REVIEW OF THE PROPERTY PROCUREMENT ALLOTMENT (PPA) AND PROPERTY REQUISITIONING AUTHORITY (PRA) SYSTEM AND ALTERNATIVE SYSTEMS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP78-05399A000100030003-0
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 49
• Document Creation Date: November 16, 2016
• Document Release Date: February 25, 2000
• Sequence Number: 3
• Publication Date: May 20, 1974
• Content Type: MF

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2 0 MAY 1914
SUBJECT
PPA) and Property Requisitioning Authority
PRA. System and Alternative Systems
1. During the past few months, we have been engaged in
an indepth study of the PPA/PRA system for the purposes of as-
certaining its current effectiveness and assessing the merits
of alternative systems. The study effort was generated by rec-
oggnition of the many program, philosophical, and physical changes
which are occurring in the Agency. Moreover, we saw a need for
examining our traditional methods of mangement to confirm their
contine relevancy and manpower commitment, or to recommend
changes.
2. The results of the Office of Logistics (OL) study are
detailed in the attached "Review of the PPA/PRA System and Al-
ternative Systems." The review, prefaced by a summary of the
principles history, procedures and effectiveness of the sys-
tem considers four optional systems for the budgeting and
fundiing of centrally procured and controlled materiel inven-
tories. These are:
FOR: Comptroller
Director of Finance
Review of the Property Procurement Allotment
. Modified PPA/PRA
a. Current PPA/PRA
c. Direct funding
d. Revolving Fund
3. We rejected the Revolving Fund system (paragraph 2d
above) because of its impracticality for the Agency; and we
are reserving, for a future date, any recommendation for se-
lection among the other three options. Our review has assured
us that selection of any one of these systems could be feasible
insofar as OL is concerned. However,, the review also has sharp-
ened our appreciation of the extent to which the PPAIPRA system
Ws me my be reclassified
mw removal of attachment.
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OL 4 2669
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SUBJECT: Review of the Property Procurement Allotment (PPA)
and Property Requisitioning Authority (PRA)
System and Alternative Systems
impacts on all components of the Agency in the budgeting, fund-
in , requisitioning, procuring, distributing, accounting, using,
and disposing of Agency supplies, materials and equipment.
Therefore, selection of the option best suited to current con-
ditions and needs of the Agency can be made only after each of
the components concerned has been given an opportunity to gauge
the impact of each option on its activities and to make appro-
priate recommendations.
4. As a first step, we are suggesting that, after your
review of the OL study, we convene a working group of O/Compt,
0/FIN, and OL representatives for further examination of the
subject. Subsequent discussions with other concerned compo-
nents should be carried on for the purpose of recommending the
continued use of the current PPA/PRA system, or for selecting
an alternative system. We will be in touch.
Is/ Francis 1. Ilan Diamm
Francis J. Van Damn
Director of Logistics
Att
cc: AOD/M$S, w/att
Distribution:
Orig - Comptroller, w/att
1 - D/FIN, w/att
/t'- OL Official, w/att
1 - OL/EO, w/att
1 - OL/B$FB, w/att
1 - OL/PFPS, w/att
1 - OL/PMS, w/att
1 - OL/SD, w/att
1 - Asst. Chief, LSD/OL
25X1A OL/B&FB daw/2412 (17 May 74)
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CONFIDENTIAL
Review of PPA/PRA System
and
Alternative Systems
May 1974
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CONFIDENTIAL
Review of PPA/PRA System
and
Alternative Systems
TABLE OF CONTENTS
Page Number
A. GENERAL . . . . . . . . . . . . . . . . . . . . . . 1
B. THE CURRENT PPA/PRA SYSTEM . . . . . . . . . . . . . 3
PRINCIPLES . . . . . . . . . . . . . . . . . . . . 3
HISTORY AND EVOLUTION . . . . . . . . . . . . . . 4
PPA/PRA SYSTEM PROCEDURES . . . . . . . . . . . . 6
OPERATING COMPONENTS . . . . . . . . . . . . . . 6
OFFICE OF THE COMPTROLLER . . . . . . . . . . . 7
DIRECTOR OF LOGISTICS . . . . . . . . . . . . . 8
OL/SUPPLY DIVISION . . . . . . . . . . . . . . . 9
OL/PROCUREMENT DIVISION . . . . . . . . . . . . 11
OFFICE OF FINANCE . . . . . . . . . . . . . . . 11
OFFICE OF JOINT COMPUTER SUPPORT . . . . . . . . 12
C. EFFECTIVENESS OF THE PPA/PRA SYSTEM . . . . . . . . 12
D. ALTERNATIVE PROCEDURES . . . . . . . . . . . . . . . 16
CURRENT PPA/PRA SYSTEM . . . . . . . . . . . . . . 16
MODIFIED PPA/PRA SYSTEM . . . . . . . . . . . . . 17
DIRECT FUNDING . . . . . . . . . . . . . . . . . . 19
E. CONCLUSIONS . . . . . . . . . . . . . . . . . . . . 22
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Review of PPA/PRA System
and
Alternative Systems
A. GENERAL
1. Over a period of years the efficiency and value of the
existing Property Procurement Allotment (PPA) and the Property
Requisitioning Authority (PRA) system for the funding and con-
trol of Agency personal property have been subject to question
by various quarters. While considerable thought has been given
to developing alternatives to that system in the past, more re-
cent events have provided impetus to that thinking.
