Foreign Military Sales: Improved Army Controls Could Prevent
Unauthorized Shipments of Classified Spare Parts and Items
Containing Military Technology to Foreign Countries (15-APR-04,
GAO-04-327).
From 1993 through 2002, the Department of Defense (DOD) delivered
over $150 billion in services and defense articles--including
classified spare parts and unclassified items containing military
technology--to countries through foreign military sales programs.
GAO was asked to review whether the Army's key internal controls
adequately restricted blanket orders for (1) classified spare
parts and (2) unclassified items containing military technology.
GAO was also asked to determine if periodic tests were conducted
to validate the Army's system and its logic.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-04-327
ACCNO: A09793
TITLE: Foreign Military Sales: Improved Army Controls Could
Prevent Unauthorized Shipments of Classified Spare Parts and
Items Containing Military Technology to Foreign Countries
DATE: 04/15/2004
SUBJECT: Foreign governments
Foreign military sales
Foreign military sales agreements
Foreign military sales policies
Internal controls
Inventory control systems
Spare parts
Systems evaluation
Testing
Risk assessment
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GAO-04-327
United States General Accounting Office
GAO Report to the Honorable Tom Harkin, U.S. Senate
April 2004
FOREIGN MILITARY SALES
Improved Army Controls Could Prevent Unauthorized Shipments of Classified Spare
Parts and Items Containing Military Technology to Foreign Countries
a
GAO-04-327
Highlights of GAO-04-327, a report to the Honorable Tom Harkin, U.S.
Senate
From 1993 through 2002, the Department of Defense (DOD) delivered over
$150 billion in services and defense articles- including classified spare
parts and unclassified items containing military technology-to countries
through foreign military sales programs. GAO was asked to review whether
the Army's key internal controls adequately restricted blanket orders for
(1) classified spare parts and (2) unclassified items containing military
technology. GAO was also asked to determine if periodic tests were
conducted to validate the Army's system and its logic.
GAO recommends modifications to policies to ensure the recovery of items
shipped to foreign countries that are not eligible to receive them under
blanket orders. Also, GAO recommends the Army modify its system to
identify for review unclassified items containing military technology
before they are released, and periodically test its system.
DOD concurred with two recommendations and did not concur with two others
on actions to recover items shipped in error, citing existing procedures.
Following up with DOD officials, they agreed with the need to modify these
policies. GAO also clarified its recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-04-327.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact William M. Solis at (202)
512-8365 or [email protected].
April 2004
FOREIGN MILITARY SALES
Improved Army Controls Could Prevent Unauthorized Shipments of Classified Spare
Parts and Items Containing Military Technology to Foreign Countries
The Army's internal controls over foreign military sales are not adequate,
placing classified spare parts and unclassified items containing military
technology at risk of being shipped to foreign countries that may not be
entitled to receive such items under blanket orders. Foreign countries may
request items using blanket orders, which are for a specific dollar value
and are used to simplify supply actions on certain categories of items.
The internal control inadequacies follow:
o The Army lacked control edits in its system and allowed the
substitution and release of classified spare parts under blanket orders
for shipment to foreign countries. The Army and DOD policies prohibit the
release of classified items, under blanket orders, to foreign countries.
GAO identified 3 requisitions in its review, where the item manager
released 11 classified digital processors to foreign countries under
blanket orders. Because the Army's system did not have control edits in
place to validate the substituted parts, classified items were released to
foreign countries. Also, the Army has no written policy to determine the
actions needed to recover classified items that have been shipped to
countries not eligible to receive them. Army officials indicated that the
countries were not entitled to receive these items under blanket orders
but they could obtain them under a different process; so there is no need
to retrieve them, and GAO agreed with their decision. Also, the Army has
modified the system to validate substituted parts selected by item
managers.
o The Army lacks control edits in its system to prevent the release of
some unclassified items containing military technology requisitioned under
blanket orders. Within the 21,663 requisitions that were shipped without a
review, GAO found that 387 requisitions were for 2,267 restricted items
that foreign countries are prohibited from requesting using blanket orders
because the parts require release authority from inventory control points.
Also, the Army has no written policies to recover items that have been
shipped to countries not eligible to receive them. Army officials said the
countries were entitled to request these items, so there is no need to
recover the items.
o The Army has not conducted periodic tests, as required, to validate
that its system is accurately reviewing and approving blanket order
requisitions. GAO's and the Office of Management and Budget's internal
control standards require that a system such as the Army's be periodically
tested to ensure that it is working as intended. According to DOD and Army
officials, they have not tested the system's logic for restricting
requisitions since 1999. Also, the officials stated that the Defense
Security Cooperation Agency, in October 1998, directed that no additional
funds be used to expand the current system. However, according to the
agency, the Army is not prohibited from periodically testing the system.
