Accounting Systems for Repair and Replacement of Equipment Sold to Foreign Governments

A review was conducted of the military services' systems of accounting for unserviceable equipment returned by foreign governments under the foreign military sales program. In fiscal year 1977, foreign military sales amounted to over $11 billion, and equipment accounted for a substantial portion of that amount. The Army and Navy offer foreign governments two options for having unserviceable equipment repaired: (1) contract with the military service to have equipment repaired or returned; or (2) exchange unserviceable equipment for serviceable equipment. In both cases, the foreign government is charged. These systems are, for the most part, working satisfactorily. The Air Force has, however, been accepting all unserviceable equipment and giving foreign governments credit (75 percent of the equipment's current inventory price) without determining, as required, whether the Air Force has a need for it. As a result, the Air Force accepted for credit millions of dollars of worn and broken equipment for which it had no use. Because coordination between responsible Air Force organizations has been ineffective, the Air Force has experienced difficulties in making needed changes. The Air Force needs to have adequate controls to assure that foreign governments are properly charged for repair costs incurred. The Secretary of the Air Force should designate a representative to see that the system is effectively implemented and require that the Air Force Audit Agency review the system after it becomes operational to determine its effectiveness.