GAO-01-206R Navy 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 Navy: 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

as a high-risk area1

 within the Department of Defense (DOD). We recently reported

that the U.S. Air Force and the U.S. Army had used unauthorized activity codes2 to

requisition nearly $3 billion in new and excess government property during the past 5

years. As a consequence, this property was vulnerable to fraud, waste, and abuse.

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 were used to requisition new and excess government property. As

discussed with your office, this letter focuses on the U.S. Navy’s use of unauthorized

activity codes3 from January 1995 to June 2000. We have reported separately on our

investigation of whether the General Services Administration used unauthorized

activity codes to requisition new and excess government property.4

Scope and Methodology

We interviewed Navy service point personnel and obtained a list of Navy activity

codes identified as unauthorized to requisition (i.e., for shipping purposes only). 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

 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 muchneeded 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 Air Force: Unauthorized Activity Codes Used to Requisition New and Excess DOD Property,

(GAO-01-196R, Jan. 8, 2001); Department of the Army: Unauthorized Activity Codes Used to Requisition New

DOD Property (GAO-01-85R, 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

 According to the Marine Corps service point, the Marine Corps does not create or maintain activity codes that

are unauthorized to requisition.

4

General Services Administration: Unauthorized Activity Codes Used to Requisition New and Excess

Government Property (GAO-01-221R, Jan. 8, 2001).
Page 2 GAO-01-206R Navy Unauthorized Activity Codes

to requisition new and excess government property, respectively, during the period

January 1995 through 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 period and in accordance

with generally accepted government auditing standards.

Results in Brief

As of June 2000, the Navy maintained 2,002 activity codes identified as unauthorized

to requisition government property (i.e., for shipping purposes only). However,

during the past 5 years, 663 of these codes were used to requisition over $2 billion in

new and excess government property. In addition, there are no safeguards in the

Defense Automatic Addressing System Center or the Defense Reutilization and

Marketing Service to prevent these activity codes from being used to requisition new

and excess government property. This situation has created a condition in which

government property is vulnerable to fraud, waste, and abuse.

To reduce the likelihood that Navy organizations and contractors acquire government

property inappropriately, we are making recommendations to address problems in

the Navy’s assignment and use of activity codes. In addition, we will make

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

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

whether requisitioned property was legally obtained and properly inventoried.

DOD 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

An activity address code is a six-position alphanumeric code used to provide 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 responsible for the property. Navy activity codes begin with an N, R, Q, or

V. The Navy Comptroller Manual5

 provides mandatory procedures for assigning,

changing, and terminating Navy activity address codes. The manual applies to all

Navy activities and Navy contractors.

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 Navy service point is the Director of the Defense Finance and

 5

 Navy Standard Operating Procedures 1000-25, Vol.2, Ch. 5, Dec. 1997.
Page 3 GAO-01-206R Navy Unauthorized Activity Codes

Accounting Service-Cleveland Center, Cleveland, Ohio. The service point is

responsible for assigning, canceling, or changing Navy activity codes.

A Navy activity address code consists of a unit identification code—a five-character

alphanumeric code—preceded by an N, R, Q, or V.6 A unit identification code

identifies the Navy activity’s name and mailing address and contains an embedded

purpose code. According to Navy service point personnel and the Navy Comptroller

Manual, unit identification codes with an S purpose code are for shipping purposes

only and are unauthorized to requisition government property.7 As of June 2000,

there were 2,002 Navy activity codes with an S purpose code on record.

Unauthorized Activity Codes Requisition Over $2 Billion in DOD Property

We obtained a list of the activity codes identified by the Navy service point 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 2,002 activity codes, 663 had

been used to requisition over $1.71 billion in new property and over $338 million in

excess property8 during the period January 1995 to June 2000. A relatively few

activity codes were used to requisition most of the property, as measured by property

value. Specifically, 12 activity codes accounted for approximately 96 percent ($1.64

billion) of the new property, and 11 accounted for over 99 percent ($336 million) of

the excess property. Of the 11 activity codes, one was responsible for about 96

percent ($324 million) of the excess property value. Further, while a majority of the

663 activity codes were assigned to Navy organizations, contractors working for the

Navy were assigned 42 of them.

Conclusions and Recommendations for Executive Action

Navy activity codes identified as unauthorized to requisition were used to requisition

new and excess government property. In addition, there are no safeguards in the

Defense Automatic Addressing System Center or the Defense Reutilization and

Marketing Service 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

Navy to

• verify whether requisitioning authority for Navy activity codes is categorized

accurately and review procedures to ensure that assignments are appropriate,

made in accordance with standard operating procedures, and routinely inspected

to ensure compliance and

 6

 The Director, Defense Finance and Accounting Service-Cleveland Center, is also responsible for assigning unit

identification codes.

7

 However, one Navy service point official told us that regardless of the purpose code, all Navy activity codes can

requisition. This official noted that a safeguard is required in the Defense Automatic Addressing System Center

that would prohibit unethical or fraudulent behavior.

8

These amounts represent the acquisition value of the property.
Page 4 GAO-01-206R Navy Unauthorized Activity Codes

• coordinate with the Defense Automatic Addressing System Center and the

Defense Reutilization and Marketing Service to incorporate 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 the data used in its

preparation. They agreed with our recommendations. The Navy will review its

internal procedures for categorizing activity codes as active or otherwise. The Navy

will also urge major claimants to be vigilant in controlling the use of unauthorized

activity codes. Finally, the Navy strongly endorses the recommendation to establish

safeguards in the Defense Automatic Addressing System Center and the Defense

Reutilization and Marketing Service databases that prevent the processing of an

unauthorized activity code.

- - - - -

As arranged with your office, unless you disclose the content of this letter earlier, we

plan no further disclosure of this letter until 30 days after its issuance. At that time,

we will send copies of the letter to interested congressional committees and

members, the Office of the Secretary of Defense, the Secretary of the Navy, the

Director of the Defense Logistics Agency, and the Director of the Defense Finance

and Accounting Service. The letter will then also be available on GAO’s home page,

www.gao.gov. If you have any questions or need additional information, please

contact 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

(600770)