Foreign Military Sales
Improved Navy Controls Could Prevent Unauthorized Shipments of Classified and Controlled Spare Parts to Foreign Countries Gao ID: GAO-04-507 June 25, 2004From 1993 through 2002, the Department of Defense (DOD) delivered over $150 billion in services and defense articles, including classified and controlled items, to foreign countries through foreign military sales programs administered by the military. Foreign countries may request items using blanket orders, which are for a specific dollar value and are used to simplify supply actions on certain types of items. GAO was asked to review whether the Navy's key internal controls restricted blanket orders for (1) classified spare parts and (2) controlled items sold to foreign countries. Also, GAO was asked to determine if periodic tests were conducted to ensure that the Navy's system is working as intended.
The Navy's internal controls over foreign military sales using blanket orders are not adequate, placing classified and controlled spare parts at risk of being shipped to foreign countries that may not be eligible to receive them. The Navy might not have followed DOD policy when it approved 26 blanket orders leading to the release of classified spare parts to foreign countries. Navy policy states that classified parts can be requested under blanket orders when countries obtain waivers, but the Defense Security Cooperation Agency indicated that this Navy policy contradicts DOD policy, which prohibits the use of waivers. Navy officials have no plans to recoup these parts because the countries were approved to purchase them, and they were entitled to receive the parts under a different process. GAO agrees. However, Navy officials stated, there are no written policies to recover parts that countries should not have requested and received under blanket orders. The Navy does not always document the reasons for overriding its system and releasing classified parts. According to the Standards for Internal Control in the Federal Government, all transactions and other significant events need to be clearly documented. GAO identified four blanket orders for which the Navy's country managers overrode the system, but the files did not contain documents explaining the reasons for releasing the parts. The Navy lacks written policies to process blanket orders from countries requesting spare parts by manufacturer or vendor part numbers. GAO identified two blanket orders for which the Navy released four classified parts. The release occurred because the Navy's country manager substituted classified parts for parts ordered, which caused the system to bypass the control-edit function designed to check a country's eligibility to receive the parts. The Navy's system lacked control edits over controlled cryptographic parts and allowed countries to obtain them under blanket orders without determining the countries' eligibility to receive the parts. GAO identified five blanket orders for which the Navy's system approved and released 32 controlled cryptographic circuit card assemblies. According to DOD and Navy officials, the system has been modified and now reviews controlled cryptographic codes. Also, Navy officials do not plan to recover these parts because the countries were approved to purchase the parts and GAO agrees. The Navy has not conducted periodic tests to ensure that its system is accurately reviewing and approving blanket orders in accordance with its foreign military sales policies. DOD and Navy officials said that the last systemwide test was conducted in 2000. However, according to the Defense Security Cooperation Agency, the Navy 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-04-507, Foreign Military Sales: Improved Navy Controls Could Prevent Unauthorized Shipments of Classified and Controlled Spare Parts to Foreign Countries
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Report to the Honorable Tom Harkin, U.S. Senate:
United States General Accounting Office:
GAO:
June 2004:
FOREIGN MILITARY SALES:
Improved Navy Controls Could Prevent Unauthorized Shipments of
Classified and Controlled Spare Parts to Foreign Countries:
GAO-04-507:
GAO Highlights:
Highlights of GAO-04-507, 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
and controlled items, to foreign countries through foreign military
sales programs administered by the military. Foreign countries may
request items using blanket orders, which are for a specific dollar
value and are used to simplify supply actions on certain types of
items. GAO was asked to review whether the Navy‘s key internal controls
restricted blanket orders for (1) classified spare parts and (2)
controlled items sold to foreign countries. Also, GAO was asked to
determine if periodic tests were conducted to ensure that the Navy‘s
system is working as intended.
What GAO Found:
The Navy‘s internal controls over foreign military sales using blanket
orders are not adequate, placing classified and controlled spare parts
at risk of being shipped to foreign countries that may not be eligible
to receive them. The internal control inadequacies are as follows:
* The Navy might not have followed DOD policy when it approved 26
blanket orders leading to the release of classified spare parts to
foreign countries. Navy policy states that classified parts can be
requested under blanket orders when countries obtain waivers, but the
Defense Security Cooperation Agency indicated that this Navy policy
contradicts DOD policy, which prohibits the use of waivers. Navy
officials have no plans to recoup these parts because the countries
were approved to purchase them, and they were entitled to receive the
parts under a different process. GAO agrees. However, Navy officials
stated, there are no written policies to recover parts that countries
should not have requested and received under blanket orders.
* The Navy does not always document the reasons for overriding its
system and releasing classified parts. According to the Standards for
Internal Control in the Federal Government, all transactions and other
significant events need to be clearly documented. GAO identified four
blanket orders for which the Navy‘s country managers overrode the
system, but the files did not contain documents explaining the reasons
for releasing the parts.
* The Navy lacks written policies to process blanket orders from
countries requesting spare parts by manufacturer or vendor part numbers.
GAO identified two blanket orders for which the Navy released four
classified parts. The release occurred because the Navy‘s country
manager substituted classified parts for parts ordered, which caused
the requisitions to bypass the system‘s control-edit function designed
to check a country‘s eligibility to receive the parts.
* The Navy‘s system lacked control edits over controlled cryptographic
parts and allowed countries to obtain them under blanket orders without
determining the countries‘ eligibility to receive the parts. GAO
identified five blanket orders for which the Navy‘s system approved and
released 32 controlled cryptographic circuit card assemblies. According
to DOD and Navy officials, the system has been modified and now reviews
controlled cryptographic codes. Also, Navy officials do not plan to
recover these parts because the countries were approved to purchase the
parts and GAO agrees.
* The Navy has not conducted periodic tests to ensure that its system
is accurately reviewing and approving blanket orders in accordance with
its foreign military sales policies. DOD and Navy officials said that
the last systemwide test was conducted in 2000. However, according to
the Defense Security Cooperation Agency, the Navy is not prohibited
from periodically testing the system.
What GAO Recommends:
GAO recommends that the Navy resolve the differences between DOD and
Navy policy on foreign countries‘ use of waivers, establish policies to
recover items shipped to countries not entitled to receive them, and
document the reasons for overriding the Navy‘s system. Also, GAO
recommends that the Navy strengthen the system‘s internal controls to
ensure that blanket orders are always reviewed and revalidated, and
periodically test these controls.
