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entitled 'Defense Supplier Base: DOD Should Leverage Ongoing 
Initiatives in Developing Its Program to Mitigate Risk of Counterfeit 
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Report to Congressional Requesters: 

United States Government Accountability Office: 
GAO: 

March 2010: 

Defense Supplier Base: 

DOD Should Leverage Ongoing Initiatives in Developing Its Program to 
Mitigate Risk of Counterfeit Parts: 

GAO-10-389: 

GAO Highlights: 

Highlights of GAO-10-389, a report to congressional requesters. 

Why GAO Did This Study: 

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, 
and affect the integrity of weapon systems. Almost anything is at risk 
of being counterfeited, from fasteners used on aircraft to electronics 
used on missile guidance systems. Further, there can be many sources 
of counterfeit parts as DOD draws from a large network of global 
suppliers. 

Based on a congressional request, GAO examined (1) DOD’s knowledge of 
counterfeit parts in its supply chain, (2) DOD processes to detect and 
prevent counterfeit parts, and (3) commercial initiatives to mitigate 
the risk of counterfeit parts. 

GAO’s findings are based on an examination of DOD regulations, 
guidance, and databases used to track deficient parts, as well as a 
Department of Commerce study on counterfeit parts; interviews with 
Commerce, DOD, and commercial-sector officials at selected locations; 
and a review of planned and existing efforts for counterfeit-part 
mitigation. 

What GAO Found: 

DOD is limited in its ability to determine the extent to which 
counterfeit parts exist in its supply chain because it does not have a 
departmentwide definition of the term “counterfeit” and a consistent 
means to identify instances of suspected counterfeit parts. While some 
DOD entities have developed their own definitions, these can vary in 
scope. Further, two DOD databases that track deficient parts—those 
that do not conform to standards—are not designed to track counterfeit 
parts. A third governmentwide database can track suspected counterfeit 
parts, but according to officials, reporting is low due to the 
perceived legal implications of reporting prior to a full 
investigation. Nonetheless, officials we met with across DOD cited 
instances of counterfeit parts, as shown in the table below. A recent 
Department of Commerce study also identified the existence of 
counterfeit electronic parts within DOD and industry supply chains. 
DOD is in the early stages of developing a program to help mitigate 
the risks of counterfeit parts. 

Table: Examples of Counterfeit Parts in DOD’s Supply Chain: 

Part: GPS oscillators; 
Description: The Air Force and Navy use these oscillators for 
navigation on over 4,000 systems. Part failure could affect the 
mission of certain systems. 

Part: Self-locking nuts; 
Description: Self-locking nuts, used in aviation braking, were 
cracking. 

Part: Titanium; 
Description: The supplier sold substandard titanium, used in fighter 
jet engine mounts. 

Part: Brake shoes; 
Description: Brake shoes were made with substandard materials, 
including seaweed. 

Source: DOD. 

[End of table] 

DOD does not currently have a policy or specific processes for 
detecting and preventing counterfeit parts. Existing procurement and 
quality-control practices used to identify deficient parts are limited 
in their ability to prevent and detect counterfeit parts in DOD’s 
supply chain. For example, several DOD weapon system program and 
logistics officials told us that staff responsible for assembling and 
repairing equipment are not trained to identify counterfeit parts. 
Some DOD components and prime defense contractors have taken initial 
steps to mitigate the risk of counterfeit parts, such as creating risk-
assessment tools and implementing a new electronic parts standard. 

Also facing risks from counterfeit parts, individual commercial sector 
companies have developed a number of anticounterfeiting measures, 
including increased supplier visibility, detection, reporting, and 
disposal. Recent collaborative industry initiatives have focused on 
identifying and sharing methods to reduce the likelihood of 
counterfeit parts entering the supply chain. Because many of the 
commercial sector companies produce items similar to those used by 
DOD, agency officials have an opportunity to leverage knowledge and 
ongoing and planned initiatives to help mitigate the risk of 
counterfeit parts as DOD develops its anticounterfeiting strategy. 

What GAO Recommends: 

GAO recommends that DOD leverage existing initiatives to establish 
anticounterfeiting guidance and disseminate this guidance to all DOD 
components and defense contractors. DOD concurred with each of the 
recommendations. 

View [hyperlink, http://www.gao.gov/products/GAO-10-389] or key 
components. For more information, contact Belva Martin at (202) 512-
4906 or martinb@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

The Extent of Counterfeit Parts in DOD's Supply Chain Is Unknown: 

DOD's Existing Practices Are Limited in Protecting Its Supply Chain 
against Counterfeit Parts: 

A Number of Commercial Initiatives Exist to Mitigate the Risk of 
Counterfeit Parts in Supply Chains: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Scope and Methodology: 

Appendix II: Examples of Counterfeit Parts in DOD's Supply Chain: 

Appendix III: Comments from the Department of Defense: 

Appendix IV: Comments from the Department of Commerce: 

Appendix V: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Types of DOD Suppliers of Parts and Components: 

Table 2: Examples of Confirmed or Suspected Counterfeits in DOD's 
Supply Chain: 

Figure: 

Figure 1: Visual Detection of a Counterfeit Integrated Circuit: 

Abbreviations: 

DCMA: Defense Contract Management Agency: 

DLA: Defense Logistics Agency: 

DOD: Department of Defense: 

GIDEP: Government Industry Data Exchange Program: 

HMMWV: High Mobility Multi-purpose Wheeled Vehicles: 

JDRS: Joint Deficiency Reporting System: 

Joint STARS: Joint Surveillance Target Attack Radar System: 

MDA: Missile Defense Agency: 

OCM: Original Component Manufacturer: 

PDREP: Product Data Reporting and Evaluation Program: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

March 29, 2010: 

The Honorable Sherrod Brown: 
Chairman: 
Subcommittee on Economic Policy: 
Committee on Banking, Housing, and Urban Affairs: 
United States Senate: 

The Honorable Evan Bayh: 
Chairman: 
Subcommittee on Security and International Trade and Finance: 
Committee on Banking, Housing, and Urban Affairs: 
United States Senate: 

DOD draws from a large network of global suppliers and manages over 4 
million different parts at a cost of over $94 billion; therefore, 
counterfeit parts can enter its supply chain.[Footnote 1] Almost 
anything is at risk of being counterfeited including fasteners used on 
aircraft, electronics used on missile guidance systems, and materials 
used in body armor and engine mounts. Counterfeit parts have the 
potential to cause a serious disruption to DOD supply chains, delay 
ongoing missions, and even affect the integrity of weapon systems. 
Counterfeits are not limited to the DOD supply chain and exist in 
other government entities, such as the National Aeronautics and Space 
Administration and the Department of Energy, as well as in many 
commercial settings as diverse as software, commercial aviation, 
automotive parts, and consumer electronics and can threaten the safety 
of consumers. 

On the basis of your interest in DOD's ability to detect and prevent 
counterfeit parts, we examined (1) the extent of DOD's knowledge of 
counterfeit parts in its supply chain, (2) DOD processes to detect and 
prevent counterfeit parts, and (3) commercial initiatives to mitigate 
the risk of counterfeit parts in their supply chains. 

To conduct our work, we reviewed regulations, guidelines, and 
databases to determine how DOD defines and tracks counterfeit parts. 
We interviewed senior DOD headquarters officials, as well as weapon 
system program and logistics officials from the Army, Navy, Air Force, 
Missile Defense Agency (MDA), and Defense Logistics Agency (DLA) about 
their knowledge of the counterfeit parts problem and instances of 
counterfeits. We also reviewed a Department of Commerce study of 
counterfeit electronic parts and met with officials to discuss their 
findings. To identify practices for preventing and detecting 
counterfeit parts, we selected and reviewed a nongeneralizable sample 
of 16 weapon systems representing a mix of aerospace, ground vehicle, 
and missile defense sectors with mature technologies. We identified 
initiatives planned and practices used by DOD and defense contractors 
to prevent and detect counterfeit parts. To identify commercial 
practices used to mitigate the risk of procuring counterfeit parts, we 
interviewed officials from selected companies and associations within 
the automotive, aviation, and electronics industries--sectors that 
have experienced counterfeit parts in their supply chains or produce 
items similar to those used by the DOD programs we reviewed. For more 
on our scope and methodology, see appendix I. We performed our review 
from January 2009 through March 2010, in accordance with generally 
accepted government auditing standards. Those standards require that 
we plan and perform the audit to obtain sufficient, appropriate 
evidence to provide a reasonable basis for our findings and 
conclusions based on our audit objectives. We believe that the 
evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. 

