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REPORT TQTHECONGRESS

Improvements Needed In

Army Supply ManagementStock Fun ctiwitiesIn Korea 8 - 7 6 6 3 1 2WDepartment o f the Army

BY THE COMPTROLLER GENERALOFTHEUNITED STATES

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COMPTROLLER GENERAL OF THE UNITED STATES

WASHINGTON,O.C. 20548

B-166312

To the Pres ident of the Senate and the

Speaker of the House of Representatives

This i s ou r re por t on the improvements needed inArmy supply management and stock fund activ itie s in Korea.

Our examination was made pursuant to the Budget and Ac-counting Act, 1921 (31 U.S.C. 53), and the Accounting andAuditing Act of 1950 (31 U.S.C. 67).

Copies of this report a r e being sent to the Director,

Bureau of the Budget; the Secreta ry of Defense; and the Sec-

retary of the Army.

Comptroller General

of the United States

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COMPTROLLER GENERAI; ' SREPORT TO THECONGRESS

IMPROVEMENTS NEEDED I N AWY SUPPLY MANAGEMAND STOCK FUND ACTIVITIES IN KOREADepartment of the Army 8-166312

------D I G E S T

WY THEREVIER WASMADEPri or General Accounti ng Office (GAO) reviews of supply operat i ons bythe Eigh th U.S. Army i n Korea disclosed that substantial managementimprovements were needed to ensure that us ing units obtained necessarysupplies and materials on a timely basis.this examination o f certain aspects of supply and financial managemenpractices relating to Arw units i n Korea to ascertain the currentstatus o f supply support.

GAO, therefore, undertook

FINDINGSANDCOhVLUSIONS

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GAO found that needed materials were s t i l l not being obtained andstocked i n Korea i n the proper q u an t i t l e s . Th i s was due, i n greatpart, to inaccurate end incomplete financial and supply records. As aresult, the Amy found i t d i f f l c u l t to f o r e c a s t p w i t h a reasonabledegree o f accuracy, the amount o f funds needed to purchase proper quant i t ies and types o f material t o support the military units i n Korea.Available funds were used, to a great e x t e n t p to obtain material i nsmall quantit ies to meet individual requests o f Amy units i n Koreainstead of being used to obtain larger quantities f o r depot stocks.Requests for small quantities had t o be forwarded t o the UnitedStates and long delays were thereby encountered. Because o f these

conditions, the Eighth A m y Depot Command i n Korea was unable t o pro-vide timely support t o troop units i n Korea, and the inability to pro-vide adequately and timely support t o troop uni ts i n Korea could con-tribute t o a low combat reedlness condit lon.GAO believes that improvements were needed i n supply and financialmanagement practices i n Korea to provide an increased level of sup-port t o U.S. Apmy u n i t s i n Korea.

RECOMh"DATI0NS OR SUWEST'IONSGAO's suggestions are contained i n the body o f the report a f t e r e achmajor section. They include, w i t h respect to cor rec tion o f supplyrecords :

--development of procedures f o r proper reconci i ia t i on o f supply documents between supply sources ( p . 11).TearSheet J U H E 30,1965

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--better surveillance over inventories of high-value and c r i t i c a l -type supplies (p. 13), and

--maintenance of accurate demand history f i l es for i tems, t o ensureGAO suggested also that certain improvements be made i n budgeting andfunding procedures concerning the Army i n Korea.

that the proper quant i ties can be stocked (p. 14) .

(Seep. 19.)

In addition, GAO pointed ou t that the Army's internal audi t agency hadperformed only a limited amount of work pertaining t o supply manage-ment i n Korea. GAO therefore suggested that the Army Aud i t Agency i n-crease the scope of i ts reviews i n Korea. (See p. 22.)

AGENCY ACTIONS AND UNRESOLVED ISSUESThe Deputy Assistant Secretary o f the Arnw (Installations and Logis-tics) advised us of a number of actions taken or planned t o effect i m-provements i n the conditions noted i n our examination. (See app. 11.)Specifically these were:

--improvements i n procedures and controls over reconcil ia tions

--programs t o improve inventory record accuracy,

--improvements i n procedures for recording demand data, and

--improvements i n financial management practices.

If these improvements are effectively carried out by the Army, i t willhave better controls over supply and financial management ma.tters.GAO will evaluate the adequacy and effectiveness of actions taken or

t o be taken, i n future reviews i n Korea.GAO has also been advised that the Army Audit Agency i s placing i n-creased emphasis on supply problems i n Korea.

MATTERSFOB CONSIDERATIONBY THE CONGRESSTh i s report is being submitted t o the Congress because of continuallyexpressed congressional interest i n measures taken t o overcome supplysupport problems affecting U.S. Armed Forces assigned overseas.

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C o n t e n t s

DIGEST

INTRODUCTION

Page

1

3

IMPROVEMENTS NEEDED IN SUPPLY AND FINANCIAL MANAGE-MENT IN KOREANeed for improved supply support for Army units

Understated spending authorityin Korea

Validity of data relating to open requisi-tions

Inaccurate records relating to on-hand in-ventory

Inaccurate demand dataConclusions

Need for improved correlation of consumer and

O W supply requirementsFinancial management planConclusions

stock fund budgets

Internal review of supply administration

SCOPE OF EXAMINATION

APPENDIXES

EUSA stock shortages by monthLetter dated February 6,1969, fromthe Deputy Assistant Secretary ofthe Army (Installations and Logis-tics) to the General AccountingOff ice

Principal officials of the Departmentof Defense and the Department of theArmy responsible for administrationof activities discussed in this re-port

Appendix

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I11

5

56

10

121415

15

16182121

23

27

28

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AAAASF

CONUS

EADC

EUSA

GAO

NICPsO&MAR /OTASL

USARPAC

LIST OFABBREVIATIONS

Army Audit Agency

Army Stock Fund

Continental United States

Eighth Army Depot Command

Eighth United States Army

General Accounting Office

National Inventory Control Points

Operations and Maintenance, Army

Requisition objective

Theater authorized stockage listUnited States Army, Pacific

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COMP!l'Ri?LLER GENERAL '5'REPORT TOTHE CONGRESS

IMPROVEMENTS NEEDED IN ARMY SUPPLY MANAGEMEAND STOCK FUND ACTIVITIES IN KOREADepartment of the Army B-166312

D I G E S T------

WHYTHE REVIEWWASMADE

Prior General Accounting Office (GAO) reviews of supply operations bythe Eigh t h U.S. Arqy i n Korea disclosed that substantial managementimprovements were needed to ensure that using units obtained necessarysupplies and materials on a timely basis.this examination o f certain aspects of supply and financial managementpractices r e l a t l n g to Army units i n Korea t o ascertain the currentstatus o f supply support.

GAO, therefore, undertook

PINDINCSANDcolvcLusroi isGAO found t h a t needed materials were still not being obtained andstocked i n Korea i n th e groper quantities. This was due, i n greatpart, to inaccurate and incomplete financial and supply records. As aresult, the Army found % t d i f f i c u l t to forecast, w i t h a reasonabledegree of accuracyB the amount o f funds needed to purchase proper quan-tities and types o f material to support the mil i tapy units i n Korea.Available funds were used, to a great extent, t o obtain material i nsmall quantities to meet indivldual requests o f Army un i ts i n Koreainstead o f being used to o b i n 1arger quanti ties for depot stocksRequests for small quantities had to be forwarded t o the UnitedStates and long delays were thereby encountered.conditions, the Eighth A m y Depot Command i n Korea was unable to pro-v ide timely s u p p o ~ tt o t roop u n s ' t s s'n Korear and the i nab i l i ty t o pro-vide adequately and timely support t o troop units i n Korea could con-tribute to a low combat readiness condition.

