Defense Inventory:

Air Force Needs to Improve Control of Shipments to Repair Contractors

GAO-02-617: Published: Jul 1, 2002. Publicly Released: Aug 1, 2002.

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GAO has considered Department of Defense (DOD) inventory management to be a high-risk area since 1990 because inventory management systems and procedures are ineffective. This report evaluates the Air Force's inventory control procedures for material shipped to contractors for repair or for use in repair. The Air Force and contractor personnel have not complied with DOD and Air Force inventory control procedures designed to safeguard material shipped to contractors, placing items worth billions of dollars at risk of fraud, waste, and abuse. The Air Force's three inventory control points have not restricted repair contractors' access to the specific items and quantities of government-furnished material needed to accomplish the contract. Quarterly reports on the status of shipped material have not been sent to property administration officials at the Defense Contract Management Agency. Contractors receiving shipped material have not (1) properly entered the receipt of shipments into their records and into the inventory control points' reporting systems or (2) routinely reported shipment discrepancies. Air Force procedures for following up on shipments that contractors have not confirmed as received are ineffective, leaving the status of the shipments uncertain. The Air Force has not provided adequate program oversight because it does not request and analyze data on contractor shipment discrepancies to identify their extent and cause so that corrective action may be taken.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: DOD directed Headquarters Air Force Materiel Command/Logistics (HQ AFMC/LG) to (1) establish management oversight to ensure that the Air Logistics Centers comply with AFMCI 23-113, which already requires that repair contracts authorizing Government Furnished Material be written at the stock number and quantity level, and (2) develop a plan to modify existing contracts and provide a schedule to ensure full compliance by 2004. DOD directed HQ AFMC/LG to change Section H, AFMAN 23-110, Volume III, Part One, Chapter 9, to emphasize that appendix B of all contracts authorizing Government Furnished Material must be written and validated at the stock number and quantity level.

    Recommendation: To improve the control of inventory being shipped, the Secretary of Defense should direct the Secretary of the Air Force to improve processes for providing contractor access to government furnished material by listing specific stock numbers and quantities of material in repair contracts (as they are modified or newly written) that the inventory control points have agreed to furnish to contractors.

    Agency Affected: Department of Defense

  2. Status: Closed - Not Implemented

    Comments: The Air Force Special Support Stock Control D035D System already has the recommended capability at both the contract and DOD Activity Address Code level. To correct the weaknesses in its current automated internal control systems, the Air Force, in April 2002, and the Materiel Command, planned to revise its existing procedures for an automated method of loading stock numbers into the current control systems. However, the Air Force has been unable to show that their system is working as intended.

    Recommendation: To improve the control of inventory being shipped, the Secretary of Defense should direct the Secretary of the Air Force to improve processes for providing contractor access to government-furnished material by demonstrating that automated internal control systems for loading and screening stock numbers and quantities against contractor requisitions perform as designed.

    Agency Affected: Department of Defense

  3. Status: Closed - Not Implemented

    Comments: DOD directed Headquarters Air Force Installations and Logistics (HQ AF/IL) to determine the feasibility of establishing an interim maintenance interface capability until all repair contracts are written in compliance with AFMCI-23-113. The Air Force determined that developing an additional interim interface for the current legacy system was determined not to be to be cost effective. The Air Force stated that the implementation of the Commercial Asset Visibility process in FY 2004 would force all contracts to be write at the National Stock Number and quantity level.

    Recommendation: To improve the control of inventory being shipped, the Secretary of Defense should direct the Secretary of the Air Force to improve processes for providing contractor access to government-furnished material by loading stock numbers and quantities that the inventory control points have agreed to furnish to contractors into the control systems manually until the automated systems have been shown to perform as designed.

    Agency Affected: Department of Defense

  4. Status: Closed - Implemented

    Comments: The problem cited in GAO-02-617 was specific to a software problem in 1999-2000 between the Air Force Materiel Commands contract provisioning and materiel control activity systems which has since been resolved. The HQ AF/IL will ensure that future decisions affecting validation of contractor orders involving Government Furnished Materiel or Equipment be based on cost effective and/or mission critical needs and requests processed, IAW DOD 4140.1-R and DOD 4000.25-1-M. Additionally, in October 2003, the Air Force reported that AFMC 21-113 was in the process of revision and would include more detailed procedures. In interim, these procedures were available in the Contract Repair Process Guide that was distributed to the Air Logistics Centers.

    Recommendation: To improve the control inventory being shipped, the Secretary of Defense should direct the Secretary of the Air Force to improve processes for providing contractor access to government-furnished material by requiring that waivers to loading stock numbers and quantities manually are adequately justified and documented based on cost-effective and/or mission-critical needs.

