oversight

Federal Supply Service Self-Service Stores Can Be Improved

Published by the Government Accountability Office on 1977-04-14.

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

                           ;:CCUnENT   ESUNE
02032 - [A1C52048]

Federal Supply Service Self-Service Stores an      e Improved.
PSAD-77-60; B-181327. Aprii 14, 1S77, 46 pp.
Report to oblert T. Griffin, Acting Administratcr, General
Services Administration; by   .chard . Gutmann, Director,
Procurement and Systems Acquisition Div.

issue Area. Federal Frocurement of Goods and Services (1900);
    Federal Procure mrnt of Goods ad ervices: Ptocurolent of
    Only Needed Quantities of Goods (1901).
 ontact: Procurement and Systems Acquisition Dv.
Budget uncticr.: General Government: General P'operty and
    Records anagement (804).
Authority: Federal PFoperty and Administrative Services Act of
    1949 (40 U.S.C. 41).

          The eneral Services Administration (GSA) maintains
 self-servic stores, which are r tail outlets that sell a wide
variety of commonly used office, janitorial, and maintenance
items. Federal gencies, members of Congress, and eligible
Government contractors are permitted to shop at the stores.
Findings/Conclusions: The self-sertice stores are not      oviding
Government agencies with efficient service and necessary
supplies, At times, essential store items are nct available, so
that customer agencies purchase the supplies fce commercial
sources at ighe prices. The GSA inventory records do nt
accurately show the value of the stores' inventories. Shortages
can occur without detection by store management. Although the
number and sales volume of self-service stores have been
increasing, GSA audits of store operations have been decreasing.
Self-service stores do not provide any supplies needed by
customer agencies, because    an ' store orders to GSA depots are
assigned low priority, causing the stores to ccmpete for depot
goods with agencies that are also store customers° Customer
agencie   do not have adequate control over their employees'
purchases made at self-service stores.      ecommendations: The GSA
should improve controls over inventory price changes and
physical inventories tc prcvide a asis or proipt detection of
inventory losses; increase internal audit coverage of store
operations; and increase coordinaticn with customer agencies on
the issuance and control of shopping plates. (Author/SC)
.^ .   .    UNITED STATES
            GENERAL ACCOUNTING OFFICE




           Federal S pply Service
           Self-Service Stores
           Can Be Improved
           General Services Administration

           The General Services Administration self-ser-
           vice store program is not poviding Federal
           agoncies with efficien. service and necessary
           supplies. Principal causes are insufficient
           management control and the low priority the
           General Services Adininistration assigns the
           stores when ordering supplies from its own
           warehouses. Also, customer agencies do not
           adequatEly control employee purchases of
           items that can be diverted for personal use.




           PSAD-7740                                       APRIL 14, 1977
                          UNITED STATES GENRAL ACCOUNTING OFFICE
                                  WASHINGTON, D.C.   0


PFOCURMIEMNT  AND Y"IM
    AMOUIITION DIVISION



         B-181327




         The Honorable Robert T. Griffin
         Acting Administrator of General
           Services
         Dear Mr. Griffin:

              This report discusses how the General Services
         Administration managed the self-service store program
         and how Government customers utilized tile stores.
              This report contains recommendations to you on
         page 30. As you know, section 236 of the Legisla'ive
         Reorganization Act of 1970 requires the head of a
         Federal agency to submit a written statement on actions
         taken on our recommendations to the House Committee on
         Government Operations and the Senate Committee on Govern-
         mental Affairs not later than 60 days after the date of
         the report and to the House and Senate Committees on Ap-
         propriations with thr agency's first request for appro-
         priations made more than 60 days after the date of the
         report.

              We are sending copies of this report to the Director,
         Office of Management and Budget, and to the Chairmen, House
         Committee on Government Operations, Senate Committee un
         Governmental Affairs, and the House and Senate Committees
         on Appropriations.
                                              Sincerely yours,




                                              R. W. Gutmann
                                              Director
GENERAL ACCOUNTING OFFICE                   FEDERAL SUPPLY SERVICE SELF-
REPORT TO T'IHE ADMINISTRATOR               SERVICE STORES CAl BE IMPROVED
9F GENERAL SERVICES                         General Services Administration



             DIGEST

             General Services Administration self-service
             stores are not providing Government agencies
             with efficient service and ncessary supp.ies.
             This is due to insufficient management control
             and the low priority the General Services
             Admitist-ation assigns to stores' orders for
             merchandise from Administration supply depots.

             The self-service stores are retail outlets
             which sell a wide variety of commonly used
             office, janitorial, and maintenance items
             to Federal agencies, Members of Congress,
             and eligible Government contractors. The self-
             service store program is one of the General
             Services Administration's most visible programs
             since the stores operate at the retail level and
             deal directly with customers.
             Following is a photograph of a typical self-
             service store:




                               HICKAM AIR FORCE BASE, HAWAII


IarS. Upon removal, the report          i                      PSAD-77-60
cover date should be noted hereon.
The General Services Administration is not
providing store customers with necessary
supplies. At times, essential store items
are not available and, consequently, cus-
tomer agencies purchase the suppl.es from
commercial sources at higher prices. (See
pp. 8 to 0.)

The General Services Administration inven-
tory records do not accurately show the
value of the stores' inventories. GAO
believes that because accurate data is not
available, shortages can occur more easily
without detection by management. (See pp. 10
to 13.)
Although the number nd sales volume of
self-service stores have been icreasing,
General Services Administration udits of
store operations have been decreasing. (ee
pp. 13 to 14.)
Self-service stores do not provide many sup-
plies needed by customer agencies because
many store orders to General Services Admin-
istration depots are assigned low priority.
The stores have to compete for depot goods
with agencies which are also store customers.
Yet, the stores are expected to meet customer
needs. (See pp. 15'to 17.)

Customer agencies do not have adequate con-
trol over their employees' purchases made at
self-service stores. Illegal purchases have
occurred. In one instance, a customer agency
employee purchased $18.000 worth of film for
personal use. Both the self-service stores
and customer agencies have weak controls over
the shopping plates used to make purchases.
GAO believes the stores and the customer
agencies need to strengthen their controls
over sales. (See pp. 25 to 27.)

The General Services Administration concurred
with most of GAO's recommendations. (See ch.
7.)  It did not concur with GAO's recommenda-
tion that higher priority should be assigned
to the stores' orders for depot items. GAO



                   ii
         believes that the Gereral Services Admin-
         istration depots sho."d treat orders from
         self-service stores with the same urgency
         depots treat orders from other customers.
         As a minimum, GAO believes the stores
         should be permitted to use higher priority
         codes when circumstances warrant such use.
         The Administration also concurred in prin-
         ciple with GAO's recommendation that the
         Administration provide guidance and in-
         structions to customer agencies. It did
         not agree with GAO's recommendation to
         customer agencies that they prepare equi-
         sitions internally before shopping at the
         stores. GAO believes that requisitions
         would provide an efficient means of control
         by agencies over purchases.

         According to the Administration, the fol-
         lowing actions will be taken on GAO recom-
         mendaticns:

         -- Improve controls over inventory price
            changes and physical inventories to
            provide a basis for prompt detection
            of inventory losses.
         -- Increase internal audit coverage of
            store operations.
         -- Increase coordination with customer
            agencies on the issuance and control
            of shopping plates.
         GAO believes if the Administration takes
         action as noted above, self-service store
         operations and customer service will be
         improved. However, unless store managers
         are given the flexibility to use higher
         priority codes when ordering from the
         depots, the stores cannot be expected to
         meet customer demands adequately.




