Summary
GAO has previously reported that the lack of control over inventory shipments increases the Department of Defense's (DOD) vulnerability to undetected loss or theft. GAO evaluated the Army's effectiveness in maintaining accountability of inventory shipped to repair contractors. To conduct its review, GAO analyzed shipment data for fiscal year 2004, surveyed repair contractors that were recipients of inventory shipments, and assessed the Army's adherence to internal control procedures. Inventory shipments included both secondary repair items--components, assemblies, and subassemblies, other than major end items, which may be sent to commercial facilities for repair, alteration, or modification--and government-furnished materiel--assemblies, parts, and other items provided in support of this work.
The Army has not maintained accurate accountability for inventory shipped to repair contractors, thereby placing these assets at risk of loss or theft. Although DOD policy requires the military services to confirm receipt of all assets shipped to contractors, the Army is not consistently recording shipment receipts in its inventory management systems. In an analysis of fiscal year 2004 shipment data obtained from two Army inventory control points, GAO could not reconcile shipment records with receipt records for 42 percent of the unclassified secondary repair item shipments, with a value of $481.7 million, or for 37 percent of the classified secondary repair item shipments, with a value of $8.1 million. These data show that the Army cannot confirm that all inventory items shipped to repair contractors were received. The Army's data contained no receipts for government-furnished materiel. GAO survey results showed that repair contractors could confirm receipt of most, but not all, of the shipments. Specifically, on the basis of its survey results and follow-up work, GAO estimated that about 15 percent of the unclassified secondary repair item shipments in the survey population could not be confirmed as being received. GAO estimated that these lost or unaccounted for shipments have a value of approximately $68 million. All shipments of classified government-furnished materiel and secondary repair items were reported as received by the contractors in our survey. For shipments of unclassified government-furnished materiel, almost all shipments were reported by the contractors in our survey as being received. The Army's accountability for shipments of items sent to repair contractors is impeded by three internal control weaknesses. First, Army inventory control points lack systematic procedures for (1) obtaining and documenting contractor receipt of shipments of secondary repair items, (2) following up in cases where receipt was not confirmed by the contractors, and (3) providing advance notification of shipments to contractors. Second, the Army does not confirm receipt of government-furnished materiel shipments, reflecting a discrepancy between the Army's practices and DOD regulations regarding the need to confirm receipt of these shipments. DOD regulations require receipts for all shipments, including government-furnished materiel. Third, inventory control points do not provide the Defense Contract Management Agency with required quarterly reports that show the status of government-furnished materiel shipments. As a result, Defense Contract Management Agency officials may lack data to corroborate contractor-generated data during their inventory audits. These weaknesses in the Army's ability to account for inventory shipped to repair contractors increase the risk of undetected loss or theft. Moreover, inaccurate receipt records can diminish asset visibility and distort on-hand inventory balances, leading to unnecessary procurement of items.
Recommendations
Our recommendations from this work are listed below with a Contact for more information. Status will change
from "In process" to "Implemented" or "Not implemented" based on our follow up work.
Director:
Team:
Phone:
William M. Solis
Government Accountability Office: Defense Capabilities and Management
(202) 512-8365
Recommendations for Executive Action
Recommendation: To improve accountability of inventory shipped to Army repair contractors, the Secretary of Defense should direct the Secretary of the Army to instruct the Commanding General, Army Materiel Command, to establish systematic procedures to obtain and document contractors' receipt of secondary repair item shipments in the Army's inventory management systems, and to follow up on unconfirmed receipts within 45 days of shipment.
Agency Affected: Department of Defense
Status: In process
Comments: In February 2007, the Army reported that it produces a monthly report identifying all shipments that have exceeded their expected delivery dates. This report is routed to item managers for appropriate action to follow-up as necessary. The Army plans to assess the use of the Commercial Asset Visibility (CAV II) tool as a long term solution to promote a greater degree of accuracy in managing assets shipped to commercial repair contractors. The Army also plans to develop systematic procedures to include a suspense file to ensure necessary follow-up. The Army reported that the suspense is currently done manually, but that it would be automated with the implementation of the Logistics Modernization Plan (LMP), which is expected to be fully implemented in FY 2007. In June 2007, the Army reported that it had developed detailed standard operating procedures (SOP) addressing process requirements for the end to end contractor requirements. According to the Army this SOP incorporates DOD, Army and other regulatory requirements and serves to place a renewed emphasis on item managers being diligent in following up on past due deliveries. The Army also stated that the funding for CAV II implementation in LMP has been delayed until FY 10/11 timeframe and that in the interim, manual workaround are still being used. In April 2008, the Army reported that AMC has met the Life Cycle Management Commands (LCMCs) to develop a draft SOP and the estimated completion date is December 12, 2008.
Recommendation: To improve accountability of inventory shipped to Army repair contractors, the Secretary of Defense should direct the Secretary of the Army to instruct the Commanding General, Army Materiel Command, to institute policies, consistent with DOD regulations, for obtaining and documenting contractors' receipt of government-furnished materiel shipments in the Army's inventory management systems.
