DOD Excess Property:

Management Control Breakdowns Result in Substantial Waste and Inefficiency

GAO-05-277: Published: May 13, 2005. Publicly Released: Jun 7, 2005.

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Based on limited previous GAO work that identified examples of purchases of new items at the same time identical items in excellent or good condition were excessed, GAO was asked to assess the overall economy and efficiency of the Department of Defense (DOD) program for excess property reutilization (reuse). Specifically, GAO was asked to determine (1) whether and to what extent the program included waste and inefficiency and (2) root causes of any waste and inefficiency. GAO was also asked to provide detailed examples of waste and inefficiency and the related causes. GAO's methodology included an assessment of controls, analysis of DOD excess inventory data, statistical sampling at selected sites, and detailed case studies of many items.

DOD does not have management controls in place to assure that excess inventory is reutilized to the maximum extent possible. Of $18.6 billion in excess commodity disposals in fiscal years 2002 and 2003, $2.5 billion were reported to be in new, unused, and excellent condition. DOD units reutilized only $295 million (12 percent) of these items. The remaining $2.2 billion (88 percent) includes significant waste and inefficiency because new, unused, and excellent condition items were transferred and donated outside of DOD, sold for pennies on the dollar, or destroyed. DOD units continued to buy many of these same items. GAO identified at least $400 million of commodity purchases when identical new, unused, and excellent condition items were available for reutilization. GAO also identified hundreds of millions of dollars in reported lost, damaged, or stolen excess property, including sensitive military technology items, which contributed to reutilization program waste and inefficiency. Further, excess property improperly stored outdoors for several months was damaged by wind, rain, and hurricanes. To illustrate continuing reutilization program waste and inefficiency, GAO ordered and purchased at little or no cost several new and unused excess commodities that DOD continued to buy and utilize, including tents, boots, power supplies, circuit cards, and medical supplies. GAO paid a total of $1,471, including tax and shipping cost, for these items, which had an original DOD acquisition cost of $68,127. Root causes for reutilization program waste and inefficiency included (1) unreliable excess property inventory data; (2) inadequate oversight and physical inventory control; and (3) outdated, nonintegrated excess inventory and supply management systems. Procurement of inventory in excess of requirements also was a significant contributing factor. Improved management of DOD's excess property could save taxpayers at least hundreds of millions of dollars annually.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: On May 5, 2005, DRMS revised its policy in DRMS-I 4160.14 and removed the authority of DRMO managers to accept turn-in generator counts for items with a unit of issue. The policy limits exceptions to unopened items in the original package where box counts can be used, and for quantities in batch lots where counts can be estimated. In addition, the revised policy requires that attempts be made to resolve discrepancies with the turn-in generator and that a discrepancy report to the generator be prepared for any discrepancy over $800.

    Recommendation: The Secretary of Defense should direct the Director of the Defense Logistics Agency (DLA); the Commander of the Defense Reutilization and Marketing Service (DRMS); and the Secretaries of the Army, the Navy, and the Air Force, as appropriate, to direct DRMS to clarify and enforce the policy that permits Defense Reutilization and Marketing Offices (DRMO) management to waive the requirement to verify quantities on turn-ins under exempted conditions, and consider additional criteria for maintaining accountability of military equipment items.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: DRMS performed an analysis of its projected excess property receipts and of the capabilities and number of staff necessary to carry out the workload at the DRMOs. In addition, in October 2005, DRMS completed an OMB Circular A-76 competition, the process used to evaluate public-private competition of commercial services in government, for all of its DRMOs. Based on the A-76 assessment, in January 2006, DRMS provided documentation of its transition plan detailing actions to implement the most efficient organization based on workload, staffing, and consolidation of field offices.

