Financial Management:

Uniform Policies Needed on DOD Financing of Repairable Inventory Items

AFMD-91-40: Published: Jun 21, 1991. Publicly Released: Jun 21, 1991.

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Pursuant to a congressional request, GAO assessed the Department of Defense's (DOD) plans to expand the military services' use of stock funds to finance repairable items, focusing on whether the services implemented consistent, uniform policies regarding: (1) the prices stock funds charged customers for repairable items; (2) stock fund ownership and control over repairable items at installations; and (3) the dollar value of repairable items on stock fund financial reports.

GAO found that: (1) DOD directed all three services to finance repairable items through their stock funds in an effort to standardize financial operations; (2) the Navy complied with the uniform DOD policy for pricing repairable items by charging the exchange price for repairable items on the understanding that customers turn in the broken items; (3) DOD allowed the Air Force to charge the standard price for repairable items to encourage customers to quickly return broken items for credit; (4) DOD authorized the Army to continue to charge the standard price for repairable items until 1993, to allow the Army time to modify its financial systems; (5) none of the services' present stock funds owned or controlled repairable items in the installation-level supply systems, but the Army and the Air Force planned to implement systems central ownership and control; (6) DOD did not have a policy on stock fund ownership and control of repairable items in installation supply systems; (7) the DOD policy for valuing stock fund inventory did not address repairable items; and (8) the Army and the Air Force valued repairable items at standard price, while the Navy developed its own procedures for determining the value of repairable items. GAO believes that the inconsistencies among the services' plans regarding repairable items undermines the DOD Corporate Information Management project to standardize policies, data elements, and systems.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In responding to the report, DOD has developed an uniform policy on how the stock funds should charge customers for repairable items. The policy establishes a two-price system (standard and exchange prices) for repairable items requisitioned from the stock fund. This will help ensure that the services consistenly and accurately report on inventory items.

    Recommendation: To ensure that the military services follow standard policies and procedures in the financing of repairable items through their stock funds, the Secretary of Defense should ensure that the military services follow a uniform pricing policy on how the stock funds should charge customers for repairable items.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: In October 1993, the Marine Corps began selling repairable items to its customers. All services now sell these items to customers rather than issue them free. Defense is working toward the development and implementation of a standard common stock control system. This effort is under the control of the Joint Logistics System Center. Historically, such efforts are long term undertakings that require several years.

    Recommendation: To ensure that the military services follow standard policies and procedures in the financing of repairable items through their stock funds, the Secretary of Defense should develop a uniform policy on the stock funds' ownership and control of repairable items in the installation-level supply systems; in this regard, the Navy should modify its ownership policy unless its ongoing study of this issue demonstrates compelling operational reasons not to centrally own the repairable items.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: In response to the report, DOD issued guidance on the valuation of repairables which is consistent with GAO recommendations. This policy was effective for fiscal year 1991 year-end reporting.

    Recommendation: To ensure that the military services follow standard policies and procedures in the financing of repairable items through their stock funds, the Secretary of Defense should develop a uniform accounting policy on how to value repairable items that are usable versus items that need repairs; such policy should specify that: (1) the value of broken items be reduced by the cost to repair them; and (2) the value of items that cannot be repaired and of obsolete items be written off or reduced to their salvage value.

    Agency Affected: Department of Defense

 

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