Defense Inventory: Army Needs to Strengthen Internal Controls for Items Shipped to Repair Contractors
Published: 2005-12-13T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: GAO has previously reported that the lack of control over inventory shipments increases the Department of Defense's (DOD) vulnerability to undetected loss or theft. GAO evaluated the Army's effectiveness in maintaining accountability of inventory shipped to repair contractors. To conduct its review, GAO analyzed shipment data for fiscal year 2004, surveyed repair contractors that were recipients of inventory shipments, and assessed the Army's adherence to internal control procedures. Inventory shipments included both secondary repair items--components, assemblies, and subassemblies, other than major end items, which may be sent to commercial facilities for repair, alteration, or modification--and government-furnished materiel--assemblies, parts, and other items provided in support of this work.
section_title: What GAO Found
paragraphs: The Army has not maintained accurate accountability for inventory shipped to repair contractors, thereby placing these assets at risk of loss or theft. Although DOD policy requires the military services to confirm receipt of all assets shipped to contractors, the Army is not consistently recording shipment receipts in its inventory management systems. In an analysis of fiscal year 2004 shipment data obtained from two Army inventory control points, GAO could not reconcile shipment records with receipt records for 42 percent of the unclassified secondary repair item shipments, with a value of $481.7 million, or for 37 percent of the classified secondary repair item shipments, with a value of $8.1 million. These data show that the Army cannot confirm that all inventory items shipped to repair contractors were received. The Army's data contained no receipts for government-furnished materiel. GAO survey results showed that repair contractors could confirm receipt of most, but not all, of the shipments. Specifically, on the basis of its survey results and follow-up work, GAO estimated that about 15 percent of the unclassified secondary repair item shipments in the survey population could not be confirmed as being received. GAO estimated that these lost or unaccounted for shipments have a value of approximately $68 million. All shipments of classified government-furnished materiel and secondary repair items were reported as received by the contractors in our survey. For shipments of unclassified government-furnished materiel, almost all shipments were reported by the contractors in our survey as being received. The Army's accountability for shipments of items sent to repair contractors is impeded by three internal control weaknesses. First, Army inventory control points lack systematic procedures for (1) obtaining and documenting contractor receipt of shipments of secondary repair items, (2) following up in cases where receipt was not confirmed by the contractors, and (3) providing advance notification of shipments to contractors. Second, the Army does not confirm receipt of government-furnished materiel shipments, reflecting a discrepancy between the Army's practices and DOD regulations regarding the need to confirm receipt of these shipments. DOD regulations require receipts for all shipments, including government-furnished materiel. Third, inventory control points do not provide the Defense Contract Management Agency with required quarterly reports that show the status of government-furnished materiel shipments. As a result, Defense Contract Management Agency officials may lack data to corroborate contractor-generated data during their inventory audits. These weaknesses in the Army's ability to account for inventory shipped to repair contractors increase the risk of undetected loss or theft. Moreover, inaccurate receipt records can diminish asset visibility and distort on-hand inventory balances, leading to unnecessary procurement of items.

section_title: Letter
paragraphs: Every year the Army ships thousands of items from its inventory to  commercial contractors for repair, alterations, or modification. These  items range from small components, such as circuit card assemblies, to  larger, expensive items like turbine engines. In addition, contractors may  receive parts from the Army supply system for use in this work. In fiscal  year 2004, for example, Army records show that the U.S. Army Aviation and  Missile Command and the U.S. Army Tank-automotive and Armaments  Command authorized shipment of about 70,000 items worth approximately  $970 million to repair contractors. To safeguard government-owned assets  while they are in transit, Department of Defense (DOD) and Army policies  require Army supply activities to follow specific procedures for managing  and maintaining accountability of inventory provided to commercial  contractors.
Since at least 1990, we have considered DOD supply chain and inventory  management to be a high-risk area due to ineffective management systems  and procedures. Among the issues facing the department has been a lack of  control over inventory shipments, which increases DOD’s vulnerability to  undetected loss or theft and also increases the risk that millions of dollars  will be spent on procuring unnecessary items.
In response to your request, we evaluated the Army’s effectiveness in  maintaining accurate accountability of inventory shipped to repair contactors. Our review included shipments of both secondary repair items  and government-furnished materiel.
This report is the third and last in a series of reports focusing on the  services’ inventory management procedures for controlling materiel  shipped to repair contractors. In July 2002, we reported that the Air Force  either did not adhere to, or did not establish, effective controls for assets  shipped to its repair contractors for repair or for use in the repair of other  assets. More recently, we reported in July 2004 that the Naval Inventory  Control Point and its repair contractors did not follow a number of DOD  and Navy procedures for maintaining accountability and visibility of  government-furnished materiel provided to contractors.
