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Unauthorized Shipments of Classified and Controlled Spare Parts to 
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Report to the Honorable Tom Harkin, U.S. Senate: 

United States General Accounting Office: 

GAO: 

June 2004: 

FOREIGN MILITARY SALES: 

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

GAO-04-507: 

GAO Highlights: 

Highlights of GAO-04-507, a report to the Honorable Tom Harkin, U.S. 
Senate: 

Why GAO Did This Study: 

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.

What GAO Found: 

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 internal control inadequacies are as follows: 

* 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 requisitions to bypass the system’s 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.

What GAO Recommends: 

GAO recommends that the Navy resolve the differences between DOD and 
Navy policy on foreign countries’ use of waivers, establish policies to 
recover items shipped to countries not entitled to receive them, and 
document the reasons for overriding the Navy’s system. Also, GAO 
recommends that the Navy strengthen the system’s internal controls to 
ensure that blanket orders are always reviewed and revalidated, and 
periodically test these controls. 

DOD concurred with five of GAO’s recommendations and partially 
concurred with three other recommendations.

www.gao.gov/cgi-bin/getrpt?GAO-04-507.

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact William M. Solis at 
(202) 512-8365 or solisw@gao.gov.

[End of Section]

Contents: 

Letter: 

Results in Brief: 

Background: 

Internal Controls over the Navy's Foreign Military Sales Are 
Not Adequate: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Scope and Methodology: 

Appendix I: Comments from the Department of Defense: 

Figure: 

Figure 1: The Navy's Requisition Process for Foreign Military Sales of 
Spare Parts: 

Abbreviations: 

DOD: Department of Defense: 

GAO: General Accounting Office: 

United States General Accounting Office: 

Washington, DC 20548: 

June 25, 2004: 

The Honorable Tom Harkin: 
United States Senate: 

Dear Senator Harkin: 

From 1993 through 2002, the Department of Defense (DOD) delivered over 
$150 billion worth of services and defense articles--including 
classified and controlled cryptographic spare parts[Footnote 1]--to 
foreign countries through foreign military sales programs administered 
by the military services. Some sales occurred under blanket orders, 
which are cases that specify a specific dollar value rather than 
specific items. They are designed to simplify supply actions on certain 
categories of items for which foreign military sales customers will 
have a recurring need, such as unclassified spare parts, repair parts, 
minor components, training films, and publications. According to DOD 
policy, the management of classified and controlled spare parts is 
particularly important, given their potential to be released to foreign 
countries that may use them against U.S. interests.[Footnote 2] Also, 
according to DOD policy, DOD is required to control the export of 
technology, goods, and services that contribute to the military 
potential of any country or combination of countries that could prove 
detrimental to U.S. security interests. Under blanket orders,[Footnote 
3] the Navy's policy is intended to restrict certain categories of 
items from being ordered without review such as classified materials.

As requested, this report focuses on whether the Navy has adequate 
internal controls in place to prevent foreign countries from 
requisitioning and receiving, under blanket orders, classified and 
controlled spare parts. Internal control activities include policies, 
procedures, and processes that are essential for the proper stewardship 
of and accountability for government resources, and for achieving 
effective and efficient program results.[Footnote 4] Our overall 
objective was to determine the adequacy of the Navy's internal controls 
for foreign military sales under blanket orders. More specifically, we 
assessed and tested whether key internal controls adequately restrict 
blanket order sales of classified and controlled spare parts to foreign 
countries and determined whether periodic tests were conducted to 
ensure that the Navy's Management Information System for International 
Logistic[Footnote 5]s was working as intended.

As agreed with your office, this report is one in a series on DOD's 
foreign military sales program administered by the military services. 
This particular report focuses on the Navy, which sold classified and 
controlled spare parts to foreign countries valued at over $2.5 million 
for the period October 1, 1997, through April 30, 2003. In July 2003 we 
reported on the adequacy of the Air Force's internal controls over 
shipments of classified and controlled spare parts to foreign 
countries.[Footnote 6] Also, in September 2003 we reported on the 
adequacy of the Air Force's internal controls over shipments of spare 
parts containing military technology to foreign countries.[Footnote 7] 
Furthermore, in April 2004 we reported on the adequacy of the Army's 
internal controls over shipments of classified spare parts and items 
containing military technology to foreign countries.[Footnote 8]

To accomplish our review, we obtained data from the system on 
classified and controlled spare parts that were purchased under blanket 
orders from October 1, 1997, through April 30, 2003. During this 
period, a total of 38 blanket order requisitions for classified and 
controlled spare parts were processed for shipments to foreign 
countries. We verified the Navy's system to determine whether it 
approved and released the selected blanket order requisitions in 
accordance with DOD foreign military sales policies. To conduct this 
work, we obtained from the Navy all blanket order shipments to foreign 
countries for the period mentioned above and matched the spare parts' 
stock numbers to a government database[Footnote 9] to identify the 
classified and controlled parts that were shipped to foreign countries. 
We conducted our review in accordance with generally accepted 
government auditing standards. Further details are presented in the 
Scope and Methodology section of this report.

Results in Brief: 

The Navy's internal controls over foreign military sales pursuant to 
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 internal control inadequacies we 
identified are as follows: 

* The Navy might not have followed DOD policy when it approved blanket 
order requisitions leading to the release of classified spare parts to 
foreign countries. According to Navy policy, classified material can be 
requisitioned under blanket orders when foreign countries obtain 
waivers from the Navy. We identified 26 of 38 requisitions in our 
review for which foreign countries obtained waivers from the Navy to 
release 108 classified spare parts such as circuit card assemblies and 
radar receivers. According to the Defense Security Cooperation Agency, 
the Navy policy contradicts DOD policy, which prohibits the services 
from using waivers to allow foreign countries to obtain classified 
material under blanket orders. Also, according to the policy, the 
agency is not required to approve all blanket order cases and their 
corresponding notes. Nonetheless, Navy officials stated that the 
Defense Security Cooperation Agency approves the Navy's blanket order 
agreements, which contain notes authorizing the Navy to release 
restricted items on a case-by-case basis. In addition, the Navy 
provided examples of blanket order cases that were approved by the 
Defense Security Cooperation Agency and contained the notes allowing 
foreign countries to obtain classified material under blanket orders. 
Also, Navy officials indicated that they have no plans to recover these 
classified parts because the countries were approved to purchase the 
parts under different procedures. We agree with the Navy officials' 
decision. In addition, according to Navy officials, there are no 
written policies or procedures that address the return of materials 
that foreign countries should not have requisitioned and received under 
blanket orders. Without written policies or procedures, the Navy cannot 
be assured that appropriate steps will be taken to recover materials 
shipped to foreign countries that are not eligible to receive them.