Background: 

Generally, the term counterfeit refers to instances in which the 
identity or pedigree of a product is knowingly misrepresented by 
individuals or companies. Counterfeiters often try to take advantage 
of the established worth of the imitated product, and the counterfeit 
product may not work as well as the genuine article. The threat of 
counterfeit parts continues to grow as counterfeiters have developed 
more sophisticated capabilities to replicate parts and gain access to 
scrap materials that were thought to have been destroyed. 
Counterfeiters exist across industries and are able to respond to 
changes in market conditions. Counterfeit parts can be quickly 
distributed in online markets. Almost every industry can be affected 
by counterfeit parts. 

Counterfeiting can affect the safety, operational readiness, costs, 
and the critical nature of the military mission. DOD procures millions 
of parts through its logistics support providers--DLA supply centers, 
military service depots, and defense contractors--who are responsible 
for ensuring the reliability of the DOD parts they procure. As they 
draw from a large network of suppliers in an increasingly global 
supply chain, there can be limited visibility into these sources and 
greater risk of procuring counterfeit parts. Also, as DOD weapon 
systems age, products required to support it may no longer be 
available from the original manufacturers or through franchised or 
authorized suppliers but could be available from independent 
distributors, brokers, or aftermarket manufacturers. Parts and 
components bought by DOD can come from different types of suppliers, 
as shown in table 1. 

Table 1: Types of DOD Suppliers of Parts and Components: 

Type of source: Original component manufacturer (OCM); Description: 
Organization that designs, or engineers, or both, a part and is 
pursuing or has obtained the intellectual property rights to that part. 

Type of source: Franchised distributor; 
Description: Distributor with which OCM has a contractual agreement to 
buy, stock, repackage, sell and distribute its product lines. 

Type of source: Independent distributor; 
Description: Distributor that purchases new parts with the intention 
to sell and redistribute them back into the market, and which does not 
have contractual agreements with OCM. 

Type of source: Broker/broker distributor; 
Description: In the independent distribution market, brokers are 
professionally referred to as independent distributors. A broker 
distributor is a type of independent distributor that works in a just-
in-time environment by searching the industry and locating parts for 
customers. 

Type of source: Aftermarket manufacturer; 
Description: Manufacturer that either produces and sells replacement 
parts authorized by the OCM, or produces parts through emulation, 
reverse-engineering, or redesign that match OCM specifications and 
satisfy customer needs without violating OCM intellectual property 
rights, patents, or copyrights. 

Source: GAO summary of SAE International data. 

Note: The definitions are based on SAE Aerospace Standard 5553, 
Counterfeit Electronic Parts; Avoidance, Detection, Mitigation and 
Disposition, issued in April 2009. 

[End of table] 

The Extent of Counterfeit Parts in DOD's Supply Chain Is Unknown: 

DOD Does Not Have a Common Definition for Counterfeit Parts: 

DOD lacks a departmentwide definition of the term counterfeit. In our 
discussions with DOD logistics and program officials, several told us 
they are uncertain how to define counterfeit parts, and many officials 
also stated that a common definition would be useful. In the absence 
of a departmentwide definition of counterfeit parts, some DOD entities 
have developed their own. Although there are similarities among these 
definitions, the scope varies. For example, one DLA supply center 
defined a part as counterfeit only when it misrepresented the part's 
trademark. In contrast, a different DLA supply center defined 
counterfeit parts more broadly to include misrepresentations of a 
part's quality and performance. In August 2009, DOD endorsed an 
aerospace standard created by SAE International that includes a 
definition of the term counterfeit part.[Footnote 2] While this 
standard is available departmentwide, it is left to the discretion of 
each DOD program as to whether it wants to use the standard. Some DOD 
officials who support aviation programs, such as the F-15, told us 
they were using or considering use of the standard, while other DOD 
officials told us they were unaware of it. Others were uncertain how 
it would apply beyond avionics to components like fasteners, uniforms, 
tires, and brake pads. In some cases, officials stated the definition 
is too broad for their use. 

DOD Databases Do Not Capture Data on Counterfeit Parts: 

The two primary databases DOD uses to report deficient parts--the 
Product Data Reporting and Evaluation Program (PDREP) and the Joint 
Deficiency Reporting System (JDRS)[Footnote 3]--have data fields that 
enable users primarily to track information on deficient parts, but 
neither is designed specifically to track counterfeit parts. DOD 
considers products that do not conform to quality or design 
specifications to be deficient.[Footnote 4] Both of these systems 
allow users to enter a cause code for why a part is deficient, but 
neither database has a code to capture the deficiency as counterfeit. 
As a result, users are limited to reporting a suspected counterfeit 
part in narrative descriptions. However, identifying instances of 
counterfeit parts through searches of narrative descriptions is 
difficult due to a lack of common terminology. For example, an Air 
Force official told us that when he searched the JDRS system, he found 
3 out of more than 94,000 entries that discussed counterfeit parts. We 
performed similar searches and found that the terms associated with 
counterfeit are rarely included in narrative fields. In consultation 
with database managers from both PDREP and JDRS, we developed a list 
of 11 terms associated with counterfeit parts and searched the 
systems' narrative fields for these terms over a 5-year period ranging 
from October 1, 2004, to September 30, 2009.[Footnote 5] We found that 
less than 1 percent of the reports in the databases included one of 
our search terms, and a manual review of these cases determined that 
only a few were relevant to counterfeit parts. 

DOD entities also have access to the Government Industry Data Exchange 
Program (GIDEP)--a Web-based database--that allows government and 
industry participants to share information on deficient parts, 
including counterfeit. Specifically, a GIDEP user can submit 
information on a suspected counterfeit part and GIDEP policy allows 
for up to 15 days for the supplier to respond before posting this 
information to the database. A 1991 Office of Management and Budget 
policy letter instructs government agencies to use GIDEP to report 
deficient[Footnote 6] parts. However, the GIDEP Deputy Program Manager 
told us that GIDEP is not widely used to report suspect counterfeits. 
He stated that the policy letter was intended as a short-term 
requirement for government use of GIDEP until a Federal Acquisition 
Regulation change was made, which never occurred. He further stated 
that DOD had previously issued a military standard[Footnote 7] 
requiring use of GIDEP, which was canceled during acquisition reform 
in 1996. DOD logistical support providers and contractors that we 
spoke with cited concerns with using the GIDEP system such as delayed 
reporting, liability issues, and effect on criminal investigations. 

* Delayed Reporting: A 15-day delay in posting reports to the system 
allows suppliers to investigate and respond to reports concerning 
their products. However, during this time, a counterfeit part could 
continue to be used or purchased.[Footnote 8] 

* Liability Issues: Some officials expressed concerns about the legal 
implications of reporting a part as suspect counterfeit before it had 
been proven. Fear of lawsuits was repeatedly cited as a reason cases 
are not reported to GIDEP. 

* Effect on Investigations: Another concern officials raised about 
reporting cases to GIDEP is the possibility of alerting suppliers to 
active investigations, as investigators may want to monitor a 
supplier's activities to gather further evidence of possible illegal 
activity. 

Counterfeit Parts Have Been Found in DOD's Supply Chain: 

In the absence of data collected on counterfeit parts, we visited 
military services, MDA, DLA, selected defense contractors, and 
suppliers; many of these officials provided specific examples of 
counterfeit or suspect counterfeit parts. As definitions of 
"counterfeit" vary within DOD, they generally refer to instances in 
which individuals or companies knowingly misrepresent the identity or 
pedigree of a part. Specific examples of the types of counterfeits 
encountered by DOD include: 

* parts falsely claimed by the supplier to be from a particular 
manufacturer, 

* parts that deliberately do not contain the proper internal 
components or construction consistent with the ordered part, 

* authentic parts whose age or treatment have been knowingly 
misrepresented, and: 

* parts with fake packaging. 

