United States General Accounting Office

GAO Report to the Chairman, Subcommittee

on Military Readiness, Committee on

National Security, House of

Representatives

October 1997 NAVY ORDNANCE

Analysis of Business

Area Efforts to

Streamline Operations

and Reduce Costs

GAO/AIMD/NSIAD-98-24

GAO United States

General Accounting Office

Washington, D.C. 20548

Accounting and Information

Management Division

B-274841 

October 15, 1997

The Honorable Herbert H. Bateman

Chairman, Subcommittee on Military Readiness

Committee on National Security

House of Representatives

Dear Mr. Chairman:

This is our second report in response to your request that we review

financial and management issues related to the ordnance business area of

the Navy Working Capital Fund. The Navy reorganized this business area

in 1993 in order to reduce costs and address various deficiencies in

ordnance logistics management that were identified during Desert

Shield/Desert Storm operations and by various working groups and

studies. However, the business area has experienced financial difficulties

since the reorganization—losing a reported $212 million during fiscal years

1994 through 1996 despite price increases of about 78 percent. Our

March 1997 report1

 discussed the causes of these price increases and

losses, including the fact that business area managers have not been able

to reduce overhead costs as rapidly as their workload has declined. This

second report (1) provides our evaluation of the Navy’s proposed and

ongoing actions to reduce the business area’s costs and (2) identifies

additional cost reduction opportunities.

Background The Navy ordnance business area, which consists of the Naval Ordnance

Center (NOC) headquarters and subordinate activities, such as Naval

weapons stations, operates under the revolving fund concept as part of the

Navy Working Capital Fund. It provides various services, including

ammunition storage and distribution,2

 ordnance engineering, and missile

maintenance, to customers who consist primarily of Defense

organizations, but also include foreign governments. Revolving fund

activities rely on sales revenue rather than direct congressional

appropriations to finance their operations and are expected to operate on

a break-even basis over time—that is, to neither make a profit nor incur a

loss, but to recover all costs. During fiscal year 1996, the Navy ordnance

business area reported revenue of about $563 million and costs of about

1

Navy Ordnance: Analysis of Business Area Price Increases and Financial Losses

(GAO/AIMD/NSIAD-97-74, March 14, 1997).

2

Ammunition storage and distribution, which is one of the business area’s core requirements and

largest workloads, involves the receipt, storage, segregation, and issue of ammunition, as well as

services related to loading ammunition on to and off of naval ships and commercial vessels.

Page 1 GAO/AIMD/NSIAD-98-24 Navy Ordnance
B-274841 

$600 million, for a net operating loss of about $37 million. In accordance

with current Department of Defense (DOD) policy, this loss and the

$175 million the business area lost during fiscal years 1994 and 1995 will

be recouped by adding surcharges to subsequent years’ prices.

As discussed in our March 1997 report, higher-than-expected overhead

costs were the primary cause of the losses that the business area incurred

during fiscal years 1994 through 1996. We also testified on this problem in

May 1997,3

 and recommended that the Secretary of the Navy develop a

plan to streamline the Naval ordnance business area’s operations and

reduce its overhead costs. The Navy has initiated a restructuring of the

business area that, according to the Secretary of the Navy, is “akin to

placing it in receivership.”

Results in Brief The Navy is in the process of developing the cost reduction plan we

recommended in our March 1997 report and has proposed and begun

implementing a number of actions to reduce its ordnance business area’s

annual operating costs by $151 million, or 25 percent, between fiscal year

1996 and 1999. This is a significant step in the right direction and should

result in substantial cost reductions and more streamlined operations.

Additionally, our review of the business area’s operations and discussions

with the Office of the Secretary of Defense (OSD) and Navy ordnance

officials indicate that the Navy has both an opportunity and the authority

to further reduce Navy ordnance costs. Specifically, (1) redundant

ordnance engineering capability exists within the business area and

between the business area and other Navy organizations, (2) military

personnel are performing work that could be performed by less expensive

civilian employees, (3) redundant missile maintenance capability exists,

and (4) no financial incentive exists for customers to store only needed

ammunition (the business area’s inventory records show that 43 percent of

the ammunition stored was unneeded as of May 1, 1997) since they do not

directly pay for storage costs.

