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. Internal Control Weaknesses Impede Army’s Accountability for Inventory Shipments

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. 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. 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. 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. 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. 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 Does Not Confirm Receipt of Government- Furnished Materiel

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. 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. As a result, DCMA  officials may lack data to corroborate contractor-generated data during  their inventory audits. 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. Scope and Methodology

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. No…………... 3. to exclude major end items.
Why GAO Did This Study

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.

What GAO Found

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.