Foreign Military Sales
Improved Army Controls Could Prevent Unauthorized Shipments of Classified Spare Parts and Items Containing Military Technology to Foreign Countries Gao ID: GAO-04-327 April 15, 2004From 1993 through 2002, the Department of Defense (DOD) delivered over $150 billion in services and defense articles--including classified spare parts and unclassified items containing military technology--to countries through foreign military sales programs. GAO was asked to review whether the Army's key internal controls adequately restricted blanket orders for (1) classified spare parts and (2) unclassified items containing military technology. GAO was also asked to determine if periodic tests were conducted to validate the Army's system and its logic.
The Army's internal controls over foreign military sales are not adequate, placing classified spare parts and unclassified items containing military technology at risk of being shipped to foreign countries that may not be entitled to receive such items under blanket orders. Foreign countries may request items using blanket orders, which are for a specific dollar value and are used to simplify supply actions on certain categories of items. The Army lacked control edits in its system and allowed the substitution and release of classified spare parts under blanket orders for shipment to foreign countries. The Army and DOD policies prohibit the release of classified items, under blanket orders, to foreign countries. GAO identified 3 requisitions in its review, where the item manager released 11 classified digital processors to foreign countries under blanket orders. Because the Army's system did not have control edits in place to validate the substituted parts, classified items were released to foreign countries. Also, the Army has no written policy to determine the actions needed to recover classified items that have been shipped to countries not eligible to receive them. Army officials indicated that the countries were not entitled to receive these items under blanket orders but they could obtain them under a different process; so there is no need to retrieve them, and GAO agreed with their decision. Also, the Army has modified the system to validate substituted parts selected by item managers. The Army lacks control edits in its system to prevent the release of some unclassified items containing military technology requisitioned under blanket orders. Within the 21,663 requisitions that were shipped without a review, GAO found that 387 requisitions were for 2,267 restricted items that foreign countries are prohibited from requesting using blanket orders because the parts require release authority from inventory control points. Also, the Army has no written policies to recover items that have been shipped to countries not eligible to receive them. Army officials said the countries were entitled to request these items, so there is no need to recover the items. The Army has not conducted periodic tests, as required, to validate that its system is accurately reviewing and approving blanket order requisitions. GAO's and the Office of Management and Budget's internal control standards require that a system such as the Army's be periodically tested to ensure that it is working as intended. According to DOD and Army officials, they have not tested the system's logic for restricting requisitions since 1999. Also, the officials stated that the Defense Security Cooperation Agency, in October 1998, directed that no additional funds be used to expand the current system. However, according to the agency, the Army is not prohibited from periodically testing the system.
RecommendationsOur 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: Team: Phone:GAO-04-327, Foreign Military Sales: Improved Army Controls Could Prevent Unauthorized Shipments of Classified Spare Parts and Items Containing Military Technology to Foreign Countries
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Report to the Honorable Tom Harkin, U.S. Senate:
United States General Accounting Office:
GAO:
April 2004:
Foreign Military Sales:
Improved Army Controls Could Prevent Unauthorized Shipments of
Classified Spare Parts and Items Containing Military Technology to
Foreign Countries:
GAO-04-327:
GAO Highlights:
Highlights of GAO-04-327, a report to the Honorable Tom Harkin, U.S.
Senate
Why GAO Did This Study:
From 1993 through 2002, the Department of Defense (DOD) delivered over
$150 billion in services and defense articles”including classified
spare parts and unclassified items containing military technology”to
countries through foreign military sales programs. GAO was asked to
review whether the Army‘s key internal controls adequately restricted
blanket orders for (1) classified spare parts and (2) unclassified
items containing military technology. GAO was also asked to determine
if periodic tests were conducted to validate the Army‘s system and its
logic.
What GAO Found:
The Army‘s internal controls over foreign military sales are not
adequate, placing classified spare parts and unclassified items
containing military technology at risk of being shipped to foreign
countries that may not be entitled to receive such items under blanket
orders. Foreign countries may request items using blanket orders, which
are for a specific dollar value and are used to simplify supply actions
on certain categories of items. The internal control inadequacies
follow:
* The Army lacked control edits in its system and allowed the
substitution and release of classified spare parts under blanket orders
for shipment to foreign countries. The Army and DOD policies prohibit
the release of classified items, under blanket orders, to foreign
countries. GAO identified 3 requisitions in its review, where the item
manager released 11 classified digital processors to foreign countries
under blanket orders. Because the Army‘s system did not have control
edits in place to validate the substituted parts, classified items were
released to foreign countries. Also, the Army has no written policy to
determine the actions needed to recover classified items that have been
shipped to countries not eligible to receive them. Army officials
indicated that the countries were not entitled to receive these items
under blanket orders but they could obtain them under a different
process; so there is no need to retrieve them, and GAO agreed with
their decision. Also, the Army has modified the system to validate
substituted parts selected by item managers.
* The Army lacks control edits in its system to prevent the release of
some unclassified items containing military technology requisitioned
under blanket orders. Within the 21,663 requisitions that were shipped
without a review, GAO found that 387 requisitions were for 2,267
restricted items that foreign countries are prohibited from requesting
using blanket orders because the parts require release authority from
inventory control points. Also, the Army has no written policies to
recover items that have been shipped to countries not eligible to
receive them. Army officials said the countries were entitled to
request these items, so there is no need to recover the items.
