GAO

United States General Accounting Office

Report to the Chairman, Subcommittee 

on Readiness and Management Support, 

Committee on Armed Services, 

U.S. Senate

November 2000 DEFENSE 

INVENTORY

Most Excess Property 

in Panama Was 

Disposed of Properly, 

but Some Control 

Weaknesses Existed

GAO-01-32

Page 1 GAO-01-32 Defense Inventory

Contents

Letter 3

Appendixes Appendix I: Scope and Methodology 24

Appendix II: Dollar Value and Types of Excess Property Processed

by Dyncorp 26

Appendix III: Examples of How Some Excess Property From Closing 

Facilities in Panama Were Used 27

Appendix IV: Examples of Exchange Packages Agreed Upon by the

United States and the Government of Panama 30

Appendix V: Comments From the Department of Defense 31

Appendix VI: GAO Contacts and Staff Acknowledgments 32
Page 2 GAO-01-32 Defense Inventory
Page 3 GAO-01-32 Defense Inventory

United States General Accounting Office

Washington, D.C. 20548

Letr

November 9, 2000

The Honorable James M. Inhofe

Chairman, Subcommittee on Readiness

 and Management Support

Committee on Armed Services

United States Senate

Dear Mr. Chairman:

The Panama Canal Treaty, signed in 1977 by the United States and the 

Republic of Panama, called for the United States to transfer control over 

the Panama Canal to Panama and withdraw U.S. military forces and 

equipment from Panama by December 31, 1999. A treaty implementing 

agreement allowed the U.S. government to remove or dispose of all 

equipment and supplies acquired for use by U.S. forces. By December 31, 

1999, the United States had closed all of its 43 facilities in Panama, removed 

and disposed of excess personal property1

 ranging from motor vehicles to 

medical equipment, and withdrawn its military presence from Panama. The 

U.S. Southern Command,2

 the military services, and the Defense Logistics 

Agency, through its Defense Reutilization and Marketing Service,3 were 

responsible for disposing of excess equipment and supplies. 

U.S. plans for withdrawal from Panama required excess property to be 

processed using disposal procedures that gave the military services and the 

federal agencies the first opportunity to receive the property. Originally, it 

was expected that much of the excess property located in Panama would 

be obtained by the U.S. Agency for International Development and 

1

 Department of Defense (DOD) personal property is defined as military equipment or 

general support equipment and supplies used in day-to-day mission, administrative, or 

logistical operations.

2

 The Southern Command is a regional unified command that oversees U.S. military 

operations in 19 countries in Central and South America and it was responsible for carrying 

out the treaty implementation plan. Its headquarters was previously located in Panama but 

moved to Miami, Florida, in September 1997.

3

 The Defense Reutilization and Marketing Service, a component of the Defense Logistics 

Agency, operates offices to reutilize, donate, destroy, or sell excess property. We refer to its 

office in Panama as the disposal office. 
Page 4 GAO-01-32 Defense Inventory

distributed to charitable organizations in Panama. However, when 

negotiations with Panama to retain a U.S. presence at Howard Air Force 

Base for drug interdiction activities were unsuccessful, the U.S. Southern 

Command used available authority to obtain a waiver so that charitable 

organizations were given priority over federal agencies for obtaining 

excess personal property. The Command hired a contractor to facilitate the 

distribution of some excess personal property to charitable organizations 

for humanitarian aid throughout Central and South America. Recently, 

questions surfaced in the media concerning the procedures followed for 

the disposal of excess personal property in Panama during 1998-99. 

As requested, we reviewed the disposal of excess personal property from 

U.S. military facilities in Panama during 1998-99. Specifically, we evaluated 

(1) the methods used for property disposal, (2) the extent of direction and 

control the Southern Command exerted over property allocations and 

distributions to charitable organizations facilitated by its contractor to 

facilitate property distribution, and (3) the extent that DOD records fully 

accounted for the disposed excess property. An Army Criminal 

Investigation Command inquiry that focused on whether some of the 

excess property in Panama may have been improperly obtained by a 

charitable organization was being conducted concurrently with our review. 

We focused our review on management control issues to avoid overlapping 

this ongoing investigation. The scope and methodology of our work are 

described in appendix I.

Results in Brief During 1998 and 1999, excess property resulting from the withdrawal of 

troops from Panama was disposed of by a variety of methods. The methods 

included processing the excess property through the Defense Reutilization 

and Marketing Service’s Panama disposal office, using a contractor to 

distribute the property, exchanging the excess property with the 

Panamanian government for services, and selling household appliances to 

defense personnel. The Panama disposal office processed excess property 

with a value of $136.7 million, with $94.8 million (69 percent) directly 

disposed of by the disposal office and about $41.9 million (31 percent) 

turned over to the Southern Command’s contractor and distributed to 

government agencies and charitable organizations. Excess property with a 

market value of $2.7 million was exchanged with the Panamanian 

government for such things as office space, traffic police services, and 

veterinarian services. Also, 3,717 excess household appliances, such as 
Page 5 GAO-01-32 Defense Inventory

stoves and refrigerators, were sold to U.S. military and civilian personnel 

for transfer to their new duty stations.4

Because of a larger than expected volume of excess property that became 

available during 1999, the Southern Command changed its control 

procedures for allocating excess property to charitable organizations, 

leaving many of those decisions to its contractor. Initial procedures 

required Southern Command staff to (1) review the types of excess 

properties becoming available and charitable organizations’ requests for 

excess properties; (2) determine which property would be distributed to 

defense organizations for transfer either to the Panamanian government or 

for humanitarian aid; and (3) determine which charitable organizations 

would receive the remaining property, based on equitable distribution and 

need, and provide written authorizations to the contractor for distribution 

of the property. As a result of the modified procedures, written 

authorization existed for only $18.9 million (45 percent) of the $41.9 million 

of excess personal property processed by the contractor. Whether greater 

Command involvement would have affected the allocation of property 

among the various charitable organizations is unclear. 

