Payment for Transportation of Material to Saudi Arabia by the U.S. Army Corps of Engineers

GAO surveyed the payment for transportation of material to Saudi Arabia in connection with the presence of the Army Corps of Engineers in that country. The objective of the survey was to determine whether adequate controls and procedures exist to assure that the United States Government does not absorb transportation costs which should be paid by the host country. Under a diplomatic agreement between Saudi Arabia and the United States (known as the Engineer Assistance Agreement), the Corps is authorized to provide complete engineering and construction management for the design and construction of specified facilities for the Saudi military forces. In accordance with the Engineer Assistance Agreement, Saudi Arabia makes deposits to the Chase Manhattan Bank in the form of irrevocable letters of credit for the Corps' services and construction costs.

The Corps ships construction equipment and supplies to Saudi Arabia by commercial ocean and air transportation through a freight forwarder operating under a Logistics Management Contract. Payments for these commercial services come directly from deposited funds made available by Saudi Arabia. The Corps also uses the Military Airlift Command (MAC) and Military Sealift Command (MSC) for shipments of cargo made on a reimbursable basis. MAC and MSC also handle the shipment of mail and commissary items for all U.S. personnel in Saudi Arabia, but the transportation costs for these shipments were charged to general transportation account codes which did not permit identification of these costs paid by the Army that should have been reimbursed from Saudi Arabian funds. Most of the transportation costs for shipments to Saudi Arabia either had been paid for by that country or action had been initiated to obtain reimbursement from Saudi Arabian funds. However, the computation of transportation costs for commissary shipments have been based on estimates rather than on reliable figures from actual billings of MAC and MSC. The Army has instituted procedures to correct the billing problems, which include the assignment of a specific transportation account code for commissary shipments to Saudi Arabia and closer accounting by the Army Finance and Accounting Center to assure that the proper billing is made.