Foreign Military Sales:

Navy's Accounting for Sales to Foreign Customers Needs Improvement

AIMD-99-213: Published: Aug 24, 1999. Publicly Released: Aug 24, 1999.

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Pursuant to a congressional request, GAO reviewed the Department of Defense's accounting for and reporting on the costs of the foreign military sales (FMS) program, focusing on whether the Navy has properly charged its FMS customers for goods and services already provided.

GAO noted that: (1) the Navy did not always: (a) charge FMS customer trust fund accounts when goods and services were delivered under the FMS program; or (b) maintain accurate and reliable information on trust fund charges; (2) as of October 1998, Navy's FMS accounting records indicated that it had not charged FMS customer trust fund accounts for $582 million of delivered goods and services; (3) according to GAO's review of $75 million of this amount, FMS customer accounts had not been charged for $11.3 million for goods and services provided between April 1987 and December 1997; (4) for example, in 1996, the Navy provided support services valued at $1.1 million for Canada's Navy Patrol Harpoon Shipboard Command and Launch System; (5) instead of charging Canada's trust fund account for the $1.1 million, the Navy incorrectly charged: (a) $636,123 to its appropriations; and (b) $450,882 to the trust fund accounts of Greece and Japan; (6) further, although the remaining $18,507 was charged to Canada's account, it was recorded incorrectly in the Navy's system; (7) Navy officials agreed with GAO's findings and told GAO that they plan to correct the erroneous charges to the Greece and Japan accounts and will also charge Canada's account in order to reimburse the Navy appropriation for the $636,123; (8) for the remaining $62 million of balances in GAO's sample, GAO found that the Navy's accounting records included inaccurate data on the status of charges to FMS customer trust fund accounts, making it difficult for Navy managers to accurately account for and report on the FMS program; (9) for example, Navy's accounting records showed that Kuwait's trust fund account had not been charged $54 million for three F-18 aircraft it received in 1993; and (10) however, GAO found that Kuwait's trust fund account had been charged for the full amount and that the Navy's accounting system did not reflect the charges because erroneous data had been entered in the system.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: As of January 2000, DOD had charged the FMS customers accounts for the $11.3 million identified in the report that had not been charged to FMS customers for delivered goods and services. In addition, DOD has continued to monitor and followup on outstanding balances and has identified and collected an additional $1,548,268 which had not been charged to FMS customer's accounts. DOD has also increased monitoring and follow-up efforts to ensure that foreign customer trust fund accounts are promptly charged for all goods and services and that errors recorded in the Navy's MISIL are promptly identified and corrected.

    Recommendation: The Secretary of Defense should direct the Secretary of the Navy to: (1) collect from the FMS trust fund accounts the $11.3 million identified in this report that has not been charged to the FMS customer trust fund accounts for goods and services already provided; and (2) place increased management emphasis on monitoring and follow-up efforts to ensure that foreign customer trust fund accounts are promptly charged for all goods and services and errors recorded in the Navy's Management Information System International Logistics (MISIL) are promptly identified and corrected.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: DOD reported that Navy and the Defense Finance and Accounting Service (DFAS) implemented a plan to review the remaining $507 million of balances in order to (1) identify and collect amounts owed by FMS customers, (2) correct erroneous transactions, and (3) determine the causes for these types of errors in order to take action to eliminate them from occurring in the future. As of January 2000, Navy has completed its review of the $507 million and identified and corrected 22,903 erroneous transactions.

    Recommendation: The Secretary of Defense should direct the Secretary of the Navy and the Under Secretary of Defense (Comptroller) to develop and implement a plan to review the remaining $507 million of transactions recorded in the Navy's MISIL system to: (1) identify and collect amounts the FMS customers owe for goods and services already provided; (2) correct erroneous transactions in the MISIL; and (3) determine the causes for these types of errors and take action to eliminate similar errors in the future.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: DOD reported that the Navy and Defense Finance and Accounting Service (DFAS) have completed their review of the remaining $507 million of MISIL potential shipped not billed transactions. As of January 2000, DOD has corrected 22,903 erroneous transactions.

    Recommendation: With respect to the remaining $507 million of MISIL transactions, the review could initially focus on the reimbursable transactions since GAO found that 100 percent of the reimbursable transactions in GAO's limited sample represented amounts where FMS customer accounts had not been charged for the goods and services already provided.

    Agency Affected: Department of Defense

 

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