To perform our review, we analyzed Army inventory shipment data,  surveyed repair contractors that were recipients of inventory shipments,  and assessed the Army’s adherence to policies for managing and  maintaining accountability for inventory shipments. We obtained fiscal  year 2004 shipment data from two of the Army’s three major inventory  control points—the U.S. Army Aviation and Missile Command and the U.S.  Army Tank-automotive and Armaments Command. For secondary repair  items, we analyzed the data to reconcile inventory shipment records with  receipt records. To assess the reliability of the Army data, we randomly  selected 200 secondary repair item shipments for which the inventory  shipment records and receipt records had not been reconciled in the  Army’s inventory management systems. We also randomly selected 200  government-furnished materiel shipments. Because these were random  samples, the results of our analysis can be projected to the entire universe  of shipments that met our selection criteria. Additionally, we selected all  shipments of classified items—90 total shipments—that were present in  our data population. We then sent surveys to 72 Army contractors  requesting property record information on these shipments to assess  whether these items had been received and accounted for by the  contractors. We received and reviewed survey responses from 66 of the 72  contractors, representing 184 unclassified secondary repair item  shipments, or 92 percent of our randomly selected sample; 169 unclassified  government-furnished materiel shipments, or 85 percent of our randomly  selected sample; and 100 percent of the classified shipments. We followed  up with repair contractor officials and Army item managers to obtain  additional information on specific shipments where our survey data  indicated a potential loss of accountability. On the basis of the survey  results and our follow-up analysis, we believe that the data are sufficiently  reliable for our purposes. We conducted our review from October 2004  through November 2005 in accordance with generally accepted  government auditing standards. Appendix I provides more details about  our scope and methodology. A copy of the survey we sent to repair  contractors is reprinted in appendix II.
subsections: section_title: Background
paragraphs: Responsibility for controlling and accounting for materiel shipped to repair  contractors is shared between the Army and its contractors. Army  inventory control points within the Army Materiel Command manage the  movement of assets from the Army supply system to commercially  operated repair facilities. The Army’s three major inventory control points  for secondary repair items are the U.S. Army Aviation and Missile  Command, the U.S. Army Tank-automotive and Armaments Command, and  the U.S. Army Communications-Electronics Command. Repair contractors  are generally required to establish and maintain a property control system  for the control, use, maintenance, repair, protection, and preservation of  government property in their possession.
Inventory control points, as part of their materiel management functions,  maintain the Army’s data systems that support inventory and financial  management, requirements determination, maintenance planning, and  procurement. These inventory management systems retain the accountable  records for inventory transactions, including shipment and receipt records.  The U.S. Army Aviation and Missile Command and the U.S. Army Tank- automotive and Armaments Command use the Commodity Command  Standard System as their inventory management system. This system will  eventually be replaced with the Logistics Modernization Program, which  will integrate inventory functions performed by legacy inventory  management systems. The U.S. Army Communications-Electronics  Command uses the Logistics Modernization Program.
The inventory shipment data we obtained from the U.S. Army Aviation and  Missile Command and U.S. Army Tank-automotive and Armaments  Command included shipments of secondary repair items and government- furnished materiel sent to contractor facilities located in the continental  United States during fiscal year 2004. Many shipments contained multiple  items. According to these records, the inventory control points together  authorized shipments of more than 25,000 secondary repair items worth  approximately $852 million to repair contractors. The records show they  also authorized shipments of more than 44,000 government-furnished  materiel items valued at approximately $118 million. The survey population  we used to draw our sample included all shipments of secondary repair  items for which we could not identify matching receipt records for  corresponding inventory shipment records, all shipments of government- furnished materiel, and all shipments of classified government-furnished  materiel and secondary repair items. Table 1 shows the population of  shipments from which we drew our samples.
DOD has established policies for maintaining accountability for assets  shipped to repair contractors. Under these policies, for example,  contractors are responsible for posting receipts in their property control  records and notifying the appropriate inventory control point once they  have received shipped assets. The inventory control point establishes a  “due-in” record when a shipment is issued to track inventory that will  eventually return to the Army supply system. Once notified of receipt by  the contractors, the inventory control point processes receipt of a  transaction in its inventory management system to reflect the contractors’  receipt of the shipment. If the inventory control point is not notified of  receipt within 45 days of shipment, it is required to follow up with the  intended recipient to determine shipment status. Without a confirmation of  receipt, the status of a shipment is uncertain. In addition, DOD policy states  that the military services may establish requirements for their inventory  control points to provide advance notification of scheduled shipments to  repair contractors.