While most of the planned cost reduction actions appear to be

appropriate, it remains to be seen whether the business area will reduce

costs by $151 million. In addition, our review of available data indicates

that one of the cost reduction actions—the planned personnel

reductions—may adversely affect the Concord Naval Weapons Station’s

3

Defense Depot Maintenance: Challenges Facing DOD in Managing Working Capital Funds

(GAO/T-NSIAD/AIMD-97-152, May 7, 1997).

Page 2 GAO/AIMD/NSIAD-98-24 Navy Ordnance
B-274841 

ability to load ships during mobilization, thus creating potential readiness

problems. These personnel reductions are likely to have little impact on

the Navy, but could have a significant impact on the Army and Air Force,

which would rely heavily on Concord during a major contingency

operation.

Objective, Scope, and

Methodology

The objective of our audit of the Navy ordnance business area was to

assess the Navy’s efforts to reduce costs and streamline its operations. Our

current audit of the restructuring of the Navy ordnance business area is a

continuation of our work on the business area’s price increases and

financial losses (GAO/AIMD/NSIAD-97-74, March 14, 1997). In that report we

recommended that the Secretary of Defense direct the Secretary of the

Navy to develop a plan to streamline the Navy ordnance business

operations and reduce its infrastructure costs, including overhead. This

plan should (1) concentrate on eliminating unnecessary infrastructure,

including overhead, (2) identify specific actions that need to be

accomplished, (3) include realistic assumptions about the savings that can

be achieved, (4) establish milestones, and (5) clearly delineate

responsibilities for performing the tasks in the plan.

To evaluate the actions being taken or considered by the NOC to streamline

its operations and reduce costs, we (1) used the work that we performed

in analyzing the business area’s price increases and financial losses and

(2) analyzed budget reports to identify planned actions and discussed the

advantages and disadvantages of the planned actions with Navy, OSD, U.S.

Transportation Command, and Joint Staff officials. In analyzing the

actions, we determined (1) if specific steps and milestones were

developed by the NOC to accomplish the actions, (2) whether the initiatives

appeared reasonable and could result in improved operations, (3) what

dollar savings were estimated to result from the implementation of the

actions, (4) whether the actions went far enough in reducing costs and

improving operations, and (5) what other actions not being considered by

the NOC could result in further cost reductions or streamlined operations.

We did not independently verify the financial information provided by the

Navy ordnance business area.

We performed our work at the Office of the DOD Comptroller and Joint

Staff, Washington, D.C.; Offices of the Assistant Secretary of Navy

(Financial Management and Comptroller), Naval Sea Systems Command,

Naval Air Systems Command, and Headquarters, Defense Finance and

Accounting Service, all located in Arlington, Virginia; Headquarters, U.S.

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B-274841 

Atlantic Fleet, Norfolk, Virginia; Naval Ordnance Center Headquarters,

Indian Head, Maryland; Naval Ordnance Center Atlantic Division,

Yorktown, Virginia; Naval Ordnance Center Pacific Division, Seal Beach,

California; Naval Weapons Station, Yorktown, Virginia; Naval Weapons

Station, Charleston, South Carolina; Naval Weapons Station, Earle, New

Jersey; Naval Weapons Station, Seal Beach, California; Naval Weapons

Station, Concord, California; Naval Weapons Station Detachment,

Fallbrook, California; Naval Warfare Assessment Division, Corona,

California; and U.S. Transportation Command, Scott Air Force Base,

Illinois. Our work was performed from June 1996 through September 1997

in accordance with generally accepted government auditing standards.

We requested written comments on a draft of this report. The Under

Secretary of Defense (Comptroller) provided us with written comments,

which we incorporated where appropriate. These comments are reprinted

in appendix I.