  Slcs
I3M                          iii
                  C o n t e n t s


                                                     Page
DIGEST                                                 i

CHAPTER
   1      INTRODUCTION                                 1
              Self-service stores program              1
              Why the review was made                  7
              Scope of review                          7
   2      MANAGEMENT CONTROL OF THE SELF-SERVICE
            STORES                                     8
              Shortages of essential office
                supplies                               8
              Lack of control over utore
                inventories                           10
              Audits infrequently performed           13
   3      PROCUREMENTS BY SELF-SERVICE STORES         15
              Self-service stores assigned
                lowest priority when ordering
                items from GSA depots                 15
              Economic order quantity procedures
                not followed by store managers        17
              Self-service store managers have
                wide latitude over many types of
                items stocked                         18
   4      CUSTOMER PROCUREMENTS FROM SELF-SERVICE
            STORES                                    21
              Customer agencies exercise limited
                control over purchases from stores    25
   5      CONTROLS OVER SHOPPING PLATES               28
   6      RECOMMENDATIONS                             3C
   7      AGENCY COMMENTS AND OUR EVALUATION          32
                                                     Page
APPENDIX

      I    Organization chart of General Services
             Administration                           35
  II       Organization chart of Federal Supply
             Service                                  36
 III       General Services Administration regions    37
  IV       1971 GSA Region 6 office memorandum
             concerning stocking of additional
             items by self-service stores            38
      V    GSA self-service stores sales slip        40
  VI       Federal Propwrty Management egulation
             list of personally attractive items     41
 VII       Letter dated October 22, 1976, from the
             Administrator, General Services
             Administration                          42
VIII       Principal officials of the General
             Services Administration responsible
             for the activities discussed in this
             report                                  46

                    Abbreviations
EOQ        economic order quantity
FEDSTRIP   Federal Standard Requisitiuning and
             Issue Procedures
FSS        Federal Supply Service
GAO        General Accounting Office
GSA        General Services Administration
MILSTRIP   Military Standard Requisitioning and
             Issue Procedures
                        CHAPTER 1
                       iNTRODUCTION


     The Federal Property and Administrative Services Act
of 1949 (40 U.S.C. 471) created the Generel Services
Administration (GSA) to provide the Government with an
efficient and economical system for procuring and supplying
personal property and nonpersonal services.
     The intent of the act is to provide uniform policies
and methods of procurement and supply and to eliminate (1)
duplicate procurement functions and competition among execu-
tive agencies for similar articles in the same market, (2)
lov quality purchases, and (3) other inefficiencies.
     GSA has assigned responsibility to the Federal Supply
Service (FSS) for making commonly used items available to
Federal agencies 2e the lowest overall cost to the Govern-
ment. One major program concerned with achieving this
objective is the self-service store program. The Congress
apptopriated $3.9 m llion to this program for fiscal year
1975. FSS, with the assistance of 10 egional offices,
administers the program. (See apps. I. II, and III for the
organization of GSA.)
SELF-SERVICE STORES PROGRAM

     GSA self-service stores are retail outlets which sell
many commonly used office, janitorial, and maint-:ance
supplies to Federal agencies. Members of Congress. and
authorized contractors. The stores are generally located
in buildings occupied by Federal agencies and are readily
accessible to Government customers.

     Since 1958 the self-service store program has grown
from 3 stores with annual sales of $35,000 to 71 stores
with fiscal year 1975 sales of $57.9 million. GSA expects
that by 1980 annual sales will reach $100 million with 1CO0
stores in operation.
     The following charts illustrate the growth of this
program in terms of stores and sales.
                      OR( VrTH IN NUMBER OF SELF-SERVICE STORES
                                     (FY 1968 to FY 1980)


 Number of


  100F                           ,



   so                                                                  ..

   _0




  30


   70


   120                                           '




  -T
   1968      !9 061     2   34   (6m 67 8       70 71 72 73 74   76 777 79
                                          Fi   yew


· . s · Fuue owh projed by GaA.




                                           2
                             GROWTH IN SELF-SERVICE STORE SALES
                                                               (FY 1958 to FY 1980)


SALES
 (000 oinled)




90..




70000..




                                   _    _~~~~~~~~~~~~~~~~~~~~~~~~~
                                         I   O
                                             T        A    T   M~~~~~~~~~~~~~~~~~~~~~~~~~
                             lad
                               "        "
                                        "    Z   61
                                                 *        62
                                                          "    67    "      "    70     71   72    73    74     76   76   77   78   79   "~~

                                                                                      Fill   ye~~~~~~~~~~~~~

                                   1    ah~~~~~~~~~~~~~~~~~~~~~~~~~~

                     *   -   .         Fv 98pe~~~~~~~~~~~~~~~d                  but   ~~~~~~




eee         grom P                     b(
                                       IWCl 11A                                                                /·Future




                                                                          3
     Merchandise is displayed on open counters for easy
inspection and selection.   hopping carts are provided
for shoppers' convenience.

     These displays, shopping conveniences, and equipment
are depicted in the following photographs of typical GSA
self-service stores.




                            4
                                              0




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    _                _                _       D~.1




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srcl I II       II-                 "d~~~~~~~~~~~~~~~~~~~~I

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            6
      Customers may make purchases at self-service stores
on presentation of a GSA cash or charge shopping plate.
At checkout counters, charge purchases are totaled for
later billing to the agency's account. Cash payments are
accepted from agency employees having plates authorizing
cash purchases. Agencies may obtain shopping plates from
 ,ny GSA regional ofice. Application forms are available
at self-service stores and GSA regional offices.
WHY THE REVIEW WAS MADE
     GAO made this review because of the increasing amount
of agency procurement from self-service stores and the rapid
growth of this program.
     The objectives of our review were to
     -- examine the effectiveness and efficiency of
        self-service store operations and

     --evaluate the controls over purchases made by
       and from the stores.

SCOPE OF REVIEW
     Our review was conducted at Federal Supply Service
headquarters in Washington, D.C.; GSA regional offices in
Washington, D.C., Chicago, Tlinois, Kansas City, Missouri,
and Fort Worth, Texas; 17 self-service stores; 92 customer
agencies; 12 State and local governments; and 8 ccmercial
firms.

     We reviewed pertinent legislation and Executive orders
and examined the policies, procedures, documents, reports,
and records at headquarters, regional, and store levels.
We interviewed headquarters and regional officials, store
managers, store customers. representatives of State and
county governments, and officials of several private
companies.




                              7
                         CHAPTER 2
                 MANAGEMENT CONTROL OF THE

                    SELF-SERVICE STORES

     The Federal Supply Service needs to strengthen
self-service store operational and financial controls
for an efficient and economical retail supply system.
Better management control is needed over store operations
to provide customers with efficient service and necessary
supplies.
SHORTAGES OF ESSENTIAL OFFICE SUPPLIES

     The General Services Administration has established
a list of 114 "must" items thati. he stores should always
stock. These items consist largely of general office
supplies. However, we found that the stores were fre-
quently out of these items.

     GSA imposed a moratorium on store purchases between
March and June 1975 which caused a shortage during that
time and for several months afterward. Consequently, the
stores reduced their inventory levels without receiving
funds to restock store shelves.

