AD-A270 564/

DTICAl'ELECTE

~fj~pO,1tOCT 1.2 1993U

OFFICE OF THE INSPECTOR GENERAL

INTO-PLANE REFUELING

Report Number 9309 December 9, 1992

This dontimen hcs be-m api~toved0toI publi,: releass and salea; its

di~tritution is unlimited. 3

Department of Defense

The following acronyms are used in this report.

DLA ............ Defense Logistics AgencyDFSC ........... Defense Fuel Supply CenterMIPR ........... Military Interdepartmental Purchase Request

INSPECTOR GENERALDEPARTMENT OF DEFENSE

400 ARMY NAVY DRIVEARLINGTON. VIRGINIA 222QX-2884

December 9, 1992

MEMORANDUM FOR ASSISTANT SECRETARY OF THE AIR FORCE(FINANCIAL MANAGEMENT AND COMPTROLLER)

SUBJECT: Report on the Audit of Into-Plane Refueling(Report No. 93-029)

We are providing this final report for your information anduse. The report addresses the nonuse of existing into-plane fuelcontracts at commercial airports. Comments on a draft of thisreport were considered in preparing the final report.

DOD Directive 7650.3 requires that all audit recommendationsbe resolved promptly. Therefore, we request that you providefinal comments on the unresolved issues as discussed on pages 8and 9 within 60 days of the date of this report.

As required by DoD Directive 7650.3, the comments mustindicate concurrence or nonconcurrence in each recommendationaddressed to you. If you concur, describe the corrective actionstaken or planned, the completion dates for actions already taken,and estimated dates for completion of planned actions.

If you nonconcur with the estimated monetary benefits or anypart thereof, you must state the amount you nonconcur with andthe basis for your nonconcurrence. Recommendations and potentialmonetary benefits are subject to resolution in accordance withDOD Directive 7650.3 in the event of nonconcurrence or failure tocomment. We also ask that your comments indicate concurrence ornonconcurrence with the internal control weaknesses highlightedin Part I.

The courtesies extended to the audit staff are appreciated.If you have any questions on this audit, please contactMr. John S. Gebka at (703) 692-3303 (DSN 222-3303) orMr. Billy T. Johnson at (703) 692-3318 (DSN 222-3318). Theplanned distribution of this report is listed in Appendix G.

Acce-,ion For

Edwa' R. Jones , ,.Deputy Assistant Inspector General

for AuditingEnclosure

cc:Secretary of the Army .ty Cc•jpsSecretary of the NavySecretary of the Air Force

0Ic0

Office of the Inspector General, DoD

REPORT NO. 93-029 December 9, 1992(Project No. ILC-0030)

INTO-PLANE REFUELING

EXECUTIVE sUICARY

Introduotion. Into-plane contracts are awarded by the DefenseFuel Supply Center (DFSC), a field level activity of the DefenseLogistics Agency. Into-plane contracts allow DoD aircraft thatland at commercial airports to obtain quality fuel from suppliersat lower prices than regular retail prices. Noninto-plane fuelis any category of fuel purchased by pilots at commercialairports from noncontract sources. During FY 1990, DFSC paidcontractors $127.9 million for fuel purchased under 370 into-plane contracts. In addition, DoD Components purchased$83.6 million of higher priced noninto-plane fuel, of which$14 million was purchased at commercial airports where into-planecontracts were established.

Objectives. The objectives of the audit were to:

o determine if the Military Departments were collecting andsubmitting appropriate fuel consumption data to DFSC to supportthe establishment of into-plane contracts at commercial airports,

o determine if existing into-plane contracts were beingused by DoD pilots when fuel was purchased at commercialairports,

o determine if DoD aircraft can make greater use ofmilitary installations to refuel, rather than using commercialairports,

o determine if non-DoD agencies that obtain fuel under DoDinto-plane contracts should reimburse DoD at the contract costrather than at the lower stock fund price, and

o evaluate applicable internal controls.

Audit Results. Fuel requirements were effectively provided toDFSC by the Military Departments to support the establishment ofinto-plane contracts at commercial airports. Air Force pilotspurchased noninto-plane fuel at locations where DFSC had awardedinto-plane contracts. As a result, DoD spent about $4.1 millionmore than necessary to purchase higher priced noninto-plane fuelat into-plane locations during FY 1990. Army and Navy pilotswere appropriately using into-plane contracts. We found limitedopportunities for DoD aircraft to refuel at militaryinstallations rather than commercial airports. Previously, on

this audit project, we issued Quick-Reaction Report No. 92-026,"Non-DoD Agencies Use of Into-Plane Refueling Contracts atCommercial Airports," dated December 19, 1991. The report showedthat DFSC undercharged non-DoD agencies $4.7 million in FY 1990for into-plane fuel purchases.

Internal Controls. Controls were not effective to prevent thepurchase of higher priced noninto-plane fuel at commercialairports where lower cost into-plane contracts had beenestablished. See Finding for details on this weakness and Part Ifor details of our review of internal controls.