The Army has not conducted periodic tests, as required, to validate
that its system is accurately reviewing and approving blanket order
requisitions. GAO‘s and the Office of Management and Budget‘s internal
control standards require that a system such as the Army‘s be
periodically tested to ensure that it is working as intended. According
to DOD and Army officials, they have not tested the system‘s logic for
restricting requisitions since 1999. Also, the officials stated that
the Defense Security Cooperation Agency, in October 1998, directed that
no additional funds be used to expand the current system. However,
according to the agency, the Army is not prohibited from periodically
testing the system.
What GAO Recommends:
GAO recommends modifications to policies to ensure the recovery of
items shipped to foreign countries that are not eligible to receive
them under blanket orders. Also, GAO recommends the Army modify its
system to identify for review unclassified items containing military
technology before they are released, and periodically test its system.
DOD concurred with two recommendations and did not concur with two
others on actions to recover items shipped in error, citing existing
procedures. Following up with DOD officials, they agreed with the need
to modify these policies. GAO also clarified its recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-04-327.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact William M. Solis at (202)
512-8365 or solisw@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Internal Controls over the Army's Foreign Military Sales Are Not
Adequate:
Conclusion:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Scope and Methodology:
Appendix I: Comments from the Department of Defense:
Figure:
Figure 1: The Army's Requisition Process for Foreign Military Sales of
Parts and Other Items:
United States General Accounting Office:
Washington, DC 20548:
April 15, 2004:
The Honorable Tom Harkin:
United States Senate:
Dear Senator Harkin:
From 1993 through 2002, the Department of Defense (DOD) delivered over
$150 billion in services and defense articles--including
classified[Footnote 1] spare parts and unclassified items containing
military technology[Footnote 2]--to foreign countries through foreign
military sales programs administered by the military services. Some
sales occurred using blanket orders, which are requisitions for a
specific dollar value and are designed to simplify supply actions on
certain categories of items for which foreign military sales customers
will have a recurring need, such as unclassified spare parts, repair
parts, minor components, training films, and publications. According to
DOD policy,[Footnote 3] the management of classified spare parts and
unclassified items containing military technology is particularly
important given their potential to be released to foreign countries
that may use them against U.S. interests. Under blanket orders, the
Army's policy is intended to restrict the categories of items including
classified materials.
This report focuses on whether the Army has adequate key internal
controls in place to prevent foreign countries from requisitioning and
receiving, under blanket orders, classified and unclassified items
containing military technology that they are not eligible to receive.
Internal control activities[Footnote 4] include policies, procedures,
and processes that are essential for the proper stewardship of and
accountability for government resources and for achieving effective and
efficient program results. Our overall objective was to determine the
adequacy of the Army's internal controls for foreign military sales
under blanket orders. Our specific objectives were to assess and test
whether key internal controls adequately restricted blanket orders for
classified spare parts sold to foreign countries and restricted access
to certain unclassified items containing military technology. We also
determined whether periodic tests were conducted to validate that the
Army's Centralized Integrated System for International
Logistics[Footnote 5] was working as intended.
This report is one in a series on DOD's foreign military sales program
administered by the military services. This particular report focuses
on the Army because it processed 21,703 blanket order requisitions for
classified spare parts and unclassified items containing military
technology to foreign countries, valued at about $138 million for the
most recent 5-year time period, October 1, 1997, through April 30,
2003. We plan to address the Navy's internal controls relating to
foreign military sales in a separate review. In July 2003, we reported
on the adequacy of the Air Force's internal controls over shipments of
classified and controlled spare parts to foreign countries.[Footnote 6]
Also, in September 2003, we reported on the adequacy of the Air Force's
internal controls over shipments of spare parts containing military
technology to foreign countries.[Footnote 7]
To accomplish our review, we concentrated our efforts on classified
spare parts and unclassified items containing military technology that
the Army had shipped to foreign countries under blanket orders. We
obtained data on a total of 21,703 requisitions from the system on all
classified spare parts, as well as unclassified items containing
military technology that were purchased using blanket orders, and
according to Army records, were shipped to foreign countries from
October 1, 1997, through April 30, 2003. In our sample, classified
spare parts were shipped against 40 requisitions, and items containing
military technology were shipped against the balance of 21,663
requisitions. We conducted our review in accordance with generally
accepted government auditing standards. Further details are in the
scope and methodology section of this report.
Results in Brief:
The Army's internal controls over foreign military sales using blanket
orders are not adequate, placing classified spare parts and
unclassified items containing military technology at risk of being
shipped to foreign countries. The internal control inadequacies we
identified are as follows:
* The Army lacked control edits in its system and allowed the
substitution and release of classified spare parts under blanket orders
for shipment to foreign countries. The Army and DOD policies prohibit
the release of classified spare parts, under blanket orders, to foreign
countries. We identified 3 requisitions in our review, where the item
manager had released 11 classified digital processors to foreign
countries under blanket orders. Until we identified the problem, Army
officials at the United States Army Security Assistance Command were
not aware that these 11 classified spare parts had been substituted for
the originally requisitioned unclassified parts. Because the Army's
system did not have control edits in place to validate the substituted
spare parts, classified spare parts were released to foreign countries.
In addition, the Army has no written policy to determine the actions
needed to recover classified items that have been shipped to foreign
countries not eligible to receive them. Based on our review, the Army
has modified its system to validate substituted spare parts selected by
item managers.
* The Army lacks control edits in its system to prevent the release of
some unclassified items containing military technology requisitioned
under blanket orders. As a result, the Army has shipped some
unclassified items containing military technology to foreign countries.
