Analysis of Reutilization Program Identifies Billions of Dollars in Waste and Inefficiency

Our analysis of $18.6 billion in fiscal year 2002 and 2003 excess  commodity disposal activity identified $2.5 billion in excess items that  were reported to be in new, unused, and excellent condition (A condition). Although federal regulations and DOD policy require reutilization of excess  property in good condition, to the extent possible, our analysis showed that  DOD units only reutilized $295 million (12 percent) of these items. The  remaining $2.2 billion (88 percent) of the $2.5 billion in disposals of A- condition excess commodities were not reutilized, but instead were  transferred, donated, sold, or destroyed. Unnecessary Commodity Purchases

Our analysis of fiscal year 2002 and 2003 DLA commodity purchases and  DRMS excess property inventory data identified numerous instances in  which the military services ordered and purchased items from DLA at the  same time identical items—items with the same NSN—that were reported  to be in new, unused, and excellent condition were available for  reutilization. Case Study Requisitions of New and Unused DOD Commodities

To illustrate waste and inefficiency associated with transfers and donations  of excess A-condition commodities to entities outside of DOD, we used the  GSA Federal Disposal System, available to all federal agencies, to  requisition several new and unused excess DOD commodity items,  including a medical instrument chest, two power supply units, and two  circuit cards, at no charge. These items had an original DOD acquisition  cost of $55,817, and we paid only $5 shipping cost to obtain all of them. We paid a total of $1,466 for these items, about 12 cents on the  dollar, including buyer’s premium, tax, and shipping cost. We found key factors  in the overall DRMS management control environment that contributed to  waste and inefficiency in the reutilization program, including (1) unreliable  excess property inventory data; (2) inadequate DRMS oversight,  accountability, physical control, and safeguarding of property; and  (3) outdated, nonintegrated excess inventory and supply systems. Damage to GAO purchase of bandages and medical supplies. Improved management of  DOD’s excess property and a strong reutilization program could help save  taxpayers hundreds of millions of dollars annually. Objectives, Scope, and Methodology

The purpose of our audit was to assess the economy and efficiency of the  Department of Defense (DOD) excess property program. Where we found controls to be ineffective,  we tested them further to determine (1) the magnitude and (2) root causes  of associated waste and inefficiency. Magnitude of Excess Property Reutilization Program Waste and Inefficiency

To determine the overall magnitude of waste and inefficiency related to the  DOD excess property reutilization program, we identified fiscal year 2002  and 2003 excess commodity disposal activity by property condition code  and examined the extent of DOD reutilization of excess items in new,  unused, and excellent condition (A-condition) versus transfers, donations,  public sales, and other disposals outside of DOD through scrap,  demilitarization, and hazardous materials contractors.
Why GAO Did This Study

Based on limited previous GAO work that identified examples of purchases of new items at the same time identical items in excellent or good condition were excessed, GAO was asked to assess the overall economy and efficiency of the Department of Defense (DOD) program for excess property reutilization (reuse). Specifically, GAO was asked to determine (1) whether and to what extent the program included waste and inefficiency and (2) root causes of any waste and inefficiency. GAO was also asked to provide detailed examples of waste and inefficiency and the related causes. GAO's methodology included an assessment of controls, analysis of DOD excess inventory data, statistical sampling at selected sites, and detailed case studies of many items.

What GAO Found

DOD does not have management controls in place to assure that excess inventory is reutilized to the maximum extent possible. Of $18.6 billion in excess commodity disposals in fiscal years 2002 and 2003, $2.5 billion were reported to be in new, unused, and excellent condition. DOD units reutilized only $295 million (12 percent) of these items. The remaining $2.2 billion (88 percent) includes significant waste and inefficiency because new, unused, and excellent condition items were transferred and donated outside of DOD, sold for pennies on the dollar, or destroyed. DOD units continued to buy many of these same items. GAO identified at least $400 million of commodity purchases when identical new, unused, and excellent condition items were available for reutilization. GAO also identified hundreds of millions of dollars in reported lost, damaged, or stolen excess property, including sensitive military technology items, which contributed to reutilization program waste and inefficiency. Further, excess property improperly stored outdoors for several months was damaged by wind, rain, and hurricanes. To illustrate continuing reutilization program waste and inefficiency, GAO ordered and purchased at little or no cost several new and unused excess commodities that DOD continued to buy and utilize, including tents, boots, power supplies, circuit cards, and medical supplies. GAO paid a total of $1,471, including tax and shipping cost, for these items, which had an original DOD acquisition cost of $68,127. Root causes for reutilization program waste and inefficiency included (1) unreliable excess property inventory data; (2) inadequate oversight and physical inventory control; and (3) outdated, nonintegrated excess inventory and supply management systems. Procurement of inventory in excess of requirements also was a significant contributing factor. Improved management of DOD's excess property could save taxpayers at least hundreds of millions of dollars annually.