The Government Arsenal (GA), an agency under the Department of National Defense (DND) in charge of producing basic weaponry and ammunition for the military and the police, has been flagged by the Commision on Audit (COA) over "abnormal losses" incurred in the production of bullets in 2023.

In its annual audit report, COA said that GA allots allowances for normal losses on "anticipated and inherent waste or spoilage that occurs naturally in the production cycle, often due to factors like evaporation, breakage, or other predictable causes."

It said that GA has already factored in these normal losses in the cost of production, since this kind of loss is considered as "standard."

It pointed out that abnormal losses are caused by unexpected or abnormal conditions such as plant breakdowns, sub-standard materials, carelessness, and accidents, among other things. It said these losses should be excluded from computation of cost of good units.

It said thaat the GA's Finance and Management Division (FMD) submitted its report on production line losses.  Thus, the audit team had a chance to review the output of the Explosives Division (EXD), Cartridge Assembly and Packaging Division (CAPD), and Case and Bullet Division (CBD).

After a review, COA said iot found that the CBD reported losses that exceeded the allowable limits. For its production of 5.56mm M193 bullets, the CBD's total output was 837,676 while the total losses were 224,966. State auditors said that the allowable quantity for losses was only 23,608.

For the production of the 5.56mm M855 bullets, the total output made by the CBD was 8,688,171. Total number of losses was 839,939 when only 244,893 were allowed. Lastly, for the production of the Cal .45 bullets, CBD had an output of 519,726, losses of 5,714, and an allowable quantity of 4,976.

When asked, COA said that the GA explained that they could not account for the abnormal losses due to a "process gap" from manufacturing plants. The manufacturing plants, on the other hand, claimed that there was no instruction given by the GA that required them to detail when and where the losses took place in the process.

"As a result, the non-deduction of abnormal losses from cost of production overstates Inventory account and understates Loss account while also resulting in the non-disclosure of related Information in the Notes to Financial Statements," the report said.

Thus, COA recommended that manufacturing plants furnish the GA's FMD with the source data of abnormal losses, such as where and when the losses occurred in the process as well as the percentage of completion." 

"By measuring the abnormal losses made, the GA will be able to recognize it as deduction to inventory accounts and debit to loss accounts," it said.