     The following schedule shows, for each GSA region we
reviewed, the amount to which the stores' inventories were
reduced.

                      Inventory level            Percent
                December 1974     June 1975      decrease
Region   3       $4,303,480       $3,127,299        27
Region   5          617,750          333,187        46
Region   6          647,738          450,650        31
Region   7          700,854          438,620        38
   Total         $6,269,822       $4,349,756        31
     The inventory level in June 1975 was about $2 million
below that of December 1974 for the four regions. During
this time, back orders at the stores were substantial. For
example, in August 1975, three stcres in region 6 had 50
percent of the depot items they sold on back order. Some


                              8
items had been on ack order for 3 to 5 months. In
September 1975, region 7 stores had 2,630 back orders.
In January 1976, region 3 stores had 6,686 back orders
valued at $1.1 million. In June 1976, region 5 stores
had 2,412 back orders. Before the moratorium on pur-
chases, about 10 percent of all depot items carried by
the stores were on back order. This represented only
about 165 back orders for each GSA region.
     Although the moratorium was temporary, it served to
highlight the stores' problem in providing supplies.
     GSA now requires the stores to maintain a "never
out-of-stock" position. This action, in effect, has
made every item carried by ne stores a necessary item.
However, as of February 1977, numerous back orders
existed as shown in the following schedule.
     GSA region    Number of self-service store back orders

          3                             358
          5                             538
          6                             285
          7                             247

         Total                      1,428

Shortages caused customers to make
commercial purchases at higher prices
     We observed empty shelves and low reserves of stock
in the stores we visited. Such shortages caused store
customers to make commercial purchases, often at higher
prices. Of the 92 customers we interviewed, 60 stated
they had purchased from commercial sources because of
self-service store shortages.

     The following schedule compares store prices with
some of the commercial prices paid by customers during
the shortage.




                             9
                                        Customer
                                     prc'ase rice
                            seTFise     -- '- --e Commercal1
          Item                 store                vendor
Copier toner               $23.00              $84.00
Toilet tissue               15.00   a case      25.00 e ase
Adding machine tape         14.00   a dozen     3 5 .00 a
                                                          dozen
Ink tubes                    2.40   a tube        2.90 a tube
Cellophane tape            $ 0.27   to .65     $ 0.79 o 1.45
Examples of other items normally available in the stores
but purchased from commercial sources at higher cost
included paper clips, binders, pencils, typewriter correc-
tion fluid, and filing jackets.

     We did not evaluate the overall effect of agency pur-
chases from commercial sources because of these GSA shortages.
However, in our December 31, 1974, report, (PSAD-75-32), we
showed that civil agencies had spent $1.4 billion during
fiscal year 1973 for items which GSA should have provided
at reduced cost.
Conclusion

     We believe that by reducing inventories of essential
items, GSA does not fulfill its responsibility to customers.
As a result, store customers may be forced to make commer-
cial purchases at higher prices. Although the purchase
moratorium may have been unique, it showed the inability of
the self-service stores to provide their customers with even
the most essential items. GSA should recognize that contin-
gency situations can arise, but, nevertheless, the most basic
customer needs should be met.
LACK OF CONTROL OVER STORE INVENTORIES

     Because of inefficiencies in inventory procedures and
reporting inventory price changes, GSA does not have good
control over inventories in the self-service stores. The
lack of control can prevent prompt detection of thefts from
the stores.

Ineffective reporting of
inventory_rce c anges

     The nature of self-service store inventories is such
that maintaining suitable records of individual units sold


                            10
and purchased is very impractical. Accordingly, GSA
maintains control ver store inventories on the basis
of the total dollar value of store inventories.
     Store inventory records are maintained by regional
finance centers which receive daily reports from store
managers showing the dollar value of sales made during
the day. Because prices of items change, store managers
are required to notify the finance centers of price
changes made and quantities of stock involved so that
the finance centers can adjust their inventory records.
     Often, store managers will change prices of shelf
items but fail to notify the finance centers to adjust
their records for the difference in price. In periods
of rising prices, this causes the stores to report a
higher sales volume than has taken place since the finance
centers maintain a balance based on the unchanged dollar
amount.
     When a physical inventory is taken at the store which
reflects adjusted prices that have not been reported to
the finance center, the inventory will show a greater
amount of inventory for that store thain the finance center
has on record. This difference in dollar amount indicates
an erroneous inventory overage.
     Following are examples of overages which occurred at
nine stores during fiscal years 1974 and 1975.
                           Inventory according to
                                       Finance Center
        Store          Current price       Records       Overage

Kansas City              $254,129         $220,666       $33,463
Detroit                   121,872           88,453        33,418
Jeffersonville, Indiana    97,205           67.646        29,559
Fort Snelling, Minnesota 109,337            85,936        23,401
Chicago (Dearborn St.)    100,144           85,787        14,357
Chicago (Clark St.)       130,324          118,939        11,385
Cincinnati                 55,556           46,260         9,296
Cleveland                  62,023           58,753         3,269
St. Louis                  88,291           86,027         2,264

      GSA officials said that a new computerized cash
 register system using magnetic tape records that are
 updated with each sale may solve the overage problem.


                             11
The system began phasing into operation in 3976 and is not
fully operational.

Cumbersome _physical inventory
procedures reduce store sales

     Self-service store annual physical inventory procedures
are very detailed and require stores to be closed for 3
business days.  In fiscal year 1975, sales for 3 operating
days in the self-service store program were about $700,000.
Thus, it is possible that self-service ;tores may be causing
a disservice to customers and losing substantial sales.  In
fact, GSA officials said store inventory procedures are
cumbersome and could be simplificd.

     We compared the physical inventory    ,cedures with those
used by a large commercial retail store chain of 5,000 stores
which are similar to the GSA stores.  An official of the
private store chain told us that his inventories are taken by
independent three-person teams who are n t involved with
daily store operations.  These teams operate full-time and
perform complete inventories of two stores a day.   Store per-
sonnel do not participate in the inventory.   Unannounced
inventories are taken monthly, and the stores are not closed
for the inventory.  Thus, sales are not affected.

     At GSA stores, employees, internal auditors, and
regional finance office representatives perform and observe
the inventory. GSA store personnel know in advance when the
physical inventory will be performed and inventories are
made annually.

Conclusion

     inventory overages which result from ineffective report-
ing of price changes provide an opportunity for pilferage
which may never be discovered.  Because of these overages,
actual physical shortages in stock are difficult to detect.

     The new computerized cash register system GSA is
installing may solve the overage problem.  However, evalua-
tion of the new cash register system cannot be made until
it is fully installed and operational.

     Present GSA inventory  rocedures are cumbersome, and
self-service store employes are untimely in taking the
inventories.  GSA needs to Levise its inventory procedures
and should use independent personnel to take unannounced



                             12
inventories. Because of the expertise they would acquire,
the teams could reduce the time and cost of inventory
taking.
AUDITS INFREQUENTLY PERFORMED
     Although the number and sales volume of self-service
stores have been increasing, the number of audits performed
each year has been decreasing. During fiscal year 1972.
15 audits were made, while only 5 audits were made during
fiscal year 1974. No audits were performed during fiscal
year 1975. Fifty-four self-service stores have not been
audited in 3 or more years.

