1. DoD Review of Inventory Policy and Procedures June 25, 2008 Ms. Kathleen Smith ODUSD(L&MR/SCI)

2. 2 Background Secretary of Defense directed Air Force, Navy, and Defense Logistics Agency to perform a comprehensive review and physical inventory by serial number of all nuclear weapons and nuclear weapons-related materials under their possession Review included recommendations for improved policies and procedures, as appropriate

3. 3 History of Controlled Item Policy 1987 MILSTRAP stated that DoD Components will conduct scheduled inventories on all items for which they are accountable and items subject to complete inventory not less than once each fiscal year: Controlled Inventory Items 1991 Components requested waiver from 100% annual inventory for controlled items and received it from then DASD(L) SD 1992 MILSTRAP updated to require some sampling and some 100% inventories on Controlled Inventory Items 1993 DoDI 4140.35 Physical Inventory Control for DoD Supply System Material combined into DoD 4140.1-R “Super Reg”

4. 4 A Physical Inventory Control Program (PICP) shall be established for DoD supply system materiel (both wholesale and below wholesale) and maintained by each DoD Component to provide for the economical and efficient stewardship of DoD supply system materiel. The DoD PICP shall include physical inventories; location surveys; quality control; research; accuracy and performance goals; workload and/or performance management reporting; and, pending establishment of single shared-asset balances, reconciliation of records. Storage activities shall maintain quantitative balance records by individual storage location. Maintenance of those records shall provide the capability to detect theft or diversion of materiel and find the cause of variances, enabling corrective management action. The DoD Components shall devote resources and select items for physical inventory according to this prioritization: –Annual random statistical samples that shall support the determination of logistics record accuracy and financial record accuracy –Classified items. –Sensitive and pilferable items. –Items with known or suspected discrepancies or items requested by the materiel manager or accountable officer. –All other items that shall be candidates for physical inventory based on a prioritization system or sampling strategy Current 4140.1-R PICP Policy

5. 5 Controlled Inventory Items. The following controlled inventory items (identified in DoD 4100.39-M) require complete physical inventory and do not qualify for use of a random statistical sampling approach:DoD 4100.39-M –Top Secret. –Narcotics, drug abuse items, and alcohol. –Category I non-nuclear missiles and rockets (semiannually in accordance with DoD 5100.76-M).DoD 5100.76-M –Precious metals. –Small arms. –Radioactive items. –Inert nuclear ordnance material. –Other items that may be designated by DoD or the DoD Components. Current DoD 4000.25-M CIIC Procedures

6. 6 Category I Non-Nuclear Missiles and Rockets or Category II, III, and IV Arms - In addition to the requirements specified for PICP : –Unit level shall do a 100 percent monthly physical count by UII. –Installation (post, camp, base, station) level shall do a 100 percent semiannual count by UII. –Depot level shall do a 100 percent annual physical inventory. –Where the items are banded and crated, the inventory shall consist of a 100 percent count, as reflected by the number of items listed on the crates. Any evidence of tampering shall be cause for a crate to be opened and a 100 percent count taken of the contents. Inventory records shall be maintained for a minimum of 2 years. –Inventory organizations may use the number of items listed on banded containers for first and second counts of sensitive conventional arms; however, the definitive count shall be the formal third count, which consists of the 100 percent count of individual weapons comprising the containers. Before any loss of materiel may be attributed to an inventory or accountability discrepancy, it must be determined through investigation that the loss was not the result of theft or misappropriation. Tighter Controls on Some Items

7. 7 Category II or III Non-Nuclear Missiles and Rockets -In addition to the requirements specified for PICP: –Unit level shall do a 100 percent quarterly physical count by UII. –Installation (post, camp, base, station) level shall do a 100 percent semiannual physical count by UII. –Depot level shall do a 100 percent annual physical count. –Where the items are banded and crated, the inventory shall consist of a 100 percent count as reflected by the number of items listed on the crates. Any evidence of tampering shall be cause for a crate to be opened and a 100 percent count taken of the contents. Inventory records shall be maintained for a minimum of 2 years. Before any loss of materiel may be attributed to an inventory or accountability discrepancy, it must be determined through investigation that the loss was not the result of theft or misappropriation. Tighter Controls on Some Items

8. 8 Category I, II, III, or IV Ammunition or Explosives - In addition to the requirements specified for PICP: –Unit level shall do a 100 percent monthly physical count of the contents of any unsealed containers. –Installation (post, camp, base, station) level shall do a 100 percent semiannual physical count of the contents of any unsealed containers. –Depot level shall do physical inventories, as a minimum, according to DoD 4000.25-2-M (Reference (p)) or DoD 4000.25-M (Reference (q)). – Where the items are banded and crated at the unit or installation level, the inventory shall consist of a 100 percent count, as reflected by the number of items listed on the crates. Any evidence of tampering shall be cause for a crate to be opened and a 100 percent count taken of the contents. Inventory records shall be maintained for a minimum of 2 years. Before any loss of materiel may be attributed to an inventory or accountability discrepancy, it must be determined through investigation that the loss was not the result of theft or misappropriation. Tighter Controls on Some Items

