unclassified
secondary repair item shipments, with a value of $481.7 million, or for
37 percent of the classified secondary repair item shipments, with a
value of $8.1 million. These data show that the Army cannot confirm
that all inventory items shipped to repair contractors were received.
The Army‘s data contained no receipts for government-furnished
materiel.
GAO survey results showed that repair contractors could confirm receipt
of most, but not all, of the shipments. Specifically, on the basis of
its survey results and follow-up work, GAO estimated that about 15
percent of the unclassified secondary repair item shipments in the
survey population could not be confirmed as being received. GAO
estimated that these lost or unaccounted for shipments have a value of
approximately $68 million. All shipments of classified government-
furnished materiel and secondary repair items were reported as received
by the contractors in our survey. For shipments of unclassified
government-furnished materiel, almost all shipments were reported by
the contractors in our survey as being received.
The Army‘s accountability for shipments of items sent to repair
contractors is impeded by three internal control weaknesses. First,
Army inventory control points lack systematic procedures for (1)
obtaining and documenting contractor receipt of shipments of secondary
repair items, (2) following up in cases where receipt was not confirmed
by the contractors, and (3) providing advance notification of shipments
to contractors. Second, the Army does not confirm receipt of government-
furnished materiel shipments, reflecting a discrepancy between the
Army‘s practices and DOD regulations regarding the need to confirm
receipt of these shipments. DOD regulations require receipts for all
shipments, including government-furnished materiel. Third, inventory
control points do not provide the Defense Contract Management Agency
with required quarterly reports that show the status of government-
furnished materiel shipments. As a result, Defense Contract Management
Agency officials may lack data to corroborate contractor-generated data
during their inventory audits. These weaknesses in the Army‘s ability
to account for inventory shipped to repair contractors increase the
risk of undetected loss or theft. Moreover, inaccurate receipt records
can diminish asset visibility and distort on-hand inventory balances,
leading to unnecessary procurement of items.
What GAO Recommends:
GAO recommends that the Army take actions to strengthen its
accountability over secondary repair items and government-furnished
materiel shipped to its repair contractors. DOD concurred with six of
GAO‘s recommendations and nonconcurred with one. GAO has deleted this
recommendation based on follow-up work by the Army showing that the
Army had erroneously provided a duplicate shipment record.
www.gao.gov/cgi-bin/getrpt?GAO-06-209.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact William M. Solis at (202)
512-8412 or solisw@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Internal Control Weaknesses Impede Army's Accountability for Inventory
Shipments:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Scope and Methodology:
Appendix II: GAO Contractor Survey:
Appendix III: Comments from the Department of Defense:
Appendix IV: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Fiscal Year 2004 Shipments of Government-Furnished Materiel
and Secondary Repair Items Used to Draw Our Samples:
Table 2: Fiscal Year 2004 Unclassified Secondary Repair Item Shipments
That Lacked Matching Receipts or Showed Discrepancies with Receipt
Records:
Abbreviations:
DCMA: Defense Contract Management Agency:
DOD: Department of Defense:
Letter December 13, 2005:
The Honorable Richard J. Durbin:
The Honorable Tom Harkin:
United States Senate:
The Honorable Peter A. DeFazio:
The Honorable Carolyn B. Maloney:
House of Representatives:
Every year the Army ships thousands of items from its inventory to
commercial contractors for repair, alterations, or modification. These
items range from small components, such as circuit card assemblies, to
larger, expensive items like turbine engines. In addition, contractors
may receive parts from the Army supply system for use in this work. In
fiscal year 2004, for example, Army records show that the U.S. Army
Aviation and Missile Command and the U.S. Army Tank-automotive and
Armaments Command authorized shipment of about 70,000 items worth
approximately $970 million to repair contractors. To safeguard
government-owned assets while they are in transit, Department of
Defense (DOD) and Army policies require Army supply activities to
follow specific procedures for managing and maintaining accountability
of inventory provided to commercial contractors.
Since at least 1990, we have considered DOD supply chain and inventory
management to be a high-risk area due to ineffective management systems
and procedures. Among the issues facing the department has been a lack
of control over inventory shipments, which increases DOD's
vulnerability to undetected loss or theft and also increases the risk
that millions of dollars will be spent on procuring unnecessary items.
In response to your request, we evaluated the Army's effectiveness in
maintaining accurate accountability of inventory shipped to repair
contactors. Our review included shipments of both secondary repair
items and government-furnished materiel.[Footnote 1]
This report is the third and last in a series of reports focusing on
the services' inventory management procedures for controlling materiel
shipped to repair contractors. In July 2002, we reported that the Air
Force either did not adhere to, or did not establish, effective
controls for assets shipped to its repair contractors for repair or for
use in the repair of other assets.[Footnote 2] More recently, we
reported in July 2004 that the Naval Inventory Control Point and its
repair contractors did not follow a number of DOD and Navy procedures
for maintaining accountability and visibility of government-furnished
materiel provided to contractors.[Footnote 3]
To perform our review, we analyzed Army inventory shipment data,
surveyed repair contractors that were recipients of inventory
shipments, and assessed the Army's adherence to policies for managing
and maintaining accountability for inventory shipments. We obtained
fiscal year 2004 shipment data from two of the Army's three major
inventory control points--the U.S. Army Aviation and Missile Command
and the U.S. Army Tank-automotive and Armaments Command.[Footnote 4]
For secondary repair items, we analyzed the data to reconcile inventory
shipment records with receipt records. To assess the reliability of the
Army data, we randomly selected 200 secondary repair item shipments for
which the inventory shipment records and receipt records had not been
reconciled in the Army's inventory management systems. We also randomly
selected 200 government-furnished materiel shipments. Because these
were random samples, the results of our analysis can be projected to
the entire universe of shipments that met our selection criteria.