The Panama disposal office accounted for all but $691,000 (less than 

1 percent) of the $136.7 million of excess property it processed during 1998 

and 1999. Disposal office records show that property valued at $691,000 

was written off as lost. More importantly, however, is an additional 

$6.6 million of excess property that the military services reported as being 

sent to the Panama disposal office but never recorded as received. Of the 

$6.6 million, about $1.5 million involved property requiring special handling 

such as firearms, communication equipment, and gun parts. We reviewed 

80 shipments containing such property but could only trace the actual 

disposition of 39 shipments. The 39 shipments were originally unaccounted 

for because disposal transactions were not always recorded correctly in 

the Army’s inventory records. Also, DOD’s In-transit Control System5

 and 

inventory control procedures and processes designed to protect excess 

property from loss or theft were not always followed in Panama because 

personnel were not adequately trained to comply with the processes and 

procedures. For the remaining 41 shipments, we could not determine the 

4

 DOD did not assign a value to these items.

5

 DOD’s In-transit Control System tracks shipments of excess property between military 

activities and the Defense Reutilization and Marketing Service’s disposal offices.
Page 6 GAO-01-32 Defense Inventory

disposition because records were incomplete or could not be located. The 

lack of such information makes the property vulnerable to loss and 

undetected theft since no documentation is available to track its location. 

The Department recognizes the need to properly manage and account for 

its assets and is working on a long-term strategy for developing an 

information system that provides in-transit control and visibility.

This report includes a recommendation to the Secretary of Defense that 

supply personnel be sufficiently trained on property disposal control 

procedures. The Department agreed with the recommendation. 

Background In 1903, following its declaration of independence from Colombia, Panama 

and the United States entered into a treaty that gave the United States 

exclusive rights to construct and manage an interoceanic ship canal 

50 miles across the isthmus. In addition to operating the canal, the United 

States had sovereignty over the territory along the canal until 1977, when 

the United States and Panama signed the Panama Canal Treaty. This treaty 

recognized Panama as having sovereignty over the Panama Canal and 

required the withdrawal of the U.S. military presence from Panama by 

December 31, 1999. Treaty provisions required that the United States 

transfer, without charge, all U.S. military real property (e.g., lands, 

buildings, structures, and utilities systems) to the Panamanian government. 

The withdrawal of the U.S. military presence from Panama was a major 

undertaking. In 1979, DOD maintained 4,827 buildings on 43 facilities in 

Panama. DOD’s treaty implementation plan, approved by the Secretary of 

Defense in 1992 and updated in 1993 and 1994, included steps to relocate or 

deactivate about 10,050 military personnel, 3,000 U.S. civilians, and 5,200 

non-U.S. civilian personnel and transfer all Defense facilities to Panama by 

the end of 1999. From 1979 through 1999, the United States closed its 43 

facilities in Panama and disposed of the excess property. As of 

December 31, 1999, DOD had transferred real property with an estimated 

market value of $3.8 billion to Panama. 
Page 7 GAO-01-32 Defense Inventory

The Federal Property and Administrative Services Act distinguishes 

between foreign excess personal property, such as that located in Panama, 

and excess property in general and contains specific provisions, including 

40 U.S.C. 512, that pertain to its disposal.6

 The U.S. Southern Command’s 

(SOUTHCOM) disposal plan recognized the requirements of this and other 

applicable laws.7

Once a military activity or the Defense Logistics Agency declares property 

excess to its needs, the property enters the disposal process.8

 Excess 

property is usually sent to a Defense Reutilization and Marketing Service 

disposal office for disposition with the exception of firearms, items with 

restricted or secrecy designations, and pharmaceuticals that are to be 

destroyed and disposed of by the military component that has the items. 

Upon receipt, disposal office personnel examine the property for condition, 

verify the quantity and acquisition value, and identify special handling 

requirements such as those for military unique items comprised of 

technologies, capabilities, and weapons that should not be made available 

to the public. 

An agreement implementing the Panama Canal Treaty allowed the U.S. 

government to remove from Panama or dispose of all equipment and 

supplies acquired for use by U.S. forces. SOUTHCOM was responsible for 

developing a logistics management plan, which set forth policy and 

guidance for the management and disposition of excess equipment and 

supplies, referred to in the plan as personal property. A key provision of the 

plan was that all excess personal property would be processed using the 

disposal procedures, processes, and controls that DOD ordinarily uses. 

Federal civil agencies screen the foreign excess property for eventual 

return to the United States either for their immediate use or their donation.9

6

 Basically, foreign excess property is excess property located outside of the United States, 

its territories, and possessions (40 U.S.C. 472(f)).

7

 Section 608, Foreign Assistance Act, as amended, 22 U.S.C. 2358 and 10 U.S.C. 2547.

8

 The Federal Property Administrative Services Act of 1949, as amended (40 U.S.C. 471-486 

and 511-514), places responsibility for the disposition of government real and personal 

property with the General Services Administration (GSA) and authorizes DOD to dispose of 

its foreign excess personal property. 

9

 GSA advises that property returned for donation is foreign excess property until it reaches 

the United States. At that time, it becomes “surplus” property and is disposed as such

(40 U.S.C. 512(c)).
Page 8 GAO-01-32 Defense Inventory

Other DOD activities and the U.S. Agency for International Development 

also screen the foreign excess property. In this way, both SOUTHCOM and 

the Agency obtain foreign excess property for humanitarian assistance 

purposes. When this screening is completed, the remaining foreign excess 

property can be disposed of by sale, lease, transfer, abandonment, or 

destruction; it may be used to discharge claims, or may be used in 

substantial benefit transactions.

Excess personal property in Panama requiring disposal represented a wide 

range of items. Specifically, the excess items included motor vehicles, 

furniture, appliances, maintenance and support equipment, office 

machines and equipment, medical equipment and supplies, food, and 

military unique items comprised of technologies, capabilities, and weapons 

that should not be made available to the public.

DOD sometimes uses contractors to handle disposal processes involving 

excess property when doing so is cost-effective or when the disposal 

process is overburdened during specific events, such as the final phases of 

withdrawal of U.S. forces from Panama.

