DOD Excess Property
Management Control Breakdowns Result in Substantial Waste and Inefficiency Gao ID: GAO-05-277 May 13, 2005Based on limited previous GAO work that identified examples of purchases of new items at the same time identical items in excellent or good condition were excessed, GAO was asked to assess the overall economy and efficiency of the Department of Defense (DOD) program for excess property reutilization (reuse). Specifically, GAO was asked to determine (1) whether and to what extent the program included waste and inefficiency and (2) root causes of any waste and inefficiency. GAO was also asked to provide detailed examples of waste and inefficiency and the related causes. GAO's methodology included an assessment of controls, analysis of DOD excess inventory data, statistical sampling at selected sites, and detailed case studies of many items.
DOD does not have management controls in place to assure that excess inventory is reutilized to the maximum extent possible. Of $18.6 billion in excess commodity disposals in fiscal years 2002 and 2003, $2.5 billion were reported to be in new, unused, and excellent condition. DOD units reutilized only $295 million (12 percent) of these items. The remaining $2.2 billion (88 percent) includes significant waste and inefficiency because new, unused, and excellent condition items were transferred and donated outside of DOD, sold for pennies on the dollar, or destroyed. DOD units continued to buy many of these same items. GAO identified at least $400 million of commodity purchases when identical new, unused, and excellent condition items were available for reutilization. GAO also identified hundreds of millions of dollars in reported lost, damaged, or stolen excess property, including sensitive military technology items, which contributed to reutilization program waste and inefficiency. Further, excess property improperly stored outdoors for several months was damaged by wind, rain, and hurricanes. To illustrate continuing reutilization program waste and inefficiency, GAO ordered and purchased at little or no cost several new and unused excess commodities that DOD continued to buy and utilize, including tents, boots, power supplies, circuit cards, and medical supplies. GAO paid a total of $1,471, including tax and shipping cost, for these items, which had an original DOD acquisition cost of $68,127. Root causes for reutilization program waste and inefficiency included (1) unreliable excess property inventory data; (2) inadequate oversight and physical inventory control; and (3) outdated, nonintegrated excess inventory and supply management systems. Procurement of inventory in excess of requirements also was a significant contributing factor. Improved management of DOD's excess property could save taxpayers at least hundreds of millions of dollars annually.
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-05-277, DOD Excess Property: Management Control Breakdowns Result in Substantial Waste and Inefficiency
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Report to Congressional Requesters:
May 2005:
DOD Excess Property:
Management Control Breakdowns Result in Substantial Waste and
Inefficiency:
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-277]
GAO Highlights:
Highlights of GAO-05-277, a report to congressional requesters:
Why GAO Did This Study:
Based on limited previous GAO work that identified examples of
purchases of new items at the same time identical items in excellent or
good condition were excessed, GAO was asked to assess the overall
economy and efficiency of the Department of Defense (DOD) program for
excess property reutilization (reuse). Specifically, GAO was asked to
determine: (1) whether and to what extent the program included waste
and inefficiency and (2) root causes of any waste and inefficiency. GAO
was also asked to provide detailed examples of waste and inefficiency
and the related causes. GAO's methodology included an assessment of
controls, analysis of DOD excess inventory data, statistical sampling
at selected sites, and detailed case studies of many items.
What GAO Found:
DOD does not have management controls in place to assure that excess
inventory is reutilized to the maximum extent possible. Of $18.6
billion in excess commodity disposals in fiscal years 2002 and 2003,
$2.5 billion were reported to be in new, unused, and excellent
condition. DOD units reutilized only $295 million (12 percent) of these
items. The remaining $2.2 billion (88 percent) includes significant
waste and inefficiency because new, unused, and excellent condition
items were transferred and donated outside of DOD, sold for pennies on
the dollar, or destroyed. DOD units continued to buy many of these same
items. GAO identified at least $400 million of commodity purchases when
identical new, unused, and excellent condition items were available for
reutilization. GAO also identified hundreds of millions of dollars in
reported lost, damaged, or stolen excess property, including sensitive
military technology items, which contributed to reutilization program
waste and inefficiency. Further, excess property improperly stored
outdoors for several months was damaged by wind, rain, and hurricanes.
Waste and Inefficiency Related to $2.2 Billion in Fiscal Year 2002 and
2003 Disposals of Excess DOD Commodities Reported To Be in New, Unused,
and Excellent Condition:
[See PDF for image]
[End of figure]
To illustrate continuing reutilization program waste and inefficiency,
GAO ordered and purchased at little or no cost several new and unused
excess commodities that DOD continued to buy and utilize, including
tents, boots, power supplies, circuit cards, and medical supplies. GAO
paid a total of $1,471, including tax and shipping cost, for these
items, which had an original DOD acquisition cost of $68,127.
Root causes for reutilization program waste and inefficiency included:
(1) unreliable excess property inventory data; (2) inadequate oversight
and physical inventory control; and (3) outdated, nonintegrated excess
inventory and supply management systems. Procurement of inventory in
excess of requirements also was a significant contributing factor.
Improved management of DOD's excess property could save taxpayers at
least hundreds of millions of dollars annually.
What GAO Recommends:
This report includes 13 recommendations to improve the economy and
efficiency of DOD's reutilization program for excess commodities in the
areas of: (1) data reliability; (2) oversight, accountability, and
physical inventory control; and (3) the functional design of DOD's
future commodity inventory systems.
DOD concurred with 8 and partially concurred with 5 of our
recommendations. Where DOD partially concurred, we view DOD's stated
actions as being generally responsive to the intent of our
recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-05-277.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Gregory D. Kutz at (202)
512-9095 or kutzg@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Analysis of Reutilization Program Identifies Billions of Dollars in
Waste and Inefficiency:
Management Control Breakdowns Resulted in Reutilization Program Waste
and Inefficiency:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Comments from the Department of Defense:
Appendix III: Excess Property Condition Codes:
Appendix IV: Programs Authorized to Receive Excess DOD Property:
Appendix V: Results of Statistical Tests of Excess Commodity Inventory
Accuracy:
Appendix VI: GAO Contacts and Staff Acknowledgments:
Tables:
Table 1: Defense Reutilization and Marketing Service Revenue:
Table 2: Reported Acquisition Value of DOD Excess Commodity Transfers
to Other Programs and Agencies during Fiscal Years 2002 and 2003:
Table 3: Examples of New, Unused Commodity Items Transferred and Sold
Outside of DOD while Still Being Purchased during Fiscal Years 2002 and
2003:
Table 4: Turn-in Transactions with One or More Control Test Failures at
Five DRMOs and Five DLA Supply Depots:
Table 5: Estimated Turn-in Transaction Control Test Failures for Items
Classified as Serviceable:
Table 6: Reported DRMS Excess Property Losses and Adjustments:
Table 7: DOD Excess Property Condition Codes:
Table 8: DOD Special Programs:
Table 9: DRMO Turn-in Transactions with One or More Control Test
Failures:
Table 10: DLA Supply Depot Turn-in Transactions with One or More
Control Test Failures:
Table 11: DRMO Turn-in Transactions That Failed Overall Control Tests
for Condition Code Accuracy:
Table 12: DRMO Turn-in Transactions Classified as Serviceable That
Failed Control Tests for Condition Code Accuracy:
Table 13: DRMO Turn-in Transactions Classified as Unserviceable That
Failed Control Tests for Condition Code Accuracy:
Table 14: DLA Supply Depot Turn-in Transactions That Failed Overall
Control Tests for Condition Code Accuracy:
Figures:
Figure 1: DLA Commodity Acquisition and Distribution Process:
Figure 2: DRMS Excess Property Disposal Process:
Figure 3: Fiscal Year 2002 and 2003 Disposals of Excess DOD Commodities
in Serviceable and Unserviceable Condition:
Figure 4: Waste and Inefficiency Related to $2.2 billion in Fiscal Year
2002 and 2003 Disposals of Excess DOD Commodities Reported To Be in
New, Unused, and Excellent Condition:
Figure 5: Examples of Fiscal Year 2002 and 2003 DLA Purchases When
Identical New, Unused Items Were Available for Reutilization:
Figure 6: Medical Instrument Chest Assembled for Maximum Utilization:
Figure 7: One of the New, Unused Excess DOD Circuit Cards Transferred
to GAO in September 2004:
Figure 8: New, Unused DOD Power Supply Unit Requisitioned by GAO in
September 2004 from the DLA Depot in Norfolk, Virginia:
Figure 9: New, Unused Excess Cold Weather Boots Purchased in September
2004:
Figure 10: New, Unused Excess Shelter Half-Tent Purchased in August
2004:
Figure 11: One of the New, Unused Excess DOD Gasoline Burner Units
Purchased in September 2004:
Figure 12: Photograph of the New, Unused Portable Suction Apparatus
Purchased in October 2004:
Figure 13: New, Unused Excess Level III Biological Safety Cabinet at
the Norfolk DRMO:
Figure 14: Outside Storage of Wood Computer Furniture at the
Huntsville, Alabama, Liquidation Sales Location in July 2004:
Figure 15: Example of Water-Damaged Items at the DRMS Liquidation Sales
Contractor Location in Huntsville, Alabama:
Figure 16: Example of Excess DOD Property Stored Outside at the DOD
Liquidation Sales Contractor Location in Norfolk, Virginia:
Figure 17: DOD Excess New, Unused Bandages and Medical Supplies
Purchased over the Internet in October 2004:
Figure 18: Existing Nonintegrated DLA Inventory Systems Environment:
Abbreviations:
BSM: Business System Modernization:
CAP: Civil Aeronautics Patrol:
CCLI: Commerce Control List Item:
C.F.R.: Code of Federal Regulations:
CONUS: Continental United States:
CPU: Central processing unit:
DAISY: DRMS Automated Information System:
DLA: Defense Logistics Agency:
DLIS: Defense Logistics Information System:
DOD: Department of Defense:
DODAAC: DOD Activity Address Code:
DODAAD: DOD Activity Address Directory:
DRMO: Defense Reutilization and Marketing Office:
DRMS: Defense Reutilization and Marketing Service:
DSS: Defense Standard System:
FEDLOG: Federal Logistics System:
FEDS: Federal Disposal System:
FSC: Federal Supply Class:
GSA: General Services Administration:
GSAXcess: GSA Excess Property Web site:
HAP: Humanitarian Assistance Program:
IDEA: Interactive Data Extraction and Analysis:
JSLIST: Joint Service Lightweight Integrated Suit Technology:
LEA: Law Enforcement Agency:
LSN: Local stock number:
MIDAS: Management Information Distribution and Access System:
MILSTRIP: Military Standard Requisitioning and Issue Procedures:
MARS: Military Affiliate Radio System:
MLI: Military List Item:
MWR: Morale, welfare, and recreation activities and services:
NSN: National stock number:
OMB: Office of Management and Budget:
RCP: Recycle control point:
RIPL: Receipt in place location:
RMP: Reutilization Modernization Program:
ROTC: Senior Reserve Officer Training Corps:
SAMMS: Standard Automated Materiel Management System:
SCC: Supply Condition Code:
U.S.C.: United States Code:
Letter May 13, 2005:
The Honorable Christopher Shays:
Chairman:
The Honorable Dennis J. Kucinich:
Ranking Minority Member:
Subcommittee on National Security, Emerging Threats and International
Relations:
Committee on Government Reform:
House of Representatives:
The Honorable Susan M. Collins:
Chairman:
Committee on Homeland Security and Governmental Affairs:
United States Senate:
The Honorable Janice D. Schakowsky:
House of Representatives:
This report responds to your request that we assess the overall economy
and efficiency of the Department of Defense (DOD) program for
reutilization (reuse) of excess property. Your request was based on our
limited previous work that identified several examples of problems in
this area. Specifically, our November 2003 report[Footnote 1]
identified several examples that showed that at the same time DOD
excessed biological equipment items in good or excellent condition and
sold many of them to the public for pennies on the dollar, it was
purchasing the same or similar items. In addition, at a June 2002
hearing on ineffective and inefficient DOD business processes before
the Subcommittee on National Security, Veterans Affairs and
International Relations, House Committee on Government Reform, we
testified[Footnote 2] that the lack of asset visibility over the Joint
Service Lightweight Integrated Suit Technology (JSLIST)[Footnote 3]
resulted in DOD units sending JSLIST to Defense Reutilization and
Marketing Offices (DRMO) as excess. DRMOs then issued coats and
trousers to other federal agencies, scrapped some of these items, and
sent other JSLIST to a government liquidation contractor, while at the
same time procuring hundreds of thousands of new garments in response
to the terrorist attacks of September 11, 2001. You were concerned that
our limited examples could indicate systemic problems.
Accordingly, you asked us to assess the overall economy and efficiency
of DOD's excess property reutilization program. To do so, we reviewed
applicable laws and regulations; DOD policies and procedures; and
current systems, processes, and management controls. Where we found
controls to be ineffective, we tested and evaluated them further. You
asked us to report (1) whether and to what extent we found waste and
inefficiency and (2) the root causes of any waste and inefficiency. In
reporting on the results of our work, you asked us to provide detailed
examples of any waste and inefficiency and the related causes. As
agreed with your offices, our audit focused on identifying new, unused,
and excellent condition excess commodity inventory[Footnote 4] activity
during fiscal years 2002 and 2003[Footnote 5] and determining whether
the Defense Logistics Agency (DLA) purchased identical items instead of
reutilizing the available excess items in Defense Reutilization and
Marketing Service (DRMS) inventory.
To identify potential waste and inefficiencies, we analyzed the
universe of recorded fiscal year 2002 and 2003 transactions on excess
DOD commodity turn-ins and disposals and DLA commodity purchases. We
compared DOD reutilization of excess new, unused, and excellent
condition commodities to transfers, donations, public sales, and
destruction of excess commodities. We also compared DOD commodity
purchases to identical excess items in new, unused, and excellent
condition to determine whether DOD made unnecessary purchases instead
of reutilizing available excess items. To determine the causes of
identified waste and inefficiency, we tested and evaluated controls for
assuring the reliability of data and information used for reutilization
decision making and safeguarding excess property. We also assessed the
effectiveness of current and planned supply and excess inventory
management systems and processes for reutilization of excess property.
You also asked us to illustrate the details of our analysis of fiscal
year 2002 and 2003 waste and inefficiency by identifying specific
examples and performing case study investigations of the details of
these examples. In addition, you asked us to purchase and requisition,
as case studies, selected excess items that DLA was continuing to
purchase, the military services were continuing to utilize, or both.
To assure ourselves that DOD data were sufficiently reliable for the
purpose of our audit, we compared database totals to information in
official agency reports, electronically checked control totals and the
completeness of key data elements, and statistically tested the
accuracy of excess inventory data that are key to the excess property
reutilization program. We conducted our work from November 2003 through
February 2005 in accordance with U.S. generally accepted government
auditing standards. We performed our investigative work in accordance
with standards prescribed by the President's Council on Integrity and
Efficiency. A detailed discussion of our objectives, scope, and
methodology is presented in appendix I. We requested comments on a
draft of this report from the Secretary of Defense or his designee.
Written comments from the Acting Under Secretary of Defense for
Logistics and Materiel Readiness are reprinted in appendix II.
Results in Brief:
DOD does not have effective management processes, systems, and controls
in place to assure that it is reutilizing excess inventory to the
maximum extent possible and safeguarding excess items from damage,
loss, and theft, as required by federal regulations, DOD policy, and
GAO internal control standards.[Footnote 6] As a result, we found
substantial waste and inefficiency related to DOD's excess property
reutilization program. Of the $18.6 billion in reported fiscal year
2002 and 2003 excess commodity disposals, $2.5 billion related to items
in new, unused, and excellent condition (A condition).[Footnote 7] Of
the $2.5 billion, we determined that $2.2 billion included substantial
waste and inefficiency because new, unused, and excellent condition
items were being transferred or donated outside of DOD, sold on the
Internet for pennies on the dollar, or destroyed rather than being
reutilized. We also found that DOD purchased at least $400 million of
identical commodities instead of reutilizing available A-condition
excess items. However, the extent of this problem may be greater due to
incomplete and inaccurate data that are key to identifying excess items
for reutilization. DRMS also reported $466 million in excess property
losses from fiscal years 2002 through 2004, such as missing, damaged,
and stolen property, adding to reutilization program waste.
To illustrate continuing reutilization program waste and
inefficiencies, during fiscal year 2004 and the first quarter of fiscal
year 2005, we obtained several new and unused excess DOD commodity
items that were being purchased by DLA, were in use by the military
services, at the time we obtained them, or both, including the
following.
* We requisitioned at no charge a medical instrument chest, two power
supplies, and two circuit cards. Although these items had an original
DOD acquisition cost of $55,817, we paid only about $5 shipping cost to
obtain them.
* We also purchased at minimal cost, over the Internet at
govliquidation.com, tents, boots, gasoline burners (stove/heating
units), a medical suction apparatus, and bandages and other medical
supply items. Although the total reported acquisition cost for these
items was $12,310, we paid a total of $1,466 to obtain them, about 12
cents on the dollar, including buyer's premium, tax, and shipping cost.
The root causes for the billions of dollars in waste and inefficiency
related to management control breakdowns across DOD, including
weaknesses in DOD's excess property reutilization program, stemmed from
(1) unreliable excess property inventory data; (2) inadequate
oversight, accountability, and physical control of excess property; and
(3) inadequate processes and outdated, nonintegrated inventory systems
that do not provide adequate visibility of excess property available
for reutilization at the time military units order and purchase
commodity items. In addition, as we have reported for many
years,[Footnote 8] long-standing DOD logistics management weaknesses
that resulted in purchases in excess of actual requirements also
resulted in the disposal of unused items due to obsolescence and
contributed indirectly to reutilization program waste and inefficiency.
Our statistical tests of controls for accuracy of excess commodity
inventory and our case studies and interviews led us to conclude that
unreliable data are a key cause of the ineffective excess property
reutilization program. DRMS policy[Footnote 9] requires DRMO personnel
to verify turn-in information, including item descriptions, quantities,
condition code, and demilitarization code at the time excess property
is received. However, we found that DRMS management did not enforce
these verification requirements. Our statistical tests at 5 of 93 DRMO
locations estimated error rates that ranged from 8 percent at 1 DRMO to
47 percent at another DRMO, indicating ineffective controls for
assuring the accuracy of excess inventory data at these
locations.[Footnote 10] Although condition code accuracy is key to
reutilization program effectiveness, our estimate of condition code
error rates for the 5 DRMOs we tested ranged from 5 percent at 1 DRMO
to 22 percent at 2 other DRMOs. Most of the condition coding errors
related to items reported to be in unserviceable condition when the
items were actually in serviceable condition, which could prevent items
in new, unused, and excellent condition from being selected for
reutilization. Estimated error rates at 5 of the 25 DLA supply depots
that we tested ranged from 6 percent to 16 percent. However, we did not
find condition code errors at these supply depots.
In addition, we found weaknesses in oversight and accountability that
resulted in lost, stolen, and damaged excess property and contributed
to hundreds of millions of dollars in overall reutilization program
waste and inefficiency. Regardless of whether sensitive technology
items are new or used, DOD policy[Footnote 11] requires that they be
restricted to use by authorized parties or destroyed when no longer
needed by DOD. For fiscal years 2002 through 2004, DRMS reported a
total of $466 million in known excess property losses, including lost,
stolen, and damaged property and unverified adjustments. Losses
reported by DRMOs included nearly 150 chemical and biological
protective suits, over 70 units of body armor, and 5 guided missile
warheads.[Footnote 12] Losses reported by DLA supply depots included
thousands of sensitive military items, such as weapons system
components and aircraft parts. Because 43 percent of the reported
losses involved military and commercial technology that required
demilitarization control, these weaknesses also reflect security risks.
Further, inadequate DRMS oversight and accountability for contractor
and DRMO operations have resulted in millions of dollars in damage to
excess property that had been improperly stored outside for several
months during fiscal year 2004 and subjected to wind, rain, and
hurricanes.
Inefficient, nonintegrated excess inventory and supply management
systems lack controls necessary to prevent waste and inefficiency in
the reutilization program. For example, because the DRMS excess
inventory system and the DLA supply management system are outdated and
nonintegrated, they do not share information necessary to (1) identify
and alert DLA item managers of excess property that is available to
fill supply orders and (2) prevent purchases of new items when A-
condition excess items are available for reutilization. DLA has
acknowledged serious deficiencies in its automated inventory management
systems and has efforts under way to replace its supply management
system, and DRMS has an effort under way to upgrade its excess
inventory system. However, we found that these efforts had not been
effectively coordinated, and they did not adequately address identified
process deficiencies, such as the failure to record national stock
numbers (NSN)[Footnote 13] for commodity purchases and inventory
records and unreliable condition code data.
