Since the U.S. Department of Defense (DOD) began selling foreign partners defense items and services through its Foreign Military Sales (FMS) program, it has charged a transportation fee, but those account balances have now grown by more than 1300 percent, without guidance or proper adjustments.
The FMS program is one of the primary ways the U.S. government supports its foreign partners. Foreign partners can arrange for their own transportation of FMS items or pay DOD a transportation fee to cover the costs of DOD transporting them. The fees are collected into transportation accounts in the FMS Trust Fund.
Following a recent report, the Government Accountability Office (GAO) recommended 10 ways for DOD to improve its fee setting and account managing practices. According to DOD, the FMS program is intended to operate on a “no profit, no loss” basis, with purchasers not charged excessive fees and fee revenue covering operating costs. Inconsistent reviews and limited oversight of the recent balance growth contributed, however, to a combined FMS transportation account balance of $680 million at the end of fiscal year 2018.
GAO determined that most of the growth in balances occurred from 2011 to 2018 when the account grew by approximately $630 million.
There is currently no guidance on how the DOD should decide its account balances are too high or low, so there is no proper way for fees handled by these accounts to be adjusted, the GAO report found. While the Defense Security Cooperation Agency (DSCA) has limited oversight of the accounts in question, requiring daily and annual reviews of the accounts to maintain a supposedly healthy level, they have no definition for what healthy entails or what represents a significant change in account balances. Thus the accounts are operating with little to no internal guidance, resulting in reports with incomplete information, compromising the DSCA’s ability to make informed decisions on them. GAO points to this as a significant contributor to the substantial balance growth.
GAO noted fee setting processes fail to ensure aggregate fees approximate combined costs, lack rate review specificity, and are difficult for military department officials to provide requested data to DSCA.
GAO’s recommendations pertained to strengthening DSCA’s oversight of the transportation accounts. Such actions would include clarifying internal guidance for daily account reviews by specifying criteria for the level of change in transportation account balances and establishing a means of calculating a target range for FMS transportation account balances. GAO also suggested that the DOD modify internal guidance for the annual review process to include specific steps DSCA officials should take in preparing annual reports, develop internal guidance related to the redistribution of funds between the FMS trust fund fee accounts as well as internal guidance for the steps that DSCA should undertake when a Building Partner Capacity-specific transportation account closes so remaining unused funds can be transferred appropriately. The DOD should also assess whether funds redistributed from the administrative account to the transportation account should be moved back to the FMS administrative account, then documenting that decision.
The remaining recommendations include ensuring that DSCA creates specific internal guidance for how and where data should be obtained and used for its rate reviews and the timeframes the data should cover, developing internal guidance for performing those fee rate reviews, implementing reviews of the current structure of the transportation fee rate to determine if other rate structures might not be better, and setting internal guidance for the military departments under DOD for calculating the estimated actual transportation prices to charge FMS purchasers for certain items.
The DOD has agreed with all of the recommendations and, at this time, noted plans to address them.