* The Navy did not always document its reasons for overriding the 
system to release classified spare parts to foreign countries as 
required. According to the Standards for Internal Control in the 
Federal Government,[Footnote 10] all transactions and other significant 
events need to be clearly documented. The standard states that such 
documentation should be properly managed and maintained and should be 
readily available for examination. We identified 4 of the 38 
requisitions where the Navy's country managers[Footnote 11] overrode 
the system and shipped classified antennas, radar receivers, and 
circuit card assemblies, but the case files did not contain any 
documentation for the transactions explaining the reasons for the 
release of the classified parts. According to Navy records, the Navy 
country managers manually entered four blanket order requisitions into 
the system. According to records from the Naval Inventory Control 
Point, Navy International Programs Directorate,[Footnote 12] the Navy's 
country managers incorrectly submitted these blanket order requisitions 
as "pushed requisitions,"[Footnote 13] which caused the requisitions to 
bypass the control-edit function the system. Also, the Navy 
International Programs Directorate officials did not locate any 
documentation in the case files to indicate if a waiver had been 
obtained for these requisitions.

* The Navy lacks written policies and procedures to guide the 
processing of blanket order requisitions from foreign countries 
requesting spare parts by manufacturer or vendor part numbers. 
Consequently, and in violation of DOD and Navy policy, the Navy 
International Programs Directorate allowed the release of classified 
spare parts under blanket orders to foreign countries that requested 
parts by using manufacturer or vendor part numbers. We identified 2 of 
the 38 requisitions in our review for which the Navy released four 
classified spare parts under blanket orders. When a foreign country 
submits a blanket order requisition for parts by manufacturer or vendor 
part numbers, the Navy's system, which does not recognize part numbers, 
will stop processing the requisition and identify it for manual review. 
If a corresponding government-classified spare part (national stock 
number)[Footnote 14] is identified, the Navy's country manager will 
submit a transaction into the system in order to change the part number 
to a national stock number, and allow the system to continue processing 
the requisition. The requisition for the newly substituted spare part 
then bypasses the system's control-edit function, designed to determine 
the foreign country's eligibility to receive the part.

* The Navy's system lacked control edits over controlled 
cryptographic[Footnote 15] spare parts, and allowed foreign countries 
to obtain these controlled parts under blanket orders without 
determining whether the countries were eligible to receive them. Navy 
policy requires that physical security measures be used to protect 
controlled cryptographic spare parts. According to DOD policy, parts 
containing controlled cryptographic and telecommunication parts are 
considered unclassified but must be controlled, and the loss of these 
parts could adversely affect U.S. national security. DOD materials that 
contain controlled cryptographic parts and secure telecommunications 
equipment are used to deny unauthorized persons information derived 
from telecommunications of the U.S. government related to national 
security. In our review, we identified 5 out of 38 blanket order 
requisitions for which the Navy's system erroneously approved and 
released 32 controlled circuit card assemblies' cryptographic spare 
parts to foreign countries. According to DOD and Navy officials, the 
system was not programmed to review controlled cryptographic item 
codes; consequently, the system automatically approved these 
requisitions and allowed the release of these parts to foreign 
countries. On the basis of our review, which identified the Navy 
system's lack of internal controls over controlled spare parts, the 
Navy has modified the Management Information System for International 
Logistics to review foreign countries' requisitions for controlled 
cryptographic parts and identify them for manual review to determine 
whether the foreign countries requisitioning the parts are eligible to 
receive them. According to Navy officials, they do not plan to recover 
these particular controlled cryptographic parts because the foreign 
countries requisitioning the parts were entitled to receive them.

* The Navy has not conducted periodic tests, as required by federal 
internal control standards to ensure that its system is accurately 
reviewing and approving blanket order requisitions for compliance with 
restrictions and operating in accordance with the Navy's foreign 
military sales policies. GAO's and the Office of Management and 
Budget's internal control standards require that a system such as the 
Navy's be periodically tested to ensure that it is working as intended 
and that the ability to accurately review and approve requisitions is 
not compromised. According to DOD and Navy officials, the last major 
systemwide testing was conducted in 2000, but this test did not 
determine whether the system was accurately reviewing and approving 
blanket order requisitions. According to Defense Security Assistance 
Development Center officials, who are responsible for managing the 
Navy's foreign military sales automated system, periodic tests of the 
Navy's system have not been conducted recently because, in October 
1998, the Defense Security Cooperation Agency directed that no 
additional funds be used to expand the current system. However, Defense 
Security Cooperation Agency officials stated that this directive does 
not preclude the Navy from periodically testing the system and 
reviewing the procedures to assess compliance.

Since the Navy's system has already been modified to review controlled 
cryptographic spare parts requisitioned under blanket orders prior to 
shipping them to foreign countries, we are not making a recommendation 
in this area. We are recommending, however, that the Secretary of 
Defense instruct the Secretary of the Navy to resolve the conflict 
between the DOD and Navy policies on the use of waivers; require that 
the Navy's country managers manually submit into the Navy's system 
correct blanket order requisitions; and establish policies and 
procedures to follow when documenting system overrides and processing 
blanket orders using manufacturer or vendor part numbers. Also, we are 
recommending that the Navy establish policies to recover spare parts 
shipped to foreign countries not entitled to receive them.

We are also recommending that the Secretary of Defense instruct the 
Under Secretary of Defense for Policy to modify the Navy's Management 
Information System for International Logistics so that it validates 
blanket order requisitions on the basis of stock numbers' security 
classifications when items are requested by manufacturer or vendor part 
numbers and to periodically test the Navy's system to ensure that it is 
accurately reviewing and approving blanket order requisitions.

In written comments on a draft of this report, DOD concurred with five 
of our recommendations and partially concurred with three of our 
recommendations. DOD's comments and our evaluation of them are 
discussed on page 19.

