Foreign Arms Sales Blasted by Freight Costs

This article appeared in the GAO Review, Vol. 15, Issue 2, Spring 1980. Since its inception after World War II, the Foreign Military Sales (FMS) program has provided free military assistance to our allies under a grant aid program. However, our allies have become capable of buying their own equipment, and the cost of the grant aid program has diminished while the sale of arms has increased. The costs of transportation and accessorial service charges for shipments of FMS material have increased substantially. The costs have been incurred due to the Department of Defense's (DOD) inability to correlate specific shipments to specific sales agreements, and failure to collect reimbursements for transportation charges. This was due in part to difficulties in distinguishing transportation charges for FMS materials from shipments made for our own military services on bills of lading. Percentages to be charged to cover accessorial services were not increased over a long period of time, leading to a loss of income. The DOD was paying more for transportation services than it was recovering from foreign customers. Foreign customers were underbilled or not billed at all. GAO has suggested a new procedure for shipments which alerts the FMS billing office to bill the foreign country involved. DOD policy that each foreign country shall be completely responsible for transportation of its own material is beginning to be realized. If shipments fit parcel post size and weight restrictions, the United States has been paying the postage on FMS shipments. Consequently, millions of dollars of parcel post costs were paid by the Government which never were recovered from the foreign government. Both of the congressional committees which oversee the FMS program have consistently required that full costs of the program be recovered . They have resorted to reducing DOD budget requests by the amounts the committees considered were not being recovered from foreign governments. GAO also reported to Congress that by including FMS shipments in its direct appropriations request the DOD was in effect obtaining more funds than were needed for its purposes, as it was being reimbursed, but not fully, by the foreign governments. This provided them with an unauthorized supplement to their appropriations. Untold amounts of billings will never be recovered and rebilling for shipments made years earlier can only lead to an incalculable amount of ill feelings from the countries involved.