DOD also requires inventory control points to submit quarterly reports to  DCMA identifying quantities and types of government-furnished materiel  provided to repair contractors. DCMA assesses the accuracy of repair  contractor records and accounts for government property furnished to  contractors. The quarterly reports are intended to help contract officers  verify that repair contractors have maintained accountability for all  government-furnished materiel shipped to their facilities without relying  strictly on contractor inventory records.
The Army has established a system for formally reporting errors in  shipments. Under DOD and Army regulations, recipients of repair materiel  are required to investigate and report shipment discrepancies, such as  incorrect quantities and types of items and items sent to the wrong location. If the discrepancy results from shipper error, the recipient  submits a supply discrepancy report to the appropriate inventory control  point. Inventory control point officials review and validate these reports  and provide recipients with instructions for resolving the discrepancy. For  example, the customer may be instructed to return misdirected items to the  Army supply system or to retain items for future repair work.
In addition to these policies, the Army is obligated to establish and  maintain effective internal control systems. The Federal Managers’  Financial Integrity Act of 1982 requires GAO to issue standards for internal  control in the federal government. According to these standards, internal  controls are an integral component of an organization’s management that  provide reasonable assurance that assets are being safeguarded and other  objectives are being met. Internal controls should be designed to provide  reasonable assurance regarding prevention or prompt detection of  unauthorized acquisition, use, or disposition of an agency’s assets.  Effective and efficient internal control activities help ensure that an  agency’s control objectives are accomplished. Control activities are the  policies, procedures, techniques, and mechanisms that enforce  management directives, such as the process of adhering to DOD  requirements for receipting of shipped assets and generation of quarterly  government-furnished status reports.
section_title: Internal Control Weaknesses Impede Army’s Accountability for Inventory Shipments
paragraphs: Internal control weaknesses have impeded the Army’s accountability for  assets shipped to repair contractors. Army inventory control points do not  consistently record receipts for secondary repair items shipped to repair  contractors. Furthermore, the Army does not verify receipt of government- furnished materiel. In addition, the Army does not provide shipment status  reports to DCMA as required under DOD regulations. A lack of accurate  accountability for shipments of secondary repair items and government- furnished materiel places these assets at risk of loss or theft, diminishes  asset visibility and can distort on-hand inventory balances, leading to  unnecessary procurement of items.
subsections: section_title: Army Does Not Consistently Record Receipts for Secondary Repair Item Shipments
paragraphs: Army inventory control points are not consistently recording receipts of  shipments of secondary repair items in their inventory management  systems. In our analysis of fiscal year 2004 shipment data obtained from  two Army inventory control points, we could not reconcile shipment  records with receipt records for 1,076 (42 percent) of the unclassified  secondary repair item shipments, with a value of $481.7 million, or for 30  (37 percent) of the classified secondary repair item shipments, with a value  of $8.1 million. In this analysis, we identified shipments that lacked a  matching receipt record as well as those shipments for which there was a  discrepancy between the number of items shipped and the number  receipted. Table 2 displays the results of our analysis for shipments of  unclassified secondary repair items.
These data show that Army inventory control points, on the basis of receipt  records maintained in its inventory management systems, cannot confirm  that a substantial portion of inventory items shipped to repair contractors  were in fact received. In the absence of accurate and complete receipt  records, the Army lacks inventory transaction data needed for maintaining  accurate accountability for an asset as it moves through the repair cycle.  Furthermore, inaccurate or incomplete receipt records can lead to a  distortion of on-hand inventory balances, thus placing the Army at risk of  procuring more items than are needed to support the warfighter. The Army  Audit Agency, in September 2004, noted that the Army lacked accurate  receipt records for shipments both to contractors and to government- owned depot facilities, and that, as a result, on-hand inventory balances for  some items were understated by about $40.8 million.
Our survey results showed that repair contractors could confirm receipt of  most, but not all, of the fiscal year 2004 shipments. On the basis of our  analysis of the survey results and follow-up work with contractors and  Army item managers, we estimated that about 15 percent of the  unclassified secondary repair item shipments in our survey population  could not be confirmed as being received. We estimated that these lost or  unaccounted for shipments have a value of approximately $68 million.  For example, our sample of secondary repair items included a shipment of  30 aircraft rotary wing components with a total value of $8.3 million. The  Army’s inventory management system did not show a receipt for this  shipment, and the contractor had no record of receiving the shipment. On  the basis of our work, the status of this shipment remains uncertain.
