Financial Management: Better Controls Essential to Improve the Reliability of DOD's Depot Inventory Records
AIMD-99-132
Published: Jun 28, 1999. Publicly Released: Jun 28, 1999.
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Highlights
Pursuant to a legislative requirement, GAO provided information on the reliability of the Department of Defense's (DOD) depot inventory records, focusing on: (1) DOD's procedures for verifying the accuracy of its perpetual inventory records; and (2) the internal controls over the Defense Logistics Agency's (DLA) physical inventory process to determine whether they provide a reliable, accurate measure of the perpetual inventory records.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Defense Logistics Agency | The Under Secretary of Defense (Acquisition and Technology), the Under Secretary of Defense (Comptroller), and the Director, DLA, should ensure that the inventory counters do not have access to inventory records during the counts and are sufficiently independent so that the integrity of the counts are not jeopardized. To address this will require: (1) changing the inventory system to better restrict access to on-hand quantities before and during the counts; (2) revising Military Standard Transaction Reporting and Accounting Procedures to emphasize that segregation of duties is an essential control element of the inventory count process; (3) developing written procedures and providing training on how counts are to be organized and performed; and (4) monitoring the physical inventories to ensure that procedures are properly and consistently followed. |
Closed – Implemented
On January 8, 2001, the Defense Logistics Agency implemented a system software change at all distribution depots to restrict personnel from accessing the on-hand balance when conducting counts using radio frequency devices. In May 2003, DOD issued a revised DOD regulation 4140.1-R that changed the language regarding segregation of duties. It states that inventory duties must be divided among the work force so that no single individual can adversely affect the accuracy and integrity of the inventory. In August 1999, the Defense Logistics Agency published and disseminated a DSS Inventory Users Manual. Finally, DLA issued guidance to have all indicators of depot performance, including inventory balance integrity, considered during annual evaluations, and included critical elements for validating compliance with physical inventory policy and procedures in the responsibilities of Depot Accountable Officers and Inventory Supervisors.
|
| Under Secretary of Defense (Comptroller) | The Under Secretary of Defense (Acquisition and Technology), the Under Secretary of Defense (Comptroller), and the Director, DLA, should ensure that the inventory counters do not have access to inventory records during the counts and are sufficiently independent so that the integrity of the counts are not jeopardized. To address this will require: (1) changing the inventory system to better restrict access to on-hand quantities before and during the counts; (2) revising Military Standard Transaction Reporting and Accounting Procedures to emphasize that segregation of duties is an essential control element of the inventory count process; (3) developing written procedures and providing training on how counts are to be organized and performed; and (4) monitoring the physical inventories to ensure that procedures are properly and consistently followed. |
Closed – Implemented
On January 8, 2001, the Defense Logistics Agency implemented a system software change at all distribution depots to restrict personnel from accessing the on-hand balance when conducting counts using radio frequency devices. In May 2003, DOD issued a revised DOD regulation 4140.1-R that changed the language regarding segregation of duties. It states that inventory duties must be divided among the work force so that no single individual can adversely affect the accuracy and integrity of the inventory. In August 1999, the Defense Logistics Agency published and disseminated a DSS Inventory Users Manual. Finally, DLA issued guidance to have all indicators of depot performance, including inventory balance integrity, considered during annual evaluations, and included critical elements for validating compliance with physical inventory policy and procedures in the responsibilities of Depot Accountable Officers and Inventory Supervisors.
|
| Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics | The Under Secretary of Defense (Acquisition and Technology), the Under Secretary of Defense (Comptroller), and the Director, DLA, should ensure that the inventory counters do not have access to inventory records during the counts and are sufficiently independent so that the integrity of the counts are not jeopardized. To address this will require: (1) changing the inventory system to better restrict access to on-hand quantities before and during the counts; (2) revising Military Standard Transaction Reporting and Accounting Procedures to emphasize that segregation of duties is an essential control element of the inventory count process; (3) developing written procedures and providing training on how counts are to be organized and performed; and (4) monitoring the physical inventories to ensure that procedures are properly and consistently followed. |
Closed – Implemented
On January 8, 2001, the Defense Logistics Agency implemented a system software change at all distribution depots to restrict personnel from accessing the on-hand balance when conducting counts using radio frequency devices. In May 2003, DOD issued a revised DOD regulation 4140.1-R that changed the language regarding segregation of duties. It states that inventory duties must be divided among the work force so that no single individual can adversely affect the accuracy and integrity of the inventory. In August 1999, the Defense Logistics Agency published and disseminated a DSS Inventory Users Manual. Finally, DLA issued guidance to have all indicators of depot performance, including inventory balance integrity, considered during annual evaluations, and included critical elements for validating compliance with physical inventory policy and procedures in the responsibilities of Depot Accountable Officers and Inventory Supervisors.
