Chapter 14, Forecasting, Programming, Budgeting, and Audits, provides guidelines for how DSCA anticipates future activities and revenue by forecasting future sales agreements; formulates and approve the Planning, Programming, Budgeting, and Execution (PPBE) of Foreign Military Sales (FMS) Administrative Funds and Foreign Military Financing (FMF) Administrative Funds; and complies with, General Accounting Office (GAO) and DoD Inspector General (DoDIG) audits concerning security cooperation programs.

C14.1.1. Sales Forecasting. (Arms Export Control Act (AECA), Section 25(a)(2))

C14.1.1.1. Sales Forecast Report. Each year, DSCA (Strategy Directorate) prepares an estimate of the total amount of sales expected to be made to foreign nations from the United States. The Director, DSCA, approves the Sales Forecast. These estimates are published in the annual Congressional Budget Justification for Foreign Operations (CBJFO) for the upcoming fiscal year and the next fiscal year, and they include all highly probable (which DSCA defines as 90% likelihood) sales of weapon systems or weapons-related defense equipment, services, or training.

C14.1.1.2. DSCA Sales Forecasting Process. Beginning in April of each year, DSCA (Strategy Directorate) solicits inputs from the Security Cooperation Organizations (SCO), Geographical Combatant Commands (GCCs), and Military Departments (MILDEPs) for the projected sales for each country for the following fiscal year. SCOs prepare the country report and submit it to the GCC and DSCA (Strategy Directorate). GCCs and MILDEPs provide aggregate reports to DSCA (Strategy Directorate). DSCA (Strategy Directorate) consolidates and analyzes the inputs and prepares and coordinates the Sales Forecast Report.

C14.1.2. The Javits Report (AECA, Section 25(a)(1)).

C14.1.2.1. By the first of February each year, the DoS prepares an annual report to Congress (the Javits Report) regarding arms sales proposals which includes all FMS and Direct Commercial Sales (DCS) of major weapons or weapons-related defense equipment for $7,000,000 or more, or of any other weapons or weapons-related defense equipment for $25,000,000 or more, which are considered eligible for Congressional notification and approval. The Javits Report brings to Congress’s attention proposed arms sales (that meet the above-delineated dollar value thresholds) that are to take place during the calendar year in which it receives the report. Thus, the 2012 Javits Report, for example, should contain information on sales expected to take place in 2012. The DoS is not required to include any sale already notified to Congress; however, it will include any potential sales reported on a previous Javits submission that has not been notified to Congress if they still meet the reporting criteria.

C14.1.2.2. Sales Portion of the Javits Report. The DSCA (Programs Directorate) provides the DoS the FMS portion of the Javits report by extracting the relevant data from the Sales Forecast. Individual country input is unclassified unless the country has requested classification, See Chapter 4.

C14.1.2.3. Excess Defense Articles (EDA). The AECA, Section 25(a), also requires an annual report to Congress listing the types and quantities of Significant Military Equipment (SME) that are anticipated to become available for transfer as EDA during the next 12 months. The DSCA (Programs Directorate) requests this data from the MILDEPs and includes it in the Javits Report submission to the DoS.

Table C14.T1. DSCA FMS Forecast Report/Javits Report Submission Timeline

DSCA is responsible for the formulation and approval of Foreign Military Sales (FMS) Administrative Funds and Foreign Military Financing (FMF) Administrative Funds through a Planning, Programming, Budgeting, and Execution (PPBE) process. FMS and FMF Administrative Funds finance the management of various security cooperation (SC) programs and are available to DoD organizations and Defense Agencies that implement and execute SC programs. Funding is not provided to organizations that formulate U.S. SC policy such as the DoS, the Joint Staff, or the Office of the Undersecretary of Defense for Policy (USD(P)).

