The supply problems were due, in large measure, to the fact that the Army did not have a trained organization capable of assuming inventory management responsibilities in Vietnam when the buildup of forces was begun. Army officials advised us that a Quick Reaction Inventory Control Center was being organized which will be able to move into future combat situations such as those in Vietnam-and to establish supply management capabilities within a short period of time.

Although the Army agreed with our findings, it did not agree with certain of our proposals for improved procedures. We recognized that the management emphasis being applied by the Army would tend to improve supply discipline and help to correct the problems. We believed, however, that such emphasis by itself was not sufficient. Therefore, we recommended to the Secretary of the Army that our proposals for improved procedures relating to the coding of requisitions with the type of demand, assignment of priorities to requisitions, and furnishing of certain information by operating organizations in Vietnam to inventory managers in the United States be reconsidered. In October 1968, the Army advised us of corrective actions taken or planned with respect to these proposals.

Index No. 7, B-164500, September 17, 1968

NEED FOR IMPROVEMENT IN THE PROCESSING OF REQUISITIONS FOR MATERIELSDEPARTMENT OF DEFENSE

In a prior review of the ability of the military supply systems to respond to increased demands, we observed that the manner in which supply requisitions were processed under the Military Standard Requisitioning and Issue Procedures (MILSTRIP) system precluded realization of the maximum benefits of the system. Therefore, we undertook a limited examination at selected installations of the Army, Navy, and Air Force, of the processing of requisitions under the MILSTRIP system.

The MILSTRIP system is designed to

—provide uniformity of procedures for all requisitioners and suppliers of stock;

-meet essential requirements of all the military services;

-provide for interservice supply transactions and intraservice supply support operations; and

accommodate the requisitioning on stocks of the General Services Administration.

We found that MILSTRIP had improved the processing of requisitions. Maximum benefits of MILSTRIP had not been realized, however, because large numbers of requisitions contained erroneous or incompatible data and could not be processed routinely. As a result, many of the requisitions were returned to the originators for additional information or revision and resubmission. Resubmission of requisitions is time-consuming, causes significant delays, and reduces supply support effectiveness.

The primary causes of erroneous or noncurrent information on requisitions were, in our opinion,

-preparation of requisitions by untrained and inadequately supervised individuals;

-inadequate review of requisitions before forwarding them to the next higher supply level; and

-absence of current and compatible catalog data at various supply levels. We also found that the Defense Supply Agency (DSA) had not fully carried out its responsibility for surveillance of MILSTRIP. Surveillance by the DSA on a systematic basis could have identified the problems so that appropriate corrective actions could have been taken.

The Department of Defense agreed generally with our findings and proposals for corrective measures. The Department stated that its directive on MILSTRIP has been revised to define responsibilities more explicitly and that a study was being made of the requirement for, and the frequency of, catalog changes. The Department stated further that, pending completion of the study, a moratorium had been declared on unit-of-issue changes.

Index No. 8, B-146772, September 23, 1968

NEED TO IMPROVE THE ARMY TANK-AUTOMOTIVE COMMAND'S SUPPLY MANAGEMENT DATA SYSTEM

The Army Tank-Automotive Command (TACOM) has the mission of providing tank and automotive vehicles and repair parts for all the military services in the United States and overseas. As a part of our continuing program of review of management activities at TACOM, we examined into supply management, giving particular attention to problems in the computerized supply management data system.

For several years, TACOM has been unable to achieve the desired levels of supply support. During the period February 1965 to November 1967, for example, stock requisitions filled on time ranged between 33 and 78 percent as compared with the objective of 85 percent established by the Army Materiel Command. In November 1967 only about 46 percent of the requisitions were filled on time.

The situation stemmed primarily from the presence of inaccurate data in the computerized supply management records. Although TACOM and higher command officials had recognized the seriousness of this problem and had taken action to improve the accuracy of the data, these efforts generally have been unsuccessful. A 1967 study showed, for example, that about $94 million worth of material recorded as due-in had in fact been received and that about $83 million worth of material had been received but had never been recorded as due-in. These conditions can cause inventory managers to either procure unneeded supplies or fail to procure needed supplies.

In our opinion, the prime factor retarding improvement of supply support effectiveness has been the lack of coordination, evaluation, and follow-up efforts to clear up the computerized supply management records. Other factors-imposition of additional workloads, major reorganizations, and saturation of computer capacity-also have had an adverse effect.

We proposed that the Secretary of Defense establish a coordinated supply management program at TACOM to

-Improve supply records;

-prevent additional invalid data from entering the records;

-review additional workloads or special programs to be imposed on TACOM to prevent unnecessary interference with the current management improvement program;

-establish means to maintain organizational stability at TACOM and to prevent the constant movement of experienced supply personnel; and

-review the use being made of the existing automatic data processing equipment with the objective of eliminating or reducing lower priority projects so that the equipment can be used for matters vitally in need of correction.

The Army, in its reply on behalf of the Secretary of Defense, agreed with these proposals and stated that actions in keeping with the proposals had either been already taken or were planned.