Because o f these

GAO believes that improvements were needed i n supply and financialmanagement prae t l ces i n Korea t o prowfde an increased level of sup-port to U .S . Amy units i n Korea.

RECQWiVDATIoEbS OR SUGGESTIONSGAO ' s suggestions are contained i n the body of the report after eachmajor section. They include, wi t h respect to correction of supplyrecords :

--developmen% of procedures f or proper reconcil iation of supply docu-ments between supply sources ( p . 31) .

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--better sur ve i 11 ance over inventories of high-Value and cr i ti ca l -type supplies (p. 1 3 ) p and

--maintenance of accurate demand history f i l es for 5 tems, t o ensureGAQ suggested also t h a t certain improvements be made i n budgeting and

funding procedures concerning the Army i n Korea. (See p. 19.)

that the proper quantities can be stocked (p . 14).

In addition, GAO pointed out that the A m y ' s internal audit agency hadperformed only a limited amount o f work pertaining t o supply manage-ment i n Korea. GAO therefore suggested that the Army Audi t Agency i n-crease the scope of i ts reviews in Korea. (See p. 22.)

AGENCYACTIONS AND UNRESOLVEDISSUES

The Deputy Assistant Secretary of the Arly (Installations and Logis-tics) advised us of a number of acrfons taken or planned t o effect im-provements i n the conditions noted i n our examination. (See app. 11.)

Specif i a l 1y these were:--improvements i n procedures and control s over reconcil iat io ns--programs t o improve inventory record accuracy

--improvements i n procedures for recording demand data, and

--improvements i n f inancia l management practices.If these Improvements are effectively carried out by the A rmy , i t willhave better controls over supply and financial management matters.GAO will1 evaluate the adequacy and effectiveness of actions taken ort o be takenp i n future reviews .In Korea.GAO has also been advised that the Army Audit Agency is placing i n-creased emphasis on supply problems i n Korea.

MATTERS FOR CONSIDERATION BX TEECONGRESSThis report i s be ing submitted to the Congress because o f continuallyexpressed congressional interest i n measures taken to overcome supplysupport problems affecting U . S o Armed Forces assigned overseas.

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INTRODUCTION

The General Accounting Office has made an examinationinto selected aspects of supply management and Army fundingpractices in the Eighth U.S. Army, Korea. This examinationwas undertaken as a result of a prior review of the respon-

siveness of the military supply systems to increased de-mands, in which we noted supply and procurement problemsthat apparently were due, in part, to funding restrictionsput into effect by the Army. This matter and other matterswere included in our report entitled ttOverallObservationsRegarding Responsiveness of Military Supply Systems," datedMarch 1967.

Our examination was directed toward those matters ap-parently needing attention, and we made no overall evalua-tion of supply and financial management practices of the

Eighth U.S. Army (EUSA). The scope of our examination isshown on page 23 .In general, the Army supply system is operated under

the stock fund concept in order to promote efficiency,economy, and fiscal restraint.ganizational elements within the Army (such as divisions)are alloted funds each year to finance the acquisitionof specified types of supplies and material. These funds,commonly referred to as consumer funds, are used to "buy1'repair parts, subsistence, fuel supplies and similar items

from the various segments of the Army Stock Fund.equipment items, such as vehicles, aircraft, and missiles,are not within the purview of the stock fund.

Under this concept, or-

Major

The stock fund is a revolving fund utilized to financeand maintain inventories at the major depot or "wholesale"levels of the supply system., With the funds derived from"sales" to consumers, the stock fund, in turn, "buys" ma-terial to replenish its stocks. Stock funds have been es-tablished within the Army to finance depot stocks in over-seas locations such as Korea, as well as stocks maintainedin depots in the United States,

The U.S. Army Pacific (USARPAC) Division of the ArmyTheStock Fund (ASF) was established on .January1, 1964.

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home office of the d iv i s io n is located a t Headquarters ,USARPAC, i n H a w a i i ; and subo rd in at e commands, in cl ud in gEUSA, are designated as branch offices. The EUSA branchi s operated as a separate enti ty for accounting and report-ingpurposes.

Shown below are s t a t i s t i c s i n d i ca t i n g the magnitude ofsto ck fund oper ati ons i n Korea.

F i sca l F i sca lyear year1967 -1968

( m i l l i o n s1Sales t o EUSA units $161.7 $142.9aTotal investment 123.4 i7a.6a

Estimated on th e b as i s of d a t a f o r 9 months ended March 31,1968.

a

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1 M F ' R O T E " T S NEEDED I N SUPPLYANDFINANCIAL MANAGEMENT I N KOREA

Improvements were needed i n supply and f inancial man-agement operations i n Korea i n order t o provide more effec-

ti ve supply support t o un it s of EUSA. In genera l, we foundthat supplies managed under the consumer fundlstock fundconcept were not being obtained and stocked i n depots i nKorea i n the proper quan tit ies . As a result, many requisi-tions from customer units had t o be forwarded t o supplyac t iv i t i e s i n the United States--a procedure th at leads t osubstantial delays i n providing necessary supply supportand possibly t o reduction i n combat-readiness capabilities.

In our opinion, the reduced level of supply support i nKorea was due primarily t o the existence of inaccura te in-

ventory and usage data. This, i n turn, resulted i n the in-ab i l i ty of the Army t o forecast with any reasonable degreeof accuracy the f in an ci al requirements necessary t o ensurethat the proper quantities and types of material would beobtained for depot stockage.

Further details of our findings and conclusions arecontained in the following sect ions of t h i s repor t.

NEED FOR IMPROVED SUPPLY SUPPORTFOR ARMY UNITS I N KOREA

During the period covered by our review, Eighth Armydepots were continually out of stock on a high percentageof the items authorized fo r stockage. For example, duringthe period January 1967 through May 1968, an average of30 percent of the l i ne items authorized for stockage wereout of stock. The munber of items out of s tock ranged froma low of 30,023, or 26 percent of the total number autho-ri zed f or stockage i n January 1968, t o a high of 51,154, or35 percent of the items which should have been stocked i nJanuary 1967.

As a re su lt of the shortages of depot stocks, only arelatively small percentage of requisitions from userscould be sa t is f ied. During the period January 1967 t o May1968, only 48 percent of the requisitions submitted to

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Eighth Army depots (for stocked items) could be filled,compared with a USARPAC goal of a capability to f i l l85 percent of requisitions from depot stocks. It was nec-essary t o send high-priority requisitions that could not bef i l l ed i n Korea t o supply sources i n continental UnitedStates (CONUS)--a practice which entails considerable delay

i n f i l l i n g requisit ions and which often re su lt s i n reducedcombat- readines s capabi1it i e s

We noted also, that Eighth Army often could not or di dnot take timely steps to replenish the stock. On the aver-age, no stock was on order fo r 43 percent of the items thatwere out of stock and less than sufficient quantities wereon order for a substantial percentage of the other itemsauthorized f o r stockage. This s i tuat ion was apparent ly dueto shortage of stock fund spending authority. The stockageposition by month i s shown i n appendix I .