Background: 

The sale or transfer of U.S. defense items to friendly nations and 
allies is an integral component of both U.S. national security and 
foreign policy. The U.S. government authorizes the sale or transfer of 
military equipment, including spare parts, to foreign countries either 
through government-to-government agreements or through direct sales 
from U.S. manufacturers. The Arms Export Control Act[Footnote 16] and 
the Foreign Assistance Act of 1961,[Footnote 17] as amended, authorize 
the DOD foreign military sales program.

The Department of State sets overall policy concerning which countries 
are eligible to participate in the DOD foreign military sales program. 
DOD identifies military technology that requires control when its 
transfer to potential adversaries could significantly enhance a foreign 
country's military or war-making capability. Various agencies such as 
the Department of State and DOD are responsible for controlling, in 
part, the transfer or release of military technology to foreign 
countries.

The Defense Security Cooperation Agency, under the direction of the 
Under Secretary of Defense for Policy, has overall responsibility for 
administering the foreign military sales program, and the military 
services generally execute the sales agreements with the individual 
countries. A foreign country representative initiates a request by 
sending a letter to DOD asking for such information as the price and 
availability of goods and services, training, technical assistance, and 
follow-on support. Once the foreign customer decides to proceed with 
the purchase, DOD prepares a Letter of Offer and Acceptance stating the 
terms of the sale for the items and services to be provided. After this 
letter has been accepted, the foreign customer is generally required to 
pay, in advance, the amounts necessary to cover the costs associated 
with the services or items to be purchased from DOD and then is allowed 
to request spare parts through DOD's supply system.

For the Department of the Navy, foreign military sales policy and 
oversight are the responsibility of the Navy International Programs 
Office, under the direction of the Deputy Assistant Secretary of the 
Navy for Research Development, and Acquisition. The Navy International 
Programs Office is primarily responsible for directing, guiding, and 
implementing the U.S. Navy's foreign military sales program. The Naval 
Inventory Control Point, International Programs Directorate is 
responsible for recording, managing, and reporting the material and 
service order transactions associated with the Department of the Navy 
Security Assistance Program.

The Navy International Programs Office's responsibilities begin with 
the initial negotiation of a foreign military sale and end with the 
transfer of items and completion of all financial aspects of the sales 
agreement. Also, the Navy International Programs Office uses an 
automated system called the "Management Information System for 
International Logistics" to support the U.S. Navy's management of the 
foreign military sales program. The Navy originally developed the 
system in 1978, and in October 1997, the Defense Security Cooperation 
Agency transferred the Navy's system to the Defense Security Assistance 
Development Center. The Navy retained responsibility for defining 
system-user requirements, designing new processes, and directing 
programming modifications to the system's applications. However, the 
overall responsibility for providing system information technology 
maintenance support, such as writing and testing the programs and 
coordinating infrastructure support, was transferred to the Defense 
Security Assistance Development Center.

Foreign military sales requisitions for Navy spare parts and other 
items are initially processed through the automated system. For blanket 
orders, the system uses the security classification code,[Footnote 18] 
the cognizance code,[Footnote 19] the Federal Supply Group, federal 
supply class, and the National Stock Number[Footnote 20] to restrict 
the spare parts available to foreign military sales customers. Once the 
system validates a requisition, the requisition is sent to a supply 
center to be filled and shipped. The Navy's requisition process for 
foreign military sales of classified and controlled spare parts is 
shown in figure 1.

Figure 1: The Navy's Requisition Process for Foreign Military Sales of 
Spare Parts: 

[See PDF for image]

Note: This flowchart provides only a brief overview of the complex 
processes in the Navy's foreign military sales process.

[End of figure]

Internal Controls over the Navy's Foreign Military Sales Are 
Not Adequate: 

The Navy's internal controls over foreign military sales pursuant to 
blanket orders are not adequate, placing classified and controlled 
spare parts at risk of being inappropriately shipped to foreign 
countries. We found that the Navy (1) might not have followed DOD 
policy when it approved requisitions under blanket orders leading to 
the release of classified spare parts to foreign countries and that a 
written policy does not exist to recover parts shipped to foreign 
countries that may not be eligible to receive them, (2) lacks adequate 
documentation for overriding the system to release classified spare 
parts, (3) lacks written procedures to guide the processing of blanket 
order requisitions from foreign countries that request parts by 
manufacturer or vendor part numbers, (4) lacked system control edits to 
review blanket order requisitions for controlled cryptographic spare 
parts, and (5) has not conducted periodic tests to ensure that its 
system is performing as intended. As a result of these inadequate 
internal controls, classified and controlled spare parts could be 
shipped to foreign countries that may not be entitled to receive them 
under blanket orders.

Navy Might Not Have Followed DOD Policy When It Approved Requisitions 
Leading to the Release of Classified Spare Parts under Blanket Orders: 

The Navy might not have followed DOD policy when it approved 27 of 38 
blanket order requisitions leading to the release of classified spare 
parts to foreign countries. According to Navy policy, classified 
material can be requisitioned under a blanket order when a foreign 
country obtains a waiver from the Navy. However, according to the 
Defense Security Cooperation Agency, this Navy policy contradicts DOD 
policy, which prohibits the services from using waivers to allow 
foreign countries to obtain classified material under blanket orders. 
From these 27 blanket order requisitions, we identified 26 for which 
the foreign country obtained waivers from the Navy to release 108 
classified spare parts such as circuit card assemblies and radar 
receivers. For these 26 blanket order requisitions, there is a conflict 
in the interpretation of DOD and Navy policy on the use of waivers to 
grant foreign countries access to classified material under blanket 
orders. According to Navy officials, the system identified the 26 
requisitions for review, requiring the Navy's country managers to 
manually review them. The country managers contacted item managers and 
obtained waivers, which allowed them to override the system and release 
the classified materials to foreign countries. In one case, we found 
that the Navy shipped 30 classified towed body[Footnote 21] spare parts 
to a foreign country under a blanket order. Navy International Programs 
Directorate officials stated that the Navy uses waivers to grant a 
foreign country a one-time exception, enabling the country to obtain a 
classified spare part in support of a major end item that the country 
acquired through the foreign military sales program. Also, Navy 
officials stated that the Defense Security Cooperation Agency approves 
the Navy's blanket order agreements, which contain notes authorizing 
the Navy to release restricted items on a case-by-case basis. However, 
according to the DOD policy, the agency is not required to approve all 
blanket order cases and their corresponding notes. Nonetheless, the 
Navy provided examples of blanket order cases that were approved by the 
Defense Security Cooperation Agency and contained notes allowing 
foreign countries to obtain classified material under blanket orders.

