GAO-01-196R Air Force Unauthorized Activity Codes

United States General Accounting Office

Washington, DC 20548

January 8, 2001

The Honorable Duncan L. Hunter

House of Representatives

Subject: Department of the Air Force: Unauthorized Activity Codes Used to

Requisition New and Excess DOD Property

Dear Mr. Hunter:

This letter is part of our continuing effort to address inventory management activities

within the Department of Defense (DOD) as a high-risk area.1

 We recently reported

that the Army used unauthorized activity codes2 to requisition over

$2.6 billion in new government property and $100 million in excess government

property over the past 5 years. As a consequence, this property was vulnerable to

fraud, waste, and abuse. Subsequently, you asked that we determine whether the

other military services and other federal agencies maintained activity codes that were

unauthorized to requisition and, if so, whether any of these codes were used to

requisition new and excess government property. As discussed with your office, this

letter focuses on the U.S. Air Force’s use of unauthorized activity codes from January

1995 to June 2000. We have reported separately on our investigations of whether the

U.S. Navy and the General Services Administration used activity codes classified as

unauthorized to requisition new and excess government property.3

Scope and Methodology

We interviewed Air Force service point personnel and obtained a list of Air Force

activity codes identified as unauthorized to requisition. We provided the codes to the

Defense Automatic Addressing System Center and the Defense Reutilization and

Marketing Service to determine whether any had been used to requisition new and

 1

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

high risk because of vulnerabilities to fraud, waste, abuse, and mismanagement. This effort, supported

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

resulted in a much-needed focus on problems that were costing the government billions of dollars. We

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

inventory were too high and systems for determining inventory requirements were inadequate.

2

Department of the Army: Unauthorized Activity Codes Used to Requisition New DOD Property (GAO01-85R, Dec. 6, 2000) and Inventory Management: Better Controls Needed to Prevent Misuse of Excess

DOD Property (GAO/OSI/NSIAD-00-147, Apr. 28, 2000). 3

Department of the Navy: Unauthorized Activity Codes Used to Requisition New and Excess DOD

Property (GAO-01-206R, Jan. 8, 2001) and General Services Administration: Unauthorized Activity

Codes Used to Requisition New and Excess Government Property (GAO-01-221R, Jan. 8, 2001).
Page 2 GAO-01-196R Air Force Unauthorized Activity Codes

excess government property from January 1995 to June 2000. We then obtained

information about the requisitioning activity associated with the codes from the

Defense Automatic Addressing System Center and the Defense Reutilization and

Marketing Service. We performed our investigative work from June 2000 to

September 2000 in accordance with investigative standards established by the

President’s Council on Integrity and Efficiency. Our audit work was conducted

during the same time period in accordance with generally accepted government

auditing standards.

Results in Brief

As of June 2000, the Air Force maintained 4,239 activity codes identified as

unauthorized to requisition government property. However, during the past 5 years,

193 of these codes were inappropriately used to requisition nearly $23 million in new

and excess government property. In addition, safeguards established to prevent

unauthorized activity codes from being used to requisition government property

failed. This situation has created a condition in which government property is

vulnerable to fraud, waste, and abuse.

To reduce the likelihood of Air Force organizations and contractors acquiring

government property inappropriately, we are recommending that DOD review

existing activity code assignment procedures and safeguards. We will also make

information on the identity and requisition history of the unauthorized activity codes

available to DOD’s Office of the Inspector General for a determination of whether

requisitioned property was legally obtained and properly inventoried.

DOD generally agreed with our recommendations and cited a number of specific

actions that have been started or are being planned. Once completed, these actions

should eliminate the control weaknesses we found.

Background

Air Force Instruction 24-2304

 provides mandatory procedures for establishing,

changing, and terminating Air Force activity address codes. The instruction applies

to all Air Force activities and Air Force contractors that receive, ship, or maintain

custody of government property. An activity address code is a six-position

alphanumeric code that provides a uniform method for controlling government assets

and for recording the receipt and disposition of property. The first character of an

activity code identifies the service or agency; and the second character designates the

type of material usually accounted for in that account or the type of activity. The last

four characters are numeric combinations assigned by the Air Force service point.