UNDERSTATED SPENDING AUTHORITY

Stock fund spending authority for a major command suchas EUSA i s estimated each year on the basis of the antici-pated fu tu re needs of the customer un i t s to be supported.The d o l l a r amount provided t o the stock fund i s adjusted,however, t o r e f l ec t the st at us of inventor ies on hand oron order ( i n t r ans i t ) . For example, i f th ere are excessstocks on hand, the spending authority should be reducedbelow the total anticipated stock fund sales t o customers

on the theory that the excess stocks could be drawn dovn t omeet customer requirements. On the other hand, i f depotstocks are below required levels, the spending authorityshould be gr ea te r than the annual sa le s i n order t o permitthe inventories t o be increased t o acceptable quantities.Because the spending authority i s adjusted i n this manner,it i s essential for inventory records t o be accurate sothat funds can be provided i n the proper amounts.

The EUSA stock fund was initially allotted a spendingaut hor ity of only $67.5 mill ion for f is ca l year 1967, com-

pared with expected sales of $142.1 million, because thestock records, a t June 30, 1966, indicated th at ther e weresubstant ia l quanti t ies of excess stocks on hand or on ordertha t co-ald be utilized t o satisfy customer requisitions.USARPAC however, was apparently aware that the records

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were erroneous, and permitted EUSA to use all the $67.5 mil-lion spending authority during the first quarter of theyear. Subsequently, USARPAC allotted an additional $99 mil-lion, taken from other 'JSARPAC commands, for the remainderof fiscal year 1967. However, no effort was made to iden-tify and correct the overstated inventory records.

At June 30, 1966, EUSA estimated that its in-transitinventory alone was overstated by $50 million and that itstotal asset position was overstated by about $60 million.At December 31, 1966, it estimated that the inventory wasoverstated by about $100 million.noted during the third quarter, but as of March 31, 1967,$66.7 million of erroneous and excess assets were still re-corded*

Some improvement was

For fiscal year 1968, the initial allotment of spend-

ing authority for the EUSA stock fund was again understatedbecause of the erroneous inventory records. In 1968, how-ever, EUSA was not arbitrarily given additional spendingauthority as in fiscal year 1967. As a result, EUSA didnot have adequate funds during the year to order depot re-plenishment stocks. In August 1967, for example, EUSA re-computed its requirements and planned to order replenish-ment stocks in September. The stated requirements for de-pot replenishment were about $17.2 million, but only$7.2 million was available to purchase these stocks. EUSArequested USARPAC to provide an additional $10 million of

spending authority, stating that replenishment stocks hadnot been ordered for several months.

quest, USARPAC directed EUSA to satisfy customer require-ments by drawing down the high inventory.out, however, that its records indicated that a large num-ber of required items were out of stock and that customerswere compelled to use an excessive number of high-priorityrequisitions for direct delivery from supply sources in theUnited States.

In denying the re-

EUSA pointed

Actual stock fund purchases for the first 7 months of

fiscal year 1968 amounted to $26.7 million for replenish-ment stocks and an additional $14.2 million to satisfyhigh-priority requisitions. At times during this period,up to 40 percent of the items authorized for stockage werebelow required levels; but they were not ordered because of

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the shortage of spending authority. During February, March,and April 1968, EUSA was able to obligate $40million forreplenishment stocks as a result of additional spending au-thority granted by the Department of the Army and throughcorrection of invalid outstanding requisitions.

In spite of the additional funds available, by thelatter part of May 1968, EUSA had again exhausted all stockfund spending aathority, and it requested additional spend-ing authority of $6.6 million from WSARPAC. USARPAC deniedthe request, basing its decision on the fact that substan-tial quantities of material were on hand or on order,, Ason other occasions, it appeared that WSARPAC did not appro-priately recognize EUSA's inaccurate asset records in ar-riving at its decision.

On May 30, EUSA instituted a constraint on new requi-

sitions; suspended $5 million of requisitions already pro-cessed; and again requested additional spending authorityfor emergency procurement. EUSA estimated that a total of$15 million was required if normal supply operations wereto be continued through June 1968.

The initial spending authority given Eighth Army forfiscal year 1968 was $92.7 million, which we estimate wasshort by approximately $44.4 million due to overstated in-ventories alone. The cancellation of invalid requisitionson CONUS sources in December 1967 resulted in the availa-

bility of an additional $16.9 million. EUSA made furthercorrections in the value of requisitions outstanding inJanuary 1968, which made another $7.5 million available.In addition, and as a result of our inquiries, EUSA beganan intensive effort to purify its remaining records ofoutstanding orders. We estimated that, as of April 30,1968, the records contained about $20 million of erroneouson-order and in-transit supplies. On June 28, 1968, EUSAofficials informed us that, as a result of their review,additional corrections totaling about $12 million had beenprocessed.

Although the initial stock fund spending authorityreceived by Eighth Army for fiscal year 1968 was only$92.7 million, it eventually had over $129 million avail-able to procure material during the year, (This amount

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excludes spending authority received for special projectsa f t e r the Pueblo incident .) The manner i n which the fundswere i n i t i a l l y obtained and subsequently made avail ab le ,however, precluded logical and timely inventory management.Stocks were not ordered when needed and were not availablei n the depots t o f i l l customer requisit ions.

We recognize tha t EUSA made improvements i n i t s rec-ords during fi sc al year 1968 and that the spending authoritycomputation for f i s c a l year 1969 w a s probably more accurateas a resu l t of correct ions of asse t records. However, webelieve that further effort is needed before any significantimprovement i n stock fund operations can be anticipated.Themost significant problems affecting the inventory rec-ords r e l a t e t o (1) validi ty of data on open requisitions,(2) accuracy of on-hand asset records, and ( 3 ) inaccurateusage data. These problem areas are discussed i n fu r th erdetail below.

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Validity of datarelating to open requisitions

When requisitions are forwarded to supply activitiesin the United States, available stock funds must be obli-

gated in order to preclude overexpenditures.sitions are subsequently canceled or determined to be in-valid, the funds can be deobligated and made available forthe ordering of other stocks. The accuracy of open requi-sition data therefore has a direct bearing on the validity3f the records relating to the funds available to obtainadditional supplies.

If the reqyi-

When we initiated our review, we learned that EUSA hadrecently completed a limited review of unliquidated obliga-tions, which had resulted in a deobligation of about

$900,000. The criterion used by EUSA was that any obliga-tion which was over a year old would be considered invalid.In order to test the reliability of the obligation recordsas of the time of our review, we selected a statisticalsample from the approximately 161,000 unliquidated obliga-tions recorded as of April 30, 1968. Our analysis indi-cated that 31.75 percent of the items included in our testwere invalid. Therefore,on the basis of accepted statisti-cal sampling practice, we estimated that obligations re-corded for material on order and in transit, amounting to aminimum of $20 million as of April 30, 1968, were invalidand should have been removed from the records.

We were informed by officials at USAFWAC and EUSA thatthe major cause of invalid data was the failure of person-nel to identify the document numbers on incoming shipmentsand/or match them with outstanding requisitions. In addi-tion, we found instances where requisitions for direct de-livery to customers had been received without adjustment ofappropriate records.still recorded, although (1) Federal Stock Numbers citedwere nonexistent, (2) no dues-in were on record for theitems on the requisitions, and (3) the requisitions hadbeen previously canceled.

