However, the components have not annually reviewed the analyses used to support their economic retention decisions, as required by the Department, and therefore have no assurance that the inventories held in economic retention status are appropriate. Conclusions

Components (other than the Air Force) have developed models designed to make economic retention decisions. However, none of the components currently use their economic retention models. Instead, they and the Air Force use ceilings to limit the amount of economic retention inventory they hold. Components have not properly documented their approaches to economic retention decisions. In addition, the Department did not have sound analytical support for the maximum levels they currently use. As a result, the components cannot currently depend on their models or ceilings to determine retention inventory levels without review and improvement. They also have not annually reviewed their approaches. Because the ceilings lack analytical support, and the model factors and assumptions vary without explanation and are out of date, the Department cannot provide reasonable assurance that inventories held in economic retention are the right amount. Recommendations for Executive Action

We recommend that the Secretary of Defense direct the Secretaries of the Army, Navy, and Air Force and the Director of the Defense Logistics Agency, in consultation with the Under Secretary of Defense for Acquisition, Technology, and Logistics, to take the following actions:  Taking into consideration the results of the congressionally mandated study, establish milestones for reviewing current and recently used approaches for making decisions on whether to hold or dispose of economic retention inventory to identify actions needed to develop and implement appropriate approaches to economic retention decisions.
Why GAO Did This Study

As of September 1999, the Department of Defense (DOD) reported that it owned secondary inventory worth about $64 billion and that $9.4 billion of that inventory is more economical to retain than to dispose of and possibly repurchase later. This report focuses on whether DOD's economic retention decisions are sound.

What GAO Found

GAO found that military components (other than the Air Force) have developed models to help make economic retention decisions on secondary inventory. However, none of the components now use their economic retention models. Instead, they and the Air Force use ceilings to limit the amount of economic retention inventory they hold. Components have not properly documented their approaches to economic retention decisions. For example, common model factors vary and assumptions are inconsistent and out of date. In addition, DOD lacked sound analytical support for the maximum levels it now uses. As a result, the components cannot depend on their models or ceilings to determine retention inventory levels without review and improvement. They also have not reviewed their approaches annually. As a result, the Department does not have a sound basis for its approach to manage items held in economic retention status. Consequently, the Department cannot guarantee that inventories held in economic retention are the right amount.