     No regulation  or instructions exist stipulating when
the stores should Le audited. According to the Director,
GSA Internal Audits, there is no routine or schedule for
auditing the stores. He noted that a store will be audited
annually only if there ae problems at that store. Other-
wise, it may not be audited for as long as 4 years. GSA
Internal Audits attempts to audit five or six stores a year.

     We did note that when GSA does perform an audit of a
self-service store, the findings can be quite significant.
In 1974. the GSA field audit group made a comprehensive
review of the Kansas City, Missouri, stove. This audit
covered such areas as sales. inventory, ash control, and
store access. The auditors found physical inventories were
not being taken annually as required; the imprest fund was
poorly controlled; customers' credit cards were being kept:
by the store; records of the retail store manager and of
the regional finance division were different; there were
significant inventory overages, probably due to price
increases; and higher levels of management were not suf-
ficiently informed to judge the effectiveness of store
operations.

     The GSA audit attributed most of these deficiencies
to the fact that the store manager was also the regional
chief of the self-service stores branch. In effect, he
was his own supervisor. The GSA auditors recommended that
a new store manager be appointed and that FSS officials
higher than branch chitf conduct walk-through inspections
of retail stores. This dual role was eliminated for the
Kansas City, Missouri, store when a new store manager was
hired.




                             13
     G3SA internal audits at other stores have disclosed
inventory shortages ranging from $2,643 to $76,472,
falsification of purchase documents by store personnel,
poor cash controls, and low stock turnover.
     The Director, GA Internal Audits, said his staff is
already overworked and this combined with the increasing
number of self-service stores makes annual audits impos-
sible to perform.
Conclusion
     The audit coverage of GSA stores is inadequate to
provide management with necessary information to judge the
effectiveness of store operations. We believe that GSA
should obtain the necessary staff to provide adequate nter-
nal audit coverage of self-service store operations.




                              14
                         CHAPTER 3
           PROCUREMENTS BY SELF-SERVICE STORES

     Merchandise for sale in the self-service stores is
obtained largely from General Services Administration
depots. However, the self-service stores are constrained
from providing supplies to customers because GSA accords
the stores low priority on their orders for merchandise
from the depots. Nevertheless, store managers are expected
to meet customer demands and increase sales.
SELF-SERVICE STORES ASSIGNED LOWEST PRIORITY
WHEN ORDERING ITEMS FROM GSA DEPOTS

     GSA self-service stores and other civil agencies may
obtain items from GSA depots only through the Federal
Standard Requisitioning and Issue Procedures (FEDSTRIP)
system. Under this system, when a requisition is submitted
to a depot, one of four priority codes must be entered on
the document. These codes indicate the importance assigned
to the requisition and the estimated length of time in which
delivery can be expected.

     The four FEDSTRIP codes, their conditions for use, and
associated delivery time frames follow.

                                                    Estima' ed
                                                  delivery rom
Priority code                                         depot
  (note a)            Condition for use               (days)
     3          Will be used for disaster sup-         7
                plies or equipment required
                immediately for prolonging life
                in case of disaster, critical
                injury, fatal disease, or
                calamity.
     6          The item required is one with-         11
                out which the activity con-
                cerned is unable to perform
                assigned operational mission
                or tasks, or such condition is
                imminent.




                            15
                                                    Estimated
                                                  delivery from
                                                      depot
Priority code         Condition for use               (days)
     8          The item required is one for imme-       11
                diate use, the lack of which is
                impairing the operational capabi-
                lity of the activity, and tasks
                can be accomplished but with
                decreased effectiveness and effi-
                ciency. The activity can operate
                effectively only temporarily, or
                material is urgently required to
                prevent serious personal hazard.
    15          Routine stock replenishment and        29
                the filling of predetermined
                initial allowance not supported
                by a higher priority.
a/The FEDSTRIP system is a derivative of the Military Stand-
  ard Requisitioning and Issue Procedures (MILSTRIP) system
  which uses 15 priority codes for ranking demand for sup-
  plies. The FEDSTRIP system is authorized to use only four
  of MILSTRIP's 15 priority codes.

     GSA requires self-service stores to use priority code 15,
the lowest possible priority for requisitioning supplies from
GSA depots. When priority 15 is used (1) the depots do not
process orders consistently, (2) deliveries from the depots
are slower, (3) stores order in excess of requirements to
compensate for long leadtimes, (this causes overstocking of
some items), (4) store customers are last in line for urgent-
ly needed supplies, (5) stores purchase directly from commer-
cial sources because delivery dates are unknown, and (6) the
stores use the more expensive Federal supply schedules to
obtain items which may be already available in the depots.

     In FebruaLy 1975, during the GSA purchase moratorium,
store managers were temporarily authorized to use priority
8. Priority 15 was again required in May 1975 with priority
8 authorization given only for items which were back ordered.

     In June 1975, self-service stores in GSA regions 7 and
10 were exempted from the priority 15 requirement and were
allowed to use priority 8 indefinitely. Priority 8 enhanced
the stores' inventory position and increased support to
customer agencies.




                            16
     Although the self-service stores program is an integral
part of GSA, the stores must use the priority system de-
signed for consumers and thus are forced to compete for
depot goods with agencies who are store customers. The FSS
Assistant Commissioner, Office of Supply Distribution, said
it is difficult to justify the assignment of any priority
code to the self-service stores because they are not consum-
ers for hich the FEDSTRIP system was designed.
     According to a December 1974 management consultant
report on FSS operations, self-service store orders should
be accorded an automatic priority I on most fast-moving
items and a high priority II for all other items. The
report noted thaw adoption of this recommendation would
compel GSA to treat its own orders with the same urgency
that it accords orders for some of its customers. It would
also reduce the number of stockouts" in the stores caused
by depot delays and, therefore, reduce the need for man-
agers to order merchandise from more ostly Federal supply
schedules or commercial sources.
Conclusion

     We concur with the premise that GSA depots should treat
orders from self-service stores with the same urgency they
use for orders from other customers. Just as the GSA depots
are suppliers of goods so are the GSA self-service stores.
Consequently, the stores should have goods available for
numerous customers at all times.

     Since depot goods may only be obtained under the
FEDSTRIP system, we believe the self-service stores should
have greater flexibility in their requisitioning process and
should be permitted to use higher priority codes when cir-
cumstances warrant.

ECONOMIC ORDER QUANTITY PROCEDURES
NOT FOLLOWED BY STORE MANAGERS

     The economic order quantity (EOQ) principle of stock
replenishment determines a reorder quantity which will
result in the lowest total cost for ordering and maintaining
inventory to meet expected demand. The EOQ principle bal-
ances the costs of ordering and holding stock to obtain
minimum costs. Once EOQ is identified, the purchase of any
other quantity will increase costs. Thus, using the EOQ
principle can achieve savings.




                             17
     Federal Property Management Regulation 101-27.1, issued
by GSA, requires all civil agencies to replenish inventories
of stock items in accordance with the EOQ principle. The
regulation also permits agencies to use modified EOQ proce-
dures when space, personnel, or budgeting limitations pre-
clude application of the basic EOQ techniques.