Disposal Methods 

During the Last 2 Years 

of Military Operations 

in Panama

Because of changing disposal objectives and increasing quantities of 

excess property, DOD used several methods to dispose of excess property 

in Panama during 1998-99. Disposal records showed that $136.7 million10 of 

excess personal property was processed by the disposal office. About

$94.8 million (69 percent) was disposed of by the disposal office, and

$41.9 million (31 percent) was turned over to DynCorp Aerospace 

Technology (a contractor) and distributed to government agencies and 

charitable organizations. Some of the excess property processed by the 

disposal office and DynCorp was distributed for humanitarian aid 

throughout Central and South America. Also, an additional $2.7 million of 

10DOD generally uses the standard price (i.e., latest acquisition cost and a surcharge 

covering the costs to operate the supply system) throughout its logistics systems to value 

inventory. Excess property processed by the Panama disposal office also included values 

assigned by the military services for items that they had purchased locally and values 

assigned by disposal office personnel to several single items of nonsensitive property under 

$800 in value that were accumulated together as a batch lot. We recently testified on 

problems that DOD has in valuing its personal property (Department of Defense: Progress 

in Financial Management Reform, GAO/T-AIMD/NSIAD-00-163, May 9, 2000). However, 

throughout this report, the value associated with excess inventory is the value recorded in 

disposal office records unless otherwise noted.
Page 9 GAO-01-32 Defense Inventory

property (fair market value) was transferred to Panamanian government 

organizations in return for services to U.S. personnel, and 3,317 excess 

household appliances were sold to U.S. military and civilian personnel for 

transfer to their new duty stations.

Most Excess Property 

Processed by Panama 

Disposal Office 

During 1998 and 1999, the Panama disposal office processed excess 

equipment and supplies recorded as valued at $136.7 million. Table 1 shows 

the value and disposition of the property according to disposal office 

records for 1998-99.

Table 1: Reported Value, Quantity, and Disposition of Excess Personal Property 

Processed by the Panama Disposal Office During 1998-99

Source: Our analysis of Defense Reutilization and Marketing Service data.

About $94.8 million was disposed of by the disposal office, including about 

$17.4 million, which was provided to military activities. These activities 

included U.S. military affairs groups located in foreign countries in support 

of humanitarian assistance projects, and property was transferred to the 

Panamanian government in exchange for services. About $20 million was 

provided to other federal agencies, including the U.S. Agency for 

International Development office in Panama, and about 

$1.7 million was donated to state and local governmental agencies in the 

United States. An additional $41.9 million was turned over to DynCorp for 

Dollars in thousands 

Disposition Value

Percent of

total No. of Items

Percent of

total

Military units $17,449 12.8 158,038 8.5

Other federal agencies 20,070 14.7 302,094 16.3

DynCorp (for 

redistribution)

41,948 30.7 373,197 20.1

State and local 

governments

1,679 1.2 4,045 0.2

Scrap 10,375 7.6 84,256 4.5

Military items (destroyed) 6,346 4.6 8,396 0.5

Inventory losses 

(write-offs)

691 0.5 18,051 1.0

Public sales 38,153 27.9 908,467 48.9

Total $136,711 100.0 1,856,544 100.0
Page 10 GAO-01-32 Defense Inventory

disposal under Southern Command’s allocation and distribution 

procedures. 

Property Processed by 

Contractor

Although the Panama Canal Treaty specified that all U.S. military forces 

would be withdrawn from Panama, according to DOD the treaty did not 

preclude the United States from negotiating an agreement with Panama for 

the permanent stationing of U.S. military forces in Panama after 1999. 

Accordingly, the United States was negotiating with Panama to retain a 

presence at Howard Air Force Base for drug interdiction activities. In late 

1998, negotiations were unsuccessful and SOUTHCOM decided that it did 

not want all of its excess property to remain in Panama. SOUTHCOM 

decided to donate as much of its excess property as possible for 

humanitarian needs in countries throughout Central and South America. 

On February 4, 1999, the Defense Logistics Agency approved a SOUTHCOM 

request to waive normal disposition priorities so that charitable 

organizations could be given priority over federal agencies for receiving 

excess property in Panama. This action effectively redirected the 

distribution of humanitarian aid to locations in Central and South America 

other than Panama.

According to Defense Reutilization and Marketing Service plans and 

related Panama disposal office documents, the disposal office was 

prepared to handle the surge of excess property associated with U.S. forces 

withdrawing from Panama. However, disposal office officials told us they 

did not have the resources for the added work that would be associated 

with screening, holding, and storing the excess property that SOUTHCOM 

wanted donated to charitable organizations and disseminated throughout 

the region.11 As a result, SOUTHCOM used DynCorp at about 28 sites to 

advise and assist charitable organizations and government agencies that 

wanted to obtain excess property. The disposal office required DynCorp to 

submit written requests for specific items of excess property to be taken 

off the office records. DynCorp was expected to reallocate the property to 

recipients designated by SOUTHCOM. 

As shown in table 1, disposal office records identified 373,197 items valued 

at $41.9 million as being transferred to DynCorp. This represents 20 percent 

of the quantities and 31 percent of the dollar value of the excess property 

processed by the disposal office during the last 2 years of U.S. military 

11 According to DOD, these activities were outside the mission of the disposal office.
Page 11 GAO-01-32 Defense Inventory

operations in Panama. DynCorp submitted written requests to the disposal 

office for the excess property and reallocated the property as follows

(see app. II):

• $20.8 million to six charitable organizations selected by SOUTHCOM; 

• $20.2 million to DOD’s humanitarian assistance programs, U.S. military 

affairs groups located in foreign countries providing humanitarian aid, 

and the Panamanian government in exchange for services; and 

• $491,000 to the U.S. Agency for International Development office in 

Panama. 

Excess Property Was Widely 

Distributed for 

Humanitarian Aid

As noted, a large portion of the excess property from the Panama disposal 

office was made available for humanitarian purposes. Records obtained 

from SOUTHCOM, DynCorp, and charitable organizations showed that this 

property was widely disseminated, going to 29 of the 32 countries in 

SOUTHCOM’s area of responsibility.12 For example, the United Methodist 

Volunteers in Mission received excess property such as maintenance 

equipment, furniture, and appliances to be used in schools, medical clinics, 

adult education facilities, churches, and homes. In addition, Catholic Relief 

Services received property to provide about 1,000 families in Honduras 

with furniture for their homes. At a humanitarian assistance program 

conference hosted by SOUTHCOM from April 4-5, 2000, various charitable 

organizations made presentations describing how they had used the excess 

property for humanitarian aid in Central and South America. Examples of 

how the recipients used the excess property for humanitarian aid are 

shown in appendix III. 

