Financial Management:

Poor Internal Control Has Led to Increased Maintenance Costs and Deterioration of Equipment

AFMD-93-8: Published: Jan 25, 1993. Publicly Released: Jan 25, 1993.

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GAO reviewed the internal controls and financial systems used to control equipment maintenance functions at four Army depots, focusing on whether their internal controls: (1) protected weapons systems and equipment awaiting maintenance from physical deterioration and theft; (2) accounted for depot-stored repairables; (3) supported Army-wide accountability for repairables; (4) ensured accurate reporting of maintenance costs; and (5) supported Army cost reduction initiatives.

GAO found that: (1) depot storage of materiel awaiting repair and overhaul often failed to meet Army storage requirements; (2) the lack of adequate protection increased scrappage rates, maintenance costs, and losses attributed to theft; (3) many repairable items had inadequate protection from corrosion and physical deterioration, physical security, hazardous materials storage, and improper packaging; (4) the Army's Standard Depot System (SDS) failed to produce reliable information for maintaining accountability and controls over repairables; (5) the depots failed to accurately report the number of repairables, performed only 30 percent of the required physical inventories, and failed to reconcile physical inventories with Army-wide repairable inventories; (6) inaccurate inventory balances affected budgetary and procurement decisions; and (7) ineffective maintenance procedures and weak accounting controls caused inflated overhaul costs or costs charged to the wrong job.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: DLA policy is not to allow condition code alone to drive the decision on where to store reparable items. When outside storage must be considered, an item's overall characteristics are reviewed. The policy is not to store expensive, fragile, and highly corrodible items outside. DLA policy is also to cover items that require addition protection against the elements when stored outside. DLA has completed actions to properly store repairables in accord with established storage and security requirements. DLA has completed moving repairables improperly stored at Army depots to storage facilities that meet requirements.

    Recommendation: The Director, Defense Logistics Agency (DLA), should enforce DOD regulations concerning storage and security of Army repairables at depots to protect repairables from exposure to the elements.

    Agency Affected: Department of Defense: Defense Logistics Agency

  2. Status: Closed - Implemented

    Comments: DLA regional security officers developed corrective actions to ensure host institutions provide acceptable security and police protection to protect mission stock. A personnel challenge policy was initiated on October 26, 1992 to ensure that only authorized personnel are present in depot facilities.

    Recommendation: The Director, DLA, should enforce DOD regulations concerning storage and security of Army repairables at depots to safeguard repairables stored at the depots from theft.

    Agency Affected: Department of Defense: Defense Logistics Agency

  3. Status: Closed - Implemented

    Comments: Actions are in progress to reduce or eliminate inventory levels at sites where facilities are unsuitable by relocating hazardous items to suitable storage. DLA has moved all hazardous materials to proper storage facilities.

    Recommendation: The Director, DLA, should enforce DOD regulations concerning storage and security of Army repairables at depots to properly store hazardous materials.

    Agency Affected: Department of Defense: Defense Logistics Agency

  4. Status: Closed - Implemented

    Comments: On October 26, 1992, the DLA provided to the Commanders of Distribution Regions and Depots the directive (1) to include physical security over, and storage of, reparables and hazardous materiel as areas of emphasis in maintenance depot annual Federal Managers' Financial Integrity Act reviews and (2) to report actions needed to correct identified weaknesses. DLA has followed up to properly store hazardous materials in facilities that meet all requirements. The deficiencies disclosed in the GAO report have been eliminated.

    Recommendation: The Director, DLA, should include compliance with DOD regulations regarding physical security over and storage of repairables and hazardous materials as areas of emphasis in maintenance depot annual Federal Managers' Financial Integrity Act reviews and report actions needed to correct identified weaknesses.

    Agency Affected: Department of Defense: Defense Logistics Agency

  5. Status: Closed - Implemented

    Comments: The Army's Standard Depot System (SDS) is being replaced by the Distribution Standard System for all Defense Distribution Depots. The new system will process repairables and identify by model number, using common routines for receiving, assigning storage locations, and issuing repairables to maintenance in the same manner as any other shipment. System implementation is planned for July 1995.

    Recommendation: To help maintain accurate and reliable inventory records, the Director, DLA, should upgrade the Standard Depot System (SDS) to capture all pertinent information, including the number of items by model at each depot storage location.

    Agency Affected: Department of Defense: Defense Logistics Agency

  6. Status: Closed - Implemented

    Comments: DLA's letter of October 26, 1992, to Commanders of Distribution regions and depots directed region and commandwide plans of actions and milestones be developed to address storage deficiencies at depots and ensure compliance with existing storage policies and procedures. DLA has completed restoring repairables at Army depots in accord with requirements and in ways to facilitate timely and accurate inventory counts.

    Recommendation: To help maintain accurate and reliable inventory records, the Director, DLA, should store repairables in accordance with Army and DOD regulations to facilitate timely and accurate inventory counts.

    Agency Affected: Department of Defense: Defense Logistics Agency

  7. Status: Closed - Implemented

    Comments: As of October 30, 1992, policy was reemphasized that any repairables stored at the depots would be subject to: (1) inventory-by-location reconciliation; (2) Order of Merit prioritization; and (3) the pending statistical sampling technique. DLA is implementing its inventory program, which requires inventories for all materiel denials and location reconciliation mismatches. Effective October 28, 1994, DOD has been performing quarterly random physical inventories of its repairables stored at the depots.

    Recommendation: To help maintain accurate and reliable inventory records, the Director, DLA, should perform required physical inventories of repairables stored at the depot using appropriate statistical sampling techniques.

    Agency Affected: Department of Defense: Defense Logistics Agency

  8. Status: Closed - Implemented

    Comments: It is DLA policy to reconcile inventories with a depot's custodial record and the cognizant commodity command's accountable record. To this end, an inventory integrity program is being instituted at the four audited depots. The estimated completion date for fully integrating the inventory management program is September 1993. This action has been completed.

    Recommendation: To help maintain accurate and reliable inventory records, the Director, DLA, should reconcile the results of physical inventories with SDS Mission Account data and related information recorded in the appropriate Commodity Command Standard System.

    Agency Affected: Department of Defense: Defense Logistics Agency

  9. Status: Closed - Implemented

    Comments: On December 3, 1992, the Department of the Army issued a written directive that all Army units shipping repairables enforce DOD and Army regulations concerning packing repairables.

    Recommendation: The Secretary of the Army should direct the commanders of major commands that ship repairables to maintenance depots to enforce the Department of Defense (DOD) and Army regulations concerning packaging or repairables.

    Agency Affected: Department of Defense: Department of the Army

  10. Status: Closed - Implemented

    Comments: The Standard Depot System, as currently structured, can provide cost reports by individual job. The Army will issue guidance to direct a more disciplined approach to data input to that system. By strengthening the input procedures, the Standard System will accurately capture and report maintenance work and costs by individual job. Under DBOF management, SDS is being replaced by the Distribution Standard System for all Defense Distribution Depots. The new system will process cost information for repairables more accurately. System implementation is planned for July 1995.

    Recommendation: The Secretary of the Army should direct the Commander, Army Materiel Command, to ensure the development of reliable cost accounting information by upgrading the SDS cost accounting subsystem to accumulate and report the actual cost of maintenance mission work by individual job.

    Agency Affected: Department of Defense: Department of the Army

 

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