     GSA has modified the EOQ technique in the self-service
store handbook to permit managers to quickly and easily
determine the EOQ. We noted, however, that a December 1971
GSA memorandum stated that the handbook EOQ procedures were
optional for store managers. Since GSA issues the Federal
Property Management Regulations, the optional use of modi-
fied EOQ procedures appears to violate GSA's own regulations.
     Discussions with 17 store managers revealed that 5
managers used the EOQ principle when ordering, 3 managers
used it occasionally, and 9 managers did not use it. One
manager was unaware of the EOQ principle. Since no records
of self-service store sales by individual item are main-
tained, most managers determine when to reorder and what
quantities are needed on the basis of judgment, experience,
and a visual examination of store stock. The store managers
said that the demand for most items stocked in the stores
does not justify using EOQ techniques.
Conclusion

     We believe that EOQ, as modified by GSA, is an adequate
method for store managers to replenish stock. GSA should
stress the importance of EOQ and rescind its instructions
which make EOQ procedures optional.
     In a prior report (B-133396, June 27, 1974), in which
we reviewed GSA's use of EOQ, we concluded that if organi-
zations do not use or properly apply EOQ, the Government
will not realize the savings in operating costs and reduced
inventory investments that the concept is designed to
achieve.
SELF-SERVICE STORE MANAGERS HAVE WIDE
LATITUDE OVER MANY TYPES OF ITEMS STOCKED

     The original concept of the self-service stores was to
provide a centralized self-service stockroom with emphasis
on administrative supplies and general use office items.
Now, the intent of the self-service stores program is to
provide a one stop" shopping service with emphasis on full-
supply support to agencies.




                            18
     To meet the full-supply concept, the types of items
stocked in the stores have increased.  In addition to stock-
ing administrative and general use items, the stores stock
such items as desk accessories, electric pencil sharpeners,
water pitchers, alarm clocks, automobile accessories, styro-
foam coffee cups, facial tissues, plastic spoons and forks,
world atlases, air fresheners, doormats, and whitewall tires.

     Most store managers have wide latitude in selecting the
items they stock. Some GSA regions require customer demand
or regional approval before an 'tem is stocked. Many man-
agers, however, do not obtain prior approval. No formal
criteria exist, such as a particular number of customer
demands causing an item to be stocked, and no justification
is needed to stock an item. One store manager said he tried
items with "eye appeal"--hand cleaners packAqed in bright
tan and yellow containers and clocks with colortI faces--be-
cause he thought they would sell.
GSA pressure on self-service
store managers to stock items
     In addition to the wide latitude managers have over
items stocked, thlee has been regional pressure at times for
the stores to increase the number of items. For example,
self-service store managers in one region were directed to
stock approximately 2,000 items. The managers were told
that if an item was legal, there was no reason why it should
not be stocked.  (See app. IV.) The headquarters chief,
self-service stores branch, told us that each store should
carry, on the average, about 2,000 items. Thus, he noted,
while each store should have 114 "must" items on hand, each
manager has discretion in stocking an additional 1,886 items.
For example, the Omaha, Nebraska, store stocked about 1,700
items, and the Kansas City, Missouri, store stocked about
2,900 items during fiscal year 1975.

     Personnel in one of the stores showed us a commendation
they had received for reaching 2,000 items stocked. A GSA
regional official told us there was no regulation for the
stores to carry 2,000 items, but he believed a store should
be able to fill most agencies' needs if it stocked 2,000
items. One store manager told us there was pressure from
higher levels to increase sales.
     A regional chief, self-service stores branch, said
there was no pressure on store managers to increase sales
and said that GSA believes in "satisfying demand, not creat-
ing it."


                            19
     According to a December 1974 management consultant
report on FSS operations, the self-service stores introduce
new items mainly on a hit-or-miss basis. The report attri-
buted this to a lack of advance knowledge of customer pref-
erence. The report noted that no marketing research had
been conducted to discover (1) what items potential cus-
tomers were purchasing elsewhere which could be stocked by
a self-service store and (2) how customers decided what to
purchase.
Conclusion
     Items carried by self-service stores are arbitrarily
determined by store managers and regional self-service store
branch chiefs. There is no systematic method for deter-
mining what individual stores should carry. As a result,
stores handle items on a test basis and often acquire items
that may never sell and may eventually be excessed or wasted.
GSA needs to analyze customer agencies within the vicinity
of a self-service store to determine their needs. This
would enable    :Ore managers to provide customers with
needed suppliet    nd better service.




                             20
                        CHAPTER 4

                  CUSTOMER PROCUREMENTS

                FROM SELF-SERVICE STORES


     Agencies lack good controls over purchases made by
their employees at GSA self-service stores. Many agencies
place no restrictions on purchases from the stores.
     Executive agencies are required to procure and use
property in accordance with the Federal Property and Admin-
istrative Services Act of 1949 and the Federal Property
Management Regulations. These regulations direct agencies
to obtain goods and services from GSA, when available,
rather than from othersources. The regulations also au-
thorize agencies to purchase directly from commercial
sources (1) in emergency situations, (2) when an item is
perishable. or (3) when GSA determines that such procure-
ment will produce the greatest economy to Government.

     With a shopping plate. a customer may purchase any
item at a self-scrice stare.    The photographs on the fol-
ling pages show some or Lne items available to self-service
store customers. We noted instances in which some customers
did not: have a valid need or justification for the items
purchased.
     At self-service store checkout counters, a shopper
signs a sales slip which shows the total amount of the
purchase and an imprint of the shopping plate.  (See app.
V f^r an example of a GSA self-service store sales  slip.)
The sales slip is retained by GSA for billing and  record
purposes. The shopper receives only the cash register
tape which does not identify the items purchased. To
discourage unauthorized use of special items such as film,
hand tools, attache cases, and auto accessories, self-
service store personnel are required to identify these
items on the sales slip.

     Store managers do not disapprove any customer purchase.
The headquarters chief, self-service stores branch, has stated
that managers should not perform this function. Managers




                              21
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24
assume that shr  ing plate holders are authorized to pur-
cha.e* any iter vailable through the stores. The store
managers believe it is the purchasing agency's responsibi-
lity to control empleyee purchases.
CUSTOMER AGENCIES EXERCISE LIMITED
CONTROL OVER PURCASESFROM STORES

     In discussions with 92 self-service store59 customers
                                                  customers
from various Federal agencies, we found that           were
had no restrictions on purchases, while 33 customers
                                 the 92 customers, 80 made
restricted to certain items. Oftheir
shopping lists but only 49 had       lists approved. Most
of the customers said they shop weekly, browse in the
stores, buy on impulse, and occasionally purchase items
not on the shopping list.
     According to GSA's Federal Property Management Regula-
                                                          for
tions, agencies having shopping plates are responsible
the acquisition, control. and use of the items  purchased
        to  insure that items are used for official  purposes.
and are
                                                      not
The regulations also state that if requisitions are
                                                    stores,
required in procuring items from GSA self-serviceresponsible
informal shopping lists should be approved at a
supervisory level. This approval supports the essentiality
of supply requirements.
     In adrition, the regulations require agencies to be
aware that such items as brief cases, ballpoint pens.
dictionaries, and staplers are available. The regulations
state that these items have proven personally aattractive
                                                complete
and are susceptible to unofficial use.   (For
listing of these items, see app. VI.)

 Improper use ofshoppng    la te s

      Agencies may not have enough control over items pur-
 chased at the stores because of insufficient documentation
 fr  items purchased. Although most agencies compare self-
 service store -ash register tapes with their GSA billing,
 this comparison only discloses errors in total billings.
 Agencies depend on budgetary controls and supervisors'
 integrity to control purchases from the stores.
      As a part of our review, we selected several purchases
 and contacted the purchasing agencies to determine whether




                                25
the items bought were for genuine Government needs.  While
not exhaustive, the following examples illustrate nonessen-
tial purchases.

