Civilian Marksmanship Program: Information on the Sale of Surplus Army Firearms
Released: 2019-02-14T00:00:00

Letter

Background

Civilian Marksmanship Program

In 1903, the War Department under President Theodore Roosevelt established the National Board for the Promotion of Rifle Practice, today known as CMP, with the general purpose of promoting the development of marksmanship skills and preparing individuals in the event that they were called upon to serve in the military. For the next several decades, the Army managed and operated CMP. In 1990, we reported that CMP was of limited value to military preparedness because, among other things, CMP’s objectives and goals were not linked to Army mobilization and training plans and program-trained personnel were not tracked. The NDAA for Fiscal Year 1996 moved CMP out of the Army and established CMP as a federally chartered, nonprofit corporation. The act also required the Secretary of the Army to transfer all firearms, ammunition, and funds from sales previously under the control of the Army program to CMP.

The governing statutes for CMP and Army support of CMP activities are generally found in chapter 407 of Title 36, U.S. Code. Among other things, these provisions provide for the organization, governance structure, and functions of CMP. These functions include instructing U.S. citizens in marksmanship, promoting practice and safety in the use of firearms, and conducting competitions. For purposes of training and competition, CMP may issue or loan certain rifles, ammunition, repair parts, and other supplies necessary for activities related to CMP to affiliated organizations that provide firearms training to youth, the Boy Scouts of America, 4-H Clubs, Future Farmers of America, and other youth-oriented organizations. CMP is required to give priority to activities that benefit firearms safety, training, and competition for youth and that reach as many youth participants as possible. As one of its functions, CMP conducts rifle and handgun marksmanship competitions such as the annual National Matches. The National Matches is open to members of the armed forces, the National Guard, the Reserve Officers’ Training Corps, and rifle clubs, among other entities, as well as to civilians.

Additionally, CMP may sell certain surplus rifles and M1911 handguns to affiliated organizations that provide training in the use of firearms, such as gun clubs. Finally, CMP is authorized to sell to U.S. citizens who are members of affiliated gun clubs, at fair market value, surplus .22 caliber rimfire rifles, .30 caliber rifles, and .45 caliber M1911/M1911A1 handguns, as well as ammunition, repair parts, and other supplies necessary for target practice.

Agreements between the Army and CMP and the Role of the Army

The Army and CMP have entered into various agreements governing their relationship. An MOU from 2016 currently delineates Army and CMP responsibilities for, among other things, the transfer of surplus firearms and associated parts and ammunition. Appendixes to the MOU identify approximately 170 surplus rifles and handguns that may be transferred to CMP. These surplus firearms include the M1 Garand .30 caliber rifle and other rifles, such as the 1903 Springfield and 1917 Enfield. See figure 1 for a photograph of a surplus M1 .30 caliber rifle packed for shipment.

The Army provides a variety of support to CMP, including identifying and reserving certain surplus firearms, ammunition, and parts. At CMP’s request, the Army can transfer these firearms, ammunition, and parts to CMP under procedures established in the MOU. TACOM is the executive agent for small arms. Per the MOU between the Army and CMP, TACOM provides various forms of support to CMP, including facilitating transfers of surplus firearms from U.S. sources and recovery of firearms from foreign countries before transfer to CMP. For surplus firearms transfers within the United States, CMP reimburses the Army for the cost of preparation and transportation, including for the Army’s standard depot operations costs. The costs of the recovery of firearms, ammunition, and parts from foreign countries are treated as incremental direct costs of Army logistical support, and are also to be reimbursed by CMP.

The MOU contains further provisions related to Army and CMP responsibilities and procedures, such as provisions regarding Army support for competitions and the Small Arms Firing School, and CMP’s role in the Army’s Ceremonial Rifle Program. The MOU also contains procedures and responsibilities related to funding. Finally, the MOU specifies certain management internal controls to be undertaken by CMP, including those related to the sale of firearms and the accountability of transferred materiel. CMP’s implementation and management of these controls is to be assessed and documented in an audit report to the Army required by the agreement.

To implement the transfer of surplus M1911 handguns, parts, and accessories, the Army and CMP entered into a Memorandum of Agreement in January 2018, and the Army began transferring the surplus M1911 handguns to CMP the same month. The Memorandum of Agreement establishes procedures and requirements for the Army and CMP additional to those in the 2016 MOU. Among other things, it requires CMP to provide the Army with transaction data for all surplus handguns received and sold on a quarterly basis, including the number transferred to CMP, the number sold, a listing of the serial numbers for handguns sold, and any information CMP has regarding crimes committed with a purchased M1911 handgun. The Memorandum of Agreement further required CMP to take certain actions with respect to security and accountability procedures for surplus M1911 handgun processing and storage. See figure 2 for a photograph of surplus M1911 handguns.

Federal Requirements for Selling Firearms

Chapter 407 of Title 36, U.S. Code authorizes CMP to sell firearms to individuals who (1) are U.S. citizens, (2) are legally of age, and (3) are members of CMP-affiliated gun clubs. CMP’s sales of surplus firearms are generally subject to applicable federal, state, and local law. For example, the minimum age to purchase a rifle from a federal firearms licensee (FFL) is 18, while the minimum age to purchase a M1911 handgun from an FFL is 21. Additionally, CMP must establish procedures to obtain a criminal records check with federal and state law enforcement agencies. Certain federal requirements and restrictions related to the sale of firearms are contained in section 922 of Title 18, U.S. Code. Among other things, section 922 prohibits selling or otherwise disposing of firearms to certain prohibited persons.

