United States General Accounting Office

GAO Report to the Chairman, Subcommittee

on Military Readiness, Committee on

National Security, House of

Representatives

December 1995 ARMY INVENTORY

Budget Requests for

Spare and Repair Parts

Are Not Reliable

GAO/NSIAD-96-3

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-258887 

December 29, 1995

The Honorable Herbert H. Bateman

Chairman, Subcommittee on Military Readiness

Committee on National Security

House of Representatives

Dear Mr. Chairman:

We reviewed the accuracy of spare and repair parts data used in

determining Army inventory requirements and Defense Business

Operating Fund1

 budget requests. Our objectives were to evaluate (1) the

accuracy of the databases used to determine item requirements and

inventory levels for budget request purposes and (2) the actions taken to

correct data problems that could affect the reliability of the budget

estimates. Our scope and methodology are shown in appendix I.

Background The five major Army inventory control points2

 manage secondary items

and repair parts valued at $17 billion. These items are used to support

Army track and wheeled vehicles, aircraft, missiles, and communication

and electronic systems.

The process for identifying the items and the quantity to stock begins with

developing the budget request—the key to effective inventory

management. If too few or the wrong items are available to support the

forces, then readiness suffers and the forces may not be able to perform

their assigned military missions. On the other hand, if too many items are

acquired, then limited resources are wasted and unnecessary costs are

incurred to manage and maintain the items.

The Army uses different processes for determining its spare and repair

parts budget requests and for determining which parts to buy or repair.

The process for determining spare and repair parts budget requests is

based on data from the budget stratification reports, which show the

dollar value of requirements and inventory available to meet the

requirements. When an item’s available inventory is not sufficient to meet

1

Spare and repair parts at the wholesale inventory level are procured through the Defense Business

Operating Fund, a revolving account. Each year, the Department of Defense submits a budget request

showing what it plans to procure.

2

The five inventory control points are the Armament and Chemical Acquisition and Logistics Activity

(ACALA), Aviation and Troop Support Command (ATCOM), Communications-Electronics Command

(CECOM), Missile Command (MICOM), and Tank-Automotive and Armaments Command (TACOM).

Page 1 GAO/NSIAD-96-3 Army Inventory
B-258887 

the requirements, it is considered to be in a deficit position. The aggregate

value of items in a deficit position then becomes the Army’s basis for

determining its spare and repair parts needs. As these needs are

formulated into a budget request, the end result (budget request) is

normally less than the aggregate value of items in a deficit position. This

makes it even more important that the true needs be based on accurate

data. Otherwise, funds may be allocated to procuring spare and repair

parts that should be spent on other priority needs. Using accurate data in

the requirements determination process avoids such misallocation of

funds. We have previously issued reports pointing out data inaccuracy

problems in the Army’s requirements determination process and the effect

of these inaccuracies on inventory decisions. See appendix IV.

The process for determining which items to buy or repair is based on

information in the item’s supply control study, which is automatically

prepared when an item reaches a point when insufficient assets are

available or due in to meet requirements. When a study is prepared, the

item manager validates the requirements and asset information in the

study. Based on the results of the validated data, the item manager will

decide whether to buy, repair, or not buy the quantity recommended by

the study.

Results in Brief The Army’s September 30, 1994, budget stratification report, the latest

information available at the time of our review, contained numerous

instances where an item’s deficit inventory position was based on

inaccurate requirements or inventory data. Our review of 258 items3

 with a

reported deficit inventory value of $519 million, or 69 percent of the total

deficit value, showed that the deficit position for $211 million of the items

was not reported correctly. If accurate information had been used, the

inventory deficit would have been $23 million rather than the $211 million

reported.

Although the Army is aware of many of the processing, policy, data, and

system problems, it has not made changes to correct them because the

Department of Defense is developing a standard requirements

determination system for all the services as part of its Corporate

Information Management initiative. For that reason, Defense has limited

how much the services can spend to change their existing systems. Army

officials said that they had submitted requests to correct many of the data

problems to the Department of Defense. In their opinion, the cost to

3

The universe of items we reviewed consisted of items with a deficit value of $500,000 or more.