     PhotorEhic film

     Two Army Aviation Systems Command employees have been
disciplined for unauthorized use of GSA shopping plates.
The employees purchased photographic supplies for personal
use.  One employee had purchased about $18,000 worth of
film for personal use.  This person's employment was ter-
minated.  He was later found guilty and sentenced to 2 years
in prison. The other employee purchased about $800 in film
and photographic supplies without authorization.  These
items were to be used for a junior achievement program.

     At the time of these purchases, the Army Aviation
Systems Command did not require that cash register receipts
be reviewed or matched with sales slips.  As a result of our
review, Command procedures were changed. and all purchases
were temporarily reviewed by an internal audit office while
permanent procedures were being considered.

     Weather radio

     A Farmers Home Administration employee purchased a
weather radio at a GSA self-service store for use in the
office.  However. after we discussed the purchase with the
employee's supervisor, the Farmers Home Administration
returned the radio to the self-service store because no
valid need existed.  The Farmers Home Administration's
finance office controls purchases by matching sales slips
witl cash register receipts.

     Electric saw

     A GSA self-service store manager informed us that an
electric saw was sold to an Army Military Personnel Records
Center employee.  The store manager said he noticed the
sales slip and contacted the employee's supervisor to deter-
mine whether there was need for the item. After discussion.
it was agreed that the employee had no valid need for the
saw, and it was returned to the store.

Conclusion

     The lack of controls over purchases made at GSA stores
can lead to impulse buying of items nonessential to Government
needs or procurement of items for personal use.  Agencies


                             26
should establish procedures to assure the purchase of needed
items only. This can be accomplished by requiring requisi-
tions for all purchases which will be reviewed and approved
by an appropriate agency official.




                             27
                          CHAPTER 5
                CONTROLS OVER SHOPPING PLATES

     General Services Administration self-service stores and
their customers need to better control the issuance and usage
of store shopping plates.

     Agency officials often o not check into the need for a
shopping plate. Departmentai approval consists of a signa-
ture on the shopping plate application without any real
review. Furthermore, when GSA receives an application, the
billing address is verified and assigned to the shopping
plate, without further review of the application. There is
no limit to the number of plates issued by the Federal
Supply Service or used by Federal agencies.

     Because the number of shopping plates is unrestricted,
some agencies have many plates at the same location. For
example, in Dallas, Texas, the Department of Health, Educa-
tion, and Welfare has 32 shopping plates, of which 25 are
for the same address. The Corps of Engineers in Fort Worth,
Texas, has 18 plates to support 249 people. A plate was
issued for each project in the agency. All shopping, how-
ever, is done at the Fort Worth self-service store directly
across the street from the agency's offices.

      Issuance of many plates to one location may complicate
and hamper the control of purchases from the self-service
stores. Neither GSA nor customer agencies keep updated
records listing the total number of shopping plates issued.
One GSA official said agencies should have a reasonable
number of plates, but he emphasized that agencies are
responsible for determining how many shopping plates they
need.

      In most instances, agencies and GSA lack controls over
the use of shopping plates. For example, the Humar Develop-
ment Corporation in St. Louis, Missouri, had made at least
three procurements in January 1975 with a cash card which
had expired in November 1974. After the Corporation relin-
quished its expired card, it used a cash card which had been
issued to the Urban League, a contractor, to make procure-
ments for itself and several delegate agencies. These agen-
cies operated socio-economic programs, most of which were
ineligible to use GA stores.




                             28
     The Austin, Texas, self-service store retains a few
customers' charge plates to provide mail order service.
The charge plates are kept in the cash register and are
used to imprint the sales slip which is signed by a store
employee when an order is shipped. The New Orleans,
Louisiana, store keeps one charge plate for GSA's Public
Buildings Service. The card is left in the cash register
for the Service's convenience since it uses the store so
frequently. Four agencies leave their charge plates at
the Oklahoma City, Oklahoma, store.
     There is also a wide range of controls over the charge
plates within d ferent agencies. Several agencies require
shoppers to sign for plates as needed; other agencies allow
personnel to keep the plates in their possession. Unless a
card is issued to an elected Federal official, it carries
no expirati . date. GSA periodically issues a list of
stolen or lost cards, but some store managers complained
they were not notified when cards were found.
Conclusion

     Keeping agency shopping plates at the stores and
allowing agency employees to keep the plates in their pos-
session is a bad practice which could result in unauthorized
purchases.

     GSA and its customers should establish better control
over the use of shopping plates to minimize unauthorized and
unnecessary purchases.




                              29
                         CHAPTER 6
                      RECOMMENDATIONS

     The General Services Administration self-service stores
program provide customer agencies with commonly used
office, janitorial, and maintenance supplies. It is one of
GSA's most visible programs because it operates at the
retail level and deals directly with customers.
     GSA has not provided Government agencies with efficient
service and necessary supplies. Consequently, customers
often purchased supplies from commercial sources at higher
prices.
     GAO recommends that the Administrator of General
Services:
     -- Consider the self-service stores program as an
        extension of the depot program. When ordering
        from the depots, store managers should have the
        flexibility to use priority codes applicable
        to the urgency of the need.
    -- Direct store managers to use the economic order
       quantity principle when replenishing store
       items. Through EOQ, stores will realize savings
       in perating costs and inventory investments.
    -- Improve controls over reporting of inventory
       price changes. Controls should reflect actual
       store inventory values.
    --Revise self-service store physical inventory
      procedures so that inventories are taken by
      personnel who are not involved in daily store
      operations. This would eliminate lengthy
      store closings which reduce sales and service.
    --Allocate resources to provide needed internal
      audit coverage of the self-service store
      operations.
    -- Coordinate issuance and control of shopping
       plates more closely with customer agencies.



                             30
    -- Provide guiuance and instructions to customer
       agencies to enable them to obtain greater
       control over day-to-day use of the self-service
      stores.

    -- Analyze customer agencies located near self-
       service stores to determine their needs.
     Agencies that procure from the GSA self-service stores
should:
    -- Establish controls so that agen-ies pur-
       chase only needed items from the self-service
       stores. This could be accomplished by re-
       quiring requisitions for all purchases and
       having them reviewed and approved by an
       appropriate agency official.
     -- Provide adequate controls for the issuance
        and use of shopping plates.




                              31
                         CHAPTER 7
            AGENCY COMMENTS AND OUR EVALUATION

     In comments in an October 20, 1976. letter (see app.
VII). the General Services Administration concurred with
most of our audit recommendations. Concerning our comment
on weak management in the self-sfrvice stores program, GSA
agreed that weak spots remain to be corrected but progress
has been made.
     GSA did not concur with our recommendation that higher
priority be assigned to the stores' orders from the depots.
According to GSA. a high priority rating substantially
changes order processing in the FSS system and restricts
efficient planning of supply depot operations.