This report contains 13 recommendations to help improve the overall
economy and efficiency of DOD's reutilization program for excess
commodities, including recommendations for better coordination between
DRMS, DLA, and the military services with regard to data reliability;
strengthened DRMS management oversight, accountability, and physical
inventory control; and improvements in the functional design for excess
property reutilization in DLA's future commodity inventory systems
environment. In its April 15, 2005, letter commenting on our report,
DOD concurred with 8 recommendations. For the 5 recommendations with
which DOD partially concurred, we view DOD's actions to be generally
responsive to the intent of our recommendations. DOD's comment letter
is reprinted in appendix II.
Background:
DLA is DOD's combat support agency under the supervision, direction,
authority, and control of the Under Secretary of Defense for
Acquisition, Technology, and Logistics. DLA's mission is to provide
best-value logistics support to America's armed forces, in peace and in
war, around the clock, and around the world. In carrying out its
mission, DLA manages inventory valued at about $83 billion, consisting
of more than 5 million consumable (expendable) items, including
commodities such as fuel, food, clothing and other textiles, medical
supplies, industrial use items, and spare and repair parts supporting
over 1,400 weapon systems. DLA also buys and distributes hardware and
electronic items that are used in maintenance and repair of equipment
and weapons systems. In fiscal years 2002 and 2003, DLA expenditures
related to sales and services amounted to over $46.5 billion, including
about $36 billion for commodity purchases and about $600 million for
DRMS excess property disposal services. DLA and DRMS operate under the
Defense-wide Working Capital Fund.[Footnote 14] DLA is financed through
user charges to cover costs, and DRMS is financed through user charges
and excess property and scrap sale proceeds. DLA activities related to
this report fall into two main areas: (1) commodity acquisition and
management and (2) excess property disposals by DRMS and DLA-managed
supply distribution depots (referred to as DLA supply depots).
DLA Commodity Acquisition and Management Process:
DLA commodity acquisition and management functions discussed in this
report are carried out by three Defense supply centers, which are
located in Columbus, Ohio; Richmond, Virginia; and Philadelphia,
Pennsylvania. The DLA acquisition process focuses on (1) the
acquisition of inventory requisitioned by customers for immediate use
and (2) routine inventory replenishment. Defense Supply Center item
managers initiate commodity procurements based on military unit
requirements for materiel and supplies and military unit requisitions
(supply orders). Supply center item managers consolidate the
requirements and work with buyers to procure requested items. Items for
which there are immediate needs are delivered directly to a military
unit by the commercial vendor, and items needed to support anticipated
operations (referred to as the requirements objective) are stored at
DLA supply depots for later issue. The DLA Defense Distribution Center
uses a total of 26 DLA supply depots located throughout the United
States and Europe, as well as in Guam and Kuwait, to store commodities
and other items that are classified by over 5 million different NSNs.
This inventory includes commodities, such as clothing and other
textiles; electronics; industrial, general, and construction supplies;
subsistence items; and medical supplies and equipment. Figure 1
illustrates the DLA commodity acquisition and distribution process.
Figure 1: DLA Commodity Acquisition and Distribution Process:
[See PDF for image]
[End of figure]
When there is an urgent customer requirement and items are on back
order, DLA item managers or expediters may check DRMS excess property
inventory and service-level inventory to locate available items to fill
an order.
Excess Property Disposal Process:
The Federal Property and Administrative Services Act of 1949, as
amended,[Footnote 15] places responsibility for the disposition of
surplus government real and personal property with the General Services
Administration (GSA), which has delegated responsibility for disposal
of DOD property to the Secretary of Defense. In accordance with federal
regulations governing property management[Footnote 16] and department
policy in DOD 4160.21-M, Defense Materiel Disposition Manual, DOD
agencies and military services are responsible for determining whether
property they hold is considered excess. Federal regulations[Footnote
17] also require executive agencies to ensure that personal property
not needed by their activity is offered for use elsewhere within the
agency. In accordance with federal regulations, DOD 4160.21-M, chapter
5, calls for reutilization of excess property to the extent feasible to
fill existing needs and to satisfy additional needs before initiating
new procurement or repair. All DOD activities are required to screen
available excess assets to identify items that could satisfy valid
needs, and the military services have programs for reutilizing property
by redistributing excess property across their units to meet ongoing
operational needs. DLA has overall responsibility for property that is
excess to military and DOD units. DLA has placed responsibility for
excess property disposals with DRMS.
When a military service or DOD agency has property that it no longer
needs, it turns the property over to a DRMS field warehouse location--
or reutilization facility--referred to as a DRMO. During fiscal year
2004, DRMS managed 93 DRMOs, including 39 central DRMOs, 54 satellite
DRMOs, and 35 receipt in place locations referred to as RIPLs. Reported
excess property turn-ins are entered into the DRMS Automated
Information System (DAISY). DRMS then posts descriptive information
about the excess property to a Web page that lists property that is
available for reutilization by DOD units and specially designated
programs, transfer to federal agencies, and donation to states. DRMS
has two organizational elements that manage and oversee excess property
disposals. DRMS National is responsible for daily operations inside the
continental United States. DRMS International is responsible for daily
DRMS activities located outside the continental United States. DRMS
International has field offices in Belgium, Germany, Guam, Hawaii,
Italy, Japan, Korea, Portugal, Spain, Thailand, Turkey, the United Arab
Emirates, and the United Kingdom, and it supports the task force in the
Balkans.
During fiscal years 2002 and 2003, the military services, DLA supply
depots, and DOD agencies turned in[Footnote 18] excess commodities with
a reported acquisition value of approximately $31 billion and disposed
of excess property valued at $18.6 billion. This property included
everything from office equipment, medical supplies, and clothing to
scrap from naval ships, military equipment, and hazardous materials.
The condition of the property ranges from being well-used or damaged
property that has little value to new, unused items that sometimes are
still in the original manufacturer's packaging.
DRMS bills DOD units and other federal agencies for disposal services
based on turn-in volume. DRMS bills the military services and other DOD
agencies a prorated amount for disposal costs net of scrap and
liquidation sale proceeds. Table 1 shows DRMS's reported revenue for
excess property disposal services, including billings to the military
services.[Footnote 19]
Table 1: Defense Reutilization and Marketing Service Revenue:
Dollars in millions.
DOD unit billings for turn-in transactions;
Fiscal year 2002: $250.5;
Fiscal year 2003: $223.2;
Fiscal year 2004: $208.7.
DOD unit billings for hazardous waste disposal;
Fiscal year 2002: $54.7;
Fiscal year 2003: $56.1;
Fiscal year 2004: $54.0.
Billings for other fund activities;
Fiscal year 2002: $7.6;
Fiscal year 2003: $7.7;
Fiscal year 2004: $4.0.
Total DOD;
Fiscal year 2002: $312.8;
Fiscal year 2003: $287.0;
Fiscal year 2004: $266.7.
Other billings: Other federal agencies;
Fiscal year 2002: $0.7;
Fiscal year 2003: $0.7;
Fiscal year 2004: $0.7;
Other billings: Foreign military sales;
Fiscal year 2002: $3.0;
Fiscal year 2003: $3.0;
Fiscal year 2004: $3.0.
Total other;
Fiscal year 2002: $3.7;
Fiscal year 2003: $3.7;
Fiscal year 2004: $3.7.
Scrap and liquidation sales proceeds, net;
Fiscal year 2002: $39.7;
Fiscal year 2003: $51.7;
Fiscal year 2004: $38.1.
Total DRMS revenue;
Fiscal year 2002: $356.2;
Fiscal year 2003: $342.4;
Fiscal year 2004: $308.5.
Source: President's Fiscal Year 2005 Budget Submission.
[End of table]
Turn-ins of excess property are reported on DOD Form 1348, Disposal
Turn-in Document, using a hard copy form that accompanies physical turn-
ins of property at DRMOs or electronic reporting. In accordance with
DOD 4160.21-M, Materiel Disposition Manual, upon arrival at a DRMO,
excess items are to be inspected and the item descriptions, quantities,
condition codes, and demilitarization codes are to be verified. Based
on the item type and condition, a decision is made as to whether the
item should be made available for reutilization. For excess property in
new, usable, or repairable condition, redistribution from one DOD unit
to another allows the government to make full use of its resources,
avoids unnecessary procurement of property, and results in economy and
efficiency of operations. Transfers and donations of excess DOD
property to special programs, federal agencies, and states help to
conserve their budgetary resources. Unusable items are generally sold
as scrap.
Department policy in DOD 4160.21-M-1, Defense Demilitarization Manual,
calls for identifying and controlling items that have a significant
military or commercial technology application to prevent improper use
or release of these items outside of DOD. DOD's Demilitarization Manual
establishes specific codes that are designed to indicate whether DOD
property is available for reuse without restriction or whether specific
restrictions apply, such as removal of classified components,
destruction of sensitive military technology, or trade security
control. Any residual excess property that is not reused, transferred,
or donated may be sold as scrap or sent to a landfill or other
appropriate site for final disposal. Figure 2 illustrates the excess
property turn-in and disposal process.
Figure 2: DRMS Excess Property Disposal Process:
[See PDF for image]
[End of figure]
Excess DOD property is available for reutilization, transfer, and
donation during a 49-day screening period following turn-in to DRMS. It
may take up to a week to record excess property receipts into DRMO
inventory. Once excess property receipts are recorded, DOD units and
specially designated programs may screen for and select items for
reutilization. Special programs consist of entities that directly
support DOD's mission, customers that have statutory authorization to
receive excess DOD property, and customers that have been specially
designated by DOD to receive excess property items. Special programs
share screening priority with DOD, and DRMS accounts for special
program requisitions of DOD excess property as DOD reutilization. A
description of the special programs is included in appendix IV.
If excess property is still available after the DOD and special program
screening period (the end of the first 21 days), the property is made
available for transfer to other federal agencies through the GSA
Federal Disposal System (FEDS) Web site known as GSAXcess for a 21-day
period. Excess DOD property is available to DOD agencies during the GSA
federal agency screening phase. DOD entities and others can specify
their excess property needs on a "want list" and DAISY and GSA FEDS
will send notices when such property becomes available. Property that
is not reutilized by DOD or transferred to federal agencies after 42
days is considered surplus to the federal government and can be donated
to state and local governments and other qualified organizations, or if
not donated, it can be sold to the public after the 49-day screening
period has expired. Government Liquidation, LLC is the DRMS commercial
venture partner (contractor) for liquidation sales of excess property.
Excess property at DRMOs is transferred to a liquidation contract sales
site co-located with a DRMO. DLA supply depot excess property to be
sold to the public is sent to one of two national liquidation sales
locations. DLA supply depots located west of the Mississippi ship their
excess property to the Huntsville, Alabama, liquidation sales location,
and DLA supply depots located east of the Mississippi ship their excess
property to the Norfolk, Virginia, liquidation sales location.
Overseas, DRMOs sell excess property directly to the public.
Analysis of Reutilization Program Identifies Billions of Dollars in
Waste and Inefficiency:
Our analysis of $18.6 billion[Footnote 20] in fiscal year 2002 and 2003
excess commodity disposal activity identified $2.5 billion in excess
items that were reported to be in new, unused, and excellent condition
(A condition). Although federal regulations and DOD policy require
reutilization of excess property in good condition, to the extent
possible, our analysis showed that DOD units only reutilized $295
million (12 percent) of these items. The remaining $2.2 billion (88
percent) of the $2.5 billion in disposals of A-condition excess
commodities were not reutilized, but instead were transferred, donated,
sold, or destroyed. About $1.6 billion of the $2.2 billion was
transferred to other federal agencies and special programs, donated to
states, or sold to the public for pennies on the dollar. DRMS sent the
remaining $634 million to scrap and other contractors for disposal. We
also found that DOD purchased at least $400 million of identical items
during fiscal years 2002 and 2003, instead of reutilizing available
excess items in A condition. However, our analysis of transaction data
and our tests of controls for inventory accuracy indicate that the
magnitude of waste and inefficiency could be much greater due to
military units improperly downgrading condition codes of excess items
that are in new, unused, and excellent condition to unserviceable and
the failure to consistently record NSNs[Footnote 21] needed to identify
like items. To illustrate continuing reutilization program
inefficiencies and wasteful purchases, during fiscal year 2004 and the
first quarter of fiscal year 2005, we obtained several new and unused
excess DOD commodity items that were being purchased by DLA, were
currently in use by the military services, or both.
Excess Commodity Items Reported To Be in Unserviceable Condition
Accounted for Most of the Disposal Activity:
DRMS is responsible for disposing of unusable items, often referred to
as "junk," as well as facilitating the reutilization of usable items.
As shown in figure 3, our analysis of DRMS data showed that $15.6
billion of the $18.6 billion in fiscal year 2002 and 2003 excess DOD
commodity disposals consisted of items reported to be in unserviceable
condition, including items needing repair, items that were obsolete,
and items that were downgraded to scrap. The remaining $3 billion in
excess commodity disposals consisted of items reported to be in
serviceable condition, including $2.5 billion in excess commodities
reported to be in A condition (new, unused, and excellent condition).
Figure 3: Fiscal Year 2002 and 2003 Disposals of Excess DOD Commodities
in Serviceable and Unserviceable Condition:
[See PDF for image]
[End of figure]
Although DOD units reported that $15.6 billion (84 percent) of the
excess commodities disposed of during fiscal years 2002 and 2003 were
in unserviceable condition, DRMS data showed that DOD units had
reutilized over $1.4 billion of these items--an indication that the
items were, in fact, serviceable. Erroneous reporting of serviceable
excess items as unserviceable hinders efforts at effective
reutilization and can result in lower sales proceeds for items sold to
the public. Although we do not know the extent of this problem, as
discussed later, our statistical tests of DRMO inventory at five
locations identified significant errors related to excess items that
were coded as unserviceable when they were in fact in new, unused, and
excellent condition.
DRMS Gave Away, Destroyed, or Sold Excess Commodities Reported To Be in
New and Excellent Condition:
Our analysis of a reported $2.5 billion[Footnote 22] in fiscal years
2002 and 2003 disposal activity related to excess commodities reported
to be in A condition showed that DOD units reutilized only $295 million
of these items. As shown in figure 4, the remaining $2.2 billion (88
percent) were not reutilized, but instead were transferred to special
programs and other federal agencies, donated to states, sold to the
public, or destroyed through demilitarization and scrap contracts. As
noted previously, DOD policy calls for the reutilization of excess
property to the extent feasible and permits the disposal of unneeded
items.[Footnote 23] However, the disposal of $2.2 billion in excess
new, unused, and excellent condition items indicates that DOD bought
more items than it needed.
Figure 4: Waste and Inefficiency Related to $2.2 billion in Fiscal Year
2002 and 2003 Disposals of Excess DOD Commodities Reported To Be in
New, Unused, and Excellent Condition:
[See PDF for image]
[End of figure]
Transfers and Donations Outside of DOD:
As shown in table 2, during fiscal years 2002 and 2003, DOD transfers
of A-condition excess property valued at about $248 million benefited
international governments; state and local governments; other federal
agency programs; and specially designated programs such as DOD's
Humanitarian Assistance Program, foreign military assistance programs,
and law enforcement agencies.
Table 2: Reported Acquisition Value of DOD Excess Commodity Transfers
to Other Programs and Agencies during Fiscal Years 2002 and 2003:
Dollars in millions.
International:
U.S. Agency for International Development and sponsored foreign
assistance programs;
Acquisition value of excess DOD commodities provided to others: $5.
Department of State and sponsored foreign assistance programs;
Acquisition value of excess DOD commodities provided to others: $49.
DOD-sponsored Humanitarian Assistance Program;
Acquisition value of excess DOD commodities provided to others: $34.
Foreign military assistance programs;
Acquisition value of excess DOD commodities provided to others: $33.
Total, international;
Acquisition value of excess DOD commodities provided to others: $121.
State and local:
State offices;
Acquisition value of excess DOD commodities provided to others: $54.
Law enforcement agencies;
Acquisition value of excess DOD commodities provided to others: $24.
Total, state and local;
Acquisition value of excess DOD commodities provided to others: $78.
Total, federal;
Acquisition value of excess DOD commodities provided to others: $49.
Total;
Acquisition value of excess DOD commodities provided to others: $248.
Source: GAO analysis of DOD data.
[End of table]
Our overall analysis identified disposals of over 22 million new,
unused, and excellent condition excess commodity items that were
identical to items that DLA continued to purchase, stock, or both,
resulting in waste of DOD resources. We investigated the details of
more than a dozen of these disposal transactions. Table 3 highlights
three examples from our case studies that illustrate waste related to
excess commodities in new, unused, and excellent condition that were
transferred or donated outside DOD at the same time DLA purchased
identical items.
Table 3: Examples of New, Unused Commodity Items Transferred and Sold
Outside of DOD while Still Being Purchased during Fiscal Years 2002 and
2003:
Action: Turn-in unit;
Example #1 - Extreme cold weather boots: Army's 35th Supply and
Services Battalion in Sagami, Japan;
Example #2 - Medical instrument chests: U.S. Army Medical Material
Agency in Sagami, Japan;
Example #3 - Large tents: Army National Guard unit at Camp Beauregard,
Louisiana.
Action: Turn-in date;
Example #1 - Extreme cold weather boots: 4/23/03;
Example #2 - Medical instrument chests: 02/05/02;
Example #3 - Large tents: 2/06/02.
Action: Excess item;
Example #1 - Extreme cold weather boots: 172 pairs of new, unused
extreme cold weather boots valued at $23,220 ($135 per pair);
Example #2 - Medical instrument chests: 132 new, unused medical
instrument chests in original boxes valued at $67,647;
Example #3 - Large tents: 7 large excess tents (18 X 52 ft.) valued at
$15,963.
Action: Disposition of excess items;
Example #1 - Extreme cold weather boots: 7/30/03 - 172 pairs of boots
were sold to the Robinson Trading Company for $69 (about 40 cents per
pair);
Example #2 - Medical instrument chests: 02/08/02 - all 132 medical
chests were requisitioned by the Humanitarian Assistance Program;
Example #3 - Large tents: 2/14/02 - one tent transferred to Federal
Bureau of Prisons and used to cover recyclables.
2/20/2002 - 6 tents transferred to Maricopa Sheriff's Department,
Arizona, for use as field command posts.
Action: Subsequent purchase;
Example #1 - Extreme cold weather boots: From 5/15 through 7/30/03 - 8
military units purchased 214 pairs of identical boots from DLA. DLA
continued to purchase these boots;
Example #2 - Medical instrument chests: From 2/08 through 5/03/02 - 15
military units purchased 97 identical medical instrument chests from
DLA. DLA continued to purchase these items;
Example #3 - Large tents: From 2/15 through 5/18/02 - 4 military units
purchased 34 identical tents from DLA. DLA continued to purchase these
tents.
Action: Waste[A];
Example #1 - Extreme cold weather boots: Reutilization of 172 pairs of
boots would have saved military units $27,678;
Example #2 - Medical instrument chests: Reutilization of the 132
medical chests would have saved military units $88,415;
Example #3 - Large tents: Reutilization of the 7 tents would have saved
military units $18,613.
Source: GAO analysis.
[A] Waste includes surcharges, which are the additional amount added to
the price of an item to recover DLA's cost of purchasing and selling
supplies to DOD customers as well as the cost of accounting,
cataloging, storage, handling, and shipping. Surcharges are based on a
weighted average cost for warehousing and shipping supply items. The
average cost recovery rate for all items was 21.5 percent in fiscal
year 2002 and 20.7 percent in fiscal year 2003.
[End of table]
DRMS Destroyed Hundreds of Millions of Dollars of Excess Commodities in
New and Excellent Condition:
In addition to instances where DOD units failed to reutilize excess
commodities in A condition that were instead given away to other
entities, we identified instances where DRMS destroyed these items.
DRMS destroys or scraps items that are not reutilized or sold. As
illustrated in figure 4, during fiscal years 2002 and 2003, DRMS
destroyed, scrapped, or used hazardous materials contractors to dispose
of excess commodities valued at about $634 million--about 25 percent of
the $2.5 billion reported acquisition value for disposals of excess
commodities in new, unused, and excellent condition. The majority of
these items--items valued at $473 million--were military technology
items, such as circuit cards, power supplies, and aircraft parts, that
are required to be destroyed or demilitarized pursuant to national
security guidelines when they are no longer needed by DOD. Some of the
destroyed items had remained in supply inventory for many years and had
become obsolete. However, we found several instances where items that
were destroyed were still being purchased, used, or both by military
units. The following examples illustrate the types of A-condition
excess items that were destroyed.
Destruction of excess items that required demilitarization. Examples of
excess A-condition items that were destroyed pursuant to
demilitarization requirements included:
* 2,390 aircraft parts valued at $9,119,876, such as rotary wing
blades, rotary rudders, windshield panels, fuel tanks, and pilot
protection armor;
* 34,070 circuit cards valued at $73,666,720, including 88 circuit
cards related to one NSN valued at $265,565;
* 1,604 radio sets valued at $10,247,110;
* 477 power supply units valued at $3,385,580; and:
* 3 plasma display units valued at $263,151.
