Foreign Military Sales:

Improved Navy Controls Could Prevent Unauthorized Shipments of Classified and Controlled Spare Parts to Foreign Countries

GAO-04-507: Published: Jun 25, 2004. Publicly Released: Jul 26, 2004.

Additional Materials:

Contact:

William M. Solis
(202) 512-8365
contact@gao.gov

 

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

From 1993 through 2002, the Department of Defense (DOD) delivered over $150 billion in services and defense articles, including classified and controlled items, to foreign countries through foreign military sales programs administered by the military. Foreign countries may request items using blanket orders, which are for a specific dollar value and are used to simplify supply actions on certain types of items. GAO was asked to review whether the Navy's key internal controls restricted blanket orders for (1) classified spare parts and (2) controlled items sold to foreign countries. Also, GAO was asked to determine if periodic tests were conducted to ensure that the Navy's system is working as intended.

The Navy's internal controls over foreign military sales using blanket orders are not adequate, placing classified and controlled spare parts at risk of being shipped to foreign countries that may not be eligible to receive them. The Navy might not have followed DOD policy when it approved 26 blanket orders leading to the release of classified spare parts to foreign countries. Navy policy states that classified parts can be requested under blanket orders when countries obtain waivers, but the Defense Security Cooperation Agency indicated that this Navy policy contradicts DOD policy, which prohibits the use of waivers. Navy officials have no plans to recoup these parts because the countries were approved to purchase them, and they were entitled to receive the parts under a different process. GAO agrees. However, Navy officials stated, there are no written policies to recover parts that countries should not have requested and received under blanket orders. The Navy does not always document the reasons for overriding its system and releasing classified parts. According to the Standards for Internal Control in the Federal Government, all transactions and other significant events need to be clearly documented. GAO identified four blanket orders for which the Navy's country managers overrode the system, but the files did not contain documents explaining the reasons for releasing the parts. The Navy lacks written policies to process blanket orders from countries requesting spare parts by manufacturer or vendor part numbers. GAO identified two blanket orders for which the Navy released four classified parts. The release occurred because the Navy's country manager substituted classified parts for parts ordered, which caused the system to bypass the control-edit function designed to check a country's eligibility to receive the parts. The Navy's system lacked control edits over controlled cryptographic parts and allowed countries to obtain them under blanket orders without determining the countries' eligibility to receive the parts. GAO identified five blanket orders for which the Navy's system approved and released 32 controlled cryptographic circuit card assemblies. According to DOD and Navy officials, the system has been modified and now reviews controlled cryptographic codes. Also, Navy officials do not plan to recover these parts because the countries were approved to purchase the parts and GAO agrees. The Navy has not conducted periodic tests to ensure that its system is accurately reviewing and approving blanket orders in accordance with its foreign military sales policies. DOD and Navy officials said that the last systemwide test was conducted in 2000. However, according to the Defense Security Cooperation Agency, the Navy is not prohibited from periodically testing the system.

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: To improve the Navy system's internal controls aimed at preventing foreign countries from obtaining classified and controlled spare parts 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 to ensure that it is accurately reviewing blanket order requisitions before approving them.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: According to the DOD Inspector General case report, as of March 2005, the Defense Security Cooperation Agency (DSCA) sent a message to the three Military Departments (MILDEPS) on November 30, 2004, requiring periodic, but no less than annual, testing of the requisition processing segments of the legacy system based on the recommendations found in GAO Report GAO-05-12 (Capping Report). According to the case report, this was followed by a conference call between DSCA and the MILDEPs outlining the procedures and the criteria to be used. According to the case report, the first test took place in May 2005 and DSCA will continue to monitor the results and provide recommendations for change as needed. This recommendation is closed.

    Recommendation: To improve the Navy system's internal controls aimed at preventing foreign countries from obtaining classified and controlled spare parts under blanket orders, the Secretary of Defense should direct the Under Secretary of Defense for Policy to require the appropriate officials to modify the Navy's system to revalidate blanket order requisitions when the Navy's country manager replaces spare parts that are requested by manufacturer or vendor part numbers.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: The Navy provided the Defense Security Cooperation Agency (DSCA) with a summary of the results of their test on the Management Information System for International Logistics (MISIL) system, along with their methodology for testing the system, as well as program test data. This recommendation is closed.

    Recommendation: To improve internal controls over the Navy's foreign military sales program and to prevent foreign countries from obtaining classified and controlled spare parts under blanket orders, the Secretary of Defense should instruct the Secretary of the Navy to establish interim policies and procedures, after consulting with appropriate government officials, for recovering classified or controlled spare parts shipped to foreign countries that might not have been eligible to receive them under blanket orders until the Defense Security Cooperation Agency develops guidance on this issue.

