GAO evaluated recent Department of Defense (DOD) actions to improve its financial management of the foreign military sales program and to reduce its budget by eliminating subsidies to the program. GAO focused on the actions taken by DOD to revise and implement the policies, procedures, and accounting systems used to price sales of secondary items to foreign customers. GAO also discussed whether prices billed to foreign customers for secondary items were adequate to replace the items in DOD inventories and thus avoided subsidization of the program.
Matter for Congressional Consideration
|Congress should amend the Arms Export Control Act to require that all sales from DOD inventories reflect the cost of normal inventory losses.||DOD is taking other policy action that it feels will correct the problem.|
Recommendations for Executive Action
|Department of Defense||1. The Secretary of Defense should prescribe a more realistic inflation index.|
|Department of Defense||2. The Secretary of Defense should direct the military services to make every reasonable effort to recover from foreign governments the past undercharges in sales of secondary items.|
|Department of Defense||3. The Secretary of Defense should use the quality assurance unit recently established at the Security Assistance Accounting Center to ensure that DOD components adequately and uniformly implement the revised estimation procedures.|
|Department of Defense||4. The Secretary of Defense should instruct DOD components to use compound inflation factors when estimating replacement cost.|