2. The Director, during the course of reviewing the fiscal
years 1974 and 1975 programs, raised questions regarding the cur-
rent PPA/PRA system and directed the Office of Planning, Program-
ming, and Budgeting (now the Office of the Comptroller) to make
a "study of these cross-Directorate problems" (Ref: Memo dtd
5 Sep 73 to D/L fm C-PS/DDM&S, Subject: Follow-on Action to
FY 1975 Program Review). Additionally, both the Directorate
for Operations (DD/0) and the Directorate for Science and Tech-
nology (DD/S&T) have recently raised specific substantive ques-
tions.
3. In the face of continuing reductions in manpower and re-
sources, the Agency must explore ways for meeting its administra-
tive and management responsibilities through more efficient and
economical use of manpower, and through the adoption of stream-
lined procedures. One area which offers the potential for achieve-
ment of those goals is the PPA/PRA system.
a. The operating principles of the current PPA/PRA
system necessitate considerable duplication of budgetary
and financial controls. That duplication of effort impacts
on the o erating components, the Office of the Comptroller
(O/Compt), the Office of Logistics (OL), the Office of
Finance (0/FIN), and the Office of Joint Computer Support
(OJCS).
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b. The PPA/PRA system is pervasive and, due to its
complexity, inhibits modification of subsystem procedures
which contribute to support of the Agency's materiel program.
c. The PPA/PRA system is simplistic. It recognizes
neither the unique characteristics of the Agency's inventory
requirements nor the degrees of complexity of procurement
support to the various categories of materiel needs. When
exceptions to the PPA/PRA system have been made, the result
frequently has been merely a transfer of workload to another
component, or increased use of manpower, to assure that the
exception procedures are carefully monitored and controlled.
4. The near future will see implementation of improved computer
support to the supply and procurement systems. An OL computerized
system [Inventory Control System (ICS)] is scheduled to be opera-
tional in July 1974. This system has the basic capability of pro-
ducing statistical information, now available in partial form in
the PPA/PRA system, with a focus even better suited to the specific
needs of OL and the Agency in managing its supply and procurement
systems.
5. In review of the current PPA/PRA system, and in the pro-
posal of any alternative systems, it is necessary to observe cer-
tain caveats:
a. Any funding and control system adopted must
ensure that we meet the materiel needs of the Agency,
maintain viable appropriation and allotment controls,
and provide for accumulation of statistical data for
management purposes.
b. Such a system should not distort nor dilute the
respective regulatory roles of the heads of operating com-
ponents, the Comptroller, the Director of Logistics, or
the Director of Finance in budgeting, funding, procuring,
distributing, accounting, and disposing of Agency supplies
and equipment.
c. Selection of any alternative system should not
be based merely on shifting workload from one component
to another and, indeed, should ensure that requirements
of the system enable reduction of workload to the maximum
extent possible.
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B. THE CURRENT PPA/PRA SYSTEM
A review of the PPA/PRA system must be prefaced by a statement
of its operating principles, some of its history and evolution, and
its current application, in order to provide a backdrop against
which other possible alternatives can be examined and compared.
1. Principles
a. The PPA/PRA system, established almost 20 years
ago, recognizes certain basic principles:
1 The nature of Agency materiel require-
ments and efficiencies dictates
the centralization o management and control over
procurement and inventories.
(2) The wide range of Agency activities
dictates the desirability of program budgeting
which provides, among other things, that the
operating official having the authority to direct
the use of Agency materiel assets is also respon-
sible for justifying their need and ensuring that
the required funds are available.
b. The contradiction between the two principles is
immediately apparent and its reconciliation was achieved
through compromise:
(1) The first compromise was to make the basic
assumption that, in any given fiscal year, the level
of funding required by the central manager for ac-
cessions to the inventory (materiel for future needs)
is identical to the value of the items to be drawn
from the inventory by the operating officials for
program use.