Also, we identified 1 out of the 38 requisitions for classified spare 
parts that the system erroneously approved. According to Navy 
officials, the system is programmed to identify for manual review 
classified spare parts that are requested under blanket orders. 
However, the Navy system's history records did not show that the 
country manager manually reviewed or overrode the system to approve the 
release of one blanket order requisition for classified parts. 
According to the Defense Security Assistance Development Center 
officials who are responsible for this part of the Navy's system, the 
records contain information such as the spare parts' security 
classification and federal supply group. Also, the officials stated 
that the system records the security classification code only for those 
codes that have been identified as classified. The item record is 
updated every month and the previous month's data are overwritten in 
the system. At the time of our review, DOD officials could not confirm 
the security classification for the classified parts because the item's 
records had been overwritten. The spare parts' classifications were not 
recorded in the system's history files at the time when the foreign 
country requested the spare parts. According to Navy officials, the 
hard copy for this foreign military sales case file was retired and 
sent to the Federal Records Center. Also, the Navy officials stated 
that either there was no stock item record in the system when the 
foreign country requested the parts or if there were an item record, it 
did not reflect a security classification for the spare part. 
Nonetheless, DOD officials stated that if the same requisition were 
submitted today, the system would identify it for manual review because 
the current item records show that these spare parts are classified. 
Also, DOD officials stated the new DOD Security Assistance system, 
entitled the "Case Execution Management Information System," may 
preclude this type of error in the future. According to the Defense 
Security Cooperation Agency, the initial deployment of the new system 
is expected to begin in the Fiscal Year 2007-8 time frame.

According to Navy policy, the Navy International Programs Directorate 
may advise foreign countries to return parts that the Navy shipped in 
error. However, Navy officials stated that they have no plans to 
recover the classified parts we identified in our review because the 
countries justified the need for the classified parts and obtained 
written waivers. Also, the Navy officials stated that the foreign 
countries could obtain the classified spare parts under a different 
process such as a defined order.[Footnote 22] We agree with the Navy 
officials' decision. However, according to Navy officials, there are no 
written policies or procedures that address the return of materials 
that foreign countries should not have requisitioned and received under 
blanket orders. If this situation were to occur, Navy officials said 
that they would work with the Security Assistance Office located in the 
country involved to recover the material. However, without written 
policies or procedures, the Navy cannot be assured that appropriate 
steps will be taken to recover materials shipped to foreign countries 
that may not be eligible to receive them.

Navy Lacks Adequate Documentation for Overriding System to Release 
Classified Spare Parts: 

The Navy did not always document its reasons for overriding the system 
to release classified spare parts to foreign countries. According to 
the Standards for Internal Control in the Federal Government, all 
transactions and other significant events need to be clearly 
documented. The standards state that such documentation should be 
properly managed and maintained and should be readily available for 
examination. We identified 4 of the 38 requisitions for which Navy's 
country managers overrode the system and shipped classified antennas, 
radar receivers, and circuit card assemblies, but the case files did 
not contain any documentation for the transactions explaining the 
reasons for the release of the classified spare parts. According to 
Navy records, the Navy's country managers manually entered these four 
blanket order requisitions into the system. Navy policy indicates that 
foreign countries may submit requests for spare parts by mail or by 
fax, requiring Navy country managers to manually enter the requests 
into the system so they can be processed, controlled, tracked, and 
recorded. Navy records indicate that if the Navy country managers 
manually submit the requisitions as if the foreign country had 
initiated the requests called "pull requisitions," the system will 
validate them in order to determine whether the foreign country is 
eligible to receive the classified spare parts. However, if the blanket 
order requisitions are referred for review because the spare parts are 
classified, the country manager will use a waiver to override the 
system and allow the system to continue processing the requisitions. 
Nonetheless, if the Navy's country managers submit the requisitions as 
if the U.S. government had initiated the requests--called "pushed 
requisitions,"--the system will cause the requisitions to bypass the 
control-edit function designed to determine whether the foreign 
countries are eligible to receive the parts. According to records from 
the Navy International Programs Directorate, the Navy's country 
managers incorrectly submitted these blanket order requisitions as 
"pushed requisitions," causing the requisitions to bypass the control-
edit function in the system. A "push" type requisition is not subjected 
to the same level of processing checks as a "pull" type requisition. 
Also, the Navy International Programs Directorate officials did not 
locate any documentation in the case files to indicate if there was a 
waiver obtained for these requisitions. However, remarks in the 
system's history files for one requisition indicated that the system 
command was contacted but no further information was available. 
According to Navy officials, country managers are aware that they need 
to maintain documentation of blanket order waiver approvals and 
denials. However, we found that the supporting documentation was not in 
the case files to justify the country managers' decisions to override 
the system to approve and release the classified spare parts.

Navy Lacks Written Policies and Procedures to Guide the Processing of 
Blanket Order Requisitions by Manufacturer or Vendor Part Numbers: 

The Navy lacks written policies and procedures to guide the processing 
of blanket order requisitions from foreign countries that request 
classified spare parts by manufacturer or vendor part numbers. 
Consequently, and in violation of DOD and Navy policy, the Navy allowed 
the release of classified spare parts under blanket orders to foreign 
countries that requested parts by manufacturer or vendor part numbers. 
We identified 2 out of 38 requisitions in our review for which the Navy 
released four classified spare parts (servo amplifiers and network 
bias) under blanket orders.

The Navy attempts to prevent countries from obtaining classified spare 
parts by restricting countries from receiving spare parts associated 
with a unique security classification code and its designated national 
stock number. When a country submits a blanket order requisition by 
manufacturer or vendor part numbers, the Navy's system will identify 
the requisition for manual review because the system does not recognize 
orders entered by manufacturer's or vendor's part numbers. A Navy 
country manager will review the blanket order requisition to identify 
the corresponding government spare part that matches the one requested. 
If a corresponding government spare part is identified, the country 
manager will submit a change in the system and add the correct national 
stock number to allow the requisition to continue processing through 
the system. However, when the system continues to process these 
requisitions, its control-edit function does not check the spare part's 
security classification to determine whether the foreign country is 
eligible to receive the part. According to Navy officials, there are no 
written policies or procedures on processing blanket order requisitions 
when foreign countries request classified spare parts by the 
manufacturer's or vendor's part numbers.