Officials from DOD's Office of the Deputy Under Secretary of Defense
Technology Security Policy and Counterproliferation, who represent DOD
in technology security matters before several interagency committees,
indicated that the Army should have control over unclassified items
containing military technology. Within the 21,663 requisitions for
unclassified items containing military technology, we found the
following requisitions were not identified and reviewed before they
were released: (1) 17,175 requisitions were for 381,245 items and other
items such as circuit card assemblies, fire control units, and electron
tubes that require their inherent military capability to be destroyed
or demilitarized prior to their release to the public; and (2) 387
requisitions were for 2,267 restricted items that foreign countries are
prohibited from requesting using blanket orders because the spare parts
require release authority from inventory control points.[Footnote 8] In
addition, the Army has no written policy to determine the actions
needed to recover unclassified items containing military technology
that have been shipped to foreign countries not eligible to receive
them.
* The Army has not conducted periodic tests, as required by federal
internal control standards, to validate that its system is accurately
reviewing and approving blanket order requisitions. GAO's and the
Office of Management and Budget's internal control standards require
that a system such as the Army's be periodically validated and tested
to ensure that it is working as intended and the ability to accurately
review and approve requisitions is not compromised. According to
Defense Security Assistance Development Center officials, who are
responsible for managing the Army's foreign military sales automated
system, periodic tests of the Army's system have not been conducted
recently because, in October 1998, the Defense Security Cooperation
Agency directed that no additional funds be used to expand the current
system. However, Defense Security Cooperation Agency officials stated
that this directive does not preclude the Army from periodically
testing the system and its logic. According to DOD and Army officials,
they have not tested the system's logic for restricting requisitions
since 1999 when they initially modified the system to cancel
requisitions for classified spare parts using blanket orders.
Since the Army has modified its system to validate substituted spare
parts under blanket orders, we are not making a recommendation in this
area. We are recommending, however, that the Secretary of Defense
instruct the Secretary of the Army to modify existing policies and
procedures, after consultation with appropriate government officials,
to cover items shipped in lieu of items ordered to also ensure the
recovery of classified spare parts and unclassified items containing
military technology that have been shipped to foreign countries that
may not be eligible to receive them.
We are also recommending that the Secretary of Defense instruct the
Under Secretary of Defense for Policy to require the appropriate
officials to (1) modify the Army's Centralized Integrated System for
International Logistics system so that it identifies for review blanket
order requisitions for unclassified items containing military
technology before they are released and (2) periodically test the
Army's system and its logic for restricting requisitions to ensure that
it is accurately reviewing and approving blanket order requisitions.
In commenting on a draft of this report, DOD concurred with two of our
recommendations and citied specific actions to be taken that respond to
them. However, the department did not concur with our two draft
recommendations to consult with appropriate agencies to determine what
actions the Army needs to initiate to recover classified spare parts
and unclassified items containing military technology that have been
shipped in error, i.e., shipped in lieu of items ordered, under blanket
orders. The department cited current Army procedures as being
sufficient; however, those procedures do not address the intent of our
recommendations to recover classified spare parts and unclassified
items containing military technology shipped to foreign countries that
are not eligible to receive them. Based on discussions with DOD
officials, we modified our two recommendations concerning consultation
with appropriate agencies. We now recommend that the Army modify
existing policies and procedures, after consultation with the
appropriate government officials, to cover items shipped in lieu of
items ordered to also ensure the recovery of classified spare parts and
unclassified items containing military technology that have been
shipped to foreign countries that may not be eligible to receive them.
Background:
The sale or transfer of U.S. defense items to friendly nations and
allies is an integral component in both U.S. national security and
foreign policy. The U.S. government authorizes the sale or transfer of
military equipment, including spare parts, to foreign countries either
through government-to-government agreements or through direct sales
from U.S. manufacturers. The Arms Export Control Ac[Footnote 9]t and
the Foreign Assistance Act of 196[Footnote 10]1, as amended, authorize
the DOD foreign military sales program.
The Department of State sets overall policy concerning which countries
are eligible to participate in the DOD foreign military sales program.
DOD identifies military technology that requires control when its
transfer to potential adversaries could significantly enhance a foreign
country's military or war-making capability. The transfer or release of
military technology to foreign countries involves various agencies such
as the Department of State and DOD, which are responsible for
controlling, in part, the transfer of such technology.
The Defense Security Cooperation Agency, under the direction of the
Under Secretary of Defense for Policy, has overall responsibility for
administering the foreign military sales program, and the military
services generally execute the sales agreements with the individual
countries. A foreign country representative initiates a request by
sending a letter to DOD asking for such information as the price and
availability of goods and services, training, technical assistance, and
follow-on support. Once the foreign customer decides to proceed with
the purchase, DOD prepares a Letter of Offer and Acceptance stating the
terms of the sale for the items and services to be provided. After this
letter has been accepted, the foreign customer is generally required to
pay, in advance, the amounts necessary to cover costs associated with
the services or items to be purchased from DOD and then is allowed to
request spare parts through DOD's supply system.
The foreign military sales policy and oversight for the Department of
the Army are the responsibility of the Deputy Assistant Secretary of
the Army for Defense Exports and Cooperation. The Commander, U.S. Army
Materiel Command, is the Army's executive agent for implementing,
administrating, and managing the foreign military sales program. The
U.S. Army Security Assistance Command performs the executive agent's
functions for the U.S. Army Materiel Command.