Navy’s Proposed and

Ongoing Actions

The Navy has incorporated a goal to reduce annual costs by $151 million

into its ordnance business area’s budget estimate and has identified the

major actions that will be taken to achieve this goal. Our analysis of

available data indicates that the planned actions should result in

substantial cost reductions and more streamlined operations. However, we

cannot fully evaluate the reasonableness of the cost reduction goal at this

time because the Navy does not expect to finalize the cost reduction plan

until October 1997.

Ongoing Restructuring

Should Reduce Costs and

Streamline Operations

During the fiscal year 1998 budget review process, OSD officials worked

with the Navy to formulate a restructuring of the Navy ordnance business

area. According to the budget estimate the Navy submitted to the Congress

in February 1997, this restructuring will allow the ordnance business area

to achieve substantial cost and personnel reductions without adversely

affecting ordnance activities’ ability to satisfy their customers’ peacetime

and contingency requirements. Specifically, the budget estimate indicated

that between fiscal years 1996 and 1999, the business area’s civilian and

military fiscal year end strengths will decline by 18 percent and 23 percent,

respectively, and its annual costs will decline by $151 million, or 25

percent. The budget also indicated that the business area will increase its

fiscal year 1998 prices in order to recover $224 million of prior year losses

and achieve a zero accumulated operating result by the end of fiscal year

1998.

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B-274841 

The Navy’s fiscal year 1998 budget submission also indicated that the

planned restructuring of the business area (1) is based on an assessment

of whether current missions should be retained in the business area,

outsourced to the private sector, or transferred to other organizations and

(2) will make fundamental changes in how the business area is organized

and conducts its business. Our assessment of the individual actions—most

of which are expected to be initiated by October 1997 and completed

during fiscal year 1998—shows that the Navy is planning to reduce costs

by eliminating or consolidating redundant operations and reducing the

number of positions in the business area. These actions, which are listed

below, should help to streamline the Navy ordnance operations and

reduce costs.

• Properly sizing the business area’s workforce to accomplish the projected

workload by eliminating about 800 positions, or about 18 percent of the

total, before the end of October 1997.

• Enhancing the business area’s ability to respond to unanticipated

workload changes by increasing the percentage of temporary workers in

the work force from 8 percent to 20 percent.

• Enhancing the business area’s ability to identify redundant ordnance

engineering capability and to streamline its information resource functions

by consolidating management responsibility for these areas by October 1,

1997.

• Reducing overall operating costs by significantly cutting back on

operations at the Charleston and Concord Weapons Stations, beginning in

October 1997.

• Eliminating redundant capability and reducing costs by consolidating

(1) some weapons station functions, such as safety and workload

planning, at fewer locations, (2) inventory management functions at the

Inventory Management and Systems Division, and (3) maintenance work

on the Standard Missile at the Seal Beach Naval Weapons Station.

• Reducing overhead contract costs, such as utilities and real property

maintenance during fiscal year 1998.

• Enhancing business area managers’ ability to focus on their core ordnance

missions of explosive safety, ordnance distribution, and inventory

management by transferring east coast base support missions to the

Atlantic Fleet on October 1, 1997.

Additional Cost

Reductions Are

Possible

The Navy’s planned restructuring of its ordnance business area will reduce

overhead costs and is an important first step toward the elimination of the

redundant capability both within the business area and between the

business area and other organizations. However, as discussed in the

Page 5 GAO/AIMD/NSIAD-98-24 Navy Ordnance
B-274841 

following sections, our analysis indicates that there are opportunities for

additional cost reductions by (1) developing and implementing a detailed

plan to eliminate redundant ordnance engineering capability,

(2) converting military guard positions to civilian status, and

(3) implementing two actions that Navy ordnance officials are currently

considering.

Elimination of Redundant

Engineering Capability

Could Yield Substantial

Savings

Navy ordnance officials plan to consolidate management responsibility for

the business area’s nine separate ordnance engineering activities under a

single manager on October 1, 1997. This will allow this manager to have

visibility over all of the business area’s engineering resources and should

facilitate more effective management of these engineering resources.

However, it will not result in any savings unless action is also taken to

eliminate the redundant ordnance engineering capability that previous

studies have identified both within the ordnance business area and

between the business area and other Navy organizations.

