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Report to Congressional Requesters: 

July 2006: 

DOD Excess Property: 

Control Breakdowns Present Significant Security Risk and Continuing 
Waste and Inefficiency: 

GAO-06-943: 

GAO Highlights: 

Highlights of GAO-06-943, a report to congressional requesters 

Why GAO Did This Study: 

GAOís previous work found problems in security controls over sensitive 
excess military equipment that resulted in lost and stolen items, some 
of which were sold to the public, and significant waste and 
inefficiency in the Department of Defense (DOD) excess property 
reutilization program. GAO was asked to perform follow-up 
investigations to determine whether (1) unauthorized parties could 
obtain sensitive excess military equipment that requires 
demilitarization (destruction) when no longer needed by DOD and (2) 
system and process improvements are adequate to prevent sales of new, 
unused excess items that DOD continues to buy or that are in demand by 
the military services. 

What GAO Found: 

GAO investigators posing as private citizens to disguise their identity 
purchased several sensitive military equipment items from DODís 
liquidation sales contractor, indicating that DOD has not enforced 
security controls for preventing sensitive excess military equipment 
from release to the public. GAO investigators at liquidation sales 
purchased ceramic body armor inserts currently used by deployed troops, 
a cesium technology timing unit with global positioning capabilities, a 
universal frequency counter, 2 guided missile radar test sets, 12 
digital microcircuits used in F-14 fighter aircraft, and numerous other 
items. GAO was able to purchase these items because controls broke down 
at virtually every step in the excess property turn-in and disposal 
process. GAO determined that thousands of military items that should 
have been demilitarized (destroyed) were sold to the public. Further, 
in June 2006, GAO undercover investigators posing as DOD contractor 
employees entered two excess property warehouses and obtained about 
$1.1 million in sensitive military equipment items, including 2 
launcher mounts for shoulder-fired guided missiles, several types of 
body armor, a digital signal converter used in naval surveillance, an 
all-band antenna used to track aircraft, and 6 circuit cards used in 
computerized Navy systems. At no point during GAOís warehouse security 
penetration were its investigators challenged on their identity and 
authority to obtain DOD military property. The table below shows 
examples of sensitive military equipment obtained during GAOís 
undercover operations. 

Figures: Sensitive Military Equipment Obtained during GAO's Undercover 
Tests: 

[See PDF for Image] 

Source: GAO, Moog Corporation for antenna. 

[End of Figures] 

GAO investigators posing as private citizens also bought several new, 
unused items currently being purchased or in demand by the military 
services from DODís excess property liquidation sales contractor. 
Although military units paid full price for these items when they 
ordered them from supply inventory, GAO paid a fraction of this cost to 
purchase the same items, demonstrating continuing waste and 
inefficiency. 

What GAO Recommends: 

GAO briefed DOD and military service management on the results of its 
investigations and provided perspectives on ways to resolve the control 
breakdowns that resulted in public sales of sensitive excess military 
equipment and new, unused excess items that the military services are 
continuing to use. In addition, GAO asked DOD to comment on a draft of 
its report. In its comments, DOD stated that given the time allotted to 
comment, the department was not able to do a detailed review and has no 
comments at this time. DOD also commented that it continues to 
implement changes to procedures based on GAOís May 2005 report (GAO-05-
277). 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-943]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Gregory D. Kutz at (202) 
512-7455 or kutzg@gao.gov. 

[End of Section] 

Contents: 

Letter: 

Summary of Investigation: 

Background: 

Undercover Acquisitions of Sensitive Excess Military Items Identifies 
National Security Risk: 

Waste Associated with Sales of A-Condition Excess Items that Military 
Services Are Continuing to Use in Operations: 

Corrective Action Briefing: 

Conclusions: 

Agency Comments and Our Evaluation: 

Appendixes: 

Appendix I: DOD Excess Property Demilitarization Codes  

Appendix II: Excess Property Condition Codes: 

Appendix III: Comments from the Department of Defense:  

Appendix IV: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: DOD Excess Property Demilitarization Codes: 

Table 2: Excess Property Condition Codes: 

Figures: 

Figure 1: Example of Small Arms Protective Inserts Purchased in March 
2006: 

Figure 2: Excess DOD Time Selector Unit Purchased in March 2006: 

Figure 3: Enlarged Photograph of One of the Excess DOD Microcircuits 
Purchased in April 2006: 

Figure 4: Guided Weapon Radar Test Sets Purchased in April 2006: 

Figure 5: Example of the Universal Frequency Counter Purchased in April 
2006: 

Figure 6: Optical Instrument Lenses Used in Fire Control Technology on 
the M-901A Anti-tank Vehicle Sold to the Public in January 2006: 

Figure 7: Example of Excess Body Armor Vest Sold to the Public in March 
2006: 

Figure 8: Guided Missile Mount Obtained from DRMO A during the June 
2006 Undercover Penetration: 

Figure 9: One of the Kevlar Body Armor Fragmentation Vests Obtained 
from DRMO A during the June 2006 Undercover Penetration: 

Figure 10: Digital Signal Converter Obtained from DRMO A during the 
June 2006 Undercover Penetration: 

Figure 11: All-band Antenna Obtained from DRMO A during the June 2006 
Undercover Penetration: 

Figure 12: Body Armor Fragmentation Vest Obtained from DRMO B during 
the June 2006 Undercover Penetration: 

Figure 13: Throat and Groin Protection Armor Obtained from DRMO B 
during the June 2006 Undercover Penetration: 

Figure 14: Circuit Card Assemblies Obtained from DRMO B during the June 
2006 Undercover Penetration: 

Figure 15: Example of Excess DOD Palm V Organizers and Accessories 
Obtained from DRMO B during the June 2006 Undercover Penetration: 

Figure 16: Example of New, Unused Wet-Weather Parkas Purchased in March 
2006: 

Figure 17: New, Unused Cold-Weather Parka Purchased by GAO in May 2006: 

Figure 18: New, Unused Portable Field X-ray Processing Enclosure 
Purchased in April 2006: 

Figure 19: New, Unused DOD High-Security Lock Purchased in April 2006: 

Figure 20: New, Unused DOD Gasoline Engine Purchased in March 2006: 

Figure 21: New, Unused Refrigerant Recovery System Purchased in April 
2006: 

Abbreviations: 

CCLI: Commerce Control List Item: 

C.F.R.: Code of Federal Regulations: 

DAISY: DRMS Automated Information System: 

DLA: Defense Logistics Agency: 

DLIS: Defense Logistics Information System: 

DOD: Department of Defense: 

DRMO: Defense Reutilization and Marketing Office: 

DRMS: Defense Reutilization and Marketing Service: 

EUC: End-Use Certificate: 

FedLog: Federal Logistics System: 

GSA: General Services Administration: 

IT: Information Technology: 

JSLIST: Joint Service Lightweight Integrated Suit Technology: 

MLI: Military List Item: 

NSN: National stock number: 

OMB: Office of Management and Budget: 

PDA: Personal Digital Assistant: 

SAPI: Small Arms Protective Inserts: 

U.S.C. : United States Code: 

July 25, 2006: 

The Honorable Tom Davis: 
Chairman: 
Committee on Government Reform: 
House of Representatives: 

The Honorable Christopher Shays: 
Chairman: 
Subcommittee on National Security, Emerging Threats and International 
Relations: 
Committee on Government Reform: 
House of Representatives: 

Our May 2005 report[Footnote 1] stated that the Department of Defense 
(DOD) reported $466 million in lost, damaged, and missing excess 
property from fiscal years 2002 through 2004, including property with 
demilitarization restrictions,[Footnote 2] such as chemical and 
biological protective suits, body armor, and guided missile warheads. 
Some of the restricted items had been sold to the public. Further, our 
May 2005 report noted that during fiscal years 2002 and 2003, the 
military services needlessly spent at least $400 million to purchase 
new items instead of reusing identical excess items in new and unused 
condition (A-condition).[Footnote 3] As a result, the new, unused 
excess items were sold for pennies on the dollar. In response to our 
May 2005 report, at the June 2005 oversight hearing by the Subcommittee 
on National Security, Emerging Threats and International Relations, DOD 
officials stated that controls were adequate to prevent items requiring 
demilitarization from being released to unauthorized parties. In 
addition, DOD officials promised to have system enhancements in place 
in January 2006 to assure that excess items in new and unused condition 
that the military services are continuing to use are returned to 
inventory and reutilized within DOD to avoid unnecessary purchases. 

