These reports allow the Defense  Contract Management Agency to independently verify that Navy repair  contractors have accounted for all government-furnished material shipped  to them. As a result, this inventory is vulnerable to loss or  theft. Navy Is Not Requiring Its Repair Contractors to Acknowledge Receipt of Government-Furnished Material

Navy repair contractors are not routinely acknowledging receipt of  government-furnished material that has been shipped to them from the  Navy’s supply system. By not requiring repair contractors to receipt, the Naval Inventory  Control Point does not follow up with its repair contractors within  45 days—as required by DOD procedure—when these repair contractors  fail to confirm receipt of government-furnished material shipped to them. Naval Inventory Control Point  officials also stated that submitting notification of receipt for this material  might overstate the inventory levels in the DOD Commercial Asset  Visibility System—the Navy’s inventory management system—because the  system would show this material as on-hand at its repair contractors’  facilities when the material is actually earmarked for immediate use in the  repair of another item. For fiscal year 2002, the most recent and complete data available at the  time of our review, the Naval Inventory Control Point reported that  4,229 government-furnished material shipments (representing 4,301 items  valued at approximately $115 million) had been shipped to its repair  contractors. We randomly selected and examined 308 government- furnished material shipments, representing 344 items that were shipped to  Navy repair contractors. We estimate that 50 unclassified items may be unaccounted for,  with a value of about $729,000 in inventory of aircraft-related government- furnished material for fiscal year 2002. Without such  notification, the Naval Inventory Control Point cannot be assured that its  repair contractors have received all shipped material. Navy Is Not Submitting Required Quarterly Reports

The Naval Inventory Control Point is also not following DOD and Navy  procedures that require Naval Inventory Control Point officials to provide  the Defense Contract Management Agency with quarterly status reports  showing all shipments of government-furnished material that have been  provided to its repair contractors. According to the procedures, these  reports should include information about total shipments and their dollar  value, number of shipments for which receipts are unknown, and rejected  requisitions. Although a number of standard  DOD and Navy inventory management control procedures stipulate the  requirement to generate and distribute the quarterly reports, inventory  control point officials lack recognition of this reporting requirement. Conclusion

Inventory worth millions of dollars is vulnerable to fraud, waste, or abuse  because the Naval Inventory Control Point is not adhering to DOD  inventory management control procedures for government-furnished  material shipped to its repair contractors. Furthermore, without  the Naval Inventory Control Point implementing procedures to ensure that  quarterly reports for all shipments of government-furnished material to its  repair contractors are generated and distributed to the Defense Contract  Management Agency, the Defense Contract Management Agency might be  impaired in its ability to serve as the last line of defense in protecting  government-furnished material. To assess the Naval Inventory Control Point’s and its repair contractors’  adherence to procedures for controlling government-furnished material,  we took the following steps:    To identify criteria for controlling shipped inventory, we reviewed  Department of Defense (DOD) and Navy procedures, obtained other  relevant documentation related to shipped inventory, and discussed  inventory management procedures with officials from the following  locations: Headquarters, Department of the Navy, Washington, D.C.; the  Naval Inventory Control Point; Mechanicsburg, Pennsylvania; the Naval  Inventory Control Point, Philadelphia, Pennsylvania; and the Defense  Contract Management Agency, Alexandria, Virginia.
Why GAO Did This Study

GAO has reported in a number of products that the lack of control over inventory shipments increases vulnerability to undetected loss or theft and substantially increases the risk that million of dollars can be spent unnecessarily. This report evaluates the Navy's and its repair contractors' adherence to Department of Defense (DOD) and Navy inventory management control procedures for government-furnished material shipped to Navy repair contractors. Government-furnished material includes assemblies, parts, and other items that are provided to contractors to support repairs, alterations, and modifications. Generally, this material is incorporated into or attached onto deliverable end items, such as aircraft, or consumed or expended in performing a contract.

What GAO Found

The Naval Inventory Control Point and its repair contractors have not followed DOD and Navy inventory management control procedures intended to provide accountability for and visibility of shipped government-furnished material to Navy repair contractors. As a result, Navy inventory worth millions of dollars is vulnerable to fraud, waste, or abuse. First, Navy repair contractors are not acknowledging receipt of government-furnished material from the Navy's supply system. Although a DOD procedure states that contractors will notify the military services' inventory control points once material is received, Naval Inventory Control Point officials are not requiring its repair contractors to do so. Consequently, the Naval Inventory Control Point is not adhering to another DOD procedure that requires the military services to follow up with repair contractors within 45 days when the receipts for items are not confirmed. Naval Inventory Control Point officials stated that receipting for government-furnished material, which is earmarked for immediate consumption in the repair of another item, might overstate the inventory levels in their inventory management system. Without material receipt notification, the Naval Inventory Control Point cannot be assured that its repair contractors have received the material. For fiscal year 2002, the most recent and complete data available at the time of GAO's review, the Naval Inventory Control Point reported that 4,229 government-furnished material shipments (representing 4,301 items value at approximately $115 million) had been shipped to its repair contractors. GAO randomly selected and examined 308 government-furnished material shipments, representing 344 items that were shipped to the Navy's repair contractors. Based on this random sample, GAO estimated that 50 unclassified items may be unaccounted for, with a value of about $729,000 in aircraft-related government-furnished material. Additionally, the Naval Inventory Control Point does not send quarterly reports on the status of government-furnished material shipped to its repair contractors to the Defense Contract Management Agency. DOD and Navy procedures require that the Naval Inventory Control Point generate and distribute quarterly reports on government-furnished material shipped to repair contractors, including information on total shipments and their dollar value, number of shipments for which receipts are unknown, and rejected requisitions to the Defense Contract Management Agency. Although there are a number of DOD and Navy procedures that outline this reporting requirement, the Naval Inventory Control Point officials responsible for implementing this procedure were unaware of the requirement. The Naval Inventory Control Point lacks procedures to ensure that these reports are generated and distributed to the Defense Contract Management Agency. Without the reports, the Defense Contract Management Agency may be unable to independently verify that the Navy repair contractors have accounted for all government-furnished material shipped to them.