Potential Benefits of Audit. The Air Force can realize anestimated cost avoidance of $12.3 million by making greater useof existing contracts at into-plane contract locations duringthe 6-year Future Years Defense Program (see Appendix E).

Summary of Recommendations. We recommended requiring the AirForce stock fund to charge Air Force activities the full retailprice of noninto-plane fuel, monitoring purchases of noninto-plane fuel at contract locations, and requiring that inordinatepurchases be reported to the major Air Force command.

Management Comments. The Principal Deputy Assistant Secretary ofthe Air Force (Financial Management) concurred withRecommendation 1., but disagreed with the significance we placedon the problem and wanted the monetary benefits deleted from thereport. The Principal Deputy concurred with Recommendation 2.,stating that noninto-plane fuel purchases will be monitored on alimited basis but did not state when monitoring was to start.Part II contains a complete discussion of management's comments,and Part IV contains the complete text of management's comments.

Audit Response. We did not fully agree with the PrincipalDeputy's response to Recommendation 1. We did reduce potentialmonetary benefits by excluding fuel that was purchased duringOperation Desert Shield. However, we believe that materialsavings can still be achieved by greater use of into-planecontracts for the remaining fuel purchases. Management commentswere considered partially responsive to Recommendation 2.Monitoring noninto-plane fuel purchases at commercial airportswill improve controls so that the Air Force can make greater useof into-plane contracts. We request that the Principal Deputyprovide the date that monitoring will start on noninto-planepurchases. We request that the Principal Deputy respond to theunresolved issues in this final report by February 10, 1993.

ii

TABLZ OF CONTENTS

TRANSMITTAL MEMORANDUM 1

EXECUTIVE SUMMARY i

PART I - INTRODUCTION 1

Background 1Objectives 1Scope 2Internal Controls 2Prior Audits and Other Reviews 3Other Matters of Interest 3

PART II - FINDING AND RECOMMENDATIONS 5

Nonuse of Into-Plane Refueling Contracts 5

PART III - ADDITIONAL INFORMATION 11

APPENDIX A - Schedule of Into-plane Fuel 13Purchased by DoD and Non-DoDComponents, FY 1990

APPENDIX B - Comparison of Noninto-plane Fuel 15Purchased by Military Departmentsand DFSC Standard Cost, FY 1990

APPENDIX C - Schedule of Noninto-plane Fuel 17Purchased by Air Force Componentsat Into-plane Locations, FY 1990

APPENDIX D - Schedule of Airports Where 19Noninto-plane Fuel Was Purchasedat Into-plane Locations, FY 1990

TABLE OF CONTENTS (Cont'd.)

Page

APPENDIX E - Summary of Potential Benefits 21

Resulting From Audit

APPENDIX F - Activities Visited or Contacted 23

APPENDIX G - Report Distribution 27

PART IV - MANAGEMENT COMMENTS 29

Principal Deputy Assistant Secretary of the Air 31Force (Financial Management)

This report was prepared by the Logistics Support Directorate,Office of the Assistant Inspector General for Auditing, DoD.Copies of the report can be obtained from the Secondary ReportsDistribution Unit, Audit Planning and Technical SupportDirectorate, (703) 614-6303 (DSN 224-6303).

PART I - INTRODUCTION

DoD aircraft normally refuel at military installations.However, mission requirements sometimes make it necessary torefuel aircraft at commercial airports. To ensure that DoDpilots receive quality products at discount prices, theDefense Fuel Supply Center (DFSC), a field level componentof the Defense Logistics Agency (DLA), establishes into-plane contracts with fuel suppliers at commercial airports.In addition to DoD, other U.S. Government agencies andselected foreign governments are authorized to use into-plane contracts.

Each Military Department has a fuel management office tocoordinate fuel matters related to the into-plane refuelingprogram with DFSC. The Army's fuel office is the GeneralMateriel and Petroleum Activity, New Cumberland,Pennsylvania. The Navy's fuel management office is the NavyPetroleum Office, Cameron Station, Alexandria, Virginia.The Air Force's fuel management office is Detachment 29,Cameron Station, which is a field office of the San AntonioAir Logistics Center, Kelly Air Force Base, Texas.

DFSC attempts to establish an into-plane contract when anauthorized user informs DFSC that it has an annualrequirement of at least 15,000 gallons of a single grade offuel product. When into-plane fuel was purchased inFY 1990, DFSC paid the supplier at the established contractrate per gallon and obtained reimbursement from theinto-plane user at a standard price established by DFSC,which was usually lower than the contract price. In FY 1990,DFSC had 370 into-plane contracts established at commercialairports worldwide (280 domestic and 90 overseas) with anannual cost of $127.9 million.

