The U.S. Government Accountability Office (GAO) is an independent agency that works for Congress. The GAO watches over Congress, and investigates how the federal government spends taxpayers dollars. The Comptroller General of the United States is the leader of the GAO, and is appointed to a 15-year term by the U.S. President. The GAO wants to support Congress, while at the same time doing right by the citizens of the United States. They audit, investigate, perform analyses, issue legal decisions and report anything that the government is doing. This is one of their reports.

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.

This report addresses the major performance and management challenges confronting the Department of Defense (DOD). Taken together, these challenges, if not addressed, can adversely affect the Department's operational effectiveness. The report also addresses corrective actions that DOD has taken or initiated on these issues- including DOD'S blueprint for a strategy-based, balanced, and affordable defense program as outlined in the May 1997 Report of the Quadrennial Defense Review and the reforms described in its November 1997 Defense Reform Initiative Report-and further actions that are needed. For many years, we have reported significant management problems at DOD. These problems can be categorized into two areas: (1) systemic management challenges dealing with financial management, information management, weapon systems acquisition, and contract management; and (2) program management challenges dealing with infrastructure, inventory management, and personnel. These problems cut across DOD'S program areas.