DOD Excess Property: Control Breakdowns Present Significant Security Risk and Continuing Waste and Inefficiency
Published: 2006-07-25T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: GAO's previous work found problems in security controls over sensitive excess military equipment that resulted in lost and stolen items, some of which were sold to the public, and significant waste and inefficiency in the Department of Defense (DOD) excess property reutilization program. GAO was asked to perform follow-up investigations to determine whether (1) unauthorized parties could obtain sensitive excess military equipment that requires demilitarization (destruction) when no longer needed by DOD and (2) system and process improvements are adequate to prevent sales of new, unused excess items that DOD continues to buy or that are in demand by the military services.
section_title: What GAO Found
paragraphs: GAO investigators posing as private citizens to disguise their identity purchased several sensitive military equipment items from DOD's liquidation sales contractor, indicating that DOD has not enforced security controls for preventing sensitive excess military equipment from release to the public. GAO investigators at liquidation sales purchased ceramic body armor inserts currently used by deployed troops, a cesium technology timing unit with global positioning capabilities, a universal frequency counter, 2 guided missile radar test sets, 12 digital microcircuits used in F-14 fighter aircraft, and numerous other items. GAO was able to purchase these items because controls broke down at virtually every step in the excess property turn-in and disposal process. GAO determined that thousands of military items that should have been demilitarized (destroyed) were sold to the public. Further, in June 2006, GAO undercover investigators posing as DOD contractor employees entered two excess property warehouses and obtained about $1.1 million in sensitive military equipment items, including 2 launcher mounts for shoulder-fired guided missiles, several types of body armor, a digital signal converter used in naval surveillance, an all-band antenna used to track aircraft, and 6 circuit cards used in computerized Navy systems. At no point during GAO's warehouse security penetration were its investigators challenged on their identity and authority to obtain DOD military property. The table below shows examples of sensitive military equipment obtained during GAO's undercover operations. GAO investigators posing as private citizens also bought several new, unused items currently being purchased or in demand by the military services from DOD's excess property liquidation sales contractor. Although military units paid full price for these items when they ordered them from supply inventory, GAO paid a fraction of this cost to purchase the same items, demonstrating continuing waste and inefficiency.

section_title: Letter
paragraphs: Our May 2005 report stated that the Department of Defense (DOD)  reported $466 million in lost, damaged, and missing excess property from  fiscal years 2002 through 2004, including property with demilitarization  restrictions, such as chemical and biological protective suits, body armor,  and guided missile warheads. Some of the restricted items had been sold to  the public. Further, our May 2005 report noted that during fiscal years 2002  and 2003, the military services needlessly spent at least $400 million to  purchase new items instead of reusing identical excess items in new and  unused condition (A-condition). As a result, the new, unused excess items  were sold for pennies on the dollar. In response to our May 2005 report, at  the June 2005 oversight hearing by the Subcommittee on National Security,  Emerging Threats and International Relations, DOD officials stated that  controls were adequate to prevent items requiring demilitarization from  being released to unauthorized parties. In addition, DOD officials promised  to have system enhancements in place in January 2006 to assure that  excess items in new and unused condition that the military services are  continuing to use are returned to inventory and reutilized within DOD to  avoid unnecessary purchases.
This report responds to your request that we perform follow-up  investigations to determine whether (1) unauthorized parties could obtain  sensitive excess military equipment that requires demilitarization when no  longer needed by DOD and (2) systems and process improvements are  adequate to prevent liquidation sales of A-condition items that DOD is  continuing to buy or that are in demand by the military services.
Using investigative techniques and acting in an undercover capacity to  disguise our identity, we tested DOD systems and controls to see if we  could obtain sensitive excess military equipment and technology items that  require demilitarization and should not be available to the public. We used  DOD’s Federal Logistics (FedLog) system information to identify and  validate the population of military equipment and technology items that  require demilitarization. We then identified public sales of excess military  items that required demilitarization by total destruction when no longer  needed by DOD to prevent these items from falling into the wrong hands.  Next, we tested the systems and controls by making undercover purchases  of military equipment and technology items from DOD’s liquidation sales  contractor. In making these purchases we used a fictitious identity to  obtain End-Use Certificates (EUC) where this documentation was  required as a condition of sale. For sales where we were outbid, we tracked  the bid activity to identify the winning bidders. We are referring these  purchases and numerous other public purchases of items that should have  been demilitarized to federal law enforcement agencies for further  investigation. In addition, we used publicly available information to  develop undercover techniques to penetrate Defense Reutilization and  Marketing Office (DRMO) excess property warehouses.
To determine whether DOD was continuing to sell A-condition items that  were still being purchased or were in demand by the military services, we  monitored DOD’s liquidation contractor sales to identify new, unused  items. We targeted items for undercover purchases where our research  identified ongoing or recent procurements and active supply inventory  status of these items. We also monitored DOD actions to implement  improvements in excess property systems, processes, and controls in  response to our May 2005 audit recommendations. We analyzed Defense  Reutilization and Marketing Service (DRMS) data to determine if  reutilization rates of A-condition excess property increased during the first  three quarters of fiscal year 2006. We conducted our investigations from  November 2005 through June 2006 in accordance with quality standards for  investigators as set forth by the President’s Council on Integrity and  Efficiency.