When mission requirements dictate that DoD aircraft refuelat commercial airports that do not have into-planecontracts, DoD pilots are allowed to purchase fuel fromnoninto-plane suppliers at regular retail prices. Supplierssubmitted bills directly to local finance offices forpayment. During FY 1990, DoD activities purchased$83.6 million of noninto-plane fuel.

Objectives

The audit objectives were to determine if the MilitaryDepartments were collecting and submitting appropriate fuelconsumption data to DFSC to support the establishment ofinto-plane contracts at commercial airports, if existinginto-plane contracts were being used by DoD pilots when fuelwas purchased at commercial airports, if DoD aircraft could

make greater use of military installations to refuel ratherthan using commercial airports, and if non-DoD agencies thatobtained fuel under DoD into-plane contracts should havereimbursed DoD at the contract cost rather than at the lowerstock fund price. Further details concerning the objectiveson collection and submission of fuel consumption data andrefueling at military installations are discussed underOther Matters of Interest.

The Military Departments and non-DoD agencies purchased137.1 million gallons of into-plane fuel from contractorsat commercial airports at a total cost of $127.9 million(Appendix A). We visited the largest user of into-planefuel from each Military Department. We examinedDD Form 1898's, "Fuel Purchase Receipt," to identify thecommercial airports used by DoD aircraft and their proximityto military installations.

During FY 1990, the Military Departments purchased62.4 million gallons of noninto-plane fuel from suppliersat commercial airports at a total cost of $83.6 million(Appendix B). We visited each Military Department'sfuel management office to determine if the MilitaryDepartments were collecting and submitting appropriatenoninto-plane fuel consumption data to DFSC. We reviewedFY 1990 Military Interdepartmental Purchase Requests (MIPRs)that the Military Departments' fuel management officessubmitted to DFSC to request establishment of into-planecontracts.

We selected the three largest users of noninto-plane fuelfrom each Military nepartment to determine if the users werecollecting and submitting fuel consumption data and if DoDpilots were effectively using existing into-plane contracts.We reviewed 463 noninto-plane fuel purchases totaling$1.4 million, made by the largest users.

This economy and efficiency audit was made from March 1991through February 1992 in accordance with auditing standardsissued by the Comptroller General of the United States asimplemented by the Inspector General, DoD, and accordinglyincluded such tests of internal controls as were considerednecessary. A list of activities visited or contacted duringthe audit is in Appendix F.

Internal Controls

The audit identified a material internal control weakness asdefined by Public Law 97-255, Office of Management andBudget Circular A-123, and DoD Directive 5010.38. Controlswere not effective to prevent the purchase of higher pricednoninto-plane fuel at commercial airports where lower cost

2

into-plane contracts were established. Recommendations inthis report, if implemented, will correct the identifiedweakness. We have determined that the estimated monetarybenefits that can be realized by implementing therecommendations are $12.3 million during the 6-year FutureYears Defense Program. A copy of the final report will beprovided to the senior official responsible for internalcontrols within the Air Force.

Prior Audits and Other Reviews

The IG, DoD, issued Quick-Reaction Report No. 92-026,"Non-DoD Agencies Use of Into-Plane Refueling Contracts atCommercial Airports," December 19, 1991. The reportidentified $4.7 million of unnecessary costs for FY 1990($28.4 million during the 6-year Future Years DefenseProgram), which resulted from DFSC not recovering the fullcost of non-DoD agencies' purchases of into-plane fuel. Werecommended that DFSC promptly notify non-DoD agencies thatactual costs incurred will be billed for fuel purchasesunder DoD into-plane contracts and that they establishmemorandums of agreement with the non-DoD agencies toformulate billing rates for recovering these actual costs.

DLA agreed that DFSC did not recover full into-plane costsof $4.7 million in FY 1990. DLA also agreed to charge non-DoD agencies higher prices for into-plane fuel starting inFY 1993. However, DLA nonconcurred with and we withdrew ourrecommendation to establish memorandums of agreement,because legal authority used by DLA to sell petroleumproducts to other Government agencies does not require it.DLA also nonconcurred with our potential monetary benefitsof $28.4 million, stating that a straight-line projectionover the 6-year Future Years Defense Program did notproduce an accurate estimate because of the volatility ofthe fuel market. The Assistant Inspector General forAnalysis and Follcwup will track and report the actualsavings amount through the followup process.

Other Matters of Interest

Collection and submission of fuel consumption data. Ouraudit objective to determine if the Military Departments arecollecting and submitting appropriate fuel consumption datato DFSC to support the establishment of into-plane contractsat commercial airports did not disclose a reportable adversecondition requiring management's attention. DoDManual 4140.25-M, "Management of Bulk Petroleum Products,Storage, and Distribution Facilities," requires the MilitaryDepartments to submit fuel requirements of at least15,000 gallons of a single grade of fuel at a commercialairport to DFSC, for the establishment of into-planecontracts.