Page 2 GAO/NSIAD-96-3 Army Inventory
B-258887 

implement these changes would be minimal compared to the potential

benefits. Nevertheless, the requests have not been funded for

implementation because Defense is reluctant to spend resources on a

system that will be replaced by a standard system.

Army officials said that the standard system will not be implemented for at

least 4 years and that much of the existing data will be integrated into the

standard system. In the interim, the Army lacks assurance that its budget

requests represent its actual funding needs for spare and repair parts.

Furthermore, unless the systemic data problems are corrected now, the

inaccurate data will be integrated into the new system when it is finally

implemented.

Inaccurate Data

Caused Items to Be

Erroneously Reported

in a Deficit Position

As of September 30, 1994, we reviewed 258 items from a universe of 

8,526 items with a deficit inventory position. The selected items

represented 3 percent of the items in a deficit position but accounted for

$519 million, or 69 percent, of the $750 million deficit inventory value. We

found that 94 of the 258 items, with a reported deficit inventory value of

$211 million, had data errors that affected the items’ requirements or

inventory available to satisfy the requirements.

Table 1 shows the results of our review for the Army’s inventory control

points.

Table 1: Items Selected for Review That Were Reported in a Deficit Position as of September 30, 1994

Total universe Items selected

Items erroneously reported in a deficit

position

Items in deficit position

Dollars in millions

Inventory control point Number Value Number Value Number Value Percent

ACALA 2,099 $174 62 $120 27 $37 44

ATCOM 1,608 326 105 265 46 149 44

CECOM 2,059 125 45 73 8 7 18

MICOM 1,691 96 39 47 11 11 28

TACOM 1,069 29 7 14 2 7 29

Total 8,526 $750 258 $519 94 $211 36

Overstated requirements and understated inventory levels were the major

reasons items were erroneously reported in a deficit position. In addition,

some items were incorrectly included in the process for determining

Page 3 GAO/NSIAD-96-3 Army Inventory
B-258887 

funding requirements. If the items’ inventory position had been correctly

reported, the true deficit value for the 94 items would have been about

$23 million rather than $211 million.

Table 2 shows the major reasons why items were incorrectly classified as

deficit.

Table 2: Reasons Why Items Were

Erroneously Classified as Deficit Items

(as of September 30, 1994) 

Dollars in millions

Reason

Number

of items

Deficit inventory

value reported

Deficit position

based on accurate

data

Overstated requirements 53 $121.6 $15.5

Understated inventory level 26 59.9 4.2

Item should not have been

included in stratification

process 9 9.7 0.1

All others 6 19.6 3.0

Total 94 $210.8 $22.8

Overstated Requirements When insufficient inventory is on hand and due in to meet an item’s

requirements, the budget stratification process will report the item as

being deficit. If the item’s deficit position is caused by overstated

requirements, this means that resources could be wasted buying unneeded

items.

As shown in table 2, overstated requirements caused 53 items to be

erroneously reported as being in a deficit position. The overstated

requirements resulted from inaccurate demand data, inaccurate leadtime

data, and lower-than-expected requirements. Table 3 shows the number of

instances where these reasons caused the items’ requirements to be

overstated.

Table 3: Reasons for Overstated

Requirements Dollars in millions

Reason

Number of

items

Reported deficit

position

Inaccurate demand data 28 $61.1

Requirements did not materialize 19 44.1

Inaccurate leadtime and safety level data 6 16.4

Total 53 $121.6

Page 4 GAO/NSIAD-96-3 Army Inventory
B-258887 

The following examples illustrate the types of inaccurate data that caused

overstated requirements:

• The item manager for an aircraft floor item used on the CH-47 Chinook

helicopter said that the database still included demands from Operations

Desert Shield and Desert Storm. Including these demands in the

requirements determination caused the budget stratification process to

erroneously classify the item as having a deficit inventory position of

about $500,000. If the outdated demands had been purged from the system,

the item would not have been in a deficit position.

• According to the item manager for the front lens assembly item used on

the AN/PVS-7B Night Vision Goggles, the item requirements shown in the

budget stratification report did not materialize. She said that the report

showed the item as having a deficit inventory position of $2.4 million.

