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Report to Congressional Requesters: 

May 2005: 

DOD Excess Property: 

Management Control Breakdowns Result in Substantial Waste and 
Inefficiency: 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-277]

GAO Highlights: 

Highlights of GAO-05-277, a report to congressional requesters: 

Why GAO Did This Study: 

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. 

What GAO Found: 

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. 

Waste and Inefficiency Related to $2.2 Billion in Fiscal Year 2002 and 
2003 Disposals of Excess DOD Commodities Reported To Be in New, Unused, 
and Excellent Condition: 

[See PDF for image]

[End of figure]

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. 

What GAO Recommends: 

This report includes 13 recommendations to improve the economy and 
efficiency of DOD's reutilization program for excess commodities in the 
areas of: (1) data reliability; (2) oversight, accountability, and 
physical inventory control; and (3) the functional design of DOD's 
future commodity inventory systems. 

DOD concurred with 8 and partially concurred with 5 of our 
recommendations. Where DOD partially concurred, we view DOD's stated 
actions as being generally responsive to the intent of our 
recommendations. 

www.gao.gov/cgi-bin/getrpt?GAO-05-277. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Gregory D. Kutz at (202) 
512-9095 or kutzg@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

Analysis of Reutilization Program Identifies Billions of Dollars in 
Waste and Inefficiency: 

Management Control Breakdowns Resulted in Reutilization Program Waste 
and Inefficiency: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendixes: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Comments from the Department of Defense: 

Appendix III: Excess Property Condition Codes: 

Appendix IV: Programs Authorized to Receive Excess DOD Property: 

Appendix V: Results of Statistical Tests of Excess Commodity Inventory 
Accuracy: 

Appendix VI: GAO Contacts and Staff Acknowledgments: 

Tables: 

Table 1: Defense Reutilization and Marketing Service Revenue: 

Table 2: Reported Acquisition Value of DOD Excess Commodity Transfers 
to Other Programs and Agencies during Fiscal Years 2002 and 2003: 

Table 3: Examples of New, Unused Commodity Items Transferred and Sold 
Outside of DOD while Still Being Purchased during Fiscal Years 2002 and 
2003: 

Table 4: Turn-in Transactions with One or More Control Test Failures at 
Five DRMOs and Five DLA Supply Depots: 

Table 5: Estimated Turn-in Transaction Control Test Failures for Items 
Classified as Serviceable: 

Table 6: Reported DRMS Excess Property Losses and Adjustments: 

Table 7: DOD Excess Property Condition Codes: 

Table 8: DOD Special Programs: 

Table 9: DRMO Turn-in Transactions with One or More Control Test 
Failures: 

Table 10: DLA Supply Depot Turn-in Transactions with One or More 
Control Test Failures: 

Table 11: DRMO Turn-in Transactions That Failed Overall Control Tests 
for Condition Code Accuracy: 

Table 12: DRMO Turn-in Transactions Classified as Serviceable That 
Failed Control Tests for Condition Code Accuracy: 

Table 13: DRMO Turn-in Transactions Classified as Unserviceable That 
Failed Control Tests for Condition Code Accuracy: 

Table 14: DLA Supply Depot Turn-in Transactions That Failed Overall 
Control Tests for Condition Code Accuracy: 

Figures: 

Figure 1: DLA Commodity Acquisition and Distribution Process: 

Figure 2: DRMS Excess Property Disposal Process: 

Figure 3: Fiscal Year 2002 and 2003 Disposals of Excess DOD Commodities 
in Serviceable and Unserviceable Condition: 

Figure 4: Waste and Inefficiency Related to $2.2 billion in Fiscal Year 
2002 and 2003 Disposals of Excess DOD Commodities Reported To Be in 
New, Unused, and Excellent Condition: 

Figure 5: Examples of Fiscal Year 2002 and 2003 DLA Purchases When 
Identical New, Unused Items Were Available for Reutilization: 

Figure 6: Medical Instrument Chest Assembled for Maximum Utilization: 

Figure 7: One of the New, Unused Excess DOD Circuit Cards Transferred 
to GAO in September 2004: 

Figure 8: New, Unused DOD Power Supply Unit Requisitioned by GAO in 
September 2004 from the DLA Depot in Norfolk, Virginia: 

Figure 9: New, Unused Excess Cold Weather Boots Purchased in September 
2004: 

Figure 10: New, Unused Excess Shelter Half-Tent Purchased in August 
2004: 

Figure 11: One of the New, Unused Excess DOD Gasoline Burner Units 
Purchased in September 2004: 

Figure 12: Photograph of the New, Unused Portable Suction Apparatus 
Purchased in October 2004: 

Figure 13: New, Unused Excess Level III Biological Safety Cabinet at 
the Norfolk DRMO: 

Figure 14: Outside Storage of Wood Computer Furniture at the 
Huntsville, Alabama, Liquidation Sales Location in July 2004: 

Figure 15: Example of Water-Damaged Items at the DRMS Liquidation Sales 
Contractor Location in Huntsville, Alabama: 

Figure 16: Example of Excess DOD Property Stored Outside at the DOD 
Liquidation Sales Contractor Location in Norfolk, Virginia: 

Figure 17: DOD Excess New, Unused Bandages and Medical Supplies 
Purchased over the Internet in October 2004: 

Figure 18: Existing Nonintegrated DLA Inventory Systems Environment: 

Abbreviations: 

BSM: Business System Modernization: 

CAP: Civil Aeronautics Patrol: 

CCLI: Commerce Control List Item: 

C.F.R.: Code of Federal Regulations: 

CONUS: Continental United States: 

CPU: Central processing unit: 

DAISY: DRMS Automated Information System: 

DLA: Defense Logistics Agency: 

DLIS: Defense Logistics Information System: 

DOD: Department of Defense: 

DODAAC: DOD Activity Address Code: 

DODAAD: DOD Activity Address Directory: 

DRMO: Defense Reutilization and Marketing Office: 

DRMS: Defense Reutilization and Marketing Service: 

DSS: Defense Standard System: 

FEDLOG: Federal Logistics System: 

FEDS: Federal Disposal System: 

FSC: Federal Supply Class: 

GSA: General Services Administration: 

GSAXcess: GSA Excess Property Web site: 

HAP: Humanitarian Assistance Program: 

IDEA: Interactive Data Extraction and Analysis: 

JSLIST: Joint Service Lightweight Integrated Suit Technology: 

LEA: Law Enforcement Agency: 

LSN: Local stock number: 

MIDAS: Management Information Distribution and Access System: 

MILSTRIP: Military Standard Requisitioning and Issue Procedures: 

MARS: Military Affiliate Radio System: 

MLI: Military List Item: 

MWR: Morale, welfare, and recreation activities and services: 

NSN: National stock number: 

OMB: Office of Management and Budget: 

RCP: Recycle control point: 

RIPL: Receipt in place location: 

RMP: Reutilization Modernization Program: 

ROTC: Senior Reserve Officer Training Corps: 

SAMMS: Standard Automated Materiel Management System: 

SCC: Supply Condition Code: 

U.S.C.: United States Code: 

Letter May 13, 2005: 

The Honorable Christopher Shays: 
Chairman: 
The Honorable Dennis J. Kucinich: 
Ranking Minority Member: 
Subcommittee on National Security, Emerging Threats and International 
Relations: 
Committee on Government Reform: 
House of Representatives: 

The Honorable Susan M. Collins: 
Chairman: 
Committee on Homeland Security and Governmental Affairs: 
United States Senate: 

The Honorable Janice D. Schakowsky: 
House of Representatives: 

This report responds to your request that we assess the overall economy 
and efficiency of the Department of Defense (DOD) program for 
reutilization (reuse) of excess property. Your request was based on our 
limited previous work that identified several examples of problems in 
this area. Specifically, our November 2003 report[Footnote 1] 
identified several examples that showed that at the same time DOD 
excessed biological equipment items in good or excellent condition and 
sold many of them to the public for pennies on the dollar, it was 
purchasing the same or similar items. In addition, at a June 2002 
hearing on ineffective and inefficient DOD business processes before 
the Subcommittee on National Security, Veterans Affairs and 
International Relations, House Committee on Government Reform, we 
testified[Footnote 2] that the lack of asset visibility over the Joint 
Service Lightweight Integrated Suit Technology (JSLIST)[Footnote 3] 
resulted in DOD units sending JSLIST to Defense Reutilization and 
Marketing Offices (DRMO) as excess. DRMOs then issued coats and 
trousers to other federal agencies, scrapped some of these items, and 
sent other JSLIST to a government liquidation contractor, while at the 
same time procuring hundreds of thousands of new garments in response 
to the terrorist attacks of September 11, 2001. You were concerned that 
our limited examples could indicate systemic problems. 

Accordingly, you asked us to assess the overall economy and efficiency 
of DOD's excess property reutilization program. To do so, we reviewed 
applicable laws and regulations; DOD policies and procedures; and 
current systems, processes, and management controls. Where we found 
controls to be ineffective, we tested and evaluated them further. You 
asked us to report (1) whether and to what extent we found waste and 
inefficiency and (2) the root causes of any waste and inefficiency. In 
reporting on the results of our work, you asked us to provide detailed 
examples of any waste and inefficiency and the related causes. As 
agreed with your offices, our audit focused on identifying new, unused, 
and excellent condition excess commodity inventory[Footnote 4] activity 
during fiscal years 2002 and 2003[Footnote 5] and determining whether 
the Defense Logistics Agency (DLA) purchased identical items instead of 
reutilizing the available excess items in Defense Reutilization and 
Marketing Service (DRMS) inventory. 

To identify potential waste and inefficiencies, we analyzed the 
universe of recorded fiscal year 2002 and 2003 transactions on excess 
DOD commodity turn-ins and disposals and DLA commodity purchases. We 
compared DOD reutilization of excess new, unused, and excellent 
condition commodities to transfers, donations, public sales, and 
destruction of excess commodities. We also compared DOD commodity 
purchases to identical excess items in new, unused, and excellent 
condition to determine whether DOD made unnecessary purchases instead 
of reutilizing available excess items. To determine the causes of 
identified waste and inefficiency, we tested and evaluated controls for 
assuring the reliability of data and information used for reutilization 
decision making and safeguarding excess property. We also assessed the 
effectiveness of current and planned supply and excess inventory 
management systems and processes for reutilization of excess property. 

You also asked us to illustrate the details of our analysis of fiscal 
year 2002 and 2003 waste and inefficiency by identifying specific 
examples and performing case study investigations of the details of 
these examples. In addition, you asked us to purchase and requisition, 
as case studies, selected excess items that DLA was continuing to 
purchase, the military services were continuing to utilize, or both. 

To assure ourselves that DOD data were sufficiently reliable for the 
purpose of our audit, we compared database totals to information in 
official agency reports, electronically checked control totals and the 
completeness of key data elements, and statistically tested the 
accuracy of excess inventory data that are key to the excess property 
reutilization program. We conducted our work from November 2003 through 
February 2005 in accordance with U.S. generally accepted government 
auditing standards. We performed our investigative work in accordance 
with standards prescribed by the President's Council on Integrity and 
Efficiency. A detailed discussion of our objectives, scope, and 
methodology is presented in appendix I. We requested comments on a 
draft of this report from the Secretary of Defense or his designee. 
Written comments from the Acting Under Secretary of Defense for 
Logistics and Materiel Readiness are reprinted in appendix II. 

Results in Brief: 

DOD does not have effective management processes, systems, and controls 
in place to assure that it is reutilizing excess inventory to the 
maximum extent possible and safeguarding excess items from damage, 
loss, and theft, as required by federal regulations, DOD policy, and 
GAO internal control standards.[Footnote 6] As a result, we found 
substantial waste and inefficiency related to DOD's excess property 
reutilization program. Of the $18.6 billion in reported fiscal year 
2002 and 2003 excess commodity disposals, $2.5 billion related to items 
in new, unused, and excellent condition (A condition).[Footnote 7] Of 
the $2.5 billion, we determined that $2.2 billion included substantial 
waste and inefficiency because new, unused, and excellent condition 
items were being transferred or donated outside of DOD, sold on the 
Internet for pennies on the dollar, or destroyed rather than being 
reutilized. We also found that DOD purchased at least $400 million of 
identical commodities instead of reutilizing available A-condition 
excess items. However, the extent of this problem may be greater due to 
incomplete and inaccurate data that are key to identifying excess items 
for reutilization. DRMS also reported $466 million in excess property 
losses from fiscal years 2002 through 2004, such as missing, damaged, 
and stolen property, adding to reutilization program waste. 

To illustrate continuing reutilization program waste and 
inefficiencies, during fiscal year 2004 and the first quarter of fiscal 
year 2005, we obtained several new and unused excess DOD commodity 
items that were being purchased by DLA, were in use by the military 
services, at the time we obtained them, or both, including the 
following. 

* We requisitioned at no charge a medical instrument chest, two power 
supplies, and two circuit cards. Although these items had an original 
DOD acquisition cost of $55,817, we paid only about $5 shipping cost to 
obtain them. 

* We also purchased at minimal cost, over the Internet at 
govliquidation.com, tents, boots, gasoline burners (stove/heating 
units), a medical suction apparatus, and bandages and other medical 
supply items. Although the total reported acquisition cost for these 
items was $12,310, we paid a total of $1,466 to obtain them, about 12 
cents on the dollar, including buyer's premium, tax, and shipping cost. 

The root causes for the billions of dollars in waste and inefficiency 
related to management control breakdowns across DOD, including 
weaknesses in DOD's excess property reutilization program, stemmed from 
(1) unreliable excess property inventory data; (2) inadequate 
oversight, accountability, and physical control of excess property; and 
(3) inadequate processes and outdated, nonintegrated inventory systems 
that do not provide adequate visibility of excess property available 
for reutilization at the time military units order and purchase 
commodity items. In addition, as we have reported for many 
years,[Footnote 8] long-standing DOD logistics management weaknesses 
that resulted in purchases in excess of actual requirements also 
resulted in the disposal of unused items due to obsolescence and 
contributed indirectly to reutilization program waste and inefficiency. 

Our statistical tests of controls for accuracy of excess commodity 
inventory and our case studies and interviews led us to conclude that 
unreliable data are a key cause of the ineffective excess property 
reutilization program. DRMS policy[Footnote 9] requires DRMO personnel 
to verify turn-in information, including item descriptions, quantities, 
condition code, and demilitarization code at the time excess property 
is received. However, we found that DRMS management did not enforce 
these verification requirements. Our statistical tests at 5 of 93 DRMO 
locations estimated error rates that ranged from 8 percent at 1 DRMO to 
47 percent at another DRMO, indicating ineffective controls for 
assuring the accuracy of excess inventory data at these 
locations.[Footnote 10] Although condition code accuracy is key to 
reutilization program effectiveness, our estimate of condition code 
error rates for the 5 DRMOs we tested ranged from 5 percent at 1 DRMO 
to 22 percent at 2 other DRMOs. Most of the condition coding errors 
related to items reported to be in unserviceable condition when the 
items were actually in serviceable condition, which could prevent items 
in new, unused, and excellent condition from being selected for 
reutilization. Estimated error rates at 5 of the 25 DLA supply depots 
that we tested ranged from 6 percent to 16 percent. However, we did not 
find condition code errors at these supply depots. 

In addition, we found weaknesses in oversight and accountability that 
resulted in lost, stolen, and damaged excess property and contributed 
to hundreds of millions of dollars in overall reutilization program 
waste and inefficiency. Regardless of whether sensitive technology 
items are new or used, DOD policy[Footnote 11] requires that they be 
restricted to use by authorized parties or destroyed when no longer 
needed by DOD. For fiscal years 2002 through 2004, DRMS reported a 
total of $466 million in known excess property losses, including lost, 
stolen, and damaged property and unverified adjustments. Losses 
reported by DRMOs included nearly 150 chemical and biological 
protective suits, over 70 units of body armor, and 5 guided missile 
warheads.[Footnote 12] Losses reported by DLA supply depots included 
thousands of sensitive military items, such as weapons system 
components and aircraft parts. Because 43 percent of the reported 
losses involved military and commercial technology that required 
demilitarization control, these weaknesses also reflect security risks. 
Further, inadequate DRMS oversight and accountability for contractor 
and DRMO operations have resulted in millions of dollars in damage to 
excess property that had been improperly stored outside for several 
months during fiscal year 2004 and subjected to wind, rain, and 
hurricanes. 

Inefficient, nonintegrated excess inventory and supply management 
systems lack controls necessary to prevent waste and inefficiency in 
the reutilization program. For example, because the DRMS excess 
inventory system and the DLA supply management system are outdated and 
nonintegrated, they do not share information necessary to (1) identify 
and alert DLA item managers of excess property that is available to 
fill supply orders and (2) prevent purchases of new items when A- 
condition excess items are available for reutilization. DLA has 
acknowledged serious deficiencies in its automated inventory management 
systems and has efforts under way to replace its supply management 
system, and DRMS has an effort under way to upgrade its excess 
inventory system. However, we found that these efforts had not been 
effectively coordinated, and they did not adequately address identified 
process deficiencies, such as the failure to record national stock 
numbers (NSN)[Footnote 13] for commodity purchases and inventory 
records and unreliable condition code data. 

This report contains 13 recommendations to help improve the overall 
economy and efficiency of DOD's reutilization program for excess 
commodities, including recommendations for better coordination between 
DRMS, DLA, and the military services with regard to data reliability; 
strengthened DRMS management oversight, accountability, and physical 
inventory control; and improvements in the functional design for excess 
property reutilization in DLA's future commodity inventory systems 
environment. In its April 15, 2005, letter commenting on our report, 
DOD concurred with 8 recommendations. For the 5 recommendations with 
which DOD partially concurred, we view DOD's actions to be generally 
responsive to the intent of our recommendations. DOD's comment letter 
is reprinted in appendix II. 

Background: 

DLA is DOD's combat support agency under the supervision, direction, 
authority, and control of the Under Secretary of Defense for 
Acquisition, Technology, and Logistics. DLA's mission is to provide 
best-value logistics support to America's armed forces, in peace and in 
war, around the clock, and around the world. In carrying out its 
mission, DLA manages inventory valued at about $83 billion, consisting 
of more than 5 million consumable (expendable) items, including 
commodities such as fuel, food, clothing and other textiles, medical 
supplies, industrial use items, and spare and repair parts supporting 
over 1,400 weapon systems. DLA also buys and distributes hardware and 
electronic items that are used in maintenance and repair of equipment 
and weapons systems. In fiscal years 2002 and 2003, DLA expenditures 
related to sales and services amounted to over $46.5 billion, including 
about $36 billion for commodity purchases and about $600 million for 
DRMS excess property disposal services. DLA and DRMS operate under the 
Defense-wide Working Capital Fund.[Footnote 14] DLA is financed through 
user charges to cover costs, and DRMS is financed through user charges 
and excess property and scrap sale proceeds. DLA activities related to 
this report fall into two main areas: (1) commodity acquisition and 
management and (2) excess property disposals by DRMS and DLA-managed 
supply distribution depots (referred to as DLA supply depots). 

DLA Commodity Acquisition and Management Process: 

DLA commodity acquisition and management functions discussed in this 
report are carried out by three Defense supply centers, which are 
located in Columbus, Ohio; Richmond, Virginia; and Philadelphia, 
Pennsylvania. The DLA acquisition process focuses on (1) the 
acquisition of inventory requisitioned by customers for immediate use 
and (2) routine inventory replenishment. Defense Supply Center item 
managers initiate commodity procurements based on military unit 
requirements for materiel and supplies and military unit requisitions 
(supply orders). Supply center item managers consolidate the 
requirements and work with buyers to procure requested items. Items for 
which there are immediate needs are delivered directly to a military 
unit by the commercial vendor, and items needed to support anticipated 
operations (referred to as the requirements objective) are stored at 
DLA supply depots for later issue. The DLA Defense Distribution Center 
uses a total of 26 DLA supply depots located throughout the United 
States and Europe, as well as in Guam and Kuwait, to store commodities 
and other items that are classified by over 5 million different NSNs. 
This inventory includes commodities, such as clothing and other 
textiles; electronics; industrial, general, and construction supplies; 
subsistence items; and medical supplies and equipment. Figure 1 
illustrates the DLA commodity acquisition and distribution process. 

Figure 1: DLA Commodity Acquisition and Distribution Process: 

[See PDF for image] 

[End of figure] 

When there is an urgent customer requirement and items are on back 
order, DLA item managers or expediters may check DRMS excess property 
inventory and service-level inventory to locate available items to fill 
an order. 

