Efforts To Charge for Using Government-Owned Assets for Foreign Military Sales:
Marked Improvement but Additional Action Needed
FGMSD-79-36: Published: Jun 1, 1979. Publicly Released: Jun 1, 1979.
- Full Report:
Department of Defense (DOD) pricing policies require that a 1-percent asset-use charge be applied on inventory sales when government-owned assets are used to produce items sold to other countries; however, the countries have not been charged for the use of those assets.
In April 1978, GAO reported that foreign governments had been subsidized by as much as $107 million for those sales reviewed. Effort on the part of the military departments, the Defense Logistics Agency, and DOD to ensure that the charges were being assessed was generally lacking. Despite marked improvements since the 1978 report, additional improvements are needed in accounting for the charges and in identifying items subject to the charge. Roughly $10 million has yet to be billed to foreign customers. Some payments were not deposited as required, but were offset against payments for current DOD costs which are to be paid with appropriated funds. The charges, which are required by law, are reasonable and should not be waived. Any embarrassment to DOD or any customer dissatisfaction resulting from retroactive billings could have been avoided had DOD taken action to assess these charges promptly.
Recommendation for Executive Action
Comments: Please call 202/512-6100 for additional information.
Recommendation: The Secretary of Defense should: (1) closely monitor efforts to implement requirements concerning the application of the asset-use charge on sales from DOD inventories, ensuring the development of an adequate assessment system and the billing of charges from prior periods without further delay; (2) require the military departments to improve their accounting procedures for asset-use and rental charges and to develop procedures for readily identifying foreign military sales items on contracts with U.S. contractors; and (3) require that all asset-use charges be billed and collected, including those previously unbilled, before a foreign sales agreement is closed.