For example, a 1993 Navy study estimated that 435 work years, or

$22 million, could be saved annually by reducing Navy-wide in-service

ordnance engineering functions from 20 separate activities to 8

consolidated activities. However, Navy ordnance officials stated that these

consolidations were never implemented. They also stated that although

they did not know why the consolidations were not implemented, they

believe it was because (1) the Navy’s ordnance engineering personnel are

managed by the NOC and three different major research and development

organizations and (2) the Navy did not require these four organizations to

consolidate their ordnance in-service engineering functions.

Converting Military Guard

Positions to Civilian Status

Could Save Money

Since 1954, DOD Directive 1100.4 has required the military services to staff

positions with civilian personnel unless the services deem a position

military essential for reasons such as combat readiness or training. This is

primarily because, as we have previously reported,4

 on average, a civilian

employee in a support position costs the government about $15,000 per

year less than a military person of comparable pay grade.

Our analysis showed that the percentage of military personnel in the NOC

workforce is about six times greater than in other Navy Working Capital

Fund activities, with most of these positions being military guards such as

4

DOD Force Mix Issues: Greater Reliance on Civilians in Support Roles Could Provide Significant

Benefits (GAO/NSIAD-95-5, October 19, 1994).

Page 6 GAO/AIMD/NSIAD-98-24 Navy Ordnance
B-274841 

personnel who guard access to the weapons station at the main entrance.

Further, Navy ordnance officials indicated that they know of no reason

why the guard positions should not be converted to civilian status. In fact,

these officials said that they would prefer to have civilian guards since

they are cheaper than military guards, and they noted that all of their

activities already have some civilian security positions. Consequently, the

Navy can save about $6.8 million annually by converting the NOC’s guard

positions to civilian status (based on the $15,000 per position savings

estimate).

NOC officials told us that they reviewed the need for all of their military

positions, and indicated that they plan to eliminate some of these

positions. However, they stated that they do not plan to convert any

military guard positions to civilian status. A Navy Comptroller official told

us that (1) all of the NOC’s guard functions will probably be transferred to

the Atlantic and Pacific fleets as part of the ordnance business area

restructuring and (2) the fleet commanders, not the NOC, should, therefore,

decide whether the military guard positions should be converted to

civilian status.

Navy Is Considering

Additional Actions to

Reduce Costs

Navy ordnance officials are currently considering two additional

actions—further consolidating the business area’s missile maintenance

work and charging individual customers for the storage of

ammunition—that would result in additional cost reductions and a more

efficient operation, if implemented. As discussed below, consolidating

missile maintenance work would allow the business area to reduce the

fixed overhead cost that is associated with this mission, and charging

customers for ammunition storage services would give customers an

incentive to either relocate or dispose of unneeded ammunition and, in

turn, could result in lower storage costs.

Further Consolidation of

Missile Maintenance Work Is

Possible

The Navy ordnance business area, which has had a substantial amount of

excess missile maintenance repair capacity for several years, is being

forced to spread fixed missile maintenance overhead costs over a

declining workload base that is expected to account for only 3 percent of

the business area’s total revenue in fiscal year 1998. This problem, which is

caused by factors such as force structure downsizing, continues even

though the business area recently achieved estimated annual savings of

$2.3 million by consolidating all maintenance work on the Standard Missile

at one location. The following table shows the substantial decline in work

related to four specific types of missiles.

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B-274841 

Table 1: Navy Ordnance Business

Area’s Missile Maintenance Workload

Trend for Four Missiles Fiscal year

Number of missiles repaired

Type of missile 1994 1995 1996

1997

(estimate)

1998

(estimate)

Harm 1,463 765 186 162 73

Harpoon 479 474 496 367 95

Standard 2,497 2,945 1,082 500 930

Sidewinder 1,806 2,288 1,292 337 601

Note: Actual data for fiscal years 1994, 1995, and 1996, and planned data for fiscal years 1997

and 1998.