DOD concurred with five of GAO‘s recommendations and partially
concurred with three other recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-04-507.
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 Navy's Foreign Military Sales Are
Not Adequate:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Scope and Methodology:
Appendix I: Comments from the Department of Defense:
Figure:
Figure 1: The Navy's Requisition Process for Foreign Military Sales of
Spare Parts:
Abbreviations:
DOD: Department of Defense:
GAO: General Accounting Office:
United States General Accounting Office:
Washington, DC 20548:
June 25, 2004:
The Honorable Tom Harkin:
United States Senate:
Dear Senator Harkin:
From 1993 through 2002, the Department of Defense (DOD) delivered over
$150 billion worth of services and defense articles--including
classified and controlled cryptographic spare parts[Footnote 1]--to
foreign countries through foreign military sales programs administered
by the military services. Some sales occurred under blanket orders,
which are cases that specify a specific dollar value rather than
specific items. They 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, the management of classified and controlled spare parts is
particularly important, given their potential to be released to foreign
countries that may use them against U.S. interests.[Footnote 2] Also,
according to DOD policy, DOD is required to control the export of
technology, goods, and services that contribute to the military
potential of any country or combination of countries that could prove
detrimental to U.S. security interests. Under blanket orders,[Footnote
3] the Navy's policy is intended to restrict certain categories of
items from being ordered without review such as classified materials.
As requested, this report focuses on whether the Navy has adequate
internal controls in place to prevent foreign countries from
requisitioning and receiving, under blanket orders, classified and
controlled spare parts. Internal control activities 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.[Footnote 4] Our overall
objective was to determine the adequacy of the Navy's internal controls
for foreign military sales under blanket orders. More specifically, we
assessed and tested whether key internal controls adequately restrict
blanket order sales of classified and controlled spare parts to foreign
countries and determined whether periodic tests were conducted to
ensure that the Navy's Management Information System for International
Logistic[Footnote 5]s was working as intended.
As agreed with your office, 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 Navy, which sold classified and
controlled spare parts to foreign countries valued at over $2.5 million
for the period October 1, 1997, through April 30, 2003. 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]
Furthermore, in April 2004 we reported on the adequacy of the Army's
internal controls over shipments of classified spare parts and items
containing military technology to foreign countries.[Footnote 8]
To accomplish our review, we obtained data from the system on
classified and controlled spare parts that were purchased under blanket
orders from October 1, 1997, through April 30, 2003. During this
period, a total of 38 blanket order requisitions for classified and
controlled spare parts were processed for shipments to foreign
countries. We verified the Navy's system to determine whether it
approved and released the selected blanket order requisitions in
accordance with DOD foreign military sales policies. To conduct this
work, we obtained from the Navy all blanket order shipments to foreign
countries for the period mentioned above and matched the spare parts'
stock numbers to a government database[Footnote 9] to identify the
classified and controlled parts that were shipped to foreign countries.
We conducted our review in accordance with generally accepted
government auditing standards. Further details are presented in the
Scope and Methodology section of this report.
Results in Brief:
The Navy's internal controls over foreign military sales pursuant to
blanket orders are not adequate, placing classified and controlled
spare parts at risk of being shipped to foreign countries that may not
be eligible to receive them. The internal control inadequacies we
identified are as follows:
* The Navy might not have followed DOD policy when it approved blanket
order requisitions leading to the release of classified spare parts to
foreign countries. According to Navy policy, classified material can be
requisitioned under blanket orders when foreign countries obtain
waivers from the Navy. We identified 26 of 38 requisitions in our
review for which foreign countries obtained waivers from the Navy to
release 108 classified spare parts such as circuit card assemblies and
radar receivers. According to the Defense Security Cooperation Agency,
the Navy policy contradicts DOD policy, which prohibits the services
from using waivers to allow foreign countries to obtain classified
material under blanket orders. Also, according to the policy, the
agency is not required to approve all blanket order cases and their
corresponding notes. Nonetheless, Navy officials stated that the
Defense Security Cooperation Agency approves the Navy's blanket order
agreements, which contain notes authorizing the Navy to release
restricted items on a case-by-case basis. In addition, the Navy
provided examples of blanket order cases that were approved by the
Defense Security Cooperation Agency and contained the notes allowing
foreign countries to obtain classified material under blanket orders.
Also, Navy officials indicated that they have no plans to recover these
classified parts because the countries were approved to purchase the
parts under different procedures. We agree with the Navy officials'
decision. In addition, according to Navy officials, there are no
written policies or procedures that address the return of materials
that foreign countries should not have requisitioned and received under
blanket orders. Without written policies or procedures, the Navy cannot
be assured that appropriate steps will be taken to recover materials
shipped to foreign countries that are not eligible to receive them.
* The Navy did not always document its reasons for overriding the
system to release classified spare parts to foreign countries as
required. According to the Standards for Internal Control in the
Federal Government,[Footnote 10] all transactions and other significant
events need to be clearly documented. The standard states that such
documentation should be properly managed and maintained and should be
readily available for examination. We identified 4 of the 38
requisitions where the Navy's country managers[Footnote 11] overrode
the system and shipped classified antennas, radar receivers, and
circuit card assemblies, but the case files did not contain any
documentation for the transactions explaining the reasons for the
release of the classified parts. According to Navy records, the Navy
country managers manually entered four blanket order requisitions into
the system. According to records from the Naval Inventory Control
Point, Navy International Programs Directorate,[Footnote 12] the Navy's
country managers incorrectly submitted these blanket order requisitions
as "pushed requisitions,"[Footnote 13] which caused the requisitions to
bypass the control-edit function the system. Also, the Navy
International Programs Directorate officials did not locate any
documentation in the case files to indicate if a waiver had been
obtained for these requisitions.
* The Navy lacks written policies and procedures to guide the
processing of blanket order requisitions from foreign countries
requesting spare parts by manufacturer or vendor part numbers.