The United States Army Security Assistance Command's responsibilities
start with the initial negotiation of a foreign military sale and end
with the transfer of items and completion of all financial aspects of
the sales agreement. The command uses an automated system called the
Centralized Integrated System for International Logistics to support
the U.S. Army's management of the foreign military sales program. The
command originally developed the system in 1976, and in October 1997,
the Defense Security Cooperation Agency transferred the Army's system
to the Defense Security Assistance Development Center. The command
retained responsibility for defining system-user requirements,
designing new processes, and directing programming modifications to the
system's applications. However, the overall responsibility for
providing system information technology maintenance support, such as
writing and testing the programs and coordinating infrastructure
support, was transferred to the Defense Security Assistance Development
Center.
Foreign military sales requisitions for Army spare parts and other
items initially are processed through the system. For blanket orders,
the system uses the security classification code[Footnote 11] to
restrict the spare parts available to foreign military sales customers.
Once the system validates a requisition, the requisition is sent to a
supply center to be filled and shipped. The Army's requisition process
for foreign military sales of parts and other items is shown in figure
1.
Figure 1: The Army's Requisition Process for Foreign Military Sales of
Parts and Other Items:
[See PDF for image]
[A] The Army places items' restrictions in its Centralized Integrated
System for International Logistics system.
[End of figure]
Internal Controls over the Army's Foreign Military Sales Are Not
Adequate:
The Army's internal controls over foreign military sales using blanket
orders are not adequate, placing classified spare parts, as well as
unclassified items containing military technology, at risk of being
shipped to foreign countries, who are not eligible to receive them. We
found that the Army (1) lacked control edits in its system and allowed
the substitution and release of classified spare parts under blanket
orders for shipment to foreign countries, and that a written policy
does not exist to determine the actions needed to recover these items;
(2) lacks adequate control edits in its system to prevent the release
of some unclassified spare parts and other items containing military
technology, and that a written policy does not exist to determine the
actions needed to recover these items; and (3) has not conducted
periodic tests to validate that its system is accurately reviewing and
approving blanket orders. As a result of these inadequate internal
controls, classified spare parts, as well as unclassified items
containing military technology, were shipped to foreign countries that
may not be eligible to receive them under blanket orders.
Army Lacked Control Edits in Its System and Allowed the Substitution
and Release of Classified Spare Parts under Blanket Orders:
The Army lacked control edits in its system and allowed the
substitution and release of classified spare parts under blanket orders
for shipment to foreign countries. The Army and DOD policies prohibit
the release of classified spare parts, under blanket orders, to foreign
countries. We identified 3 of the 40 requisitions in our review for the
period between October 1, 1997, and April 30, 2003, where the Army item
manager had released classified parts under 3 separate blanket orders.
For these 3 requisitions, the original parts requested were
unclassified but not in stock. The item manager substituted 11
classified digital processors for the unavailable parts and then
released these parts under blanket orders for shipment to a foreign
country. According to Army officials, the foreign countries were not
entitled to receive these items under blanket orders. However,
according to Army officials, the foreign countries would be entitled to
these items because they have the equipment that these classified spare
parts support and that these countries could obtain the parts under a
different process such as a defined order.[Footnote 12] Therefore,
according to the officials, in this particular case there is no need to
retrieve the items. Based on the Army officials' response, we agree
with their decision. Until we identified the problem, Army officials at
the United States Army Security Assistance Command, who are responsible
for implementing, administrating, and managing the Army's foreign
military sales program, were not aware that these classified parts had
been substituted for the originally requisitioned unclassified parts.
Based on our review, the Army has modified the system to validate
substituted parts selected by item managers.
According to United States Army Security Assistance Command officials,
they have no written policy to determine the actions the Army needs to
take to recover classified spare parts or unclassified items containing
military technology that were shipped to foreign countries that are not
eligible to receive them. Army officials indicated that they have
procedures to recover items shipped in lieu of the items ordered;
however, the procedures do not address the recovery of items shipped
that the foreign country was not eligible to receive. During our
review, the officials did not agree with us that they should have
written procedures in place to recover these items indicating that this
responsibility belongs in the foreign military sales end-using
monitoring[Footnote 13] program. They suggested we contact the
Department of State and the Defense Security Cooperation Agency for
additional information on recovering these items. While the Army may
not be responsible for recovering these items, the Army would initially
be aware that these items were shipped to foreign countries that may
not be eligible to receive them, and could initiate recovery of these
items. However, in discussions with officials on a draft of this
report, officials indicated their current policies and procedures to
recover items shipped in lieu of items ordered need to be modified to
include items shipped to foreign countries that may not be eligible to
receive them.
Army Lacks Control Edits in Its System to Prevent the Release of Some
Unclassified Items Containing Military Technology:
The Army lacks control edits in its system to prevent the release of
some unclassified items containing military technology to foreign
countries under blanket orders. As a result, the Army has shipped some
unclassified items containing military technology to foreign countries
that may not be eligible to receive them. Officials from DOD's Office
of the Deputy Under Secretary of Defense Technology Security Policy and
Counterproliferation indicated that the Army should have control over
unclassified items containing military technology. In addition, the
Defense Security Cooperation Agency indicated criteria for releasing
these items should be considered on a country-by-country basis prior to
releasing any items to a foreign country. The agency also stated that
the military departments should use the applicable codes available as a
means to help identify spare parts that contain military technology to
ensure that the appropriate means are taken and adequate controls are
in place to prevent unauthorized releases.
