Foreign Military Sales: DOD's Stabilized Rate Can Recover Full Cost
AIMD-97-134
Published: Sep 18, 1997. Publicly Released: Sep 18, 1997.
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Highlights
Pursuant to a congressional request, GAO reviewed the Department of Defense's (DOD) use of stabilized rates for charging foreign military sales (FMS) customers for goods and services sold through DOD's Defense Business Operations Fund (DBOF), focusing on whether: (1) there is a dollar difference in pricing goods and services at full cost compared to the stabilized rate; and (2) DOD's current practice of billing foreign customers at the stabilized rate is consistent with the full cost requirements of the Arms Export Control Act of 1976.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Defense | The Secretary of Defense should direct the Under Secretary of Defense (Comptroller) to implement the stabilized rate policies and procedures as soon as possible to require WCF activities to include pension and postretirement health benefit costs in the prices they charge FMS customers. |
Closed – Implemented
DOD concurred fully with the recommendation. On August 27, 1997, the Acting Under Secretary of Defense (Comptroller) issued guidance instructing that, effective immediately, the price or rate charged FMS customers shall be adjusted to include an amount for unfunded civilian retirement and postretirement health benefits costs.
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| Department of Defense | The Secretary of Defense should direct the Under Secretary of Defense (Comptroller) to make every reasonable attempt to bill for and collect the undercharges for pension and postretirement health benefit costs identified in this report. Such action should be taken only if cost-effective to do so. |
Closed – Implemented
The Acting Under Secretary of Defense (Comptroller) requested that the Defense Security Assistance Agency (DSAA), in conjunction with the military departments, review FMS cases, going back through fiscal year 1992, and bill the FMS customers for the costs of unfunded civilian retirement and postretirement health benefits where cost effective. In May 1998, DSAA notified OUSD(C) that reviews conducted by the military services concluded that the research involved in identifying the actual amounts to charge each FMS customer would be time-consuming, extremely labor-intensive, and costly. DSAA informed the Under Secretary's office that the FMS customer was not going to be billed for undercharges GAO identified. DOD's Deputy Chief Financial Officer concurred with the DSAA Director and noted that DOD now considers the recommendation closed and that no further action will be taken to collect the undercharges from the FMS customers.
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Topics
Cost accountingCost analysisForeign military salesFringe benefit costsFunds managementLabor costsPrice adjustmentsBusiness operationsFinancial managementU.S. Air Force