Improvements Still Needed in Recouping Administrative Costs of Foreign Military Sales

AFMD-82-10: Published: Feb 2, 1982. Publicly Released: Feb 10, 1982.

Additional Materials:

Contact:

John F. Simonette
(202) 275-1581
contact@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

Although Congress has made it clear that the foreign military sales program is not to be subsidized, the Department of Defense (DOD) has no assurance that surcharges on sales to foreign customers are sufficient to recover the full costs of administering the program. GAO was asked to review DOD actions on previous GAO recommendations for improving the accounting and financial management of the program.

Funds to reimburse DOD activities for administrative costs of the program are obtained from foreign customers through a surcharge added to the sales price of goods and services provided. DOD budgets are used in updating the surcharge rates and in reimbursing DOD activities for the costs incurred. Problems still exist in the program, and DOD is continuing to subsidize the foreign military sales program. The latest GAO study has shown that: (1) DOD is still unable to adequately estimate the full costs incurred by the military services in administering the program because the Defense Security Assistance Agency directed the military services to exclude certain valid costs from their budget submissions and because the military services, in preparing their budgets, made inaccurate and incomplete estimates of other administrative costs to the program; (2) the actual costs incurred by DOD activities in administering the sales program exceeded budgeted amounts, but the amount billed the surcharge account was to be limited to the budgeted amount; (3) DOD made improper transfers of over $5 million to the administrative surcharge account during fiscal year 1980; and (4) the accounting procedures used did not always accumulate the actual cost or workload data for administering the program. Without an adequate surcharge rate, the administrative support costs will not be recouped. A GAO examination at activities with about $96 million in fiscal year 1980 billings identified $5 million in unrecovered costs.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: Defense did not concur with this recommendation. Although GAO believes the recommendation to be valid, no further action is necessary as Congress reduced Defense's 1983 budget. Also, the report is now over 2 years old, and the division has no further audit plans.

    Recommendation: The Secretary of Defense, to improve the financial management of the administrative surcharge fund, should direct the Defense Security Assistance Agency to revise its existing budget guidance to Department of Defense activities to clearly identify the costs to be included in the budget submissions and to require recovery of the full administrative costs of foreign military sales.

    Agency Affected: Department of Defense

  2. Status: Closed - Not Implemented

    Comments: Defense did not concur with this recommendation. Although GAO believes the recommednation to be valid, there is no further action necessary as Congress reduced Defense's 1983 budget. Also, the report is now over 2 years old and the division has no further audit plans.

    Recommendation: The Secretary of Defense, to improve the financial management of the administrative surcharge fund, should direct each military service to periodically adjust its budget estimates to reflect actual costs incurred and report these adjustments to the Defense Security Assistance Agency.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: Although Defense did not agree with the report's findings, it did concur with this recommendation. Congress reduced the Defense budget by $85 million in 1983 (see accomplishment report A-AFMD-83-15). No further work is planned.

    Recommendation: The Secretary of Defense, to improve the financial management of the administrative surcharge fund, should require the Defense Security Assistance Agency to monitor the adequacy of the administrative surcharge rate and make periodic adjustments when warranted to ensure full recovery of costs.

    Agency Affected: Department of Defense

  4. Status: Closed - Not Implemented

    Comments: The Air Force was unable to document the basis for the improper entries. Also, the transaction money would be too old to be transferred to the Air Force and would go to the "M" account. Therefore, the recommendation is no longer valid.

    Recommendation: The Secretary of Defense, to improve the financial management of the administrative surcharge fund, should direct the Air Force to reverse the improper transfers made to the administrative surcharge account.

    Agency Affected: Department of Defense

  5. Status: Closed - Implemented

    Comments: Although Defense did not agree with the report's findings, it did concur with this recommendation. Congress reduced the Defense budget by $85 million in 1983 (see accomplishment report A-AFMD-83-18). The division does not plan any further work.

    Recommendation: The Secretary of Defense, to improve the financial management of the administrative surcharge fund, should require all commands and activities to develop accurate and timely personnel and other cost data for use in preparing budget submissions and obtaining reimbursement for expenses incurred.

    Agency Affected: Department of Defense

 

Explore the full database of GAO's Open Recommendations »

Sep 22, 2016

Sep 21, 2016

Sep 19, 2016

Sep 12, 2016

Sep 8, 2016

Sep 7, 2016

Sep 6, 2016

Aug 25, 2016

Looking for more? Browse all our products here