Defense Exports:

Foreign Military Sales Program Needs Better Controls for Exported Items and Information for Oversight

GAO-09-454: Published: May 20, 2009. Publicly Released: Jun 19, 2009.

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In fiscal year 2008, the Foreign Military Sales (FMS) program sold over $36 billion dollars in defense articles and services to foreign governments. The Departments of State, Defense (DOD), and Homeland Security (DHS) all have a role in the FMS program. In 2003, GAO identified significant weaknesses in FMS control mechanisms for safeguarding defense articles transferred to foreign governments. In 2007, GAO designated the protection of technologies critical to U.S. national security a high-risk area. GAO was asked to (1) evaluate program changes State, DOD, and DHS have made since 2003 to ensure that unclassified defense articles transferred to foreign governments are authorized for shipment and monitored as required, and (2) determine what information DOD has to administer and oversee the FMS program. GAO conducted 16 case studies; analyzed U.S. port data and FMS agreements; reviewed program performance metrics; and interviewed cognizant officials.

Agencies involved in the FMS program have made some changes in the program but have not corrected the weaknesses GAO previously identified in the FMS program's shipment verification process, and the expanded monitoring program lacks written guidance to select countries to visit to ensure compliance with requirements. State--which is responsible for the program and approving FMS sales--has not finalized proposed regulatory revisions to establish DOD's role in the FMS shipment verification process, although the FMS agencies reached agreement on the proposed revisions about a year ago. DHS port officials, responsible for export enforcement, also continue to lack information needed to verify that FMS shipments are properly authorized. GAO found six FMS agreements that had unauthorized shipments, including missile components. In one case, 21 shipments were made after the agreement was closed. At the same time, DOD, which administers the FMS program and FMS agreements, lacks mechanisms to fully ensure that foreign governments receive their correct FMS shipments--in part because DOD does not track most FMS shipments once they leave its supply centers and continues to rely on FMS customers to notify the department when a shipment has not been received. With regard to monitoring defense articles once in country, DOD does not have written guidance to prioritize selecting countries for compliance visits using a risk management approach and has not yet visited several countries with a high number of uninventoried defense articles. DOD lacks information needed to effectively administer and oversee the FMS program. For example, within the last 10 years DOD has twice adjusted the surcharge rate--the rate charged to FMS customers to cover program administration costs--but it does not have information on program costs to determine the balance necessary to support the program in the future. Also, while DOD has a goal to release 80 percent of FMS agreements to a foreign government within 120 days of receiving its request to purchase defense articles, DOD officials stated they do not have the information needed to determine if the goal is reasonable. In addition, DOD lacks information to oversee the program, in large part due to the fact that FMS data reside in 13 different accounting, financial, and case implementation systems. DOD is in the process of defining its requirements for FMS program information before it moves forward with improving its data systems. In the meantime, DOD is relying on systems that do not provide it with sufficient, comparable data to oversee the program's performance.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Defense Transportation Regulation (DTR) was updated to include improved guidance on export requirements and DOD processes for verifying Foreign Military Sales shipment documents. Existing guidance was also clarified in an update of the Security Assistance Management Manual (SAMM). Additional changes will be made to the DTR and the SAMM after the Department of State publishes revisions to 126.6 of the International Traffic in Arms Regulations (ITAR), which have not yet been finalized.

    Recommendation: To establish procedures for DOD verification of FMS shipments, the Secretary of Defense should direct the Under Secretary of Defense for Policy to provide additional guidance to the military services on how to verify FMS shipment documentation.

    Agency Affected: Department of Defense

  2. Status: Closed - Not Implemented

    Comments: In providing comments on this report, State concurred with this recommendation but has not taken any of the actions necessary to implement it. Because more than five years have passed since the report was issued, the recommendation is being closed as not implemented. Changes to the International Traffic In Arms Regulations (ITAR) section 126.6 were drafted in 2009, but were never finalized. DOD's Defense Security Cooperation Agency provided the State Department's Directorate of Defense Trade Controls with proposed revisions related to the recommendation, however the administration's priorities have, since 2010, focused on implementing the presidentially mandated export control reform initiative, with its main task of rebuilding the U.S. Munitions List, thus regulatory changes related to FMS have not been fully evaluated and completed.

    Recommendation: To ensure Customs and Border Protection (CBP) port officials have the information needed to verify FMS shipments are authorized, the Secretary of State should direct the Assistant Secretary for Political-Military Affairs, the Secretary of Defense should direct the Under Secretary of Defense for Policy, and the Secretary of Homeland Security should direct the Commissioner of Homeland Security's U.S. CBP to coordinate on establishing a process for: (1) ensuring the value of individual shipments does not exceed the total value of the FMS agreement; (2) designating a primary port for each new and existing FMS agreement; (3) developing a centralized listing of these primary ports for use by CBP port officials; and (4) providing CBP officials with information on FMS agreements that were closed prior to fiscal year 2008.