Consequently, and in violation of DOD and Navy policy, the Navy
International Programs Directorate allowed the release of classified
spare parts under blanket orders to foreign countries that requested
parts by using manufacturer or vendor part numbers. We identified 2 of
the 38 requisitions in our review for which the Navy released four
classified spare parts under blanket orders. When a foreign country
submits a blanket order requisition for parts by manufacturer or vendor
part numbers, the Navy's system, which does not recognize part numbers,
will stop processing the requisition and identify it for manual review.
If a corresponding government-classified spare part (national stock
number)[Footnote 14] is identified, the Navy's country manager will
submit a transaction into the system in order to change the part number
to a national stock number, and allow the system to continue processing
the requisition. The requisition for the newly substituted spare part
then bypasses the system's control-edit function, designed to determine
the foreign country's eligibility to receive the part.
* The Navy's system lacked control edits over controlled
cryptographic[Footnote 15] spare parts, and allowed foreign countries
to obtain these controlled parts under blanket orders without
determining whether the countries were eligible to receive them. Navy
policy requires that physical security measures be used to protect
controlled cryptographic spare parts. According to DOD policy, parts
containing controlled cryptographic and telecommunication parts are
considered unclassified but must be controlled, and the loss of these
parts could adversely affect U.S. national security. DOD materials that
contain controlled cryptographic parts and secure telecommunications
equipment are used to deny unauthorized persons information derived
from telecommunications of the U.S. government related to national
security. In our review, we identified 5 out of 38 blanket order
requisitions for which the Navy's system erroneously approved and
released 32 controlled circuit card assemblies' cryptographic spare
parts to foreign countries. According to DOD and Navy officials, the
system was not programmed to review controlled cryptographic item
codes; consequently, the system automatically approved these
requisitions and allowed the release of these parts to foreign
countries. On the basis of our review, which identified the Navy
system's lack of internal controls over controlled spare parts, the
Navy has modified the Management Information System for International
Logistics to review foreign countries' requisitions for controlled
cryptographic parts and identify them for manual review to determine
whether the foreign countries requisitioning the parts are eligible to
receive them. According to Navy officials, they do not plan to recover
these particular controlled cryptographic parts because the foreign
countries requisitioning the parts were entitled to receive them.
* The Navy has not conducted periodic tests, as required by federal
internal control standards to ensure that its system is accurately
reviewing and approving blanket order requisitions for compliance with
restrictions and operating in accordance with the Navy'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
Navy's be periodically tested to ensure that it is working as intended
and that the ability to accurately review and approve requisitions is
not compromised. According to DOD and Navy officials, the last major
systemwide testing was conducted in 2000, but this test did not
determine whether the system was accurately reviewing and approving
blanket order requisitions. According to Defense Security Assistance
Development Center officials, who are responsible for managing the
Navy's foreign military sales automated system, periodic tests of the
Navy'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 Navy from periodically testing the system and
reviewing the procedures to assess compliance.
Since the Navy's system has already been modified to review controlled
cryptographic spare parts requisitioned under blanket orders prior to
shipping them to foreign countries, we are not making a recommendation
in this area. We are recommending, however, that the Secretary of
Defense instruct the Secretary of the Navy to resolve the conflict
between the DOD and Navy policies on the use of waivers; require that
the Navy's country managers manually submit into the Navy's system
correct blanket order requisitions; and establish policies and
procedures to follow when documenting system overrides and processing
blanket orders using manufacturer or vendor part numbers. Also, we are
recommending that the Navy establish policies to recover spare parts
shipped to foreign countries not entitled to receive them.
We are also recommending that the Secretary of Defense instruct the
Under Secretary of Defense for Policy to modify the Navy's Management
Information System for International Logistics so that it validates
blanket order requisitions on the basis of stock numbers' security
classifications when items are requested by manufacturer or vendor part
numbers and to periodically test the Navy's system to ensure that it is
accurately reviewing and approving blanket order requisitions.
In written comments on a draft of this report, DOD concurred with five
of our recommendations and partially concurred with three of our
recommendations. DOD's comments and our evaluation of them are
discussed on page 19.
Background:
The sale or transfer of U.S. defense items to friendly nations and
allies is an integral component of 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 Act[Footnote 16] and
the Foreign Assistance Act of 1961,[Footnote 17] 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. Various agencies such as
the Department of State and DOD are responsible for controlling, in
part, the transfer or release of military technology to foreign
countries.
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 the 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.
For the Department of the Navy, foreign military sales policy and
oversight are the responsibility of the Navy International Programs
Office, under the direction of the Deputy Assistant Secretary of the
Navy for Research Development, and Acquisition. The Navy International
Programs Office is primarily responsible for directing, guiding, and
implementing the U.S. Navy's foreign military sales program. The Naval
Inventory Control Point, International Programs Directorate is
responsible for recording, managing, and reporting the material and
service order transactions associated with the Department of the Navy
Security Assistance Program.
The Navy International Programs Office's responsibilities begin 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. Also, the Navy International Programs Office uses an
automated system called the "Management Information System for
International Logistics" to support the U.S. Navy's management of the
foreign military sales program. The Navy originally developed the
system in 1978, and in October 1997, the Defense Security Cooperation
Agency transferred the Navy's system to the Defense Security Assistance
Development Center. The Navy 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 Navy spare parts and other
items are initially processed through the automated system. For blanket
orders, the system uses the security classification code,[Footnote 18]
the cognizance code,[Footnote 19] the Federal Supply Group, federal
supply class, and the National Stock Number[Footnote 20] 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 Navy's requisition process for
foreign military sales of classified and controlled spare parts is
shown in figure 1.
Figure 1: The Navy's Requisition Process for Foreign Military Sales of
Spare Parts:
[See PDF for image]
Note: This flowchart provides only a brief overview of the complex
processes in the Navy's foreign military sales process.
[End of figure]
Internal Controls over the Navy's Foreign Military Sales Are
Not Adequate:
The Navy's internal controls over foreign military sales pursuant to
blanket orders are not adequate, placing classified and controlled
spare parts at risk of being inappropriately shipped to foreign
countries. We found that the Navy (1) might not have followed DOD
policy when it approved requisitions under blanket orders leading to
the release of classified spare parts to foreign countries and that a
written policy does not exist to recover parts shipped to foreign
countries that may not be eligible to receive them, (2) lacks adequate
documentation for overriding the system to release classified spare
parts, (3) lacks written procedures to guide the processing of blanket
order requisitions from foreign countries that request parts by
manufacturer or vendor part numbers, (4) lacked system control edits to
review blanket order requisitions for controlled cryptographic spare
parts, and (5) has not conducted periodic tests to ensure that its
system is performing as intended. As a result of these inadequate
internal controls, classified and controlled spare parts could be
shipped to foreign countries that may not be entitled to receive them
under blanket orders.
