Better Accounting and Financial Management Needed To Eliminate Continued Foreign Military Sales Subsidies

Continuing congressional concern about the need for recovering the full costs incurred by the Government, as required by law, in selling goods and services to foreign customers has been warranted by the size of the foreign military sales program and by the continuing nature of its financial management problems. Current GAO work indicates that the defense agencies have not adequately implemented defense pricing policies, and policymakers have not performed sufficient followup or monitoring of actual cost recovery. The Department of Defense (DOD) has not developed an adequate centralized accounting and financial management system for foreign military sales. Defense appropriations should not be used to subsidize the foreign military sales program. Millions of dollars are not being recovered from foreign customers as required by law. Because of a lack of a centralized accounting system, DOD has problems identifying costs incurred to operate the program and has not been able to provide foreign countries with an accurate accounting for funds deposited in their trust fund accounts. DOD cannot determine the amount of money available to foreign customers for purchasing military goods and services. Without an adequate accounting and financial management system, DOD cannot hope to identify and collect all costs incurred in selling goods and services to foreign customers. Defense pricing procedures do not result in full cost recovery, resulting in large subsidies to the sales program. Failure to charge the right amount for equipment and spare parts is the most significant problem. However, other problems include the recovery of full costs for administrative support of the program, use of U.S. Government-owned plants and equipment, and normal inventory losses.