The Department of Defense's Continued Failure To Charge for Using Government-Owned Plant and Equipment for Foreign Military Sales Costs Millions

FGMSD-77-20: Published: Apr 11, 1978. Publicly Released: Apr 11, 1978.

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During fiscal year 1977, foreign military sales totaled $11.2 billion; these are sales of military articles and services by the U.S. Government to friendly foreign governments and international organizations. Although government-owned plant and equipment are used to produce items sold to other countries, these countries generally have not been charged for their use. Failure to charge foreign governments has cost the United States as much as $107 million.

Of the $107 million in undercharges identified, $77 million related to use of government-owned assets in government-owned, contractor-operator facilities. Although the Department of Defense (DOD) required that other governments be charged for the use of government-owned equipment in contractor-operated plants, it has not made sure that these requirements are implemented. The Air Force and the Navy ignored DOD policies on these matters and did not try to resolve uncertainties about how the asset-use charge should be applied. The Air Force and the Navy also took no action on reports by their audit agencies dealing with failure to charge for using government assets for foreign military sales. While the Army took the necessary action to charge other governments for the use of government-owned assets, one of its commands had not recovered about $1 million on three sales cases. The failure to charge other governments is an example of the overall problem DOD has experienced in determining whether its pricing policies were effectively carried out.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of Defense should: (1) form a task force, consisting of representatives from DOD and the military services, to evaluate whether commands are computing asset-use charges completely and accurately; (2) require that, in the future, officials make sure that new or revised pricing policies are understood by the services and are properly implemented; and (3) make every reasonable effort to recover undercharges which resulted from omitting charges for the use of government assets, including amounts identified by GAO and the services' audit agencies and related to the use of assets in contractor-owned, contractor-operated and government-owned, contractor-operated facilities.

    Agency Affected:


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