Errors in Prices Charged Foreign Military Sales Customers

LCD-77-449: Published: Oct 7, 1977. Publicly Released: Oct 7, 1977.

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A review of free assets conducted at the Army Armament Command from June to August 1975 showed that the Armament Command had charged foreign military sales customers less than the market price for certain 50-caliber M2 machinegun orders. The prices charged for the machineguns should have been based on the prices in effect when the guns were dropped from inventory in accordance with Army policy. However, in spite of directions to recover replacement prices on the M2 machinegun sales, the Armament Command has repriced only five of these orders for an additional $1.6 million. There are 22 other orders which are underpriced by about $60.7 million on which similar action needs to be taken.

The Armament Command's contention that they have a pricing exception regarding machinegun sales is incorrect. Assistant Secretary of Defense and Army Comptroller directives have clearly indicated that the collection of replacement prices for these orders is required. Adjustments should be made and replacement prices collected on all M2 machinegun sales for which items were delivered after the U.S. Army Armament and Material Readiness Command had initially identified the need for replacement in May 1974. The Army also had no basis on which to grant a 20% reduction on the sale of overhauled items to foreign customers, and those discount amounts should also be recouped.

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