subsections: section_title: Background
paragraphs: Over the past several years, we reported that serious breakdowns in  management processes, systems, and controls have resulted in substantial  waste and inefficiency in DOD’s excess property reutilization program. Our  June 2002 testimony and our November 2003 report documented instances  where DOD sold to the public items such as Joint Service Lightweight  Integrated Suit Technology (JSLIST) and other chemical and biological  protective suits and related gear that should have been restricted to DOD  use only. Our November 2003 report also identified several examples that  showed that at the same time DOD excessed biological equipment items in  good or excellent condition and sold many of them to the public for  pennies on the dollar, it was purchasing the same or similar items. Our May  2005 report stated that DOD reported $466 million in lost, damaged, and  missing excess property from fiscal years 2002 through 2004, including  property with demilitarization restrictions, such as chemical and biological  protective suits, body armor, and guided missile warheads. Some of the  restricted items had been sold to the public. We also reported that during  fiscal years 2002 and 2003, the military services purchased at least $400  million of identical items instead of using available excess items in new and  unused condition.
At the time of our May 2005 report, waste and inefficiency occurred  because condition codes were assigned to excess property that incorrectly  identified it as unusable and DOD lacked adequate systems and processes  for assuring that excess items in A-condition were reused to avoid  unnecessary purchases. We also found that DOD lacked adequate security  over excess items requiring demilitarization, resulting in losses reported by  DRMOs of nearly 150 chemical and biological protective suits, over 70 units  of body armor, and 5 guided missile warheads. Losses reported by DLA  supply depots included thousands of sensitive military items, such as  weapons system components and aircraft parts.
section_title: Undercover Acquisitions of Sensitive Excess Military Items Identifies National Security Risk
paragraphs: Our undercover investigators purchased several sensitive excess military  equipment items that were improperly sold to the public at DOD liquidation  sales. These items included 3 ceramic body armor inserts identified as  small arms protective inserts (SAPI), which are the ceramic inserts  currently in demand by soldiers in Iraq and Afghanistan; a time selector  unit used to ensure the accuracy of computer-based equipment, such as  global positioning systems and system-level clocks; 12 digital microcircuits  used in F-14 Tomcat fighter aircraft; guided missile radar test sets used to  check the operation of the data link antenna on the Navy’s Walleye (AGM- 62) air-to-ground guided missile; and numerous other electronic items. In  instances where DOD required an EUC as a condition of sale, our  undercover investigator was able to successfully defeat the screening  process by submitting bogus documentation and providing plausible  explanations for discrepancies in his documentation. We identified at least  79 buyers for 216 sales transactions involving 2,669 sensitive military items  that DOD’s liquidation contractor sold to the public between November  2005 and June 2006. We are referring information on these sales to the  appropriate federal law enforcement agencies for further investigation.
Posing as DOD contractor employees, our investigators also entered  DRMOs in two east coast states, and obtained about $1.1 million in excess  military items that required demilitarization as well several other items that  are currently in use by the military services. DRMO personnel even helped  us load the items into our van. These items included 2 launcher mounts for  shoulder-fired guided missiles, an all-band antenna used to track aircraft,  16 body armor vests, body armor throat and groin protectors, 6 circuit card  assemblies used in computerized Navy systems, and 2 Palm V personal data  assistant (PDA) organizers.
subsections: section_title: Sensitive Excess Military Items Purchased at DOD Excess Property Liquidation Sales
paragraphs: Using a fictitious identity as a private citizen, our undercover investigator  applied for and received an account with DOD’s liquidation sales  contractor. The undercover investigator was then able to purchase several  sensitive excess military items that were being improperly sold to the  public. During our undercover purchases, our investigator engaged in  numerous conversations with liquidation sales contractor staff during  warehouse inspections of items advertised for sale and DRMS and DLA  Criminal Investigative Activity (DCIA) staff during the processing of our  EUCs. On one occasion our undercover investigator was told by a DCIA  official that information provided on his EUC application had no match to  official data and that he had no credit history. Our investigator responded  with a plausible story and submitted a bogus utility bill to confirm his  mailing address. Following these screening procedures, the EUC was  approved by DCIA and our undercover investigator was able to purchase  targeted excess military items. Once our initial EUC was approved, our  subsequent EUC applications were approved based on the information on  file. The following discussion presents the case study details of our  undercover purchases of sensitive excess military items that should have  been destroyed when no longer needed by DOD and should not have been  sold to the public. Although these items had a reported acquisition cost of  $461,427, we paid a liquidation sales price of $914 for them—less than a  penny on the dollar.
Small arms protective insert. In March 2006, our undercover  investigator purchased 3 ceramic body armor inserts identified as small  arms protective inserts (SAPI), which are the ceramic inserts currently in  demand by soldiers in Iraq and Afghanistan. SAPI are designed to slide into  pockets sewn into the front and back of military vests in order to protect  the warfighter’s chest and back from small arms fire. The SAPI had been  improperly included in a batch lot of items that did not require  demilitarization. The batch lot reportedly contained 609 items, including  shelter half-tents, canteens and canteen covers, small tools, first aid  pouches, insect nets, barracks bags and waterproof bags, small arms cases,  miscellaneous field gear, and the SAPI. We paid $129 for the batch lot,  which had a reported acquisition cost of $1,471. The SAPI have a  demilitarization code of D, which requires them to be destroyed when no  longer needed by DOD rather than being sold to the public. Figure 1 shows  a photograph of one of the SAPI that we purchased.