3

Each Military Dep;rtment established a fuel managementoffice to monitor fuel usage and submit requirements onMIPRS to DFSC. Operating personnel at the fuel managementoffices also v1 rified future fuel requirements at commercialairports to validate the continued need for into-planecontracts. We reviewed documentation between the fuelmanaqement offices and the major commands, and compared newreiulrements to DFSC's contract fuel listing. We found thatrequirements were effectively submitted to DFSC to supportthe potential establishment of into-plane contracts.

Refueling at military installations. Our auditobjective to determine if DoD aircraft can make greater useof military installations to refuel rather than usecommercial airports was evaluated at selected MilitaryDepartment installations. We determined that the Army couldnot make greater use of refueling at military installationsbecause flight training was performed in helicopters thathad limited range due to fuel capacity. The Navy flewtraining missions to commercial airports, and local commandsindicated that some missions would be evaluated forrefueling at military installations. Over 90 percent of theAir Force's into-plane fuel purchases resulted from itssupport of embassy missions to countries that did not haveDoD military installations. As a result of Quick-ReactionReport No. 92-026, DFSC stated that effective FY 1993, it isincreasing the standard price of into-plane contract fuel toreflect its actual cost. This standard price increase forinto-plane contract fuel will result in a monetaryincentive for pilots to use DoD military installations forrefueling, if practical.

4

PART II - FINDING AND RECOMIENDATIONS

NONUSE OF INTO-PLANE REFUELING CONTRACTS

Air Force pilots frequently did not purchase fuel throughavailable DoD into-plane contracts when refueling aircraftat commercial airports. Instead, pilots purchased higherpriced fuel at the same commercial airports from supplierswho did not have into-plane contracts with DoD. Thisoccurred because the Air Force did not have effectivemanagement controls to ensure that pilots used availableinto-plane contracts when refueling at commercial airports;and the Air Force did not provide financial incentives forpilots to use the lower cost into-plane contracts. As aresult, the Air Force unnecessarily spent about$4.1 million for fuel at commercial airports in FY 1990.Over the 6-year Future Years Defense Program, the estimatedcost avoidance is $12.3 million.

DISCUSSION OF DETAILS

Backaroun4

Air Force Regulation 144-15, "Refueling at Other Than U.S.Air Force Bases," March 29, 1985, requires Air Forceaircraft to refuel at military installations. However, whenmission requirements allow for refueling at other thanmilitary installations, fuel must be obtained from into-plane contracts; foreign government air forces; orcommercial suppliers, in that order.

DFSC administers the into-plane refueling program. DFSCpays into-plane suppliers at the actual negotiated price pergallon of fuel. The negotiated price is usually much lowerthan the noninto-plane fuel prices offered by localsuppliers. For example, the composite negotiated price toDoD for fuel purchased using into-plane contracts duringFY 1990 was $.96 per gallon. Fuel purchased at regularretail prices from other suppliers at commercial airportsaveraged about $1.36 per gallon in FY 1990.

Noninto-Plane Purchases at Into-plane Contract Locations

Air Force activities purchased higher cost noninto-planefuel at commercial airports that had into-plane contracts.In FY 1990, the Air Force purchased 10.3 million gallons ofnoninto-plane fuel at a cost of $14 million. These noninto-plane fuel purchases could have been made at into-planesuppliers at a total cost of $9.9 million or a savings of$4.1 million (Appendix C) in FY 1990.

5

In our draft report, we included fuel that was purchased tosupport Operation Desert Shield in our calculation ofpotential monetary benefits. We have adjusted our potentialmonetary benefits downward. We recognize that it isunlikely that the large volume of fuel that was consumedduring Operation Desert Shield will continue in futureyears. Accordingly, we have reduced Tur potential monetarybenefits to $12.3 million ($2.05 million times 6 or50 percent of noninto-plane fuel purchases) projected overthe 6-year Future Years Defense Program to account for otherthan Operation Desert Shield fuel consumption.

We compared the airports where noninto-plane fuel waspurchased by the Air Force to DFSC's contract listing ofinto-plane contract locations. Of the 605 commercialairports worldwide where noninto-plane fuel waspurchased, we determined that 106 (18 percent) commercialairports were locations where into-plane contracts had beenestablished. These purchases are summarized in Appendix D.Our analysis showed that from 70 gallons to 4.2 milliongallons of noninto-plane fuel were purchased at into-planelocations in FY 1990.

We interviewed Air Force officials to determine therationale for pilots' purchase of noninto-plane fuel atinto-plane contract locations. Air Force officials did notprovide any rationale or documentation to support the basisfor pilots refueling at into-plane contract locations usingnoninto-plane suppliers.

The Air Force accumulated data on noninto-plane fuelpurchased in FY 1990; however, there were no procedures inplace at the fuel managemert office to notify majorcommands that Air Force pilots were not complying withAir Force guidance.