Additionally, we selected all shipments of classified items[Footnote
5]--90 total shipments--that were present in our data
population.[Footnote 6] We then sent surveys to 72 Army contractors
requesting property record information on these shipments to assess
whether these items had been received and accounted for by the
contractors.[Footnote 7] We received and reviewed survey responses from
66 of the 72 contractors, representing 184 unclassified secondary
repair item shipments, or 92 percent of our randomly selected sample;
169 unclassified government-furnished materiel shipments, or 85 percent
of our randomly selected sample; and 100 percent of the classified
shipments. We followed up with repair contractor officials and Army
item managers to obtain additional information on specific shipments
where our survey data indicated a potential loss of accountability. On
the basis of the survey results and our follow-up analysis, we believe
that the data are sufficiently reliable for our purposes. We conducted
our review from October 2004 through November 2005 in accordance with
generally accepted government auditing standards. Appendix I provides
more details about our scope and methodology. A copy of the survey we
sent to repair contractors is reprinted in appendix II.
Results in Brief:
The Army has not maintained accurate accountability for inventory
shipped to repair contractors, thereby placing these assets at risk of
loss or theft. Although DOD policy requires the military services to
confirm receipt of all assets shipped to contractors, the Army is not
consistently recording shipment receipts in its inventory management
systems. In our analysis of fiscal year 2004 shipment data obtained
from two Army inventory control points, we could not reconcile materiel
shipment records with receipt records for 42 percent of the
unclassified secondary repair item shipments, with a value of $481.7
million, or for 37 percent of the classified secondary repair item
shipments, with a value of $8.1 million. These data show that the Army,
on the basis of receipt records maintained in its inventory management
systems, cannot confirm that a substantial portion of inventory items
shipped to repair contractors were in fact received. The Army's data
contained no receipts for government-furnished materiel.
Our survey results showed that repair contractors could confirm receipt
of most, but not all, of the shipments. Specifically, on the basis of
our survey results and follow-up work, we estimated that about 15
percent of the unclassified secondary repair item shipments in our
population could not be confirmed as being received. We estimated that
these lost or unaccounted for shipments have a value of approximately
$68 million. All shipments of classified government-furnished materiel
and secondary repair items were reported as received by the contractors
in our survey. For shipments of unclassified government-furnished
materiel, almost all shipments were reported by the contractors in our
survey as being received.
The Army's accountability for shipments of items sent to repair
contractors is impeded by three internal control weaknesses. First,
Army inventory control points lack systematic procedures for (1)
obtaining and documenting contractor receipt of shipments of secondary
repair items, (2) following up in cases where receipt was not confirmed
by the contractors, and (3) providing advance notification of shipments
to contractors. Second, the Army does not confirm receipt of government-
furnished materiel shipments, reflecting a discrepancy between the
Army's practices and DOD regulations regarding the need to confirm
receipt of these shipments. DOD regulations require receipts for all
shipments, including government-furnished materiel. Third, inventory
control points do not provide the Defense Contract Management Agency
(DCMA) with required quarterly reports that show the status of
government-furnished materiel shipments. As a result, DCMA officials
may lack data to corroborate contractor-generated data during their
inventory audits. These weaknesses in the Army's ability to account for
inventory shipped to repair contractors increase the risk of undetected
loss or theft because the Army cannot ensure control over assets after
they have been shipped from its supply system. Moreover, inaccurate and
incomplete receipt records diminish asset visibility and can distort on-
hand inventory balances, leading to unnecessary procurement of items.
We are making recommendations to strengthen the Army's accountability
over secondary repair items and government-furnished materiel shipped
to its repair contractors. In written comments on a draft of this
report, DOD concurred with six of our recommendations and nonconcurred
with one. We have deleted this recommendation based on follow-up work
by the Army showing that the Army had erroneously provided a duplicate
shipment record. DOD's comments are discussed in the "Agency Comments
and Our Evaluation" section.
Background:
Responsibility for controlling and accounting for materiel shipped to
repair contractors is shared between the Army and its contractors. Army
inventory control points within the Army Materiel Command manage the
movement of assets from the Army supply system to commercially operated
repair facilities. The Army's three major inventory control points for
secondary repair items are the U.S. Army Aviation and Missile Command,
the U.S. Army Tank-automotive and Armaments Command, and the U.S. Army
Communications-Electronics Command. Repair contractors are generally
required to establish and maintain a property control system for the
control, use, maintenance, repair, protection, and preservation of
government property in their possession.[Footnote 8]
Inventory control points, as part of their materiel management
functions, maintain the Army's data systems that support inventory and
financial management, requirements determination, maintenance planning,
and procurement. These inventory management systems retain the
accountable records for inventory transactions, including shipment and
receipt records. The U.S. Army Aviation and Missile Command and the
U.S. Army Tank-automotive and Armaments Command use the Commodity
Command Standard System as their inventory management system. This
system will eventually be replaced with the Logistics Modernization
Program, which will integrate inventory functions performed by legacy
inventory management systems. The U.S. Army Communications-Electronics
Command uses the Logistics Modernization Program.
The inventory shipment data we obtained from the U.S. Army Aviation and
Missile Command and U.S. Army Tank-automotive and Armaments Command
included shipments of secondary repair items and government-furnished
materiel sent to contractor facilities located in the continental
United States during fiscal year 2004. Many shipments contained
multiple items. According to these records, the inventory control
points together authorized shipments of more than 25,000 secondary
repair items worth approximately $852 million to repair contractors.
The records show they also authorized shipments of more than 44,000
government-furnished materiel items valued at approximately $118
million. The survey population we used to draw our sample included all
shipments of secondary repair items for which we could not identify
matching receipt records for corresponding inventory shipment
records,[Footnote 9] all shipments of government-furnished materiel,
and all shipments of classified government-furnished materiel and
secondary repair items. Table 1 shows the population of shipments from
which we drew our samples.
Table 1: Fiscal Year 2004 Shipments of Government-Furnished Materiel
and Secondary Repair Items Used to Draw Our Samples:
Government-furnished materiel:
Shipment type: Classified;
Number of Shipments: 11;
Number of Items: 500;
Value: $2,596, 972.
Shipment type: Unclassified;
Number of Shipments: 3,476;
Number of Items: 43,954;
Value: $115,777,299.
Secondary repair items:
Shipment type: Classified;
Number of Shipments: 82[A];
Number of Items: 323;
Value: $21,695,757.
