Air Force Does Not Recover All Required Costs of Modification Kits Sold to Foreign Governments

Gao ID: PLRD-82-111 August 27, 1982

GAO conducted a review to determine whether Air Force procedures and practices ensure recovery of the costs of modification kits sold under the foreign military sales program and, if not, to identify those costs which are not being recovered.

GAO found that Department of Defense (DOD) pricing policies, which were designed to eliminate subsidies in the foreign military sales program, have not been effectively implemented by the Air Force. Some Air Force regulations and guidelines on pricing are ambiguous and confusing. As a result, many costs incurred in providing modification kits have not been charged to foreign governments. One Air Force regulation classifies certain costs as nonrecurring, while another regulation classifies those same costs as recurring. Air logistics centers do not have procedures to validate or update prices for modification kits that are installed on foreign-owned equipment undergoing overhaul at Air Force facilities. The Air Force does not have procedures to identify and accumulate costs incurred when modification kits are assembled in-house by Air Force personnel. As a result, the costs for direct labor, transportation, packing, crating, and the use of government-owned facilities are not being recovered. GAO concluded that ambiguous guidance, inadequate procedures, and the resultant undercharges are due in large part to fragmented management within the Air Force Logistics Command. GAO also found that the San Antonio Air Logistics Center, in particular, did not charge hundreds of thousands of dollars to foreign governments even when clear and concise pricing procedures were provided. GAO believes that significant costs have not been recovered and that these undercharges will continue in future sales unless the regulations and procedures for pricing these items are revised.

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: Harry R. Finley Team: General Accounting Office: Procurement, Logistics, and Readiness Division Phone: (202) 512-5187


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