Excess Property Disposal Process: 

The Federal Property and Administrative Services Act of 1949, as 
amended,[Footnote 15] places responsibility for the disposition of 
surplus government real and personal property with the General Services 
Administration (GSA), which has delegated responsibility for disposal 
of DOD property to the Secretary of Defense. In accordance with federal 
regulations governing property management[Footnote 16] and department 
policy in DOD 4160.21-M, Defense Materiel Disposition Manual, DOD 
agencies and military services are responsible for determining whether 
property they hold is considered excess. Federal regulations[Footnote 
17] also require executive agencies to ensure that personal property 
not needed by their activity is offered for use elsewhere within the 
agency. In accordance with federal regulations, DOD 4160.21-M, chapter 
5, calls for reutilization of excess property to the extent feasible to 
fill existing needs and to satisfy additional needs before initiating 
new procurement or repair. All DOD activities are required to screen 
available excess assets to identify items that could satisfy valid 
needs, and the military services have programs for reutilizing property 
by redistributing excess property across their units to meet ongoing 
operational needs. DLA has overall responsibility for property that is 
excess to military and DOD units. DLA has placed responsibility for 
excess property disposals with DRMS. 

When a military service or DOD agency has property that it no longer 
needs, it turns the property over to a DRMS field warehouse location-- 
or reutilization facility--referred to as a DRMO. During fiscal year 
2004, DRMS managed 93 DRMOs, including 39 central DRMOs, 54 satellite 
DRMOs, and 35 receipt in place locations referred to as RIPLs. Reported 
excess property turn-ins are entered into the DRMS Automated 
Information System (DAISY). DRMS then posts descriptive information 
about the excess property to a Web page that lists property that is 
available for reutilization by DOD units and specially designated 
programs, transfer to federal agencies, and donation to states. DRMS 
has two organizational elements that manage and oversee excess property 
disposals. DRMS National is responsible for daily operations inside the 
continental United States. DRMS International is responsible for daily 
DRMS activities located outside the continental United States. DRMS 
International has field offices in Belgium, Germany, Guam, Hawaii, 
Italy, Japan, Korea, Portugal, Spain, Thailand, Turkey, the United Arab 
Emirates, and the United Kingdom, and it supports the task force in the 
Balkans. 

During fiscal years 2002 and 2003, the military services, DLA supply 
depots, and DOD agencies turned in[Footnote 18] excess commodities with 
a reported acquisition value of approximately $31 billion and disposed 
of excess property valued at $18.6 billion. This property included 
everything from office equipment, medical supplies, and clothing to 
scrap from naval ships, military equipment, and hazardous materials. 
The condition of the property ranges from being well-used or damaged 
property that has little value to new, unused items that sometimes are 
still in the original manufacturer's packaging. 

DRMS bills DOD units and other federal agencies for disposal services 
based on turn-in volume. DRMS bills the military services and other DOD 
agencies a prorated amount for disposal costs net of scrap and 
liquidation sale proceeds. Table 1 shows DRMS's reported revenue for 
excess property disposal services, including billings to the military 
services.[Footnote 19]

Table 1: Defense Reutilization and Marketing Service Revenue: 

Dollars in millions. 

DOD unit billings for turn-in transactions; 
Fiscal year 2002: $250.5; 
Fiscal year 2003: $223.2; 
Fiscal year 2004: $208.7. 

DOD unit billings for hazardous waste disposal; 
Fiscal year 2002: $54.7; 
Fiscal year 2003: $56.1; 
Fiscal year 2004: $54.0. 

Billings for other fund activities; 
Fiscal year 2002: $7.6; 
Fiscal year 2003: $7.7; 
Fiscal year 2004: $4.0. 

Total DOD; 
Fiscal year 2002: $312.8; 
Fiscal year 2003: $287.0; 
Fiscal year 2004: $266.7. 

Other billings: Other federal agencies; 
Fiscal year 2002: $0.7; 
Fiscal year 2003: $0.7; 
Fiscal year 2004: $0.7; 

Other billings: Foreign military sales; 
Fiscal year 2002: $3.0; 
Fiscal year 2003: $3.0; 
Fiscal year 2004: $3.0. 

Total other; 
Fiscal year 2002: $3.7; 
Fiscal year 2003: $3.7; 
Fiscal year 2004: $3.7. 

Scrap and liquidation sales proceeds, net; 
Fiscal year 2002: $39.7; 
Fiscal year 2003: $51.7; 
Fiscal year 2004: $38.1. 

Total DRMS revenue; 
Fiscal year 2002: $356.2; 
Fiscal year 2003: $342.4; 
Fiscal year 2004: $308.5. 

Source: President's Fiscal Year 2005 Budget Submission. 

[End of table]

Turn-ins of excess property are reported on DOD Form 1348, Disposal 
Turn-in Document, using a hard copy form that accompanies physical turn-
ins of property at DRMOs or electronic reporting. In accordance with 
DOD 4160.21-M, Materiel Disposition Manual, upon arrival at a DRMO, 
excess items are to be inspected and the item descriptions, quantities, 
condition codes, and demilitarization codes are to be verified. Based 
on the item type and condition, a decision is made as to whether the 
item should be made available for reutilization. For excess property in 
new, usable, or repairable condition, redistribution from one DOD unit 
to another allows the government to make full use of its resources, 
avoids unnecessary procurement of property, and results in economy and 
efficiency of operations. Transfers and donations of excess DOD 
property to special programs, federal agencies, and states help to 
conserve their budgetary resources. Unusable items are generally sold 
as scrap. 

Department policy in DOD 4160.21-M-1, Defense Demilitarization Manual, 
calls for identifying and controlling items that have a significant 
military or commercial technology application to prevent improper use 
or release of these items outside of DOD. DOD's Demilitarization Manual 
establishes specific codes that are designed to indicate whether DOD 
property is available for reuse without restriction or whether specific 
restrictions apply, such as removal of classified components, 
destruction of sensitive military technology, or trade security 
control. Any residual excess property that is not reused, transferred, 
or donated may be sold as scrap or sent to a landfill or other 
appropriate site for final disposal. Figure 2 illustrates the excess 
property turn-in and disposal process. 

Figure 2: DRMS Excess Property Disposal Process: 

[See PDF for image] 

[End of figure] 

Excess DOD property is available for reutilization, transfer, and 
donation during a 49-day screening period following turn-in to DRMS. It 
may take up to a week to record excess property receipts into DRMO 
inventory. Once excess property receipts are recorded, DOD units and 
specially designated programs may screen for and select items for 
reutilization. Special programs consist of entities that directly 
support DOD's mission, customers that have statutory authorization to 
receive excess DOD property, and customers that have been specially 
designated by DOD to receive excess property items. Special programs 
share screening priority with DOD, and DRMS accounts for special 
program requisitions of DOD excess property as DOD reutilization. A 
description of the special programs is included in appendix IV. 

If excess property is still available after the DOD and special program 
screening period (the end of the first 21 days), the property is made 
available for transfer to other federal agencies through the GSA 
Federal Disposal System (FEDS) Web site known as GSAXcess for a 21-day 
period. Excess DOD property is available to DOD agencies during the GSA 
federal agency screening phase. DOD entities and others can specify 
their excess property needs on a "want list" and DAISY and GSA FEDS 
will send notices when such property becomes available. Property that 
is not reutilized by DOD or transferred to federal agencies after 42 
days is considered surplus to the federal government and can be donated 
to state and local governments and other qualified organizations, or if 
not donated, it can be sold to the public after the 49-day screening 
period has expired. Government Liquidation, LLC is the DRMS commercial 
venture partner (contractor) for liquidation sales of excess property. 
Excess property at DRMOs is transferred to a liquidation contract sales 
site co-located with a DRMO. DLA supply depot excess property to be 
sold to the public is sent to one of two national liquidation sales 
locations. DLA supply depots located west of the Mississippi ship their 
excess property to the Huntsville, Alabama, liquidation sales location, 
and DLA supply depots located east of the Mississippi ship their excess 
property to the Norfolk, Virginia, liquidation sales location. 
Overseas, DRMOs sell excess property directly to the public. 

Analysis of Reutilization Program Identifies Billions of Dollars in 
Waste and Inefficiency: 

Our analysis of $18.6 billion[Footnote 20] in fiscal year 2002 and 2003 
excess commodity disposal activity identified $2.5 billion in excess 
items that were reported to be in new, unused, and excellent condition 
(A condition). Although federal regulations and DOD policy require 
reutilization of excess property in good condition, to the extent 
possible, our analysis showed that DOD units only reutilized $295 
million (12 percent) of these items. The remaining $2.2 billion (88 
percent) of the $2.5 billion in disposals of A-condition excess 
commodities were not reutilized, but instead were transferred, donated, 
sold, or destroyed. About $1.6 billion of the $2.2 billion was 
transferred to other federal agencies and special programs, donated to 
states, or sold to the public for pennies on the dollar. DRMS sent the 
remaining $634 million to scrap and other contractors for disposal. We 
also found that DOD purchased at least $400 million of identical items 
during fiscal years 2002 and 2003, instead of reutilizing available 
excess items in A condition. However, our analysis of transaction data 
and our tests of controls for inventory accuracy indicate that the 
magnitude of waste and inefficiency could be much greater due to 
military units improperly downgrading condition codes of excess items 
that are in new, unused, and excellent condition to unserviceable and 
the failure to consistently record NSNs[Footnote 21] needed to identify 
like items. To illustrate continuing reutilization program 
inefficiencies and wasteful purchases, during fiscal year 2004 and the 
first quarter of fiscal year 2005, we obtained several new and unused 
excess DOD commodity items that were being purchased by DLA, were 
currently in use by the military services, or both. 

Excess Commodity Items Reported To Be in Unserviceable Condition 
Accounted for Most of the Disposal Activity: 

DRMS is responsible for disposing of unusable items, often referred to 
as "junk," as well as facilitating the reutilization of usable items. 
As shown in figure 3, our analysis of DRMS data showed that $15.6 
billion of the $18.6 billion in fiscal year 2002 and 2003 excess DOD 
commodity disposals consisted of items reported to be in unserviceable 
condition, including items needing repair, items that were obsolete, 
and items that were downgraded to scrap. The remaining $3 billion in 
excess commodity disposals consisted of items reported to be in 
serviceable condition, including $2.5 billion in excess commodities 
reported to be in A condition (new, unused, and excellent condition). 

Figure 3: Fiscal Year 2002 and 2003 Disposals of Excess DOD Commodities 
in Serviceable and Unserviceable Condition: 

[See PDF for image] 

[End of figure] 

Although DOD units reported that $15.6 billion (84 percent) of the 
excess commodities disposed of during fiscal years 2002 and 2003 were 
in unserviceable condition, DRMS data showed that DOD units had 
reutilized over $1.4 billion of these items--an indication that the 
items were, in fact, serviceable. Erroneous reporting of serviceable 
excess items as unserviceable hinders efforts at effective 
reutilization and can result in lower sales proceeds for items sold to 
the public. Although we do not know the extent of this problem, as 
discussed later, our statistical tests of DRMO inventory at five 
locations identified significant errors related to excess items that 
were coded as unserviceable when they were in fact in new, unused, and 
excellent condition. 

DRMS Gave Away, Destroyed, or Sold Excess Commodities Reported To Be in 
New and Excellent Condition: 

Our analysis of a reported $2.5 billion[Footnote 22] in fiscal years 
2002 and 2003 disposal activity related to excess commodities reported 
to be in A condition showed that DOD units reutilized only $295 million 
of these items. As shown in figure 4, the remaining $2.2 billion (88 
percent) were not reutilized, but instead were transferred to special 
programs and other federal agencies, donated to states, sold to the 
public, or destroyed through demilitarization and scrap contracts. As 
noted previously, DOD policy calls for the reutilization of excess 
property to the extent feasible and permits the disposal of unneeded 
items.[Footnote 23] However, the disposal of $2.2 billion in excess 
new, unused, and excellent condition items indicates that DOD bought 
more items than it needed. 

Figure 4: Waste and Inefficiency Related to $2.2 billion in Fiscal Year 
2002 and 2003 Disposals of Excess DOD Commodities Reported To Be in 
New, Unused, and Excellent Condition: 

[See PDF for image] 

[End of figure] 

Transfers and Donations Outside of DOD: 

As shown in table 2, during fiscal years 2002 and 2003, DOD transfers 
of A-condition excess property valued at about $248 million benefited 
international governments; state and local governments; other federal 
agency programs; and specially designated programs such as DOD's 
Humanitarian Assistance Program, foreign military assistance programs, 
and law enforcement agencies. 

Table 2: Reported Acquisition Value of DOD Excess Commodity Transfers 
to Other Programs and Agencies during Fiscal Years 2002 and 2003: 

Dollars in millions. 

International: 

U.S. Agency for International Development and sponsored foreign 
assistance programs; 
Acquisition value of excess DOD commodities provided to others: $5. 

Department of State and sponsored foreign assistance programs; 
Acquisition value of excess DOD commodities provided to others: $49. 

DOD-sponsored Humanitarian Assistance Program; 
Acquisition value of excess DOD commodities provided to others: $34. 

Foreign military assistance programs; 
Acquisition value of excess DOD commodities provided to others: $33. 

Total, international; 
Acquisition value of excess DOD commodities provided to others: $121. 

State and local: 

State offices; 
Acquisition value of excess DOD commodities provided to others: $54. 

Law enforcement agencies; 
Acquisition value of excess DOD commodities provided to others: $24. 

Total, state and local; 
Acquisition value of excess DOD commodities provided to others: $78. 

Total, federal; 
Acquisition value of excess DOD commodities provided to others: $49. 

Total; 
Acquisition value of excess DOD commodities provided to others: $248. 

Source: GAO analysis of DOD data. 

[End of table]

Our overall analysis identified disposals of over 22 million new, 
unused, and excellent condition excess commodity items that were 
identical to items that DLA continued to purchase, stock, or both, 
resulting in waste of DOD resources. We investigated the details of 
more than a dozen of these disposal transactions. Table 3 highlights 
three examples from our case studies that illustrate waste related to 
excess commodities in new, unused, and excellent condition that were 
transferred or donated outside DOD at the same time DLA purchased 
identical items. 

Table 3: Examples of New, Unused Commodity Items Transferred and Sold 
Outside of DOD while Still Being Purchased during Fiscal Years 2002 and 
2003: 

Action: Turn-in unit; 
Example #1 - Extreme cold weather boots: Army's 35th Supply and 
Services Battalion in Sagami, Japan; 
Example #2 - Medical instrument chests: U.S. Army Medical Material 
Agency in Sagami, Japan; 
Example #3 - Large tents: Army National Guard unit at Camp Beauregard, 
Louisiana. 

Action: Turn-in date; 
Example #1 - Extreme cold weather boots: 4/23/03; 
Example #2 - Medical instrument chests: 02/05/02; 
Example #3 - Large tents: 2/06/02. 

Action: Excess item; 
Example #1 - Extreme cold weather boots: 172 pairs of new, unused 
extreme cold weather boots valued at $23,220 ($135 per pair); 
Example #2 - Medical instrument chests: 132 new, unused medical 
instrument chests in original boxes valued at $67,647; 
Example #3 - Large tents: 7 large excess tents (18 X 52 ft.) valued at 
$15,963. 

Action: Disposition of excess items; 
Example #1 - Extreme cold weather boots: 7/30/03 - 172 pairs of boots 
were sold to the Robinson Trading Company for $69 (about 40 cents per 
pair); 
Example #2 - Medical instrument chests: 02/08/02 - all 132 medical 
chests were requisitioned by the Humanitarian Assistance Program; 
Example #3 - Large tents: 2/14/02 - one tent transferred to Federal 
Bureau of Prisons and used to cover recyclables. 

2/20/2002 - 6 tents transferred to Maricopa Sheriff's Department, 
Arizona, for use as field command posts. 

Action: Subsequent purchase; 
Example #1 - Extreme cold weather boots: From 5/15 through 7/30/03 - 8 
military units purchased 214 pairs of identical boots from DLA. DLA 
continued to purchase these boots; 
Example #2 - Medical instrument chests: From 2/08 through 5/03/02 - 15 
military units purchased 97 identical medical instrument chests from 
DLA. DLA continued to purchase these items; 
Example #3 - Large tents: From 2/15 through 5/18/02 - 4 military units 
purchased 34 identical tents from DLA. DLA continued to purchase these 
tents. 

Action: Waste[A]; 
Example #1 - Extreme cold weather boots: Reutilization of 172 pairs of 
boots would have saved military units $27,678; 
Example #2 - Medical instrument chests: Reutilization of the 132 
medical chests would have saved military units $88,415; 
Example #3 - Large tents: Reutilization of the 7 tents would have saved 
military units $18,613. 

Source: GAO analysis. 

[A] Waste includes surcharges, which are the additional amount added to 
the price of an item to recover DLA's cost of purchasing and selling 
supplies to DOD customers as well as the cost of accounting, 
cataloging, storage, handling, and shipping. Surcharges are based on a 
weighted average cost for warehousing and shipping supply items. The 
average cost recovery rate for all items was 21.5 percent in fiscal 
year 2002 and 20.7 percent in fiscal year 2003. 

[End of table]

DRMS Destroyed Hundreds of Millions of Dollars of Excess Commodities in 
New and Excellent Condition: 

In addition to instances where DOD units failed to reutilize excess 
commodities in A condition that were instead given away to other 
entities, we identified instances where DRMS destroyed these items. 
DRMS destroys or scraps items that are not reutilized or sold. As 
illustrated in figure 4, during fiscal years 2002 and 2003, DRMS 
destroyed, scrapped, or used hazardous materials contractors to dispose 
of excess commodities valued at about $634 million--about 25 percent of 
the $2.5 billion reported acquisition value for disposals of excess 
commodities in new, unused, and excellent condition. The majority of 
these items--items valued at $473 million--were military technology 
items, such as circuit cards, power supplies, and aircraft parts, that 
are required to be destroyed or demilitarized pursuant to national 
security guidelines when they are no longer needed by DOD. Some of the 
destroyed items had remained in supply inventory for many years and had 
become obsolete. However, we found several instances where items that 
were destroyed were still being purchased, used, or both by military 
units. The following examples illustrate the types of A-condition 
excess items that were destroyed. 

Destruction of excess items that required demilitarization. Examples of 
excess A-condition items that were destroyed pursuant to 
demilitarization requirements included: 

* 2,390 aircraft parts valued at $9,119,876, such as rotary wing 
blades, rotary rudders, windshield panels, fuel tanks, and pilot 
protection armor;

* 34,070 circuit cards valued at $73,666,720, including 88 circuit 
cards related to one NSN valued at $265,565;

* 1,604 radio sets valued at $10,247,110;

* 477 power supply units valued at $3,385,580; and: 

* 3 plasma display units valued at $263,151. 

Our case study investigations showed instances where power supplies and 
circuit cards that were still being purchased by DLA, stocked and 
issued to military units, or both were sent to a DRMO rather than being 
returned to supply inventory. For example, we found that the Army's 
Tank-Automotive and Armament Command turned in 14 excess circuit card 
assemblies valued at $7,806 on May 29, 2003, because the Army had 
directed the retirement of its AH-1 Cobra and UH-1 Huey helicopters. 
However, the Navy and some foreign countries have continued to use 
these helicopters. The circuit cards are used in the M136 Helmet Sight, 
a heads-up display, on the Cobra Helicopter. The heads-up display 
permits a pilot to aim the helicopter's rockets and the fixed forward 
firing gun. The circuit cards were advertised for reutilization to DOD 
and foreign military sales customers. Because they were not selected 
for reutilization within the 49-day screening period, they were sent to 
a demilitarization contractor on June 8, 2004, for destruction by 
thermal reduction. 

Destruction of excess A-condition commodity items as scrap. DRMS also 
scrapped excess A-condition commodities valued at about $144 million 
during fiscal years 2002 and 2003 that did not require 
demilitarization. Normally, these items are transferred, donated, or 
sold if they are not selected for reutilization within DOD. However, 
items that are not selected for reutilization or transferred, donated, 
or sold are scrapped. For example, DRMS scrapped excess new and unused 
items, such as the following: 

* 340 computers with a reported acquisition value of $2,929,539,

* 2,440 bunk beds valued at $341,600,

* 29 simulators valued at $1,995,500,

* 567 power supplies valued at $1,683,211, and: 

* 29 teleprinters valued at $901,099. 

Public Sales of New and Unused Excess DOD Commodity Items: 

As noted in figure 4, 53 percent, or $1.3 billion of the total $2.5 
billion in fiscal year 2002 and 2003 A-condition excess commodity turn- 
ins, was sold to the public. Although liquidation sales of excess 
commodities are an appropriate method of disposal when items cannot be 
reutilized, liquidation sales of items that are in new, unused, and 
excellent condition that could have been reutilized represent 
significant waste and inefficiency. Our case study investigations of 
fiscal year 2002 and 2003 disposals of excess A-condition commodities 
found that DRMS sold numerous excess items at the same time DLA 
purchased identical items. Our analysis showed that DRMS received a 
total of about $48 million in fiscal year 2002 and 2003 liquidation 
sales revenue for property valued at $1.3 billion--an average of about 
4 cents on the dollar. Liquidation contractor officials told us that 
about 80 percent of their revenue relates to the sale of items in good 
condition. 

