Internal Controls over the Army’s Foreign Military Sales Are Not Adequate

The Army’s internal controls over foreign military sales using blanket  orders are not adequate, placing classified spare parts, as well as  unclassified items containing military technology, at risk of being shipped  to foreign countries, who are not eligible to receive them. We found that  the Army (1) lacked control edits in its system and allowed the  substitution and release of classified spare parts under blanket orders for  shipment to foreign countries, and that a written policy does not exist to  determine the actions needed to recover these items; (2) lacks adequate  control edits in its system to prevent the release of some unclassified  spare parts and other items containing military technology, and that a  written policy does not exist to determine the actions needed to recover  these items; and (3) has not conducted periodic tests to validate that its  system is accurately reviewing and approving blanket orders. The Army and DOD policies prohibit the release of  classified spare parts, under blanket orders, to foreign countries. The item manager substituted 11 classified digital processors for the  unavailable parts and then released these parts under blanket orders for  shipment to a foreign country. According to Army officials, the foreign  countries were not entitled to receive these items under blanket orders. Based on our  review, the Army has modified the system to validate substituted parts  selected by item managers. Within the 21,663 requisitions for unclassified items containing military  technology that were shipped, we found the following requisitions were  not identified and reviewed before they were released: (1) 17,175  requisitions were for 381,245 items such as circuit card assemblies, fire  control units, and electron tubes that require their inherent military  capability to be destroyed or demilitarized prior to their release to the  public; and (2) 387 requisitions were for 2,267 items that foreign countries  are prohibited from requesting using blanket orders because the spare  parts require release authority from inventory control points. Therefore, according to the officials, in these  particular cases there is no need to retrieve the items. GAO’s and the Office of Management and Budget’s internal control  standards require that a system such as the Army’s be periodically  validated and tested to ensure that it is working as intended and the ability  to accurately review and approve requisitions is not compromised. Defense Security Assistance Development Center officials indicated that  periodic tests of the Army’s system have not been conducted because, in  October 1998, the Defense Security Cooperation Agency directed that no  additional funds be used to expand the current system. However, Defense  Security Cooperation Agency officials stated that this directive does not  preclude the Army from periodically testing the system and its logic. According to DOD and Army officials, they have not tested the system’s  logic for restricting requisitions since 1999 when they initially modified the  system to cancel requisitions for classified spare parts under blanket  orders. Also, the Army lacks  control edits in its system to prevent the release of some unclassified  items containing military technology to foreign countries. Recommendations for 	 To improve internal controls over the Army’s foreign military sales  Executive Action	 program and to prevent foreign countries from being able to obtain  classified spare parts or unclassified items containing military technology  that they are not eligible to receive under blanket orders, we are  recommending that the Secretary of Defense instruct the Secretary of the  Army to take the following two actions:
Modify existing policies and procedures, after consultation with the  appropriate government officials, to cover items shipped in lieu of items  ordered to also ensure the recovery of classified spare parts that have  been shipped to foreign countries that may not be eligible to receive them  under blanket orders.
Why GAO Did This Study

From 1993 through 2002, the Department of Defense (DOD) delivered over $150 billion in services and defense articles--including classified spare parts and unclassified items containing military technology--to countries through foreign military sales programs. GAO was asked to review whether the Army's key internal controls adequately restricted blanket orders for (1) classified spare parts and (2) unclassified items containing military technology. GAO was also asked to determine if periodic tests were conducted to validate the Army's system and its logic.

What GAO Found

The Army's internal controls over foreign military sales are not adequate, placing classified spare parts and unclassified items containing military technology at risk of being shipped to foreign countries that may not be entitled to receive such items under blanket orders. Foreign countries may request items using blanket orders, which are for a specific dollar value and are used to simplify supply actions on certain categories of items. The Army lacked control edits in its system and allowed the substitution and release of classified spare parts under blanket orders for shipment to foreign countries. The Army and DOD policies prohibit the release of classified items, under blanket orders, to foreign countries. GAO identified 3 requisitions in its review, where the item manager released 11 classified digital processors to foreign countries under blanket orders. Because the Army's system did not have control edits in place to validate the substituted parts, classified items were released to foreign countries. Also, the Army has no written policy to determine the actions needed to recover classified items that have been shipped to countries not eligible to receive them. Army officials indicated that the countries were not entitled to receive these items under blanket orders but they could obtain them under a different process; so there is no need to retrieve them, and GAO agreed with their decision. Also, the Army has modified the system to validate substituted parts selected by item managers. The Army lacks control edits in its system to prevent the release of some unclassified items containing military technology requisitioned under blanket orders. Within the 21,663 requisitions that were shipped without a review, GAO found that 387 requisitions were for 2,267 restricted items that foreign countries are prohibited from requesting using blanket orders because the parts require release authority from inventory control points. Also, the Army has no written policies to recover items that have been shipped to countries not eligible to receive them. Army officials said the countries were entitled to request these items, so there is no need to recover the items. The Army has not conducted periodic tests, as required, to validate that its system is accurately reviewing and approving blanket order requisitions. GAO's and the Office of Management and Budget's internal control standards require that a system such as the Army's be periodically tested to ensure that it is working as intended. According to DOD and Army officials, they have not tested the system's logic for restricting requisitions since 1999. Also, the officials stated that the Defense Security Cooperation Agency, in October 1998, directed that no additional funds be used to expand the current system. However, according to the agency, the Army is not prohibited from periodically testing the system.