12 According to SOUTHCOM, Cuba, Suriname, and Paraguay did not receive any donated 

property.
Page 12 GAO-01-32 Defense Inventory

Property Transferred to the 

Panamanian Government in 

Exchange for Services 

On May 30, 1996, the Army’s Office of Deputy Chief of Staff for Operations 

and Plans, in coordination with the Office of the Under Secretary of 

Defense for Logistics, authorized excess property in Panama to be 

transferred to Panamanian government organizations in return for services 

to U.S. personnel during the final stages of the withdrawal.13 Subsequently, 

14 different exchange packages were authorized during the last 2 years of 

operations. Examples included exchanging excess property for office 

space, traffic police services, and veterinarian services. For exchange 

purposes, the Panama disposal office determined the fair market value of 

the excess property being exchanged based on the property’s condition. 

The fair market value of the property exchanged was estimated at

$2.7 million.14 The cost and benefit of all exchanges were supported with 

documentation. The excess property was transferred to the Panamanian 

government either directly from the military units or through the disposal 

office. Examples of property exchanged, its fair market value, and services 

received are shown in appendix IV. 

Sale of Excess Household 

Appliances

In response to a SOUTHCOM request, on October 5, 1998, the Defense 

Logistics Agency permitted excess household appliances to be sold to 

military personnel and authorized U.S. civilians. Table 2 shows the number 

and disposition of excess household appliances. 

13 The Army was DOD’s Executive Agent for the Panama Canal Treaty implementation.

14 That portion of this property processed by the disposal office was valued at $4.6 million; 

the value of excess property transferred directly to the Panamanian government by military 

units was not readily available.
Page 13 GAO-01-32 Defense Inventory

Table 2: Disposition of Household Appliances

Source: SOUTHCOM.

Ordinarily, these types of excess properties would have been turned in to 

the Panama disposal office. Instead, because of the waiver, authorized 

civilian and military personnel could buy refrigerators, washers, dryers, 

stoves, and other household appliances and have the property shipped to 

their new duty stations. Payments from the sales were deposited in the U.S. 

Treasury and the quantities of properties that otherwise would have been 

processed by the Panama disposal office were reduced. 

SOUTHCOM Exerted 

Less Control Than 

Planned for Some 

Property Disposed of 

by DynCorp

The larger than expected amount of excess property to be disposed of by 

DynCorp limited SOUTHCOM’s plans to ensure that property was provided 

to organizations with the greatest need and that clear plans existed for how 

excess property was to be used. However, available data indicated that the 

property designated for humanitarian aid achieved SOUTHCOM’s objective 

for dissemination, although recipients for a small amount of the property 

could not be identified. 

According to disposal office records, over 373,000 items were given to 

DynCorp for reallocation. This amount was more than double the services’ 

initial estimate of 174,000 items that SOUTHCOM had planned for DynCorp 

to reallocate. The forecast made in February 1999 was subsequently found 

to have underestimated the number of excess items included in categories 

for maintenance and support equipment, office machines and equipment, 

medical equipment and supplies, military unique items, food, and other 

items (see table 3). 

Service No. of items

available

Sold to U.S.

military and

civilian

personnel

Moved to a

military facility in

Puerto Rico

Turned in to

disposal office

Army 5,165 2,483 800 1,882

Navy 163 163 0 0

Air Force 3,773 1,071 0 2,702

Total 9,101 3,717 800 4,584
Page 14 GAO-01-32 Defense Inventory

Table 3: Quantities of Forecasted and Actual Types of Properties Processed by 

DynCorp

Source: Forecasts provided by SOUTHCOM. Actual quantities obtained from Defense Reutilization 

and Marketing Service data.

SOUTHCOM’s initial procedures for the distribution of excess property for 

humanitarian aid required SOUTHCOM staff to (1) review the types of 

excess properties becoming available and charitable organizations’ 

requests for excess properties; (2) determine which property would be 

distributed to defense organizations for transfer to either the Panamanian 

government or for humanitarian aid; and (3) determine which charitable 

organizations would receive the remaining property, based on equitable 

distribution and need, and provide written authorizations to the contractor 

for distribution of the property. However, the procedures were not always 

followed because the volume of excess property exceeded projections.

To process the unanticipated volume of excess property, in March 1999, 

SOUTHCOM modified its procedures by allowing DynCorp to determine 

the equitable distribution of property having a unit price of less than

$1,000. In addition, SOUTHCOM did not provide written authorizations, as 

required by its procedures, to the contractor for distribution of property 

having a unit price of more than $1,000. Given limited documentation, we 

could not confirm the degree of SOUTHCOM’s involvement in these 

decisions. SOUTHCOM officials said their allocation decisions for much of 

this property were communicated verbally to DynCorp. As a result of the 

modified procedures, written authorizations existed for only 45 percent of 

the dollar value of property processed by the contractor (see table 4). 

Category

No. of items

forecasted Percent

No. of actual

items Percent

Motor vehicles 350 0.2 267 0.1

Furniture and appliances 130,043 74.7 82,024 22.0

Maintenance and support 

equipment

4,595 2.6 207,082 55.5

Office machines and equipment 5,735 3.3 21,265 5.7

Medical equipment and supplies 992 0.6 9,218 2.5

Food and other items 32,282 18.5 53,321 14.3

Military unique items 0 0 20 0.0

Total 173,997 100 373,197 100
Page 15 GAO-01-32 Defense Inventory

Table 4: Authorizations Related to Contractor-Processed Excess Property 

a

Totals may not add due to rounding.

Source: Defense Reutilization and Marketing Service and SOUTHCOM data.

Whether greater SOUTHCOM involvement would have affected the 

allocation of property among the various organizations is unclear. As 

shown in table 5, while amounts differed, excess property was broadly 

distributed among the charitable organizations.

Dollars in thousands

Recipients

Value of

property under

$1,000 allocated by

DynCorp

Value of property

with written

allocation

authorization

Value of property over

$1,000 without

documented

allocation authorization Totala

Charitable organizations:

 Food for the Poor $359.1 $4,028.8 $2,873.6 $7,261.5

 Catholic Relief 981.1 2,555.1 629.2 4,165.5

 Corazon a Corazon 378.7 1,313.1 1,969.4 3,661.3

 Salesian Missions 643.7 2,110.3 804.1 3,558.1

 United Methodists 128.9 915.7 211.7 1,256.4

 National Cristina 35.5 539.1 303.2 877.7

Subtotal $2,527.0 $11,462.1 $6,791.2 $20,780.5

Military activities 2,537.3 7,006.6 10,689.8 20,233.7

Agency for International 

Development-Panama 18.4 434.3 38.8 491.4

Unknown 143.3 0 299.5 442.8

Total

$5,226.0

(12%)

$18,903.0

(45%)

$17,819.3

(43%)

41,948.4

(100%)
Page 16 GAO-01-32 Defense Inventory

Table 5: Quantities and Types of Properties Processed by DynCorp

Source: Defense Reutilization and Marketing Service. 