We found also that obligations were

The most effective method of maintaining reliable rec-ords pertaining to open requisitions and obligations is to

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periodically conduct back-order reconciliations betweensupply activities to determine whether requisitions arestill valid and are properly recorded at each echelon ofthe supply system. We found, however, that, during the pe-riod July l, 1966, to May 30, 1968, neither EUSA norUSARPAC had adequately reconciled outstanding requisitions

with supply sources in the United States.

In attempting the reconciliations, USARPAC experienceda number of problems, including inadequate control over thetransmission of reconciliation documents from the nationalinventory control points (NICPS). Numerous reconciliationcards were lost and many others were received too late tobe included. Despite considerable effort by systems ana-lysts, programmers, and other individuals involved, USARPACwas unable to make a satisfactory reconciliation with itsCONUS supply sources. Effective July 1, 1967, EUSA was as-

signed the responsibility for making supply action recon-ciliations. We noted that the adequacy of these reconcili-ations was seriously impaired by inadequate control overthe reconciliation documents.

In order to test the reliability of the current due-inrecords, we reconciled 208 requisitions shown to be due inas of May 30, 1968, from two CONUS NICPs. We found thatthe NICPs had no record for 117 of the requisitions andthat 22 other requisitions had either been filled or can-celed.

We believe that the problems experienced with back-order reconciliations were a significant cause of erroneousobligations which contributed to the shortage of stock fundspending authority, It is our opinion that, in order tocorrect these shortcomings, EUSA should take more aggres-sive action to ensure that it receives all reconciliationdocuments and that it must exercise more effective controlover the reconciliation procedure.

When we brought these matters to the attention of the

Secretary of Defense, we suggested that procedures be de-veloped so that reconciliations would be made on a timelybasis and proper controls would be maintained over recordsincluded in the reconciliations.retary of the Army informed us that improvements in

The Deputy Assistant Sec-

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procedures had resulted in a successful reconciliation ofthe records relating to outstanding requisitions of theEighth Army with the records at supply sources in theUnited States during August and September 1968.informed us of a special program which was initiated inAugust 1968 to control certain material receipts which

couid not be initially related to records of shipments duein. He advised that procedures under this special programhad become a part of the normal reconciliation program.

He also

Inaccurate records relating,to on-hand inventory

There were significant discrepancies between the in-ventory records maintained by EUSA and actual warehousecounts. This condition, which has been a problem of longstanding in Korea, is of particular importance since accu-

rate inventory records are essential for good supply man-agement. Accurate inventory records are a l so important instock fund budget preparation, since the value of assetson hand has a direct bearing on the amount of spending au-thority approved for any fiscal year.

Physical inventory efforts in EUSA depots have con-sisted of complete counts about every 2 years and specialinventories of individual items whenever depot personnelcould not locate stock that was shown as available on thestock records, i.e., warehouse refusals. The inventoriestaken by EUSA have indicated significant discrepancies be-tween the warehouse counts and the inventory records, asshown by some recent physical inventories outlined below:

Date countedLine items countedBook value of inventoryDollar value of inventory

Dollar value of inventory

Number of line items vithNumbr of l ine itema withTotal number of l ine items

losses

gains

major adjustments wer $100minor adjustments under $100

vi th adjustnuants

ASCOmOepot

Apr./Hay 1968$111,576,346

$ 46,034,170

$ 35,451,21122,752

230,738

102,349

125,101

Camp Carroll

PkEerDec. 1967

60,753$41,243,853

$11,440,798

$ 8,978,1886,219

17,436

23,655

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As indicated above, more than 50 p2rcent of the i t e m scounted a t Ascom Depot--a major storage l oca tio n i n Korea--had t o be adjus ted.of $35.5 mil li on and decreases of $46 mi ll io n i n inventoryvalue--or to t a l adjustments of over $81 mill ion, equal t oover 70 percent of th e t o t a l value of th e inventory on hand.On th e average, during 1967 th e i naccu rate recor ds re su lt ed

i n a warehouse re fu sa l r a t e of about 14 percen t.

These adjustments resulted in increases

During our review we counted 73 l i n e i t e m s stored a tCamp Carroll and found that 24 did not agree with the quan-t i t y shown i n the inventory records, although a complete in-ventory had been taken only 5 nonths ear l i e r . After thekcember 1967 inventory a t Camp Carrol l wa s taken, th e ware-house refusal rate declined, but it was again showing an up-ward trend a t the t i m e of our review. Both of these indi-cators point t o a re tu rn t o s ig ni fi can t imbalances betweenphysical and book inventories.

We brought the matter of the need for improvement i ninventories t o the a t te nt i on of the Secretary of Dsfense i nour preliminary report of October 22, 1968, and specificallysuggested that (1) addit ional inventory ef fo r t be directedtoward high-cost and critical- type supplies and (2) perpet-u al inventory records be adjus ted on a timely basi s. InrespDnse, the Deputy As si st an t Secretary of the Army in-formed us of the act ion s taken or t o be taken by t he EighthArmy Depot Command t o improve inventory accuracy. Theseactions included (1) th e sending of a Lo gi st ic al Assistance

Team t o Korea f o r a 6-month period s t a r t i n g i n May 1968 t oassist th e command i n th e p u ri fi ca ti on of depot records andtheir inventory program, (2) th e tak ing of complete phy sicalinventories a t the four major st orage loc ati ons i n Korea,which w e r e t o s t a r t i n January 1969 and w e r e scheduled forcompletion i n September 1969, (3) the use of s t a t i s t i c a lsampling methods i n in ven tor ies once inventory recor ds f o ra l l locations are corrected, ( 4 ) the emphasis on researcho f c r i t i c a l i t e m s i n ord er t o improve warehouse de ni alra tes , and (5) t h e r e c e n t f i l l i n g of 25 personnel spaces ofthe Inventory Management Center, EADC, which w i l l permit re-search in depth int o ce rt ain inventory transact ions t o pre-clude in va li d adjustments t o accountable recor ds. Althoughwe did not have an opportunity t o appraise the actio nstaken or t o be taken, we believe tha t , i f they are properlycarr ied out , they should re su lt i n improvements.

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-Inaccurate demand dataRequisi t ions for s tock fund i t e m s are recorded i n a

demand f i l e which provides the historical usage data to com-pute the required stockage levels. The base period forthese computations i s usual ly the 12-month period precedingt h e month i n which t he computation i s made, and supply pro-cedures provide f o r the r ev er sa l of demand da ta upon th ecance l l a t ion o f requ i s i t ions so t h a t s t o c k levels w i l l notbe overs ta ted .

The demand f i l e s of EUSA contained inval id usage d a t aon up t o $53 million worth of material because approximately184,000 requis i t ions , canceled dur ing a period of fund re-s t r ic t io n i n l a t e 1967, had not been reversed. The use ofthe se d at a i n the computation of stockage requirements hasoverstated actual supply needs and may result i n unnecessaryprocurements. In addi t io n, va l i d requirements fo r otheri t e m s may not be f i l l e d because l imi ted sto ck funds are ex-pended for i t e m s t h a t are not needed.

