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NSIAD-88-69 1 (1988-03-04)

handle is hein.gao/gaobabgbw0001 and id is 1 raw text is: Chapter 2 Reported Inventory Accuracy Is Overstated The Navy's reported inventory accuracy rates do not reflect the full extent of inventory inaccuracies. Our review showed that (1) the Nor- folk NSC has not complied with existing Navy policies regarding inven- tory accuracy measurement and the timeliness of research to determine the reasons for inventory variances, and (2) other Navy policies, which the Norfolk NSC has complied with, cause inventory accuracy rates to be overstated or understated. Therefore, while the Navy has reported to DOD in its reports on Inventory Control Effectiveness that accuracy goals are being achieved, these reports are inaccurate. According to a NAVSUP official, some of the current indicators (such as GMAR, location surveys, and warehouse denials) do not provide an ade- quate basis for measuring inventory accuracy. Therefore, NAVSUP is improving its computations of inventory accuracy. A significant improvement is that it is introducing statistical sampling as a means to better measure inventory accuracy. Norfolk NSC's Noncompliance With Existing Navy Policies Improper Reversals Are Made The Norfolk NSC is not complying with existing Navy policy in develop- ing inventory accuracy rates. Noncompliance areas involve (1) how the Norfolk NSC adjusts its records when physical inventory counts reveal a difference between the inventory on hand and the recorded inventory, (2) how it selects items for physical inventory to determine inventory accuracy, and (3) the timeliness of its causative research. The proce- dures followed by officials at the Norfolk NSC resulted in overstatements of inventory accuracy. Further, these practices have caused Norfolk NSC'S records to be inaccurate for long periods of time, thus impairing the accuracy of information available to Navy decisionmakers. Under current DOD and Navy policy, variances identified during physical inventories between on-hand balances and recorded balances should ini- tially be resolved by adjusting the inventory record to match the on- hand count (a record adjustment). However, if subsequent research can establish that the variance was caused by a previous erroneous transac- tion, the inventory adjustment is reversed (an adjustment reversal). To test reversal practices at the Norfolk NSC, we reviewed the results of a semiannual physical inventory initiated in January 1986 of 578 high- dollar value items, which represented 298 different national stock num- bers (NSN). We found imbalances in 37 of these items. We reviewed all 37 NSNs by analyzing all transactions that affected them from mid-1985 through mid-1986. GAO/NSAD-889 Inventory Management Page 15

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