GAO-01-88R Navy DPAS Implementation

United States General Accounting Office

Washington, DC 20548

December 13, 2000

Rear Admiral David Keller, USN

Director, Supply, Ordnance and Logistics Operations Division

Office of the Chief of Naval Operations

Subject: Financial Management: Navy’s Implementation of the Defense Property

Accountability System

Dear Admiral Keller:

As part of our involvement with the Navy Personal Property Working Group, we reviewed

the Department of the Navy’s implementation of the Defense Property Accountability

System (DPAS). We support the Navy’s efforts to improve accountability over Navy

personal property as well as the related financial reporting. The Navy’s decision to

implement DPAS to provide day-to-day control over its personal property and to integrate

DPAS with procurement and financial reporting systems is an important initiative.

As requested by the working group, we visited six Navy activities to evaluate DPAS

implementation at these selected locations. We presented our observations and related

suggestions in a briefing to the working group on June 21, 2000. The issues we identified

related to problems with (1) physical wall-to-wall inventories of personal property not being

performed properly, (2) personal property items not being included in DPAS at a component

level to ensure accountability, and (3) policies, procedures, and training not being in place to

ensure the sustainability of the property database, including implementation of the barcoding

and scanning process. These issues can be attributed, in part, to the Navy’s focus on an

aggressive implementation schedule designed to produce a personal property value for

financial reporting purposes as of September 30, 2000. For example, the Navy contractor’s

October 2000 progress report disclosed that 156 sites were converted to DPAS during fiscal

year 2000, and the Navy DPAS Program Manager told us that the Navy plans to convert

about 150 more sites in fiscal year 2001.

This letter provides a summary of the implementation issues we identified at the locations we

visited and the status of the Navy’s efforts to address our suggestions. Since the June 2000

briefing, the Navy has addressed a number of our suggestions, but several issues remain

unresolved. Although the Navy has largely completed its implementation effort for general

fund assets, we are bringing these issues and recommendations to your attention to help

improve the implementation process at the remaining sites and to help ensure the future

sustainability of the Navy’s DPAS implementation effort.
2 GAO-01-88R Navy DPAS Implementation

We visited the following activities in San Diego, California: Expeditionary Warfare Training

Group-Pacific, Fleet Combat Training Center, Fleet Anti-Submarine Warfare Training

Center-Pacific, Navy Center for Tactical Systems Interoperability, and the Naval Computer

and Telecommunications Station. We also visited the Trident Training Facility in Kings

Bay, Georgia. At these locations, we reviewed compliance with Navy and Department of

Defense (DOD) policies and procedures for performing physical inventories. We also

reviewed inventory documents and interviewed property officials at these locations. In

addition, we discussed DPAS implementation issues with Defense Finance and Accounting

Service (DFAS), Defense Logistics Agency (DLA), and Navy personal property contractor

officials. We requested and received written comments from the Director, Supply, Ordnance

and Logistics Operations Division, Department of the Navy, which are discussed in the

“Agency Comments and Our Evaluation” section and are reprinted in the enclosure. Our

work was performed from May 2000 through October 2000 in accordance with generally

accepted government auditing standards.

Inventories Were Not Properly Performed

At several locations visited, we found personal property omissions and discrepancies because

physical wall-to-wall inventories were not performed in accordance with Navy procedures to

ensure that accurate and complete data were converted to DPAS. Further, oversight of the

physical wall-to-wall inventory process by activity management and the working group did

not identify these omissions, discrepancies, and the lack of compliance with Navy policy.

Errors such as these may result in a lack of accountability over omitted assets and incomplete

financial statement reporting. Examples of inventories not properly performed at the

locations we visited included the following.

• At one location, nuclear training labs were not inventoried and converted to DPAS

because activity officials believed, incorrectly, that the nuclear training labs were being

accounted for by a different command. As a result, the equipment in the nuclear training

labs was not included in any Navy financial management or accountability system. Navy

officials acknowledged that these nuclear training labs should be included in DPAS for

accountability purposes. After our briefing, these nuclear training labs were inventoried

and included in DPAS.

• According to the Navy’s implementation plan, physical wall-to-wall inventories of

equipment are to be completed before the data are converted to DPAS. However, at one

location we visited, the activity did not plan to perform a physical wall-to-wall inventory

prior to the DPAS conversion. After our briefing, the activity postponed its data

conversion and performed the required physical wall-to-wall inventory.

