Defense Exports:
Foreign Military Sales Program Needs Better Controls for Exported Items and Information for Oversight
GAO-09-454, May 20, 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.
Status Legend:
- Review Pending
- Open
- Closed - implemented
- Closed - not implemented
Recommendations for Executive Action
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
Status: Open
Comments: In providing comments on this report, DOD partially concurred with this recommendation and agreed to include guidance that includes risk, among other factors, as a basis for selecting in-country visits. However, DOD has not yet taken any actions necessary to implement this recommendation. On 9/3/10, DSCA provided information regarding the status of the actions taken. They stated that DSCA has initiated action to draft and publish written guidelines in the SAMM for identifying countries to receive Compliance Assessment Visits (CAVs). Currently, a two-year plan for CAYs has been scheduled and sent through formal message notifications to the Combatant Commands (COCOMs) and Security Cooperation Organizations (SCOs). The two-year plan provides a quarterly CAY schedule by COCOM and by country. Additionally, DSCA has coordinated policies with the Office of the Under Secretary of Defense for Intelligence to receive periodic risk assessments on international technology transfers, the proliferation or diversion potential of critical technologies, and information briefings before conducting CAYs. However, specific guidance for performing CAVs is awaiting on final senior management approval before being issued
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
Status: Open
Comments: In providing comments on this report, DOD concurred with this recommendation but has not yet taken any actions necessary to implement it. As of August 2011, DOD did not provide any information regarding the status of the recommendation.
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
Status: Open
Comments: In providing comments on this report, DOD agreed to work with DHS to take action on this recommendation but has not yet taken any actions necessary to implement it. According to DSCA response provided 9/3/10, DSCA and CBP representatives meet regularly to develop processes toensure that the value of all individual shipments does not exceed the total exportable value. A process to designate a primary port for each new FMS agreement is being developed; however, the process can only be applied to cases filed at the port by the Implementing Agency. Under the ITAR, FMS freight forwarders can file FMS export documentation and agreements at a primary port of its choosing. DSCA is working with each of the Military Departments to develop a centralized listing of: (I) where each FMS Letter of Offer and Acceptance and accompanying export documentation are officially filed with CBP that includes the FMS case identifier to ensure only articles from the appropriate case are exported, (2) the date the information was officially filed with CBP, and (3) the point ofcontact for the case. USASAC has this information available on its webpage at http://www.usasac.army.mil/doingbusiness.aspx. The U.S. Navy and Air Force are currently developing similar systems.
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
Status: Open
Comments: In providing comments on this report, DHS concurred with this recommendation and identified several specific actions that it plans to take, including reconvening an interagency working group to address FMS-related issues, obtaining a complete list of closed FMS agreements from DOD, and establishing a list of all primary ports for existing and new FMS agreements. DHS has not yet taken the actions necessary to implement this recommendation. According to CBP response on 9/22/10, Outbound Policies and Programs are working to develop a mechanism for designating and reporting the primary port for new FMS cases. Once that mechanism is developed, a file of all the new FMS cases will be maintained in a centralized location on the CBP intranet. As noted in the final GAO report, CBP requested and received from DOD those FMS cases that were closed prior to FY 2008. The complete list of FMS closed cases have been posted to the CBP intranet to allow access to the field.
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
Status: Open
Comments: In providing comments on this report, State concurred with this recommendation but has not yet taken any actions necessary to implement it. Proposed changes to ITAR 126.6 were made on November 29, 2009, however, the final rule has yet to be announced. According to Chuck Shotwell (Department of State), the update to Section 126.6 has been rolled into other Export Control Reform initiatives for updating the ITAR. It is one among many Federal Register Notices that will go out in 2011.
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
Status: Open
Comments: In providing comments on this report, DOD concurred with this recommendation but has not yet taken any actions necessary to implement it. According to response from DSCA in August 2011, the Defense Transportation Regulation (DTR), Part II, Appendix E (4500.9-R-Part II, Appendix E) was updated to include improved guidance on export requirements and DoD processes for verifying FMS shipment documents. Additional changes will be made to the DTR and the Security Assistance Management Manual after the Department of State publishes revisions to 126.6 of the International Traffic in Arms Regulations (ITAR).
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
Status: Open
Comments: In providing comments on this report, DOD partially concurred with this recommendation and agreed that rigorous data analysis and well-defined, targeted metrics are vital for FMS program administration, and that it will review metrics related to the program at its quarterly FMS forums. However, it has not yet taken any actions necessary to implement this recommendation. According to DSCA's response on 9/3/10, DSCA completed the Fiscal Year 2009 assessment of the administrative surcharge account rate in December 2008. The report recommended that no changes be made to the current surcharge rate of3.8% until DSCA stabilizes the Implementing Agencies' funding levels necessary to support the higher volume of sales. As an example of improving metrics, the processing of Letters of Offer and Acceptance (LOA) was the subject ofa Lean Six Sigma project in April 2008. Using the LOA processing milestones developed in July 2007 and extensive data from the Defense Security Assistance Management System (DSAMS), the project identified steps in the process that could be made more efficient in order to reduce the time taken to offer an LOA to the purchaser. In conjunction with these efforts, a revised LOA processing metric was developed between May and December 2009. Executives approved the concept at the September 2009 SCBF and the changes needed to support the process were made in DSAMS in December 2009.