oversight

Accounting and Reimbursement for Foreign Military Sales

Published by the Government Accountability Office on 1977-01-28.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                         DOCUMENT FESUME

02478 -[A1712713] (Restricted)

[Accounting and Reimburseaent for Foreign Military Sales].
January 28, 1977. 3 pp. + enclosure ,1 pp.).

Report to Col. Emil J. Klingenfrs, Deputy Commander, Department
of the Army: International Logistics Command, New Cumberland,
PA; by Allen R. Voss, Regional Manager, Field Cperdtions Div.:
R-ei-o-n-a-l Office -(Philadolphi-a)-..--.-- - - ---

Issue Area: Accounting and Financial Peporting (2809):
    International Economic and Military Programs: Foreign
    Military Sales (605)
Contact: Field Operations Civ.: Regional Office (Philadelp:.ia)
Budget FunFtion: Miscellaneous: Financial Management and
    Informxation Systems (1002).

         A review was completed at the Army International
Logistics Command of the accounting and reimbursement of
administrative expenses, including civilian and military
personnel ccsts, connected with foreign -cilitary sales.
Findings/Conclusions: Unnecessary loss of revenue to the
Government was discovered. The 2% administrative surcharge is
not being billed to foreign customers on certain cases although
the Letter of Offer and Acceptance (DD Form 1513) provides for
the surcharge. These caser are erroneously recorded (coded) in
the computer master program as being exempt from the surcharge.
The cause of the incorrect coding was not determined, because of
lack of documentation. However, a recently introduced
programming system will assure correct coding in the future. To
cite an example of the revenue loss, of 117 cases reviewed out
of 149 cases supposedly exempt from the surcharge, 66 cases were
actually subject to the surcharge, for a loss of $940,000.
Recommendations: Reviews should be performed of DD Form 1513s
for the 32 partially exempt cases and the 32 entirely exempt
cases not examined by GAO to identify improperly coded items in
the master record. The master program should be corrected for
all 66 cases found plus any additional cases identified.
Customers should be rebilled to assess the surcharge erroneously
omitted. (DJM)




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       Or)   ,o/~UNITED                    STATES GENERAL ACCOUNTING OFFICE
                                                 REGIONAL OFFICE
                                          43 WALNUT STREET - ELEVENTH FLOOR
                                          Pt ILADIELPA. PIZNI'SYLVANIA   1ll04




aXo                                                               January 28, 1977
r,.

             Culonel Emil J. Klingenfus
  --   -~De'p-u                     ..
                          y~Commiander
             United States Army International
               Logistics Command
j ,          New Cumberland Army Depot
             New Cumberland, Pennsylvania 17070
             Dear Colone, Klingenfus:
                    Representatives of this office recently completed a
             review at your command of the accounting and reimbursement.
             for administrative expenses,. including costs of military and
             civilian personnel, connected with Foreign Military Sales
             (PMS).   This assignment originated from a request by the
             Senate Committee on Armed Services.
                  On December 17, 1976, we met with representatives of ycu;
             staff to discuss the resultL of our work. We would like to
             call your attention to a problem area disclosed during our
             review which we be_'.eve deserves remedial action so that an
             unnecessary loss of revenue to the Government may be avoided.
                  Essentially, the problem is that the 2 percent
             administrative surcharge is not being billed to foreign
             customers Ch certain cases although the Letter of Offer and
             A'ceptance (DD Form 1513) provides for the surcharge. These
             cases are erroneously recorded icoded) in the computer master
             program record as being exempt from the surcharge. 1Lis causes
             the surcharge to be omitted from customer billings during the
             automated processing of invoices received from commodity
             commands and other suppiying activities.
                  As of September 23, 1976, the master program record showed
             149 cases to be entirely exempt and 32 cdses partially exempt,
             exclusive of cases with Canada and Germany. We reviewed the
             DD Form 1513 for 117 of the 149 cases recorded as entirely
             exempt and found that 66 cases were actually subject to the
             surcharge.  For these 66 cases, the total program value subject