W e w e r e informed by EUSA o f f i c i a l s t h a t t h e c a n c e l e dre q u i s i t i o n s w e r e not withdrawn because they representedva li d requirements f or mate ri al which could not be "pur-chased" by EUSA un i t s due t o the shortage of consumer funds.Although we were unable to determine whether a l l the can-ce led requ i s i t ions were reordered by the us ing un i t s a f t e rt h e fu n d r e s t r i c t i o n w a s l i f t e d , f o r t ho se t h a t w e r e re-

ordered t he usage da ta were duplicated.

We brought the above matters t o t h e a t t e n t i o n of t h eSec ret ary of Defense and suggested th a t (1) the importanceof maintaining accurate demand his to ry f i l e s be s t r es se dand (2 ) demand data relating to canceled orders be removedfrom th e f i l e s . The Deputy As si st an t Sec ret ar y of th e Armyinformed us t h a t (1) automatic removal from t h e demand f i l ewould be effected for canceled i t e m s , ( 2 ) the demand datawould be updated on a monthly basis, and ( 3 ) sp e c i a l at-te nt io n would be given t o a l l demand d a t a used i n t h e com-puta t i on of requis i t i on ing objec t ives . I t appears th a t , i f these new procedures are effectively implemented, improve-ments can be achieved.

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Conclusions

In our opinion a major cause of the inadequate supportprovided to EUSA units was the prevalence of inaccurate andincomplete supply records which prevented the accurate fore-casting of financial requirements for the stock fund. This

condition tended to defeat the stock fund objective of prep-ositioning stocks required by troop units since EUSA wasoften unable to obtain supplies needed by troop units in ad-vance of their demand. In addition, demand data recordedat the time of our review were significantly overstated andcertain stockage requirements were thereby overstated.the absence of action to reduce these invalid requirements,substantial quantities of unneeded supplies could be ob-tained.

In

In view of the actions taken or to be taken by the

Army, however, we are not making any further suggestions forimprovement. In our continuing reviews of military supplyactivities in the Far East, we shall inquire into the ade-quacy and effectiveness of these actions.

NEED FOR IMPROVED CORRELATION OFCONSUMER AND STOCK F'UND BUDGETS

Our review of the EUSA Operations and Maintenance,Army (O&MA), and stock fund budgets showed a need for im-provement in their preparation and correlation in order to

improve the capability of the stock fund to adquately sup-

port customer units. Inadequate budget preparation and cor-relation were apparent since the O&MA budget understated thesupply requirements and this resulted in a reduction ofspending authority available to the stock fund.more, we believe that the financial management plan for al-locating O&MA funds during fiscal year 1968 was unrealistic.In our opinion, these shortcomings have seriously diminishedthe ability of the stock fund to effectively achieve its ob-jective of financing supplies in advance of actual need.

Further-

The EUSA receives an allotment of funds from the O&MAappropriation for the purpose of financing such items asthe pay of civilian personnel, locally contracted services,and supplies procured from stock-funded sources. The stockfund, in turn, finances and controls inventories of

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specified groups of common-type supplies and material. M i l -i t a r y ac t iv i t ies , u t i l i z i n g O W funds allotted to them, pur-chase their current needs for such i t e m s from the stock fundwhich, i n turn , replenishes i t s inventories with the fundsderived from sales.based to a large degree on the re l ia b i l i t y of the O W bud-get for suppl ies .budgets are expended should be con si st en t i n order t h a tstock-funded material w i l l be on hand t o m e e t consumer de-mands.

The stock fund budget is therefore

In addit ion, the ra te a t which the two

O W supply requirementsOur review indicated th at the f is ca l year 1968 O W

budget did not reflect the actual supply requirements ofEUSAtroop u n i t s due t o budget li mi ta ti on s imposed by higher com-mands and because EUSA did not adequately consider the p a s t

level of purchases ordered fo r d i re ct delivery t o using un it s.A s a r e s u l t , the spending authority available to the stockfund was reduced by about $24million.

The O W program and budget guidelines received by EUSAshowed that approximately $147 million of O&MA funds couldbe expected during fiscal year 1968.i t a t i o n , t h e EUSA budget was developed and submitted t oUSARPAC i n March 1967.program limitations, and EUSA estimated t h at unfinanced re-quirements would total $15.9 million.

Within this fund l i m -

Supply requirements exceeded the

We also noted that EUSA did not adequately consider the

During recent fi sc al years lar gep a s t level of purchases for d i rec t de l ivery t o us ing uni t swhen preparing i t s budget.quan t i t i e s of material w e r e ordered from CONUS depots fordirect shipment t o using un it s i n EUSA. The EUSA did not

maintain accurate records of these transactions and, whent he b i l l s w e r e received, was gen erall y unaware of th e ex te ntof outstanding orders or of what the impact would be on theO W budget.

The inability of EUSA t o determine the volume of req-u i s i t i o n s it had passed to CONUS dur ing the f i r s t ha lf of f i s ca l yea r 1967, and the expected volume during the l a t t e rhalf of the year , resul te d in an understatement of the basefig ure u ti l i ze d i n the computation of the f i s c a l year 1968

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supply requirement.ment was understated by an additional amount of about$15 mill ion.

As a r e s u l t t h e t o t a l supply require-

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Financial management planUsing units of EUSA, permitted to order supplies with-

out limitation during the first 4 months of fiscal year1968, actually expended about 71 percent of the total an-nual OGrMA budget during that time.lowed by a 3-month period during which only high priority,

health, and safety items were ordered due to a shortage offunds. The period of supply constraint was, in turn, fol-lowed by another period during which unit commanders at-tempted to fill the total material needs of their units.Because of these fluctuating demands, and because the stockfund spending authority was not allocated on a basis con-sistent with the rate of consumer fund expenditures, mTSAwas unable to effectively plan for the procurement ofneeded stock.

This period was fol-

A financial management plan is prepared by EUSA to al-

locate available funds throughout the year. The plan isupdated monthly to show the capability of EUSA to meetknown requirements based on available funds and to analyzeproblems which may be developing as a result of fund short-ages. As of October 31, 1968, EUSA had spent or committedabout 71 percent of the available O&MA budget for suppliesfor troop units. The stock fund, however, was authorizedto spend only 25 percent of its budget during the firstquarter of fiscal year 1968. Thus, because of the restric-tions on the amount that the stock fund could spend, notall the demands for supplies by troop units could be met.

During October 1967, EUSA recognized the abnormallyhigh expenditure/obligation rate; and, since USARPAC hadpreviously indicated that there was little chance of ob-taining additional funds for Korea, EUSA imposed severe re-strictions throughout the command on the requisitioning ofsupplies by troop units during the period October 27, 1967,to January 27, 1968, in an effort to conserve remainingfunds for high priority requirements. Intensive reviews ofrequisitions were undertaken to eliminate all but the mostessential orders; authorized retention levels for supplies

at the direct support units were reduced from 90 days to60 days; cross-leveling of supplies was encouraged; requi-sitions for construction supplies were deferred and only

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essential travel was authorized; 20 percent of the adminis-trative vehicles were stored; and petroleum, oil, and lubri-cant allocations were reduced 20 percent.