Lack of Financial Incentive

Air Force activities that refueled their aircraft atnoninto-plane suppliers were subsidized by the Air Forcefuel stock fund. The Air Force fuel stock fund is managedby the Air Force Logistics Center, Kelly Air Force Base,Texas. When higher cost noninto-plane fuel was purchasedfrom suppliers at commercial airports, the local financeoffice paid the supplier at retail price and cited the AirForce fuel stock fund account. However, Air Forceactivities were charged the DFSC standard price even thoughthe regular retail price was charged to the Air Force stockfund. This means that the Air Force activities' operationand maintenance funds were not fully charged the actualcost of the fuel. Therefore, it made no difference to thelocal squadron where the fuel was purchased since the pricewas the same to the squadron whether or not an into-planesupplier was used. We estimated that in FY 1990 the Air

6

Force stock fund undercharged its customers who purchasednoninto-plane fuel by about $45 million. The Air Forcepurchased 55.5 million gallons of noninto-plane fuel,costing the Air Force stock fund $75.5 million, for whichAir Force users would have been charged $30.5 million asshown in Appendix B. Although we did not review allaspects of the Air Force stock fund, these underchargescould contribute to a negative cash position for the stockfund.

In contrast to the Air Force's fuel stock fund, the Army andNavy did not use a stock fund for payment of noninto-planefuel. Funding for noninto-plane fuel was provided at theinstallation level and both Military Departments' localpaying offices paid the full price for noninto-plane fuelwith operation and maintenance funds. This provided anincentive to Army and Navy units to purchase fuel usinginto-plane contracts. Our review disclosed that neither theArmy nor the Navy purchased noninto-plane fuel at commercialairports that also had into-plane contracts. Using lowercost into-plane fuel at commercial airports makes more fundsavailable for fuel to support the Army and Navy's fl"inghour programs.

RECOMMENDATIONS FOR CORRECTIVE ACTION

1. We recommend that the Deputy Assistant Secretary of theAir Force (Budget) require the Air Force stock fund tocharge Air Force activities the full retail price ofnoninto-plane fuel purchased at commercial airports.

2. We recommend that the Commander, San Antonio AirLogistics Center, monitor the purchases of noninto-planefuel made by Air Force activities at commercial airportsthat have into-plane contracts and notify the major commandof the Air Force activities that purchased inordinatequantities of higher cost noninto-plane fuel.

MANAGEMENT COMMENTS

Recommendation 1. The Principal Deputy Assistant Secretaryof the Air Force (Financial Management) concurred withRecommendation 1. However, the Principal Deputy commentedthat the scope of the problem addressed in the report wasrelatively insignificant. The Principal Deputy stated that60 percent of the fuel identified in the report waspurchased during Operation Desert Shield in Saudi Arabia andThailand. This made projections of future monetary benefitsbased on wartime operations unreliable. He requested thatthe monetary benefits be deleted from the report.

The Principal Deputy stated that on October 1, 1992, DFSCassumed financial responsibility for virtually all aviationfuel inventory. It will be the responsibility of DFSC to

7

develop a billing system to bill Air Force activitiesdirectly. When this occurs, the Air Force Aviation FuelManagement Section of the Air Force Supply Operations FuelDivision will no longer be in business. Consequently,noninto-plane fuel purchases will be treated as localpurchases and will not be price stabilized by processingnoninto-plane fuel transactions through the Air Force stockfund. No additional action is required by the Air Force tocomply with this recommendation.

Recommendation 2. The Principal Deputy Assistant Secretaryof the Air Force (Financial Management) concurred withRecommendation 2. The Principal Deputy stated that it isthe primary responsibility of the Director of Operations andWing Commanders to monitor noninto-plane fuel purchases onindividual aircraft. The Principal Deputy stated that theSan Antonio Air Logistics Command, Synthetic Fuels willbegin monitoring, as work load allows, noninto-plane fuelpurchases on a monthly basis and notify the major commandsof any inordinate quantities of noninto-plane fuel purchasesat locations where into-plane contracts exist.Additionally, management stated that DoD Directive 7420.13requires all fuel to be sold at standard price.Consequently, even if the audit findings were valid, thestock fund could not have billed the difference.

AUDIT RESPONSE

Recommendation 1. The Principal Deputy's comments werepartially responsive to the intent of Recommendation 1. Werecognize that some of the fuel was used to supportOperation Desert Shield and we have adjusted our potentialmonetary benefits downward. Our analysis showed thatapproximately 50 percent of the noninto-plane fuel purchasesby all military commands in FY 1990 occurred during DesertShield. We do not consider the remaining purchasesinsignificant. Air Force pilots unnecessarily purchasedfuel at higher prices at locations where into-planecontracts were established. About $12.3 million inpotential monetary benefits still can be achieved. Webelieve that DoD pilots should fully utilize establishedinto-plane contracts. Therefore, we request that the AirForce provide additional comments on the revised monetarybenefits associated with Recommendation 1.