Generally, only FFLs may engage in the business of dealing in firearms. Additionally, FFLs generally may not sell firearms directly to out-of-state customers other than another FFL. However, these restrictions do not apply to CMP for the sale of surplus .22 caliber rimfire and .30 caliber rifles. Specifically, CMP may sell these rifles without operating as an FFL and ship these rifles directly to customers around the country, unless prohibited by that customer’s state or local law. With respect to the sale of the surplus M1911 handguns, CMP must obtain a license and operate as an FFL.

The Army and CMP Have Established Procedures for the Transfer and Sale of Surplus Firearms

The Army and CMP Have Procedures to Address Requirements for the Transfer of Surplus Firearms

The MOU between the Army and CMP delineates a number of responsibilities for both organizations regarding the transfer of surplus firearms. Furthermore, we found that both organizations have established procedures to carry out these responsibilities. Appendixes to the MOU list approximately 170 firearms that the Army has identified as surplus to its needs. If any of the surplus firearms described in the MOU are identified by the Army in a domestic location, the Army reserves those firearms for transfer to CMP pending a formal written request from CMP for the transfer of the surplus firearms in question. For example, in fiscal year 2017 the Army identified and reserved for transfer to CMP more than 1,000 surplus rifles that various Department of Defense museums found to be surplus to their needs. Under the MOU, once TACOM informs CMP it has reserved surplus firearms that may be transferred, CMP can submit a transfer request for the surplus firearms in writing to TACOM. CMP’s written request must acknowledge that the requested materiel is on the list of firearms approved for transfer; certify that CMP will provide all security, oversight, and accountability—as required by law—of the materiel; and describe how CMP will use the requested materiel.

TACOM facilitates the transfer of surplus firearms to CMP as required by the MOU. In some instances, the Army directly ships surplus firearms within the United States to CMP. In other instances, TACOM relies on the Defense Logistics Agency (DLA) to ship the surplus firearms to CMP. If DLA transfers the surplus firearms, the firearms are either shipped directly to CMP or to the DLA facilities located in Anniston, Alabama, where they are released to CMP. Under the MOU, CMP reimburses the Army for certain costs associated with transportation, supply depot operations, and administrative support. Both CMP and DLA officials told us that surplus firearms located at DLA’s facilities in Anniston, Alabama, did not incur shipping cost to the Army because CMP arranges the transfer from the DLA facilities directly to CMP’s facilities also located in Anniston, Alabama. For example, according to TACOM and CMP officials the Army did not incur any transportation costs for transferring 8,000 surplus M1911 handguns to CMP in January 2018. According to an Army official, this was because CMP transported 6,736 M1911 handguns from the DLA facility, an additional 1,242 M1911 handguns from the Center of Military History Museum Support Center, and 22 M1911 handguns from TACOM facilities—all located in Anniston, Alabama—back to its own facility in Anniston for storage.

In addition to firearms from domestic locations, the Secretary of the Army may also recover certain surplus firearms furnished to foreign countries on a grant basis under the Foreign Assistance Act and transfer them to CMP. If the Secretary of the Army decides to transfer surplus firearms from a foreign country, TACOM and the Office of the Administrative Assistant to the Secretary of the Army works with the State Department, Office of Defense Cooperation, representatives located in the respective foreign country to recover and facilitate the transfer and shipment of surplus firearms from these recipients to CMP. For example, according to Army officials, CMP received approximately 100,000 surplus M1 rifles in fiscal year 2018; more than 13,000 surplus M1 rifles were recovered and transferred from Turkey in addition to nearly 87,000 surplus M1 rifles from the Philippines.

After CMP receives the surplus firearms, the MOU requires CMP to perform all accounting procedures required by the Army for inventory control, including compiling the surplus firearms’ serial numbers. According to CMP officials, CMP uses a commercial point of sale system to track inventory and performs an audit of firearms stored at its facilities annually. For example, according to CMP officials, to count and verify the inventory of incoming shipments of surplus firearms, CMP staff open and inspect each box of surplus firearms upon receipt of the firearms in their facilities in Anniston, Alabama. CMP staff then inventory each firearm by matching the unique serial number found on the receiver of each firearm to the manifest included with the shipment. CMP then enters these firearms into its inventory using each firearm’s unique serial number. After shipping firearms to CMP, the MOU requires TACOM to update the Army’s Unique Item Tracking database for tracking the firearms, which it does by serial number. By statute, title to a transferred firearm does not vest with CMP until immediately before CMP delivers the firearm to an eligible purchaser.

CMP Uses Sales Procedures and Federal Background Checks to Address Requirements Related to the Sale of Surplus Firearms

CMP primarily uses sales procedures and the Federal Bureau of Investigation’s National Instant Criminal Background Check System (NICS) to address requirements related to the sale of surplus firearms. See figure 3 below for a description of several of the processes used by CMP to address the requirements related to the sale of surplus firearms.

While various federal statutes and provisions from the agreements between the Army and CMP apply to selling both the surplus rifles and the surplus handguns, there are some differences. For example:

Because section 40733 of Title 36, U.S. Code, exempts CMP from certain federal firearms requirements and restrictions, CMP can ship surplus rifles directly to a customer’s home, unless that would conflict with state or local laws applicable where the firearm is being shipped. In contrast, CMP must operate as an FFL for selling surplus M1911 handguns and will ship purchased handguns to an FFL, such as a certified gun shop, in the customer’s state. The local FFL repeats the background check before turning over the firearm to the customer.