Submission of requisitions by Army units was suspendedexcept for high priority needs and justifiable health and

safety items. The EUSA emphasized that the stringent con-trols, effective as of October 27, 1967, were mandatory toensure that the limited O&MA funds would be applied againstthe highest priority requirements,

In addition to imposing restrictions on the submissionof new requisitions, EUSA canceled requisitions being pro-cessed at the time which did not meet the new issue crite-rion. In total, the Eighth Army requested cancellation onabout 226,000 requisitions for material valued at about$75 million. We estimated that, of the total, about

184,000 requisitions valued at about $53 million were actu-ally canceled as a result of the Droject to conserve O&MAfunds. (See p . 14 .> During January 1968 the stringentrequisitioning criterion imDosed by EUSA was rescinded whenadditional. O&MA funds were made available because of in-creased provocation on the Dart of North Korea.

We believe that the conditions described above Dresentan almost insurmountable Droblem to stock fund suooly man-agers in that arbitrarily imposed variations in demand se-verely reduce their ability to forecast and Durchase neededsupplies. Restrictions of these types create additionalproblems, since the periods of high demand create unusualworkloads for administrative personnel, data processingequipment, and storage activities,

In our preliminary report, we proposed that the Secre-tary of the Army consider the apmopriateness of O&MA fund-control practices being followed, in terms of the impact onthe stock fund budget.be devised for obtaining greater correlation between thefunds for troop units (O&MA) and s tock funds. We suggestedthat (1) additional consideration be given to.unfundedre-quirements for trooD units in determining stock fund spend-ing authority, ( 2 ) Drocedures be devised or improving the

In our oDinion, some means need t o

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O W budget-estimating procedures to ensure that totalEighth Army requirements are included in the budget presen-tation, and (3) consideration be given to making a largerportion of the stock fund obligation authority available atthe beginning of the fiscal year.

The Deputy Assistant Secretary of theArmy informed usthat the Army agreed that improvements were needed to moreaccurately estimate total troop unit requirements in the

preparation of the stock fund budget. In summary, the Dep-uty Assistant Secretary of the Army advised us of regula-tions, rules, and guidance relating to the stock fund con-cerning (1) procurement of items for the support of troopunits, (2) consideration of the availability of O W funds,and (3) increases and decreases in the stock fund becauseof changes in demand for items. The guidance appears toprovide the means by which the stock fund should support

requirements of the troop units, but the manner in whichthese regulations and guidance are carried out determineshow effective the stock fund will be to support the re-quirements of the troop units.

The Deputy Assistant Secretary of the Army has alsoinformed us that current O&MA budget estimating proceduresadequately provide for the inclusion in the budget presen-tation of all known troop requirements. He explained thatit appeared that the basic problem was the condition of thesupply records which prevented the adequate forecasting of

supply requirements for inclusion in the budget presenta-tion. It was also explained that another problem had beenthe need for establishing and maintaining a system of fi-nancial controls and that such a system was developed byEighth Army with the assistance of Headquarters, USARPAC,during the fourth quarter of fiscal year 1968.

The Deputy Assistant Secretary of the Army informed usfurther that the total annual stock fund program was avail-able to Headquarters, USARPAC, at the beginning of fiscalyear 1968. USARPAC's decision to enforce quarterly obliga-tion funding was an attempt to maintain a degree of finan-cial discipline not otherwise obtainable, based partly onthe fact that stockage level requirements computed by EUSAappeared to be excessive.

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Conclusions

We believe that the method of providing funds to troopunits created additional problems in estimating the finan-cial requirements of the stock fund. We found that the un-derstatement of EUSA troop requirements, together with in-adequate correlation of the rate of &MA and stock fund ex-penditures, contributed adversely to effective supply oper-ations.considerations do not always permit full funding for allmilitary commands each year, we believe that improvementswere needed to more accurately estimate total consumer re-quirements and that additional consideration should begiven to unfunded troop unit requirements in order to moreaccurately estimate potential demand for supplies. This isparticularly important in those instances where many ap-parently mission-essential requirements are unfunded at the

beginning of a fiscal year.

Although we recognize that economic and policy

We proposed that consideration be given to allocatinga larger portion of stock fund spending authority at thebeginning of the fiscal year in order that the stock posi-tion in Korea could be improved in anticipation of customerdemands. In our opinion, this would reduce the number ofdirect deliveries required, lessen the administrative work-load, enable the procurement of stocks in economical quan-tities, and permit an overall increased responsiveness totroop units.

However, in view of the comments furnished to us bythe Deputy Assistant Secretary of the Army concerning ac-tions taken and the basis for existing financial manage-ment procedures and practices, we are not making furthersuggestions for improvement. We will, however, at a latertime examine into the adequacy and effectiveness of ac-tions taken.

INTERNAL REVIEW OF SUPPLY ADMINISTRATION

We examined into the reviews performed by the Army Au-dit Agency (AAA) in the areas of supply and financial man-agement activities in Korea and found that U A had doneonly a limited amount of work in these areas.sentatives stated that the audit effort was beingAAA repre-

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concentrated on t ac t i ca l units and other elements of EUSA,such as the Fie ld Army Support Command.

AAA representat ives s ta t ed th at , dur ing a review ofmaterial shortages i n Eighth Army, the AAA representa t ivesbecame aware of t he general un re li ab il it y and inaccuracy of

EUSA records. They stated that they had proposed severalfunctional- type reviews covering the areas of st ock con-t r o l , sto ck management, stoc k fund ope rat ion s, and storageac ti vi t i es ; but approval fo r performing these reviews hadnot yet been received at the t i m e of our examination i nKorea,

On the b as is of our review conducted within some ofthese functional areas and because combat readiness is di-rec t ly a f fec ted by supply support, we believe that addi-t i o n a l AAA reviews of EUSA functions are warranted and

should be approved,o f f i c i a l of the Department of the Army t h a t AAA i n Koreahad been granted approval for making these reviewsowere also informed that certain reviews had been made andother reviews were planned concerning supply and financialac t iv i t ies ,

In March 1969 we w e r e informed by an

We

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SCOPE OF EXAMINATION

Generally, our examination covered the period July 1,1966, through May 31, 1968. The primary emphasis was onexamining into the reliability of supply records used to

forecast and support the financial requirements for partsand supplies.scribed i n appli cabl e regu la tio ns and examined i nt o proce-dures followed by Eighth U.S. Army i n req uest ing and a l lo-cating funds for the stock fund branch and for troop units.The examination wa s performed a t th e following Army ac t iv i-ties:

W e reviewed Army policies and procedures pre-

Headquarters, U.S. Army Pacific, Honolulu, H a w a i i

Eighth U.S. Army, Seoul, KoreaEighth Army Depot Command, Taegu, KoreaVarious Eighth Army troop u n i t s

Additional workwa s performed a t the following inven-tory control points:

U.S. Army Aviation Systems Command, S t . Louis, MissouriU.S . Army Missile Command, Huntsville, Alabama

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APPENDIXES

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EUSA STOCK SHORTAGES BY nom

Month

Jan, 1967

Feb.

Mar.

Apr.May

-

JUne

JulyAug.Sept.Oct.

Nov.D e C .Jan. 1968

Feb .Mar.