Navy's System Lacked Control Edits for Controlled Cryptographic Spare 
Parts under Blanket Orders: 

The Navy's system lacked control edits over controlled cryptographic 
spare parts and allowed foreign countries to obtain them under blanket 
orders without determining whether they were eligible to receive them. 
According to DOD policy, these controlled cryptographic and 
telecommunication parts, known as "Communications Security items," are 
considered unclassified but must be controlled. The loss of these items 
could adversely affect U.S. national security interests. DOD materials 
that contain controlled cryptographic and secure telecommunications 
parts are used to deny unauthorized persons information derived from 
telecommunications of the U.S. government related to national security. 
We identified 5 out of 38 blanket order requisitions for which the 
Navy's system approved and released 32 circuit card assemblies' 
controlled cryptographic spare parts to foreign countries. According to 
DOD policy, if placed in the wrong hands, controlled cryptographic 
parts could adversely affect U.S. national security. According to the 
Defense Security Assistance Development Center officials, who are 
responsible for this part of the Navy's system, the system was not 
programmed to review the controlled cryptographic item codes, and as a 
result, the system automatically approved and released the parts 
requested by the foreign countries. Navy International Programs 
Directorate and DOD officials were unaware that the system was not 
reviewing controlled cryptographic parts prior to their release to 
foreign countries until we identified the problem. On the basis of our 
review, which identified the Navy's lack of internal controls over 
controlled spare parts, the Navy requested that the system be modified, 
and the Defense Security Assistance Development Center modified the 
system to review foreign countries' requisitions for controlled 
cryptographic parts and identify them for manual review to determine 
the foreign countries' eligibility to receive the parts. Also, 
according to controlled cryptographic item managers, they are required 
by the National Security Agency to verify that the foreign country can 
purchase the spare parts before they are shipped. In addition, Navy 
officials stated that the foreign countries were approved to purchase 
the controlled cryptographic parts and the countries have the weapon 
systems that these parts support. Therefore, according to the 
officials, there is no need to recover the parts. We agree with the 
Navy officials' decision. However, according to Navy officials, there 
are no written policies or procedures addressing the return of spare 
parts that foreign countries should not have requisitioned and received 
under blanket orders.

Navy Has Not Conducted Periodic Tests to Ensure That Its System Is 
Performing As Intended: 

The Navy has not conducted periodic tests, as required by federal 
internal control standards, to ensure that its system is accurately 
reviewing and approving blanket order requisitions for compliance with 
restrictions and operating in accordance with the Navy's foreign 
military sales policies. GAO's and the Office of Management and 
Budget's internal control standards require that a system such as the 
Navy's be periodically tested to ensure that it is working as intended 
and that the ability to accurately review and approve requisitions is 
not compromised. In the Federal Information Systems Controls Audit 
Manual,[Footnote 23] one of the internal control activities listed is 
the testing of new and revised software to ensure that it is working 
correctly. Furthermore, the Management of Federal Information Resources 
manual[Footnote 24] requires that each agency establish an information 
system/management oversight mechanism to provide for periodic reviews, 
enabling the agency to determine how mission requirements might have 
changed and whether the information system continues to fulfill ongoing 
and anticipated mission requirements. A third guide, the Internal 
Control Management and Evaluation Tool [Footnote 25] assists managers 
and evaluators in determining how well an agency's internal control is 
designed and functioning. It lists monitoring as one of five standards 
of internal controls. Internal control monitoring should assess the 
quality of performance over time and ensure that findings from reviews 
are promptly resolved. Ongoing monitoring occurs during normal 
operations and includes regular management and supervisory activities, 
comparisons, reconciliations, and other actions people take in 
performing their duties.

We found that the Navy's system was not programmed to review foreign 
countries' blanket order requisitions for controlled cryptographic 
spare parts. Navy International Programs Directorate and DOD officials 
were unaware of this deficiency until we identified it. On the basis of 
our review, the Navy has modified its system to review foreign 
countries' requisitions for controlled cryptographic spare parts and 
identify them for manual review, to determine the foreign countries' 
eligibility to receive the parts.

Defense Security Assistance Development Center officials indicated that 
periodic tests of the Navy's system have not been conducted because, in 
October 1998, the Defense Security Cooperation Agency directed that no 
additional funds were to be used to expand the current system. However, 
Defense Security Cooperation Agency officials stated that this 
directive does not preclude the Navy from periodically testing the 
system. According to DOD officials, the last major systemwide testing 
was conducted in 2000, but this test did not determine whether the 
system was accurately reviewing and approving blanket order 
requisitions.

DOD officials pointed out that when minor changes are made to the 
system, full regression testing is conducted to verify that the program 
continues to work. As part of our review, we tested the system by 
reviewing the Navy's restrictions applied to historical requisitions 
for classified and controlled spare parts. We found that the system did 
not always perform as intended.

Conclusions: 

The Navy has not maintained effective internal controls over foreign 
military sales conducted under blanket orders. Specifically, since the 
Navy may not have followed DOD policy, which prohibits the release of 
classified spare parts, the Navy might have released classified spare 
parts to foreign countries not eligible to receive them. Also, since 
the Navy has no written policies or procedures on the return of 
materials that foreign countries should not have requested and received 
under blanket orders, the Navy's ability to recover the shipped 
classified or controlled spare parts is lessened. In addition, because 
the Navy lacks adequate documentation for system overrides, the Navy 
will not know the basis for approval of classified spare parts when 
manually processing blanket order requisitions. Furthermore, because 
the Navy has no written procedures to guide the processing of blanket 
orders when foreign countries request spare parts by manufacturer or 
vendor part numbers and because the system does not validate these 
orders, there is no assurance that the Navy will be aware that 
classified spare parts may be shipped to foreign countries not eligible 
to receive them. Also, since the Navy has periodically failed to test 
the Management Information System for International Logistics, the Navy 
may not be able to determine whether its system is in compliance with 
requisitioning policies and procedures. Without adequate internal 
controls, classified and controlled spare parts may be released under 
blanket orders to foreign countries that may not be eligible to receive 
them, thereby providing military technology to countries that might use 
it against U.S. interests.