The amounts shown in table 5 represent property recorded in the disposal 

office’s records as transferred to DynCorp. Appendix II provides a 

summary of property processed by DynCorp by dollar values and types of 

properties. Of the nearly $42 million in property recorded in the disposal 

office’s records as transferred to DynCorp, all but about $443,000

(1 percent) was subsequently accounted for in the contractor’s books. 

DynCorp had no record of transactions involving this property. Since we 

could not determine who actually received the property, we cited the 

recipient as unknown. Also, as shown in table 5, DynCorp distributed 20 

military unique items identified in DOD’s records as having military 

technologies or capabilities.15 This included 15 military radios that were 

turned over to SOUTHCOM and, in turn, given to the Panama police in 

exchange for police services. Also, one charitable organization, Corazon a 

Recipients

Military

unique

items

Motor

vehicles

Maintenance

and support

equipment

Medical

equipment

and

supplies

Furniture

and

appliances

Office

machines

and

equipment

Food

and

other

items Total

Charitable 

organizations

 Food for the Poor 0 34 27,140 609 3,846 2,918 1,481 36,028

 Catholic Relief 0 14 48,327 257 20,996 2,867 13,952 86,413

 Corazon a Corazon 5 23 8,632 316 6,967 1,371 4,166 21,480

 Salesian Missions 0 30 10,819 29 11,245 2,022 2,815 26,960

 United Methodists 0 7 1,621 0 3,936 307 1,713 7,584

 National Cristina 0 8 3,978 0 1,225 65 364 5,640

Subtotal 5 116 100,517 1,211 48,215 9,550 24,491 184,105

Military activities 15 141 105,745 8,007 29,909 11,714 28,581 184,112

Agency for International 

Development 

0 7 67 0 3,364 0 82 3,520

Unknown 0 3 753 0 536 1 167 1,460

Total 20 267 207,082 9,218 82,024 21,265 53,321 373,197

15 Military activities assign a code the first time they buy spare parts, vehicles, and other 

military weapons and equipment to indicate whether the items contain technology 

conferring a military capability.
Page 17 GAO-01-32 Defense Inventory

Corazon, was given five military unique items, the most valuable being 

three landing crafts that were to be used to transport property and supplies 

to Honduras. 

At the time of our review, the Army Criminal Investigation Command was 

investigating whether some of the excess property may have been 

improperly obtained by a charitable organization. As part of the 

investigation, the Investigation Command and Panama impounded about 

$3 million of excess property that had been given to one organization. The 

property was stored in 2 private warehouses in Panama. Because the 

investigation was ongoing, we focused our review on management control 

issues to avoid overlapping this investigation.

Disposal Office 

Records Accounted for 

Most Property It 

Received, but DOD 

Components Left Some 

Property Vulnerable to 

Loss or Theft

The Defense Reutilization and Marketing Service records accounted for 

most property declared excess by the military services and recorded as 

received by the Panama disposal office, with only a small portion written 

off as lost after being transferred to the disposal office. However, about 

$6.6 million of the property recorded by the services as having been turned 

in to the Panama disposal office was not recorded as received by the office. 

We also found that disposal transactions involving property with military 

capabilities were not always recorded correctly in the Army’s inventory 

records and that DOD’s in-transit and inventory control procedures, 

designed to protect excess property from loss or theft, were not always 

followed in Panama because personnel were insufficiently trained. DOD is 

addressing internal control weaknesses, but it has not established 

performance measures, milestones, and timetables to help monitor the 

progress being made to reduce the vulnerability to undetected loss or 

misplacement of property being shipped to disposal.

Some Excess Property Not 

Properly Controlled 

As noted earlier, the Panama disposal office’s records accounted for the 

excess property turned in to it by the military services during 1998 and 1999 

($136.7 million). However, the disposal office could not account for excess 

property valued at about $691,000 (less than 1 percent of the total), and 

made inventory adjustments to write off this missing property.16 Most of 

these write-offs occurred from October through December 1999, when the 

16 This is in addition to the approximately $443,000 in property recorded by the disposal 

office as transferred to the SOUTHCOM contractor for which the contractor had no record.
Page 18 GAO-01-32 Defense Inventory

disposal office processed inventory adjustments for losses totaling 

$421,000, including $127,000 worth of property (e.g., radios, tools, and 

computer equipment) in new or like new condition. In each instance, the 

reason for the inventory loss was recorded in disposal office records as 

unknown and the write-off was made in accordance with Defense 

Reutilization and Marketing Service policies and procedures. Disposal 

office officials explained that they frequently accepted accountability over 

excess property, but they did not physically move it to the disposal office. 

They said that the disposal office could not store all of the excess property 

and that leaving the property at the facility where it was located saved the 

time and expense of transporting the property. The officials told us that 

they believed most of the losses involved property that was not physically 

moved to the disposal office. However, there was no way to verify if this 

was the case.

DOD’s In-transit Control System reports on property shipped to disposal 

offices for the 24-month period ending December 31, 1999, showed there 

was no record of the Panama disposal office receiving about $6.6 million of 

the property reported as shipped by the services. Almost $1.5 million of the 

amount involved property requiring special handling such as firearms, 

communication equipment, and gun parts. Table 6 shows the categories, 

number of items, and dollar value of property reported as not received for 

the 24-month period.

Table 6: Categories of Property Reported as Sent to, but Not Received by the 

Panama Disposal Office

Source: Defense In-transit Reports.