Our case study investigations showed instances where power supplies and
circuit cards that were still being purchased by DLA, stocked and
issued to military units, or both were sent to a DRMO rather than being
returned to supply inventory. For example, we found that the Army's
Tank-Automotive and Armament Command turned in 14 excess circuit card
assemblies valued at $7,806 on May 29, 2003, because the Army had
directed the retirement of its AH-1 Cobra and UH-1 Huey helicopters.
However, the Navy and some foreign countries have continued to use
these helicopters. The circuit cards are used in the M136 Helmet Sight,
a heads-up display, on the Cobra Helicopter. The heads-up display
permits a pilot to aim the helicopter's rockets and the fixed forward
firing gun. The circuit cards were advertised for reutilization to DOD
and foreign military sales customers. Because they were not selected
for reutilization within the 49-day screening period, they were sent to
a demilitarization contractor on June 8, 2004, for destruction by
thermal reduction.
Destruction of excess A-condition commodity items as scrap. DRMS also
scrapped excess A-condition commodities valued at about $144 million
during fiscal years 2002 and 2003 that did not require
demilitarization. Normally, these items are transferred, donated, or
sold if they are not selected for reutilization within DOD. However,
items that are not selected for reutilization or transferred, donated,
or sold are scrapped. For example, DRMS scrapped excess new and unused
items, such as the following:
* 340 computers with a reported acquisition value of $2,929,539,
* 2,440 bunk beds valued at $341,600,
* 29 simulators valued at $1,995,500,
* 567 power supplies valued at $1,683,211, and:
* 29 teleprinters valued at $901,099.
Public Sales of New and Unused Excess DOD Commodity Items:
As noted in figure 4, 53 percent, or $1.3 billion of the total $2.5
billion in fiscal year 2002 and 2003 A-condition excess commodity turn-
ins, was sold to the public. Although liquidation sales of excess
commodities are an appropriate method of disposal when items cannot be
reutilized, liquidation sales of items that are in new, unused, and
excellent condition that could have been reutilized represent
significant waste and inefficiency. Our case study investigations of
fiscal year 2002 and 2003 disposals of excess A-condition commodities
found that DRMS sold numerous excess items at the same time DLA
purchased identical items. Our analysis showed that DRMS received a
total of about $48 million in fiscal year 2002 and 2003 liquidation
sales revenue for property valued at $1.3 billion--an average of about
4 cents on the dollar. Liquidation contractor officials told us that
about 80 percent of their revenue relates to the sale of items in good
condition.
Unnecessary Commodity Purchases:
Our analysis of fiscal year 2002 and 2003 DLA commodity purchases and
DRMS excess property inventory data identified numerous instances in
which the military services ordered and purchased items from DLA at the
same time identical items--items with the same NSN--that were reported
to be in new, unused, and excellent condition were available for
reutilization. We found that DOD purchased at least $400 million of
identical items during fiscal years 2002 and 2003 instead of using
available excess A-condition items. The magnitude of unnecessary
purchases could be much greater because NSNs needed to identify
identical items were not recorded for all purchase and turn-in
transactions. For example, we determined that DLA buyers and item
managers did not record NSNs for 87 percent (about $4.9 billion) of the
nearly $5.7 billion in medical commodity purchases by military units
during fiscal years 2002 and 2003. Further, as discussed later in this
report, improper downgrading of condition codes to unserviceable could
also result in an understatement of the magnitude of unnecessary
purchases. While our statistical tests found a few instances of
inaccurate serviceable condition codes, most condition code errors
related to the improper downgrading of condition to unserviceable.
Figure 5 shows examples from our analysis of A-condition excess items
that were available for reutilization at the time DLA purchased
identical items.
Figure 5: Examples of Fiscal Year 2002 and 2003 DLA Purchases When
Identical New, Unused Items Were Available for Reutilization:
[See PDF for image]
[A] Although DLA continues to use the term "construction," this
commodity group consists primarily of land and maritime weapons system
components. According to a DLA official, the category label will be
updated when data are eventually migrated to the new Business Systems
Modernization.
[End of figure]
Fiscal Year 2004 and 2005 Requisitions and Purchases Demonstrate
Continuing Waste and Inefficiency:
To determine whether the problems identified in our analysis of fiscal
year 2002 and 2003 data were a continuing problem, we monitored DRMS
commodity disposal activity in fiscal year 2004 and the first quarter
of fiscal year 2005. We found that DOD continued to transfer, donate,
and sell excess A-condition items instead of reutilizing them. To
illustrate these problems we requisitioned several excess new and
unused items at no cost and purchased other new and unused commodities
at minimal cost. We based our case study selections on new, unused
items that DOD continued to purchase. We inspected excess items or
called warehouse personnel to confirm they were new and unused. We used
FEDLOG[Footnote 24] data and interviewed supply inventory item managers
to confirm that the items were still being purchased, used, or both by
the military services.
Case Study Requisitions of New and Unused DOD Commodities:
To illustrate waste and inefficiency associated with transfers and
donations of excess A-condition commodities to entities outside of DOD,
we used the GSA Federal Disposal System, available to all federal
agencies, to requisition several new and unused excess DOD commodity
items, including a medical instrument chest, two power supply units,
and two circuit cards, at no charge. These items had an original DOD
acquisition cost of $55,817, and we paid only $5 shipping cost to
obtain all of them. We obtained these items from two DRMOs and a DLA
supply depot. The following discussion presents the details of our case
study requisitions.
Medical instrument chest. We requisitioned at no cost a new, unused
medical instrument chest with a reported acquisition cost of $784 from
the Lewis DRMO in Fort Lewis, Washington. When we visited the Lewis
DRMO to screen for and tag new, unused items, a DRMO official told us
that about 20 percent of the Lewis DRMO receipts are new, unused items.
The medical instrument chest that we obtained was one of 16 excess
medical chests turned in by the Fort Lewis Army Medical Hospital on May
6, 2004. At the time of our requisition on June 2, 2004, the Army,
Navy, and Air Force medical logistics commands were continuing to
purchase these medical chests from DLA.
The excess DOD medical instrument chest that we requisitioned is
designed for maximum support of deployed medical personnel. For
example, the chest is designed to store medical instruments and protect
them during shipment as well as to provide shelves and tables for use
during surgery and other medical procedures in the battlefield. Figure
6 is a photograph of the excess DOD medical instrument chest assembled
for maximum use.
Figure 6: Medical Instrument Chest Assembled for Maximum Utilization:
[See PDF for image]
[End of figure]
Circuit cards. On September 7, 2004, we requisitioned two circuit cards
with a total original acquisition cost of $8,684, from the Hill DRMO.
We paid $5 shipping cost and received the circuit cards on September
27, 2004. Circuit cards are circuit boards consisting of a series of
flat plastic or fiberglass layers (usually 2 to 10) that are glued
together after a circuit has been etched in them. In a computer, a
circuit card holds the integrated circuits and other electronic
components that provide power to perform certain designated functions,
such as computerized program functions or electronic communications
functions. According to the Navy inventory item manager and the
National Security Agency technical support team leader, the circuit
cards that we obtained are used in secure satellite communications
gear.
The circuit cards that we obtained were turned in by the DLA supply
depot in Ogden, Utah, as excess to Air Force needs in February 2004.
The Navy item manager told us that although the circuit cards were no
longer being purchased, they were still in active inventory and were
still being used by some Navy units and foreign military sales
customers at the time we obtained them. Our Chief Technologist
inspected the circuit cards and confirmed that they included
communications circuitry and were in new, unused condition. Figure 7 is
a photograph of one of the circuit cards we requisitioned.
Figure 7: One of the New, Unused Excess DOD Circuit Cards Transferred
to GAO in September 2004:
[See PDF for image]
[End of figure]
Power supply units. We requisitioned, at no cost, two high-cost power
supply units from the DLA supply depot in Norfolk, Virginia--one with a
reported acquisition cost of $24,797 and another with a reported
acquisition cost of $21,552--a total of $46,349. We received one power
supply unit on September 30, 2004, and the other power supply unit on
October 6, 2004. According to the manufacturer, these power supply
units are part of a super-high-frequency electronics surveillance
system, which is designed to listen and identify radio frequencies. The
power supply units convert AC power to DC voltage to provide power to
the assemblies inside the surveillance system.
We contacted the Navy inventory control point program manager to
inquire about the use of the power supply units that we had identified.
The program manager explained that both of the power supply units are
currently used in the electronic warfare system of the Seawolf fast
attack nuclear submarine.[Footnote 25] The Navy official stated that
although DLA is not currently purchasing these items due to a planned
upgrade in technology, the Navy has a very small number of these power
supply units in inventory and the items remaining at the DLA supply
depot should not have been excessed because they may be needed before
the technology upgrade is completed. Our Chief Technologist inspected
the excess DOD power supply units we obtained and confirmed that they
had never been used. Figure 8 is a photograph of one of the power
supply units that we obtained.
Figure 8: New, Unused DOD Power Supply Unit Requisitioned by GAO in
September 2004 from the DLA Depot in Norfolk, Virginia:
[See PDF for image]
[End of figure]
Case Study Purchases of New, Unused DOD Commodities:
In addition to using the GSA process available to federal agencies to
obtain excess DOD property at no cost, we also purchased, at minimal
cost, several excess DOD commodity items in new and unused condition
over the Internet at govliquidation.com--the DRMS liquidation
contractor's Web site.[Footnote 26] The items we purchased included
tents, boots, three gasoline burners (stove/heating unit), a medical
suction apparatus, and bandages and other medical supply items with a
total reported acquisition cost of $12,310. We paid a total of $1,466
for these items, about 12 cents on the dollar, including buyer's
premium, tax, and shipping cost. The following examples illustrate the
results of our case study investigations and purchases.
New, unused extreme cold weather boots. On September 30, 2004, we
purchased several pairs of excess new, unused extreme cold weather
boots over the Internet at govliquidation.com. The sales advertisement
listed an acquisition cost of $3,900 for approximately 30 pairs of the
boots. We paid a total of $483, including buyer's premium, tax, and
transportation cost, to acquire the extreme cold weather boots.
According to a Stockton DRMO official, the boots were found at the DRMO
without identifying paperwork, and DRMO personnel entered them in
excess property inventory in April 2004. The boots were advertised as
being in H condition (unserviceable, condemned condition). However, the
photograph on the govliquidation.com Web page showed that the
manufacturer's product label was still tied to the laces of the boots
and that the soles of the boots had no wear, indicating that they had
not been worn. When we received the boots on October 12, 2004, we
determined that we had, in fact, purchased a total of 42 pairs of cold
weather boots of which 37 pairs were in new, unused condition. We paid
about $12 per pair for the 42 pairs of boots, which have a listed
acquisition cost of $135 per pair.
Shortly after we purchased the excess cold weather boots, the DLA item
manager told us that she recently placed an order with the vendor to
purchase 31,420 pairs of these same boots, including 1,360 of the sizes
of boots that we purchased. Further, the DLA technician responsible for
these boots told us that the boots have a shelf life of up to 15 years.
According to the DLA technician, the boots should be inspected after
the first 5 years and then inspected every 2 years after that for a
total of six inspections in 15 years. After 15 years from date of
manufacture these boots would have surpassed their useful life. All of
the boots we purchased were less than 5 years old. The DLA technician
told us that none of these boots have been recalled, and they are
considered excellent boots that are rated to 60 degrees below zero.
Figure 9 is a photograph of the new, unused excess DOD boots that we
purchased.
Figure 9: New, Unused Excess Cold Weather Boots Purchased in September
2004:
[See PDF for image]
[End of figure]
Shelter Half-tents. We purchased several new, unused shelter half-tents
over the Internet from govliquidation.com on August 26, 2004. We paid
$548, including buyer's premium, tax, and shipping cost, to acquire the
excess DOD shelter half-tents, which had a listed acquisition value of
$2,122. Shelter half-tents can be carried by individual soldiers and
must be joined together to form a tent that will house two soldiers.
The tents were listed in H condition (unserviceable, condemned
condition). However, the advertisement on the liquidation contractor's
Web page stated that some of the tents were new and in original boxes,
and the photograph on the sales Web page showed that most of the tents
were in the original manufacturer's packages. Upon receipt of the
tents, we determined that we had, in fact, purchased 21 new, unused
tents and 6 additional tents that were used, but appeared to be in good
condition. At the time we purchased the shelter half-tents, the DLA
item manager told us that none remained in stock. DLA data showed that
the Defense Supply Center, Philadelphia, placed an order for 35,000 of
these tents at a cost of about $2.5 million. Figure 10 is a photograph
of one of the new, unused excess DOD shelter half-tents that we
purchased over the Internet at govliquidation.com.
Figure 10: New, Unused Excess Shelter Half-Tent Purchased in August
2004:
[See PDF for image]
[End of figure]
Gasoline burner units. On September 30, 2004, we purchased three new,
unused excess DOD gasoline burner units over the Internet from
govliquidation.com. We paid $164, including buyer's premium, tax, and
shipping cost, to acquire the gasoline burners, which had a listed
acquisition value of $1,857. The gasoline burners, which were turned in
as excess by the California Army National Guard in San Luis Obispo,
California, were advertised as "still in box, have never been used."
According to the DLA item manager, a gasoline burner unit can be used
on the battlefield as either a heat source or as a stove for cooking.
The item manager told us that the units also could be used as stand-
alone field/camping stoves, but would need a grate, or cooking surface
over the burner. The item manager explained that DLA purchased
thousands of these units several years ago, and they are continuing to
be issued from supply inventory and used by deployed troops. According
to item manager data, DOD units purchased 471 of these same gasoline
burner units from DLA in fiscal year 2004. The item manager told us
that there are currently 9,500 of these units in inventory and provided
data that showed DLA has continued to issue gasoline burners to
military units. Figure 11 is a photograph of one of the new, unused
excess DOD gasoline burner units that we purchased over the Internet
from govliquidation.com in September 2004. At the end of our audit in
February 2005, we noted continuing liquidation sales of excess DOD
gasoline burner units.
Figure 11: One of the New, Unused Excess DOD Gasoline Burner Units
Purchased in September 2004:
[See PDF for image]
[End of figure]
Portable oropharyngeal suction apparatus. On October 7, 2004, we
purchased a new, unused portable suction apparatus for the minimum bid
of $35. We paid a total of $105 for the suction apparatus, including
buyer's premium, tax, and shipping, compared to the acquisition cost of
$1,141. The suction apparatus runs on electrical or battery power and
is designed for use in aspirating blood and other fluids in emergency
treatment of unconscious or injured personnel in desert, tropic, or
artic environments. The suction apparatus, which was turned in as
excess by a U.S. Air Force Reserve unit at the March Air Reserve Base
in Riverside, California, was coded as being in F condition
(unserviceable, repairable condition). However, the photograph of the
suction apparatus showed the tubing to be sealed in the original
package--indicating that the suction apparatus had not been used.
Documentation we obtained from the DLA item manager showed that during
fiscal year 2004, DLA purchased 627 of these same suction apparatuses,
with a total acquisition cost of $490,439, for issue to military units.
Our in-house medical expert inspected the suction apparatus and
confirmed that it had not been used. He said that the design has not
changed for many years, and the only issue with regard to
serviceability would be whether the battery needed to be replaced. We
determined that the batteries in the unit that we purchased still had a
charge, and the unit was operational. Figure 12 is a photograph of the
new, unused excess DOD portable suction apparatus that we purchased.
Figure 12: Photograph of the New, Unused Portable Suction Apparatus
Purchased in October 2004:
[See PDF for image]
[End of figure]
Management Control Breakdowns Resulted in Reutilization Program Waste
and Inefficiency:
The $2.2 billion in DOD waste and inefficiency that we identified
stemmed from management control breakdowns across DOD. We found key
factors in the overall DRMS management control environment that
contributed to waste and inefficiency in the reutilization program,
including (1) unreliable excess property inventory data; (2) inadequate
DRMS oversight, accountability, physical control, and safeguarding of
property; and (3) outdated, nonintegrated excess inventory and supply
systems. In addition, for many years, our audits of DOD inventory
management[Footnote 27] have reported that continuing unresolved
logistics management weaknesses have resulted in DOD purchasing more
inventory than it needed. Our analysis of fiscal year 2002 and 2003
excess commodity turn-ins showed that $1.4 billion (40 percent) of the
$3.5 billion of A-condition excess items consisted of new, unused DLA
supply depot inventory.
Unreliable Data Impair the Economy and Efficiency of the Reutilization
Program:
Our statistical tests of excess commodity inventory and our case
studies, screening visits, and interviews lead us to conclude that
unreliable data are a key cause of the ineffective excess property
reutilization program. GAO's internal control standards[Footnote 28]
require assets to be periodically verified to control records. In
addition, DRMS policy[Footnote 29] requires DRMO personnel to verify
turn-in information, including item description, quantity, condition
code, and demilitarization code, at the time excess property is
received and entered into DRMO inventory. However, we found that DRMS
management has not enforced this requirement. Further, Army, Navy, and
Air Force officials told us that unreliable data are a disincentive to
reutilization because of the negative impact on their operations. DLA
item managers told us that because military units have lost confidence
in the reliability of data on excess property reported by DRMS, for the
most part, they have requested purchases of new items instead of
reutilizing excess items. Military users also cited examples of damage
to excess items during shipment that rendered the items unusable. In
addition, other reutilization users advised us of problems related to
differences in quantities and the types of items ordered and received
that could have a negative impact on their operations.
Types of Inventory Errors:
Our statistical tests found significant problems with controls for
assuring the accuracy of excess property inventory. Overall error rates
for the five DRMOs we tested ranged from 8 percent at one DRMO to 47
percent at another, and error rates for the five DLA supply depots we
tested ranged from 6 percent to 16 percent, including errors related to
physical existence of turn-ins and condition code. Our physical
existence tests included whether a turn-in recorded in inventory could
be physically located, timely recording of transactions, and
verification of item description and quantity. Table 4 shows the
overall results of our statistical sampling tests at five DRMOs and
five DLA supply depots. The specific criteria we used to conclude on
the effectiveness of DRMO and DLA depot inventory controls at the
tested locations are included in appendix V.
Table 4: Turn-in Transactions with One or More Control Test Failures at
Five DRMOs and Five DLA Supply Depots:
DRMO tested: Richmond;
Estimated errors: (percent): 25%;
DLA supply depot tested: Richmond;
Estimated errors: (percent): 8%.
DRMO tested: Stockton;
Estimated errors: (percent): 12%;
DLA supply depot tested: San Joaquin;
Estimated errors: (percent): 16%.
DRMO tested: Hill;
Estimated errors: (percent): 8%;
DLA supply depot tested: Hill;
Estimated errors: (percent): 6%.
DRMO tested: Norfolk;
Estimated errors: (percent): 18%;
DLA supply depot tested: Norfolk;
Estimated errors: (percent): 14%.
DRMO tested: Columbus;
Estimated errors: (percent): 47%;
DLA supply depot tested: Columbus;
Estimated errors: (percent): 12%.
Source: GAO.
Note: Although some transactions included more than one type of error,
we only counted one failure for a transaction.
[End of table]
Key types of data reliability errors that we found include the
following.
* Existence errors. Missing turn-ins[Footnote 30] in our statistical
sample included entire turn-ins of excess commodity items, such as
sleeping bags, cold weather clothing, wet weather parkas, chemical and
biological protective suits, a computer, and monitors. DRMO officials
could not locate documentation to show whether the missing turn-ins had
been reutilized, transferred, sold, or destroyed. Because many items
from our statistical sample could not be found, the issue of lost,
missing, and stolen property is significant, as discussed later.
* Quantity errors. Separate from missing turn-ins, quantity errors
involved items that exceeded or fell short of quantities recorded on a
turn-in transaction. Shortages represent items that appeared to be
available but were missing. Because DRMO personnel do not always verify
quantities at the time excess items are received and recorded into
excess inventory, they cannot determine whether missing quantities are
errors or if they represent items that are lost, missing, or stolen.
Quantity shortages included cold weather, wet weather, and camouflage
clothing; field packs; chemical and biological protective suits and
gloves; and computer keyboards.
* Lack of timely transaction recording. DRMO personnel did not always
record transactions to reflect events, such as changes in warehouse
location and shipments to customers or disposal contractors within 7
days. Based on our screening and inventory testing experience, when
time is wasted looking for such items, customers can become frustrated,
leading to possible loss of future orders. Excess property users told
us that they spend a lot of time visiting DRMO warehouses to locate and
inspect excess items before they submit requisitions for them.
* Inaccurate item descriptions. Our statistical sample identified
several turn-in transactions involving items that were different from
the types of items recorded in the inventory records. Item description
errors included erroneous item names and stock numbers. For example, we
found three instances at one DRMO where turn-ins of computer keyboards
were listed in excess inventory records as speakers and one instance at
another DRMO where speakers were recorded as keyboards. Our sample also
identified one women's coat and one men's coat that were recorded in
excess inventory as two women's coats and items that were recorded as
wet weather trousers and camouflage trousers when the turn-in boxes
contained multiple items, including wet weather trousers and parkas,
camouflage pants, shirts, and coats, and flyer's coveralls. When
batched items are recorded as one type of item, only the NSN for those
items is listed in inventory. As a result, a customer could order what
he or she believed to be the listed quantity of the named item but
instead receive various quantities of multiple types of items.