However, when it came time to procure the item, the project leader

reduced the planned procurement quantity because the field units

indicated they did not like the item. The item’s actual deficit position

should have been only $18,000.

• According to the item manager, an angle drive unit used on the M2/M3,

M2A1/M3A1 Bradley Fighting Vehicle system had an inflated safety level

requirement in the budget stratification report. The report showed a safety

level of 6,887 units instead of the correct safety level of 355. As a result, a

deficit inventory position of $6.6 million was reported.

Understated Inventory

Levels

When a prime stock number has authorized substitute items, the

requirements and inventory for the prime and substitute items are

supposed to be added and shown as one requirement and one inventory

level under the prime number. This did not happen. The requirements for

both types of items were shown as one requirement but the inventory was

not. As a result, the inventory to meet the overall requirement was

understated, and the item was placed in a deficit position. For example,

according to the item manager for a night window assembly used on the

TOW subsystem for the M2/M3 Bradley Fighting Vehicle, the budget

stratification report showed a deficit supply position of $800,000 for the

item. This occurred because inventory belonging to a substitute item was

not counted toward the prime item’s requirements. The item manager said

the true deficit for the assembly was $65,000.

There were also requirements problems for items being repaired at

maintenance facilities. The requirements system did not accurately track

stock in transit between overhaul facilities and the depots. According to

Page 5 GAO/NSIAD-96-3 Army Inventory
B-258887 

item managers at several inventory control points, they had problems

either tracking the physical movement of inventory between the depots

and repair facilities, or ensuring that all records were processed so the

database accurately accounted all applicable assets. These problems could

cause items to be erroneously reported as being in a deficit position.

Table 4 shows how often these reasons resulted in understated inventory

levels.

Table 4: Reasons for Understated

Inventory Levels Dollars in millions

Reason

Number of

items

Value of deficit

position

Overhaul items not considered 21 $39.3

Substitute items not accurately tracked 5 20.6

Total 26 $59.9

Items Incorrectly Included

in the Budget Stratification

Process

Our review of selected items identified nine items that should have been

excluded from the budget stratification process. By including these items,

the budget stratification process identified funding needs for the items

when, in fact, the funds to procure the items were being provided by

another service, a foreign country under a foreign military sales

agreement, or another appropriation.

Table 5 shows the number of items that were incorrectly included in the

budget stratification process.

Table 5: Items That Should Have Been

Excluded Dollars in millions

Reason

Number of

items Value

Foreign military sales items 4 $5.7

Item purchased with procurement appropriation funds 2 2.1

Item miscoded as Army item 1 0.7

Item miscoded as project manager item 1 0.7

End item miscoded as secondary item 1 0.5

Total 9 $9.7

The following examples illustrate the effect of including “excluded” items

in the budget stratification process:

Page 6 GAO/NSIAD-96-3 Army Inventory
B-258887 

• According to the item manager for a fire control electronic unit used on

the M1A2 main battle tank, the Army issued a contract in August 1993 to

procure items to meet the Army’s requirements as well as foreign military

sales. Because the Army is reimbursed for foreign military sale items,

these items should have been excluded from the budget stratification

process. However, the items were included in the stratification process

and were reported as having a deficit inventory position of $2.3 million.

• The inventory control point procured a gas-particulate filter unit used in

producing modular collective protective equipment. According to the item

manager, procurement appropriation funds, provided by the program

manager’s office, were used to buy the items. Because the stratification

process is only supposed to deal with items procured by the Defense

Business Operating Fund, the item should not have been included in the

stratification process and a deficit inventory position of about $800,000

should not have been reported.

• According to the item manager, the Air Force manages and makes all

procurements for a panel clock item. The Army’s budget stratification

report showed this item had a deficit inventory position of $700,000.

However, because the Air Force managed this item, the panel clock should

not have been coded as an Army secondary item for inclusion in the

budget stratification report.

• The item manager for an electronic component item said that the item

should have been coded as an inventory control point asset rather than a

project manager’s office asset. Because project manager items are not

available for general issue, these items were not counted against the item’s

requirements in the budget stratification report. If these items had been

properly coded, the item would not have been reported as having a

$700,000-deficit inventory position.

