Report | May 21, 2015

Army Needs to Improve Processes Over Government-Furnished Material Inventory Actions



We determined whether the Logistics Modernization Program (LMP) system correctly recorded Army inventory actions for Government-furnished material (GFM) in the general ledger accounts and accountability records.


The Army did not correctly record GFM inventory actions in Army financial and accountability records. Specifically, in FY 2014, Army Working Capital Fund (AWCF) activities expensed about $40.2 million in GFM upon shipment to contractors. This occurred because Assistant Secretary of the Army (Financial Management and Comptroller) (ASA[FM&C]) and Army Materiel Command (AMC) provided LMP Product Management Office an erroneous functional requirement.

Army General Fund (AGF) activities inappropriately expensed $85 million in GFM transactions during FY 2014 that originated in LMP. This occurred because Army inappropriately used the purchase method when it accounted for GFM.

Additionally, LMP’s Management Control Activity (MCA) table did not contain complete and accurate data necessary to maintain visibility or meet reporting requirements of GFM. This occurred because Army did not build the business process functionality or provide sufficient oversight to ensure the reasonableness and quality of data entered into the LMP MCA table met financial reporting requirements.

As a result, Army did not report GFM in the AGF and AWCF financial statements, understating Army assets and overstating expense accounts by at least $125.2 million, placing Army’s audit readiness at an increased risk for not meeting FY 2017 auditability goals. In addition, without proper accountability records to maintain adequate control over GFM, the Army must rely on individual contractors to report the status of GFM in their respective reporting systems.


We recommend that the ASA(FM&C):

  • create a subaccount within LMP to track receipt, acceptance, and consumption of GFM within an Inventory, Work-In-Process account.
  • expedite efforts to transition to the consumption method of accounting for GFM.

We recommend that the Deputy Chief of Staff of the Army, G-4, and the ASA(FM&C), in collaboration with Commander, AMC, develop a business process to identify and track GFM within LMP, according to reporting requirements in the DoD Manual 4140.01 and DoD Financial Management Regulation.

We recommend that the Commander, AMC:

  • develop oversight procedures to ensure MCAs are consistently and accurately processing GFM.
  • in coordination with its Life Cycle Management Commands, validate and quarterly perform reasonableness checks on data in LMP MCA table.

Management Comments and Our Response

Comments from the Army addressed all specifics of the recommendations, and no further comments are required.