* Inaccurate condition coding. Our statistical sample found condition
code error rates that ranged from 5 percent at one DRMO to 22 percent
at two other DRMOs that we tested. We based our determinations of
condition coding accuracy on physical observation of condition with
regard to the broad categories of serviceable and unserviceable rather
than testing specific coding within these categories, which could have
resulted in an even higher error rate. Our sample identified numerous
examples of new, unused excess inventory items that were incorrectly
coded as being in unserviceable condition, including cold weather
boots, cold weather undershirts, military trousers, women's blue dress
uniforms, compressor parts kits, wet weather parkas, and fragment body
armor. In addition to items in our statistical sample, we observed
numerous other new, unused items in DRMO warehouses and at liquidation
sales locations that were coded as unserviceable, including desert
combat boots, camouflage clothing, computer equipment, and aircraft
parts. Accurate condition codes are key to an effective excess property
reutilization program because DOD units generally look for new, unused
excess items for reutilization.
Causes of Inventory Errors:
We found that unreliable excess property inventory data are the result
of breakdowns in controls for proper recording and verification of
inventory transaction data. The control breakdowns we identified
related to four major areas: (1) the failure of DRMO personnel to
verify excess property turn-ins at the time they are received and
entered into excess inventory records; (2) improper downgrading of
condition codes by DOD units; (3) the inconsistent use of NSNs; and (4)
human capital issues related to DRMO staffing and workload and military
service procedures, training, and oversight of excess property
reporting.
Failure to verify turn-ins and correct errors. The errors in excess
inventory identified in our statistical samples, screening
observations, and case studies were caused by inaccurate turn-in
documentation submitted by military unit turn-in generators and the
failure of DRMO personnel to inspect excess items, verify turn-in
documents, and correct identified errors. DRMS policy[Footnote 31]
requires DRMO personnel to inspect excess items upon receipt and
challenge or change incorrect data. However, DRMO personnel told us
that they were not able to verify excess property receipts when faced
with large turn-in volumes and processing backlogs. Further, a
provision in this same policy[Footnote 32] allows DRMO managers who are
faced with heavy turn-in volume to waive the requirement to verify
quantity counts, if the time required to count the property is not
justified, and instead use turn-in generator counts. The policy limits
exceptions to (1) batched turn-ins of multiple types of items, (2)
large quantities of small items in other than the original package, and
(3) large quantities of items in the original package where box counts
can be used. However, officials at two of the five DRMOs we tested--the
DRMOs with the highest data reliability error rates--cited this policy
and told us that they accept turn-in generator information and do not
verify excess property turn-in data.
In addition, our statistical sample identified one instance where DRMS
headquarters officials did not provide guidance on how to correct
erroneous turn-in documentation related to a June 30, 2004, Navy turn-
in of six new, unused Level III biological safety cabinets[Footnote 33]
with a total acquisition cost of $120,000.[Footnote 34] The Navy unit
improperly used a local stock number (LSN) to describe the safety
cabinets on the turn-in document and a demilitarization code that
indicated there were no restrictions on the disposal of these items.
However, Level III safety cabinets are subject to trade security
controls,[Footnote 35] and therefore, they are required to be
identified by an NSN or other information which accurately describes
the item, the end item application, and the applicable demilitarization
code.[Footnote 36] Although Norfolk DRMO personnel advised DRMS
officials of the need to correct the turn-in document errors in July
2004, at the time we finalized our draft report in early February 2005,
DRMS had not taken action to authorize the DRMO to correct these errors
so that the safety cabinets could be identified for reutilization
within DOD. Further, we found that as of the end of our audit in
February 2005, the safety cabinets had not been posted to the DRMS
reutilization Web page as excess property available for reutilization.
Figure 13 shows a photograph of one of the Level III cabinets.
Figure 13: New, Unused Excess Level III Biological Safety Cabinet at
the Norfolk DRMO:
[See PDF for image]
[End of figure]
Improper downgrading of condition codes. The incorrect recording of
unserviceable condition codes for items that are in serviceable
condition, particularly items in new, unused condition, makes it
unlikely that they will be selected for reutilization. For example, all
of the new, unused excess DOD commodity items that we purchased over
the Internet were incorrectly coded as unserviceable. As noted
previously in our case study discussions, all of the items that we
purchased were items that military units continued to purchase, use, or
both. As shown in table 5, our DRMO tests found that most errors
related to items that were incorrectly reported to be in unserviceable
condition.
Table 5: Estimated Turn-in Transaction Control Test Failures for Items
Classified as Serviceable:
DRMO tested: Richmond;
Percentage of turn-ins: Improperly coded in serviceable condition: 0%;
Percentage of turn-ins: Improperly coded in unserviceable condition:
26%.
DRMO tested: Stockton;
Percentage of turn-ins: Improperly coded in serviceable condition: 1%;
Percentage of turn-ins: Improperly coded in unserviceable condition:
10%.
DRMO tested: Hill;
Percentage of turn-ins: Improperly coded in serviceable condition: 2%;
Percentage of turn-ins: Improperly coded in unserviceable condition:
6%.
DRMO tested: Norfolk;
Percentage of turn-ins: Improperly coded in serviceable condition: 5%;
Percentage of turn-ins: Improperly coded in unserviceable condition:
17%.
DRMO tested: Columbus;
Percentage of turn-ins: Improperly coded in serviceable condition: 1%;
Percentage of turn-ins: Improperly coded in unserviceable condition:
23.
Source: GAO.
[End of table]
As shown in table 5, we found numerous instances where DOD units
improperly downgraded the condition codes of items that were no longer
serviceable to them, either because they did not want these items or
because the items were being replaced by new technology, even though in
many cases these items were new and unused. Our statistical tests and
our case studies showed that many times the items that military units
coded as unserviceable were serviceable and very adequate for use by
others.
Inconsistent recording of NSNs. The failure to consistently record NSNs
to commodity purchase and excess inventory records prevents the
identification of like items for reutilization and, therefore, may
result in unnecessary purchases. Although DLA records NSNs for most
purchases that are stored in DLA supply depot inventory,[Footnote 37]
it does not record NSNs for items purchased from prime vendors[Footnote
38] for direct delivery to DOD customers. For example, as noted
previously, we determined that DLA buyers and item managers did not
record NSNs for 87 percent of the nearly $5.7 billion in medical
commodity purchases by military units during fiscal years 2002 and
2003. According to DLA officials, prime vendor catalogs identify
products by part number or model number rather than NSN. This issue
will become more significant as DLA expands its use of prime vendors to
other commodity groups.
The failure to record NSNs to turn-in transactions prevents item
managers from identifying these items for reutilization at the time
purchase decisions are made. For example, our in-house scientists who
often meet with DOD scientists at the U.S. Army Biological Warfare
Research Center at the Dugway Proving Ground learned that the DOD
scientists were planning to purchase a Level III safety cabinet and
informed them of the availability of the six Level III safety cabinets
at the Norfolk DRMO. The DOD scientists told us that they were unaware
the Navy had excessed the safety cabinets and said that they could use
all six of them. We subsequently confirmed that the DOD scientists at
Dugway had requisitioned the six Level III safety cabinets for
reutilization.
Our analysis showed that LSNs were recorded for about 41 percent of
fiscal year 2002 and 2003 excess property turn-ins. LSNs are
appropriate identifiers for local purchases and one-of-a kind items.
However, our statistical samples and case studies showed that military
unit turn-in generators had recorded LSNs to items that should have
been identified with NSNs to avoid the time and effort necessary to
identify and record NSNs. For example, LSNs were recorded for excess
military clothing in our Columbus DRMO sample and the cold weather
boots that we purchased over the Internet even though these items have
labels that showed the assigned NSNs.
DOD has efforts under way to promote the use of unique product
identifiers other than NSNs by commercial vendors and small business
firms. Regardless of the mechanism used to identify standard items, to
assure an effective excess property reutilization program, DOD will
need to consistently record NSNs, product numbers, or other unique item
identification in its purchase, supply, and excess inventory records.
Human capital weaknesses. We found that human capital issues related to
imbalances between staffing and workload at DRMOs[Footnote 39] and
inadequate training of military turn-in generators[Footnote 40]
contributed to unreliable data and associated waste and inefficiency.
Based on our interviews of DRMO officials, our statistical tests of
DRMO inventory, and our review of available DRMS workload data for the
five DRMOs we tested, we concluded that data reliability was directly
affected by the availability of DRMO staff qualified to process excess
property receipts.[Footnote 41] For example, DRMS data for the last 8
months of fiscal year 2004 showed the three DRMOs we visited that
attempted to verify turn-in documentation--Norfolk, Hill, and Stockton-
-experienced backlogs in receipt processing and significant use of
overtime hours. In contrast, we found that the two DRMOs that did not
verify receipts worked few, if any, overtime hours and had
significantly fewer backlogs than the other three DRMOs. As noted
previously, these two DRMOs also had high excess property inventory
error rates.
We also found a lack of detailed guidance on the proper assignment of
condition codes. DRMS condition code guidance consists of a list of
supply and disposal condition codes and brief definitions of each
condition code. DRMS has not developed detailed narrative guidance with
explanations and examples of how to apply these codes. However, we also
found that the military services are not correctly using the listed
supply and disposal condition codes on their excess property turn-in
documents. For example, when military units assigned supply condition
codes indicating that new, unused items were unserviceable or
condemned, they also used the disposal condition code for repairable,
rather than the code for new, unused. Military units had differing
views about whether unserviceable condition meant that items were
unserviceable for their purposes or unserviceable to anyone. As a
result, we found that items in the same condition would be coded
serviceable by one military unit and unserviceable by another. In
addition, our analysis of turn-ins of unserviceable items found a lack
of training, guidance, and supervision at one Navy unit. For example,
Navy officials at the North Island Naval Aviation Depot told us that
the employee responsible for sending their excess property to the DRMO
had never received formal training on disposal policies and procedures.
Further, the officials told us that they did not have any manuals or
written procedures that explained excess property turn-in procedures.
As a result, the employee assigned condition codes H (unserviceable,
condemned) or S (scrap) to all excess property turn-ins.
We contacted GSA's Director of Personal Property Management Policy to
discuss the proper assignment of federal agency condition codes. The
GSA Policy Director explained that DOD uses unique supply condition
codes that are a combination of federal agency codes established by GSA
and its own codes for identifying serviceable and unserviceable
property. (App. III lists and defines the GSA and DOD condition codes.)
The GSA Director told us that unreliable federal agency condition
codes, including DOD condition codes, have presented a problem in GSA's
program for utilization of excess federal agency property within the
federal government. For example, he noted that federal agency officials
have told GSA that they cannot rely on condition codes assigned to
excess property, and this had an impact on the effectiveness of GSA's
efforts to promote the use of excess DOD property within the federal
government.
We also found that the condition codes established by GSA do not
provide for the identification of items that are nearly new, with
little or no evidence of use. Because such items are not new and
unused, they would be coded the same as items that may be well used and
need minor repair. Further, the GSA codes do not provide for
identification of items that are new and unused but technically
obsolete to the current owner. The GSA Policy Director noted that
because of the federal government's increased reliance on technology,
the need to identify obsolete items is becoming a governmentwide excess
property disposal issue. He said that GSA would be willing to work with
DOD and other federal agencies to develop a solution to these problems.
Weaknesses in Reutilization Program Oversight and Physical Inventory
Control:
We found hundreds of millions of dollars in potential waste and
inefficiency associated with the failure to safeguard excess property
inventory from loss, theft, and damage. As previously discussed, our
statistical tests of excess commodity inventory at five DRMOs and five
DLA supply depots identified significant numbers of missing items.
Because the DRMOs and DLA supply depots had no documentation to show
that these items had been requisitioned or sent to disposal
contractors, they cannot assure that these items have not been stolen.
According to DRMS data, DRMOs and DLA supply depots reported a total of
$466 million in excess property losses related to damage, missing
items, theft, and unverified adjustments over a period of 3 years.
However, as discussed below, we have indications that this number is
not complete. Also, because nearly half of the missing items reported
involved military and commercial technology that required control to
prevent release to unauthorized parties, the types of missing items
were often more significant than the number of missing items.
Excess Property Losses:
Weaknesses in accountability that resulted in lost and stolen property
contributed to waste and inefficiency in the excess property
reutilization program. As shown in table 6, our analysis of reported
information on excess property losses at DRMOs and DLA supply depots
found that reported losses for fiscal years 2002 through 2004 totaled
$466 million. Because 43 percent of the reported losses related to
military technology items that required demilitarization
controls,[Footnote 42] these weaknesses also reflect security risks.
GAO Standards for Internal Control in the Federal Government [Footnote
43] requires agencies to establish physical control to secure and
safeguard assets, including inventories and equipment, which might be
vulnerable to risk of loss or unauthorized use. However, our
statistical tests of excess commodity inventory at five DRMOs and five
DLA supply depots during fiscal year 2004 identified missing items
involving entire turn-ins of some excess items as well as fewer items
than reported in inventory (missing quantities) for other turn-ins. We
referred locations with high occurrences of reported losses to our
Office of Special Investigations for further investigation. Table 6
shows reported losses for fiscal years 2002 through 2004.
Table 6: Reported DRMS Excess Property Losses and Adjustments:
Dollars in millions.
DRMOs;
Fiscal year 2002: $81;
Fiscal year 2003: $47;
Fiscal year 2004: $62;
Total: $190.
DLA supply depots;
Fiscal year 2002: $67;
Fiscal year 2003: $95;
Fiscal year 2004: $114;
Total: $276.
Total;
Fiscal year 2002: $148;
Fiscal year 2003: $142;
Fiscal year 2004: $176;
Total: $466.
Source: Unaudited DRMS data.
[End of table]
DRMO losses. Our statistical samples identified missing turn-ins at two
of the five DRMOs we tested and missing quantities at all five DRMOs
tested, including many items that were in new, unused, and excellent
condition. Because DRMO officials did not have documentation to show
whether these items had been reutilized, transferred, sold, or
destroyed, there is no assurance of whether the missing items reflected
bookkeeping errors or if they related to theft. Missing items in our
Columbus DRMO sample included turn-ins of 72 chemical and biological
protective suits and 47 wet weather parkas that were subject to
demilitarization controls and 7 sleeping bags, a cold weather coat, 4
pairs of cold weather trousers, 4 canteens, a central processing unit
(CPU), and various other items. Most of the quantity errors we found at
the Columbus DRMO related to military clothing items. Missing items in
our Richmond DRMO sample included a computer; 10 CPUs; 13 computer
monitors; 2 scanners; and 2 items that require trade security control,
including an arm assembly for a helicopter blade and a computer data
signal coder/decoder.
Based on these losses, we requested DRMS summary reports on losses for
all DRMOS during fiscal years 2002, 2003, and 2004 for further
analysis. Reported losses include lost, damaged, and stolen items and
adjustments for recordkeeping errors. We determined that the loss
summary reports do not include all known losses. For example, only one
of the nine turn-ins in our statistical sample that included missing
items that were subject to demilitarization controls was included in
the fiscal year 2004 loss summary reports. Further, missing quantities
are generally reported as adjustments rather than lost or stolen items.
According to DRMS data, of the total $62 million in reported fiscal
year 2004 losses, the Warner Robins DRMO reported $22 million and the
four DRMS demilitarization centers reported over $17 million. In
addition, reported fiscal year 2004 losses at the contractor-operated
Meade DRMO included over 1,000 turn-ins with a reported acquisition
value of over $3 million dollars. Although the DRMO contract provides
for fines of $2,500 per incident of loss if negligence is proven, we
learned that contractor negligence could not be proven due to
documented security weaknesses at the Meade DRMO.[Footnote 44]
Uncorrected security weaknesses leave the Meade DRMO vulnerable to
theft.
Further, while DRMO loss reports require that a reason code be
specified, we found that the reasons for nearly all (99.8 percent) of
the reported DRMO losses for fiscal years 2002 through 2004 related to
unknown reasons (76.6 percent) and unverified adjustments for
bookkeeping and data-entry errors (23.2 percent). As a result, DRMS has
no assurance of the extent to which theft may have occurred and gone
undetected. In January 2005, DRMS officials told us that they had not
yet performed a review of the excess property loss reports as a basis
for identifying and correcting systemic weaknesses.
Reported DRMO losses for the 3-year period included 76 units of body
armor, 75 chemical and biological protective suits (in addition to
those identified in our Columbus DRMO sample),[Footnote 45] 5 guided
missile warheads,[Footnote 46] and hundreds of military cold weather
parkas and trousers and camouflage coats and trousers. Three DRMOs--
Kaiserslautern, Meade, and Tobyhanna--accounted for $840,147, or about
45 percent, of the nearly $1.9 million in reported fiscal year 2004
losses of military equipment items requiring demilitarization.
DLA supply depot losses. Our statistical samples also showed missing
items at four of the five DLA supply depots that we tested. Because
depot officials did not have documentation showing that these items had
been reutilized or sold, there is no assurance of whether the missing
items related to theft. Missing items in our DLA depot statistical
samples included the following:
* Two classified radio frequency amplifiers, a printed circuit board
that is subject to trade security controls, and a circuit card assembly
that required demilitarization (destruction) when no longer needed by
DOD at DLA's Norfolk supply depot.
* Trade security-controlled aircraft parts, including 17 aircraft
landing gear drag link assemblies, 6 landing gear upper manifolds, and
3 cylinder and piston units used in aircraft landing gear at DLA's Hill
supply depot.
* Six computer controllers and a circuit card used in Army, Navy, and
Air Force communications at DLA's San Joaquin supply depot.
We also obtained DRMS data on DLA supply depot reports of excess
property losses, including missing and damaged property and unverified
adjustments. As shown in table 6, reported DLA supply depot losses
totaled $276 million for fiscal years 2002 through 2004. Of this
amount, nearly $192 million related to excess property items that were
subject to demilitarization and trade security controls. The summary
reports that we obtained did not identify the reasons for most of the
reported DLA supply depot losses. According to DRMS data, 18 DLA supply
depots reported a total of $114 million in fiscal year 2004 excess
property losses. Two supply depots reported 72 percent of these losses,
including the DLA Oklahoma City supply depot with reported losses of
213,950 items totaling $41 million and DLA's Warner Robins supply depot
with reported losses of 4,911 items totaling $40 million. In addition,
the San Diego and Tobyhanna DLA supply depots each reported about $6
million in fiscal year 2004 excess property losses. Types of items
reported as lost, damaged, or possibly stolen included aircraft frames
and parts, engines, laboratory equipment, and computers.
Property Damage:
In addition to reported losses, we found significant instances of
property damage at DRMS liquidation contractor sales locations. Because
all liquidation sales are final, buyers have no recourse when property
is damaged subsequent to sale or is not in the advertised condition. As
a result, customers who have lost money on bids related to damaged and
unusable items might not bid again, or they may scale back on the
amount of their bids in the future, affecting both the volume of excess
DOD items liquidated and sales proceeds. The property damage that we
observed at liquidation contractor sales locations is primarily the
result of DRMS management decisions to send excess DLA supply depot
property to two national liquidation sales locations without assuring
that its contractor had sufficient human capital resources and
warehouse capacity to process, properly store, and sell the volume of
property received.
Although DRMS headquarters officials were aware of this problem and
made numerous visits to the Huntsville sales location beginning in
January 2004, actions taken to address this problem have been
inadequate. In addition, poorly maintained contractor warehouse
facilities at one liquidation sales location resulted in severe water
damage to excess DOD bandages and medical supply items that we
purchased over the Internet at govliquidation.com. The DRMS liquidation
sales contract and Web page conditions of sale state that DRMS is
responsible for providing and maintaining the warehouse facilities used
by the contractor.
Property damage at the Huntsville, Alabama, liquidation sales location.
In November 2004, we investigated reports of damage related to improper
outside storage of excess items at the Huntsville, Alabama, liquidation
sales location. In June 2003, DRMS initiated a recycle control point
process, referred to as RCP, for DLA supply depots, whereby excess
property remains in the depot warehouses during the reutilization
screening process. At the end of the screening phase, property that
does not require demilitarization by destruction or mutilation is to be
shipped to one of two liquidation contractor national sales locations-
-Huntsville, Alabama, for DLA depots west of the Mississippi River and
Norfolk, Virginia, for DLA depots east of the Mississippi. We
determined that DRMS continued to send excess DLA supply depot property
to the Huntsville sales location even though it was apparent after the
first 6 months of shipments that the Huntsville location lacked the
capacity to handle the large volume of property received from the DLA
depots. For example, in early June 2004, the Area Manager for the
Huntsville DRMO inspected the liquidation contractor's warehouses and
found that excess property had filled at least one contractor warehouse
building entirely, blocking doors and fire extinguishers. The Area
Manager advised contractor officials that this situation would not be
viewed favorably during the joint safety, fire, and environmental
inspection anticipated within the near future. In response, contractor
officials removed sufficient property from the building to meet fire
and safety regulations. As a result, numerous excess DOD property items
were relocated outside to an unpaved lot about the size of a football
field and covered with a number of blue plastic tarps. Most of these
items were new and unused spare parts and electronic items received
from DLA supply depots. In addition, wood furniture and metal file
cabinets that were transferred to the contractor for liquidation sale
by the co-located Huntsville DRMO were stored outside without any
protection from the weather.
