United States GAO General Accounting Office Washington, D.C. 20548 Accounting and Information Management Division B-28 1176 March 3,1999 The Honorable John R. Kasich Chairman, Committee on the Budget House of Representatives Subject: Financial Management: Briefing on the Federal Aviation Administration’s Inventory Accountability Dear Mr. Chairman: This letter responds to your request that we determine (1) whether the Federal Aviation Administration’s (FAA) systems can accurately account for and control inventory quantities and (2) how FAA identifies and manages excess inventory quantities. This letter summarizes the information provided during a February 16, 1999, briefing to your staff on these two areas. The briefing slides are enclosed. FAA’s inventory consists primarily of items centrally warehoused at the Mike Monroney Aeronautical Center (Logistics Center) in Oklahoma City, Oklahoma, and at field spare sites at over 34,000 locations throughout the United States. Many of these field spare sites are at remote locations. Based on our analysis of Logistics Center inventory test counts of a statistical sample of inventory, we concluded that the Logistics Center’s recorded inventory quantities were generally reasonable as of September 30, 1998. In addition, based on our review of Logistics Center inventory system controls, we concluded that the inventory system provides a reasonable basis for tracking and controlling inventory. We concluded from analyzing the Department of Transportation (DOT) OIG’s field spares inventory workpapers that the accuracy of field spares inventory quantities, and the ability of the system to track and control field spares is uncertain. The OIG found numerous errors in inventory recordkeepin g, and procedures and controls were not fully implemented. FAA is in the process of implementing new procedures for managing field spares inventory. FAA is also planning a complete field spares inventory count for fiscal year 1999. We found that FAA has established processes for identifying and managing excess inventory. The Logistics Center processes are in place; however, processes in the field were not fully implemented as of September 30, 1998. GAO/AIMD-99-98R Briefing on FAA Inventory Accountability B-281176 In January 1999, we designated FAA financial management as a high-risk area. Since 1990, we have periodically reported on government operations identified as high risk because of their greater vulnerabilities to waste, fraud, abuse, and mismanagement. Our high-risk status reports are now provided at the start of each new Congress and the latest, High-Risk Series: An Undate (January 1999, GAO/IN-99-l), was recently issued. Over time, as high-risk operations have been corrected, we have removed those improved areas from the list. Also, as other risks have emerged, we have added new ones to keep the Congress current on financial weaknesses needing more management attention. The FAA’s high-risk designation means we will be giving sustained attention to monitoring its efforts to achieve financial accountability. We conducted our work from August 1998 through January 1999 in accordance with generally accepted government auditing standards. We requested comments on our draft briefing slides from the FAA and DOT Office of Inspector General. We received some clarifying comments that we incorporated into our slides as appropriate. We are sending copies of this letter to the Ranking Minority Member of your Committee, the Secretary of Transportation, the DOT Chief Financial Officer, the FAA Administrator, the Director of the Office of Management and Budget, and other interested parties. Copies will also be made available to others upon request. If you have any questions about this letter or the earlier briefing, please contact me at (202) 512-9508 or John Fretwell, Assistant Director, at (202) 512-9382. Sincerely yours, Linda M. Calbom Director, Resources, Community, and Economic Development, Accounting and Financial Management Issues Enclosure (913850) Page 2 GAO/AIMD-99-98R Briefing on FAA Inventory Accountability a0 Accounting and Information Management Division FEDERAL AVIATION ADMINISTRATION inventory Accountability Review Status Briefing for the House Budget Committee February 16, 1999 GAD Contents l Objectives l Background l Logistics Center Review l Field Spares Review l Excess Inventory Review l Actions Being Taken by FAA GJQ* Objectives l Determine whether FAA’s systems can accurately account for and control inventory quantities l Determine how FAA identifies and manages excess inventory quantities 3 w Background--FY 1997 Financial Statement Audit Results l OIG unable to issue an opinion due in part to significant deficiencies in accounting for inventory and related property l OIG concluded that there were significant inconsistencies in inventory counting procedures and unexplained variances in inventory amounts. a* Background--Recorded Inventory Amounts at September 30, 1998 Dollars Locations (Millions) Percent Logistics Center $543 59.7 Field spare sites 338 37.2 Aviation sites 28 31. Total $909 100.0 Note: The total amount presented represents balances before valuation reductions at year end for items to be repaired and for excess inventory. w Background--Inventory Overview Acquisition Activities Acquisition Svstems Devhopment Field Sites Spares Contractors , Center GA!!