The MOU limits CMP’s sale of surplus rifles to eight per customer per calendar year, while the Memorandum of Agreement limits CMP’s sale of M1911 handguns to one per customer while it is in effect.

The minimum age to purchase any rifle from CMP, including surplus rifles, is 18 while the minimum age for purchasing handguns, including surplus handguns, is 21.

CMP is required to ship the surplus handguns with a security device such as a trigger lock, which it is not required to do for the sale of surplus rifles.

CMP uses sales procedures to address federal requirements and agreements with the Army. According to CMP officials, the sales procedures, specifically the application to purchase the surplus firearms that customers are required to complete and have notarized, address some of the federal requirements and agreements between the Army and CMP for the sale of surplus firearms. According to CMP, customers are required to mail the original completed application package, including copies of substantiating documentation and notarization, to CMP in order to apply to purchase a surplus firearm. The application includes a form requiring potential customers to certify that they do not fall within any of the categories of individuals prohibited from being sold or receiving a firearm. The form must be signed and notarized, and specifically lists the prohibited categories, as well as certain CMP-unique categories. As part of the form, potential customers must also certify that by receipt or possession of the firearm they will not be in violation of any state law or published ordnance applicable where they reside. Additionally, applicants must provide proof of the following:

Citizenship and age: Applicants must include a copy of a U.S. birth certificate; passport; proof of naturalization; a military identification card for certain ranks (active duty, reserve component, National Guard, or retired); or any official government document that shows that an individual was born in the United States or that otherwise identifies U.S. citizenship. According to the application procedures, a copy of a driver’s license is proof of age, but not of citizenship.

Membership in CMP-affiliated organization: Applicants are required to provide a copy of their current membership card or another proof of membership in a CMP-affiliated organization. According to CMP, this requirement can also be satisfied by providing proof of membership in one of the federally chartered veterans’ organizations such as the Veterans of Foreign Wars or American Legion; proof of either current or retired military service; or proof of current or retired status in a law enforcement department, agency, or association.

Marksmanship or other firearms-related activity: Applicants are required to show proof of participation in a marksmanship-related activity or otherwise show familiarity with the safe handling of firearms and range procedures. According to CMP, this can be accomplished by providing documentation of current or past military or law enforcement service, participation in a shooting competition, completion of a marksmanship clinic that included live-fire training, a concealed carry license, or a FFL license, among other things.

Proof of license, permit, or firearms owner identification card: If the state or locality where the applicant resides requires a license, permit, firearms owner identification card, or other documentation, applicants are also required to include a photocopy of such a document with the application for purchase of the surplus firearm.

Federal Firearms Licensee: Applicants purchasing surplus rifles who reside in states or localities where shipments must be made to an FFL and applicants purchasing surplus M1911 handguns must provide a copy of the license for the FFL that will be receiving the shipped firearm.

According to CMP officials, CMP staff verifies the completeness of the application, including all required documentation while entering applicants’ information into CMP’s commercial point of sale and inventory system. According to CMP officials this involves staff entering the customer’s data into the point of sale and inventory system and verifying the customer’s name, address, proof of age, proof of citizenship, and membership in a CMP-affiliated organization, among other data.

CMP uses a separate version of the same commercial point of sale and inventory system to enter and verify customers’ information for the purchase of surplus M1911 handguns. According to CMP officials this is due in part to the requirement to operate as an FFL in order to sell the surplus M1911 handguns. According to CMP, in addition to meeting additional record-keeping requirements required of FFLs, using two different systems helps CMP ensure it addresses certain sales requirements included in the agreements it has with the Army. For example, according to CMP officials, this helps them address the Memorandum of Understanding and Memorandum of Agreement provisions regarding the maximum number of sales of each type of firearm per customer.

During our site visits to CMP’s southern headquarters in Anniston, Alabama in August 2018 and November 2018 we observed CMP officials processing applications from the public to purchase surplus firearms to better understand how CMP addressed certain federal requirements and agreements between the Army and CMP. Specifically, we observed 11 transactions from the receipt of an order through processing and packaging for shipment. Six of these transactions involved rifles and five involved handguns. The 11 transactions we observed were consistent with the sales procedures we identified above. For example, in all cases, we saw CMP staff verify and update customer information from the application packet for existing customers of surplus rifles and input customer information from the application packet for new customers of both the surplus rifles as well as the surplus handguns.

We also observed that CMP staff could not move forward with the sale without entering and verifying the information supplied in the application. In one instance, we observed a CMP employee entering an application for the purchase of a surplus rifle that had not been notarized and signed. CMP employees stopped the process for this application and informed us the applicant would be contacted directly and requested to provide the required notarization in order for CMP to proceed with the sale. In another instance, CMP staff demonstrated what would occur if information pertaining to the documentation required to demonstrate membership in a CMP-affiliated gun club was not entered. We saw that CMP employees could not continue to the next screen without entering these data.

CMP addresses various other federal requirements for the sale of firearms via background checks. Once the application procedures we described above are completed, CMP staff then enter the prospective customer’s information into the system used by the Federal Bureau of Investigation to perform background checks. CMP intends this National Instant Criminal Background Check System (NICS) to address certain federal requirements for the sale of firearms that we identified above. For example, the NICS background check analyzes various databases to determine whether a prospective customer falls into any of the categories of persons prohibited from being sold or receiving a firearm.