(2) The second was the use of indirect costs
of materiel issues in the budget system. In other
words, the operating official who budgets for ap-
propriated funds requests an amount equal to the es-
timated indirect costs (not obligations) of materiel
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which he expects to acquire from the centralized
procurement and inventory systems. Although the
total Agency PRA encumbrances (for inventory
issues) are conformed with the total Agency PPA
obligations, the past-year program distribution
of the Agency's external budget is based on the
indirect cost of materiel issued from inventory
without regard to either the year in which it
was procured or the actual amount of PPA obli-
gations for that materiel.
c. The means whereby program budgeting for materiel
requirements could be monitored and controlled was realized
in the mid-1950's when legal requirements were levied on
each Federal agency to assign and maintain monetary values
on its personal property assets. The Agency knows this as
Financial Property Accountability (FPA) which encompasses
both property in the custody of users and property held in
inventory for future use. Records maintained by the Agency's
inventory managers include status and transaction information
on quantities, condition, sterility, location, accessions,
issues, disposals, and the variety of other data required
for management of the supply function. With assignment of
dollar values to these data, the Agency found in its in-
ventory records, and the FPA, the sources of information
needed to identify and control the dollar value of materiel
issued to an operating component. Thus, through use of a
combination of information from the budget, finance, and
supply systems, the PPA/PRA system operates.
2. History and Evolution
a. Initially, FPA policy provided that all materiel ac-
cessions, disposals, transfers, etc., would be processed through
the FPA system. As a result, the PPA/PRA system encompassed all
materiel transactions worldwide. All acquisition obligations
for materiel, whether procured locally or by Headquarters, were
charged against PPA (known as the Local Procurement Allotment
at field installations). Issues were charged against PRA.
b. In July 1970 a major change occurred when the Agency's
FPA policy and procedures were amended with respect to stations
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designated as Type II or Type III (stations where all materiel
in their custody is considered to be held for current consump-
tion needs; and, therefore, no "inventory" is maintained).
The effect of the FPA amendment was to eliminate the need for
PPA (Local Procurement Allotment) since obligations for all
materiel procured locally or by other Type II or Type III in-
stallations were recorded as direct charges to the allotment
of the operating component. It also reduced the scope and
amount of the installation's PRA since PRA is now required
only for materiel requisitioned from Headquarters or from
Type I (inventory) installations.
c. The modification of the FPA policy and the change
in the rules for the use of PPA/PRA had another effect.
Under the initial comprehensive FPA and PPA/PRA systems,
the operating components could base their conversion of
funds to PRA on the amounts budgeted for materiel. The
limitations on PPA/PRA, however, now force the operating
officials to estimate and control the dollar value of their
materiel requirements by source of procurement. Authority
for procurement of materiel locally, or from Type II or
Type III installations, is controlled by the funds of the
operating components. On the other hand, authority-for
procurement of materiel from OL or Type I installations
is controlled by PRA. The result has been an addition to
the problems of the operating components in the manage-
ment and control of their two separate budgetary authori-
ties; i.e., funds and PRA.
d. Although the Agency's policy provides for program
(quasi cost-based) budgeting, the desirability of a cen-
tralized budgetary responsibility for certain materiel
results in exceptions to the basic principle. OL budgets
for administrative supplies and equipment in common use
throughout the Washington metropolitan area. The Central
Reference Service budgets for books and publications. OL
budgets for the Agency's use of common forms. A few years
ago the Office of Technical Service (OTS) was charged
with centralized budget responsibility for cognizant ma-
teriel requirements of the DD/O. This exception principle
was further extended to Agency communications materiel
used by the DD/O with assignment of centralized budget
responsibility to the Office of Communications (OC)
effective in fiscal year 1974.
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e. Still another significant change occurred in the
Agency's budget policy with recognition in the budget of
certain inventory (versus use or consumption) requirements.
In July 1972 the Executive Director-Comptroller directed that
TSD and OC predicate their budget estimates for their co ni-
zant materiel items on inventory accession requirements (Ref:
Memo dtd 26 Jul 72 to DD/P and DD/S fm Ex. Dir-Compt, Subject:
The Management of Technical Equipment by TSD and OC).
f. Since the inception of FPA, the number of field
stations designated as Type I has steadily decreased as
25X1A they were converted to Type II or Type III status. With
the closure of the and the conversion
25X1A to Type II procedures o t a remaining portion of the
now operating under Type I at
q"PPPqPWar 1975, the only two locations
25X1A where inventory FPA procedures will be used are theme 25X1A
Depot and the both of which are under the
control of OL. Thus, the use of the current PPA/PRA system
will be limited to materiel requisitioned from OL.