Contents
Letter 1
Results in Brief 3
Background 5
Internal Controls over the Army's Foreign Military Sales Are
Not
Adequate 9
Conclusion 14
Recommendations for Executive Action 15
Agency Comments and Our Evaluation 16
Scope and Methodology 17
Appendix I Comments from the Department of Defense
Figure
Figure 1: The Army's Requisition Process for Foreign Military Sales of
Parts and Other Items
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separately.
United States General Accounting Office Washington, DC 20548
April 15, 2004
The Honorable Tom Harkin United States Senate
Dear Senator Harkin:
From 1993 through 2002, the Department of Defense (DOD) delivered over
$150 billion in services and defense articles-including classified1 spare
parts and unclassified items containing military technology2-to foreign
countries through foreign military sales programs administered by the
military services. Some sales occurred using blanket orders, which are
requisitions for a specific dollar value and are designed to simplify
supply actions on certain categories of items for which foreign military
sales customers will have a recurring need, such as unclassified spare
parts, repair parts, minor components, training films, and publications.
According to DOD policy,3 the management of classified spare parts and
unclassified items containing military technology is particularly
important given their potential to be released to foreign countries that
may use them against U.S. interests. Under blanket orders, the Army's
policy is intended to restrict the categories of items including
classified materials.
This report focuses on whether the Army has adequate key internal controls
in place to prevent foreign countries from requisitioning and receiving,
under blanket orders, classified and unclassified items containing
military technology that they are not eligible to receive. Internal
control activities4 include policies, procedures, and processes that are
essential for the proper stewardship of and accountability for government
1 Classified parts are restricted for national security reasons.
2 DOD defines military technology as military critical technology that
would reveal or give insight into the design and manufacture of U.S.
military systems and materials and, if exported, would permit significant
advance in the military potential of any country. Some of these items
require demilitarization prior to release to the public.
3 Security Assistance Management Manual, DOD 5105.38-M (Oct. 3, 2003).
4 U.S. General Accounting Office, Standards for Internal Control in the
Federal Government, GAO/AMID-00-21.3.1 (Washington, D.C.: November 1999).
Internal control activities help ensure that management directives are
carried out. The control activities should be effective and efficient in
accomplishing the agency's control objectives.
resources and for achieving effective and efficient program results. Our
overall objective was to determine the adequacy of the Army's internal
controls for foreign military sales under blanket orders. Our specific
objectives were to assess and test whether key internal controls
adequately restricted blanket orders for classified spare parts sold to
foreign countries and restricted access to certain unclassified items
containing military technology. We also determined whether periodic tests
were conducted to validate that the Army's Centralized Integrated System
for International Logistics5 was working as intended.
This report is one in a series on DOD's foreign military sales program
administered by the military services. This particular report focuses on
the Army because it processed 21,703 blanket order requisitions for
classified spare parts and unclassified items containing military
technology to foreign countries, valued at about $138 million for the most
recent 5-year time period, October 1, 1997, through April 30, 2003. We
plan to address the Navy's internal controls relating to foreign military
sales in a separate review. In July 2003, we reported on the adequacy of
the Air Force's internal controls over shipments of classified and
controlled spare parts to foreign countries.6 Also, in September 2003, we
reported on the adequacy of the Air Force's internal controls over
shipments of spare parts containing military technology to foreign
countries.7
To accomplish our review, we concentrated our efforts on classified spare
parts and unclassified items containing military technology that the Army
had shipped to foreign countries under blanket orders. We obtained data on
a total of 21,703 requisitions from the system on all classified spare
parts, as well as unclassified items containing military technology that
were purchased using blanket orders, and according to Army records, were
shipped to foreign countries from October 1, 1997, through April 30, 2003.
In our sample, classified spare parts were shipped against
5 The Centralized Integrated System for International Logistics, hereafter
referred to as the system, is the Army's logistics information and
tracking system that validates foreign customers' requisitions and
determines if authorized items are requested based on foreign military
sales cases.
6 U.S. General Accounting Office, Foreign Military Sales: Improved Air
Force Controls Could Prevent Unauthorized Shipments of Classified and
Controlled Spare Parts to Foreign Countries, GA0-03-664 (Washington, D.C.:
July 29, 2003).
7 U.S. General Accounting Office, Foreign Military Sales: Air Force Does
Not Use Controls to Prevent Spare Parts Containing Sensitive Military
Technology from Being Released to Foreign Countries, GAO-03-939R
(Washington, D.C.: Sept. 10, 2003).
40 requisitions, and items containing military technology were shipped
against the balance of 21,663 requisitions. We conducted our review in
accordance with generally accepted government auditing standards. Further
details are in the scope and methodology section of this report.