Unnecessary Commodity Purchases: 

Our analysis of fiscal year 2002 and 2003 DLA commodity purchases and 
DRMS excess property inventory data identified numerous instances in 
which the military services ordered and purchased items from DLA at the 
same time identical items--items with the same NSN--that were reported 
to be in new, unused, and excellent condition were available for 
reutilization. We found that DOD purchased at least $400 million of 
identical items during fiscal years 2002 and 2003 instead of using 
available excess A-condition items. The magnitude of unnecessary 
purchases could be much greater because NSNs needed to identify 
identical items were not recorded for all purchase and turn-in 
transactions. For example, we determined that DLA buyers and item 
managers did not record NSNs for 87 percent (about $4.9 billion) of the 
nearly $5.7 billion in medical commodity purchases by military units 
during fiscal years 2002 and 2003. Further, as discussed later in this 
report, improper downgrading of condition codes to unserviceable could 
also result in an understatement of the magnitude of unnecessary 
purchases. While our statistical tests found a few instances of 
inaccurate serviceable condition codes, most condition code errors 
related to the improper downgrading of condition to unserviceable. 
Figure 5 shows examples from our analysis of A-condition excess items 
that were available for reutilization at the time DLA purchased 
identical items. 

Figure 5: Examples of Fiscal Year 2002 and 2003 DLA Purchases When 
Identical New, Unused Items Were Available for Reutilization: 

[See PDF for image] 

[A] Although DLA continues to use the term "construction," this 
commodity group consists primarily of land and maritime weapons system 
components. According to a DLA official, the category label will be 
updated when data are eventually migrated to the new Business Systems 
Modernization. 

[End of figure] 

Fiscal Year 2004 and 2005 Requisitions and Purchases Demonstrate 
Continuing Waste and Inefficiency: 

To determine whether the problems identified in our analysis of fiscal 
year 2002 and 2003 data were a continuing problem, we monitored DRMS 
commodity disposal activity in fiscal year 2004 and the first quarter 
of fiscal year 2005. We found that DOD continued to transfer, donate, 
and sell excess A-condition items instead of reutilizing them. To 
illustrate these problems we requisitioned several excess new and 
unused items at no cost and purchased other new and unused commodities 
at minimal cost. We based our case study selections on new, unused 
items that DOD continued to purchase. We inspected excess items or 
called warehouse personnel to confirm they were new and unused. We used 
FEDLOG[Footnote 24] data and interviewed supply inventory item managers 
to confirm that the items were still being purchased, used, or both by 
the military services. 

Case Study Requisitions of New and Unused DOD Commodities: 

To illustrate waste and inefficiency associated with transfers and 
donations of excess A-condition commodities to entities outside of DOD, 
we used the GSA Federal Disposal System, available to all federal 
agencies, to requisition several new and unused excess DOD commodity 
items, including a medical instrument chest, two power supply units, 
and two circuit cards, at no charge. These items had an original DOD 
acquisition cost of $55,817, and we paid only $5 shipping cost to 
obtain all of them. We obtained these items from two DRMOs and a DLA 
supply depot. The following discussion presents the details of our case 
study requisitions. 

Medical instrument chest. We requisitioned at no cost a new, unused 
medical instrument chest with a reported acquisition cost of $784 from 
the Lewis DRMO in Fort Lewis, Washington. When we visited the Lewis 
DRMO to screen for and tag new, unused items, a DRMO official told us 
that about 20 percent of the Lewis DRMO receipts are new, unused items. 
The medical instrument chest that we obtained was one of 16 excess 
medical chests turned in by the Fort Lewis Army Medical Hospital on May 
6, 2004. At the time of our requisition on June 2, 2004, the Army, 
Navy, and Air Force medical logistics commands were continuing to 
purchase these medical chests from DLA. 

The excess DOD medical instrument chest that we requisitioned is 
designed for maximum support of deployed medical personnel. For 
example, the chest is designed to store medical instruments and protect 
them during shipment as well as to provide shelves and tables for use 
during surgery and other medical procedures in the battlefield. Figure 
6 is a photograph of the excess DOD medical instrument chest assembled 
for maximum use. 

Figure 6: Medical Instrument Chest Assembled for Maximum Utilization: 

[See PDF for image] 

[End of figure] 

Circuit cards. On September 7, 2004, we requisitioned two circuit cards 
with a total original acquisition cost of $8,684, from the Hill DRMO. 
We paid $5 shipping cost and received the circuit cards on September 
27, 2004. Circuit cards are circuit boards consisting of a series of 
flat plastic or fiberglass layers (usually 2 to 10) that are glued 
together after a circuit has been etched in them. In a computer, a 
circuit card holds the integrated circuits and other electronic 
components that provide power to perform certain designated functions, 
such as computerized program functions or electronic communications 
functions. According to the Navy inventory item manager and the 
National Security Agency technical support team leader, the circuit 
cards that we obtained are used in secure satellite communications 
gear. 

The circuit cards that we obtained were turned in by the DLA supply 
depot in Ogden, Utah, as excess to Air Force needs in February 2004. 
The Navy item manager told us that although the circuit cards were no 
longer being purchased, they were still in active inventory and were 
still being used by some Navy units and foreign military sales 
customers at the time we obtained them. Our Chief Technologist 
inspected the circuit cards and confirmed that they included 
communications circuitry and were in new, unused condition. Figure 7 is 
a photograph of one of the circuit cards we requisitioned. 

Figure 7: One of the New, Unused Excess DOD Circuit Cards Transferred 
to GAO in September 2004: 

[See PDF for image] 

[End of figure] 

Power supply units. We requisitioned, at no cost, two high-cost power 
supply units from the DLA supply depot in Norfolk, Virginia--one with a 
reported acquisition cost of $24,797 and another with a reported 
acquisition cost of $21,552--a total of $46,349. We received one power 
supply unit on September 30, 2004, and the other power supply unit on 
October 6, 2004. According to the manufacturer, these power supply 
units are part of a super-high-frequency electronics surveillance 
system, which is designed to listen and identify radio frequencies. The 
power supply units convert AC power to DC voltage to provide power to 
the assemblies inside the surveillance system. 

We contacted the Navy inventory control point program manager to 
inquire about the use of the power supply units that we had identified. 
The program manager explained that both of the power supply units are 
currently used in the electronic warfare system of the Seawolf fast 
attack nuclear submarine.[Footnote 25] The Navy official stated that 
although DLA is not currently purchasing these items due to a planned 
upgrade in technology, the Navy has a very small number of these power 
supply units in inventory and the items remaining at the DLA supply 
depot should not have been excessed because they may be needed before 
the technology upgrade is completed. Our Chief Technologist inspected 
the excess DOD power supply units we obtained and confirmed that they 
had never been used. Figure 8 is a photograph of one of the power 
supply units that we obtained. 

Figure 8: New, Unused DOD Power Supply Unit Requisitioned by GAO in 
September 2004 from the DLA Depot in Norfolk, Virginia: 

[See PDF for image] 

[End of figure] 

Case Study Purchases of New, Unused DOD Commodities: 

In addition to using the GSA process available to federal agencies to 
obtain excess DOD property at no cost, we also purchased, at minimal 
cost, several excess DOD commodity items in new and unused condition 
over the Internet at govliquidation.com--the DRMS liquidation 
contractor's Web site.[Footnote 26] The items we purchased included 
tents, boots, three gasoline burners (stove/heating unit), a medical 
suction apparatus, and bandages and other medical supply items with a 
total reported acquisition cost of $12,310. We paid a total of $1,466 
for these items, about 12 cents on the dollar, including buyer's 
premium, tax, and shipping cost. The following examples illustrate the 
results of our case study investigations and purchases. 

New, unused extreme cold weather boots. On September 30, 2004, we 
purchased several pairs of excess new, unused extreme cold weather 
boots over the Internet at govliquidation.com. The sales advertisement 
listed an acquisition cost of $3,900 for approximately 30 pairs of the 
boots. We paid a total of $483, including buyer's premium, tax, and 
transportation cost, to acquire the extreme cold weather boots. 
According to a Stockton DRMO official, the boots were found at the DRMO 
without identifying paperwork, and DRMO personnel entered them in 
excess property inventory in April 2004. The boots were advertised as 
being in H condition (unserviceable, condemned condition). However, the 
photograph on the govliquidation.com Web page showed that the 
manufacturer's product label was still tied to the laces of the boots 
and that the soles of the boots had no wear, indicating that they had 
not been worn. When we received the boots on October 12, 2004, we 
determined that we had, in fact, purchased a total of 42 pairs of cold 
weather boots of which 37 pairs were in new, unused condition. We paid 
about $12 per pair for the 42 pairs of boots, which have a listed 
acquisition cost of $135 per pair. 

Shortly after we purchased the excess cold weather boots, the DLA item 
manager told us that she recently placed an order with the vendor to 
purchase 31,420 pairs of these same boots, including 1,360 of the sizes 
of boots that we purchased. Further, the DLA technician responsible for 
these boots told us that the boots have a shelf life of up to 15 years. 
According to the DLA technician, the boots should be inspected after 
the first 5 years and then inspected every 2 years after that for a 
total of six inspections in 15 years. After 15 years from date of 
manufacture these boots would have surpassed their useful life. All of 
the boots we purchased were less than 5 years old. The DLA technician 
told us that none of these boots have been recalled, and they are 
considered excellent boots that are rated to 60 degrees below zero. 
Figure 9 is a photograph of the new, unused excess DOD boots that we 
purchased. 

Figure 9: New, Unused Excess Cold Weather Boots Purchased in September 
2004: 

[See PDF for image] 

[End of figure] 

Shelter Half-tents. We purchased several new, unused shelter half-tents 
over the Internet from govliquidation.com on August 26, 2004. We paid 
$548, including buyer's premium, tax, and shipping cost, to acquire the 
excess DOD shelter half-tents, which had a listed acquisition value of 
$2,122. Shelter half-tents can be carried by individual soldiers and 
must be joined together to form a tent that will house two soldiers. 
The tents were listed in H condition (unserviceable, condemned 
condition). However, the advertisement on the liquidation contractor's 
Web page stated that some of the tents were new and in original boxes, 
and the photograph on the sales Web page showed that most of the tents 
were in the original manufacturer's packages. Upon receipt of the 
tents, we determined that we had, in fact, purchased 21 new, unused 
tents and 6 additional tents that were used, but appeared to be in good 
condition. At the time we purchased the shelter half-tents, the DLA 
item manager told us that none remained in stock. DLA data showed that 
the Defense Supply Center, Philadelphia, placed an order for 35,000 of 
these tents at a cost of about $2.5 million. Figure 10 is a photograph 
of one of the new, unused excess DOD shelter half-tents that we 
purchased over the Internet at govliquidation.com. 

Figure 10: New, Unused Excess Shelter Half-Tent Purchased in August 
2004: 

[See PDF for image] 

[End of figure] 

Gasoline burner units. On September 30, 2004, we purchased three new, 
unused excess DOD gasoline burner units over the Internet from 
govliquidation.com. We paid $164, including buyer's premium, tax, and 
shipping cost, to acquire the gasoline burners, which had a listed 
acquisition value of $1,857. The gasoline burners, which were turned in 
as excess by the California Army National Guard in San Luis Obispo, 
California, were advertised as "still in box, have never been used." 
According to the DLA item manager, a gasoline burner unit can be used 
on the battlefield as either a heat source or as a stove for cooking. 
The item manager told us that the units also could be used as stand- 
alone field/camping stoves, but would need a grate, or cooking surface 
over the burner. The item manager explained that DLA purchased 
thousands of these units several years ago, and they are continuing to 
be issued from supply inventory and used by deployed troops. According 
to item manager data, DOD units purchased 471 of these same gasoline 
burner units from DLA in fiscal year 2004. The item manager told us 
that there are currently 9,500 of these units in inventory and provided 
data that showed DLA has continued to issue gasoline burners to 
military units. Figure 11 is a photograph of one of the new, unused 
excess DOD gasoline burner units that we purchased over the Internet 
from govliquidation.com in September 2004. At the end of our audit in 
February 2005, we noted continuing liquidation sales of excess DOD 
gasoline burner units. 

Figure 11: One of the New, Unused Excess DOD Gasoline Burner Units 
Purchased in September 2004: 

[See PDF for image] 

[End of figure] 

Portable oropharyngeal suction apparatus. On October 7, 2004, we 
purchased a new, unused portable suction apparatus for the minimum bid 
of $35. We paid a total of $105 for the suction apparatus, including 
buyer's premium, tax, and shipping, compared to the acquisition cost of 
$1,141. The suction apparatus runs on electrical or battery power and 
is designed for use in aspirating blood and other fluids in emergency 
treatment of unconscious or injured personnel in desert, tropic, or 
artic environments. The suction apparatus, which was turned in as 
excess by a U.S. Air Force Reserve unit at the March Air Reserve Base 
in Riverside, California, was coded as being in F condition 
(unserviceable, repairable condition). However, the photograph of the 
suction apparatus showed the tubing to be sealed in the original 
package--indicating that the suction apparatus had not been used. 
Documentation we obtained from the DLA item manager showed that during 
fiscal year 2004, DLA purchased 627 of these same suction apparatuses, 
with a total acquisition cost of $490,439, for issue to military units. 
Our in-house medical expert inspected the suction apparatus and 
confirmed that it had not been used. He said that the design has not 
changed for many years, and the only issue with regard to 
serviceability would be whether the battery needed to be replaced. We 
determined that the batteries in the unit that we purchased still had a 
charge, and the unit was operational. Figure 12 is a photograph of the 
new, unused excess DOD portable suction apparatus that we purchased. 

Figure 12: Photograph of the New, Unused Portable Suction Apparatus 
Purchased in October 2004: 

[See PDF for image] 

[End of figure] 

Management Control Breakdowns Resulted in Reutilization Program Waste 
and Inefficiency: 

The $2.2 billion in DOD waste and inefficiency that we identified 
stemmed from management control breakdowns across DOD. We found key 
factors in the overall DRMS management control environment that 
contributed to waste and inefficiency in the reutilization program, 
including (1) unreliable excess property inventory data; (2) inadequate 
DRMS oversight, accountability, physical control, and safeguarding of 
property; and (3) outdated, nonintegrated excess inventory and supply 
systems. In addition, for many years, our audits of DOD inventory 
management[Footnote 27] have reported that continuing unresolved 
logistics management weaknesses have resulted in DOD purchasing more 
inventory than it needed. Our analysis of fiscal year 2002 and 2003 
excess commodity turn-ins showed that $1.4 billion (40 percent) of the 
$3.5 billion of A-condition excess items consisted of new, unused DLA 
supply depot inventory. 

Unreliable Data Impair the Economy and Efficiency of the Reutilization 
Program: 

Our statistical tests of excess commodity inventory and our case 
studies, screening visits, and interviews lead us to conclude that 
unreliable data are a key cause of the ineffective excess property 
reutilization program. GAO's internal control standards[Footnote 28] 
require assets to be periodically verified to control records. In 
addition, DRMS policy[Footnote 29] requires DRMO personnel to verify 
turn-in information, including item description, quantity, condition 
code, and demilitarization code, at the time excess property is 
received and entered into DRMO inventory. However, we found that DRMS 
management has not enforced this requirement. Further, Army, Navy, and 
Air Force officials told us that unreliable data are a disincentive to 
reutilization because of the negative impact on their operations. DLA 
item managers told us that because military units have lost confidence 
in the reliability of data on excess property reported by DRMS, for the 
most part, they have requested purchases of new items instead of 
reutilizing excess items. Military users also cited examples of damage 
to excess items during shipment that rendered the items unusable. In 
addition, other reutilization users advised us of problems related to 
differences in quantities and the types of items ordered and received 
that could have a negative impact on their operations. 

Types of Inventory Errors: 

Our statistical tests found significant problems with controls for 
assuring the accuracy of excess property inventory. Overall error rates 
for the five DRMOs we tested ranged from 8 percent at one DRMO to 47 
percent at another, and error rates for the five DLA supply depots we 
tested ranged from 6 percent to 16 percent, including errors related to 
physical existence of turn-ins and condition code. Our physical 
existence tests included whether a turn-in recorded in inventory could 
be physically located, timely recording of transactions, and 
verification of item description and quantity. Table 4 shows the 
overall results of our statistical sampling tests at five DRMOs and 
five DLA supply depots. The specific criteria we used to conclude on 
the effectiveness of DRMO and DLA depot inventory controls at the 
tested locations are included in appendix V. 

Table 4: Turn-in Transactions with One or More Control Test Failures at 
Five DRMOs and Five DLA Supply Depots: 

DRMO tested: Richmond; 
Estimated errors: (percent): 25%; 
DLA supply depot tested: Richmond; 
Estimated errors: (percent): 8%. 

DRMO tested: Stockton; 
Estimated errors: (percent): 12%; 
DLA supply depot tested: San Joaquin; 
Estimated errors: (percent): 16%. 

DRMO tested: Hill; 
Estimated errors: (percent): 8%; 
DLA supply depot tested: Hill; 
Estimated errors: (percent): 6%. 

DRMO tested: Norfolk; 
Estimated errors: (percent): 18%; 
DLA supply depot tested: Norfolk; 
Estimated errors: (percent): 14%. 

DRMO tested: Columbus; 
Estimated errors: (percent): 47%; 
DLA supply depot tested: Columbus; 
Estimated errors: (percent): 12%. 

Source: GAO. 

Note: Although some transactions included more than one type of error, 
we only counted one failure for a transaction. 

[End of table]

Key types of data reliability errors that we found include the 
following. 

* Existence errors. Missing turn-ins[Footnote 30] in our statistical 
sample included entire turn-ins of excess commodity items, such as 
sleeping bags, cold weather clothing, wet weather parkas, chemical and 
biological protective suits, a computer, and monitors. DRMO officials 
could not locate documentation to show whether the missing turn-ins had 
been reutilized, transferred, sold, or destroyed. Because many items 
from our statistical sample could not be found, the issue of lost, 
missing, and stolen property is significant, as discussed later. 

* Quantity errors. Separate from missing turn-ins, quantity errors 
involved items that exceeded or fell short of quantities recorded on a 
turn-in transaction. Shortages represent items that appeared to be 
available but were missing. Because DRMO personnel do not always verify 
quantities at the time excess items are received and recorded into 
excess inventory, they cannot determine whether missing quantities are 
errors or if they represent items that are lost, missing, or stolen. 
Quantity shortages included cold weather, wet weather, and camouflage 
clothing; field packs; chemical and biological protective suits and 
gloves; and computer keyboards. 

* Lack of timely transaction recording. DRMO personnel did not always 
record transactions to reflect events, such as changes in warehouse 
location and shipments to customers or disposal contractors within 7 
days. Based on our screening and inventory testing experience, when 
time is wasted looking for such items, customers can become frustrated, 
leading to possible loss of future orders. Excess property users told 
us that they spend a lot of time visiting DRMO warehouses to locate and 
inspect excess items before they submit requisitions for them. 

* Inaccurate item descriptions. Our statistical sample identified 
several turn-in transactions involving items that were different from 
the types of items recorded in the inventory records. Item description 
errors included erroneous item names and stock numbers. For example, we 
found three instances at one DRMO where turn-ins of computer keyboards 
were listed in excess inventory records as speakers and one instance at 
another DRMO where speakers were recorded as keyboards. Our sample also 
identified one women's coat and one men's coat that were recorded in 
excess inventory as two women's coats and items that were recorded as 
wet weather trousers and camouflage trousers when the turn-in boxes 
contained multiple items, including wet weather trousers and parkas, 
camouflage pants, shirts, and coats, and flyer's coveralls. When 
batched items are recorded as one type of item, only the NSN for those 
items is listed in inventory. As a result, a customer could order what 
he or she believed to be the listed quantity of the named item but 
instead receive various quantities of multiple types of items. 

* Inaccurate condition coding. Our statistical sample found condition 
code error rates that ranged from 5 percent at one DRMO to 22 percent 
at two other DRMOs that we tested. We based our determinations of 
condition coding accuracy on physical observation of condition with 
regard to the broad categories of serviceable and unserviceable rather 
than testing specific coding within these categories, which could have 
resulted in an even higher error rate. Our sample identified numerous 
examples of new, unused excess inventory items that were incorrectly 
coded as being in unserviceable condition, including cold weather 
boots, cold weather undershirts, military trousers, women's blue dress 
uniforms, compressor parts kits, wet weather parkas, and fragment body 
armor. In addition to items in our statistical sample, we observed 
numerous other new, unused items in DRMO warehouses and at liquidation 
sales locations that were coded as unserviceable, including desert 
combat boots, camouflage clothing, computer equipment, and aircraft 
parts. Accurate condition codes are key to an effective excess property 
reutilization program because DOD units generally look for new, unused 
excess items for reutilization. 