Recommendations for Executive Action: 

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, we are recommending that 
the Secretary of Defense instruct the Secretary of the Navy to take the 
following six actions: 

* 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.

* 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.

* 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.

* Require that the Navy's country managers manually enter blanket order 
requisitions into the Navy's system to correctly represent foreign-
country-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.

* 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.

* 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.

To improve the Navy system's internal controls aimed at preventing 
foreign countries from obtaining classified and controlled spare parts 
under blanket orders, we are recommending that the Secretary of Defense 
direct the Under Secretary of Defense for Policy to require the 
appropriate officials to take the following two actions: 

* 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.

* Periodically test the system to ensure that it is accurately 
reviewing blanket order requisitions before approving them.

Agency Comments and Our Evaluation: 

The Director of the Defense Security Cooperation Agency commented on a 
draft of this report for DOD and concurred with five of our 
recommendations and partially concurred with three of our 
recommendations.

DOD partially concurred with our proposed recommendation to determine 
why the system erroneously approved a blanket order requisition for 
classified spare parts and make the necessary changes to prevent such a 
problem in the future. The department believes that the blanket order 
requisition in question was processed automatically by the system 
either because the item was not coded as classified at the time the 
requisition was processed or because the Navy's system did not contain 
an item record for the national stock number. However, the department 
stated that historical information was unavailable to determine the 
coding at the time the requisition was originally processed in 1995. 
Moreover, the department believes that preventing this problem in the 
future would require utilizing a comprehensive feed from the Defense 
Logistics Information System of all DOD catalogued items, not just the 
Navy interest items the system currently screens. The department stated 
that the Navy's current system database structure cannot accommodate 
such a comprehensive feed but that its future system would. The 
department emphasized that it would be an inefficient use of resources 
to modify the current Navy's system, particularly given the age of the 
event. According to the department, the new DOD Security Assistance 
system, entitled the "Case Execution Management Information System," 
will accommodate the comprehensive feed of all DOD-catalogued items 
and, therefore, preclude this type of error in the future. According to 
the Defense Security Cooperation Agency, the initial deployment of the 
new system is expected to begin in the Fiscal Year 2007-8 time frame. 
The intent of our recommendation is to ensure that the Navy's system 
would not erroneously approve blanket order requisitions for classified 
spare parts. However, in its comments the department has focused on 
preventing the problem in the future without considering the existing 
problem in the current system. Since the Navy will not consider 
modifying the current system, it cannot be assured that current 
controls will prevent the system from erroneously approving future 
blanket order requisitions for classified spare parts. We continue to 
believe that resources should be utilized to prevent the current system 
from erroneously approving blanket order requisitions for classified 
spare parts until the new proposed system is deployed. Therefore, we 
have modified our recommendation accordingly.

DOD also partially concurred with our recommendation to request Navy 
country managers to manually enter blanket order requisitions into the 
Navy's system to correctly represent foreign-country-initiated orders 
versus U.S. government-initiated orders. The department stated that a 
great majority of these electronically submitted orders are not 
reviewed by the country manager but instead are recognized as foreign 
customer-submitted "pull" requisitions. DOD also suggested that our 
recommendation should be limited to those orders that are manually 
reviewed by a country manager who validates the customer's eligibility 
to receive requested parts. The intent of our recommendation is to 
ensure that Navy country managers manually enter blanket order 
requisitions into the Navy's system correctly so that the system will 
validate whether the foreign countries are eligible to receive the 
requested parts. We continue to believe that "pull" requisitions in 
this instance should be covered under this recommendation because among 
other things, there is no assurance that manually entered blanket order 
requisitions will undergo stringent reviews by Navy country managers to 
validate a customer's eligibility to receive requested parts. In 
addition, allowing the Navy's system to thoroughly validate blanket 
order requisitions will ensure that foreign countries are eligible to 
receive requested parts. Thus, we continue to believe that when the 
Navy country managers manually enter blanket order requisitions for 
foreign-country-initiated orders, they should correctly enter them into 
the Navy's system so the system will validate whether the foreign 
countries are eligible to receive the requested spare parts. Otherwise, 
these types of requisitions would continue to be approved through the 
system without validating the foreign countries' eligibility to receive 
the requested parts.

In addition, DOD partially concurred with our recommendation to recover 
classified and controlled spare parts shipped to foreign countries that 
might not have been eligible to receive them under blanket orders. The 
department noted that this particular issue has been cited in previous 
GAO reports on DOD's foreign military sales programs. The department 
also suggested that the Defense Security Cooperation Agency provide 
standardized policies and procedures. The intent of our recommendation 
is for the Navy to have policies and procedures in place to recover 
classified or controlled spare parts shipped to foreign countries that 
might not have been eligible to receive them under blanket orders. We 
acknowledge the department's comments on recommending that the Defense 
Security Cooperation Agency provide standardized policies and 
procedures for recovering classified and controlled spare parts. 
However, as noted in our report, the Navy currently has no policies and 
procedures addressing this issue. If a foreign country requested and 
obtained classified and controlled spare parts for which it is not 
eligible, the country would not necessarily be likely to report this 
error to the Navy, particularly if the country in question had intended 
to order the parts. Therefore, we have modified our recommendation 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.

DOD also provided technical comments for our consideration in the final 
report and we incorporated changes as appropriate. DOD's formal 
comments appear in appendix I.