Time selector unit. In March 2006, our undercover investigator purchased  an excess DOD time selector unit used to ensure the accuracy of computer- based equipment, such as global positioning systems and system-level  clocks. According to our Chief Technologist, this technology is important  because it prevents users in the battlefield from exposing their position to  get timing signals from outside sources. We paid $65 for the time selector  unit, which had an original acquisition cost of $343,695. Also, although the  unit was listed as being in F7 condition (unserviceable, reparable  condition), it appeared to be in working order.
The time selector unit had a demilitarization code of D, which required it to  be destroyed when no longer needed by DOD. The unit also had a FedLog  controlled inventory item code (CIIC) of 7, which indicates it is a classified item that requires protection in the interest of national security, in  accordance with DOD 5200.1-R, Information Security Program.
Although the link on the national stock number (NSN) included on DOD’s  liquidation contractor’s Internet sale Web site showed this item was  assigned a demilitarization code of D, it was sold to the public as a trade  security controlled item—demilitarization code B. As such, we were  required to complete an application and obtain an approved EUC. Our  undercover investigator submitted bogus information on his EUC  application. A DCIA official contacted our undercover investigator and told  him that the information on his application did not match official data and  he had no credit history. After responding with a plausible story and  submitting a bogus utility bill to document our mailing address, our EUC  for the time selector unit was approved in April 2006. Figure 2 shows a  photograph of the excess DOD time selector unit we purchased.
Digital microcircuits. Our undercover investigator purchased a total of 82  excess DOD digital microcircuits, including 12 microcircuits used on the F- 14 Tomcat fighter aircraft. Because of their sensitive technology, the  microcircuits had a demilitarization code of D, which requires their total  destruction when they are no longer needed by DOD. The 12 microcircuits  also had a CIIC of 7, which indicates they are classified items that require  protection in the interest of national security, in accordance with DOD  5200.1-R. In violation of DOD demilitarization policy for D coded items, the  microcircuits were improperly included in a batch lot with several other  electronic items that did not require demilitarization. Further, only 12 of the  82 demilitarization code D microcircuits that we purchased were listed on  the liquidation sale advertisement. We paid approximately $58 for the  entire batch lot, which included a total of 591 items with a reported  acquisition cost of $112,700. Because several items in the batch lot had  demilitarization codes that designated them as trade security control items  restricted by the U.S. Munitions List or the Commerce Control List of the  U.S. Department of Commerce, an EUC was required for approval of our  purchase. Our EUC for the digital microcircuits was approved in May 2006  based on our bogus information already on file. Figure 3 shows an enlarged  photograph of one of the microcircuits that were improperly sold to our  undercover investigator.
Guided weapon radar test sets. Two guided weapon radar test sets were  included in the batch lot with the digital microcircuits that our undercover  investigator purchased from DOD’s liquidation sales contractor in April  2006. The test sets, which were advertised for sale as radar test sets, are  used to check the operation of the data link antenna on the Navy’s Walleye  (AGM-62) air-to-ground guided missile delivered by the F/A-18 Hornet  fighter aircraft. The Walleye is designed to deliver a self-guided high- explosive weapon from an attack aircraft to a surface target. Because of  their sensitive technology the test sets have a demilitarization code of B,  which requires an EUC for trade security purposes. Figure 4 shows a  photograph of the guided weapon test sets that we purchased and obtained  using bogus EUC documentation.
Universal frequency counter. The new, unused universal frequency  counter purchased by our undercover investigator was manufactured  (initially calibrated) in February 2003. DOD awarded a contract to Fluke  Corporation in 2002 for 67 of these items, which are designed to count the  speed at which an electrical system fluctuates. According to a  manufacturer official, this item’s military application is to ensure the  frequency of communication gear is running at the expected rate. The  universal frequency counter has a demilitarization code of B, which  requires trade security control under the U.S. Munitions List. We paid a  total of $475 for this item, which had a reported acquisition cost of $1,685.  In April 2006, when we purchased the universal frequency counter, DOD’s  liquidation sales contractor sold a total of 15 of these items for $5,506, or  about $367 per unit. The 15 items had a reported total acquisition value of  $25,275, or $1,685 per unit. The bogus paperwork that we submitted with  our EUC application was approved by DCIA in May 2006. Figure 5 shows a  photograph of the unit that we purchased.
Directional coupler. In March 2006, our undercover investigator  purchased an excess military item advertised as a directional coupler from  DOD’s liquidation sales contractor. We paid $186 for the sales lot, which  contained a total of 8 electronic equipment and supply items with a listed  acquisition cost of $1,200. According to FedLog, the directional coupler  advertised had an actual acquisition cost of $1,876. This directional coupler  is used in the F-14 Tomcat fighter aircraft to monitor, measure, isolate, or  combine electronic signals. Because of its technology, this directional  coupler has a demilitarization designation code of D, which required it to  be destroyed when no longer needed by DOD. The directional coupler also  had a CIIC of 7, which indicates it is a classified item that requires  protection in the interest of national security, in accordance with DOD  5200.1-R. However, after receiving the item, we discovered that it was not  the item identified by the national stock number in the sales advertisement.  As a result, it appears that DOD not only lost accountability over the actual  item identified in its excess property inventory, but advertised and  recorded a public sale of a sensitive military item on the U.S. Munitions  List, which was required to be disposed of by destruction in accordance  with DOD demilitarization policy.
section_title: Additional Sales of Sensitive Excess Military Items Targeted for Undercover Purchase
paragraphs: We observed numerous sales of additional excess sensitive military items  that were improperly advertised for sale or sold to the public, including fire  control components for weapon systems, body armor, and weapon system  components. The demilitarization codes for these items required either key  point or total destruction rather than disposal through public sale.  Although we placed bids to purchase some of these items, we lost to higher  bidders. We identified at least 79 buyers for 216 public liquidation sales  transactions involving 2,669 sensitive military items. We are referring these  sales to federal law enforcement agencies for further investigation and  recovery of the sensitive military equipment. The following discussion  highlights the details of sales of sensitive military equipment items that we  observed or targeted for purchase but did not obtain because we were  outbid during the respective sales auctions.