Navy Might Not Have Followed DOD Policy When It Approved Requisitions
Leading to the Release of Classified Spare Parts under Blanket Orders:
The Navy might not have followed DOD policy when it approved 27 of 38
blanket order requisitions leading to the release of classified spare
parts to foreign countries. According to Navy policy, classified
material can be requisitioned under a blanket order when a foreign
country obtains a waiver from the Navy. However, according to the
Defense Security Cooperation Agency, this Navy policy contradicts DOD
policy, which prohibits the services from using waivers to allow
foreign countries to obtain classified material under blanket orders.
From these 27 blanket order requisitions, we identified 26 for which
the foreign country obtained waivers from the Navy to release 108
classified spare parts such as circuit card assemblies and radar
receivers. For these 26 blanket order requisitions, there is a conflict
in the interpretation of DOD and Navy policy on the use of waivers to
grant foreign countries access to classified material under blanket
orders. According to Navy officials, the system identified the 26
requisitions for review, requiring the Navy's country managers to
manually review them. The country managers contacted item managers and
obtained waivers, which allowed them to override the system and release
the classified materials to foreign countries. In one case, we found
that the Navy shipped 30 classified towed body[Footnote 21] spare parts
to a foreign country under a blanket order. Navy International Programs
Directorate officials stated that the Navy uses waivers to grant a
foreign country a one-time exception, enabling the country to obtain a
classified spare part in support of a major end item that the country
acquired through the foreign military sales program. Also, Navy
officials stated that the Defense Security Cooperation Agency approves
the Navy's blanket order agreements, which contain notes authorizing
the Navy to release restricted items on a case-by-case basis. However,
according to the DOD policy, the agency is not required to approve all
blanket order cases and their corresponding notes. Nonetheless, the
Navy provided examples of blanket order cases that were approved by the
Defense Security Cooperation Agency and contained notes allowing
foreign countries to obtain classified material under blanket orders.
Also, we identified 1 out of the 38 requisitions for classified spare
parts that the system erroneously approved. According to Navy
officials, the system is programmed to identify for manual review
classified spare parts that are requested under blanket orders.
However, the Navy system's history records did not show that the
country manager manually reviewed or overrode the system to approve the
release of one blanket order requisition for classified parts.
According to the Defense Security Assistance Development Center
officials who are responsible for this part of the Navy's system, the
records contain information such as the spare parts' security
classification and federal supply group. Also, the officials stated
that the system records the security classification code only for those
codes that have been identified as classified. The item record is
updated every month and the previous month's data are overwritten in
the system. At the time of our review, DOD officials could not confirm
the security classification for the classified parts because the item's
records had been overwritten. The spare parts' classifications were not
recorded in the system's history files at the time when the foreign
country requested the spare parts. According to Navy officials, the
hard copy for this foreign military sales case file was retired and
sent to the Federal Records Center. Also, the Navy officials stated
that either there was no stock item record in the system when the
foreign country requested the parts or if there were an item record, it
did not reflect a security classification for the spare part.
Nonetheless, DOD officials stated that if the same requisition were
submitted today, the system would identify it for manual review because
the current item records show that these spare parts are classified.
Also, DOD officials stated the new DOD Security Assistance system,
entitled the "Case Execution Management Information System," may
preclude this type of error in the future. According to the Defense
Security Cooperation Agency, the initial deployment of the new system
is expected to begin in the Fiscal Year 2007-8 time frame.
According to Navy policy, the Navy International Programs Directorate
may advise foreign countries to return parts that the Navy shipped in
error. However, Navy officials stated that they have no plans to
recover the classified parts we identified in our review because the
countries justified the need for the classified parts and obtained
written waivers. Also, the Navy officials stated that the foreign
countries could obtain the classified spare parts under a different
process such as a defined order.[Footnote 22] We agree with the Navy
officials' decision. However, according to Navy officials, there are no
written policies or procedures that address the return of materials
that foreign countries should not have requisitioned and received under
blanket orders. If this situation were to occur, Navy officials said
that they would work with the Security Assistance Office located in the
country involved to recover the material. However, without written
policies or procedures, the Navy cannot be assured that appropriate
steps will be taken to recover materials shipped to foreign countries
that may not be eligible to receive them.
Navy Lacks Adequate Documentation for Overriding System to Release
Classified Spare Parts:
The Navy did not always document its reasons for overriding the system
to release classified spare parts to foreign countries. According to
the Standards for Internal Control in the Federal Government, all
transactions and other significant events need to be clearly
documented. The standards state that such documentation should be
properly managed and maintained and should be readily available for
examination. We identified 4 of the 38 requisitions for which Navy's
country managers overrode the system and shipped classified antennas,
radar receivers, and circuit card assemblies, but the case files did
not contain any documentation for the transactions explaining the
reasons for the release of the classified spare parts. According to
Navy records, the Navy's country managers manually entered these four
blanket order requisitions into the system. Navy policy indicates that
foreign countries may submit requests for spare parts by mail or by
fax, requiring Navy country managers to manually enter the requests
into the system so they can be processed, controlled, tracked, and
recorded. Navy records indicate that if the Navy country managers
manually submit the requisitions as if the foreign country had
initiated the requests called "pull requisitions," the system will
validate them in order to determine whether the foreign country is
eligible to receive the classified spare parts. However, if the blanket
order requisitions are referred for review because the spare parts are
classified, the country manager will use a waiver to override the
system and allow the system to continue processing the requisitions.
Nonetheless, if the Navy's country managers submit the requisitions as
if the U.S. government had initiated the requests--called "pushed
requisitions,"--the system will cause the requisitions to bypass the
control-edit function designed to determine whether the foreign
countries are eligible to receive the parts. According to records from
the Navy International Programs Directorate, the Navy's country
managers incorrectly submitted these blanket order requisitions as
"pushed requisitions," causing the requisitions to bypass the control-
edit function in the system. A "push" type requisition is not subjected
to the same level of processing checks as a "pull" type requisition.