3. PPA/PRA System Procedures)
All components of the Agency are affected to varying
degrees by the procedures of the PPA/PRA system. Although
this review cannot assume complete, detailed knowledge of
their total involvement, there follows a brief description
of the responsibilities and some problems of the various
components which support the Agency's materiel program to
illustrate the complexity and pervasiveness of the system:
(1) Operating Components
(a) Estimate and defend total program
materiel requirements.
(b) Estimate, and request of the O/Compt,
the amount included in the Operating Budget to
be converted to PRA for requisition of materiel
from OL (this is not separately identified in
the budget).
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(c) Maintains manual PRA control records
on the dollar amount of requisitions submitted
to OL and reconcilesthem each month against the
reports which list the issues of materiel by OL.
(d) Monitors the use of PRA and, when ap-
propriate, requests the 0/Compt for amendment of
the PRA and funds allotment.
(e) PRA requires not only the maintenance
of a separate control system which is dictated
solely by the source of procurement of materiel,
but also the use of an accounting system which
differs from the system used for the appropriation.
Separate controls and differing systems create co-
ordination and reconciliation difficulties in man-
aging the component's total Operating Budget.
(2) Office of the Comptroller
(a) Based on the estimate and request of
operating components, issues PRA authorities and
reduces funds authorities of the several operating
components.
(b) Transfers funds from the operating
components to the Director of Logistics through
the issuance of PPA.
(c) Monitors the status and use of PRA by
operating components, and of PPA by OL.
(d) For external budget presentation pur-
poses, conforms the total of PRA encumbrances
(representing indirect cost of materiel issued
from the inventory) reported by the operating
components with the total obligations against
the appropriation incurred by the Director of
Logistics for procurement of materiel. This
total is used in the past-year column of the
budget.
(e) The extent of the workload involved
in transferring funds for procurement and the
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issuance of requisitioning authority can be
roughly measured by the numbers of individual
adjustments to PPA and PRA during fiscal year
1973. During that period 114 adjustments were
made against initial PRA issuances to 55 com-
ponents for a total of 169. A total of 39
allotment actions was made in the PPA account
(reflecting consolidation of some PRA actions
into one PPA action).
(f) The Office of the Comptroller uses
the ABC (Automated Budget Control) system for
accumulation of data for purposes of both budget
presentation and budget execution. Since the
PPA/PRA system is used only in the budget exe-
cution phase, that office is faced with the same
difficulties as the operating components in co-
ordination and reconciliation of the different
approach to materiel procurement used in budget
presentation.
(3) Director of Lo istics
(a) Upon receipt of initial PPA, and
based upon Procurement Plans submitted by
operating components and other planning in-
formation available to him, estimates the
amount to be reserved to meet materiel re-
quirements requiring direct procurement action
and the amount which is available for inventory
accessions.
(b) Reviews PPA amendments for purposes
of adjusting allocation between reserve for
direct procurement and amount available for
stock, if necessary.
(c) Maintains PPA financial control
over commitments (requisitions received by
OL which are pending formal procurement
obligation through purchase or contract action).
(d) Maintains obligation controls over
PPA including submission of detailed obligation
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abstracts to 0/FIN, and reconciliation of
monthly status reports on obligations and
expenditures.
(e) Monitors status of PPA and
Director of Logistics' suballocations.
(f) Upon receipt of the PPA, the
Director of Logistics simultaneously
assumes a liability to honor all requi-
sitions which have been approved and
certified as to the availability of
PRA. This liability exists whether
the materiel requested is available
within the Agency supply system or
whether action is required to obtain
it from other sources. Since infor-
mation on the Procurement Plans of the
operating components is on a relatively
short-range basis and without the detail
for precise supply and procurement action,
a continuing problem for the Director of
Logistics is the decision on suballocation
of PPA between a reserve for direct pro-
curement action and those amounts available
for inventory accessions. This is com-
pounded by the significant changes in the
PPA during the year. For example, the
initial allotment in fiscal year 1973
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25X1A ment totalled million, or an in-
crease of 46 percent.
(4) Supply Division
(a) Processes all requisitions
received by OL including, among other
steps, document control, identification
of items, determination of procurement
source (i.e., inventories, other agencies,
commercial procurement), and distribution
of requisitions and copies to appropriate
components.
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. (b) Records, in the inventory records,
receipts, issues, materiel items which are due
in, due out, etc.
(c) Provides information to 0/FIN,
Accounts Division,regarding the cost and
customer identification of materiel issued.
(d) Provides information to 0/FIN,
Accounts Division,regarding inventory trans-
actions for incorporation in the Agency's
FPA records.