NOC officials are currently evaluating several alternatives for consolidating

missile maintenance work, including (1) consolidating all work on air

launched missiles at one Naval weapons station, (2) transferring all or part

of the business area’s missile maintenance work to the Letterkenny Army

Depot, Ogden Air Logistics Center and/or a private contractor, and

(3) accomplishing all or part of the work in Navy regional maintenance

centers. According to DOD, the evaluation of these alternatives should be

completed in the spring of 1998.

Based on our discussions with Navy ordnance and maintenance officials,

the NOC’s evaluations of maintenance consolidation alternatives should

• identify the total cost of the various alternatives, including onetime

implementation costs and costs that are not included in depot

maintenance sales prices, such as the cost of shipping items from coastal

locations to inland depots and/or contractor plants and

• assess each alternative’s potential impact on readiness.

Charging for Ammunition

Storage Could Result in Lower

Costs and Other Benefits

The Navy ordnance business area incurs costs to store ammunition for

customers that are not required to pay for this storage service. Instead,

this storage cost is added to the price charged to load ammunition on and

off Naval ships and commercial vessels. As shown in the following figure,

the business area’s inventory records indicate that 51,231 tons, or about

43 percent, of ammunition stored at the weapons stations was not needed

as of May 1, 1997, because (1) there is no requirement for it or (2) the

quantity on hand exceeds the required level.

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B-274841 

Figure 1: Amount of Ordnance Stored

at Naval Weapons Stations as of

May 1, 1997

Charleston

Concord

Earle

Fallbrook

Port Hadlock

Seal Beach

Yorktown

0

5,000

10,000

15,000

20,000

25,000

30,000

Unit of measure is tons

Required Not needed

If the business area charged customers for ammunition storage, the costs

of the storage service would (1) be charged to the customers that benefit

from this service and (2) provide a financial incentive for customers to

either relocate or dispose of unneeded ammunition. This, in turn, could

allow the business area to reduce the number of locations where

ammunition is stored and thereby reduce operating costs. This approach

has been adopted by the Defense Logistics Agency, which also performs

receipt, storage, and issue functions, and the agency stated that instituting

such user charges has helped to reduce infrastructure costs by allowing it

to eliminate unneeded storage space. In addition, we recently

recommended such an approach in our report, Defense Ammunition:

Significant Problems Left Unattended Will Get Worse (GAO/NSIAD-96-129,

June 21, 1996).

Navy ordnance officials told us that they are currently considering

charging customers for the storage of ammunition and are taking steps to

do so. These officials informed us that they (1) have discussed DLA’s

experience in charging a storage cost with DLA officials, (2) have discussed

this matter with the torpedo program manager and sent a letter addressing

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B-274841 

the cost to move the torpedoes off the weapons stations, (3) are drafting

similar letters to the other ordnance program managers, and (4) are in the

process of determining ammunition storage costs for use in developing

storage fees.

Some Personnel

Reductions Could

Adversely Affect

Customer Support

Most aspects of the Navy’s planned restructuring of its ordnance business

area appear to be cost-effective alternatives. However, DOD budget

documents indicate that the Navy’s fiscal year 1998 budget submission for

its ordnance business area did not adequately consider the impact that

planned personnel reductions would have on the business area’s ability to

support non-Navy customers during mobilization. These documents also

indicate that the Navy was proposing to reduce the operating status of

some weapons stations, including Concord. However, OSD officials were

concerned with the Navy’s proposal because these weapons stations

• would handle a majority of all DOD-wide, Army, Air Force, and U.S.

Transportation Command explosive cargo in the event of a major

contingency;

• have 10 times the explosive cargo capacity of the ports considered for

retention;

• are having their facilities expanded by the Army to accomplish additional

U.S. Transportation Command work; and

• have specialized explosive storage areas that must be retained to support

current inventories of Navy missiles.

OSD officials concluded that no alternative to these ports exists and that

DOD must, therefore, keep these ports operational. The Deputy Secretary of

Defense agreed with this assessment and, in December 1996, directed the

Navy not to place any port in a functional caretaker status or reduce its

ordnance handling capability until a detailed plan is (1) coordinated within

OSD, the Joint Staff, and the other Military Departments and (2) approved

by the Secretary of Defense.

