DOD Supply Chain:

Preliminary Observations Indicate That Counterfeit Electronic Parts Can Be Found on Internet Purchasing Platforms

GAO-12-213T: Published: Nov 8, 2011. Publicly Released: Nov 8, 2011.

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This testimony discusses the preliminary observations of our ongoing investigation into the availability of counterfeit military-grade electronic parts on Internet purchasing platforms. Counterfeit parts--generally those whose sources knowingly misrepresent the parts' identity or pedigree--have the potential to seriously disrupt the Department of Defense (DOD) supply chain, delay missions, affect the integrity of weapon systems, and ultimately endanger the lives of our troops. Almost anything is at risk of being counterfeited, from fasteners used on aircraft to electronics used on missile guidance systems. There can be many sources of counterfeit parts as DOD draws from a large network of global suppliers. We recently reported that the increase in counterfeit electronic parts is one of several potential barriers DOD faces in addressing parts quality problems. This testimony summarizes preliminary observations from our ongoing investigation into the purchase and authenticity testing of selected, military-grade electronic parts that may enter the DOD supply chain.

In conducting this investigation, we created a fictitious company to gain access to Internet platforms that sell military-grade electronic parts. Our company included a fictitious owner and employees, mailing and e-mail addresses, a website, and a listing on the Central Contractor Registration. We attempted to purchase memberships to three Internet platforms that were of interest to this committee. We were granted memberships to two platforms but denied by the third. We then requested quotes from vendors on both platforms to purchase a total of 13 parts from a list of parts this committee provided that fell into one of three categories: (1) authentic part numbers for obsolete and rare parts, (2) authentic part numbers with postproduction date codes (date codes after the last date the part was manufactured), and (3) bogus part numbers. We independently verified with the Defense Logistics Agency (DLA) that the authentic part numbers were used for military applications using DLA's Federal Logistics Information System and by interviewing DLA officials. We also confirmed with DLA and selected part manufacturers that the bogus part numbers were not associated with actual parts. We altered all part numbers in this testimony due to the ongoing nature of our investigation. We requested parts from vendors that were new in original packaging, not refurbished, and had no mixed date codes. We selected the first vendor among those offering the lowest prices that provided enough information, such as name, addresses, and payment method, to make a purchase. We attempted to avoid using the same vendor more than once unless no other vendor responded to our request; however, vendors may operate under more than one name. We did not attempt to verify the independence of any vendor before we made our purchases. Finally, we contracted with the SMT Corp. for full component authentication analysis. The results of this investigation are based on the use of a nongeneralizable sample, and these results cannot be used to make inferences about the extent that parts are being counterfeited. We began this investigation in August 2011 and are conducting it in accordance with standards prescribed by the Council of the Inspectors General on Integrity and Efficiency. As of November 8, 2011, we have purchased 13 parts. None of the 7 parts we have complete results for are authentic. Specifically, according to SMT Corp., all three parts tested after we requested legitimate but rare or obsolete parts failed at least three of seven authentication analyses and were "suspect counterfeit." These parts included two voltage regulators and one operational amplifier, the failure of which could pose risks to the functioning of the electronic system where the parts reside. SMT Corp. also made the same determination for the other operational amplifier we received after requesting a legitimate part number with a postproduction date code. In this instance, the part failed four of seven authentication analyses, and the vendor also misrepresented the part as 9 years newer than the date it was last produced. In addition, we received three bogus parts after submitting orders using invalid part numbers. Because no legitimate parts in this final category exist--the part numbers are not in DLA's Federal Logistics Information System and selected manufacturers confirmed they have never been produced--we did not send them for authenticity testing. We are awaiting authentication analysis results for two additional parts, and have not yet received another four purchases. We will report the results for these and additional parts we plan to purchase in a future product. While we sent requests to both domestic and international companies, all of the parts we purchased and received to date were provided by vendors in China. We will issue our final report when our investigation is complete.

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