Optical fire control items. Our investigative team identified a January  2006 sale of excess U.S. Army Armament Command optical instrument  prisms and optical lenses. DOD data showed that these optical instruments  are components of the fire control sighting mechanism used in the M-901A  Improved Armored Anti-tank vehicle. The M-901A fires the TOW 2 series  missiles. Our Chief Technologist advised us that both the prisms and lenses  are high-quality optical sighting equipment used in the fire control system  of the M-901A. We made an undercover visit to one of DOD’s liquidation  contractor sales facilities to inspect the prisms in January 2006. Our  inspection of the items listed for sale disclosed that the property label on  the boxes listed 11 optical instrument prisms with an acquisition cost of  $93,093. Although the demilitarization code of Q listed on the property label  for the prisms identified them as requiring trade security control as an item  on the Commerce Control List, the NSN listed for the prisms in fact related  to a demilitarization code of D, which required their total destruction when  no longer needed by DOD. Upon further inspection, we found that the  items labeled as prisms were in sealed manufacturer packages that listed  them as optical instrument lenses, not prisms. The NSN associated with the  11 lenses indicated that they had a total acquisition cost of $1,859 and a  demilitarization code of D, requiring their total destruction rather than  disposal by public sale. The mislabeling of these items indicates that DOD  may have lost accountability over both the prisms and the lenses. Both the  prisms and the lenses have a controlled CIIC code of 7, which indicates  they are classified items that require protection in the interest of national  security, in accordance with DOD 5200.1-R. We bid $550 for the lenses and  lost to a higher bidder, who paid $909 for them. Figure 6 is a photograph of  one of the boxes labeled as containing prisms that actually contained  lenses.
Body armor. Our investigative team also identified a March 2006  liquidation sale of body armor fragmentation vests. Upon our visit to the  sales warehouse, we identified a total of four body armor fragmentation  protective vests in two separate sales lots. According to the NSN, all of the  items sold had a demilitarization code of E, which required either key point  or total destruction of the item when no longer needed by DOD. We did not  bid on this sale, but have included it in our referrals to federal law  enforcement agencies for follow-up investigations. Figure 7 shows a  photograph of the actual body armor vest that that we observed for sale in  March 2006.
During our undercover operations, we also noted 13 advertised sales  events, including 179 items that were subject to demilitarization controls,  where the items were not sold. In 5 of these sales involving 113 sensitive  military parts, it appears that DOD or its liquidation sales contractor caught  the error in demilitarization codes and pulled the items from sale. One of  these instances involved an F-14 fin panel assembly that we had targeted  for an undercover purchase. During our undercover inspection of this item  prior to sale, a contractor official told our investigator that the government  was in the process of changing demilitarization codes on all F-14 parts and  it was likely that the fin panel assembly would be removed from sale. Of the  remaining 8 sales lots containing 66 sensitive military parts, we could not  determine whether the items were not sold because DOD or its contractor  caught the demilitarization coding errors or because minimum bids were  not received during the respective sales events.
section_title: Sensitive Military Items Obtained Through Inside Penetrations of DRMO Security
paragraphs: Our investigators used publicly available information to develop fictitious  identities as DOD contractor personnel and enter DRMO warehouses  (referred to as DRMO A and DRMO B) in two east coast states on separate  occasions in June 2006, to requisition excess sensitive military parts and  equipment valued at about $1.1 million. Our investigators were able to  search for and identify excess items without supervision. In addition,  DRMO personnel assisted our investigators in locating other targeted items  in the warehouse and loading these items into our van. At no point during  either visit did DRMO personnel attempt to verify with the actual  contractor that our investigators were, in fact, contractor employees.
During the undercover penetration, our investigators obtained numerous  sensitive military items that were required to be destroyed when no longer  needed by DOD to prevent them from falling into the wrong hands. These  items included two guided missile launcher mounts for shoulder-fired  missiles, several types of body armor, an all-band antenna used to track  aircraft, six circuit card assemblies used in Navy computerized systems, a  digital signal converter used in naval electronic surveillance, and two Palm  V personal digital assistants (PDA) that were certified as having their hard  drives removed.
Shortly after leaving the second DRMO, our investigators received a call  from a contractor official whose employees they had impersonated. The  official had been monitoring his company’s requisitions of excess DOD  property and noticed transactions that did not appear to represent activity  by his company. He contacted personnel at DRMO A, obtained the phone  number on our excess property screening letter, and called us. Upon  receiving the call from the contractor official, our lead investigative agent  explained that he was with GAO and we had performed a government test.
subsections: section_title: DRMO A Penetration
paragraphs: The following discussion presents the details of our case study requisitions  of sensitive military items we obtained during our penetration of the first  east coast DRMO.