Within the 21,663 requisitions for unclassified items containing
military technology that were shipped, we found the following
requisitions were not identified and reviewed before they were
released: (1) 17,175 requisitions were for 381,245 items such as
circuit card assemblies, fire control units, and electron tubes that
require their inherent military capability to be destroyed or
demilitarized prior to their release to the public; and (2) 387
requisitions were for 2,267 items that foreign countries are prohibited
from requesting using blanket orders because the spare parts require
release authority from inventory control points. Based on our review,
the Army had initiated action to modify its system to cancel blanket
orders for parts that require release authority from inventory control
points. With such a modification, these 387 requests would be canceled.
However, the action to modify the system is pending based on the
official interpretation of the Army regulation on spare parts that
requires release authority from inventory control points. In addition,
as previously mentioned, according to United States Army Security
Assistance Command officials, the Army has no written policy for
recovering classified spare parts and unclassified items containing
military technology that were shipped to foreign countries not eligible
to receive them. According to Army officials, the foreign countries
were entitled to receive these items. Therefore, according to the
officials, in these particular cases there is no need to retrieve the
items. Based on the Army officials' response, we agree with their
decision.
In 1991, the Army had a control edit installed in its system that
identified requisitions for parts containing military technology for
manual review. This control edit caused thousands of requisitions to be
referred for manual review. Army documents indicate that it removed the
control edit because according to guidance from the U.S. Army Defense
Systems Command and System Integration and Management Activity, the
parts containing military technology do not require protected storage.
Army documents also indicate that removing the control edit that
identified requisitions for unclassified items containing military
technology would eliminate an enormous number of labor hours required
to research these parts. The system does not refer for review those
requisitions for items containing military technology because Army
officials stated that DOD has determined that these items are not
classified, sensitive, or pilferable; consequently, the items should
not be subjected to controlled physical inventory requirements. In
1992, DOD changed selected stock numbers from unclassified to a
classification indicating unclassified stock containing military
technology to ensure that parts requiring demilitarization could be
researched if shortages were reported during depot inventory reviews
and do not require protected storage.
In our earlier review of the Air Force, we reported[Footnote 14] that
the Air Force did not use control edits to prevent spare parts
containing sensitive military technology from being released to foreign
countries. The Air Force plans to develop criteria for identifying
spare parts containing sensitive military technology and establish
appropriate control edits in its automated system so that requisitions
for spare parts containing sensitive military technology are identified
and referred for review. Also, the Air Force uses criteria, such as
federal supply class, to restrict the parts available to foreign
military sales customers. For example, we reported[Footnote 15] that
the Air Force restricts countries from requisitioning parts belonging
to the 1377 federal supply class (cartridge and propellant actuated
devices and components) using blanket orders.
There are three codes the Army could use to identify spare parts that
contain military technology. These codes are (1) the controlled
inventory item code, which indicates the security classification and
security risk for storage and transportation of DOD assets; (2) the
demilitarization codes assigned by the item manager identifying how to
dispose items; and (3) the federal supply class code. Demilitarization
codes are assigned to spare parts for new aircraft, ships, weapons,
supplies, and other equipment. The demilitarization codes also
determine whether the items contain military technology and establish
what must be done to the items before they are sold.
Army Has Not Conducted Periodic Tests to Validate Its System:
The Army has not conducted periodic tests to validate that its system
is accurately reviewing and approving blanket order requisitions and
operating in accordance with the Army's foreign military sales
policies. GAO's and the Office of Management and Budget's internal
control standards require that a system such as the Army's be
periodically validated and tested to ensure that it is working as
intended and the ability to accurately review and approve requisitions
is not compromised. In the Federal Information Systems Controls Audit
Manual,[Footnote 16] which lists control activities for information
systems, one of the control activities listed involves the testing of
new and revised software to ensure that it is working correctly. Also,
in the Management of Federal Information Resources,[Footnote 17] the
manual requires that each agency establish an information system
management oversight mechanism that provides for periodic reviews to
determine how mission requirements might have changed and whether the
information system continues to fulfill ongoing and anticipated mission
requirements. Furthermore, the Internal Control Management and
Evaluation Tool [Footnote 18]--a tool that assists managers and
evaluators in determining how well an agency's internal control is
designed and functioning --lists monitoring as one of five standards of
internal controls. Internal control monitoring should assess the
quality of performance over time and ensure findings from reviews are
promptly resolved. Ongoing monitoring occurs during normal operations
and includes regular management and supervisory activities,
comparisons, reconciliations, and other actions people take in
performing their duties.
In our review, we found that a foreign country had requested
unclassified parts using blanket orders for which the item manager
substituted and shipped classified spare parts. According to DOD
officials, had the system validated the substituted classified spare
parts, the system would have canceled the orders. United States Army
Security Assistance Command officials were unaware of this situation
until we identified the problem. Also, we found spare parts where the
security classification had been changed from unclassified to
classified without Army officials being notified of the change. Based
on our review, the Army initiated actions to add control edits to its
system to (1) validate substituted spare parts before they are released
to foreign countries and (2) review monthly supply catalog updates and
cancel open blanket orders when spare parts' security classification
changes from unclassified to classified.
Defense Security Assistance Development Center officials indicated that
periodic tests of the Army's system have not been conducted because, in
October 1998, the Defense Security Cooperation Agency directed that no
additional funds be used to expand the current system. However, Defense
Security Cooperation Agency officials stated that this directive does
not preclude the Army from periodically testing the system and its
logic. According to DOD and Army officials, they have not tested the
system's logic for restricting requisitions since 1999 when they
initially modified the system to cancel requisitions for classified
spare parts under blanket orders. As part of our review, we tested the
system by reviewing Army restrictions applied to historical
requisitions on classified spare parts and unclassified items
containing military technology and found that the system did not always
perform as intended.