We met with DOD program officials and logistical support providers 
across 16 DOD programs and three DLA supply centers and discussed 
instances of suspect and confirmed counterfeit parts; examples are 
shown in appendix II. About two-thirds of these instances involved 
fasteners or electronic parts while the remainder included materials 
ranging from titanium used in aircraft engine mounts to Kevlar used in 
body armor plates. The following illustrates the examples of 
counterfeit parts and actions taken provided by officials across DOD. 

Army: 

* Seatbelt clasps: Seatbelt parts were made from a grade of aluminum 
that was inferior to that specified in DOD's requirements. The parts 
were found to be deficient when the seatbelts were accidentally 
dropped and they broke. 

Navy: 

* Routers: The Navy, as well as other DOD and government agencies, 
purchased counterfeit network components--including routers--that had 
high failure rates and the potential to shut down entire networks. A 2-
year FBI criminal investigation led to 10 convictions and $1.7 million 
in restitution. 

Air Force: 

* Microprocessor: The Air Force needed microprocessors that were no 
longer produced by the original manufacturer for its F-15 flight- 
control computer. These microprocessors were procured from a broker 
and F-15 technicians noticed additional markings on the microprocessor 
and character spacing inconsistent with the original part. A total of 
four counterfeit microprocessors were found and as a result were not 
installed on the F-15's operational flight control computers. 

* Global Positioning System: Oscillators used for navigation on over 
4,000 Air Force and Navy systems experienced a high failure rate and 
failed a retest. These oscillators were provided by a supplier that 
Global Positioning System engineers had previously disapproved as a 
supply source. Air Force officials stated that while the failure would 
not cause a safety-of-flight issue, it could prevent some unmanned 
systems from returning from their missions. 

MDA: 

* Operational Amplifiers: A counterfeit operational amplifier, which 
can be used on multiple MDA systems, was identified on MDA hardware 
during testing. The failed part was found on a circuit board supplied 
by a subcontractor. It was later determined that the subcontractor 
purchased these parts from a parts broker who was not authorized to 
distribute parts by the original component manufacturer. To date, all 
parts have been accounted for and secured from further use on any 
other products. 

* Microcircuits: A counterfeit microcircuit, which can be used on 
multiple MDA systems, was identified on MDA hardware. MDA's visual 
inspection showed that the part was resurfaced and remarked, which 
prompted authenticity testing. Tests revealed surface scratches, 
inconsistencies in the part marking, and evidence of tampering. These 
parts were purchased from a parts broker who was not authorized to 
distribute parts by the original component manufacturer. 

DLA: 

* Packaging and small parts: During a 2-year period, a supplier and 
three coconspirators packaged hundreds of commercial items from 
hardware and consumer electronics stores and labeled them as military- 
grade items. For example, the supplier placed a rubber washer from a 
local hardware store in a package labeled as a brass washer for use on 
a submarine. The supplier also labeled the package containing a 
circuit from a personal computer as a $7,000 circuit for a missile 
guidance system. The suppliers avoided detection by labeling packages 
to appear authentic, even though they contained the wrong part. The 
supplier received $3 million from contracts totaling $8 million before 
fleeing the country. He has been extradited to the United States and 
awaits trial; his coconspirators have been convicted. 

The Department of Commerce also identified the existence of 
counterfeit parts in DOD's supply chain in a study released in January 
2010.[Footnote 9] This study, sponsored by Naval Air Systems Command, 
was designed to provide statistics on the extent of infiltration of 
counterfeit electronic components into the United States industrial 
and supply chains, to understand how different segments of the supply 
chain currently address the issue, and to gather best practices from 
the supply chain on how to handle counterfeits. The department 
received completed surveys from 387 respondents representing five 
segments in the U.S. supply chain--OCMs, distributors and brokers, 
circuit-board assemblers, prime contractors and subcontractors, and 
DOD entities. The surveys included questions addressing past 
experiences with counterfeit parts and practices used in identifying 
them. While the study did not provide a number for the total 
counterfeit incidents at DOD, it noted that 14 DOD organizations had 
reported incidents of counterfeit parts. The study's survey 
respondents identified a growth in incidents of counterfeit parts 
across the electronics industry from about 3,300 in 2005 to over 8,000 
incidents in 2008. Survey respondents attributed this growth to a 
number of factors, such as a growth in the number of counterfeit 
parts, better detection methods, and improved tracking of counterfeit 
incidents. 

DOD Is in the Early Stages of Gathering Information on the Counterfeit 
Parts Problem: 

In April 2009 DOD formed a departmentwide team--partially in response 
to media reports that highlighted the existence of counterfeit parts 
in the DOD supply chain[Footnote 10]--to collect information and 
recommend actions to mitigate the risk of counterfeit parts in its 
supply chain. Standing participants include representatives from DOD's 
Office of the Under Secretary of Defense for Acquisition, Technology & 
Logistics, DLA, the Defense Contract Management Agency, the Defense 
Standardization Program Office, MDA, and military law enforcement and 
investigative agencies.[Footnote 11] The team also incorporates 
liaisons from groups such as the defense industry, Defense 
Intelligence Agency, Federal Aviation Administration, National 
Aeronautics and Space Administration, Department of Energy, Department 
of Commerce, and state and federal law enforcement organizations. 

To gather preliminary information on the counterfeit problem in DOD, 
the team has visited three DOD facilities to observe operations and 
discuss occurrences of and problems with counterfeit in the supply 
chain. The team plans to complete a review of current DOD processes 
and procedures for the handling and storage, detection, disposal, and 
reporting of counterfeit parts by July 2010. The team then plans to 
assess the policies, procedures, and metrics needed to address the 
issue of counterfeit parts . Additionally, the team is developing 
training materials that it plans to make available through the Defense 
Acquisition University, to increase the general awareness of 
counterfeit parts and plans to develop additional training on 
detection techniques. 

DOD's Existing Practices Are Limited in Protecting Its Supply Chain 
against Counterfeit Parts: 

DOD Relies on Existing Procurement and Quality Control Practices That 
Are Not Specifically Designed to Address Counterfeit Parts: 

DOD relies on existing procurement and quality control practices to 
ensure the quality of the parts in its supply chain. However, these 
practices are not designed to specifically address counterfeit parts. 
Limitations in the areas of obtaining supplier visibility, 
investigating part deficiencies, and reporting and disposal may reduce 
DOD's ability to mitigate risks posed by counterfeit parts. 

Obtaining supplier visibility: DOD and its prime contractors rely on 
suppliers across a global supply chain for parts and materials. 
Federal acquisition regulations require that agency contracting 
officers consider whether a supplier is responsible before awarding a 
contract and note that the award of a contract to a supplier based on 
the lowest price alone can result in additional costs if there is 
subsequent default, late deliveries, or other unsatisfactory 
performance.[Footnote 12] While cost or price is always a 
consideration when purchasing goods, an abnormally low price, 
especially from an unfamiliar source, can be an indication that there 
is a need to assess the supplier's ability to meet the requirements of 
the contract. For example, a DLA contracting official described an 
instance in which a supplier new to DLA was awarded a contract based 
on a low price and a performance score of 100 percent. However, the 
score was misleading as the supplier had no past performance to 
measure. Ultimately, the supplier was unable to meet the requirements 
of the contract. Further, DOD parts can be purchased through the use 
of automated systems that have limited visibility on suppliers and can 
increase the risk of purchasing counterfeit parts. To address the 
risks of using automated source selection, DLA has a pilot project to 
create a list of qualified distributors for the supply of two 
electronic items--semiconductors and microcircuits. Of the 53 
distributors that applied, 13 were selected based on their 
qualifications. DLA plans to review other parts to determine if the 
pilot can be expanded. In addition, DOD has a number of weapons 
systems that have remained in service longer than expected--such as 
the B-52 bomber--and require parts that are no longer available from 
the original manufacturer or its authorized distributors. When parts 
are needed for these systems, they are often provided by brokers or 
independent distributors. As buying from these sources reduces DOD's 
visibility into a part's pedigree, additional steps are required in 
assuring that the part is reliable or authentic. 