Also, the Navy International Programs Directorate officials did not
locate any documentation in the case files to indicate if there was a
waiver obtained for these requisitions. However, remarks in the
system's history files for one requisition indicated that the system
command was contacted but no further information was available.
According to Navy officials, country managers are aware that they need
to maintain documentation of blanket order waiver approvals and
denials. However, we found that the supporting documentation was not in
the case files to justify the country managers' decisions to override
the system to approve and release the classified spare parts.
Navy Lacks Written Policies and Procedures to Guide the Processing of
Blanket Order Requisitions by Manufacturer or Vendor Part Numbers:
The Navy lacks written policies and procedures to guide the processing
of blanket order requisitions from foreign countries that request
classified spare parts by manufacturer or vendor part numbers.
Consequently, and in violation of DOD and Navy policy, the Navy allowed
the release of classified spare parts under blanket orders to foreign
countries that requested parts by manufacturer or vendor part numbers.
We identified 2 out of 38 requisitions in our review for which the Navy
released four classified spare parts (servo amplifiers and network
bias) under blanket orders.
The Navy attempts to prevent countries from obtaining classified spare
parts by restricting countries from receiving spare parts associated
with a unique security classification code and its designated national
stock number. When a country submits a blanket order requisition by
manufacturer or vendor part numbers, the Navy's system will identify
the requisition for manual review because the system does not recognize
orders entered by manufacturer's or vendor's part numbers. A Navy
country manager will review the blanket order requisition to identify
the corresponding government spare part that matches the one requested.
If a corresponding government spare part is identified, the country
manager will submit a change in the system and add the correct national
stock number to allow the requisition to continue processing through
the system. However, when the system continues to process these
requisitions, its control-edit function does not check the spare part's
security classification to determine whether the foreign country is
eligible to receive the part. According to Navy officials, there are no
written policies or procedures on processing blanket order requisitions
when foreign countries request classified spare parts by the
manufacturer's or vendor's part numbers.
Navy's System Lacked Control Edits for Controlled Cryptographic Spare
Parts under Blanket Orders:
The Navy's system lacked control edits over controlled cryptographic
spare parts and allowed foreign countries to obtain them under blanket
orders without determining whether they were eligible to receive them.
According to DOD policy, these controlled cryptographic and
telecommunication parts, known as "Communications Security items," are
considered unclassified but must be controlled. The loss of these items
could adversely affect U.S. national security interests. DOD materials
that contain controlled cryptographic and secure telecommunications
parts are used to deny unauthorized persons information derived from
telecommunications of the U.S. government related to national security.
We identified 5 out of 38 blanket order requisitions for which the
Navy's system approved and released 32 circuit card assemblies'
controlled cryptographic spare parts to foreign countries. According to
DOD policy, if placed in the wrong hands, controlled cryptographic
parts could adversely affect U.S. national security. According to the
Defense Security Assistance Development Center officials, who are
responsible for this part of the Navy's system, the system was not
programmed to review the controlled cryptographic item codes, and as a
result, the system automatically approved and released the parts
requested by the foreign countries. Navy International Programs
Directorate and DOD officials were unaware that the system was not
reviewing controlled cryptographic parts prior to their release to
foreign countries until we identified the problem. On the basis of our
review, which identified the Navy's lack of internal controls over
controlled spare parts, the Navy requested that the system be modified,
and the Defense Security Assistance Development Center modified the
system to review foreign countries' requisitions for controlled
cryptographic parts and identify them for manual review to determine
the foreign countries' eligibility to receive the parts. Also,
according to controlled cryptographic item managers, they are required
by the National Security Agency to verify that the foreign country can
purchase the spare parts before they are shipped. In addition, Navy
officials stated that the foreign countries were approved to purchase
the controlled cryptographic parts and the countries have the weapon
systems that these parts support. Therefore, according to the
officials, there is no need to recover the parts. We agree with the
Navy officials' decision. However, according to Navy officials, there
are no written policies or procedures addressing the return of spare
parts that foreign countries should not have requisitioned and received
under blanket orders.
Navy Has Not Conducted Periodic Tests to Ensure That Its System Is
Performing As Intended:
The Navy has not conducted periodic tests, as required by federal
internal control standards, to ensure that its system is accurately
reviewing and approving blanket order requisitions for compliance with
restrictions and operating in accordance with the Navy'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
Navy's be periodically tested to ensure that it is working as intended
and that the ability to accurately review and approve requisitions is
not compromised. In the Federal Information Systems Controls Audit
Manual,[Footnote 23] one of the internal control activities listed is
the testing of new and revised software to ensure that it is working
correctly. Furthermore, the Management of Federal Information Resources
manual[Footnote 24] requires that each agency establish an information
system/management oversight mechanism to provide for periodic reviews,
enabling the agency to determine how mission requirements might have
changed and whether the information system continues to fulfill ongoing
and anticipated mission requirements. A third guide, the Internal
Control Management and Evaluation Tool [Footnote 25] assists managers
and evaluators in determining how well an agency's internal control is
designed and functioning. It lists monitoring as one of five standards
of internal controls. Internal control monitoring should assess the
quality of performance over time and ensure that 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.
We found that the Navy's system was not programmed to review foreign
countries' blanket order requisitions for controlled cryptographic
spare parts. Navy International Programs Directorate and DOD officials
were unaware of this deficiency until we identified it. On the basis of
our review, the Navy has modified its system to review foreign
countries' requisitions for controlled cryptographic spare parts and
identify them for manual review, to determine the foreign countries'
eligibility to receive the parts.
Defense Security Assistance Development Center officials indicated that
periodic tests of the Navy's system have not been conducted because, in
October 1998, the Defense Security Cooperation Agency directed that no
additional funds were to be used to expand the current system. However,
Defense Security Cooperation Agency officials stated that this
directive does not preclude the Navy from periodically testing the
system. According to DOD officials, the last major systemwide testing
was conducted in 2000, but this test did not determine whether the
system was accurately reviewing and approving blanket order
requisitions.