(e) Prepares and forwards copy of
receiving reports to 0/FIN, Certification
and Liaison Division,to support payment
of vendor invoices.
(f) The PPA/PRA system relies on the
use of the Supply Division/OL inventory
records and the FPA records for information
on cost of materiel issued against PRA.
Therefore, all requisitions received by OL
which entail direct procurement of items
must be processed through the Supply Di-
vision/OL inventory records as if they
were stock accessions and issues. The
PPA/PRA requirement for processing all
direct procurement actions through the
inventory/FPA accounts results in a
commitment of the same manpower for
documenting the acquisition, control,
accountability, and issue of the $15
expendable item as is required for the
$150,000 nonexpendable item. Since
procedures and criteria for inventory
control and FPA are designed for supply
management purposes, very little latitude
exists for streamlining procedures to re-
duce the impact on the inventory system
occasioned by the direct procurement of
low-cost, high-volume items.
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(5) Procurement Division
(a) Upon receipt of order from Supply
Division/OL for procurement action, negotiates
a purchase agreement with the vendor.
(b) Assures that the agreement includes a
provision for delivery of the item to the point
designated by Supply Division/OL for formal re-
ceipt of materiel, and for appropriate informa-
tion on the invoice to be processed by 0/FIN,
Certification and Liaison Division.
(c) Distributes copies of purchase agree-
ments to appropriate components.
(d) Acts as point of contact between the
vendor and the Agency on matters pertaining to
shortages, overages, damages or other discrep-
ancies, and on vendor problems pertaining to
settlement of invoices.
(e) Although the PPA/PRA system, per se,
has little impact on the Procurement Division/OL,
the requirement to process all materiel requisi-
tioned from OL through the PPA/PRA system inhibits
the adoption of simplified procurement procedures
for certain categories of items. The documentation
and processing steps necessary to serve the PPA/PRA
system discourage adoption of procurement methods
and procedures which would provide for more
simplified procurement and quick payment of vendor
invoices.
(6) Office of Finance
Provides support to the materiel system
through certification of procurement expendi-
tures, payment of invoices, maintenance of ex-
penditure records, maintenance of the FPA sys-
tem, and issuance of appropriation and FPA re-
ports for use by the 0/Compt, the operating
components, and OL. Since it provides support
to all components concerned with the Agency's
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25X1A
materiel program, the problems of the various
components identified above also impact on
0/FIN.
-
riel support requirements of the Agency. During this time, t e
DD/S&T, with its need for unique and highly sophisticated supplies
~ . . _ L - MM I f% t om .- .. n 4- ..
(7) Office of Joint Computer Support
Provides computer support to the PPA/PRA
system as well as the information requirements
of the many other systems affected. These in-
clude, but are not limited to, ABC, obligation
status reports, PRA encumbrance reports, FPA
(including issues against PRA), inventory
control, procurement, allotment status reports,
etc. To the extent that the PPA, PRA, and FPA
systems require maintenance of duplicative or
redundant records and reports, the manpower and
facilities of OJCS are likewise committed.
C. EFFECTIVENESS OF THE PPA/PRA SYSTEM
1. The PPA/PRA system was established almost 20 years ago as
the means whereby central procurement of materiel for the inventories
could be funded from the budgets of the program managers (paragraph
B.1. above). Since the date of its inception, evolutionary changes
have modified the PPA/PRA system to such an extent that it is now
applicable only to those requirements levied on OL. This evolu-
tionary period has also seen a change in the character of the mate-
have been superseded by systems requirements such as
the OC SKYLINK. Overseas stations have not only decreased in num-
ber, but in size as well, and the characteristics of their adminis-
trative support have undergone change. Because of their decreased
size and their receiving more administrative support from their
cover organizations, materiel requirements on OL inventories have
decreased accordingly. A review of the PPA/PRA system, therefore,
should include an examination of the current inventory and the re-
quirements to which it responds.
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2. Since maintenance of inventories is costly, good supply
management dictates that the very minimum number of items be stocked
and in reasonable quantities to meet operational inventory require-
ments. The supply manager must assess the feasibility of carrying
a potential item in inventory against several criteria such as
availability, leadtime, unit cost, storage cost, estimated demand
rate, shelf life, operational necessity, etc. He must also peri-
odically review the levels and demands against current holdings to
confirm their continued need or to initiate disposal action. Listed
below are illustrations of the types of items maintained in the
Agency's inventories:
a. Agency peculiar - OTS, Office of Security (OS), 25X1A
OC Agent Communications,
items, etc.
b. Major in current use - Communications systems
end items and spares.
d. Backup stocks - equipment and spares for backup
and maintenance of obsolescent systems currently in use.
e. Restricted availability - such as prescription
drugs.
f. Scarce or long leadtime - for which there is a
current demand experience.
