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Friday, July 19, 2024

GAO: Controls Should be Strengthened in Foreign Military Sales to Address Growth in Overhead Account Balances

A GAO report has found that there are insufficient management controls in the U.S. Foreign Military Sales program, causing substantial growth in overhead account balances.

As the value of these sales has increased, the balances in the two main fee accounts have grown in excess of 950% and now top $5 billion.

The Defense Security Cooperation Agency (DSCA) has some controls to manage the account balance. For example, DSCA has established a method for calculating a minimum desired balance to ensure it has sufficient funds to complete FMS cases despite uncertain future sales. At the end of fiscal year 2017, the account balance was $2.7 billion above this minimum. DSCA, however, has completed rate reviews less frequently than directed by its policy. Moreover, DSCA has not adopted the best practice of setting an upper bound for the account that would, along with the minimum level, provide a target range for the account balance.

GAO recommends that the Director of DSCA should take steps to ensure that comprehensive reviews of the administrative fee rate are completed at least every five years and should define a method for calculating an upper bound of a target range for the administrative account that could be used to guide the agency’s reviews of administrative account balances and decision making in setting the fee rate.

It also recommends that The Director of DSCA should direct the Defense Contract Management Agency (DCMA) and the Defense Finance and Accounting Service to work together to ensure timely correction of the fiscal years 2016 and 2017 DCMA contract administration services (CAS) reimbursement issues.

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