Detecting Part Deficiencies: DOD can have a part's quality and 
authenticity tested through destructive and nondestructive methods 
prior to awarding a contract. However, several DOD officials told us 
that staff responsible for assembling and repairing systems and 
equipment may not have the expertise to identify suspect counterfeit 
parts outside of those that demonstrate performance failures because 
they are not trained to identify counterfeit parts and have limited 
awareness of the issue. In addition, DOD contracting officials told us 
that the cost and time associated with testing may be prohibitive, 
especially for lower-cost parts such as a 50-cent fastener. Other 
factors were cited by DOD officials at several testing centers as 
limitations such as the barriers to testing parts that are only 
available in limited quantities or are expensive. For instance, the F- 
15 program was in need of two spare parts, but only two of these parts 
were available in the supply chain, so the preferred destructive 
testing could not be performed. 

Reporting and disposal: Generally, DOD has processes in place for 
reporting and disposal of deficient parts. Reporting of a deficient 
part that is suspected to be counterfeit enables further investigation 
to confirm that a part is counterfeit. As described above, DOD uses 
JDRS and PDREP to report deficient parts, but does not have a specific 
field in these databases to report counterfeit parts. Some DOD 
officials stated that they report suspect counterfeits to internal 
fraud teams, others indicated that they would contact local law 
enforcement or the Federal Bureau of Investigation in similar cases. 
DOD officials told us that when they found counterfeit parts they have 
shared this information through informal methods such as e-mails or 
phone calls. Others, such as MDA, use formal methods to convey this 
information such as bulletins that alert MDA staff of counterfeiting 
techniques and how to detect them as well as advisories on confirmed 
counterfeit parts found in MDA programs. MDA officials stated that 
these methods are an effective way to immediately alert their staff of 
counterfeit parts. 

Further, depending on the condition of a noncounterfeit, deficient 
part and its related demilitarization code, it can be refurbished, 
resold, or destroyed. The disposal of counterfeit and scrapped parts 
is an area of vulnerability as they could reenter the supply chain. 
According to officials from the Defense Reutilization and Marketing 
Service--the agency responsible for destroying and disposing of DOD's 
excess and surplus parts--it is critical that a part and its related 
demilitarization code be identified as counterfeit when it is sent for 
disposal to prevent it from reentering DOD's supply chain. However, 
DOD does not have a consistent method to identify parts as counterfeit 
when they are sent for disposal. Some parts designated for disposal 
have made their way back into the supply chain. For example, DOD 
program officials described a helicopter part that had the same serial 
number as a defective one that had been destroyed. An X-ray test 
revealed the destroyed part had been welded back together and put back 
in DOD's inventory. 

Some DOD Components and Contractors Have Taken Initial Steps to 
Address Counterfeit Parts: 

In the absence of a departmentwide policy, some DOD components and 
their contractors have supplemented existing procurement and quality- 
control practices to help mitigate the risk of counterfeit parts in 
the DOD supply chain. For example, MDA has established a 12-person 
organization that leverages subject-matter expertise at two DOD 
laboratories to identify, evaluate, and track the effects of 
counterfeit parts on all MDA hardware. MDA policies to address 
counterfeits are part of its Parts, Materials, and Processes Mission 
Assurance Plan which includes instructions on part selection, 
procurement, receipt, testing, and use of parts. This plan 
specifically identifies three steps to offset the presence of 
counterfeit parts and materials in the market: (1) preventing 
counterfeit parts and materials by using only authorized distributors, 
with associated certifying paperwork; (2) detecting and containing 
counterfeit parts and materials through appropriate inspection and 
test methods; and (3) notifying the user community of potential 
counterfeit concerns and assisting in prosecution. The plan also 
instructs programs to impound suspect counterfeit parts and all items 
from the same lot and to not return suspected counterfeit parts to 
suppliers, preventing them from being sold to others. According to MDA 
officials, all new contracts include adherence to the plan's section 
on counterfeit parts and materials, and MDA has developed policies 
that can be applied to existing contracts. MDA further has applied 
DOD's item-unique identification technology that provides for the 
marking of individual items--whose unit acquisition cost is $5,000 or 
more--with a set of globally unique data elements. This technology is 
designed to help DOD value and track items throughout their life cycle 
by requiring equipment manufacturers to assign unique identification 
numbers to parts acquired under DOD contracts, thus enabling better 
traceability of a part to a specific manufacturer. MDA also has an 
ongoing effort to develop tools to identify, quantify, and manage the 
risk of counterfeit parts in the supply chain as counterfeits or 
suspect counterfeits are detected. DLA's Supply Center in Columbus, 
Ohio, has an established team that investigates suspect counterfeit 
parts under the broader scope of fraud. The team is composed of 
members from DLA's product verification, contracting, and legal 
offices as well as the Defense Criminal Investigative Service and 
handles cases ranging from part deficiencies to contractor misconduct. 
When encountering a counterfeit part, the team's analysis of 
engineering investigations, product testing, and criminal 
investigations can be used as evidence in criminal and civil cases. 

DOD's prime contractors are also independently taking steps to protect 
the supply chain from counterfeits. As DOD relies on its suppliers to 
provide weapons, equipment, and raw materials to meet U.S. national 
security objectives, these activities directly affect DOD's own 
efforts. Several prime contractors told us that they are using a 
recently adopted industry standard to develop counterfeit protection 
plans.[Footnote 13] The standard provides strategies to mitigate the 
risks of procuring counterfeit products and standardizes practices to 
maximize availability of authentic parts and procure parts from 
reliable sources. Additionally, it standardizes practices to assure 
the authenticity of parts, control parts that are identified as 
counterfeit, and report counterfeit parts to other potential users and 
government investigative authorities. Prime contractors using this 
standard are also focusing on ensuring traceability within their 
supply chains through flow-down requirements to subcontractors. For 
example, one contractor includes a clause in its contracts that states 
that its suppliers shall ensure that they do not deliver counterfeits 
but if this occurs, the supplier would immediately notify the defense 
contractor and assume responsibility for the cost of replacing the 
counterfeit parts. Several of the companies also provide training on 
detecting counterfeits within their product lines. 

A Number of Commercial Initiatives Exist to Mitigate the Risk of 
Counterfeit Parts in Supply Chains: 

Companies Have Developed Anticounterfeiting Practices to Address 
Vulnerabilities to Counterfeit Parts: 

As supply chains across industries are also vulnerable to the risk of 
counterfeit parts, we met with selected companies representing 
commercial aerospace, electronics, and automotive sectors that have 
taken measures to address the counterfeiting challenges they face. 
Companies we met with cited procedures and practices that they have 
incorporated to help mitigate the risk of counterfeit parts in the 
areas of supplier visibility, detection, and reporting and disposal. 

Supplier Visibility: To ensure that parts and materials are reliable, 
commercial companies we met with described several practices to 
identify potential sources of counterfeiting activity. These practices 
include regular assessments of a supplier's internal controls ranging 
from their access to product designs to manufacturing facility 
security. Some practices also included instituting extra measures when 
purchasing from independent distributors such as internal and external 
validation and testing requirements, and part-authenticity 
documentation--such as certificates of conformance. 

Detection of Counterfeits: Companies we spoke with are using a number 
of practices to make their products and packaging more difficult to 
replicate and to increase the opportunities to identify counterfeits 
in their supply chains. Some companies incorporate rare, proprietary, 
or expensive materials on parts and packaging, which can deter 
counterfeiters. Some companies also include markings on products and 
packaging that, when absent or altered, could alert investigators or 
consumers to potential counterfeits. One company allows customers to 
report suspected counterfeits on its Web site and posts pictures of 
markings and security features for customers and investigators to use 
in distinguishing genuine from counterfeit products. Companies have 
also coordinated with the Department of Homeland Security's Customs 
and Border Protection inspectors to identify counterfeits. One company 
visited inspectors at two ports that receive a high volume of imports 
for this company, to inform inspectors of product packaging 
characteristics and how to easily identify counterfeit packaging. This 
effort resulted in an increased number of seizures of suspected 
counterfeit products at these two ports. 