9. 9 The owning DoD Component shall assume accountability for materiel inventory and operating materials and supplies not in the physical custody of a storage activity, such as materiel inducted for organic maintenance. The owning DoD Component shall assign accountability for materiel in a contractor’s hands (according to the provisions in Part 45 of the FAR) and materiel on loan. –When assigning accountability, the DoD Component shall ensure that appropriate systems are in place to manage (control, use, preserve, protect, repair and maintain) government property in the assignee’s possession. In-Transit Accountability –The DoD Component placing materiel in an in-transit status shall retain accountability for that materiel (to include resolution of shipping and other discrepancies) until the consignee/receiving activity formally acknowledges receipt. Revised 4140.1-R Procedures

10. 10 All Nuclear Weapon Related Materiel (NWRM) shall have special packaging instructions requiring dedicated containers to ensure containers used for NWRM are not subsequently reused for non-NWRM. All NWRM placed in packaging and/or shipping containers shall be visually verified, prior to closure of the container, by a second person not involved with packing the specific items to check that the items, quantities, and associated paperwork are correct. All receipts for NWRM shall be validated for kind, count and condition. Establish alternate processes to validate item identification when opening the container would compromise the materiel unless tampering is evident. Proposed NWRM (CIIC?) Procedures

11. 11 All shipments and receipts of NWRM shall have a 100 percent report of shipment (REPSHIP) confirmation. In this enhanced REPSHIP process, the shipper shall notify the recipient of the intention to ship the NWRM and shall await a positive acknowledgement from the recipient before the shipment occurs. When the positive acknowledgement is received, the shipper shall notify the recipient of the actual shipment and the recipient shall positively respond when the NWRM is received. A deadline not to exceed 2 hours for these notifications and acknowledgements shall be strictly enforced. All NWRM held in inventory and not tracked as part of the end item, shall be 100 percent inventoried at least monthly at field unit level, semi-annually at installation (e.g., post, camp, base, station) level, and annually at storage and maintenance depot level. When the items are banded and crated, the inventory shall consist of a 100 percent count as reflected by the number of items listed on the crates. Any evidence of tampering shall be cause for a crate to be opened and a 100 percent count taken of the contents. The services shall update the NWRM information in the accountable records within 24 hours of dismantling for maintenance at base, depot, or contractor facility level. Proposed NWRM (CIIC?) Procedures

12. 12 Next Steps Continue to review existing DoD and Service-level controlled item policy/procedures Update 4140.1-R, DoD 4000.25-M and others to clarify consistent controlled item policy

13. 13 BACK UP SLIDES

14. 14 The Heads of the DoD Components shall: –Establish and maintain a physical inventory control program complying with this Regulation, and ensure that processing of inventory results to accounting records complies with Chapter 55 of Volume 11B of DoD 7000.14-R (Reference (r)). –Provide management priority and resources for the execution of physical inventory control program functions. –Ensure that assets are protected against waste, loss, negligence, unauthorized use, misappropriation, and compromise in the case of controlled inventory item materiel. –Ensure that sufficient emphasis is placed on materiel accountability and inventory accuracy to promote improved performance of individuals directly responsible for the care, security, and management of DoD supply system materiel, as well as those responsible for making reports on the status of that inventory. –Ensure that duties, such as receiving, posting transactions to records, and issuing, are divided among the work force so that no single individual can adversely affect the accuracy and integrity of the inventory. Although multi- skilled personnel may conduct physical counts, the inventory organization must enter counts, apply in-float controls, and conduct pre-adjustment research. 4140.1-R PICP Procedures

15. 15 A single item inventory record should be shared to provide materiel asset information. Duplicative records maintained by ICPs and storage activities should be consolidated into one inventory record. The storage activity is responsible for the content, changes, and accuracy of the inventory held under its control. Storage activities that have physical custody of materiel are responsible for caring and safeguarding it. Storage activities shall conduct physical inventories; initiate and conduct discrepancy research; and prepare supply discrepancy reports or storage quality control reports; resolve discrepancies, investigating, and assessing liability for loss, damage, and destruction of Government property; and applicable actions necessary to ensure that the physical on-hand quantity and the total item property record quantity agree. Item Accountability and Control

16. 16 The IMMs are responsible for: –Initiating and directing the conduct of physical inventories. –Discrepancy research and reports. –Resolving discrepancies, investigating, and assessing liability for loss, damage, and destruction of U.S. Government property. –Taking applicable actions necessary to ensure that the physical on-hand quantity and the total item property record quantity are in agreement for all DoD materiel that is not in the physical custody of DoD activities, including government-owned inventory at contractor facilities or contractual arrangements through which contractors are responsible for the physical custody of government-owned inventory at DoD activities. Item Accountability and Control