Causes of Inventory Errors: 

We found that unreliable excess property inventory data are the result 
of breakdowns in controls for proper recording and verification of 
inventory transaction data. The control breakdowns we identified 
related to four major areas: (1) the failure of DRMO personnel to 
verify excess property turn-ins at the time they are received and 
entered into excess inventory records; (2) improper downgrading of 
condition codes by DOD units; (3) the inconsistent use of NSNs; and (4) 
human capital issues related to DRMO staffing and workload and military 
service procedures, training, and oversight of excess property 
reporting. 

Failure to verify turn-ins and correct errors. The errors in excess 
inventory identified in our statistical samples, screening 
observations, and case studies were caused by inaccurate turn-in 
documentation submitted by military unit turn-in generators and the 
failure of DRMO personnel to inspect excess items, verify turn-in 
documents, and correct identified errors. DRMS policy[Footnote 31] 
requires DRMO personnel to inspect excess items upon receipt and 
challenge or change incorrect data. However, DRMO personnel told us 
that they were not able to verify excess property receipts when faced 
with large turn-in volumes and processing backlogs. Further, a 
provision in this same policy[Footnote 32] allows DRMO managers who are 
faced with heavy turn-in volume to waive the requirement to verify 
quantity counts, if the time required to count the property is not 
justified, and instead use turn-in generator counts. The policy limits 
exceptions to (1) batched turn-ins of multiple types of items, (2) 
large quantities of small items in other than the original package, and 
(3) large quantities of items in the original package where box counts 
can be used. However, officials at two of the five DRMOs we tested--the 
DRMOs with the highest data reliability error rates--cited this policy 
and told us that they accept turn-in generator information and do not 
verify excess property turn-in data. 

In addition, our statistical sample identified one instance where DRMS 
headquarters officials did not provide guidance on how to correct 
erroneous turn-in documentation related to a June 30, 2004, Navy turn- 
in of six new, unused Level III biological safety cabinets[Footnote 33] 
with a total acquisition cost of $120,000.[Footnote 34] The Navy unit 
improperly used a local stock number (LSN) to describe the safety 
cabinets on the turn-in document and a demilitarization code that 
indicated there were no restrictions on the disposal of these items. 
However, Level III safety cabinets are subject to trade security 
controls,[Footnote 35] and therefore, they are required to be 
identified by an NSN or other information which accurately describes 
the item, the end item application, and the applicable demilitarization 
code.[Footnote 36] Although Norfolk DRMO personnel advised DRMS 
officials of the need to correct the turn-in document errors in July 
2004, at the time we finalized our draft report in early February 2005, 
DRMS had not taken action to authorize the DRMO to correct these errors 
so that the safety cabinets could be identified for reutilization 
within DOD. Further, we found that as of the end of our audit in 
February 2005, the safety cabinets had not been posted to the DRMS 
reutilization Web page as excess property available for reutilization. 
Figure 13 shows a photograph of one of the Level III cabinets. 

Figure 13: New, Unused Excess Level III Biological Safety Cabinet at 
the Norfolk DRMO: 

[See PDF for image] 

[End of figure] 

Improper downgrading of condition codes. The incorrect recording of 
unserviceable condition codes for items that are in serviceable 
condition, particularly items in new, unused condition, makes it 
unlikely that they will be selected for reutilization. For example, all 
of the new, unused excess DOD commodity items that we purchased over 
the Internet were incorrectly coded as unserviceable. As noted 
previously in our case study discussions, all of the items that we 
purchased were items that military units continued to purchase, use, or 
both. As shown in table 5, our DRMO tests found that most errors 
related to items that were incorrectly reported to be in unserviceable 
condition. 

Table 5: Estimated Turn-in Transaction Control Test Failures for Items 
Classified as Serviceable: 

DRMO tested: Richmond; 
Percentage of turn-ins: Improperly coded in serviceable condition: 0%; 
Percentage of turn-ins: Improperly coded in unserviceable condition: 
26%. 

DRMO tested: Stockton; 
Percentage of turn-ins: Improperly coded in serviceable condition: 1%; 
Percentage of turn-ins: Improperly coded in unserviceable condition: 
10%. 

DRMO tested: Hill; 
Percentage of turn-ins: Improperly coded in serviceable condition: 2%; 
Percentage of turn-ins: Improperly coded in unserviceable condition: 
6%. 

DRMO tested: Norfolk; 
Percentage of turn-ins: Improperly coded in serviceable condition: 5%; 
Percentage of turn-ins: Improperly coded in unserviceable condition: 
17%. 

DRMO tested: Columbus; 
Percentage of turn-ins: Improperly coded in serviceable condition: 1%; 
Percentage of turn-ins: Improperly coded in unserviceable condition: 
23. 

Source: GAO. 

[End of table]

As shown in table 5, we found numerous instances where DOD units 
improperly downgraded the condition codes of items that were no longer 
serviceable to them, either because they did not want these items or 
because the items were being replaced by new technology, even though in 
many cases these items were new and unused. Our statistical tests and 
our case studies showed that many times the items that military units 
coded as unserviceable were serviceable and very adequate for use by 
others. 

Inconsistent recording of NSNs. The failure to consistently record NSNs 
to commodity purchase and excess inventory records prevents the 
identification of like items for reutilization and, therefore, may 
result in unnecessary purchases. Although DLA records NSNs for most 
purchases that are stored in DLA supply depot inventory,[Footnote 37] 
it does not record NSNs for items purchased from prime vendors[Footnote 
38] for direct delivery to DOD customers. For example, as noted 
previously, we determined that DLA buyers and item managers did not 
record NSNs for 87 percent of the nearly $5.7 billion in medical 
commodity purchases by military units during fiscal years 2002 and 
2003. According to DLA officials, prime vendor catalogs identify 
products by part number or model number rather than NSN. This issue 
will become more significant as DLA expands its use of prime vendors to 
other commodity groups. 

The failure to record NSNs to turn-in transactions prevents item 
managers from identifying these items for reutilization at the time 
purchase decisions are made. For example, our in-house scientists who 
often meet with DOD scientists at the U.S. Army Biological Warfare 
Research Center at the Dugway Proving Ground learned that the DOD 
scientists were planning to purchase a Level III safety cabinet and 
informed them of the availability of the six Level III safety cabinets 
at the Norfolk DRMO. The DOD scientists told us that they were unaware 
the Navy had excessed the safety cabinets and said that they could use 
all six of them. We subsequently confirmed that the DOD scientists at 
Dugway had requisitioned the six Level III safety cabinets for 
reutilization. 

Our analysis showed that LSNs were recorded for about 41 percent of 
fiscal year 2002 and 2003 excess property turn-ins. LSNs are 
appropriate identifiers for local purchases and one-of-a kind items. 
However, our statistical samples and case studies showed that military 
unit turn-in generators had recorded LSNs to items that should have 
been identified with NSNs to avoid the time and effort necessary to 
identify and record NSNs. For example, LSNs were recorded for excess 
military clothing in our Columbus DRMO sample and the cold weather 
boots that we purchased over the Internet even though these items have 
labels that showed the assigned NSNs. 

DOD has efforts under way to promote the use of unique product 
identifiers other than NSNs by commercial vendors and small business 
firms. Regardless of the mechanism used to identify standard items, to 
assure an effective excess property reutilization program, DOD will 
need to consistently record NSNs, product numbers, or other unique item 
identification in its purchase, supply, and excess inventory records. 

Human capital weaknesses. We found that human capital issues related to 
imbalances between staffing and workload at DRMOs[Footnote 39] and 
inadequate training of military turn-in generators[Footnote 40] 
contributed to unreliable data and associated waste and inefficiency. 
Based on our interviews of DRMO officials, our statistical tests of 
DRMO inventory, and our review of available DRMS workload data for the 
five DRMOs we tested, we concluded that data reliability was directly 
affected by the availability of DRMO staff qualified to process excess 
property receipts.[Footnote 41] For example, DRMS data for the last 8 
months of fiscal year 2004 showed the three DRMOs we visited that 
attempted to verify turn-in documentation--Norfolk, Hill, and Stockton-
-experienced backlogs in receipt processing and significant use of 
overtime hours. In contrast, we found that the two DRMOs that did not 
verify receipts worked few, if any, overtime hours and had 
significantly fewer backlogs than the other three DRMOs. As noted 
previously, these two DRMOs also had high excess property inventory 
error rates. 

We also found a lack of detailed guidance on the proper assignment of 
condition codes. DRMS condition code guidance consists of a list of 
supply and disposal condition codes and brief definitions of each 
condition code. DRMS has not developed detailed narrative guidance with 
explanations and examples of how to apply these codes. However, we also 
found that the military services are not correctly using the listed 
supply and disposal condition codes on their excess property turn-in 
documents. For example, when military units assigned supply condition 
codes indicating that new, unused items were unserviceable or 
condemned, they also used the disposal condition code for repairable, 
rather than the code for new, unused. Military units had differing 
views about whether unserviceable condition meant that items were 
unserviceable for their purposes or unserviceable to anyone. As a 
result, we found that items in the same condition would be coded 
serviceable by one military unit and unserviceable by another. In 
addition, our analysis of turn-ins of unserviceable items found a lack 
of training, guidance, and supervision at one Navy unit. For example, 
Navy officials at the North Island Naval Aviation Depot told us that 
the employee responsible for sending their excess property to the DRMO 
had never received formal training on disposal policies and procedures. 
Further, the officials told us that they did not have any manuals or 
written procedures that explained excess property turn-in procedures. 
As a result, the employee assigned condition codes H (unserviceable, 
condemned) or S (scrap) to all excess property turn-ins. 

We contacted GSA's Director of Personal Property Management Policy to 
discuss the proper assignment of federal agency condition codes. The 
GSA Policy Director explained that DOD uses unique supply condition 
codes that are a combination of federal agency codes established by GSA 
and its own codes for identifying serviceable and unserviceable 
property. (App. III lists and defines the GSA and DOD condition codes.) 
The GSA Director told us that unreliable federal agency condition 
codes, including DOD condition codes, have presented a problem in GSA's 
program for utilization of excess federal agency property within the 
federal government. For example, he noted that federal agency officials 
have told GSA that they cannot rely on condition codes assigned to 
excess property, and this had an impact on the effectiveness of GSA's 
efforts to promote the use of excess DOD property within the federal 
government. 

We also found that the condition codes established by GSA do not 
provide for the identification of items that are nearly new, with 
little or no evidence of use. Because such items are not new and 
unused, they would be coded the same as items that may be well used and 
need minor repair. Further, the GSA codes do not provide for 
identification of items that are new and unused but technically 
obsolete to the current owner. The GSA Policy Director noted that 
because of the federal government's increased reliance on technology, 
the need to identify obsolete items is becoming a governmentwide excess 
property disposal issue. He said that GSA would be willing to work with 
DOD and other federal agencies to develop a solution to these problems. 

Weaknesses in Reutilization Program Oversight and Physical Inventory 
Control: 

We found hundreds of millions of dollars in potential waste and 
inefficiency associated with the failure to safeguard excess property 
inventory from loss, theft, and damage. As previously discussed, our 
statistical tests of excess commodity inventory at five DRMOs and five 
DLA supply depots identified significant numbers of missing items. 
Because the DRMOs and DLA supply depots had no documentation to show 
that these items had been requisitioned or sent to disposal 
contractors, they cannot assure that these items have not been stolen. 
According to DRMS data, DRMOs and DLA supply depots reported a total of 
$466 million in excess property losses related to damage, missing 
items, theft, and unverified adjustments over a period of 3 years. 
However, as discussed below, we have indications that this number is 
not complete. Also, because nearly half of the missing items reported 
involved military and commercial technology that required control to 
prevent release to unauthorized parties, the types of missing items 
were often more significant than the number of missing items. 

Excess Property Losses: 

Weaknesses in accountability that resulted in lost and stolen property 
contributed to waste and inefficiency in the excess property 
reutilization program. As shown in table 6, our analysis of reported 
information on excess property losses at DRMOs and DLA supply depots 
found that reported losses for fiscal years 2002 through 2004 totaled 
$466 million. Because 43 percent of the reported losses related to 
military technology items that required demilitarization 
controls,[Footnote 42] these weaknesses also reflect security risks. 
GAO Standards for Internal Control in the Federal Government [Footnote 
43] requires agencies to establish physical control to secure and 
safeguard assets, including inventories and equipment, which might be 
vulnerable to risk of loss or unauthorized use. However, our 
statistical tests of excess commodity inventory at five DRMOs and five 
DLA supply depots during fiscal year 2004 identified missing items 
involving entire turn-ins of some excess items as well as fewer items 
than reported in inventory (missing quantities) for other turn-ins. We 
referred locations with high occurrences of reported losses to our 
Office of Special Investigations for further investigation. Table 6 
shows reported losses for fiscal years 2002 through 2004. 

Table 6: Reported DRMS Excess Property Losses and Adjustments: 

Dollars in millions. 

DRMOs; 
Fiscal year 2002: $81; 
Fiscal year 2003: $47; 
Fiscal year 2004: $62; 
Total: $190. 

DLA supply depots; 
Fiscal year 2002: $67; 
Fiscal year 2003: $95; 
Fiscal year 2004: $114; 
Total: $276. 

Total; 
Fiscal year 2002: $148; 
Fiscal year 2003: $142; 
Fiscal year 2004: $176; 
Total: $466. 

Source: Unaudited DRMS data. 

[End of table]

DRMO losses. Our statistical samples identified missing turn-ins at two 
of the five DRMOs we tested and missing quantities at all five DRMOs 
tested, including many items that were in new, unused, and excellent 
condition. Because DRMO officials did not have documentation to show 
whether these items had been reutilized, transferred, sold, or 
destroyed, there is no assurance of whether the missing items reflected 
bookkeeping errors or if they related to theft. Missing items in our 
Columbus DRMO sample included turn-ins of 72 chemical and biological 
protective suits and 47 wet weather parkas that were subject to 
demilitarization controls and 7 sleeping bags, a cold weather coat, 4 
pairs of cold weather trousers, 4 canteens, a central processing unit 
(CPU), and various other items. Most of the quantity errors we found at 
the Columbus DRMO related to military clothing items. Missing items in 
our Richmond DRMO sample included a computer; 10 CPUs; 13 computer 
monitors; 2 scanners; and 2 items that require trade security control, 
including an arm assembly for a helicopter blade and a computer data 
signal coder/decoder. 

Based on these losses, we requested DRMS summary reports on losses for 
all DRMOS during fiscal years 2002, 2003, and 2004 for further 
analysis. Reported losses include lost, damaged, and stolen items and 
adjustments for recordkeeping errors. We determined that the loss 
summary reports do not include all known losses. For example, only one 
of the nine turn-ins in our statistical sample that included missing 
items that were subject to demilitarization controls was included in 
the fiscal year 2004 loss summary reports. Further, missing quantities 
are generally reported as adjustments rather than lost or stolen items. 

According to DRMS data, of the total $62 million in reported fiscal 
year 2004 losses, the Warner Robins DRMO reported $22 million and the 
four DRMS demilitarization centers reported over $17 million. In 
addition, reported fiscal year 2004 losses at the contractor-operated 
Meade DRMO included over 1,000 turn-ins with a reported acquisition 
value of over $3 million dollars. Although the DRMO contract provides 
for fines of $2,500 per incident of loss if negligence is proven, we 
learned that contractor negligence could not be proven due to 
documented security weaknesses at the Meade DRMO.[Footnote 44] 
Uncorrected security weaknesses leave the Meade DRMO vulnerable to 
theft. 

Further, while DRMO loss reports require that a reason code be 
specified, we found that the reasons for nearly all (99.8 percent) of 
the reported DRMO losses for fiscal years 2002 through 2004 related to 
unknown reasons (76.6 percent) and unverified adjustments for 
bookkeeping and data-entry errors (23.2 percent). As a result, DRMS has 
no assurance of the extent to which theft may have occurred and gone 
undetected. In January 2005, DRMS officials told us that they had not 
yet performed a review of the excess property loss reports as a basis 
for identifying and correcting systemic weaknesses. 

Reported DRMO losses for the 3-year period included 76 units of body 
armor, 75 chemical and biological protective suits (in addition to 
those identified in our Columbus DRMO sample),[Footnote 45] 5 guided 
missile warheads,[Footnote 46] and hundreds of military cold weather 
parkas and trousers and camouflage coats and trousers. Three DRMOs-- 
Kaiserslautern, Meade, and Tobyhanna--accounted for $840,147, or about 
45 percent, of the nearly $1.9 million in reported fiscal year 2004 
losses of military equipment items requiring demilitarization. 

DLA supply depot losses. Our statistical samples also showed missing 
items at four of the five DLA supply depots that we tested. Because 
depot officials did not have documentation showing that these items had 
been reutilized or sold, there is no assurance of whether the missing 
items related to theft. Missing items in our DLA depot statistical 
samples included the following: 

* Two classified radio frequency amplifiers, a printed circuit board 
that is subject to trade security controls, and a circuit card assembly 
that required demilitarization (destruction) when no longer needed by 
DOD at DLA's Norfolk supply depot. 

* Trade security-controlled aircraft parts, including 17 aircraft 
landing gear drag link assemblies, 6 landing gear upper manifolds, and 
3 cylinder and piston units used in aircraft landing gear at DLA's Hill 
supply depot. 

* Six computer controllers and a circuit card used in Army, Navy, and 
Air Force communications at DLA's San Joaquin supply depot. 

We also obtained DRMS data on DLA supply depot reports of excess 
property losses, including missing and damaged property and unverified 
adjustments. As shown in table 6, reported DLA supply depot losses 
totaled $276 million for fiscal years 2002 through 2004. Of this 
amount, nearly $192 million related to excess property items that were 
subject to demilitarization and trade security controls. The summary 
reports that we obtained did not identify the reasons for most of the 
reported DLA supply depot losses. According to DRMS data, 18 DLA supply 
depots reported a total of $114 million in fiscal year 2004 excess 
property losses. Two supply depots reported 72 percent of these losses, 
including the DLA Oklahoma City supply depot with reported losses of 
213,950 items totaling $41 million and DLA's Warner Robins supply depot 
with reported losses of 4,911 items totaling $40 million. In addition, 
the San Diego and Tobyhanna DLA supply depots each reported about $6 
million in fiscal year 2004 excess property losses. Types of items 
reported as lost, damaged, or possibly stolen included aircraft frames 
and parts, engines, laboratory equipment, and computers. 

Property Damage: 

In addition to reported losses, we found significant instances of 
property damage at DRMS liquidation contractor sales locations. Because 
all liquidation sales are final, buyers have no recourse when property 
is damaged subsequent to sale or is not in the advertised condition. As 
a result, customers who have lost money on bids related to damaged and 
unusable items might not bid again, or they may scale back on the 
amount of their bids in the future, affecting both the volume of excess 
DOD items liquidated and sales proceeds. The property damage that we 
observed at liquidation contractor sales locations is primarily the 
result of DRMS management decisions to send excess DLA supply depot 
property to two national liquidation sales locations without assuring 
that its contractor had sufficient human capital resources and 
warehouse capacity to process, properly store, and sell the volume of 
property received. 

Although DRMS headquarters officials were aware of this problem and 
made numerous visits to the Huntsville sales location beginning in 
January 2004, actions taken to address this problem have been 
inadequate. In addition, poorly maintained contractor warehouse 
facilities at one liquidation sales location resulted in severe water 
damage to excess DOD bandages and medical supply items that we 
purchased over the Internet at govliquidation.com. The DRMS liquidation 
sales contract and Web page conditions of sale state that DRMS is 
responsible for providing and maintaining the warehouse facilities used 
by the contractor. 

Property damage at the Huntsville, Alabama, liquidation sales location. 
In November 2004, we investigated reports of damage related to improper 
outside storage of excess items at the Huntsville, Alabama, liquidation 
sales location. In June 2003, DRMS initiated a recycle control point 
process, referred to as RCP, for DLA supply depots, whereby excess 
property remains in the depot warehouses during the reutilization 
screening process. At the end of the screening phase, property that 
does not require demilitarization by destruction or mutilation is to be 
shipped to one of two liquidation contractor national sales locations-
-Huntsville, Alabama, for DLA depots west of the Mississippi River and 
Norfolk, Virginia, for DLA depots east of the Mississippi. We 
determined that DRMS continued to send excess DLA supply depot property 
to the Huntsville sales location even though it was apparent after the 
first 6 months of shipments that the Huntsville location lacked the 
capacity to handle the large volume of property received from the DLA 
depots. For example, in early June 2004, the Area Manager for the 
Huntsville DRMO inspected the liquidation contractor's warehouses and 
found that excess property had filled at least one contractor warehouse 
building entirely, blocking doors and fire extinguishers. The Area 
Manager advised contractor officials that this situation would not be 
viewed favorably during the joint safety, fire, and environmental 
inspection anticipated within the near future. In response, contractor 
officials removed sufficient property from the building to meet fire 
and safety regulations. As a result, numerous excess DOD property items 
were relocated outside to an unpaved lot about the size of a football 
field and covered with a number of blue plastic tarps. Most of these 
items were new and unused spare parts and electronic items received 
from DLA supply depots. In addition, wood furniture and metal file 
cabinets that were transferred to the contractor for liquidation sale 
by the co-located Huntsville DRMO were stored outside without any 
protection from the weather. 

