Inventory Management:

Defense Logistics Agency Inventory Accuracy Problems

NSIAD-88-39: Published: Dec 24, 1987. Publicly Released: Jan 25, 1988.

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In response to a congressional request, GAO reviewed the Defense Logistics Agency's (DLA) inventory records, its inventory research, and its inventory security.

GAO found that: (1) while DLA data showed a net inventory gain for fiscal years 1985 and 1986, GAO data showed a net inventory loss; (2) DLA did not include 88 percent of its inventory adjustments in its inventory accuracy reports; (3) items stored in caged areas had lower-than-expected accuracy rates; (4) DLA could better research the causes of inventory discrepancies; and (5) DLA was improperly storing drugs and other pilferable items.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Department of Defense, on August 31, 1989, approved change 8 to the Military Standard Transaction, Reporting and Accounting procedure, which requires an annual statistical sample inventory by each component to measure record accuracy. Also, DLA has a statistical sampling initiative to give depot management a tool for examining record accuracy and identifying areas needing improvement.

    Recommendation: To ensure that physical inventories are representative and that causative research is an effective tool for identifying and correcting recurring causes of inventory variances, the Director, DLA, should require that statistical samples of items be taken by commodity type and that the record, quantity, and dollar value accuracy indicators be collectively analyzed to identify areas for further analysis.

    Agency Affected: Department of Defense: Defense Logistics Agency

  2. Status: Closed - Not Implemented

    Comments: DOD disagrees with the recommendation. The DOD study on causative research did not lead to any new conclusions that research should be done below $800.

    Recommendation: To ensure that physical inventories are representative and that causative research is an effective tool for identifying and correcting recurring causes of inventory variances, the Director, DLA, should require that its planned reassessment of the causative research criteria include a determination of whether a sample of adjustments under $800 should be researched annually.

    Agency Affected: Department of Defense: Defense Logistics Agency

  3. Status: Closed - Implemented

    Comments: DLA defense depots and defense supply centers were directed on September 10, 1988, to ensure that proper controls are established over the quarterly feedback reports, that proper analysis of the data is accomplished, and that corrective actions initiated are documented. Compliance with the directive will be a special item of interest of DLA depot operational review and technical assistance team.

    Recommendation: To ensure that physical inventories are representative and that causative research is an effective tool for identifying and correcting recurring causes of inventory variances, the Director, DLA, should require that centers and depots establish controls for the proper distribution of quarterly causative research reports and follow up on corrective actions for identifying inventory variances.

    Agency Affected: Department of Defense: Defense Logistics Agency

  4. Status: Closed - Implemented

    Comments: Efforts to convert entire warehouse to controlled area to protect pilferable type items stored outside security cages were completed on June 30, 1988, and included security barriers and alarms. Warehouse storing drugs has been redesignated a controlled area and security devices and alarm systems installed. Physical security standards for special items are under revision.

    Recommendation: The Director, DLA, should require the Mechanicsburg depot to take immediate action to correct known security problems and emphasize the need to properly store pilferable items.

    Agency Affected: Department of Defense: Defense Logistics Agency

  5. Status: Closed - Not Implemented

    Comments: DLA disagreed with this recommendation and does not intend to implement it.

    Recommendation: The Director, DLA, should consider again including inventory accuracy as a material weakness in the next internal controls annual assessment.

    Agency Affected: Department of Defense: Defense Logistics Agency

  6. Status: Closed - Implemented

    Comments: Current DOD policy permits separate reporting of data by the storing component at the option of the reporting component. DLA intends to begin submitting separate reports for each service storing DLA material when the necessary changes to the management information system are implemented. These changes are part of the standard automated materiel management system modernization project.

    Recommendation: To provide DOD decisionmakers with more accurate, complete, and appropriate data, the Secretary of Defense should change DOD policy regarding inventory effectiveness reporting to require DLA inventory control effectiveness reports to identify inventory performance data for its depots separately from data of military service sites at which DLA materiel is stored.

    Agency Affected: Department of Defense

 

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