United States General Accounting Office

GAO Report to Congressional Requesters

December 1997 DEFENSE

INVENTORY

Inadequate Controls

Over Air Force

Suspended Stocks

GAO/NSIAD-98-29

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-276807 

December 22, 1997

The Honorable J. Dennis Hastert

Chairman

The Honorable Thomas M. Barrett

Ranking Minority Member

Subcommittee on National Security,

 International Affairs, and Criminal Justice

Committee on Government Reform and Oversight

House of Representatives

This report is one in a series of reports on the Department of Defense’s

(DOD) secondary inventory management.1

 Over the past several years, we

have issued a number of testimonies and reports that cite the management

of defense inventory as a high-risk area.2

 As requested, this review

assesses selected aspects of the Air Force’s logistics system for managing

inventory in a suspended status, that is, inventory that cannot be issued

because its condition is unknown or in dispute. Specifically, this report

addresses the (1) reported quantity and value of suspended inventory,

(2) weaknesses in managing suspended inventory and their potential effect

on logistics support costs and readiness, and (3) reasons why suspended

inventory is not well managed. The scope and methodology of our work

are described in appendix I.

Background At the end of fiscal year 1996, the Air Force reported that it was managing

inventory valued at $29.3 billion.3 DOD uses a coding system to categorize

the condition of its inventory. These codes are intended to indicate

whether stored inventory is (1) issuable without qualification, (2) in need

of repair, (3) usable for only a limited time, or (4) unrepairable and ready

for disposal. DOD’s inventory management goal is to achieve a

cost-effective system that provides the inventory needed to maintain

readiness. When items in DOD’s inventory cannot be readily placed in one

of these categories, DOD uses other condition codes to indicate suspended

1

See Related GAO Products at the end of this report.

2

In 1990, we began a special effort to review and report on the federal program areas designated as

high risk because of their vulnerabilities to waste, fraud, and abuse. This effort, which was supported

by the Senate Committee on Governmental Affairs and the House Committee on Government Reform

and Oversight, focused on problems that were costing the government billions of dollars. We identified

DOD’s secondary inventory management as a high-risk area at that time because of the high levels of

unneeded inventory and the lack of adequate systems for determining inventory requirements.

3

Although we and others have previously questioned the accuracy of DOD’s and the Air Force’s

inventory reports, we cite them in this report to help reflect the magnitude of the inventory involved.

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inventory. Because these codes do not indicate an item’s usability, item

managers must direct that the item be inspected or tested to determine its

usability. The primary suspended inventory condition codes are as follows:

• J — inventory at storage warehouses that is awaiting inspection to

determine its condition (hereafter referred to as material in inventory),

• K — inventory returned from customers or users to storage warehouses

and awaiting condition classification (hereafter referred to as customer

returns),

• L — inventory held at storage warehouses pending litigation or negotiation

with contractors or common carriers (hereafter referred to as inventory in

litigation),

• Q — quality-deficient inventory returned by customers or users due to

technical deficiencies (hereafter referred to as quality-deficient inventory),

and

• R — inventory returned by salvage activities that do not have the

capability to determine the material condition (hereafter referred to as

reclaimed inventory).

Appendix II contains a detailed explanation of DOD’s supply condition

codes.

Inventory categorized as suspended is not available for use until it has

been tested to determine whether it is usable. In some instances, inventory

in this category that has been found to be usable can meet customer

needs, thus contributing to overall military capability. DOD recognizes that

inventory in a suspended status for long periods can adversely affect the

availability of resources and the effectiveness and economy of supply

operations. To minimize the amount of items in suspended inventory, DOD

set standards for the amount of time inventory should remain categorized

as suspended. These standards consider the reason for suspending the

inventory and the difficulty of determining the usability of the items. The

time standards by suspension category are shown in table 1.

Table 1: DOD Time Standards for

Resolving the Status of Suspended

Inventory

Suspension code Number of days

Material in inventory (J) 90

Customer returns (K) 10

Inventory in litigation (L)a No specific time limit

Quality-deficient inventory (Q)a No specific time limit

Reclaimed inventory (R) 180

aAlthough no specific time limits have been set for inventory in litigation (L) and quality-deficient

inventory (Q), DOD regulations emphasize that suspensions should not last indefinitely.

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A number of organizations are involved in the management and control of

suspended inventory. The Air Force Materiel Command (AFMC) administers

the Air Force supply system and provides suspended inventory

management policies and procedures. AFMC has five Air Logistics Centers

(ALC) that are located in different regions throughout the United States.4

Within each ALC, item managers are responsible for maintaining the

records for suspended inventory, initiating efforts to determine the

usability of suspended inventory, deciding whether to procure items in

addition to those in suspended status, and deciding whether suspended

items should be returned to inventory or disposed. Suspended inventory is

stored at warehouses operated and managed by the Defense Logistics

Agency (DLA). These storage activities receive, store, and issue inventory

and maintain inventory records.5

 Once the usability of suspended

inventory has been determined, storage activities reclassify the inventory

as ready for issue, in need of repair, or ready for disposal.