C14.2.1. Planning for FMS and FMF Administrative Funds. The DSCA (Strategy Directorate) leads the planning and programming elements of the PPBE process. Table C14.T2. outlines the DSCA Planning and Programming process (dates in the table are estimates and may vary from year-to-year). DSCA plans and programs for a three-year period. DSCA (Strategy Directorate) publishes the DSCA Security Cooperation Planning Guidance which, drawing from the overarching goals for the community and DoD, provides vision, principles, goals and priorities that help MILDEPs and other defense agencies and organizations understand the community’s direction and program resources for the next three-year period.

C14.2.2. Programming for FMS and FMF Administrative Funds. DSCA (Strategy Directorate) develops and publishes the Programming Guidance for the SC community in the form of a Program Objective Memorandum (POM) for FMS and FMF Administrative Funds. The POM is used to project the resources required for the SC community’s execution of FMS programs and describes, in detail, the proposed funding requirements for the next three years. A POM may also describe what is not fully funded and the risks associated with the shortfall. Within the POM, SC programs are aligned to DSCA’s six Core Functions (Pre-Letter of Request (LOR), Case Development, Case Execution, Case Closure, Business Sustaining, and Other Security Assistance Missions) and associated Security Assistance Program Elements (PEs). A description of the Core Functions and PEs can be found at Table C14.T2.

Table C14.T2. Security Cooperation Core Function and Program Element (PE) Short Definitions

C14.2.2.1. POM Development. The MILDEPs and other defense agencies and organizations provide submissions to the DSCA (Strategy Directorate) as requested in the Programming Guidance and justify the level of resources from the FMS and FMF Administrative Funds needed to support SC programs. MILDEPs and other defense agencies and organizations balance the known level of resources with the highest priority requirements and submit their program requests based on program-based requirements and policy-directed priorities. DSCA (Strategy Directorate) reviews the program submissions for:

C14.2.2.2. DSCA (Strategy Directorate) prepares the Program Decision Memorandum (PDM) which establishes a planning baseline by IA, PE, and object class for both FMS and FMF administrative accounts. The Director, DSCA, approves PDM decisions. The decisions in the PDM cycle generally become the baseline for budget formulation in the upcoming budget cycle. Final guidance to the target levels can be changed and are usually finalized in the annual budget call. It is important to note that a final determination of funding levels will be made once appropriations legislation is passed and the Office of Management and Budget (OMB) makes a decision regarding the level of the FMS Trust Fund ceiling.

C14.2.3. Budgeting for FMS and FMF Administrative Funding.

C14.2.3.1. FMS Administrative Funding. The FMS Administrative Fund is financed with collections from FMS purchasers derived from an assessed administrative surcharge. The DSCA (Business Operations Directorate) is responsible for financial management of the FMS Administrative Surcharge Trust Fund. The Defense Finance and Accounting Service (DFAS) collects surcharges in accordance with DoD 7000.14-R, Volume 15, Chapter 7. The annual FMS Administrative Fund budget is subject to the same controls and regulations as any single year DoD appropriation.

C14.2.3.2. FMS Administrative Budget OMB Hearing. DSCA Comptroller meets annually with the Office of Management and Budget (OMB) to discuss prior, current, and future fiscal year budgets - typically in October. During the hearing, DSCA presents the Agency’s budget for the FMS Administrative Fund. The goal of the hearing is to provide information and justification for the President’s Budget request, as well as other matters pertinent to the President’s Budget Submission. The President’s Budget Submission is an opportunity for DSCA to provide evidence of fiscally sound planning, budgeting, and management. The result of the President’s Budget Submission is a budget that complies with OMB and the President’s guidelines and policies. DSCA completes and returns its component of the President’s Budget Submission through formal President’s Budget galleys and the OMB MAX Budget Information System. The President’s Budget Submission includes the target for the upcoming fiscal year.

C14.2.3.3. FMF Administrative Funding. The FMF Administrative Fund is financed from an annual appropriation, coordinated by DSCA and approved through the DoS, for inclusion in the President’s Budget. FMF Administrative Funds are appropriated to the President. By Executive Order 12163, the President allocates these funds and delegates the authority and responsibility for their administration to the Secretary of Defense. The FMF administrative appropriation is subject to the same controls and regulations as DoD appropriations.