Shipment type: Unclassified;
Number of Shipments: 1,076;
Number of Items: 13,175;
Value: $481,697,529.
Shipment type: Total;
Number of Shipments: 4,645;
Number of Items: 57,952;
Value: $621,767,557.
Source: GAO analysis of Army inventory control point data.
[A] Because we could not determine the contractor that received three
of the secondary repair item shipments, we excluded them from our
survey. After we obtained comments on a draft of this report, the Army
conducted an analysis and discovered that one of the classified
secondary repair item shipments in our survey population, valued at
$16,938, was a duplicate shipment record that the Army had erroneously
provided to us. Thus, we have deleted this shipment from our analysis.
[End of table]
DOD has established policies for maintaining accountability for assets
shipped to repair contractors.[Footnote 10] Under these policies, for
example, contractors are responsible for posting receipts in their
property control records and notifying the appropriate inventory
control point once they have received shipped assets. The inventory
control point establishes a "due-in" record when a shipment is issued
to track inventory that will eventually return to the Army supply
system. Once notified of receipt by the contractors, the inventory
control point processes receipt of a transaction in its inventory
management system to reflect the contractors' receipt of the shipment.
If the inventory control point is not notified of receipt within 45
days of shipment, it is required to follow up with the intended
recipient to determine shipment status. Without a confirmation of
receipt, the status of a shipment is uncertain. In addition, DOD policy
states that the military services may establish requirements for their
inventory control points to provide advance notification of scheduled
shipments to repair contractors.
DOD also requires inventory control points to submit quarterly reports
to DCMA identifying quantities and types of government-furnished
materiel provided to repair contractors.[Footnote 11] DCMA assesses the
accuracy of repair contractor records and accounts for government
property furnished to contractors. The quarterly reports are intended
to help contract officers verify that repair contractors have
maintained accountability for all government-furnished materiel shipped
to their facilities without relying strictly on contractor inventory
records.
The Army has established a system for formally reporting errors in
shipments. Under DOD and Army regulations, recipients of repair
materiel are required to investigate and report shipment discrepancies,
such as incorrect quantities and types of items and items sent to the
wrong location.[Footnote 12] If the discrepancy results from shipper
error, the recipient submits a supply discrepancy report to the
appropriate inventory control point.[Footnote 13] Inventory control
point officials review and validate these reports and provide
recipients with instructions for resolving the discrepancy. For
example, the customer may be instructed to return misdirected items to
the Army supply system or to retain items for future repair work.
In addition to these policies, the Army is obligated to establish and
maintain effective internal control systems. The Federal Managers'
Financial Integrity Act of 1982 requires GAO to issue standards for
internal control in the federal government.[Footnote 14] According to
these standards, internal controls are an integral component of an
organization's management that provide reasonable assurance that assets
are being safeguarded and other objectives are being met. Internal
controls should be designed to provide reasonable assurance regarding
prevention or prompt detection of unauthorized acquisition, use, or
disposition of an agency's assets. Effective and efficient internal
control activities help ensure that an agency's control objectives are
accomplished. Control activities are the policies, procedures,
techniques, and mechanisms that enforce management directives, such as
the process of adhering to DOD requirements for receipting of shipped
assets and generation of quarterly government-furnished status reports.
Internal Control Weaknesses Impede Army's Accountability for Inventory
Shipments:
Internal control weaknesses have impeded the Army's accountability for
assets shipped to repair contractors. Army inventory control points do
not consistently record receipts for secondary repair items shipped to
repair contractors. Furthermore, the Army does not verify receipt of
government-furnished materiel. In addition, the Army does not provide
shipment status reports to DCMA as required under DOD regulations. A
lack of accurate accountability for shipments of secondary repair items
and government-furnished materiel places these assets at risk of loss
or theft, diminishes asset visibility and can distort on-hand inventory
balances, leading to unnecessary procurement of items.
Army Does Not Consistently Record Receipts for Secondary Repair Item
Shipments:
Army inventory control points are not consistently recording receipts
of shipments of secondary repair items in their inventory management
systems. In our analysis of fiscal year 2004 shipment data obtained
from two Army inventory control points, we could not reconcile shipment
records with receipt records for 1,076 (42 percent) of the unclassified
secondary repair item shipments, with a value of $481.7 million, or for
30 (37 percent) of the classified secondary repair item shipments, with
a value of $8.1 million. In this analysis, we identified shipments that
lacked a matching receipt record as well as those shipments for which
there was a discrepancy between the number of items shipped and the
number receipted. Table 2 displays the results of our analysis for
shipments of unclassified secondary repair items.
Table 2: Fiscal Year 2004 Unclassified Secondary Repair Item Shipments
That Lacked Matching Receipts or Showed Discrepancies with Receipt
Records:
Receipt Record: No receipt;
Number: 583;
Percentage: 54.2.
Receipt Record: Receipt(s) for fewer items than shipped;
Number: 302;
Percentage: 28.1.
Receipt Record: Receipt(s) for more items than shipped;
Number: 191;
Percentage: 17.8.
Total;
Number: 1,076;
Percentage: 100.0.
Source: GAO analysis of Army inventory control point data.
Note: Percentages do not total because of rounding.
[End of table]
These data show that Army inventory control points, on the basis of
receipt records maintained in its inventory management systems, cannot
confirm that a substantial portion of inventory items shipped to repair
contractors were in fact received. In the absence of accurate and
complete receipt records, the Army lacks inventory transaction data
needed for maintaining accurate accountability for an asset as it moves
through the repair cycle. Furthermore, inaccurate or incomplete receipt
records can lead to a distortion of on-hand inventory balances, thus
placing the Army at risk of procuring more items than are needed to
support the warfighter. The Army Audit Agency, in September 2004, noted
that the Army lacked accurate receipt records for shipments both to
contractors and to government-owned depot facilities, and that, as a
result, on-hand inventory balances for some items were understated by
about $40.8 million.[Footnote 15]
Our survey results showed that repair contractors could confirm receipt
of most, but not all, of the fiscal year 2004 shipments. On the basis
of our analysis of the survey results and follow-up work with
contractors and Army item managers, we estimated that about 15 percent
of the unclassified secondary repair item shipments in our survey
population could not be confirmed as being received. We estimated that
these lost or unaccounted for shipments have a value of approximately
$68 million.[Footnote 16] For example, our sample of secondary repair
items included a shipment of 30 aircraft rotary wing components with a
total value of $8.3 million. The Army's inventory management system did
not show a receipt for this shipment, and the contractor had no record
of receiving the shipment. On the basis of our work, the status of this
shipment remains uncertain.
