Defence failed to effectively manage millions of items which include ration packs and clothing for Australian troops, with a critical audit finding the department held $1.7 billion worth of items that weren't needed.
An Auditor-General report released on Wednesday found Defence couldn't demonstrate effective management of its general stores inventories.
These inventories include ration packs for military personnel, toiletries, light globes and parts for specialist military equipment.
The report found the value of items, where a need or activity could not be identified, was placed at $1.7 billion, out of a total amount worth $2.6 billion.
Up to 79 per cent of current items were identified as overstock.
Defence's management framework for its general stores inventories only partly addressed efficient management, and did not cover economical management, the report found.
"The framework is not operating as intended to achieve the proper use and management of public resources," the report found.
Defence holds "operating stocks" of items to maintain capability, and "reserve stocks" above operating levels, and has a policy to avoid both understocking and overstocking.
But the audit couldn't find the department could prove it fully implemented its framework to achieve a balance, and avoid an under- or overstock of items.
The Auditor-General made four recommendations for Defence, all of which were agreed to by the department.
Defence was managing more than 70 million items across 547 locations as of June last year.
In response to the report, Defence said it was "committed to strengthening processes and controls".
"The Defence Enterprise Resource Planning system currently being implemented will deliver enhanced capability to track labour, storage and distribution costs to a greater level of granularity," the department said.
