These advance payments are held in an FMS trust fund by the Department of the Treasury. As a result, FMS customers’ trust fund accounts were not being charged for millions of dollars of these costs for major defense equipment items they had received. Millions of Dollars Not Recovered

DOD’s reports on nonrecurring costs for current sales cases show that as of March 1998, the Air Force and Navy had over $655 million of nonrecurring research, development, and production costs for major defense equipment sales that had not been recovered from FMS customers. From July 1993 through November 1995, 48 F-16 aircraft were delivered to South Korea. While DOD’s accounting records showed that the FMS customer’s account had been charged for over $1.3 billion to pay the contractor and DOD activities for their costs, the Air Force program office had not completed the necessary delivery and cost reports in order to recover the U.S. government’s nonrecurring costs of $1,018,050 per aircraft. Recommendations

We recommend the Secretary of Defense direct the Under Secretary of Defense (Comptroller) to require the Air Force and Navy to recover the over $183 million identified in this report as nonrecurring research, development, and production costs that have not been charged to FMS customers’ trust fund accounts for major defense equipment that has already been delivered, review all the other open FMS cases that require FMS customers to pay a proportionate amount of nonrecurring research, development, and production costs for major defense equipment and recoup nonrecurring costs that have not yet been recovered for items that have already been delivered to FMS customers, and follow DOD policies and procedures for reporting the delivery of major defense equipment so that the FMS customers’ accounts can be charged with nonrecurring research, development, and production costs and amounts transferred to the general fund of the Treasury within the 30 days required by DOD policy.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the Department of Defense's (DOD) ability to account for and report on the full costs of the foreign military sales (FMS) program, focusing on DOD's: (1) recoupment of monies owed by FMS customers for the U.S. government's research, development, and production costs of major defense equipment; and (2) accountability over expenditures of FMS customers' funds. GAO focused on Air Force and Navy activities.

What GAO Found

GAO noted that: (1) the Air Force and Navy were not always recovering nonrecurring research, development, and production costs from the FMS trust fund as major defense equipment items were delivered to the FMS customer; (2) specifically, GAO identified over $183 million of nonrecurring costs related to items that were delivered--some as long ago as 1989--that had not been charged to the FMS customers' trust fund account; (3) for example, between July 1993 and November 1995, South Korea received 48 F-16 aircraft on a FMS case managed by the Air Force; (4) GAO's review of the case disclosed that no deliveries had been reported for the purpose of recovering nonrecurring research, development, and production costs; (5) had the Air Force followed DOD's procedures and reported the deliveries and recouped the nonrecurring costs within 30 days of physical delivery of the aircraft, it would have already charged South Korea's trust fund account for over $49 million of nonrecurring research, development, and production costs; and (6) Air Force and Navy officials agreed that FMS customers were not being properly charged for millions of dollars of nonrecurring costs for major defense equipment items they had received and have begun to take actions to recover the outstanding amounts.