DOCUMENT RESUME 03459 - [A26337t9]1 rCentralization of the Billing and Collecting Functions of the Foreign Military Sales Program). FGKS$D-77-46; B-174901. September 16, 1977. 5 pp. Report to Secretary, Department of Defense; by D. L. Scantlbury, Director, Financial and General Management Services niv. Issue Area: Accounting and Financial Reporting (28C£,). Contact: Financial and General Management Studies Div. Budget Function: Miscellaneous: Financial Management and Information Systems (1002). Organizaticn Concerned: Department of the Navy; Department of the Army; Department of the Air Force. Congressional Relevance: House Committee on Armed Services; Senate Ccomittee on Armed Services. Although centralization can improve accounting systems and financial management, there are a number of weaknesses in the Air Force Accounting and Finance Center's billing and collecting systei which the Security Assistance Accounting Center used as a model for its centralized system and certain other problems in the Army's and Navy's systems which could adversely affect the centralized system. Findings/Conclusions: An improved system is needed to ccntrol the reporting of foreign military sales deliveries. The Air Force billing process did not insure that funds were received from foreign governments before incurring costs on their behalf. The Air Force accounting system also lacked adequate controls to insure that actual costs incurred for foreign military sales were billed to foreign goteznments. R eccmmendations: The Security Assis-ance Accounting Center should: establish a system to identify deliveries that are not reported or are reported at incorrect prices; charge forecast procedures to make sure that forecasts for all costs to be incurred are included in billing statements; establish systems to assure that all costs are properly billed to foreign governments; and establish controls to assure that revised Department procedures for collecting overdue and delinquent accounts are implemented and to take appropriate acticn on accounts now in a delinquent status. To help assure that the Security Assistance Accounting Center takes necessary acticn to improve the billing and collecting system and to evaluate the effectiveness of the system's changes made since centralization, the Secretary of Defense should direct the Defense 'uditService to review the Center's billing and collecting system. (SC) UNITED STATES GENERAL ACCOUNTING OFFICE WASHIMGCTi'N, D.C. 205 DOVON O4 FINANCIA.. AND OWMAL MANOsMaNT ET.4 0D , B]-174901 SEP 16 1977 -4. The Honorable The Secretery of Defense Dear Hr. Secretary: During our survey of the military services' systems for account- ing, billing, and collecting for foreign military sales, the Department of Defense centralized the billing and collecting functions of the foreign military sales program by establishing -the Security Assistance Accounting Center. We believe centralization can improve accounting systems and financial management. We noted, however, weaknesses in the Air Force Accounting and Finance Center's billing and collecting system, which the Security Assis- tance Accounting Center used as a model for its centralized system, and certain other problems in the Army's and Navy's systems which could ad- versely affect the centralized system. We did not fully develop the extent of or determine the causes for these weaknesses, because during our survey the Department re:-o.ized that improvements were needed in billing and ctllecting for foreign military sales and established the Security Assistance Accounting Center. The problems surmarized below were discussed in detail with Secur- ity Assistance Accounting Cent2r officials in Denver, Colorado, who promised to look into them and take necessary corrective action. Offi- cialr said that many significant changes to improve the billing and collecting system have already been made and that further changes are .rderway and planned. SCOPE OF SURVEY We analyzed Defense regulations, interviewed officials, made limited tests of transactions, and reviewed the work of the military services' internal audit agencies. We made the survey at the Headquarters, Depart- ment of Defense, Army, Navy, and Air Force, Washington, D. C.; Air Force Accounting and Finance Center, Denver, Colorado; the Navy International Logistics ConUtrl Office, Bayonne, New Jersey; the Army Tank-Automotive FGMSD-77-46 (90346) B-174901 Materiel Readiness Command, Warren, Michigan; and the San Antonio Air Logistics Center, Kelly Air Force Base, Texas. We curtailed the sur- vey at the time the decision was made to centralize tha billing and collecting system. WEAKNESSES IN BILLING AND COLLECTING SYSTEMS We observed that: 1. An improved system was needed to control the reporting of for- eign military sales deliveries. The Air Force billing center was, at times, not notified 'hat Defense articles and services had been provided to foreign governments. In the Air Force system, organizaticns providing articles and/or services to foreigr governments were to notily the bill- ing center. If the center was not notified, foreign governmuu.s were not billed. We identified six items costing $24,000 and services cost- ing $6,000 that the Air Force provided to a foreign government in fiscal year 1975 but were not reported to the Air Force Accounting and Finance Center and, therefore, were not billed. Officials agreed to look into this and to bill foreign governments appropriate =mo:mts. A similar problem existed in the Army. The Tank-Automotive Mate- reel Readiness Cammand had not reported all deliveries made to foreign governments to the Army's billing center. We noted an item valued at $32,086 which the Command had not reported to the billing center and, therefore, was not billed. After we told Command officials about this, they billed and collected the $32,086. We also identified some cases where the reporting of delivery infor- mation to the billing center was appreciably delayed. For example, 3 to 7 months elapsed before the billing center was notified that the Tank- Aurtc.otive Materiel Readiness Command had provided 1,151 trucks valued at $10.9 million. 