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Highlights

From 1993 through 2002, the Department of Defense (DOD) delivered over $150 billion in services and defense articles, including classified and controlled items, to foreign countries through foreign military sales programs administered by the military. Foreign countries may request items using blanket orders, which are for a specific dollar value and are used to simplify supply actions on certain types of items. GAO was asked to review whether the Navy's key internal controls restricted blanket orders for (1) classified spare parts and (2) controlled items sold to foreign countries. Also, GAO was asked to determine if periodic tests were conducted to ensure that the Navy's system is working as intended.

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Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Defense 1. To improve internal controls over the Navy's foreign military sales program and to prevent foreign countries from obtaining classified and controlled spare parts under blanket orders, the Secretary of Defense should instruct the Secretary of the Navy to determine and implement the necessary changes required to prevent the current system from erroneously approving blanket order requisitions for classified spare parts until the new system is deployed.
Closed - Implemented
According to the DOD Inspector General Case Report, as of March 2005, the Navy made a request on February 8, 2005 for an interim change in its Management Information System for International Logistics (MISIL) system, to prevent it from erroneously approving blanket order requisitions for classified spare parts. Documentary evidence obtained from the Navy shows that Navy officials completed a systems change in MISIL, as of June 2005, to tighten National Stock Number (NSN) requisition security for classified/controlled materiel, to ensure blanket order requisitions are not approved for classified and controlled materiel.
Department of Defense 2. To improve internal controls over the Navy's foreign military sales program and to prevent foreign countries from obtaining classified and controlled spare parts under blanket orders, the Secretary of Defense should instruct the Secretary of the Navy to establish policies and procedures for the Navy's country managers to follow when documenting their decisions to override the system when manually processing blanket order requisitions.
Closed - Implemented
DOD concurred with this recommendation. According to the DOD Inspector General Case report, on January 21, 2005, the Navy Inventory Control Point (NAVICP) issued procedures for processing waiver requests, requisitions processed as controlled exceptions, and manually prepared requisitions for restricted material in order to document decisions made to override the system.
Department of Defense 3. To improve internal controls over the Navy's foreign military sales program and to prevent foreign countries from obtaining classified and controlled spare parts under blanket orders, the Secretary of Defense should instruct the Secretary of the Navy to require that the Navy's country managers manually enter blanket order requisitions into the Navy's system to correctly represent foreigncountry-initiated orders versus U.S. government-initiated orders so the Navy's system will validate whether the foreign countries are eligible to receive the requested spare parts.
Closed - Implemented
According to the DOD Inspector General case report, procedures to ensure that Navy country managers manually enter blanket order requisitions for foreign country initiated-orders, so that the system will validate whether foreign countries are eligible to receive the requested spare parts, were included in NAVICP P9761-001/NE and issued on January 21, 2005.
Department of Defense 4. To improve internal controls over the Navy's foreign military sales program and to prevent foreign countries from obtaining classified and controlled spare parts under blanket orders, the Secretary of Defense should instruct the Secretary of the Navy to establish policies and procedures to follow for blanket orders when the Navy's country managers replace spare parts requested by manufacturer or vendor part numbers with corresponding government national stock numbers.
Closed - Implemented
According to the DOD Inspector General case report, procedures to ensure that Navy country managers follow established policies and procedures when replacing spare parts requested by manufacturer or vendor part numbers with corresponding government national stock numbers, have been included in NAVICP P76-001/NE, issued on January 21, 2005.
Department of Defense 5. To improve internal controls over the Navy's foreign military sales program and to prevent foreign countries from obtaining classified and controlled spare parts under blanket orders, the Secretary of Defense should instruct the Secretary of the Navy to establish interim policies and procedures, after consulting with appropriate government officials, for recovering classified or controlled spare parts shipped to foreign countries that might not have been eligible to receive them under blanket orders until the Defense Security Cooperation Agency develops guidance on this issue.
Closed - Not Implemented
According to the DOD Inspector General case report, the Defense Security Cooperation Agency (DSCA) reviewed its procedures and believes that existing validation edits precludes shipments to countries lacking a current country-to-country agreement with DOD. According to the case report, DSCA believes no new policy is required. In addition, according to the case report, in cases where an incorrect part is shipped or the wrong customer receives an article, the Supply Discrepancy Report process currently in place provides sufficient means of resolution. GAO does not agree with this action.
Department of Defense 6. To improve the Navy system's internal controls aimed at preventing foreign countries from obtaining classified and controlled spare parts under blanket orders, the Secretary of Defense should direct the Under Secretary of Defense for Policy to require the appropriate officials to modify the Navy's system to revalidate blanket order requisitions when the Navy's country manager replaces spare parts that are requested by manufacturer or vendor part numbers.
Closed - Implemented
The Navy provided the Defense Security Cooperation Agency (DSCA) with a summary of the results of their test on the Management Information System for International Logistics (MISIL) system, along with their methodology for testing the system, as well as program test data. This recommendation is closed.
Department of Defense 7. To improve the Navy system's internal controls aimed at preventing foreign countries from obtaining classified and controlled spare parts under blanket orders, the Secretary of Defense should direct the Under Secretary of Defense for Policy to require the appropriate officials to periodically test the system to ensure that it is accurately reviewing blanket order requisitions before approving them.
Closed - Implemented
According to the DOD Inspector General case report, as of March 2005, the Defense Security Cooperation Agency (DSCA) sent a message to the three Military Departments (MILDEPS) on November 30, 2004, requiring periodic, but no less than annual, testing of the requisition processing segments of the legacy system based on the recommendations found in GAO Report GAO-05-12 (Capping Report). According to the case report, this was followed by a conference call between DSCA and the MILDEPs outlining the procedures and the criteria to be used. According to the case report, the first test took place in May 2005 and DSCA will continue to monitor the results and provide recommendations for change as needed. This recommendation is closed.
Department of Defense 8. To improve internal controls over the Navy's foreign military sales program and to prevent foreign countries from obtaining classified and controlled spare parts under blanket orders, the Secretary of Defense should instruct the Secretary of the Navy to consult with the appropriate officials to resolve the conflict between the DOD and Navy policies on the Navy's use of waivers allowing foreign countries to obtain classified spare parts under blanket orders.
Closed - Implemented
The Defense Security Cooperation Agency (DSCA) provided a memorandum to the Naval Inventory Control Point (i.e., Navy), dated January 21, 2005, which sets forth requirements for the Navy to adhere to regarding the use of waivers for classified parts under blanket orders. According to the memo, no shipment of classified or restricted/controlled materiel or publication may be made to FMS customers without specific release authorization from Navy International Programs Office (IPO) or Naval Inventory Control Point Office (NAVICP-OF). This recommendation is closed.

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