Improvements Still Needed in Recouping Administrative Costs of Foreign Military Sales

Although Congress has made it clear that the foreign military sales program is not to be subsidized, the Department of Defense (DOD) has no assurance that surcharges on sales to foreign customers are sufficient to recover the full costs of administering the program. GAO was asked to review DOD actions on previous GAO recommendations for improving the accounting and financial management of the program.

Funds to reimburse DOD activities for administrative costs of the program are obtained from foreign customers through a surcharge added to the sales price of goods and services provided. DOD budgets are used in updating the surcharge rates and in reimbursing DOD activities for the costs incurred. Problems still exist in the program, and DOD is continuing to subsidize the foreign military sales program. The latest GAO study has shown that: (1) DOD is still unable to adequately estimate the full costs incurred by the military services in administering the program because the Defense Security Assistance Agency directed the military services to exclude certain valid costs from their budget submissions and because the military services, in preparing their budgets, made inaccurate and incomplete estimates of other administrative costs to the program; (2) the actual costs incurred by DOD activities in administering the sales program exceeded budgeted amounts, but the amount billed the surcharge account was to be limited to the budgeted amount; (3) DOD made improper transfers of over $5 million to the administrative surcharge account during fiscal year 1980; and (4) the accounting procedures used did not always accumulate the actual cost or workload data for administering the program. Without an adequate surcharge rate, the administrative support costs will not be recouped. A GAO examination at activities with about $96 million in fiscal year 1980 billings identified $5 million in unrecovered costs.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: John F. Simonette Team: General Accounting Office: Accounting and Financial Management Division Phone: (202) 275-1581