This report responds to your request that we perform follow-up 
investigations to determine whether (1) unauthorized parties could 
obtain sensitive excess military equipment that requires 
demilitarization when no longer needed by DOD and (2) systems and 
process improvements are adequate to prevent liquidation sales of A- 
condition items that DOD is continuing to buy or that are in demand by 
the military services. 

Using investigative techniques and acting in an undercover capacity to 
disguise our identity, we tested DOD systems and controls to see if we 
could obtain sensitive excess military equipment and technology items 
that require demilitarization and should not be available to the 
public. We used DOD's Federal Logistics (FedLog) system information to 
identify and validate the population of military equipment and 
technology items that require demilitarization. We then identified 
public sales of excess military items that required demilitarization by 
total destruction when no longer needed by DOD to prevent these items 
from falling into the wrong hands. Next, we tested the systems and 
controls by making undercover purchases of military equipment and 
technology items from DOD's liquidation sales contractor.[Footnote 4] 
In making these purchases we used a fictitious identity to obtain End- 
Use Certificates (EUC)[Footnote 5] where this documentation was 
required as a condition of sale. For sales where we were outbid, we 
tracked the bid activity to identify the winning bidders. We are 
referring these purchases and numerous other public purchases of items 
that should have been demilitarized to federal law enforcement agencies 
for further investigation. In addition, we used publicly available 
information to develop undercover techniques to penetrate Defense 
Reutilization and Marketing Office (DRMO) excess property warehouses. 

To determine whether DOD was continuing to sell A-condition items that 
were still being purchased or were in demand by the military services, 
we monitored DOD's liquidation contractor sales to identify new, unused 
items. We targeted items for undercover purchases where our research 
identified ongoing or recent procurements and active supply inventory 
status of these items. We also monitored DOD actions to implement 
improvements in excess property systems, processes, and controls in 
response to our May 2005 audit recommendations. We analyzed Defense 
Reutilization and Marketing Service (DRMS) data to determine if 
reutilization rates of A-condition excess property increased during the 
first three quarters of fiscal year 2006. We conducted our 
investigations from November 2005 through June 2006 in accordance with 
quality standards for investigators as set forth by the President's 
Council on Integrity and Efficiency. 

Summary of Investigation: 

We used a fictitious identity posing as a private citizen to purchase 
numerous sensitive excess DOD military technology items that should 
have been demilitarized instead of being sold to the public. Sensitive 
excess military equipment purchased by our investigator at DOD 
liquidation sales auctions included ceramic body armor inserts 
currently used by deployed troops; a time selector unit used to ensure 
the accuracy of computer-based equipment, such as global positioning 
systems and system-level clocks; a universal frequency counter used to 
ensure that the frequency of communication gear is running at the 
expected rate; 2 guided missile radar test sets, at least 12 digital 
microcircuits used in F-14 fighter aircraft; and numerous other 
sensitive electronic parts. We were able to purchase these items 
because controls broke down at virtually every step in the excess 
property turn-in and disposal process. 

In addition, posing as DOD contractor employees[Footnote 6] our 
undercover investigators were able to easily penetrate security at two 
separate excess property warehouses in June 2006. There, they were able 
to obtain, at no cost, numerous sensitive military equipment items 
valued at about $1.1 million that should not have been released outside 
of DOD. The items we obtained included two launcher mounts for shoulder-
fired guided missiles, several types of body armor, a digital signal 
converter used in naval electronic surveillance, an all-band antenna 
used to track aircraft, six circuit cards used in computerized Navy 
systems, and several other items in use by the military services. The 
body armor could be used in terrorist or other criminal activity. Many 
of the other military items have weapons applications that also would 
be useful to terrorists. Our undercover investigators were able to 
obtain these items because DRMO personnel did not confirm their 
identity and authorization to requisition excess DOD property items. 
The DRMO personnel even helped our undercover investigators load the 
items into our van. 

We also made several undercover purchases of new, unused A-condition 
excess DOD items, including wet-weather parkas, cold-weather desert 
camouflage parkas, a portable field x-ray processing enclosure, high- 
security locks used to secure the back bay of trucks, a gasoline 
engine, and a refrigerant recovery system used for servicing automotive 
vehicles. The items we purchased at DOD liquidation sales were being 
ordered from supply inventory by military units at or near the time of 
our purchases. In the case of one supply-depot-stocked item--the 
portable x-ray enclosure--no items were in stock at the time of our 
purchase. At the time we made our purchase, DOD's liquidation 
contractor sold 40 of these x-ray enclosures with a total reported 
acquisition cost of $289,400 for a liquidation sales price of $2,914-- 
about a penny on the dollar. In another example, we purchased a 
gasoline engine in March 2006 for $355. The Marine Corps ordered 4 of 
these gas engines from Defense Logistics Agency (DLA) supply inventory 
in June 2006 and paid $3,119 each for them. At the time of our 
undercover purchase, 20 identical gasoline engines with a reported 
acquisition cost of $62,380 were sold to the public for a total 
liquidation sales price of $6,221. Our investigation demonstrated that 
the problems we reported in May 2005 have not been fully resolved and 
that there is continuing waste and inefficiency in DOD's excess 
property reutilization program. 

Our May 2005 report included 13 recommendations to address problems in 
accountability over sensitive military items and the economy and 
efficiency of DOD's excess property reutilization program. Thus, we are 
making no new recommendations in this report. We provided a corrective 
action briefing to DOD on June 28, 2006, and we provided a draft of our 
report to DOD for comment on July 10, 2006. The Deputy Under Secretary 
of Defense for Logistics and Materiel Readiness responded that given 
the time allotted to comment, the Department was not able to do a 
detailed review and has no comments at this time. DOD's comment letter 
is reprinted in appendix III. 

Background: 

Over the past several years, we reported[Footnote 7] that serious 
breakdowns in management processes, systems, and controls have resulted 
in substantial waste and inefficiency in DOD's excess property 
reutilization program. Our June 2002 testimony and our November 2003 
report documented instances where DOD sold to the public items such as 
Joint Service Lightweight Integrated Suit Technology (JSLIST)[Footnote 
8] and other chemical and biological protective suits and related gear 
that should have been restricted to DOD use only. Our November 2003 
report also 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. Our May 2005 
report stated that DOD reported $466 million in lost, damaged, and 
missing excess property from fiscal years 2002 through 2004, including 
property with demilitarization restrictions, such as chemical and 
biological protective suits, body armor, and guided missile warheads. 
Some of the restricted items had been sold to the public. We also 
reported that during fiscal years 2002 and 2003, the military services 
purchased at least $400 million of identical items instead of using 
available excess items in new and unused condition. 

At the time of our May 2005 report, waste and inefficiency occurred 
because condition codes were assigned to excess property that 
incorrectly identified it as unusable and DOD lacked adequate systems 
and processes for assuring that excess items in A-condition were reused 
to avoid unnecessary purchases. We also found that DOD lacked adequate 
security over excess items requiring demilitarization, resulting in 
losses reported by DRMOs of nearly 150 chemical and biological 
protective suits, over 70 units of body armor, and 5 guided missile 
warheads. Losses reported by DLA supply depots included thousands of 
sensitive military items, such as weapons system components and 
aircraft parts. 