3. As of 30 June 1973, the value of the inventories (exclud-
ing materiel earmarked for disposal) under the control of OL totalled
approximately =million. An analysis of these holdings, based on
the use of the supply system's stock allocation structure, indicates
that the inventory responds to three general categories of require-
ments:
a. Technical stocks: Those maintained to support
the requirements of operating components en a ed in tech-
nical programs; i.e., OC, OTS, OEL, and OS. 25X1A
Requirements for the major portion of such stocks are
established by each respective office in coordination
with OL. Inventory requirements for each of these
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technical offices is, for the most part, unique to
its operations. Therefore, with some exceptions,
funds for inventory accessions are included in their
program budgets as users budgeting for PRA, and obli-
gations for inventory accessions can be identified by
customer component at the time of procurement. Thus,
use of the PPA/PRA system to identify customers of
this type inventory is redundant.
b. Contin enc stocks: Primarily for poten- 25X1A
tial future use in operations. For
the most part, inventory requirements for items
and quantities are established h, nnin ,_ 25X1A
coordination with nl ^1+houunh
issues from these stocks does not justify their
being classified as active inventory. From the
practical viewpoint, they better fit the category
of contingency holdings. Since the PPA/PRA system
provides funds for investment in the inventory only
to the extent that PRA is budgeted by an operating
component for current consumption needs, it would
appear that the principles of the system are in-
operative with respect to the contingency types
of holdings.
c. Common stocks: Requirements for mate-
riel which is commonly used throughout the Agency.
Inventory requirements for items and quantities
are established primarily by OL based upon demand
experience factors and available information re-
garding plans which would cause changes in demand.
All commodity groups (i.e., ordnance, transportation
and airborne, industrial and engineering, communi-
cations equipment and components, electrical supplies
and equipment, medical, photographic, general, and
automatic data processing) are represented in this
category of the inventory which is also character-
ized by high-volume, low-unit cost activity in
contrast with technical and contingency inventories.
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25X1A
25X1A
25X1A
4. A summary of the inventory status (excluding items pending
disposal) as of 30 June 1973 is listed below. The dollar amounts are
expressed in millions:
5. Since the goal of supply managers is to hold the inventory
to a minimum of items, they should rely to a maximum extent on purchases
from commercial vendors or other Government agencies, such as General
Services Administration (GSA) or Department of Defense, to meet cus-
tomer requisitioned requirements. It is anticipated that, with the
adoption of innovative procurement procedures particularly in the area
of requirements contracts, further reductions can be made in the in-
ventory through the increased use of commercial sources to meet mate-
riel requirements. Since the customer of direct procurement is iden-
tified at the time of purchase and issue, use of the PPA/PRA system
for identification and costing purposes is redundant and duplicative.
6. Analysis of fiscal year 1973 obligations against the PPA
(excluding reimbursable procurement on behalf of other agencies or
third parties) reveals that the major portion of procurement actions
could be identified to the using customer account at the time of ini-
tiation. Dollars are expressed in millions.
2Effective fiscal year 1974 OTS and OC were assigned inventory budget
responsibility for these cognizant stocks.
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7. In summary, then, use of the PPA/PRA system to identify cus-
tomer costs of materiel is redundant and duplicative in the cases of
direct procurement and the stock procurement of technical items; it is
inoperative in the case of contingency stock; and is effective only in
the case of stock procurement and issue of common-use items. Effective-
ness of the PPA/PRA system, therefore, is realized in the funding and con-
trol over less than 10 percent of the value of inventory and less than 10
percent of the value of procurement actions.
D. ALTERNATIVE PROCEDURES
During the course of its review of the efficiencies and values of the
current PPA/PRA system, OL has identified three optional procedures for
the funding and control of Agency materiel which is procured through OL.
For any system as complex and pervasive as is the Agency's materiel sys-
tem, there is no one option that does not have its advantages and disad-
vantages. Therefore, selection of one that is best suited to the Agency
may involve compromise of requirements which are peculiar to any one
part of the total system.