Results in Brief
The Army's internal controls over foreign military sales using blanket
orders are not adequate, placing classified spare parts and unclassified
items containing military technology at risk of being shipped to foreign
countries. The internal control inadequacies we identified are as follows:
o The Army lacked control edits in its system and allowed the
substitution and release of classified spare parts under blanket orders
for shipment to foreign countries. The Army and DOD policies prohibit the
release of classified spare parts, under blanket orders, to foreign
countries. We identified 3 requisitions in our review, where the item
manager had released 11 classified digital processors to foreign countries
under blanket orders. Until we identified the problem, Army officials at
the United States Army Security Assistance Command were not aware that
these 11 classified spare parts had been substituted for the originally
requisitioned unclassified parts. Because the Army's system did not have
control edits in place to validate the substituted spare parts, classified
spare parts were released to foreign countries. In addition, the Army has
no written policy to determine the actions needed to recover classified
items that have been shipped to foreign countries not eligible to receive
them. Based on our review, the Army has modified its system to validate
substituted spare parts selected by item managers.
o The Army lacks control edits in its system to prevent the release of
some unclassified items containing military technology requisitioned under
blanket orders. As a result, the Army has shipped some unclassified items
containing military technology to foreign countries. Officials from DOD's
Office of the Deputy Under Secretary of Defense Technology Security Policy
and Counterproliferation, who represent DOD in technology security matters
before several interagency committees, indicated that the Army should have
control over unclassified items containing military technology. Within the
21,663 requisitions for unclassified items containing military technology,
we found the following requisitions were not identified and reviewed
before they were released: (1) 17,175 requisitions were for 381,245 items
and other items such as circuit card assemblies, fire control units, and
electron tubes that require their inherent military capability to be
destroyed or demilitarized prior to their release to the public; and (2)
387 requisitions were for 2,267 restricted items that foreign countries
are prohibited from requesting using blanket
orders because the spare parts require release authority from inventory
control points.8 In addition, the Army has no written policy to determine
the actions needed to recover unclassified items containing military
technology that have been shipped to foreign countries not eligible to
receive them.
o The Army has not conducted periodic tests, as required by federal
internal control standards, to validate that its system is accurately
reviewing and approving blanket order requisitions. GAO's and the Office
of Management and Budget's internal control standards require that a
system such as the Army's be periodically validated and tested to ensure
that it is working as intended and the ability to accurately review and
approve requisitions is not compromised. According to Defense Security
Assistance Development Center officials, who are responsible for managing
the Army's foreign military sales automated system, periodic tests of the
Army's system have not been conducted recently because, in October 1998,
the Defense Security Cooperation Agency directed that no additional funds
be used to expand the current system. However, Defense Security
Cooperation Agency officials stated that this directive does not preclude
the Army from periodically testing the system and its logic. According to
DOD and Army officials, they have not tested the system's logic for
restricting requisitions since 1999 when they initially modified the
system to cancel requisitions for classified spare parts using blanket
orders.
Since the Army has modified its system to validate substituted spare parts
under blanket orders, we are not making a recommendation in this area. We
are recommending, however, that the Secretary of Defense instruct the
Secretary of the Army to modify existing policies and procedures, after
consultation with appropriate government officials, to cover items shipped
in lieu of items ordered to also ensure the recovery of classified spare
parts and unclassified items containing military technology that have been
shipped to foreign countries that may not be eligible to receive them.
We are also recommending that the Secretary of Defense instruct the Under
Secretary of Defense for Policy to require the appropriate officials to
(1) modify the Army's Centralized Integrated System for International
Logistics system so that it identifies for review blanket order
requisitions
8 The inventory control point is an organizational element within a DOD
system, which is assigned responsibility for material management of a
group of items including such management functions as the initiation of
procurement or disposal actions and distribution management.
for unclassified items containing military technology before they are
released and (2) periodically test the Army's system and its logic for
restricting requisitions to ensure that it is accurately reviewing and
approving blanket order requisitions.
In commenting on a draft of this report, DOD concurred with two of our
recommendations and citied specific actions to be taken that respond to
them. However, the department did not concur with our two draft
recommendations to consult with appropriate agencies to determine what
actions the Army needs to initiate to recover classified spare parts and
unclassified items containing military technology that have been shipped
in error, i.e., shipped in lieu of items ordered, under blanket orders.
The department cited current Army procedures as being sufficient; however,
those procedures do not address the intent of our recommendations to
recover classified spare parts and unclassified items containing military
technology shipped to foreign countries that are not eligible to receive
them. Based on discussions with DOD officials, we modified our two
recommendations concerning consultation with appropriate agencies. We now
recommend that the Army modify existing policies and procedures, after
consultation with the appropriate government officials, to cover items
shipped in lieu of items ordered to also ensure the recovery of classified
spare parts and unclassified items containing military technology that
have been shipped to foreign countries that may not be eligible to receive
them.
