Counterfeit parts--generally those whose sources knowingly misrepresent the parts' identity or pedigree--have the potential to seriously disrupt the Department of Defense (DOD) supply chain, delay missions, and affect the integrity of weapon systems. Almost anything is at risk of being counterfeited, from fasteners used on aircraft to electronics used on missile guidance systems. Further, there can be many sources of counterfeit parts as DOD draws from a large network of global suppliers. Based on a congressional request, GAO examined (1) DOD's knowledge of counterfeit parts in its supply chain, (2) DOD processes to detect and prevent counterfeit parts, and (3) commercial initiatives to mitigate the risk of counterfeit parts. GAO's findings are based on an examination of DOD regulations, guidance, and databases used to track deficient parts, as well as a Department of Commerce study on counterfeit parts; interviews with Commerce, DOD, and commercial-sector officials at selected locations; and a review of planned and existing efforts for counterfeit-part mitigation.

DOD is limited in its ability to determine the extent to which counterfeit parts exist in its supply chain because it does not have a departmentwide definition of the term "counterfeit" and a consistent means to identify instances of suspected counterfeit parts. While some DOD entities have developed their own definitions, these can vary in scope. Further, two DOD databases that track deficient parts--those that do not conform to standards--are not designed to track counterfeit parts. A third governmentwide database can track suspected counterfeit parts, but according to officials, reporting is low due to the perceived legal implications of reporting prior to a full investigation. Nonetheless, officials we met with across DOD cited instances of counterfeit parts, as shown in the table below. A recent Department of Commerce study also identified the existence of counterfeit electronic parts within DOD and industry supply chains. DOD is in the early stages of developing a program to help mitigate the risks of counterfeit parts. DOD does not currently have a policy or specific processes for detecting and preventing counterfeit parts. Existing procurement and quality-control practices used to identify deficient parts are limited in their ability to prevent and detect counterfeit parts in DOD's supply chain. For example, several DOD weapon system program and logistics officials told us that staff responsible for assembling and repairing equipment are not trained to identify counterfeit parts. Some DOD components and prime defense contractors have taken initial steps to mitigate the risk of counterfeit parts, such as creating risk-assessment tools and implementing a new electronic parts standard. Also facing risks from counterfeit parts, individual commercial sector companies have developed a number of anticounterfeiting measures, including increased supplier visibility, detection, reporting, and disposal. Recent collaborative industry initiatives have focused on identifying and sharing methods to reduce the likelihood of counterfeit parts entering the supply chain. Because many of the commercial sector companies produce items similar to those used by DOD, agency officials have an opportunity to leverage knowledge and ongoing and planned initiatives to help mitigate the risk of counterfeit parts as DOD develops its anticounterfeiting strategy.

Status Legend:

Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

• In Process
• Open
• Closed - implemented
• Closed - not implemented

Recommendations for Executive Action

Recommendation: As DOD develops its anticounterfeit program, the Secretary of Defense should leverage existing anticounterfeiting initiatives and practices currently used by DOD components and industry to establish guidance that includes a consistent and clear definition of counterfeit parts and consistent practices for preventing, detecting, reporting, and disposing of counterfeit parts;

Agency Affected: Department of Defense

Status: Open

Comments: As of April 2011, DOD has a Draft Directive Type Memorandum in coordination. The original delay from the anticipated Dec. 2010 deadline was caused by broadening of scope to address counterfeiting issues across the product lifecycle. New deadline: June 2011.

Recommendation: As DOD develops its anticounterfeit program, the Secretary of Defense should disseminate this guidance to all DOD components and defense contractors.

Agency Affected: Department of Defense

Status: Open

Comments: Guidance will be disseminated 60 days after signature. At this time, we do not have a date when this guidance may be signed.

Recommendation: As DOD develops its anticounterfeit program, the Secretary of Defense should analyze the knowledge and data collected to best target and refine counterfeit-part risk-mitigation strategies.

Agency Affected: Department of Defense

Status: Open

Comments: DOD will analyze all knowledge and data it collects on counterfeit parts to best target and redefine risk mitigation strategies. The estimated completion date is the fall of 2011. DOD has developed a plan of action and milestones (POA&M) based on an initial analysis of its collective knowledge of counterfeiting practices. The POA&M covers a 4-year period through the end of FY 2014 and includes a process for continuing to share and analyze information on counterfeiting activity across the DOD supply chain to further refine the strategy.