• According to the item manager, an electronic component item should have

been coded as a major end item rather than a secondary item and not

included in the budget stratification process. The item was reported as

having a deficit inventory position of $500,000.

Army Is Aware of the

Data Problems, but Is

Waiting to Make

Corrections

The Army is aware of many of the processing, policy, and data problems

affecting the accuracy of the requirements data. Furthermore, the Army

has identified 32 change requests to correct problems with the

requirements determination and supply management system.

Page 7 GAO/NSIAD-96-3 Army Inventory
B-258887 

System Change Requests According to Army officials, the cost to implement the 32 change requests

would be about $660,000, and in their opinion, the benefits would greatly

outweigh the added costs. The officials said these changes would correct

many of the problems, including some of the ones we identified during our

review. Nevertheless, not all of the requests have been approved for

funding because the Department of Defense is developing a standard

requirements system as part of its Corporate Information Management

initiative and does not want to spend resources to upgrade existing

systems. As a result, it has limited the changes that the services can make

to their existing systems.

Army officials said that the standard system is not expected to be

implemented for at least 4 years. Furthermore, major parts of the existing

system will probably be integrated into the standard system. Therefore,

unless the data problems are corrected, they will be integrated into the

standard system and the Army will still not have reliable data.

Processing Problems Army officials also cited examples where processing change requests are

needed to correct other data problems in the requirements determination

system. For example, the depots do not always confirm material release

orders/disposal release orders received from the inventory control points.

As a result, the inventory control points do not know if the depots actually

received the orders. They identified numerous instances where the depots

put the release orders in suspense because of higher priority workloads.

This resulted in the release orders not being processed in a timely manner,

processed out of sequence, or lost and not processed at all.

Because the inventory control points could not adequately track the

release orders, they could have reissued the release orders. The reissuance

could have caused duplicate issues or disposals, imbalances in the records

between the inventory control points and the depots, and poor supply

response to the requesting Army units.

A system change request was initiated in November 1994 to address this

problem, but the request has not yet received funding approval. Although

Army officials could not provide a cost estimate to implement the change

request, it could save about $1 million in reduced workload for the

inventory control points and depots.

Page 8 GAO/NSIAD-96-3 Army Inventory
B-258887 

Policy Problems According to Army officials, one programming application in the

requirements determination system uses reverse logic to calculate the

supply positions of serviceable and unserviceable assets. It compares the

supply position of all serviceable assets to the funded approved

acquisition objective (current operating and war reserve requirements).

However, for the same item, the program compares the supply position of

all unserviceable assets to the total of the current operating and war

reserve requirements, the economic retention quantity, and contingency

quantity. The effect of this is that serviceable inventory can be sent to

disposal while unserviceable inventory is being returned to the depots.

According to Aviation and Troop Command records, the Command

disposed of $43.5 million of serviceable assets at the same time that

$8.5 million of unserviceable assets, of the same kind, were returned to the

depots between March and September 1994. By September 1995, the

Command had disposed of $62 million of serviceable assets. Command

officials said that a system change request was initiated in November 1994

to correct the programming logic problem. However, the request did not

receive funding approval because it violated Department of Army policy,

even though the estimated cost to implement the change request would be

less than $20,000.

Although this change will not reduce the reported deficit quantities, it will

allow the commands to keep more serviceable items in lieu of

unserviceables, and it will reduce overhaul costs. Furthermore, according

to Command records, this policy is causing the disposal of high-dollar,

force modernization items that could result in re-procurement and

adversely affect stock availability to field units.

Recommendations We recommend that the Secretary of Defense direct the Secretary of the

Army to proceed with the pending system change requests to correct the

data problems. Doing so could correct many of the problems identified in

our report. Furthermore, the corrective actions would improve the overall

reliability and usability of information for determining spare and repair

parts requirements.

Agency Comments The Department of Defense agreed with the report findings and partially

agreed with the recommendation. It said that instead of the Secretary of

Defense directing the Army to proceed with the system change request,

the Army will be requested to present a request for funding for the system

Page 9 GAO/NSIAD-96-3 Army Inventory
B-258887 

changes to the Corporate Configuration Control Board at the Joint

Logistics Systems Center. The Board, as part of the Corporate Information

Management initiative, was established to consider and resolve funding

matters related to changes to existing systems.