Background The sale or transfer of U.S. defense items to friendly nations
and allies is an integral component in both U.S. national security and
foreign policy. The U.S. government authorizes the sale or transfer of
military equipment, including spare parts, to foreign countries either
through government-togovernment agreements or through direct sales from
U.S. manufacturers. The Arms Export Control Act9 and the Foreign
Assistance Act of 1961,10 as amended, authorize the DOD foreign military
sales program.
The Department of State sets overall policy concerning which countries are
eligible to participate in the DOD foreign military sales program. DOD
identifies military technology that requires control when its transfer to
potential adversaries could significantly enhance a foreign country's
9 P.L. No. 90-629. 10 P.L. No. 87-195.
military or war-making capability. The transfer or release of military
technology to foreign countries involves various agencies such as the
Department of State and DOD, which are responsible for controlling, in
part, the transfer of such technology.
The Defense Security Cooperation Agency, under the direction of the Under
Secretary of Defense for Policy, has overall responsibility for
administering the foreign military sales program, and the military
services generally execute the sales agreements with the individual
countries. A foreign country representative initiates a request by sending
a letter to DOD asking for such information as the price and availability
of goods and services, training, technical assistance, and follow-on
support. Once the foreign customer decides to proceed with the purchase,
DOD prepares a Letter of Offer and Acceptance stating the terms of the
sale for the items and services to be provided. After this letter has been
accepted, the foreign customer is generally required to pay, in advance,
the amounts necessary to cover costs associated with the services or items
to be purchased from DOD and then is allowed to request spare parts
through DOD's supply system.
The foreign military sales policy and oversight for the Department of the
Army are the responsibility of the Deputy Assistant Secretary of the Army
for Defense Exports and Cooperation. The Commander, U.S. Army Materiel
Command, is the Army's executive agent for implementing, administrating,
and managing the foreign military sales program. The U.S. Army Security
Assistance Command performs the executive agent's functions for the U.S.
Army Materiel Command.
The United States Army Security Assistance Command's responsibilities
start with the initial negotiation of a foreign military sale and end with
the transfer of items and completion of all financial aspects of the sales
agreement. The command uses an automated system called the Centralized
Integrated System for International Logistics to support the U.S. Army's
management of the foreign military sales program. The command originally
developed the system in 1976, and in October 1997, the Defense Security
Cooperation Agency transferred the Army's system to the Defense Security
Assistance Development Center. The command retained responsibility for
defining system-user requirements, designing new processes, and directing
programming modifications to the system's applications. However, the
overall responsibility for providing system information technology
maintenance support, such as writing and testing the programs and
coordinating infrastructure support, was transferred to the Defense
Security Assistance Development Center.
Foreign military sales requisitions for Army spare parts and other items
initially are processed through the system. For blanket orders, the system
uses the security classification code11 to restrict the spare parts
available to foreign military sales customers. Once the system validates a
requisition, the requisition is sent to a supply center to be filled and
shipped. The Army's requisition process for foreign military sales of
parts and other items is shown in figure 1.
11 The code is called controlled inventory item code and indicates the
security classification and security risk or controls for storage and
transportation of DOD assets.
Figure 1: The Army's Requisition Process for Foreign Military Sales of
Parts and Other Items
a The Army places items' restrictions in its Centralized Integrated System
for International Logistics system.
Internal Controls over the Army's Foreign Military Sales Are Not Adequate
The Army's internal controls over foreign military sales using blanket
orders are not adequate, placing classified spare parts, as well as
unclassified items containing military technology, at risk of being
shipped to foreign countries, who are not eligible to receive them. We
found that the Army (1) lacked control edits in its system and allowed the
substitution and release of classified spare parts under blanket orders
for shipment to foreign countries, and that a written policy does not
exist to determine the actions needed to recover these items; (2) lacks
adequate control edits in its system to prevent the release of some
unclassified spare parts and other items containing military technology,
and that a written policy does not exist to determine the actions needed
to recover these items; and (3) has not conducted periodic tests to
validate that its system is accurately reviewing and approving blanket
orders. As a result of these inadequate internal controls, classified
spare parts, as well as unclassified items containing military technology,
were shipped to foreign countries that may not be eligible to receive them
under blanket orders.