We reviewed a judgmental sample of 80 shipments that involved property 

coded as containing military technologies or capabilities—59 shipments 

reported as sent to the Panama disposal office by Army units and 21 

shipments reported as sent to the disposal office by Air Force units. We 

were able to trace the actual disposition and account for 39 shipments. We 

Dollars in thousands

Category

No. of

shipments

No. of

items Value

Percent of

total value

Military items 348 1,923 $1,478.6 22.4

Nonsensitive items 3,399 101,444 5,122.2 77.6

Total 3,747 103,367 $6,600.8 100.0
Page 19 GAO-01-32 Defense Inventory

found that (1) for 13 shipments the services had shipped the property to 

other military units but had incorrectly recorded the shipments as sent to 

the Panama disposal office and (2) for 26 shipments the Panama disposal 

office had shipped the property to U.S. locations but had not recorded the 

receipts. Two of the shipments we could account for involved 50-caliber 

machine guns and 9-millimeter handguns.

For the remaining 41 shipments, we could not determine the disposition 

because records were incomplete or could not be located. These shipments 

included a telephone used for classified communications, assorted circuit 

card assemblies used to control weapon systems, and gun parts. The 

absence of notification of receipt or other evidence of disposition for the 41 

shipments does not necessarily mean the shipments were not received or 

otherwise disposed. However, the lack of such information makes the 

property vulnerable to loss and undetected theft since no documentation is 

available to track its location.

Disposal Transactions Were 

Not Always Recorded 

Correctly in Inventory 

Records

DOD requires all shipments of property to be documented in inventory 

records and its more sensitive items, such as firearms, to be serial 

numbered and the serial number of an item being shipped to be recorded 

on shipping documents and in inventory records. DOD also requires 

shipping discrepancies to be researched and resolved. Our analysis of the 

same 80 judgmentally selected shipments showed that the military 

activities in Panama did not always follow internal control procedures. 

Specifically, (1) personnel had made unsupported accounting adjustments 

to write off the property and balance their accounts (2 shipments),

(2) discrepancies between shipments and receipts were not researched or 

investigated (80 shipments), and (3) serial numbers were incorrectly 

recorded in the supply system and on shipping documents (2 shipments). 

Unsupported Accounting 

Adjustments

Army supply personnel made unsupported accounting adjustments to write 

off property and balance their books. Specifically, records on 2 shipments, 

involving 51 handguns and 2 machine guns, showed that these firearms 

were sent to the Panama disposal office (which was not authorized to 

accept them). However, we found that Army personnel manually prepared 

shipping documents and shipped the firearms to other Army units but did 

not record the shipments in the Army’s supply system. Instead of recording 

the shipments to reflect what had actually happened, personnel simply 

entered a “shipped to disposal office” transaction code to write off the 

property and balance the books. Personnel were unaware that these 

transactions were automatically sent to DOD’s In-transit Control System, 
Page 20 GAO-01-32 Defense Inventory

causing the system’s reports to be erroneous and diminishing its value as a 

tool for tracking excess property. Army officials told us that recording 

shipments to other Army units as shipments to a disposal office was not 

appropriate and that they would increase management oversight. 

Subsequently, these officials provided documentation showing the 

receiving units accounted for these items.

Discrepancies Were Not 

Researched

The DOD In-transit Control System automatically reports a discrepancy if 

property is not recorded as received within 60 days after it was recorded as 

being sent to the disposal office. Procedures require that the sending unit 

research such discrepancies. Although DOD’s In-transit Control System 

reported that each of our 80 sample items was not received within 60 days 

after it was recorded as being shipped, there was no evidence of research 

on any of our sample items. Personnel told us they did not always 

understand or were not fully aware of the procedures for researching and 

investigating the discrepancies, indicating a need for training. 

Serial Numbers Not Always 

Recorded Correctly

Personnel did not follow DOD regulations to protect excess firearms and 

other property with restricted or secrecy designations. Regulations require 

the serial number of each item to be annotated on a shipping document and 

entered into the supply system. Records on one of our sample shipments, a 

telephone used for classified communications, showed that personnel had 

entered the model number of the item into the supply system instead of the 

serial number. Without the serial number, Army officials could not 

determine what had happened to the item. Also, we counted 85 serial 

numbers that had been entered in the supply system to identify the 51 

handguns recorded as shipped to the disposal office. At our request, the 

property book officer performed a reconciliation to determine what had 

happened to the 51 handguns. The property book officer’s extensive 

research showed that the 85 serial numbers related to 3 separate shipments 

involving a total of 85 handguns, including the 51 handguns in our sample 

shipment. While all 85 handguns could be accounted for, the shipping 

documents and the supply system records were not accurate. 
Page 21 GAO-01-32 Defense Inventory

Internal Control Issues Are 

Being Addressed, but 

Further Action Is Required 

We previously reported that DOD’s management controls over excess 

property being shipped to disposal were not effective, leaving the property 

vulnerable to loss or theft.17 We recommended that DOD include actions in 

a plan it was developing on visibility over shipped property to address lack 

of adherence to internal control procedures, insufficiently trained 

personnel, and data accuracy problems. In response, DOD established a 

Joint Group for Materiel Management that is working on both short- and 

long-term solutions to these problems. In the short-term, for example, the 

group has developed a lesson segment entitled “Introduction to In-transit 

Visibility and Accountability of Excess Assets−Identifying Ownership 

Responsibilities and Risks” to augment training plans and programs.18 The 

group also developed standardized edits to prevent transmission of records 

containing invalid information and a method to identify follow-up 

transactions on higher priority items to help the services prioritize the 

workload.19

DOD is also working on a long-term strategy to provide in-transit control 

and visibility over excess property through information technology. 

However, DOD has not implemented our recommendation that it establish 

performance measures, milestones, and timetables to help monitor the 

progress being made to reduce the vulnerability to undetected loss or 

misplacement of property being shipped to disposal. 

Conclusions The Southern Command largely achieved its goal of timely disposal of 

excess personal property, including making property available for 

humanitarian aid throughout Central and South America. However, 

because of a larger than expected volume of excess property that became 

available during 1999, the Command changed its control procedures for 

allocating excess property to charitable organizations, leaving many of 

17 Defense Inventory: Property Being Shipped to Disposal Is Not Properly Controlled

(GAO/NSIAD-99-84, July 1, 1999).

18 DOD noted that the web-based lesson (http://www.almc.army.mil) has been linked to the 

Defense Reutilization and Marketing Service web-site, thus providing a one-stop shopping 

hub for property disposal and in-transit education. This information has also been provided 

in writing to the 10 largest military generators of excess property. Additional training is the 

responsibility of each DOD agency or military service.