• The Department of Defense (DOD) Financial Management Regulation (FMR), volume 4,

chapter 6, describes DOD’s accounting standards and policies for property, plant, and

equipment (PP&E). In addition, the Navy’s draft Personal Property Policies and

Procedures Manual, dated March 8, 2000, provides guidance for the management of

personal property. This guidance states that personnel responsible for maintaining

property (i.e., responsible officers) shall not be involved in conducting the physical
3 GAO-01-88R Navy DPAS Implementation

inventory of the personal property under their responsibility. All five locations that we

visited in San Diego, however, had used officials to inventory property within their

control. Activity personnel at these locations consistently stated that staffing limitations

contributed to the procedures not being followed. As a result of our briefing, the Navy’s

personal property contractor now emphasizes during its presite visits that independent

personnel should be used to perform the inventories. Additionally, the contractor will

verify compliance with this requirement during its postimplementation review.

According to the Navy DPAS Program Manager, following our June 2000 briefing, the

personal property contractor’s oversight efforts have been modified in an attempt to better

assess activities’ efforts to implement DPAS. As a result, the Navy’s personal property

contractor procedures have changed from a standard checklist format for the

postimplementation reviews to a more site-specific format. While this change is a positive

step, it still relies on after-the-fact assessments of activity efforts instead of establishing a

proactive oversight function early in the process, such as ensuring that inventories are

performed by appropriate personnel in compliance with the Navy’s requirements.

Personal Property Items Included in Systems Other Than DPAS

At two activities, we identified assets that were omitted from DPAS because they were

accounted for in other systems. The Navy will have to review the specifics of these cases to

ensure that its decision to use DPAS as its personal property accountability system is

implemented as efficiently as possible.

First, we found that some personal property was being converted to DPAS at the total system

level rather than by individual component. The DOD FMR, volume 4, chapter 6, states that

inventories shall be taken to ensure, among other things, that DOD PP&E assets are at the

location identified, as described, and in the condition listed in the property records.

Additionally, the Navy’s draft Personal Property Policies and Procedures Manual states that

a physical inventory should be performed to validate the existence of items and to verify the

accuracy of each item’s description, serial number, property number, make, model, year, and

other information. It also states that if this information is not listed, then it should be added

to the record and that serial-numbered items should be verified and documented in this

manner.

The Navy’s personal property contractor identified the need to develop a consistent

methodology to accurately track and record financial data for training labs by component

rather than by total systems. However, during our visits, we found examples of training labs

being recorded as whole systems rather than by individual, serial-numbered components. For

example, one location used its property record card to verify that a specific training lab still

existed—in total. However, the location failed to inventory the training lab by component.

If location officials had done so, they would have found that the components listed on the

property record card were from the training lab’s original Alpha series dating back to 1973,

while the current training lab had been upgraded three times to its current configuration of

Delta series components. As we stated at the June 2000 briefing, without inventorying and

recording the individual components of these training labs, accountability of these
4 GAO-01-88R Navy DPAS Implementation

components cannot be ensured, and information, including cost data, converted to DPAS

may not be complete or current.

At our June briefing, working group representatives stated that each activity should record

the training labs’ individual components in DPAS. However, the Navy contractor’s July 20,

2000, progress report stated that detailed component-level information found in other

systems would be used for component accountability. Although these systems contain

component-level information, the point is to determine how the Navy wishes to capture and

report its component-level data. Using systems other than DPAS to capture these data will

require the Navy to evaluate those systems’ functionality, sustainability, and ability to fit into

an overall DOD and Navy financial management system architecture. This would include

determining how these logistics systems would integrate with the acquisition and financial

reporting systems to meet long-term property management goals. Further, the use of other

systems appears to conflict with the Navy’s goal of reducing the number of systems used for

personal property accountability.

In the second case, at another location that we visited, we found that equipment that was

included in its Consolidated Ship Allowance List (COSAL) system or Consolidated ShoreBased Allowance List (COSBAL) was not inventoried and recorded in DPAS. These

systems include items such as test equipment, generators, radars, and telecommunications

equipment, which are not listed on the activity’s property books. Navy officials told us that

consistent with their goal of using DPAS to maintain accountability over personal property,

these assets should have been inventoried and recorded in DPAS. Activity officials stated

that because this equipment was already recorded in these other systems, it was not to be

included in DPAS. Navy officials acknowledged that they should have determined whether

activities had COSAL/COSBAL property items to be included in DPAS.