Scope and Methodology: 

To determine the adequacy of the Navy's internal controls for foreign 
military sales under blanket orders, we assessed and tested whether the 
Navy's key internal controls adequately restricted blanket orders for 
classified and controlled spare parts sold to foreign countries and 
obtained current DOD and Navy guidance on the foreign military sales 
programs. We also held discussions with key officials from the Naval 
Inventory Control Point, Navy International Programs Directorate, 
Philadelphia, Pennsylvania, to discuss the officials' roles and 
responsibilities, as well as the criteria and guidance they used in 
performing their duties to restrict foreign countries from 
requisitioning under blanket orders classified and controlled spare 
parts. Also, we interviewed the officials regarding the requisitioning 
and approval processes applicable to classified and controlled spare 
parts. In addition, we obtained written responses from officials at the 
Defense Security Cooperation Agency, Washington, D.C., to identify the 
agency's roles and responsibilities regarding the policies and 
procedures relevant to the foreign military sales programs. We also 
interviewed officials from the Defense Security Assistance Development 
Center, Mechanicsburg, Pennsylvania, to discuss their roles and 
responsibilities, as well as the criteria and the guidance they used to 
maintain and oversee the Navy's Management Information System for 
International Logistics to restrict foreign countries from 
requisitioning under blanket orders classified and controlled spare 
parts. Furthermore, we interviewed officials to determine the 
functional and operational controls that are used to validate 
requisitions entered into the system. We also determined whether the 
Navy periodically conducted tests to validate the system to ensure that 
it accurately identified for review and approval blanket order 
requisitions to support foreign military sales. In addition, we 
obtained and reviewed documentation identifying the system tests to 
determine how often they were conducted. Also, we interviewed Navy and 
DOD officials to determine how periodic reviews and tests of the system 
were performed.

To support our analysis, we obtained records from the Navy 
International Programs Directorate on all classified and controlled 
spare parts that were purchased by using blanket orders and approved 
for shipment to foreign countries from October 1, 1997, through April 
30, 2003. Also, we limited our review to blanket orders because defined 
orders and Cooperative Logistics Supply Support Agreements specified 
the parts that countries were entitled to requisition by the national 
stock number. We tested the system by identifying the 38 requisitions 
for classified and controlled spare parts that were shipped under 
blanket orders and reviewed the restrictions applied to determine if 
the system was operating as intended. We verified the Navy's system to 
determine whether it approved and released the selected blanket order 
requisitions in accordance with DOD foreign military sales policies. To 
conduct this work, we obtained from the Navy all blanket order 
shipments to foreign countries for the period mentioned above and 
matched the spare parts' stock numbers to a government database to 
identify the classified and controlled parts that were shipped to 
foreign countries. While we identified some issues concerning the 
appropriate procedures for such spare parts, in all the cases we 
reviewed, we found that the parts had been ordered and shipped from the 
Navy's system.

We conducted our review from May 2003 through April 2004 in accordance 
with generally accepted government auditing standards.

As arranged with your office, unless you publicly announce its contents 
earlier, we plan no further distribution of this report until 30 days 
from the date of this report. At that time, we will send copies of this 
report to the Secretary of Defense; the Secretary of the Navy; the 
Director, Office of Management and Budget; and interested congressional 
committees. We will also make copies available to others upon request. 
In addition, the report will be available at no charge on the GAO Web 
site at http://www.gao.gov.

Please contact me at (202) 512-8365 if you or your staff have any 
questions concerning this report. Key contributors to this report were 
Lawson (Rick) Gist, Jr; Carleen Bennett; Latrealle Lee; Elisah Matvay; 
Arthur James, Jr; Ann DuBois; and Cheryl Weissman.

Sincerely yours,

Signed by:

William M. Solis: 
Director Defense Capabilities and Management: 

[End of section]

Appendix I: Comments from the Department of Defense: 

Note: Part of the enclosure to this letter provided technical comments, 
which we considered and incorporated in our report as appropriate. The 
technical comments are not attached.

Note: Page numbers in the draft report may differ from those in this 
report.

DEFENSE SECURITY COOPERATION AGENCY:

WASHINGTON, DC 20301-2800:

28 MAY 2004:

In reply refer to: 1-04/006540-P3:

Mr. William M. Solis, Director: 
Defense Capabilities and Management: 
U.S. General Accounting Office:
441 G Street, N.W.:
Washington, D.C. 20548:

Dear Mr. Solis:

This is the Department of Defense (DoD) response to the GAO draft 
report, "FOREIGN MILITARY SALES: Improved Navy Controls Could Prevent 
Unauthorized Shipments of Classified and Controlled Spare Parts to 
Foreign Countries" dated April 16, 2004 (GAO Code 350440/GAO-04-507).

DOD acknowledges receipt of the draft report, and we concur with the 
report in principle. Our responses to the eight recommendations posed 
by the GAO, as well as a separate listing of technical/editorial 
comments for the GAO's consideration when preparing the final report 
are attached. We continue to pursue corrective measures to ensure that 
adequate controls are in place to prevent unauthorized shipments of 
classified and/or controlled spare parts to foreign countries.

The Department appreciates the opportunity to comment on the draft 
report. My point of contact on this matter is Ms. Kathy Robinson. She 
may be contacted by email: kathy robinson@dsca.miI or by telephone at 
(703) 601-4368.

Sincerely,

Signed by:

TONE H. WALTERS, JR.:
LIEUTENANT GENERAL, USAF:
DIRECTOR:

Attachments As stated:

GAO DRAFT REPORT - DATED APRIL 16, 2004 GAO CODE 350440/GAO-04-507:

"FOREIGN MILITARY SALES: IMPROVED NAVY CONTROLS COULD PREVENT 
UNAUTHORIZED SHIPMENTS OF CLASSIFIED AND CONTROLLED SPARE PARTS TO 
FOREIGN COUNTRIES":

DEPARTMENT OF DEFENSE COMMENTS TO THE RECOMMENDATIONS:

RECOMMENDATION 1: The GAO recommended that the Secretary of Defense 
instruct the Secretary of the Navy to consult with the appropriate 
officials to resolve the conflict between the DOD and the Navy policies 
on the Navy's use of waivers allowing foreign countries to obtain 
classified spare parts under blanket orders. (p. 17/GAO Draft Report):

DOD RESPONSE: Concur:

RECOMMENDATION 2: The GAO recommended that the Secretary of Defense 
instruct the Secretary of the Navy to determine why the system 
erroneously approved a blanket order requisition for classified spare 
parts and make the necessary changes to prevent such a problem in the 
future. (p. IT( r10 Draft Report):

DOD RESPONSE: Partially Concur. The blanket order requisition in 
question was processed automatically by the system either because the 
item was not coded as classified at the time the requisition was 
processed or the Management Information System for International 
Logistics (MISIL) did not contain an "item record" for the national 
stock number (NSN). Historical information is unavailable to determine 
the coding at the time the requisition was originally processed in 
1995. To prevent this problem in the future it would be necessary to 
utilize a comprehensive feed from the Defense Logistics Information 
System of all DOD catalogued items, not just the Navy interest items we 
currently screen, which is not an efficient use of resources, 
particularly given the age of the event. It is not possible to 
accommodate this in the current MISIL database structure. It will be 
accommodated in the future DOD Security Assistance system, entitled the 
Case Execution Management Information System (CEMIS).