The prohibitions involve sale to or receipt by a prospective customer who is under indictment for or has been convicted in any court of a crime punishable by imprisonment for a term exceeding 1 year; is a fugitive from justice; or has been convicted in any court of a misdemeanor crime of domestic violence, among other things. The NICS background check also searches databases to identify a prospective customer who has been discharged from the U.S. Armed Forces under dishonorable conditions, was a U.S. citizen but has since renounced his or her citizenship, or is an unlawful user of or addicted to any controlled substance.

Additionally, CMP uses the NICS background check to confirm the applicant is of the minimum age necessary to purchase either a rifle or a handgun. Specifically, CMP uses the NICS background checks to ensure the applicant is at least 18 in order to purchase a surplus rifle or a minimum of 21 in order to purchase a surplus handgun. If an age is entered into NICS that is younger than the minimum age required for purchasing a firearm, the system will not continue performing the background check and will notify CMP staff that the buyer is not old enough to purchase the firearm(s).

During our site visits to CMP’s southern headquarters in Anniston, Alabama in August 2018 and November 2018 we observed CMP employees performing the NICS background checks for 10 of 11 transactions, and we observed that the employees were unable to proceed with the background check without certain required information. Specifically, CMP employees demonstrated the result of a change to the birthdate while processing the sale of a surplus M1911 handgun so that the customer would be under 21 years of age. This resulted in the NICS system automatically not allowing the background check to proceed.

TACOM Oversees the Charges and Reimbursements Funded by CMP for the Transfer of Surplus Firearms.

As previously discussed, the MOU requires (1) CMP to reimburse the Army for certain costs associated with the transfer of firearms to CMP, and (2) TACOM to account for the funds reimbursed by CMP. Specifically, CMP is responsible for assuming or reimbursing TACOM for certain costs associated with transportation, standard depot operations, and administrative support. According to Army officials, these administrative support costs include TACOM’s annual cost of one full-time equivalent position to help administer the identification and shipment of surplus firearms to CMP. The MOU also requires TACOM to provide CMP with semi-annual reports identifying the reimbursable costs the Army incurred for any firearms transfers. According to TACOM and CMP officials, TACOM has met this requirement since at least fiscal year 2012 by providing briefings at CMP’s biannual Board of Director’s meetings. CMP reimburses TACOM by depositing funds into a TACOM-managed reimbursement account. TACOM uses the funds in this account to pay the costs associated with transferring firearms to CMP. According to the MOU, TACOM is also responsible for maintaining accountability of funds provided by CMP in support of certain transportation, supply depot operations, and administrative support. The MOU further provides that administrative funding will be evaluated at the end of each fiscal year.

For fiscal years 2008 through 2015, TACOM did not have complete information on the reimbursable costs incurred by the Army and on the amounts CMP reimbursed the Army for those costs. This is because, according to TACOM officials, information on transactions involving the reimbursement account prior to fiscal year 2016 was maintained under a different accounting system and could no longer be accessed. According to TACOM officials, TACOM began using a new financial system in fiscal year 2016 to track the information used to maintain accountability including, among other things, the Army’s reimbursable costs and CMP’s payments for those costs. For fiscal years 2016 and 2017, TACOM officials provided us with examples of the documentation from the current system demonstrating that in addition to tracking CMP’s reimbursement payments TACOM tracks reimbursable costs for transportation, standard depot operations, and administrative support using five specific categories of information: travel, labor, commercial transportation, intra- Army purchases, and contract service. For example, these documents showed that CMP reimbursed the Army for a total of $5 million in fiscal year 2017.

Sale of Surplus Firearms Has Been the Primary Source of CMP’s Revenue; Although Associated Profits Could Not Be Determined, Estimated Future Revenue Could Fund Operations for Several Years

CMP’s primary source of revenue from fiscal years 2008 through 2017 was the sale of surplus firearms. During this time frame, according to CMP’s internal financial documents, CMP generated $196.8 million in revenue from the sales of surplus Army rifles. However, the profit that CMP realized from these sales could not be determined. CMP’s internal financial documents show that CMP incurred $84.7 million in costs for those sales, but CMP’s methodology for calculating costs associated with the transfer and sale of surplus rifles did not account for depreciation and administrative expenses. CMP officials anticipate generating additional revenue from the future sale of surplus M1911 handguns and surplus rifles that CMP currently has available to sell. We estimate these sales could generate as much as $104.9 million, or enough to fund CMP’s operations for several more years.

CMP’s Primary Source of Revenue Has Been from the Sale of Surplus Army Rifles

Based on our analysis of CMP’s IRS filings and the corporation’s internal financial documents, we identified four primary sources of revenue, of which the sale of surplus Army rifles accounted for the largest share.

Sale of surplus Army rifles. According to CMP’s internal financial documents, CMP generated $196.8 million in revenue from the sale of surplus Army rifles during fiscal years 2008 through 2017. The vast majority of these firearms were M1 rifles (see app. II for additional details on the specific types of rifles CMP sold during that time frame). Although the number of surplus rifles CMP sold varied from year to year, as shown in figure 4, except for fiscal years 2012 and 2013, the number of rifles sold has trended downward from fiscal years 2008 through 2017.

