Foreign Military Sales

Millions of Dollars of Nonrecurring Research and Development Costs Have Not Been Recovered Gao ID: AIMD-99-11 October 20, 1998

This report reviews the Defense Department's ability to account for and report on the full costs of the foreign military sales (FMS) program. GAO found that the Air Force and the Navy were not always recovering nonrecurring research, development, and production costs from the foreign military sales trust fund as major defense equipment items were delivered to FMS customers. Specifically, GAO identified more than $183 million in nonrecurring costs related to items that were delivered--some as long ago as 1989--that had not been charged to FMS customers' trust fund accounts. For example, between 1993 and 1995, South Korea received 48 F-16 aircraft on a FMS case managed by the Air Force. GAO found that no deliveries had been reported to recover nonrecurring research, development, and production costs. Had the Air Force followed DOD procedures, it would have already charged South Korea's trust fund account for more than $49 million. Air Force and Navy officials have begun to take steps to recover the outstanding amounts.

GAO noted that: (1) the Air Force and Navy were not always recovering nonrecurring research, development, and production costs from the FMS trust fund as major defense equipment items were delivered to the FMS customer; (2) specifically, GAO identified over $183 million of nonrecurring costs related to items that were delivered--some as long ago as 1989--that had not been charged to the FMS customers' trust fund account; (3) for example, between July 1993 and November 1995, South Korea received 48 F-16 aircraft on a FMS case managed by the Air Force; (4) GAO's review of the case disclosed that no deliveries had been reported for the purpose of recovering nonrecurring research, development, and production costs; (5) had the Air Force followed DOD's procedures and reported the deliveries and recouped the nonrecurring costs within 30 days of physical delivery of the aircraft, it would have already charged South Korea's trust fund account for over $49 million of nonrecurring research, development, and production costs; and (6) Air Force and Navy officials agreed that FMS customers were not being properly charged for millions of dollars of nonrecurring costs for major defense equipment items they had received and have begun to take actions to recover the outstanding amounts.

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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