For classified items, the contractor confirmed receipt for 79 of the 80  secondary repair item shipments but could not confirm receipt for 1  shipment in our survey population with a value of about $17,000. In a  subsequent analysis conducted by the Army to determine the status of this  classified shipment, the Army discovered that it had erroneously provided  us with a duplicate shipment record, causing this shipment to appear  unaccounted for based on the original data that the Army had provided for  this review. According to the Army, this was not a classified shipment sent  to the contractor for repair, but rather a shipment record that pertained to a  repaired asset coming from the contractor back into its inventory. The  Army provided documentation to confirm the receipt of this asset back into  its inventory. On the basis of this data, we deleted this record from our  analysis. Thus, all shipments of classified secondary repair items were  received by the contractors.
Although required to obtain confirmation of receipt from repair  contractors, Army inventory control points lack systematic procedures for  obtaining and documenting receipt of shipments of secondary repair items  and for following up within 45 days in cases where receipt was not  confirmed by the contractors. Army regulations concerning receipt  notification do not specify the method or form by which contractors are to  notify the inventory control point when they receive shipments. Moreover,  multiple individuals at the inventory control points may become involved in  the receipting process. Item managers, who manage specific inventory  items and authorize shipments of secondary repair items to contractor  facilities, are generally responsible for ensuring repair contractors receive  shipments. We found that various methods are used to confirm receipt.  Some item managers rely on routine reports provided by the contractors or  on data obtained from contractors’ inventory data systems. Other item  managers confirm receipt by telephone calls to contractor officials. Once  the receipt confirmation is obtained, the item manager may pass the receipt  information to other inventory control point personnel, who then update  the record in the inventory management system. In most cases, these  personnel enter the receipt information into the inventory management  system manually. Manual updating increases the probability of  inaccuracies in receipt data.
Although we could not reconcile 42 percent of the shipments in the Army’s  data with matching receipt records, our follow-up survey with repair  contractors indicated they were able to confirm receipt for a majority of  the shipments. In addition, on the basis of our survey of repair contractors,  we estimate that for 82 percent of the shipments, contractors stated they  had notified the Army of shipment receipt. However, these receipt  notifications were not always recorded in the Army’s inventory  management systems. Systematic follow-up within 45 days of shipment by  the Army inventory control points could have identified these confirmed  receipts, enabling an update of the inventory record to accurately reflect  the shipment status.
While contractors are required to report shipment discrepancies through  the Army’s supply discrepancy reporting program, we found that this  practice does not always occur. In our survey, repair contractors noted  discrepancies in shipments that were not formally reported through the  Army’s reporting program. It is unclear why all discrepancies were not  reported. One explanation provided by several contractors was that Army  officials do not routinely provide advance notification to contractors prior  to shipment. Because the Army had not notified them in advance of the  shipments, they did not expect the shipments to arrive and, therefore, did  not file supply discrepancy reports. Some contractors said they only  became aware of certain shipments sent to them when they received our  survey. Neither DOD nor Army regulations require inventory control points  to provide advance notification to repair contractors at the time of  shipment. However, DOD regulations state that the military services may  require their inventory control points to provide advance notification.
section_title: Army Does Not Confirm Receipt of Government- Furnished Materiel
paragraphs: Army inventory control points are not confirming receipt of government- furnished materiel shipments as required under DOD regulation. For  shipments of government-furnished materiel, almost all shipments were  reported by the contractors in our survey as being received. On the basis of  our survey, we estimate that repair contractors could not confirm about 2  percent of all unclassified government-furnished materiel shipments with  an approximate value of $3.2 million. These shipments, therefore, are  unaccounted for, and thus are vulnerable to loss or theft. Repair  contractors confirmed receipt of all 11 shipments of classified government- furnished materiel.
DOD regulations require Army inventory control points to obtain receipt  confirmation for all shipments, including government-furnished materiel,  and require Army inventory control points to conduct follow-ups if receipt  is not confirmed within 45 days of shipment. Army regulations require  receipt and follow-up for secondary repair item shipments but do not  explicitly address receipting for government-furnished materiel.  According to inventory control point officials, the data systems used to  manage government-furnished materiel shipments do not store receipting  information. Furthermore, these officials told us they do not obtain receipt  notification from contractors for government-furnished materiel shipments  but, instead, assume contractors receive shipments of government- furnished materiel unless the contractors notify them otherwise. During  our review, we noted that the Army’s data systems for managing  government-furnished materiel shipments provide automated checks of  requisitions to ensure their validity. However, without receipt data, the  Army inventory control points lack assurance that contractors have  received government-furnished materiel, and as a result, they cannot  conduct follow-up within the required time frame to determine whether  corrective action is necessary. Moreover, while our analysis shows that  contractors could confirm receipt for the majority of the government- furnished materiel shipments, the Army needs to maintain effective  internal controls to safeguard its assets and to ensure optimal management  of its resources, in accordance with the Federal Managers’ Financial  Integrity Act of 1982.
