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Followup Audit: Military Sealift Command Management of Spare Parts Inventory and Purchases for Sealift Program Roll-On/Roll-Off Ships

DODIG-2018-004

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Objective
We determined whether the Military Sealift Command (MSC) implemented actions to correct problems identified in DoD OIG Report No. DODIG-2014-106, “Military Sealift Command Oversight of Excess Spare Parts Inventory and Purchases for Sealift Program Roll-On/Roll-Off Ships Needs Improvement,” September 9, 2014, relating to the Command’s Large, Medium-Speed, Roll-On/Roll-Off ship (LMSR) spare parts inventory management and procurement practices.

Background
Report No. DODIG-2014-106 identified that the MSC property administrator did not effectively manage the excess spare parts inventory on two of its Sealift Program
Large, Medium-Speed, Roll-On/Roll-Off, contractor-managed ships, while MSC’s records indicated that these same conditions existed on two other ships. According to MSC inventory records at the time of the original audit, on-hand spare parts exceeded authorized allowance levels for 4,677 spare parts, with the excess valued at $3.4 million.

The DoD OIG recommended the Commander, MSC, to:
• conduct a 100-percent inventory of spare parts aboard the Sealift Program ships;
• update on-hand quantities based on the inventory; October 20, 2017
• reevaluate allowance levels and reuse, resell, or dispose of all spare parts deemed excess;
• establish controls to ensure the contractor follows contract requirements regarding competition for the purchase of reimbursable items; and
• direct the contracting officer to modify the contract to clarify and require the use of the Defense Supply System (DSS), which is used to identify, classify, and name materials that DoD customers may order.

Findings
MSC officials did not effectively implement corrective actions to correct all of the problems identified in DoD OIG R eport No. D ODIG-2014-106. M SC officials established contract requirements to ensure spare parts are purchased at fair and reasonable prices through competition; however, MSC officials could not provide evidence that the contractor always followed the requirements. Specifically, MSC officials could not provide evidence that the contractor adequately competed or provided justification for not competing 3 of the 9 purchases over $25,000 or 5 of the 12 purchases between $3,000 and $25,000, made during FY 2016.1 The contract required at least three quotes for transactions over $3,000 in order to receive reimbursement for supplies. Further, the contracting officer did not modify the contract section that stated the use of the DSS was optional despite revising the section that stated the DSS should be used unless the contractor had a valid reason not to. These problems occurred because the MSC officials did not provide adequate oversight to ensure the contractor complied with the updated competition requirements for the contract and that the contracting officer properly modified the contract to clarify and require the query of the DSS.