Army Lacked Control Edits in Its System and Allowed the Substitution and
Release of Classified Spare Parts under Blanket Orders
The Army lacked control edits in its system and allowed the substitution
and release of classified spare parts under blanket orders for shipment to
foreign countries. The Army and DOD policies prohibit the release of
classified spare parts, under blanket orders, to foreign countries. We
identified 3 of the 40 requisitions in our review for the period between
October 1, 1997, and April 30, 2003, where the Army item manager had
released classified parts under 3 separate blanket orders. For these 3
requisitions, the original parts requested were unclassified but not in
stock. The item manager substituted 11 classified digital processors for
the unavailable parts and then released these parts under blanket orders
for shipment to a foreign country. According to Army officials, the
foreign countries were not entitled to receive these items under blanket
orders. However, according to Army officials, the foreign countries would
be entitled to these items because they have the equipment that these
classified spare parts support and that these countries could obtain the
parts under a different process such as a defined order.12 Therefore,
according to the officials, in this particular case there is no need to
retrieve the items. Based on the Army officials' response, we agree with
their decision. Until we identified the problem, Army officials at the
United States Army Security Assistance Command, who are responsible for
12 Defined orders are foreign military sales cases used to specify defense
articles and services that are identified and approved in the letter of
agreement.
implementing, administrating, and managing the Army's foreign military
sales program, were not aware that these classified parts had been
substituted for the originally requisitioned unclassified parts. Based on
our review, the Army has modified the system to validate substituted parts
selected by item managers.
According to United States Army Security Assistance Command officials,
they have no written policy to determine the actions the Army needs to
take to recover classified spare parts or unclassified items containing
military technology that were shipped to foreign countries that are not
eligible to receive them. Army officials indicated that they have
procedures to recover items shipped in lieu of the items ordered; however,
the procedures do not address the recovery of items shipped that the
foreign country was not eligible to receive. During our review, the
officials did not agree with us that they should have written procedures
in place to recover these items indicating that this responsibility
belongs in the foreign military sales end-using monitoring13 program. They
suggested we contact the Department of State and the Defense Security
Cooperation Agency for additional information on recovering these items.
While the Army may not be responsible for recovering these items, the Army
would initially be aware that these items were shipped to foreign
countries that may not be eligible to receive them, and could initiate
recovery of these items. However, in discussions with officials on a draft
of this report, officials indicated their current policies and procedures
to recover items shipped in lieu of items ordered need to be modified to
include items shipped to foreign countries that may not be eligible to
receive them.
Army Lacks Control Edits in Its System to Prevent the Release of Some
Unclassified Items Containing Military Technology
The Army lacks control edits in its system to prevent the release of some
unclassified items containing military technology to foreign countries
under blanket orders. As a result, the Army has shipped some unclassified
items containing military technology to foreign countries that may not be
eligible to receive them. Officials from DOD's Office of the Deputy Under
Secretary of Defense Technology Security Policy and Counterproliferation
indicated that the Army should have control over unclassified items
containing military technology. In addition, the Defense Security
Cooperation Agency indicated criteria for releasing these items should be
13 End-use monitoring refers to the procedures used to verify that foreign
governments are using and controlling U.S. defense articles and services
in accordance with U.S. terms and conditions of the transfer.
considered on a country-by-country basis prior to releasing any items to a
foreign country. The agency also stated that the military departments
should use the applicable codes available as a means to help identify
spare parts that contain military technology to ensure that the
appropriate means are taken and adequate controls are in place to prevent
unauthorized releases.
Within the 21,663 requisitions for unclassified items containing military
technology that were shipped, we found the following requisitions were not
identified and reviewed before they were released: (1) 17,175 requisitions
were for 381,245 items such as circuit card assemblies, fire control
units, and electron tubes that require their inherent military capability
to be destroyed or demilitarized prior to their release to the public; and
(2) 387 requisitions were for 2,267 items that foreign countries are
prohibited from requesting using blanket orders because the spare parts
require release authority from inventory control points. Based on our
review, the Army had initiated action to modify its system to cancel
blanket orders for parts that require release authority from inventory
control points. With such a modification, these 387 requests would be
canceled. However, the action to modify the system is pending based on the
official interpretation of the Army regulation on spare parts that
requires release authority from inventory control points. In addition, as
previously mentioned, according to United States Army Security Assistance
Command officials, the Army has no written policy for recovering
classified spare parts and unclassified items containing military
technology that were shipped to foreign countries not eligible to receive
them. According to Army officials, the foreign countries were entitled to
receive these items. Therefore, according to the officials, in these
particular cases there is no need to retrieve the items. Based on the Army
officials' response, we agree with their decision.