                                  (~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ยท
    to the surcharge was about $47 million, which indicates a
    potential revenue loss of $940,000. We did not review the
    DD Form 1513 for the remaining 32 cases recorded as entirely
    exempt because the files were not readily accessible. Of
    these, 16 cases were recently closed, 15 were classified, and
    1 was pending implementation. Although we did not completely
    research the 32 cases recorded as cartially exempt, our test
    of two cases disclosed that both were entirely subject to the
    surcharge, according to the DD torm 1513.
         We could not determine the cause for the incorrect coding
-   in the-master program rec6rd-ec-aue'-of a lack of documentation.
    The Directorate for Management Information and Systems coded
    the master program record for exempt cases and line items on
    the basis of notification by the Directorate for-Program
    Operations. 'Such notification was informal and no records
    were kept.
         We wete informed by representatives of your command that
    the recent implementation of the Centralized Integrated System
    for International Logistics will assure correct coding in the
    master program record for the exempt or nonexempt status of FMS
    cases implemented thereafter. Should this be the case, there
    would be no need to strengthen the prccedure we observed for
    coding the master program record.
         We previously furnished to representatives of your
    command a list of country and case designators for the 66
    entirely exempt and 32 partially exempt cases (according to the
    master program record) described above. Enclosed with this
    letter is an additional list of designators for the 32 entirely
    exempt cases for which we did not examine the DD Form 1513.
    We recommend that:
         -DD. Form 1513s for the 32 partially exempt cases and
           32 entirely exempt cases not examined by GAO be
           reviewed to identify any cases or line items improperly
           coded as exempt in the master program record;
        --the master program record be corrected to show the
          proper coding (nonexempt) for the 66 cases as !well
          as for any cases or line items incorrectly coded as
          exempt which may be identified among the other 64
          cases above; and
        -- revised customer billings be processed to assLss the
           surcharge incorrectly omitted on previous billings
           affecting the above cases.



                               -2-



                                                         -             .4
     We wruld apcreciate receiving information on any re-eil1
action by your co.mand on this matter, including (1: the amcunt
of additional billings to customers for previously omitted sur-
charges and (2) the total program value of line items incorrec.;
coded as exempt which may be identified among the 64 cases for
which GAO did not examine the DD Form 1513.

     Information obtained during our review, after consolidation
with data developed at other activitgies, will be reportea to
the Senate Committee on Armea Services.

    ..A copy--of--this--1ette: is b-eiung-sen't-id'-the A-ssistant
Secretary of the Army (Financial Management).



     We wish to thank you and your staff for the cooperation
and courtesies exten-ded to our representatives during their
stay at your command.

                                        Sincerely yo     s,


                                        Allen R. Voss
                                        Regional Manager

Enclosure




                                - 3-
                                                     ENCLOS URE




                    FMS CASES RECORDED IN MASTER

              PROGRAM RECORD AS ENTIRELY EXEMPT

               FROM ADMINISTRATIVE SURCHARGE--

              DD FORM 1513 NOT EXAMINED BY GAO


RECENTLY CLOSED CASES -(16)_                         . _

     Australia           WUB, WUC
     Bolivia             UBQ
     Denmark             BDT, BDW
     Greece              UWC, UYL
     Honduras            UBS
     Italy           ,   NCB
     Japan '             UUL
     Luxemburg           UCA
     Netherlands         UYH
     Singapore           EWM
     Spain               UFN
     Saudi Arabia        UGI
     Switzerland         V4NK

CLASSIFIED CASES (15)

     Iran                UEI
     Israe]              BMA, BMB, BMC, BMD, BME, BMF, BMG
     Italy               GMX
     Korea               BZZ
     Netherlands         GND
     New Zealand         GPC
     NAMSA               UHA
     Saudi Arabia        URA
     Turkey              BZZ

CASE PENDING IMPLEMENTATION

     Spain               UUL