Results in Brief Significant management weaknesses exist in the Air Force’s management

of inventory that it categorizes as suspended. As a result, the Air Force is

vulnerable to incurring unnecessary repair and storage costs and

avoidable unit readiness problems. This situation exists largely because

management controls are not being implemented effectively or are

nonexistent.

Among DOD components, the Air Force reported the largest amount of

suspended inventory—more than 70 percent of the $3.3 billion of all DOD

suspended inventory.6 In April 1997, the Air Force had 403,505 secondary

items, valued at $2.4 billion, in a suspended status. The Warner Robins Air

Logistics Center had the highest reported value of suspended inventory,

accounting for about $1.3 billion (53 percent) of the Air Force’s suspended

inventory.

We reviewed 1,971 out of 60,575 items in suspension at Warner Robins.

The vast majority of the suspended items we reviewed are not being

reviewed in a timely manner. Of the 1,820 suspended items we reviewed

4

In July 1995, the Defense Base Realignment and Closure Commission recommended that two of the

five ALCs—Sacramento and San Antonio—be closed or realigned.

5

DLA bills the Air Force for these functions and the storage space assigned to its items. The storage

costs range from $0.75 per square foot to $7.17 per square foot depending on whether the items are in

open or covered storage.

6

We relied on DOD information systems during the conduct of our work. To the extent that DOD had

not completed a reliability assessment of the data contained in those systems, analyses in this report

are qualified. (See app. I for more details.)

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with established standards, 97 percent failed to meet these standards.

About 64 percent of the inventory that we reviewed had been in a

suspended category for over 1 year, and some had been suspended for

over 6 years. Delays in determining the usability of suspended inventory

can result in increased logistics support costs and readiness problems.

Warner Robins had over 2,000 unfilled customer demands (valued at about

$53 million) while similar items were in suspension. Over 500 of these

unfilled demands (valued at about $7 million) could have potentially been

filled with these items. Two B-52H aircraft had not been fully operational

for 175 days and 24 days because two $16,000 data entry keyboards were

not available for issue in the Air Force supply system, yet two such

keyboards had been maintained in a suspended status for 2 years.

Management controls at Warner Robins over items categorized as

suspended inventory have broken down and contributed to inventory

being in a suspended status beyond established timeframes. Air Force

Materiel Command guidance does not comply with DOD policy and

safeguard against lengthy suspensions, and Materiel Command and

Warner Robins oversight of inventory management has generally been

nonexistent. Also, Warner Robins lacks clearly defined suspended

inventory management procedures for, and sufficient emphasis on,

controlling suspended inventory. Further, management of suspended

inventory has not been identified in Air Force assessments of internal

controls as a significant weakness, as provided in the Federal Managers’

Financial Integrity Act of 1982.

Reported Value of

Suspended Inventory

Is Over $3 Billion

DOD reported that about $3.3 billion of secondary items was in a suspended

status between April and June 1997.7

 Figure 1 shows the distribution of the

reported value of suspended inventory among DOD components.

7

We revalued the inventory at the latest acquisition cost by removing surcharges covering the costs to

operate the supply system. The $3.3 billion represents the revalued amount by removing the surcharge.

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Figure 1: Reported Value of

Suspended Inventory by DOD

Component

16.4% • Army - $0.5 Billion

• 7.2%

Navy - $0.2 Billion

72.0%•

Air Force - $2.4 Billion

0.4%

Marine Corps - $0.01 Billion

•

4.0%

DLA - $0.13 Billion

The Warner Robins ALC accounted for about $1.3 billion (53 percent) of the

Air Force’s suspended inventory. Figure 2 summarizes the value of

suspended inventory by ALC, and figure 3 shows the value of suspended

inventory by condition code at Warner Robins. Appendix III contains

additional details on the quantity and value of suspended inventory items.

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Figure 2: Reported Quantity and Value

of Suspended Inventory by ALC (as of

Apr. 1997)

• 9.2%

Oklahoma City - $218.6 Million

23.9% • Ogden - $567.3 Million

12.6% • San Antonio - $298.1 Million

1.3%

Sacramento - $30.4 Million

53.1%•

Warner Robins - $1,260.4 Million

Note: Figures do not add due to rounding.

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Figure 3: Reported Quantity and Value

of Suspended Inventory Managed by

the Warner Robins ALC (as of

Apr. 1997)

• 4.32%

Material in inventory (J) - $54.5

Million

86.24% • Customer returns (K) - $1,087.0

Million

0.03%

Inventory in litigation (L) - $0.4

Million

1.52%

Quality-deficient inventory (Q) -

$19.2 Million

•

7.88%

Reclaimed inventory (R) - $99.3

Million

Note: Figures do not add due to rounding.