Index No. 9, B-146874, October 23, 1968

SAVINGS ATTAINABLE BY PREVENTING CONDEMNATION OF ECONOMICALLY REPAIRABLE EQUIPMENT-DEPARTMENT OF THE AIR FORCE

Air force regulations provide for the return of certain unserviceable items to designated depots for repair if they cannot be repaired at the Air Force base level. However, the regulations permit the bases to condemn the items as scrap if (1) they are beyond repair, (2) repair costs exceed 65 percent of replacement cost or (3) their condemnation is specified by applicable technical orders. During 6 months of 1967 Air Force bases condemned about $6.7 million worth of the type of items designated for repair at the depots managed by the three Air Materiel Areas included in our review. The condemnation of a substantial portion of these items was based on determinations that repair costs were excessive in relation to replacement cost.

We tested 78 items that had been condemned at five bases and found that 51 of them could have been repaired for amounts significantly less than replacement cost. Many of the condemned items were in short supply and, in some cases, action had been taken to procure additional items.

The primary reason for improper condemnation was that maintenance personnel at the bases had made their determinations without adequate knowledge of depot repair costs, procedures, and capabilities. We proposed that the Air Force regulations be revised to require the bases to return the items to the depots unless the bases have been advised that the items are (1) not needed in Air Force stocks, (2) are obviously beyond repair, or (3) authorized for disposition under Air Force technical orders.

The Air Force advised us that its analyses indicated that the magnitude of improper condemnations did not warrant instructing the bases to return such items to the depots. The Air Force stated, however, that certain revisions were being made in exising regulations to require (1) the reporting of cost data to, and approval of the cost data by, the item managers prior to condemnation of items by the bases and (2) establishment of a review board at each base to maintain surveillance over condemnations based on cost criteria.

We were of the opinion that the action taken by the Air Force would serve to reduce but would not prevent improper condemnation of repairable items. We therefore recommended that the Air Force reconsider our proposal.

Subsequently, by letter dated December 11, 1968, the Air Force advised that a re-analysis of existing condemnation procedures had been made for the purpose of establishing "an optimum level of unit dollar value for repairable items to be returned to the depots for review and disposal." As a result, a new policy was implemented whereby all repairable items costing $300 or more are to be returned.

Index No. 10, B-165867, March 12, 1969

IMPROVEMENTS MADE OR TO BE MADE IN THE ACQUISITION AND MANAGEMENT OF NONEXPENDABLE PERSONAL PROPERTY OVERSEAS-DEPARTMENT OF STATE

The Federal Property and Administrative Services Act of 1949 requires each executive agency to maintain adequate inventory controls and accountability systems for the property under its control; continuously survey its property to determine what property is excess; and transfer or dispose of such property as promptly as possible.

Moreover, in September 1966, the President directed all Federal departments and agencies to hold down and reduce supply inventories; increase utilization of excess property and redistribute stock on hand in lieu of procuring new items; reduce the standard number of items in the various supply systems; review and revise equipment replacement standards; and establish tighter controls on proposed procurement actions.

This General Accounting Office review was undertaken to examine into the efficiency and effectiveness with which nonexpendable personal property was acquired and managed by the Department of State at its overseas foreign posts. The General Accounting Office has concluded that there is a need for the Department to improve its management and control over nonexpendable personal property located at overseas foreign posts. The specific areas in which it was noted that improvements were needed were

-financial control over nonexpendable personal property;

-physical inventory taking;

-property recordkeeping;

-physical security arrangements;

-identification and disposition of excess property, and -procurement.

In addition we noted a need for greater internal audit surveillance over this activity by the Department.

We recommended that:

-The Department develop and implement a satisfactory property accounting system that will meet the principles and standards of the Comptroller General for property accounting as set forth in 2 GAO 12.5(c), including the basis for control over property.

-The Department bring this report to the attention of the appropriate foreign post officials and instruct them to review their controls and procedures applicable to property management and report to the Department whether such controls and procedures comply with Department regulations.

—Appropriate follow-up procedures be established by the Department to determine whether corrective action promised by the foreign posts is actually implemented.

-Detailed and timely site audits be made of all aspects of property management at overseas foreign posts.

—Either the funds advanced to foreign post employee associations for procurement of personal property be reimbursed or the property purchased be identified as Government-owned property and included in the foreign post's property inventory.

Department of State officials generally agreed with our findings and recommendations as pointed out in the report, and corrective actions have been taken or planned.

We plan, as part of our continuing review of Department of State activities, to examine the result of actions taken on these recommendations.

Index No. 11, B-146929, March 21, 1969

OPPORTUNITY FOR SAVINGS BY INCREASING TRANSFERS OF EXCESS PROPERTY AMONG FEDERAL AGENCIES- GENERAL SERVICES ADMINISTRATION

We reported that:

1. The Federal Aviation Administration (FAA) had been permitted to report its excess property to the General Services Administration's (GSA) Area Utilization Officer who was responsible for undertaking only limited efforts to determine whether other agencies needed the property.

2. If GSA had followed the required procedures, it could have transferred some of the FAA property to the Department of Defense (DOD) and thereby reduced the DOD's commercial purchases. DOD had requirements for about $200,000 of excess property which GSA had transferred to a DOD affiliate which had no identified requirement for the property or had declared surplus and made available for sale to the public and donation to State agencies.