     Although GSA did not concur with the above recommenda-
tion, it acted during our review to improve the shipment
of depot items to the stores. For example, in February
1976, store managers were permitted to upgrade the priority
of their back-ordered items. In March 1976, GSA supply
facilities established distinct routes and stops for store
delivery.
     Although these attempts by GSA to improve store opera-
tions are noteworthy, we continue to believe that GSA should
emphasize the role of the stores in providing retail supply
support, This goal can only be achieved if the stores
obtain needed goods in a timely manner. Presently, depot
goods may only be obtained under the FEDSTRIP system, and
GSA believes that the assignment of a high priority to all
self-service store orders would restrict efficient planning
of supply depot operations. Given these circumstances, we
believe, as a minimum, GSA should treat orders from self-
service stores with the same urgency it handles orders from
other customers.
     GSA concurred with our recommendation that store man-
agers use the economic order quantity principle when replen-
ishing store items. To this effect, GSA indicates that it
does apply a modified EOQ technique as permitted by the
Federal Property Management Regulations. We do not question
these modified procedures as outlined in the self-service
store handbook. Rather, we are concerned with GSA's deci-
sion to make these EOQ procedures optional for use by store




                             32
managers in view of the infrequent use the managers already
have made of the EOQ techniques. We believe that GSA should
require use of EOQ procedures whenever store items must be
replenished.
     GSA concurred with our recommendation that it improve
controls over reporting invenCory price changes. During
management visits, GSA stated it will stress the importance
of making timely price changes and submitting inventory
adjustments. Also, back orders will be released to stores
at current prices to reduce or eliminate pricing discrepan-
cies in the stores.

     Management visits are a positive step toward strengthen-
ing store manager's reporting of inventory adjustments.  In
addition, GSA should emphasize the importance of inventory
price canges by issuing written guidelines to its store
managers.
     GSA agreed to act on our recommendation that it revise
self-service stote physical inventory procedures. GSA is
reviewing its inventory procedures to reduce or eliminate
store closings for long periods.  If GSA's revised proce-
dures require independent personnel and reduce time and
effort in inventory taking, we believe unnecessary store
closings would be reduced or eliminated.
     Concerning our recommendation that GSA increase inter-
nal audit coverage of store operations, GSA's' fiscal year
1977 audit plan will increase emphasis on the stores.
Besides placing increased audit emphasis on store opera-
tions, GSA's fiscal year 1977 audit plan and successive
plans should contain a definite timetable for auditing the
stores.

     GSA also concurred with our recommendation that it
coordinate the issuance and control of shopping plates more
closely with customer agencies. GSA plans to provide addi-
tional guidance and instructions on the use of shopping plates
primarily through agency liaison visits and regional seminars.
We believe such additional guidance and instructions will
minimize unauthorized and unnecessary purchases.
     GSA also concurs in principle with our recommendation
that it provide guidance and instructions to customer agen-
cies who need to obtain greater control over use of the stores.
GSA does not agree, however, that users should prepare a requi-
sition for each item purchased at the store.



                             33
     We believe that a requisition approval process is
necessary within each customer agency to provide assurance
that employees are purchasing items to meet a valid need
or justification. Any inconvenience experienced by pre-
paring requisitions before visiting self-service stores
would be outweighed by the benefits of control. Since.
as GSA mentions, agencies are responsible for control'ing
shopping plates, requisitions would provide an efficient
means of controlling purchases.




                            34
APPENDIX       I                                                                                    APPENDIX I




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                                                          35
                                                                                                                                                          APPENDIX II
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APPENDIX III                                             APPENDIX I...i




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                                         37




                                         3'7
APPENDIX IV                                          APPENDIX IV


                   1971 GSA REGION 6 OFFICE
                MEMORANDUM CONCERNING STOCKING OF

            ADDITIONAL ITEMS BY SELF-SERVICE STORES


                            COPY

                GENERAL SERVICES ADMINISTRATION

                                                       Region 6
                                       1500 East Bannister Road
  DATE:   March 18, 1971           Kansas City, Missouri 64131
REPLY TO
ATTN OF: 6FSR
SUBJECT: SSS Memo #1-4
         Stocking of additional items by self-service stores

          6FSR-1   6FSR-2    6FSR-3    6FSR-4     6FSR-5   6FSR-6

          A revie, of the stores' SSIR shows that the number
          of items stocked in the various stores ranges from
          a low of 1,336 items to a high of 2,695.

          Theoretically, a self-service store should stock
          approximately 2,000 fast moving items. We real-
          ize that having a large number of items does not
          automatically guarantee greater volume. However,
          we are certain that most stores would have more
          volume if additional items were stocked.
          During the coming months, each store should raise
          the number of items stocked to approximately 2,000.
          Put new items in the store on a trial basis, and
          let he customer know about them. Recently, lit-
          erature was sent concerning Ozium Air Spray,
          plastic spray bottles and self-inking special rub-
          ber stamps. These items are selling well in the
          stores that have ordered them. All stores should
          stock items such as a road atlas, Thesaurus, and
          pink and yellow word-pickers, to name a few. More




                              38
                                                 APPENDIX IV
APPENDIX IV

                                                   some stores.
         emphasis on merchandising is needed atbecause  you've
         Don't be afraid to buy an item just
                                      The  stores   are estab-
         never had a request for it.            is  legal,
                                          item
         lished to aid customers. If an not be bought for
         there is no reason why it should
         the customer, or stocked in the store.
                                                      make cer-
         As you add these new items to your stock,
         tain they are added to your SSIR.




                               39
APPENDIX V                                                                         APPENDIX V


              GSA SELF-SERVICE STORES SALES SLIP




                                            DATE                           TYPE
                                    STORE    OF       SALE   AMOUNT         OF
                                     NO.    SALE       NO.                 SALE


              The undersigned acknowledges receipt of the material covered
              by this Sales Slip and certifies its purchase is necessary for the
              Official Business of the U.S. Government.




             L'   ·           SPECIAL TYPE ITEMS (Check, if applicable)
                  FILM                       HAND TOOLS               ATTACHE CASES

                      Q-1IRUOIIU
                              SCC
                               SUOL.u.
                                             PHOTOGRAPHIC
                                             SUPPLIES
                                                                  [   AUTOMOBILE
                                                                      PARTS

                  OTHER




             SIGNATURE


                          '   AASELF-SERVJI         STORES SALES SLIP
             GENERAL SERVICES ADMINISTRATION                 GSA FORM 831 (REV. 1-731




                                               40
                                                    APPENDIX VI
APPENDIX VI

          FEDERAL PROPERTY MANAGEMENT REGULATION

              LIST OF PERSONALLY ATTRACTIV" ITEMS


Attache cases                        Pencil sharpeners
Ballpoint pens                       Portfolio (leather,
Ballpoint pen refills                  plastic, and writing pads)
Brief cases                          Rubber bands
Binders                              Rulers
Carbon paper                         Scissors
Dictionaries                         Spray paint and lacquer
Felt tip markers                     Stapler
File folders                         Staples
Letterex                             Staple removers
Letter openers                       Tape dispensers
Pads (paper)                         Transparent tape
Paper clips                          Typewriter ribbons
Pencils




                                41
APPENDIX VII                                                           APPENDIX VII
                         UNITED STATES OF AMERICA
                 GENERAL SERVICES ADMINISTRATION.
                             WASHINGTON.   D.C.



  October 22,   1976



 .Honorable Elmer B. Staats
  Comptroller General of the United States
  General Accounting Office
  Washington, D. C. 20548

  Dear Mr. Staats:

  This is in response to Mr. R. W. Gutmann's letter of August 23
  1976, requesting the General Services Administration's (GSA)
  comments on your draft report to the Congress entitled, "Federal
  Supply Service Self-Service Stores Can Be Improved".