Undercover Acquisitions of Sensitive Excess Military Items Identifies 
National Security Risk: 

Our undercover investigators purchased several sensitive excess 
military equipment items that were improperly sold to the public at DOD 
liquidation sales. These items included 3 ceramic body armor inserts 
identified as small arms protective inserts (SAPI), which are the 
ceramic inserts currently in demand by soldiers in Iraq and 
Afghanistan; a time selector unit used to ensure the accuracy of 
computer-based equipment, such as global positioning systems and system-
level clocks; 12 digital microcircuits used in F-14 Tomcat fighter 
aircraft; guided missile radar test sets used to check the operation of 
the data link antenna on the Navy's Walleye (AGM-62) air- to-ground 
guided missile; and numerous other electronic items. In instances where 
DOD required an EUC as a condition of sale, our undercover investigator 
was able to successfully defeat the screening process by submitting 
bogus documentation and providing plausible explanations for 
discrepancies in his documentation. We identified at least 79 buyers 
for 216 sales transactions involving 2,669 sensitive military items 
that DOD's liquidation contractor sold to the public between November 
2005 and June 2006. We are referring information on these sales to the 
appropriate federal law enforcement agencies for further investigation. 

Posing as DOD contractor employees, our investigators also entered 
DRMOs in two east coast states, and obtained about $1.1 million in 
excess military items that required demilitarization as well several 
other items that are currently in use by the military services. DRMO 
personnel even helped us load the items into our van. These items 
included 2 launcher mounts for shoulder-fired guided missiles, an all- 
band antenna used to track aircraft, 16 body armor vests, body armor 
throat and groin protectors, 6 circuit card assemblies used in 
computerized Navy systems, and 2 Palm V personal data assistant (PDA) 
organizers. 

Sensitive Excess Military Items Purchased at DOD Excess Property 
Liquidation Sales: 

Using a fictitious identity as a private citizen, our undercover 
investigator applied for and received an account with DOD's liquidation 
sales contractor. The undercover investigator was then able to purchase 
several sensitive excess military items that were being improperly sold 
to the public. During our undercover purchases, our investigator 
engaged in numerous conversations with liquidation sales contractor 
staff during warehouse inspections of items advertised for sale and 
DRMS and DLA Criminal Investigative Activity (DCIA) staff during the 
processing of our EUCs. On one occasion our undercover investigator was 
told by a DCIA official that information provided on his EUC 
application had no match to official data and that he had no credit 
history. Our investigator responded with a plausible story and 
submitted a bogus utility bill to confirm his mailing address. 
Following these screening procedures, the EUC was approved by DCIA and 
our undercover investigator was able to purchase targeted excess 
military items. Once our initial EUC was approved, our subsequent EUC 
applications were approved based on the information on file. The 
following discussion presents the case study details of our undercover 
purchases of sensitive excess military items that should have been 
destroyed when no longer needed by DOD and should not have been sold to 
the public. Although these items had a reported acquisition cost of 
$461,427, we paid a liquidation sales price of $914 for them--less than 
a penny on the dollar. 

Small arms protective insert. In March 2006, our undercover 
investigator purchased 3 ceramic body armor inserts identified as small 
arms protective inserts (SAPI), which are the ceramic inserts currently 
in demand by soldiers in Iraq and Afghanistan. SAPI are designed to 
slide into pockets sewn into the front and back of military vests in 
order to protect the warfighter's chest and back from small arms fire. 
The SAPI had been improperly included in a batch lot of items that did 
not require demilitarization. The batch lot reportedly contained 609 
items, including shelter half-tents, canteens and canteen covers, small 
tools, first aid pouches, insect nets, barracks bags and waterproof 
bags, small arms cases, miscellaneous field gear, and the SAPI. We paid 
$129 for the batch lot, which had a reported acquisition cost of 
$1,471. The SAPI have a demilitarization code of D, which requires them 
to be destroyed when no longer needed by DOD rather than being sold to 
the public. Figure 1 shows a photograph of one of the SAPI that we 
purchased. 

Figure 1: Example of Small Arms Protective Inserts Purchased in March 
2006: 

[See PDF for image] 

Source: GAO.  

[End of figure] 

Time selector unit. In March 2006, our undercover investigator 
purchased an excess DOD time selector unit used to ensure the accuracy 
of computer-based equipment, such as global positioning systems and 
system-level clocks. According to our Chief Technologist, this 
technology is important because it prevents users in the battlefield 
from exposing their position to get timing signals from outside 
sources. We paid $65 for the time selector unit, which had an original 
acquisition cost of $343,695. Also, although the unit was listed as 
being in F7 condition (unserviceable, reparable condition), it appeared 
to be in working order. 

The time selector unit had a demilitarization code of D, which required 
it to be destroyed when no longer needed by DOD. The unit also had a 
FedLog controlled inventory item code (CIIC) of 7, which indicates it 
is a classified item that requires protection in the interest of 
national security, in accordance with DOD 5200.1-R, Information 
Security Program.[Footnote 9] 

Although the link on the national stock number (NSN)[Footnote 10] 
included on DOD's liquidation contractor's Internet sale Web site 
showed this item was assigned a demilitarization code of D, it was sold 
to the public as a trade security controlled item--demilitarization 
code B. As such, we were required to complete an application and obtain 
an approved EUC. Our undercover investigator submitted bogus 
information on his EUC application. A DCIA official contacted our 
undercover investigator and told him that the information on his 
application did not match official data and he had no credit history. 
After responding with a plausible story and submitting a bogus utility 
bill to document our mailing address, our EUC for the time selector 
unit was approved in April 2006. Figure 2 shows a photograph of the 
excess DOD time selector unit we purchased. 

Figure 2: Excess DOD Time Selector Unit Purchased in March 2006: 

[See PDF for image] 

Source: GAO. 

[End of figure] 

Digital microcircuits. Our undercover investigator purchased a total of 
82 excess DOD digital microcircuits, including 12 microcircuits used on 
the F-14 Tomcat fighter aircraft. Because of their sensitive 
technology, the microcircuits had a demilitarization code of D, which 
requires their total destruction when they are no longer needed by DOD. 
The 12 microcircuits also had a CIIC of 7, which indicates they are 
classified items that require protection in the interest of national 
security, in accordance with DOD 5200.1-R. In violation of DOD 
demilitarization policy for D coded items, the microcircuits were 
improperly included in a batch lot with several other electronic items 
that did not require demilitarization. Further, only 12 of the 82 
demilitarization code D microcircuits that we purchased were listed on 
the liquidation sale advertisement. We paid approximately $58 for the 
entire batch lot, which included a total of 591 items with a reported 
acquisition cost of $112,700. Because several items in the batch lot 
had demilitarization codes that designated them as trade security 
control items restricted by the U.S. Munitions List or the Commerce 
Control List of the U.S. Department of Commerce, an EUC was required 
for approval of our purchase. Our EUC for the digital microcircuits was 
approved in May 2006 based on our bogus information already on file. 
Figure 3 shows an enlarged photograph of one of the microcircuits that 
were improperly sold to our undercover investigator. 

Figure 3: Enlarged Photograph of One of the Excess DOD Microcircuits 
Purchased in April 2006: 

[See PDF for image] 

Source: GAO.  

[End of figure] 

Guided weapon radar test sets. Two guided weapon radar test sets were 
included in the batch lot with the digital microcircuits that our 
undercover investigator purchased from DOD's liquidation sales 
contractor in April 2006. The test sets, which were advertised for sale 
as radar test sets, are used to check the operation of the data link 
antenna on the Navy's Walleye (AGM-62) air-to-ground guided missile 
delivered by the F/A-18 Hornet fighter aircraft. The Walleye is 
designed to deliver a self-guided high-explosive weapon from an attack 
aircraft to a surface target. Because of their sensitive technology the 
test sets have a demilitarization code of B, which requires an EUC for 
trade security purposes. Figure 4 shows a photograph of the guided 
weapon test sets that we purchased and obtained using bogus EUC 
documentation. 

Figure 4: Guided Weapon Radar Test Sets Purchased in April 2006: 

[See PDF for image] 

Source: GAO.  