According to DRMO officials, DRMS headquarters officials had visited
the Huntsville sales location in March 2004; a second time in June
2004, when the property was placed on the outside lot; and again in
September 2004, to observe the extent of the overflow. Despite the
known risk[Footnote 47] of damaged and lost property, the volume of
excess DLA depot property continued until September 2004, when DRMS
headquarters made a decision to divert shipments from three western DLA
supply depots to the Norfolk, Virginia, liquidation sales location.
However, property continued to be stored outside until the week of
October 18, 2004, when DRMS officials visited the Huntsville sales
location. By that time, numerous property items had received extensive
damage due to sun, wind, rain, and storms, including four hurricanes--
Charlie, Frances, Ivan, and Jeanne--and tropical storms Bonnie and
Matthew. DRMS officials disposed of some items and placed other items
inside the warehouse. In addition, the Huntsville DRMO manager told us
that wood computer furniture and filing cabinets that were in good
condition at the time the DRMO turned them over to the liquidation
contractor had been stored outside unprotected from weather. Because
most of the furniture was ruined and the filing cabinets were rusted,
they were sent to the landfill or sold as scrap. Figure 14 shows the
outside location of the wood computer cabinets and other items in July
2004 when they were advertised for sale.
Figure 14: Outside Storage of Wood Computer Furniture at the
Huntsville, Alabama, Liquidation Sales Location in July 2004:
[See PDF for image]
Source: DRMS.
[End of figure]
Our inspection of the remaining damaged property identified numerous
boxes that were missing property labels or had labels and shipping
documentation that were illegible due to exposure to sun, wind, and
rain. The missing documentation presents a significant problem because
the sales contractor does not record receipts of excess DOD property in
its sales inventory until items are processed for sale, which may not
occur until several months after the items are received. DRMS officials
told us that they are attempting to reconcile excess property shipments
to liquidation contractor inventory. However, because excess property
receipts were not recorded in sales inventory and property labels are
missing or illegible, it will be very difficult, if not impossible, to
fully reconcile sales inventory to excess property receipts. The
photograph in figure 15 shows wooden boxes that have lost their
property labels and are turning black due to rot.
Figure 15: Example of Water-Damaged Items at the DRMS Liquidation Sales
Contractor Location in Huntsville, Alabama:
[See PDF for image]
[End of figure]
Property subject to damage at the Norfolk, Virginia, liquidation sales
location. On December 2, 2004, we visited the Norfolk liquidation
contractor sales location to determine whether DRMS action to resolve
the capacity problems at the Huntsville sales location by diverting
property to Norfolk, Virginia, had resulted in capacity problems at
that location. We observed hundreds of cardboard and wooden boxes
containing excess DOD property that were stored outside under blue
plastic tarps and in shrink-wrapped stacks on pallets. Upon inspection,
we noted that many of the boxes were already water-damaged. The
photograph in figure 16 shows cardboard boxes stored outside at the
Norfolk, Virginia, sales location that evidence weather damage in terms
of peeling property labels and water marks.
Figure 16: Example of Excess DOD Property Stored Outside at the DOD
Liquidation Sales Contractor Location in Norfolk, Virginia:
[See PDF for image]
[End of figure]
Damage to GAO purchase of bandages and medical supplies. Our October 7,
2004, Internet purchase of bandages and medical supplies from
govliquidation.com suffered water damage because DRMS failed to
adequately maintain the liquidation contractor's Norfolk facilities.
Our purchase included numerous usable items in original manufacturer
packaging, including 35 boxes of bandages, 31 boxes of gauze sponges
and surgical sponges, 12 boxes of latex gloves, and 2 boxes of
tracheostomy care sets. We paid a total of $167, including buyer's
premium, tax, and transportation cost, for these items, which had a
reported total acquisition cost of $3,290. However, the following week,
when we arrived at the liquidation contractor's Norfolk, Virginia,
sales location to pick up our purchase, it was raining and the roof on
the contractor's warehouse building was leaking. The boxes containing
the items we had purchased had become wet, and water dripped from some
of the boxes when contractor personnel loaded them into our rental
truck. The photograph in figure 17 illustrates the damaged condition of
the items we purchased. Most of the cardboard storage boxes were
deteriorating as a result of water damage, and items inside the boxes
were wet.
Figure 17: DOD Excess New, Unused Bandages and Medical Supplies
Purchased over the Internet in October 2004:
[See PDF for image]
[End of figure]
Although the sales lot containing the bandages and medical supplies
that we purchased was advertised as 4 pallets of items, it actually
consisted of 13 pallets. The truck we rented would not accommodate all
13 pallets of items. The liquidation contractor sales representative
told us that we could take as much as we could accommodate, and the
contractor would resell the remaining items, even though the boxes on
the remaining 8 pallets of bandages and medical supplies were also wet.
We found that customers who find that the property they purchased is
damaged have no recourse. Further, the liquidation contractor's terms
of sale provide no incentive for safeguarding property held for sale.
For example, under the contractor's terms of sale, all sales are final
and items are sold in "as is" condition. The liquidation sales
contractor disclaims all warranties, express and implied, without
limitation, including loss or liability resulting from negligence.
Credit card account numbers must be provided at the time a bid is made,
and the sales cost, buyer premium, and sales tax, if applicable, are
immediately charged to the winning bidder.
Outdated, Nonintegrated Systems Impair Economy and Efficiency:
Inefficient, nonintegrated excess inventory and supply management
systems lack controls necessary to prevent waste and inefficiency in
the reutilization program. For example, because the DRMS Automated
Inventory System (DAISY) and DLA's Standard Automated Materiel
Management System (SAMMS) are outdated and nonintegrated, they do not
share information necessary to (1) identify and alert DLA item managers
of excess property that is available to fill supply orders and (2)
prevent purchases of new items when A-condition excess items are
available for reutilization. We have continued to report[Footnote 48]
that long-standing weaknesses with DLA's inventory systems related to
outdated, nonintegrated legacy systems and processes result in DOD and
military units not knowing how many items they have and where these
items are located. DLA has acknowledged serious deficiencies in its
automated inventory management systems. Although DLA has an effort
under way to replace SAMMS with the Business Systems Modernization
(BSM) and DRMS has a Reutilization Modernization Program (RMP) under
way to upgrade DAISY, so far these have been separate, uncoordinated
efforts and they do not adequately address identified process
deficiencies. Also, while the systems improvement efforts are intended
to integrate supply and excess inventory systems to support the
reutilization program, they are not focused on resolving long-standing
problems related to unreliable condition code data and incomplete data
on NSNs. The accuracy of these two data elements is critical to the
ability to identify like items that are available for reutilization at
the time purchases are made.
Current Inventory Systems Environment:
We found that existing systems and processes do not adequately reflect
the DRMS twofold mission to (1) facilitate reutilization of property in
good condition and (2) dispose of property that DOD cannot use. For
example, DRMS moves all excess property through the same 49-day
screening and disposal process rather than identifying A-condition
items that are currently being purchased, stocked and issued, or both
to military units and designating these items for reutilization.
Instead, as previously discussed, DRMS transferred, donated, sold, and
destroyed hundreds of millions of dollars of A-condition excess items
that the military services continued to purchase and utilize.
In addition, we found that the current process for identifying excess
property that is available to fill supply orders is cumbersome, time-
consuming, and involves significant human intervention. For example,
under the current process, if an item manager wants to use excess items
to fill a supply order, the item manager must query DAISY to determine
whether excess items are available to fill the supply order. If excess
items are available, the item manager would then need to contact one or
more DRMOs where the excess property is located and ask DRMO personnel
to physically verify the item description, quantity, and condition. If
the excess items meet the customer's requirements, the item manager
prepares a requisition form and submits it to the DRMO(s). If the item
does not require technical inspection or testing, the DRMO processes
the order and ships the excess items to the customer. However, if the
item is electronic and requires technical inspection and testing, or
both, it must be sent to a DLA supply depot where these functions can
be performed before the item is shipped to the customer.
Military unit officials told us that due to inefficiencies in this
process, including shipment delays of up to several weeks and
unreliable DRMS data on quantities and condition codes, they prefer to
order new items rather than attempting to reutilize excess property
available at DRMOs. Figure 18 illustrates the current nonintegrated DLA
inventory systems environment.
Figure 18: Existing Nonintegrated DLA Inventory Systems Environment:
[See PDF for image]
[End of figure]
Planned Systems Environment:
According to DLA officials, the planned BSM and RMP excess property
reutilization systems are intended to be integrated when fully
implemented in 2009. The objective of the integrated design is to
provide DLA buyer and item manager visibility over excess property
available for reutilization and permit the buyer to fill a supply order
with these items instead of purchasing new items. However, we are
concerned that these efforts may not resolve the long-standing data
reliability problems inherent in the current systems and processes. Our
November and December 2004 discussions with DLA and DRMS systems
officials revealed that they were unaware of the magnitude of errors in
condition coding that incorrectly recorded new and unused items as
unserviceable and the extent of inconsistent recording of NSNs in
commodity purchases and excess inventory records. Further, the
officials had not yet coordinated to identify key data elements for
identifying excess property that should be reutilized.
We also found that DLA and DRMS systems officials had not yet fully
considered building controls into the new business systems that would
help enforce the policy to reutilize available excess property in new,
unused, and excellent condition before purchasing new items. For
example, under the current systems environment, item managers and
military units can choose to purchase new items rather than reutilizing
available new, unused, and excellent condition excess items. In order
to avoid this problem in the planned systems environment, DLA would
need to include edit controls that would reject a purchase transaction
or generate an exception report for review and approval when such items
are available for reutilization but are not selected.
We discussed our concerns with DLA officials. In early February 2005,
DLA officials told us that they were extending the March 2005 target
date for completing the functional design for excess property
reutilization in BSM and RMP in order to address our concerns about the
impact of unreliable data on the successful integration of the planned
systems.
Conclusions:
DLA and DRMS have not demonstrated the leadership and accountability
necessary to achieve the economy and efficiency of excess property
reutilization contemplated in federal regulations or DOD policy. To
effectively address problems with reutilization program waste and
inefficiency, DRMS and DLA will need to exercise strong leadership and
accountability to improve the reliability of excess property data;
establish effective oversight and physical inventory control, including
both accountability and safeguarding of excess property; and develop
effective integrated systems for identifying and reutilizing excess
property. In addition, the military services will need to provide
accurate information on excess property turn-in documentation,
particularly data on condition codes, and item descriptions, including
NSNs. Improved management of DOD's excess property and a strong
reutilization program could help save taxpayers hundreds of millions of
dollars annually.
Recommendations for Executive Action:
We recommend that the Secretary of Defense direct the Director of the
Defense Logistics Agency; the Commander of the Defense Reutilization
and Marketing Service; and the Secretaries of the Army, the Navy, and
the Air Force, as appropriate, to take the following 13 actions to
improve DOD's excess property reutilization program.
Data Reliability:
* Direct DRMS to clarify and enforce the policy that permits DRMO
management to waive the requirement to verify quantities on turn-ins
under exempted conditions, and consider additional criteria for
maintaining accountability of military equipment items.
* Require DRMS to identify DRMOs with insufficient human capital
resources and take appropriate action to assure that excess property
receipts are verified and processed in an accurate and timely manner.
In implementing this recommendation, DRMS should require DRMOs to
provide adequate supervision and monitoring to assure that excess
property receipts are verified when received and entered in DRMO
inventory.
* Require DLA to develop a mechanism for linking prime vendor purchase
transactions to NSNs or other unique product identification.
* Direct DRMS to develop written guidance and formal training to assist
DRMO personnel and military service turn-in generators in the proper
assignment of condition codes to excess property turn-ins.
* Direct the military services to provide accurate excess property turn-
in documentation to DRMS, including proper assignment of condition
codes and NSNs based on available guidance.
* Require the military services to establish appropriate accountability
mechanisms, including supervision and monitoring, for assuring the
reliability of turn-in documents.
Physical Control of Property:
* Direct DLA and DRMS to review DLA supply depot and DRMO excess
property loss reports to identify systemic weaknesses and take
immediate and appropriate corrective actions to resolve them.
* Direct DRMS to take immediate, appropriate action to resolve
identified uncorrected DRMO security weaknesses.
* Require DRMS to determine the monthly sales volume of excess property
at the DLA supply depots and work with its liquidation sales contractor
to identify the appropriate number and liquidation sales locations
needed to handle the sales of excess DLA depot property. In making
these determinations, DRMS and its contractor should consider whether
contractor staffing and warehouse capacity at each location are
adequate to handle the volume of property shipped to those locations
for sale.
* Require DRMS to periodically inspect liquidation contractor
facilities and take immediate action to correct structural impairments
and other deficiencies, such as outside storage due to inadequate
warehouse capacity that could result in damage of excess DOD property
held for sale.
Commodity Inventory Systems:
* Direct DLA and DRMS to consider available options and implement an
interim process for identifying turn-ins of excess new, unused, and
excellent condition items that could be reutilized to avoid unnecessary
purchases in the existing systems environment.
* Direct DLA BSM and DRMS RMP systems officials to coordinate on the
identification of key data elements for identifying excess property
that should be reutilized before completing the design of functional
requirements for reutilization of excess commodities for BSM and RMP.
* Require that DLA's BSM system design include edit controls that would
reject a purchase transaction or generate an exception report when A-
condition excess items are available but are not selected for
reutilization at the time that purchases are made.
Agency Comments and Our Evaluation:
On April 15, 2005, DOD provided written comments on a draft of this
report. DOD officials concurred with 8 of our 13 recommendations and
partially concurred with the other 5 recommendations. With regard to
the 5 recommendations on which DOD partially concurred, DOD's stated
actions address all 5 of them. We view these actions as being generally
responsive to the intent of our recommendations. The partial
concurrences relate to plans for alternative actions, actions already
initiated in response to our audit, and increased attention to existing
processes. DOD's explanation for the partial concurrences and our
response follows.
DOD stated that DRMS will use an alternative action to address our
recommendation that it assess the adequacy of human capital resources
and take appropriate action to assure that excess property receipts are
verified and processed accurately and timely. DOD stated that DRMS will
use its staffing model to determine the staffing needs by receipt
workload and adequately staff its DRMOs. DOD also stated that DRMS is
using contract hires to supplement DRMO staff, as needed. We view these
actions as responsive to our recommendation. However, as a part of its
actions on our recommendation, DRMS also should provide adequate
supervision and monitoring to assure that excess property receipts are
verified when received and entered into DRMO inventory. We have
modified our recommendation to emphasize this point. These actions will
help to provide accountability for excess property and avoid the need
for subsequent adjustments, including an excessive number of write-offs
for inventory shortages.
DOD noted the merits of existing processes related to our
recommendation to develop a mechanism for linking prime vendor purchase
transactions to NSNs or other unique product identification. DOD stated
that DOD directives require turn-in generators to provide a description
of item(s) on a turn-in document for which local stock numbers are
listed. DOD also noted that bringing unused items back into DLA supply
stock would negate warehousing and distribution savings achieved
through using prime vendor direct shipments to DOD customers. In
addition, DOD stated that assigning NSNs to nonstocked commercial items
would significantly increase item costs and run counter to the Federal
Acquisition Streamlining Act of 1994[Footnote 49] preference for
commercial purchases. As discussed in our report, DOD already has
efforts underway to promote the use of unique product identifiers other
than NSNs by commercial vendors and small business firms. DOD's efforts
include cost benefit considerations. Consistent with DOD's efforts, it
is important that DLA prime vendor purchase transactions are identified
to NSNs or other unique product identification to facilitate economies
through (1) volume purchasing and (2) reutilization of excess items.
With regard to our recommendation that DRMS develop written guidance
and formal training on the proper assignment of condition codes to
excess property turn-ins, DOD stated that the military services
currently receive formal blocks of training and are in the better
position to assign the condition codes. DOD also referred to current
DOD and DRMS guidance on condition codes. In addition, DOD stated that
DRMS will review current guidance to ensure the appropriate assignment
of responsibilities regarding the establishment and use of condition
codes. As discussed in our report, our statistical tests, DRMO
screening visits, case study acquisitions of excess DOD commodity
items, and interviews of DRMO, military service, and GSA officials all
indicate that significant problems exist with the reliability of excess
property condition codes. We determined that unreliable condition codes
were caused by a lack of detailed guidance and a failure to follow
existing guidance. For example, as noted in our report, military
services often coded items as unserviceable when they no longer had a
need for them, even though the items were in new, unused, and excellent
condition. Therefore, written guidance and training on the proper
assignment of condition codes also is important to correcting this
problem to assure that existing misconceptions are corrected and would
be responsive to our recommendation.
With regard to our recommendation that DRMS periodically inspect
liquidation contractor facilities and take immediate action to correct
structural impairments and other deficiencies, such as storage
capacity, DOD stated that an inspection of all liquidation contractor
facilities has been completed and periodic inspections will continue.
DOD also stated that the only facility requiring immediate structural
repair is the Norfolk, Virginia, facility and that DRMS has issued a
work order for the necessary repairs. DOD also stated that additional
storage options are being regularly evaluated by the contractor and
DRMS. As stated in our report, the overflow of excess property at the
Huntsville liquidation sales location was a long-term, uncorrected
problem, which resulted in a significant breakdown in accountability
and physical inventory control over excess property. It is important
that timely and appropriate solutions be identified and implemented to
prevent this problem in the future. The actions that DOD highlighted in
its letter are responsive to our recommendation.
Finally, DOD stated that actions have already been taken to respond to
our recommendation that DRMS consider available options and implement
an interim process for identifying turn-ins of excess new, unused, and
excellent condition items that could be reutilized to avoid unnecessary
purchases in the existing systems environment. DOD enumerated
initiatives implemented during 2004 and early 2005 that improve the
visibility of excess property listed on DRMS's Web page. In addition,
DOD stated that DRMS will work with DLA item managers on the best
methodology to provide visibility of A-condition excess property.
Notwithstanding the improvements in DRMS's Web page, the overall
commodity purchasing process has not changed, and DLA continues to make
commodity purchases without considering the availability of identical A-
condition excess commodities. Achieving the economy and efficiency
contemplated by federal regulations and DOD policy is dependent upon
identifying continuing commodity purchases and having the ability to
match these items to A-condition excess property and hold it for
reutilization. DOD should not dispose of excess A-condition excess
items that it continues to purchase.
DOD's comment letter is reprinted in appendix II.
As agreed with your offices, unless you announce its contents earlier,
we will not distribute this report until 30 days from its date. At that
time, we will send copies to interested congressional committees; the
Secretary of Defense; the Deputy Under Secretary of Defense for
Logistics and Materiel Readiness; the Secretary of the Army; the
Secretary of the Navy; the Secretary of the Air Force; the Director of
the Defense Logistics Agency; the Commander of the Defense
Reutilization and Marketing Service; and the Director of the Office of
Management and Budget. We will make copies available to others upon
request. In addition, this report will be available at no charge on the
GAO Web site at [Hyperlink, http://www.gao.gov].
Please contact Gregory D. Kutz at (202) 512-9505 or [Hyperlink,
kutzg@gao.gov], John Ryan at (202) 512-9587 or [Hyperlink,
ryanj@gao.gov], or Gayle L. Fischer at (202) 512-9577 or [Hyperlink,
fischerg@gao.gov] if you or your staff have any questions concerning
this report. Additional contacts and major contributors to this report
are provided in appendix VI.
Signed by:
Gregory D. Kutz:
Managing Director:
Forensic Audits and Special Investigations:
[End of section]
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
The purpose of our audit was to assess the economy and efficiency of
the Department of Defense (DOD) excess property program. In doing so,
we assessed the effectiveness of systems, processes, and controls for
assuring a strong reutilization program. Where we found controls to be
ineffective, we tested them further to determine (1) the magnitude and
(2) root causes of associated waste and inefficiency. Our audit and
investigation focused on Defense Logistics Agency (DLA) purchases of
consumable items and Defense Reutilization and Marketing Service
(DRMS)[Footnote 50] excess property inventory activity during fiscal
years 2002 and 2003, the most current fiscal years for which data were
available at the time we initiated our audit. To illustrate continuing
problems, we obtained excess DOD commodity items in new, unused, and
excellent condition (A condition) during fiscal year 2004 and the first
quarter of fiscal year 2005 that were in use by the military services,
were being purchased by DLA, or both at the time they were available
for reutilization.