Reporting and Disposal of Counterfeits: Several company officials 
identified the lack of oversight of the scrapping, recycling, and 
disposal of parts as an avoidable source of counterfeiting. Specific 
practices that companies use to confirm that scrapped, excess, and 
suspected counterfeit materials are not used to make more counterfeit 
parts include: 

* requiring suspect counterfeits to be quarantined upon detection, 

* auditing suppliers to ensure proper tracking of the amount of 
scrapped material destroyed, 

* requiring suppliers to use contract clauses that prevent the resale 
of scrap parts to third parties, and: 

* witnessing the destruction of seized or returned counterfeit parts. 

Industry Associations Identify and Share Anticounterfeiting Practices: 

Several industry associations identify and share counterfeit- 
mitigation practices. Activities include training, knowledge exchange, 
and developing standards. These associations can provide a forum for a 
diverse set of participants to arrive at agreement on collaborative 
mitigation steps for the counterfeit issue. The recently issued 
Department of Commerce report on the existence of counterfeit 
electronics across the industry has also recommended mitigation 
strategies for counterfeit parts. 

In April 2009, SAE International issued Aerospace Standard 5553, 
"Counterfeit Electronic Parts; Avoidance, Detection, Mitigation and 
Disposition." The standard was created to provide uniform 
requirements, practices, and methods to mitigate the risks of 
receiving and installing counterfeit electronic parts.[Footnote 14] It 
also provides guidance for establishing a counterfeit-control plan to 
include parts availability, purchasing process, product verification, 
investigation, reporting, and disposal. SAE International is providing 
training on applying this standard, including a segment on detection 
and visual inspection of actual counterfeit parts. For example, in its 
visual inspection segment, the SAE training notes that characteristics 
of a part that may indicate it is counterfeit include inconsistencies 
in the part's texture, colors, material, or condition; quality of ink 
or laser markings; condition of part labels; and markings that include 
information such as production dates and manufacturing locations. As 
shown in figure 1, visual inspection of a part's texture can uncover 
counterfeits that have been resurfaced. 

Figure 1: Visual Detection of a Counterfeit Integrated Circuit: 

[Refer to PDF for image: illustration] 

Illustration indicates the following: 

* Shiny, smooth, but orange peel—type finish was not natural looking; 

* Scraping the thick-looking black top exposed another logo under the 
marking. 

Source: SAE International and the Jet Propulsion Laboratory. 

Note: Information is from SAE 5553 Training Manual dated November 2009. 

[End of figure] 

In 2009, a number of conferences were held to facilitate a 
collaborative dialogue between industry representatives, law 
enforcement, and government agencies. Specifically, in September, 
DOD's Defense Standardization Program Office sponsored its annual 
Diminishing Manufacturing Sources and Material Shortages and 
Standardization Conference where participants discussed the 
counterfeit part issue and how to increase awareness across 
industries. Additionally, in December, the Center for Advanced Life 
Cycle Engineering hosted its third annual symposium on avoiding, 
detecting, and preventing counterfeit electronic parts.[Footnote 15] 
Sessions at the symposium were aimed at generating awareness of the 
counterfeit parts issue and sharing the perspectives of law 
enforcement, supply chain managers, and government. The symposium also 
provided information on technical tools and methods to detect and 
prevent counterfeit parts. 

In late 2008, the Aerospace Industries Association established an 
integrated project team across aerospace, space, and defense products 
to address challenges in the supply chain for mitigating the risk of 
counterfeit parts. The team worked with government agencies, original 
manufacturers, industry associations, and independent distributors 
across three main objectives to: (1) discuss U.S. government 
acquisition and procurement policies to avoid introducing counterfeit 
parts and materials into products; (2) create a set of recommendations 
for government and industry to ensure that the risk of introducing 
counterfeit parts and materials is minimized, is consistent with risks 
accepted by the customer, and implementable without sacrificing the 
benefits of buying commercially available products; and (3) engage the 
U.S. government in discussions concerning enforcement of policies to 
avoid the introduction of counterfeit products into the United States. 
The project team has provided its recommendations to its association 
members and expects final recommendations to be available in the fall 
of 2010. 

The Semiconductor Industry Association established an Anti- 
Counterfeiting Task Force in June 2006, which aims to stop counterfeit 
semiconductors from entering the marketplace. According to the task 
force Chairman, its work with U.S. Customs and Border Protection led 
to the seizure of 1.6 million counterfeit semiconductors over the past 
2 years. 

Other industry associations are also focusing their efforts on 
mitigating the risk of counterfeit parts. Business Action to Stop 
Counterfeiting and Piracy has developed a clearinghouse for 
information about counterfeiting and piracy to facilitate information 
exchange.[Footnote 16] The Electronic Industry Citizenship Coalition 
developed a risk-assessment tool for technology-industry companies to 
help determine the appropriate level of intensity of supplier audits 
and also asks suppliers about how they manage their subtier suppliers. 
[Footnote 17] The International Anti-Counterfeiting Coalition has 
helped the auto industry bring 10 global manufacturers together to 
discuss common global counterfeiting problems, and also provides 
opportunities to its members to participate in training programs. 
[Footnote 18] 

The recent Department of Commerce report provided practices for 
managing electronic counterfeits industrywide, as well as 
recommendations for the U.S. government to mitigate the risk of 
electronic counterfeit parts. The practices for managing counterfeits 
included (1) provide clear, written guidance to employees on what 
steps to take if they suspect a part is counterfeit, (2) remove and 
quarantine suspected and confirmed parts from regular inventory, (3) 
maintain an internal database to track all suspected and confirmed 
counterfeit components, and (4) report suspected and confirmed 
counterfeit parts to industry associations and databases and to law 
enforcement. The department's report also stated that there is little 
information collected on malfunctioning and nonoperational electronic 
parts, which gives a false impression of supply-chain security. 
According to the report's findings, personnel that use parts need to 
file Product Quality Deficiency Reports in a timely manner to report 
nonworking electronic components, and if this proves to be impractical 
for the field units, then another system of reporting needs to be 
developed to facilitate information sharing. Based on its survey 
responses, interviews, and field visits, the Department of Commerce 
made seven recommendations in the areas of reporting, contract award, 
legal guidance, enforcement activities, data collection, information 
sharing, and DOD acquisition planning. 

Conclusions: 

As DOD draws from a large network of suppliers in an increasingly 
global supply chain, there can be limited visibility into these 
sources and greater risk of procuring counterfeit parts, which have 
the potential to threaten the reliability of DOD's weapon systems and 
the success of its missions. DOD needs a departmentwide definition and 
consistently used means for detecting, reporting, and disposing of 
counterfeit parts. Collaboration with government agencies, industry 
associations, and commercial-sector companies that produce items 
similar to those used by DOD and have reported taking actions to 
mitigate the risks of counterfeit parts in their supply chains offers 
DOD the opportunity to leverage ongoing and planned initiatives in 
this area. Some of these initiatives, such as MDA practices and 
industry detection and disposal processes, can be considered for DOD's 
immediate use. However, as DOD collects data and acquires knowledge 
about the nature and extent of counterfeit parts in its supply chain, 
additional actions may be needed to help better focus its risk-
mitigation strategies. 

Recommendations for Executive Action: 

We recommend that the Secretary of Defense take the following three 
actions as DOD develops its anticounterfeit program: 

1. leverage existing anticounterfeiting initiatives and practices 
currently used by DOD components and industry to establish guidance 
that includes a consistent and clear definition of counterfeit parts 
and consistent practices for preventing, detecting, reporting, and 
disposing of counterfeit parts; 

2. disseminate this guidance to all DOD components and defense 
contractors; and: 

3. analyze the knowledge and data collected to best target and refine 
counterfeit-part risk-mitigation strategies. 