Since our briefing, the Navy DPAS Program Manager has said that the Navy contractor asks

activities during the presite visits if they have COSAL/COSBAL personal property items and

instructs them to include this property in DPAS. However, Navy officials indicated that they

plan to continue to use COSAL and COSBAL for other property-related functions, such as

maintenance schedules and requirements analyses. As in the case described previously

regarding component-level information maintained in separate systems, the Navy will need

to evaluate COSAL and COSBAL functionality, sustainability, and ability to fit into an

overall DOD and Navy financial management system architecture.

Program Sustainability May Be Hindered

To meet the aggressive fiscal year 2000 DPAS implementation schedule, the Navy and/or

individual activities did not perform certain prescribed procedures and did not ensure that

certain key elements of the DPAS implementation effort were in place as planned. While the

Navy has moved forward quickly to obtain a fiscal year 2000 balance for its personal

property, little will be gained if this balance is not properly maintained for future years.

Sustainability measures include ensuring that policies, procedures, and training are in place

so that additions, deletions, and modifications to the personal property database are properly

recorded. The following problems could hinder the long-term sustainability of the program.
5 GAO-01-88R Navy DPAS Implementation

• During the fiscal year 2000 DPAS implementation process, the Navy distributed, in draft,

its Personal Property Policies and Procedures Manual. This manual builds on the DOD

FMR and contains the Navy’s policies and procedures for the management of personal

property, including financial and accountability requirements. According to activity

officials, draft policies lack the needed command support and, therefore, may not be fully

complied with or may even be ignored. In a recent follow-up conversation, a Navy

official told us that the manual has now been reformatted into a Secretary of Navy

(SECNAV) Instruction (SECNAV Instruction 7320), which is a more formal document.

Although the actual instruction is not final or signed, we are aware that you, in your

capacity as team leader of the Navy Personal Property Working Group, signed a cover

letter dated August 21, 2000, stating that it should be used as the Navy guidance in

recording and accounting for personal property.

• To provide more Navy-specific guidance on DPAS, the Navy and its personal property

contractor recognized the need to develop and use a Navy DPAS Users Guide during the

DPAS training to bridge the gap between the technical implementation of DPAS and

overall Navy personal property policies. However, during the fiscal year 2000 DPAS

implementation process, the Navy did not finalize or use its DPAS Users Guide as part of

the activities’ initial DPAS training. As a result, there is no Navy-specific source of

information available to help activity officials with the day-to-day issues encountered in

using DPAS. In fact, as of October 19, 2000, the Navy’s DPAS Users Guide had not

been finalized. Another training-related issue discussed at the June 2000 briefing was the

Navy’s desire to have the DPAS training redesigned to be more tailored to its needs and

to discuss Navy personal property policies. However, according to a DPAS Program

Office official, the DPAS Program Office’s position is that DPAS is a DOD-wide system

and the training should not be redesigned and taught to reflect one service’s preferences.

The Program Office official stated, however, that Navy-specific training could be offered

at additional cost to the Navy.

• Equipment barcoding and scanning was de-emphasized as an essential part of the DPAS

conversion process. In an April 2000 briefing, equipment barcoding had been listed as a

key step in DPAS implementation that should be completed along with wall-to-wall

inventories prior to the conversion of the property inventory data to DPAS. However, a

message sent by you stated that although barcoding should be completed prior to DPAS

conversion, it was not required as long as it was completed prior to the next triennial

wall-to-wall inventory. In a follow-up discussion on this issue, the Navy DPAS Program

Manager agreed that barcoding and scanning were still important and should be tied in

with the new scanner technology to introduce consistency in barcoding throughout the

Navy. However, both Navy and DPAS Program Office officials noted that contractor

problems with the scanner development have delayed the process, precluded the

development of the needed interface with DPAS, and contributed to the delays in

implementing the barcoding and scanning requirements. As of October 19, 2000, Navy

and DPAS Program Office officials had not established a plan with specific tasks and

milestone dates for resolving these issues.
6 GAO-01-88R Navy DPAS Implementation

• During our visits to activities, officials stated that they did not have adequate time to

properly convert to DPAS and that the implementation schedule left no time for dealing

with delays from problems that arose. As a result, activity officials stated that they

converted data records known to be inaccurate or incomplete in order to meet deadlines.

These known errors were not identified in a way to ensure they could be tracked and

eventually corrected. At our briefing, we discussed using a specific series of data codes

to identify these problem data when they were converted so that these records could be

researched and properly entered at a later date. In a later discussion, the Navy DPAS

Program Manager stated that the Navy’s contractor is to emphasize in its presite visits the

importance of researching and ensuring the accuracy of the property data prior to the

DPAS conversion. The Program Manager indicated that such action would preclude the

need for using special data codes. However, it is important to recognize that the Navy

continues to lack procedures that would facilitate the identification and correction of

these data at a later date.