The DOD Activity Address File is the automated master activity address code file

maintained for military activities, federal agencies, and contractors by the Defense

Automatic Addressing System Center. An activity within a military service or federal

agency that is assigned the responsibility of controlling activity code data is known as

the service point. The Air Force service point, located at Wright-Patterson Air Force

 4

Maintaining the Department of Defense Activity Address Directory (DODAAD).
Page 3 GAO-01-196R Air Force Unauthorized Activity Codes

Base, Ohio, is responsible for (1) establishing and executing Air Force procedures

and processes for using and maintaining the master activity address code file; (2)

assigning, changing, or terminating activity codes; and (3) carrying out research on

inquiries that relate to the Air Force portion of the master file.

According to Air Force service point personnel, three categories of Air Force activity

codes are not permitted to requisition property; and each is identified by a unique

series of alpha characters. Specifically, Air Force activity codes beginning with FA,

FY, and JM are unauthorized to requisition. FA codes are for administrative purposes

only, meaning they are not permitted to generate bills. FY codes are supplemental

ship-to accounts;5 and JM codes are used to obtain maps and charts, which, according

to the service point, are free issue items. As of June 2000, there were 4,239 FA, FY,

and JM activity codes.

Unauthorized Activity Codes Requisition Over $22 Million in DOD Property

We obtained a list of the activity codes that the Air Force service point identified as

unauthorized to requisition. We provided these codes to the Defense Automatic

Addressing System Center and the Defense Reutilization and Marketing Service to

determine whether any had been used to requisition new and excess government

property respectively. It was determined that of the 4,239 Air Force activity codes

that should not be used to requisition, 193 had been inappropriately used to

requisition $19.6 million in new property and $3.2 million in excess property

(representing the property’s acquisition value) from January 1995 to June 2000.6

 Of

the $19.6 million in new property, 98.1 percent was associated with 9 of the 193

activity codes, of which 1 accounted for $17.5 million. Of the $3.2 million in excess

property, 85.4 percent was requisitioned by eight activity codes, with two responsible

for nearly 48 percent of the requisitions. In addition, while the majority of the

unauthorized activity codes were assigned to Air Force activities, we noted that a

number were assigned to private contractors who used them to requisition property.

Safeguards Fail to Prevent Unauthorized Activity Codes From Requisitioning

DOD Property

The Defense Automatic Addressing System Center and the Defense Reutilization and

Marketing Service implemented safeguards to prevent the use of FY category activity

codes to requisition new and excess government property in November 1999 and

January 1996, respectively. However, despite these safeguards, FY codes were used

to requisition property. For example, from January to June 2000, 55 FY activity codes

were used to requisition about $28,000 worth of new government property. We asked

a Defense Automatic Addressing System Center official to review the 55 codes and

 5

 A code may be designated a ship-to address when the address of the receiving activity is different

from the address of the accountable activity.

6

 Headquarters Air Force acknowledged that FA and FY codes are not to be used to requisition and JM

codes are authorized to order only free issue items (such as maps and charts) from the National

Imagery and Mapping Agency. Headquarters Air Force agreed that the requisitioning activity noted in

this letter reflects a failure to comply with Air Force Instruction 24-230. However, in some instances,

the Air Force was aware that certain activities were using FA category codes to requisition—an

exception to the standard procedure; and the Air Force is evaluating this activity at this time.
Page 4 GAO-01-196R Air Force Unauthorized Activity Codes

explain the requisition activity. According to this official, the activity codes appeared

to requisition directly with the source of supply, bypassing the Center. As for excess

property requisitions, from January 1996 to June 2000, 11 FY codes were used to

requisition $857,891 worth of excess property. In all but one instance, this requisition

activity occurred in 1996. There was one requisition in 1999 valued at $140.

Conclusions and Recommendations for Executive Action

Air Force activity codes identified as unauthorized to requisition were

inappropriately used to requisition new and excess government property. In addition,

safeguards in place failed to prevent this activity. This lack of internal controls

creates a situation in which government property is vulnerable to fraud, waste, and

abuse.

Accordingly, we recommend that the Secretary of Defense direct the Secretary of the

Air Force to

• verify whether the requisitioning authority for all Air Force activity codes is

categorized accurately and review procedures to ensure that activity code

assignments are appropriate, made in accordance with Air Force Instruction

 24-230, and routinely inspected to ensure compliance and

• evaluate current safeguards in appropriate databases to ensure that unauthorized

activity codes are not used to requisition government property.