    Recommendation: The Secretary of Defense should direct the Director of the Defense Logistics Agency; the Commander of the Defense Reutilization and Marketing Service; and the Secretaries of the Army, the Navy, and the Air Force, as appropriate, to require DRMS to identify DRMOs with insufficient human capital resources and take appropriate action to assure that excess property receipts are verified and processed in an accurate and timely manner. In implementing this recommendation, DRMS should require DRMOs to provide adequate supervision and monitoring to assure that excess property receipts are verified when received and entered in DRMO inventory.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: DLA included requirements in the development of the Defense Reutilization and Marketing Service's Reutilization Modernization Program (RMP)--a property disposal system to manage excess DOD inventory--to link prime vendor purchase transactions to unique product identification numbers. On May 2, 2006, DLA provided documentation of the specific requirements that will allow RMP to capture unique identification numbers, including serial numbers, part numbers, local stock numbers, or NSNs from prime vendor purchase transactions.

    Recommendation: The Secretary of Defense should direct the Director of the Defense Logistics Agency; the Commander of the Defense Reutilization and Marketing Service; and the Secretaries of the Army, the Navy, and the Air Force, as appropriate, to require DLA to develop a mechanism for linking prime vendor purchase transactions to National stock numbers (NSN) or other unique product identification.

    Agency Affected: Department of Defense

  4. Status: Closed - Implemented

    Comments: On December 1, 2005, DRMS revised the turn-in guidance on its Web site providing specific information to DRMOs and military service turn-in generators on the proper assignment of condition codes. In addition, on December 1, 2005, DRMS began a formal training program on property accounting that provides instruction to DRMO and military service turn-in generator personnel on the proper assignment of condition codes. In February 2006, DRMS provided documentation of its training schedule through August 2006. In May 2006, DRMS provided documentation showing training that had been conducted to date, including names of attendees. We are confident that scheduled training will be completed.

    Recommendation: The Secretary of Defense should direct the Director of the Defense Logistics Agency; the Commander of the Defense Reutilization and Marketing Service; and the Secretaries of the Army, the Navy, and the Air Force, as appropriate, to direct DRMS to develop written guidance and formal training to assist DRMO personnel and military service turn-in generators in the proper assignment of condition codes to excess property turn-ins.

    Agency Affected: Department of Defense

  5. Status: Closed - Implemented

    Comments: In memorandum dated September 14, 2005, September 19, 2005, and October 4, 2005, the Army, Navy, and Air Force stated that they have conducted assessments of their training and performance requirements for reutilization of excess property. As a result of their assessment, the Army, Navy, and Air Force are emphasizing requirements for accurate turn-in documentation and providing training on proper assignment of condition codes and national stock numbers. Our fiscal year 2006 follow-up investigation identified a significant improvement in the accuracy of excess property turn-in documentation, particularly with regard to item descriptions and condition codes.

    Recommendation: The Secretary of Defense should direct the Director of the Defense Logistics Agency; the Commander of the Defense Reutilization and Marketing Service; and the Secretaries of the Army, the Navy, and the Air Force, as appropriate, to direct the military services to provide accurate excess property turn-in documentation to DRMS, including proper assignment of condition codes and NSNs based on available guidance.

    Agency Affected: Department of Defense

  6. Status: Closed - Implemented

    Comments: In memorandum dated September 14, 2005, September 19, 2005, and October 4, 2005, the Army, Navy, and Air Force advised DOD that they had conducted assessments of their training and performance requirements for reutilization of excess property. In addition, the Army, Navy, and Air Force provided documentation that shows specific accountability mechanisms to be used to assure the reliability of turn-in documents. These accountability mechanisms include supervisory review and independent approval by a qualified technical inspector of turn-in documents, monitoring phases of the disposal process, gathering disposal volume data, and conducting quality assurance inspections.

    Recommendation: The Secretary of Defense should direct the Director of the Defense Logistics Agency; the Commander of the Defense Reutilization and Marketing Service; and the Secretaries of the Army, the Navy, and the Air Force, as appropriate, to require the military services to establish appropriate accountability mechanisms, including supervision and monitoring, for assuring the reliability of turn-in documents.