    Agency Affected: Department of State

  3. Status: Closed - Not Implemented

    Comments: Although the Department of Homeland Security (DHS) concurred with the recommendation, the agency has not taken all the actions necessary to implement this recommendation. Because more than five years have passed since the report was issued, the recommendation is being closed as not implemented. DHS's Customs and Border Protection (CBP) and DOD's Defense Security Cooperation Agency (DSCA) met most recently on June 16, 2014 to discuss plans for an electronic interface that will ensure the current exportable value of Letters of Offer and Acceptance (LOA) and will align with CBP records of exports. Currently, DSCA is reviewing a draft Memorandum of Agreement with CBP. DHS has not yet finalized its update to the Department of State License Handbook for CBP officers.

    Recommendation: To ensure Customs and Border Protection (CBP) port officials have the information needed to verify FMS shipments are authorized, the Secretary of State should direct the Assistant Secretary for Political-Military Affairs, the Secretary of Defense should direct the Under Secretary of Defense for Policy, and the Secretary of Homeland Security should direct the Commissioner of Homeland Security's U.S. CBP to coordinate on establishing a process for: (1) ensuring the value of individual shipments does not exceed the total value of the FMS agreement; (2) designating a primary port for each new and existing FMS agreement; (3) developing a centralized listing of these primary ports for use by CBP port officials; and (4) providing CBP officials with information on FMS agreements that were closed prior to fiscal year 2008.

    Agency Affected: Department of Homeland Security

  4. Status: Closed - Not Implemented

    Comments: Although DOD concurred with most of our recommendation and partially concurred with the second part of the recommendation, the agency has not yet completed actions to fully implement it. Because more than five years have passed since the report was issued, the recommendation is being closed as not implemented. With regard to part 1 of recommendation 2, DSCA and Customs and Border Protection (CBP) last met on June 16, 2014 to discuss an electronic interface between Information Technology systems. DSCA officials stated that in the future, such an interface will ensure the current exportable value of Letters of Offer and Acceptance (LOA) align with CBP's records of exports. Also in response to part 1 of recommendation 2, DOD has previously updated its policy and guidance related to classified shipments and documenting the cost of repair items correctly. For parts 2 and 3 of recommendation 2, as of July 2014, a centralized port listing and process has not yet been established. DSCA and CBP are working to develop an electronic interface that will identify the exportable value on FMS cases. A system that is accessible to all CBP personnel will eliminate the need to identify a primary port and a centralized listing of primary ports, according to DSCA. In response to part 4 of recommendation 2, DSCA emails a list of closed cases at the end of every fiscal quarter.

    Recommendation: To ensure Customs and Border Protection (CBP) port officials have the information needed to verify FMS shipments are authorized, the Secretary of State should direct the Assistant Secretary for Political-Military Affairs, the Secretary of Defense should direct the Under Secretary of Defense for Policy, and the Secretary of Homeland Security should direct the Commissioner of Homeland Security's U.S. CBP to coordinate on establishing a process for: (1) ensuring the value of individual shipments does not exceed the total value of the FMS agreement; (2) designating a primary port for each new and existing FMS agreement; (3) developing a centralized listing of these primary ports for use by CBP port officials; and (4) providing CBP officials with information on FMS agreements that were closed prior to fiscal year 2008.

    Agency Affected: Department of Defense

  5. Status: Closed - Implemented

    Comments: In July 2013, improvements to the Enhanced Freight Tracking System (EFTS) began as follows: (1) By identifying certain locations for deliveries in the system, EFTS is now able to use geographic location on shipments to determine when milestones are reached. (2) DSCA has funded USTRANSCOM to provide an upgraded data feed to EFTS. The upgrade will provide consolidation information, increased transaction types, and in-transit reports. (3) DSCA issued policy for an online and offline spreadsheet based reporting alternative for security cooperation shipments. DSCA policy 13-01 was implemented on June 20, 2013, and provided delivery reporting instructions for all Building Partner Capacity program shipments.

    Recommendation: To ensure that correct FMS shipments reach the right foreign customers, the Secretary of Defense should direct the Under Secretary of Defense for Policy to examine its existing mechanisms and determine if they can be used to improve tracking of FMS shipments.

    Agency Affected: Department of Defense

  6. Status: Closed - Implemented

    Comments: In 2012, DOD incorporated new guidelines for Compliance Assessment Visits into their Security Assistance Management Manual (SAMM) Chapter 8, Section C.8.5. This section indicates that risk assessments are one of the factors that DSCA considers when determining countries to be scheduled for Compliance Assessment Visits.

    Recommendation: To ensure that FMS defense articles are monitored as required, the Secretary of Defense should direct the Under Secretary of Defense for Policy to create written guidance for selecting in-country visits that consider a risk-based approach.

    Agency Affected: Department of Defense

  7. Status: Closed - Implemented

    Comments: DSCA Policy No. 10-18 was signed on March 26, 2010. It provides performance metrics and established a Letter of Offer and Acceptance (LOA) Anticipated Offer Date to increase responsiveness to the purchaser. The policy is available at: http://www.dsca.mil/samm/PolicyMemos/2010/DSCA%2010-18.htm

    Recommendation: To improve the administration and oversight of the FMS program, the Secretary of Defense should direct the Under Secretary of Defense for Policy to better determine the administrative costs of implementing the FMS program and develop metrics that allow Defense Security Cooperation Agency (DSCA) to comprehensively assess the performance of the FMS program.

    Agency Affected: Department of Defense

 

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