When the Fuel Management Section ceases operation andnoninto-plane fuel purchases are treated as local purchasesand not price stabilized, Air Force pilots will have afinancial incentive to purchase lower cost into-plane fuel.Management did not provide a cessation date for the AirForce Fuel Management Section; therefore, we request acessation date for the Fuel Management Section.

8

Reoommendation 2. The Principal Deputy's comments wereresponsive to the intent of Recommendation 2. Monitoring offuel purchases will provide a control to help the Air Forcerealize savings by making greater use of into-planecontracts. The Principal Deputy did not provide a date whenmonitoring is to start; therefore, we request a start date.

DoD Directive 7420.13 allows local procurements, includingfuel, to be priced at procurement cost. After the Air ForceFuel Management Section ceases operation, Air Forceactivities will have to pay the full procurement cost fornoninto-plane fuel.

PART III - ADDITIONAL INFORNKATION

APPENDIX A - Schedule of Into-plane Fuel Purchased by DoDand Non-DoD Components, FY 1990

APPENDIX B - Comparison of Noninto-plane Fuel Purchased byMilitary Departments and DFSC Standard Cost,FY 1990

APPENDIX C - Schedule of Noninto-plane Fuel Purchased byAir Force Components at Into-plane Locations,FY 1990

APPENDIX D - Schedule of Airports Where Noninto-planeFuel was Purchased at Into-plane Locations,FY 1990

APPENDIX E - Summary of Potential Benefits Resulting FromAudit

APPENDIX F - Activities Visited or Contacted

APPENDIX G - Report Distribution

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APPENDIX B. COMPARISON OF NONINTO-PLANE FUEL PURCHASED BYMILITARY DEPARTMENTS AND DFSC STANDARD COST. FY 1990

MilitaryDepartment Gallons Actual Cost 1/ Standard Cost i/

Army 2,007,253 $ 3,546,088 2/ $ 1,103,989

Navy 4,825,291 4,583,498 3/ 2,653,910

Air Force 55,519,864 75.507.015 30,535,925 j/

Total 62,352.408 $83.636.601 $34.293,824

1/ Actual cost represents regular retail price thatsuppliers charged at the commercial airport for noninto-plane fuel.

2/ Standard cost represents the amount that DFSC chargedits DoD customers for into-plane fuel and the Air Forcestock fund charged major commands for noninto-planefuel purchases.

3/ Army and Navy activities were required to pay the actualcost of noninto-plane fuel from operation and maintenancefunds.

4/ Air Force activities were only required to reimburse theAir Force stock fund for the standard cost of noninto-planefuel from operation and maintenance funds. This causedthe Air Force stock fund to undercharge customers about$45 million ($75.5 million-$30.5 million) in FY 1990 fornoninto-plane fuel.

15

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APPENDIX E. SOUMP-MY OF POTENTIAL BENEFITS RESULTING FROM

Recommendation Amount andReference Description of Benefit TvDe of Benefit

1. and 2. Economy and Efficiency Funds Put toThe Air Force's purchase Better Use.of into-plane contract The Air Forcefuel instead of noninto- can decreaseplane fuel will reduce its fuel costsfuel costs. by an estimated

$12.3 million*for appropriation97x4930.FC01over the 6-yearFuture YearsDefense Program(FY 1993-1998)

*The original estimate in the draft report was $24.6 millionover the 6-year Future Years Defense Program. Estimaterevised downward to account for fuel purchased duringOperation Desert Shield.

21

APPENDIX F. ACTIVITIES VISITED OR CONTACTED

Office of the Secretary of Defense

Office of the Assistant Secretary of Defense (Production andLogistics), Washington, DC

Comptroller of the Department of Defense, Washington, DC

Department of the Army

Assistant Secretary of the Army (Financial Management),Washington, DC

Army Staff, Deputy Chief of Staff for Logistics,Washington, DC

National Guard Bureau, Comptroller, Washington, DCArmy Reserve, Comptroller, Washington, DCU.S. Army Special Operations Command, Fort Bragg,

Fayetteville, NCForces Command, Fort McPherson, Atlanta, GAXVIII Airborne Corps and Fort Bragg, Fayetteville, NC1st Army, Fort Meade, MD5th Infantry (Mech) Division and Fort Polk, Leesville, LA24th Infantry (Mech) Division and Fort Stewart,

Hinesville, GAAviation Training Brigade and Fort Rucker, Dothan, ALGeneral Materiel and Petroleum Activity,

New Cumberland, PAHunter Army Air Field, Savannah, GAU.S. Property and Fiscal Officer, San Luis Obispo, CAU.S. Property and Fiscal Officer, Atlanta, GAU.S. Property and Fiscal Officer, Raleigh, NCU.S. Property and Fiscal Officer, Annville, PANational Guard, Army Aviation Support Facility,

Salisbury, NCNational Guard, Army Aviation Flight Activity, Fresno, CANational Guard, Aviation Classification Repair Activity

Depot, Fresno, CA

Department of the Navy

Office of the Assistant Secretary of the Navy (FinancialManagement), Washington, DC

Chief, Naval Operations, Washington, DCCommander, Naval Air, Washington, DCCommander, Naval Air Reserve Forces, New Orleans, LACommander, Atlantic Fleet, Norfolk, VACommander, Pacific Fleet, San Diego, CACommander, Naval Air Atlantic Fleet, San Diego, CAChief, Naval Education and Training, Corpus Christi, TXFinance and Accounting Disbursement Center, Pacific Fleet,

San Diego, CANaval Regional Finance Center, Washington, DC

23

APPENDIX F. ACTIVITIES VISITED OR CONTACTED (cont'd.)