Ineffective

Management Can

Increase Costs and

Reduce Readiness

Significant management weaknesses exist for inventory categorized as

suspended. The Air Force is not reviewing the status of these items in a

timely manner and has miscategorized a significant amount of inventory.

As a result, the Air Force is likely incurring unnecessary logistics costs and

missing opportunities to support operational units’ needs in a timely

manner.

At Warner Robins, a substantial number of items failed to meet time

standards for inspection. As a result, items that may have been needed for

use in the supply system were not being considered for use. We reviewed

1,971 judgmentally selected suspended inventory items, valued at about

$67 million, to determine the length of time the inventory remained in a

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B-276807 

suspended status. Of the 1,820 sample items with standards, valued at

$65.8 million, 1,757 items failed to meet the applicable DOD time standards.

The remaining 151 sample items without time standards remained in

suspension, with times ranging from 22 days to over 8 years. Figure 4

summarizes the number of sample items that met or failed to meet DOD

time standards, and figure 5 shows the time items remained in a

suspended status by suspension category. Appendix III contains specific

details of our analysis.

Figure 4: Our Analysis of Suspended

Inventory That Met or Failed to Meet

DOD Time Standards

• 3%

Items meeting DOD time

standards ($0.8 million)

97%•

Items not meeting DOD time

standards ($65 million)

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Figure 5: Our Analysis of the Time

Items Remained Suspended Number of items

0

100

200

300

400

500

600

700

800

900

0-30 31-60 61-90 91-180 181-365 366-730 730 or

more

Days in suspension

5 9

73

247

378

433

826

Timely Reviews of

Suspended Inventory May

Preclude Unnecessary

Repairs

The Air Force may unnecessarily invest millions of dollars to send some

inventory for repair when the need may have been met from inventory in

suspension. Since Warner Robins was not making timely reviews of its

inventory in suspension, usable items may have existed in that category

that could have been used to meet supply system demands. Our review

indicated that Warner Robins officials had improperly identified 3,418

customer return items, worth $115 million, as inventory in need of repair.

Because these items were improperly identified as needing repair, Warner

Robins officials did not inspect them to determine their usability, which in

turn meant that the Air Force may have incurred costs to repair other

items when usable items were actually in suspension. We were not able to

determine the value of these unnecessary repair costs.

Suspended Inventory Is

Often Not Considered as a

Way to Satisfy Critical

Operational Unit Demands

Inventory managers have missed opportunities to fill orders with usable

items because of the untimely handling of suspended inventory. As a

result, suspended inventory is not available for use when needed by

customers. When demands are made on the supply system and assets are

not available to fill those demands, backorders result. For the suspended

items in our sample, Warner Robins had over 2,000 concurrent backorders,

worth about $53 million. About 65 percent of these backorders were

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essential to a weapon system’s operation and thus adversely affected the

system’s ability to carry out all or portions of its assigned operational

missions. If the duration of suspensions had been monitored and usability

had been determined within a reasonable amount of time, over 500 of our

sample items, worth about $7 million, could have been used to fill some of

the backorders, as shown in table 2.

Table 2: Number of Unfilled Customer

Orders That Could Have Been Met With

Suspended Items

Suspension code

Suspended

items

Unfilled

orders

Suspended items

available to

potentially fill

orders

Material in inventory (J) 332 310 43

Customer returns (K) 12 138 11

Quality-deficient inventory (Q) 42 771 34

Reclaimed inventory (R) 639 871 413

Total 1,025 2,090 501

The following examples show how weaknesses in the management of

suspended inventory can affect access to potentially usable inventory:

• Warner Robins had four data entry keyboards on backorder—two of

which were classified as mission critical. The keyboards, valued at $16,000

each, are used on B-52H aircraft. Warner Robins inventory records showed

two keyboards (see fig. 6) had been suspended in reclaimed inventory for

over 2 years. In August 1997, two B-52H aircraft were not fully operational

(i.e., unable to fly portions of their missions) due to the unavailability of

these keyboards. One aircraft had been unable to fly portions of its

mission for 175 days and the other for 24 days. At the time of our visit, the

item manager had not taken action to resolve the status of the keyboards.

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Figure 6: Data Entry Keyboard in R

Condition at the Warner Robins

Warehouse

• Warner Robins had 11 signal converters on backorder—all of which were

classified as mission critical. The converters, valued at $36,000 each, are

used on the B-52H aircraft. Warner Robins inventory records showed three

converters (see fig. 7) had been in reclaimed inventory for 2 years, from

June 1995 to June 1997. In June 1997, two B-52H aircraft were not

operational (i.e., grounded and unable to fly any portion of their missions)

due to the unavailability of these converters. One aircraft had been

grounded for 33 days and the other for 6 days. After we brought this

matter to the attention of Warner Robins officials, they informed us that

testing would be performed on the three converters in reclaimed inventory

to determine their potential use in satisfying backorders.