Agency Comments and Our Evaluation

DOD provided oral comments on a draft of this letter and generally agreed with our

recommendations. They cited specific actions in response to our recommendations

that had been taken, were underway, or were planned. They also provided

clarification to improve the technical accuracy of certain information we had been

provided.

Regarding our recommendation to verify the accuracy of requisitioning activity codes

and review requisitioning procedures, the following actions were cited:

• The Air Force will review procedures to ensure that activity code assignments are

appropriate. Air Force Instruction 24-230 will be rescinded; and more specific

policy will be developed.

• The Defense Automatic Addressing System Center will be asked to edit all

incoming transactions containing FA activity codes and to cancel invalid

requisitions. The Center will also be asked to provide a monthly management

oversight report to identify those FA activities requiring management attention.

• The Air Force will re-emphasize the proper use of FY activity codes. In addition,

during the course of responding to us, the Air Force noted that some activities had

withdrawn assets from Defense Reutilization and Marketing Offices that may not
Page 5 GAO-01-196R Air Force Unauthorized Activity Codes

have been authorized. To address this issue, the Air Force will work with the

Center to determine whether additional edits are required. In addition,

Headquarters Air Force Materiel Command will be directed to ensure that FY

requisitions entered through the web or called into item managers are not

honored.

• The Air Force will direct the Defense Automatic Addressing System Center to

implement an edit to cancel all requisitions with a JM activity code that are not

routed to the National Imagery and Mapping Agency depot. The Center will also

be asked to provide a monthly management oversight report to identify those JM

activities requiring management attention. In addition, the Air Force will direct all

major commands to re-emphasize the appropriate use of JM series activity codes.

Regarding our recommendation to evaluate current system safeguards to ensure that

unauthorized codes are not used to requisition government property, the following

actions were cited:

• The Air Force will propose significant changes to the DOD Activity Address

Directory Administrator and work through the DOD Activity Address Code

Committee to strengthen internal controls at the Defense Automatic Addressing

System Center and within Air Force systems, especially in view of the DODmandated process changes involving the use of the IMPAC cards,7

 web, and

EMALL8 requisitioning, which could create opportunities for acquisitions without

authorization. In the interim, Air Force-directed Center edits would be used to

ensure that Air Force activities processing requisitions through the Center would

use the appropriate activity code when requisitioning new property or

withdrawing excess property from Defense Reutilization and Marketing Offices.

The Air Force provided clarification on the use of FA, FY, and JM category activity

codes to improve the technical accuracy of certain information we had been

provided. We included the additional information in this letter where appropriate. In

addition, we asked the Air Force to consider directing the Defense Reutilization and

Marketing Service to implement an edit to cancel requisitions for property utilizing

FA and JM (with the exception of maps and charts) activity codes. The Air Force is

currently evaluating the feasibility of implementing such an edit.

- - - - -

As arranged with your office, unless you disclose its contents earlier, we plan no

further distribution of this letter until 30 days after its issuance. At that time, we will

send copies of the letter to interested congressional committees, the Office of the

Secretary of Defense, the Secretary of the Air Force, and the Director of the Defense

Logistics Agency. The letter will then also be available at GAO’s home page,

 7

 IMPAC is the International Merchant’s Purchase Authorization Card, in essence, a government credit

card.

8

 DOD is working to streamline and automate purchasing processes that are currently paper-based and

serial-processing intensive. Toward that end, DOD EMALL (electronic mall) was established in 1998

on the foundation of the Defense Logistics Agency Research and Development Program’s DLA EMALL.
Page 6 GAO-01-196R Air Force Unauthorized Activity Codes

www.gao.gov. If you have any questions, please call Robert H. Hast at (202) 512-7455

or David R. Warren at (202) 512-8412. John Ryan, Richard Newbold, Brian Chan,

James Loschiavo, Marc Schwartz, and David Epstein made key contributions to this

investigation and letter.

Sincerely yours,

Robert H. Hast David R. Warren

Managing Director Director, Defense Capabilities

Office of Special Investigations and Management

(600769)