We obtained access to the following systems and databases to support
our audit and investigation.
* The DRMS Automated Information System (DAISY), which is an automated
inventory accounting management data system designed to process excess
DOD property from receipt to final disposal.
* The DRMS Management Information Distribution and Access System
(MIDAS), which contains historical (archive) DAISY information.
* DLA's DOD Activity Address Directory (DODAAD), which contains
information to identify agency names and addresses for activity codes
that are associated with excess property requisitions.
* The Government Liquidation, LLC[Footnote 51] database, which contains
transactions on public sales of excess DOD property items.
* DLA's Standard Automated Materiel Management System (SAMMS), which
contains transaction data on purchases by commodity group.
* The Federal Logistics Information System (FEDLOG), which is a
logistics information system managed by the Defense Logistics
Information Service (DLIS)[Footnote 52] within DLA. This system
contains detailed information on specifications, use, acquisition cost,
and sources of supply for national stock numbered items, including more
than 7 million stock numbers and more than 12 million part numbers.
We obtained online access to DAISY, MIDAS, DODAAD, and FEDLOG, and we
obtained copies of the SAMMS databases for fiscal years 2002 and 2003
and Government Liquidation, LLC databases for June 2001 through
December 2004. For each of the DOD systems and databases used in our
work, we (1) obtained information from the system owner/manager on
their data reliability procedures; (2) reviewed systems documentation;
(3) reviewed related DOD Inspector General reports, DLA Comptroller
budget data, and independent public accounting firm reports related to
these data; and (4) performed electronic testing of commodity purchase
and excess inventory databases to identify obvious errors in accuracy
and completeness. We verified database control totals, where
appropriate. We also received FEDLOG training from the DLIS service
provider. When we found obvious discrepancies, such as omitted national
stock number (NSN)[Footnote 53] data in the DLA commodity purchases
databases and transaction condition coding errors in the DRMS excess
property systems data, we brought them to the attention of agency
management for corrective action. We made appropriate adjustments to
transaction data used in our analysis, and we disclosed data
limitations with respect to condition coding errors and the omission of
NSN data that affected our analysis. Our data analysis covered
commodity purchases and excess commodity turn-ins and disposal activity
during fiscal years 2002 and 2003. In addition, we statistically tested
the accuracy of excess inventory transactions at five Defense
Reutilization and Marketing Offices (DRMO) and five DLA supply depots.
We also reviewed summary data and selected reports on DRMS compliance
reviews of 91 DRMOs during fiscal year 2004 to determine the extent to
which DRMS had identified problems with adherence to DOD and DRMS
policies, made recommendations for corrective actions, and monitored
DRMO actions to address its recommendations. Based on these procedures,
we are confident that that the DOD data were sufficiently reliable for
the purposes of our analysis and findings.
Magnitude of Excess Property Reutilization Program Waste and
Inefficiency:
To determine the overall magnitude of waste and inefficiency related to
the DOD excess property reutilization program, we identified fiscal
year 2002 and 2003 excess commodity disposal activity by property
condition code and examined the extent of DOD reutilization of excess
items in new, unused, and excellent condition (A-condition) versus
transfers, donations, public sales, and other disposals outside of DOD
through scrap, demilitarization, and hazardous materials contractors.
We also compared DLA commodity purchase transactions to identical
excess new, unused, and excellent condition items to identify instances
where DLA purchased commodity items rather than reutilizing these
excess items. We used NSN data as the basis for identifying identical
items. In addition, we analyzed DLA supply depot excess commodity turn-
ins to determine the extent to which new, unused DLA supply depot
inventory accounted for turn-ins of excess of A-condition items. We
used IDEA audit software[Footnote 54] to facilitate our analysis.
Analysis of the Extent of DOD Reutilization:
To determine the extent to which DOD reutilized excess commodities in A
condition during fiscal years 2002 and 2003, we used online access to
the DRMS MIDAS database of historical transactions and performed data
mining[Footnote 55] and analysis of the universe of excess commodity
turn-in and disposal transactions. We identified key data elements,
such as disposal transaction types, the excess property recipient DOD
Activity Address Code (DODAAC), and condition codes. We used these data
elements to identify the extent of DOD reutilization of excess A-
condition commodities compared to transfers; donations; public sales;
and disposals of scrap, hazardous materials, and demilitarized items.
We determined the type of disposal transaction through analysis of the
DODAAC that identifies the name and address of the agency or program
that received (or requisitioned) the property. Because DOD considers
special program[Footnote 56] reutilization the same as DOD
reutilization, we used DODAACs to separately identify reutilization
transactions for special programs that were not directly associated
with DOD activities. We also used DODAAC information to determine the
identity of turn-in generators and requisitioners of excess DOD
commodities for subsequent interviews of generators regarding why new,
unused items were excessed and excess property users about their
experience.
Analysis of Other Types of Excess Property Disposals:
We also worked with DRMS officials to obtain information on transaction
codes for identifying disposals of hazardous materials, scrap, and
demilitarized items. We independently performed data mining and
analysis, and we verified the results of our queries with DRMS
officials in order to provide reasonable assurance that our data-mining
approach and results were accurate. We used the Government Liquidation,
LLC database to determine the acquisition value of commodity items sold
and sale revenues during fiscal years 2002 and 2003.
Analysis of Commodity Purchases Transactions:
We used the six SAMMS commodity purchases databases we obtained to
identify key information on commodity items that military units
purchased from DLA, including the item description or name, NSN,
purchase date, unit price, unit acquisition cost, and full cost
including the DLA user fee. The six commodity groups we audited
included (1) construction and land and maritime weapons, (2)
electrical, (3) general, (4) industrial, (5) medical, and (6) textile.
We worked with DLA officials to identify items to a commodity group
based on the supply class number included in the NSN or local stock
number (LSN).[Footnote 57]
To determine the extent to which DLA made unnecessary purchases of new
items when identical items that were reported to be in A condition were
available for reutilization, we compared commodity purchase
transactions in SAMMS to excess property turn-in transactions in MIDAS.
We used NSNs to identify instances where the military services ordered
and purchased items from DLA at the same time identical items that were
reported to be in new or excellent condition were available for
reutilization. Although we identified at least $400 million in fiscal
year 2002 and 2003 wasteful purchases related to A-condition excess
items that were available for reutilization, we were unable to
determine the full magnitude of this problem due to inconsistent
recording of NSNs and improper downgrading of condition codes.
Case Study Examples:
We performed case study investigations of excess commodity turn-ins and
disposals during fiscal years 2002 through 2003. In addition, to
illustrate that DRMS reutilization program waste and inefficiency are
continuing problems, during fiscal year 2004 and the first quarter of
fiscal year 2005, we obtained several excess DOD commodity items that
were currently in use, were being purchased at the time we acquired
them, or both. We used data mining and analysis to identify commodity
items for our case study acquisitions. To identify new and unused
excess DOD commodity items that were available for requisition at no
cost, we accessed the DRMS Reutilization, Transfer, and Donation Web
page and identified excess DOD commodity items available to federal
agencies. We confirmed that these items were available to federal
agencies by also accessing the General Services Administration's (GSA)
GSAXcess Web page. We used GAO's federal agency DODAAC to requisition
new and unused excess DOD commodity items in A condition. We submitted
our requisitions for transfer of these excess DOD items through GSA. To
identify new and unused items that we could purchase at minimal cost,
we accessed govliquidation.com. We also accessed govliquidation.com to
identify continuing sales of our case study items.
We based our case study selections on commodities used by military
units and the quantity and dollar amount of purchases and excess
property turn-ins associated with these items. After we identified each
new and unused case study item that we wanted to purchase, we queried
FEDLOG to confirm the acquisition cost and current use of the item--
that is, whether an item was still being purchased or currently in use
but being phased out or was obsolete. For further assurance on the
status of the excess commodities that we targeted for acquisition, we
contacted the DLA item managers responsible for these items to confirm
that they were currently being purchased, were in use by the military
services, or both. We also contacted item managers to obtain
information on how certain items, such as circuit cards and power
supply units, were used.
Causes of Reutilization Program Waste and Inefficiency:
To determine the root causes of identified inefficiencies, we first
gained an understanding of the processes for acquisition and disposal
of DOD commodities. We reviewed applicable laws and regulations and
DOD, military service, DLA, and DRMS policies and procedures. We also
reviewed the DRMS contracts for DRMO property warehouse services and
liquidation sales for consistency with DOD policies. In addition, we
reviewed SAMMS and MIDAS system manuals. We met with and contacted
numerous DLA and DRMS officials and obtained documentation to assess
how the property reutilization program is monitored for effectiveness.
We also met with or contacted DOD and Army, Navy, and Air Force
officials about their experience with commodity acquisitions,
reutilization, and disposals. We interviewed DLA item managers and
buyers to obtain information on their roles and responsibilities and
key systems and controls involved in the commodity acquisition and
management process. We also obtained information on how decisions are
made about whether to purchase new items or to reutilize excess items
through DOD's reutilization program. We made visits to 12 DRMOs to
observe excess property processing, screen for excess case study items,
investigate the disposition of excess property turn-ins, or test the
accuracy of excess property inventory. We also visited five DLA-managed
Defense depots to test inventory accuracy and observe excess property
disposal processes. In addition, we visited 10 Government Liquidation,
LLC sales locations.
We focused our assessment of the causes of reutilization program waste
and inefficiency on key aspects of the overall management control
environment, including (1) data reliability, (2) physical inventory
control, and (3) the current systems environment. We used GAO's
Standards for Internal Control in the Federal Government[Footnote 58]
as criteria for identifying internal control breakdowns that
contributed to waste and inefficiency.
Data Reliability:
We statistically tested[Footnote 59] the accuracy of current excess
commodity inventory transaction data at five DRMO warehouse locations
and five DLA supply depot locations. Each location was a separate
population of randomly selected transactions. We randomly selected
transactions from the population of current inventory transactions at
each of the test locations. The five DRMO locations we tested were the
Columbus DRMO in Ohio; the Stockton DRMO in French Camp, California;
the Hill DRMO at Hill Air Force Base in Ogden, Utah; and the Norfolk
DRMO and the Richmond DRMO in Virginia. Our selection of the five DRMOs
was based on geographic location, turn-in volume, types of excess items
handled, and military units generating the most turn-ins. We tested
inventory at Defense depots that were co-located or located within
proximity of the above DRMOs, including Defense depots at Columbus,
Ohio; San Joaquin, California; Hill Air Force Base, Utah; Norfolk,
Virginia; and Richmond, Virginia. Each location was a separate
population, and we evaluated the results of each sample location
separately.
The purpose of our testing was to evaluate the effectiveness of
controls over existence--including timely recording of transactions,
item description (item name and NSN), and quantity--and condition
coding. Appendix V describes the specific criteria we used to conclude
on the effectiveness of DRMO and DLA supply depot controls for
inventory accuracy.
Physical Inventory Control:
Our assessment of physical inventory control focused on the results of
our statistical tests discussed above and our review of DRMS summary
data on reported DRMO and DLA supply depot losses due to lost, stolen,
and damaged property. We investigated problems associated with
liquidation contractor controls for safeguarding excess DOD property
held for sale at the Huntsville, Alabama, and the Norfolk, Virginia,
sales locations. We also assessed the extent of damage to our case
study purchase of bandages and medical supply items from the Norfolk
sales location. In addition, we obtained DRMS summary reports on losses
of excess property at DRMOs and DLA supply depots for fiscal years 2002
through 2004. We referred locations with the largest reported losses to
our Office of Special Investigations for further investigation.
Commodity Inventory Systems Environment:
To gain an understanding of DLA commodity purchase and DRMS commodity
inventory systems and processes with regard to DOD's excess property
reutilization program, we reviewed DLA and DRMS policies and
procedures, and interviewed DLA, DRMS, and DRMO program and systems
officials. We also used observations and information obtained during
our statistical tests, excess property screening visits, and case study
investigations. In addition, we relied on the body of work GAO has
performed in this area.[Footnote 60]
To determine the scope and status of DLA and DRMS systems efforts to
improve the reutilization process in the future, we interviewed DLA and
DRMS systems officials who are responsible for DLA's Business Systems
Modernization (BSM) and Integrated Data Environment (IDE) and the DRMS
Reutilization Modernization Program (RMP).[Footnote 61] We also
reviewed business systems modernization plans and related documents to
determine the current status, implementation time frames, and scope of
planned improvements. In addition, we obtained and reviewed the
Reutilization Management Program Functional Requirements Document, the
RMP Decision Matrix, and implementation timelines. We focused our
assessment on whether the systems modernization efforts, as currently
documented, would adequately address needed improvements in excess
property reutilization program economy and efficiency.
We conducted our work from November 2003 through February 2005 in
accordance with U.S. generally accepted government auditing standards.
We performed our investigative work in accordance with standards
prescribed by the President's Council on Integrity and Efficiency.
[End of section]
Appendix II: Comments from the Department of Defense:
DEPUTY UNDER SECRETARY OF DEFENSE FOR LOGISTICS AND MATERIEL READINESS:
3500 DEFENSE PENTAGON:
WASHINGTON, DC 20301-3500:
April 15, 2005:
Mr. Gregory D. Kutz:
Director, Financial Management and Assurance:
United States Government Accountability Office:
Washington, DC 20548:
Dear. Mr. Kutz:
This is the Department of Defense (DoD) response to the GAO draft
report, "DOD EXCESS PROPERTY: Management Control Breakdowns Result in
Substantial Waste and Inefficiency," dated March 10, 2005 (GAO Code
192105/GAO-05-277).
The report recommends that the Secretary of Defense direct the Director
of the Defense Logistics Agency (DLA); the Commander of the Defense
Reutilization and Marketing Service; and the Secretaries of the Army,
the Navy, and the Air Force, as appropriate, to take 13 actions to
improve DoD's excess property reutilization program.
The Department concurs that action is needed to improve the
reutilization process. Specific responses to each of the 13
recommendations are detailed in the enclosure. The DoD appreciates the
opportunity to comments on the draft report.
Sincerely,
Signed by:
Bradley Berkson:
Acting:
Enclosure: As stated:
GAO CODE 192105/GAO-05-277:
"DOD EXCESS PROPERTY: MANAGEMENT CONTROL BREAKDOWNS RESULT IN
SUBSTANTIAL WASTE AND INEFFICIENCY"
DEPARTMENT OF DEFENSE COMMENTS TO THE RECOMMENDATIONS:
RECOMMENDATION 1: The GAO recommended that the Secretary of Defense
direct the Director of the Defense Logistics Agency (DLA) direct
Defense Reutilization and Marketing Service (DRMS) to clarify and
enforce the policy that permits the Defense Reutilization and Marketing
Office (DRMO) management to waive the requirement to verify quantities
on turn-ins under exempted conditions, and consider additional criteria
for maintaining accountability of military equipment items. (p. 45/GAO
Draft Report):
DoD RESPONSE: Concur. DRMS will review the guidance found at DoD
4160.21-M, Chapter 2, Section E (1)(d) and DRMS-I 4160.14, Vol. 11,
Chapter 2, Section I (13)(6)(c), and clarify those situations where
DRMS personnel are allowed to waive the quantity verification
requirement. DRMS will also ensure its employees understand this
guidance and DoD policy, and consider additional criteria to maintain
appropriate property accountability through continuous education. In
March 2004, DRMS initiated a risk assessment program to evaluate
certain DRMS processes and develop appropriate risk mitigation
strategies. DRMS will utilize this program in reviewing applicable
segments of the receiving process to validate past practices and
consider potential changes in light of further perceived risk.
Further, DRMS reviews property accountability as part of its internal
Compliance Program (self assessment and organizationally independent
compliance inspections), and will review its current audit protocols to
ensure that accurate counting of items at receipt is a part of its
Compliance Assessments. Result of this assessment will be available in
November 2005.
RECOMMENDATION 2: The GAO recommended that the Secretary of Defense
direct the Director of the Defense Logistics Agency to require DRMS to
identify DRMOs with insufficient human capital resources and take
appropriate action to assure that excess property receipts are verified
and processed in an accurate and timely manner. (p. 45/GAO Draft
Report):
DoD RESPONSE: Partially concur. DRMS will use its staffing model to
determine the staffing needs by receipt workload and adequately staff
its DRMOs to ensure excess property receipts are verified and processed
in accordance with appropriate policies. However, other management
actions are also being considered to address this issue. For example,
DRMS is currently using contract hires at its DRMOs, rather than hiring
new Government employees, because DRMS is in the final stages of an OMB
Circular A-76 competition for the receipt, storage, and issue functions
of useable property at all of its CONUS DRMOs. This competition is to
be completed later this year. Results of this assessment will be
available in November 2005.
RECOMMENDATION 3: The GAO recommended that the Secretary of Defense
require the Director of the Defense Logistics Agency to develop a
mechanism for linking prime vendor purchase transactions to National
Stock Numbers (NSN) or other unique product identification. (p. 45/GAO
Draft Report):
DoD RESPONSE: Partially Concur. DoD Directives require generators to
provide a description of the item on the turn-in document when it is
turned in to a DRMO under a Local Stock Number (LSN). DLA's Prime
Vendor purchases provide commercial, non-stocked items to military
customers direct from vendors. These items are consumable, meaning they
are intended for immediate use by the military customer. Bringing these
items back into depot stock would negate warehousing/distribution
savings achieved as a result of relying on the commercial supply chain.
The increased technical documentation requirements required to assign
national stock numbers to these non-stocked, commercial items will
drive up costs significantly. Also, requiring Prime Vendors to convert
commercial marking systems to military systems would run counter to the
1994 Federal Acquisition Streamlining Act preference to buy commercial.
RECOMMENDATION 4: The GAO recommended that the Secretary of Defense
direct the Director of the Defense Logistics Agency to direct DRMS to
develop written guidance and formal training to assist DRMO personnel
and Military Service turn-in generators in the proper assignment of
condition codes to excess property turn-ins. (p. 46/GAO Draft Report):
DoD RESPONSE: Partially Concur. The generating activities are
responsible for the assignment of supply condition codes (SCC). The
Military Services generating these excess materials are in the better
position to assign SCCs and understand the impacts of the factors like
functional obsolescence, material aging, and previous storage and
handling situations. Generators from each of the Services currently
receive formal blocks of instruction, as well as appropriate on-the-job
training, on specific disposal procedures as part of their logistics
education.
The DRMS provides guidance and training material to DRMS personnel, the
Military Services and Defense Agencies regarding condition codes,
including the web-based information and guidance found on the DRMS Web
Site. It provides a DoD Disposal Manual, DoD 4160.21-M, and guidance
found in the DRMS-Instruction 4160.14. Additional efforts are being
undertaken to highlight supply condition codes issues in training and
web based resources. Additionally, DRMS will review current guidance
and coordinate with Headquarters, Defense Logistics Agencies and the
Military Services to ensure the appropriate assignment of
responsibilities regarding the establishment and use of supply
condition codes. Results of this assessment will be available in
November 2005.
RECOMMENDATION 5: The GAO recommended that the Secretary of Defense
direct the Secretaries of the Army, Navy and Air Force to direct the
military services to provide accurate excess property turn-in
documentation to DRMS, including proper assignment of condition codes
and NSNs based on available guidance. (p. 46/GAO Draft Report):
DoD RESPONSE: Concur with intent. Existing Military Service policies
and procedures require all generators to file accurate property turn-in
documentation, as defined by DRMS, and the Services recognize the
importance and ramifications of assigning accurate supply condition
codes and National Stock Numbers (NSNs) to all property turned-in to
DRMS facilities. However, the Services have agreed to reexamine their
current procedures to determine if they are adequately implementing
those policies and procedures.
Service policy is to reuse materiel to the fullest extent possible
regardless of the category of the supply item, while considering
economy and safety. Generators of excess and surplus property are
required to identify the condition of items excess to their needs prior
to disposal through DRMO or return to the supply system. If the
condition cannot be determined, certified supply inspectors assist in
this process. Service personnel have taken steps to consult with supply
personnel to ensure a basic understanding of the updated military
instructions. All of the Services endeavor to provide required
information to applicable turn-in activities electronically, per the
instruction found in the disposal directives.
Current Military Service procedures allow the repair of all spare parts
and equipment when economically feasible. When repair actions are
necessary, the custodian will properly identify the condition of the
item on DD Form 1577-2 and attach the tag to the item. When the
custodian is not sure of the condition of the item, another qualified
maintenance technician or inspector will be asked to help determine the
condition of the materiel. Condemned equipment items, beyond economical
repair, require the signature of a qualified maintenance technician on
DD Form 1577 or the repair cost estimate from the repair center. Either
of these actions must take place before the turn-in process can be
accomplished.
Not all DoD items have assigned NSNs, as indicated in our response to
recommendation 3 above. However, as a minimum, all transfers to DRMO
for non-NSN items are required to have a description of the materiel
attached to or annotated on the disposal document.
We will direct the Services and DLA to assess their training in
condition codes and accuracy of property turn-in documentation. Results
of this assessment will be available in November 2005.
