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FGMSD-78-51 1 (1978-08-25)

handle is hein.gao/gaobaaxxt0001 and id is 1 raw text is: DOCOMENT B1ESUME 07079 - [E24274701 The Department of Defense Continues To Imprcperly Subsidize Foreign Military Sales. FGMSD-78-51; a-174901. August 25, 1978. 36 pp. + appendix (2 pp.). Report to the Congress; by Elmer B. Staatse Ccmptroller General. Issue Area: Accounting and Financial Reporting (2800). Contact: Financial and General Management Studies Div. Budget Function: Miscellaneous: Financial Management and Information Systems (1002). Organizaticn Concerned: Department of Defense, Departr--L of the Army; Departmeut of the Air Force; Department of the Navy. Congressional. Relevance: House Committee on Armed services; Senate C imittee on Armed Services; Congress. Authority: Foreign Military Sales Act of 1968, as amended; international Security Assistance and Arms Export Control Act of 1976 (22 U.S.C. 2151). Arms Export Control Act of 1976. DOD Directive 7420.1. DOD Instruction 2140.1. B-165731 (1576). Foreign military sales are transacted under the authority of the International Security Assistance and Arms Export Control, Act of 1976. The legislative histcry of this act indicates that the Congress intended that indirect as well as direct costs of goods and services sold to foreign governments should be recovered so that the foreign military sales program would not be subsidized by Department of Defense (DOD) appropriaticns. Findings/Conclusions: Because of weaknesses in pricing policies and practices, an estimated $69 million of direct and indirect costs for selected slaes cases hove not been charged to foreign governments. The military services did not charge replacement costs for items sold from certain inventories; costs of normal inventory operating stock lojses (an indirect cost; were not allocated to sales %f nonstock funds items; and a breakdown in the Air Force's accounting system led to unrecovered costs on items procured for fireign countries. Not charging the ricfht amou-t for equipment and spare parts is part of the overall problem DOD has experienced in pricing foreign sales. Recommendations: The Secretary of Defense should take action to: revise the method for determining and charging replacement cost for items sold to foreign governments from DOD inventories, revise Defense instruction 2140.1 to require that replacement pricing be used for items sold fro. the stock funJ, and direct the military services to make a reasonable attempt to zecover the undercharges in sales from inventories resulting from thea failure to charge replacement pricing. The Secretary should also: require the Air Force to institute necessary controls sc that foreign governaents are billed replacement costs. requisitions for unauthorized items are not honored, and fcreign country requisitions that will deplete critical inventory items will not be filled; Lequire that supply suppcrt

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