Guided missile launcher mounts. Posing as DOD contractor employees,  our undercover investigators entered DRMO A in June 2006 and  requisitioned two excess DOD shoulder-fired guided missile launcher  mounts with a total reported acquisition cost of $6,246. The missile  launcher mounts provide the electrical connection between the round and  the tracker and contain a remote firing mechanism for the wire-guided  Dragon missiles. While the Dragon has been replaced by newer technology  missiles, it is a man-portable, shoulder-fired, medium antitank weapon  system that can defeat armored vehicles, fortified bunkers, concrete gun  emplacements, and other hardened targets. Under department  demilitarization policy, missile launcher mounts have a demilitarization  code of C, which requires removal and/or demilitarization of installed key  point(s) or lethal parts, components, and accessories to prevent them from  falling into the wrong hands. The missile launcher mounts also have a CIIC  code of 7, which indicates they are classified items that require protection  in the interest of national security, in accordance with DOD 5200.1-R.  Figure 8 shows a photograph of one of the guided missile launcher mounts  obtained by GAO.
Kevlar body armor fragmentation vests. Our undercover investigators  obtained six Kevlar body armor fragmentation vests with a total reported  acquisition cost of $2,049 from DRMO A during our June 2006 security  penetration. This body armor has a woodland camouflage pattern and was  designed for use by ground troops and parachutists. Although the Kevlar  fragmentation vest has been replaced by newer technology, it is still  considered a sensitive military item and has a demilitarization code of E,  which identifies it as critical items/materiel determined to require  demilitarization, either key point or total destruction. The Kevlar  fragmentation vests also have a CIIC code of 7, which indicates they are  classified items that require protection in the interest of national security,  in accordance with DOD 5200.1-R. Figure 9 shows a photograph of one of  the fragmentation vests obtained during our undercover penetration.
Digital signal converter. During the undercover penetration at DRMO A,  our investigators also obtained a DOD digital signal converter with a  reported acquisition cost of $882,586. The digital signal converter is used as  part of a larger surveillance system on the Navy’s E2C Hawkeye early  warning and control aircraft. Under department demilitarization policy, this  digital signal converter has a demilitarization code of D that requires it to  be destroyed when no longer needed by DOD. This signal converter also  has a CIIC code of 7, which indicates it is a classified item that requires  protection in the interest of national security, in accordance with DOD  5200.1-R. Figure 10 shows a photograph of the digital signal converter our  investigators obtained from DRMO A.
All-band antenna. Our undercover investigators identified and  requisitioned a new, unused all-band antenna during their June 2006  security penetration at DRMO A. According to manufacturer information,  the antenna is a high-powered portable unit that is used by the Air Force to  track aircraft. The antenna can be tripod-mounted or mounted on a  portable shelter. The new, unused all-band antenna, which was purchased  by DOD in 2003, had a reported acquisition cost of $120,000. A  manufacturer representative told our investigator that this antenna is  currently in production. Under department demilitarization policy, this all- band antenna has a demilitarization code of D that requires it to be  destroyed when no longer needed by DOD. This antenna also has a CIIC  code of 7, which indicates it is a classified item that requires protection in  the interest of national security, in accordance with DOD 5200.1-R. Figure  11 shows a photograph of the all-band antenna obtained during our  undercover penetration of security at DRMO A.
section_title: DRMO B Penetration
paragraphs: Posing as employees for the same DOD contractor identity used during our  June 2006 penetration at DRMO A, our investigators entered DRMO B a day  later for the purpose of testing security controls at that location. DRMO  officials appeared to be unaware of our security penetration at DRMO A the  previous day. During the DRMO B undercover penetration, our  investigators obtained the following items, most of which had  demilitarization requirements.
Body armor fragmentation vests. Our undercover investigators  obtained 10 body armor fragmentation vests with a total reported  acquisition cost of $290 from DRMO B. Although the protective capability  of this body armor has been superseded by newer technology, it would still  provide firearm protection to terrorists or criminals. These fragmentation  vests have a demilitarization code of E, which identifies them as critical  items/materiel determined to require demilitarization, either key point or  total destruction. Figure 12 shows a photograph of one the 10  fragmentation vests obtained during our undercover penetration.
Throat and groin protection armor. Our undercover investigators also  obtained a Kevlar throat protector related to the camouflage body armor.  The throat protector had a reported acquisition cost of $3.35 and a  demilitarization code of D, which requires it to be destroyed when no  longer needed by DOD. The groin protector, which is designed to hold a  ceramic insert, had a reported acquisition cost of $37.85 and a  demilitarization code of D. Figure 13 shows a photograph of the throat and  groin protection armor obtained during our undercover penetration at  DRMO B.
Circuit card assemblies. Our undercover investigators obtained six  circuit card assemblies with a reported acquisition cost of $77,011 from  DRMO B. The circuit card assemblies, which were turned in by the Naval  Air Warfare Center, had a demilitarization code of D which requires them to  be destroyed when no longer needed by DOD. A Lockheed Martin  representative, who confirmed that his company manufactured the circuit  cards we obtained, told our investigator that the circuit card assemblies are  used in a variety of computerized Navy systems. The circuit cards also have  a CIIC code of 7, which indicates they are classified items that require  protection in the interest of national security, in accordance with DOD  5200.1-R. Figure 14 shows a photograph of the circuit card assemblies  obtained during our undercover penetration at DRMO B.
