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)

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.

       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
      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.

      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.
           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.
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.


      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