For classified items, the contractor confirmed receipt for 79 of the 80
secondary repair item shipments but could not confirm receipt for 1
shipment in our survey population with a value of about $17,000. In a
subsequent analysis conducted by the Army to determine the status of
this classified shipment, the Army discovered that it had erroneously
provided us with a duplicate shipment record, causing this shipment to
appear unaccounted for based on the original data that the Army had
provided for this review. According to the Army, this was not a
classified shipment sent to the contractor for repair, but rather a
shipment record that pertained to a repaired asset coming from the
contractor back into its inventory. The Army provided documentation to
confirm the receipt of this asset back into its inventory. On the basis
of this data, we deleted this record from our analysis. Thus, all
shipments of classified secondary repair items were received by the
contractors.
Although required to obtain confirmation of receipt from repair
contractors, Army inventory control points lack systematic procedures
for obtaining and documenting receipt of shipments of secondary repair
items and for following up within 45 days in cases where receipt was
not confirmed by the contractors. Army regulations concerning receipt
notification do not specify the method or form by which contractors are
to notify the inventory control point when they receive shipments.
Moreover, multiple individuals at the inventory control points may
become involved in the receipting process. Item managers, who manage
specific inventory items and authorize shipments of secondary repair
items to contractor facilities, are generally responsible for ensuring
repair contractors receive shipments. We found that various methods are
used to confirm receipt. Some item managers rely on routine reports
provided by the contractors or on data obtained from contractors'
inventory data systems. Other item managers confirm receipt by
telephone calls to contractor officials. Once the receipt confirmation
is obtained, the item manager may pass the receipt information to other
inventory control point personnel, who then update the record in the
inventory management system. In most cases, these personnel enter the
receipt information into the inventory management system
manually.[Footnote 17] Manual updating increases the probability of
inaccuracies in receipt data.
Although we could not reconcile 42 percent of the shipments in the
Army's data with matching receipt records, our follow-up survey with
repair contractors indicated they were able to confirm receipt for a
majority of the shipments. In addition, on the basis of our survey of
repair contractors, we estimate that for 82 percent of the shipments,
contractors stated they had notified the Army of shipment
receipt.[Footnote 18] However, these receipt notifications were not
always recorded in the Army's inventory management systems. Systematic
follow-up within 45 days of shipment by the Army inventory control
points could have identified these confirmed receipts, enabling an
update of the inventory record to accurately reflect the shipment
status.
While contractors are required to report shipment discrepancies through
the Army's supply discrepancy reporting program, we found that this
practice does not always occur. In our survey, repair contractors noted
discrepancies in shipments that were not formally reported through the
Army's reporting program. It is unclear why all discrepancies were not
reported. One explanation provided by several contractors was that Army
officials do not routinely provide advance notification to contractors
prior to shipment. Because the Army had not notified them in advance of
the shipments, they did not expect the shipments to arrive and,
therefore, did not file supply discrepancy reports. Some contractors
said they only became aware of certain shipments sent to them when they
received our survey. Neither DOD nor Army regulations require inventory
control points to provide advance notification to repair contractors at
the time of shipment. However, DOD regulations state that the military
services may require their inventory control points to provide advance
notification.[Footnote 19]
Army Does Not Confirm Receipt of Government-Furnished Materiel:
Army inventory control points are not confirming receipt of government-
furnished materiel shipments as required under DOD regulation. For
shipments of government-furnished materiel, almost all shipments were
reported by the contractors in our survey as being received. On the
basis of our survey, we estimate that repair contractors could not
confirm about 2 percent of all unclassified government-furnished
materiel shipments with an approximate value of $3.2 million.[Footnote
20] These shipments, therefore, are unaccounted for, and thus are
vulnerable to loss or theft. Repair contractors confirmed receipt of
all 11 shipments of classified government-furnished materiel.
DOD regulations require Army inventory control points to obtain receipt
confirmation for all shipments, including government-furnished
materiel,[Footnote 21] and require Army inventory control points to
conduct follow-ups if receipt is not confirmed within 45 days of
shipment. Army regulations require receipt and follow-up for secondary
repair item shipments but do not explicitly address receipting for
government-furnished materiel.[Footnote 22] According to inventory
control point officials, the data systems used to manage government-
furnished materiel shipments do not store receipting information.
Furthermore, these officials told us they do not obtain receipt
notification from contractors for government-furnished materiel
shipments but, instead, assume contractors receive shipments of
government-furnished materiel unless the contractors notify them
otherwise. During our review, we noted that the Army's data systems for
managing government-furnished materiel shipments provide automated
checks of requisitions to ensure their validity.[Footnote 23] However,
without receipt data, the Army inventory control points lack assurance
that contractors have received government-furnished materiel, and as a
result, they cannot conduct follow-up within the required time frame to
determine whether corrective action is necessary. Moreover, while our
analysis shows that contractors could confirm receipt for the majority
of the government-furnished materiel shipments, the Army needs to
maintain effective internal controls to safeguard its assets and to
ensure optimal management of its resources, in accordance with the
Federal Managers' Financial Integrity Act of 1982.
Army Does Not Provide Shipment Status Reports to DCMA:
According to DCMA officials, inventory control points do not provide
DCMA with quarterly reports showing the status of government-furnished
materiel shipments as required under DOD regulation. As a result, DCMA
officials may lack data to corroborate contractor-generated data during
their inventory audits. Both DOD and Army regulations require inventory
control points to generate and submit reports on requisitioned
government-furnished materiel to DCMA.[Footnote 24] The purpose of the
reports is to assist DCMA in independently verifying contractor records
of government-furnished materiel. These reports are required to
identify items under contract, requisitions that have been rejected,
quantities and dollar values of shipments, and the number of shipments
for which receipts are unknown. However, we found in our work that the
inventory control points do not have procedures in place to ensure that
this reporting requirement is implemented as required. As result, DCMA
officials commonly rely on contractor-generated data to conduct
inventory audits and lack an independent data source to corroborate
those data.
