The Department of Defense Continues To Improperly Subsidize Foreign Military Sales

Foreign military sales (FMS) are transacted under the authority of the International Security Assistance and Arms Export Control Act of 1976. The legislative history of this act indicates that Congress intended that indirect as well as direct costs of goods and services sold to foreign governments should be recovered so that the FMS program would not be subsidized by Department of Defense (DOD) appropriations.

Because of weaknesses in pricing policies and practices, an estimated $69 million of direct and indirect costs for selected sales cases have not been charged to foreign governments. The military services did not charge replacement costs for items sold from certain inventories; costs of normal inventory operating stock losses (an indirect cost) were not allocated to sales of nonstock funds items; and a breakdown in the Air Force's accounting system led to unrecovered costs on items procured for foreign countries. Not charging the right amount for equipment and spare parts is part of the overall problem DOD has experienced in pricing foreign sales.

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