Summary: GAO discussed the Department of Defense's (DOD) inventory management problems. GAO noted that: (1) DOD has a documented history of such serious inventory management deficiencies as inaccurate inventory records, poor physical inventory controls, and inadequate controls and accountability over government property furnished to contractors; (2) the proposed Federal Financial Management Reform Act may provide the impetus for correcting management and accountability problems; (3) the DOD inventory of secondary items is almost twice as large as it was 5 years ago; (4) DOD warehouses were almost full as of December 1986; (5) DOD inventory records were inaccurate and incomplete; (6) inventory accuracy data reported by GAO and DOD differed, with GAO reporting much lower accuracy than DOD; (7) DOD assessment of inventory management was ineffective because DOD frequently used it to make inventory accuracy reports look better and generally did not identify causes of inventory variances; and (8) security controls at several warehouses were inadequate. GAO believes that DOD can improve inventory management and inventory accuracy reporting by: (1) requiring adjustments to inventory records as soon as they are identified by physical inventories or other methods; (2) developing a comprehensive policy on inventory management and measuring inventory accuracy; and (3) reemphasizing the need for effective causative research to identify inventory variances and analyze them to identify systemic problems.