According to Army officials, there have not been any reviews to assess
whether the foreign military sales requisition process for items
ordered are processed correctly. The Centralized Integrated System for
International Logistics system creates daily reports that identify
problems with requisitions, which are then reviewed by Army case
managers before continuing through the system. While officials
indicated several external audits with GAO and the Army Audit Agency
have been recently completed, these audits focused on the overall
foreign military sales program and not the requisition process. Based
on our observations, these audits do not replace a system test to
determine whether the current system is in compliance with existing
requisitioning policies and procedures.
Conclusion:
The Army has not maintained effective internal controls over foreign
military sales sold under blanket orders. Specifically, the Army lacked
control edits in its system and allowed the substitution and release of
classified spare parts under blanket orders for shipment to foreign
countries that may not be eligible to receive them. Also, the Army
lacks control edits in its system to prevent the release of some
unclassified items containing military technology to foreign countries.
Moreover, the Army has no written policies to determine the actions
needed to recover classified spare parts and unclassified items
containing military technology that have been shipped to foreign
countries not eligible to receive them. Further, the Army failed to
periodically test the Centralized Integrated System for International
Logistics system. If the Army had conducted tests to determine whether
its system was in compliance with requisitioning policies and
procedures, some classified spare parts--as well as unclassified items
containing military technology--may not have been released to foreign
countries under blanket orders. Without adequate internal controls,
classified spare parts and unclassified items containing military
technology may be released to foreign countries under blanket orders,
thereby providing military technology to countries that might use it
against U.S. interests.
Recommendations for Executive Action:
To improve internal controls over the Army's foreign military sales
program and to prevent foreign countries from being able to obtain
classified spare parts or unclassified items containing military
technology that they are not eligible to receive under blanket orders,
we are recommending that the Secretary of Defense instruct the
Secretary of the Army to take the following two actions:
* Modify existing policies and procedures, after consultation with the
appropriate government officials, to cover items shipped in lieu of
items ordered to also ensure the recovery of classified spare parts
that have been shipped to foreign countries that may not be eligible to
receive them under blanket orders.
* Modify existing policies and procedures covering items, after
consultation with the appropriate government officials, to cover items
shipped in lieu of items ordered to also ensure the recovery of
unclassified items containing military technology that have been
shipped to foreign countries that may not be eligible to receive them
under blanket orders.
To improve the Army system's internal controls aimed at preventing
foreign countries from obtaining classified spare parts or unclassified
items containing military technology under blanket orders, we are
recommending that the Secretary of Defense direct the Under Secretary
of Defense for Policy to require the appropriate officials to take the
following two actions:
* Modify the system so that it identifies blanket order requisitions
for unclassified items containing military technology that should be
reviewed before they are released.
* Periodically test the system and its logic for restricting
requisitions to ensure that the system is accurately reviewing and
approving blanket order requisitions.
Agency Comments and Our Evaluation:
In commenting on a draft of this report, DOD concurred with two of our
recommendations and did not concur with the two other recommendations.
First, with regard to our recommendation to modify the system so that
it identifies blanket order requisitions for unclassified items
containing military technology that should be reviewed before they are
released, the department concurred. DOD's comments indicated that the
Army will comply with making the specific changes to the system that
the Defense Security Cooperation Agency identified as required or that
the Army would conduct its own study, given the funding and guidance
necessary, to identify items that should be reviewed before they are
released. Second, with regard to our recommendation to periodically
test the Centralized Integrated System for International Logistics, the
department stated that the Army will conduct periodic testing of the
system and its logic for restricting requisitions, given the funding
and guidance necessary to do so. We also received technical comments
and we incorporated them wherever appropriate.
With regard to our two recommendations to consult with the appropriate
agencies to determine what actions the Army needs to initiate in order
to recover (1) classified spare parts and (2) unclassified items
containing military technology that have been shipped in error, i.e.,
shipped in lieu of items ordered, under blanket orders, DOD did not
concur. The department said that the Army already has procedures in
place to recover classified spare parts and unclassified items
containing military technology that have been shipped in error, i.e.,
shipped in lieu of items, ordered under blanket orders. The procedures
include (1) systemic status codes that will advise the case manager
that an incorrect item is being shipped by the supply center, at which
time the error can be corrected; (2) if the item is still shipped, the
case manager can begin retrieval actions by contacting the Security
Assistance Office in country; and (3) the customer can initiate a
Supply Discrepancy Report upon receipt of the incorrect item to return
the item.
We acknowledge that these procedures might address wrong items shipped.
However, they do not address the intent of our recommendations to
recover classified spare parts and unclassified items containing
military technology shipped to foreign countries that are not eligible
to receive them. If the country requested classified spare parts or
unclassified items containing military technology that it is not
eligible to receive under blanket orders, it will not likely submit a
Supply Discrepancy Report if it had intended to order the items. In
addition, we interviewed Defense Security Cooperation Agency and Army
officials to determine if the procedures they cited in the agency
comments are referring to items shipped in lieu of items ordered
instead of shipment of items that foreign countries are not eligible to
receive. According to the officials, the procedures are for items
shipped in lieu of items ordered and not for the recovery of items that
the foreign countries are not eligible to receive.
