Illllllll11111 IIIlllll1111111111 LM095532 llllllllll II11/ Ill1 Dear Mr. Secretary: The General Accounting Office haa reviewed the procedures used ,by the Navy Aviation Supply Office (ASO) in fiscal year 1970 for the ir;? retention and disposal of repairable items..' The review was made to ‘determine whether all requirements were considered in the computation of the quantities to be retained. As part of our review, we examined the computer program for determining the retention level, the_"- instruc- tions given the commodity managers for making their manual evaluation of the computer decisions, and final disposal decisions. Repairable items accounted for about $115 million of the $246 mil- lion worth of assets which AS0 declared excess during its fiscal year 1970 retention and disposal review. We found that about $6.7 million worth of material was erroneously declared excess because ASO, in computing quantities to be retained, did not consider all requirements for (1) mobilization, (2) items used on aircraft in production, and (3) items stocked for insurance and initial outfitting purposes. We also inquired about retention and disposal procedures at the Navy Electronics Supply Office @SO) and the Navy Ships Parts Control Center (SPCC) to determine whether the same problems existed at those locations. We made limited tests of transactions at SPCCp reviewed their procedures, and determined that they were adequate. Because of the limited amount of disposal activity at ESO, we dectded that a re- view of procedures and a sampling of transactions were not warranted there. The details of our findings at AS0 follow. Items for mobilization AS0 declared as excess $6 million worth of material which was needed to cover that portion of mobilization requirements for which funds had not been appropriated. Although these items were not au- thorized to be procured, assets already available to meet these requirements should have been retained. - f- +& 2::/“+yys; 50 TH ANNIVERSARY 1921- 1971 P-J b. B-146727 ASO's fiscal year 1970 formula for computing the retention level consisted of a lo-year stockage objective based on the previous year's demand plus back orders and planned program requirements. We noted that no provision for unfunded mobilization requirements had been made. Since the Department of Defense instruction dealing with the determina- tion of excess material stipulates that these requirements be included in the retention level, we brought this matter to the attention of AS0 officials. They stated that unfunded mobilization requirements were not specifically included because AS0 officials considered these require- ments to be adequately covered in the lo-year retention estimate. We gave AS0 officials a list of items for which certain assets had been declared excess, because unfunded mobilization requirements had not been included in the retention level computation. We suggested that the commodity managers reconsider deCiEiOnE declaring these assets excess to determine whether any of these assets shruld be reclaimed. As a result, AS0 reclaimed assets valued at more than $1.2 million. This was based on ASO's fiscal year 1971 formula for computing the retention level which reduced the Etockage objective from 10 years to 7 years and specifically included all mobilization requirements. Items used on aircraft in production During a previous review, we found that AS0 had disposed of certafn excess items applicable to aircraft in production which could have been offered as Government-furnished material (GFM) (B-157373 dated August 6, 1970). We discussed this matter with AS0 officials at that time and were told that such items would be exempted from future disposal reviews. During this review, we noted that AS0 also declared as excess, material valued at $533,560 which should have been identified for possible use as GFM. We found that AS0 was scheduling items for disposal which were excess to an aircraft not in production, but were not considering possi- ble use of those items on other aircraft which were still in production. Assets for two items related to aircraft in production were declared excess during AS0 's fiscal year 1970 review. We brought this situation to ASO's attention. AS0 initiated action to return these assets to the supply system. Subsequent to the fiscal year 1970 review, AS0 changed its policy, which now excludes all items related to aircraft in production from future disposal reviews. B-146727 Insurance and initial outfitting items We noted that ASO's final decision concerning 10 insurance and initial outfitting items was to declare all assets excess because they had no demand, back orders, or planned program requirements for them. During initial provisioning, quantities to be procured and stocked are based on anticipated demand and other factors. Insome instances, even though it is determined that there is little likeli- hood that a given item may be repetitively used, a minimal quantity (called insurance items) is stocked in case of emergency, because a lack of the item would endanger operational capability. Future re- quirements for these insurance items are not based on demand, but continue to exist until the items themselves, or the end items they support, became obsolete. Since most of the 10 items could be used on active aircraft, we believe that complete disposal is inadvisable. At our request, the commodity managers responsible for these items reconsidered their decisions and recalled assets valued at $220,000. AS0 stated that it would exclude insurance and initial outfit- ting items from future reviews until better guidelines for their re- tention and disposal have been developed. Conclusions We recognize that the problems enumerated above could have been caused by new automatic data processing procedures and that actions have been taken to correct some of the problems. We believe, however, that more specific guidelines are necessary for retention and disposal of insurance and initial outfitting items. Retention and disposal procedures for repairable items have not been reviewed by internal audit organizations at ASO. Since signif%- cant losses can occur from-the disposal of needed material, we believe that this area should be under continuing review. Recommendations Qp- I We recommend that the Navy issue guidelines for retention of insurance and initial outfitting items which provide that future re- quirements for them not be based on demand. We also recommend that the Naval Audit Service conduct periodic reviews of the retention and disposal procedures for repairable items in use by the Department of the Navy. -3- B-146727 The above recommendations are subject to the provisions of Section 236 of the Legislative Reorganization Act of 1970. We will appreciate receiving copies of the statements you furnish the specified comittees in accordance with these provisions. If you desire, we will be glad to discuss these matters in greater detail with you or with your staff. Sincerely yours, The Honorable The Secretary of the Navy -4-
Retention and Disposal of Repairable Items
Published by the Government Accountability Office on 1971-08-30.
Below is a raw (and likely hideous) rendition of the original report. (PDF)