Sale of ammunition and memorabilia. CMP purchases bulk quantities of commercially available ammunition at a discounted rate due to the size of the order, and then sells this ammunition to its affiliated groups. CMP also sells memorabilia such as T-shirts and hats. According to CMP’s fiscal years 2008 through 2017 internal financial documents, the sale of ammunition and memorabilia was CMP’s second largest source of revenue and generated $76.4 million. Figure 5 shows boxes of commercially purchased ammunition stored in CMP’s warehouse in Anniston, Alabama.

Investment account income. CMP officials told us that CMP established an investment account to ensure it had the financial resources to continue to meet its mission should the transfer of surplus firearms from the Army cease. According to CMP’s fiscal years 2008 through 2017 IRS filings, CMP reported earning $49.8 million in interest and dividend income from the corporation’s investment account. As seen in figure 6, CMP’s investment account grew by approximately $88 million, from $100.3 million at the end of fiscal year 2008 to $188.6 million by the end of fiscal year 2017.

Although CMP’s investment account grew over this 10-year period, in some years CMP made net deposits into the account, and in other years CMP had net withdrawals from the account. For example, CMP’s net deposits from fiscal years 2008 through 2013 were $73.5 million. However, CMP had net withdrawals of $21.5 million from fiscal years 2014 through 2017. CMP officials stated that they used withdrawals from the investment account in those years to expand marksmanship- related programs and to finance construction of the Talladega Marksmanship Park, completed in 2015, shown in figure 7.

Marksmanship-related programs. CMP charges fees for individuals to participate in its marksmanship-related programs such as training programs, matches, youth camps, and competitions. According to CMP’s fiscal years 2008 through 2017 IRS filings, CMP generated approximately $9.2 million in revenue from these fees. CMP’s IRS filings for those years also indicate that CMP’s expenses associated with CMP’s marksmanship programs exceeded revenue by approximately $85.8 million. According to CMP officials, CMP heavily subsidizes participation fees for both matches and youth camps to help make the corporation’s programs as accessible as possible, and revenue generated from the sale of surplus firearms covered any program deficits. Figure 8 shows competitors during the National Matches event we observed in July 2018.

Other revenue. According to CMP’s fiscal years 2008 through 2017 internal financial documents, CMP also generated some additional revenue from a variety of other sources. For example, CMP’s Talladega Marksmanship Park has generated over $1.5 million in revenue from range rental and match fees, among other things.

Profits from the Sale of Surplus Firearms Could Not Be Determined

CMP reported an overall profit of $125.9 million on its IRS filings for fiscal years 2008 through 2017, but this amount includes all categories of revenue and expense for business operations, not only those categories specific to surplus rifle sales. We were therefore unable to use CMP’s IRS filings to determine CMP’s profits from the sale of surplus rifles.

The amount of profit specific to surplus rifle sales also could not be determined from CMP’s internal financial documents. CMP’s internal financial documents showed $84.7 million in expenses to sell surplus rifles in fiscal years 2008 through 2017, including costs associated with labor, shipping, and other expenses to prepare the surplus firearms for sale. This is less than the $196.8 million CMP’s internal financial documents show CMP generated in revenue from the sale of surplus Army rifles during fiscal years 2008 through 2017. However, in its internal financial documents, the methodology CMP used to calculate the expenses to sell surplus Army rifles did not include all of CMP’s expenses for these sales. Specifically, the methodology CMP used did not account for depreciation and administrative expenses.

CMP did not begin selling surplus M1911 handguns until November 2018, and therefore had just begun generating revenue from these sales at the time of our report. CMP’s internal financial documents reported some costs associated with the surplus M1911 handguns. For example, in fiscal year 2018, in response to an Army requirement, CMP spent approximately $0.7 million upgrading a facility used to house CMP’s M1911 handgun operations. CMP also reported expenses specific to the M1911 handguns of just over $8,000 in fiscal year 2017.

CMP Could Generate Millions of Dollars in Future Revenue from the Projected Sale of M1911 Handguns and Surplus Rifles

According to CMP officials, CMP anticipates selling most, if not all, of the M1911 handguns because there has been a higher demand for the surplus M1911 handguns than the quantity available to CMP for sale. For example, CMP officials reported that they received more than 19,000 orders for the 8,000 surplus M1911 handguns transferred from the Army in January 2018. How much CMP will sell each surplus handgun for depends on the quality, or grade, of the handguns as determined by CMP. Specifically, CMP officials told us CMP will sell service grade surplus M1911 handguns for $1,050, field grade handguns for $950, and rack grade handguns for $850 each.

CMP officials reported that as of December 2018, CMP had sold 632 service grade surplus M1911 handguns for $1,050 each, which generated $663,600 in revenue. Further, CMP officials told us they had determined that 145 of the surplus M1911 handguns were in unsellable condition. As a result, as of December 2018, 7,223 surplus M1911 handguns remained from the original 8,000 CMP received from the Army. If CMP sold all of the remaining handguns, we estimate that CMP could generate from $6.14 million to $7.58 million in additional revenue, depending on the grade of each surplus M1911 handgun sold. As of December 2018, CMP officials told us they expected to complete the processing and sale of the surplus M1911 handguns in the spring of 2019. We estimate that by the time these sales are completed CMP could generate total revenue of from $6.8 million to $8.2 million from the sale of surplus M1911 handguns.

