oversight

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)

                         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