Financial Management: Theater Missile Defense Cooperation Account (Letter
Report, 04/03/95, GAO/NSIAD-95-93).

Pursuant to a legislative requirement, GAO audited the amounts of money
accepted by the Secretary of Defense from foreign allies and
international organizations for deposit in the Theater Missile Defense
Cooperation Account, focusing on: (1) the amounts contributed; (2) the
Secretary's efforts to obtain contributions in support of theater
missile defense programs; (3) whether the Department of Defense (DOD)
established adequate regulations to carry out legal requirements; and
(4) whether the financial transactions complied with the law.

GAO found that: (1) DOD established the account in the U.S. Treasury
and, although it notified allies about the account, no contributions had
been received as of the end of February 1995; (2) the account has a zero
balance and there are no transactions to assess; (3) DOD has made no
effort beyond its initial notification to obtain contributions; (4)
instead of seeking cash contributions, DOD has pursued cooperative
development of several theater missile development systems with U.S.
allies; and (5) DOD has not issued any regulations governing the
account, since it does expect to receive any cash contributions.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-95-93
     TITLE:  Financial Management: Theater Missile Defense Cooperation 
             Account
      DATE:  04/03/95
   SUBJECT:  International relations
             International cooperation
             Ballistic missiles
             Foreign governments
             Defense operations
             Special fund accounts
             Audits
             Gifts or gratuities
             Federal regulations
             Financial management
IDENTIFIER:  DOD Theater Missile Defense Cooperation Account
             Strategic Defense Initiative Program
             Israel
             Arrow Missile
             Persian Gulf War
             Japan
             United Kingdom
             France
             Germany
             Norway
             Canada
             Netherlands
             Italy
             South Korea
             NATO
             
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Cover
================================================================ COVER


Report to Congressional Committees

April 1995

FINANCIAL MANAGEMENT - THEATER
MISSILE DEFENSE COOPERATION
ACCOUNT

GAO/NSIAD-95-93

Financial Management


Abbreviations
=============================================================== ABBREV

  DOD - Department of Defense's
  NATO - North Atlantic Treaty Organization
  BMDO - Ballistic Missile Defense Organization

Letter
=============================================================== LETTER



B-260350

April 3, 1995

Congressional Committees

Section 242 of the National Defense Authorization Act for Fiscal Year
1994 established a Theater Missile Defense Cooperation Account in the
U.S.  Treasury.  Specifically, the account was created for
contributions for the Department of Defense's (DOD) use in theater
missile defense programs.  Contributions the Secretary of Defense
accepts from any allied foreign government or any international
organization for theater missile defense programs are to be deposited
in the account. 

We are required to annually audit the money accepted by the Secretary
of Defense under section 242 and submit the results of the audit to
the Congress.\1 This report summarizes the results of that audit. 

Our specific objectives were to determine (1) whether the Theater
Missile Defense Cooperation Account was established, (2) how much
money has been contributed, (3) what actions the Secretary of Defense
has taken to obtain contributions in support of theater missile
defense, (4) whether adequate regulations to carry out the
requirements of the law have been established, and (5) whether
financial transactions were carried out in accordance with the law. 


--------------------
\1 Title 10 U.S.C.  section 2609(f). 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

In response to the law, DOD established a Theater Missile Defense
Cooperation Account in the U.S.  Treasury.  DOD notified U.S.  allies
about the account, but has not received any contributions as of the
end of February 1995.  Thus, there were no financial transactions for
us to assess. 

Beyond informing allies about the account, DOD has made no further
efforts to obtain contributions.  Instead of seeking cash
contributions, DOD has pursued the cooperative development of several
theater missile defense systems with U.S.  allies.  According to DOD
officials, the allies have an incentive to participate in joint
development programs where a portion of the work will be performed in
their countries. 

The Theater Missile Defense Cooperation Account had a $0.00 balance
as of the end of February 1995.  DOD does not expect any cash
contributions.  Therefore, it has not issued applicable regulations
governing the Theater Missile Defense Cooperation Account because it
believes they are a low priority. 


   COOPERATIVE THEATER MISSILE
   DEFENSE FUNDING AND DEVELOPMENT
   PROGRAMS
------------------------------------------------------------ Letter :2

Responding to the law, in March 1994, DOD established a Theater
Missile Defense Cooperation Account in the U.S.  Treasury.  In
meetings on the coordination of U.S.  and allied missile development
programs, DOD notified the allies about the account.  However, there
have not been any contributions.  At this time, DOD officials do not
anticipate any contributions to the Theater Missile Defense
Cooperation Account.  Instead, DOD and U.S.  allies continue to
pursue long-standing cooperative missile development programs. 