section_title: Army Does Not Provide Shipment Status Reports to DCMA
paragraphs: According to DCMA officials, inventory control points do not provide  DCMA with quarterly reports showing the status of government-furnished  materiel shipments as required under DOD regulation. As a result, DCMA  officials may lack data to corroborate contractor-generated data during  their inventory audits. Both DOD and Army regulations require inventory  control points to generate and submit reports on requisitioned government- furnished materiel to DCMA. The purpose of the reports is to assist DCMA  in independently verifying contractor records of government-furnished  materiel. These reports are required to identify items under contract,  requisitions that have been rejected, quantities and dollar values of  shipments, and the number of shipments for which receipts are unknown.  However, we found in our work that the inventory control points do not  have procedures in place to ensure that this reporting requirement is  implemented as required. As result, DCMA officials commonly rely on  contractor-generated data to conduct inventory audits and lack an  independent data source to corroborate those data.
section_title: Conclusions
paragraphs: The Army has not implemented all the internal controls required to ensure  that assets shipped to repair contractors are being received. Although DOD  has established policies for controlling these assets, we found the Army  lacked systematic procedures for implementing the policies, resulting in  inaccurate and incomplete receipt records. Moreover, on the basis of our  analysis of Army data and survey of repair contractors, some assets remain  lost or unaccounted for.
The Army could improve accountability for inventory shipments by  strengthening its internal control procedures for receipting secondary  repair items and following up in cases where the contractor has not  provided notification that items were received, obtaining and documenting  receipts for government-furnished materiel, and providing required status  reports on government-furnished materiel to DCMA. In addition, DOD  guidance for providing advance notification to recipients at the time of  shipment, while not a requirement, offers another potential internal control  for maintaining accountability of shipments. As the Army continues to  move from its legacy inventory management systems to the Logistics  Modernization Program, strong internal control procedures will be critical  to ensuring that data transferred into the new system are accurate and  complete.
section_title: Recommendations for Executive Action
paragraphs: To improve accountability of inventory shipped to Army repair contractors,  we recommend that the Secretary of Defense direct the Secretary of the  Army to instruct the Commanding General, Army Materiel Command, to  take the following six actions:  Establish systematic procedures to obtain and document contractors’  receipt of secondary repair item shipments in the Army’s inventory  management systems, and to follow up on unconfirmed receipts within  45 days of shipment.
Institute policies, consistent with DOD regulations, for obtaining and  documenting contractors’ receipt of government-furnished materiel  shipments in the Army’s inventory management systems.
Provide quarterly status reports of all shipments of Army government- furnished materiel to DCMA, in compliance with DOD regulations.
Examine the feasibility of implementing DOD guidance for providing  advance notification to contractors at the time of shipment and, if  warranted, establish appropriate policies and procedures for  implementation.
Analyze receipt records for secondary repair items shipped to  contractors and take actions necessary to update and adjust inventory  management data prior to transfer to the Logistics Modernization  Program. These actions should include investigating and resolving  shipments that lack matching receipts to determine their status.
To ensure consistent implementation of any new procedures arising  from the recommendations in this report, provide periodic training to  appropriate inventory control point personnel and provide clarifying  guidance concerning these new procedures to the command’s repair  contractors.
section_title: Agency Comments and Our Evaluation
paragraphs: In written comments on a draft of this report, the Department of Defense  concurred with six of the recommendations and cited specific actions it  plans to take to implement these recommendations. DOD also specified  implementation timelines for five of its proposed actions. Specifically, DOD  reported that the Army intends to create the functionality within the Army’s  new Logistics Modernization Program by fiscal year 2007 to   (1) create automated suspense files for following-up on nonreceipted  shipments, (2) establish receipting capability for government-furnished  materiel shipments, and (3) produce quarterly government-furnished  materiel status reports and submit them to DCMA. The Army also plans to  establish Integrated Product Teams to examine the feasibility and  availability of a Web-based query capability to make advanced shipment  information available to contractors, and to develop training to ensure that  Army inventory management personnel understand the procedures that are  in place to strengthen the internal controls for items shipped to repair  contractors. These teams are expected to have their results by July 2006.  DOD also stated that the Army is currently taking actions to improve the  accuracy of the data contained in its inventory management system;  however, a timeframe for when this process would be completed was not  provided. We believe that these actions cited by DOD are generally  responsive to our recommendations.