CMP may also be able to continue to generate revenue from surplus rifles that are currently available for sale. Based on CMP’s reported sales of 304,233 surplus rifles from fiscal years 2008 through 2017 and revenue generated from these sales of $196.8 million, we determined the average sale of these surplus rifles to be approximately $650 per rifle. According to CMP, as of August 16, 2018 it had approximately 148,714 sellable surplus rifles. Based on our calculation of the average sales price of $650 per surplus rifle, we estimate CMP could generate approximately $96.7 million in revenue from selling surplus rifles currently available for sale. Combined with the potential revenue from the sale of M1911 handguns, we estimated CMP could generate from $103.5 million to $104.9 million from the future sale of surplus firearms. Given CMP’s fiscal year 2017 expenses of $15.8 million, and assuming a similar level of future annual expenses, we estimate CMP could fund a similar level of operations for several more years from the sale of all of the surplus firearms it currently has available for sale.

Further, as discussed earlier, CMP has other sources of revenue. As of September 30, 2017, CMP reported having cash of $3.6 million and an investment account that was valued at $188.6 million, for a total of $192.2 million. This could also allow CMP to continue operations for several additional years if it did not receive any additional transfers of surplus firearms.

CMP and the Five Selected Corporations Have Similarities in Aspects of Their Business Operations, but Differ in Their Relationship with Members

In addition to CMP, we examined five other federally chartered corporations–the U.S. Naval Sea Cadet Corps, the Civil Air Patrol, Big Brothers Big Sisters of America, Future Farmers of America, and the Boy Scouts of America–that have a similar focus on the development, education, or training of youth. Four of the six corporations, including CMP, have received federal funding or resources, and each of the six corporations is governed by some form of a board of directors. However, CMP’s relationship with members, which CMP officials refer to as “affiliated groups” (e.g., gun clubs throughout the United States), differs from the other five corporations we selected for comparison.

Organizational mission. All five of the other federally chartered corporations we examined have a focus on the development, education, or training of youth.

The Naval Sea Cadet Corps identifies itself as a national youth leadership development organization that promotes interest and skill in naval disciplines while instilling strong moral character and life skills through leadership and technical programs modeled after the Navy’s professional development system.

The Civil Air Patrol’s mission statement includes the development of youth and promotion of air, space, and cyber power. Further, the Civil Air Patrol identified that it promotes aviation and related fields through aerospace/science technology engineering and math education and by helping shape future leaders through its cadet program.

Big Brothers Big Sisters of America’s overall mission includes providing children facing adversity with strong and enduring, professionally supported relationships that change their lives for the better, including helping children to achieve educational success.

Future Farmers of America’s mission statement involves making a positive difference in the lives of students by developing their potential for premier leadership, personal growth and career success through agricultural education.

The Boy Scouts of America identified that its goal is to train youth in responsible citizenship, character development, and self-reliance through participation in a wide range of outdoor activities, and educational programs, among other things.

Federal funding or resources. CMP, the Naval Sea Cadet Corps, the Civil Air Patrol, and Big Brother Big Sisters of America received some form of federal funding or resources during fiscal years 2015 through 2017. CMP is the only one of these four corporations that relies on the transfer and sale of federally donated surplus firearms for the majority of its revenue. According to officials from the corporations, the Naval Sea Cadet Corps and the Civil Air Patrol rely on federal appropriations and federal grants from the Navy and the Air Force, respectively. For example, according to officials from the Naval Sea Cadet Corps, the corporation received approximately $5.1 million in federal grants from the Navy from fiscal years 2015 through 2017. Civil Air Patrol officials stated that federal funds were the largest source of revenue. According to officials from Big Brothers Big Sisters of America, the corporation received approximately $3.8 million in federal grants from the Department of Labor and $8.2 million in federal grants from the Department of Justice’s Office of Juvenile Justice and Delinquency Prevention from fiscal years 2015 through 2017. Officials from Big Brothers Big Sisters of America told us that these grants were the corporation’s largest source of funding. Officials at both Future Farmers of America and the Boy Scouts of America told us they raise funds through membership dues and merchandise sales, among other things, but do not receive any federal funding or resources.

Organizational structure. The leadership structure of CMP and the five selected federally chartered corporations was similar. That is, officials from CMP and the five selected corporations told us that each corporation has a board of directors or board of governors that may or may not have term limits. For example, CMP’s Board of Directors includes 11 board members with repeatable 2-year term limits, for which the Chairman of the Board also serves as the Chief Executive Officer. According to Boy Scouts of America officials, the corporation’s National Council’s Board of Directors is elected through a nominating process and has no fixed term limits. The Board of Directors in turn elects representatives to the Executive Committee and there is also an Advisory Council. The Advisory Council, according to Boy Scouts of America officials, reports to the Board of Directors and comprises both former members of the board and members who may become future directors on the board. According to officials from Future Farmers of America, that corporation has a Board of Directors of which four members are designated by the Department of Education including a designated Chairperson, and these four members serve open-ended terms. According to these officials, the remaining members of the board not designated by the Secretary of Education serve 3-year terms. The Civil Air Patrol has an 11-member Board of Governors: four are appointed by the Secretary of the Air Force; four are from its volunteer force; and three are from outside the corporation.

