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Highlights

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.

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Recommendations

Matter for Congressional Consideration

Matter Status Comments
Congress should amend the Arms Export Control Act to require that all sales from DOD inventories reflect the cost of normal inventory losses.
Closed - Not Implemented
DOD is taking other policy action that it feels will correct the problem.

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Defense 1. The Secretary of Defense should prescribe a more realistic inflation index.
Closed - Implemented
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
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.
Closed - Not Implemented
Because DOD generally disagreed with the findings and conclusions, no past undercharges will be recovered.
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.
Closed - Implemented
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Department of Defense 4. The Secretary of Defense should instruct DOD components to use compound inflation factors when estimating replacement cost.
Closed - Not Implemented
DOD believes the inclusion of a more realistic inflation factor will solve the problem.

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