According to U.S. Transportation Command and Navy ordnance officials, a

May 1997 DOD-wide paper mobilization exercise validated the OSD officials’

concerns about Concord Naval Weapons Station performing its

mobilization mission. Specifically, the exercise demonstrated that, among

other things, (1) the Concord Naval Weapons Station is one of three ports

that are essential to DOD for getting ordnance items to its warfighters

during mobilization and (2) if Concord is not sufficiently staffed or

Page 10 GAO/AIMD/NSIAD-98-24 Navy Ordnance
B-274841 

equipped, there could be a delay in getting ordnance to the warfighter

during mobilization.

According to Navy ordnance, OSD, the Joint Staff, and U.S. Transportation

Command officials, although there is widespread agreement that Concord

is needed by all of the military services to meet ammunition out-loading

requirements during mobilization, there is no agreement on how to finance

the personnel that will be needed in order to accomplish this mission. The

Army and Air Force do not believe they should subsidize the operations of

a Navy base. At the same time, Navy officials do not believe they should

finance the entire DOD mobilization requirement at Concord because

(1) most of their facilities in the San Francisco Bay area have been closed

and Concord is, therefore, no longer needed by the Navy during

peacetime, (2) the Army and Air Force need Concord more than the Navy

does, and (3) Concord does not receive enough ship loading and unloading

work during peacetime to keep the current work force fully employed.

Accordingly, the Navy plans to retain some personnel at Concord, but has

shifted all of its peacetime ship loading and unloading operations out of

Concord and plans to gradually transfer ammunition currently stored at

Concord to other locations.

Navy, OSD, and Joint Staff officials informed us that several actions are

needed to ensure that Concord has sufficient, qualified personnel to load

ammunition onto ships: (1) revalidate the ammunition out-loading

mobilization requirements for Concord, (2) determine the minimum

number of full-time permanent personnel that Concord needs during

peacetime in order to ensure that it can quickly and effectively expand its

operations to accomplish its mobilization mission (the core workforce),

(3) ensure that Concord’s core workforce is sufficiently trained to

accomplish its mobilization mission, and (4) determine a method, either

through a direct appropriation or the Working Capital Funds, to finance

the Concord’s mobilization requirements.

Conclusions To the Navy’s credit, it has acted to reduce its ordnance business area’s

annual cost by $151 million and has incorporated this cost reduction goal

into the business area’s budget estimate. Our analysis of available data

indicates that, in general, the planned actions should result in substantial

cost reductions and more streamlined Navy ordnance operations. The

Navy could reduce its cost further and prevent a possible degradation of

military readiness by taking the additional actions recommended in this

report. Further, the Navy still needs to ensure that a final restructuring

Page 11 GAO/AIMD/NSIAD-98-24 Navy Ordnance
B-274841 

plan is completed so that it can tie together all of its planned actions and

establish specific accountability, schedules, and milestones as needed to

gauge progress.

Recommendations In order for the Concord Weapons Station to accomplish its mobilization

mission, we recommend that the Secretary of Defense

• revalidate the amount of ammunition Concord Weapons Station needs to

load onto ships during mobilization,

• direct the Secretary of the Navy to determine the minimum number of

personnel Concord Weapons Station needs during peacetime in order to

ensure that it can quickly and effectively expand its operations to

accomplish its mobilization mission, and

• ensure that Concord’s core workforce is sufficiently trained to accomplish

its mobilization mission.

We recommend that the Secretary of the Navy

• incorporate into the NOC’s detailed cost reduction plan (1) specific actions

that need to be accomplished, (2) realistic assumptions about the savings

that can be achieved, (3) milestones, and (4) clearly delineated

responsibilities for performing the tasks in the plan;

• evaluate the cost-effectiveness of (1) consolidating all or most of the

business area’s missile maintenance workload at one location and/or

(2) transferring all or some of this work to public depots or the private

sector;

• develop and implement policies and procedures for charging customers

for ammunition storage services;

• evaluate the appropriateness of converting military guard positions to

civilian positions;

• direct the NOC Commander to determine if it would be cost-beneficial to

convert non-guard military positions to civilian status; and

• eliminate the excess ordnance engineering capability that previous studies

have identified both within the NOC and between the NOC and other Navy

organizations.