[End of figure] 

Universal frequency counter. The new, unused universal frequency 
counter purchased by our undercover investigator was manufactured 
(initially calibrated) in February 2003. DOD awarded a contract to 
Fluke Corporation in 2002 for 67 of these items, which are designed to 
count the speed at which an electrical system fluctuates. According to 
a manufacturer official, this item's military application is to ensure 
the frequency of communication gear is running at the expected rate. 
The universal frequency counter has a demilitarization code of B, which 
requires trade security control under the U.S. Munitions List. We paid 
a total of $475 for this item, which had a reported acquisition cost of 
$1,685. In April 2006, when we purchased the universal frequency 
counter, DOD's liquidation sales contractor sold a total of 15 of these 
items for $5,506, or about $367 per unit. The 15 items had a reported 
total acquisition value of $25,275, or $1,685 per unit. The bogus 
paperwork that we submitted with our EUC application was approved by 
DCIA in May 2006. Figure 5 shows a photograph of the unit that we 
purchased. 

Figure 5: Example of the Universal Frequency Counter Purchased in April 
2006: 

[See PDF for image] 

Source: GAO. 

[End of figure] 

Directional coupler. In March 2006, our undercover investigator 
purchased an excess military item advertised as a directional coupler 
from DOD's liquidation sales contractor. We paid $186 for the sales 
lot, which contained a total of 8 electronic equipment and supply items 
with a listed acquisition cost of $1,200. According to FedLog, the 
directional coupler advertised had an actual acquisition cost of 
$1,876. This directional coupler is used in the F-14 Tomcat fighter 
aircraft to monitor, measure, isolate, or combine electronic signals. 
Because of its technology, this directional coupler has a 
demilitarization designation code of D, which required it to be 
destroyed when no longer needed by DOD. The directional coupler also 
had a CIIC of 7, which indicates it is a classified item that requires 
protection in the interest of national security, in accordance with DOD 
5200.1-R. However, after receiving the item, we discovered that it was 
not the item identified by the national stock number in the sales 
advertisement. As a result, it appears that DOD not only lost 
accountability over the actual item identified in its excess property 
inventory, but advertised and recorded a public sale of a sensitive 
military item on the U.S. Munitions List, which was required to be 
disposed of by destruction in accordance with DOD demilitarization 
policy.[Footnote 11] 

Additional Sales of Sensitive Excess Military Items Targeted for 
Undercover Purchase: 

We observed numerous sales of additional excess sensitive military 
items that were improperly advertised for sale or sold to the public, 
including fire control components for weapon systems, body armor, and 
weapon system components. The demilitarization codes for these items 
required either key point or total destruction rather than disposal 
through public sale. Although we placed bids to purchase some of these 
items, we lost to higher bidders. We identified at least 79 buyers for 
216 public liquidation sales transactions involving 2,669 sensitive 
military items. We are referring these sales to federal law enforcement 
agencies for further investigation and recovery of the sensitive 
military equipment. The following discussion highlights the details of 
sales of sensitive military equipment items that we observed or 
targeted for purchase but did not obtain because we were outbid during 
the respective sales auctions. 

Optical fire control items. Our investigative team identified a January 
2006 sale of excess U.S. Army Armament Command optical instrument 
prisms and optical lenses. DOD data showed that these optical 
instruments are components of the fire control sighting mechanism used 
in the M-901A Improved Armored Anti-tank vehicle. The M-901A fires the 
TOW 2 series missiles. Our Chief Technologist advised us that both the 
prisms and lenses are high-quality optical sighting equipment used in 
the fire control system of the M-901A. We made an undercover visit to 
one of DOD's liquidation contractor sales facilities to inspect the 
prisms in January 2006. Our inspection of the items listed for sale 
disclosed that the property label on the boxes listed 11 optical 
instrument prisms with an acquisition cost of $93,093. Although the 
demilitarization code of Q listed on the property label for the prisms 
identified them as requiring trade security control as an item on the 
Commerce Control List, the NSN listed for the prisms in fact related to 
a demilitarization code of D, which required their total destruction 
when no longer needed by DOD. Upon further inspection, we found that 
the items labeled as prisms were in sealed manufacturer packages that 
listed them as optical instrument lenses, not prisms. The NSN 
associated with the 11 lenses indicated that they had a total 
acquisition cost of $1,859 and a demilitarization code of D, requiring 
their total destruction rather than disposal by public sale. The 
mislabeling of these items indicates that DOD may have lost 
accountability over both the prisms and the lenses. Both the prisms and 
the lenses have a controlled CIIC code of 7, which indicates they are 
classified items that require protection in the interest of national 
security, in accordance with DOD 5200.1-R. We bid $550 for the lenses 
and lost to a higher bidder, who paid $909 for them. Figure 6 is a 
photograph of one of the boxes labeled as containing prisms that 
actually contained lenses. 

Figure 6: Optical Instrument Lenses Used in Fire Control Technology on 
the M-901A Anti-tank Vehicle Sold to the Public in January 2006: 

[See PDF for image] 

Source: GAO. 

[End of figure] 

Body armor. Our investigative team also identified a March 2006 
liquidation sale of body armor fragmentation vests. Upon our visit to 
the sales warehouse, we identified a total of four body armor 
fragmentation protective vests in two separate sales lots. According to 
the NSN, all of the items sold had a demilitarization code of E, which 
required either key point or total destruction of the item when no 
longer needed by DOD. We did not bid on this sale, but have included it 
in our referrals to federal law enforcement agencies for follow-up 
investigations. Figure 7 shows a photograph of the actual body armor 
vest that that we observed for sale in March 2006. 

Figure 7: Example of Excess Body Armor Vest Sold to the Public in March 
2006: 

[See PDF for image] 

Source: GAO. 

[End of figure] 

During our undercover operations, we also noted 13 advertised sales 
events, including 179 items that were subject to demilitarization 
controls, where the items were not sold. In 5 of these sales involving 
113 sensitive military parts, it appears that DOD or its liquidation 
sales contractor caught the error in demilitarization codes and pulled 
the items from sale. One of these instances involved an F-14 fin panel 
assembly that we had targeted for an undercover purchase. During our 
undercover inspection of this item prior to sale, a contractor official 
told our investigator that the government was in the process of 
changing demilitarization codes on all F-14 parts and it was likely 
that the fin panel assembly would be removed from sale. Of the 
remaining 8 sales lots containing 66 sensitive military parts, we could 
not determine whether the items were not sold because DOD or its 
contractor caught the demilitarization coding errors or because minimum 
bids were not received during the respective sales events. 

Sensitive Military Items Obtained Through Inside Penetrations of DRMO 
Security: 

Our investigators used publicly available information to develop 
fictitious identities as DOD contractor personnel and enter DRMO 
warehouses (referred to as DRMO A and DRMO B) in two east coast states 
on separate occasions in June 2006, to requisition excess sensitive 
military parts and equipment valued at about $1.1 million. Our 
investigators were able to search for and identify excess items without 
supervision. In addition, DRMO personnel assisted our investigators in 
locating other targeted items in the warehouse and loading these items 
into our van. At no point during either visit did DRMO personnel 
attempt to verify with the actual contractor that our investigators 
were, in fact, contractor employees. 

During the undercover penetration, our investigators obtained numerous 
sensitive military items that were required to be destroyed when no 
longer needed by DOD to prevent them from falling into the wrong hands. 
These items included two guided missile launcher mounts for shoulder- 
fired missiles, several types of body armor, an all-band antenna used 
to track aircraft, six circuit card assemblies used in Navy 
computerized systems, a digital signal converter used in naval 
electronic surveillance, and two Palm V personal digital assistants 
(PDA) that were certified as having their hard drives removed. 

Shortly after leaving the second DRMO, our investigators received a 
call from a contractor official whose employees they had impersonated. 
The official had been monitoring his company's requisitions of excess 
DOD property and noticed transactions that did not appear to represent 
activity by his company. He contacted personnel at DRMO A, obtained the 
phone number on our excess property screening letter, and called us. 
Upon receiving the call from the contractor official, our lead 
investigative agent explained that he was with GAO and we had performed 
a government test. 

DRMO A Penetration: 

The following discussion presents the details of our case study 
requisitions of sensitive military items we obtained during our 
penetration of the first east coast DRMO. 

