Foreign Military Sales:

Air Force Controls Over the FMS Program Need Improvement

AIMD-00-101: Published: May 3, 2000. Publicly Released: May 3, 2000.

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Pursuant to a congressional request, GAO reviewed the Air Force's accounting and reporting on the costs of the foreign military sales (FMS) program.

GAO noted that: (1) the Air Force did not have adequate management controls over its foreign military sales program to ensure that foreign customer accounts were properly charged for goods and services; (2) specifically, the Air Force was not generating reports that would identify instances where customer accounts were not charged for goods and services received or where there were discrepancies between the recorded value of delivered goods and services and the corresponding value of charges to customer accounts; (3) without such reports, the Air Force could not readily ensure that FMS accounting records were accurate and that customer accounts were properly charged; (4) GAO's analysis of data contained in the Defense Finance and Accounting Service's Defense Integrated Financial System as of July 1999, indicated that the Air Force might not have charged FMS customer trust fund accounts for $540 million of delivered goods and services; (5) in performing a detailed review of $96.5 million of these transactions, GAO found that the Air Force was able to reconcile about $20.9 million; (6) however, of the remaining $75.6 million, the Air Force had either: (a) failed to charge customer accounts ($5.1 million, 22 transactions); (b) made errors, such as incorrectly estimating delivery prices ($44 million, 11 transactions); or (c) could not explain differences between the recorded value of delivered goods and services and corresponding value of charges to customer accounts ($26.5 million or 19 transactions); (7) the Air Force has since recognized that it must improve its controls over the FMS program and developed the capability to generate data necessary to help identify those instances where foreign customers' accounts have not been charged for goods and services received; (8) however, according to responsible Air Force officials, the data are going to be made available only on an ad hoc basis, meaning that they will not be routinely available to the appropriate personnel for review, including managers, with the requirement that they use the information to ensure that customer accounts are being properly charged; and (9) such steps are integral to ensuring the accuracy of FMS accounting and the prompt collection of funds owed.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: On June 23, 2000, the Under Secretary of Defense (Comptroller) directed the Assistant Secretary of the Air Force (Financial Management and Comptroller) to ensure that collections are made for any portion of the $5.1 million that is actually owed. He also directed the Assistant Secretary to review and resolve transactions valued at $26.5 million, for differences that were not readily determined, and collect any portion of those transactions that actually is owed by FMS customers. On August 25, 2000, the Air Force reported to the DOD Comptroller that it (1) collected the $5.1 million owed by FMS customers, and (2) reviewed and resolved transactions identified in the GAO report valued at $26.5 million. During 2000, the DFAS Denver Office performed a review on the $26.5 million in transactions and found that (1) the FMS customers were billed, and (2) the FMS customers did not owe the United States any money. The $26.5 million in differences is the result of systems covering different time periods (the value of reported deliveries in one system versus the value of corresponding charges to customers' trust fund accounts in a different system). Both systems are under continuous review to ensure that data is accurate, final obligations, disbursements, and deliveries are in balance, and that all appropriate charges are processed against the FMS customers' account.

    Recommendation: The Secretary of Defense should direct the Secretary of the Air Force to ensure that the: (1) $5.1 million identified in this report as owed by FMS customers is collected; and (2) $26.5 million, for which the cause of the differences could not be readily determined, is promptly reviewed and resolved.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: On June 23, 2000, the Under Secretary of Defense (Comptroller) directed the Assistant Secretary of the Air Force (Financial Management and Comptroller) to determine whether officials responsible for managing the FMS program have been trained properly and are appropriately using available data on charges for goods and services provided by the Air Force to FMS customers. On January 29, 2003, the Air Force issued a memorandum to DOD's Office of Inspector General stating that, since September 2000, the Air Force has been reviewing roles and responsibilities for FMS financial management at all levels to ensure adequate oversight and appropriate management controls are in place. Realignment at the Secretariat level took place in October 2000, and substantial improvement has been noted. In addition, the Air Force Audit Agency conducted a review of the roles and responsibilities at Air Force headquarters financial management office and the Air Force Security Assistance Center (AFSAC). The results of the review led to the establishment of a financial management directorate in the AFSAC and efforts to add personnel to the Air Force headquarters financial management office. In addition, the Air Force has increased emphasis on using data produced to ensure shipments and billings are recorded and that FMS cases and lines are reconciled. Policy letters from Secretary of the Air Force and Defense Security Cooperation Agency addressed a requirement to review cases and lines. In addition, a 4 1/2 day case reconciliation and closure training course was developed to present an overview of FMS processes for pricing, financial management and billing, as well as the case reconciliation and closure process. The course, presented by the Defense Institute for Security Assistance Management and on-line, provided hands-on training and the tools available to case managers and financial managers. Since inception in mid-2000, 247 students from 17 headquarters, logistics, and product centers have been trained. All case line managers are required to review customer account (cases) once a year, and the Secretary of the Air Force for International Affairs monitors these reviews.

    Recommendation: The Secretary of Defense should direct the Secretary of the Air Force to ensure that officials responsible for managing the FMS program, including headquarters personnel, are: (1) properly trained to use the data being produced to identify instances in which FMS customers have not been properly charged for goods and services received; and (2) required to routinely use the data at least monthly to review customer accounts, identify instances in which they are not being properly charged, and act promptly to correct the control problems causing the differences.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: On June 23, 2000, the Under Secretary of Defense (Comptroller) directed the Assistant Secretary of the Air Force (Financial Management and Comptroller) to review, in cooperation with DFAS, completed transactions where actual delivery values exceed actual disbursements. He also requested that the Air Force ensure that amounts owed are collected, erroneous transactions are corrected, and that causes of errors are identified. On January 29, 2003, the Air Force informed the DOD Inspector General that reviews of current transactions are an ongoing effort. Reviews by trained financial management personnel in the newly established Air Force Security Assistance Center for the financial management directorate should result in substantial improvement to collect amounts owed, correct errors, and determine the causes of the errors. Furthermore, the Defense Security Cooperation Agency (DSCA) asked DFAS to review and determine a goal for acceptable level of variance concerning "shipped not billed" transactions. A review of transactions during fiscal year's (FY) 1999 and 2000, resulted in the value of Air Force transactions being reduced from $4 billion to $55 million. By the end of FY 2001, DFAS and DSCA concluded that DOD transactions of $42.3 million represented a steady amount and the problem was under control. The cause of this problem was timing related based on a one day difference when comparing system data. Depending on the run dates of reports, information in systems could vary because of different schedules. When reports are run prior to regularly scheduled interfaces, differences occur. If reports are run to compare similar dates/transactions, the differences are less than 10 percent. This usually represents "work in progress" (which in the past primarily represented progress payments for major end items) or billing transactions in process. In summary, on the basis of its review during June and July of 2003, GAO determined that DOD reviewed a substantial amount of the transactions that were different in the two systems and no significant billing errors were found.

    Recommendation: The Secretary of Defense should direct the Air Force, in cooperation with the Under Secretary of Defense (Comptroller) and the Defense Finance and Accounting Service, to review the remaining $443.5 million of transactions to: (1) identify and collect any amounts FMS customers owe for goods and services already provided; (2) correct any erroneous transactions; and (3) determine the causes and act to eliminate similar errors in the future. Cost-effectiveness should be considered when selecting the transactions for detailed review.

    Agency Affected: Department of Defense

 

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