Agency Comments

and Our Evaluation

In its written comments on this report which identifies the actions the

Navy ordnance business area is taking to reduce costs and streamline its

operations, DOD agreed fully with five of our eight recommendations. It

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B-274841 

partially concurred with the remaining three recommendations, as

discussed below.

In our draft report, we recommended that the Secretary of Defense direct

the Secretary of the Navy to (1) determine the minimum number of

personnel Concord Weapons Station needs during peacetime in order to

ensure that it can quickly and effectively expand its operation to

accomplish its mobilization mission and (2) ensure that this core

workforce is sufficiently trained to accomplish its mobilization mission. In

partially concurring with this recommendation, DOD agreed that both of

these tasks should be accomplished and that the Navy should be

responsible for identifying the peacetime manning requirement. However,

it indicated that this core workforce cannot be adequately trained for its

mobilization mission unless it is given the appropriate amount and type of

work during peacetime. DOD further stated it will take steps during the

fiscal year 1999 budget process to ensure that adequate and funded

workload is provided to Concord. We agree with DOD’s comment and

revised our final report to recommend that DOD act to ensure that the core

workforce is sufficiently trained.

Concerning our recommendation to charge customers for ammunition

storage services, the Navy agreed that action should be taken to (1) store

only necessary ammunition at its weapons stations and (2) transfer excess

ammunition to inland storage sites or disposal. The Navy believes that this

can be accomplished without imposing a separate fee for storing

ammunition. However, Navy records show that 51,231 tons, or about

43 percent, of ammunition stored at weapons stations was not needed as

of May 1997. As stated in this report, because of the persistent nature of

this problem, we continue to believe that charging customers for

ammunition storage will provide the financial incentive for customers to

relocate or dispose of unneeded ammunition.

Finally, concerning our recommendation to convert military guard

positions to civilian positions, the Navy stated that it is in the process of

transferring the Navy ordnance east coast security positions to the Atlantic

Fleet and that it plans to transfer the west coast security positions to the

Pacific Fleet. It believes that the two Fleet Commanders need time to

evaluate the appropriateness of converting the military guard positions to

civilian positions. We agree with DOD’s comment that this decision should

be made by the Fleet Commanders and have revised our recommendation

accordingly. As part of this evaluation, the Navy needs to consider the cost

of the guard positions since a civilian employee in a support position costs

Page 13 GAO/AIMD/NSIAD-98-24 Navy Ordnance
B-274841 

the government about $15,000 per year less than a military person of

comparable pay grade.

We are sending copies of this report to the Ranking Minority Member of

your Subcommittee; the Chairmen and Ranking Minority Members of the

Senate Committee on Armed Services; the Senate Committee on

Appropriations, Subcommittee on Defense; the House Committee on

Appropriations, Subcommittee on National Security; the Senate and House

Committees on the Budget; the Secretary of Defense; and the Secretary of

the Navy. Copies will also be made available to others upon request. If you

have any questions about this report, please call Greg Pugnetti at

(202) 512-6240. Other major contributors to this report are listed in

appendix II.

Sincerely yours,

Jack L. Brock, Jr.

Director, Defense Information and

 Financial Management Systems

Accounting and Information

 Management Division

David R. Warren

Director, Defense Management

National Security and International

 Affairs Division

Page 14 GAO/AIMD/NSIAD-98-24 Navy Ordnance
Page 15 GAO/AIMD/NSIAD-98-24 Navy Ordnance
Appendix I 

Comments From the Department of Defense

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Appendix I 

Comments From the Department of Defense

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Appendix I 

Comments From the Department of Defense

Page 18 GAO/AIMD/NSIAD-98-24 Navy Ordnance
Appendix I 

Comments From the Department of Defense

Page 19 GAO/AIMD/NSIAD-98-24 Navy Ordnance
Appendix II 

Major Contributors to This Report

Accounting and

Information

Management Division,

Washington, D.C.

Gregory E. Pugnetti, Assistant Director

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