Conclusions:
The Army has not implemented all the internal controls required to
ensure that assets shipped to repair contractors are being received.
Although DOD has established policies for controlling these assets, we
found the Army lacked systematic procedures for implementing the
policies, resulting in inaccurate and incomplete receipt records.
Moreover, on the basis of our analysis of Army data and survey of
repair contractors, some assets remain lost or unaccounted for.
The Army could improve accountability for inventory shipments by
strengthening its internal control procedures for receipting secondary
repair items and following up in cases where the contractor has not
provided notification that items were received, obtaining and
documenting receipts for government-furnished materiel, and providing
required status reports on government-furnished materiel to DCMA. In
addition, DOD guidance for providing advance notification to recipients
at the time of shipment, while not a requirement, offers another
potential internal control for maintaining accountability of shipments.
As the Army continues to move from its legacy inventory management
systems to the Logistics Modernization Program, strong internal control
procedures will be critical to ensuring that data transferred into the
new system are accurate and complete.
Recommendations for Executive Action:
To improve accountability of inventory shipped to Army repair
contractors, we recommend that the Secretary of Defense direct the
Secretary of the Army to instruct the Commanding General, Army Materiel
Command, to take the following six actions:
* Establish systematic procedures to obtain and document contractors'
receipt of secondary repair item shipments in the Army's inventory
management systems, and to follow up on unconfirmed receipts within 45
days of shipment.
* Institute policies, consistent with DOD regulations, for obtaining
and documenting contractors' receipt of government-furnished materiel
shipments in the Army's inventory management systems.
* Provide quarterly status reports of all shipments of Army government-
furnished materiel to DCMA, in compliance with DOD regulations.
* Examine the feasibility of implementing DOD guidance for providing
advance notification to contractors at the time of shipment and, if
warranted, establish appropriate policies and procedures for
implementation.
* Analyze receipt records for secondary repair items shipped to
contractors and take actions necessary to update and adjust inventory
management data prior to transfer to the Logistics Modernization
Program. These actions should include investigating and resolving
shipments that lack matching receipts to determine their status.
* To ensure consistent implementation of any new procedures arising
from the recommendations in this report, provide periodic training to
appropriate inventory control point personnel and provide clarifying
guidance concerning these new procedures to the command's repair
contractors.
Agency Comments and Our Evaluation:
In written comments on a draft of this report, the Department of
Defense concurred with six of the recommendations and cited specific
actions it plans to take to implement these recommendations. DOD also
specified implementation timelines for five of its proposed actions.
Specifically, DOD reported that the Army intends to create the
functionality within the Army's new Logistics Modernization Program by
fiscal year 2007 to (1) create automated suspense files for following-
up on nonreceipted shipments, (2) establish receipting capability for
government-furnished materiel shipments, and (3) produce quarterly
government-furnished materiel status reports and submit them to DCMA.
The Army also plans to establish Integrated Product Teams to examine
the feasibility and availability of a Web-based query capability to
make advanced shipment information available to contractors, and to
develop training to ensure that Army inventory management personnel
understand the procedures that are in place to strengthen the internal
controls for items shipped to repair contractors. These teams are
expected to have their results by July 2006. DOD also stated that the
Army is currently taking actions to improve the accuracy of the data
contained in its inventory management system; however, a timeframe for
when this process would be completed was not provided. We believe that
these actions cited by DOD are generally responsive to our
recommendations.
DOD did not concur with our recommendation in a draft version of this
report to investigate and resolve the status of a shipment of an
unserviceable classified secondary repair asset that appeared lost or
unaccounted for on the basis of our review. However, DOD's response
indicates that the Army complied with our draft recommendation by
analyzing its inventory management system records. This analysis showed
that the contractor had received the shipment in question, repaired the
unserviceable classified item, and later returned this item to the
Army's inventory. In subsequent follow-up work, we obtained the Army
inventory data supporting the information cited in DOD's response.
During further analysis of this classified shipment, the Army
discovered that the data used in our analysis was a duplicate shipment
record that it had erroneously provided to us. On the basis of the new
information provided, we were able to verify the status of the
classified shipment in question. Consequently, we have deleted this
recommendation from our report. DOD's written comments are reprinted in
appendix III.
We are sending copies of this report to the appropriate congressional
committees, and it will be available at no charge on GAO's Web site at
[Hyperlink, http://www.gao.gov]. If you or your staff have any
questions on the matters discussed in this report, please contact me at
(202) 512-8412 or [Hyperlink, solisw@gao.gov]. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. GAO staff who made major contributions to
this report are listed in appendix IV.
Signed by:
William M. Solis:
Director:
Defense Capabilities and Management:
[End of section]
Appendixes:
Appendix I: Scope and Methodology:
To evaluate the Army's effectiveness in maintaining accountability of
inventory shipped to repair contactors, we analyzed Army inventory
shipment data, surveyed repair contractors that were recipients of
inventory shipments, and assessed the Army's adherence to policies for
managing and maintaining accountability for inventory shipments. Our
review included shipments of both secondary repair items and government-
furnished materiel.
We reviewed Department of Defense (DOD) and Army regulations pertaining
to shipped inventory, and discussed inventory management procedures
with officials from the following locations: Headquarters, Army
Materiel Command, Fort Belvoir, Virginia; the U.S. Army Aviation and
Missile Command, Redstone Arsenal, Alabama; the U.S. Army Tank-
automotive and Armaments Command, Warren, Michigan, and Rock Island,
Illinois; the U.S. Army Communications-Electronics Command, Fort
Monmouth, New Jersey; the Surface Deployment and Distribution Command,
Fort Eustis and Alexandria, Virginia; and the Defense Contract
Management Agency (DCMA), Alexandria, Virginia.
