Internal Controls:

Controls Over Material Furnished to Navy Contractors Can Be Improved

NSIAD-88-150: Published: Jun 21, 1988. Publicly Released: Jul 27, 1988.

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In response to a congressional request, GAO reviewed the Navy's controls over government-furnished materiel (GFM) provided to its contractors to determine: (1) if the Navy properly implemented the Federal Acquisition Regulation (FAR) and Department of Defense (DOD) policy requirements to justify and document decisions to provide contractors with GFM; (2) the adequacy of Navy controls to validate and approve contractor GFM requisitions; and (3) the adequacy of government oversight of GFM in contractors' possession.

GAO found that the Navy: (1) routinely provided GFM to its contractors without adequate justification or documentation, even though government policy required contractors to provide their own materiel unless otherwise justified; (2) did not have adequate management and control systems to control GFM provided to contractors; (3) prepared a draft instruction that would improve GFM control procedures for all contracts, but did not establish a target date for implementation; (4) reported weaknesses in contractor controls over GFM in past audits without initiating improvements; (5) had not fully implemented DOD policies or complied with its own policies; (6) did not maintain adequate oversight over its contractors' property control and did not ensure that contractors reported potential excess GFM due to personnel shortages; and (7) had not met DOD financial accounting manual requirements.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Navy issued guidance to implement in November 1989. The financial accounting was transferred to DOD Case 5429, associated with accounting systems development.

    Recommendation: The Secretary of the Navy should further improve property accountability for government materiel and develop and implement a financial accounting system that satisfies DOD accounting manual requirements.

    Agency Affected: Department of Defense: Department of the Navy

  2. Status: Closed - Implemented

    Comments: The Navy requested military installations to hire additional personnel and is designing a property administration course. Resources were provided as of September 1989.

    Recommendation: The Secretary of the Navy should identify and make available, as appropriate, the additional resources needed for effective property administration.

    Agency Affected: Department of Defense: Department of the Navy

  3. Status: Closed - Implemented

    Comments: To ensure adherence to the policy of allowing contractors to obtain only the government-furnished property that has been authorized, the Navy has in place a change to the Military Standard Requisitioning and Issue Procedure.

    Recommendation: The Secretary of the Navy should ensure that Navy contractors and organizations fully comply with and enforce FAR, DOD, and Navy policies on authorizing, issuing, and overseeing GFM. To ensure that this is done, monitoring may be required until it is evident that the long-standing problems in controlling GFM have been corrected.

    Agency Affected: Department of Defense: Department of the Navy

  4. Status: Closed - Implemented

    Comments: Policy guidance was issued in August 1989.

    Recommendation: The Secretary of the Navy should require that decisions to allow contractors to obtain GFM are justified in advance, in writing, and are adequately documented to demonstrate that they are in the government's best interest from a cost-effectiveness or other critical standpoint, as required by FAR, DOD, and Navy regulations.

    Agency Affected: Department of Defense: Department of the Navy

  5. Status: Closed - Implemented

    Comments: The Navy has reported and will continue reporting until corrective actions are taken. However, GAO officials stated that the new system will not solve the accountability problems.

    Recommendation: The Secretary of the Navy should continue reporting the inadequate control of GFM as a material weakness in the Navy's annual Federal Managers' Financial Integrity Act report to DOD until corrective actions have been taken.

    Agency Affected: Department of Defense: Department of the Navy

 

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