Agency Comments and Our Evaluation: 

In written comments on a draft of this report, DOD concurred with the 
recommendations and identified a number of actions that it will take 
to address them. DOD noted that it has established teams that will 
leverage anticounterfeit initiatives and practices used by DOD 
components and industry to develop guidance by late 2010. DOD plans to 
include a consistent and clear definition of counterfeit parts and 
consistent practices for preventing, detecting, reporting, and 
disposing of counterfeit parts in its guidance, and plans to 
disseminate it to all of its components and defense contractors by 
early 2011. As it collects more knowledge and data on counterfeit 
parts, DOD plans to analyze this to best target and refine risk- 
mitigation strategies--which it expects to do by October 2010. 
According to the official leading DOD's counterfeit parts efforts, DOD 
will continue to refine risk-mitigation strategies on an ongoing basis 
as it gains more knowledge on counterfeit parts. DOD also provided 
technical comments, which were incorporated as appropriate. DOD's 
comments are reprinted in appendix III. The Department of Commerce 
concurred with the findings in this report. The Department of 
Commerce's comments are reprinted in appendix IV. 

As arranged with your offices, unless you publicly announce the 
contents of this report earlier, we plan no further distribution of it 
until 30 days from the date of this letter. At that time, we will send 
copies of this report to appropriate congressional committees; the 
Secretary of Defense; the Secretaries of the Army, Navy, and Air 
Force; the Secretary of Commerce; the Administrator of the Office of 
Federal Procurement Policy; as well as other interested parties. In 
addition, the report will be made available at no charge on the GAO 
Web site at [hyperlink, http://www.gao.gov]. 

If you or your staff have any questions concerning this report, please 
contact me at (202) 512-4906. Contact points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. GAO staff who made major contributions to this 
report are listed in appendix V. 

Sincerely, 

Signed by: 

Belva Martin: 
Acting Director: 
Acquisition and Sourcing Management: 

[End of section] 

Appendix I: Scope and Methodology: 

To examine the extent of the Department of Defense's (DOD) knowledge 
of counterfeit parts that have entered its supply chain,[Footnote 19] 
we reviewed regulations, guidelines, and databases to determine 
whether they addressed how DOD should define and collect data on 
counterfeit parts. We met with officials from the DOD Acquisition and 
Technology, Logistics and Material Readiness, Supply Chain Integration 
office; the DOD Defense Logistics Agency and its Supply Centers 
located in Columbus, Ohio; Philadelphia, Pennsylvania; and Richmond, 
Virginia; the Army, Navy, Air Force, and Missile Defense Agency; and 
five defense prime contractors--BAE, Boeing, Lockheed Martin, Northrop 
Grumman, and Raytheon--to discuss (1) their definition of the term 
counterfeit,(2) their procedures and practices for obtaining knowledge 
of counterfeit parts, (3) databases available for documenting 
instances of counterfeit or suspect counterfeit parts, (4) their 
knowledge of the existence of counterfeit parts, and (5) instances of 
counterfeit parts within the DOD supply chain. 

We also met with database managers from the Joint Deficiency Reporting 
System (JDRS), the Product Data Reporting and Evaluation Program 
(PDREP), and the Government Industry Data Exchange Program (GIDEP) to 
discuss whether these databases are able to and have been used to 
document instances of counterfeit or suspected counterfeit parts. 
Additionally, we met with officials from the Department of Commerce, 
Bureau of Industry and Security's Office of Technology Evaluation, to 
discuss their study of counterfeit electronics, which the office 
performed for the Navy, through the office's authority to conduct 
surveys and analyses and prepare reports on specific sectors of the 
U.S. defense supplier base. 

To further examine the processes that DOD has in place to detect and 
prevent counterfeit parts from entering its supply chain, we conducted 
a case study of DOD weapon programs and interviewed program officials 
as well as several logistics support providers. We selected a 
nongeneralizable sample of 16 DOD weapon programs based on criteria 
including representation of the aerospace, ground vehicle, or missile 
defense sectors; representation of the production and deployment or 
operations and support phase of the acquisition life cycle, and cross- 
representation of DOD components--Army, Navy, Air Force, and the 
Missile Defense Agency. GAO also has ongoing work through its annual 
"Assessments of Selected Weapon Programs"[Footnote 20] for many of 
these programs, which allowed the team to build upon our prior work 
efforts and existing DOD contacts. Programs selected were: F-15 Eagle, 
F-16 Fighting Falcon, F/A-18E/F Super Hornet, F/A-22 Raptor, C-5 
Galaxy, C-130 Hercules, AH-64D Apache, UH-60 Black Hawk, E-2 Hawkeye, 
AV-8B Harrier, SH-60 Sea Hawk, V-22 Osprey, Aegis Cruiser, Ground-
Based Midcourse Defense, High Mobility Multi-purpose Wheeled Vehicles 
(HMMWV), and M1 Abrams. 

We identified initiatives and practices used by industry associations 
and commercial companies in selected commercial supply chains 
(electronics, automotive, aviation) to mitigate the risk of procuring 
counterfeit parts. We selected commercial supply chains and companies 
in those supply chains based on one or more of several criteria: 
industries in which instances of counterfeiting have taken place; 
companies that make products similar to DOD weapons systems in terms 
of complexity; and companies that make or buy products similar to 
those bought by DOD. We met with company officials from functions 
including Quality, Legal, Security, Brand Protection, and Sourcing and 
Supplier Management, to discuss their experiences with counterfeits 
(both incoming parts and counterfeit versions of their products) and 
processes in place to protect against counterfeits. Much of the 
information we obtained from these companies is anecdotal, due to the 
proprietary nature of the data that could affect the companies' 
competitive standing or level of protection against counterfeits. We 
visited or spoke with company officials at companies and locations 
including Advanced Micro Devices, Sunnyvale, California; Boeing 
Commercial Airplanes, Everett, Washington; Cisco Systems, Inc., San 
Jose, California; Federal-Mogul Corporation, Southfield, Michigan; 
Ford Motor Company, Dearborn, Michigan; Hewlett-Packard Company, 
Houston, Texas; Intel Corporation, Santa Clara, California; Meggitt 
Aircraft Braking Systems, Akron, Ohio; Microsoft Corporation, Redmond, 
Washington; and Rolls-Royce Corporation, Indianapolis, Indiana. We 
also met with or obtained documents from several industry 
associations, including the Aerospace Industries Association, 
Semiconductor Industry Association, Business Action to Stop 
Counterfeiting and Piracy, Electronic Industry Citizenship Coalition, 
and International Anti-Counterfeiting Coalition. We attended two 
counterfeit-mitigation conferences--one sponsored by DOD's Defense 
Standardization Program Office and the other sponsored by the Center 
for Advanced Life Cycle Engineering--and attended an SAE International 
training workshop on Aerospace Standard AS5553. 

We conducted this performance audit from January 2009 to March 2010 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: Examples of Counterfeit Parts in DOD's Supply Chain: 

As shown in table 2, Department of Defense (DOD) officials that we met 
with provided examples of counterfeit parts. As definitions of 
"counterfeit" vary within DOD, the examples are based on the 
individual's understanding of the term; however, the examples 
generally refer to instances in which individuals or companies 
knowingly misrepresent the identity or pedigree of a part. While many 
of the examples are confirmed cases of counterfeit, some include cases 
that were not yet confirmed as the case was under investigation or the 
DOD official did not know the outcome. 

Table 2: Examples of Confirmed or Suspected Counterfeits in DOD's 
Supply Chain: 

Confirmed Counterfeit: Electronics: 

Part: GPS receiver frequency standard oscillators; 
Description: The Air Force and Navy use these oscillators on over 
4,000 systems, including the Joint Surveillance Target Attack Radar 
System (Joint STARS). On the Joint STARS, deficient receivers could 
cause mission failure. An approved DOD supplier purchased the 
oscillators from a distributor who had used an unapproved source of 
supply and the problem was detected when the part had a high failure 
rate during depot repair. After detection, the contractor removed 
parts from the depot parts bin, but could not account for five parts. 
Officials reported that the unaccounted-for five parts may never be 
found. 

Part: Dual transistor; 
Description: Multiple services commonly use this part to provide power 
in a system used to defeat shoulder-launched missiles. A supplier 
purchased the transistors from a nonfranchised distributor and 
detected the problem--counterfeit chips in the transistors--during 
routine acceptance testing and failure analysis. After detection, the 
supplier realized that 16 components had been shipped against the 
contract. The supplier paid for these 16 components to be replaced and 
retested. 

