Financial Management:

DOD Faces Implementation Problems in Stock Funding Repairable Inventory Items

AFMD-92-15: Published: Dec 26, 1991. Publicly Released: Dec 26, 1991.

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Pursuant to a congressional request, GAO reviewed the Department of Defense's (DOD) initiative to finance repairable items through the military services' stock funds, focusing on: (1) implementation problems the Navy has experienced since it started financing aviation repairables through its stock funds; (2) current Army and Air Force efforts to begin financing repairables through their stock funds; (3) the impact that repairables financing had on the Army's and Air Force's development of their fiscal year (FY) 1992 budget requests; and (4) the presentation of repairables data in the DOD FY 1992 budget justification.

GAO found that: (1) since the Navy began financing aviation repairables through its stock fund in FY 1985, it has reduced its demand for repairable items by 20 percent; (2) the Navy has experienced continuing problems in accurately accounting for aviation repairable items that customers returned to the stock fund and billing customers for repairable items; (3) from FY 1987 through FY 1990, the Navy's inventory tracking system reported discrepancies totalling $4.4 billion, primarily due to accounting errors; (4) the Navy took such actions to correct tracking and billing system problems as holding activities financially responsible for items reported as lost and providing customers with training and guidance on the stock fund process; (5) neither the Army nor the Air Force have the systems in place to accurately account and bill for repairable items; (6) the Army and Air Force lack the historical data necessary to formulate their FY 1992 budget requests based on individual customer needs for repairable items, and estimate that it will take 2 to 4 years before they will have sufficient data; and (7) the DOD FY 1992 budget request did not include detailed data to support the total amount of appropriated funds requested for repairable items or reconcile customers' anticipated repairable item purchases with the stock funds' anticipated sales.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In September 1993 DOD issued an improvement plan for the Defense Business Operations Fund which includes actions that should address the recommendation. The Army and Air Force stock funds are now part of the Defense Business Operations Fund. GAO's DBOF work has identified data accuracy as a continuing problem.

    Recommendation: To help ensure that DOD efforts to finance repairable items through its stock funds are successful, the Secretary of Defense should direct the Army and Air Force to: (1) develop and implement techniques to ensure data accuracy; and (2) hold activities that are responsible for items being reported as lost in transit financially accountable for those losses.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: The Air Force's new billing system is operational and depot maintenance activities are currently billing customers for specific repairable items.

    Recommendation: To help ensure that DOD efforts to finance items through its stock funds are successful, the Secretary of Defense should direct the Air Force to continue to centrally manage customers' funds until its billing systems are operational. Until the systems are operational, the Air Force should develop information on the dollar amount of repairables issued to customers to ensure that amounts transferred to the stock fund closely approximate amounts issued to customers.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: DOD established a study group to monitor the Army and Air Force implementation of stock funding repairables. This study group is to ensure DOD compliance with this recommendation. In September 1993 DOD issued an improvement plan for the Defense Business Operations Fund which includes actions to improve the Fund's budget process and the process used to set prices the Fund charges its customers for goods and services, including repairable items. Specific tasks include monitoring customer program costs and adjusting customer funding to ensure that requirements are met.

    Recommendation: To help ensure that DOD efforts to finance repairable items through its stock funds are successful, the Secretary of Defense should direct the Army and Air Force to monitor the information on individual customers' annual purchases of repairables from the stock fund and reallocate funds to individual customers as necessary to ensure that they receive sufficient funds to accomplish their respective missions.

    Agency Affected: Department of Defense

  4. Status: Closed - Implemented

    Comments: DOD will work with the congressional committees to determine the information they deemed necessary to conduct their budget review. The Defense Business Operations Fund Budget Overview book that is used to justify DOD's budget request has been revised to include many of the items in the recommendation.

    Recommendation: To help ensure that DOD efforts to finance repairable items through its stock funds are successful, the Secretary of Defense should augment future budget justification documents for the stock fund and customers by including information on gross sales, sales to individual customers, inventory balances, credit granted to customers, and repair costs.

    Agency Affected: Department of Defense

  5. Status: Closed - Implemented

    Comments: The Army and Air Force continue to experience tracking and billing problems. Their problems will not be fully corrected until DOD implements new or improved logistics and financial systems under the Corporate Information Management initiative. GAO reported (GAO/AIMD/NSIAD-94-101) that over the past 4 years, DOD has shown only marginal success in efforts to reengineer its business processes, standardize and integrate data, and improve information systems.

    Recommendation: To help ensure that DOD efforts to finance repairable items through its stock funds are successful, the Secretary of Defense should direct the DOD Comptroller to closely monitor Army, Navy, and Air Force efforts to correct identified problems with their respective tracking and billing systems.

    Agency Affected: Department of Defense

 

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