DOD Inventory:

Weaknesses in Controls Over Category I Rockets

AIMD-00-62R: Published: Apr 13, 2000. Publicly Released: Apr 13, 2000.

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Pursuant to a legislative requirement, GAO reviewed the weaknesses in the Army's internal controls over the Blue Grass Army Depot's category I rockets.

GAO noted that: (1) based on information about the causes of the discrepancies identified at the Blue Grass Army Depot, GAO identified the following internal controls weaknesses that resulted in a loss of accountability and control over the category I rockets: (a) serial number control of the items was lost at the time of shipment from the contractor because the serial numbers listed on the receiving reports that accompanied each shipment did not correspond to the actual items and quantities in that shipment; (b) rejected transactions were not promptly reviewed and corrected; (c) accountability and visibility were lost for items being transferred between Army activities at the depot because depot staff did not follow procedures for establishing a suspense file in the Standard Depot System (SDS); (d) Blue Grass Army Depot officials acknowledged that depot personnel needed more training in control procedures and SDS capabilities; (e) not all of the items accepted from the contractor were promptly recorded in the Commodity Command Standard System, which item managers use as an inventory and accounting system; (f) although the Industrial Operations Command's item manager followed up with the Armament, Research, Development, and Engineering Center's project manager, the item manager did not contact the depot to verify receipt of the October shipment that was not entered into SDS; and (g) differences in the rocket and launcher units' unit price had not been detected; (2) these control weaknesses indicate that the depot's inventory business processes for these sensitive items do not fully comply with federal accounting and systems requirements; (3) these weaknesses involve inventory systems that are used throughout the Army Materiel Command as well as business processes that are likely to be in place to manage other sensitive items throughout the command; and (4) therefore, GAO is concerned that the control weaknesses it identified may not be limited to the Blue Grass Depot.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Blue Grass Army Depot has established procedures for clerks to daily review reject listings and perform timely research to correct rejected receipt transactions. In addition, the procedures require supervisors to monitor the processing of rejected transactions and review transaction listings weekly.

    Recommendation: To correct or mitigate the internal control weaknesses GAO identified in relation to the inventory discrepancies over a sensitive category I item at the Blue Grass Army Depot, the Secretary of the Army should monitor the status of rejected receipt transactions and other unprocessed receipts daily and ensure that rejects are promptly corrected and processed in accordance with existing depot desk procedures.

    Agency Affected: Department of Defense: Department of the Army

  2. Status: Closed - Implemented

    Comments: To help preclude locations errors, the Blue Grass Army Depot has initiated procedures that require two people to independently record and verify the location of category I items when being stored, as well as during and after data entry to the inventory system.

    Recommendation: To correct or mitigate the internal control weaknesses GAO identified in relation to the inventory discrepancies over a sensitive category I item at the Blue Grass Army Depot, the Secretary of the Army should determine the reason for location errors, such as the one that occurred for the rocket and launcher units, and take corrective action.

    Agency Affected: Department of Defense: Department of the Army

  3. Status: Closed - Implemented

    Comments: The Blue Grass Army Depot revised its procedures to eliminate the suspense file. Instead, when executing transfers of material between owners at the depot, the revised procedures require the loss and gain transactions to be simultaneously recorded in both accounts and a copy of the transaction sent to the new owner.

    Recommendation: To correct or mitigate the internal control weaknesses GAO identified in relation to the inventory discrepancies over a sensitive category I item at the Blue Grass Army Depot, the Secretary of the Army should confirm that existing procedures regarding the use of suspense files are followed for items changing ownership within the depot.

    Agency Affected: Department of Defense: Department of the Army

  4. Status: Closed - Implemented

    Comments: From February 2001 to April 2001, Blue Grass Army Depot management provided refresher training to 118 employees who perform ammunition receipt and issue duties at the depot. In addition, three depot clerks completed a computer assisted ammunition receiving course.

    Recommendation: To correct or mitigate the internal control weaknesses GAO identified in relation to the inventory discrepancies over a sensitive category I item at the Blue Grass Army Depot, the Secretary of the Army should provide appropriate training on SDS and internal control procedures to inventory personnel.

    Agency Affected: Department of Defense: Department of the Army

  5. Status: Closed - Implemented

    Comments: The Army Materiel Command established specific written procedures in September 2000, requiring item managers to monitor munitions production schedules and delivery documentation (DD-250s) to ensure that the Command Commodity Standard System's (CCSS) accountable records accurately report receipt of accepted items. Specific procedures require item managers to monitor acceptance testing and adjust condition and location codes of items when appropriate. The new procedures also require the managers to monitor contractor shipments of accepted items until receipt at the destination depot or activity and to investigate discrepancies and late deliveries. In addition, the Command provided training to item managers in June 2001, on how to review "due-in" information in CCSS to track the movement of newly produced items from the manufacturer to the depot. Operations Support Command Assessments, conducted through the fourth quarter of fiscal year 2002, confirmed that these procedures were implemented.

