oversight

Review of Storage Charges and Customer Assistance Teams for Military Sales

Published by the Government Accountability Office on 1977-09-23.

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

                         DOCUMENT RESUME
03512 - [A2723948]

[Review of Storage Charges and Customer Assistance Teams for
M.ilitary Sales]. LCD-77-238; B-165731. September 23, 1977. 3 pp.
Report to Sen. John L. McClellan, Chairman, Senate Committee on
Appropriaticns; by Robert F. Keller, Deputy Comptroller General.

Issue Area: International Econciic and Military Programs:
    Foreign Military Sales (605); Facilities and Material
    Management: Federal Transportation of Things (704).
Contact: Logistics and Communications Div.
Budget Function: National Defense: Department of Defense -
    Military (except procurement S contracts) (051).
Organizaticn Concerned: Department of Defense; Department of the
    Army; Department of the Air forces
Congressional Relevance: Senate Committee on Appropriations.
Authority: H. Rept. 95-451. S. Rept. 95-325.

         A review of shipments from 19 depots under the Foreign
Military Sales Program revealed no significant problems.
Findings/Conclusicns: Program storage costs of 12 depots were
estimated at about $11,600 for periods ranging from 3 to 15
months and no storage costs were found at the remaining 7
depots. A problem at the New Cumberland Army Depot relating to
failure of German officials to receive notices was corrected by
use of a courier service. Ihe cost of customer assistance teams
can be included in the price of the material, can be separately
identified as a line item on the siles agreement, or can be
included as an administrative surcharge. Total maintenance
technical assistance for all depots for FY 1976 totaled
$343,414, of which $147,176 was identified as program
maintenance assistance. If teams are a specific line item on
sales agreement, costs are properly payable by the foreign
ccuntry and past undercharges can be billed if actual costs can
be identified. (HTW)
                   COMPTROL.LER GENR L Or TIHE UNIT[O STATES
                               WAGlINaTON. D.C. toWM




B-165731               L.$SEP                   23 1977
The Honorable John L. HcClellan
Chairman, Senate Committee on
  Appropriations

Dear Mr. Chairman:
     On April 27, 1977, you requested that we undertake a
review of storagae practices for shipments of material under
the Foreign Military Sales Program and to review the practices
of the Department of Defense with rcspect to "customer assist-
ance or other teams.
STORAGE PRACTICES
     Normally, DOD notifies the foreign customer or its agent
when material is ready for shipment. This is done by for-
warding a notice of availability to the country representative
or its freight forwarder.
     The New Cumberland Army Depot did have a problem with
Program shipments, particularly to Germany. The depot sent
notices of availability to German respresentatives but the
notices were not acknowledged and the material was stored.
Evidently, the notices were not received by the proper German
officials. We discussed this with Army officials and sug-
gested that the depot arrange to have the notices hand de-
livered to German officials in Washington by a scheduled
courier service already in operation. They began using the
service in mid-July 1977 and, according tc a depot official,
storage of Program material is no longer a problem. Als of
August 26, 1977, only three notices are older than 30 days
and considered delinquent.
     We reviewed Program shipments from 19 depots including
New Cumberland and found no significant problems. We estimate
that Program storage costs at 12 of these depots to total about
$11,600 for periods ranging from 3 to 15 months between Feb-
ruary 1976 and May 1977, and found no storage costs at the
remaining 7. We have no basis for assuming any significant
change for fiscal year 1978.
     It is doubtful if storage charges for shipments under
existing sales agreements should be charged to the Program
countries since the sales agreements did not consider storage
charges at the time the agreements were signed.


                                                           LCD-77-238
                                                            (943306)
B-165731


     Concerning future sales agreements, we believe Defense
should consider increasing the surcharge rate for packing,
crating, and handling of Program shipments as proposed by the
House Appropriations Committee inL their report 95-451,
page 132. This report reduced the Defense budget request
by $63 million. Senate Report 95-325 agreed with the House
Action.

CUSTOMER ASSISTANCE TEAMS

     The current practice of Defense is to charge Program
customers for customer assistance teams. The cost can be
included in the price of the material, be separately identified
as a line item on the sales agreement, or be included as part
of an admini.srative surcharge.

     Costs for customer assistance teams identified as line
items are normally furnished to the Defense Security Agency
Accounting Center, Denver, Colorado: by the Defense activity
providing the service. The Center is responsible for bill-
ing and collecting all Program transactions.  Most of the
costs incurred by the Army and Air Force as line items appear
to be charged to the foreign country involved. Those costs
include personnel, travel, and per diem; however, some costs
have been absorbed by Defense.

     In addition, the Air Force provides contractor furnished
assistance and bills the foreign customer those cnarges paid
to the contractor by the Air Force.

     Records of the Army Depot System Commanc show that total
maintenance technical assistance of all types (Program and
non-Program) for all depots for fi3cal year 1976 totaled
$343,414. Of this amount, $147,176 was identified as Program
maintenance assistance.

     During fiscal year 1976, Anniston Army Depot was author-
ized to bill $13,257 on two customer assistance teams sent
overseas.  Because the amount authorized to be billed was less
than the labor expenses incurred, $1,462 was charged to the
depot's overhead account.

     Due to an apparenat administrative oversight the countries
involved were not billed the $13,257; however, we were advised
that corrective action would be taken to process these bills
against the countries concerned.



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B-165731


     We also reviewed overseas travel costs on 11 overseas
trips totaling $19,776 on two Air Force Program cases. On
eight of these trips $15,822 was billed to the foreign
customer. Costs on three trips were rot billed due to
clerical error; however, an additional $3,954 was billed
during our review.

     We also examined 1; contractors' invoices totaling
$159,349 which were paic by the Air Force. This amount was
billed to the country involved.

     The Air Force has 51 open Program cases for travel,
transportation, and technical assistance valued in excess
of $43 million. in addition, the Air Force has 48 open
Program contractor engineering and technical service cases
valued in excess of $14 million.

     The Army has funded $425,568 for about 66 quality as-
surance teams for fis .al year 1978.

     In our opinion, if teams are a specific line item on
a ,,ales agreement, the full costs are properly payable by
the foreign country receiving the services .f Defense per-
sonnel. However, because of billing problems previously
identified in our other reviews of the Program it appears
the countries may not always be billed for services provided.

      Past undercharges can be billed, provided that the actual
costs can be identified, the costs were clearly contemplated
by both parties, and the costs are billed within a reasonable
time.

     Additional information on personel property shipments
under the Program will be the msbject of a report we expect
to issue in the near future.

     This letter confirms our discussion with your staff on
August 9, 1977. We trust this information will be sufficient
for your needs. We will be glad to discuss this matter in
greater detail with you or members of your staff.

                              Sincerely yours,




                        DEPUTY Comptroller General
                               of the United States



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