Guided missile launcher mounts. Posing as DOD contractor employees, our 
undercover investigators entered DRMO A in June 2006 and requisitioned 
two excess DOD shoulder-fired guided missile launcher mounts with a 
total reported acquisition cost of $6,246. The missile launcher mounts 
provide the electrical connection between the round and the tracker and 
contain a remote firing mechanism for the wire-guided Dragon missiles. 
While the Dragon has been replaced by newer technology missiles, it is 
a man-portable, shoulder-fired, medium antitank weapon system that can 
defeat armored vehicles, fortified bunkers, concrete gun emplacements, 
and other hardened targets. Under department demilitarization policy, 
missile launcher mounts have a demilitarization code of C, which 
requires removal and/or demilitarization of installed key point(s) or 
lethal parts, components, and accessories to prevent them from falling 
into the wrong hands. The missile launcher mounts also have a CIIC code 
of 7, which indicates they are classified items that require protection 
in the interest of national security, in accordance with DOD 5200.1-R. 
Figure 8 shows a photograph of one of the guided missile launcher 
mounts obtained by GAO. 

Figure 8: Guided Missile Mount Obtained from DRMO A during the June 
2006 Undercover Penetration: 

[See PDF for image] 

Source: GAO. 

[End of figure]  

Kevlar body armor fragmentation vests. Our undercover investigators 
obtained six Kevlar body armor fragmentation vests with a total 
reported acquisition cost of $2,049 from DRMO A during our June 2006 
security penetration. This body armor has a woodland camouflage pattern 
and was designed for use by ground troops and parachutists. Although 
the Kevlar fragmentation vest has been replaced by newer technology, it 
is still considered a sensitive military item and has a 
demilitarization code of E, which identifies it as critical items/ 
materiel determined to require demilitarization, either key point or 
total destruction. The Kevlar fragmentation vests also have a CIIC code 
of 7, which indicates they are classified items that require protection 
in the interest of national security, in accordance with DOD 5200.1-R. 
Figure 9 shows a photograph of one of the fragmentation vests obtained 
during our undercover penetration. 

Figure 9: One of the Kevlar Body Armor Fragmentation Vests Obtained 
from DRMO A during the June 2006 Undercover Penetration: 

[See PDF for image] 

Source: GAO.  

[End of figure] 

Digital signal converter. During the undercover penetration at DRMO A, 
our investigators also obtained a DOD digital signal converter with a 
reported acquisition cost of $882,586. The digital signal converter is 
used as part of a larger surveillance system on the Navy's E2C Hawkeye 
early warning and control aircraft. Under department demilitarization 
policy, this digital signal converter has a demilitarization code of D 
that requires it to be destroyed when no longer needed by DOD. This 
signal converter also has a CIIC code of 7, which indicates it is a 
classified item that requires protection in the interest of national 
security, in accordance with DOD 5200.1-R. Figure 10 shows a photograph 
of the digital signal converter our investigators obtained from DRMO A. 

Figure 10: Digital Signal Converter Obtained from DRMO A during the 
June 2006 Undercover Penetration: 

[See PDF for image] 

Source: GAO.  

[End of figure] 

All-band antenna. Our undercover investigators identified and 
requisitioned a new, unused all-band antenna during their June 2006 
security penetration at DRMO A. According to manufacturer information, 
the antenna is a high-powered portable unit that is used by the Air 
Force to track aircraft. The antenna can be tripod-mounted or mounted 
on a portable shelter. The new, unused all-band antenna, which was 
purchased by DOD in 2003, had a reported acquisition cost of $120,000. 
A manufacturer representative told our investigator that this antenna 
is currently in production. Under department demilitarization policy, 
this all-band antenna has a demilitarization code of D that requires it 
to be destroyed when no longer needed by DOD. This antenna also has a 
CIIC code of 7, which indicates it is a classified item that requires 
protection in the interest of national security, in accordance with DOD 
5200.1-R. Figure 11 shows a photograph of the all-band antenna obtained 
during our undercover penetration of security at DRMO A. 

Figure 11: All-band Antenna Obtained from DRMO A during the June 2006 
Undercover Penetration: 

[See PDF for image] 

Source: GAO.  

[End of figure] 

DRMO B Penetration: 

Posing as employees for the same DOD contractor identity used during 
our June 2006 penetration at DRMO A, our investigators entered DRMO B a 
day later for the purpose of testing security controls at that 
location. DRMO officials appeared to be unaware of our security 
penetration at DRMO A the previous day. During the DRMO B undercover 
penetration, our investigators obtained the following items, most of 
which had demilitarization requirements. 

Body armor fragmentation vests. Our undercover investigators obtained 
10 body armor fragmentation vests with a total reported acquisition 
cost of $290 from DRMO B. Although the protective capability of this 
body armor has been superseded by newer technology, it would still 
provide firearm protection to terrorists or criminals. These 
fragmentation vests have a demilitarization code of E, which identifies 
them as critical items/materiel determined to require demilitarization, 
either key point or total destruction. Figure 12 shows a photograph of 
one the 10 fragmentation vests obtained during our undercover 
penetration. 

Figure 12: Body Armor Fragmentation Vest Obtained from DRMO B during 
the June 2006 Undercover Penetration: 

[See PDF for image] 

Source: GAO. 

[End of figure]  

Throat and groin protection armor. Our undercover investigators also 
obtained a Kevlar throat protector related to the camouflage body 
armor. The throat protector had a reported acquisition cost of $3.35 
and a demilitarization code of D, which requires it to be destroyed 
when no longer needed by DOD. The groin protector, which is designed to 
hold a ceramic insert, had a reported acquisition cost of $37.85 and a 
demilitarization code of D. Figure 13 shows a photograph of the throat 
and groin protection armor obtained during our undercover penetration 
at DRMO B. 

Figure 13: Throat and Groin Protection Armor Obtained from DRMO B 
during the June 2006 Undercover Penetration: 

[See PDF for image] 

Source: GAO. 

[End of figure] 

Circuit card assemblies. Our undercover investigators obtained six 
circuit card assemblies with a reported acquisition cost of $77,011 
from DRMO B. The circuit card assemblies, which were turned in by the 
Naval Air Warfare Center, had a demilitarization code of D which 
requires them to be destroyed when no longer needed by DOD. A Lockheed 
Martin representative, who confirmed that his company manufactured the 
circuit cards we obtained, told our investigator that the circuit card 
assemblies are used in a variety of computerized Navy systems. The 
circuit cards also have a CIIC code of 7, which indicates they are 
classified items that require protection in the interest of national 
security, in accordance with DOD 5200.1-R. Figure 14 shows a photograph 
of the circuit card assemblies obtained during our undercover 
penetration at DRMO B. 

Figure 14: Circuit Card Assemblies Obtained from DRMO B during the June 
2006 Undercover Penetration: 

[See PDF for image] 

Source: GAO. 

[End of figure]  

Palm V Organizer PDAs. During our undercover security penetration at 
DRMO B in June 2006, our investigators noticed two Palm V Organizer 
PDAs and accessories. The Palm PDAs had tags affixed to them which read 
"Certificate of Hard Drive Disposition/This certified hard drive was 
removed from CPU" and "Computer Casing Empty." Because PDAs do not have 
hard drives, after successfully requisitioning them, we asked our 
information technology (IT) security expert to test them to confirm 
that all sensitive information had been properly removed. Our IT expert 
used National Institute of Standards and Technology (NIST) utilities 
recommended for forensic analysis to run the tests.[Footnote 12] Based 
on the tests, our IT expert determined that the RAM on both devices had 
been wiped clean of any trace of residual data, leaving only the normal 
information that a user would expect to find on an unused Palm V PDA. 
Figure 15 shows a photograph of one of the Palm V PDAs and related 
accessories obtained from DRMO B. 

Figure 15: Example of Excess DOD Palm V Organizers and Accessories 
Obtained from DRMO B during the June 2006 Undercover Penetration: 

[See PDF for image] 

Source: GAO.  