1. Option #1 - Current PPA/PRA System: Retention of the
current system represents the alternative of "doing nothing" or
status quo. Although the system has been described in considera-
ble detail above, following are some of the advantages and disad-
vantages which were not specifically spelled out but which should
be mentioned:
a. The system has been successful in meeting the re-
quirements of Agency budget policy for centralized procure-
ment of inventory with funds budgeted by the user.
b. Transfer of total funding authority for materiel
procurement to OL permits flexibility in adding or dropping
items from the inventory based upon current experience and
projected needs. It also provides flexibility in timing of
inventory procurement. During this period of increasing
materiel shortages (e.g., paper products), OL can effect
procurement action to compensate for increased leadtime for
delivery of items or develop other procurement sources.
c. The system provides highly centralized appropriation
controls over procurement which tend to provide for less time-
consuming and better coordination of activities amon the
O/Compt, the office maintaining obligation controls Budget
and Fiscal Branch/OL in this case), the procurement element,
and the component of 0/FIN concerned with payment of invoices.
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d. Uniformity of procedures for initiating
and processing requisitions through the supply system
tends to increase efficiency.
e. The external budget presentation of the
Agency reflects all materiel (with the recent exception
in the cases of OTS and OC) as program "use" require-
ments. This has precluded external review or action
on the Agency's actual inventory requirements and status.
f. The system necessitates duplicative action in
those cases where procurement action, resulting in ap-
propriation obligation, can be identified to the using
component. Under the two elements--PPA and PRA--the
operating component and OL are both concerned with
management of the authorities, maintaining obligation/
encumbrance records, reconciling expenditure/issue
records, maintaining document files, and taking cor-
rective action when appropriate. OL must "wash" all
direct procurement through the inventory records. The
0/Compt must support a multiplicity of adjustments to
the PPA, and must effect comparability adjustments be-
tween the external budget presentation and internal
Operating Budget. 0/FIN must provide accounting sup-
port to the PPA, the PRA and FPA actions. OJCS must
provide separate reports against the two authorities.
g. The system, with recent exceptions of OTS
and Agent communications equipment, does not permit
budget recognition of inventory versus use needs of
the Agency.
h. The system is oversimplified in contrast
with the unique characteristics of the Agency's mate-
riel requirements. The result has been an inhibition
of efforts to streamline procedures or to reduce work-
load in the several systems contributing to the Agency's
materiel program.
2. Option #2 - Modified PPA/PRA System: This system
contemplates that program managers continue to budget for
total materiel needs. However, transfer of appropriation
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authority to OL as PPA, and issuance of PRA, would be limited
to items which would be requisitioned from the inventory.
Funds for the acquisition of materiel by OL through ct
procurement from commercial or other Government agency sources
would be retained by the operating component. Obligations for
procurement action resulting from requisitions for direct pro-
curement items would be recorded by the operating component
against its funds allotment. 0/FIN would record the procure-
ment expenditure against the funds of the operating component.
The materiel would not be "washed" through the inventory con-
trol or FPA records as a quasi stock accession and issue.
a. As is true in the current PPA/PRA system,
the modified PPA/PRA system would meet the require-
ments of Agency budget policy for centralized pro-
curement of inventory with funds budgeted by the
user.
b. The system would eliminate the duplicate
efforts required to process direct procurement actions
through the PPA, PRA, and FPA inventory records.
c. The system would increase the options availa-
ble to components supporting the materiel program in
amending or adopting better procedures.
d. The modified PPA/PRA system still would not
recognize the inventory needs of the Agency, however,
and would, in fact, inhibit supply and inventory man-
agement. This is due to the fact that, under the cur-
rent PPA/PRA system, OL has the option of adding or
deleting items from the inventory within the total
of funds available for procurement in response to cur-
rent demands. The modified PPA/PRA system would almost
eliminate this capability for responsiveness by OL.
e. At the present time, the operating components
are not required to identify, in either their Operating
Budgets or on their requisitions, whether the item is
in the Agency's inventory or whether it will result in
a direct procurement action by OL. The modified PPA/PRA
system would require that each of the operating compo-
nents distinguish between the amount required for PRA
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to support items issued from the inventory, and the
amount to be retained as funds for direct procure-
ment action. In the latter instance, components
would also have to have a current catalog of in-
ventory items along with their unit prices.
f. Experience with PPA and with Procure-
ment Plans indicates that operating components do
not have their materiel budget requirements in the
detail necessary for precise determination of supply
action, except on a relatively short-range basis.
Experience also reveals that the area of materiel
procurement offers a wide latitude for reprogram-
ming of funds by operating components during the
course of the fiscal year. These factors, taken
in conjunction with the need for identification of
inventory versus direct procurement items, would
result in estimates of PRA needs, and their conver-
sion to PPA, in amounts highly susceptible to fre-
quent amendment. The inventory management function,
however, can only operate efficiently under stable
funding conditions.
g. The modified PPA/PRA system would not
eliminate duplicative identification of OTS and
Agent communications materiel accessions and issues.
