Navy Financial Management:

Improved Management of Operating Materials and Supplies Could Yield Significant Savings

AIMD-96-94: Published: Aug 16, 1996. Publicly Released: Aug 16, 1996.

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GAO examined the Navy's financial reporting on and management of operating materials and supplies that are not part of Defense Business Operations Fund (DBOF) inventories, focusing on the: (1) Navy's accountability and visibility over approximately $5.7 billion in operating materials and supplies on board vessels and at redistribution sites; (2) Navy's management of excess items; and (3) accuracy of operating unit records for operating materials and supplies.

GAO found that: (1) 261 Navy vessels and 17 redistribution sites are storing a total of about $883 million in excess items; (2) the inventory systems on ships and at redistribution sites do not provide Navy item managers with complete and accurate data on excess items at the operating level; (3) because item managers are not aware of excess items that may be available for redistribution free of charge, their operations and maintenance (O&M) budget requests are overstated; (4) initiatives for improving management and reporting of operating materials and supplies do not represent a coordinated, integrated approach for ensuring that item managers are provided with all of the information they need to perform all of their responsibilities; (5) the Navy could achieve cost savings and increase visibility of its excess items by closing its 17 redistribution sites and returning excess items to the wholesale supply system; and (6) while most of the activities tested met the Navy's minimum goal of 95-percent inventory record accuracy, all of the units should attempt to exceed the minimum goal.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: The Navy does not agree that Federal Accounting Standards Advisory Board Statement (SFFAS) No. 3 requires operating materials and supplies aboard surface combatant ships to be reported in DOD's consolidated financial reporting. DOD does not intend to take action on this recommendation because it considers these items to be in the hands of end users and therefore are expensed and not subject to SFFAS No. 3 reporting requirements. GAO has been working unsuccessfully for the past several years to convince the Navy and DOD that their interpretation of requirements is incorrect.

    Recommendation: The Secretary of the Navy should direct the Chief of Naval Operations to, in conjunction with the Navy Assistant Secretary for Financial Management, ensure that the asset visibility efforts facilitate complete, reliable, and prompt consolidated financial reporting of operating materials and supplies in accordance with the Federal Accounting Standards Advisory Board Statement Number 3 and the Office of Management and Budget's financial reporting guidance.

    Agency Affected: Department of Defense: Department of the Navy

  2. Status: Closed - Not Implemented

    Comments: DOD disagrees with GAO's interpretation of SFFAS No. 3 with respect to operating materials and supplies that are to be tracked to maintain visibility. Consequently, while the Navy has a number of initiatives underway directed at improving operating materials and supply visibility, these efforts are not focused on the full extent of operating materials and supplies intended by this recommendation.

    Recommendation: The Secretary of the Navy should direct the Chief of Naval Operations to ensure that the various asset visibility efforts are properly coordinated and integrated to fully meet the information needs of item managers for data on operating materials and supplies.

    Agency Affected: Department of Defense: Department of the Navy

  3. Status: Closed - Implemented

    Comments: According to Navy officials, the Navy has integrated a reduction into its O&M budget estimates for the value of items annually issued free from the redistribution sites. However, Navy officials have been unable to provide budget documents supporting any such reductions for fiscal years 1998, 1999, or 2000. According to a Navy official, the value of such "free" issues are factored into the Navy's budget development model--the Navy views the free material as cost avoidance, and adjusts its budget to reflect cost avoidance expect to result from its forecast of free material. However, because of the lack of supporting documentation supporting the value of such free materials, it is extremely difficult to identify whether: (1) any such reductions occurred in the Navy's O&M budget estimates; and (2) if so, the reduction accurately reflected the full extent of such free issues from redistribution sites.

    Recommendation: Until the redistribution sites are eliminated, the Assistant Secretary for Financial Management should direct the fleets to continue reducing their O&M budget estimates by the value of the items annually issued free from these redistribution sites.

    Agency Affected: Department of Defense: Department of the Navy: Office of the Assistant Secretary of the Navy (Financial Management)

  4. Status: Closed - Not Implemented

    Comments: The Navy did not concur with this recommendation. GAO held this recommendation open for a number of years in the event that GAO and the Navy could reach concurrence. However, while not supported by the findings in the GAO report, the Navy continues to contend that the centers provide a critical interface between the consumer and wholesale levels and an accessible and controllable collection/distribution point for excess consumer-owned assets, and that excess assets are only held for up to 12 months at these sites before being returned to the wholesale system.

    Recommendation: The Secretary of the Navy should direct the Chief of Naval Operations to direct the fleets to eliminate redistribution sites.

    Agency Affected: Department of Defense: Department of the Navy

  5. Status: Closed - Implemented

    Comments: The Navy does not agree that the redistribution centers should be closed. However, DOD did agree to provide quarterly reporting on its asset visibility efforts.

    Recommendation: The Secretary of the Navy should direct the Chief of Naval Operations to report on a quarterly basis to the Secretary of the Navy the progress made on eliminating the unnecessary redistribution sites and the asset visibility efforts in meeting item managers' and consolidated financial reporting needs.

    Agency Affected: Department of Defense: Department of the Navy

 

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