As stated in our report, Army officials told us that they had no
written procedures in place to recover classified spare parts or
unclassified items containing military technology, because it is not
within their responsibility to recover these items. These officials
stated that this responsibility belongs to the foreign military sales
end-use monitoring program, which includes the Department of State and
the Defense Security Cooperation Agency. In following-up with officials
on their written comments on the draft of this report, they agreed that
they need to modify existing policies and procedures covering items,
after consultation with the appropriate government officials, to cover
items shipped in lieu of items ordered to also ensure the recovery of
classified spare parts and unclassified items containing military
technology that have been shipped to foreign countries that may not be
eligible to receive them. As a result, we have modified our two
recommendations accordingly.
Scope and Methodology:
To assess and test whether the Army's internal controls adequately
restricted blanket orders for classified spare parts sold to foreign
countries, we obtained current DOD and Army guidance on the foreign
military sales programs. We also held discussions with key officials
from the United States Army Security Assistance Command, New
Cumberland, Pennsylvania, to discuss the officials' roles and
responsibilities, as well as the criteria and guidance they used in
performing their duties to restrict foreign countries from
requisitioning classified spare parts and other items containing
military technology under blanket orders. Also, we interviewed the
officials on the requisitioning and approval processes applicable to
classified spare parts. In addition, we obtained written responses from
officials at the Defense Security Cooperation Agency, Washington, D.C.,
to identify the agency's roles and responsibilities regarding the
policies and procedures relevant to the foreign military sales
programs. We also interviewed officials from the Defense Security
Assistance Development Center, Mechanicsburg, Pennsylvania, to discuss
their roles and responsibilities, as well as the criteria and the
guidance they used to maintain and oversee the Army's Centralized
Integrated System for International Logistics system to restrict
foreign countries from requisitioning classified spare parts and other
items containing military technology under blanket orders. Furthermore,
we interviewed officials to determine the functional and operational
controls that are used to validate requisitions entered into the
system.
To test the adequacy of the Army's internal controls to restrict access
to certain unclassified items containing military technology, we
obtained DOD and Army guidance on the foreign military sales program.
We also reviewed requisitions for unclassified items containing
military technology for which the system had approved the shipments
under blanket orders. In addition, we interviewed Army officials to
obtain their reasons for releasing these items. Also, we obtained
records from the United States Army Security Assistance Command on all
classified spare parts and unclassified items containing military
technology that were purchased using blanket orders and approved for
shipment to foreign countries from October 1, 1997, through April 30,
2003. We limited our review to blanket orders because defined orders
and Cooperative Logistics Supply Support Agreements specified the parts
that countries were entitled to requisition by the national stock
number. The records covered 21,703 requisitions for classified spare
parts and unclassified spare parts and other items that contain
military technology. We tested the system by identifying the 40
requisitions for classified spare parts that were shipped under blanket
orders and reviewed the restrictions applied to determine if the system
was operating as intended. To assess the Army's internal controls on
the release of unclassified items containing military technology, we
reviewed 21,663 requisitions for which the system had approved the
shipments under blanket orders. Further, we obtained written responses
from DOD officials concerning whether unclassified items containing
military technology should be reviewed prior to being released to
foreign countries. While we identified some issues concerning the
appropriate procedures for such items, in all the cases we reviewed, we
found that the items had been ordered and shipped from the Army's
system.
To determine whether the Army periodically conducted tests to validate
the system to ensure that it accurately identified for review and
approval blanket order requisitions to support foreign military sales,
we obtained and reviewed documentation identifying the system tests to
determine how often they were conducted. Also, we interviewed Army and
DOD officials to determine how periodic reviews and tests were
performed on the system.
We conducted our review from May 2003 through December 2003 in
accordance with generally accepted government auditing standards.
As arranged with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
from the date of this report. At that time, we will send copies of this
report to the Secretary of Defense; the Secretary of the Army; the
Director, Office of Management and Budget; and interested congressional
committees. We will also make copies available to others upon request.
In addition, the report will be available at no charge on the GAO Web
site at http://www.gao.gov.
Please contact me on (202) 512-8365 if you or your staff have any
questions concerning this report. Key contributors to this report were
Lawson (Rick) Gist, Jr.; Carleen Bennett; Latrealle Lee; Elisah Matvay;
Arthur James, Jr.; and Ann DuBois.
Sincerely yours,
Signed by:
William M. Solis, Director
Defense Capabilities and Management:
[End of section]
Appendix I: Comments from the Department of Defense:
DEFENSE SECURITY COOPERATION AGENCY:
WASHINGTON, DC 20301-2800:
JAN 29 2004:
In reply refer to: I-03/017392:
Mr. William M. Solis, Director
Defense Capabilities and Management
U.S. General Accounting Office:
441 G Street, N.W. Washington, D.C. 20548:
Dear Mr. Solis:
This is the Department of Defense (DoD) response to the GAO Draft
report, "Foreign Military Sales: Improved Army Controls Could Prevent
Unauthorized Shipments of Classified Spare Parts and Items Containing
Military Technology to Foreign Countries" dated 19 December 2003 (GAO
Code 350374/GAO-04-327).
The Department has reviewed the draft report and concurs with two of
the four recommendations directed to the Secretary of Defense by the
GAO. Comments addressing the GAO draft report recommendations are
included in the enclosure.
The Department appreciates the opportunity to comment on the draft
report. My point of contact on this matter is Ms. Kathy Robinson. She
may be contacted by email: kathy.robinson @dsca.mil or by telephone at
(703) 601-4368.
