oversight

DOD's Reexamination of Its Fiscal Year 1978 Budget as It Relates to Reimbursements of Foreign Military Training

Published by the Government Accountability Office on 1977-05-06.

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

                                  DOCUMENT RESUME

02188   -   [A'133--3151   (]it   S   d)

[DODis Reexami.nation of Its Fiscal Year 1978 Budget as It
Relates to Reimbursements of Foreign Military Training].
FGMSD-77-40; B-159835. May 6, 1977. 3 pp. + 1 appendix (1 pp.).
Report to Rep. George H. Mahon, Chairman, rouse Committee on
Appropriations; by Paul G. Dembling, Acting Comptrrller General.
Issue Area: Accounting and Financial Reporting (2800).
Contact: Financial and General Management Studies Div.
Budget Function: Miscellaneous: Financial Management and
    Information Systems (1002).
Organization Concerned: Department of Defense; Department of the
    Navy; Department of the Air Force; Department of the Armv.
Congressional Relevance: House Committee on Appropriations.
         The Department of Defense (DOD) reexamined its fiscal
year 1979 budget as it related to reimbursements of foreign
military training. DOD reevaluated its pricing policy for
foreign military training, which includes the International
nilitary Education and Training Program as well as foreign
military sales training. Findings/Conclusions: In general, the
Department's revisions are a major step in providing for the
recovery of the full cost of training foreign students. DOD's
actions indicated an intention to comply with the intent of the
Congress and GAO recommendations concerning the recovery of
these costs. However, under the revi-td pricing guidelines,
prescribed factors for computing military retirement pay and the
cost of other civilian benefits were too low. The revised
pri=ing guidelines also still provide for the use of a 4% asset
use charge for aircraft training in lieu of hourly aircraft use
and attrition rates which would generally res ilt in higher
charges to foreign governments. It is imperatlive that DOD
complete planned evaluations in these areas as soon as possible
and revise training tuition rates as warranted. DOD's estimates
of the amount of increased reimbursements resulting from the
revised pricing policy appeared to be reasonable if ll
assumptions and computations were correct. (SC)
           RESTRICTr3       "'/      i       O--^o             eo-. --        "n eneoat

           by the O     o   .
                  COMIPTROLLER ONERAL OP THr UNITED STATES
                                  WASHIIGOTON.,   D.C.   o "




B-159835
                                                                         May 6, 1977


The Honorable George H. Mahon
Chairman, Committee on Appropriations
House of Representatives

Dear Mr. Chairman:

     Your letter of March 2, 1977, asked that we review the Department
of Defense's effort to reexamine its fiscal year 1978 budget request
as it relates to reimbursements for activities which support foreign
military sales. You also asked the Defense Department to identify
those areas in the fiscal year 1978 budget where direct funding could
be reduced through offsetting reimubursements from foreign military
sales. In discussions with Defense Department officials your office
agreed that the reexamination was to be limited to reimbursements for
foreign military training and transportation services.

     This report covers our review of Defense's reexamination of reim-
bursements f-r foreign military trainiag. As agreed with your office,
we have ,apaiately reported on cur reviaw of reimbursements for trans-
portatioa services. (LCD-77-2Z5, May 4, 1977.)

     We previously reported (FGMSD-76-91, December 14, 1976; and
FGMSD-77-17, March 17, 1977) that the Defense Department's pricing
roli-y for foreign military training resulted in the loss of millions
of dollars and made several recommendations for improvement of pricing
and billing systems.

     The Defense Department's reexamination of its fiscal year 1978
budget for training centered around a reevaluation of its pricing
policy. On April 25, 1977, the Defense Department briefed your office
concerning its plans to revise its pricing policy for foreign military
training which includes training under the International Military
Education and Training Program as well as foreign military sales train-
ing. On May 4, 1977, the Department informed your office that, as a
result of these revisions which were finalized on May 3, 1977, reim-
bursements to the military services Appropriations for foreign military
training would be increased by about $24. 3 million during fiscal year
1978 permitting a reduction in direct funding of this amount. In
addition the Air Force determined for its foreign military training
alone that as a result of the revised guidelines an estimated additional



                                                                                       FGMSD-77-40
B-159835



$11.8 million in reimbursements that would be credited to the Miscellan-
eous Receipts of the Treasury. As discussed in our December 14, 1976,
report to Congress, Defense regulations require that costs recovered
for military retirement pay and depreciation of assets be deposited in
Miscellaneous Receipts. Appendix I shows a breakout of the $24.3 mil-
lion by financing appropriation and military servi:e.