3. After we brought this matter to GSA's attention, property costing about $68,000 was transferred to DOD activities.

We suggested that GSA take action to ensure that:

1. Federal agencies reported their excess property to GSA regional offices in accordance with Federal Property Management Regulations.

2. GSA circularize lists of excess property adequately to Federal agencies for their review.

GSA agreed with the suggestions and stated that the agency had taken action to bring about the desired improvements in GSA's utilization program practices. Index No. 12, B-133044, June 30, 1969

OPPORTUNITIES FOR BETTER SERVICE AND ECONOMIES THROUGH STANDARDIZATION OF PHARMACY ITEMS AND CONSOLIDATION OF BULK COMPOUNDING FACILITIES— VETERANS' ADMINISTRATION

On the basis of our review of certain aspects of pharmacy operations at VA hospitals and clinics, we pointed out that there are opportunities for reducing the cost of drugs used by VA installations in metropolitan areas through increased standardization of commonly used items and their dosages. We expressed the belief that the increased standardization and resultant decrease in drug costs could be achieved by the establishment of area interstation therapeutic agent and pharmacy committees and centralized bulk compounding and purchasing facilities.

Also, we noted that centralized bulk compounding and purchasing facilities would contribute to improved patient care by providing needed medications not commercially available, more assurance of the quality of drugs compounded, and better support for research and training activities.

Accordingly, we recommended that VA provide for the formation of interstation therapeutic agent and pharmacy committees in geographical areas containing several VA medical facilities. We recommended also that the committees, when established, study the feasibility of establishing centralized bulk compounding and purchasing operations within their respective geographical areas.

The VA advised us that it concurred in our recommendations and would establish such interstation committees.

Index No. 13, B-161507, June 30, 1969

Army and Air Force Controls Over Inventories in Europe

In August 1968 we issued a summary report on the movement of American Forces from France (Operation FRELOC) in 1966-67 (B-161507, August 7, 1968). In that report we pointed out that, during the operation, control had been lost over large quantities of supplies and equipment.

This report reviews in detail the problems connected with controls over inventories in Europe as summarized in the August 1968 report.

We found that control over assets moved from France by the Army and the Air Force was insufficient to ensure that shipments were received at the correct destinations in the quantities and in the condition specified. The loss of control was, in our opinion, symptomatic of a long standing problem: the high incidence of error in the stock records. The need to move most of the supplies and equipment stored in France on short notice highlighted the magnitude of the stock-record inaccuracies.

The problem was further complicated by the lack of advance information on shipments at the new receiving stations, the loss of documents needed for inspection and accounting purposes, the late inspection of receipts, the delayed recording of receipts, and the short period of time available to physically move the stocks.

At the conclusion of our examination months after the move, it appeared that the Army still did not know, with any degree of certainty, the quantities, locations, or conditions of its inventories in Europe. The Air Force, on the other hand, had been able to correct most of its stock records because of the significantly smaller volume of assets moved and the prompt action of the Air Force to physically inventory the assets at the new locations.

In response to these findings, the Department of Defense informed us of the actions taken after the conclusion of our fieldwork. The Department stated that the Army had taken the steps to overcome its inventory control problems and that the Air Force, for the most part, had accounted for its inventories.

Index No. 14, B-166312, June 30, 1969

IMPROVEMENTS NEEDED IN ARMY SUPPLY MANAGEMENT AND STOCK FUND

ACTIVITIES IN KOREA

Our prior reviews of supply operations in the Eighth U.S. Army in Korea had disclosed that substantial management improvements were needed to ensure that using units obtained necessary supplies on a timely basis.

Our follow-up review showed that needed supplies were still not being obtained and stocked in Korea in the proper quantities. Because of inaccurate and incomplete financial and supply records, the Army found it difficult to forecast, with a reasonable degree of accuracy, the amount of funds needed to purchase proper quantities and types of supplies to support the military units in Korea.

Available funds were used, to a great extent, to obtain supplies in small quantities to meet individual requests of Army units in Korea instead of being used to obtain larger quantities for depot stocks.

We made certain suggestions for improvement in the stock records and in the budgeting and funding procedures concerning the Army in Korea. We suggested also that the Army Audit Agency increase the scope of its reviews in Korea. In reply the Army advised us of actions taken or planned which, if effectively carried out, will provide better control over supply and financial management matters.

Index No. 15, B-133396, June 30, 1969

SAVINGS ATTAINABLE THROUGH IMPROVED APPLICATION OF THE ECONOMIC ORDER PRINCIPLE IN THE PROCUREMENT OF MILITARY SUPPLIES-DEPARTMENT OF DEFENSE

The economic order quantity (EOQ) is that quantity which strikes a balance between (1) the higher procurement costs but lower storage costs of frequent purchases in small quantities and (2) the lower procurement costs but higher storage costs of less frequent purchases in larger quantities. Applicable Department of Defense (DOD) instructions for the use of the EOQ principle are sound but are in need of revision with respect to what types of items should be covered and when cost factors should be revised.

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