2. The Air Force billing process did not insure that funds were received from foreign governments before incurring costs on their behalf. Foreign customers are generally required to deposit in advance with the U.S. Government an amount equal to the forecast oi deliveries for the next succeeding calendar quarter. Billing procedures, however, did not require payment of forecasted amounts until the second month of the quarter for which the funds were requested. As a result, the United States normally incurred 2 months' costs before receiving foreign zoun- try's funds. Security Assistance Accounting Center officials said that the billing process has been changed so that foreign customers would be required to pay forecasted amounts before the start of the calendar quarter for which the funds were requested. 2 B-174901 Air Force billing procedures also did not insure that forecasts for all costs to be incurred were included in the quarterly billing statement. Organizations furnishing articles and/or services to for- eign governments were responsible for providing forecasts to the billing center. The billing center, in turn, was responsible for con- solidating this information and preparing the forecast that is included on the billing statement sent to the foreign country. The billing center, however, did not have a system to (1) control the receipt of forecasts, (2) follow-up on forecasts not received, and (3) estimate amounts of forecasts not received. 3. The Air Force accounting system lacked adequate controls to insure that actual costs incurred for foreign military sales were billed to foreign governments. We noted three cases where foreign governments were billed the estimated contract price -ther than the actual cost. The estimated price on each case was $80,000, whereas the actual price for each case was over $90,000. Officials agreed to look into this and to bill foreign governments appropriate amounts. Al.~o, the accounting system did not have controls to detect md correct erroneous credits given foreign governments. We noted th. c in one case a foreign government was given a credit of $16,200 more tian the amount billed and in another case a transaction to correct a $10,000 erroneous customer credit was never processed. The Air Furce corrected the errors and recovered the $26,200. 4. Procedures for collecting overdue and delinquent debts needed improvement. The Air Force Accounting and Finance Center did not sys- tematicilly follow-up on overdue and delinquent debts and did not keep records to control follow-ups. The Navy had the same problem. The Navy reported foreign indebtness of $123 million as of December 31, 1975, of which $60.3 million was overdue. Of this amount, about $51.8 million was from 90 days to 1 year overdue; $7.8 million between 1 and 5 years; and $700,000 over 5 years. These debts represented valid claims against the foreign governments and because the amounts were rot paid, the Treasury may have had to borrow additional funds and incur interest costs to meet the day-to-day cash requirements of the United States. We noted that in June 1077 the Department revised its Instruc- tion 2140.4, which includes procedures and guidance regarding delinquent debts. We believe this action will improve the collection of dElinquent debts under the foreign military sales program. We believe the problems noted above should be resolved and are oifering same suggestions for improvement. Specifically, the Security Assistance Accounting Center should; 3 B-174901 --Establish a system to identify deliveries that are not reported or are reported at incorrect prices. --Change forecast procedures to make sure that forecasts for all costs to be incurred are included in billing statements. --Establish systems 'I_assure that all costs are properly billed foreign governments. .--Establish controls to assure that revised Department procedures for collecting overdue and delinquent accounts are implemented and take appropriate action on accounts now in a delinquent status. RECO41MENDATIOO To help Lssure that the Security Assistance Accounting Center takes to necessary action to Improve the billing and coll cting system and centrali- evaluatf thfe effectiveness of the system's changs made since review zation we -vcozmend that you direct the Defense Audit Service to the Center'.s billing and collecting system. As you know, section 236 of the Legislative Reorgauization Act of 1970 requires the head of a Federal agency to submit a written stat.e- House Committee on ment on actions taken on our recommendations to ontheGovermental Government Operations and the Senate Conittee Affairs not later than 60 days after the date of the report and to the House and Senate Committees on Appropriations with the agency's first request report. for appropr:ations made more than Lt days after the date of this We would appreciate being infcrmed of actions taken or planned on with our recommendation and would be pleased to disc-uss these matters you or your representatives. We consider the Department 's ongoing effort to improve financial management of the foreign military sales program a step in the right direction and appreciate the curtesies shown our staff during the survey. We are sending copies of this report today to the House Committee on Government Operations and the Senate Committee on Governmental Affairs; the House and Senate Committees on Appropriations and Armed 4 DB 174901 Services; the Director, Office of Management aed 3udget; the Secretaries of the Army, Navy, and Air Force; and the Director, Defense Security Assistance Agency. Sincerely yours, D. L. Scantlebury Director
Centralization of the Billing and Collecting Functions of the Foreign Military Sales Program
Published by the Government Accountability Office on 1977-09-16.
Below is a raw (and likely hideous) rendition of the original report. (PDF)