Summary

The Department of Defense (DOD) has absorbed millions of dollars of transportation and handling costs which should have been recovered from customers under the Foreign Military Sales Program.

DOD has problems identifying and billing customers under the program. Foreign customers have been undercharged about $17 million for air shipment of their items. Unrealistic percentage factors are applied under the surcharge billing method. Over $7 million in ocean transportation costs had not been billed to customers for military sales items withdrawn and shipped from depots in Germany, and the future costs of shipping replacement items overseas had not been considered. The Secretary of Defense should direct that the following actions be taken: (1) foreign military sales documentation and billing procedures be modified so that customers can be billed for the actual cost of transportation and port handling services provided; (2) the surcharge rates used to determine packing, handling, and crating costs be increased to cover actual costs; (3) controls over foreign military sales shipments originating at overseas depots be strengthened; (4) procedures be established to obtain proof of delivery documentation on foreign military sales shipments to aid personnel responsible for processing loss and damage claims; (5) previous shipments made from overseas installations be reviewed and an attempt made to recover any costs that have not been billed; and (6) previous air shipments be reviewed and customer billings recomputed using the correct nongovernment shipper rates, and an attempt be made to collect the amounts underbilled.