PLANNED REVISIONS TO PRICING POLICY

     In general the Department's revisions are a major step in provid-
ing for the recovery of the full cost of training foreign students.
The Department's actions indicate an intention to comply with the intent
of the Congress and our recommendations concerning the recovery of the
cost of training foreign military students.

     There are issues, however, which remain to be resolved.  Under the
revised pricing guidelines, prescribed factors for computing (1) mili-
tary retirement pay and (2) the cost of other civilian benefits, such
as retirement and health benefits, are too low. The same issue is
add. ssed on pages 23 and 24 of our December 14, 1976, report. Defense
officials advised us that the Department plans to reevaluate the
retirement and benefit factors and will revise them based on the
results of tnt reevaluation.

     We also noted that the revised pricing guidelines still provide for
the use of a 4 percent asset use charge for aircraft training in lieu
of hourly aircraft use and attrition rates wtich would generally result
in higher charges to foreign governments. Defense officials advised
us that although they do not plan to use hourly use and attrition
rates, they will evaluate the validity of the 4 percent charges and
will revise them if warranted.

     It is imperative that the Department complete these evaluation:s as
soon as possible and revise training tuition rates as warranted. As
agreed with your office, we will monitor the Department's progress in
making these evaluations and will review the results.

IMPACT OF THE REVISIONS ON FISCAL
YEAR 1978 REIMBURSEMENTS

     We received Defense's estimates of the amount of increased reim-
bursements resulting from the revised pricing policy on May 4, 1977.
Our work was, therefore, limited to determining how the estimates were
computed and reviewing their reasonableness considering the results of
our prior audits.

     We believe that the methods used by the military services to make
the estimates were adequate.  if all assumptions (for example, the


                                      2
B-159835



number of students to be trained) and computations were correct the
estimate of $24.3 million of additional reimbursements for fiscal year
1978 Defense appropriations would appear to sereasonable.

     It should be noted that the Defense Department has not identified
the total amount of reimbursements included in the fiscal year 1978
budget for foreign military training. We could not determine, there-
fore, whether adequate amounts of estimated reimbursements were offset
against direct appropriations in the budget.

     Defense officials advised us that the Department is develoir.n
budgeting and accounting cystems which will enable them to identify
estimated reimbrursen.ents for foreign military training aud to accumulate
reimburs man-t for training. Thus, information should be available in
future years to track budget estimates and related Reimbursements.



     As your offics asked, we did not request formal written comments
from the Department of Defense. We did informally show and discuss the
contents of this report with Defense officials. Where appropriate
their comments are included. Also, as requested by your offic we are
sending the report to the Senate Committee nn Appropriations, Subcom-
mittee on Defense.
                                       Sincerely yours,




                              Acting   Comptroller General
                                       of the United States




                                       3
APPENDIX I                                                     APPENDIX I



                ESTIMATED AMOUNT OF INCREASES IN REIMBURSEMENTS

                 BY MILITARY SERVICE APPROPRIATION APPLICABLE

                   TO i     EIGN MILITARY TRAINING TO BE PROVIDED

                          BY DEFENSE DURING FISCAL YEAR i978



                                    Appropriation
                             Operation and   Military
Military service              maintenance    personnel               Total

Air Force                    $ 6,600,000      $ 8,100,000      $14,700,000

Army                           4,425,000          2,294,000         6,719,000

Navy                           1,562,000          1,300,000         2,862,000

Marine Corps                       3,000             38,00041,000

       Total                  12,590,000     $
                                             $2    732000        4,322,000




               Total~~~~~~~~~~~