To identify the quantity, value, and security classification of assets
shipped to repair contractors, we obtained electronic records from
inventory management databases at the U.S. Army Aviation and Missile
Command and the U.S. Army Tank-automotive and Armaments Command. We
obtained records for Army-owned assets shipped during fiscal year 2004
(Oct. 1, 2003 through Sept. 30, 2004). The records contained
descriptive information about each shipment, including item
nomenclature, national stock number, unit price, date of shipment, and
quantity shipped. Records for secondary repair item shipments also
listed the quantity of items received in each shipment. We did not
obtain inventory data from U.S. Army Communications-Electronics Command
because at the time of our review its inventory management system was
undergoing stabilization and could not provide all data elements needed
for our audit.
To assess the reliability of the inventory data, we performed manual
and electronic testing for errors in accuracy and completeness in the
records. When we found discrepancies in the data, such as missing data
elements, illogical shipment date sequences, or abnormal data entries,
we contacted inventory control point officials to obtain explanations
for the discrepancies. As needed, the officials provided corrections to
discrepant data. We also reviewed the data to ensure that shipments
occurred in fiscal year 2004, were directed to contractor facilities
located in the continental United States, and comprised assets that met
our criteria for item class and condition code. For secondary repair
items, we analyzed the Army data to reconcile shipments for which the
receipt record and shipment record had the same document number and
suffix,[Footnote 25] where applicable; national stock number; and
quantity. In cases of multiple receipt records for a given shipment, we
eliminated all receipt records associated with supply depot
transactions and totaled all contractor receipt records, including
inventory reversals. When the adjusted quantity receipted, which
included the quantity for multiple inventory reversals, did not total
the quantity shipped, we classified the shipment as unmatched.
After the validation process, we drew samples of the data population
for review. Our sampling methodology enabled us to independently verify
the accuracy of the Army's data on secondary repair items and
government-furnished materiel provided to repair contractors. To select
repair contractors and items shipped to them, we randomly selected 200
shipments of unclassified secondary repair items from a total
population of 1,076 shipments that did not have receipt records that
corresponded to shipment records in the Army's inventory management
system. We also randomly selected 200 shipments of unclassified
government-furnished materiel from a total population of 3,476
shipments. In addition, we selected all shipments of classified items
that appeared in the inventory records, including 11 government-
furnished materiel shipments and 79 secondary repair items
shipments.[Footnote 26] For this data sample, we sent a survey to 72
repair contractors, of which 66 responded to the survey. See appendix
II for a copy of the survey. The results of our analysis can be
projected to the entire universe of shipments that met these selection
criteria.
To determine whether repair contractors had received and accounted for
the selected shipments, we surveyed each randomly selected contractor
to assess whether item types and quantities had been received as
documented in Army inventory records. Furthermore, our survey also
asked contractors to note any discrepancies between the Army's data and
data in their property control records, and to explain what actions
they took to resolve discrepancies such as shipments of incorrect items
or quantities. In following up on the survey results, we reviewed
survey responses for logical inconsistencies and incomplete data, such
as document number, national stock number, quantity shipped, and date
receipted, to determine whether the contractor responses were accurate.
In cases where one or more of these data fields were inconsistent with
data provided from the Army inventory system, we identified the
shipment as not received by the contractor and adjusted our estimate of
unaccounted for assets. We also obtained data from DOD's supply
tracking system to determine whether the transportation carriers showed
proof of delivery for these assets. We also followed up with
contractors and Army item managers regarding specific, high-value
shipments. On the basis of this follow-up work, we adjusted our initial
survey results.
To evaluate the Army's compliance with DOD regulations requiring
submission to DCMA of quarterly government-furnished materiel status
reports, we interviewed DCMA officials who oversee contracts for the
items included in our statistical sample of government-furnished
materiel shipments. These officials were located at DCMA field offices
and contractor facilities throughout the United States.
We conducted our review from October 2004 through November 2005 in
accordance with generally accepted government auditing standards.
[End of section]
Appendix II: GAO Contractor Survey:
[See PDF for image]
[End of figure]
[End of section]
Appendix III: Comments from the Department of Defense:
DEPUTY UNDER SECRETARY OF DEFENSE FOR LOGISTICS AND MATERIEL READINESS:
3500 DEFENSE PENTAGON:
WASHINGTON, DC 20301-3500:
NOV 29 2005:
Mr. William Solis:
Director, Defense Capabilities and Management:
U.S. Government Accountability Office:
441 G Street, N.W.:
Washington, D.C. 20548:
Dear Mr. Solis:
This is the Department of Defense (DoD) response to the Government
Accountability Office (GAO) draft report GAO-06-209, "DEFENSE
INVENTORY: Army Needs to Strengthen Internal Controls for Items Shipped
to Repair Contractors, dated November 4, 2005 (GAO Code 350541).
The draft report recommends that the Secretary of Defense direct the
Secretary of the Army to instruct the Commanding General, Army Materiel
Command, to strengthen internal control procedures for receipting
repair item shipments and government-furnished materiel shipments.
The Department concurs with six of the recommendations and non-concurs
with one recommendation in the draft report. The Department disagrees
with the most serious allegation in the report, the alleged loss of a
classified shipment. Army records show that it was not lost.
In fact, it was an unserviceable item that was sent to the contractor
for repair and then returned to Fort Bliss, TX after repair and was
accounted for in both records. Enclosed are detailed comments to the
recommendations. The Department appreciates the opportunity to comment
on this draft report.