RECOMMENDATION 6: The GAO recommended that the Secretary of Defense
direct the Secretaries of the Army, Navy and Air Force to require the
Military Services to establish appropriate accountability mechanisms,
including supervision and monitoring, for assuring reliability of turn-
in documents. (p. 46/GAO Draft Report):
DoD RESPONSE: Concur. The Services recognize that accountability,
supervision, and monitoring are imperative to all logistics operations.
The Services and DLA already have systems in place to capture the
required data. At the wholesale level, we support this recommendation
to establish appropriate accountability mechanisms, including
supervision and monitoring, to assure reliability of turn-in documents.
DOD policy for retail and wholesale supply requires customers to return
excess serviceable or unserviceable materiel to the Service supply
activity or appropriate maintenance activity or comply with appropriate
disposition instructions. The Services monitor these activities and
work with DRMS to ensure visibility of assets throughout the disposal
process to ensure a closed loop with regard to transaction item
reporting among all Services and Defense Agencies involved. We will
direct the Services and DLA to assess the adequacy of their existing
systems to capture reliable turn-in data and to generate exceptions
reports. Results of this assessment will be available in November 2005.
RECOMMENDATION 7: The GAO recommended that the Secretary of Defense
direct the Director of the Defense Logistics Agency and DRMS to review
DLA supply depot and DRMO excess property loss reports to identify
systemic weaknesses and take immediate and appropriate corrective
actions to resolve them. (P. 46/GAO Draft Report):
DoD RESPONSE: Concur. The Agency agrees with the importance of being
able to identify and correct systemic weaknesses in property loss
reporting. DLA, the Supply Depots and DRMS are already implementing
actions to improve our ability to detect actual losses, determine their
causes, and take future action to mitigate such risks.
DRMS issued interim guidance to its personnel affecting how losses and
adjustments are reported in the DRMS Automated Information System
(DAISY). The purpose of this guidance is to improve reason code
accuracy and to be able to distinguish "bookkeeping adjustments" from
actual physical losses of property.
In February 2005, DRMS issued a task order to the Defense Logistics
Agency Office of Operations Research and Resource Analysis (DORRA) to
study systemic weakness in DRMS property accounting, provide an
assessment of what percentage of losses are attributable to actual
physical losses of property rather than record keeping errors, and
examine DRMS' records to determine the exact nature of these reported
inventory adjustments. Preliminary findings indicate that approximately
67% of the "H" coded losses represent inventory adjustments and data
errors rather than a true loss of inventory. Thus, as noted, many of
the "losses" cited result from record adjustments and do not reflect
actual losses of property indicative of security or property management
lapses.
The Defense Distribution Center (DDC) has a long standing program
called the "SWARM" Inventory Improvement Initiative. SWARM is a wide-
ranging, site-by-site program designed to: 1) identify the root cause
of balance errors; 2) train employees on a case-by-case basis; 3) hold
all employees accountable for their process; 4) provide comprehensive
formal training on policy, processes and systems and clean up the
physical warehouse location balances; and 5) Correct the accountable
transaction records.
The SWARM is reported to the DLA Director monthly and has already made
significant progress in achieving its goals. Our goal is to meet the
MILSTRAP performance standards, and the Military Services' expectations
of accuracy. Results of this assessment will be available in November
2005.
RECOMMENDATION 8: The GAO recommended that the Secretary of Defense
direct the Director of the Defense Logistics Agency to direct DRMS to
take immediate, appropriate action to resolve identified uncorrected
DRMO security weaknesses. (p. 46/GAO Draft Report):
DoD RESPONSE: Concur. DRMS policy is to take immediate appropriate
action to resolve identified security weaknesses. DBMS has done so with
respect to previous situations that have come to its attention and has
done or will do so with respect to issues raised in the draft Report.
Results of this assessment will be available in November 2005.
RECOMMENDATION 9: The GAO recommended that the Secretary of Defense
direct the Director of the Defense Logistics Agency to require DRMS to
determine the monthly sales volume of excess property at the DLA supply
depots and work with its liquidation sales contractor to identify the
appropriate number and liquidation sales locations needed to handle the
sales of excess DLA depot property. In making these determinations,
DRMS and its contractor should consider whether contractor staffing and
warehouse capacity at each location are adequate to handle the volume
of property shipped to those locations for sale. (p. 46/GAO Draft
Report):
DoD RESPONSE: Concur. The DLA supply depots provide DRMS a weekly
property list detailing the amount and type of excess and surplus
personal property to be disposed of through Reutilization, Transfer,
Donation and Sales. From this information, DRMS develops a property
list that will be delivered to the liquidation sales contractor after
statutorily mandated screening is completed. The Agency has implemented
system changes to provide the property list 42 days in advance of
delivery to the contractor.
The DRMS and its sales contractor also review past monthly historical
shipments of property. From this information, both the liquidation
contractor and DRMS can determine whether current storage capacities
and staffing are adequate. The review will conclude whether additional
sites should be added or different shipping routes be considered on a
one-time basis. This review process is ongoing. DRMS, in conjunction
with its liquidation contractor, directs surge or "overflow" quantities
of excess property to alternate sites. Additional agency personnel have
been assigned to specifically help process property shipped from the
supply depots. The liquidation contractor also improved the management
team responsible for handling depot property. The results of any
changes undertaken will also be reviewed and modifications implemented
as appropriate. Results of this assessment will be available in
November 2005.
RECOMMENDATION 10: The GAO recommended that the Secretary of Defense
direct the Director of the Defense Logistics Agency to require DRMS to
periodically inspect liquidation contractor facilities and take
immediate action to correct structural impairments and other
deficiencies, such as outside storage due to inadequate warehouse
capacity that could result in damage of excess DOD property held for
sale. (p. 46/GAO Draft Report):
DoD RESPONSE: Partially Concur. Inspection of all liquidation
contractor facilities has been completed and periodic inspections will
continue. The only facility requiring immediate structural repair is
the Norfolk facility. DRMS has issued a work order to fix minor
structural issues. Actions are being taken to ensure property damage
does not occur, which may include diverting property to other sites, if
required. Additional storage options are being regularly evaluated by
the contractor and DRMS. Facility condition and protection of stock is
a key issue for DRMS and Government Liquidation (GL) as the contract
provisions provide for increased revenue for both parties based on the
selling price of the item. Results of this assessment will be available
in November 2005.
RECOMMENDATION 11: The GAO recommended that the Secretary of Defense
direct the Director of the Defense Logistics Agency to direct DRMS to
consider available options and implement an interim process for
identifying turn-ins of excess new, unused, and excellent condition
items that could be reutilized to avoid unnecessary purchases in the
existing systems environment. (p. 46/GAO Draft Report):
DoD RESPONSE: Partially Concur. Actions have already been taken to
respond to this recommendation. Since 2004, DRMS implemented several
initiatives to improve the visibility of disposal assets to DOD. These
initiatives include the deployment of Pre-receipt Want Lists, Automated
Want List Match against current inventory, and expedited processing
property visibility on the DRMS website. In February 2005, DRMS
deployed a new web application that allows DOD customers to ask
questions on-line about property in inventory, including the ability to
request pictures of the item if the condition code is in question.
Answers are added to the property description and are available for all
customers to view.
In addition, DRMS will work with the Item Managers on the best
methodology to provide visibility of "A" condition property. Listings
can be tailored for each Item Manager to include only those items or
commodities (Federal Stock Class (FSC) or NSN specific) for which they
are responsible. Results of this assessment will be available in
January 2006.
RECOMMENDATION 12: The GAO recommended that the Secretary of Defense
direct the Director of the Defense Logistics Agency to direct DLA
Business Systems Modernization (BSM) and DRMS Reutilization
Modernization Program (RMP) systems officials to coordinate on the
identification of key data elements for identifying excess property
that should be reutilized before completing the design of functional
requirements for reutilization of excess commodities for BSM and RMP.
(p. 46/GAO Draft Report):
DoD RESPONSE: Concur. Reutilization of DRMS assets is part of the
Release 2.2 functionality of DLA's BSM program scheduled for
implementation in January 2006. DLA and DRMS developed an interface
between the DAISY and BSM for AI condition code (new, unused and
excellent) to provide property visibility and to allow for asset
recoupment. BSM Release 2.2 functionality seeks maximum use of DRMS
excess material categorized as A1 condition. The Release 2.2
functionality will search DRMS records daily for assets in AI
condition, and if found, will systematically initiate action to recoup
those assets in accordance with the items economic retention limits.
The system (BSM) will automatically process this information against
identified supply needs to locate matching property. When an item is
identified, DLA's BSM initiative will generate a requisition request
for the item to return it to DLA stock. The interface is in the build
phase and testing is scheduled for June through December 2005.
Implementation is scheduled for BSM Release 2.2 in January 2006.
Additionally, DRMS will further integrate asset recoupment processes in
the DRMS RMP.
The "Gap Analysis" process for the DRMS RMP is underway with the BSM
application as a primary "target" for functionality requirements. Our
initial update on the GAP Analysis will be provided in November 2005.
Full Operational Capability (FOC) for the DRMS RMP will be realized in
FY 2009.
RECOMMENDATION 13: The GAO recommended that the Secretary of Defense
direct the Director of the Defense Logistics Agency to require that
DLA's BSM system design include edit controls that would reject a
purchase transaction or generate an exception report when A-condition
excess items are available but are not selected for reutilization at
the time that purchases are made. (p. 47/GAO Draft Report):
RESPONSE: Concur. BSM's Release 2.2 functionality seeks maximum use of
DRMS excess categorized as A1 condition. The Release 2.2 functionality
will search DRMS records daily for assets in A1 condition, and if
found, will systemically initiate action to recoup those assets in
accordance with the items' economic retention limits. By proactively
seeking to identify and recoup assets based on economic limits, the DLA
will ensure maximum utilization of assets at the DRMS and will preclude
the need to procure items when excess assets are available to be
reutilized. Results of this assessment will be available in March 2006.
[End of section]
Appendix III: Excess Property Condition Codes:
DOD's condition code is a two-digit alphanumeric code used to denote
the condition of excess property from the supply and the disposal
perspective. The DOD supply condition code is the alpha character in
the first position and shows the condition of property in the DLA depot
inventory, or is assigned by the unit turning in the excess property.
The GSA disposal condition code, in the second position, shows whether
the property is in new, used, or repairable condition, salvageable, or
should be scrapped. (See table 7.)
Table 7: DOD Excess Property Condition Codes:
DOD codes: A1, A4;
DOD supply condition code: Serviceable property: A - Issuable without
qualification - New, used, repaired or reconditioned property that is
issuable without restriction, including material with a shelf life of
more than 6 months;
DOD codes: B1, B4;
DOD supply condition code: Serviceable property: B - Issuable with
qualification - New, used, repaired, or reconditioned property that is
issuable, but is restricted from issue to specific units, activities,
or geographical areas by reason of its limited usefulness or short
service life expectancy, including materials with a shelf life of 3
through 6 months.
DOD codes: C1, C4;
DOD supply condition code: Serviceable property: C - Priority issue -
Property is issuable to selected customers but must be issued before
Condition A and B material to avoid loss as a usable asset, including
materials with less than 3-months' shelf life.
DOD codes: D1, D4, D7;
DOD supply condition code: Serviceable property: D - Test/Modification
required - Property is in serviceable condition but requires test,
alteration, modification, or conversion or disassembly;
GSA disposal condition code:
1 - Excellent - Property is in new or unused condition and can be used
immediately without repairs.
4 - Usable - Property shows some wear, but can be used without
significant repair.
7 - Repairable - Property is unusable in its current condition, but can
be economically repaired.
DOD codes:
DOD codes: E7;
DOD supply condition code: Unserviceable property: E - Limited
restoration required - Property requires only a limited expense or
effort to restore to serviceable condition.
DOD codes: F7;
DOD supply condition code: Unserviceable property: F - Reparable -
Property is economically reparable but requires repairs, overhaul, or
reconditioning to make it serviceable property.
DOD codes: G7;
DOD supply condition code: Unserviceable property: G - Incomplete -
Property requires additional parts or materials to complete the item
prior to issue.
DOD codes: H7;
DOD supply condition code: Unserviceable property: H - Condemned -
Property has been determined to be unserviceable and does not meet
repair criteria, including items whose shelf life has expired and
cannot be extended;
GSA disposal condition code: 7 - Repairable - Property is unusable in
its current condition, but can be economically repaired.
DOD codes: FX, GX, HX; (VX-Salvaged military munitions);
DOD supply condition code: Salvage property: F - Reparable; G -
Incomplete; H - Condemned;
GSA disposal condition code: X - Salvage - Property has value in excess
of its basic material content, but repair is impractical and/or
uneconomical.
DOD codes: FS, GS, HS;
DOD supply condition code: Scrap property: F - Reparable; G -
Incomplete; H - Condemned;
GSA disposal condition code: S - Scrap - Property has no value except
for its basic material content.
Source: DAISY C-A-T (Codes and Terms) reference guide (11TH ed. 2003)
and DRMS-I 4160.14, vol. IV, Supp. 1, "Codes Index" (November 2004).
[End of table]
[End of section]
Appendix IV: Programs Authorized to Receive Excess DOD Property:
Table 8 lists the DOD special programs that are authorized to receive
excess property. In addition to DOD special programs, under the
Stevenson-Wydler Technology Innovation Act of 1980, as
amended,[Footnote 62] DOD makes computer equipment available to schools
under the federal government's Computers for Learning Program following
the DOD and special program screening period and prior to the federal
agency screening period. In accordance with 15 U.S.C. § 3710(i), the
director of a laboratory or the head of any federal agency or
department may loan, lease, or give research equipment that is excess
to the needs of the laboratory, agency, or department to an educational
institution or nonprofit organization for the conduct of technical and
scientific education and research activities.
Table 8: DOD Special Programs:
Humanitarian Assistance Program (HAP);
10 U.S.C. § 2557 authorizes the Secretary of Defense to make available
nonlethal excess DOD supply items for humanitarian relief purposes, and
10 U.S.C. § 2561 authorizes the Secretary of Defense to use DOD's
Humanitarian Assistance appropriations to transport supply items to
needy countries.
Law enforcement agencies (LEA);
10 U.S.C. § 2576a authorizes the Secretary of Defense to transfer
excess DOD property that is suitable for use by LEAs to federal and
state agencies, including counter-drug and counter-terrorism
activities. Recipients pay for transporting the property.
Museums;
10 U.S.C. § 2572 authorizes the Secretary of Defense to loan, gift, or
exchange documents, historical artifacts, and condemned or obsolete
combat materiel to a municipal corporation, county, or other political
subdivision of a state; a servicemen's monument association; a museum,
historical society, or historical institution of a state or foreign
nation or nonprofit military aviation heritage foundation or
association; or a post of the Veterans of Foreign Wars of the United
States, the American Legion, or other recognized war veterans'
association.
National Guard units;
National Guard units are designated by DOD to receive excess DOD
property with the approval of the National Guard Bureau or the U.S.
Property and Fiscal Officer, or their authorized representative, for
the state in which the National Guard unit is located.
Senior Reserve Officer Training Corps units (ROTC);
ROTC units are designated by DOD to receive excess DOD property to
support supplemental proficiency training programs with approval of the
cognizant installation commander or designee. Junior ROTC units are not
covered.
Morale, welfare, and recreation activities and services (MWR);
MWR activities are authorized by DOD to receive excess DOD property
through their servicing accountable officer.
Military Affiliate Radio System (MARS);
MARS operates under the command jurisdiction of the military services
and is an integral part of the DOD communications system. DOD has
authorized the military services to requisition excess DOD property
from DRMOs.
Civil Air Patrol (CAP);
As the official auxiliary of the U.S. Air Force, CAP is eligible to
receive excess DOD property. Title to the property is transferred to
CAP upon the condition that it be used to support valid Air Force
mission requirements.
DOD contractors;
Military Standard Requisitioning and Issue Procedures (MILSTRIP) in DOD
4000.25-1M, MILSTRIP Manual (April 2004), provide for the military
service or Defense agency management control activity to withdraw or
authorize the withdrawal of specified excess property from a DRMO for
use as government-furnished equipment to support officially stated
contractual requirements.
Foreign governments and international organizations;
Under the International Security Assistance and Arms Export Control Act
of 1976 (Pub. L. No. 94-329, as amended, codified at 22 U.S.C. § 2751,
et seq.), certain excess defense articles may be made available to
eligible foreign countries and international organizations designated
by the Department of State and DOD. Excess DOD property may also be
available to eligible foreign countries and international organizations
as foreign military sales under authority of the Foreign Assistance Act
of 1961, as amended, codified at 22 U.S.C. § 2151, et seq.
Source: GAO analysis.
[End of table]
[End of section]
Appendix V: Results of Statistical Tests of Excess Commodity Inventory
Accuracy:
To evaluate the effectiveness of controls for assuring the accuracy of
excess commodity inventory data, we tested current inventory
transactions at five DRMO locations and five DLA supply depot
locations. Our tests covered controls over physical existence, item
description (item name and NSN), quantity, and condition code.[Footnote
63] DRMO inventory locations tested were the Columbus DRMO in Columbus,
Ohio; the Stockton DRMO in French Camp, California; the Hill DRMO at
Hill Air Force Base, in Ogden, Utah; the Norfolk DRMO in Norfolk,
Virginia; and the Richmond DRMO in Richmond, Virginia. For efficiency,
we tested inventory at five DLA supply depots that were co-located or
located within proximity of the above DRMOs, including the depots in
Columbus, Ohio; San Joaquin County, California; Hill Air Force Base,
Utah; Norfolk, Virginia; and Richmond, Virginia. Each location was a
separate population, and we evaluated the results of each sample
location separately.
We drew our statistical samples from the universe of excess property
transactions in current DRMS DAISY inventory, which includes excess
property warehoused at DRMOs and DLA supply depots. We stratified our
samples by the two major categories of condition code--serviceable and
unserviceable--in order to determine whether errors were more prevalent
in one category. From the population of current excess DOD inventory at
the time of our testing visit, we selected stratified random
probability samples of excess property turn-in transactions for each of
the five DRMO and each of the five DLA supply depot case study
locations. With these statistically valid samples, each transaction in
the population for the 10 case study locations had a nonzero
probability of being included, and that probability could be computed
for any transaction. Each sample transaction for a test location was
subsequently weighted in our analysis to account statistically for all
the transactions in the population for that location, including those
that were not selected. Our test results relate to the populations of
transactions at the respective DRMO and DLA supply depot locations, and
the results cannot be projected to the population of excess property
transactions or the DRMOs or DLA supply depots as a whole.
We present the results of our statistical samples for each population
as (1) our projection of the estimated error overall and for each
control attribute as point estimates and the two-sided 95 percent
confidence intervals for the failure rates and (2) our assessments of
the effectiveness of the controls and the relevant lower and upper
bounds of a one-sided 95 percent confidence interval for the failure
rate. If the one-sided upper bound is 5 percent or less, then the
control is considered effective. If the one-sided lower bound is
greater than 5 percent, then the control is considered ineffective.
Otherwise, we say that there is not enough evidence to assert either
effectiveness or ineffectiveness. All percentages are rounded to the
nearest percentage point.
Overall Results of Inventory Reliability Tests:
Tables 9 and 10 present the overall results of our statistical tests of
inventory accuracy at the five DRMOs and the five DLA supply depots
that we tested. The overall results show that controls for assuring the
accuracy of excess property inventory were ineffective at four of the
five DRMOs and three of the five DLA supply depots that we tested. We
tested physical existence, including whether turn-ins recorded in
inventory could be physically located and whether inventory changes
were recorded within 7 days. We also tested the accuracy of item
descriptions (item name(s) and NSN(s)), recorded quantities, and
condition code categories.
Table 9: DRMO Turn-in Transactions with One or More Control Test
Failures:
DRMO tested: Richmond;
Estimated failure rate (95 percent two-sided confidence interval): 25%;
(17% to 33%);
Assessment of effectiveness of controls (and relevant bounds of 95
percent one-sided confidence intervals): Ineffective; Lower bound =
18%.
DRMO tested: Stockton;
Estimated failure rate (95 percent two-sided confidence interval): 12%;
(7% to 18%);
Assessment of effectiveness of controls (and relevant bounds of 95
percent one-sided confidence intervals): Ineffective; Lower bound = 8%.
DRMO tested: Hill;
Estimated failure rate (95 percent two-sided confidence interval): 8%;
(4% to 14%);
Assessment of effectiveness of controls (and relevant bounds of 95
percent one-sided confidence intervals): Not enough evidence; Lower
bound = 5%; or upper bound = 13%.
DRMO tested: Norfolk;
Estimated failure rate (95 percent two-sided confidence interval): 18%;
(12% to 25%);
Assessment of effectiveness of controls (and relevant bounds of 95
percent one-sided confidence intervals): Ineffective; Lower bound =
13%.