Sincerely,
Signed by:
TOME H. WALTERS, JR.:
LIEUTENANT GENERAL, USAF:
DIRECTOR:
DRAFT REPORT - DATED DECEMBER 19, 2003 GAO CODE 350374/GAO-04-327:
"FOREIGN MILITARY SALES: IMPROVED ARMY CONTROLS COULD PREVENT
UNAUTHORIZED SHIPMENTS OF CLASSIFIED SPARE PARTS AND ITEMS CONTAINING
MILITARY TECHNOLOGY TO FOREIGN COUNTRIES":
DEPARTMENT OF THE DEFENSE COMMENTS TO THE RECOMMENDATIONS:
RECOMMENDATION 1: The GAO recommended that the Secretary of Defense
direct the Secretary of the Army to consult with the appropriate
agencies to determine what actions the Army needs to initiate to
recover classified spare parts that have been shipped in error under
blanket orders. (p. 20/GAO Draft Report):
DOD RESPONSE: Non-Concur. Procedures are already in place to recover
classified spare parts that have been shipped in error under blanket
orders. Examples of these procedures are: 1) systemic status codes will
advise the case manager that an incorrect item is being shipped by the
source of supply, at which time the error can be corrected; 2) if the
item is still shipped, the case manager can begin retrieval actions by
contacting the Security Assistance Office in country; or 3) the
customer can initiate a Supply Discrepancy Report upon receipt of the
incorrect item to return the item.
RECOMMENDATION 2: The GAO recommended that the Secretary of Defense
direct the Secretary of the Army to consult with appropriate agencies
to determine what actions the Army needs to initiate to recover
unclassified spare parts items containing military technology that have
been shipped in error under blanket orders. (p. 20/GAO Draft Report):
DOD RESPONSE: Non-Concur for the same reason shown in Recommendation 1.
RECOMMENDATION 3: The GAO recommended that the Secretary of Defense
direct the Under Secretary of Defense (Policy) to require the
appropriate officials to modify the system so that it identifies
blanket order requisitions for unclassified items containing military
technology that should be reviewed before they are released. (p. 20/GAO
Draft Report):
DOD RESPONSE: Concur. The Army will comply with DSCA's identification
of specific changes required to the system or for the Army to conduct
its own study, given the funding and guidance required, to identify
blanket order requisitions for unclassified items containing military
technology that should be reviewed before they are released. The Army
is already in the process of tightening CISIL's edits to check the
Controlled Item Inventory Code (CIIC) if the system receives
notification that the supply source has made an item substitution
(e.g., if the originally requisitioned item is not available). If the
CIIC is classified or sensitive, CISIL will generate a reject
transaction. The Army is also modifying CISIL to notify if CIICs change
to a classified or sensitive code.
RECOMMENDATION 4: The GAO recommended that the Secretary of Defense
direct the Under Secretary of Defense (Policy) to require the
appropriate officials to periodically test the system and its logic for
restricting requisitions to ensure that the system is accurately
reviewing and approving blanket order requisitions. (P. 20/GAO Draft
Report):
DOD RESPONSE: Concur. The Army will conduct periodic testing of the
system and its logic for restricting requisitions, given the funding
and guidance required to do so.
[End of section]
FOOTNOTES
[1] Classified parts are restricted for national security reasons.
[2] DOD defines military technology as military critical technology
that would reveal or give insight into the design and manufacture of
U.S. military systems and materials and, if exported, would permit
significant advance in the military potential of any country. Some of
these items require demilitarization prior to release to the public.
[3] Security Assistance Management Manual, DOD 5105.38-M (Oct. 3,
2003).
[4] U.S. General Accounting Office, Standards for Internal Control in
the Federal Government, GAO/AMID-00-21.3.1 (Washington, D.C.: November
1999). Internal control activities help ensure that management
directives are carried out. The control activities should be effective
and efficient in accomplishing the agency's control objectives.
[5] The Centralized Integrated System for International Logistics,
hereafter referred to as the system, is the Army's logistics
information and tracking system that validates foreign customers'
requisitions and determines if authorized items are requested based on
foreign military sales cases.
[6] U.S. General Accounting Office, Foreign Military Sales: Improved
Air Force Controls Could Prevent Unauthorized Shipments of Classified
and Controlled Spare Parts to Foreign Countries, GA0-03-664
(Washington, D.C.: July 29, 2003).
[7] U.S. General Accounting Office, Foreign Military Sales: Air Force
Does Not Use Controls to Prevent Spare Parts Containing Sensitive
Military Technology from Being Released to Foreign Countries, GAO-03-
939R (Washington, D.C.: Sept. 10, 2003).
[8] The inventory control point is an organizational element within a
DOD system, which is assigned responsibility for material management of
a group of items including such management functions as the initiation
of procurement or disposal actions and distribution management.
[9] P.L. No. 90-629.
[10] P.L. No. 87-195.
[11] The code is called controlled inventory item code and indicates
the security classification and security risk or controls for storage
and transportation of DOD assets.
[12] Defined orders are foreign military sales cases used to specify
defense articles and services that are identified and approved in the
letter of agreement.
[13] End-use monitoring refers to the procedures used to verify that
foreign governments are using and controlling U.S. defense articles and
services in accordance with U.S. terms and conditions of the transfer.
[14] GAO-03-939R.
[15] GAO-03-664.
[16] U.S. General Accounting Office, Federal Information System
Controls Audit Manual, GAO/AIMD-12.19.6 (Washington, D.C.: January
1999).
[17] Office of Management and Budget, Management of Federal Information
Resources (Washington, D.C.: November 2000).
[18] U.S. General Accounting Office, Internal Control Management and
Evaluation Tool, GAO-01-1008G (Washington, D.C.: August 2001).
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