19 The Joint Group for Materiel Management Sub-group’s final report can be found on the 

web at http://www.dla.cio/jgmm. 
Page 22 GAO-01-32 Defense Inventory

those decisions to the contractor it retained to facilitate property 

distributions. As a result of the modified procedures, written authorization 

existed for only $18.9 million (45 percent) of the $41.9 million of excess 

personal property processed by the contractor. Whether greater Command 

involvement would have affected the allocation of property among the 

various charitable organizations is unclear.

The Panama disposal office accounted for all but $691,000 (less than

1 percent) of the $136.7 million of excess property it processed during 1998 

and 1999. Disposal office records show that property valued at $691,000 

was written off as lost. However, over $6 million in excess property, which 

service records showed as being shipped to disposal, some of which 

contained military capabilities, was never recorded as received. DOD’s 

problems with management controls and accountability over property 

being shipped to disposal are long-standing and are not unique to closing its 

facilities in Panama. DOD recognizes the need to properly manage and 

account for its assets and is working on a long-term strategy to provide 

in-transit control and visibility over excess property through information 

technology. DOD also has developed a new lesson segment for training its 

personnel on control procedures, but it has not taken sufficient steps to 

ensure that the appropriate field personnel have received the training. In 

addition, DOD has not implemented our previous recommendation to 

establish performance measures, milestones, and timetables to help 

monitor the progress being made. Since DOD’s ability to focus management 

attention on its efforts to reduce the vulnerability of property being shipped 

to disposal to undetected loss or misplacement continues to be limited, we 

believe our prior recommendation needs to be implemented. Also, lack of 

adherence to control procedures continues to be a problem because DOD 

personnel are insufficiently trained.

Recommendation for 

Executive Action

To improve accountability for excess property, we recommend that the 

Secretary of Defense direct the military services and DOD activities to 

resolve identified weaknesses in accountability over property being 

shipped to disposal by establishing a program to ensure that supply 

personnel are sufficiently trained on property disposal control procedures, 

including in-transit tracking and follow-up. In keeping with our prior 

recommendation, the program should include appropriate performance 

measures, milestones, and timetables to help monitor the progress being 

made.
Page 23 GAO-01-32 Defense Inventory

Agency Comments and 

Our Evaluation

The Deputy Under Secretary of Defense for Logistics and Materiel 

Readiness provided written comments on a draft of this report. They are 

included in appendix V. DOD concurred with the recommended 

improvements to accountability for property being shipped to disposal. The 

Deputy Under Secretary stated that DOD plans to complete these actions 

during the second quarter of fiscal year 2001. DOD also provided technical 

comments,which we incorporated in the report as appropriate. 

We are sending copies of this report to the appropriate congressional 

committees; the Honorable William Cohen, Secretary of Defense; the 

Honorable Louis Caldera, Secretary of the Army; the Honorable Richard 

Danzig, Secretary of the Navy; the Honorable F.W. Peters, Acting Secretary 

of the Air Force; Lieutenant General Henry T. Glisson, Director, Defense 

Logistics Agency; and the Honorable Jacob Lew, Director, Office of 

Management and Budget. 

Please contact me at (202) 512-8412 if you or your staff have any questions 

concerning this report. Major contributors to this report are listed in 

appendix VI.

Sincerely yours,

Barry W. Holman, Director

Defense Capabilities and Management 
Page 24 GAO-01-32 Defense Inventory

Appendix I

Scope and Methodology ApApenednxidexiIs

To determine the methods used for property disposal in Panama during 

1998-99, we met with officials and performed work at the Office of the 

Deputy Under Secretary of Defense (Logistics), Washington, D.C.; Army, 

Navy, Marine Corps, and Air Force Headquarters, Washington, D.C.; the 

U.S. Southern Command (SOUTHCOM), Miami, Florida; the U.S. Agency 

for International Development, Washington D.C.; the Center for Treaty 

Implementation and the Agency for International Development Office, 

Panama City, Panama; and U.S. Army South Headquarters, San Juan, 

Puerto Rico. We reviewed policies, procedures, disposal histories, and 

related records obtained during visits to the Defense Reutilization and 

Marketing Office, Jacksonville, Florida, which maintained records from the 

Panama disposal office. We also reviewed reports by the Army Audit 

Agency on the adequacy of the Department of Defense’s (DOD) plans and 

controls over the disposition of excess property in Panama and lessons 

learned from Panama Canal Treaty implementation.1

To determine the extent of direction and control that SOUTHCOM exerted 

over property allocations and distributions to charitable organizations 

facilitated by its contractor and targeted for humanitarian aid in locations 

outside of Panama, we met with officials at SOUTHCOM and DynCorp 

Aerospace Technology’s after action team, Miami, Florida; the United 

States Agency for International Development; the SOUTHCOM Center for 

Treaty Implementation and the Agency for International Development 

Office in Panama. Using DOD data, we determined the amount of property 

disposed by the Panama disposal office and DynCorp. We analyzed the 

records to determine the amount of excess property provided to recipients, 

including military services, federal agencies, state and local governments, 

and charitable organizations. We also attended a humanitarian assistance 

program conference hosted by SOUTHCOM from April 4-5, 2000, and met 

with officials from selected charitable organizations that had received 

excess property from Panama. 

To determine whether property declared excess by the military services 

was fully accounted for, we obtained computer data showing the excess 

property received and processed by the Panama disposal office from 

January 1998 through December 1999 from the Defense Reutilization and 

Marketing Service, Battle Creek, Michigan. We analyzed the data to 

1

 United States Army Audit Agency, Closeout Plans Republic of Panama (AA-98-293, 

Aug. 24, 1998) and Lessons Learned—Panama Canal Treaty Implementation (AA-00-749, 

June 26, 2000).
Appendix I

Scope and Methodology

Page 25 GAO-01-32 Defense Inventory

determine the value and disposition of the property. We also obtained data 

from DOD’s In-transit Control System that showed discrepancies between 

shipment and receipt data for that time period and analyzed the data to 

identify shipments of military property that had been reported as not 

received. Using the data, we judgmentally selected 80 shipments reported 

by the system as not received at the Panama disposal office to determine 

whether the material was missing and whether any discrepancies were 

researched. These shipments were selected based on the capabilities of the 

property and included 59 Army shipments of excess property with military 

capabilities and 21 Air Force shipments of excess property with military 

capabilities to the Panama disposal office. We did not independently verify 

the overall accuracy of the system data; however, we used it as a starting 

point for selecting shipments, which we then tracked back to records and 

documents on individual transactions.