Part: Microprocessor and nonvolatile random access memory; 
Description: The Air Force uses these components in the F-15 Flight 
Control Computer, but F-15 officials stated that the parts are in 
diminishing supply and difficult to procure. The microprocessors were 
procured from a broker, and F-15 technicians detected the problem--a 
falsely identified manufacturer in both cases--during repairs when 
they noticed additional markings on the microprocessor and character 
spacing inconsistent with the original part. Air Force officials 
stated that the parts were isolated and never released to the fleet or 
into supply. 

Part: Radar components; 
Description: One of the Navy's suppliers discovered counterfeit radar 
components in its supply chain and worked with the Navy Criminal 
Investigative Service on the matter. 

Part: Electronic components; 
Description: These components are used across services in the V-22 
Osprey. Suppliers procured the parts--including fuel management units 
and dual digital map systems--and the problems were detected in a 
supply test house. 

Part: Microcircuit component; 
Description: This microcircuit, no longer produced by the original 
manufacturer, is used by the Navy across a variety of platforms, 
including ships, airplanes, and submarines. After the Navy and its 
contractor purchased 75 of the microcircuits from a supplier, the Navy 
found that they were wired with the wrong material. Upon discovery, 
the parts were segregated and did not enter the supply stream. 

Part: Counterfeit network hardware; 
Description: This hardware was purchased by multiple services and 
contractors and had fake labeling. Federal investigators identified 
nearly 3,500 counterfeit network components. 

Part: Operational amplifiers; 
Description: The Missile Defense Agency (MDA) acquired the parts from 
a subcontractor who used an unauthorized distributor. MDA discovered 
the problem with the amplifiers while testing a circuit board. 

Part: Frequency synthesizer; 
Description: MDA acquired a part that the supplier had acquired from 
an unauthorized distributor. MDA detected the problem--the surface was 
resurfaced and remarked--through visual inspections and authenticity 
testing. Investigations confirmed that a third party had tampered with 
the part. 

Part: Electronic piece parts; 
Description: MDA acquired counterfeit parts used in booster and flight 
termination systems and detected the problem during related 
investigations and, in some cases, testing. 

Confirmed Counterfeit: Fasteners: 

Part: Self-locking nuts; 
Description: Self-locking nuts, used in aviation braking, were 
cracking. They were purchased from an unauthorized source. 

Confirmed Counterfeit: Metals: 

Part: Titanium aerospace parts; 
Description: Multiple services and government agencies purchased 
titanium for use on platforms that included F-15 engine mounts and F-
22 and C-17 parts. The titanium was substandard and, if it had failed, 
could have caused casualties and property loss. The supplier has been 
charged with selling substandard titanium and repeatedly issuing 
fraudulent certifications stating that the titanium passed testing 
standards. 

Part: Aluminum parts; 
Description: A supplier provided parts that it misrepresented as 
containing the aluminum bronze alloy required by DOD, but the parts 
were made from a lesser-grade of aluminum. Investigators raided the 
company's facility, which was located in a barn. 

Part: Aluminum parts; 
Description: Eighteen DOD and National Aeronautics and Space 
Administration programs and 14 commercial programs procured aluminum 
for use in items including helicopters, guns, and automobile wheels. 
Although the parts passed initial inspections, it was determined that 
the aluminum supplier had falsely reported that it had provided the 
correct treatments. The failure to properly heat treat the aluminum 
made it susceptible to corrosion. 

Confirmed Counterfeit: Packaging and labeling: 

Part: Assorted small parts; 
Description: The Defense Logistics Agency (DLA) purchased assorted 
parts, such as washers and circuits, for use on a variety of 
platforms. The supplier was substituting the requested military-grade 
items with commercial items by providing correctly-labeled packages 
but putting the wrong parts inside. 

Confirmed Counterfeit: Other hardware: 

Part: Brake shoes; 
Description: This brake shoe is used on medium tactical trailers--the 
largest tactical trailers used by the military. The shoe was no longer 
produced by the original manufacturer, so a contract was awarded to a 
new company. These brake shoes were made with various materials, 
including seaweed. U.S. customs agents had already seized the brake 
shoes and DOD never took ownership of them. 

Part: Body armor; 
Description: DLA procured non-Kevlar material that was misrepresented 
as Kevlar and discovered the discrepancy during testing. 

Additional Cases Reported: Electronics: 

Part: High-voltage diodes; 
Description: An Air Force official was familiar with a case in which a 
U.S. company purchased diodes from China, rubbed off the part number, 
and sold the diodes to DOD. The official reported that the Department 
of Justice had successfully prosecuted the company involved. 

Additional Cases Reported: Fasteners: 

Part: Rotor retaining nut (used to hold the rotor to the mast of some 
helicopters); 
Description: The rotor retaining nut is used to hold the rotor to the 
mast of some helicopters; its failure would cause the helicopter to 
crash. The Air Force reported that a supplier willfully supplied a 
substandard rotor retaining nut, but the supplier maintained its 
innocence and claimed that it was unaware that the part it procured 
was a counterfeit part. 

Part: Bolt; 
Description: The Army reported that a bolt, intended for use in 
helicopters, was counterfeit. The problem was detected when Army 
officials recognized the serial number on the part and identified it 
as a defective part that had been cut in half for destruction. An X-
ray test confirmed the bolt had been welded back together. 

Part: Hook point bolts; 
Description: DLA procured this part, which is used to help stop 
aircraft when they land on aircraft carriers. Failure of the part 
could result in loss of life or aircraft. A supplier rubbed serial 
numbers off hooks that were too thin to use, welded additional 
material onto the hooks, and reused them. This problem was detected 
when premature part failure triggered an investigation and the welded 
material showed up in X-rays. 

Additional Cases Reported: Packaging and labeling: 

Part: Hermetically-sealed microwave boxes; 
Description: The Air Force reported that a contractor, who bid to 
repair parts, was sending them to Russia for repairs and that the 
resulting repairs were not done accurately. Part failure could have 
posed a risk to the program. 

Additional Cases Reported: Other hardware: 

Part: Air conditioning component; 
Description: Army personnel using the Bradley during operations 
detected a component that they suspected was counterfeit. In some 
climates, such as Iraq, air conditioning failure would make this 
vehicle inoperable and, therefore, compromise missions. Army officials 
were uncertain whether there was an investigation in this case. 

Part: Seatbelts; 
Description: Army officials reported that seatbelts, provided by a 
supplier, were made from a cheap aluminum and were falsely certified 
to be the correct aluminum. The deficiency was discovered when a 
seatbelt part was accidentally dropped and broke. After investigation, 
Army investigators banned the company from selling to the Army. 

Source: GAO summary of examples provided by DOD officials. 

[End of table] 

[End of section] 

Appendix III: Comments from the Department of Defense: 

Office Of The Assistant Secretary Of Defense: 
Logistics And Materiel Readiness: 
3500 Defense Pentagon: 
Washington, DC 20301-3010: 

March 25, 2010: 

Ms. Belva Martin: 
Acting Director, Acquisition and Sourcing Management: 
U.S. Government Accountability Office: 
441 G Street, N.W. 
Washington, DC 20548: 

Dear Ms. Martin: 

This is the Department of Defense (DoD) response to the GAO draft 
report, GAO-10-389, "Defense Supplier Base: DoD Should Leverage 
Ongoing Initiatives in Developing Its Program to Mitigate Risk of 
Counterfeit Parts" dated February 24, 2010 (GAO Code 120802). Detailed 
comments on the report recommendations are enclosed. 

The Department concurs with the draft report's recommendation to 
leverage existing anti-counterfeiting initiatives and practices used 
by DoD Components and industry to establish guidance that includes a 
clear and consistent definition of counterfeit parts and consistent 
practices for preventing, detecting, reporting, and disposal of 
counterfeit parts. The Department also concurs with the
recommendations to disseminate the guidance to its Components and 
defense contractors as well as analyze the knowledge and data 
collected to best target and refine counterfeit part risk mitigation 
strategies. 

The Department appreciates the opportunity to comment on the draft 
report. Technical comments are provided separately. For further 
questions concerning this report, please contact Mr. Lee Plowden, 703-
604-0098 x137, email lee.plowden@osd.mil. 