DRMO tested: Columbus;
Estimated failure rate (95 percent two-sided confidence interval): 47%;
(37% to 56%);
Assessment of effectiveness of controls (and relevant bounds of 95
percent one-sided confidence intervals): Ineffective; Lower bound =
39%.
Source: GAO.
Note: Although some transactions included more than one type of error,
we only counted one failure for a transaction.
[End of table]
Table 10: DLA Supply Depot Turn-in Transactions with One or More
Control Test Failures:
DLA depot tested: Richmond;
Estimated failure rate (95 percent two- sided confidence interval): 8%;
(4% to 13%);
Assessment of effectiveness of controls (and relevant bounds of 95
percent one-sided confidence intervals): Not enough evidence; Lower
bound = 5%; or upper bound = 12%.
DLA depot tested: San Joaquin;
Estimated failure rate (95 percent two- sided confidence interval):
16%; (11% to 23%);
Assessment of effectiveness of controls (and relevant bounds of 95
percent one-sided confidence intervals): Ineffective; Lower bound =
12%.
DLA depot tested: Hill;
Estimated failure rate (95 percent two-sided confidence interval): 6%;
(3% to 10%);
Assessment of effectiveness of controls (and relevant bounds of 95
percent one-sided confidence intervals): Not enough evidence; Lower
bound = 3%; or upper bound = 9%.
DLA depot tested: Norfolk;
Estimated failure rate (95 percent two-sided confidence interval): 14%;
(9% to 19%);
Assessment of effectiveness of controls (and relevant bounds of 95
percent one-sided confidence intervals): Ineffective; Lower bound =
10%.
DLA depot tested: Columbus[A];
Estimated failure rate (95 percent two- sided confidence interval):
12%; (8% to 18%);
Assessment of effectiveness of controls (and relevant bounds of 95
percent one-sided confidence intervals): Ineffective; Lower bound = 9%.
Source: GAO.
[A] Most of the errors in our Columbus supply depot sample related to
quantity errors for items such as machine screws, washers, and other
small hardware items. Therefore, we did not consider these problems to
be significant.
[End of table]
Because most of the errors we found related to the accuracy of
condition codes, we separately estimated the error rates for this
control attribute. A turn-in transaction was considered a failure if
the serviceable or unserviceable condition code assigned to the item(s)
was not accurate based on our physical observation and judgment. DLA
and DRMO officials who accompanied us during our testing provided their
perspectives, which we considered in our conclusions. We based our
conclusions on obvious differences between the condition code assigned
to the item and the appearance of the item. For example, some items
were in the original manufacturer packaging and other items were
obviously used, dirty, or worn. If we were unsure of the condition of
an item, we accepted the condition code assigned by the military unit
turn-in generator or the DLA supply depot. In addition, we did not
question the assigned condition codes of technical equipment items such
as electronic parts and scientific equipment. Tables 11 through 13 show
the results of our condition code reliability tests for turn-in
transactions at the five DRMOs that were coded as being in serviceable
and unserviceable condition.
Table 11: DRMO Turn-in Transactions That Failed Overall Control Tests
for Condition Code Accuracy:
DRMO tested: Richmond;
Estimated failure rate (95 percent two-sided confidence interval): 22%;
(15% to 31%);
Assessment of effectiveness of controls (and relevant bounds of 95
percent one-sided confidence intervals): Ineffective; Lower bound =
16%.
DRMO tested: Stockton;
Estimated failure rate (95 percent two-sided confidence interval): 8%;
(4% to 13%);
Assessment of effectiveness of controls (and relevant bounds of 95
percent one-sided confidence intervals): Not enough evidence; Lower
bound = 5%; or upper bound = 12%.
DRMO tested: Hill;
Estimated failure rate (95 percent two-sided confidence interval): 5%;
(2% to 11%);
Assessment of effectiveness of controls (and relevant bounds of 95
percent one-sided confidence intervals): Not enough evidence; Lower
bound = 3%; or upper bound = 10%.
DRMO tested: Norfolk;
Estimated failure rate (95 percent two-sided confidence interval): 13%;
(8% to 19%);
Assessment of effectiveness of controls (and relevant bounds of 95
percent one-sided confidence intervals): Ineffective; Lower bound = 9%.
DRMO tested: Columbus;
Estimated failure rate (95 percent two-sided confidence interval): 22%;
(14% to 33%);
Assessment of effectiveness of controls (and relevant bounds of 95
percent one-sided confidence intervals): Ineffective; Lower bound =
15%.
Source: GAO.
[End of table]
Table 12: DRMO Turn-in Transactions Classified as Serviceable That
Failed Control Tests for Condition Code Accuracy:
DRMO tested: Richmond;
Estimated failure rate (95 percent two-sided confidence interval): 0%;
(0% to 3%);
Assessment of effectiveness of controls (and relevant bounds of 95
percent one-sided confidence intervals): Effective;
Upper bound = 3%.
DRMO tested: Stockton;
Estimated failure rate (95 percent two-sided confidence interval): 1%;
(0% to 6%);
Assessment of effectiveness of controls (and relevant bounds of 95
percent one-sided confidence intervals): Not enough evidence; Lower
bound = 0%; or upper bound = 5%.
DRMO tested: Hill;
Estimated failure rate (95 percent two-sided confidence interval): 2%;
(0% to 7%);
Assessment of effectiveness of controls (and relevant bounds of 95
percent one-sided confidence intervals): Not enough evidence; Lower
bound = 0%; or upper bound = 6%.
DRMO tested: Norfolk;
Estimated failure rate (95 percent two-sided confidence interval): 5%;
(2% to 12%);
Assessment of effectiveness of controls (and relevant bounds of 95
percent one-sided confidence intervals): Not enough evidence; Lower
bound = 2%; or upper bound = 11%.
DRMO tested: Columbus;
Estimated failure rate (95 percent two-sided confidence interval): 1%;
(0% to 6%);
Assessment of effectiveness of controls (and relevant bounds of 95
percent one-sided confidence intervals): Effective;
Upper bound = 5%.
Source: GAO.
[End of table]
As shown in table 13, we found significant problems with the accuracy
of unserviceable condition codes for excess commodities at four of the
five DRMOs we tested.
Table 13: DRMO Turn-in Transactions Classified as Unserviceable That
Failed Control Tests for Condition Code Accuracy:
DRMO tested: Richmond;
Estimated failure rate (95 percent two-sided confidence interval): 26%;
(18% to 36%);
Assessment of effectiveness of controls (and relevant bounds of 95
percent one-sided confidence intervals): Ineffective; Lower bound =
19%.
DRMO tested: Stockton;
Estimated failure rate (95 percent two-sided confidence interval): 10%;
(5% to 17%);
Assessment of effectiveness of controls (and relevant bounds of 95
percent one-sided confidence intervals): Ineffective; Lower bound = 5%.
DRMO tested: Hill;
Estimated failure rate (95 percent two-sided confidence interval): 6%;
(2% to 13%);
Assessment of effectiveness of controls (and relevant bounds of 95
percent one-sided confidence intervals): Not enough evidence; Lower
bound = 3%; or upper bound = 12%.
DRMO tested: Norfolk;
Estimated failure rate (95 percent two-sided confidence interval): 17%;
(10% to 26%);
Assessment of effectiveness of controls (and relevant bounds of 95
percent one-sided confidence intervals): Ineffective; Lower bound =
11%.
DRMO tested: Columbus;
Estimated failure rate (95 percent two-sided confidence interval): 23%;
(14% to 34%);
Assessment of effectiveness of controls (and relevant bounds of 95
percent one-sided confidence intervals): Ineffective; Lower bound =
15%.
Source: GAO.
[End of table]
As shown in table 14, we found condition codes to be reliable at the
five DLA supply depots that we tested.
Table 14: DLA Supply Depot Turn-in Transactions That Failed Overall
Control Tests for Condition Code Accuracy:
DLA depot tested: Richmond;
Estimated failure rate (95 percent two- sided confidence interval): 0%;
(0% to 2%);
Assessment of effectiveness of controls (and relevant bounds of 95
percent one-sided confidence intervals): Effective; Lower bound = 0%;
Upper bound = 2%.
DLA depot tested: San Joaquin;
Estimated failure rate (95 percent two- sided confidence interval): 0%;
(0% to 2%);
Assessment of effectiveness of controls (and relevant bounds of 95
percent one-sided confidence intervals): Effective; Lower bound = 0%;
Upper bound = 2%.
DLA depot tested: Hill;
Estimated failure rate (95 percent two-sided confidence interval): 0%;
(0% to 3%);
Assessment of effectiveness of controls (and relevant bounds of 95
percent one-sided confidence intervals): Effective; Lower bound = 0%;
or upper bound = 2%.
DLA depot tested: Norfolk;
Estimated failure rate (95 percent two-sided confidence interval): 1%;
(0% to 3%);
Assessment of effectiveness of controls (and relevant bounds of 95
percent one-sided confidence intervals): Effective; Lower bound = 0%;
or upper bound = 2%.
DLA depot tested: Columbus;
Estimated failure rate (95 percent two- sided confidence interval): 0%;
(0% to 2%);
Assessment of effectiveness of controls (and relevant bounds of 95
percent one-sided confidence intervals): Effective; Lower bound = 0%;
or upper bound = 2%.
Source: GAO.
[End of table]
[End of section]
Appendix VI: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Stephen P. Donahue, (202) 512-2772;
Richard C. Newbold, (202) 512-7437:
Acknowledgments:
Staff making key contributions to this report include Beatrice Alff,
Mario Artesiano, James D. Ashley, Cindy Barnes, Gary Bianchi, Erik
Braun, Matthew S. Brown, Randall J. Cole, Tracey L. Collins, Francine
DelVecchio, Lauren S. Fassler, Michele Fejfar, Gloria
Hernandezsaunders, Wilfred B. Holloway, Jason Kelly, Barbara C. Lewis,
Kristen Plungas, and Ramon Rodriguez.
Technical expertise was provided by Sushil K. Sharma, PhD, DrPH, and
Keith A. Rhodes, Chief Technologist.
(192105):
FOOTNOTES
[1] GAO, DOD Excess Property: Risk Assessment Needed on Public Sales of
Equipment That Could Be Used to Make Biological Agents, GAO-04-15NI
(Washington, D.C.: Nov. 19, 2003).
[2] GAO, DOD Management: Examples of Inefficient and Ineffective
Business Processes, GAO-02-873T (Washington, D.C.: June 25, 2002).
[3] JSLIST is a universal, lightweight, two-piece garment (coat and
trousers) that when combined with footwear, gloves, and a protective
mask and a breathing device, forms the warfighter's protective
ensemble. Together, the ensemble is to provide maximum protection to
the warfighter against chemical and biological contaminants without
negatively affecting the ability to perform mission tasks. JSLIST is
the current model protective suit used by the military services.
[4] DOD commodities within the scope of this report include a wide
variety of equipment, spare parts, and supplies, such as office and
laboratory equipment, aircraft parts and weapons system components,
construction and medical supplies and equipment, and clothing and
textile items. Ammunition and explosive weapons, fuel, subsistence
items, and pharmaceuticals are not included in the scope of this
report.
[5] Fiscal year 2002 and 2003 data were the most recent data available
at the time we initiated our audit.
[6] Federal Property Management Regulations, 41 C.F.R. ch. 101 (2004)
and the Federal Management Regulation, 41 C.F.R. ch. 102 (2004), issued
by the General Services Administration; DOD 4160.21-M, Defense Materiel
Disposition Manual; and GAO, Standards for Internal Control in the
Federal Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: November
1999).
[7] DOD excess property condition codes are defined in appendix III.
[8] GAO, Defense Inventory: Analysis of Consumption of Inventory
Exceeding Current Operating Requirements Since September 30, 2001, GAO-
04-689 (Washington, D.C.: Aug. 2, 2004), and Major Management
Challenges and Program Risks: Department of Defense, GAO-03-98
(Washington, D.C.: January 2003).
[9] DRMS-I 4160.14, vol. II, Instructions for Warehousing for DRMS and
the Defense Reutilization and Marketing Offices, ch. 2, "Receipt and
Storage," § 1 (A), (B) (April 2002).
[10] DRMS fiscal year 2004 operational compliance reviews of 91 DRMOs
reported unacceptable or inadequate ratings for 20 DRMOs and fair
ratings for 23 DRMOs. The remaining 48 DRMOs had ratings of good or
excellent, including 2 of the 5 DRMOs that we tested.
[11] DOD 4160.21-M-1, Defense Demilitarization Manual, ch. 1.
[12] The missing chemical and biological protective suits are not the
current JSLIST suit technology, and the missing body armor is not the
ceramic technology currently in use by deployed troops.
[13] An NSN is a unique13-digit number that identifies standard use
inventory items.
[14] The Defense-wide Working Capital Fund is a revolving fund that the
Secretary of Defense has established under authority of 10 U.S.C. §
2208.
[15] 40 U.S.C. § 541.
[16] Federal Property Management Regulations, 41 C.F.R. ch. 101 (2004)
and the Federal Management Regulation, 41 C.F.R. ch. 102 (2004), issued
by GSA.
[17] Federal Management Regulation, 41 C.F.R. ch. 102 (2004).
[18] A turn-in consists of an item or group of items recorded on the
same disposal turn-in document. Each disposal turn-in document
represents one DRMS receipt.
[19] Disposal costs net of scrap and liquidation sale proceeds are
prorated to the military services and other DOD units.
[20] The reported acquisition value at the time the items were turned
in as excess.
[21] An NSN is a 13-digit number that identifies standard use inventory
items. The first 4 digits of the NSN represent the Federal Supply
Classification, such as 8430 for men's footwear, followed by a 2-digit
NATO code and a 7-digit designation for a specific item, such as a cold
weather boot.
[22] Reported acquisition value.
[23] DOD 4160.21-M, Defense Materiel Disposition Manual, ch. 5,
"Reutilization/Transfer Screening and Issue," § A.
[24] FEDLOG is a logistics information system managed by the Defense
Logistics Information Service within DLA. This system contains detailed
information on specifications, use, acquisition cost, and sources of
supply for NSN items, including more than 7 million stock numbers and
more than 12 million part numbers.
[25] The Seawolf supports missions such as surveillance, intelligence
collection, special warfare, covert cruise missile strike, mine
warfare, and antisubmarine and antisurface ship warfare.
[26] Government Liquidation, LLC is the DRMS commercial venture partner
(contractor) for public sales of excess DOD property.
[27] GAO-04-689 and GAO-03-98.
[28] GAO, Standards for Internal Control in the Federal Government,
GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999).
[29] DRMS-I 4160.14, vol. II, Instructions for Warehousing for DRMS and
the Defense Reutilization and Marketing Offices, ch. 2, "Receipt and
Storage," § 1 (A) (9).
[30] A turn-in transaction consists of one or more items, such as a
computer or 2,000 helmets, on a turn-in document.
[31] DRMS-I 4160.14, vol. II, ch. 2., § 1 (A)(9).
[32] DRMS-I 4160.14, vol. II, ch. 2, § 1 (B)(6)(c).
[33] The technical name for these safety cabinets is closed loop
containment isolators.
[34] The Navy's Environmental Health Center in Portsmouth, Virginia,
turned in the Level III cabinets as excess because of erroneous
specifications that resulted in ordering cabinets that were too large
and cumbersome to meet deployment needs.
[35] Commerce Control List, 15 C.F.R. pt. 774, supp. 1, category 2,
Materials Processing, para. f (2), Protective and Containment Equipment
(2005).
[36] DOD 4160.21-M-1, Defense Demilitarization Manual, ch.1, § D (6),
and app. 5 (B), and DRMS-I 4160.14, vol. VII, ch. 3, "MLI/CCLI -
Disposal Processing and Demilitarization," para. A (2)(d).
[37] DLA records part numbers instead of NSNs for some supply inventory
items.
[38] DOD prime vendors are contractors that buy inventory from a
variety of suppliers and store it in commercial warehouses. Most prime
vendors ship items to customers the next day.
[39] According to DRMO officials, since the inception of a DRMS
warehouse services contract in June 2000, DRMO staffs have been
downsized pending outsourcing.
[40] Turn-in generator refers to DOD units and others that report or
physically turn in excess items to DRMS.
[41] According to DRMO officials, only experienced property management
specialists are qualified to inspect excess property receipts and make
appropriate decisions for handling various types of property, including
hazardous materials, flight-safety critical items, items with safety
and latent defects, and items with demilitarization requirements.
[42] DOD 4160.21-M-1, Defense Demilitarization Manual, ch. 1.
[43] GAO/AIMD-00-21.3.1.
[44] DRMS and contractor documentation we obtained noted that the
contractor had taken issue on numerous occasions with the lack of
security over accountable inventories at all locations it manages,
including 11 DRMOs in fiscal year 2003 and 9 DRMOs in fiscal year 2004.
[45] The missing chemical and biological protective suits are not the
current JSLIST, and the missing body armor is not the ceramic
technology currently in use by deployed troops.
[46] In accordance with DOD 4160.21-M, ch. 4, "Property Requiring
Special Processing," § B, and DRMS-I 4160.14, vol. VII, "Instructions
for Demilitarization for DRMS and the Defense Reutilization and
Marketing Offices," ch. 1, para. G, such items are required to be inert
before turn-in to a DRMO.
[47] The DRMS liquidation sales contract stipulates that DRMS is to
provide property storage, maintain liquidation contractor facilities,
and bear financial risk of loss and damage of property in the
contractor's possession.
[48] GAO, DOD Business Systems Modernization: Billions Continue to Be
Invested with Inadequate Management Oversight and Accountability, GAO-
04-615 (Washington, D.C.: May 27, 2004); DOD Business Systems
Modernization: Longstanding Management and Oversight Weaknesses
Continue to Put Investments at Risk, GAO-03-553T (Washington, D.C.:
Mar. 31, 2003); and DOD Management: Examples of Inefficient and
Ineffective Business Processes, GAO-02-873T (Washington, D.C.: June 25,
2002).
[49] Pub. L. No. 103-355, § 8104, 108 Stat. 3243, 3390 (Oct. 13, 1994)
(codified at 10 U.S.C. 2377).
[50] DRMS is responsible for the disposal of excess property received
from the military services and other DOD agencies.
[51] Government Liquidation, LLC is the DRMS commercial venture partner
(contractor) for public sales of excess DOD property.
[52] DLIS manages the Federal Catalog System, which includes nearly 7
million active supply items and operates the Federal Logistics
Information System, which contains information on national stock
numbers, part numbers, prices, packaging and shipping, and disposal
instructions.
[53] An NSN is a 13-digit number that identifies standard use inventory
items. The first 4 digits of the NSN represent the Federal Supply
Classification, such as 8430 for men's footwear, followed by a 2-digit
NATO code and a 7-digit designation for a specific type of boot, such
as cold weather boot.
[54] Interactive Data Extraction and Analysis software developed by
CaseWare International, Inc., and distributed by Audimation, Inc.,
Houston, Texas, CaseWare's U.S. business partner.
[55] Data mining involved queries of DLA's commodity purchase databases
and DRMS excess inventory system to identify patterns of activity, such
as turn-ins and disposals of A-condition excess commodities;
reutilization, transfers, donations, sales, and destruction of excess
items; and items that were being purchased when identical new, unused,
and excellent condition items were available for reutilization.
[56] Special programs, such as the Humanitarian Assistance Program and
law enforcement agencies, are listed and described in app. IV.
[57] An LSN consists of the four-digit federal supply classification
number, a two-digit NATO code, and up to a seven-character description,
such as "monitor" for a computer monitor and "boots" for cold weather
boots.
[58] GAO, Standards for Internal Control in the Federal Government,
GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999). This document was
prepared to fulfill GAO's statutory requirement under 31 U.S.C. § 3512
(c), (d), commonly known as the Federal Managers' Financial Integrity
Act of 1982, to issue standards that provide the overall framework for
establishing and maintaining internal control and for identifying and
addressing major performance and management challenges and areas at
greatest risk of fraud, waste, abuse, and mismanagement.
[59] Our statistical tests were based on a random sample of the
population of excess inventory transactions at each test location,
which permitted us to estimate, or project, the errors in the
population at each location.
[60] GAO, DOD Management: Examples of Inefficient and Ineffective
Business Processes, GAO-02-873T (Washington, D.C.: June 25, 2002), and
DOD Business Systems Modernization: Billions Continue to Be Invested
with Inadequate Management Oversight and Accountability, GAO-04-615
(Washington, D.C.: May 27, 2004).
[61] BSM is intended to replace DLA's SAMMS, and IDE may be selected to
provide a means of interfacing with, or sharing information between,
DLA systems. RMP is the planned upgrade for DRMS's DAISY and MIDAS.
[62] Pub. L. No. 96-480, 94 Stat. 2311 (Oct. 21, 1980), as amended (15
U.S.C. § 3701, et seq.); Computers for Learning Program established
under the act's authority; and Exec. Order No. 12,999, 61 Fed. Reg.
17,227 (Apr. 19, 1996).
[63] A list of condition codes and definitions is included in app. III.
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