Defense Continues To Subsidize Sales of Secondary Items to Foreign Governments Because of Poor Pricing Policies

GAO provided a supplement to its report evaluating recent Department of Defense (DOD) actions to improve its financial management of the foreign military sales program and to reduce its budget by eliminating subsidies to the program. That review focused on the actions taken by DOD to revise and implement the policies, procedures, and accounting systems used to price sales of secondary items to foreign customers; GAO found that DOD continued to make large subsidies to the foreign military sales program because prices charged for secondary items sold from DOD inventories were not sufficient to replace the items. Although GAO had reported this situation 3 years ago, DOD had not taken adequate corrective actions at the time of the report.

DOD responded to the GAO recommendations by stating that, even though it concurred with most of the recommendations, it felt that the report was unfair and harmful. Specifically, DOD alleged that the data included in the report's sample contained errors that cast serious doubt on the conclusions reached by GAO. GAO reviewed the DOD response and concluded that the report accurately reflects what took place and that the recommendations appropriately address the issues.