|
| Defense Logistics Agency | The Under Secretary of Defense (Acquisition and Technology), the Under Secretary of Defense (Comptroller), and the Director, DLA, should improve the accuracy of research and enhance the reliability basis of corrective actions by: (1) revising the appropriate policies and procedures to provide detailed instructions on conducting research (including review of transactions that affect the accountable balance, e.g. receipt, issues, and adjustments); appropriately using error codes; documenting research actions; and accumulating research results; and (2) training personnel responsible for research; (3) reviewing and eliminating error codes that do not identify underlying causes of inventory record variances; and (4) specifying how oversight will be carried out. |
Closed – Implemented
The Defense Logistics Agency included causative research procedures in the DSS Inventory Users Manual and disseminated it to the distribution depots in August 1999. The Agency provided training on research to the distribution depot sites and also provided hardcopy step by step procedures to all depots. During fiscal year 2000, the Agency redefined its error codes and provided additional guidance to the depots on applying those codes. The Agency assigned oversight responsibility to the Defense Distribution Center, which will perform oversight by monitoring causative research, analyzing trends, and conducting unannounced on-site reviews to evaluate corrective actions and identify training needs.
|
| Under Secretary of Defense (Comptroller) | The Under Secretary of Defense (Acquisition and Technology), the Under Secretary of Defense (Comptroller), and the Director, DLA, should improve the accuracy of research and enhance the reliability basis of corrective actions by: (1) revising the appropriate policies and procedures to provide detailed instructions on conducting research (including review of transactions that affect the accountable balance, e.g. receipt, issues, and adjustments); appropriately using error codes; documenting research actions; and accumulating research results; and (2) training personnel responsible for research; (3) reviewing and eliminating error codes that do not identify underlying causes of inventory record variances; and (4) specifying how oversight will be carried out. |
Closed – Implemented
The Defense Logistics Agency included causative research procedures in the DSS Inventory Users Manual and disseminated it to the distribution depots in August 1999. The Agency provided training on research to the distribution depot sites and also provided hardcopy step by step procedures to all depots. During fiscal year 2000, the Agency redefined its error codes and provided additional guidance to the depots on applying those codes. The Agency assigned oversight responsibility to the Defense Distribution Center, which will perform oversight by monitoring causative research, analyzing trends, and conducting unannounced on-site reviews to evaluate corrective actions and identify training needs.
|
| Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics | The Under Secretary of Defense (Acquisition and Technology), the Under Secretary of Defense (Comptroller), and the Director, DLA, should improve the accuracy of research and enhance the reliability basis of corrective actions by: (1) revising the appropriate policies and procedures to provide detailed instructions on conducting research (including review of transactions that affect the accountable balance, e.g. receipt, issues, and adjustments); appropriately using error codes; documenting research actions; and accumulating research results; and (2) training personnel responsible for research; (3) reviewing and eliminating error codes that do not identify underlying causes of inventory record variances; and (4) specifying how oversight will be carried out. |
Closed – Implemented
The Defense Logistics Agency included causative research procedures in the DSS Inventory Users Manual and disseminated it to the distribution depots in August 1999. The Agency provided training on research to the distribution depot sites and also provided hardcopy step by step procedures to all depots. During fiscal year 2000, the Agency redefined its error codes and provided additional guidance to the depots on applying those codes. The Agency assigned oversight responsibility to the Defense Distribution Center, which will perform oversight by monitoring causative research, analyzing trends, and conducting unannounced on-site reviews to evaluate corrective actions and identify training needs.
|
| Defense Logistics Agency | The Under Secretary of Defense (Acquisition and Technology), the Under Secretary of Defense (Comptroller), and the Director, DLA, should ensure that possible theft is properly investigated by: (1) monitoring compliance with existing policies and procedures so that research is properly and promptly completed; (2) notifying security offices of significant losses and gains promptly; and (3) establishing appropriate management actions for noncompliance with the policy. |
Closed – Implemented
The Defense Logistics Agency's Depot Distribution Center is monitoring the depots causative research using automated system tools. DLA issued an instruction in October 2000, with procedures to ensure that unresolved inventory adjustments are immediately forwarded to security for appropriate action. According to DOD, even though the guidance has not yet been finalized, the depots are using the draft guidance and are fully aware of the requirement for timely notification to security. DLA has revised managers' and other individuals' performance standards to include critical elements on the timely completion of research and reporting to security. Guidelines emphasizing the importance of performance standards are published semi-annually by the Depot Distribution Center.
