GAO Report "Cost Waivers Under the Foreign Military Sales Program

The Department of Defense has had continuing accounting and financial management problems which result in cost recovery problems under the foreign military sales program. The problems have resulted in the failure to recover hundreds of millions of dollars from other governments. Congress specified the circumstances in which Defense could waive certain costs under this program in the International Security Assistance and Arms Export Control Act. The act provides for waiver if the foreign sales would significantly advance U.S. interests in the North Atlantic Treaty Organization standardization or foreign procurement in the U.S. under coproduction arrangements. However, the act does not specify what "significantly advance" means, and this determination is left for Defense to make. Defense has authorized cost waivers without being required to report to Congress on the benefits to the United States. Congressional oversight and control is needed to insure compliance with the congressional intent that foreign governments not be subsidized through the foreign military sales program. Defense has not developed specific criteria for granting waivers because it believes that this would place Defense at a disadvantage in negotiating with officials of other countries who would be aware of, but not bound by, such criteria. GAO concurs that the criteria should not be published. However, Congress should be informed of the amounts being waived and the specific reasons for granting the waivers. The waived costs are often significant in relation to the total sales price and should be disclosed so that Congress can carry out its oversight and control responsibility. GAO, along with two Defense agencies, have recently issued audit reports on cost waivers. These reports emphasize the need for compliance with nonrecurring cost recovery requirements and recommend improvements to protect the interests of the United States.