Rebuttal of Defense Comptroller's Reply to Quality Assurance Cost Report

In a report dated March 22, 1979, GAO disclosed that during the past 6 fiscal years the Department of Defense (DOD) had not charged an estimated $370 million for quality assurance services provided on items sold to foreign countries, even though recovery of costs for these services had been required since 1970. Failure to recover the costs resulted from inadequate implementation of pricing policies by the military departments and Defense agencies, and insufficient followup or monitoring of the departments' and agencies' actions by DOD policymakers. GAO recommended in its report that responsibility for insuring effective and consistent implementation of foreign military sales pricing policies should be assigned to an organization which could follow up and monitor implementation of foreign military sales pricing policies. The Assistant Secretary of Defense did not accept this recommendation because: (1) followup to assure compliance with Defense policies should be the responsibility of internal audit staffs, inspector general teams, and financial quality assurance organizations, and (2) he believed that a new foreign military sales "audit/inspection" organization would not be the most efficient use of available personnel. Further, he questioned the estimate of up to $370 million in costs not recovered for quality assurance services, but advised that corrective action had been initiated to recover those costs and to avoid incurring future deficits. Cumulative foreign military sales since 1972 have totaled about $70.2 billion, and during that time GAO has issued 30 reports on deficient accounting, billing, and collecting on foreign military sales. Since 1976 over $1 billion in unrecovered costs on selected sales cases have been identified. GAO believes that corrective action is long overdue, and that DOD should provide sufficient resources to ensure that its pricing policies are effectively implemented.