Palm V Organizer PDAs. During our undercover security penetration at  DRMO B in June 2006, our investigators noticed two Palm V Organizer  PDAs and accessories. The Palm PDAs had tags affixed to them which read  “Certificate of Hard Drive Disposition/This certified hard drive was  removed from CPU” and “Computer Casing Empty.” Because PDAs do not  have hard drives, after successfully requisitioning them, we asked our  information technology (IT) security expert to test them to confirm that all  sensitive information had been properly removed. Our IT expert used  National Institute of Standards and Technology (NIST) utilities recommended for forensic analysis to run the tests. Based on the tests,  our IT expert determined that the RAM on both devices had been wiped  clean of any trace of residual data, leaving only the normal information that  a user would expect to find on an unused Palm V PDA. Figure 15 shows a  photograph of one of the Palm V PDAs and related accessories obtained  from DRMO B.
section_title: Waste Associated with Sales of A-Condition Excess Items that Military Services Are Continuing to Use in Operations
paragraphs: Because significant numbers of new, unused A-condition excess items still  being purchased or in use by the military services are being disposed of  through liquidation sales, it was easy for our undercover investigator to  pose as a liquidation sales customer and purchase several of these items for  a fraction of what the military services are paying to obtain these same  items from DLA supply depots. For example, we paid $1,146 for several wet  weather and cold weather parkas, a portable field x-ray enclosure, high-  security locks, a gasoline engine that can be used as part of a generator  system or as a compressor, and a refrigerant recovery system used to  service air conditioning systems on automobiles. The military services  would have paid a total acquisition cost of $16,300 for these items if  ordered from supply inventory, plus a charge for processing their order. It  was easy for us to purchase new, unused items that are in demand by the  military services because of the limited scope of DOD’s actions to address  this problem.
subsections: section_title: Undercover Purchases of New, Unused Items that DOD Is Continuing to Buy or that Are in Demand by Military Units
paragraphs: Our undercover investigator used a fictitious identity to obtain a DOD  liquidation sales customer account and purchase several new, unused  excess DOD items that the military services are continuing to order from  supply inventory or use in operations. The following discussion describes  examples of the new, unused excess DOD items that we purchased.
Wet-weather parkas. In March 2006, our undercover investigator  purchased 10 new, unused excess DOD wet-weather parkas with the  manufacturer’s tags still attached from DOD’s liquidation sales contractor.  Although Army combat units have begun using an upgraded version of the  parkas, they are a nondeteriorative item, and Army training units and other  military services are continuing to use them in military operations.  However, after the New Jersey Army National Guard turned in the unused  items as excess to their needs, the parkas were transferred to DOD’s  liquidation contractor for sale instead of being returned to supply inventory  for reissue. We paid $87 for the 10 wet-weather parkas, which had a total  reported acquisition cost of a $359. Figure 16 shows a photograph of one of  the wet-weather parkas our undercover investigator purchased at the  public liquidation sale.
Cold-weather parkas. In May 2006, our undercover investigator  purchased 10 excess DOD cold-weather desert camouflage parkas from  DOD’s liquidation sales contractor. Although the parkas were listed as  being in H condition (unserviceable, condemned condition), they were  advertised as new. We paid a total of $373 for these 10 parkas, which had a  total reported acquisition cost of $1,468. After receiving the parkas, we  noted that all of them appeared to be unused and 7 of them still had the  manufacturer’s tags attached. According to a Defense Supply Center,  Philadelphia official, these cold-weather parkas are nondeteriorative and  are currently stocked and issued to the military services. The cold-weather  parkas, which were ordered in support of Operation Enduring Freedom,  were turned in as excess by the Al Udeid Air Base, in Qatar. Instead of  being returned to inventory for reissue, the new, unused parkas were  transferred to DOD’s liquidation sales contractor. Figure 17 shows a  photograph of one of the excess new, unused parkas that we purchased.
Portable field x-ray processing enclosure. In April 2006, our  undercover investigator purchased a portable field x-ray processing  enclosure with a reported acquisition cost of $7,235. We paid $87 for this  item. We received the x-ray enclosure in May 2006, after approval of our  bogus Food and Drug Administration (FDA) certificate. DOD’s liquidation  sales contractor requires buyers of medical and laboratory equipment  items that are subject to federal regulation to submit FDA certificates as a  condition of sale. On the FDA certificate, the buyer certifies that he or she  is a licensed medical practitioner or person regularly and lawfully engaged  in the manufacture or refurbishing of the medical device listed and agrees  to assure that items resold will not be adulterated or misbranded within the  meaning of those terms in the Federal Food, Drug and Cosmetic Act  (codified at 21 U.S.C. Ch. 9). A manufacturer official told our undercover  investigator that the x-ray enclosure that we purchased is manufactured  and sold to DOD on an as-needed basis. The official stated that there is no  shelf-life issue associated with this product. In addition, a Defense Supply  Center, Philadelphia official assigned to the X-ray Equipment and  Supplies/Biomedical Systems Office of the Technical, Quality, and  Packaging Staff responsible for x-ray equipment and supply items advised  us that the x-ray enclosure is currently used by the military services, and  the Army is the primary user. The supply center official noted that the  enclosure is a depot-stocked item. However, after checking the inventory  system, the official told us that there were currently none of these items in  stock. The supply center official confirmed that the enclosure has no shelf- life issues.
At the time we purchased the x-ray enclosure, 40 identical x-ray enclosures  with a reported acquisition cost of $289,400 were sold for a total liquidation  sales price of $2,914. Figure 18 is a photograph of the excess DOD portable  x-ray enclosure that we purchased over the Internet. The enclosure is  stored in an oversized foot-locker-type container approximately 5 feet in  length.