    Agency Affected: Department of Defense

    Status: Closed - Not Implemented

    Comments: According to the DOD Inspector General case report, the Defense Security Cooperation Agency (DSCA) reviewed its procedures and believes that existing validation edits precludes shipments to countries lacking a current country-to-country agreement with DOD. According to the case report, DSCA believes no new policy is required. In addition, according to the case report, in cases where an incorrect part is shipped or the wrong customer receives an article, the Supply Discrepancy Report process currently in place provides sufficient means of resolution. GAO does not agree with this action.

    Recommendation: To improve internal controls over the Navy's foreign military sales program and to prevent foreign countries from obtaining classified and controlled spare parts under blanket orders, the Secretary of Defense should instruct the Secretary of the Navy to establish policies and procedures to follow for blanket orders when the Navy's country managers replace spare parts requested by manufacturer or vendor part numbers with corresponding government national stock numbers.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: According to the DOD Inspector General case report, procedures to ensure that Navy country managers follow established policies and procedures when replacing spare parts requested by manufacturer or vendor part numbers with corresponding government national stock numbers, have been included in NAVICP P76-001/NE, issued on January 21, 2005.

    Recommendation: To improve internal controls over the Navy's foreign military sales program and to prevent foreign countries from obtaining classified and controlled spare parts under blanket orders, the Secretary of Defense should instruct the Secretary of the Navy to require that the Navy's country managers manually enter blanket order requisitions into the Navy's system to correctly represent foreigncountry-initiated orders versus U.S. government-initiated orders so the Navy's system will validate whether the foreign countries are eligible to receive the requested spare parts.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: According to the DOD Inspector General case report, procedures to ensure that Navy country managers manually enter blanket order requisitions for foreign country initiated-orders, so that the system will validate whether foreign countries are eligible to receive the requested spare parts, were included in NAVICP P9761-001/NE and issued on January 21, 2005.

    Recommendation: To improve internal controls over the Navy's foreign military sales program and to prevent foreign countries from obtaining classified and controlled spare parts under blanket orders, the Secretary of Defense should instruct the Secretary of the Navy to establish policies and procedures for the Navy's country managers to follow when documenting their decisions to override the system when manually processing blanket order requisitions.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: DOD concurred with this recommendation. According to the DOD Inspector General Case report, on January 21, 2005, the Navy Inventory Control Point (NAVICP) issued procedures for processing waiver requests, requisitions processed as controlled exceptions, and manually prepared requisitions for restricted material in order to document decisions made to override the system.

    Recommendation: To improve internal controls over the Navy's foreign military sales program and to prevent foreign countries from obtaining classified and controlled spare parts under blanket orders, the Secretary of Defense should instruct the Secretary of the Navy to determine and implement the necessary changes required to prevent the current system from erroneously approving blanket order requisitions for classified spare parts until the new system is deployed.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: According to the DOD Inspector General Case Report, as of March 2005, the Navy made a request on February 8, 2005 for an interim change in its Management Information System for International Logistics (MISIL) system, to prevent it from erroneously approving blanket order requisitions for classified spare parts. Documentary evidence obtained from the Navy shows that Navy officials completed a systems change in MISIL, as of June 2005, to tighten National Stock Number (NSN) requisition security for classified/controlled materiel, to ensure blanket order requisitions are not approved for classified and controlled materiel.

    Recommendation: To improve internal controls over the Navy's foreign military sales program and to prevent foreign countries from obtaining classified and controlled spare parts under blanket orders, the Secretary of Defense should instruct the Secretary of the Navy to consult with the appropriate officials to resolve the conflict between the DOD and Navy policies on the Navy's use of waivers allowing foreign countries to obtain classified spare parts under blanket orders.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: The Defense Security Cooperation Agency (DSCA) provided a memorandum to the Naval Inventory Control Point (i.e., Navy), dated January 21, 2005, which sets forth requirements for the Navy to adhere to regarding the use of waivers for classified parts under blanket orders. According to the memo, no shipment of classified or restricted/controlled materiel or publication may be made to FMS customers without specific release authorization from Navy International Programs Office (IPO) or Naval Inventory Control Point Office (NAVICP-OF). This recommendation is closed.

    Apr 22, 2014

    Apr 18, 2014

    Apr 16, 2014

    Apr 11, 2014

    Apr 10, 2014

    Apr 9, 2014

    Apr 8, 2014

    Looking for more? Browse all our products here