DOD did not concur with our recommendation in a draft version of this  report to investigate and resolve the status of a shipment of an  unserviceable classified secondary repair asset that appeared lost or  unaccounted for on the basis of our review. However, DOD’s response  indicates that the Army complied with our draft recommendation by  analyzing its inventory management system records. This analysis showed  that the contractor had received the shipment in question, repaired the  unserviceable classified item, and later returned this item to the Army’s  inventory. In subsequent follow-up work, we obtained the Army inventory  data supporting the information cited in DOD’s response. During further  analysis of this classified shipment, the Army discovered that the data used  in our analysis was a duplicate shipment record that it had erroneously  provided to us. On the basis of the new information provided, we were able  to verify the status of the classified shipment in question. Consequently, we  have deleted this recommendation from our report. DOD’s written  comments are reprinted in appendix III.
We are sending copies of this report to the appropriate congressional  committees, and it will be available at no charge on GAO’s Web site at  http://www.gao.gov. If you or your staff have any questions on the matters  discussed in this report, please contact me at (202) 512-8412 or  solisw@gao.gov. Contact points for our Offices of Congressional Relations  and Public Affairs may be found on the last page of this report. GAO staff  who made major contributions to this report are listed in appendix IV.
section_title: Scope and Methodology
paragraphs: To evaluate the Army’s effectiveness in maintaining accountability of  inventory shipped to repair contactors, we analyzed Army inventory  shipment data, surveyed repair contractors that were recipients of  inventory shipments, and assessed the Army’s adherence to policies for  managing and maintaining accountability for inventory shipments. Our  review included shipments of both secondary repair items and government- furnished materiel.
We reviewed Department of Defense (DOD) and Army regulations  pertaining to shipped inventory, and discussed inventory management  procedures with officials from the following locations: Headquarters, Army  Materiel Command, Fort Belvoir, Virginia; the U.S. Army Aviation and  Missile Command, Redstone Arsenal, Alabama; the U.S. Army Tank- automotive and Armaments Command, Warren, Michigan, and Rock Island,  Illinois; the U.S. Army Communications-Electronics Command, Fort  Monmouth, New Jersey; the Surface Deployment and Distribution  Command, Fort Eustis and Alexandria, Virginia; and the Defense Contract  Management Agency (DCMA), Alexandria, Virginia.
To identify the quantity, value, and security classification of assets shipped  to repair contractors, we obtained electronic records from inventory  management databases at the U.S. Army Aviation and Missile Command  and the U.S. Army Tank-automotive and Armaments Command. We  obtained records for Army-owned assets shipped during fiscal year 2004  (Oct. 1, 2003 through Sept. 30, 2004). The records contained descriptive  information about each shipment, including item nomenclature, national  stock number, unit price, date of shipment, and quantity shipped. Records  for secondary repair item shipments also listed the quantity of items  received in each shipment. We did not obtain inventory data from U.S.  Army Communications-Electronics Command because at the time of our  review its inventory management system was undergoing stabilization and  could not provide all data elements needed for our audit.
To assess the reliability of the inventory data, we performed manual and  electronic testing for errors in accuracy and completeness in the records.  When we found discrepancies in the data, such as missing data elements,  illogical shipment date sequences, or abnormal data entries, we contacted  inventory control point officials to obtain explanations for the  discrepancies. As needed, the officials provided corrections to discrepant  data. We also reviewed the data to ensure that shipments occurred in fiscal  year 2004, were directed to contractor facilities located in the continental  United States, and comprised assets that met our criteria for item class and  condition code. For secondary repair items, we analyzed the Army data to  reconcile shipments for which the receipt record and shipment record had  the same document number and suffix, where applicable; national stock  number; and quantity. In cases of multiple receipt records for a given  shipment, we eliminated all receipt records associated with supply depot  transactions and totaled all contractor receipt records, including inventory  reversals. When the adjusted quantity receipted, which included the  quantity for multiple inventory reversals, did not total the quantity shipped,  we classified the shipment as unmatched.
After the validation process, we drew samples of the data population for  review. Our sampling methodology enabled us to independently verify the  accuracy of the Army’s data on secondary repair items and government- furnished materiel provided to repair contractors. To select repair  contractors and items shipped to them, we randomly selected 200  shipments of unclassified secondary repair items from a total population of  1,076 shipments that did not have receipt records that corresponded to  shipment records in the Army’s inventory management system. We also  randomly selected 200 shipments of unclassified government-furnished  materiel from a total population of 3,476 shipments. In addition, we  selected all shipments of classified items that appeared in the inventory  records, including 11 government-furnished materiel shipments and 79  secondary repair items shipments. For this data sample, we sent a survey  to 72 repair contractors, of which 66 responded to the survey. See appendix  II for a copy of the survey. The results of our analysis can be projected to  the entire universe of shipments that met these selection criteria.