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Figure 7: Signal Converter in R

Condition at the Warner Robins

Warehouse

Maintaining Unneeded

Inventory Increases

Storage Costs

Inventory that cannot be applied to any foreseeable need is declared

excess and subject to disposal action. Warner Robins reported over 

5,300 items on hand, worth over $184 million, as excess for the sample

items we reviewed. Prompt disposal of such unneeded items can reduce

suspended inventory and reduce inventory holding costs. Maintaining

inventory that is not needed is expensive and does not contribute to an

effective, efficient, and responsive supply system. DLA and private industry

organizations have previously estimated that holding costs ranged from

less than 1 to 15 percent or higher of an item’s inventory value. Although it

is difficult to determine the precise costs to manage and maintain excess

stocks, our review indicates that these costs would be millions of dollars

each year.

Weak Management

Controls Exist for

Inventory in

Suspended Categories

AFMC and the Warner Robins ALC lack adequate internal management

controls over suspended inventory. A number of factors contributed to

delays in resolving the status of suspended inventory and prolonged

inventory suspensions. First, AFMC guidance hampers the proper

identification, timely inspection, and prompt reclassification of suspended

inventory. Second, Warner Robins lacks local policies and procedures that

prescribe levels of responsibility and accountability for managing

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suspended material. Third, AFMC and Warner Robins do not provide

adequate oversight and monitoring of suspended inventory.

AFMC Guidance Results in

Improper Classifications

and Untimely Resolution

AFMC supplemental guidance enabled $846 million of inventory in need of

repair stored at Warner Robins to be improperly assigned to the customer

returns suspension code, thus overstating the magnitude of the Air Force’s

and Warner Robins’ suspended inventory. Although our review was limited

to Warner Robins, the remaining four ALC’s are also required to comply

with the supplemental policy. Consequently, the magnitude of the

suspended inventories at the other ALCs may also be overstated.

According to DOD policy, material returned in an unknown condition by a

customer should be assigned to customer returns and reclassified within

10 days. AFMC supplemental guidance, on the other hand, states that

two-level maintenance items returned for repair should be assigned to this

same category.8

 When we informed AFMC officials that both customer

returns and repair items were commingled in the customer returns

suspension code, one official acknowledged that items not in need of

repair may not receive management attention. When we brought this same

matter to the attention of Warner Robins officials, they told us that, in

complying with the supplemental guidance, they assumed all items

(including $115 million worth of items in an unknown condition that were

returns from customers) were in need of repair, and thus made no

attempts to inspect and reclassify them. At Warner Robins, none of the 

31 customer returns we reviewed met the 10-day DOD time standard; in

fact, 17 of the customer returns had been suspended for over 1 year.

Waiver Guidance Raises

Questions

DOD policy for managing reclaimed inventory states that these items

should be reclassified in 180 days. AFMC supplemental guidance waives the

standard because of a shortage of repair funds that hindered item

managers’ ability to schedule reclaimed inventory for inspection within the

180-day limit. However, waiving the standard exacerbates existing

problems with lengthy suspensions. At Warner Robins, 99 percent of the

990 reclaimed inventory items we sampled remained suspended more than

180 days, and 62 percent of the inventory had been suspended over 

2 years. Table 3 shows the number of reclaimed inventory items that had

been suspended for more than 2 years.

8

The Air Force has a three-level (organizational, intermediate, and depot) and a two-level

(organizational and depot) maintenance concept to repair component parts. Under the two-level

maintenance concept, broken parts that were previously repaired at the intermediate base

maintenance level are now repaired at the depot level.

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Table 3: Number of Sample Items in

Reclaimed Inventory for Over 2 Years Years in suspension Number of items

2 to 3 597

3 to 4 10

4 to 5 4

Total 611

Warner Robins Lacks

Suspended Inventory

Procedures

Warner Robins lacks specific procedures for resolving the status of items,

assigning responsibility for carrying out these procedures, and prescribing

related accountability. Air Force policy indicates that ALCs are responsible

for preparing comprehensive, explicit instructions essential to effectively

manage inventory.

Warner Robins item managers and DLA warehouse personnel did not agree

as to who within their organizations is responsible for resolving suspended

inventory. Item managers told us that warehouse personnel are

responsible for taking the necessary actions to monitor reclassification of

suspended inventory because those personnel have physical possession of

the material. Warehouse personnel told us that item managers must direct

disposition of suspended material. Consequently, neither level assumed

responsibility. When we pointed out the need for clearly defined

responsibilities to Warner Robins top management officials, they told us

that item managers are responsible for resolving suspended inventory

issues and indicated that Warner Robins would begin drafting suspended

inventory regulations for its item managers.

