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Followup Audit of the Defense Logistics Agency’s Management of Excess Items in Long‑Term Storage DODIG-2019-121

Audit

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Publically released: September 10, 2019

Objective

The objective of this followup audit was to determine whether the Defense Logistics Agency (DLA) implemented the recommendations in DODIG‑2016‑036, “Management of Items in the Defense Logistics Agency’s Long‑Term Storage Needs Improvement,” December 22, 2015, and whether the implemented actions corrected the problems identified in the report.

Background   

The DLA is the nation’s combat logistics support agency and manages the global supply chain for the DoD, other Federal agencies, and partner nations. The DLA supplies spare parts and troop support consumables and manages the reuse and disposal of military equipment. Within the DLA, Disposition Services (DS) manages the reuse and disposal of excess property. One DLA DS program is Long‑Term Storage (LTS), which stores excess munitions items and sensitive commercial items for use by the DLA, other DoD components, Foreign Military Sales programs, or other designated special programs. The DLA identifies and reuses LTS inventory to avoid unnecessary new purchases, fill backorders, and maintain stock levels at the depots. One way the DLA identifies LTS inventory for reuse is through an automated recoupment process. This process allows the DLA to identify excess property and use the already purchased assets to meet current demand and maintain the stock‑on‑hand at the depots.

In our prior report, issued in December 2015, we determined that the DLA did not effectively manage 3.5 million LTS inventory items, valued at $1.6 billion, and unnecessarily incurred costs to store 768,571 items, valued at $169.5 million, that far exceeded the historical demand. We also found that the DLA’s automated recoupment process did not identify 87,135 LTS inventory items that the DLA could have reused to offset or reduce purchases for items valued at $17.9 million already in LTS inventory.

In that report, we recommended that the DLA:

  • implement a policy to establish a demand‑based inventory management process for LTS inventory;
     
  • determine acceptable inventory levels for LTS items, and dispose of items that exceed those level;
     
  • update the automated recoupment process to include all categories of inventory that are usable from LTS inventory; and
     
  • determine why the DLA did not automatically reuse eligible LTS inventory items and correct those deficiencies in the automated recoupment process.

The DLA agreed with all of our prior report recommendations and agreed to take corrective actions.

What We Reviewed

To verify the actions taken by the DLA in response to the prior report, we:

  • analyzed the DLA policy that clarified LTS inventory retention requirements and established no‑demand reviews and semi‑annual inventory reduction reviews;
     
  • compared DLA DS disposal transaction data from October 2018 through March 2019 to inventory records to verify compliance with the DLA policy for no‑demand reviews;
     
  • compared DLA DS disposal transaction data from October 2018 through March 2019 to the December 31, 2018, semi‑annual inventory reduction review to verify compliance with the DLA policy;
     
  • compared the LTS inventory identified in our prior report to the LTS inventory on January 7, 2019, to determine whether the DLA reduced excess inventory;
     
  • analyzed automated reuse transactions to determine whether the DLA included all categories of inventory for reuse in the automated recoupment process;
     
  • compared the LTS inventory levels to DLA purchases to determine whether the DLA reused all eligible LTS inventory; and
     
  • compared the May 16, 2019, LTS inventory to the May 17, 2019, Disposal Turn‑In Document (DTID) table to determine whether stock levels were correct.

Finding

For this followup audit, we determined that the DLA had improved LTS inventory management and implemented all four recommendations from Report No. DODIG‑2016‑036, “Management of Items in the Defense Logistics Agency’s Long‑Term Storage Needs Improvement.” The DLA implemented three recommendations related to policy, excess inventory, and the exclusion of specific categories of inventory from automated reuse. Specifically, we found that the DLA:

  • clarified inventory retention requirements, established inventory disposal procedures, and disposed of inventory that exceeded historical demand levels; and
     
  • reused specific categories of inventory previously excluded for reuse by the automated recoupment process.

As a result of the DLA’s corrective actions in response to these three recommendations, from November 2014 to January 7, 2019, DLA LTS inventory decreased by about 2.72 million inventory items, valued at $1.4 billion. Additionally, from November 2018 through February 2019, the DLA automatically reused 5,240 items, valued at $699,571, that the DLA previously excluded from reuse. Therefore, we determined that the implemented actions were effective, and these three recommendations are closed.

At the beginning of this audit, the DLA had not implemented the fourth recommendation, which related to the DLA’s automated recoupment process not reusing all eligible LTS inventory. The DLA concluded that the corrective actions implemented for the reuse of excluded categories of inventory would also resolve this recommendation. However, we determined that the corrective action for the reuse of excluded categories of inventory was not effective for this recommendation. As a result, the DLA unnecessarily purchased at least 361 items (36 National Item Identification Numbers [NIINs]), valued at $342,282, already in LTS inventory. Furthermore, we identified and informed DLA personnel about 7,201 items (291 NIINs) that the DTID table listed as not in stock, although the items were available for reuse in LTS inventory. After we informed the DLA on June 11, 2019, about the items that were listed as not in stock, DLA DS personnel took action to correct the stock levels reported in the DTID table for 13,377 related records, valued at $93.8 million. As a result of the stock level correction, the DLA DS processed 802 reuse transactions valued at $1.4 million on June 15, 2019. As a result of the actions the DLA took during this audit, we now consider this fourth recommendation closed.

Additional Problems Identified With Automated Recoupment

During this followup audit, we identified an additional problem with the automated recoupment process. Although the process identified items for reuse, the DLA did not reuse those items because the DLA’s Enterprise Business System (EBS) failed to create a purchase order (a reuse request for DLA DS inventory) in the automated recoupment process.

Specifically, in the reuse reports for January 13 through 26, 2019, we identified reuse requests that failed to create 135 purchase orders. This occurred because the EBS programming did not allow certain depot storage locations to store these items. However, DLA personnel identified that these depots were allowed to store the items. Because the EBS programming blocked those locations from storing the items, the EBS failed to create purchase orders. As a result, the purchase order failures prevented the reuse of 11,379 items valued at $364,136.

Recommendation

We recommend that the DLA Director update the EBS programming to correct the purchase order failures and verify that the update to the EBS works properly.

Management Actions Taken

During the audit, we informed DLA Logistics Operations officials about the EBS purchase order failures that we identified. The officials agreed with our finding and immediately initiated corrective action. Specifically, the officials submitted a system change request on May 9, 2019, to update the EBS programming to correct the purchase order failures. On July 11, 2019, DLA Information Operations approved the system change request. DLA officials stated that the estimated implementation date for the system change request is November 15, 2019. The action taken is sufficient to resolve the recommendation. We will close the recommendation when we verify that the system change request was implemented and that there are no further occurrences of purchase order failures.

This report is a result of Project No. D2019-D000RK-0043.000