Internal Controls:

Black Marketing of U.S. Commissary and Base Exchange Merchandise in South Korea

NSIAD-91-38: Published: Oct 30, 1990. Publicly Released: Nov 30, 1990.

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Pursuant to a congressional request, GAO reviewed the black marketing of duty-free goods acquired from U.S. retail outlets in South Korea for profit or personal gain.

GAO found that: (1) there were a large number of Korean outlets selling a variety of such duty-free goods as food and liquor obtained from the U.S. Forces, Korea (USFK) retail system; (2) products with unusually high sales rates included rice, canned meat, hot dogs, cheese, and hair spray; (3) a commissary study showed that during the 1988 Summer Olympics, sales of 40-ounce bags of chicken drumsticks increased from 12,000 bags per month to an estimated 40,000 bags per month; (4) USFK retail outlets received 314,748 1-liter bottles of a certain brand of scotch in 1988, a significantly higher number than European retail counterparts received; (5) black marketeers were able to obtain duty-free merchandise operating within the ration control system because purchase limits were high and small purchases were not recorded; (6) cashiers' complicity with black marketeers was a major problem; (7) USFK reported that actual theft was not significant, but inventory shortages indicated instances of theft of products that could have ended up on the black market; (8) black marketeers received diverted merchandise and used fraudulent or altered ration control plates and identification cards; (9) as much as 26 percent of certain appliances and stereo equipment at 2 stores was purchased with fraudulent ration control plates; (10) USFK did not implement the ration control system as designed; and (11) USFK changes to the system have weakened it and facilitated transferring goods to the black market.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: DOD concurred with the recommendation and stated that U.S. Forces, Korea, was implementing a new ration control program. The new program is similar to ration control programs operated in other commands worldwide. It rations liquor purchases, less beer and wine, and cigarettes, monitors the purchase of high-value items, and permits unrestricted use of commissary and exchanges by soldiers.

    Recommendation: The Secretary of Defense should direct the Commander, U.S. Forces, Korea, to implement cost-effective ration control system procedures that provide reasonable assurance that the objectives of the system will be accomplished.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: DOD concurred but stated that as long as the Korean market remains restricted, the black market will continue to be lucrative. DOD stated that there had been recent progress in the General Agreement on Tariffs and Trade and that a successful conclusion to the talks promise to open the Korean market and thus reduce the black market.

    Recommendation: The Secretary of Defense should direct the Commander, U.S. Forces, Korea, to work with the U.S. embassy officials in Korea to develop new approaches to encourage the Korean government to increase its efforts to deter black market activities.

    Agency Affected: Department of Defense

 

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