Design and Operation of Special Defense Acquisition Fund Can Be Improved

In response to a congressional request, GAO reviewed the management of Special Defense Acquisition Fund (SDAF) resources to: (1) determine whether SDAF has been meeting its objective of decreasing the delivery time needed to provide defense articles to foreign recipients under the Foreign Military Sales program; and (2) identify management and legislative policy issues that need to be addressed.

GAO found that, after the first 2 years of operation, the SDAF sales experience was quite limited and, by placing SDAF purchase orders 1 to 2 years before signing sales agreements, SDAF reduced the delivery time for these sales. The effectiveness of SDAF depends on the Defense Security Assistance Agency's (DSAA) ability to predict foreign demand, because SDAF appropriations are made available for obligation on a 1-year basis and can only be obligated in the year they are appropriated. GAO found that many problems could be eliminated by making appropriations available for 3 years. When SDAF sales are made its inventory declines; however, DSAA must wait until a subsequent appropriation act is passed to use these sales proceeds and, currently, the size of the SDAF annual appropriation is limited to the difference between SDAF equity and the authorization ceiling. When an item is withdrawn from the inventory, military readiness is often degraded while the services wait for inventories to be replenished. While SDAF can only purchase equipment that is releasable to foreign countries at the time the contract is awarded, GAO believes that the releasability predictions are speculative because decisions on releasability take place subsequent to the procurement and require the approval of several different departments. There are also risks that, in using SDAF to purchase older generations of equipment, SDAF may have to sell the unused equipment to U.S. services, even though it is out-of-date for U.S. use.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: Joan M. McCabe Team: General Accounting Office: National Security and International Affairs Division Phone: (202) 275-4128