In 1991, the Army had a control edit installed in its system that
identified requisitions for parts containing military technology for
manual review. This control edit caused thousands of requisitions to be
referred for manual review. Army documents indicate that it removed the
control edit because according to guidance from the U.S. Army Defense
Systems Command and System Integration and Management Activity, the parts
containing military technology do not require protected storage. Army
documents also indicate that removing the control edit that identified
requisitions for unclassified items containing military technology would
eliminate an enormous number of labor hours required to research these
parts. The system does not refer for review those requisitions for items
containing military technology because Army officials stated that DOD has
determined that these items are not classified, sensitive, or pilferable;
consequently, the items should not be subjected to controlled physical
inventory requirements. In 1992, DOD changed selected stock numbers from
unclassified to a classification indicating unclassified stock containing
military technology to ensure that parts requiring demilitarization could
be researched if shortages were reported during depot inventory reviews
and do not require protected storage.
In our earlier review of the Air Force, we reported14 that the Air Force
did not use control edits to prevent spare parts containing sensitive
military technology from being released to foreign countries. The Air
Force plans to develop criteria for identifying spare parts containing
sensitive military technology and establish appropriate control edits in
its automated system so that requisitions for spare parts containing
sensitive military technology are identified and referred for review.
Also, the Air Force uses criteria, such as federal supply class, to
restrict the parts available to foreign military sales customers. For
example, we reported15 that the Air Force restricts countries from
requisitioning parts belonging to the 1377 federal supply class (cartridge
and propellant actuated devices and components) using blanket orders.
There are three codes the Army could use to identify spare parts that
contain military technology. These codes are (1) the controlled inventory
item code, which indicates the security classification and security risk
for storage and transportation of DOD assets; (2) the demilitarization
codes assigned by the item manager identifying how to dispose items; and
(3) the federal supply class code. Demilitarization codes are assigned to
spare parts for new aircraft, ships, weapons, supplies, and other
equipment. The demilitarization codes also determine whether the items
contain military technology and establish what must be done to the items
before they are sold.
Army Has Not Conducted The Army has not conducted periodic tests to
validate that its system is
Periodic Tests to Validate accurately reviewing and approving blanket
order requisitions and
Its System operating in accordance with the Army's foreign military sales
policies.
GAO's and the Office of Management and Budget's internal control standards
require that a system such as the Army's be periodically
14 GAO-03-939R. 15 GAO-03-664.
validated and tested to ensure that it is working as intended and the
ability to accurately review and approve requisitions is not compromised.
In the Federal Information Systems Controls Audit Manual,16 which lists
control activities for information systems, one of the control activities
listed involves the testing of new and revised software to ensure that it
is working correctly. Also, in the Management of Federal Information
Resources,17 the manual requires that each agency establish an information
system management oversight mechanism that provides for periodic reviews
to determine how mission requirements might have changed and whether the
information system continues to fulfill ongoing and anticipated mission
requirements. Furthermore, the Internal Control Management and Evaluation
Tool 18- a tool that assists managers and evaluators in determining how
well an agency's internal control is designed and functioning - lists
monitoring as one of five standards of internal controls. Internal control
monitoring should assess the quality of performance over time and ensure
findings from reviews are promptly resolved. Ongoing monitoring occurs
during normal operations and includes regular management and supervisory
activities, comparisons, reconciliations, and other actions people take in
performing their duties.
In our review, we found that a foreign country had requested unclassified
parts using blanket orders for which the item manager substituted and
shipped classified spare parts. According to DOD officials, had the system
validated the substituted classified spare parts, the system would have
canceled the orders. United States Army Security Assistance Command
officials were unaware of this situation until we identified the problem.
Also, we found spare parts where the security classification had been
changed from unclassified to classified without Army officials being
notified of the change. Based on our review, the Army initiated actions to
add control edits to its system to (1) validate substituted spare parts
before they are released to foreign countries and (2) review monthly
supply catalog updates and cancel open blanket orders when spare parts'
security classification changes from unclassified to classified.
16 U.S. General Accounting Office, Federal Information System Controls
Audit Manual, GAO/AIMD-12.19.6 (Washington, D.C.: January 1999).
17 Office of Management and Budget, Management of Federal Information
Resources (Washington, D.C.: November 2000).
18 U.S. General Accounting Office, Internal Control Management and
Evaluation Tool, GAO-01-1008G (Washington, D.C.: August 2001).
Defense Security Assistance Development Center officials indicated that
periodic tests of the Army's system have not been conducted because, in
October 1998, the Defense Security Cooperation Agency directed that no
additional funds be used to expand the current system. However, Defense
Security Cooperation Agency officials stated that this directive does not
preclude the Army from periodically testing the system and its logic.
According to DOD and Army officials, they have not tested the system's
logic for restricting requisitions since 1999 when they initially modified
the system to cancel requisitions for classified spare parts under blanket
orders. As part of our review, we tested the system by reviewing Army
restrictions applied to historical requisitions on classified spare parts
and unclassified items containing military technology and found that the
system did not always perform as intended.