Suspended Inventory

Reclassification Efforts

Are Not Monitored

DOD policy requires periodic reviews of suspended inventory items to

ensure that their usability is determined in a timely manner. However, this

requirement is not carried out. For the majority of our sample items, the

item managers could not tell us why the items had been suspended or who

had directed suspension and could not easily determine how long the

items had been suspended. Warner Robins officials told us they do not

monitor the age of suspended inventory, even though DOD policy requires

that monitoring be done to keep within prescribed time limits. Warner

Robins officials stated that they did not regularly compile data on the

quantity, value, or length of time material is suspended or report such data

to AFMC because resolving suspended items’ status was not a high priority.

Further, AFMC officials told us that they have not monitored suspended

inventory management since the late 1980s.

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Adequate management oversight could have highlighted prolonged

suspensions and indicated the necessity for routine monitoring of the

quantity, value, and length of time items are suspended. If Warner Robins

had monitored the duration of some suspensions, their usability could

have been resolved within a reasonable time. For example:

• In May 1986, in anticipation of a patent infringement litigation, an item

manager was instructed to retain records and files involving a supplier of

M-16 rifle conversion kits for 20 years. At the time of our visit, one M-16

rifle conversion kit (see fig. 8) had been suspended for almost 9 years. An

additional 985 kits were being held in an issuable condition, according to

the item manager. Subsequent to our visit, we were informed that the item

manager misinterpreted the retention instructions. Rather than just

retaining the records and files, the item manager had also been

unnecessarily holding all 986 kits. The item manager informed us that all

986 kits are excess and initiated action to dispose of them.

Figure 8: Conversion Kit in L Condition

at the Warner Robins Warehouse

• According to warehouse records, one electron tube worth $2,400 had been

suspended in litigation for 362 days. The item manager did not know why

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the item was suspended, who suspended the item, or when the item was

placed in suspension. However, Warner Robins warehouse records

showed that the tube had been returned by a customer because it was not

the item requested from supply. When warehouse personnel realized that

the serviceable item was being erroneously held in litigation, they

reclassified the electron tube to an issuable condition.

• Four digital computers for the F-4G aircraft had been suspended in

reclaimed inventory for over 4 years. According to the item manager, there

has been little or no demand for the computers, valued at $73,300 each,

because in 1996 the F-4G aircraft was taken out of service. As a result of

our findings, the item manager informed us that the digital computers

would be recommended for disposal.

Suspended Inventory

Management Weaknesses

Have Not Been Identified

in Financial Integrity Act

Assessments

The Federal Managers’ Financial Integrity Act of 1982 requires agency

heads to assess their internal controls annually and report their findings to

the President and the Congress. The Air Force provides its assessments to

DOD for inclusion in the Secretary of Defense’s report to the Congress.

We reviewed internal control assessments by Warner Robins, AFMC, and

the Air Force to determine if the Air Force had reported suspended

inventory management by ALCs as a material weakness and found that it

had not. One criterion for determining whether an internal control

weakness is material is if it significantly weakens safeguards against

waste. The problems we identified demonstrate that suspended inventory

management is vulnerable to waste and warrants special emphasis in

future Financial Integrity Act assessments.

Conclusions The management of DOD’s inventory of spare parts and other secondary

items has been considered a high-risk area for several years. Therefore,

DOD’s reported $3.3 billion suspended inventory is a problem that warrants

management attention. In terms of reported dollar value of suspended

inventory, the Air Force represents the biggest problem among the

services; within the Air Force, the Warner Robins ALC accounts for the

largest share. At Warner Robins, we found significant weaknesses in its

management of suspended inventory. Since there are standard policies for

managing suspended inventory items across the ALCs and the weaknesses

in the process contribute to some of the problems we identified, other ALCs

may have similar problems. Air Force and DOD officials have generally

stated, and our review confirmed, that ineffective management and delays

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in determining the usability of suspended inventory can result in increased

logistics and support costs and affect readiness.

At Warner Robins, (1) item managers generally were not complying with

DOD standards for determining the usability of suspended inventory items,

(2) about 64 percent of the items we sampled had been in the suspended

category for more than 1 year and some longer than 6 years, (3) item

managers were following AFMC guidance that does not comply with DOD

and Air Force policy, (4) written procedures for controlling suspended

inventory were lacking, and (5) management oversight of suspended

inventory was limited. Further, neither Warner Robins nor the Air Force

has identified suspended inventory as a material management weakness

under the Federal Managers’ Financial Integrity Act.

