Figure 3 shows the number of  reports submitted by contractors and government agencies in each fiscal  year. Most of these reports were submitted in 2011 and 2012, when some DOD  and contractor officials we spoke with said that congressional attention to  counterfeit parts prompted contractors to examine their inventory and  identify previously undetected counterfeit parts. Aspects of Implementation Have Limited GIDEP’s Effectiveness as an Early Warning System for Counterfeit Parts

Several aspects of DOD’s implementation of its mandatory reporting  requirement for suspect counterfeit parts in GIDEP have limited GIDEP’s  effectiveness as an early warning system to prevent counterfeit parts from  entering the defense supply chain. First, DOD has not established an  oversight function to ensure that defense agencies are reporting suspect  counterfeit parts as required. As a result, reports may not be submitted in a  timely manner. Third, defense agencies typically limit access of suspect  counterfeit GIDEP reports to government agencies, so industry is not  aware of the potential counterfeiting issues identified. DOD Lacks a Standardized Process for Determining When to Report Suspect Counterfeit Parts in GIDEP

There is no standardized process for establishing how much evidence is  needed before reporting suspect counterfeit parts in GIDEP, and DLA  applies a more stringent standard than other defense agencies and  contractors we reviewed. Some defense agencies and contractors have established practices that  allow them to meet GIDEP’s 60-day reporting requirements. DOD’s Counterfeit Prevention Policy does not include guidance  about when limiting access to suspect counterfeit parts GIDEP reports is  appropriate. Conclusions

The DOD supply chain is vulnerable to the risk of counterfeit parts—which  can have serious consequences. To effectively identify and mitigate this  risk, DOD and its defense contractors need data on the existence of  counterfeit parts in their supply chain; whether those be suspected or  confirmed counterfeit. Specifically, DOD plans to issue a new Instruction  on GIDEP in fiscal year 2017, covering the identification of roles and  responsibilities for submitting GIDEP reports and oversight; the level of  evidence needed to report a part as suspect counterfeit in GIDEP; and  the use of GIDEP, including guidance for when access to GIDEP reports  should be restricted to government only. Specifically,  DOD stated that it agrees with informing contractors on how their  counterfeit detection and avoidance systems will be assessed; however, it  does not agree with prescribing specific counterfeit detection and  avoidance system implementation details. We continue to believe it is  important that DOD strengthen its communication with the contractors  and as our recommendation indicated, for DOD to clarify the criteria by  which it will assess contractor’s counterfeit detection and avoidance  systems —which is different than providing specific implementation  details. Specifically, our objectives were to determine (1) the use of  the Government-Industry Data Exchange Program (GIDEP) to report  suspect counterfeit parts, from fiscal years 2011 through 2015; (2) the  effectiveness of GIDEP reporting as an early warning system for  counterfeit parts; (3) the extent to which DOD has assessed defense  contractors’ systems for detecting and avoiding counterfeit parts; and  (4) key ongoing efforts by selected government and industry  organizations to improve the detection and reporting of counterfeit or  suspect counterfeit parts.
Why GAO Did This Study

The DOD supply chain is vulnerable to the risk of counterfeit parts, which have the potential to delay missions and ultimately endanger service members. To effectively identify and mitigate this risk, DOD began requiring its agencies in 2013 and its contractors in 2014, to report data on suspect counterfeit parts. A Senate report included a provision for GAO to review DOD's efforts to secure its supply chain from counterfeit parts. This report examines, among other things, (1) the use of GIDEP to report counterfeits, (2) GIDEP's effectiveness as an early warning system, and (3) DOD's assessment of defense contractors' systems for detecting and avoiding counterfeits.
GAO analyzed data from GIDEP for fiscal years 2011 through 2015; reviewed DOD policies, procedures, and documents; and met with agency officials and seven selected contractors based on dollar value from contracts that included a new counterfeit clause.

What GAO Found

Department of Defense (DOD) agencies and contractors submitted 526 suspect counterfeit parts reports in the Government-Industry Data Exchange Program (GIDEP) from fiscal years 2011 through 2015. These were submitted primarily by contractors. Defense agencies and contractor officials explained that congressional attention to counterfeit parts in 2011 and 2012 led to increased reporting, and that the lower number of reports in more recent years is partly the result of better practices to prevent the purchase of counterfeit parts.
Number of Suspect Counterfeit Reports for Fiscal Years 2011–2015
Several aspects of DOD's implementation of its mandatory GIDEP reporting for suspect counterfeit parts have limited GIDEP's effectiveness as an early warning system.
First, DOD is not conducting oversight to ensure that defense agencies are reporting as required. As a result, the Defense Logistics Agency (DLA), for example, may be underreporting suspect counterfeit parts in GIDEP.
Second, there is no standardized process for establishing how much evidence is needed before reporting suspect counterfeit parts in GIDEP and DLA applies a significantly more stringent standard than, for example, the Navy. Consequently, reports may not be submitted in a timely manner.
Third, defense agencies typically limit access of suspect counterfeit GIDEP reports to government agencies, so industry is not aware of the potential counterfeiting issues identified. DOD policy does not include guidance about when access to these reports should be limited.
All seven contractors GAO spoke with have established systems to detect and avoid counterfeit electronic parts; however, DOD has not finalized how these systems will be assessed. Contractors are seeking additional clarification on how to meet some of DOD's requirements. Until DOD clarifies criteria for contractors on how their systems will be evaluated, it cannot fully ensure these systems detect and avoid electronic counterfeit parts, as required.

What GAO Recommends

GAO recommends that DOD oversee its defense agencies' reporting efforts, develop standard processes for when to report a part as suspect counterfeit, establish guidance for when to limit access tor GIDEP reports, and clarify criteria to contractors for their detection systems. DOD agreed with the 3 recommendations on GIDEP reporting, but partially agreed with the recommendation to clarify criteria, stating it did not agree with providing specific implementation details. GAO continues to believe clarifying criteria is important, which is different than specific implementation details.