Apr .MayAverage

Items

authorizedfor stockage144,714

143,925

140,349

139,045

140 021

140,846

127,651128,157

117,378

117,469

117,309

116, 88115,488

112,658112,649

111,764

112,876

125,817

Items with on-hand and on-

order quantity

age objective

58,340

59,44254,986

56,213

61,961

below stock-

59,414

12 21446,302

46,579

47,275

32,096

32 097

30,076

32,607

8,934

40,622

47,669

42,755

Percent ofauthorizedstockageitems40.3%

41.3

39.2

40.4

44.3

42.2

9.636.1

39.7

40.2

27.4

27.5

26.0

28.9

7.9

36.3

42.2

34.0%

-

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APPENDIX I

AGthorizedsto kage

i t e m s at zerobalances

51,154

49,427

43,676

40,550

41,868

42,902

36,012

37,536

40,124

38,852

34,159

31,092

30,023

30,316

33,017

30,881

34,239

37,990

Percent ofauthorized

stockageiterns

35.3%

34.3

31.1

29.2

29.9

30.5

28.2

29.3

34.2

33.1

29.1

26.7

26.0

26.9

29.3

27.6

30.3

30.2%

-

Items a t zerobalance with

no materialon order

20,55423,061

16,507

17,108

20,807

20,178

3,745

15,446

21,098

23,027

13,950

13,913

11,330

12,814

3,104

18,308

22,996

16,350

Percent ofauthorized

s ockageiterns

14.2%-16 O11.8

12.3

14.9

14.3

2.9

12.1

18 O19.6

11.9

11.9

9.8

11.4

2.8

16.4

20.4

13.0%

-

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APPENDIX I1Page 1

DEPARTMENTOF THE ARMYOFFICE OF THE ASSISTANT SECRETARY

WASHINGTON, D.C.

6 FEB 1969

M r . C. M. BaileyDirector, Defense DivisionU ni t ed S ta t e s General Accounting Of fic eWashington, D. C . 20548

Dear M r . Bailey:

This i s in response t o your l e t t e r of 22 October 1968 t o the

Secre t a ry of Defense req ues tin g comments on your d r a f t r ep or t

t i t l e d : "Need for Improvements in Supp ly Management and S to ck

Fund P ra ct ic es Rel ati ng t o Army Units i n Korea." (OSD Case #2847)The Department of th e Army posi t i on with re sp ec t to t h e r e p o r t

is inc losed. This r ep ly is made on behalf of the Secre tary of

Defense .Since re ly yours ,

G . B. R usse l l1 In cl : Deputy Ass is t ant Secre tary of the Army ( IU)

Army Pos i t i on Supply, Servi ces and In s t a l la t i on s

Statement

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APPENDIX I1Page 2

ARMY POSITION STATEMENT

TO

GAO DRAFT REPORT SM-108, NEED FORIMPROVEMENTSIN SUPPLY MANAGEMENT AND STOCK FUND PRACTICES

IN KOREA

(OSD Case Number 2847)

I. POSITION SUMMARIES

A. GAO Posit ion Summary

The GAO alleged that improvements a r e needed in supply manage-

The existence

ment practices and stock fund operations in Korea in order to provide an

increased level of suppor t to Eighth U. S. Army (EUSA)units.of inaccurate, inadequate and incomplete data has resulted in an inability inthe Army in Korea to forecast and support, with a reasonable degree ofaccuracy, the financial requirements necessary to ass ur e that the properquantities and types of mater iel needed by troop units a r e obtained in advance

of actual needs. Such funds were being used l argely to finance the acquisition

of stocks to f i l l individual customers requisitions, rath er than for depot

stockage.

in Korea can contribute to a low combat readiness condition.The inability to provide adequate and timely support to troop units

B. Army Position Summary

The Army has recognized for some time the problems existing

because of inaccurate, inadequate and incomplete logistical data in therecords at the ASCOM depot and other supply support activiti es in Korea.A Logistical Assistance Team consisting of 40 military personnel, similar

to the Projec t Counter T e a m s used in Vietnam, arr ived i n Korea on 21 May1968, for a six month period, to as si st the command in the purification ofdepot reco rds and their inventory program. The imposition of quarterlyobligation authority control is an attempt to enforce a degree of financialdiscipline not otherwise attainable.

impacts on combat readiness. In fact, the findings of the GAO Report withresp ect to overstated requisitioning objectives and ass et re cord s appear to

support the need for these additional financial controls.

There are no indications that this control

,

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APPENDIX r IPage 3

11. h M Y POSITION ON GAO RECOMMENDATIONA. That the Secretar y ofthe Army require approp riate official of the

Eighth Army to institute a positive program to improve and correct thebasic supply records of the EADC including the following:

(1) Develop procedures to perform due-in reconciliations on atimely basis and maintain proper control over the recordsincluded in the reconciliation.

Army Comments

Recent im pr ovements in backorder reconciliation proceduresresulted in successful reconciliations of outstanding requisitions withCONUS NICP's during August and September 1968.improved batch control procedures insuring complete and timely response

on all unmatched items, and prevention of cancellation of valid requisitionsby CONUS MCP's . A special program was initiated in August 1968 toreview all receipts processed as "not due-in". As these transactions wereidentified by researching the due-in and obligation record s, they werecorrectedby applying the receipt to the proper requisition document number.

A special control was established in this project to assure its accomplishment

by January 1969.

This resulted in

However, the procedures a r e now part of the normal program.

(2 ) St re ss the importance of maintaining accu rat e demand historyfiles and insur e al l cancelled orders are removed from the

files.

Armv Comments

Requisitions which a r e cancelled a r e now automatically backed out

of the demand data file. Also, demand data is now being updated monthly.

Review and adjustment of demand histor y listings by commodity managerswas completed on 30 November 1968. Results of this review were used to

update the November file.data used in computation of Requisitioning Objectives (RO's).supply managers from HQ, USARPAC as si st ed EADC in thefinal evaluation

of these RO computations.

Special attention is now devoted to all demandA team of

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APPENDIX I1Page 4

(3) Direct additional inventory ef for t to high-cost and crit ical-type supplies and adjust the perpetual inventory rec ords on

a timely basis.

Army Comments

Action taken or to be takenby EADC to improve on-handinventory accurac y are:

@) 100 percent inventories of al l EADC Storage locations segmentedby Federal Supply Class in accordance with the following schedule:

Date-LocationPusanCamp Carro llInchonASCOM

2 Jan - 5 Jan 69

6Jan - 25 Feb 6915 Apr - 15 Jul 6916 Jun - 16 Sep 69

(b) Use of statistical sampling methods in inventories onceinventory records for al l locations are corrected.

(c) Emphasis on resea rch of critical items in order to improvewarehouse denial rates.

(d) Recent filling offour Department of the Army (DAG) andtwenty-one personnel spaces i n the EADC Inventory Management Centerwill permit re sear ch in depth into both in-float documents and questionable

transactions to preclude invalid adjustments to accountable records.

(e) The Logistical Assistance Team consisting of 40 militarypersonnel, simi lar to the Proj ect Counter Teams used in Vietnam to

assist the command in the purification of depot, repor ted the followingaccomplishments:

Number of depot locations surveyedNumber of depot locations added

Number of depot locations dele ted

Number of depot locations deleted

90,67932,4699,061

6,963

(because of no stocks)

(because of consolidation of stocks)

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APPENDIX I1Page 5

B. That the Secretar y of the Army consider the appropriateness ofOMAfund control prac tices currently being followed in terms of the impactof these p ract ices on the stock fund budget.to obtain gre at er flexibility between the funds for tr oop units and stock funds.GAO suggested that:

Some means need to be devised

(1) Additional consideration be given to unfunded requirementsof the troop units in preparation of the stock fund budget.