Sincerely,
Signed by:
Jack Bell:
Enclosure: As stated:
GAO DRAFT REPORT - DATED NOVEMBER 4, 2005 GAO CODE 350541/GAO-06-209:
"DEFENSE INVENTORY: Army Needs to Strengthen Internal Controls for
Items Shipped to Repair Contractors"
DEPARTMENT OF DEFENSE COMMENTS TO THE RECOMMENDATIONS:
RECOMMENDATION 1: The GAO recommended that the Secretary of Defense
direct the Secretary of the Army to instruct the Commanding General,
Army Materiel Command to establish systematic procedures to obtain and
document contractors' receipt of secondary repair item shipments in the
Army's inventory management systems, and to follow up on unconfirmed
receipts within 45 days of shipment. (p. 16/GAO Draft Report):
DOD RESPONSE: Concur. The Army Materiel Command will ensure there are
consistent, systematic procedures in place to obtain and document
contractors' receipt of repair items and follow up promptly on
unconfirmed receipts. The Army currently generates a "monthly" output
product listing all types of materiel shipments which have exceeded the
expected delivery date. This product is routed to Item Managers for
appropriate action to follow-up as necessary. Renewed emphasis will be
placed on the Item Managers by the Army Materiel Command on the
importance of this process and the fact that any sensitive item
materiel shipments require diligence and any past due deliveries will
require special action for follow-up in a manual mode.
The Army will also assess the use of the Commercial Asset Visibility
(CAV II) tool for 100% of these shipments as the long term solution
that will promote a greater degree of inventory accuracy in managing
materiel shipped to commercial sources of repair. Additionally,
systematic procedures will be developed by the Army, to include a
suspense file to ensure necessary follow-up. The suspense is currently
done manually, but will be automated with implementation of the
Logistics Modernization Program (LMP), which will be fully implemented
in FY 2007.
RECOMMENDATION 2: The GAO recommended that the Secretary of Defense
direct the Secretary of the Army to instruct the Commanding General,
Army Materiel Command to institute policies, consistent with DoD
regulations, for obtaining and documenting contractors' receipt of
government-furnished material shipments in the Army's inventory
management systems. (p. 16/GAO Draft Report):
DOD RESPONSE: Concur. The Army Materiel Command will institute policies
to ensure that contractor's receipt of government-furnished material
(GFM) shipments will be obtained and documented in the Army's LMP.
Although this function does not currently exist within the LMP
platform, there are proposed changes to the LMP system platform (FY
2007) that will encompass the capability to receipt GFM at contractor
facilities, which will enable the Army to be in compliance with the DoD
regulations.
RECOMMENDATION 3: The GAO recommended that the Secretary of Defense
direct the Secretary of the Army to instruct the Commanding General,
Army Materiel Command to provide quarterly status reports of all
shipments of Army government-furnished material to DCMA, in compliance
with DoD regulations. (p. 16/GAO Draft Report):
DOD RESPONSE: Concur. Currently, the Army legacy system generates a
report for this purpose and action will be taken by the Army to ensure
DCMA receives a copy of this quarterly report. The Army also has two
proposed changes to LMP to include this capability in that system.
RECOMMENDATION 4: The GAO recommended that the Secretary of Defense
direct the Secretary of the Army to instruct the Commanding General,
Army Materiel Command to examine the feasibility of implementing DoD
guidance for providing advance notification to contractors at the time
of shipment and, if warranted, establish appropriate policies and
procedures for implementation. (p. 16/GAO Draft Report):
DOD RESPONSE: Concur. An Army Integrated Product Team will examine the
feasibility of providing advance notification to contractors at the
time of shipment, to include availability of web-based query capability
to make advanced time of shipment information available to contractors.
The team should have results by July 2006.
RECOMMENDATION 5: The GAO recommended that the Secretary of Defense
direct the Secretary of the Army to instruct the Commanding General,
Army Materiel Command to investigate and resolve the status of the
shipment of classified material that remains lost or unaccounted for on
the basis of our review. (p. 16/GAO Draft Report):
DOD RESPONSE: Nonconcur. Army analysis shows that the shipment of
classified material in question was neither lost nor unaccounted for.
The Army used the same document number to send an unserviceable
classified item to repair and to return the same item, now in
serviceable condition, back from repair. There were two shipments using
the same document number, W31G3H-3351-11604. The first shipment took
place March 22, 2004, moving an unserviceable asset from Letterkenny
Army Depot, PA to Raytheon. It was receipted for at Raytheon. The
second shipment took place June 24, 2004, moving a serviceable asset
from Raytheon to Ft Bliss, TX. The contractor would not show a receipt
for the second shipment, because they were the shipper, not the
intended receiver. Both shipments under document number W31G3H-3351-
H604 were accounted for in 2004. The contract quantity for the document
number (W3lG3H-3351-11604) is 30 ea.
30 each shipped to the contractor. 30 each receipted by the contractor.
30 each shipped from the contractor 30 each receipted by Ft Bliss, TX:
RECOMMENDATION 6: The GAO recommended that the Secretary of Defense
direct the Secretary of the Army to instruct the Commanding General,
Army Materiel Command to analyze:
receipt records for secondary repair items shipped to contractors and
take actions necessary to update and adjust inventory management data
prior to transfer to the Logistics Modernization Program. These actions
should include investigating and resolving shipments that lack matching
receipts to determine their status. (p. 16/GAO Draft Report):
DOD RESPONSE: Concur. Data cleansing efforts are ongoing at the major
commands.
RECOMMENDATION 7: The GAO recommended that the Secretary of Defense
direct the Secretary of the Army to instruct the Commanding General,
Army Materiel Command, to provide periodic training to appropriate
inventory control point personnel and to provide clarifying guidance
concerning these new procedures to the command's repair contractors.
(p. 17/GAO Draft Report):
DOD RESPONSE: Concur. The Army Materiel Command will require that
training and guidance be provided to Army major command personnel to
ensure understanding of procedures to strengthen internal controls for
items shipped to repair contractors. An Army Integrated Product Team
will work this issue and should have results by July 2006.
[End of section]
Appendix IV: GAO Contact and Staff Acknowledgments:
GAO Contact:
William Solis, (202) 512-8365 or [Hyperlink, solisw@gao.gov]:
Acknowledgments:
In addition to the contact named above, Thomas Gosling, Assistant
Director; Arthur James; Stanley Kostyla; Jacqueline McColl; Marjorie
Pratt; and Paul Rades made key contributions to this report.
(350541):
FOOTNOTES
[1] Secondary repair items comprise reparable components, assemblies,
and subassemblies, other than major end items (e.g., tanks and
helicopters), which may be sent to either government or commercial
facilities for repair, alteration, or modification. Government-
furnished materiel is materiel in the possession of, or acquired by,
the government and later made available to contractors for use in
repairs, alterations, and modifications. Generally, this materiel
includes assemblies, components, parts, raw and processed materiel, and
small tools and supplies that contractors use in support of this work.