Sincerely, 

Signed by: 
Alan F. Estevez: 
Principal Deputy: 

Enclosure: As stated: 

GAO Draft Report Dated February 24, 2010: 
GAO-10-389 (GAO Code 120802): 

"Defense Supplier Base: Dod Should Leverage Ongoing Initiatives In 
Developing Its Program To Mitigate Risk Of Counterfeit Parts" 

Department Of Defense Comments To The GAO Recommendations: 

Recommendation 1: The GAO recommends that the Secretary of Defense 
leverage existing anti-counterfeit initiatives and practices currently 
used by DOD components and industry to establish guidance that 
includes a consistent and clear definition of counterfeit parts and 
consistent practices for preventing, detecting, reporting, and 
disposing of counterfeit parts. 

DOD Response: Concur. DOD has organized specific teams to address 
counterfeit issues in electronic systems and components, as well as, 
the logistics supply chain. These teams will leverage existing anti-
counterfeit initiatives and practices used by its Components and 
industry to establish guidance that includes a consistent and clear 
definition of counterfeit parts and consistent practices for 
preventing, detecting, reporting, and disposing of counterfeit parts. 
The estimated completion date for establishing sound guidance with a 
clear and consistent counterfeit parts definition and consistent 
practices is Dec 2010. 

Recommendation 2: The GAO recommends that the Secretary of Defense 
disseminate this guidance to all DOD components and defense 
contractors. 

DOD Response: Concur. DOD will disseminate anti-counterfeit guidance 
to all of its Components and defense contractors that includes a 
consistent and clear definition of counterfeit parts and consistent 
practices for preventing, detecting, reporting, and disposing of 
counterfeit parts. The estimated completion date is Feb 2011. 

Recommendation 3: The GAO recommends that the Secretary of Defense 
analyze the knowledge and data collected to best target and refine 
counterfeit-part risk mitigation strategies. 

DOD Response: Concur. DOD will analyze all knowledge and data it 
collects on counterfeit parts to best target and refine risk 
mitigation strategies. The estimated completion date is October 2010. 

[End of section] 

Appendix IV: Comments from the Department of Commerce: 

United States Department Of Commerce: 
Deputy Under Secretary for Industry and Security: 
Washington, D.C. 20230: 
	
March 12, 2010: 

Mr. John Neumann: 
Assistant Director, Acquisition and Sourcing Management: 
Government Accountability Office: 
441 G St., NW: 
Washington, DC 20548: 

Dear Mr. Neumann: 

This letter is in response to a request from Relva Martin for comments 
on the draft report entitled "Defense Supplier Base; DOD Should 
Leverage Ongoing Initiatives in Developing Its Program to Mitigate 
Risk of Counterfeit Parts" (GAO-10-389). 

After reviewing the material, Commerce has no concerns with the report 
and concurs with GAO's findings for executive action. In fact, the 
recommendations are in line with a more comprehensive report issued by 
the Department of Commerce's Bureau of Industry and Security in 
January 2010, "Defense Industrial Base Assessment: Counterfeit 
Electronics." A copy of the report is enclosed. 

If you need further assistance, please contact Mark Crace at (202)482-
8093 or via e-mail at mcrace@bis.doc.gov. 

Sincerely, 

Signed by: 

Daniel O. Hill: 

[End of section] 

Appendix V: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Belva Martin, (202) 512-4906 or martinb@gao.gov: 

Staff Acknowledgments: 

In addition to the individual named above, key contributors to this 
report were Anne-Marie Fennell, Director; John Neumann, Assistant 
Director; Lisa Gardner; Kevin Heinz; Robert Bullock; MacKenzie Cooper; 
Jonathan Mulcare; Josie Sigl; Sylvia Schatz; and Jean McSween. 

[End of section] 

Footnotes: 

[1] For purposes of this report, we are using the term "counterfeit" 
to refer generally to instances in which individuals or companies 
knowingly misrepresent the identity or pedigree of a part. 

[2] SAE International is a member organization that shares information 
and exchanges ideas for advancing the engineering of mobility systems. 
SAE Aerospace Standard 5553 defines a counterfeit part as a suspect 
part that is a copy or substitute without legal right or authority to 
do so or one whose material, performance, or characteristics are 
knowingly misrepresented by a supplier in the supply chain. 

[3] PDREP is an automated information system managed by the Navy to 
track quality, including part deficiencies, and is used by the Navy, 
DLA, the Defense Contract Management Agency (DCMA), Army ground 
forces, and the Marine Corps. JDRS is an automated information system 
that Naval Air Systems Command developed for reporting of part 
deficiencies for aeronautics. JDRS users include Naval Air Systems 
Command, Army Space and Missile Defense Command, the Air Force, the 
Coast Guard, and DCMA. 

[4] A part that is found to be deficient is not necessarily 
counterfeit as counterfeit parts involve the intent to misrepresent 
the identity or pedigree of a part. 

[5] The terms included in the list were "bogus," "counterfeit," 
"deliberate," "falsify," "fraud/fraudulent," "illegal," "intentional," 
"knowingly," "misrepresent," "piracy," and "unauthorized product 
substitution." 

[6] The policy letter uses the term "nonconforming," which has the 
same meaning in DOD as the term "deficient." 

[7] Department of Defense, Military Standard (MIL-STD)-1556B, 
Government/Industry Data Exchange Program, Contractor Participation 
Requirements (Feb. 24, 1986). 

[8] According to the GIDEP Deputy Program Manager, this 15-day delay 
is in addition to the time--which can range from 30-180 days--that the 
DOD logistical support providers and contractors spend gathering 
evidence before reporting the suspect supplier to GIDEP. 

[9] U.S. Department of Commerce, Defense Industrial Base Assessment: 
Counterfeit Electronics (Washington, D.C., January 2010). In 
conducting its assessment, the Department of Commerce defined a 
counterfeit electronic parts as one that is not genuine because it: is 
an unauthorized copy; does not conform to original OCM design, model, 
or performance standards; is not produced by the OCM or is produced by 
unauthorized contractors; is an off-specification, defective, or used 
OCM product sold as "new" or working; or has incorrect or false 
markings or documentation, or both. 

[10] "Fake Parts are Seeping Into Military Aircraft Maintenance 
Depots," Inside the Air Force (Mar. 28, 2008) and "Dangerous Fakes: 
How Counterfeit, Defective Computer Components from China Are Getting 
into U.S. Warplanes and Ships," Business Week (Oct. 2, 2008). 

[11] The Air Force Material Command is also developing a handbook that 
aims to educate its workforce on what a counterfeit part is, steps to 
be taken to prevent counterfeit parts from entering the supply chain, 
detection methods and ways to identify counterfeit parts that have 
already entered the supply chain, and what reporting is to be 
accomplished when counterfeit parts are identified. However, the 
command is delaying the distribution of this handbook to potentially 
be incorporated into a departmentwide handbook. 

[12] Federal Acquisition Regulations, Part 9.103. 

[13] In April 2009, SAE International issued Aerospace Standard 5553, 
"Counterfeit Electronic Parts; Avoidance, Detection, Mitigation and 
Disposition." 

[14] SAE International officials told us that they plan to expand the 
aerospace standard to include other sectors such as the automotive 
industry. 

[15] The Center for Advanced Life Cycle Engineering is an electronic 
products and systems research center focused on electronics 
reliability and is dedicated to providing a knowledge and resource 
base to support the development of competitive electronic components, 
products, and systems. 

[16] The International Chamber of Commerce established the Business 
Action to Stop Counterfeiting and Piracy to take a leading role in the 
fight against counterfeiting. 

[17] The Electronic Industry Citizenship Coalition mission is to 
promote an industry code of conduct for global electronics supply 
chains. 

[18] The International Anti-Counterfeiting Coalition aims to promote 
enforcement standards of the intellectual property owned by its 
members whether copyrights, trademarks, or patents. 

[19] Our review focused on DOD's knowledge of the aerospace, ground 
vehicle, and missile defense sectors of the defense supplier base in 
part given congressional interest in these sectors. 

[20] GAO, Defense Acquisitions: Assessments of Selected Weapon 
Programs, [hyperlink, http://www.gao.gov/products/GAO-09-326SP] 
(Washington, D.C.: Mar. 30, 2009). 

[End of section] 

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