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Foreign Military Sales: Millions of Dollars of Nonrecurring Research and Development Costs Have Not Been Recovered

AIMD-99-11 Published: Oct 20, 1998. Publicly Released: Oct 20, 1998.
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Highlights

Pursuant to a congressional request, GAO reviewed the Department of Defense's (DOD) ability to account for and report on the full costs of the foreign military sales (FMS) program, focusing on DOD's: (1) recoupment of monies owed by FMS customers for the U.S. government's research, development, and production costs of major defense equipment; and (2) accountability over expenditures of FMS customers' funds. GAO focused on Air Force and Navy activities.

Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Defense The Secretary of Defense should direct the Under Secretary of Defense (Comptroller) to require the Air Force and Navy to recover the over +$183 million identified in this report as nonrecurring research, development, and production costs that have not been charged to FMS customers' trust fund accounts for major defense equipment that has already been delivered.
Closed – Implemented
On December 11, 1998, the Under Secretary of Defense (Comptroller) directed the Air Force and Navy to take appropriate actions to collect the over $183 million of nonrecurring costs identified in the report. The Air Force and Navy subsequently collected the over $185 million from the foreign customers' trust fund accounts.
Department of Defense The Secretary of Defense should direct the Under Secretary of Defense (Comptroller) to require the Air Force and Navy to review all the other open FMS cases that require FMS customers to pay a proportionate amount of nonrecurring research, development, and production costs for major defense equipment and recoup nonrecurring costs that have not yet been recovered for items that have already been delivered to FMS customers.
Closed – Implemented
On December 11, 1998, the Under Secretary of Defense directed the Air Force and Navy to review all other open cases and collect nonrecurring costs when it was found that amounts were due. Navy and Air Force recovered $185,231,916 in nonrecurring research, development, and production costs that were not charged to FMS customers' trust fund accounts. These recoveries resulted from the recommendation to recover these costs, as well as their review of other open FMS cases that require FMS customers to pay a proportionate amount of nonrecurring research, development, and production costs for major defense equipment.
Department of Defense The Secretary of Defense should direct the Under Secretary of Defense (Comptroller) to require the Air Force and Navy to follow DOD policies and procedures for reporting the delivery of major defense equipment so that the FMS customers' accounts can be charged with nonrecurring research, development, and production costs and amounts transferred to the general fund of the Treasury within the 30 days required by DOD policy.
Closed – Implemented
On December 11, 1998, the Under Secretary of Defense (Comptroller) issued a letter to the Air Force and Navy instructing them to review pertinent DOD policies and procedures for the reporting and collection of nonrecurring costs recoupment charges.
Department of Defense The Secretary of Defense should direct the Under Secretary of Defense (Comptroller) to direct the Air Force and Navy to review closed FMS cases to ensure that all nonrecurring research, development, and production costs for delivered major defense equipment have been recouped. Initially, this review of closed cases could be limited to a specific period. For example, the review could include FMS cases that were closed during the last 5 fiscal years. If this review discloses that there have been FMS cases closed before all nonrecurring research, development, and production costs were recouped: (1) any amounts due the U.S. government should be recovered from the FMS customer; and (2) the review should be expanded to include closed cases for additional fiscal years.
Closed – Implemented
On December 11, 1998, the Under Secretary of Defense (Comptroller) directed the Air Force and Navy to conduct a sample review of FMS cases that were closed during fiscal years 1994 and 1998 to determine if applicable nonrecurring costs had been billed. The services were to provide the Under Secretary's office with the results of their sample by June 1, 1999. Based on the results of that sample review, the Under Secretary's office will decide whether the sample review should be expanded to include additional fiscal years. As of August 1999, the results of the review had not been communicated to the Under Secretary's office. However, as of October 1999, the Navy and Air Force recovered $185,231,916 in nonrecurring research, development, and production costs that were not charged to FMS customers' trust fund accounts. These recoveries resulted from the recommendation to recover these costs, as well as their review of other open FMS cases that require FMS customers to pay a proportionate amount of nonrecurring research, development, and production costs for major defense equipment.

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Topics

Foreign military salesForeign military sales agreementsForeign military sales policiesMilitary aircraftMilitary cost controlResearch and development costsTrust fundsWeapons systemsU.S. Air ForceU.S. Navy