Denartment of the Navy (cont'd.)

Naval Computer and Telecommunications Station,Washington, DC

Navy Petroleum Office, Cameron Station, Alexandria, VANavy Air Logistics Office, New Orleans, LACommander, Patrol Wing 5, Jacksonville, FLCommander Patrol Wing 11, Brunswick, MECommander, Fleet Logistics Support Wing, Naval Air Station,

Dallas, TXTraining Air Wing 4, Corpus Christi, TXTraining Air Wing 6, Pensacola, FLNaval Air Station, Corpus Christi, TXNaval Air Station, Pensacola, FLPatrol Squadron 23, Naval Air Station, Brunswick, MEPatrol Squadron 5, Naval Air Station, Jacksonville, FLFleet Logistics Support Squadron 55, Alameda, CAFleet Air Reconnaissance Squadron 4, Naval Air Station,

Patuxent River, MDAir Test and Evaluation Squadron 1, Naval Air Station,

Patuxent River, MDOcean Development Squadron 8, Naval Air Station, Patuxent

River, MDTraining Squadron 86, Naval Air Station, Pensacola, FLTraining Squadron 10, Naval Air Station, Pensacola, FLTraining Squadron 4, Naval Air Station, Pensacola, FLTraining Squadron 27, Naval Air Station, Corpus Christi, TXTraining Squadron 28, Naval Air Station, Corpus Christi, TXTraining Squadron 31, Naval Air Station, Corpus Christi, TX

Department of the Air Force

Office of the Comptroller, Washington, DCHeadquarters, Military Airlift Command, Scott Air Force

Base, Belleville, ILHeadquarters, Air Training Command, Randolph Air Force Base,

San Antonio, TXHeadquarters, San Antonio Air Logistics Center, Kelly Air

Force Base, San Antonio, TXDetachment 29, San Antonio Air Logistics Center,

Cameron Station, Alexandria, VA438th Military Airlift Wing, McGuire Air Force Base,

Bordentown, NJ60th Military Airlift Wing, Travis Air Force Base,

Fairfield, CA89th Military Airlift Wing, Andrews Air Force Base,

Camp Springs, MD1402nd Military Airlift Squadron, Andrews Air Force Base,

Camp Springs, MD1st Helicopter Squadron, Andrews Air Force Base,

Camp Springs, MD

24

APPENDIX 1: ACTIVITIES VISITED OR CONTACTED (cont'd.)

Department of the Air Force (cont'd.)

District of Columbia Air National Guard, 113th ResourceManagement Squadron, Andrews Air Force Base, Camp Springs,MD

Marine Corps

Commandant of the Marine Corps, Washington, DCMarine Aircraft Group - 31, Marine Corps Air Station,

Beaufort, SCMarine Fighter Attack Squadron - 122, Marine Corps Air

Station, Beaufort, SC

DoD Agencies

Headquarters, Defense Logistics Agency, Alexandria, VAHeadquarters, Defense Fuel Supply Center, Alexandria, VA

25

APPENDIX 0. REPORT DISTRIBUTION

Office of the Secretary of Defense

Assistant Secretary of Defense (Production and Logistics)Assistant Secretary of Defense (Public Affairs)Assistant Secretary of Defense (Reserve Affairs)Comptroller of the Department of Defense

Department of the Army

Secretary of the ArmyInspector General, Department of the ArmyChief, National Guard BureauArmy Audit AgencyCommander, General Materiel and Petroleum Activity

Department of the Navy

Secretary of the NavyAssistant Secretary of the Navy (Financial Management)Commandant of the Marine CorpsNaval Audit ServiceCommander, Navy Petroleum Office

Department of the Air Force

Secretary of the Air ForceAssistant Secretary of the Air Force (Financial Management

and Comptroller)Air Force Audit AgencyDeputy Assistant Secretary of the Air Force (Budget)Commander, San Antonio Air Logistics CenterCommander, Detachment 29, San Antonio Air Logistics Center

Defense Agencies

Director, Defense Contract Audit AgencyDirector, Defense Intelligence AgencyDirector, Defense Logistics AgencyDirector, Defense Logistics Studies Information ExchangeInspector General, National Security AgencyCommander, Defense Fuel Supply Center