We used the same computer programs, reports, records, and statistics that 

DOD and the military services had used to manage excess property. For 

example, we used the value of excess property recorded in disposal office 

records. We did not independently determine the reliability of all these 

sources. For historical perspective and illustrations of past problems, we 

reviewed the results of prior defense studies and Army Audit Agency 

reports. 

At the time we were conducting our review, the Army Criminal 

Investigation Command was investigating whether some of the excess 

property in Panama may have been improperly distributed to a charitable 

organization. Accordingly, we focused our review on management issues 

related to internal controls over excess property to avoid issues that the 

Investigation Command was addressing. For example, we did not evaluate 

the process that SOUTHCOM used to select charitable organizations to 

receive excess property or the appropriateness of the donations to the 

organizations. 

We performed our review from January through August 2000 in accordance 

with generally accepted government auditing standards. 
Page 26 GAO-01-32 Defense Inventory

Appendix II

Dollar Value and Types of Excess Property 

Processed by Dyncorp ApendxiI

a Totals may not add due to rounding.

b

 This includes DOD’s humanitarian assistance programs, U.S. military affairs groups located in foreign 

countries providing humanitarian aid, and to the Panamanian government in exchange for services.

Source: Our analysis of Defense Reutilization and Marketing Service data.

Amounts in thousands

Recipients

Military

items

Motor

vehicles

Maintenance

and support

equipment

Medical

equipment

and

supplies

Furniture

and

appliances

Office

machines

and

equipment

Food

and

other

items Totala

Charitable 

organizations

 Food for the Poor 0 $1,058.1 $1,531.7 $1,832.9 $444.1 $794.9 $1,599.7 $7,261.4

 Catholic Relief 0 206.2 1,937.8 417.8 623.4 553.6 426.7 4,165.5

 Corazon a Corazon $489.5 532.7 1,834.3 412.1 144.0 83.8 164.7 3,661.3

 Salesian Missions 0 412.4 1,406.8 8.3 1,171.2 200.8 358.4 3,558.1

 United Methodists 0 104.9 275.0 0 641.8 26.1 208.5 1,256.4

 National Cristina 0 166.7 482.1 0 159.2 23.3 46.4 877.7

Subtotal $489.5 $2,481.0 $7,467.7 $2,671.1 $3,183.7 $1,682.5 $2,804.4 $20,780.5

Military activitiesb 23.6 2,369.2 2,840.9 7,094.7 2,345.7 1,577.9 3,981.6 20,233.7

Agency for International 

Development

0 112.0 59.5 0 281.8 0 38.1 491.4

Unknown 0 108.6 204.1 0 99.9 0.4 29.9 442.8

Total $513.1 $5,070.8 $10,572.2 $9,765.8 $5,911.1 $3,260.8 $6,854.0 $41,948.4
Page 27 GAO-01-32 Defense Inventory

Appendix III

Examples of How Some Excess Property 

From Closing Facilities in Panama Were Used ApendxiI

The ways that donated excess property from closed U.S. facilities in 

Panama were used for humanitarian assistance projects are shown in 

figures 1 through 3.

Figure 1: Machinery Used for Instruction at the Salesian Polytechnical Industrial Institute in Santiago, Dominican Republic

Source: SOUTHCOM.
Appendix III

Examples of How Some Excess Property 

From Closing Facilities in Panama Were Used

Page 28 GAO-01-32 Defense Inventory

Figure 2: Furniture Used for the Offices of the Youth Center in Cristo Rey, Santo Domingo

Source: SOUTHCOM.
Appendix III

Examples of How Some Excess Property 

From Closing Facilities in Panama Were Used

Page 29 GAO-01-32 Defense Inventory

Figure 3: Desks for a Classroom in the Salesian Mission’s Provincial House in Santo Domingo

Source: SOUTHCOM.
Page 30 GAO-01-32 Defense Inventory

Appendix IV

Examples of Exchange Packages Agreed 

Upon by the United States and the 

Government of Panama ApendxiIV

The following provide examples of donations of U.S. property at closing 

facilities in Panama in exchange for services provided by Panama:

• One-stop pet out-processing: The government of Panama established a 

one-stop pet out-processing center at an estimated cost of $75,000 for 

U.S. personnel to obtain pet export permits. In exchange for this service, 

the United States provided excess office equipment, furniture, and two 

vehicles with a total fair market value of $61,510. The United States also 

provided office space and telephones for the center. 

• Traffic police: The Panama National Police agreed to provide a 

policeman to direct traffic at the intersection of the Fort Clayton and 

Albrook Air Force Base back gates at an estimated cost of $13,000 a year 

from April 20, 1998, through September 30, 1999. In exchange, the 

United States provided excess office equipment and appliances with a 

total fair market value of $30,000. 

• Office space: The government of Panama agreed to lease office and 

storage space and a gym for U.S. embassy personnel from April 1, 2000, 

to October 31, 2004, for a total cost of $702,240. In exchange for the 

lease, the U.S. government provided excess office equipment, furniture, 

appliances, exercise equipment, and moving equipment (forklifts, 

dollies, etc.) with a fair market value of $539,791.

• Facilities and Support: The Government of Panama’s National Maritime 

Service agreed to provide facilities and transportation support for the 

U.S. Coast Guard at a cost of $140,000. In exchange for these services, 

the U.S. government provided excess office equipment, furniture, 

appliances, and two vehicles with a total fair market value of $66,775.
Page 31 GAO-01-32 Defense Inventory

Appendix V

Comments From the Department of Defense ApendxiV
Page 32 GAO-01-32 Defense Inventory

Appendix VI

GAO Contacts and Staff Acknowledgments ApendxiVI

GAO Contacts Ronald L. Berteott (214) 777-5702

Roger L. Tomlinson (214) 777-5777

Acknowledgments In addition to those named above, Jeff Kans, Jimmy Palmer, Jeffrey Kaser, 

Paulina Treviso, and Joanna McFarland made key contributions to this 

report.

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