DOD officials pointed out that when minor changes are made to the
system, full regression testing is conducted to verify that the program
continues to work. As part of our review, we tested the system by
reviewing the Navy's restrictions applied to historical requisitions
for classified and controlled spare parts. We found that the system did
not always perform as intended.
Conclusions:
The Navy has not maintained effective internal controls over foreign
military sales conducted under blanket orders. Specifically, since the
Navy may not have followed DOD policy, which prohibits the release of
classified spare parts, the Navy might have released classified spare
parts to foreign countries not eligible to receive them. Also, since
the Navy has no written policies or procedures on the return of
materials that foreign countries should not have requested and received
under blanket orders, the Navy's ability to recover the shipped
classified or controlled spare parts is lessened. In addition, because
the Navy lacks adequate documentation for system overrides, the Navy
will not know the basis for approval of classified spare parts when
manually processing blanket order requisitions. Furthermore, because
the Navy has no written procedures to guide the processing of blanket
orders when foreign countries request spare parts by manufacturer or
vendor part numbers and because the system does not validate these
orders, there is no assurance that the Navy will be aware that
classified spare parts may be shipped to foreign countries not eligible
to receive them. Also, since the Navy has periodically failed to test
the Management Information System for International Logistics, the Navy
may not be able to determine whether its system is in compliance with
requisitioning policies and procedures. Without adequate internal
controls, classified and controlled spare parts may be released under
blanket orders to foreign countries that may not be eligible to receive
them, thereby providing military technology to countries that might use
it against U.S. interests.
Recommendations for Executive Action:
To improve internal controls over the Navy's foreign military sales
program and to prevent foreign countries from obtaining classified and
controlled spare parts under blanket orders, we are recommending that
the Secretary of Defense instruct the Secretary of the Navy to take the
following six actions:
* Consult with the appropriate officials to resolve the conflict
between the DOD and Navy policies on the Navy's use of waivers allowing
foreign countries to obtain classified spare parts under blanket
orders.
* Determine and implement the necessary changes required to prevent the
current system from erroneously approving blanket order requisitions
for classified spare parts until the new system is deployed.
* Establish policies and procedures for the Navy's country managers to
follow when documenting their decisions to override the system when
manually processing blanket order requisitions.
* Require that the Navy's country managers manually enter blanket order
requisitions into the Navy's system to correctly represent foreign-
country-initiated orders versus U.S. government-initiated orders so the
Navy's system will validate whether the foreign countries are eligible
to receive the requested spare parts.
* Establish policies and procedures to follow for blanket orders when
the Navy's country managers replace spare parts requested by
manufacturer or vendor part numbers with corresponding government
national stock numbers.
* Establish interim policies and procedures, after consulting with
appropriate government officials, for recovering classified or
controlled spare parts shipped to foreign countries that might not have
been eligible to receive them under blanket orders until the Defense
Security Cooperation Agency develops guidance on this issue.
To improve the Navy system's internal controls aimed at preventing
foreign countries from obtaining classified and controlled spare parts
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 Navy's system to revalidate blanket order requisitions
when the Navy's country manager replaces spare parts that are requested
by manufacturer or vendor part numbers.
* Periodically test the system to ensure that it is accurately
reviewing blanket order requisitions before approving them.
Agency Comments and Our Evaluation:
The Director of the Defense Security Cooperation Agency commented on a
draft of this report for DOD and concurred with five of our
recommendations and partially concurred with three of our
recommendations.
DOD partially concurred with our proposed recommendation to determine
why the system erroneously approved a blanket order requisition for
classified spare parts and make the necessary changes to prevent such a
problem in the future. The department believes that the blanket order
requisition in question was processed automatically by the system
either because the item was not coded as classified at the time the
requisition was processed or because the Navy's system did not contain
an item record for the national stock number. However, the department
stated that historical information was unavailable to determine the
coding at the time the requisition was originally processed in 1995.
Moreover, the department believes that preventing this problem in the
future would require utilizing a comprehensive feed from the Defense
Logistics Information System of all DOD catalogued items, not just the
Navy interest items the system currently screens. The department stated
that the Navy's current system database structure cannot accommodate
such a comprehensive feed but that its future system would. The
department emphasized that it would be an inefficient use of resources
to modify the current Navy's system, particularly given the age of the
event. According to the department, the new DOD Security Assistance
system, entitled the "Case Execution Management Information System,"
will accommodate the comprehensive feed of all DOD-catalogued items
and, therefore, preclude this type of error in the future. According to
the Defense Security Cooperation Agency, the initial deployment of the
new system is expected to begin in the Fiscal Year 2007-8 time frame.
The intent of our recommendation is to ensure that the Navy's system
would not erroneously approve blanket order requisitions for classified
spare parts. However, in its comments the department has focused on
preventing the problem in the future without considering the existing
problem in the current system. Since the Navy will not consider
modifying the current system, it cannot be assured that current
controls will prevent the system from erroneously approving future
blanket order requisitions for classified spare parts. We continue to
believe that resources should be utilized to prevent the current system
from erroneously approving blanket order requisitions for classified
spare parts until the new proposed system is deployed. Therefore, we
have modified our recommendation accordingly.
DOD also partially concurred with our recommendation to request Navy
country managers to manually enter blanket order requisitions into the
Navy's system to correctly represent foreign-country-initiated orders
versus U.S. government-initiated orders. The department stated that a
great majority of these electronically submitted orders are not
reviewed by the country manager but instead are recognized as foreign
customer-submitted "pull" requisitions. DOD also suggested that our
recommendation should be limited to those orders that are manually
reviewed by a country manager who validates the customer's eligibility
to receive requested parts. The intent of our recommendation is to
ensure that Navy country managers manually enter blanket order
requisitions into the Navy's system correctly so that the system will
validate whether the foreign countries are eligible to receive the
requested parts. We continue to believe that "pull" requisitions in
this instance should be covered under this recommendation because among
other things, there is no assurance that manually entered blanket order
requisitions will undergo stringent reviews by Navy country managers to
validate a customer's eligibility to receive requested parts. In
addition, allowing the Navy's system to thoroughly validate blanket
order requisitions will ensure that foreign countries are eligible to
receive requested parts. Thus, we continue to believe that when the
Navy country managers manually enter blanket order requisitions for
foreign-country-initiated orders, they should correctly enter them into
the Navy's system so the system will validate whether the foreign
countries are eligible to receive the requested spare parts. Otherwise,
these types of requisitions would continue to be approved through the
system without validating the foreign countries' eligibility to receive
the requested parts.
