How Military Sales Trust Funds Operate:

Saudi Arabian and Iranian Funds Compared

FGMSD-80-26: Published: Jan 28, 1980. Publicly Released: Feb 25, 1980.

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The Department of Defense (DOD) is requiring the military departments to estimate potential termination liability reserves for foreign military sales agreements. A report discussed the Saudi Arabian, Iranian, and other military sales trust funds and the need for a central clearinghouse controlling disbursements from military sales trust funds.

Although since 1970 DOD has normally required foreign customers to pay, in advance, an amount sufficient to cover, at all times, all costs and damages associated with a sales agreement including potential termination costs, the military services have not uniformly implemented that policy. Information gathered in 1979 will determine the amount of funds necessary to protect the financial interest of the United States should future cancellations occur. Until such funds are collected, the financial interests of the United States will not be fully protected.

Recommendations for Executive Action

  1. 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 Defense should ensure that the military departments uniformly implement DOD procedures for computing termination liability reserves.

    Agency Affected: Department of Defense

  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 Defense should ensure that payment schedules include adequate termination liability reserves and that foreign governments are promptly billed.

    Agency Affected: Department of Defense

  3. Status: Closed - Not Implemented

    Comments: DOD has decided not to implement the recommendation because: (1) two other recommendations in this report were implemented; (2) this one is considered relatively less important; and (3) the report is over 3 years old. Therefore, GAO believes the recommendation should be dropped.

    Recommendation: The Secretary of Defense should ensure that collections for possible contract termination costs be segregated in the trust fund and not be used for routine contractor payments.

    Agency Affected: Department of Defense

  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 Defense should ensure that established procedures for pricing items diverted to second buyers are followed before funds are transferred to the Iranian trust fund.

    Agency Affected: Department of Defense

 

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