Survey of Defense Accounting System for Assets Returned by Foreign Governments

Information was obtained on foreign military sales (FMS) cases for the Return and Exchange (R&E) Program to determine if the Navy was approving the reprocurement or return for credit of equipment from foreign governments that was either not needed in Navy inventories or was beyond economical repair. Under the R&E program procedures, the FMS customer ships an eligible unserviceable item to the Navy and submits a requisition for an equivalent serviceable item. The customer is charged for the item issued and receives a credit for the unserviceable item based on a percentage of the standard price. The customer is billed for applicable administrative and accessorial charges at prescribed percentages of the material price.

At the Navy International Logistics Control Office, the FMS customer is billed for administrative and accessorial charges which are based on net material prices rather than the full price. As a result, the charges billed to FMS customers under the R&E program are substantially less than called for in the Department of Defense Instruction. The administrative and accessorial charges should be based on the full standard price or procurement cost. The cost to the Navy for handling and processing these sales is probably no less than for other FMS, and customers should be charged accordingly.