Foreign Military Sales:

Millions of Dollars of Nonrecurring Research and Development Costs Have Not Been Recovered

AIMD-99-11: Published: Oct 20, 1998. Publicly Released: Oct 20, 1998.

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Pursuant to a congressional request, GAO reviewed the Department of Defense's (DOD) ability to account for and report on the full costs of the foreign military sales (FMS) program, focusing on DOD's: (1) recoupment of monies owed by FMS customers for the U.S. government's research, development, and production costs of major defense equipment; and (2) accountability over expenditures of FMS customers' funds. GAO focused on Air Force and Navy activities.

GAO noted that: (1) the Air Force and Navy were not always recovering nonrecurring research, development, and production costs from the FMS trust fund as major defense equipment items were delivered to the FMS customer; (2) specifically, GAO identified over $183 million of nonrecurring costs related to items that were delivered--some as long ago as 1989--that had not been charged to the FMS customers' trust fund account; (3) for example, between July 1993 and November 1995, South Korea received 48 F-16 aircraft on a FMS case managed by the Air Force; (4) GAO's review of the case disclosed that no deliveries had been reported for the purpose of recovering nonrecurring research, development, and production costs; (5) had the Air Force followed DOD's procedures and reported the deliveries and recouped the nonrecurring costs within 30 days of physical delivery of the aircraft, it would have already charged South Korea's trust fund account for over $49 million of nonrecurring research, development, and production costs; and (6) Air Force and Navy officials agreed that FMS customers were not being properly charged for millions of dollars of nonrecurring costs for major defense equipment items they had received and have begun to take actions to recover the outstanding amounts.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: The Secretary of Defense should direct the Under Secretary of Defense (Comptroller) to require the Air Force and Navy to recover the over +$183 million identified in this report as nonrecurring research, development, and production costs that have not been charged to FMS customers' trust fund accounts for major defense equipment that has already been delivered.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: On December 11, 1998, the Under Secretary of Defense (Comptroller) directed the Air Force and Navy to take appropriate actions to collect the over $183 million of nonrecurring costs identified in the report. The Air Force and Navy subsequently collected the over $185 million from the foreign customers' trust fund accounts.

    Recommendation: The Secretary of Defense should direct the Under Secretary of Defense (Comptroller) to require the Air Force and Navy to review all the other open FMS cases that require FMS customers to pay a proportionate amount of nonrecurring research, development, and production costs for major defense equipment and recoup nonrecurring costs that have not yet been recovered for items that have already been delivered to FMS customers.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: On December 11, 1998, the Under Secretary of Defense directed the Air Force and Navy to review all other open cases and collect nonrecurring costs when it was found that amounts were due. Navy and Air Force recovered $185,231,916 in nonrecurring research, development, and production costs that were not charged to FMS customers' trust fund accounts. These recoveries resulted from the recommendation to recover these costs, as well as their review of other open FMS cases that require FMS customers to pay a proportionate amount of nonrecurring research, development, and production costs for major defense equipment.

    Recommendation: The Secretary of Defense should direct the Under Secretary of Defense (Comptroller) to require the Air Force and Navy to follow DOD policies and procedures for reporting the delivery of major defense equipment so that the FMS customers' accounts can be charged with nonrecurring research, development, and production costs and amounts transferred to the general fund of the Treasury within the 30 days required by DOD policy.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: On December 11, 1998, the Under Secretary of Defense (Comptroller) issued a letter to the Air Force and Navy instructing them to review pertinent DOD policies and procedures for the reporting and collection of nonrecurring costs recoupment charges.

    Recommendation: The Secretary of Defense should direct the Under Secretary of Defense (Comptroller) to direct the Air Force and Navy to review closed FMS cases to ensure that all nonrecurring research, development, and production costs for delivered major defense equipment have been recouped. Initially, this review of closed cases could be limited to a specific period. For example, the review could include FMS cases that were closed during the last 5 fiscal years. If this review discloses that there have been FMS cases closed before all nonrecurring research, development, and production costs were recouped: (1) any amounts due the U.S. government should be recovered from the FMS customer; and (2) the review should be expanded to include closed cases for additional fiscal years.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: On December 11, 1998, the Under Secretary of Defense (Comptroller) directed the Air Force and Navy to conduct a sample review of FMS cases that were closed during fiscal years 1994 and 1998 to determine if applicable nonrecurring costs had been billed. The services were to provide the Under Secretary's office with the results of their sample by June 1, 1999. Based on the results of that sample review, the Under Secretary's office will decide whether the sample review should be expanded to include additional fiscal years. As of August 1999, the results of the review had not been communicated to the Under Secretary's office. However, as of October 1999, the Navy and Air Force recovered $185,231,916 in nonrecurring research, development, and production costs that were not charged to FMS customers' trust fund accounts. These recoveries resulted from the recommendation to recover these costs, as well as their review of other open FMS cases that require FMS customers to pay a proportionate amount of nonrecurring research, development, and production costs for major defense equipment.

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