According to DRMO officials, DRMS headquarters officials had visited 
the Huntsville sales location in March 2004; a second time in June 
2004, when the property was placed on the outside lot; and again in 
September 2004, to observe the extent of the overflow. Despite the 
known risk[Footnote 47] of damaged and lost property, the volume of 
excess DLA depot property continued until September 2004, when DRMS 
headquarters made a decision to divert shipments from three western DLA 
supply depots to the Norfolk, Virginia, liquidation sales location. 
However, property continued to be stored outside until the week of 
October 18, 2004, when DRMS officials visited the Huntsville sales 
location. By that time, numerous property items had received extensive 
damage due to sun, wind, rain, and storms, including four hurricanes-- 
Charlie, Frances, Ivan, and Jeanne--and tropical storms Bonnie and 
Matthew. DRMS officials disposed of some items and placed other items 
inside the warehouse. In addition, the Huntsville DRMO manager told us 
that wood computer furniture and filing cabinets that were in good 
condition at the time the DRMO turned them over to the liquidation 
contractor had been stored outside unprotected from weather. Because 
most of the furniture was ruined and the filing cabinets were rusted, 
they were sent to the landfill or sold as scrap. Figure 14 shows the 
outside location of the wood computer cabinets and other items in July 
2004 when they were advertised for sale. 

Figure 14: Outside Storage of Wood Computer Furniture at the 
Huntsville, Alabama, Liquidation Sales Location in July 2004: 

[See PDF for image] 

Source: DRMS. 

[End of figure] 

Our inspection of the remaining damaged property identified numerous 
boxes that were missing property labels or had labels and shipping 
documentation that were illegible due to exposure to sun, wind, and 
rain. The missing documentation presents a significant problem because 
the sales contractor does not record receipts of excess DOD property in 
its sales inventory until items are processed for sale, which may not 
occur until several months after the items are received. DRMS officials 
told us that they are attempting to reconcile excess property shipments 
to liquidation contractor inventory. However, because excess property 
receipts were not recorded in sales inventory and property labels are 
missing or illegible, it will be very difficult, if not impossible, to 
fully reconcile sales inventory to excess property receipts. The 
photograph in figure 15 shows wooden boxes that have lost their 
property labels and are turning black due to rot. 

Figure 15: Example of Water-Damaged Items at the DRMS Liquidation Sales 
Contractor Location in Huntsville, Alabama: 

[See PDF for image] 

[End of figure] 

Property subject to damage at the Norfolk, Virginia, liquidation sales 
location. On December 2, 2004, we visited the Norfolk liquidation 
contractor sales location to determine whether DRMS action to resolve 
the capacity problems at the Huntsville sales location by diverting 
property to Norfolk, Virginia, had resulted in capacity problems at 
that location. We observed hundreds of cardboard and wooden boxes 
containing excess DOD property that were stored outside under blue 
plastic tarps and in shrink-wrapped stacks on pallets. Upon inspection, 
we noted that many of the boxes were already water-damaged. The 
photograph in figure 16 shows cardboard boxes stored outside at the 
Norfolk, Virginia, sales location that evidence weather damage in terms 
of peeling property labels and water marks. 

Figure 16: Example of Excess DOD Property Stored Outside at the DOD 
Liquidation Sales Contractor Location in Norfolk, Virginia: 

[See PDF for image] 

[End of figure] 

Damage to GAO purchase of bandages and medical supplies. Our October 7, 
2004, Internet purchase of bandages and medical supplies from 
govliquidation.com suffered water damage because DRMS failed to 
adequately maintain the liquidation contractor's Norfolk facilities. 
Our purchase included numerous usable items in original manufacturer 
packaging, including 35 boxes of bandages, 31 boxes of gauze sponges 
and surgical sponges, 12 boxes of latex gloves, and 2 boxes of 
tracheostomy care sets. We paid a total of $167, including buyer's 
premium, tax, and transportation cost, for these items, which had a 
reported total acquisition cost of $3,290. However, the following week, 
when we arrived at the liquidation contractor's Norfolk, Virginia, 
sales location to pick up our purchase, it was raining and the roof on 
the contractor's warehouse building was leaking. The boxes containing 
the items we had purchased had become wet, and water dripped from some 
of the boxes when contractor personnel loaded them into our rental 
truck. The photograph in figure 17 illustrates the damaged condition of 
the items we purchased. Most of the cardboard storage boxes were 
deteriorating as a result of water damage, and items inside the boxes 
were wet. 

Figure 17: DOD Excess New, Unused Bandages and Medical Supplies 
Purchased over the Internet in October 2004: 

[See PDF for image] 

[End of figure] 

Although the sales lot containing the bandages and medical supplies 
that we purchased was advertised as 4 pallets of items, it actually 
consisted of 13 pallets. The truck we rented would not accommodate all 
13 pallets of items. The liquidation contractor sales representative 
told us that we could take as much as we could accommodate, and the 
contractor would resell the remaining items, even though the boxes on 
the remaining 8 pallets of bandages and medical supplies were also wet. 

We found that customers who find that the property they purchased is 
damaged have no recourse. Further, the liquidation contractor's terms 
of sale provide no incentive for safeguarding property held for sale. 
For example, under the contractor's terms of sale, all sales are final 
and items are sold in "as is" condition. The liquidation sales 
contractor disclaims all warranties, express and implied, without 
limitation, including loss or liability resulting from negligence. 
Credit card account numbers must be provided at the time a bid is made, 
and the sales cost, buyer premium, and sales tax, if applicable, are 
immediately charged to the winning bidder. 

Outdated, Nonintegrated Systems Impair Economy and Efficiency: 

Inefficient, nonintegrated excess inventory and supply management 
systems lack controls necessary to prevent waste and inefficiency in 
the reutilization program. For example, because the DRMS Automated 
Inventory System (DAISY) and DLA's Standard Automated Materiel 
Management System (SAMMS) are outdated and nonintegrated, they do not 
share information necessary to (1) identify and alert DLA item managers 
of excess property that is available to fill supply orders and (2) 
prevent purchases of new items when A-condition excess items are 
available for reutilization. We have continued to report[Footnote 48] 
that long-standing weaknesses with DLA's inventory systems related to 
outdated, nonintegrated legacy systems and processes result in DOD and 
military units not knowing how many items they have and where these 
items are located. DLA has acknowledged serious deficiencies in its 
automated inventory management systems. Although DLA has an effort 
under way to replace SAMMS with the Business Systems Modernization 
(BSM) and DRMS has a Reutilization Modernization Program (RMP) under 
way to upgrade DAISY, so far these have been separate, uncoordinated 
efforts and they do not adequately address identified process 
deficiencies. Also, while the systems improvement efforts are intended 
to integrate supply and excess inventory systems to support the 
reutilization program, they are not focused on resolving long-standing 
problems related to unreliable condition code data and incomplete data 
on NSNs. The accuracy of these two data elements is critical to the 
ability to identify like items that are available for reutilization at 
the time purchases are made. 

Current Inventory Systems Environment: 

We found that existing systems and processes do not adequately reflect 
the DRMS twofold mission to (1) facilitate reutilization of property in 
good condition and (2) dispose of property that DOD cannot use. For 
example, DRMS moves all excess property through the same 49-day 
screening and disposal process rather than identifying A-condition 
items that are currently being purchased, stocked and issued, or both 
to military units and designating these items for reutilization. 
Instead, as previously discussed, DRMS transferred, donated, sold, and 
destroyed hundreds of millions of dollars of A-condition excess items 
that the military services continued to purchase and utilize. 

In addition, we found that the current process for identifying excess 
property that is available to fill supply orders is cumbersome, time- 
consuming, and involves significant human intervention. For example, 
under the current process, if an item manager wants to use excess items 
to fill a supply order, the item manager must query DAISY to determine 
whether excess items are available to fill the supply order. If excess 
items are available, the item manager would then need to contact one or 
more DRMOs where the excess property is located and ask DRMO personnel 
to physically verify the item description, quantity, and condition. If 
the excess items meet the customer's requirements, the item manager 
prepares a requisition form and submits it to the DRMO(s). If the item 
does not require technical inspection or testing, the DRMO processes 
the order and ships the excess items to the customer. However, if the 
item is electronic and requires technical inspection and testing, or 
both, it must be sent to a DLA supply depot where these functions can 
be performed before the item is shipped to the customer. 

Military unit officials told us that due to inefficiencies in this 
process, including shipment delays of up to several weeks and 
unreliable DRMS data on quantities and condition codes, they prefer to 
order new items rather than attempting to reutilize excess property 
available at DRMOs. Figure 18 illustrates the current nonintegrated DLA 
inventory systems environment. 

Figure 18: Existing Nonintegrated DLA Inventory Systems Environment: 

[See PDF for image] 

[End of figure] 

Planned Systems Environment: 

According to DLA officials, the planned BSM and RMP excess property 
reutilization systems are intended to be integrated when fully 
implemented in 2009. The objective of the integrated design is to 
provide DLA buyer and item manager visibility over excess property 
available for reutilization and permit the buyer to fill a supply order 
with these items instead of purchasing new items. However, we are 
concerned that these efforts may not resolve the long-standing data 
reliability problems inherent in the current systems and processes. Our 
November and December 2004 discussions with DLA and DRMS systems 
officials revealed that they were unaware of the magnitude of errors in 
condition coding that incorrectly recorded new and unused items as 
unserviceable and the extent of inconsistent recording of NSNs in 
commodity purchases and excess inventory records. Further, the 
officials had not yet coordinated to identify key data elements for 
identifying excess property that should be reutilized. 

We also found that DLA and DRMS systems officials had not yet fully 
considered building controls into the new business systems that would 
help enforce the policy to reutilize available excess property in new, 
unused, and excellent condition before purchasing new items. For 
example, under the current systems environment, item managers and 
military units can choose to purchase new items rather than reutilizing 
available new, unused, and excellent condition excess items. In order 
to avoid this problem in the planned systems environment, DLA would 
need to include edit controls that would reject a purchase transaction 
or generate an exception report for review and approval when such items 
are available for reutilization but are not selected. 

We discussed our concerns with DLA officials. In early February 2005, 
DLA officials told us that they were extending the March 2005 target 
date for completing the functional design for excess property 
reutilization in BSM and RMP in order to address our concerns about the 
impact of unreliable data on the successful integration of the planned 
systems. 

Conclusions: 

DLA and DRMS have not demonstrated the leadership and accountability 
necessary to achieve the economy and efficiency of excess property 
reutilization contemplated in federal regulations or DOD policy. To 
effectively address problems with reutilization program waste and 
inefficiency, DRMS and DLA will need to exercise strong leadership and 
accountability to improve the reliability of excess property data; 
establish effective oversight and physical inventory control, including 
both accountability and safeguarding of excess property; and develop 
effective integrated systems for identifying and reutilizing excess 
property. In addition, the military services will need to provide 
accurate information on excess property turn-in documentation, 
particularly data on condition codes, and item descriptions, including 
NSNs. Improved management of DOD's excess property and a strong 
reutilization program could help save taxpayers hundreds of millions of 
dollars annually. 

Recommendations for Executive Action: 

We recommend that the Secretary of Defense 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 take the following 13 actions to 
improve DOD's excess property reutilization program. 

Data Reliability: 

* Direct DRMS to clarify and enforce the policy that permits 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. 

* 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. 

* Require DLA to develop a mechanism for linking prime vendor purchase 
transactions to NSNs or other unique product identification. 

* 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. 

* 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. 

* Require the military services to establish appropriate accountability 
mechanisms, including supervision and monitoring, for assuring the 
reliability of turn-in documents. 

Physical Control of Property: 

* 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. 

* Direct DRMS to take immediate, appropriate action to resolve 
identified uncorrected DRMO security weaknesses. 

* 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. 

* 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. 

Commodity Inventory Systems: 

* 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. 

* Direct DLA BSM and DRMS 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. 

* 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 Comments and Our Evaluation: 

On April 15, 2005, DOD provided written comments on a draft of this 
report. DOD officials concurred with 8 of our 13 recommendations and 
partially concurred with the other 5 recommendations. With regard to 
the 5 recommendations on which DOD partially concurred, DOD's stated 
actions address all 5 of them. We view these actions as being generally 
responsive to the intent of our recommendations. The partial 
concurrences relate to plans for alternative actions, actions already 
initiated in response to our audit, and increased attention to existing 
processes. DOD's explanation for the partial concurrences and our 
response follows. 

DOD stated that DRMS will use an alternative action to address our 
recommendation that it assess the adequacy of human capital resources 
and take appropriate action to assure that excess property receipts are 
verified and processed accurately and timely. DOD stated that DRMS will 
use its staffing model to determine the staffing needs by receipt 
workload and adequately staff its DRMOs. DOD also stated that DRMS is 
using contract hires to supplement DRMO staff, as needed. We view these 
actions as responsive to our recommendation. However, as a part of its 
actions on our recommendation, DRMS also should provide adequate 
supervision and monitoring to assure that excess property receipts are 
verified when received and entered into DRMO inventory. We have 
modified our recommendation to emphasize this point. These actions will 
help to provide accountability for excess property and avoid the need 
for subsequent adjustments, including an excessive number of write-offs 
for inventory shortages. 

DOD noted the merits of existing processes related to our 
recommendation to develop a mechanism for linking prime vendor purchase 
transactions to NSNs or other unique product identification. DOD stated 
that DOD directives require turn-in generators to provide a description 
of item(s) on a turn-in document for which local stock numbers are 
listed. DOD also noted that bringing unused items back into DLA supply 
stock would negate warehousing and distribution savings achieved 
through using prime vendor direct shipments to DOD customers. In 
addition, DOD stated that assigning NSNs to nonstocked commercial items 
would significantly increase item costs and run counter to the Federal 
Acquisition Streamlining Act of 1994[Footnote 49] preference for 
commercial purchases. As discussed in our report, DOD already has 
efforts underway to promote the use of unique product identifiers other 
than NSNs by commercial vendors and small business firms. DOD's efforts 
include cost benefit considerations. Consistent with DOD's efforts, it 
is important that DLA prime vendor purchase transactions are identified 
to NSNs or other unique product identification to facilitate economies 
through (1) volume purchasing and (2) reutilization of excess items. 

With regard to our recommendation that DRMS develop written guidance 
and formal training on the proper assignment of condition codes to 
excess property turn-ins, DOD stated that the military services 
currently receive formal blocks of training and are in the better 
position to assign the condition codes. DOD also referred to current 
DOD and DRMS guidance on condition codes. In addition, DOD stated that 
DRMS will review current guidance to ensure the appropriate assignment 
of responsibilities regarding the establishment and use of condition 
codes. As discussed in our report, our statistical tests, DRMO 
screening visits, case study acquisitions of excess DOD commodity 
items, and interviews of DRMO, military service, and GSA officials all 
indicate that significant problems exist with the reliability of excess 
property condition codes. We determined that unreliable condition codes 
were caused by a lack of detailed guidance and a failure to follow 
existing guidance. For example, as noted in our report, military 
services often coded items as unserviceable when they no longer had a 
need for them, even though the items were in new, unused, and excellent 
condition. Therefore, written guidance and training on the proper 
assignment of condition codes also is important to correcting this 
problem to assure that existing misconceptions are corrected and would 
be responsive to our recommendation. 

With regard to our recommendation that DRMS periodically inspect 
liquidation contractor facilities and take immediate action to correct 
structural impairments and other deficiencies, such as storage 
capacity, DOD stated that an inspection of all liquidation contractor 
facilities has been completed and periodic inspections will continue. 
DOD also stated that the only facility requiring immediate structural 
repair is the Norfolk, Virginia, facility and that DRMS has issued a 
work order for the necessary repairs. DOD also stated that additional 
storage options are being regularly evaluated by the contractor and 
DRMS. As stated in our report, the overflow of excess property at the 
Huntsville liquidation sales location was a long-term, uncorrected 
problem, which resulted in a significant breakdown in accountability 
and physical inventory control over excess property. It is important 
that timely and appropriate solutions be identified and implemented to 
prevent this problem in the future. The actions that DOD highlighted in 
its letter are responsive to our recommendation. 

Finally, DOD stated that actions have already been taken to respond to 
our recommendation that DRMS 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. DOD enumerated 
initiatives implemented during 2004 and early 2005 that improve the 
visibility of excess property listed on DRMS's Web page. In addition, 
DOD stated that DRMS will work with DLA item managers on the best 
methodology to provide visibility of A-condition excess property. 
Notwithstanding the improvements in DRMS's Web page, the overall 
commodity purchasing process has not changed, and DLA continues to make 
commodity purchases without considering the availability of identical A-
condition excess commodities. Achieving the economy and efficiency 
contemplated by federal regulations and DOD policy is dependent upon 
identifying continuing commodity purchases and having the ability to 
match these items to A-condition excess property and hold it for 
reutilization. DOD should not dispose of excess A-condition excess 
items that it continues to purchase. 

DOD's comment letter is reprinted in appendix II. 

As agreed with your offices, unless you announce its contents earlier, 
we will not distribute this report until 30 days from its date. At that 
time, we will send copies to interested congressional committees; the 
Secretary of Defense; the Deputy Under Secretary of Defense for 
Logistics and Materiel Readiness; the Secretary of the Army; the 
Secretary of the Navy; the Secretary of the Air Force; the Director of 
the Defense Logistics Agency; the Commander of the Defense 
Reutilization and Marketing Service; and the Director of the Office of 
Management and Budget. We will make copies available to others upon 
request. In addition, this report will be available at no charge on the 
GAO Web site at [Hyperlink, http://www.gao.gov]. 

Please contact Gregory D. Kutz at (202) 512-9505 or [Hyperlink, 
kutzg@gao.gov], John Ryan at (202) 512-9587 or [Hyperlink, 
ryanj@gao.gov], or Gayle L. Fischer at (202) 512-9577 or [Hyperlink, 
fischerg@gao.gov] if you or your staff have any questions concerning 
this report. Additional contacts and major contributors to this report 
are provided in appendix VI. 

Signed by: 

Gregory D. Kutz: 
Managing Director: 
Forensic Audits and Special Investigations: 

[End of section]

Appendixes: 

Appendix I: Objectives, Scope, and Methodology: 

The purpose of our audit was to assess the economy and efficiency of 
the Department of Defense (DOD) excess property program. In doing so, 
we assessed the effectiveness of systems, processes, and controls for 
assuring a strong reutilization program. Where we found controls to be 
ineffective, we tested them further to determine (1) the magnitude and 
(2) root causes of associated waste and inefficiency. Our audit and 
investigation focused on Defense Logistics Agency (DLA) purchases of 
consumable items and Defense Reutilization and Marketing Service 
(DRMS)[Footnote 50] excess property inventory activity during fiscal 
years 2002 and 2003, the most current fiscal years for which data were 
available at the time we initiated our audit. To illustrate continuing 
problems, we obtained excess DOD commodity items in new, unused, and 
excellent condition (A condition) during fiscal year 2004 and the first 
quarter of fiscal year 2005 that were in use by the military services, 
were being purchased by DLA, or both at the time they were available 
for reutilization. 

We obtained access to the following systems and databases to support 
our audit and investigation. 

* The DRMS Automated Information System (DAISY), which is an automated 
inventory accounting management data system designed to process excess 
DOD property from receipt to final disposal. 

* The DRMS Management Information Distribution and Access System 
(MIDAS), which contains historical (archive) DAISY information. 

* DLA's DOD Activity Address Directory (DODAAD), which contains 
information to identify agency names and addresses for activity codes 
that are associated with excess property requisitions. 

* The Government Liquidation, LLC[Footnote 51] database, which contains 
transactions on public sales of excess DOD property items. 

* DLA's Standard Automated Materiel Management System (SAMMS), which 
contains transaction data on purchases by commodity group. 

* The Federal Logistics Information System (FEDLOG), which is a 
logistics information system managed by the Defense Logistics 
Information Service (DLIS)[Footnote 52] within DLA. This system 
contains detailed information on specifications, use, acquisition cost, 
and sources of supply for national stock numbered items, including more 
than 7 million stock numbers and more than 12 million part numbers. 