[End of figure] 

Waste Associated with Sales of A-Condition Excess Items that Military 
Services Are Continuing to Use in Operations: 

Because significant numbers of new, unused A-condition excess items 
still being purchased or in use by the military services are being 
disposed of through liquidation sales, it was easy for our undercover 
investigator to pose as a liquidation sales customer and purchase 
several of these items for a fraction of what the military services are 
paying to obtain these same items from DLA supply depots. For example, 
we paid $1,146 for several wet weather and cold weather parkas, a 
portable field x-ray enclosure, high-security locks, a gasoline engine 
that can be used as part of a generator system or as a compressor, and 
a refrigerant recovery system used to service air conditioning systems 
on automobiles. The military services would have paid a total 
acquisition cost of $16,300 for these items if ordered from supply 
inventory, plus a charge for processing their order.[Footnote 13] It 
was easy for us to purchase new, unused items that are in demand by the 
military services because of the limited scope of DOD's actions to 
address this problem. 

Undercover Purchases of New, Unused Items that DOD Is Continuing to Buy 
or that Are in Demand by Military Units: 

Our undercover investigator used a fictitious identity to obtain a DOD 
liquidation sales customer account and purchase several new, unused 
excess DOD items that the military services are continuing to order 
from supply inventory or use in operations. The following discussion 
describes examples of the new, unused excess DOD items that we 
purchased. 

Wet-weather parkas. In March 2006, our undercover investigator 
purchased 10 new, unused excess DOD wet-weather parkas with the 
manufacturer's tags still attached from DOD's liquidation sales 
contractor. Although Army combat units have begun using an upgraded 
version of the parkas, they are a nondeteriorative item, and Army 
training units and other military services are continuing to use them 
in military operations. However, after the New Jersey Army National 
Guard turned in the unused items as excess to their needs, the parkas 
were transferred to DOD's liquidation contractor for sale instead of 
being returned to supply inventory for reissue. We paid $87 for the 10 
wet-weather parkas, which had a total reported acquisition cost of a 
$359. Figure 16 shows a photograph of one of the wet-weather parkas our 
undercover investigator purchased at the public liquidation sale. 

Figure 16: Example of New, Unused Wet-Weather Parkas Purchased in March 
2006: 

[See PDF for image] 

Source: GAO.  

[End of figure]  

Cold-weather parkas. In May 2006, our undercover investigator purchased 
10 excess DOD cold-weather desert camouflage parkas from DOD's 
liquidation sales contractor. Although the parkas were listed as being 
in H condition (unserviceable, condemned condition), they were 
advertised as new. We paid a total of $373 for these 10 parkas, which 
had a total reported acquisition cost of $1,468. After receiving the 
parkas, we noted that all of them appeared to be unused and 7 of them 
still had the manufacturer's tags attached. According to a Defense 
Supply Center, Philadelphia official, these cold-weather parkas are 
nondeteriorative and are currently stocked and issued to the military 
services. The cold-weather parkas, which were ordered in support of 
Operation Enduring Freedom, were turned in as excess by the Al Udeid 
Air Base, in Qatar. Instead of being returned to inventory for reissue, 
the new, unused parkas were transferred to DOD's liquidation sales 
contractor. Figure 17 shows a photograph of one of the excess new, 
unused parkas that we purchased. 

Figure 17: New, Unused Cold-Weather Parka Purchased by GAO in May 2006: 

[See PDF for image]  

Source: GAO. 

[End of figure]  

Portable field x-ray processing enclosure. In April 2006, our 
undercover investigator purchased a portable field x-ray processing 
enclosure with a reported acquisition cost of $7,235. We paid $87 for 
this item. We received the x-ray enclosure in May 2006, after approval 
of our bogus Food and Drug Administration (FDA) certificate. DOD's 
liquidation sales contractor requires buyers of medical and laboratory 
equipment items that are subject to federal regulation to submit FDA 
certificates as a condition of sale. On the FDA certificate, the buyer 
certifies that he or she is a licensed medical practitioner or person 
regularly and lawfully engaged in the manufacture or refurbishing of 
the medical device listed and agrees to assure that items resold will 
not be adulterated or misbranded within the meaning of those terms in 
the Federal Food, Drug and Cosmetic Act (codified at 21 U.S.C. Ch. 9). 
A manufacturer official told our undercover investigator that the x-ray 
enclosure that we purchased is manufactured and sold to DOD on an as- 
needed basis. The official stated that there is no shelf-life issue 
associated with this product. In addition, a Defense Supply Center, 
Philadelphia official assigned to the X-ray Equipment and Supplies/ 
Biomedical Systems Office of the Technical, Quality, and Packaging 
Staff responsible for x-ray equipment and supply items advised us that 
the x-ray enclosure is currently used by the military services, and the 
Army is the primary user. The supply center official noted that the 
enclosure is a depot-stocked item. However, after checking the 
inventory system, the official told us that there were currently none 
of these items in stock. The supply center official confirmed that the 
enclosure has no shelf-life issues. 

At the time we purchased the x-ray enclosure, 40 identical x-ray 
enclosures with a reported acquisition cost of $289,400 were sold for a 
total liquidation sales price of $2,914. Figure 18 is a photograph of 
the excess DOD portable x-ray enclosure that we purchased over the 
Internet. The enclosure is stored in an oversized foot-locker-type 
container approximately 5 feet in length. 

Figure 18: New, Unused Portable Field X-ray Processing Enclosure 
Purchased in April 2006: 

[See PDF for image] 

Source: GAO. 

[End of figure]  

High-security locks. Our undercover investigator purchased 20 new, 
unused high-security locks from the DOD liquidation sales contractor in 
April 2006. The locks, which were in the original manufacturer's boxes, 
had a total reported acquisition cost of $1,675, and we paid a total of 
$59 for them. We contacted the manufacturer, whose representative told 
us that his company sold DLA 100 of these locks in September 2005. The 
representative explained that the locks are used to secure the back bay 
of logistics trucks. He said that his company was not aware of any 
problems with the locks. A U.S. Marine Corps unit in Albany, Georgia, 
turned the locks in as excess, and they were not returned to inventory 
for reissue. At the time we purchased the 20 locks, DOD's liquidation 
sales contractor had advertised a total of 19 lots consisting of 480 
locks for sale. Six of the 19 lots, with a reported total acquisition 
cost of $18,423, sold for $365. Figure 19 shows a photograph of one of 
the excess DOD high-security locks that we purchased in April 2006. 

Figure 19: New, Unused DOD High-Security Lock Purchased in April 2006: 

[See PDF for image] 

Source: GAO. 

[End of figure] 

Gasoline engine. Our undercover investigator purchased a new, unused 
Teledyne 4-cylinder gasoline engine in March 2006. The engine, which 
was manufactured in the 1990s, is part of a generator unit. It can also 
be used with a compressor. According to FedLog data, the engines are 
required to be issued until current supplies are exhausted. The item 
manager for this engine told our undercover investigator that DLA 
currently has about 1,500 of these engines in stock and they are still 
being issued, primarily to Army National Guard and Reserve units. He 
said that the Air Force and the Marine Corps also use them. He noted 
that the Marine Corps ordered 4 of these engines in June 2006. We paid 
$355 for the gasoline engine, which had a reported acquisition cost of 
$3,119--the amount the Marine Corp paid for each item, plus a service 
charge. At the time we purchased this unit, a total of 20 identical 
gasoline engines with a total reported acquisition cost of $62,380 were 
sold for a total liquidation sales price of $6,221. Figure 20 shows a 
photograph of the gasoline engine that we purchased. 

Figure 20: New, Unused DOD Gasoline Engine Purchased in March 2006: 

[See PDF for image] 

Source: GAO.  

[End of figure]  

Refrigerant recovery system. In April 2006, our undercover investigator 
purchased a new, unused excess DOD refrigerant recovery system Model ST-
100A. This is a portable system designed to recover and recycle R- 12, 
R-22, R-500, and R-502 refrigerants at the rate of 2 to 3 pounds per 
minute. According to a manufacturer representative, the unit that we 
purchased is designed to recover refrigerants from small systems, such 
as those in automotive vehicles. We paid a total of $185 for the new, 
unused refrigerant recovery system, which had a reported acquisition 
cost of $2,445. According to a Refrigerant Recovery Systems, Inc., 
representative, this item is still being purchased and used by DOD. The 
refrigerant recovery system that we purchased was likely turned in as 
excess by the Army Risk Assessment Modeling System (ARAMS) Project 
Office located in Chesapeake, Virginia. ARAMS turned in nine identical 
excess recovery systems in January 2006 that appeared to have been sold 
during the liquidation sales event at which we made our undercover 
purchase. These 9 refrigerant recovery systems, which had a listed 
acquisition cost of $22,004, sold for a total liquidation sale price of 
$1,140. 