Conclusions

The Navy has demonstrated a strong commitment to improve asset accountability and

financial reporting of personal property. Successful DPAS implementation is an important

step in Navy efforts to improve asset accountability and financial reporting of personal

property. This will require all Navy activities to fully implement the system as intended. The

problems observed at the six sites we visited indicate that management controls over the

implementation process can be strengthened in order to provide reasonable assurance that

implementation objectives are met. We are offering recommendations to strengthen the

management controls over the implementation process and increase the level of oversight

provided to activities preparing for and undergoing DPAS implementation in order to

improve adherence to Navy policies.

Recommendations for Executive Action

We recommend that, under your leadership, the Navy Personal Property Working Group

increase the level of oversight provided to activities preparing for and undergoing DPAS

implementation to improve adherence to Navy policies. Such oversight should include

directing and determining that the following actions are completed.

• Perform the required physical wall-to-wall inventories in accordance with prescribed

Navy procedures, including that the inventories (1) are conducted by individuals

independent of the asset accountability function and (2) take place prior to the DPAS

conversion, as required by the Navy implementation plan.

• Enter accurate and complete data into DPAS during implementation. To the extent that

any data of questionable accuracy are converted, such data should be clearly identified as

problematic for subsequent research and correction.

• In cases where the Navy plans to use systems other than DPAS, such as

COSAL/COSBAL, develop a strategy to evaluate the systems’ functionality,
7 GAO-01-88R Navy DPAS Implementation

sustainability, and ability to fit into an overall DOD and Navy financial system

architecture, including integrating these logistical systems with acquisition and financial

reporting systems to meet long-term property management goals.

• Finalize and distribute the Navy’s guidance and operating procedures for the inventory

of, accounting for, and reporting of its personal property, including the SECNAV

Instruction related to personal property and the Navy’s DPAS Users Guide.

• In conjunction with the DPAS Program Office, the Working Group should (1) establish a

plan with specific tasks and milestones for implementing barcoding and scanning

capabilities to help maintain the Navy’s accountability over its personal property and

(2) determine the feasibility of developing and implementing Navy-specific DPAS

implementation training.

Agency Comments and Our Evaluation

In commenting on a draft of this letter, the Director, Supply, Ordnance, and Logistics

Operations Division, Department of the Navy, stated that the Navy generally concurred with

our findings and that following our June briefing, the Navy had begun initiating corrective

actions and incorporating our recommendations into all subsequent Navy DPAS

implementation efforts. The Navy actions taken or planned appear to be responsive to our

recommendations.

-----

We are sending a copy of this letter to Charles P. Nemfakos, Senior Civilian Official for the

Office of the Assistant Secretary of the Navy (Financial Management and Comptroller), and

to Nelson Toye, Deputy Chief Financial Officer, Office of the Under Secretary of Defense

(Comptroller).

If you have any questions about this letter or wish to discuss these issues further, please call

me at (202) 512-9095 or Evelyn Logue, Assistant Director, at (202) 512-3881. Rebecca S.

Beale, Robert M. Crowl, Christopher M. Rice, and Jeffrey M. Yoder were major contributors

to this assignment.

Sincerely yours,

Gregory D. Kutz

Director

Financial Management and Assurance

Enclosure
Enclosure

8 GAO-01-88R Navy DPAS Implementation

Comments From the Department of the Navy

Note: GAO’s comment

supplementing those in

the report text appears

at the end of this

enclosure.
Enclosure

9 GAO-01-88R Navy DPAS Implementation

See comment 1.
Enclosure

10 GAO-01-88R Navy DPAS Implementation
Enclosure

11 GAO-01-88R Navy DPAS Implementation

The following is GAO’s comment on the Department of the Navy’s letter dated December 8,

2000.

GAO Comment

1. The Director pointed out that DOD has classified trainers as national defense equipment

assets, which under DOD policy and current accounting standards do not require cost or

component-level tracking. The Director stated that if trainers subsequently are

reclassified as personal property by DOD, then for accountability purposes, the

components of those trainers that exceed DOD’s accountability threshold should be

tracked. Further, we understand that the Federal Accounting Standards Advisory Board

is currently reviewing the accounting standards for national defense equipment. As a

result, we have deleted the specific reference to training labs in our recommendation

regarding the use of other systems to track assets.

(924007)