Army Inventory Management:

Inventory and Physical Security Problems Continue

NSIAD-88-11: Published: Oct 9, 1987. Publicly Released: Oct 22, 1987.

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In response to a congressional request, GAO reviewed the Army's inventory management to determine its effectiveness and the adequacy of inventories' physical security.

GAO found that the Army: (1) was not fully aware of the extent of inventory inaccuracies existing at the wholesale and retail levels, or what the inaccuracies represented in terms of dollar value or quantity of items; (2) failed to make the necessary physical inventories before making record adjustments when it found variances; (3) failed to identify systematic problem areas and their underlying causes; (4) had poor physical security for safeguarding inventories from theft or misappropriation at some facilities; and (5) failed to develop or report corrective actions because of internal control weaknesses.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The open recommendations from the 1983 report, as well as the recommendations from this report, will be included in the Army Supply Master Plan for continued follow-up.

    Recommendation: The Secretary of the Army should reexamine the previously planned corrective actions and determine why these actions have either not been taken, or why they have not resulted in improved inventory management.

    Agency Affected: Department of Defense: Department of the Army

  2. Status: Closed - Not Implemented

    Comments: DOD does not support the need for a separate budget line. It believes that it has sufficient visability of Army funding levels to monitor security upgrades. Therefore, it chose not to take action.

    Recommendation: The Secretary of the Army should, as an alternative to the current process for allocating resources, establish a separate budget line for physical security of its inventories so that it can have better visibility of the progress toward making needed upgrades of facilities, equipment, and personnel rather than leaving it up to the major commands and installation commanders to decide how the resources should be allocated.

    Agency Affected: Department of Defense: Department of the Army

  3. Status: Closed - Implemented

    Comments: DOD initiated a study of the causative research process in order to recommend policy and procedural changes to improve its effectiveness and efficiency. Causative research is constantly implemented and is being conducted for all variances disclosed in the statistical inventory sample.

    Recommendation: The Secretary of the Army should direct the inventory managers to reemphasize the need for effective causative research that identifies the causes for the inventory variances and tracks the causes over a period of time to identify systemic problem areas. An alternative to the current procedures would be to statistically sample the variances and do the necessary in-depth research to identify the causes of the variances.

    Agency Affected: Department of Defense: Department of the Army

  4. Status: Closed - Implemented

    Comments: Requirements and procedures for developing a statistical sampling approach have been developed and the instructions have been issued.

    Recommendation: The Secretary of the Army should direct the inventory managers to develop an inventory methodology, such as statistical sampling, which will allow managers to obtain a representative and realistic view of its inventory management effectiveness based on indicators such as dollar and unit variance, as well as initial record accuracy.

    Agency Affected: Department of Defense: Department of the Army

  5. Status: Closed - Implemented

    Comments: The Department of Defense (DOD) is developing policy implementation provisions to improve the collection and utilization of data related to inventory accuracy measurement. This requirement has been published in DOD Instruction 4130.35.

    Recommendation: The Secretary of the Army should direct the inventory managers to report all variances between physical inventories and accountable records and use the reported variances in measuring inventory management effectiveness.

    Agency Affected: Department of Defense: Department of the Army

  6. Status: Closed - Not Implemented

    Comments: The Army does not believe it to be cost-effective to implement this recommendation. Therefore, it does not plan any action in this regard. In view of the action planned, or ongoing for the other recommendations, GAO cannot object to the Army's lack of action on this recommendation.

    Recommendation: The Secretary of the Army should direct the inventory managers to perform a physical inventory of all variances disclosed by comparing accountable and custodial records, and use the results of the inventory as the basis for making inventory adjustments.

    Agency Affected: Department of Defense: Department of the Army

  7. Status: Closed - Implemented

    Comments: The Army and DOD included an assessment of physical inventory control in its FMFIA statements.

    Recommendation: The Secretary of the Army should report the internal control weaknesses discussed, along with a corrective action plan, in the Army's next annual Financial Integrity Act (FMFIA) statement.

    Agency Affected: Department of Defense: Department of the Army

 

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