|
| Under Secretary of Defense (Comptroller) | The Under Secretary of Defense (Acquisition and Technology), the Under Secretary of Defense (Comptroller), and the Director, DLA, should ensure that possible theft is properly investigated by: (1) monitoring compliance with existing policies and procedures so that research is properly and promptly completed; (2) notifying security offices of significant losses and gains promptly; and (3) establishing appropriate management actions for noncompliance with the policy. |
Closed – Implemented
The Defense Logistics Agency's Depot Distribution Center is monitoring the depots causative research using automated system tools. DLA issued an instruction in October 2000 with procedures to ensure that unresolved inventory adjustments are immediately forwarded to security for appropriate action. According to DOD, even though the guidance has not yet been finalized, the depots are using the draft guidance and are fully aware of the requirement for timely notification to security. DLA has revised managers' and other individuals' performance standards to include critical elements on the timely completion of research and reporting to security. Guidelines emphasizing the importance of performance standards are published semi-annually by the Depot Distribution Center.
|
| Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics | The Under Secretary of Defense (Acquisition and Technology), the Under Secretary of Defense (Comptroller), and the Director, DLA, should ensure that possible theft is properly investigated by: (1) monitoring compliance with existing policies and procedures so that research is properly and promptly completed; (2) notifying security offices of significant losses and gains promptly; and (3) establishing appropriate management actions for noncompliance with the policy. |
Closed – Implemented
The Defense Logistics Agency's Depot Distribution Center is monitoring the depots causative research using automated system tools. DLA issued an instruction in October 2000 with procedures to ensure that unresolved inventory adjustments are immediately forwarded to security for appropriate action. According to DOD, even though the guidance has not yet been finalized, the depots are using the draft guidance and are fully aware of the requirement for timely notification to security. DLA has revised managers' and other individuals' performance standards to include critical elements on the timely completion of research and reporting to security. Guidelines emphasizing the importance of performance standards are published semi-annually by the Depot Distribution Center.
|
| Defense Logistics Agency | The Under Secretary of Defense (Acquisition and Technology), the Under Secretary of Defense (Comptroller), and the Director, DLA, should enhance the sampling methodology to provide an inventory accuracy measure that better reflects the importance of the dollar value and sensitivity of items on hand at each distribution depot for accountability of assets and financial reporting. |
Closed – Implemented
Even though DOD concurred with this recommendation, it has not been successful in developing a single sampling plan to satisfy both the logistics and financial communities requirements to measure inventory accuracy. Instead, DLA has developed separate sampling plans to address GAO's concerns. DLA's logistics sampling plan has incorporated dollar value and item characteristics, as suggested in GAO's recommendation, and is focused on line item accuracy. DLA's financial sampling plan is oriented towards measuring the accuracy of inventory valuation and places emphasis on large dollar value inventory. DOD has involved both IG statisticians and consultants to ensure validity of the sampling plans. While the IG, consultants, and GAO agree that separate plans are not as efficient, the plans together do address GAO's recommendation.
|
| Under Secretary of Defense (Comptroller) | The Under Secretary of Defense (Acquisition and Technology), the Under Secretary of Defense (Comptroller), and the Director, DLA, should enhance the sampling methodology to provide an inventory accuracy measure that better reflects the importance of the dollar value and sensitivity of items on hand at each distribution depot for accountability of assets and financial reporting. |
Closed – Implemented
Even though DOD concurred with this recommendation, it has not been successful in developing a single sampling plan to satisfy both the logistics and financial communities requirements to measure inventory accuracy. Instead, DLA has developed separate sampling plans to address GAO's concerns. DLA's logistics sampling plan has incorporated dollar value and item characteristics, as suggested in GAO's recommendation, and is focused on line item accuracy. DLA's financial sampling plan is oriented towards measuring the accuracy of inventory valuation and places emphasis on large dollar value inventory. DOD has involved both IG statisticians and consultants to ensure validity of the sampling plans. While the IG, consultants, and GAO agree that separate plans are not as efficient, the plans together do address GAO's recommendation.
|
| Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics | The Under Secretary of Defense (Acquisition and Technology), the Under Secretary of Defense (Comptroller), and the Director, DLA, should enhance the sampling methodology to provide an inventory accuracy measure that better reflects the importance of the dollar value and sensitivity of items on hand at each distribution depot for accountability of assets and financial reporting. |
Closed – Implemented
Even though DOD concurred with this recommendation, it has not been successful in developing a single sampling plan to satisfy both the logistics and financial communities requirements to measure inventory accuracy. Instead, DLA has developed separate sampling plans to address GAO's concerns. DLA's logistics sampling plan has incorporated dollar value and item characteristics, as suggested in GAO's recommendation, and is focused on line item accuracy. DLA's financial sampling plan is oriented towards measuring the accuracy of inventory valuation and places emphasis on large dollar value inventory. DOD has involved both IG statisticians and consultants to ensure validity of the sampling plans. While the IG, consultants, and GAO agree that separate plans are not as efficient, the plans together do address GAO's recommendation.
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Topics
Data integrityFederal property managementInventory control systemsLogisticsManagement information systemsMilitary inventoriesNoncomplianceProperty lossesInventoryData errors