Foreign Military Sales:

Improved Army Controls Could Prevent Unauthorized Shipments of Classified Spare Parts and Items Containing Military Technology to Foreign Countries

GAO-04-327: Published: Apr 15, 2004. Publicly Released: May 17, 2004.

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From 1993 through 2002, the Department of Defense (DOD) delivered over $150 billion in services and defense articles--including classified spare parts and unclassified items containing military technology--to countries through foreign military sales programs. GAO was asked to review whether the Army's key internal controls adequately restricted blanket orders for (1) classified spare parts and (2) unclassified items containing military technology. GAO was also asked to determine if periodic tests were conducted to validate the Army's system and its logic.

The Army's internal controls over foreign military sales are not adequate, placing classified spare parts and unclassified items containing military technology at risk of being shipped to foreign countries that may not be entitled to receive such items under blanket orders. Foreign countries may request items using blanket orders, which are for a specific dollar value and are used to simplify supply actions on certain categories of items. The Army lacked control edits in its system and allowed the substitution and release of classified spare parts under blanket orders for shipment to foreign countries. The Army and DOD policies prohibit the release of classified items, under blanket orders, to foreign countries. GAO identified 3 requisitions in its review, where the item manager released 11 classified digital processors to foreign countries under blanket orders. Because the Army's system did not have control edits in place to validate the substituted parts, classified items were released to foreign countries. Also, the Army has no written policy to determine the actions needed to recover classified items that have been shipped to countries not eligible to receive them. Army officials indicated that the countries were not entitled to receive these items under blanket orders but they could obtain them under a different process; so there is no need to retrieve them, and GAO agreed with their decision. Also, the Army has modified the system to validate substituted parts selected by item managers. The Army lacks control edits in its system to prevent the release of some unclassified items containing military technology requisitioned under blanket orders. Within the 21,663 requisitions that were shipped without a review, GAO found that 387 requisitions were for 2,267 restricted items that foreign countries are prohibited from requesting using blanket orders because the parts require release authority from inventory control points. Also, the Army has no written policies to recover items that have been shipped to countries not eligible to receive them. Army officials said the countries were entitled to request these items, so there is no need to recover the items. The Army has not conducted periodic tests, as required, to validate that its system is accurately reviewing and approving blanket order requisitions. GAO's and the Office of Management and Budget's internal control standards require that a system such as the Army's be periodically tested to ensure that it is working as intended. According to DOD and Army officials, they have not tested the system's logic for restricting requisitions since 1999. Also, the officials stated that the Defense Security Cooperation Agency, in October 1998, directed that no additional funds be used to expand the current system. However, according to the agency, the Army is not prohibited from periodically testing the system.

Status Legend:

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  • 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: To improve the Army system's internal controls aimed at preventing foreign countries from obtaining classified spare parts or unclassified items containing military technology under blanket orders, the Secretary of Defense should direct the Under Secretary of Defense for Policy to require the appropriate officials to modify the system so that it identifies blanket order requisitions for unclassified items containing military technology that should be reviewed before they are released.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: According to the Army, in January 2004, the Centralized Integrated System for International Logistics (CISIL) (hereafter referred to as the system) was programmed to evaluate any supply status transaction where a substitute or replacement item is offered by an Item Manager. This edit identified instances where the Controlled Item Identification Code (CIIC) for the replacement/substitute item indicates a classified/sensitive item. The Army Central Case Manager will confirm the intent of the transaction with the Item Manager and take the appropriate action. In February 2004, according to the Army, CISIL performs a monthly edit check of CIICs on all open national stock number requisitions. This edit ensures that any catalog changes to CIICs are captured and systemically evaluated. This process is used to determine if action is required to cancel affected requisitions based on new classification of the item.

    Recommendation: To improve internal controls over the Army's foreign military sales program and to prevent foreign countries from being able to obtain classified spare parts or unclassified items containing military technology that they are not eligible to receive under blanket orders, the Secretary of Defense should instruct the Secretary of the Army to modify existing policies and procedures covering items, after consultation with the appropriate government officials, to cover items shipped in lieu of items ordered to also ensure the recovery of unclassified items containing military technology that have been shipped to foreign countries that may not be eligible to receive them under blanket orders.

