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) S Do not wlke avallable. to ble rsad 3- s _ 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 (~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~· 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
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)