In addition, DOD partially concurred with our recommendation to recover
classified and controlled spare parts shipped to foreign countries that
might not have been eligible to receive them under blanket orders. The
department noted that this particular issue has been cited in previous
GAO reports on DOD's foreign military sales programs. The department
also suggested that the Defense Security Cooperation Agency provide
standardized policies and procedures. The intent of our recommendation
is for the Navy to have policies and procedures in place to recover
classified or controlled spare parts shipped to foreign countries that
might not have been eligible to receive them under blanket orders. We
acknowledge the department's comments on recommending that the Defense
Security Cooperation Agency provide standardized policies and
procedures for recovering classified and controlled spare parts.
However, as noted in our report, the Navy currently has no policies and
procedures addressing this issue. If a foreign country requested and
obtained classified and controlled spare parts for which it is not
eligible, the country would not necessarily be likely to report this
error to the Navy, particularly if the country in question had intended
to order the parts. Therefore, we have modified our recommendation to
establish interim policies and procedures, after consulting with
appropriate government officials, for recovering classified or
controlled spare parts shipped to foreign countries that might not have
been eligible to receive them under blanket orders until the Defense
Security Cooperation Agency develops guidance on this issue.
DOD also provided technical comments for our consideration in the final
report and we incorporated changes as appropriate. DOD's formal
comments appear in appendix I.
Scope and Methodology:
To determine the adequacy of the Navy's internal controls for foreign
military sales under blanket orders, we assessed and tested whether the
Navy's key internal controls adequately restricted blanket orders for
classified and controlled spare parts sold to foreign countries and
obtained current DOD and Navy guidance on the foreign military sales
programs. We also held discussions with key officials from the Naval
Inventory Control Point, Navy International Programs Directorate,
Philadelphia, 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 under blanket orders classified and controlled spare
parts. Also, we interviewed the officials regarding the requisitioning
and approval processes applicable to classified and controlled 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 Navy's Management Information System for
International Logistics to restrict foreign countries from
requisitioning under blanket orders classified and controlled spare
parts. Furthermore, we interviewed officials to determine the
functional and operational controls that are used to validate
requisitions entered into the system. We also determined whether the
Navy 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. In addition, we
obtained and reviewed documentation identifying the system tests to
determine how often they were conducted. Also, we interviewed Navy and
DOD officials to determine how periodic reviews and tests of the system
were performed.
To support our analysis, we obtained records from the Navy
International Programs Directorate on all classified and controlled
spare parts that were purchased by using blanket orders and approved
for shipment to foreign countries from October 1, 1997, through April
30, 2003. Also, 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. We tested the system by identifying the 38 requisitions
for classified and controlled spare parts that were shipped under
blanket orders and reviewed the restrictions applied to determine if
the system was operating as intended. We verified the Navy's system to
determine whether it approved and released the selected blanket order
requisitions in accordance with DOD foreign military sales policies. To
conduct this work, we obtained from the Navy all blanket order
shipments to foreign countries for the period mentioned above and
matched the spare parts' stock numbers to a government database to
identify the classified and controlled parts that were shipped to
foreign countries. While we identified some issues concerning the
appropriate procedures for such spare parts, in all the cases we
reviewed, we found that the parts had been ordered and shipped from the
Navy's system.
We conducted our review from May 2003 through April 2004 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 Navy; 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 at (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; Ann DuBois; and Cheryl Weissman.
Sincerely yours,
Signed by:
William M. Solis:
Director Defense Capabilities and Management:
[End of section]
Appendix I: Comments from the Department of Defense:
Note: Part of the enclosure to this letter provided technical comments,
which we considered and incorporated in our report as appropriate. The
technical comments are not attached.
Note: Page numbers in the draft report may differ from those in this
report.
DEFENSE SECURITY COOPERATION AGENCY:
WASHINGTON, DC 20301-2800:
28 MAY 2004:
In reply refer to: 1-04/006540-P3:
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 Navy Controls Could Prevent
Unauthorized Shipments of Classified and Controlled Spare Parts to
Foreign Countries" dated April 16, 2004 (GAO Code 350440/GAO-04-507).
DOD acknowledges receipt of the draft report, and we concur with the
report in principle. Our responses to the eight recommendations posed
by the GAO, as well as a separate listing of technical/editorial
comments for the GAO's consideration when preparing the final report
are attached. We continue to pursue corrective measures to ensure that
adequate controls are in place to prevent unauthorized shipments of
classified and/or controlled spare parts to foreign countries.
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.miI or by telephone at
(703) 601-4368.
Sincerely,
Signed by:
TONE H. WALTERS, JR.:
LIEUTENANT GENERAL, USAF:
DIRECTOR:
Attachments As stated:
GAO DRAFT REPORT - DATED APRIL 16, 2004 GAO CODE 350440/GAO-04-507:
"FOREIGN MILITARY SALES: IMPROVED NAVY CONTROLS COULD PREVENT
UNAUTHORIZED SHIPMENTS OF CLASSIFIED AND CONTROLLED SPARE PARTS TO
FOREIGN COUNTRIES":
DEPARTMENT OF DEFENSE COMMENTS TO THE RECOMMENDATIONS:
RECOMMENDATION 1: The GAO recommended that the Secretary of Defense
instruct the Secretary of the Navy to consult with the appropriate
officials to resolve the conflict between the DOD and the Navy policies
on the Navy's use of waivers allowing foreign countries to obtain
classified spare parts under blanket orders. (p. 17/GAO Draft Report):
DOD RESPONSE: Concur:
RECOMMENDATION 2: The GAO recommended that the Secretary of Defense
instruct the Secretary of the Navy to determine why the system
erroneously approved a blanket order requisition for classified spare
parts and make the necessary changes to prevent such a problem in the
future. (p. IT( r10 Draft Report):
DOD RESPONSE: Partially Concur. The blanket order requisition in
question was processed automatically by the system either because the
item was not coded as classified at the time the requisition was
processed or the Management Information System for International
Logistics (MISIL) did not contain an "item record" for the national
stock number (NSN). Historical information is unavailable to determine
the coding at the time the requisition was originally processed in
1995. To prevent this problem in the future it would be necessary to
utilize a comprehensive feed from the Defense Logistics Information
System of all DOD catalogued items, not just the Navy interest items we
currently screen, which is not an efficient use of resources,
particularly given the age of the event. It is not possible to
accommodate this in the current MISIL database structure. It will be
accommodated in the future DOD Security Assistance system, entitled the
Case Execution Management Information System (CEMIS).