According to Army officials, there have not been any reviews to assess
whether the foreign military sales requisition process for items ordered
are processed correctly. The Centralized Integrated System for
International Logistics system creates daily reports that identify
problems with requisitions, which are then reviewed by Army case managers
before continuing through the system. While officials indicated several
external audits with GAO and the Army Audit Agency have been recently
completed, these audits focused on the overall foreign military sales
program and not the requisition process. Based on our observations, these
audits do not replace a system test to determine whether the current
system is in compliance with existing requisitioning policies and
procedures.
Conclusion
The Army has not maintained effective internal controls over foreign
military sales sold under blanket orders. Specifically, the Army lacked
control edits in its system and allowed the substitution and release of
classified spare parts under blanket orders for shipment to foreign
countries that may not be eligible to receive them. Also, the Army lacks
control edits in its system to prevent the release of some unclassified
items containing military technology to foreign countries. Moreover, the
Army has no written policies to determine the actions needed to recover
classified spare parts and unclassified items containing military
technology that have been shipped to foreign countries not eligible to
receive them. Further, the Army failed to periodically test the
Centralized Integrated System for International Logistics system. If the
Army had conducted tests to determine whether its system was in compliance
with requisitioning policies and procedures, some classified spare
parts-as well as unclassified items containing military technology-may not
have
been released to foreign countries under blanket orders. Without adequate
internal controls, classified spare parts and unclassified items
containing military technology may be released to foreign countries under
blanket orders, thereby providing military technology to countries that
might use it against U.S. interests.
Recommendations for To improve internal controls over the Army's foreign
military sales program and to prevent foreign countries from being able to
obtain
Executive Action classified spare parts or unclassified items containing
military technology that they are not eligible to receive under blanket
orders, we are recommending that the Secretary of Defense instruct the
Secretary of the Army to take the following two actions:
o Modify existing policies and procedures, after consultation with the
appropriate government officials, to cover items shipped in lieu of items
ordered to also ensure the recovery of classified spare parts that have
been shipped to foreign countries that may not be eligible to receive them
under blanket orders.
o Modify existing policies and procedures covering items, after
consultation with the appropriate government officials, to cover items
shipped in lieu of items ordered to also ensure the recovery of
unclassified items containing military technology that have been shipped
to foreign countries that may not be eligible to receive them under
blanket orders.
To improve the Army system's internal controls aimed at preventing foreign
countries from obtaining classified spare parts or unclassified items
containing military technology under blanket orders, we are recommending
that the Secretary of Defense direct the Under Secretary of Defense for
Policy to require the appropriate officials to take the following two
actions:
o Modify the system so that it identifies blanket order requisitions for
unclassified items containing military technology that should be reviewed
before they are released.
o Periodically test the system and its logic for restricting
requisitions to ensure that the system is accurately reviewing and
approving blanket order requisitions.
Agency Comments
and Our Evaluation
In commenting on a draft of this report, DOD concurred with two of our
recommendations and did not concur with the two other recommendations.
First, with regard to our recommendation to modify the system so that it
identifies blanket order requisitions for unclassified items containing
military technology that should be reviewed before they are released, the
department concurred. DOD's comments indicated that the Army will comply
with making the specific changes to the system that the Defense Security
Cooperation Agency identified as required or that the Army would conduct
its own study, given the funding and guidance necessary, to identify items
that should be reviewed before they are released. Second, with regard to
our recommendation to periodically test the Centralized Integrated System
for International Logistics, the department stated that the Army will
conduct periodic testing of the system and its logic for restricting
requisitions, given the funding and guidance necessary to do so. We also
received technical comments and we incorporated them wherever appropriate.
With regard to our two recommendations to consult with the appropriate
agencies to determine what actions the Army needs to initiate in order to
recover (1) classified spare parts and (2) unclassified items containing
military technology that have been shipped in error, i.e., shipped in lieu
of items ordered, under blanket orders, DOD did not concur. The department
said that the Army already has procedures in place to recover classified
spare parts and unclassified items containing military technology that
have been shipped in error, i.e., shipped in lieu of items, ordered under
blanket orders. The procedures include (1) systemic status codes that will
advise the case manager that an incorrect item is being shipped by the
supply center, at which time the error can be corrected; (2) if the item
is still shipped, the case manager can begin retrieval actions by
contacting the Security Assistance Office in country; and (3) the customer
can initiate a Supply Discrepancy Report upon receipt of the incorrect
item to return the item.
We acknowledge that these procedures might address wrong items shipped.