    Agency Affected: Department of Defense

    Status: Closed - Not Implemented

    Comments: DOD maintained that it does have procedures to recover erroneously shipped items as well as classified or controlled spare parts shipped to foreign countries that may not be eligible to receive them. However, the Defense Security Cooperation Agency has agreed to formally document these procedures in a written policy for the military departments to follow for recovering spare parts (classified and/or unclassified) erroneously shipped to foreign countries regardless of the reason for the shipment or the foreign country that received the items. Based on a review made since the report, the Defense Security Cooperation Agency believes there are sufficient validation edits in the military department security assistance legacy systems to ensure that only eligible security assistance customers can requisition and receive spare parts as authorized by their Foreign Military Sales (FMS) Letters of Offer and Acceptance. They said these edits do not allow a foreign country that does not have a current country-to-country agreement with DOD to requisition and or receive items. In the event that an incorrect part is shipped to an eligible FMS customer or the wrong FMS customer receives a part destined for another FMS customer, the Supply Discrepancy Report process currently in place provides a sufficient means of resolution. Consequently, the Defense Security Cooperation Agency believes a new policy memo is not required. The Agency is working closely with the military departments in the development and implementation of the Enhanced Freight Tracking System (EFTS). The EFTS will track FMS shipments from source of supply through final destination, which will greatly reduce the potential for erroneous shipments. However, GAO continues to believe that this recommendation is valid.

    Recommendation: To improve internal controls over the Army's foreign military sales program and to prevent foreign countries from being able to obtain classified spare parts or unclassified items containing military technology that they are not eligible to receive under blanket orders, the Secretary of Defense should instruct the Secretary of the Army to modify existing policies and procedures, after consultation with the appropriate government officials, to cover items shipped in lieu of items ordered to also ensure the recovery of classified spare parts that have been shipped to foreign countries that may not be eligible to receive them under blanket orders.

    Agency Affected: Department of Defense

    Status: Closed - Not Implemented

    Comments: DOD maintained that it does have procedures to recover erroneously shipped items as well as classified or controlled spare parts shipped to foreign countries that may not be eligible to receive them. However, the Defense Security Cooperation Agency has agreed to formally document these procedures in a written policy for the military departments to follow for recovering spare parts (classified and/or unclassified) erroneously shipped to foreign countries regardless of the reason for the shipment or the foreign country that received the items. Based on a review made since the report, the Defense Security Cooperation Agency believes there are sufficient validation edits in the military department security assistance legacy systems to ensure that only eligible security assistance customers can requisition and receive spare parts as authorized by their Foreign Military Sales (FMS) Letters of Offer and Acceptance. They said these edits do not allow a foreign country that does not have a current country-to-country agreement with DOD to requisition and or receive items. In the event that an incorrect part is shipped to an eligible FMS customer or the wrong FMS customer receives a part destined for another FMS customer, the Supply Discrepancy Report process currently in place provides a sufficient means of resolution. Consequently, the Defense Security Cooperation Agency believes a new policy memo is not required. The Agency is working closely with the military departments in the development and implementation of the Enhanced Freight Tracking System (EFTS). The EFTS will track FMS shipments from source of supply through final destination, which will greatly reduce the potential for erroneous shipments. However, GAO continues to believe that this recommendation is valid.

    Recommendation: To improve the Army system's internal controls aimed at preventing foreign countries from obtaining classified spare parts or unclassified items containing military technology under blanket orders, the Secretary of Defense should direct the Under Secretary of Defense for Policy to require the appropriate officials to periodically test the system and its logic for restricting requisitions to ensure that the system is accurately reviewing and approving blanket order requisitions.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: In November 2004, the Defense Security Cooperation Agency sent a message to the three military departments requiring periodic, but no less than annual, testing of the requisition processing segments of the legacy systems, based on a recommendation found in GAO report 05-17 (Foreign Military Sales: DOD Needs to Take Additional Actions to Prevent Unauthorized Shipments of Spare Parts). This was followed by a conference call between the Agency and the military departments to discuss the procedures and the criteria to use during the testing. The first test will take place in May 2005 and Defense will monitor the results and provide recommendations for change as needed. In September 2005, the Army test of the Centralized Integrated System for International Logistics (CISIL) confirmed that edits worked as intended and that Central Case management personnel followed U.S. Army Security Assistance Command's established procedures ensuring effective review and control of requisitions for classified and sensitive materiel.

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