Weaknesses in Accounting for Government-Furnished Materials at Defense Contractors' Plants Lead to Excesses

FGMSD-80-67: Published: Aug 7, 1980. Publicly Released: Aug 7, 1980.

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The military services, for the most part, do not account for the estimated billions of dollars in government-furnished material provided to Department of Defense (DOD) production contractors. Even when the services attempt to account for material, the data is incomplete and inaccurate. This has led to furnishing material to contractors in excess of contract allowances. It is DOD policy to rely almost solely on the contractor's property records to account for and control government-furnished material. The policy is not effective. GAO undertook a review of this matter because of: (1) congressional interest in prior audits of material provided to overhaul, maintenance, and repair contractors; (2) the estimated value of the government's investment; and (3) GAO responsibility for approval of executive agency accounting systems. GAO principles and standards for executive agency accounting systems require that government property be under accounting control from the time it is acquired until it is disposed of or consumed.

Review of four production contractors showed that the lack of accounting controls led to DOD providing or initiating shipments of $1.3 million in material above contract allowances. This problem was also noted in reports on overhaul and repair contracts. Providing excess material was caused by clerical/arithmetical errors, lack of coordination among procuring activity personnel, and failure to modify contracts to show changes in government-furnished material authorizations. An effective accounting system would have helped to disclose these errors and identify or prevent excess material from being shipped. In prior reports on weaknesses in accounting for materials furnished to overhaul, maintenance, production, and repair contractors; it was noted that contractors were oversupplied with materials, contractors were given access to DOD supply systems without DOD accounting control over materials obtained, and contractors' property control records were unreliable. The Secretary of Defense should halt the DOD policy of almost total reliance on contractor's property control records and instead establish systems which, together with contractor's records, will provide accounting control over Defense material from receipt to consumption or disposal.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Defense should instruct the military services to develop accounting systems that establish a means of determining the quantity and value of government-furnished material: (1) contractually allowed to contractors; (2) actually provided to contractors; (3) reported as received by contractors; (4) reported as used by contractors; and (5) reported as on hand by contractors. The systems should include adequate accounting for DOD materials that are obtained by production contractors directly from DOD supply systems. They should identify production contracts which have significant amounts of government-furnished material and determine whether such material is authorized and required. The services should coordinate with GAO during the development of these systems to ensure that they will comply with the Comptroller General's principles and standards.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Defense should instruct the military services to coordinate with GAO during the development of the accounting systems to ensure they will comply with the Comptroller General's principles and standards.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Defense should instruct the military services to provide developed accounting system data to property administrators so that they have independent data that they can use to pinpoint differences between government and contractor records. Where differences exist, reconciliations should be made.

    Agency Affected: Department of Defense

  4. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Defense should instruct the military services to identify those production contracts which have significant amounts of government-furnished material and determine whether the government-furnished material on hand is contractually authorized and required.

    Agency Affected: Department of Defense

 

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