High-security locks. Our undercover investigator purchased 20 new,  unused high-security locks from the DOD liquidation sales contractor in  April 2006. The locks, which were in the original manufacturer’s boxes, had  a total reported acquisition cost of $1,675, and we paid a total of $59 for  them. We contacted the manufacturer, whose representative told us that his  company sold DLA 100 of these locks in September 2005. The  representative explained that the locks are used to secure the back bay of  logistics trucks. He said that his company was not aware of any problems  with the locks. A U.S. Marine Corps unit in Albany, Georgia, turned the  locks in as excess, and they were not returned to inventory for reissue. At  the time we purchased the 20 locks, DOD’s liquidation sales contractor had  advertised a total of 19 lots consisting of 480 locks for sale. Six of the 19  lots, with a reported total acquisition cost of $18,423, sold for $365. Figure  19 shows a photograph of one of the excess DOD high-security locks that  we purchased in April 2006.
Gasoline engine. Our undercover investigator purchased a new, unused  Teledyne 4-cylinder gasoline engine in March 2006. The engine, which was  manufactured in the 1990s, is part of a generator unit. It can also be used  with a compressor. According to FedLog data, the engines are required to  be issued until current supplies are exhausted. The item manager for this  engine told our undercover investigator that DLA currently has about 1,500  of these engines in stock and they are still being issued, primarily to Army  National Guard and Reserve units. He said that the Air Force and the  Marine Corps also use them. He noted that the Marine Corps ordered 4 of  these engines in June 2006. We paid $355 for the gasoline engine, which had  a reported acquisition cost of $3,119—the amount the Marine Corp paid for  each item, plus a service charge. At the time we purchased this unit, a total  of 20 identical gasoline engines with a total reported acquisition cost of  $62,380 were sold for a total liquidation sales price of $6,221. Figure 20  shows a photograph of the gasoline engine that we purchased.
Refrigerant recovery system. In April 2006, our undercover investigator  purchased a new, unused excess DOD refrigerant recovery system Model  ST-100A. This is a portable system designed to recover and recycle R-12, R- 22, R-500, and R-502 refrigerants at the rate of 2 to 3 pounds per minute.  According to a manufacturer representative, the unit that we purchased is  designed to recover refrigerants from small systems, such as those in  automotive vehicles. We paid a total of $185 for the new, unused refrigerant  recovery system, which had a reported acquisition cost of $2,445.  According to a Refrigerant Recovery Systems, Inc., representative, this  item is still being purchased and used by DOD. The refrigerant recovery  system that we purchased was likely turned in as excess by the Army Risk  Assessment Modeling System (ARAMS) Project Office located in  Chesapeake, Virginia. ARAMS turned in nine identical excess recovery  systems in January 2006 that appeared to have been sold during the  liquidation sales event at which we made our undercover purchase. These 9  refrigerant recovery systems, which had a listed acquisition cost of $22,004,  sold for a total liquidation sale price of $1,140.
When our undercover investigator went to pick up the refrigerant recovery  system that we purchased, he found that it was stored outside and exposed  to weather. As a result, the box the unit was stored in had become wet and  the filters included with the unit had become soaked. Figure 21 is a  photograph of the excess DOD refrigerant recovery system that we  purchased.
section_title: Limited DOD Actions to Assure Reutilization of New, Unused Items
paragraphs: Although DLA and DRMS implemented several initiatives to improve the  overall reutilization rate for excess A-condition items, our analysis of  DRMS data found that the reported reutilization rate as of June 30, 2006, remained the same as we had previously reported—about 12 percent.  This is primarily because DLA reutilization initiatives are limited to using  available excess A-condition items to fill customer orders and to maintain  established supply inventory retention levels. As a result, excess A- condition items that are not needed to fill orders or replenish supply  inventory are disposed of outside of DOD through transfers, donations, and  public sales, which made it easy for us to purchase excess new, unused  DOD items. The disposal of items that exceed customer orders and  inventory retention levels is an indication that DOD bought more items  than it needed. In addition, several of the items we purchased at liquidation  sales events were being ordered from supply inventory by military units at  or near the time of our purchase, and for one supply-depot-stocked item— the portable field x-ray enclosure—no items were in stock at the time we  made our undercover purchase, indicating continued waste and  inefficiency.
DLA and DRMS initiatives resulted in a reported $38.1 million in excess  property reutilization savings through June 2006. According to DLA data as  of June 30, 2006, interim supply system initiatives using the Automated  Asset Recoupment Program, which is part of an old legacy system,  achieved reutilization savings of nearly $2.3 million since July 2005, while  Business System Modernization supply system initiatives, implemented in  January 2006 as promised at the June 2005 hearing, have resulted in  reutilization savings of nearly $1.1 million. In addition, DRMS reported that  excess property marketing initiatives implemented in late March 2006 have  resulted in reutilization savings of a little over $34.8 million through June  2006. These initiatives include marketing techniques using Web  photographs of high-dollar items and e-mail notices to repeat customers  about the availability of A-condition items that they had previously selected  for reutilization.
section_title: Corrective Action Briefing
paragraphs: On June 28, 2006, we briefed DOD, DLA, DRMS, and military service  management on the results of our investigations. We discussed the causes  of the control breakdowns we identified with regard to security of sensitive  excess military equipment and provided our perspectives on ways to  address the following problems.
Some military units and DLA supply depots recorded incorrect  demilitarization codes to excess military property items and in some  cases improperly included these items in batch lots before sending these  items to DRMOs.