In our opinion, the action proposed by the Department of Defense

achieves the intent of our recommendation, which was for the Army to

seek funds to correct the data problems in its requirements determination

system. Defense’s comments are presented in their entirety in appendix II.

We are sending copies of this report to the Secretary of the Army; the

Director, Office of Management and Budget; and the Chairmen, House

Committee on Government Reform and Oversight, Senate Committee on

Governmental Affairs, the House and Senate Committees on

Appropriations, House Committee on National Security, and Senate

Committee on Armed Services.

Please contact me on (202) 512-5140 if you have any questions concerning

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

Sincerely yours,

Mark E. Gebicke

Director, Military Operations

 and Capabilities Issues

Page 10 GAO/NSIAD-96-3 Army Inventory
Page 11 GAO/NSIAD-96-3 Army Inventory
Appendix I 

Scope and Methodology

We held discussions with responsible officials and reviewed Army

regulations to determine the process used by the Army to identify its spare

and repair parts needs for its budget development process. We focused on

the process used to identify items in a deficit position.1

 As part of these

discussions, we also studied the budget stratification process, which is the

major database input used in the budget development process.

To identify the items in a deficit position, we obtained the September 30,

1994, budget stratification data tapes for the five Army inventory control

points: Army Munitions and Chemical Command, Aviation and Troop

Command, Communications-Electronics Command, Missile Command,

and Tank-Automotive Command. From the total universe of 

8,526 secondary items with a deficit inventory position valued at 

$750 million, we selected all items that had a deficit position of $500,000 or

more. This resulted in a sample of 258 items with a total inventory deficit

position of $519 million, or 69 percent of the total deficit. For each of the

258 selected items, we obtained information from the responsible item

manager to determine whether the item was actually in a deficit position

as of September 30, 1994. For those items that the budget stratification

process had erroneously placed in a deficit position, we determined the

reason for its misclassification. We obtained this information by reviewing

item manager files and discussing the items with responsible item

management personnel.

We categorized the reasons for the erroneous classifications to determine

frequency distribution for each type of reason. We then determined

through discussions with item management officials and review of system

change requests what actions were taken or planned to correct the

identified problems.

We performed our review from October 1994 to July 1995 in accordance

with generally accepted government auditing standards.

1

An item in a deficit position is one where the requirements exceed the inventory available to the

requirements.

Page 12 GAO/NSIAD-96-3 Army Inventory
Appendix II 

Comments From the Department of Defense

Page 13 GAO/NSIAD-96-3 Army Inventory
Appendix II 

Comments From the Department of Defense

Now on pp. 3-7.

Page 14 GAO/NSIAD-96-3 Army Inventory
Appendix II 

Comments From the Department of Defense

Now on pp. 7-9

Now on p. 9.

Page 15 GAO/NSIAD-96-3 Army Inventory
Appendix III 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

Sharon A. Cekala

Robert J. Lane

Kansas City Regional

Office

Leonard C. Hill

Robert C. Sommer

Mark T. Amo

Page 16 GAO/NSIAD-96-3 Army Inventory
Page 17 GAO/NSIAD-96-3 Army Inventory
Page 18 GAO/NSIAD-96-3 Army Inventory
Page 19 GAO/NSIAD-96-3 Army Inventory
Related GAO Products

Army Inventory: Growth in Inventories That Exceed Requirements

(GAO/NSIAD-90-68, Mar. 22, 1990).

Defense Inventory: Shortcomings in Requirements Determination

Processes (GAO/NSIAD-91-176, May 10, 1991).

Army Inventory: Need to Improve Process for Establishing Economic

Retention Requirements (GAO/NSIAD-92-84, Feb. 27, 1992).

Army Inventory: More Effective Review of Proposed Inventory Buys Could

Reduce Unneeded Procurement (GAO/NSIAD-94-130, June 2, 1994).

Defense Inventory: Shortages Are Recurring, But Not a Problem

(GAO/NSIAD-95-137, Aug. 7, 1995).

(703086) Page 20 GAO/NSIAD-96-3 Army Inventory
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