We obtained online access to DAISY, MIDAS, DODAAD, and FEDLOG, and we 
obtained copies of the SAMMS databases for fiscal years 2002 and 2003 
and Government Liquidation, LLC databases for June 2001 through 
December 2004. For each of the DOD systems and databases used in our 
work, we (1) obtained information from the system owner/manager on 
their data reliability procedures; (2) reviewed systems documentation; 
(3) reviewed related DOD Inspector General reports, DLA Comptroller 
budget data, and independent public accounting firm reports related to 
these data; and (4) performed electronic testing of commodity purchase 
and excess inventory databases to identify obvious errors in accuracy 
and completeness. We verified database control totals, where 
appropriate. We also received FEDLOG training from the DLIS service 
provider. When we found obvious discrepancies, such as omitted national 
stock number (NSN)[Footnote 53] data in the DLA commodity purchases 
databases and transaction condition coding errors in the DRMS excess 
property systems data, we brought them to the attention of agency 
management for corrective action. We made appropriate adjustments to 
transaction data used in our analysis, and we disclosed data 
limitations with respect to condition coding errors and the omission of 
NSN data that affected our analysis. Our data analysis covered 
commodity purchases and excess commodity turn-ins and disposal activity 
during fiscal years 2002 and 2003. In addition, we statistically tested 
the accuracy of excess inventory transactions at five Defense 
Reutilization and Marketing Offices (DRMO) and five DLA supply depots. 
We also reviewed summary data and selected reports on DRMS compliance 
reviews of 91 DRMOs during fiscal year 2004 to determine the extent to 
which DRMS had identified problems with adherence to DOD and DRMS 
policies, made recommendations for corrective actions, and monitored 
DRMO actions to address its recommendations. Based on these procedures, 
we are confident that that the DOD data were sufficiently reliable for 
the purposes of our analysis and findings. 

Magnitude of Excess Property Reutilization Program Waste and 
Inefficiency: 

To determine the overall magnitude of waste and inefficiency related to 
the DOD excess property reutilization program, we identified fiscal 
year 2002 and 2003 excess commodity disposal activity by property 
condition code and examined the extent of DOD reutilization of excess 
items in new, unused, and excellent condition (A-condition) versus 
transfers, donations, public sales, and other disposals outside of DOD 
through scrap, demilitarization, and hazardous materials contractors. 
We also compared DLA commodity purchase transactions to identical 
excess new, unused, and excellent condition items to identify instances 
where DLA purchased commodity items rather than reutilizing these 
excess items. We used NSN data as the basis for identifying identical 
items. In addition, we analyzed DLA supply depot excess commodity turn- 
ins to determine the extent to which new, unused DLA supply depot 
inventory accounted for turn-ins of excess of A-condition items. We 
used IDEA audit software[Footnote 54] to facilitate our analysis. 

Analysis of the Extent of DOD Reutilization: 

To determine the extent to which DOD reutilized excess commodities in A 
condition during fiscal years 2002 and 2003, we used online access to 
the DRMS MIDAS database of historical transactions and performed data 
mining[Footnote 55] and analysis of the universe of excess commodity 
turn-in and disposal transactions. We identified key data elements, 
such as disposal transaction types, the excess property recipient DOD 
Activity Address Code (DODAAC), and condition codes. We used these data 
elements to identify the extent of DOD reutilization of excess A- 
condition commodities compared to transfers; donations; public sales; 
and disposals of scrap, hazardous materials, and demilitarized items. 
We determined the type of disposal transaction through analysis of the 
DODAAC that identifies the name and address of the agency or program 
that received (or requisitioned) the property. Because DOD considers 
special program[Footnote 56] reutilization the same as DOD 
reutilization, we used DODAACs to separately identify reutilization 
transactions for special programs that were not directly associated 
with DOD activities. We also used DODAAC information to determine the 
identity of turn-in generators and requisitioners of excess DOD 
commodities for subsequent interviews of generators regarding why new, 
unused items were excessed and excess property users about their 
experience. 

Analysis of Other Types of Excess Property Disposals: 

We also worked with DRMS officials to obtain information on transaction 
codes for identifying disposals of hazardous materials, scrap, and 
demilitarized items. We independently performed data mining and 
analysis, and we verified the results of our queries with DRMS 
officials in order to provide reasonable assurance that our data-mining 
approach and results were accurate. We used the Government Liquidation, 
LLC database to determine the acquisition value of commodity items sold 
and sale revenues during fiscal years 2002 and 2003. 

Analysis of Commodity Purchases Transactions: 

We used the six SAMMS commodity purchases databases we obtained to 
identify key information on commodity items that military units 
purchased from DLA, including the item description or name, NSN, 
purchase date, unit price, unit acquisition cost, and full cost 
including the DLA user fee. The six commodity groups we audited 
included (1) construction and land and maritime weapons, (2) 
electrical, (3) general, (4) industrial, (5) medical, and (6) textile. 
We worked with DLA officials to identify items to a commodity group 
based on the supply class number included in the NSN or local stock 
number (LSN).[Footnote 57]

To determine the extent to which DLA made unnecessary purchases of new 
items when identical items that were reported to be in A condition were 
available for reutilization, we compared commodity purchase 
transactions in SAMMS to excess property turn-in transactions in MIDAS. 
We used NSNs to identify instances where the military services ordered 
and purchased items from DLA at the same time identical items that were 
reported to be in new or excellent condition were available for 
reutilization. Although we identified at least $400 million in fiscal 
year 2002 and 2003 wasteful purchases related to A-condition excess 
items that were available for reutilization, we were unable to 
determine the full magnitude of this problem due to inconsistent 
recording of NSNs and improper downgrading of condition codes. 

Case Study Examples: 

We performed case study investigations of excess commodity turn-ins and 
disposals during fiscal years 2002 through 2003. In addition, to 
illustrate that DRMS reutilization program waste and inefficiency are 
continuing problems, during fiscal year 2004 and the first quarter of 
fiscal year 2005, we obtained several excess DOD commodity items that 
were currently in use, were being purchased at the time we acquired 
them, or both. We used data mining and analysis to identify commodity 
items for our case study acquisitions. To identify new and unused 
excess DOD commodity items that were available for requisition at no 
cost, we accessed the DRMS Reutilization, Transfer, and Donation Web 
page and identified excess DOD commodity items available to federal 
agencies. We confirmed that these items were available to federal 
agencies by also accessing the General Services Administration's (GSA) 
GSAXcess Web page. We used GAO's federal agency DODAAC to requisition 
new and unused excess DOD commodity items in A condition. We submitted 
our requisitions for transfer of these excess DOD items through GSA. To 
identify new and unused items that we could purchase at minimal cost, 
we accessed govliquidation.com. We also accessed govliquidation.com to 
identify continuing sales of our case study items. 

We based our case study selections on commodities used by military 
units and the quantity and dollar amount of purchases and excess 
property turn-ins associated with these items. After we identified each 
new and unused case study item that we wanted to purchase, we queried 
FEDLOG to confirm the acquisition cost and current use of the item-- 
that is, whether an item was still being purchased or currently in use 
but being phased out or was obsolete. For further assurance on the 
status of the excess commodities that we targeted for acquisition, we 
contacted the DLA item managers responsible for these items to confirm 
that they were currently being purchased, were in use by the military 
services, or both. We also contacted item managers to obtain 
information on how certain items, such as circuit cards and power 
supply units, were used. 

Causes of Reutilization Program Waste and Inefficiency: 

To determine the root causes of identified inefficiencies, we first 
gained an understanding of the processes for acquisition and disposal 
of DOD commodities. We reviewed applicable laws and regulations and 
DOD, military service, DLA, and DRMS policies and procedures. We also 
reviewed the DRMS contracts for DRMO property warehouse services and 
liquidation sales for consistency with DOD policies. In addition, we 
reviewed SAMMS and MIDAS system manuals. We met with and contacted 
numerous DLA and DRMS officials and obtained documentation to assess 
how the property reutilization program is monitored for effectiveness. 
We also met with or contacted DOD and Army, Navy, and Air Force 
officials about their experience with commodity acquisitions, 
reutilization, and disposals. We interviewed DLA item managers and 
buyers to obtain information on their roles and responsibilities and 
key systems and controls involved in the commodity acquisition and 
management process. We also obtained information on how decisions are 
made about whether to purchase new items or to reutilize excess items 
through DOD's reutilization program. We made visits to 12 DRMOs to 
observe excess property processing, screen for excess case study items, 
investigate the disposition of excess property turn-ins, or test the 
accuracy of excess property inventory. We also visited five DLA-managed 
Defense depots to test inventory accuracy and observe excess property 
disposal processes. In addition, we visited 10 Government Liquidation, 
LLC sales locations. 

We focused our assessment of the causes of reutilization program waste 
and inefficiency on key aspects of the overall management control 
environment, including (1) data reliability, (2) physical inventory 
control, and (3) the current systems environment. We used GAO's 
Standards for Internal Control in the Federal Government[Footnote 58] 
as criteria for identifying internal control breakdowns that 
contributed to waste and inefficiency. 

Data Reliability: 

We statistically tested[Footnote 59] the accuracy of current excess 
commodity inventory transaction data at five DRMO warehouse locations 
and five DLA supply depot locations. Each location was a separate 
population of randomly selected transactions. We randomly selected 
transactions from the population of current inventory transactions at 
each of the test locations. The five DRMO locations we tested were the 
Columbus DRMO in Ohio; the Stockton DRMO in French Camp, California; 
the Hill DRMO at Hill Air Force Base in Ogden, Utah; and the Norfolk 
DRMO and the Richmond DRMO in Virginia. Our selection of the five DRMOs 
was based on geographic location, turn-in volume, types of excess items 
handled, and military units generating the most turn-ins. We tested 
inventory at Defense depots that were co-located or located within 
proximity of the above DRMOs, including Defense depots at Columbus, 
Ohio; San Joaquin, California; Hill Air Force Base, Utah; Norfolk, 
Virginia; and Richmond, Virginia. Each location was a separate 
population, and we evaluated the results of each sample location 
separately. 

The purpose of our testing was to evaluate the effectiveness of 
controls over existence--including timely recording of transactions, 
item description (item name and NSN), and quantity--and condition 
coding. Appendix V describes the specific criteria we used to conclude 
on the effectiveness of DRMO and DLA supply depot controls for 
inventory accuracy. 

Physical Inventory Control: 

Our assessment of physical inventory control focused on the results of 
our statistical tests discussed above and our review of DRMS summary 
data on reported DRMO and DLA supply depot losses due to lost, stolen, 
and damaged property. We investigated problems associated with 
liquidation contractor controls for safeguarding excess DOD property 
held for sale at the Huntsville, Alabama, and the Norfolk, Virginia, 
sales locations. We also assessed the extent of damage to our case 
study purchase of bandages and medical supply items from the Norfolk 
sales location. In addition, we obtained DRMS summary reports on losses 
of excess property at DRMOs and DLA supply depots for fiscal years 2002 
through 2004. We referred locations with the largest reported losses to 
our Office of Special Investigations for further investigation. 

Commodity Inventory Systems Environment: 

To gain an understanding of DLA commodity purchase and DRMS commodity 
inventory systems and processes with regard to DOD's excess property 
reutilization program, we reviewed DLA and DRMS policies and 
procedures, and interviewed DLA, DRMS, and DRMO program and systems 
officials. We also used observations and information obtained during 
our statistical tests, excess property screening visits, and case study 
investigations. In addition, we relied on the body of work GAO has 
performed in this area.[Footnote 60]

To determine the scope and status of DLA and DRMS systems efforts to 
improve the reutilization process in the future, we interviewed DLA and 
DRMS systems officials who are responsible for DLA's Business Systems 
Modernization (BSM) and Integrated Data Environment (IDE) and the DRMS 
Reutilization Modernization Program (RMP).[Footnote 61] We also 
reviewed business systems modernization plans and related documents to 
determine the current status, implementation time frames, and scope of 
planned improvements. In addition, we obtained and reviewed the 
Reutilization Management Program Functional Requirements Document, the 
RMP Decision Matrix, and implementation timelines. We focused our 
assessment on whether the systems modernization efforts, as currently 
documented, would adequately address needed improvements in excess 
property reutilization program economy and efficiency. 

We conducted our work from November 2003 through February 2005 in 
accordance with U.S. generally accepted government auditing standards. 
We performed our investigative work in accordance with standards 
prescribed by the President's Council on Integrity and Efficiency. 

[End of section]

Appendix II: Comments from the Department of Defense: 

DEPUTY UNDER SECRETARY OF DEFENSE FOR LOGISTICS AND MATERIEL READINESS: 
3500 DEFENSE PENTAGON: 
WASHINGTON, DC 20301-3500:

April 15, 2005:

Mr. Gregory D. Kutz:
Director, Financial Management and Assurance: 
United States Government Accountability Office: 
Washington, DC 20548:

Dear. Mr. Kutz:

This is the Department of Defense (DoD) response to the GAO draft 
report, "DOD EXCESS PROPERTY: Management Control Breakdowns Result in 
Substantial Waste and Inefficiency," dated March 10, 2005 (GAO Code 
192105/GAO-05-277).

The report recommends that the Secretary of Defense direct the Director 
of the Defense Logistics Agency (DLA); the Commander of the Defense 
Reutilization and Marketing Service; and the Secretaries of the Army, 
the Navy, and the Air Force, as appropriate, to take 13 actions to 
improve DoD's excess property reutilization program.

The Department concurs that action is needed to improve the 
reutilization process. Specific responses to each of the 13 
recommendations are detailed in the enclosure. The DoD appreciates the 
opportunity to comments on the draft report.

Sincerely,

Signed by: 

Bradley Berkson: 
Acting:

Enclosure: As stated:

GAO CODE 192105/GAO-05-277:

"DOD EXCESS PROPERTY: MANAGEMENT CONTROL BREAKDOWNS RESULT IN 
SUBSTANTIAL WASTE AND INEFFICIENCY"

DEPARTMENT OF DEFENSE COMMENTS TO THE RECOMMENDATIONS:

RECOMMENDATION 1: The GAO recommended that the Secretary of Defense 
direct the Director of the Defense Logistics Agency (DLA) direct 
Defense Reutilization and Marketing Service (DRMS) to clarify and 
enforce the policy that permits the Defense Reutilization and Marketing 
Office (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. (p. 45/GAO 
Draft Report):

DoD RESPONSE: Concur. DRMS will review the guidance found at DoD 
4160.21-M, Chapter 2, Section E (1)(d) and DRMS-I 4160.14, Vol. 11, 
Chapter 2, Section I (13)(6)(c), and clarify those situations where 
DRMS personnel are allowed to waive the quantity verification 
requirement. DRMS will also ensure its employees understand this 
guidance and DoD policy, and consider additional criteria to maintain 
appropriate property accountability through continuous education. In 
March 2004, DRMS initiated a risk assessment program to evaluate 
certain DRMS processes and develop appropriate risk mitigation 
strategies. DRMS will utilize this program in reviewing applicable 
segments of the receiving process to validate past practices and 
consider potential changes in light of further perceived risk.

Further, DRMS reviews property accountability as part of its internal 
Compliance Program (self assessment and organizationally independent 
compliance inspections), and will review its current audit protocols to 
ensure that accurate counting of items at receipt is a part of its 
Compliance Assessments. Result of this assessment will be available in 
November 2005.

RECOMMENDATION 2: The GAO recommended that the Secretary of Defense 
direct the Director of the Defense Logistics Agency 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. (p. 45/GAO Draft 
Report):

DoD RESPONSE: Partially concur. DRMS will use its staffing model to 
determine the staffing needs by receipt workload and adequately staff 
its DRMOs to ensure excess property receipts are verified and processed 
in accordance with appropriate policies. However, other management 
actions are also being considered to address this issue. For example, 
DRMS is currently using contract hires at its DRMOs, rather than hiring 
new Government employees, because DRMS is in the final stages of an OMB 
Circular A-76 competition for the receipt, storage, and issue functions 
of useable property at all of its CONUS DRMOs. This competition is to 
be completed later this year. Results of this assessment will be 
available in November 2005.

RECOMMENDATION 3: The GAO recommended that the Secretary of Defense 
require the Director of the Defense Logistics Agency to develop a 
mechanism for linking prime vendor purchase transactions to National 
Stock Numbers (NSN) or other unique product identification. (p. 45/GAO 
Draft Report):

DoD RESPONSE: Partially Concur. DoD Directives require generators to 
provide a description of the item on the turn-in document when it is 
turned in to a DRMO under a Local Stock Number (LSN). DLA's Prime 
Vendor purchases provide commercial, non-stocked items to military 
customers direct from vendors. These items are consumable, meaning they 
are intended for immediate use by the military customer. Bringing these 
items back into depot stock would negate warehousing/distribution 
savings achieved as a result of relying on the commercial supply chain. 
The increased technical documentation requirements required to assign 
national stock numbers to these non-stocked, commercial items will 
drive up costs significantly. Also, requiring Prime Vendors to convert 
commercial marking systems to military systems would run counter to the 
1994 Federal Acquisition Streamlining Act preference to buy commercial.

RECOMMENDATION 4: The GAO recommended that the Secretary of Defense 
direct the Director of the Defense Logistics Agency 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. (p. 46/GAO Draft Report):

DoD RESPONSE: Partially Concur. The generating activities are 
responsible for the assignment of supply condition codes (SCC). The 
Military Services generating these excess materials are in the better 
position to assign SCCs and understand the impacts of the factors like 
functional obsolescence, material aging, and previous storage and 
handling situations. Generators from each of the Services currently 
receive formal blocks of instruction, as well as appropriate on-the-job 
training, on specific disposal procedures as part of their logistics 
education.

The DRMS provides guidance and training material to DRMS personnel, the 
Military Services and Defense Agencies regarding condition codes, 
including the web-based information and guidance found on the DRMS Web 
Site. It provides a DoD Disposal Manual, DoD 4160.21-M, and guidance 
found in the DRMS-Instruction 4160.14. Additional efforts are being 
undertaken to highlight supply condition codes issues in training and 
web based resources. Additionally, DRMS will review current guidance 
and coordinate with Headquarters, Defense Logistics Agencies and the 
Military Services to ensure the appropriate assignment of 
responsibilities regarding the establishment and use of supply 
condition codes. Results of this assessment will be available in 
November 2005.

RECOMMENDATION 5: The GAO recommended that the Secretary of Defense 
direct the Secretaries of the Army, Navy and Air Force 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. (p. 46/GAO Draft Report):

DoD RESPONSE: Concur with intent. Existing Military Service policies 
and procedures require all generators to file accurate property turn-in 
documentation, as defined by DRMS, and the Services recognize the 
importance and ramifications of assigning accurate supply condition 
codes and National Stock Numbers (NSNs) to all property turned-in to 
DRMS facilities. However, the Services have agreed to reexamine their 
current procedures to determine if they are adequately implementing 
those policies and procedures.

Service policy is to reuse materiel to the fullest extent possible 
regardless of the category of the supply item, while considering 
economy and safety. Generators of excess and surplus property are 
required to identify the condition of items excess to their needs prior 
to disposal through DRMO or return to the supply system. If the 
condition cannot be determined, certified supply inspectors assist in 
this process. Service personnel have taken steps to consult with supply 
personnel to ensure a basic understanding of the updated military 
instructions. All of the Services endeavor to provide required 
information to applicable turn-in activities electronically, per the 
instruction found in the disposal directives.

Current Military Service procedures allow the repair of all spare parts 
and equipment when economically feasible. When repair actions are 
necessary, the custodian will properly identify the condition of the 
item on DD Form 1577-2 and attach the tag to the item. When the 
custodian is not sure of the condition of the item, another qualified 
maintenance technician or inspector will be asked to help determine the 
condition of the materiel. Condemned equipment items, beyond economical 
repair, require the signature of a qualified maintenance technician on 
DD Form 1577 or the repair cost estimate from the repair center. Either 
of these actions must take place before the turn-in process can be 
accomplished.

Not all DoD items have assigned NSNs, as indicated in our response to 
recommendation 3 above. However, as a minimum, all transfers to DRMO 
for non-NSN items are required to have a description of the materiel 
attached to or annotated on the disposal document.

We will direct the Services and DLA to assess their training in 
condition codes and accuracy of property turn-in documentation. Results 
of this assessment will be available in November 2005.

RECOMMENDATION 6: The GAO recommended that the Secretary of Defense 
direct the Secretaries of the Army, Navy and Air Force to require the 
Military Services to establish appropriate accountability mechanisms, 
including supervision and monitoring, for assuring reliability of turn- 
in documents. (p. 46/GAO Draft Report):

DoD RESPONSE: Concur. The Services recognize that accountability, 
supervision, and monitoring are imperative to all logistics operations. 
The Services and DLA already have systems in place to capture the 
required data. At the wholesale level, we support this recommendation 
to establish appropriate accountability mechanisms, including 
supervision and monitoring, to assure reliability of turn-in documents. 
DOD policy for retail and wholesale supply requires customers to return 
excess serviceable or unserviceable materiel to the Service supply 
activity or appropriate maintenance activity or comply with appropriate 
disposition instructions. The Services monitor these activities and 
work with DRMS to ensure visibility of assets throughout the disposal 
process to ensure a closed loop with regard to transaction item 
reporting among all Services and Defense Agencies involved. We will 
direct the Services and DLA to assess the adequacy of their existing 
systems to capture reliable turn-in data and to generate exceptions 
reports. Results of this assessment will be available in November 2005.