When our undercover investigator went to pick up the refrigerant 
recovery system that we purchased, he found that it was stored outside 
and exposed to weather. As a result, the box the unit was stored in had 
become wet and the filters included with the unit had become soaked. 
Figure 21 is a photograph of the excess DOD refrigerant recovery system 
that we purchased. 

Figure 21: New, Unused Refrigerant Recovery System Purchased in April 
2006: 

[See PDF for image] 

Source: GAO. 

[End of figure]  

Limited DOD Actions to Assure Reutilization of New, Unused Items: 

Although DLA and DRMS implemented several initiatives to improve the 
overall reutilization rate for excess A-condition items, our analysis 
of DRMS data found that the reported reutilization rate as of June 30, 
2006, remained the same as we had previously reported--about 12 
percent.[Footnote 14] This is primarily because DLA reutilization 
initiatives are limited to using available excess A-condition items to 
fill customer orders and to maintain established supply inventory 
retention levels. As a result, excess A-condition items that are not 
needed to fill orders or replenish supply inventory are disposed of 
outside of DOD through transfers, donations, and public sales, which 
made it easy for us to purchase excess new, unused DOD items. The 
disposal of items that exceed customer orders and inventory retention 
levels is an indication that DOD bought more items than it needed. In 
addition, several of the items we purchased at liquidation sales events 
were being ordered from supply inventory by military units at or near 
the time of our purchase, and for one supply-depot-stocked item--the 
portable field x-ray enclosure--no items were in stock at the time we 
made our undercover purchase, indicating continued waste and 
inefficiency. 

DLA and DRMS initiatives resulted in a reported $38.1 million in excess 
property reutilization savings through June 2006. According to DLA data 
as of June 30, 2006, interim supply system initiatives using the 
Automated Asset Recoupment Program, which is part of an old legacy 
system, achieved reutilization savings of nearly $2.3 million since 
July 2005, while Business System Modernization supply system 
initiatives, implemented in January 2006 as promised at the June 2005 
hearing, have resulted in reutilization savings of nearly $1.1 million. 
In addition, DRMS reported that excess property marketing initiatives 
implemented in late March 2006 have resulted in reutilization savings 
of a little over $34.8 million through June 2006. These initiatives 
include marketing techniques using Web photographs of high-dollar items 
and e-mail notices to repeat customers about the availability of A- 
condition items that they had previously selected for reutilization. 

Corrective Action Briefing: 

On June 28, 2006, we briefed DOD, DLA, DRMS, and military service 
management on the results of our investigations. We discussed the 
causes of the control breakdowns we identified with regard to security 
of sensitive excess military equipment and provided our perspectives on 
ways to address the following problems. 

* Some military units and DLA supply depots recorded incorrect 
demilitarization codes to excess military property items and in some 
cases improperly included these items in batch lots before sending 
these items to DRMOs. 

* DRMO personnel failed to verify the recorded demilitarization codes 
when they processed receipts of excess military property. 

* The limited scope of DLA and DRMS compliance reviews is not 
sufficient to detect problems with incorrect demilitarization codes. 

* DOD's excess property liquidation sales contractor failed to verify 
demilitarization codes of items received and return items requiring 
mutilation or destruction to the DRMO for proper disposal. 

The managers told us that they shared our concern about the breakdowns 
in security controls that allowed sensitive military items requiring 
demilitarization to be sold to the public. They asked us for pertinent 
documentation obtained during our investigations to support their 
follow-up inquiries and corrective action plans. We have provided this 
information. In addition, the managers told us that the DRMOs rely on 
access controls executed by the DOD installations at which the DRMOs 
are located to preclude access by unauthorized parties. During our 
briefing, we also pointed out that because the reutilization and 
marketing program permits public access to DRMOs and liquidation sales 
locations, it is most important to confirm the identities and 
requisitioning authority of the individuals who enter the DRMOs to 
screen and requisition excess property. With regard to reutilization 
program economy and efficiency issues, the DOD managers maintained that 
forecasting the correct inventory level is difficult and that some 
amount of excess purchasing is necessary to assure that inventory is 
available when needed. They also stated that there is a cost associated 
with retaining excess inventory for extended periods of time. We 
provided DOD documentation to show that the excess A-condition items 
that we purchased were continuing to be ordered and used by the 
military services at the time of our undercover purchases. 

Conclusions: 

Our security tests clearly show that sensitive military equipment items 
are still being improperly released by DOD and sold to the public, thus 
posing a national security risk. The sensitive nature of these items 
requires particularly stringent internal security controls. Our tests, 
which were performed over a short duration, were limited to our 
observations, meaning that the problem may likely be more significant 
than what we identified. Although we have referred the sales of items 
identified during our investigation to federal law enforcement agencies 
for follow-up, the solution to this problem is to enforce controls for 
preventing improper release of these items outside DOD. Further, 
liquidation sales of items that military units are continuing to 
purchase at full cost from supply inventory demonstrates continuing 
waste and inefficiency in DOD's excess property reutilization program. 

Agency Comments and Our Evaluation: 

We provided a draft of our report to DOD for comment on July 10, 2006. 
The Deputy Under Secretary of Defense for Logistics and Materiel 
Readiness responded that given the time allotted to comment, the 
Department was not able to do a detailed review and has no comments at 
this time. However, the Deputy Under Secretary also stated that the 
department continues to implement changes to our procedures based on 
recommendations in our May 13, 2005, report.[Footnote 15] 

We are sending copies of this letter to interested congressional 
committees, the Secretary of Defense, the Deputy Under Secretary of 
Defense for Logistics and Personnel Readiness, the Under Secretary of 
Defense Comptroller, the Secretary of the Army, the Secretary of the 
Navy, the Secretary of the Air Force, the Director of the Defense 
Logistics Agency, the Director 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 me at (202) 512-7455 or kutzg@gao.gov, if you or your 
staffs have any questions concerning this report. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this report. Major contributors to this report are 
acknowledged in appendix IV. 

Signed by: 

Gregory D. Kutz: 
Managing Director: 
Forensic Audits and Special Investigations: 

[End of section] 

Appendix I: DOD Excess Property Demilitarization Codes: 

Department of Defense (DOD) property is assigned a demilitarization 
code to identify the required disposition of items when they are no 
longer needed by DOD. Demilitarization codes are contained in the 
Defense Demilitarization Manual, DOD 4160.21-M-1 (1995), which 
implements DOD policy to apply appropriate controls (e.g., restrictions 
to use by authorized parties, destruction when no longer needed by DOD) 
over items that have a significant military technology application to 
prevent improper use or release of these items outside of DOD. These 
items include materiel that the Secretary of Defense has designated as 
requiring demilitarization, articles on the U.S. Munitions List (22 
C.F.R. pt. 121), and certain articles subject to export controls 
because they are on the Commerce Control List establish by the U.S. 
Department of Commerce (15 C.F.R. ß 774, Supp. 1). Appendix 3 of the 
Manual provides the demilitarization codes to be assigned to federal 
supply items and coding guidance. The codes indicate whether 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. The table below defines the DOD demilitarization codes. 

Table 1: DOD Excess Property Demilitarization Codes: 

Demilitarization code: A; 
Required disposal action: Demilitarization not required. 

Demilitarization code: B; 
Required disposal action: Military List Item (MLI) Non--Significant 
Military Equipment (SME) Demilitarization not required. Trade Security 
Controls required at disposition. 

Demilitarization code: C; 
Required disposal action: MLI (SME) - Remove and/or demilitarize 
installed key point(s) as prescribed in the Defense Demilitarization 
Manual, or lethal parts, components, and accessories. 

Demilitarization code: D; 
Required disposal action: MLI (SME) - Total destruction of item and 
components so as to preclude restoration or repair to a useable 
condition by melting, cutting, tearing, scratching, crushing, breaking, 
punching, neutralizing, etc. (As an alternate, burial or deep water 
dumping may be used when coordinated with the DOD Demilitarization 
Program Office.) 

