Nonrecurring Costs: Improvements Needed in DOD Cost Recovery Efforts

Highlights

GAO reviewed Department of Defense (DOD) efforts to recover nonrecurring costs of major defense equipment sold abroad and reported on: (1) problems with the current pro rata system of cost recovery; and (2) an alternative flat rate method for improving cost recovery.

Recommendations

Recommendations for Executive Action

Agency Affected	Recommendation	Status
Department of Defense	The Secretary of Defense should decide whether to improve the current system or develop a new approach to recover the nonrecurring costs of major defense equipment sold abroad. If the current pro rata system is continued, the Secretary of Defense should direct the Assistant Secretary of Defense (Comptroller) to revise DOD current guidance relative to recouping nonrecurring research, development, and production costs. The revisions should: (1) rescind the current policy of not revising charges unless they increase or decrease by at least 30 percent so that all pro rata charges are based on the most current cost and quantity estimates; and (2) include guidance for calculating a commonality factor between weapon system models and applying that factor when determining charges.	Closed – Implemented The Defense Security Assistance Agency (DSAA) chose to revise the current system by adding significant change factors covering a greater potential universe of charges. Guidance on calculating commonality was added to DOD Directive 2140.2.
Department of Defense	The Secretary of Defense should direct DSAA to ensure that the military services calculate and recoup pro rata charges on the sale of components of major weapon systems, as required by DOD Directive 2140.2.	Closed – Implemented DSAA increased its monitoring of major component charges calculated by the services.

Full Report

Full Report (18 pages)

Media Inquiries

Sarah Kaczmarek

Managing Director

Office of Public Affairs

media@gao.gov

Public Inquiries

Topics

Auditing and Financial Management

Accounting proceduresDefense cost controlForeign military arms salesForeign military sales costsForeign military sales policiesMilitary materielResearch and development costsCost recoveryExport controlsWeapon systems