Recommendations To improve the management of suspended items, we recommend that the

Secretary of Defense direct the Secretary of the Air Force to ensure that,

at Warner Robins (1) suspended inventory is properly identified,

monitored, inspected, and classified within established DOD timeframes

and (2) suspended items receive adequate visibility at all management

levels, up to and including the service headquarters, through targeting

suspended inventory problems as an issue for review in the Federal

Managers’ Financial Integrity Act assessments.

Also, we recommend that the Secretary of the Air Force direct Warner

Robins ALC to establish explicit guidance on responsibility and

accountability for resolving suspended inventory status, carry out

necessary actions, and follow up to make sure that the actions have been

promptly and correctly taken. Finally, we recommend that the Secretary

conduct assessments of suspended inventory practices at the four other

ALCs to determine the need for similar remedial actions and direct any

affected ALC to take such actions.

Agency Comments In written comments on a draft of this report, DOD agreed with our

recommendations (see app. IV). DOD stated that on November 13, 1997, Air

Force Headquarters provided guidance to the Air Force Materiel

Command requesting a plan to correct deficiencies in managing suspended

stock and initiate aggressive corrective actions. The plan is due to the Air

Force by mid-December 1997.

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We are sending copies of this report to other appropriate congressional

committees, the Secretaries of Defense and the Air Force, and the Director

of the Office of Management and Budget.

Please contact me at (202) 512-8412 if you have any questions concerning

this report. Major contributors to this report are listed in appendix V.

David R. Warren, Director

Defense Management Issues

Page 18 GAO/NSIAD-98-29 Defense Inventory
Page 19 GAO/NSIAD-98-29 Defense Inventory
Contents

Letter 1

Appendix I 

Scope and

Methodology

22

Appendix II 

Supply Condition

Codes

24

Appendix III 

Additional

Information on

Suspended Material

and DOD Time

Standards

25

Appendix IV 

Comments From the

Department of

Defense

27

Appendix V 

Major Contributors to

This Report

28

Related GAO Products 32

Tables Table 1: DOD Time Standards for Resolving the Status of

Suspended Inventory

2

Table 2: Number of Unfilled Customer Orders That Could Have

Been Met With Suspended Items

10

Table 3: Number of Sample Items in Reclaimed Inventory for

Over 2 Years

14

Page 20 GAO/NSIAD-98-29 Defense Inventory
Contents

Table III.1: Reported Quantity and Value of Suspended Material

by ALC

25

Table III.2: Reported Quantity and Value of Suspended Inventory

Managed by the Warner Robins ALC

25

Table III.3: Our Analysis of Sample Items that Met or Failed to

Meet DOD Time Standards

25

Table III.4: Our Analysis of the Time Items Remained in a

Suspended Status

26

Figures Figure 1: Reported Value of Suspended Inventory by DOD

Component

5

Figure 2: Reported Quantity and Value of Suspended Inventory by

ALC

6

Figure 3: Reported Quantity and Value of Suspended Inventory

Managed by the Warner Robins ALC

7

Figure 4: Our Analysis of Suspended Inventory That Met or Failed

to Meet DOD Time Standards

8

Figure 5: Our Analysis of the Time Items Remained Suspended 9

Figure 6: Data Entry Keyboard in R Condition at the Warner

Robins Warehouse

11

Figure 7: Signal Converter in R Condition at the Warner Robins

Warehouse

12

Figure 8: Conversion Kit in L Condition at the Warner Robins

Warehouse

15

Abbreviations

AFMC Air Force Materiel Command

ALC Air Logistics Center

DLA Defense Logistics Agency

DOD Department of Defense

Page 21 GAO/NSIAD-98-29 Defense Inventory
Appendix I 

Scope and Methodology

To quantify the number and value of the Department of Defense’s (DOD)

suspended inventory, we obtained computerized inventory records of

inventory between April 1997 and June 1997 in suspended condition codes

at all military services and Defense Logistics Agency (DLA) inventory

control points. We removed surcharges covering the costs to operate the

supply system, and we revalued the suspended inventory at the latest

acquisition cost. These databases generate the records, statistics, and

reports that DOD uses to manage its inventories, make decisions, and

determine requirements. We did not independently verify the accuracy of

the military services’ and DLA’s inventory databases from which we

obtained data. Therefore, our report notes that these data are reported

values.

With the use of the inventory records, we identified the Air Force and

Warner Robins Air Logistics Center (ALC) as the DOD component and its

inventory control activity with the highest reported dollar value of

suspended items. At Warner Robins, we reviewed a judgmental sample of

1,971 suspended items (valued at $67 million and representing 101

different inventory numbers). We excluded depot-level repairables

suspended in the repair cycle process (M condition) from our review

because this status is a normal condition for this type of material and the

items are routinely considered as assets in the requirement computations

of the inventory control activities. We also excluded suspended

ammunition (N condition) because this inventory is held for emergency

combat use.