    Agency Affected: Department of Defense

  7. Status: Closed - Implemented

    Comments: DLA and DRMS identified systemic weaknesses related to (1) processing excess property in batchlots, (2) property that was assigned a local (nonstandard) stock number, and (3) procedures for screening and requisition of excess and detailed procedures for receiving, inspecting, and disposing of batch lotted excess property. In addition, DLA identified Federal Supply Codes (SC) associated with sensitive military items that should be restricted from public release. Items coded with Lens are now required to be identified to an SC or a national stock number (NAN) or a commercial item that is publicly available. Otherwise, the items are to be destroyed. In addition, DRMS developed detailed, written procedures to verify the identity of individuals who are authorized to screen for and requisition excess property before releasing the property to the requisitioner. In September 2009, DLA issued its DLA/DDC Compliance Review Manual and established a review schedule for fiscal year 2010.

    Recommendation: The Secretary of Defense should direct the Director of the Defense Logistics Agency; the Commander of the Defense Reutilization and Marketing Service; and the Secretaries of the Army, the Navy, and the Air Force, as appropriate, to direct DLA and DRMS to review DLA supply depot and DRMO excess property loss reports to identify systemic weaknesses and take immediate and appropriate corrective actions to resolve them.

    Agency Affected: Department of Defense

  8. Status: Closed - Implemented

    Comments: Defense Reutilization and Marketing Service (DRMS) took several actions to resolve DRMO security weaknesses, including performing follow-up inspections to ensure that identified weaknesses were corrected and updating the DRMS Inspection Log in May 2008 to expand the list of inspection requirements used to monitor DRMO security and safety. DRMS also took action to ensure that sensitive items are stored in secured cages or storage facilities, items stored outside are covered and do not remain outside for more than 90 days, and that lighting and perimeter fencing were also improved where necessary.

    Recommendation: The Secretary of Defense should direct the Director of the Defense Logistics Agency; the Commander of the Defense Reutilization and Marketing Service; and the Secretaries of the Army, the Navy, and the Air Force, as appropriate, to direct DRMS to take immediate, appropriate action to resolve identified uncorrected DRMO security weaknesses.

    Agency Affected: Department of Defense

  9. Status: Closed - Implemented

    Comments: DRMS developed a weekly 42-day look ahead report that notifies the liquidation sales contractor of future shipments for planning purposes. DRMS and the liquidation sales contractor use the report to determine potential workload and storage capacity needs at each location. Our investigative follow-up visits to numerous liquidation sales locations confirmed the effectiveness of this action.

    Recommendation: The Secretary of Defense should direct the Director of the Defense Logistics Agency; the Commander of the Defense Reutilization and Marketing Service; and the Secretaries of the Army, the Navy, and the Air Force, as appropriate, to require DRMS to determine the monthly sales volume of excess property at the DLA supply depots and work with its liquidation sales contractor to identify the appropriate number and liquidation sales locations needed to handle the sales of excess DLA depot property. In making these determinations, DRMS and its contractor should consider whether contractor staffing and warehouse capacity at each location are adequate to handle the volume of property shipped to those locations for sale.

    Agency Affected: Department of Defense

  10. Status: Closed - Implemented

    Comments: On January 26, 2006, DRMS provided a status of their inspections showing 18 liquidation contractor sites visited and photographs illustrating corrective actions and improvements taken to safeguard property from damage. In addition, DRMS stated they are monitoring storage facilities on a monthly basis by requiring Defense Reutilization and Marketing Offices (DRMO) to report on the current storage and warehouse condition of property owned by the liquidation contractor. Further, DRMS stated they have developed a 42-day look-ahead report that is used each week to monitor and control excess property intended for government liquidation should reutilization not occur. This report will enable DRMOs and DOD's liquidation contractor greater flexibility in moving and managing the flow of excess property to sales sites and help avoid transfers of items in excess of sales warehouse capacity.

    Recommendation: The Secretary of Defense should direct the Director of the Defense Logistics Agency; the Commander of the Defense Reutilization and Marketing Service; and the Secretaries of the Army, the Navy, and the Air Force, as appropriate, to require DRMS to periodically inspect liquidation contractor facilities and take immediate action to correct structural impairments and other deficiencies, such as outside storage due to inadequate warehouse capacity that could result in damage of excess DOD property held for sale.