( 2 ) Procedu res be devised to improve the OMA budget estimatingprocedure to insur e that total EUSA requirements are includedin the OMAbudget.

(3) A larger portion of the stock fund obligation authority bemade ava ilable at the beginning of the f isca l year.

Army Comments

(a) The Army agre es that improvements a r e needed to moreaccurately estimate total consumer requirements in the preparation of

stock fund budgets.ever, preclude budgeting or procuring with stock funds items for support

ofcustomer operations that are not expected to be demanded by thesecustomers because of limited consumer funds.

by DAfor use in preparation of stock fund budgets requires that considera-

tion be given to command operating budgets for mat eri el planned to bepurchased from the stock fund. Stock Fund Program Guidance directs that

sales estimates must be consistent with the fund availability contained i n thecommand budget estimates.relationships between estimated stock fund sale s and consumerfund budgets which Lnance these sales can the purchasing power of the stockfund be maintained.Prog rams recognize the fact that changes may occur during the year inconsumer fund programs.additional funds will be provided by review officials to meet in cr ease s in

demands and that conversely, management is expected to take action toreduce use oJT funds when demands decrease. Under this provision, thestock fund can r ea ct and obligational authority ie provided to maintainstock levels and to meet projected i ssues (demands).

DOD regulations governing stock fund operations, how-

Program guidance published

Only by giving careful consideration t o such

Rules governing execution of Army Stock Fund Operating

The Stock Fund Pro gram document st ate s that

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APPENDIX I1Page 6

(b) It is considered that current O&MA budget estimating proceduresdo adequately provide for the inclusion in the budget presentation all knowntroop unit requirements. The pres ent budget syst em places a high priori ty

of funding for troop unit requirements which impact on unit readiness. The

basic problem ofsupply management for Army units in Korea appears to beassociated with the condition of the supply records which have prevented

adequate forecasting of supply requirements for inclusion in the budget presen-

tation.

financial- cont rols which would permit the application of resour ces to thefunctional areas for which financing was projected.ceiling control was developed by EUSAwith the assistance of Headquarters,

USARPAC during the fourth qua rt er fiscal 1968.

Another real problem has been to establish and maintain a system of

Such a system of cost

(c) The total annual theater stock fund program was available toHeadquarters, U. S. Army, Pacific at the beginning of F Y 68.t o place the subordinate commands on a quarterly obligation funding basis was

made by CINCUSARPAC.on-hand and on-order asset position coupled with the fact that dollar value

of Requisitioning Objectives was extremely high and not supportable by theprojected levels of s ale s to customers.

these inflated levels, additional excesses would have been generated andfunding to sustain this level of operat ion could not have been justified. The

imposition of qu art erl y obligation authority control is an attempt t oenforce

a degree of financial discipline not otherwise attainable.the GAO report with respect to overstated requisitioning objectives and assetrecords appear to support the need for these additional financial controls.

The decision

Fac tor s contributing to this decision were a high

Had new orders been placed against

The findings of

111. OTHER COMMENTSNone.

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APPENDIX I11Page 1

PRINCIPAL OFFICIALS OF THE DEPARTMENT OF

DEFENSEAND THE DEPARTMENT OF THE ARMYRESPONSIBLE FOR ADMINISTRATION OF ACTIVITIES

DISCUSSED I N THIS REPORT

Tenure of office-FromDEPARTMENT OF DEFENSE

SECRETARY OF DEFENSE:Melvin R. LairdClark Clifford

Robert S. McNamaraJan. 1969

Mar. 1968

Jan. 1961

DEPUTY SECRETARY OF DEFENSE:David Packard Jan. 1969Paul H. Nitze July 1967Cyrus R. Vance Jan. 1964

ASSISTANT SECRETARY OF DEFENSE(INSTALLATIONS AND LOGISTICS):

Barry James S h i l l i t o Jan. 1969Thomas D. Morris Sept . 1967Paul R. Ignatius Dec. 1964

ASSISTANT SECRETARY OF DEFENSE(COMPTROLLER) :

Robert C. Moot Aug. 1968Robert N. Anthony Sept. 1965

COMMANDER I N CHIEF, U . S , PACIFICCOMMAND

Adm. John S. McCain, Jr. July 1968A h . Ulyssess J. S. S h a r p , J r . July 1964

To.

PresentJan. 1969

Feb. 1968

PresentJan. 1969June 1967

PresentJan 1969Aug. 1967

PresentAug. 1968

PresentJuly 1968

34

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APPENDIX I11Page 2

PRINCIPAL OFFICIALS OF THE DEPARTMENT OF

DEFENSE AND THE DEPARTMENT OF THE ARMY

RESPONSIBLE FOR ADMINISTRATION OF ACTIVITIES

DISCUSSED I N THIS REPORT (continued)

Tenure of o f f i c eFrom

DEPARTMENT OF THE ARMYSECRETARY OF THE ARMY:

Stanley R. ResorStephen A i l e s

UNDER SECRETARY OF THE ARMY:Thaddeus R. BealDavid E. McGiffert

ASSISTANT, SECRETARY OF THE ARMY(INSTALLATIONS AND LOGISTICS):

Vincent P. Huggard (acting)D r . Robert A. Brooks

ASSISTANT SECRETARY OF THE ARMY(FINANCIAL MANAGEMENT):

Eugene M. BeckerW. B r e w s t e r Kapp

COMPTROLLER OF THE ARMY:L t . Gen. F.C. SacktonL t . Gen. F.C. ChesarekL t . Gen. C.D. Hackett

CHIEF OF STAFF:Gen. WilliamC. WestmorelandGen. Harold K. Johnson

DEPUTY CHIEF OF STAFF FORLOGISTICS:

L t . Gen. Jean E. EnglerL t . Gen. Lawrence J. Lincoln

July 1965Jan. 1964

March 1969July 1965

Mar. 1969O c t . 1965

July 1967June 1965

Aug. 1967Aug. 1966Aug. 1963

July 1968July 1964

July 1967Aug. 1964

To.

PresentJuly 1965

PresentMar. 1969

PresentFeb. 1969

PresentJune 1967

PresentJuly 1967Aug. 1966

PresentJuly 1968

PresentJune 1967

35

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APPENDIX I11Page 3

PRINCIPAL OFFICIALS OF THE DEPARTMENT OFDEFENSEAND THE DEPARTMENT OF THE ARMY

RESPONSIBLE FORADMINISTRATION OFACTIVITIES

DISCUSSED IN THIS REPORT (continued)

Tenure of officeToFrom _.

DEPARTMENT OF THE ARMY (continued)

COMMANDERIN CHIEF, U . S , ARMY,PACIFIC:

Gen. Ralph E. Haines, Jr. July 1968 Present

Gen. Dwight E. Beach Sept. 1966 June 1968

COMMANDING GENERAL, UNITED STATESFORCES, KOREA:

Gen. Charles H. Bonesteel I11 Sept. 1966 PresentGen. Dwight E. Beach July 1965 Sept. 1966

COMMANDER, EIGHTH ARMY DEPOTCOMMAND:Col.A. G. Baker Nov. 1966 Present

Col. L. A. Parks June 1966 Nov. 1966