We reviewed policies and procedures and obtained other relevant data

related to suspended inventory management from officials at the DLA

Headquarters, Alexandria, Virginia; Air Force Materiel Command,

Wright-Patterson Air Force Base, Ohio; and Warner Robins ALC and

Defense Distribution Depot, Georgia.

To determine the age of our sample items, we held discussions with item

managers and reviewed storage activity data and inventory records. To

learn whether issues associated with suspended items were promptly

resolved and the reasons for delays in resolving the inventory status of

suspended items, we reviewed Air Force and Warner Robins implementing

guidance and assessments of internal controls. Such information provided

the basis for conclusions regarding the management of suspended

inventory. To determine if the Air Force had emphasized suspended

inventory management as part of its assessment of internal controls, we

reviewed assessments from Warner Robins for fiscal years 1993-97, Air

Page 22 GAO/NSIAD-98-29 Defense Inventory
Appendix I 

Scope and Methodology

Force Materiel Command for fiscal years 1995-96, and the Air Force

Headquarters for fiscal years 1993-96.

To assess the accuracy of data maintained for our sample items, we

reviewed the results of several recent Warner Robins inventory accuracy

assessments. To ensure the accuracy of inventory records for our sample

items, we obtained additional evidence from Warner Robins item

managers and warehouse personnel. Consequently, we are confident that

our findings represent material conditions for the items we reviewed.

We performed our review between April and October 1997 in accordance

with generally accepted government auditing standards.

Page 23 GAO/NSIAD-98-29 Defense Inventory
Appendix II 

Supply Condition Codes

Code Title Definition

A Serviceable (issuable

without qualification)

New, used, repaired, or reconditioned materiel that is serviceable and issuable to all

customers without limitation or restriction.

B Serviceable (issuable with

qualification)

New, used, repaired, or reconditioned materiel that is serviceable and issuable for its

intended purpose but is restricted from issue to specific units, activities, or

geographical areas by reason of its limited usefulness or short service life expectancy.

C Serviceable (priority issue) Items that are serviceable and issuable to selected customers but must be issued

before supply condition codes A and B materiel to avoid loss as a usable asset.

D Serviceable

(test/modification)

Serviceable materiel that requires test, alteration, modification, technical data marking,

conversion, or disassembly, not including items that must be inspected or tested

immediately before issue.

E Unserviceable (limited

restoration)

Materiel that involves only limited expense or effort to restore to serviceable condition

and is accomplished in the storage activity in which the stock is located. The materiel

may be issued to support ammunition requisitions coded to indicate acceptability of

usable stock.

F Unserviceable (reparable) Economically reparable materiel that requires repair, overhaul, or reconditioning,

including reparable items that are radioactively contaminated.

G Unserviceable (incomplete) Materiel requiring additional parts or components to complete before issue.

H Unserviceable (condemned) Materiel that has been determined to be unserviceable and does not meet repair criteria.

J Suspended (in stock) Materiel in stock that has been suspended from issue, pending condition classification

or analysis, when the true condition is not known.

K Suspended (returns) Materiel returned from customers or users and awaiting condition classification.

L Suspended (litigation) Materiel held pending litigation or negotiation with contractors or common carriers.

M Suspended (in work) Materiel that has been identified on an inventory control record but turned over to a

maintenance facility or contractor for processing.

N Suspended (ammunition

suitable for emergency

combat use only)

Ammunition stocks suspended from issue except for emergency combat use.

P Unserviceable (reclamation) Materiel that is determined to be unserviceable and uneconomically reparable, as a

result of physical inspections, teardown, or engineering decision, but contains

serviceable components or assemblies to be reclaimed.

Q Suspended (qualitydeficient exhibits)Quality-deficient exhibits returned by customers or users as directed by the Integrated

Materiel Manager, due to technical deficiencies reported by Quality Deficiency Reports.

(This code is for intra-Air Force use only.)

R Suspended (reclaimed

items awaiting condition

determination)

Assets turned in by reclamation activities that do not have the capability (e.g., skills,

personnel, or test equipment) to determine materiel condition. Actual condition will be

determined before induction into maintenance activities for repair or modification.

S Unserviceable (scrap) Materiel that has no value except for its basic materiel content.

Note: Condition codes I, O, and T through Z are not assigned and reserved for future DOD

assignment.

Source: DOD.

Page 24 GAO/NSIAD-98-29 Defense Inventory
Appendix III 

Additional Information on Suspended

Material and DOD Time Standards

Table III.1 shows the reported quantity and value of suspended inventory

items by ALC, and table III.2 shows this information specifically for Warner

Robins ALC. Table III.3 shows the number of items in our sample that met

or failed to meet DOD time standards, and table III.4 shows the number of

items that were in a suspended status at the time of our review and the

amount of time that the items were suspended.