Organizational relationships. CMP’s relationship with what it refers to as affiliated groups (e.g., gun clubs) throughout the United States, differs when compared with the five federally chartered corporations we selected for review. CMP is located in two facilities: one in Anniston, Alabama, that, according to CMP officials, primarily handles sales and operations and one in Port Clinton, Ohio, that, according to CMP officials, manages mission-related programs, such as the National Matches. CMP also sells surplus firearms to members of groups affiliated with CMP from throughout the United States. But, while CMP officials identified 5,002 affiliated clubs throughout the United States and referred to them as being “affiliated” with CMP, none of these entities are actually part of CMP. According to CMP officials, the clubs pay a small annual fee to become affiliated with CMP, which allows them to participate in CMP- sanctioned marksmanship matches and so that their members are eligible to buy surplus firearms from CMP, among other things. In contrast, according to officials from the other five selected corporations, those corporations have members or affiliates throughout the United States— meaning that these members and affiliated groups are part of the organization as a whole. For example, officials from the Boy Scouts of America told us that they divide the country into regions, then local councils, local districts, counties or communities, and then to local sponsors of individual units or troops; all members are part of the Boy Scouts of America. Similarly, Naval Sea Cadet Corps officials told us the organization is comprised of regional and local units; there is open communication between headquarters and the local units, and a standardized training program is implemented at the local level.

Agency Comments, Third-Party Views, and Our Evaluation

We provided copies of a draft of this report to the Secretary of the Army, the Civilian Marksmanship Program, and other interested parties for comment. The Secretary of the Army and Civilian Marksmanship Program provided technical comments, which we incorporated into this report as appropriate.

We are sending copies of this report to appropriate congressional committees and the Secretary of the Army. In addition, the report is available at no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact me at (202) 512-9627 or at maurerd@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix III.

Appendix I: Scope and Methodology

The National Defense Authorization Act for Fiscal Year 2018 required the Army to transfer surplus M1911 handguns to the Civilian Marksmanship Program (CMP) during fiscal years 2018 and 2019, including no fewer than 8,000 in fiscal year 2018 and no more than 10,000 in any fiscal year. The act also included a provision for us to review certain matters related to CMP. This report (1) examines the Army’s and CMP’s procedures to address requirements governing the transfer and sale of firearms; (2) examines CMP’s primary sources of revenue, costs and profits, and estimated future revenue associated with the sale of surplus firearms; and (3) compares certain aspects of CMP’s business operations with those of five selected youth-focused, federally chartered nonprofit corporations The scope of our review focused primarily on fiscal years 2008 through 2017. We compiled 10 years of the sale of surplus rifles from fiscal years 2008 through 2017 to understand the numbers of surplus rifles transferred as well as the revenue, costs, and profits associated with the sale of surplus rifles. To identify the requirements governing the transfer and sale of surplus firearms, we reviewed applicable federal statutes including relevant provisions from chapter 407 of Title 36, and section 922 of Title 18, U.S. Code, as well as agreements between the Army and CMP such as the 2016 Memorandum of Understanding and the 2018 Memorandum of Agreement. We also reviewed transfer and sales procedures from fiscal years 2018 and 2019 to provide a current status regarding CMP’s sale of surplus M1911 handguns, which CMP began selling in November 2018.

To identify procedures put in place by the Army to address the requirements governing the transfer of firearms, we reviewed documentation of reimbursements CMP made to the Tank-automotive and Armaments Command (TACOM), the organization within the Army responsible for facilitating the transfer of surplus firearms to CMP as well as for managing the related reimbursement account. Our review of the procedures associated with the reimbursement account included obtaining cash collection vouchers submitted to the Army by CMP and TACOM briefings presented at CMP’s biannual Board of Director’s meetings. Further, we interviewed TACOM and Defense Logistics Agency (DLA) officials to gain an understanding of how reimbursable costs are identified and requested from CMP. We also compared multiple source documents related to transfers. To understand how TACOM identifies and reports costs associated with the transfer of surplus firearms, we reviewed documentation related to reimbursement for labor, transportation, and standard depot operation costs associated with the transfer of firearms from the Army to CMP.

To identify procedures put in place by CMP to address the requirements governing the transfer and sale of firearms, we conducted site visits to CMP’s northern and southern headquarters in Port Clinton, Ohio and Anniston, Alabama, and observed the inventory and sales processes for rifles and handguns. During our site visits to CMP’s southern headquarters in Anniston, Alabama, in August 2018 and November 2018 we observed 11 examples of firearm transactions and compared the procedures with various federal requirements and the agreements between the Army and CMP. We also reviewed documentation of sale order forms, and of CMP’s sales operating system processing an order in order to identify how CMP enters and confirms certain information related to sales. In addition, we interviewed CMP officials to obtain further clarification on the organization’s sales processes.

To determine CMP’s primary sources of revenue, as well as the costs and profits associated with the sale of surplus rifles, we reviewed financial information provided by CMP. Our review included an analysis of CMP’s IRS filings and internal financial documents for fiscal years 2008 through 2017. We used CMP’s IRS filings to provide information on revenue generated from overall sales, investments, and programs, as well as on the growth of CMP’s investment account. We relied on the internal financial documents for a more granular account of the revenue CMP generated specifically from the sale of surplus rifles as well as commercially purchased ammunition and memorabilia. CMP officials provided us with a methodology for determining which data within the organization’s internal financial documents are revenue and expenses specific to the sale of surplus rifles. We assessed the reliability of the data by interviewing CMP officials to gain an understanding of how CMP’s IRS filings and internal financial documents are produced and found it sufficiently reliable for our purposes.