Agency Affected: Department of Defense
Status: In process
Comments: In February 2007, the Army Materiel Command reported that it would institute policies to ensure that contractor's receipts of government-furnished material (GFM) shipments will be obtained and documented in the Army's LMP system. There are proposed changes to the LMP system platform in fiscal year 2007 that will encompass the capability to receipt GFM at contractor facilities, which will enable the Army to be in compliance with DOD regulation. In June 2007, the Army reported that it had developed draft standard operating procedures (SOP) that addresses process requirements for the end to end contractor maintenance process and processes and procedures for tracking and monitoring secondary repair items and GFM/GFE shipped to contractors. The anticipated date for completion of the SOP is 12/31/2007. In April 2008, the Army reported that AMC has met the Life Cycle Management Commands (LCMCs) to develop a draft SOP and the estimated completion date is December 12, 2008.
Recommendation: To improve accountability of inventory shipped to Army repair contractors, the Secretary of Defense should direct the Secretary of the Army to instruct the Commanding General, Army Materiel Command, to provide quarterly status reports of all shipments of Army government-furnished materiel to the Defense Contract Management Agency, in compliance with DOD regulations.
Agency Affected: Department of Defense
Status: In process
Comments: In February 2007, The Army stated that its legacy system generates quarterly status reports of all GFM shipments to contractors. It stated that actions would be taken to ensure Defense Contract Management Agency (DCMA) receives a copy of the quarterly reports. The Army also has proposed two changes to its logistics modernization program (LMP) to include this capability in that system. In June 2007, the Army reported that its regulation AF 725-50 is being revised to require the quarterly reports that are mandated by DOD 4140.1-R. In the meantime, AMC planned to request that Army Headquarters (DA G-4) issue an advance change of notice that supports the quarterly reporting requirement. Once that action is completed, AMC will ensure that its LCMCs comply with the advance change notice. HQ AMC will require that AMC LCMCs issue quarterly reports to DCMA by the end of the 4th QTR 2007. In April 2008, the Army reported that is was revising its regulation AF 25-50 to incorporate the required actions. The regulation was split into a regulation and policy-level Army pamphlet and the expected completion date is June 2008. In the interim, AMC issued guidance on February 2, 2008 to the Life Cycle Management Commands (LCMCs) to ensure GFM status reports are forwarded to DCMA on a quarterly basis as required in DOD 4140.1-R.
Recommendation: To improve accountability of inventory shipped to Army repair contractors, the Secretary of Defense should direct the Secretary of the Army to instruct the Commanding General, Army Materiel Command, to examine the feasibility of implementing DOD guidance for providing advance notification to contractors at the time of shipment and, if warranted, establish appropriate policies and procedures for implementation.
Agency Affected: Department of Defense
Status: In process
Comments: In February 2007 the Army reported that it would examine the feasibility of providing advance notification to contractors at the time of shipment, to include availability of web-based query capability to make advanced time of shipment information available to contractors. The expected completion date for results was July 2006. In June 2007, the Army reported that advance notification is currently not resident within CCS or CAVII. The shipping data for items shipped to repair contractors is entered into the logistics modernization program at the time the items are tendered for shipment. The Army tasked LOGSA to include this functionality within CCRS as an interim solution for Life Cycle Management Commands (LCMCs) still using CCSS. Army planned to have technical parameters of the CCRS documented and submitted for funding by 07/31/07. In April 2008, the Army report that the draft functional specification for CCRS has been completed and has been disseminated to the LCMCs for review. Final specification is expected by August 1, 2008. A request for funding will be made during the fiscal year 2008 mid-year Army Working Capital Fund review in May 2008.
Recommendation: To improve accountability of inventory shipped to Army repair contractors, the Secretary of Defense should direct the Secretary of the Army to instruct the Commanding General, Army Materiel Command, to analyze receipt records for secondary repair items shipped to contractors and take actions necessary to update and adjust inventory management data prior to transfer to the Logistics Modernization Program. These actions should include investigating and resolving shipments that lack matching receipts to determine their status.
Agency Affected: Department of Defense
Status: In process
Comments: In February 2007, the Army reported that data cleansing efforts ongoing at the major commands. In June 2007, the Army continued to report that data cleansing at AMC Life Cycle Management Commands (LCMCs) was currently underway and that it was a major on-going effort with AMC. In April 2008, the Army reported that data cleansing at LCMCs is ongoing as the LMP is implemented site by site. LMP is anticipated to be fielded to AMCOM in March 2009 and fully fielded in 2010.
Recommendation: To improve accountability of inventory shipped to Army repair contractors, the Secretary of Defense should direct the Secretary of the Army to instruct the Commanding General, Army Materiel Command, to to ensure consistent implementation of any new procedures arising from the recommendations in this report, provide periodic training to appropriate inventory control point personnel and provide clarifying guidance concerning these new procedures to the command's repair contractors.
Agency Affected: Department of Defense
Status: In process
Comments: In February 2007, the Army reported that it would require that training and guidance be provided to its major command personnel to ensure understanding of procedures to strengthen internal controls for items shipped to repair contractors. The Army expected to have results by July 2006. In June 2007, the Army stated that technical interchange at Army IPT meetings provide excellent training to meeting participants. Once completed, the Army stated that the AMC Pamphlet would be an excellent training vehicle for HQ AMC and Life Cycle Management Commands (LCMC) personnel. According to the Army, currently training is largely on-the-job for technical loop personnel at the LCMCs and additional training alternatives are also being explored. In April 2008, the Army reported that the development of a procedural-level HQ AMC Pamphlet or equivalent document will be completed six months after the SOP is finalized. At that time, a full scale evaluation of contract maintenance training strategy will be conducted and the estimated completion date for that evaluation is July 30, 2009.
