Air Force Does Not Recover All Required Costs of Modification Kits Sold to Foreign Governments

PLRD-82-111: Published: Aug 27, 1982. Publicly Released: Aug 27, 1982.

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GAO conducted a review to determine whether Air Force procedures and practices ensure recovery of the costs of modification kits sold under the foreign military sales program and, if not, to identify those costs which are not being recovered.

GAO found that Department of Defense (DOD) pricing policies, which were designed to eliminate subsidies in the foreign military sales program, have not been effectively implemented by the Air Force. Some Air Force regulations and guidelines on pricing are ambiguous and confusing. As a result, many costs incurred in providing modification kits have not been charged to foreign governments. One Air Force regulation classifies certain costs as nonrecurring, while another regulation classifies those same costs as recurring. Air logistics centers do not have procedures to validate or update prices for modification kits that are installed on foreign-owned equipment undergoing overhaul at Air Force facilities. The Air Force does not have procedures to identify and accumulate costs incurred when modification kits are assembled in-house by Air Force personnel. As a result, the costs for direct labor, transportation, packing, crating, and the use of government-owned facilities are not being recovered. GAO concluded that ambiguous guidance, inadequate procedures, and the resultant undercharges are due in large part to fragmented management within the Air Force Logistics Command. GAO also found that the San Antonio Air Logistics Center, in particular, did not charge hundreds of thousands of dollars to foreign governments even when clear and concise pricing procedures were provided. GAO believes that significant costs have not been recovered and that these undercharges will continue in future sales unless the regulations and procedures for pricing these items are revised.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: The Air Force and DOD have taken the position that it would not be cost-effective to reprice technical publications retroactively.

    Recommendation: The Secretary of the Air Force should direct the Air Force Logistics Command to require the San Antonio Air Logistics Center to specifically review all modification shipments made to foreign governments since October 1, 1978, and determine how much each foreign government was charged for technical publications. In cases where prices charged deviated from DOD pricing policies, revised billings should be submitted to the foreign governments.

    Agency Affected: Department of Defense: Department of the Air Force

  2. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of the Air Force should direct the Air Force Logistics Command to require air logistics centers to review their current operational procedures to ensure that they are in line with the full recovery policy and to identify and bill foreign governments for any undercharges. Specific areas that should be reviewed by all logistics centers are modification cases under which kits were: (1) installed on foreign-owned items being overhauled; and (2) assembled at Air Force facilities by Air Force personnel.

    Agency Affected: Department of Defense: Department of the Air Force

  3. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of the Air Force should direct the Air Force Logistics Command to provide the air logistics centers with proper identification of the various recurring costs that should be charged directly or appropriately allocated to foreign governments.

    Agency Affected: Department of Defense: Department of the Air Force

  4. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of the Air Force should effectively implement established procedures at the air logistics centers that will: (1) capture and accumulate direct cost data for in-house efforts so that administrative charges can be applied properly; and (2) ensure proper pricing for modification kits assembled for installation on foreign-owned equipment being overhauled at Air Force facilities.

    Agency Affected: Department of Defense: Department of the Air Force

  5. Status: Closed - Not Implemented

    Comments: The position of the Office of the Assistant Secretary of Defense is that the responsibility is and has been fixed at the Air Force Logistics Command/AC, Comptroller organization.

    Recommendation: The Secretary of the Air Force should specifically fix responsibility within the Air Force Logistics Command to ensure effective implementation of this policy.

    Agency Affected: Department of Defense: Department of the Air Force

  6. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of the Air Force should revise and, to the extent practical, consolidate the various Air Force regulations and guidelines to bring them in line with the DOD pricing policy of full recovery of costs.

    Agency Affected: Department of Defense: Department of the Air Force

  7. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of the Air Force should direct the Air Force Logistics Command to require the San Antonio Air Logistics Center to specifically review all modification sales to foreign governments made since October, 1, 1978, and apply the pricing criteria contained in the Air Force Logistics Command quality control program. In cases where pricing deviations are found, corrective billings should be promptly submitted.

    Agency Affected: Department of Defense: Department of the Air Force

 

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