* Background-Inventory Overview Exchange & Repair (E&R) Spares Activity Storage Locations Transfers Transfers Logistics Field Transfers Center Site Transfers m* Background--Field Spares in FAA Regions and Centers Technical Cenler W’ Pacific estern I r---l Region §L38 mil. 1 I I I I PO I l 9 regions and 2 centers . Over 800 siles . Over 34,000 slorage locallons l 185,000 units ‘1 totaling $338 million Source: FAA GAD Logistics Center Review-- Scope and Methodology l Reviewed centralized warehouse inventory at Mike Monroney Aeronautical Center in Oklahoma City, Oklahoma 0 Test counted statistical sample of i,nventory l Analyzed results l Projected errors l Assessed systems controls over quantities MO Logistics Center Review- Inventory Accountability Test Count Results Units Dollars (Thousands) (Millions) Total tested 2J26.7 $145.72 Overstatements 40.0 $1.58 Understatements .4 $1.62 Differences-gross 40.4 $3.20 Gross percentage difference 1.9% 2.2% 10 GAO Logistics Center Review- Inventory Accountability Examples of More Significant Dollar Differences Exception Record Actual Quantity Dollar difference item quantity count difference (Thousands) Rotary joint 72 66 (6) ($269) Digital data set 16 17 1 55 VHF receiver 746 834 269 11 w Logistics Center Review- Inventory Accountability l Reasons for Test Count Differences l 7% - Commingling similar items l 9% - Timing of processing documents l 22% - Prior erroneous adjustments l 62% - Unknown 12 w Logistics Center Review- Inventory Accountability Test Count Conclusions l Dollar effect of projected quantity differences not significant to FAA’s financial statements l Some differences warrant follow-up l high dollar/low quantity l unknown reasons 13 MO Logistics Center Review- inventory Accountability Supplemental Tests of Limited Items l Unknown reasons category eliminated l Reasons for differences were similar to original test counts 14 GAO Logistics Center Review- Inventory Systems Controls Major Systems Capabilities l Master inventory inquiry record l Transaction history record l Receipts l Issues 0 Adjustments l Excess inventory records 15 MI Logistics Center Review- Inventory Systems Controls Assessment Results Controls over quantities generally appear to be effective; however, minor control weaknesses were identified l counting items received l receiving documentation . delays in recording receipts l data entry 16 MI Logistics Center Review- Inventory Systems Controls Conclusions l Test counts and control assessment indicate that recorded inventory quantities are generally reasonable as of September 30, 1998 l Inventory system provides a reasonable basis for tracking and controlling inventory 17 GAQ Field Spares Review- Scope and Methodology l Relied on OIG inventory test counts for 14 sites l Gathered information from FAA officials in Headquarters and Logistics Center l Reviewed OIG inventory workpapers 0 Analyzed results l Assessed systems controls over quantities 18 GLQ!OField Spares Review- Inventory Accountability Summary of OIG Tests Value Quantity Sites (Millions) (Thousands) Total field spares 834 $322 153 Sites with completed physical inventory 354 63 34 Sites tested 14 14 7 Sites with test count differences 9 9 5 Note: OIG judgmentally selected items to test at each site based on an April 1998 site listing 19 GA* Field Spares Review- Inventory Accountability Examples of OIG Test Count Differences Quantity Net Net Quantity per OIG quantity Value of per record count difference difference Site A 27 6 (21) ($67,183) Site B 41 51 IO 3,992 Site C 4 13 9 4,686 Site D 0 65 65 105,747 c\O GAD Field Spares Review-- Inventory Accountability Type of Difference l New parts not recorded l Recorded items not located Reasons for Differences a Inventory recordkeeping not a high priority a Count procedures not available or not disseminated 0 Lack of training in taking physical inventory a Records not updated timely 22 w Field Spares Review- Inventory Systems Controls Major Systems Capabilities l Inventory by location, quantity on hand, description of item, and system item supports l Physical inventory history l 3-year demand history to determine excess 23 G+Q* Field Spares Review- Inventory Systems Controls Assessment results . Systems and controls had not been fully implemented as of September 30, 1998 l Controls not established over data input l Receipted inventory not always recorded 24 MID Field Spares Review-- Inventory Systems Controls Conclusion Field spares inventory accuracy and the ability of the system to track and control inventory is uncertain. 25 GA* Excess Inventory Review- Scope and Methodology l Reviewed FAA procedures for identifying and managing excess quantities l Reviewed OIG workpapers on excess field spares l Made limited observations of excess inventory at Logistics Center 26 GAO Excess Inventory Review l Logistics Center Excess Procedures l Process is structured l Process uses monthly on-hand arid usage data l System automatically identifies potential excesses which item managers research and resolve l Excess amount of $26 million identified by FAA as of September 30, 1998 27 m* Excess Inventory Review l Examples of Logistics Center excess items l Cable--about 1 million feet--$900,000 l Outdated electronic sensing devices--over 1,300~-$I .3 million l Circuit card assemblies--over 120~-$I 23,000 l Obsolete printers--over 1,400~- $2.9 million 28 m* Excess Inventory Review l Field Spares Excess Procedures l Biennial review by location--over 3-year demand considered excess l Excess review done when systems decommissioned l Procedures not fully implemented as of September 30, 1998 l Potential excesses identified by OK3 and FAA personnel in FY 1998, but not quantified 29 MI Actions Being Taken by FAA to improve Inventory Management l For Logistics Center FAA is developing l a physical inventory integrity guide l a long term excess inventory plan l procedures to check excess stock records before procuring new stock l plans for a bar coding system 30 m* Actions Being Taken by FAA to Improve Inventory Management l For Field Spares Inventory, FAA is implementing new procedures for managing field spares developing a perpetual inventory system developing a bar coding system planning a complete physical inventory for FY 1999 31 Ordering Information The first copy of each GAO report and testimony is free. 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Financial Management: Briefing on the Federal Aviation Administration's Inventory Accountability
Published by the Government Accountability Office on 1999-03-03.
Below is a raw (and likely hideous) rendition of the original report. (PDF)