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. 2 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 3
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)