Internal Controls

Pursuant to a congressional request, GAO reviewed the black marketing of duty-free goods acquired from U.S. retail outlets in South Korea for profit or personal gain.

GAO found that: (1) there were a large number of Korean outlets selling a variety of such duty-free goods as food and liquor obtained from the U.S. Forces, Korea (USFK) retail system; (2) products with unusually high sales rates included rice, canned meat, hot dogs, cheese, and hair spray; (3) a commissary study showed that during the 1988 Summer Olympics, sales of 40-ounce bags of chicken drumsticks increased from 12,000 bags per month to an estimated 40,000 bags per month; (4) USFK retail outlets received 314,748 1-liter bottles of a certain brand of scotch in 1988, a significantly higher number than European retail counterparts received; (5) black marketeers were able to obtain duty-free merchandise operating within the ration control system because purchase limits were high and small purchases were not recorded; (6) cashiers' complicity with black marketeers was a major problem; (7) USFK reported that actual theft was not significant, but inventory shortages indicated instances of theft of products that could have ended up on the black market; (8) black marketeers received diverted merchandise and used fraudulent or altered ration control plates and identification cards; (9) as much as 26 percent of certain appliances and stereo equipment at 2 stores was purchased with fraudulent ration control plates; (10) USFK did not implement the ration control system as designed; and (11) USFK changes to the system have weakened it and facilitated transferring goods to the black market.

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.

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