In 1985, the United States began to encourage the cooperation of U.S. 
allies in missile defense research and development programs related
to the Strategic Defense Initiative.  In the National Defense
Authorization Act for Fiscal Year 1994, the Congress mandated
cooperation with our allies in planning theater missile defenses. 

Facing an imminent threat, Israel, with the cooperation of the United
States, has pursued a ballistic missile defense program centered
around the Arrow missile.  Iraq's actions in the 1991 Persian Gulf
War heightened concerns about ballistic missile threats.  In Asia,
the proliferation of ballistic missiles has prompted the Japanese
government to enter into bilateral discussions with the United States
on missile defense.  The United Kingdom, France, and Germany are also
currently evaluating their ballistic missile defense requirements. 

The National Defense Authorization Act for Fiscal Year 1994 directed
the Secretary of Defense to develop a plan to coordinate U.S.  and
allied theater missile defense program development and
implementation, with the goal of increasing interoperability and
reducing costs.  On May 5, 1994, the Secretary of Defense provided
the Congress with a report on the plan, as required by the law. 

A working group of eight nations (the United States, the United
Kingdom, Germany, Norway, France, Canada, the Netherlands, and Italy)
has been established under the North Atlantic Treaty Organization
(NATO) Conference of National Armaments Directors.  This group has
been chartered to deal exclusively with finding ways to cooperate in
theater missile defense programs. 

The National Defense Authorization Act for Fiscal Year 1994, section
242, required the President to certify in writing to the Congress
that U.S.  representatives have formally submitted to each of the
member nations of NATO and to Japan, Israel, and South Korea a
proposal regarding cooperation on development of theater missile
defenses.  Until the certification was delivered, DOD's Ballistic
Missile Defense Organization (BMDO) was restricted to obligating no
more than 80 percent of its appropriated funds for theater ballistic
missile defense. 

On April 4, 1994, the Director of BMDO and his staff presented
briefings to representatives from 13 of 19 invited nations concerning
current programs and future plans for theater missile defense
cooperation.  The representatives also received a letter from the
BMDO Director emphasizing the desire of the U.S.  government to
conduct cooperative theater missile defense development.  The nations
that were invited but did not attend the presentation were each sent
a similar letter and a copy of the briefing materials.  On May 16,
1994, the President issued a determination that DOD had complied with
the law and could so notify the Congress.  In May 1994, BMDO notified
the Congress of its compliance with the law, and the restricted funds
were subsequently obligated. 


   REGULATIONS NOT ISSUED
------------------------------------------------------------ Letter :3

DOD did not establish regulations to carry out the law.  DOD
officials told us that they had advised U.S.  allies about the
Theater Missile Defense Cooperation Account.  However, DOD did not
establish procedures for soliciting contributions.  In addition,
procedures on operating the Theater Missile Defense Cooperation
Account were not established.  According to DOD officials, they had
not expected contributions, so establishing operating procedures and
issuing regulations was a low priority. 


   MATTERS FOR CONSIDERATION BY
   THE CONGRESS
------------------------------------------------------------ Letter :4

Since there are no funds for us to audit, we believe the Congress may
wish to amend the law and eliminate the requirement that we perform
an annual audit of the Theater Missile Defense Cooperation Account. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :5

We reviewed DOD information and reports on the Theater Missile
Defense Cooperation Account and theater missile defense programs.  We
reviewed DOD's financial reports on the Theater Missile Defense
Cooperation Account.  We discussed these matters with officials from
the Comptroller's Office in the Office of the Secretary of Defense,
the BMDO, and the Defense Finance and Accounting Service.  Our work
was performed in Washington, D.C. 

We conducted our review in December 1994 and January 1995 in
accordance with generally accepted government auditing standards.  We
obtained oral comments of DOD officials on a draft of this report and
have included their comments where appropriate. 


---------------------------------------------------------- Letter :5.1

We are sending copies of this report to interested congressional
committees; the Secretary of Defense; and the Director, Office of
Management and Budget.  Copies will be made available to others on
request. 

If you or your staff have any questions, I can be reached on (202)
512-4128.  Major contributors to this report were Charles A.  Schuler
and
John A.  Butcher. 

Joseph E.  Kelley
Director-in-Charge
International Affairs Issues

List of Committees

The Honorable Strom Thurmond
Chairman
The Honorable Sam Nunn
Ranking Minority Member
Committee on Armed Services
United States Senate

The Honorable Ted Stevens
Chairman
The Honorable Daniel K.  Inouye
Ranking Minority Member
Subcommittee on Defense
Committee on Appropriations
United States Senate

The Honorable Floyd D.  Spence
Chairman
The Honorable Ronald V.  Dellums
Ranking Minority Member
Committee on National Security
House of Representatives

The Honorable C.W.  Bill Young
Chairman
The Honorable John P.  Murtha
Ranking Minority Member
Subcommittee on National Security
Committee on Appropriations
House of Representatives