RECOMMENDATION 3: The GAO recommended that the Secretary of Defense 
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. (p. 17/GAO Draft Report):

DOD RESPONSE: Concur:

RECOMMENDATION 4: The GAO recommended that the Secretary of Defense 
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 foreign-country 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. (p. 17/GAO Draft Report):

DOD RESPONSE: Partially Concur. As the great majority of these orders 
(requisitions) are electronically submitted, not reviewed by the 
country managers, and recognized as foreign customer-submitted "pull" 
requisitions, the Recommendation should be limited to orders 
(requisitions) that are manually reviewed by the country managers. The 
rewrite of the Recommendation should be, "The GAO recommended that the 
Secretary of Defense instruct the Secretary of the Navy to require 
that, in situations when the Navy country managers manually enter 
blanket order requisitions into the Navy's system, the country managers 
will validate the customer's eligibility to receive the requested 
parts."

RECOMMENDATION 5: The Secretary of Defense 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. (p.17/GAO Draft Report):

DOD RESPONSE: Concur:

RECOMMENDATION 6: The GAO recommended that the Secretary of Defense 
instruct the Secretary of the Navy to establish policies and 
procedures, after consulting with appropriate government officials, for 
recovering classified or controlled spare parts shipped to foreign 
countries that may not have been eligible to receive them under blanket 
orders. (p. 17/GAO Draft Report):

DOD RESPONSE: Partially Concur. As this issue has been cited in the 
audit of all three military services' audits on FMS Spare Parts, 
recommend that DSCA provide standardized policies and procedures.

RECOMMENDATION 7: The GAO recommended that the Secretary of Defense 
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. (p. 18/GAO 
Draft Report):

DOD RESPONSE: Concur:

RECOMMENDATION 8: The GAO recommended that the Secretary of Defense 
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. (p. 18/GAO Draft Report):

DOD RESPONSE: Concur:

[End of section]

FOOTNOTES

[1] Classified parts are restricted for national security reasons; 
controlled parts are not classified but contain military technology/
applications or are controlled cryptographic parts, hereafter referred 
to as "controlled parts."

[2] Security Assistance Management Manual, DOD 5105.38-M (Oct. 3, 
2003).

[3] The Navy commonly refers to blanket orders as "direct 
requisitioning procedures," "open end requisitioning," or "pull 
requisitioning."

[4] Internal control activities help ensure that management directives 
are carried out. The control activities should be effective and 
efficient in accomplishing the agency's control objectives. U.S. 
General Accounting Office, Standards for Internal Control in the 
Federal Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: November 
1999).

[5] The Management Information System for International Logistics, 
hereafter referred to as "the system," is the Navy's logistics 
information and tracking system for foreign military sales. It 
validates foreign customers' requisitions and determines whether items 
requested are authorized.

[6] U.S. General Accounting Office, Foreign Military Sales: Improved 
Air Force Controls Could Prevent Unauthorized Shipments of Classified 
and Controlled Spare Parts to Foreign Countries, GA0-03-664 
(Washington, D.C.: July 29, 2003).

[7] U.S. General Accounting Office, Foreign Military Sales: Air Force 
Does Not Use Controls to Prevent Spare Parts Containing Sensitive 
Military Technology from Being Released to Foreign Countries, GAO-03-
939R (Washington, D.C.: Sept. 10, 2003).

[8] U.S. General Accounting Office, Foreign Military Sales: Improved 
Army Controls Could Prevent Unauthorized Shipments of Classified Spare 
Parts and Items Containing Military Technology to Foreign Countries, 
GAO-04-327 (Washington, D.C.: Apr.15, 2004).

[9] We used the government database called "FEDLOG," which contains 
logistics information on items in the supply system and provides the 
identification of spare part numbers and their security 
classifications.

[10] U.S. General Accounting Office, Standards for Internal Control in 
the Federal Government, gao/aimd-00-21.3.1 (Washington, D.C.: November 
1999).

[11] We use the term "Navy country manager" to mean an official who 
performs such functions as supply and financial technical work in 
support of the foreign military sales program.

[12] Hereafter referred to as "Navy International Programs 
Directorate."

[13] Requisitions prepared by the U.S. supply system for the customer 
are called "push" requisitions because the U.S. supply system sends 
material to the customer (i.e., as part of the initial set of spare 
parts that accompany a weapon system).

[14] A corresponding government spare part (national stock number) 
identifies a specific item of supply.

[15] Cryptography equipment provides security to telecommunication by 
converting information to a form unintelligible to an unauthorized 
interception.

[16] Pub. L. No. 90-629.

[17] Pub. L. No. 87-195.

[18] It is called the "controlled inventory item code," and it 
indicates the security classification and security risk or controls for 
storage and transportation of DOD assets.

[19] A cognizance code is a two-character alphanumeric code providing 
supply management information, identifying the type of items referred 
to, and identifying the item manager who has control over it.

[20] The Federal Supply Group identifies, by title, the commodity area 
covered by classes within a group and their physical or performance 
characteristics. The Federal Supply Group makes up 2 of the 13 digits 
combined to create the National Stock Number, which identifies a 
specific item of supply.

[21] A towed body is a torpedo countermeasure transmitting set for 
ships.

[22] Defined orders are foreign military sales cases used to specify 
defense articles and services that are identified and approved in the 
letter of agreement.

[23] U.S. General Accounting Office, Federal Information System 
Controls Audit Manual, GAO/AIMD-12.19.6 (Washington, D.C.: January 
1999).

[24] Office of Management and Budget, Management of Federal Information 
Resources (Washington, D.C.: November 2000).

[25] U.S. General Accounting Office, Internal Control Management and 
Evaluation Tool, GAO-01-1008G (Washington, D.C.: August 2001).

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