March 31, 2015 —
The objective of the audit was to provide DoD information on contracting problems with spare-parts pricing and inventory that the DoD Office of Inspector General (OIG) identified and reported. This report includes contracting problems with spare-parts inventory. Contracting problems with spare-parts pricing is discussed in report number DODIG-2015-103, “Summary of DoD Office of Inspector General Spare-Parts Pricing Audits: Additional Guidance is Needed,” March 31, 2015.
DoD did not effectively manage its spare-parts inventories. Since 1999, DoD OIG has issued 36 reports related to spare-parts inventory. In 3 of the 36 reports, DLA effectively managed its spare-parts inventories. However, in 33 of the 36 reports, DoD did not effectively manage its spare-parts inventories. This occurred because DoD did not:
- review other existing sources and enforce inventory reduction before it purchased spare parts from private sources;
- verify proper spare-part requirements were established for weapon systems;
- include essential inventory management metrics and use accurate metric data and calculations established in the contract requirements;
- provide sufficient oversight and enforce contract requirements; and
- report the inventory on its annual financial statements.
As a result, DoD maintained excess inventory valued at $1 billion and undervalued the spare-parts inventory on its annual financial statements by more than $1.65 billion. In addition, DoD OIG identified in 11 of the 36 reports additional, nonrecurring problems with DoD’s management of spare-parts inventory.
The Assistant Secretary of Defense for Logistics and Materiel Readiness aligned acquisition strategies and the Military Services efforts to reduce spare-parts inventories in DoD. They issued an inventory management improvement plan, formed a working group to establish inventory management metrics, and issued policy, dealing with supply chain materiel management. The Assistant Secretary also drafted guidance to manage and account for Government-owned spare-parts inventories controlled by contractors, which will be a focus area in 2015.
We recommend the Assistant Secretary of Defense for Logistics and Materiel Readiness, finalize and issue policy to effectively manage and account for Government-owned spare-parts inventories controlled by contractors.
Management Comments and Our Response
The Assistant Secretary of Defense for Logistics and Materiel Readiness, addressed the specifics of the recommendation, and no further comments are required.
This report is a result of Project No. D2014-D000AT-0215.000.