Demilitarization code: E; 
Required disposal action: MLI (Non SME) - Additional critical 
items/materiel determined to require demilitarization, either key point 
or total destruction. Demilitarization instructions to be furnished by 
the DOD Demilitarization Program Office. 

Demilitarization code: F; 
Required disposal action: MLI (SME) - Demilitarization instructions to 
be furnished by the Item/Technical Manager. 

Demilitarization code: G; 
Required disposal action: MLI (SME) - Demilitarization required - 
Ammunition, Explosives, and Dangerous Articles (AEDA). 
Demilitarization, and if required, declassification and/or removal of 
sensitive markings or information, will be accomplished prior to 
physical transfer to a DRMO. This code will be used for all AEDA items, 
including those which also require declassification and/or removal of 
sensitive markings or information. 

Demilitarization code: P; 
Required disposal action: MLI (SME) - Security Classified Item - 
Declassification and any additional demilitarization and removal of any 
sensitive markings or information will be accomplished prior to 
accountability or physical transfer to a DRMO. This code will not be 
assigned to AEDA items. Items received at a DRMO with Demilitarization 
code P will not be processed for disposal without the required 
certificate of declassification and a certificate of demilitarization. 

Demilitarization code: Q; 
Required disposal action: CCLI - Commerce Control List Item. 
Demilitarization not required. CCLI are non-MLI and are dual-use 
(military, commercial, and other strategic uses) items under the 
jurisdiction of the Bureau of Industry and Security, U.S. Department of 
Commerce, through Export Administration Regulations (codified at 15 
C.F.R., Ch. VII, Sub Ch C). 

Demilitarization code: X; 
Required disposal action: Indicates that demilitarization requirements 
of MLI applicability not determined by the Inventory Control Point. 
Local determination of demilitarization requirement is necessary prior 
to disposal action.  

Source: DRMS Automated Information System (DAISY) C-A-T (Codes and 
Terms) reference guide (12th ed. 2006), DRMS-I 4160.14, vol. IV, Supp. 
1, "Codes Index" (November 2004), and DOD-4160.21-M-1, Defense 
Demilitarization Manual (1995). 

[End of table]

[End of section] 

Appendix II: Excess Property Condition Codes: 

The Department of Defense's (DOD) 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 Defense Logistics Agency supply depot inventory, or is 
assigned by the unit turning in the excess property. The General 
Services Administration (GSA) disposal condition code, in the second 
position, shows whether the property is in new, used, or repairable 
condition, salvageable, or should be scrapped. 

Table 2: Excess Property Condition Codes: 

DOD Codes: A1, A4; B1, B4; C1, C4; D1, D4, D7; 
DOD Supply Condition Code: 
A - Issuable without qualification - New, used, repaired or 
reconditioned property which is issuable without restriction, including 
material with a shelf life of more than 6 months; 
B - Issuable with qualification - New, used, repaired or reconditioned 
property which 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; 
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; 
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: E7; F7; G7; H7; 
DOD Supply Condition Code: 
E - Limited restoration required - Property requires only a limited 
expense or effort to restore to serviceable condition; 
F - Reparable - Property is economically reparable but requires 
repairs, overhaul, or reconditioning to make it serviceable property; 
G - Incomplete - Property requires additional parts or materials to 
complete the item prior to issue; 
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: 
F - Reparable; 
G - Incomplete; 
H - Condemned; 
GSA Disposal Condition Code: 
X - Salvage - Property has value in excess of its basic materiel 
content but repair is impractical and/or uneconomical. 

DOD Codes: FS, GS, HS; 
DOD Supply Condition Code: 
F - Reparable; 
G - Incomplete; 
H - Condemned; 
GSA Disposal Condition Code: 
S - Scrap - Property has no value except for its basic materiel 
content. 

Source: DRMS Automated Information System (DAISY) C-A-T (Codes and 
Terms) reference guide (12th ed. 2006), DRMS-I 4160.14, vol. IV, Supp. 
1, "Codes Index" (November 2004). 

[End of table] 

[End of section] 

Appendix III: Comments from the Department of Defense: 

Deputy Under Secretary Of Defense For Logistics And Materiel Readiness 
3500 Defense Pentagon: 
Washington, DC 20301-3500: 

Jul 17 2006: 

Mr. Gregory D. Kutz: 
Managing Director, Forensic Audits and Special Investigations: 
U.S. Government Accountability Office: 
Washington, DC 20548: 

Dear Mr. Kutz: 

This is the Department of Defense (DoD) response to the GAO draft 
report GAO-06-943, "DOD Excess Property: Control Breakdowns Present 
Significant Security Risk and Continuing Waste and Inefficiency," dated 
July 10, 2006 (GAO Code 192188). There are no recommendations provided 
in the report and based on the time allotted for providing technical 
comments, the Department was not able to do a detailed review. 
Therefore, the Department has no comments at this time. The Department 
continues to implement changes to our procedures based on the GAO 
report GAO-05-277 "DOD Excess Property: Management Control Breakdowns 
Result in Substantial Waste and Inefficiency," dated May 13, 2005. 

We appreciate the opportunity to review the draft report. 

Signed by: 

Jack Bell: 

[End of section] 

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Gregory D. Kutz, 202-512-7455: 

Acknowledgments: 

Staff making key contributions to this report include Mario Artesiano, 
Donald L. Bumgardner, Matthew S. Brown, Paul R. Desaulniers, Stephen P. 
Donahue, Lauren S. Fassler, Gayle L. Fischer, Cinnimon Glozer, Jason 
Kelly, John Ledford, Barbara C. Lewis, Richard C. Newbold, John P. 
Ryan, Lori B. Ryza, Lisa Warde, and Emily C. Wold. 

Technical expertise was provided by Keith A. Rhodes, Chief 
Technologist, and Harold Lewis, Assistant Director, Information 
Technology Security, Applied Research and Methods. 

(192188): 

FOOTNOTES 

[1] GAO, DOD Excess Property: Management Control Breakdowns Result in 
Substantial Waste and Inefficiency, GAO-05-277 (Washington, D.C.: May 
13, 2005). 

[2] DOD policy related to controls over items with significant military 
technology application, is defined in app. I. 

[3] DOD condition codes are defined in app. II. 

[4] In concert with the federal government's E-government policy to use 
information technology (IT) investments to deliver services and 
information to citizens electronically, DOD's excess property 
liquidation sales are conducted over the Internet. Office of Management 
and Budget, Implementation Guidance for the E-Government Act of 2002, M-
03-18, at att. A, ∂ B, 1 (Aug. 1, 2003). 

[5] An EUC is a form used by DOD to document the intended destination 
and disposition of sensitive, controlled items released from the 
department. 

[6] Under DOD's excess property reutilization program, DOD contractors 
are treated the same as DOD units and are not charged for excess 
property items they requisition for reuse. 

[7] GAO, DOD Excess Property: Management Control Breakdowns Result in 
Substantial Waste and Inefficiency, GAO-05-277 (Washington, D.C.: May 
13, 2005); 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); and DOD Management: Examples of 
Inefficient and Ineffective Business Processes, GAO-02-873T 
(Washington, D.C.: June 25, 2002). 

[8] 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. 

[9] DOD 5200.1-R, Information Security Program (January 1997), 
established the DOD Information Security Program to promote proper and 
effective classification and protection in the interest of national 
security. 

[10] An NSN is a unique 13-digit number that identifies standard use 
inventory items. 

[11] DOD 4160.21-M-1, Defense Demilitarization Manual (1995), at Appx. 
3, "Demilitarization Codes to Be Assigned to Federal Supply Items and 
Coding Guidance." 

[12] NIST Pub. 800-72, Guidelines on PDA Forensics (November 2004). 

[13] As noted in our May 2005 report, the weighted average cost for 
warehousing and shipping all supply items was 20.7 percent in fiscal 
year 2003. 

[14] GAO-05-277 and GAO-05-729T. 

[15] GAO-05-277. 

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