RECOMMENDATION 7: The GAO recommended that the Secretary of Defense 
direct the Director of the Defense Logistics Agency 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. (P. 46/GAO Draft Report):

DoD RESPONSE: Concur. The Agency agrees with the importance of being 
able to identify and correct systemic weaknesses in property loss 
reporting. DLA, the Supply Depots and DRMS are already implementing 
actions to improve our ability to detect actual losses, determine their 
causes, and take future action to mitigate such risks.

DRMS issued interim guidance to its personnel affecting how losses and 
adjustments are reported in the DRMS Automated Information System 
(DAISY). The purpose of this guidance is to improve reason code 
accuracy and to be able to distinguish "bookkeeping adjustments" from 
actual physical losses of property.

In February 2005, DRMS issued a task order to the Defense Logistics 
Agency Office of Operations Research and Resource Analysis (DORRA) to 
study systemic weakness in DRMS property accounting, provide an 
assessment of what percentage of losses are attributable to actual 
physical losses of property rather than record keeping errors, and 
examine DRMS' records to determine the exact nature of these reported 
inventory adjustments. Preliminary findings indicate that approximately 
67% of the "H" coded losses represent inventory adjustments and data 
errors rather than a true loss of inventory. Thus, as noted, many of 
the "losses" cited result from record adjustments and do not reflect 
actual losses of property indicative of security or property management 
lapses.

The Defense Distribution Center (DDC) has a long standing program 
called the "SWARM" Inventory Improvement Initiative. SWARM is a wide- 
ranging, site-by-site program designed to: 1) identify the root cause 
of balance errors; 2) train employees on a case-by-case basis; 3) hold 
all employees accountable for their process; 4) provide comprehensive 
formal training on policy, processes and systems and clean up the 
physical warehouse location balances; and 5) Correct the accountable 
transaction records.

The SWARM is reported to the DLA Director monthly and has already made 
significant progress in achieving its goals. Our goal is to meet the 
MILSTRAP performance standards, and the Military Services' expectations 
of accuracy. Results of this assessment will be available in November 
2005.

RECOMMENDATION 8: The GAO recommended that the Secretary of Defense 
direct the Director of the Defense Logistics Agency to direct DRMS to 
take immediate, appropriate action to resolve identified uncorrected 
DRMO security weaknesses. (p. 46/GAO Draft Report):

DoD RESPONSE: Concur. DRMS policy is to take immediate appropriate 
action to resolve identified security weaknesses. DBMS has done so with 
respect to previous situations that have come to its attention and has 
done or will do so with respect to issues raised in the draft Report. 
Results of this assessment will be available in November 2005.

RECOMMENDATION 9: The GAO recommended that the Secretary of Defense 
direct the Director of the Defense Logistics Agency 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. (p. 46/GAO Draft 
Report):

DoD RESPONSE: Concur. The DLA supply depots provide DRMS a weekly 
property list detailing the amount and type of excess and surplus 
personal property to be disposed of through Reutilization, Transfer, 
Donation and Sales. From this information, DRMS develops a property 
list that will be delivered to the liquidation sales contractor after 
statutorily mandated screening is completed. The Agency has implemented 
system changes to provide the property list 42 days in advance of 
delivery to the contractor.

The DRMS and its sales contractor also review past monthly historical 
shipments of property. From this information, both the liquidation 
contractor and DRMS can determine whether current storage capacities 
and staffing are adequate. The review will conclude whether additional 
sites should be added or different shipping routes be considered on a 
one-time basis. This review process is ongoing. DRMS, in conjunction 
with its liquidation contractor, directs surge or "overflow" quantities 
of excess property to alternate sites. Additional agency personnel have 
been assigned to specifically help process property shipped from the 
supply depots. The liquidation contractor also improved the management 
team responsible for handling depot property. The results of any 
changes undertaken will also be reviewed and modifications implemented 
as appropriate. Results of this assessment will be available in 
November 2005.

RECOMMENDATION 10: The GAO recommended that the Secretary of Defense 
direct the Director of the Defense Logistics Agency 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. (p. 46/GAO Draft Report):

DoD RESPONSE: Partially Concur. Inspection of all liquidation 
contractor facilities has been completed and periodic inspections will 
continue. The only facility requiring immediate structural repair is 
the Norfolk facility. DRMS has issued a work order to fix minor 
structural issues. Actions are being taken to ensure property damage 
does not occur, which may include diverting property to other sites, if 
required. Additional storage options are being regularly evaluated by 
the contractor and DRMS. Facility condition and protection of stock is 
a key issue for DRMS and Government Liquidation (GL) as the contract 
provisions provide for increased revenue for both parties based on the 
selling price of the item. Results of this assessment will be available 
in November 2005.

RECOMMENDATION 11: The GAO recommended that the Secretary of Defense 
direct the Director of the Defense Logistics Agency to direct 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. (p. 46/GAO Draft Report):

DoD RESPONSE: Partially Concur. Actions have already been taken to 
respond to this recommendation. Since 2004, DRMS implemented several 
initiatives to improve the visibility of disposal assets to DOD. These 
initiatives include the deployment of Pre-receipt Want Lists, Automated 
Want List Match against current inventory, and expedited processing 
property visibility on the DRMS website. In February 2005, DRMS 
deployed a new web application that allows DOD customers to ask 
questions on-line about property in inventory, including the ability to 
request pictures of the item if the condition code is in question. 
Answers are added to the property description and are available for all 
customers to view.

In addition, DRMS will work with the Item Managers on the best 
methodology to provide visibility of "A" condition property. Listings 
can be tailored for each Item Manager to include only those items or 
commodities (Federal Stock Class (FSC) or NSN specific) for which they 
are responsible. Results of this assessment will be available in 
January 2006.

RECOMMENDATION 12: The GAO recommended that the Secretary of Defense 
direct the Director of the Defense Logistics Agency to direct DLA 
Business Systems 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. 
(p. 46/GAO Draft Report):

DoD RESPONSE: Concur. Reutilization of DRMS assets is part of the 
Release 2.2 functionality of DLA's BSM program scheduled for 
implementation in January 2006. DLA and DRMS developed an interface 
between the DAISY and BSM for AI condition code (new, unused and 
excellent) to provide property visibility and to allow for asset 
recoupment. BSM Release 2.2 functionality seeks maximum use of DRMS 
excess material categorized as A1 condition. The Release 2.2 
functionality will search DRMS records daily for assets in AI 
condition, and if found, will systematically initiate action to recoup 
those assets in accordance with the items economic retention limits. 
The system (BSM) will automatically process this information against 
identified supply needs to locate matching property. When an item is 
identified, DLA's BSM initiative will generate a requisition request 
for the item to return it to DLA stock. The interface is in the build 
phase and testing is scheduled for June through December 2005. 
Implementation is scheduled for BSM Release 2.2 in January 2006. 
Additionally, DRMS will further integrate asset recoupment processes in 
the DRMS RMP.

The "Gap Analysis" process for the DRMS RMP is underway with the BSM 
application as a primary "target" for functionality requirements. Our 
initial update on the GAP Analysis will be provided in November 2005. 
Full Operational Capability (FOC) for the DRMS RMP will be realized in 
FY 2009.

RECOMMENDATION 13: The GAO recommended that the Secretary of Defense 
direct the Director of the Defense Logistics Agency 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. (p. 47/GAO Draft Report):

RESPONSE: Concur. BSM's Release 2.2 functionality seeks maximum use of 
DRMS excess categorized as A1 condition. The Release 2.2 functionality 
will search DRMS records daily for assets in A1 condition, and if 
found, will systemically initiate action to recoup those assets in 
accordance with the items' economic retention limits. By proactively 
seeking to identify and recoup assets based on economic limits, the DLA 
will ensure maximum utilization of assets at the DRMS and will preclude 
the need to procure items when excess assets are available to be 
reutilized. Results of this assessment will be available in March 2006. 

[End of section]

Appendix III: Excess Property Condition Codes: 

DOD's condition code is a two-digit alphanumeric code used to denote 
the condition of excess property from the supply and the disposal 
perspective. The DOD supply condition code is the alpha character in 
the first position and shows the condition of property in the DLA depot 
inventory, or is assigned by the unit turning in the excess property. 
The GSA disposal condition code, in the second position, shows whether 
the property is in new, used, or repairable condition, salvageable, or 
should be scrapped. (See table 7.)

Table 7: DOD Excess Property Condition Codes: 

DOD codes: A1, A4; 
DOD supply condition code: Serviceable property: A - Issuable without 
qualification - New, used, repaired or reconditioned property that is 
issuable without restriction, including material with a shelf life of 
more than 6 months; 

DOD codes: B1, B4; 
DOD supply condition code: Serviceable property: B - Issuable with 
qualification - New, used, repaired, or reconditioned property that is 
issuable, but is restricted from issue to specific units, activities, 
or geographical areas by reason of its limited usefulness or short 
service life expectancy, including materials with a shelf life of 3 
through 6 months. 

DOD codes: C1, C4; 
DOD supply condition code: Serviceable property: C - Priority issue - 
Property is issuable to selected customers but must be issued before 
Condition A and B material to avoid loss as a usable asset, including 
materials with less than 3-months' shelf life. 

DOD codes: D1, D4, D7; 
DOD supply condition code: Serviceable property: D - Test/Modification 
required - Property is in serviceable condition but requires test, 
alteration, modification, or conversion or disassembly; 
GSA disposal condition code: 
1 - Excellent - Property is in new or unused condition and can be used 
immediately without repairs. 
4 - Usable - Property shows some wear, but can be used without 
significant repair. 
7 - Repairable - Property is unusable in its current condition, but can 
be economically repaired. 

DOD codes: 

DOD codes: E7; 
DOD supply condition code: Unserviceable property: E - Limited 
restoration required - Property requires only a limited expense or 
effort to restore to serviceable condition. 

DOD codes: F7; 
DOD supply condition code: Unserviceable property: F - Reparable - 
Property is economically reparable but requires repairs, overhaul, or 
reconditioning to make it serviceable property. 

DOD codes: G7; 
DOD supply condition code: Unserviceable property: G - Incomplete - 
Property requires additional parts or materials to complete the item 
prior to issue. 

DOD codes: H7; 
DOD supply condition code: Unserviceable property: H - Condemned - 
Property has been determined to be unserviceable and does not meet 
repair criteria, including items whose shelf life has expired and 
cannot be extended; 
GSA disposal condition code: 7 - Repairable - Property is unusable in 
its current condition, but can be economically repaired. 

DOD codes: FX, GX, HX; (VX-Salvaged military munitions); 
DOD supply condition code: Salvage property: F - Reparable; G - 
Incomplete; H - Condemned; 
GSA disposal condition code: X - Salvage - Property has value in excess 
of its basic material content, but repair is impractical and/or 
uneconomical. 

DOD codes: FS, GS, HS; 
DOD supply condition code: Scrap property: F - Reparable; G - 
Incomplete; H - Condemned; 
GSA disposal condition code: S - Scrap - Property has no value except 
for its basic material content. 

Source: DAISY C-A-T (Codes and Terms) reference guide (11TH ed. 2003) 
and DRMS-I 4160.14, vol. IV, Supp. 1, "Codes Index" (November 2004). 

[End of table]

[End of section]

Appendix IV: Programs Authorized to Receive Excess DOD Property: 

Table 8 lists the DOD special programs that are authorized to receive 
excess property. In addition to DOD special programs, under the 
Stevenson-Wydler Technology Innovation Act of 1980, as 
amended,[Footnote 62] DOD makes computer equipment available to schools 
under the federal government's Computers for Learning Program following 
the DOD and special program screening period and prior to the federal 
agency screening period. In accordance with 15 U.S.C.  3710(i), the 
director of a laboratory or the head of any federal agency or 
department may loan, lease, or give research equipment that is excess 
to the needs of the laboratory, agency, or department to an educational 
institution or nonprofit organization for the conduct of technical and 
scientific education and research activities. 

Table 8: DOD Special Programs: 

Humanitarian Assistance Program (HAP); 
10 U.S.C.  2557 authorizes the Secretary of Defense to make available 
nonlethal excess DOD supply items for humanitarian relief purposes, and 
10 U.S.C.  2561 authorizes the Secretary of Defense to use DOD's 
Humanitarian Assistance appropriations to transport supply items to 
needy countries. 

Law enforcement agencies (LEA); 
10 U.S.C.  2576a authorizes the Secretary of Defense to transfer 
excess DOD property that is suitable for use by LEAs to federal and 
state agencies, including counter-drug and counter-terrorism 
activities. Recipients pay for transporting the property. 

Museums; 
10 U.S.C.  2572 authorizes the Secretary of Defense to loan, gift, or 
exchange documents, historical artifacts, and condemned or obsolete 
combat materiel to a municipal corporation, county, or other political 
subdivision of a state; a servicemen's monument association; a museum, 
historical society, or historical institution of a state or foreign 
nation or nonprofit military aviation heritage foundation or 
association; or a post of the Veterans of Foreign Wars of the United 
States, the American Legion, or other recognized war veterans' 
association. 

National Guard units; 
National Guard units are designated by DOD to receive excess DOD 
property with the approval of the National Guard Bureau or the U.S. 
Property and Fiscal Officer, or their authorized representative, for 
the state in which the National Guard unit is located. 

Senior Reserve Officer Training Corps units (ROTC); 
ROTC units are designated by DOD to receive excess DOD property to 
support supplemental proficiency training programs with approval of the 
cognizant installation commander or designee. Junior ROTC units are not 
covered. 

Morale, welfare, and recreation activities and services (MWR); 
MWR activities are authorized by DOD to receive excess DOD property 
through their servicing accountable officer. 

Military Affiliate Radio System (MARS); 
MARS operates under the command jurisdiction of the military services 
and is an integral part of the DOD communications system. DOD has 
authorized the military services to requisition excess DOD property 
from DRMOs. 

Civil Air Patrol (CAP); 
As the official auxiliary of the U.S. Air Force, CAP is eligible to 
receive excess DOD property. Title to the property is transferred to 
CAP upon the condition that it be used to support valid Air Force 
mission requirements. 

DOD contractors; 
Military Standard Requisitioning and Issue Procedures (MILSTRIP) in DOD 
4000.25-1M, MILSTRIP Manual (April 2004), provide for the military 
service or Defense agency management control activity to withdraw or 
authorize the withdrawal of specified excess property from a DRMO for 
use as government-furnished equipment to support officially stated 
contractual requirements. 

Foreign governments and international organizations; 
Under the International Security Assistance and Arms Export Control Act 
of 1976 (Pub. L. No. 94-329, as amended, codified at 22 U.S.C.  2751, 
et seq.), certain excess defense articles may be made available to 
eligible foreign countries and international organizations designated 
by the Department of State and DOD. Excess DOD property may also be 
available to eligible foreign countries and international organizations 
as foreign military sales under authority of the Foreign Assistance Act 
of 1961, as amended, codified at 22 U.S.C.  2151, et seq. 

Source: GAO analysis. 

[End of table]

[End of section]

Appendix V: Results of Statistical Tests of Excess Commodity Inventory 
Accuracy: 

To evaluate the effectiveness of controls for assuring the accuracy of 
excess commodity inventory data, we tested current inventory 
transactions at five DRMO locations and five DLA supply depot 
locations. Our tests covered controls over physical existence, item 
description (item name and NSN), quantity, and condition code.[Footnote 
63] DRMO inventory locations tested were the Columbus DRMO in Columbus, 
Ohio; the Stockton DRMO in French Camp, California; the Hill DRMO at 
Hill Air Force Base, in Ogden, Utah; the Norfolk DRMO in Norfolk, 
Virginia; and the Richmond DRMO in Richmond, Virginia. For efficiency, 
we tested inventory at five DLA supply depots that were co-located or 
located within proximity of the above DRMOs, including the depots in 
Columbus, Ohio; San Joaquin County, California; Hill Air Force Base, 
Utah; Norfolk, Virginia; and Richmond, Virginia. Each location was a 
separate population, and we evaluated the results of each sample 
location separately. 

We drew our statistical samples from the universe of excess property 
transactions in current DRMS DAISY inventory, which includes excess 
property warehoused at DRMOs and DLA supply depots. We stratified our 
samples by the two major categories of condition code--serviceable and 
unserviceable--in order to determine whether errors were more prevalent 
in one category. From the population of current excess DOD inventory at 
the time of our testing visit, we selected stratified random 
probability samples of excess property turn-in transactions for each of 
the five DRMO and each of the five DLA supply depot case study 
locations. With these statistically valid samples, each transaction in 
the population for the 10 case study locations had a nonzero 
probability of being included, and that probability could be computed 
for any transaction. Each sample transaction for a test location was 
subsequently weighted in our analysis to account statistically for all 
the transactions in the population for that location, including those 
that were not selected. Our test results relate to the populations of 
transactions at the respective DRMO and DLA supply depot locations, and 
the results cannot be projected to the population of excess property 
transactions or the DRMOs or DLA supply depots as a whole. 

We present the results of our statistical samples for each population 
as (1) our projection of the estimated error overall and for each 
control attribute as point estimates and the two-sided 95 percent 
confidence intervals for the failure rates and (2) our assessments of 
the effectiveness of the controls and the relevant lower and upper 
bounds of a one-sided 95 percent confidence interval for the failure 
rate. If the one-sided upper bound is 5 percent or less, then the 
control is considered effective. If the one-sided lower bound is 
greater than 5 percent, then the control is considered ineffective. 
Otherwise, we say that there is not enough evidence to assert either 
effectiveness or ineffectiveness. All percentages are rounded to the 
nearest percentage point. 

Overall Results of Inventory Reliability Tests: 

Tables 9 and 10 present the overall results of our statistical tests of 
inventory accuracy at the five DRMOs and the five DLA supply depots 
that we tested. The overall results show that controls for assuring the 
accuracy of excess property inventory were ineffective at four of the 
five DRMOs and three of the five DLA supply depots that we tested. We 
tested physical existence, including whether turn-ins recorded in 
inventory could be physically located and whether inventory changes 
were recorded within 7 days. We also tested the accuracy of item 
descriptions (item name(s) and NSN(s)), recorded quantities, and 
condition code categories. 

Table 9: DRMO Turn-in Transactions with One or More Control Test 
Failures: 

DRMO tested: Richmond; 
Estimated failure rate (95 percent two-sided confidence interval): 25%; 
(17% to 33%); 
Assessment of effectiveness of controls (and relevant bounds of 95 
percent one-sided confidence intervals): Ineffective; Lower bound = 
18%. 

DRMO tested: Stockton; 
Estimated failure rate (95 percent two-sided confidence interval): 12%; 
(7% to 18%); 
Assessment of effectiveness of controls (and relevant bounds of 95 
percent one-sided confidence intervals): Ineffective; Lower bound = 8%. 

DRMO tested: Hill; 
Estimated failure rate (95 percent two-sided confidence interval): 8%; 
(4% to 14%); 
Assessment of effectiveness of controls (and relevant bounds of 95 
percent one-sided confidence intervals): Not enough evidence; Lower 
bound = 5%; or upper bound = 13%. 

DRMO tested: Norfolk; 
Estimated failure rate (95 percent two-sided confidence interval): 18%; 
(12% to 25%); 
Assessment of effectiveness of controls (and relevant bounds of 95 
percent one-sided confidence intervals): Ineffective; Lower bound = 
13%. 

DRMO tested: Columbus; 
Estimated failure rate (95 percent two-sided confidence interval): 47%; 
(37% to 56%); 
Assessment of effectiveness of controls (and relevant bounds of 95 
percent one-sided confidence intervals): Ineffective; Lower bound = 
39%. 

Source: GAO. 

Note: Although some transactions included more than one type of error, 
we only counted one failure for a transaction. 

[End of table]

Table 10: DLA Supply Depot Turn-in Transactions with One or More 
Control Test Failures: 

DLA depot tested: Richmond; 
Estimated failure rate (95 percent two- sided confidence interval): 8%; 
(4% to 13%); 
Assessment of effectiveness of controls (and relevant bounds of 95 
percent one-sided confidence intervals): Not enough evidence; Lower 
bound = 5%; or upper bound = 12%. 

DLA depot tested: San Joaquin; 
Estimated failure rate (95 percent two- sided confidence interval): 
16%; (11% to 23%); 
Assessment of effectiveness of controls (and relevant bounds of 95 
percent one-sided confidence intervals): Ineffective; Lower bound = 
12%. 

DLA depot tested: Hill; 
Estimated failure rate (95 percent two-sided confidence interval): 6%; 
(3% to 10%); 
Assessment of effectiveness of controls (and relevant bounds of 95 
percent one-sided confidence intervals): Not enough evidence; Lower 
bound = 3%; or upper bound = 9%. 