  We concur with most of the audit recommendations. However,
  with respect to the comment concerning weak management in the
  program, while agreeing that some weak spots remain to be
  corrected, significant progress has been made to strengthen
  the management of self-service stores. The program has grown
  significantly in recent years. In conjunction with this
  growth, several noteworthy steps have been taken to improve
  the entire program. Examples include:

  1. During an October 1975 reorganization of the Federal Supply
  Service, the entire self-service store program was placed under
  the organizational responsibility of the Assistant Commissioner
  for Customer Service and Support. The purpose of the move was
  to increase customer service with the support of Marketing,
  Market Research and National Liaison Programs.

   2. In March 1976, the Civil Service Commission reclassified
   store manager grades to equalize salaries with the private
   sector. This permits the selection of a more professional
   staff.

  3. Store managers now make visits to customer agencies to seek
  out new or improved ways that GSA might better fulfill customer
  needs.




                 Keep Freedom in rour Future With U.S. Savings Bonds
                                             42
                                                       APPENDIX VII
APPENDIX VII



       4. In January 1976, we developed simplified procedures for
       adding new items to the stores. To fill these requirements,
       we expanded the procurement authority of store managers in
       April 1976.

       5. To further strengthen the operation of the self-service
       stores, we are nearing completion of redrafting the store
       operations handbook.

       At your convenience, we will be glad to answer any questions
       you may have regarding our comments.

       Sincerely,




    J K ECKERD
   ,5ministrator
   V   Enclosure




                                     43
APPENDIX VII                                                         APPENDIX VII




                           GAO Draft Audit Report:

    "Federal Supply Service Self-Service Stores Can Be Improved"

   Recommendation No. 1 - Consider the self-service store program as an
   extension of the depot program. As such, a high priority level should
   be assigned to the stores when ordering from the depots to ensure the
   availability of needed items on a regular basis.

   Response: We do not concur in the use of high priorities when ordering
   for normal stock replenishment. A high priority rating substantially
   changes the processing of orders in the FSS system. This restricts
   efficient planning of the supply depot operation, affecting all work-in-
   process. In March 1976, GSA supply facilities were directed to establish
   distinct routes and stops for self-service store delivery, with selection
   for shipment not less than once weekly. This should assure adequate
   replenishment of stores' stocks. Also in February 1976, an ADP program
   was initiated to allow store managers to upgrade any back-ordered items
   from priority 15 to priority 8, providing for release of backorders to the
   stores prior to customers with priorities 9-15. However, in the event of
   an emergency or deterioration of supply support, the Store Managers will
   be instructed to assign a high priority level to replenishment requisitions.

   Recommendation No. 2 - Direct store managers to use the EOQ principle
   when replenishing store items. Through EOQ the stores Ill realize
   saving in operating costs and inventory investments.

   Response: We concur in the principle of EOQ as an integral part of
   inventory management. However, space and inventory limitations restrict
   its full use in the self-service store program. Also, it is not practical or
   feasible for Store Managers to manually attempt to compute cost to hold,
   cost to order and other computer mathematical equations involved in the
   computation of EOQ. Therefore, we apply a modified EOQ technique as
   permitted in FPMR 101-27.102.3. The modified EOQ technique is outlined in
   Chapter 25 of FSS P 2900.4, "Handbook of Supply Operations".

   Recommendation No. 3 - Improve controls over reporting of inventory price
   changes. Controls should be able to reflect actual store inventory values.

  Response: We concur in this recommendation. During management
  assistance visits we stress the importance of making timely price changes
  and submitting inventory adjustments. This coupled with the September
   1976 ADP program change permitting backorder releases to the self-service
  stores at current catalog prices will reduce/eliminate pricing discrepancies
  in the stores.




                                       44
APPENDIX VII                                                          APPENDIX VII



   Recommendation No. 4 - Revise self-service physical inventory procedures
   so that the inventories are tken by personnel not involved in daily store
   operations and reduce store closings for long periods which reduce sales
   and service.

   Response: We concur in this recommendation. Inventory procedures are
   currently under review to develop methods to reduce/eliminate the time
   period stores are closed for taking inventory.

   Recommendatio. No. 5 - Increase internal audit coverage of the self-service
   store operations.

   Response: We concur that additional audit coverage wouid be worthwhile.
   Our Fiscal Year 1977 Audit Plan will include increased emphasis on self-
   service store operations.

                                     [See GAO note.


   Recommendation No. 6 - Coordinate the issuance and control of shopping
   plates more closely with customer agencies.

   Response: We concur in this recommendation. We plan to provide additional
   guidance and instructions on the use of shopping plates primarily through
   agency liaison visits and regional seminars. However, we must emphasize
   that the ultimate responsibility for the control of a shopping plate lies with the
   using agency, not GSA.

   Recommendation No. 7 - Provide guidance and instructions to customer agencies
   enabling them to obtain greater control over day-to-day use of the self-service
   stores.

   Response: We concur in principle. In accordance with FPMR 101-25.107 and
   101-28.303, responsibility for controlling the use of shopping plates is vested
   in the agencies which use them. However, we will emphasize the need for
   additional controls primarily through agency liaison visits and regional seminars.
   We do not agree that it is necessary that the users prepare a requisition for each
   item to be bought with a shopping plate (second parcgraph, page 27 of the draft
   report). This would negate the basic intent of shopping in the self-service
   stores.


    GAL) note:    Ine deleted comment pertains to a matter discussed
                  in the draft report but omitted from the final re-
                  port.




                                          45
APPENDIX VIII                                        APPENDIX VIII

                  PRINCIPAL OFFICIALS OF THE
                GENERA' SEVICES ADMINISTRATION

                     RESPONSIBLE FOR THE
           ACTIVITIES DISCUSSED IN THIS REPORT


                                            Tenure of office
                                           From              To
ADMINISTRATOR, GENERAL SERVICES
  ADMINISTRATION:
    Robert T. Griffin (acting)       Feh.     1977      Present
    Jack M. Fckerd                   Nov.     1975      Feb. 1977
    Dwight A. Ink (acting)           Oct.     1975      Nov. 1975
    Arthur F. Sampson                June     1972      Oct. 1975
    Rod Kreqer (acting)              Jan.     1972      June 1972
    Robert L. Kunzig                 Mar.     1969      Jan. 1972
COMMISSIONER, FEDERAL SUPPLY
  SERVICE:
    Wallace H. Robinson, Jr.         Feb.    1976       Present
    J. H. Bolton (acting)            Nov.    1975       Feb. 1976
    Michael J. Timbers               June    1973       Oct. 1975
    Milton S. Meeker                 Jan.    1972       June 1973
    Lewis E. Spangler (acting)       May     1971       Jan. 1972
    H. A. Abersfeller                Mar.    1970       May 1971
ASSISTANT COMMISSIONER FOR CUSTOMER
  SERVICE AND SUPPORT (note a):
    D. K. Mitchell                  Oct.     1975       Present
ASSISTANT COMMISSIONER FOR
  SUPPLY DISTRIBUTION:
    William B. Foote                 Feb.    1973       Present
    George W. Saunders               June    1965       Feb. 1973
a/The Federal Supply Service Office of Customer Service and
  Support was established on October 1, 1975, by GSA order.
  This office assumed responsibility for the selt-service
  store program which was transferred from the Office of
  Supply Distribution.




                               46