Table III.1: Reported Quantity and

Value of Suspended Material by ALC

(as of Apr. 1997) 

Dollars in millions

ALC Number of items Value

Oklahoma City 26,900 $218.6

Ogden 279,300 567.3

San Antonio 31,700 298.1

Sacramento 5,000 30.4

Warner Robins 60,600 1,260.4

Total 403,500 $2,374.8

Table III.2: Reported Quantity and

Value of Suspended Inventory

Managed by the Warner Robins ALC

(as of Apr. 1997) 

Dollars in millions

Suspension code Number of items Value

Material in inventory (J) 17,300 $54.5

Customer returns (K) 38,800 1,087.0

Inventory in litigation (L) 100 0.4

Quality-deficient inventory (Q) 500 19.2

Reclaimed inventory (R) 3,900 99.3

Total 60,600 $1,260.4

Table III.3: Our Analysis of Sample Items That Met or Failed to Meet DOD Time Standards

Items meeting standard Items not meeting standard

Suspension code

Time standard

(in days) Number Value Number Value

Material in inventory (J) 90 59 $671,956 740 $28,797,864

Customer returns (K) 10 0 0 31 687,000

Reclaimed inventory (R) 180 4 99,883 986 35,512,041

Total 63 $771,839 1,757 $64,996,905

Page 25 GAO/NSIAD-98-29 Defense Inventory
Appendix III 

Additional Information on Suspended

Material and DOD Time Standards

Table III.4: Our Analysis of the Time Items Remained in a Suspended Status

Number of days in suspension

Suspension code 0-30 31-60 61-90 91-180 181-365 366-730 730 or more Total

Material in inventory (J) 4 1 54 208 303 103 126 799

Customer returns (K) 0 0 0 5 9 16 1 31

Inventory in litigation (L) 0 0 0 0 1 0 88 89

Quality-deficient inventory (Q) 1 8 19 30 2 2 0 62

Reclaimed inventory (R) 0 0 0 4 63 312 611 990

Total 5 9 73 247 378 433 826 1,971

Page 26 GAO/NSIAD-98-29 Defense Inventory
Appendix IV 

Comments From the Department of Defense

Page 27 GAO/NSIAD-98-29 Defense Inventory
Appendix V 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

Charles I. Patton, Jr.

Lawson (Rick) Gist, Jr.

James Murphy

Norfolk Field Office Sandra F. Bell

Dawn R. Godfrey

Kansas City Field

Office

Robert C. Sommer

Page 28 GAO/NSIAD-98-29 Defense Inventory
Page 29 GAO/NSIAD-98-29 Defense Inventory
Page 30 GAO/NSIAD-98-29 Defense Inventory
Page 31 GAO/NSIAD-98-29 Defense Inventory
Related GAO Products

High-Risk Series: Defense Inventory Management (GAO/HR-97-5, Feb. 1997).

Defense Logistics: Much of the Inventory Exceeds Current Needs

(GAO/NSIAD-97-71, Feb. 28, 1997).

Defense Inventory: Spare and Repair Parts Inventory Costs Can Be

Reduced (GAO/NSIAD-97-47, Jan. 17, 1997).

Logistics Planning: Opportunities for Enhancing DOD’s Logistics Strategic

Plan (GAO/NSIAD-97-28, Dec. 18, 1996).

1997 DOD Budget: Potential Reductions to Operation and Maintenance

Program (GAO/NSIAD-96-220, Sept. 18, 1996).

Defense IRM: Critical Risks Facing New Materiel Management Strategy

(GAO/AIMD-96-109, Sept. 6, 1996).

Navy Financial Management: Improved Management of Operating

Materials and Supplies Could Yield Significant Savings (GAO/AIMD-96-94,

Aug. 16, 1996).

Defense Logistics: Requirements Determinations for Aviation Spare Parts

Need to Be Improved (GAO/NSIAD-96-70, Mar. 19, 1996).

Defense Inventory: Opportunities to Reduce Warehouse Space

(GAO/NSIAD-95-64, May 24, 1995).

Defense Supply: Inventories Contain Nonessential and Excessive

Insurance Stocks (GAO/NSIAD-95-1, Jan. 20, 1995).

Army Inventory: Unfilled War Reserve Requirements Could Be Met With

Items From Other Inventory (GAO/NSIAD-94-207, Aug. 25, 1994).

Air Force Logistics: Improved Backorder Validation Procedures Will Save

Millions (GAO/NSIAD-94-103, Apr. 20, 1994).

Air Force Logistics: Some Progress, but Further Efforts Needed to

Terminate Excess Orders (GAO/NSIAD-94-3, Oct. 13, 1993).

(709254) Page 32 GAO/NSIAD-98-29 Defense Inventory
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