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Audit of Management of Government‑Owned Property Supporting the F‑35 Program DODIG-2019-062

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Objective

We determined whether DoD personnel managed Government property supporting the F
35 Program in accordance with the Federal Acquisition Regulation, Defense Federal Acquisition Regulation Supplement, and DoD Instruction 5000.64 requirements for property accountability.

 

Background

The F35 Program is a multiservice and multinational acquisition to develop and field the nextgeneration strike fighter aircraft for the Navy, Air Force, Marine Corps, and international partners.

As a part of the F
35 aircraft production, the prime contractor acquires Government property. Lockheed Martin Aeronautics is the prime contractor that is developing and producing the F35 at its Fort Worth, Texas, facility.

The Federal Acquisition Regulation defines Government property as all property owned or leased by the Government. Government property includes material, equipment, special tooling (for example, fixtures and molds), special test equipment, and real property. Government property includes both:

  • GovernmentFurnished Property (GFP), property that is in the possession of, or directly acquired by, the Government and then furnished to the contractor for performance of a contract; or

  • ContractorAcquired Property (CAP), property that is acquired, fabricated, or otherwise provided by the contractor for performing a contract.


D
oD Instruction 5000.64 requires DoD Components to establish accountable property records. The Federal Acquisition Regulation requires the contractor to create and maintain records of all Government property identified in the contract, including GFP and CAP, and to maintain a complete, current, auditable record of all property transactions.

Finding

DoD officials did not account for and manage F35 Program Government property, including recording the property in an accountable property system of record (APSR), as required. The only record of Government property for the F35 Program is with the contractor and its subcontractor, which valued the 3.45 million pieces of property at $2.1 billion. Specifically, F35 Program officials did not:


  • maintain a Government record of GFP;

  • award contracts with complete GFP lists; and

  • coordinate with Defense Contract Management Agency (DCMA) officials to execute contracting actions to transition CAP to GFP, as required.


This occurred because DoD officials failed to implement procedures, and failed to appoint and hold officials responsible, to account for and manage Government property for more than 16 years. Specifically, the F
35 Program Office did not:

  • follow procedures to establish its APSR; instead, officials relied solely on the prime contractor to account for all of the F35 Program Government property;

  • appoint the required Government personnel to account for GFP in the Government APSR; and

  • reach an agreement with DCMAFort Worth on how to implement the procedures for transitioning property from CAP to GFP.


As a result, the DoD does not know the actual value of the F
35 property and does not have an independent record to verify the contractorvalued Government property of $ 2.1 billion for the F35 Program. Without accurate records, the F35 Program officials have no visibility over the property and have no metrics to hold the prime contractor accountable for how it manages Government property. The lack of asset visibility restricts the DoD’s ability to conduct the necessary checks and balances that ensure the prime contractor is managing and spending F35 Program funds in the Government’s best interest and could impact the DoD’s ability to meet its operational readiness goals for the F35 aircraft. In addition, the lack of a DoD record of GFP for the F35 Program results in an understatement of either the assets or expenses of DoD financial statements, depending on how the contractor used the property on the contract.

Recommendations

W
e recommend that the Under Secretary of Defense for Acquisition and Sustainment review the accounting and management actions of the F35 Program Office for F35 Program Government property. Based on that review, the Under Secretary of Defense for Acquisition and Sustainment should take appropriate action, if warranted, to hold the necessary officials accountable.


In addition, we recommend that the F‑35 Program Executive Officer take the following actions before a decision to begin full‑rate production of the F‑35 is made:


  • ensure that contracting officers identify and resolve GFP list inaccuracies and incomplete or missing entries before attachment to and award of subsequent contracts;

  • immediately appoint a component property lead and accountable property officer to work with the DCMA and the prime contractor to verify the existence and completeness of all F35 property and account for it on the appropriate financial statements;

  • direct the component property lead and accountable property officer to reconcile all F35 Program GFP by performing a complete inventory of delivered property and use the result of the inventory to establish a baseline property record in its APSR; and

  • establish and implement procedures for property officials to continuously input the data required by DoD Instruction 5000.64 in the APSR.


Finally, we recommend that the F
35 Program Executive Officer direct F35 Program Office officials, in coordination with the DCMA and the prime contractor, to take the following actions before a decision to begin fullrate production of the F35 is made:

  • reach an agreement for how to implement the Defense Federal Acquisition Regulation Supplement procedures to transition F35 Program CAP procured on past contracts to GFP, then ensure the procedures are implemented as required;

  • identify and ensure the delivery of special tooling or special test equipment for accountability and management purposes as required by the Defense Federal Acquisition Regulation Supplement; and

  • provide updates for the APSR to account for any GFP resulting from the actions taken for CAP in previous recommendations.


Management Comments and Our Response

The Assistant Secretary of Defense for Sustainment, responding for the Under Secretary of Defense for Acquisition and Sustainment and for the F-35 Program Executive Officer, agreed with our finding and recommendations.


The Assistant Secretary agreed to review the accounting and management actions of the F-35 Program Office for Government property and to hold the necessary officials accountable as appropriate.

 

The Assistant Secretary also agreed to:

 

  • establish and enforce a process to ensure GFP lists are coordinated during the contract proposal phase;

  • appoint a component property lead and accountable property officers in writing;

  • manage and account for F-35 property, including accounting for the property on the appropriate financial statements;

  • perform a complete inventory of F-35 Program GFP by the end of December 2019; and

  • establish and implement procedures to continuously input data into the APSR.


Additionally, the Assistant Secretary agreed to direct F-35 Program officials, in coordination with the DCMA and the prime contractor, to:

  • ensure CAP is delivered and transferred to follow on contracts as GFP, in accordance with requirements;

  • establish a plan to transition CAP to GFP on past contracts;

  • establish a plan to transition special tooling and special test equipment currently identified as CAP to GFP; and

  • develop a framework for updating GFP records in the APSR.


Management comments addressed all specifics of the recommendations. Therefore, the recommendations are resolved but will remain open until we review the specific actions taken and the associated documentation.


This report is a result of Project No. D2018-D000AJ-0032.000