However, they do not address the intent of our recommendations to recover
classified spare parts and unclassified items containing military
technology shipped to foreign countries that are not eligible to receive
them. If the country requested classified spare parts or unclassified
items containing military technology that it is not eligible to receive
under blanket orders, it will not likely submit a Supply Discrepancy
Report if it had intended to order the items. In addition, we interviewed
Defense
Security Cooperation Agency and Army officials to determine if the
procedures they cited in the agency comments are referring to items
shipped in lieu of items ordered instead of shipment of items that foreign
countries are not eligible to receive. According to the officials, the
procedures are for items shipped in lieu of items ordered and not for the
recovery of items that the foreign countries are not eligible to receive.
As stated in our report, Army officials told us that they had no written
procedures in place to recover classified spare parts or unclassified
items containing military technology, because it is not within their
responsibility to recover these items. These officials stated that this
responsibility belongs to the foreign military sales end-use monitoring
program, which includes the Department of State and the Defense Security
Cooperation Agency. In following-up with officials on their written
comments on the draft of this report, they agreed that they need to modify
existing policies and procedures covering items, after consultation with
the appropriate government officials, to cover items shipped in lieu of
items ordered to also ensure the recovery of classified spare parts and
unclassified items containing military technology that have been shipped
to foreign countries that may not be eligible to receive them. As a
result, we have modified our two recommendations accordingly.
Scope and To assess and test whether the Army's internal controls
adequately restricted blanket orders for classified spare parts sold to
foreign
Methodology countries, we obtained current DOD and Army guidance on the
foreign military sales programs. We also held discussions with key
officials from the United States Army Security Assistance Command, New
Cumberland, Pennsylvania, to discuss the officials' roles and
responsibilities, as well as the criteria and guidance they used in
performing their duties to restrict foreign countries from requisitioning
classified spare parts and other items containing military technology
under blanket orders. Also, we interviewed the officials on the
requisitioning and approval processes applicable to classified spare
parts. In addition, we obtained written responses from officials at the
Defense Security Cooperation Agency, Washington, D.C., to identify the
agency's roles and responsibilities regarding the policies and procedures
relevant to the foreign military sales programs. We also interviewed
officials from the Defense Security Assistance Development Center,
Mechanicsburg, Pennsylvania, to discuss their roles and responsibilities,
as well as the criteria and the guidance they used to maintain and oversee
the Army's Centralized Integrated System for International Logistics
system to restrict foreign countries from requisitioning classified spare
parts and other items containing military
technology under blanket orders. Furthermore, we interviewed officials to
determine the functional and operational controls that are used to
validate requisitions entered into the system.
To test the adequacy of the Army's internal controls to restrict access to
certain unclassified items containing military technology, we obtained DOD
and Army guidance on the foreign military sales program. We also reviewed
requisitions for unclassified items containing military technology for
which the system had approved the shipments under blanket orders. In
addition, we interviewed Army officials to obtain their reasons for
releasing these items. Also, we obtained records from the United States
Army Security Assistance Command on all classified spare parts and
unclassified items containing military technology that were purchased
using blanket orders and approved for shipment to foreign countries from
October 1, 1997, through April 30, 2003. We limited our review to blanket
orders because defined orders and Cooperative Logistics Supply Support
Agreements specified the parts that countries were entitled to requisition
by the national stock number. The records covered 21,703 requisitions for
classified spare parts and unclassified spare parts and other items that
contain military technology. We tested the system by identifying the 40
requisitions for classified spare parts that were shipped under blanket
orders and reviewed the restrictions applied to determine if the system
was operating as intended. To assess the Army's internal controls on the
release of unclassified items containing military technology, we reviewed
21,663 requisitions for which the system had approved the shipments under
blanket orders. Further, we obtained written responses from DOD officials
concerning whether unclassified items containing military technology
should be reviewed prior to being released to foreign countries. While we
identified some issues concerning the appropriate procedures for such
items, in all the cases we reviewed, we found that the items had been
ordered and shipped from the Army's system.
To determine whether the Army periodically conducted tests to validate the
system to ensure that it accurately identified for review and approval
blanket order requisitions to support foreign military sales, we obtained
and reviewed documentation identifying the system tests to determine how
often they were conducted. Also, we interviewed Army and DOD officials to
determine how periodic reviews and tests were performed on the system.
We conducted our review from May 2003 through December 2003 in accordance
with generally accepted government auditing standards.
As arranged with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days from
the
date of this report. At that time, we will send copies of this report to
the
Secretary of Defense; the Secretary of the Army; the Director, Office of
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report will be available at no charge on the GAO Web site at
http://www.gao.gov.
Please contact me on (202) 512-8365 if you or your staff have any
questions concerning this report. Key contributors to this report were
Lawson (Rick) Gist, Jr.; Carleen Bennett; Latrealle Lee; Elisah Matvay;
Arthur James, Jr.; and Ann DuBois.
Sincerely yours,
William M. Solis, Director
Defense Capabilities and Management
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