To assess the reliability of the surplus firearms transfer data provided by TACOM we spoke with TACOM officials for clarification and further explanation of the data provided, including firearm nomenclature and identification codes. The additional information TACOM provided allowed us to identify 17 different types of .22 or .30 caliber surplus rifles that could be grouped together based on make, model, and/or caliber. TACOM officials confirmed our groupings for the types of firearms transferred from fiscal years 2008 through 2017, and we used the results of our analysis to summarize the number and types of surplus rifles transferred to CMP during this time frame. We found the data to be sufficiently reliable for our purposes.

To determine potential future revenue associated with the sale of surplus M1911 handguns we obtained current sales price information from CMP, and used this information to project a range of potential future revenue based on the number of surplus rifles and handguns CMP currently has on hand. Specifically, to determine the range of potential revenue for the sale of surplus handguns, we asked CMP to provide information on the sales prices for each of the three grades of preordered M1911 handguns. CMP reported that it had sold 632 surplus M1911 handguns as of December 13, 2018 and further that it had identified another 145 surplus handguns as unsellable. To determine the number of surplus handguns remaining to be sold, we subtracted both the 632 surplus handguns CMP reported as sold and the 145 surplus handguns CMP had determined to be unsellable from the total of 8,000 surplus M1911 handguns the Army originally transferred to CMP. To calculate the range of potential revenue from the remaining 7,223 surplus M1911 handguns, we then multiplied the 7,223 remaining surplus handguns by the lowest and the highest sales prices, $850 and $1,050 respectively. This gave us a range of revenue from the future sales of from $6.14 million to $7.58 million. We then added the known $663,600 in revenue from the sale of the 632 service grade handguns CMP identified to our low and high end calculations to determine the range of future revenue of from $6.8 million to $8.2 million from the sale of surplus M1911 handguns.

To determine potential future revenue associated with the sale of surplus rifles, we reviewed inventory and sales data provided by CMP and used this information to estimate potential future revenue based on the average price of the surplus rifles CMP has sold from fiscal years 2008 through 2017. Based on CMPs reported sales of 304,233 surplus rifles from fiscal years 2008 through 2017 and revenue generated from these sales of $196.8 million, we determined the average sale of these surplus rifles to be approximately $650 per rifle. According to CMP, as of August 16, 2018, it had 228,791 rifles on hand, of which CMP identified 148,714 as being in sellable condition. We then multiplied the number of rifles available for sale as of August 2018 by $650, assuming the average sales price would remain the same going forward, to obtain the potential future revenue from the sale of surplus rifles. We then added the range of potential surplus M1911 handgun sales to determine a potential range of CMP’s future sales of surplus firearms. Given CMP’s fiscal year 2017 expenses of $15.8 million, and assuming those expenses remained the same, CMP could fund a similar level of operations for several years from the sale of all of the surplus firearms it currently has available to sell.

In order to compare CMP’s business operations with those of other federally chartered nonprofit corporations, we focused on CMP’s youth- focused mission and identified eight other youth-focused, federally chartered nonprofit corporations. Specifically, we reviewed 93 federally chartered nonprofit corporations to identify corporations that focused on the education, training, or development of youth. We developed a set of relevant questions and interviewed officials from five of the eight federally chartered nonprofit corporations we identified—the Naval Sea Cadet Corps, the Civil Air Patrol, Big Brothers Big Sisters of America, Future Farmers of America, and the Boy Scouts of America. Of the remaining three corporations, two did not respond to our requests for meetings and the third declined to meet. We posed the same questions to all the corporations’ officials we met with and compared certain aspects of CMP’s business operations with the federally chartered nonprofit corporations regarding governance, organizational structure and relationships, and funding sources.

We conducted this performance audit from May 2018 to February 2019 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Appendix II: Surplus Rifles Transferred from the Army to the Civilian Marksmanship Program from Fiscal Years 2008 through 2017

The Army transferred 279,032 surplus rifles to the Civilian Marksmanship Program (CMP) from fiscal years 2008 through 2017. The surplus rifles transfer data characterized rifles with different descriptions for nomenclatures (e.g., M1903, Mossberg M144, and M1917 Enfield) and firearm identification codes. Our analysis determined that the different nomenclatures could be combined into 17 distinct groups because many of the rifles were variants of the same type of .30 caliber rifle or carbine, or .22 caliber rimfire rifle. The 17 types of rifles we identified were grouped together based on make, model, and/or caliber.

Through our analysis, we determined that the majority of rifles transferred to CMP by the Army from fiscal years 2008 through 2017 have been surplus M1 rifles. Our analyses determined that 203,644 of the 279,032 surplus rifles transferred to CMP from fiscal years 2008 through 2017 were serviceable M1 rifles. The second largest type of surplus rifles transferred during this period were drill rifles—rifles not capable of firing live or blank rounds of ammunition—although CMP received nearly four times the number of M1s as it did drill rifles. See table 1 for a description of the surplus rifles transferred to CMP by the Army from fiscal years 2008 through 2017.

Appendix III: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the contact named above, Marilyn Wasleski, Assistant Director; Scott Behen, Analyst-in-Charge; Mae Jones; Richard Kusman; Amie Lesser; Rebecca Mendelsohn; Mike Shaughnessy; Mike Silver; Carter Stevens; and Roger Stoltz made key contributions to this report.