To determine whether repair contractors had received and accounted for  the selected shipments, we surveyed each randomly selected contractor to  assess whether item types and quantities had been received as documented  in Army inventory records. Furthermore, our survey also asked contractors  to note any discrepancies between the Army’s data and data in their  property control records, and to explain what actions they took to resolve  discrepancies such as shipments of incorrect items or quantities. In  following up on the survey results, we reviewed survey responses for  logical inconsistencies and incomplete data, such as document number,  national stock number, quantity shipped, and date receipted, to determine  whether the contractor responses were accurate. In cases where one or  more of these data fields were inconsistent with data provided from the  Army inventory system, we identified the shipment as not received by the  contractor and adjusted our estimate of unaccounted for assets. We also  obtained data from DOD’s supply tracking system to determine whether the  transportation carriers showed proof of delivery for these assets. We also  followed up with contractors and Army item managers regarding specific,  high-value shipments. On the basis of this follow-up work, we adjusted our  initial survey results.
To evaluate the Army’s compliance with DOD regulations requiring  submission to DCMA of quarterly government-furnished materiel status  reports, we interviewed DCMA officials who oversee contracts for the  items included in our statistical sample of government-furnished materiel  shipments. These officials were located at DCMA field offices and  contractor facilities throughout the United States.
We conducted our review from October 2004 through November 2005 in  accordance with generally accepted government auditing standards.
section_title: GAO Contractor Survey
paragraphs: In some cases, we may need to follow-up this survey with telephone calls and/or contractor facility site visits to discuss your responses to the survey.
The survey is in two parts.  Part 1 contains general questions on the evaluation, and investigative arm of Congress—is conducting a  processes you use to receive and account for GFM and/or review of Army inventory management practices for government secondary repair items from the Army supply system.  Part 2 furnished materiel (GFM) and secondary repair items shipped to contains questions on specific Army-supplied GFM and/or commercial repair contractors.  For the purposes of this review, we secondary repair items that were identified as shipped to your are defining GFM as “A” condition serviceable assets that are used company. This list of items was obtained as a part of a random in the repair, alteration, modification, or production of a higher sample from Army inventory management databases.
You will need to answer the questions in Part 2 of the survey for major end items. GAO’s review will focus on the Army’s controls each of the GFM and/or secondary repair items listed. You will over in-transit assets. As a part of our study, we randomly selected need to complete Part 2 for «GFM» GFM items and «Secondary» commercial contractors to which the Army shipped GFM and/or secondary items shipped to you under the following Contracts: secondary repair items during fiscal year 2004 (October 1, 2003 to September 30, 2004). This electronic survey asks for information on your processes for receiving and accounting for GFM and/or secondary repair items, as applicable, and requests data for specific items that were identified as shipped to you from the Army supply system. In our final report, all responses will be aggregated and there will be no linkages between data and specific contractors.
Most questions in this survey can be answered by left-clicking on receiving and accounting for GFM and secondary repair items. and selecting appropriate answers.
Some questions require you to type data or comments into the  necessary, but please designate one individual to have overall shaded response fields ____.
Part 1 of the survey should take about 10 minutes to complete.
The time for completing Part 2 will vary by the number of GFM  of the survey so we can call or e-mail that individual if additional and/or secondary repair items listed, and by the time required to  information is necessary. review files associated with the information requested.
Please save your answers electronically, and return this file as an e- mail attachment to Mr. Paul Rades at radesp@gao.gov or Ms.
Jackie McColl at mccollj@gao.gov by July 25, 2005. If you have any difficulty using this electronic survey, please contact the GAO staff named below to request a paper version.
If you have any questions about the survey, you may contact either (1) Paul Rades at radesp@gao.gov  or (202) 512-3641, or (2)
Jackie McColl at mccollj@gao.gov or (404) 679-1948.
subsections: section_title: Part 1: General Information
paragraphs: stock number, quantity, date received, etc.) into your property control system for GFM and/or secondary items received from the Army supply system?
Yes………….
No………….. the questions, left-click on the shaded response fields and select the appropriate response.  For questions that require you to enter data or comments, left-click on the shaded response fields and type in your responses.
Company: «ContrName1» system?
1. Do you have a Defense Contract Management Agency (DCMA) approved property control system?
No…………………………...
Yes…………..
Yes, for GFM only………….. your most recent approval.
Yes, for secondary repair        items only…………………...
No…………...
Yes, for both GFM and 2.   Do you receive GFM items at this facility? GFM is        defined as “A” condition serviceable assets that are used 7.   If you have any additional comments, please type them        in the repair, alteration, modification, or production of a in the space below.  Please specify the question(s) to        higher assembly. which your comments refer.
Yes…………..
Type your comments here.
No…………... 3.    Do you receive secondary repair items at this facility?
Secondary repair items are defined as unserviceable assets requiring repair, alteration, or modification,         excluding major end items.
Yes………….