Other Defense Activities

Commander in Chief, U.S. Transportation Command

27

APPENDIX G. REPORT DISTRIBUT1ON (cont'd)

Non-DoD Activities

Office of Management and BudgetU.S. General Accounting office

National Security and International AffairsDivision, Technical Information Center

National Security and International AffairsDivision, Director for Logistics Issues

Chairman and Ranking Minority Member of the followingCongressional Committees and Subcommittees:

Senate Subcommittee on Defense, Committee on AppropriationsSenate Committee on Armed ServicesSenate Committee on Governmertal AffairsHouse Committee on AppropriationsHouse Subcommittee on Defense, Committee on AppropriationsHouse Committee on Armed ServicesHouse Committee on Government OperationsHouse Subcommittee on Legislation and National Security,

Committee on Government Operations

28

PART IV - KhNAIGRK'NT COUNTS

Principal Deputy Assistant Secretary of the Air Force(Financial Management)

MANAGEMENT COMMENTS: DEPARTMENT OF THE AIR FORCE

DEPARTMENT OF THE AIR FORCEWASWINGTON DC 2CM5-100

XEMORANDUM FOR ASSISTANT :NSPECTOR GENERAL FOR AUDITING OFFICE OFTHE :"NSPECTOR GENERAL DEPARTMENT OF DEFENSE

SUBJECT: Draft Report on the Audit of Into-Plane Refueling(Project No. ILC-0C30) - INFORMATION MXMORANDUM

This in reply to your memorandum requesting the AssistantSecretary of the Air Force (Financial Management and Comptroller)to provide Air Force comments on subject report.

Attached are t.e A-r Force management comments.

JOHN W. BEAC14PINmm DOWyAssano •enws

1 Attachment r Fom Fm•snaI MIawleI

Management Comments tc AuditRecommendations

31

MANAGEMENT COMMENTS: DEPARTMENT OF THE AIR FORCE (cont'di

DRAFT REPORT ON THE AUDIT OF

INTO-PLANE REFUELING

(Project No. lLC-0030)

Recommendation 1.We recommend that the Deputy Assistant Secretary of the Air

Force (Budget) require the Air Force stock fund to charge AirForce activities the full retail price of noninto-plane fuelpurchased at commercial airports.

MANAGEMENT COMMENTS. Concur.

The scope of the problem surfaced in the referenced audit isrelatively insignificant. Approximately 60 percent of the citedoccurrences were made by Military Airlift Command aircraft inSaudi Arabia and Thailano during Operation Desert Shield. Afteran additional 10 percent Is deducted for all other Desert Shieldrefueling, the cited problem is less than 1/10th of 1 percent involume. Projecting future monetary benefit savings based onwartime operations is not reliacle and we recommend the monetarybenefit savings be droppec as an audit issue.

It should be noted znat the Defense Fuel Supply Center(DFSC) has assumed financiai resoonsibility for virtually allaviation fuel inventory cn I Octooer 1992. Incumbent upon DFSCis the responsibility to ceveioD a system where DFSC will billthe Air Force activities airectiy. When they have thiscapability, the Air Force Aviation Fuel Management Section of theAir Force Supply Operations Fuei Division will no longer be inbusiness. Consequently, such purchases will be treated as alocal purchase and will not be price stabilized." Therefore, noadditional action is requirea by Air Force to comply with thisrecommendation.

32

MANAGEMENT COMMENTS: DEPARTMENT OF THE AIR FORCE fcont=d•

DRAFT REPORT ON THE AUDIT OF

INTO-PLANE REFUELING

(Project No. ILC-0030)

Recommendation 2.We recommend that the Commander, San Antonio Air Logistics

Center monitor the purchases of noninto-plane fuel made by AirForce activities at commercial airports that have into-planecontracts and notify the major command of the Air Forceactivities that purchase inordinate quantities of higher costnoninto-plane fuel.

MANAGEMENT COMMENTS. Concur.

Monitoring the purchases of noninto-plane fuel made by AirForce activities at commercial airports that have into-planscontracts and notifying the major command of inordinatequantities can be accomplished on a limited basis. However, itis the responsibility of the Director of Operations and the WingCommander of that aircraft to monitor the usage of noninto-planepurchases. SA-ALC/SF will beqin to monitor, as workload allows,noninto-plane purchases on a monthly basis and will notify themajor commands of any inordinate quantities. In addition, DODDirective 7420.13 requires all fuel to be sold at standard price.Consequently, even if the audit findings were valid, the stockfund could not have billed the difference.

33

LIST OF AUDIT TEAM MEMBERS

Shelton R. Young, Director, Logistics Support DirectorateGordon P. Nielsen, Deputy DirectorJohn S. Gebka, Program DirectorBilly T. Johnson, Project ManagerThomas N. Wright, Team LeaderWayne Brownewell, Team LeaderAlfred C. Graham, Team LeaderEdward H. LaBelle, Team LeaderWilliam Coker, AuditorEllen Hamm, Auditor