    Agency Affected: Department of Defense

  5. Status: Closed - Implemented

    Comments: In response to this reommendation, HQ AF/IL planned to formalize responsibility and accountability for the generation of required quarterly reports to the applicable Defense Contract Management Agency (DCMA) office. In June 2002, HQ AFMC/LG issued interim policy and procedures for generation of quarterly reports of all shipments of AF materiel to contractors. That interim policy was in effect until guidance was included in a update to AFMAN 23-110, Volume III, Part 8, Chapter 15. In January 2004, AFMAN 23-110, Volume III, Part 8, Chapters 15 7 16 was updated to reflect these changes.

    Recommendation: To improve the control of inventory being shipped, the Secretary of Defense should direct the Secretary of the Air Force to revise Air Force supply procedures to include explicit responsibility and accountability for generating quarterly reports of all shipments of Air Force material to contractors.

    Agency Affected: Department of Defense

  6. Status: Closed - Implemented

    Comments: In response to this recommendation, HQ AF/IL planned to formalize responsibility and accountability for the distribution of required quarterly reports to the applicable Defense Contract Management Agency (DCMA) office. In June 2002, HQ AFMC/LG issued interim policy and procedures for the distribution of quarterly reports of all shipments of AF materiel to contractors. That interim policy was in effect until guidance was included in a update to AFMAN 23-110, Volume III, Part 8, Chapter 15. In January 2004, AFMAN 23-110, Volume III, Part 8, Chapters 15 & 16 was updated to reflect these changes.

    Recommendation: To improve the control of inventory being shipped, the Secretary of Defense should direct the Secretary of the Air Force to revise Air Force supply procedures to include explicit responsibility and accountability for distributing the reports to Defense Contract Management Agency property administrators.

    Agency Affected: Department of Defense

  7. Status: Closed - Not Implemented

    Comments: In response to this recommendation, HQ AF/IL stated that it would determine, for the contractors in the GAO review, actions required to correct materiel receipt posting problems. However, no evidence was ever provided indicating required actions to correct the problems found. In February 2003, the Air Force reported that the implementation of CAV and CAV-Government Furnished Material(GFM)would correct material receipt requirements for both unserviceable asset receipts and receipt of GFM for all repair contractors. These procedures were planned to be implemented no later than FY04. A letter restating this policy until the new systems are in place was released.

    Recommendation: To improve the control of inventory being shipped, the Secretary of Defense should direct the Secretary of the Air Force to determine what actions are needed to correct problems in posting material receipts.

    Agency Affected: Department of Defense

  8. Status: Closed - Not Implemented

    Comments: In response to this recommendation, HQ AF/IL stated that it would determine, for the contractors in the GAO review, actions required to ensure that contractor personnel are aware of procedures for submitting supply and transportation discrepancy reports. However, no evidence was ever provided indicating required actions to correct the problems found. In February 2003, HQ AFMC/LG stated that it had formally requested DCMA reiterate existing policy to all repair contractors and require their compliance.

    Recommendation: To improve the control of inventory being shipped, the Secretary of Defense should direct the Secretary of the Air Force to determine, for the contractors in GAO's review, what actions are needed to correct problems in reporting shipment discrepancies.

    Agency Affected: Department of Defense

  9. Status: Closed - Implemented

    Comments: In response to this recommendation, DOD directed HQ AF/IL to establish interim procedures to reconcile records of Government Furnished Materiel and Equipment shipped to repair contractors and records of materiel acknowledged received by them. In September 2002, HQ AFMC/LG instituted an interim process via a policy memo that required the AF item manager to verify receipt of item manager directed shipments of unserviceable assets to a repair contractor. Additionally, D035A has been changed to generate a Delinquent Open Shipment notice on these shipments. A notice will be generated for item manager review at 15-day intervals (15,30,45) to prompt the item manager to ensure receipts are moinitored. If the receipt has not been posted by 60 days, a controlled exception will be generated which is reviewed by management.

    Recommendation: To improve the control of inventory being shipped, the Secretary of Defense should direct the Secretary of the Air Force to establish interim procedures to reconcile records of material shipped to contractors with records of material received by them, until the Air Force completes the transition to its Commercial Asset Visibility system in fiscal year 2004.

    Agency Affected: Department of Defense

  10. Status: Closed - Not Implemented

    Comments: In February 2003, AF/IL tasked its MAJCOMs to report any discrepancies, to include reports when there are no discrepancies. The first report was due mid-January 2003 for the period of calendar year 2002. After the initial report, MAJCOMS will report semi-annually with due dates of 15 Jan and 15 July of each year. DOD's response to our recommendation does not address the contractor discrepancy reporting issues raised in the report. Although some MAJCOMs may actually be collecting and analyzing shipment discrepancies at their Air Force bases, we reported that we found similar contractor shipment discrepancy data has not been requested nor collected.

    Recommendation: To improve the control of inventory being shipped, the Secretary of Defense should direct the Secretary of the Air Force to comply with existing procedures to request, collect, and analyze contractor shipment discrepancy data to reduce the vulnerability of shipped inventory to undetected loss, misplacement, or theft.

    Agency Affected: Department of Defense

 

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