No………….. attachment(s) for each Contract. the Army supply system or a prime contractor?
No…………..
If No, please explain below.
If No, please explain.
section_title: Material (GFM) and Secondary
paragraphs: Performance Based Logistics (PBL) or similar non- traditional contract?
section_title: Repair Item Shipments
paragraphs: This section contains questions on specific GFM and/or       contract below.
List the contract type here.
No……………. are defining GFM as “A” condition serviceable assets that are used in the repair, alteration, or modification, or production of a  4. At the time of shipment, were you authorized to receive higher assembly. We are defining secondary repair items as the item(s) as the prime contractor or the sub- unserviceable assets requiring repair, alteration, or modification, contractor? to exclude major end items.
Sub-contractor………..…. shaded response fields and selecting the appropriate responses.
For questions that require you to enter data such as dates and national stock numbers, left-click on the shaded response fields 5. For the shipped item(s), please enter in line 5a the date and type in the appropriate information. that the shipment receipt was posted in your records.
Contract Number: «Contract» document number, please enter under line 5b the receipt dates posted for the first and last shipments received.
Date Shipped: «ShpDate»          posted in your records match with «DOC»?
1. Do your property records reflect that you received the          item(s)?
No…………….
No…………….
If No, skip to Question 11.
7.    For the shipped item(s), does the national stock number 2. For the shipped item(s), does the contract number that  (NSN) posted in your records match with «STK_NO»? authorized you to receive the item(s) at the time of  shipment match with «Contract»?
No…………….
If No, enter the contract number contained in your records: Enter the contract number here. 8.  For the shipped item(s), does the quantity posted in your  11. Was there a discrepancy in the shipment of the records match with «Shipped»? item(s)?
Yes…………….
Yes………….
No…………….
No…………..
If No, skip to Question 18. posted in your records: 12. What was the reason for the discrepancy? Please    select all that apply.
Item was never received. had received the item(s)?
Quantity of items received was not correct.
Item received was not the correct item.
Item received was an unacceptable substitute item.
No…………….
If No, skip to Question 11.
Item received was damaged or in poor condition.
Item received had not been requisitioned.
Manager, Program Office, field activity, etc.) or prime wrong activity.
Other: Describe other reasons for the discrepancy  select all that apply.
Entered receipt through electronic interface with Command Commodity Supply System (CCSS) or Logistics Modernization Program (LMP). .   Did you report the discrepancy for the shipped item(s)
Entered receipt for the item(s) through the  to the responsible Army organization (e.g., Inventory  Control Point, Program Manager, Program Office, (CAV or CAVII) system. field activity, etc.) or prime contractor?
Yes…………. receipt of the item(s).
No…………..
If No, skip to Question 16. prime contractor to acknowledge receipt of the item(s).
Provided routine reports to the Army or prime contractor that identified items on hand, (e.g., asset picture).
Other: Describe other means used to notifiy the responsible Army organization or prime contractor. 14.  How did you report the discrepancy? Please select all 18. What is the current status of the GFM or secondary   that apply. repair item(s)? Please select all that apply.
If GFM item(s), select from the responses         listed below.
Submitted a Report of Discrepancy (ROD)/Supply Discrepancy Report (SDR) using Standard Form (SF) 364.
Submitted a Transportation Discrepancy Report (TDR) using Standard Form (SF) 361.
Submitted a discrepancy report online through alteration, modification, or the Army Electronic Product Support production of a higher assembly. (AEPS) website.
Contacted the responsible Army organization remains in your inventory. (e.g., Inventory Control Point, Program Manager, Program Office, field activity, etc.)
Item was not consumed, and was or prime contractor by telephone, e-mail, or  passed to another commercial or faxed memo. government repair facility.
Other: Describe other method for reporting discrepancy.
Item was returned to the Army supply system or to the original source of supply.
Other: Describe other status of the GFM item.
If secondary repair item(s), select from the which you filed the discrepancy report? responses listed below.
Yes………….
No…………..
Item(s) is currently being repaired or awaiting repair.
16. Was the discrepancy resolved?
Yes………….
No…………..
If No, please explain below, in your inventory. and then skip to Question 18.
Item(s) is awaiting disposition.
Type your explanation here. organization.
Other: Describe other status of the secondary .  Was the discrepancy resolved to your item. satisfaction?
Yes………….
19.
No…………..
If No, please explain below. them in the space below.  Please specify the    question(s) to which your comments refer.
Type your explanation here.
Comments?
section_title: Comments from the Department of Defense
section_title: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: In addition to the contact named above, Thomas Gosling, Assistant  Director; Arthur James; Stanley Kostyla; Jacqueline McColl; Marjorie Pratt;  and Paul Rades made key contributions to this report.