[2] GAO, Defense Inventory: Air Force Needs to Improve Control of
Shipments to Repair Contractors, GAO-02-617 (Washington, D.C.: July 1,
2002).
[3] GAO, Defense Inventory: Navy Needs to Improve the Management Over
Government-Furnished Materiel Shipped to Its Repair Contractors, GAO-
04-779 (Washington, D.C.: July 23, 2004).
[4] We excluded the U.S. Army Communications-Electronics Command from
our data analysis because at the time of our review its inventory
management system was undergoing stabilization and could not provide
all data elements needed to conduct our audit.
[5] Classified items, such as frequency converters and other types of
electronic equipment, are those that require the highest degree of
protection in the interest of national security.
[6] Army records showed a total of 94 classified shipments--11
government-furnished materiel shipments and 83 secondary repair item
shipments. Because we could not determine the contractor that received
3 of the secondary repair item shipments, we excluded them from our
survey. After we obtained comments on a draft of this report, the Army
conducted an analysis and discovered that one of the classified
secondary repair item shipments in our survey population was a
duplicate shipment record that the Army erroneously provided to us.
Thus, we have deleted this shipment from our analysis.
[7] We did not send a survey to one contractor, accounting for 3 of the
200 shipments of unclassified secondary repair items, because the
contractor declined to participate in the survey.
[8] DOD 4161.2-M, DOD Manual for the Performance of Contract Property
Administration, December 1991, para. C3.4, Federal Acquisition
Regulation, Subpart 45.502.
[9] We identified matching receipts for 1,457 secondary repair item
shipments valued at $348.3 million. These shipments were excluded from
our survey population.
[10] DOD 4000.25-2-M, Military Standard Transaction Reporting and
Accounting Procedures (MILSTRAP), September 2001 (as amended by changes
1, 2, and 3), paras. C4.3, C4.5, and C4.6; C4.10 through C4.12; C6.6;
and C6.7.
[11] DOD 4140.1-R, DOD Supply Chain Materiel Management Regulation, May
23, 2003, para. C5.11.2.4, and DOD 4161.2-M, DOD Manual for the
Performance of Contract Property Administration, December 1991, para.
C5.2.6.
[12] DLAI 4140.55/Army Regulation 735-11-2, Reporting of Supply
Discrepancies, August 6, 2001.
[13] Customers may submit the reports using a paper form (Standard Form
364) or electronically through the Army Electronic Product Support Web
site.
[14] Pub. L. No. 97-255 (Sept. 8, 1982). See also GAO, Internal
Control: Standards for Internal Control in the Federal Government,
GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999).
[15] The Army Audit Agency identified problems with on-hand balances
contained in the Commodity Command Standard System used by the U.S.
Army Communications-Electronics Command--the same system used by the
two Army inventory control points in our review. During this audit,
this inventory control point began transitioning to its new inventory
management system--the Logistics Modernization Program--and the
existing balances for on-hand assets were transferred to the new system
as baseline data. See Army Audit Agency, Asset Visibility of Military
Equipment During Conversions--U.S. Army Communications-Electronics
Command, A-2004-0529-FFG (Alexandria, Va.: Sept. 30, 2004).
[16] These estimates represent mean values. We are 95 percent confident
that contractors could not confirm receipt for from 9.9 percent to 20.5
percent of shipments with a value of from $26.7 million to $109.5
million. Because we sampled by shipment, not by dollar value, the range
of variance for these two estimates is different.
[17] Some contractors have an automated link to the Army's Commodity
Command Standard System through the Commercial Asset Visibility system,
but at the time of our review only about one-third of contractors had
use of this system.
[18] We estimate, at the 95 percent confidence level, that for from
78.9 percent to 84.1 percent of the shipments, contractors stated they
had notified the Army of shipment receipt.
[19] DOD 4000.25-2-M, Military Standard Transaction Reporting and
Accounting Procedures (MILSTRAP), September 2001 (as amended by changes
1 and 2), para. C4.3.
[20] These estimates represent mean values. We are 95 percent confident
that contractors could not confirm receipt for from 0.2 percent to 4.6
percent of shipments with a value of from $0 to $9.2 million. Because
we sampled by shipment, not by dollar value, the range of variance for
these two estimates is different.
[21] DOD 4000.25-2-M, Military Standard Transaction Reporting and
Accounting Procedures (MILSTRAP), September 2001 (as amended by changes
1 and 2), paras. C6.6 and C6.7.
[22] Army Regulation 725-50, Requisitioning, Receipt, and Issue System,
November 15, 1995, paras. 5-22 and 5-23.
[23] The Army inventory control points manage government-furnished
materiel shipments using automated systems that validate requisitions
and process shipments. According to Army officials and documentation
provided by them, these systems automatically reject requisitions that
are inconsistent with contract terms, such as requisitions for items
with national stock numbers not covered under the contract or for item
quantities that exceed contract terms. We did not test these systems to
determine their effectiveness or reliability.
[24] Although DOD requires inventory control points to generate and
distribute these reports on a quarterly basis, the Army requires them
semiannually. See DOD 4140.1-R, DOD Supply Chain Materiel Management
Regulation, May 23, 2003, para. C5.11.2.4; DOD 4161.2-M, DOD Manual for
the Performance of Contract Property Administration, December 1991,
para. C5.2.6; and Army Regulation 725-50, Requisitioning, Receipt, and
Issue System, November 15, 1995, para. 16-10.
[25] Document numbers are unique identifiers for shipments. In cases
where document numbers are used multiple times, a suffix is added to
distinguish each shipment.
[26] Three additional secondary repair item shipments were excluded
from our survey because we could not determine the contractor that
received the shipments. After we obtained comments on a draft of this
report, the Army conducted an analysis and discovered that one of the
classified secondary repair item shipments in our survey population was
a duplicate shipment record that the Army had erroneously provided to
us. Thus, we have deleted this shipment from our analysis.
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