NCJ Number
70957
Date Published
1978
Length
44 pages
Annotation
A General Accounting Office (GAO) evaluation of the foreign military sales program revealed that the Department of Defense's (DOD) policies and practices in selling equipment and spare parts resulted in an estimated $69 million in costs which were not charged to foreign governments.
Abstract
According to the International Security Assistance and Arms Control Export Act of 1976, there should be a charge for items which are sold to foreign governments and must be replaced in the inventory. DOD has violated the intent of this law by not charging enough for equipment and spare parts and thus subsidizing sales. GAO reviewed the military services' accounting systems used for pricing secondary items and interviewed responsible officials in Washington, D.C., and at several supply centers throughout the country. GAO found that DOD's pricing policies were ambiguous, conflicting, and inconsistent among the services. No workable system existed to identify item replacement costs for both stock and nonstock items so that the proper sale price could be charged. Under supply support arrangements, the Air Force failed to collect the required investment funds, did not include adequate replacement costs in prices, sold items that were unauthorized, and depleted inventories needed to operate U.S. aircraft. A serious breakdown in the Air Force's accounting system resulted in millions of dollars of subsidies to foreign governments. The full costs of items purchased from contractors, including administration and handling surcharges, were not considered in bills to foreign countries. The U.S. is also subsidizing these governments because DOD pricing policies do not provide pricing guidelines for items replaced through repair rather than procurement and do not recover normal inventory losses. These undercharges are symptomatic of the overall problems that DOD has experienced with foreign military sales. Although some corrective actions have been taken, the Secretary of Defense should establish a new organization that is charged specifically with administering pricing policy and monitoring pricing practices. A list of GAO reports on DOD problems in pricing foreign military sales is appended. (Author abstract modified)