Foreign Military Sales:

Recovery of Nonrecurring Research, Development, and Production Costs

AIMD-99-148R: Published: May 19, 1999. Publicly Released: May 19, 1999.

Contact:

Gregory D. Kutz
(202) 512-4841
contact@gao.gov

 

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

GAO provided information on the Department of Defense's efforts to recover the nonrecurring research, development, and production costs from its Foreign Military Sales (FMS) Program trust fund for items that were delivered to FMS customers.

GAO noted that: (1) in GAO's previous report, GAO noted that the Air Force and Navy were not promptly collecting nonrecurring research, development, and production costs from the FMS trust fund as major defense equipment items were delivered to FMS customers; (2) specifically, GAO identified over $183 million of nonrecurring costs related to items that were delivered to FMS customers--some as long ago as 1989--that had not been charged to the foreign customers' trust fund accounts; (3) to address these issues, GAO recommended that the Air Force and Navy: (a) recover the amount identified in GAO's report that had not yet been charged to FMS customers' trust fund accounts; and (b) review all other open FMS cases that require foreign 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; (4) the Air Force and Navy have now collected the over $183 million identified in GAO's report; (5) while the collection of this amount is a positive first step, GAO's recent visit to the Air Force Materiel Command's headquarters, as part of another audit, disclosed that the Air Force has not collected nonrecurring costs owed for items related to other open FMS cases; (6) specifically, GAO found that $152,101,014 of nonrecurring research, development, and production costs had not been collected from Saudi Arabia's trust fund account for 26 F-15 aircraft that were delivered to the country between December 1997 and March 1999; (7) Volume 15 of the Department of Defense's Financial Management Regulation 7000.14-R states that charges for nonrecurring costs are earned as items are physically delivered to the FMS customer; (8) as GAO noted in its October 1998 report, not recovering nonrecurring costs promptly represents poor financial management practices; and (9) it also raises the risk that amounts will never be recouped and that these funds, deposited in advance to the FMS trust fund for this purpose, will be erroneously returned to FMS customers.

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 Under Secretary of Defense (Comptroller) should take the actions necessary to ensure that the Air Force promptly pays bills and collects the over $152 million of outstanding nonrecurring costs owed by Saudi Arabia for the 26 F-15 aircraft.

    Agency Affected: Department of Defense: Under Secretary of Defense (Comptroller)

    Status: Closed - Implemented

    Comments: On April 29, 1999, the Under Secretary of Defense (Comptroller) issued a memorandum to the Director, Defense Security Cooperation Agency (DSCA) emphasizing the Department's financial policy requirements pertaining to the billing and collection of nonrecurrring costs. The memo also requested the DSCA to develop a plan for collecting the payments from Saudi Arabia for all outstanding amounts and that payments remain current thereafter. As of December 31, 1999, the Air Force had collected $152 million of outstanding nonrecurring costs owed by Saudi Arabia for the 26 F-15 aircraft. The Air Force also collected another $87.8 million of outstanding nonrecurring costs owed by Saudi Arabia for the subsequent deliveries of 15 F-15 aircraft. In total, DOD charged Saudi Arabia's trust fund account for $239,851,599 between June and December 1999.

    Recommendation: The Under Secretary of Defense (Comptroller) should reemphasize to the military services the need to expeditiously complete the review of other FMS cases involving nonrecurring costs to ensure that all amounts owed have been collected.

    Agency Affected: Department of Defense: Under Secretary of Defense (Comptroller)

    Status: Closed - Implemented

    Comments: The Deputy Chief Financial Officer noted that the Department issued a memorandum to the Military Departments reemphasizing DOD's financial policies and procedures for the reporting and collecting of nonrecurring costs from foreign customers.

    Apr 18, 2014

    Apr 16, 2014

    Apr 11, 2014

    Apr 10, 2014

    Apr 9, 2014

    Apr 8, 2014

    Apr 3, 2014

    Looking for more? Browse all our products here