The OTS and OC budgets provide funds for inventory
procurement of these respective cognizant needs,
separate allotment controls are maintained, and
obligations are identified to these inventories.
Requisitions for issues from these inventories,
however, are controlled by PRA.
h. In summary, the effect of the modified
PPA/PRA system would be to merely reduce the scope
of PPA/PRA to inventory requirements. Therefore,
many of the advantages and disadvantages of the
current system, not enumerated above, would be
inherent in this option.
3. Option #3 - Direct Funding: An alternative system
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Presently offices are reluctant to return an item to
stock since they must cite PRA a second time (with
some exceptions), if they have need for the item at
a later date.
g. Inventory budgets would provide infor-
mation to the Director of Logistics, during planning
stages, regarding the extent to which he will be re-
quired to support inventory holdings.
h. Inhibitions currently placed by the re-
quirements of the PPA/PRA system on the procedures
of the various systems supporting the Agency's mate-
riel program would be removed.
i. Manpower now devoted to "washing" direct
procurement through the FPA system would no longer
be required.
j. The FPA system would continue to provide
program and inventory managers with information
regarding the cost of materiel issued to using com-
ponents from the inventory.
k. To the extent that the current PPA/PRA
system enables use of indirect costs for common-
use stock items (which at present amount to less
than 10 percent of the value of procurement funded
through OL), the program budgets of the Agency
would be understated.
1. Direct Funding would require a higher
degree of planning, coordination, and control over
the Agency's materiel procurement programs.
M. Inventory budgeting under the Direct
Funding option would inhibit flexibility in adding
to or deleting items from the inventory, and in
the timing of procurement for inventory enjoyed
under the current PPA/PRA system.
n. Principles to be established for inventory
budgeting of common stock items must recognize and
provide for the fact that such items are for common
use throughout the Agency and no one central point
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can control the timing, items, quantities of individual
requirements, or issues from such stocks. Budget pro-
cedures established for assignment of responsibility
to designated offices for inventory requirements must
also provide a control mechanism to assure that using
components do not indiscriminately and irresponsibly
draw down from the inventory.
o. As in the case of the modified PPA/PRA
option, the Direct Funding system would require iden-
tification and distinction between those requirements
to be satisfied through direct procurement and those
from inventory by all components involved in the
Agency's materiel program. Sacrifice of the uni-
formity of treatment, which is an advantage of the
current PPA/PRA system, would entail risks of dupli-
cate budgeting for items, uncertainties in the req-
uisitioning process, greater possibility of errors,
and creation of other problems related to manage-
ment and operation of a materiel system under split
funding authority and responsibility.
E. CONCLUSIONS
1. The OL review of the two proposed alternatives to the cur-
rent PPA/PRA system was limited to their general outline, and discus-
sion in detail is given only to the extent needed to assure that adop-
tion by the Agency of any one of those systems appears feasible and
meets the criteria discussed in paragraph A.5.
2. The review group also considered the option of the "Re-
volving Fund" (Industrial Fund, Capital Fund) used extensively by
the Department of Defense at such major installations as shipyards,
aircraft rework facilities, ordnance plants, and for stock funds
which employ thousands of people and engage in many millions of dol-
lars of business annually. That option was rejected as unworkable
within the environment of the Agency for the following reasons:
a. Most revolving funds of the Federal Government
generate considerable congressional participation (ap-
proval of establishment, funding, and amendments).
b. The relatively small size of our supply system,
and its limited number of customers, do not provide a
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sufficiently wide base for effective operation of a
revolving fund.
c. A large number of technical and contingency
items held in our inventories would have to be excluded
from the revolving fund since the inclusion of such
restricted-use items would vitiate the effectiveness
of the system.
d. Use of a revolving fund with fixed limita-
tions would reduce the flexibility of the Agency to
respond to situations requiring large-scale materiel
support.
e. Use of a revolving fund would require estab-
lishment and maintenance of separate budgetary and
financial controls.
3. The proposed computer systems for requisitioning, inven-
tory, and financial controls offer the potential for the production
of better management data and automation of PRA records now main-
tained manually. However, since the availability of those systems
is uncertain with respect to time, we suggest that their potential
capabilities should not be a fundamental basis, at this time, for
decisions concerning the options.
4. OL, in its review of the current PPA/PRA system and its
alternatives, has not lost sight of the Agency-wide impact created
by any materiel support system. For that reason, a review and pre-
liminary determination of feasibility of any system by 0/FIN and
0/Compt should be the next step. Upon the conclusion of that re-
view, discussions should be held with each of the Directorates to
solicit their reactions. If all components concerned agree that
a change is desirable, then the coordination of those components
will be required in the details of design and development of im-
plementing procedures of the new system.
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