    Recommendation: To address the weaknesses identified at the Blue Grass Army Depot that could be systemic to the Army Materiel Command, the Secretary of the Army should establish procedures in conjunction with the Defense Contract Management Agency to ensure that all purchases are recorded in inventory records upon acceptance by the government at the contractor site based on the receiving reports (DD Form 250s).

    Agency Affected: Department of Defense: Department of the Army

  6. Status: Closed - Implemented

    Comments: After further review of the Defense Federal Acquisition Regulation, the Army informed the contractor that the regulation requires a separate DD Form 250 for each truck used in shipping ammunition. Following this requirement would ensure serial number control for category I items.

    Recommendation: To address the weaknesses identified at the Blue Grass Army Depot that could be systemic to the Army Materiel Command, the Secretary of the Army should establish Army procedures to ensure that serial numbers of category I items are recorded on bills of lading or other documents that accompany the shipments to help maintain serial number control for all items in the shipment.

    Agency Affected: Department of Defense: Department of the Army

  7. Status: Closed - Implemented

    Comments: Since October 1, 2001, the Army Materiel Command has been manually keeping records on "cradle to grave" accountability of its most sensitive munitions to enhance its oversight of shipments and compliance with established policies and procedures. The status of shipments is routinely briefed to Command officials. In July 2002, the Army Materiel Command initiated an effort to develop an automated capability for this level of accountability for all of Army's munitions.

    Recommendation: To address the weaknesses identified at the Blue Grass Army Depot that could be systemic to the Army Materiel Command, the Secretary of the Army should confirm that item managers have procedures to perform timely and complete follow-up on suspected shipment delays and verify that the procedures are followed.

    Agency Affected: Department of Defense: Department of the Army

  8. Status: Closed - Implemented

    Comments: The Army Materiel Command required munitions depots to implement new desk procedures that required daily monitoring of the status of rejected transactions and prompt correction of rejected/erroneous data. Command officials told GAO that the procedures were implemented during calendar year 2001. Command Assessments performed through the fourth quarter of fiscal year 2002, provided oversight and validated depot compliance with the revised requirements. As a result of GAO's work, the Army Materiel Command has significantly improved the accuracy of inventory records for sensitive munitions items.

    Recommendation: To address the weaknesses identified at the Blue Grass Army Depot that could be systemic to the Army Materiel Command, the Secretary of the Army should verify that all depots have desk procedures for monitoring daily the status of rejected transactions and promptly correcting and processing rejects, and confirm that the procedures are followed.

    Agency Affected: Department of Defense: Department of the Army

  9. Status: Closed - Implemented

    Comments: The Blue Grass Army Depot revised its Standing Operating Procedures to require dual verification of serial numbers and immediate notification of discrepancies to the shipping organization and the Operations Support Command. According to depot officials, they began using these procedures in March 2000.

    Recommendation: To correct or mitigate the internal control weaknesses GAO identified in relation to the inventory discrepancies over a sensitive category I item at the Blue Grass Army Depot, the Secretary of the Army should implement procedures to notify item managers and follow up with other appropriate parties when the serial numbers on the shipping documentation do not match the serial numbers of the items in the shipment.

    Agency Affected: Department of Defense: Department of the Army

  10. Status: Closed - Not Implemented

    Comments: In response to GAO's recommendation, the Army Materiel Command took a number of steps to ensure that inventory systems contain standard pricing information. For example, the Command included a design requirement in the new Logistic Modernization Program (LMP) system, which is being designed to replace the current legacy custodial and accountable record systems, to use more current moving average cost methodology. The LMP program design and implementation has slipped and only the first deployment at CECOM is in progress. The second deployment is still in the design stage. As a result, the schedule for implementation of the AMCOM missile and ammunition cost modules has continued to slip. Due to the continued delays in implementation, this recommendation was closed as not implemented.

    Recommendation: To address the weaknesses identified at the Blue Grass Army Depot that could be systemic to the Army Materiel Command, the Secretary of the Army should determine the cause for the SDS and catalog prices not reflecting the current and actual cost of the rocket and launcher units, and whether the same condition exists for other category I items as well as other ammunition items, and consider the implementation of additional controls to prevent pricing errors or detect errors if they occur.

    Agency Affected: Department of Defense: Department of the Army

 

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