DRMO personnel failed to verify the recorded demilitarization codes  when they processed receipts of excess military property.
The limited scope of DLA and DRMS compliance reviews is not  sufficient to detect problems with incorrect demilitarization codes.
DOD’s excess property liquidation sales contractor failed to verify  demilitarization codes of items received and return items requiring  mutilation or destruction to the DRMO for proper disposal.
The managers told us that they shared our concern about the breakdowns  in security controls that allowed sensitive military items requiring  demilitarization to be sold to the public. They asked us for pertinent  documentation obtained during our investigations to support their follow- up inquiries and corrective action plans. We have provided this  information. In addition, the managers told us that the DRMOs rely on  access controls executed by the DOD installations at which the DRMOs are  located to preclude access by unauthorized parties. During our briefing, we  also pointed out that because the reutilization and marketing program  permits public access to DRMOs and liquidation sales locations, it is most  important to confirm the identities and requisitioning authority of the  individuals who enter the DRMOs to screen and requisition excess  property. With regard to reutilization program economy and efficiency  issues, the DOD managers maintained that forecasting the correct  inventory level is difficult and that some amount of excess purchasing is  necessary to assure that inventory is available when needed. They also  stated that there is a cost associated with retaining excess inventory for  extended periods of time. We provided DOD documentation to show that  the excess A-condition items that we purchased were continuing to be  ordered and used by the military services at the time of our undercover  purchases.
section_title: Conclusions
paragraphs: Our security tests clearly show that sensitive military equipment items are  still being improperly released by DOD and sold to the public, thus posing a  national security risk. The sensitive nature of these items requires  particularly stringent internal security controls. Our tests, which were  performed over a short duration, were limited to our observations, meaning  that the problem may likely be more significant than what we identified.  Although we have referred the sales of items identified during our  investigation to federal law enforcement agencies for follow-up, the  solution to this problem is to enforce controls for preventing improper  release of these items outside DOD. Further, liquidation sales of items that  military units are continuing to purchase at full cost from supply inventory  demonstrates continuing waste and inefficiency in DOD’s excess property  reutilization program.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of our report to DOD for comment on July 10, 2006.   The Deputy Under Secretary of Defense for Logistics and Materiel  Readiness responded that given the time allotted to comment, the  Department was not able to do a detailed review and has no comments at  this time.  However, the Deputy Under Secretary also stated that the  department continues to implement changes to our procedures based on  recommendations in our May 13, 2005, report.
We are sending copies of this letter to interested congressional committees,  the Secretary of Defense, the Deputy Under Secretary of Defense for  Logistics and Personnel Readiness, the Under Secretary of Defense  Comptroller, the Secretary of the Army, the Secretary of the Navy, the  Secretary of the Air Force, the Director of the Defense Logistics Agency,  the Director of the Defense Reutilization and Marketing Service, and the  Director of the Office of Management and Budget. We will make copies  available to others upon request. In addition this report will be available at  no charge on the GAO Web site at http://www.gao.gov.
Please contact me at (202) 512-7455 or kutzg@gao.gov, if you or your staffs  have any questions concerning this report. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. Major contributors to this report are acknowledged in  appendix IV.
section_title: DOD Excess Property Demilitarization Codes
paragraphs: Department of Defense (DOD) property is assigned a demilitarization code  to identify the required disposition of items when they are no longer  needed by DOD. Demilitarization codes are contained in the Defense  Demilitarization Manual, DOD 4160.21-M-1 (1995), which implements DOD  policy to apply appropriate controls (e.g., restrictions to use by authorized  parties, destruction when no longer needed by DOD) over items that have a  significant military technology application to prevent improper use or  release of these items outside of DOD. These items include materiel that  the Secretary of Defense has designated as requiring demilitarization,  articles on the U.S. Munitions List (22 C.F.R. pt. 121), and certain articles  subject to export controls because they are on the Commerce Control List  establish by the U.S. Department of Commerce (15 C.F.R. § 774, Supp. 1).  Appendix 3 of the Manual provides the demilitarization codes to be  assigned to federal supply items and coding guidance. The codes indicate  whether property is available for reuse without restriction or whether  specific restrictions apply, such as removal of classified components,  destruction of sensitive military technology, or trade security control. The  table below defines the DOD demilitarization codes.
section_title: Excess Property Condition Codes
paragraphs: The Department of Defense’s (DOD) condition code is a two-digit  alphanumeric code used to denote the condition of excess property from  the supply and the disposal perspective. The DOD supply condition code is  the alpha character in the first position and shows the condition of  property in the Defense Logistics Agency supply depot inventory, or is  assigned by the unit turning in the excess property. The General Services  Administration (GSA) disposal condition code, in the second position,  shows whether the property is in new, used, or repairable condition,  salvageable, or should be scrapped.
section_title: Comments from the Department of Defense
section_title: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: Staff making key contributions to this report include Mario Artesiano,  Donald L. Bumgardner, Matthew S. Brown, Paul R. Desaulniers, Stephen P.  Donahue, Lauren S. Fassler, Gayle L. Fischer, Cinnimon Glozer, Jason Kelly,  John Ledford, Barbara C. Lewis, Richard C. Newbold, John P. Ryan, Lori B.  Ryza, Lisa Warde, and Emily C. Wold.
Technical expertise was provided by Keith A. Rhodes, Chief Technologist,  and Harold Lewis, Assistant Director, Information Technology Security,  Applied Research and Methods.