RECOMMENDATION 3: The GAO recommended that the Secretary of Defense
instruct the Secretary of the Navy to establish policies and procedures
for the Navy's country managers to follow when documenting their
decisions to override the system when manually processing blanket order
requisitions. (p. 17/GAO Draft Report):
DOD RESPONSE: Concur:
RECOMMENDATION 4: The GAO recommended that the Secretary of Defense
instruct the Secretary of the Navy to require that the Navy's country
managers manually enter blanket order requisitions into the Navy's
system to correctly represent foreign-country initiated orders versus
U.S. government-initiated orders so the Navy's system will validate
whether the foreign countries are eligible to receive the requested
spare parts. (p. 17/GAO Draft Report):
DOD RESPONSE: Partially Concur. As the great majority of these orders
(requisitions) are electronically submitted, not reviewed by the
country managers, and recognized as foreign customer-submitted "pull"
requisitions, the Recommendation should be limited to orders
(requisitions) that are manually reviewed by the country managers. The
rewrite of the Recommendation should be, "The GAO recommended that the
Secretary of Defense instruct the Secretary of the Navy to require
that, in situations when the Navy country managers manually enter
blanket order requisitions into the Navy's system, the country managers
will validate the customer's eligibility to receive the requested
parts."
RECOMMENDATION 5: The Secretary of Defense instruct the Secretary of
the Navy to establish policies and procedures to follow for blanket
orders when the Navy's country managers replace spare parts requested
by manufacturer or vendor part numbers with corresponding government
national stock numbers. (p.17/GAO Draft Report):
DOD RESPONSE: Concur:
RECOMMENDATION 6: The GAO recommended that the Secretary of Defense
instruct the Secretary of the Navy to establish policies and
procedures, after consulting with appropriate government officials, for
recovering classified or controlled spare parts shipped to foreign
countries that may not have been eligible to receive them under blanket
orders. (p. 17/GAO Draft Report):
DOD RESPONSE: Partially Concur. As this issue has been cited in the
audit of all three military services' audits on FMS Spare Parts,
recommend that DSCA provide standardized policies and procedures.
RECOMMENDATION 7: The GAO recommended that the Secretary of Defense
direct the Under Secretary of Defense for Policy to require the
appropriate officials to modify the Navy's system to revalidate blanket
order requisitions when the Navy's country manager replaces spare parts
that are requested by manufacturer or vendor part numbers. (p. 18/GAO
Draft Report):
DOD RESPONSE: Concur:
RECOMMENDATION 8: The GAO recommended that the Secretary of Defense
direct the Under Secretary of Defense for Policy to require the
appropriate officials to periodically test the system to ensure that it
is accurately reviewing blanket order requisitions before approving
them. (p. 18/GAO Draft Report):
DOD RESPONSE: Concur:
[End of section]
FOOTNOTES
[1] Classified parts are restricted for national security reasons;
controlled parts are not classified but contain military technology/
applications or are controlled cryptographic parts, hereafter referred
to as "controlled parts."
[2] Security Assistance Management Manual, DOD 5105.38-M (Oct. 3,
2003).
[3] The Navy commonly refers to blanket orders as "direct
requisitioning procedures," "open end requisitioning," or "pull
requisitioning."
[4] 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. U.S.
General Accounting Office, Standards for Internal Control in the
Federal Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: November
1999).
[5] The Management Information System for International Logistics,
hereafter referred to as "the system," is the Navy's logistics
information and tracking system for foreign military sales. It
validates foreign customers' requisitions and determines whether items
requested are authorized.
[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] U.S. General Accounting Office, 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 (Washington, D.C.: Apr.15, 2004).
[9] We used the government database called "FEDLOG," which contains
logistics information on items in the supply system and provides the
identification of spare part numbers and their security
classifications.
[10] U.S. General Accounting Office, Standards for Internal Control in
the Federal Government, gao/aimd-00-21.3.1 (Washington, D.C.: November
1999).
[11] We use the term "Navy country manager" to mean an official who
performs such functions as supply and financial technical work in
support of the foreign military sales program.
[12] Hereafter referred to as "Navy International Programs
Directorate."
[13] Requisitions prepared by the U.S. supply system for the customer
are called "push" requisitions because the U.S. supply system sends
material to the customer (i.e., as part of the initial set of spare
parts that accompany a weapon system).
[14] A corresponding government spare part (national stock number)
identifies a specific item of supply.
[15] Cryptography equipment provides security to telecommunication by
converting information to a form unintelligible to an unauthorized
interception.
[16] Pub. L. No. 90-629.
[17] Pub. L. No. 87-195.
[18] It is called the "controlled inventory item code," and it
indicates the security classification and security risk or controls for
storage and transportation of DOD assets.
[19] A cognizance code is a two-character alphanumeric code providing
supply management information, identifying the type of items referred
to, and identifying the item manager who has control over it.
[20] The Federal Supply Group identifies, by title, the commodity area
covered by classes within a group and their physical or performance
characteristics. The Federal Supply Group makes up 2 of the 13 digits
combined to create the National Stock Number, which identifies a
specific item of supply.
[21] A towed body is a torpedo countermeasure transmitting set for
ships.
[22] Defined orders are foreign military sales cases used to specify
defense articles and services that are identified and approved in the
letter of agreement.
[23] U.S. General Accounting Office, Federal Information System
Controls Audit Manual, GAO/AIMD-12.19.6 (Washington, D.C.: January
1999).
[24] Office of Management and Budget, Management of Federal Information
Resources (Washington, D.C.: November 2000).
[25] U.S. General Accounting Office, Internal Control Management and
Evaluation Tool, GAO-01-1008G (Washington, D.C.: August 2001).
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