    Agency Affected: Department of Defense

  11. Status: Closed - Implemented

    Comments: DOD expanded implementation of the Automated Asset Reutilization Program (AARP) to provide for immediate recoupment of excess items in new, unused conditions when supply orders are placed for those items. AARP now screens for and matches turn-ins of new, unused, and excellent condition items to fill current and future supply requirements at DLA's inventory control points. AARP searches the existing systems environment using criteria such as whether items are near the reorder point, are on backorder, have no shelf life, or have open purchase requests. On May 2, 2006, DLA provided documentation that AARP has been implemented at DLA's three inventory control points. DLA initiated this action in July 2005 and included all product lines, except medical, as of November 2005. In addition, DLA provided documentation that this process has resulted in over $2 million in savings through recoupment and reutilization of new DOD excess inventory items as of June 30, 2006. We will calculate the dollar savings after a full year of operation under the supply system initiatives.

    Recommendation: The Secretary of Defense should direct the Director of the Defense Logistics Agency; the Commander of the Defense Reutilization and Marketing Service; and the Secretaries of the Army, the Navy, and the Air Force, as appropriate, to direct DLA and DRMS to consider available options and implement an interim process for identifying turn-ins of excess new, unused, and excellent condition items that could be reutilized to avoid unnecessary purchases in the existing systems environment.

    Agency Affected: Department of Defense

  12. Status: Closed - Implemented

    Comments: As part of its Reutilization Modernization Program (RMP), DRMS identified key data elements for identifying items purchased from prime vendors who do not use national stock numbers. On May 2, 2006, DLA provided documentation of the specific requirements that will allow RMP to capture unique identification numbers including serial numbers, part numbers, local stock numbers, or NSNs from prime vendor purchase transactions.

    Recommendation: The Secretary of Defense should direct the Director of the Defense Logistics Agency; the Commander of the Defense Reutilization and Marketing Service; and the Secretaries of the Army, the Navy, and the Air Force, as appropriate, to direct DLA Business System Modernization (BSM) and DRMS Reutilization Modernization Program (RMP) systems officials to coordinate on the identification of key data elements for identifying excess property that should be reutilized before completing the design of functional requirements for reutilization of excess commodities for BSM and RMP.

    Agency Affected: Department of Defense

  13. Status: Closed - Implemented

    Comments: In January 2006, DLA designed an alternative process as part of its Business System Modernization (BSM) effort to identify and recoup excess A-condition property items based on daily feeds from the Defense Reutilization and Marketing Service's (DRMS) property disposal system. On June 13, 2006, during a status briefing with GAO, DLA demonstrated an alternative approach in which BSM recoups A-condition items from DRMS's property disposal system to allow buying activities to identify them for reutilization. We monitored DLA savings efforts from expansion of the Automated Asset Reutilization Program (AARP) that screened for and matches turn-ins of new, unused, and excellent condition items to fill current and future supply requirements at DLA's 3 inventory control points through full implementation of BSM's automated recoupment function during fiscal year 2007. DLA transaction data show that DLA saved a total of $4,389,528 through recoupment and reutilization of supply items that would otherwise have been destroyed or disposed of outside of DOD during fiscal year 2007. In addition, DRMS took alternative actions to implement three DOD-wide marketing initiatives, including (1) expansion of customer want lists, (2) e-mail notification to repeat customers, and (3) use of scrolling photos to detail quality and features of high cost items, such as trucks, cranes, and vehicles. We monitored DRMS efforts to fully implement these initiatives, as well as a special initiative directed at filling want lists for the U.S. Army's Tank and Automotive Command (TACOM). DRMS transaction data showed that the three DOD-wide initiatives saved over $159 million during fiscal year 2007. Further, from May 2005 through the end of fiscal year 2007, the TACOM want list initiative saved over $5 million by facilitating the reutilization of 142 utility trucks costing from 34,461 to $61,665 each.

    Recommendation: The Secretary of Defense should direct the Director of the Defense Logistics Agency; the Commander of the Defense Reutilization and Marketing Service; and the Secretaries of the Army, the Navy, and the Air Force, as appropriate, to require that DLA's BSM system design include edit controls that would reject a purchase transaction or generate an exception report when A-condition excess items are available but are not selected for reutilization at the time that purchases are made.

    Agency Affected: Department of Defense

 

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