DLA depot tested: Norfolk; 
Estimated failure rate (95 percent two-sided confidence interval): 14%; 
(9% to 19%); 
Assessment of effectiveness of controls (and relevant bounds of 95 
percent one-sided confidence intervals): Ineffective; Lower bound = 
10%. 

DLA depot tested: Columbus[A]; 
Estimated failure rate (95 percent two- sided confidence interval): 
12%; (8% to 18%); 
Assessment of effectiveness of controls (and relevant bounds of 95 
percent one-sided confidence intervals): Ineffective; Lower bound = 9%. 

Source: GAO. 

[A] Most of the errors in our Columbus supply depot sample related to 
quantity errors for items such as machine screws, washers, and other 
small hardware items. Therefore, we did not consider these problems to 
be significant. 

[End of table]

Because most of the errors we found related to the accuracy of 
condition codes, we separately estimated the error rates for this 
control attribute. A turn-in transaction was considered a failure if 
the serviceable or unserviceable condition code assigned to the item(s) 
was not accurate based on our physical observation and judgment. DLA 
and DRMO officials who accompanied us during our testing provided their 
perspectives, which we considered in our conclusions. We based our 
conclusions on obvious differences between the condition code assigned 
to the item and the appearance of the item. For example, some items 
were in the original manufacturer packaging and other items were 
obviously used, dirty, or worn. If we were unsure of the condition of 
an item, we accepted the condition code assigned by the military unit 
turn-in generator or the DLA supply depot. In addition, we did not 
question the assigned condition codes of technical equipment items such 
as electronic parts and scientific equipment. Tables 11 through 13 show 
the results of our condition code reliability tests for turn-in 
transactions at the five DRMOs that were coded as being in serviceable 
and unserviceable condition. 

Table 11: DRMO Turn-in Transactions That Failed Overall Control Tests 
for Condition Code Accuracy: 

DRMO tested: Richmond; 
Estimated failure rate (95 percent two-sided confidence interval): 22%; 
(15% to 31%); 
Assessment of effectiveness of controls (and relevant bounds of 95 
percent one-sided confidence intervals): Ineffective; Lower bound = 
16%. 

DRMO tested: Stockton; 
Estimated failure rate (95 percent two-sided confidence interval): 8%; 
(4% to 13%); 
Assessment of effectiveness of controls (and relevant bounds of 95 
percent one-sided confidence intervals): Not enough evidence; Lower 
bound = 5%; or upper bound = 12%. 

DRMO tested: Hill; 
Estimated failure rate (95 percent two-sided confidence interval): 5%; 
(2% to 11%); 
Assessment of effectiveness of controls (and relevant bounds of 95 
percent one-sided confidence intervals): Not enough evidence; Lower 
bound = 3%; or upper bound = 10%. 

DRMO tested: Norfolk; 
Estimated failure rate (95 percent two-sided confidence interval): 13%; 
(8% to 19%); 
Assessment of effectiveness of controls (and relevant bounds of 95 
percent one-sided confidence intervals): Ineffective; Lower bound = 9%. 

DRMO tested: Columbus; 
Estimated failure rate (95 percent two-sided confidence interval): 22%; 
(14% to 33%); 
Assessment of effectiveness of controls (and relevant bounds of 95 
percent one-sided confidence intervals): Ineffective; Lower bound = 
15%. 

Source: GAO. 

[End of table]

Table 12: DRMO Turn-in Transactions Classified as Serviceable That 
Failed Control Tests for Condition Code Accuracy: 

DRMO tested: Richmond; 
Estimated failure rate (95 percent two-sided confidence interval): 0%; 
(0% to 3%); 
Assessment of effectiveness of controls (and relevant bounds of 95 
percent one-sided confidence intervals): Effective; 
Upper bound = 3%. 

DRMO tested: Stockton; 
Estimated failure rate (95 percent two-sided confidence interval): 1%; 
(0% to 6%); 
Assessment of effectiveness of controls (and relevant bounds of 95 
percent one-sided confidence intervals): Not enough evidence; Lower 
bound = 0%; or upper bound = 5%. 

DRMO tested: Hill; 
Estimated failure rate (95 percent two-sided confidence interval): 2%; 
(0% to 7%); 
Assessment of effectiveness of controls (and relevant bounds of 95 
percent one-sided confidence intervals): Not enough evidence; Lower 
bound = 0%; or upper bound = 6%. 

DRMO tested: Norfolk; 
Estimated failure rate (95 percent two-sided confidence interval): 5%; 
(2% to 12%); 
Assessment of effectiveness of controls (and relevant bounds of 95 
percent one-sided confidence intervals): Not enough evidence; Lower 
bound = 2%; or upper bound = 11%. 

DRMO tested: Columbus; 
Estimated failure rate (95 percent two-sided confidence interval): 1%; 
(0% to 6%); 
Assessment of effectiveness of controls (and relevant bounds of 95 
percent one-sided confidence intervals): Effective; 
Upper bound = 5%. 

Source: GAO. 

[End of table]

As shown in table 13, we found significant problems with the accuracy 
of unserviceable condition codes for excess commodities at four of the 
five DRMOs we tested. 

Table 13: DRMO Turn-in Transactions Classified as Unserviceable That 
Failed Control Tests for Condition Code Accuracy: 

DRMO tested: Richmond; 
Estimated failure rate (95 percent two-sided confidence interval): 26%; 
(18% to 36%); 
Assessment of effectiveness of controls (and relevant bounds of 95 
percent one-sided confidence intervals): Ineffective; Lower bound = 
19%. 

DRMO tested: Stockton; 
Estimated failure rate (95 percent two-sided confidence interval): 10%; 
(5% to 17%); 
Assessment of effectiveness of controls (and relevant bounds of 95 
percent one-sided confidence intervals): Ineffective; Lower bound = 5%. 

DRMO tested: Hill; 
Estimated failure rate (95 percent two-sided confidence interval): 6%; 
(2% to 13%); 
Assessment of effectiveness of controls (and relevant bounds of 95 
percent one-sided confidence intervals): Not enough evidence; Lower 
bound = 3%; or upper bound = 12%. 

DRMO tested: Norfolk; 
Estimated failure rate (95 percent two-sided confidence interval): 17%; 
(10% to 26%); 
Assessment of effectiveness of controls (and relevant bounds of 95 
percent one-sided confidence intervals): Ineffective; Lower bound = 
11%. 

DRMO tested: Columbus; 
Estimated failure rate (95 percent two-sided confidence interval): 23%; 
(14% to 34%); 
Assessment of effectiveness of controls (and relevant bounds of 95 
percent one-sided confidence intervals): Ineffective; Lower bound = 
15%. 

Source: GAO. 

[End of table]

As shown in table 14, we found condition codes to be reliable at the 
five DLA supply depots that we tested. 

Table 14: DLA Supply Depot Turn-in Transactions That Failed Overall 
Control Tests for Condition Code Accuracy: 

DLA depot tested: Richmond; 
Estimated failure rate (95 percent two- sided confidence interval): 0%; 
(0% to 2%); 
Assessment of effectiveness of controls (and relevant bounds of 95 
percent one-sided confidence intervals): Effective; Lower bound = 0%; 
Upper bound = 2%. 

DLA depot tested: San Joaquin; 
Estimated failure rate (95 percent two- sided confidence interval): 0%; 
(0% to 2%); 
Assessment of effectiveness of controls (and relevant bounds of 95 
percent one-sided confidence intervals): Effective; Lower bound = 0%; 
Upper bound = 2%. 

DLA depot tested: Hill; 
Estimated failure rate (95 percent two-sided confidence interval): 0%; 
(0% to 3%); 
Assessment of effectiveness of controls (and relevant bounds of 95 
percent one-sided confidence intervals): Effective; Lower bound = 0%; 
or upper bound = 2%. 

DLA depot tested: Norfolk; 
Estimated failure rate (95 percent two-sided confidence interval): 1%; 
(0% to 3%); 
Assessment of effectiveness of controls (and relevant bounds of 95 
percent one-sided confidence intervals): Effective; Lower bound = 0%; 
or upper bound = 2%. 

DLA depot tested: Columbus; 
Estimated failure rate (95 percent two- sided confidence interval): 0%; 
(0% to 2%); 
Assessment of effectiveness of controls (and relevant bounds of 95 
percent one-sided confidence intervals): Effective; Lower bound = 0%; 
or upper bound = 2%. 

Source: GAO. 

[End of table]

[End of section]

Appendix VI: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

Stephen P. Donahue, (202) 512-2772; 
Richard C. Newbold, (202) 512-7437: 

Acknowledgments: 

Staff making key contributions to this report include Beatrice Alff, 
Mario Artesiano, James D. Ashley, Cindy Barnes, Gary Bianchi, Erik 
Braun, Matthew S. Brown, Randall J. Cole, Tracey L. Collins, Francine 
DelVecchio, Lauren S. Fassler, Michele Fejfar, Gloria 
Hernandezsaunders, Wilfred B. Holloway, Jason Kelly, Barbara C. Lewis, 
Kristen Plungas, and Ramon Rodriguez. 

Technical expertise was provided by Sushil K. Sharma, PhD, DrPH, and 
Keith A. Rhodes, Chief Technologist. 

(192105): 

FOOTNOTES

[1] GAO, DOD Excess Property: Risk Assessment Needed on Public Sales of 
Equipment That Could Be Used to Make Biological Agents, GAO-04-15NI 
(Washington, D.C.: Nov. 19, 2003). 

[2] GAO, DOD Management: Examples of Inefficient and Ineffective 
Business Processes, GAO-02-873T (Washington, D.C.: June 25, 2002). 

[3] JSLIST is a universal, lightweight, two-piece garment (coat and 
trousers) that when combined with footwear, gloves, and a protective 
mask and a breathing device, forms the warfighter's protective 
ensemble. Together, the ensemble is to provide maximum protection to 
the warfighter against chemical and biological contaminants without 
negatively affecting the ability to perform mission tasks. JSLIST is 
the current model protective suit used by the military services. 

[4] DOD commodities within the scope of this report include a wide 
variety of equipment, spare parts, and supplies, such as office and 
laboratory equipment, aircraft parts and weapons system components, 
construction and medical supplies and equipment, and clothing and 
textile items. Ammunition and explosive weapons, fuel, subsistence 
items, and pharmaceuticals are not included in the scope of this 
report. 

[5] Fiscal year 2002 and 2003 data were the most recent data available 
at the time we initiated our audit. 

[6] Federal Property Management Regulations, 41 C.F.R. ch. 101 (2004) 
and the Federal Management Regulation, 41 C.F.R. ch. 102 (2004), issued 
by the General Services Administration; DOD 4160.21-M, Defense Materiel 
Disposition Manual; and GAO, Standards for Internal Control in the 
Federal Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: November 
1999). 

[7] DOD excess property condition codes are defined in appendix III. 

[8] GAO, Defense Inventory: Analysis of Consumption of Inventory 
Exceeding Current Operating Requirements Since September 30, 2001, GAO- 
04-689 (Washington, D.C.: Aug. 2, 2004), and Major Management 
Challenges and Program Risks: Department of Defense, GAO-03-98 
(Washington, D.C.: January 2003). 

[9] DRMS-I 4160.14, vol. II, Instructions for Warehousing for DRMS and 
the Defense Reutilization and Marketing Offices, ch. 2, "Receipt and 
Storage,"  1 (A), (B) (April 2002). 

[10] DRMS fiscal year 2004 operational compliance reviews of 91 DRMOs 
reported unacceptable or inadequate ratings for 20 DRMOs and fair 
ratings for 23 DRMOs. The remaining 48 DRMOs had ratings of good or 
excellent, including 2 of the 5 DRMOs that we tested. 

[11] DOD 4160.21-M-1, Defense Demilitarization Manual, ch. 1. 

[12] The missing chemical and biological protective suits are not the 
current JSLIST suit technology, and the missing body armor is not the 
ceramic technology currently in use by deployed troops. 

[13] An NSN is a unique13-digit number that identifies standard use 
inventory items. 

[14] The Defense-wide Working Capital Fund is a revolving fund that the 
Secretary of Defense has established under authority of 10 U.S.C.  
2208. 

[15] 40 U.S.C.  541. 

[16] Federal Property Management Regulations, 41 C.F.R. ch. 101 (2004) 
and the Federal Management Regulation, 41 C.F.R. ch. 102 (2004), issued 
by GSA. 

[17] Federal Management Regulation, 41 C.F.R. ch. 102 (2004). 

[18] A turn-in consists of an item or group of items recorded on the 
same disposal turn-in document. Each disposal turn-in document 
represents one DRMS receipt. 

[19] Disposal costs net of scrap and liquidation sale proceeds are 
prorated to the military services and other DOD units. 

[20] The reported acquisition value at the time the items were turned 
in as excess. 

[21] An NSN is a 13-digit number that identifies standard use inventory 
items. The first 4 digits of the NSN represent the Federal Supply 
Classification, such as 8430 for men's footwear, followed by a 2-digit 
NATO code and a 7-digit designation for a specific item, such as a cold 
weather boot. 

[22] Reported acquisition value. 

[23] DOD 4160.21-M, Defense Materiel Disposition Manual, ch. 5, 
"Reutilization/Transfer Screening and Issue,"  A. 

[24] FEDLOG is a logistics information system managed by the Defense 
Logistics Information Service within DLA. This system contains detailed 
information on specifications, use, acquisition cost, and sources of 
supply for NSN items, including more than 7 million stock numbers and 
more than 12 million part numbers. 

[25] The Seawolf supports missions such as surveillance, intelligence 
collection, special warfare, covert cruise missile strike, mine 
warfare, and antisubmarine and antisurface ship warfare. 

[26] Government Liquidation, LLC is the DRMS commercial venture partner 
(contractor) for public sales of excess DOD property. 

[27] GAO-04-689 and GAO-03-98. 

[28] GAO, Standards for Internal Control in the Federal Government, 
GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999). 

[29] DRMS-I 4160.14, vol. II, Instructions for Warehousing for DRMS and 
the Defense Reutilization and Marketing Offices, ch. 2, "Receipt and 
Storage,"  1 (A) (9). 

[30] A turn-in transaction consists of one or more items, such as a 
computer or 2,000 helmets, on a turn-in document. 

[31] DRMS-I 4160.14, vol. II, ch. 2.,  1 (A)(9). 

[32] DRMS-I 4160.14, vol. II, ch. 2,  1 (B)(6)(c). 

[33] The technical name for these safety cabinets is closed loop 
containment isolators. 

[34] The Navy's Environmental Health Center in Portsmouth, Virginia, 
turned in the Level III cabinets as excess because of erroneous 
specifications that resulted in ordering cabinets that were too large 
and cumbersome to meet deployment needs. 

[35] Commerce Control List, 15 C.F.R. pt. 774, supp. 1, category 2, 
Materials Processing, para. f (2), Protective and Containment Equipment 
(2005). 

[36] DOD 4160.21-M-1, Defense Demilitarization Manual, ch.1,  D (6), 
and app. 5 (B), and DRMS-I 4160.14, vol. VII, ch. 3, "MLI/CCLI - 
Disposal Processing and Demilitarization," para. A (2)(d). 

[37] DLA records part numbers instead of NSNs for some supply inventory 
items. 

[38] DOD prime vendors are contractors that buy inventory from a 
variety of suppliers and store it in commercial warehouses. Most prime 
vendors ship items to customers the next day. 

[39] According to DRMO officials, since the inception of a DRMS 
warehouse services contract in June 2000, DRMO staffs have been 
downsized pending outsourcing. 

[40] Turn-in generator refers to DOD units and others that report or 
physically turn in excess items to DRMS. 

[41] According to DRMO officials, only experienced property management 
specialists are qualified to inspect excess property receipts and make 
appropriate decisions for handling various types of property, including 
hazardous materials, flight-safety critical items, items with safety 
and latent defects, and items with demilitarization requirements. 

[42] DOD 4160.21-M-1, Defense Demilitarization Manual, ch. 1. 

[43] GAO/AIMD-00-21.3.1. 

[44] DRMS and contractor documentation we obtained noted that the 
contractor had taken issue on numerous occasions with the lack of 
security over accountable inventories at all locations it manages, 
including 11 DRMOs in fiscal year 2003 and 9 DRMOs in fiscal year 2004. 

[45] The missing chemical and biological protective suits are not the 
current JSLIST, and the missing body armor is not the ceramic 
technology currently in use by deployed troops. 

[46] In accordance with DOD 4160.21-M, ch. 4, "Property Requiring 
Special Processing,"  B, and DRMS-I 4160.14, vol. VII, "Instructions 
for Demilitarization for DRMS and the Defense Reutilization and 
Marketing Offices," ch. 1, para. G, such items are required to be inert 
before turn-in to a DRMO. 

[47] The DRMS liquidation sales contract stipulates that DRMS is to 
provide property storage, maintain liquidation contractor facilities, 
and bear financial risk of loss and damage of property in the 
contractor's possession. 

[48] GAO, DOD Business Systems Modernization: Billions Continue to Be 
Invested with Inadequate Management Oversight and Accountability, GAO- 
04-615 (Washington, D.C.: May 27, 2004); DOD Business Systems 
Modernization: Longstanding Management and Oversight Weaknesses 
Continue to Put Investments at Risk, GAO-03-553T (Washington, D.C.: 
Mar. 31, 2003); and DOD Management: Examples of Inefficient and 
Ineffective Business Processes, GAO-02-873T (Washington, D.C.: June 25, 
2002). 

[49] Pub. L. No. 103-355,  8104, 108 Stat. 3243, 3390 (Oct. 13, 1994) 
(codified at 10 U.S.C. 2377). 

[50] DRMS is responsible for the disposal of excess property received 
from the military services and other DOD agencies. 

[51] Government Liquidation, LLC is the DRMS commercial venture partner 
(contractor) for public sales of excess DOD property. 

[52] DLIS manages the Federal Catalog System, which includes nearly 7 
million active supply items and operates the Federal Logistics 
Information System, which contains information on national stock 
numbers, part numbers, prices, packaging and shipping, and disposal 
instructions. 

[53] An NSN is a 13-digit number that identifies standard use inventory 
items. The first 4 digits of the NSN represent the Federal Supply 
Classification, such as 8430 for men's footwear, followed by a 2-digit 
NATO code and a 7-digit designation for a specific type of boot, such 
as cold weather boot. 

[54] Interactive Data Extraction and Analysis software developed by 
CaseWare International, Inc., and distributed by Audimation, Inc., 
Houston, Texas, CaseWare's U.S. business partner. 

[55] Data mining involved queries of DLA's commodity purchase databases 
and DRMS excess inventory system to identify patterns of activity, such 
as turn-ins and disposals of A-condition excess commodities; 
reutilization, transfers, donations, sales, and destruction of excess 
items; and items that were being purchased when identical new, unused, 
and excellent condition items were available for reutilization. 

[56] Special programs, such as the Humanitarian Assistance Program and 
law enforcement agencies, are listed and described in app. IV. 

[57] An LSN consists of the four-digit federal supply classification 
number, a two-digit NATO code, and up to a seven-character description, 
such as "monitor" for a computer monitor and "boots" for cold weather 
boots. 

[58] GAO, Standards for Internal Control in the Federal Government, 
GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999). This document was 
prepared to fulfill GAO's statutory requirement under 31 U.S.C.  3512 
(c), (d), commonly known as the Federal Managers' Financial Integrity 
Act of 1982, to issue standards that provide the overall framework for 
establishing and maintaining internal control and for identifying and 
addressing major performance and management challenges and areas at 
greatest risk of fraud, waste, abuse, and mismanagement. 

[59] Our statistical tests were based on a random sample of the 
population of excess inventory transactions at each test location, 
which permitted us to estimate, or project, the errors in the 
population at each location. 

[60] GAO, DOD Management: Examples of Inefficient and Ineffective 
Business Processes, GAO-02-873T (Washington, D.C.: June 25, 2002), and 
DOD Business Systems Modernization: Billions Continue to Be Invested 
with Inadequate Management Oversight and Accountability, GAO-04-615 
(Washington, D.C.: May 27, 2004). 

[61] BSM is intended to replace DLA's SAMMS, and IDE may be selected to 
provide a means of interfacing with, or sharing information between, 
DLA systems. RMP is the planned upgrade for DRMS's DAISY and MIDAS. 

[62] Pub. L. No. 96-480, 94 Stat. 2311 (Oct. 21, 1980), as amended (15 
U.S.C.  3701, et seq.); Computers for Learning Program established 
under the act's authority; and Exec. Order No. 12,999, 61 Fed. Reg. 
17,227 (Apr. 19, 1996). 

[63] A list of condition codes and definitions is included in app. III. 

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441 G Street NW, Room 7149

Washington, D.C. 20548: