oversight

Defense Inventory: Management of Surplus Usable Aircraft Parts Can Be Improved

Published by the Government Accountability Office on 1997-10-02.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States General Accounting Office

GAO              Report to the Chairman, Committee on
                 National Security, House of
                 Representatives


October 1997
                 DEFENSE
                 INVENTORY
                 Management of
                 Surplus Usable Aircraft
                 Parts Can Be Improved




GAO/NSIAD-98-7
             United States
GAO          General Accounting Office
             Washington, D.C. 20548

             National Security and
             International Affairs Division

             B-276828

             October 2, 1997

             The Honorable Floyd D. Spence
             Chairman, Committee on National Security
             House of Representatives

             Dear Mr. Chairman:

             As requested, we reviewed selected aspects of the Department of
             Defense’s (DOD) disposal process. When the military services no longer
             need aircraft parts, they turn them over to the Defense Logistics Agency,
             which manages DOD’s disposal process. As one option within the disposal
             process, the Agency can either sell the parts intact to the public or destroy
             the parts and sell them as scrap. Also, if for some reason a military service
             later determines there is a new need for parts still in the disposal process,
             it can request their return. This report addresses whether (1) DOD
             destroyed usable aircraft parts during the disposal process that did not
             have military technology and flight safety implications and (2) the military
             services recalled aircraft parts from the disposal process to preclude
             unnecessary purchases or repairs. We will report separately on whether
             DOD properly destroyed aircraft parts with military technology and safety
             implications.

             In fiscal year 1996, DOD sold about 3.3 million usable aircraft parts to the
             public through the disposal process’ surplus sales program. These parts
             had an acquisition value of over $2.3 billion. Our review focused on a
             judgmentally selected sample of 271 surplus items at three disposal
             offices. These offices handle some of the largest volumes of surplus
             aircraft parts within the disposal process. The scope and methodology of
             our work are described in appendix I.


             The Federal Property and Administrative Services Act of 1949, as amended
Background   (40 U.S.C. 471-486), places responsibility for the disposition of government
             real and personal property with the General Services Administration. The
             General Services Administration delegated disposal of DOD personal
             property to the Secretary of Defense, who in turn delegated it to the
             Defense Logistics Agency. The Defense Reutilization and Marketing
             Service, a component of the Defense Logistics Agency, carries out the
             disposal function. The complexity of DOD’s disposal process is
             characterized by the massive volumes of surplus property. In fiscal year
             1996, DOD disposed of millions of items with a reported acquisition value




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                                           (the amount originally paid for the items) of almost $24 billion. The focus
                                           of this report, aircraft parts, represents $2.3 billion of this total.


Aircraft Parts Disposal                    DOD provides overall guidance for determining if aircraft parts should be
Process                                    disposed of. The military services and the Defense Logistics Agency
                                           determine if specific parts for which they have management responsibility
                                           are excess to their needs. Once the military services or the Defense
                                           Logistics Agency declares aircraft parts excess to their needs, they enter
                                           the disposal process. These parts are sent to one of 170 worldwide
                                           Defense Reutilization and Marketing Offices (DRMO), or disposal yards.
                                           Upon receipt, DRMO personnel inspect the parts for condition, acquisition
                                           value, and special handling requirements such as those for military
                                           sensitive items. DRMOs, consistent with legislative requirements, have
                                           disposition priorities to make the excess parts available for reutilization
                                           within DOD or transfer to other federal agencies. Parts that remain are
                                           designated as surplus and can be donated to eligible entities such as state
                                           and local governments, among many others. After these priorities have
                                           been served, parts that remain may be sold to the general public. Figure 1
                                           shows the usual process for disposing of aircraft parts.



Figure 1: Usual Process for Disposing of Aircraft Parts



Excess                                      Surplus

                                                 Donations
     Other                   Other
                                                   to state             Public
    defense                 federal
                                                  and local              sale
    activities             agencies
                                                governments



                                           Surplus aircraft parts can generally be divided into four categories of
                                           condition: (1) new; (2) worn, but still working; (3) broken, but repairable;
                                           and (4) scrap. In this report, we refer to the first three categories of parts
                                           as potentially usable, since they can be repaired or used as is. The fourth
                                           category—scrap—refers to those parts that DOD does not intend to reuse
                                           and sells for their basic material content value.




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Military Technology and   Because of concerns about safeguarding military technology and
Flight Safety             maintaining flight safety, DOD has specific policies and procedures relating
Considerations            to the disposal of aircraft parts. For parts that have military technology
                          involving weapons, national security, or military advantages inherent in
                          them, DOD requires the parts to be demilitarized so that the technology
                          remains within DOD. Demilitarization makes the parts unfit for their
                          originally intended purpose, either by partial or total destruction, before or
                          as a condition of sale to the public. For parts that could cause an aircraft
                          to crash if the parts fail during a flight, DOD components have local policies
                          requiring the destruction of certain used parts with flight safety
                          implications to prevent the parts from reentering the DOD supply system or
                          being made available to the civil aviation industry. In our 1994 report,1 we
                          cited concerns from the Federal Aviation Administration and the
                          Department of Transportation’s Inspector General that DOD aircraft parts,
                          sold as scrap, reentered civil aviation as usable. As a result, in July 1995,
                          DOD initiated a departmentwide program to identify and prevent parts with
                          potential flight safety risks from being sold intact through DRMOs. The
                          services and the Defense Logistics Agency began identifying parts with
                          flight safety characteristics so they could destroy the parts before they
                          were sold.

                          Some usable aircraft parts DOD sells as surplus fit only on military aircraft
                          but have no military technology implications. These parts are called
                          “nonsignificant military unique” parts. Examples include bolts, fuel
                          controls, engine parts, and airframe parts that have been strengthened to
                          withstand rigorous military use. Companies buy military unique parts on
                          the speculation that DOD may need these parts at a future date. Other
                          usable aircraft parts DOD sells as surplus have applications to aircraft used
                          in civil aviation or by other government agencies and foreign countries.
                          These parts are called commercial-type parts. Examples include the Air
                          Force’s KC-135 air refueling tanker that has many of the same parts as a
                          commercial Boeing 707 aircraft; the Air Force’s C-130 cargo plane that has
                          many of the same parts as a Lockheed 382 Hercules aircraft used by 49
                          foreign countries; and the Army’s UH-1 Huey utility helicopter that has
                          many of the same parts as a commercial Bell 205 helicopter. Companies
                          buy commercial-type parts on the speculation that they can resell the parts
                          to civil aviation, foreign countries, or DOD.




                          1
                           Commercial Practices: Opportunities Exist to Enhance DOD’s Sales of Surplus Aircraft Parts
                          (GAO/NSIAD-94-189, Sept. 23, 1994).



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                         Management of the aircraft parts disposal process can be improved. DOD
Results in Brief         destroyed some usable aircraft parts and sold them as scrap. These parts
                         were in new or repairable condition and did not have military technology
                         or flight safety implications. The parts could possibly have been sold intact
                         at higher than scrap prices. This situation occurred for several reasons.
                         For example, disposal offices destroyed parts because the demilitarization
                         codes the military services had assigned to the parts were inaccurate. The
                         codes indicated the parts contained military technology when they did not.
                         Our work showed that the Oklahoma City disposal office destroyed 62 of
                         71 sample items, even though they did not have technology implications,
                         because the assigned codes required their destruction. Personnel
                         responsible for assigning and reviewing the codes had not been
                         sufficiently trained and guidance was not adequate. In addition, policies
                         and practices designed to prevent the inadvertent or unauthorized release
                         of parts with military technology and flight safety implications did not
                         distinguish between parts with or without such implications. Parts without
                         military technology and flight safety concerns were destroyed along with
                         parts that had these characteristics.

                         Our work also showed that DOD could have purchased or repaired fewer
                         aircraft parts if it would have recalled the needed parts from the disposal
                         process. For example, the Army could have reduced current and planned
                         purchases by about $200,000 by using Cobra helicopter parts scheduled for
                         destruction. DOD regulations require the military services to know which
                         parts they have placed in the disposal process. However, interface
                         problems between service and disposal office computer systems
                         precluded the services from knowing what parts were at the disposal
                         offices. The military services had not instituted alternative ways to obtain
                         this information on a routine basis.

                         Problems with the disposal process are likely not unique to the three
                         disposal yards we visited because DOD, military service, and Defense
                         Logistics Agency policies and procedures generally apply to activities
                         being performed at all locations. Our past reviews and DOD internal studies
                         have identified similar problems at these and other locations over the past
                         10 years and earlier.


                         DOD  could have avoided destroying certain usable aircraft parts that were
Management of            in the disposal process. The parts were destroyed because (1) the military
Surplus Aircraft Parts   services improperly coded parts without military technology as having
Can Be Improved          military technology implications and (2) policies and practices intended to



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                            prevent an inadvertent sale of military technology or flight safety items did
                            not adequately exclude parts without military technology or flight safety
                            implications. Until DOD improves the accuracy of assigned demilitarization
                            codes, adopts better management policies and practices, and moves to use
                            private sector techniques, such as identifying highly marketable parts,
                            some usable parts will be unnecessarily destroyed during the disposal
                            process.


Assigned Demilitarization   The three DRMOs we visited destroyed usable parts because the
Codes Are Not Accurate      demilitarization codes the military services had assigned were inaccurate.
                            For example, we evaluated 71 sample items at the Oklahoma City DRMO.
                            We selected these items because they were commercial-type items but, at
                            the time of selection, the military services had coded the parts as having
                            military technology implications. We found usable quantities for 10 of our
                            sample items that were marked for destruction at the DRMO. Records
                            showed that the DRMO had previously destroyed quantities of the other 61
                            sample items.

                            We met with Air Force and Navy equipment specialists and policy officials
                            and questioned the demilitarization codes assigned to each of the 71 items.
                            The policy officials told us that they require equipment specialists to
                            periodically review the demilitarization codes for accuracy and that
                            equipment specialists had recently corrected the codes on nine items. The
                            equipment specialists did not agree on the need to change the codes on the
                            remaining 62 items until we pointed out that these were commercial-type
                            parts. The equipment specialists confirmed that the assigned
                            demilitarization codes—requiring the parts to be destroyed due to military
                            technology content—were incorrect for each of the 62 sample items. The
                            specialists revised each of the demilitarization codes to identify the parts
                            as having no military technology implications.

                            At the San Antonio DRMO, the assigned demilitarization codes were
                            inaccurate for 22 of 27 sample items because the parts had no military
                            technology implications. Similarly, at the Corpus Christi DRMO, the
                            assigned demilitarization codes were inaccurate for 13 of 17 sample items.
                            Each of the military services and the Defense Logistics Agency were
                            responsible for sample items with assigned codes that were inaccurate.
                            Examples of parts destroyed because the assigned codes were wrong can
                            be found in appendix II.




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Inaccurate Coding Is a       DOD has had problems with the accuracy of assigned demilitarization
Long-standing Problem        codes for many years. In 1987, the Deputy Secretary of Defense directed
                             the military services and the Defense Logistics Agency to review the
                             assignment of demilitarization codes. The Deputy Secretary was
                             concerned because a partial audit of seven weapon systems revealed that
                             43 percent of the items checked had been coded incorrectly. In 1994, the
                             Defense Logistics Agency found that 28 percent of the assigned
                             demilitarization codes it reviewed were incorrect. DOD officials told us that
                             historically they assigned demilitarization codes to parts the first time the
                             parts were purchased for a new weapon system. They said that for
                             expediency purposes, they often assigned codes that showed military
                             technology content for all parts on new weapon systems rather than
                             evaluating individual items.

                             Recognizing the need for trained personnel to assign proper codes, DOD
                             developed a course on demilitarization. Despite such efforts to correct the
                             erroneous codes, in April 1997, the DOD Inspector General reported2 that
                             52 percent of the demilitarization codes assigned to parts for new weapon
                             systems it reviewed were incorrect. The Inspector General reported that
                             training was not adequate for personnel responsible for assigning and
                             reviewing demilitarization codes and that documentation showing the
                             rationale for their decisions did not exist. According to the Inspector
                             General, DOD’s training course provided only general awareness of the
                             demilitarization program and did not provide the specific details necessary
                             to make decisions on selecting the appropriate demilitarization codes.

Guidance Could Be Improved   Our review shows that DOD could improve the accuracy of assigned
                             demilitarization codes by providing its personnel with guidance on how to
                             make prudent decisions on selecting the appropriate codes. For our
                             sample items at Oklahoma City, the Air Force equipment specialists
                             completed a demilitarization code assignment worksheet. The worksheet
                             is a draft document the Air Force is developing for the equipment
                             specialists to follow to identify the proper code and to document the
                             rationale they use in assigning the code. We found that the draft worksheet
                             was a useful tool that provided a step-by-step process in determining the
                             correct demilitarization code. The worksheet also provided
                             documentation supporting how the equipment specialist arrived at the
                             demilitarization code. Moreover, the worksheet proved useful to
                             equipment specialists that had not received recent training. Until DOD
                             provides its personnel with the specific details necessary to make prudent
                             decisions on selecting the appropriate demilitarization codes, inaccurate

                             2
                              Coding Munitions List Items (DOD Inspector General Audit Report No. 97-130, April 16, 1997).



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                              codes will continue to cause the unnecessary destruction of usable aircraft
                              parts.


Policies and Practices Are    Policies and practices intended to prevent an inadvertent sale of military
Not Adequate                  technology or flight safety items did not adequately exclude parts without
                              military technology or flight safety implications. The policies and practices
                              in question dealt with the destruction of usable parts categorized as
                              (1) scrap when the parts were usable, (2) sensitive items when the parts
                              were not sensitive, (3) flight safety items when the parts had no flight
                              safety implications, and (4) causing a storage space problem when there
                              was no storage space shortage.

Some Scrap Parts Are Usable   In 1994, the Defense Reutilization and Marketing Service directed the
                              DRMOs to destroy all parts categorized as scrap or downgraded to scrap.
                              The reason usable parts were destroyed involved DOD’s categorization of
                              parts as scrap. DOD defines scrap parts as material that has no value except
                              for its basic material content, whereas DOD defines usable parts as material
                              that has value greater than its basic material content and has potential to
                              be used for the originally intended purpose. Commercial company officials
                              told us that some parts that DOD considers scrap have value beyond basic
                              material content and are repairable and reusable in the commercial sector.
                              For the most part, this situation occurs because DOD labels containers of
                              parts it does not want to repair for economic reasons as scrap. On the
                              basis of their experience and independent analyses, commercial
                              companies frequently did not agree with DOD’s economic determinations.
                              In such cases, the companies wanted to buy the used parts, repair them,
                              and resell them for a profit.

                              For example, DOD pays the manufacturer $866 each for first stage turbine
                              vanes used on the T-56 engine. Because DOD’s cost to repair a turbine vane
                              is $750, or 87 percent of the cost of a new vane, DOD considers the vane
                              uneconomical to repair and categorizes it as scrap when worn or broken.
                              However, the manufacturer sells the same first stage turbine vane to
                              commercial customers for $2,020 each. Because of the higher commercial
                              acquisition cost, commercial users can justify the repair cost, which is
                              37 percent of the commercial acquisition cost.

                              DRMO  officials told us that usable parts without military technology were
                              destroyed because of the policy to destroy items categorized as scrap.
                              After receiving complaints from potential buyers and DRMOs that usable
                              parts were needlessly destroyed, the Defense Reutilization and Marketing



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                             Service revised its policy in June 1996 to state that only those items
                             categorized both as scrap and as sensitive items are to be destroyed. The
                             Service considers aircraft parts to be sensitive items if the assigned stock
                             number corresponds to 1 of 18 federal supply classes or groups that
                             frequently contain military technology. The classes or groups include
                             weapons, rocket engines, and communication equipment. DRMOs destroyed
                             items considered sensitive property when the items were received as scrap
                             or downgraded to scrap, irrespective of whether the assigned
                             demilitarization codes indicated the parts had military technology
                             implications.

                             DOD officials stated that due to the time and resources required to destroy
                             and document the destruction of material, it is not in DRMOs’ best interest
                             to destroy parts that do not contain military technology. However, the
                             officials said destruction was necessary to prevent an inadvertent release
                             of parts with military technology implications. We recognize the need for
                             DOD to prevent the inadvertent sale of parts with military technology
                             implications. However, DOD management policies and practices resulted in
                             the destruction of commercial-type parts and nonsignificant military
                             unique parts that did not have technology and safety implications.

                             We previously reported3 that DOD could increase proceeds from the sale of
                             surplus aircraft parts—not by destroying them—but by adopting private
                             sector practices. Specifically, we stated that DOD should use techniques to
                             enhance the marketability of its aircraft parts, including identifying highly
                             marketable commercial-type parts that would yield the greatest benefits at
                             the minimum cost. We pointed out that some commercial airlines identify
                             parts that have a high demand or command a high price and place them on
                             a special listing for marketing purposes. This review shows that DOD has
                             not implemented similar procedures.

Parts Not on the Sensitive   DRMO  personnel also destroyed parts, even though they were not on the
Items List                   sensitive items list. According to DRMO officials, the personnel did this to
                             increase sales proceeds. They explained that historically DRMOs received
                             scrap value for usable parts. They stated that by destroying usable parts,
                             surplus parts dealers would get what they paid for and nothing more. The
                             officials reasoned that once surplus dealers realized that DRMOs destroyed
                             the parts, they would be willing to buy the usable parts before they were
                             destroyed and would pay higher than scrap value for them. As a result,
                             sales proceeds would increase.

                             3
                              Commercial Practices: Opportunities Exist to Enhance DOD’s Sales of Surplus Aircraft Parts
                             (GAO/NSIAD-94-189, Sept. 23, 1994).



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                      We reviewed 83 sample items at the San Antonio DRMO that were not on
                      the sensitive items list and that the disposal histories showed were
                      categorized as scrap or downgraded to scrap after receipt. Our analysis
                      identified instances where the DRMO offered usable parts for sale but did
                      not sell them because bids did not exceed scrap value. The DRMO
                      subsequently destroyed the parts and sold them as scrap. Some of the
                      parts were worth more than scrap value and should have been held for
                      another sale as usable parts. An example of parts destroyed because of the
                      DRMO practice of destroying scrap not on the sensitive items list can be
                      found in appendix II.

Flight Safety Parts   As a result of our 1994 report, DOD initiated a departmentwide program to
                      identify and prevent parts with potential flight safety risks from being sold
                      intact through DRMOs. The military services and the Defense Logistics
                      Agency began identifying parts with flight safety characteristics so they
                      could destroy the parts before they were sold. However, our review
                      showed that aircraft parts were destroyed as flight safety risks when the
                      parts had no flight safety implications. This destruction occurred because
                      DRMO practices intended to prevent the inadvertent sale of parts with flight
                      safety implications also caused the planned destruction of parts without
                      these implications.

                      For example, in response to a potential buyer’s complaint on
                      September 20, 1996, that the San Antonio DRMO was destroying usable
                      blades for the T-56 engine, the San Antonio Air Logistics Center
                      investigated. The Center found 7,018 blades, originally costing
                      $1.06 million, that the Air Force had incorrectly categorized as scrap
                      because of a breakdown in inspection procedures and had sent them to
                      the DRMO. San Antonio DRMO officials said the destruction was to prevent
                      an inadvertent sale of flight safety items. However, Center officials said
                      that these parts were incorrectly sent to the DRMO and did not have to be
                      destroyed for flight safety reasons. DRMO officials said they preferred to err
                      on the side of safety. We recognize the need for DRMOs to prevent the
                      inadvertent sale of parts with flight safety implications. However, DRMO
                      practices resulted in the planned destruction of commercial-type parts and
                      nonsignificant military unique parts that did not have flight safety
                      implications. An additional example of parts being unnecessarily
                      destroyed as flight safety risks is in appendix II.

                      An interim Army Aviation and Troop Command instruction to destroy all
                      parts with flight safety implications also resulted in the destruction of
                      some helicopter parts without such implications. According to DRMO and



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                Army records, for example, on February 5, 1997, a potential buyer
                witnessed the destruction of between 200 and 300 UH-1 helicopter gear
                shafts and 10 turbine rotors at the Texarkana, Texas, DRMO. The destroyed
                parts were new, were in the original equipment manufacturer’s boxes, had
                a manufacturer’s list price totaling about $1 million, and were categorized
                as flight safety critical parts. After the buyer complained, the Army agreed
                that the parts were new and should not have been destroyed.

                According to DRMO officials, the interim instruction resulted in the
                destruction of large quantities of new, unused parts that had no flight
                safety risks. After receiving complaints from DRMOs and potential buyers
                that new parts were being destroyed, the Command revised its
                instructions and authorized the sale of flight safety critical parts under
                certain conditions, such as when the parts are new and unused. To
                determine if the procedural change was working, we reviewed a sample of
                73 items at the Corpus Christi DRMO that the Army had identified as having
                flight safety implications and that DRMO records indicated were new. Our
                analyses showed that the DRMO either offered each sample item for sale or
                had already sold it. We concluded that no unnecessary destruction of new
                parts occurred on the transactions we reviewed. Examples of flight safety
                items properly sold can be found in appendix II.

Storage Space   At the Corpus Christi DRMO, we observed quantities of 157 different usable
                parts for the AH-1 Cobra helicopter scheduled for destruction (see fig. 2).
                Specifically, we noted that there was a total of 1,972 usable, mostly new,
                helicopter parts in a DRMO warehouse. The parts originally cost
                $6.9 million. According to the DRMO Chief, these parts were to be destroyed
                beginning May 3, 1997, to free up storage space. We contacted the Defense
                Reutilization and Marketing Service and advised it of our concern with the
                scheduled destruction because the assigned demilitarization codes
                indicated no military technology was associated with 155 of the 157
                different parts and because there were sufficient amounts of warehouse
                storage space for the parts.




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Figure 2: Cobra Helicopter Parts
Stored at Corpus Christi DRMO




                                   Defense Reutilization and Marketing Service officials said that in
                                   February 1996, they placed a prohibition against selling Cobra parts at
                                   DRMOs because the Army-assigned demilitarization codes were inaccurate.
                                   The property disposal specialist responsible for the prohibition said the
                                   Army planned to review and validate the demilitarization codes for the
                                   Cobra helicopter parts and he wanted to be sure the codes were accurate
                                   before proceeding with a sale or destruction action. He said the Army had
                                   not completed its demilitarization code review. The specialist said he also
                                   instructed the DRMOs to destroy the parts if they started experiencing a
                                   storage impact. After a meeting with the Chief of the Corpus Christi DRMO,
                                   the Defense Reutilization and Marketing Service issued a memorandum
                                   directing the DRMOs not to destroy any Cobra parts unless they are in a
                                   scrap condition and to hold usable parts in storage until the Army
                                   completes the demilitarization code review.

                                   Army Aviation and Troop Command officials who are responsible for
                                   reviewing and validating demilitarization codes for Cobra helicopter parts
                                   told us they were waiting to complete the demilitarization code review




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                      until after Army headquarters makes a decision on whether or not to sell
                      disarmed, surplus Cobra helicopters to the public for use in such purposes
                      as fighting forest fires. In our opinion, accurate code assignments are
                      required regardless of whether the helicopters are sold to the public.


                      The military services’ inventory managers did not have adequate
DOD Components        information on aircraft parts located in DRMOs. DOD Materiel Management
Needed Some Surplus   Regulation 4140.1-R requires inventory managers to have information on
Parts                 parts transferred to DRMOs, to recall parts for reutilization to prevent
                      concurrent procurement and disposal, and to prevent the repair of
                      unserviceable items when serviceable items are available. However, we
                      found that they did not have the needed information and that DRMOs
                      destroyed quantities of parts DOD components needed.

                      For example, at the Corpus Christi DRMO, we compared the 157 different
                      usable Cobra helicopter parts scheduled to be destroyed by the DRMO with
                      Army budget and procurement records. The records showed that the Army
                      needed quantities for 22 of the 157 parts, totaling $196,500. We discussed
                      our findings with the Defense Reutilization and Marketing Service, which
                      notified the Army Aviation and Troop Command of the need to return the
                      parts to the DOD supply system. The Command had not responded to this
                      notification at the time our field work was completed. Additional
                      examples of parts needed by DOD components can be found in appendix II.

                      Air Force and Army officials said that, despite the requirements of the DOD
                      regulation, they did not have adequate visibility over parts in DRMOs. They
                      stated that interface problems between military service and DRMO
                      computer systems precluded the services from knowing what parts were
                      in DRMOs. Since the services did not have adequate visibility over parts in
                      DRMOs, the DRMOs were destroying the same parts the services were
                      purchasing or repairing. DOD headquarters officials commented that DOD
                      was working to correct the computer interface problem as part of a Total
                      Asset Visibility program, but it would be several years before the problem
                      is fixed. The officials stated that DOD had neither established milestones
                      for correcting the computer interface problem nor instituted alternative
                      ways to obtain the needed information on a routine basis. For example,
                      aircraft parts available at DRMOs can be identified by telephone calls, the
                      Internet, or physical inspections.




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                         The conditions described in this report result in an unnecessary
Conclusions and          expenditure of resources to destroy parts that do not actually require
Recommendations          destruction. In some instances, the government also loses the increased
                         revenue that could be derived from the sale of usable parts to prospective
                         buyers and the opportunity to return usable parts to the DOD supply system
                         to avoid unnecessary procurements or repairs. Accordingly, we
                         recommend that the Secretary of Defense take the following actions to
                         prevent the destruction of usable aircraft parts.

                     •   Provide guidance on selecting appropriate demilitarization codes that
                         includes the specific details necessary to make appropriate decisions. The
                         guidance could take the form of the draft demilitarization code assignment
                         worksheet being used by the Air Force.
                     •   Exclude commercial-type parts and nonsignificant military unique parts
                         that do not have military technology and flight safety implications from
                         policies and practices intended to prevent an inadvertent sale of parts with
                         these implications. Work closely with the private sector to identify and list
                         commercial-type aircraft parts and nonsignificant military unique parts the
                         private sector needs and require the DRMOs to check this list before
                         destroying parts.
                     •   Require the Army to complete its validation of the demilitarization codes
                         assigned to Cobra helicopter parts so commercial-type parts and
                         nonsignificant military unique parts can be sold.
                     •   Establish milestones for correcting computer interface problems that
                         preclude the military services from having visibility of parts located in
                         DRMOs and from following regulations that require parts to be returned to
                         the supply system when needed to prevent unnecessary procurements or
                         repairs. In the interim, institute alternative ways to obtain this information
                         on a routine basis. For example, aircraft parts available at DRMOs can be
                         identified by telephone calls, the Internet, or physical inspection.


                         DOD generally agreed with the report and stated that the concepts
Agency Comments          presented appear to be beneficial to the disposal of aircraft parts (see
and Our Evaluation       app. III). Concerning our first recommendation, DOD agreed that a code
                         assignment sheet may be useful in assigning demilitarization codes and
                         stated that it would work with the military services and the Defense
                         Logistics Agency to determine the feasibility of departmentwide use of the
                         Air Force, or a similar, worksheet. In response to our second
                         recommendation, DOD agreed that, when properly coded by item
                         managers, usable parts that do not have military technology and flight
                         safety implications do not have to be destroyed. DOD noted that challenge



                         Page 13                                         GAO/NSIAD-98-7 Defense Inventory
B-276828




programs are available if parts are miscoded. With regard to our
recommendation that the Army complete its validation of the
demilitarization codes assigned to Cobra helicopter parts, DOD stated that
it is monitoring the Army’s validation process. The validation, which will
determine which parts are commercially available and can be sold, is
expected in November 1997.

DOD partially agreed with our recommendation that it work closely with
the private sector to identify and list parts the private sector needs and
require the DRMOs to check this list before destroying parts. DOD stated that
it previously attempted to obtain private sector input but the response was
minimal. DOD also stated that the identification of commercial-type aircraft
parts should be incorporated into an existing database rather than utilizing
a separate list. DOD added that, although it is DOD policy that DRMOs destroy
parts only when demilitarization is required or they are identified as
having flight safety implications, inaccurate information does occur and
use of all available data to reduce unnecessary destruction should be used
by the DRMOs.

We continue to believe that DOD should work closely with the private
sector because DOD’s previous inquiries were limited to the original
equipment manufacturers. Officials from the companies we contacted,
including the National Association of Aircraft and Communication
Suppliers, told us that, although they are buyers of large quantities of
aircraft parts at DRMO sales, DOD had not asked them for input to identify
commercial-type aircraft parts. Our report documents examples where
DRMOs destroyed usable parts that did not have military technology or
safety implications. Because the current system for identifying
commercial-type and nonsignificant military unique parts the private
sector needs is not working, we also continue to believe that DOD needs to
list these parts separately.

DOD also partially agreed with our recommendation that it establish
milestones for correcting the computer interface problems that preclude
the military services from having visibility of parts located in DRMOs and, in
the interim, institute alternative ways to obtain this information on a
routine basis. DOD stated that the interface problems are addressed as they
arise and that a joint Total Asset Visibility office is working with the
military services to finalize a functional description for automated
visibility of disposal assets to prevent unnecessary buys and repairs. Once
finalized, milestones for implementation will be developed based on the
complexity of the information system changes required. DOD stated that



Page 14                                         GAO/NSIAD-98-7 Defense Inventory
B-276828




the earliest projected date for development of milestones is the first
quarter of fiscal year 1998. DOD also stated that, in the interim, many other
sources are available to the military services that provide visibility of parts
at the DRMOs, including the Internet, an Interrogation Requirements
Information System, and formal and informal contacts between DRMOs and
item managers.

While we agree that the long-term solution rests with implementation of
the Total Asset Visibility program, we continue to be concerned that
routine interim procedures do not exist. Although DOD acknowledges that
many other sources are available to the military services that provide
visibility of parts in DRMOs, our report shows that DOD guidance is needed
because the military services are not routinely checking with these
sources.


We are sending copies of this report to the appropriate congressional
committees; the Secretaries of Defense, the Army, the Navy, and the Air
Force; the Director, Defense Logistics Agency; and the Director, Office of
Management and Budget.

Please contact me at (202) 512-8412 if you or your staff have any questions
concerning this report. The major contributors to this report are listed in
appendix IV.

Sincerely yours,




David R. Warren
Director, Defense Management Issues




Page 15                                         GAO/NSIAD-98-7 Defense Inventory
Contents



Letter                                                                                            1


Appendix I                                                                                       18

Scope and
Methodology
Appendix II                                                                                      20
                        Parts Assigned Inaccurate Demilitarization Codes                         20
Examples of Selected    Parts That Are Not Sensitive                                             23
Aircraft Parts          Parts Without Flight Safety Implications                                 23
                        Flight Safety Parts Properly Sold                                        23
                        Parts Needed by DOD Components                                           25

Appendix III                                                                                     26

Comments From the
Department of
Defense
Appendix IV                                                                                      30

Major Contributors to
This Report
Figures                 Figure 1: Usual Process for Disposing of Aircraft Parts                   2
                        Figure 2: Cobra Helicopter Parts Stored at Corpus Christi DRMO           11
                        Figure II.1: Engine Combustion Chamber                                   20
                        Figure II.2: Nozzle Rings                                                22
                        Figure II.3: Turbine Rotor Blades in Manufacturer’s Original             24
                          Packaging




                        Abbreviations

                        DOD       Department of Defense
                        DRMO      Defense Reutilization and Marketing Office


                        Page 16                                     GAO/NSIAD-98-7 Defense Inventory
Page 17   GAO/NSIAD-98-7 Defense Inventory
Appendix I

Scope and Methodology


             We reviewed policies, procedures, disposal histories, transaction histories
             and related records obtained from the Defense Reutilization and
             Marketing Offices (DRMO) and item managers and documented disposal
             practices. We interviewed policy officials, disposal office personnel, item
             managers, and equipment specialists. To determine the Department of
             Defense’s (DOD) policies and practices for destroying aircraft parts during
             the disposal process, we held discussions and performed work at the
             Office of the Deputy Under Secretary of Defense (Logistics), Washington,
             D.C.; the Army, the Navy, and the Air Force Headquarters, Washington,
             D.C.; the Defense Logistics Agency, Fort Belvoir, Virginia; and the DOD
             Inspector General, Washington, D.C. and Columbus, Ohio.

             To obtain information on how surplus parts are received and processed
             for sale, we documented procedures and practices at three DRMOs located
             in Oklahoma City, Oklahoma; San Antonio, Texas; and Corpus Christi,
             Texas. According to DOD officials, the Oklahoma City and San Antonio
             DRMOs handle the largest volumes of surplus aircraft parts. Since these
             DRMOs handle surplus parts used mostly on Air Force and Navy aircraft, we
             also selected the Corpus Christi DRMO, which handles large quantities of
             surplus parts used mostly on Army aircraft. We also collected budget,
             procurement, inventory, weapon system application, and disposal
             information from item managers, equipment specialists, and policy
             officials at the Oklahoma City Air Logistics Center, Tinker Air Force Base,
             Oklahoma; the San Antonio Air Logistics Center, Kelly Air Force Base,
             Texas; the Corpus Christi Army Depot, Corpus Christi, Texas; the Army’s
             Aviation and Troop Command, St. Louis, Missouri; and the Naval
             Inventory Control Point, Philadelphia, Pennsylvania.

             We also visited and collected data from members of the National
             Association of Aircraft and Communication Suppliers, Inc., Alamo Aircraft
             Supply, Inc., and Dixie Air Parts Supply, Inc., San Antonio, Texas; Jet
             Reclamation, Inc., Bulverde, Texas; and Rick’s Mfg. and Supply, Choctaw,
             Oklahoma to identify specific problems they were having with DOD’s
             disposal practices.

             We judgmentally selected 271 surplus items for review to determine the
             adequacy of DOD’s policies and procedures for ensuring that aircraft parts
             without military technology and flight safety implications are not
             unnecessarily destroyed. We selected 83 items at the San Antonio DRMO
             involving the disposal of usable parts as scrap material and 27 items
             involving the accuracy of assigned demilitarization codes; 73 items at the
             Corpus Christi DRMO involving flight safety and 17 items involving the



             Page 18                                       GAO/NSIAD-98-7 Defense Inventory
Appendix I
Scope and Methodology




accuracy of assigned demilitarization codes; and 71 items at the Oklahoma
City DRMO involving the accuracy of assigned demilitarization codes. We
selected these items because they were commercial-type parts or
nonsignificant military unique parts that were either coded for destruction
due to military technology content or alleged by the Association to have
been unnecessarily destroyed. We also reviewed the results of prior DOD
internal studies.

To determine whether parts being destroyed at the three DRMOs were
needed by the military services, we compared selected sample items with
the services’ budget stratification databases and requirements
computations. We checked to see if there were current or future buy and
repair requirements for the items. We informed the military services of any
sample items that had current or planned requirements so the parts could
be recalled from the DRMOs.

We performed our review between January 1997 and June 1997 in
accordance with generally accepted government auditing standards.




Page 19                                       GAO/NSIAD-98-7 Defense Inventory
Appendix II

Examples of Selected Aircraft Parts


                                 The Air Force decided that 184 TF-33 engine combustion chambers (Stock
Parts Assigned                   No. 2840008285214RV) (see fig. II.1) used on the KC-135 aircraft were
Inaccurate                       surplus and sent them to the Oklahoma City DRMO. The parts originally
Demilitarization                 cost $452,352. On April 15, 1997, the DRMO destroyed the 184 parts,
                                 although the parts were repairable. The DRMO destroyed the parts because
Codes                            the Air Force had assigned a demilitarization code to the parts requiring
                                 total destruction to protect military technology. The DRMO estimated that it
                                 spent $211 to destroy the parts and sold them as scrap for $3,450. After we
                                 pointed out that this was a commercial-type item, the Air Force equipment
                                 specialist said the assigned demilitarization code was incorrect because
                                 the parts contained no military technology. As a result, the DRMO destroyed
                                 parts that the private sector could have used. The equipment specialist
                                 corrected the demilitarization code.


Figure II.1: Engine Combustion
Chamber




                                 Page 20                                       GAO/NSIAD-98-7 Defense Inventory
Appendix II
Examples of Selected Aircraft Parts




On April 9, 1997, we observed the destruction with a cutting torch of 20
nozzle rings (Stock No. 2840011611133RV) (see fig. II.2) used on the
KC-135 aircraft engine. These parts originally cost $94,400. The Oklahoma
City DRMO destroyed the parts because the Air Force had assigned a
demilitarization code that required total destruction to protect military
technology. According to the equipment specialist, the Air Force replaced
the parts with a newer version. He said that the parts sent to the DRMO,
although usable, were no longer needed by the Air Force. After we pointed
out that this was a commercial-type item, the equipment specialist said the
assigned demilitarization code was incorrect because the part contained
no military technology. He also said the destroyed parts were usable on
commercial Boeing 707 aircraft in the private sector. As a result, the DRMO
destroyed parts that the private sector could have purchased. The
equipment specialist corrected the demilitarization code.




Page 21                                       GAO/NSIAD-98-7 Defense Inventory
                            Appendix II
                            Examples of Selected Aircraft Parts




Figure II.2: Nozzle Rings




                            On April 14, 1997, the Corpus Christi DRMO destroyed 53 circuit card
                            assemblies (Stock No. 5998013370963) used on the UH-60 helicopter. The
                            parts originally cost $54,392. The DRMO destroyed the parts because the
                            Army had assigned a demilitarization code to the parts requiring total
                            destruction to protect military technology. After we questioned if military
                            technology was involved with this part, the Army equipment specialist said
                            the assigned demilitarization code was incorrect because the part,
                            although military unique, was nonsignificant and contained no military
                            technology that needed to be protected. As a result, the DRMO destroyed




                            Page 22                                       GAO/NSIAD-98-7 Defense Inventory
                       Appendix II
                       Examples of Selected Aircraft Parts




                       parts that the private sector could have purchased. The equipment
                       specialist corrected the demilitarization code.

                       During fiscal year 1996, the San Antonio Air Logistics Center sent six
                       usable support assemblies (Stock No. 2840011932157RW) used on the
                       C-130 aircraft engine to the DRMO because the parts were no longer needed.
                       The parts originally cost $19,660. The San Antonio DRMO destroyed the six
                       parts because the Navy had assigned a demilitarization code to the part
                       requiring total destruction to protect military technology. After we pointed
                       out that this was a commercial-type item, the Navy equipment specialist
                       said that the assigned demilitarization code was incorrect because the part
                       contained no military technology. He said the destroyed parts were usable
                       on commercial aircraft in the private sector. As a result, the DRMO
                       destroyed parts that the private sector could have purchased. The
                       equipment specialist corrected the demilitarization code.


                       On February 26, 1996, the San Antonio DRMO downgraded to scrap 13
Parts That Are Not     nozzle assemblies (Stock No. 2840010668071RW) used on the T-56 engine
Sensitive              and destroyed them. The parts were destroyed to prevent surplus dealers
                       from buying usable parts at scrap prices. The parts originally cost $15,953.
                       These parts did not appear on the Defense Logistics Agency’s sensitive
                       item list and had no military technology or safety implications. The
                       destroyed parts sold for about $2 each. By contrast, on August 20, 1996,
                       the DRMO sold 24 usable nozzle assemblies intact for $1,183, or over $49
                       each.


                       The San Antonio Air Logistics Center considered 72 turbine vanes (Stock
Parts Without Flight   No. 2840004262571RW) for the T-56 engine not usable because they were
Safety Implications    worn and cracked and sent them to the DRMO for disposal. These parts
                       originally cost $200,000. The San Antonio DRMO Chief said that he decided
                       to destroy these parts at his own management discretion strictly for flight
                       safety reasons. He said that he would not want parts in such poor
                       condition to be refurbished and installed on an aircraft that he or anyone
                       else was a passenger on. However, Center officials said these parts had no
                       safety implications. After reviewing this matter, the Center’s Commander
                       told the DRMO to sell the parts intact.


                       On October 7, 1996, the Corpus Christi DRMO received 1,101 turbine rotor
Flight Safety Parts    blades (Stock No. 2840001523806) (see fig. II.3) used on the CH-47
Properly Sold

                       Page 23                                        GAO/NSIAD-98-7 Defense Inventory
                                       Appendix II
                                       Examples of Selected Aircraft Parts




                                       helicopter for disposal. Since the Army had assigned demilitarization
                                       code F to the parts, indicating that they had flight safety implications, the
                                       DRMO requested disposition instructions from the Army Aviation and Troop
                                       Command. The Command instructed the DRMO to destroy the part unless it
                                       was (1) unused, (2) in serviceable condition, (3) physically marked with
                                       the manufacturer’s code, and (4) in the manufacturer’s original packaging.
                                       The DRMO decided that the parts met this exception and offered them for
                                       sale. DRMO records showed that the turbine rotor blades were sold in a lot
                                       with another turbine rotor blade for $13,796.


Figure II.3: Turbine Rotor Blades in
Manufacturer’s Original Packaging




                                       On September 29, 1996, the Corpus Christi DRMO received notice that six
                                       transmission cartridge assemblies (Stock No. 1615011167083) used on the
                                       UH-1 helicopter were no longer needed by the Army. These parts originally
                                       cost $36,774. Since the Army had assigned demilitarization code F to the
                                       parts, the DRMO requested disposition instructions from the Army Aviation
                                       and Troop Command. On December 12, 1996, the Command instructed the
                                       DRMO to destroy the part unless it was (1) unused, (2) in serviceable
                                       condition, (3) physically marked with the manufacturer’s code, and (4) in




                                       Page 24                                        GAO/NSIAD-98-7 Defense Inventory
                      Appendix II
                      Examples of Selected Aircraft Parts




                      the manufacturer’s original packaging. The DRMO determined that these
                      parts met this exception and on May 29, 1997, prepared a notice for the
                      assemblies to be listed for sale in the International Sales Office catalog. At
                      the completion of our fieldwork, the sales office had not set the date of
                      sale.


                      At the Oklahoma City DRMO, we observed two nozzle rings (Stock
Parts Needed by DOD   No. 2840009911048RV) for the TF-33 engine being destroyed with a cutting
Components            torch. The two nozzle rings, originally costing $7,000, were being
                      destroyed at the discretion of a DRMO employee. We obtained documents
                      that showed these parts were in usable condition and that the Air Force
                      needed the parts and had recently placed orders to buy 107 new nozzle
                      rings. After we pointed this situation out to the Oklahoma City Air
                      Logistics Center, the Center implemented new procedures to prevent
                      usable engine nozzle rings and other needed parts from being destroyed.
                      The procedures require equipment specialists to periodically inspect parts
                      sent to the DRMO. Within a month, the Center identified and prevented the
                      destruction of 200 additional usable parts that were at the DRMO.

                      In response to a potential buyer’s complaint on September 20, 1996, that
                      the San Antonio DRMO was destroying usable blades (Stock
                      No. 2840011123776RW) for the T-56 engine, the San Antonio Air Logistics
                      Center investigated. The Center found 7,018 blades, originally costing
                      $1.06 million, that the Air Force had incorrectly categorized as scrap
                      because of a breakdown in inspection procedures and sent them to the
                      DRMO. San Antonio DRMO officials said the destruction was to prevent an
                      inadvertent sale of flight safety items. However, Center officials said that
                      these parts did not have to be destroyed for flight safety reasons and were
                      needed to satisfy depot maintenance requirements. The DRMO returned the
                      blades to the Air Force.




                      Page 25                                         GAO/NSIAD-98-7 Defense Inventory
Appendix III

Comments From the Department of Defense




               Page 26        GAO/NSIAD-98-7 Defense Inventory
                Appendix III
                Comments From the Department of Defense




Now on p. 13.




Now on p. 13.




                Page 27                                   GAO/NSIAD-98-7 Defense Inventory
                Appendix III
                Comments From the Department of Defense




Now on p. 13.




Now on p. 13.




Now on p. 13.




                Page 28                                   GAO/NSIAD-98-7 Defense Inventory
Appendix III
Comments From the Department of Defense




Page 29                                   GAO/NSIAD-98-7 Defense Inventory
Appendix IV

Major Contributors to This Report


                        Charles Patton
National Security and   James Murphy
International Affairs
Division, Washington,
D.C.
                        Roger Tomlinson
Dallas Field Office     Jackie Kreithe
                        Bonnie Carter
                        Frederick Lyles




(709234)                Page 30           GAO/NSIAD-98-7 Defense Inventory
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