C14.2.3.4. FMS and FMF Administrative Budget Call and Submission. DSCA Comptroller issues an annual Budget Call to the IA, Combatant Commands (CCMDs), DSCA Headquarters, and Direct Reporting Units that execute FMS and FMF administrative budgets. Each year the call is issued in June and is due in August. Specific formats, instructions, and guidelines for budget development and submission are provided with each annual budget call. The main objective of the call is to provide budget execution guidelines for the development of a budget submission. The call also provides funding targets to develop budgets and allocate resources. Initial fiscal year targets are usually based on the current, approved PDM. The call includes reference materials and information needed to develop and submit both the FMS and FMF administrative budgets. DSCA consolidates the call for both the FMS and FMF administrative budgets; however, each budget should be developed independently. The MILDEPs, Defense Agencies, GCCs, and DSCA Headquarters should review subordinate submissions, set funding priorities, and adjust internal target levels accordingly. The MILDEPs, Defense Agencies, and DSCA Headquarters should submit a consolidated budget estimate to DSCA Comptroller through the Enterprise Planner online budget database. Each CCMD should submit a consolidated budget estimate to DSCA Comptroller in the Security Assistance Automated Resource Management Suite (SAARMS) Budget Preparation Module format.

C14.2.3.5. FMS and FMF Administrative Budget Issuance. DSCA Comptroller releases a comprehensive Annual Financial Plan each year in late September. The information is concurrently used as DSCA Comptroller’s annual budget submission to OMB for inclusion in the President’s Budget. The Annual Financial Plan includes the final baseline for use in developing annual execution, monthly obligation plans, a notional schedule of execution reviews, and quarterly funds distribution for the upcoming fiscal year. Each recipient of FMS and FMF Administrative Funds should develop internal controls and procedures to effectively and efficiently implement and execute those funds.

C14.2.3.6. Reimbursement Exemptions for FMS Administrative Funds. 22 USC Section 2792, exempts reimbursement from the FMS Administrative budget for military personnel costs and unfunded civilian retirement costs supporting the administration of the FMS program. The effective date for the exemption of military personnel costs is January 1, 1990. The effective date for the exemption of unfunded civilian personnel costs is the first complete pay period of December 1989.

C14.2.3.7. SCO Specific Funding. DSCA Comptroller allocates to the CCMDs FMS Administrative and FMF Administrative funding for functions that support SA programs. DSCA Comptroller centrally funds U.S. Coast Guard salaries, International Cooperative Administrative Support Services (ICASS), Residential Local Guard Program, C-12 Aircraft Flying Hour Program, Foreign Service National (FSN) Separation Liability Trust, and furniture and move-in costs for new Embassy buildings.

C14.2.3.8. Assistance-in-Kind (AIK). While not a funded program, AIK offsets funding requirements for some SCOs. SCOs receiving AIK (e.g., office space, vehicles, utilities, personnel support) report such support in their annual budget estimates by object code, using fair market value to assign costs.

Table C14.T3. DSCA Planning and Programming Process

C14.3.1. Defense Security Cooperation Agency (DSCA) Audit Responsibilities. The DSCA office of the Chief Performance Officer (CPO) oversees DSCA’s response to, and compliance with, all General Accounting Office (GAO) and DoD Inspector General (DoDIG) audits concerning security cooperation (SC) programs and serves as the liaison between DSCA and the auditing organization. DSCA is normally provided advance notification of a proposed audit identifying the congressional committee or organization that initiated the action; a statement of the scope; a time schedule for the audit; the name, number, and organization of the audit focal point; and a unique audit work or job code number. CPO also serves as the entry point for auditing agencies conducting more general reviews where SC programs or DSCA may not be the primary focus.

C14.3.2. Procedures. Upon receipt of an audit request, the DSCA CPO audit liaison officer (ALO) reviews the audit request and appoints a DSCA Primary Action Officer (PAO) or a Collateral Action Officer (CAO). The PAO and CAO are responsible for preparing and coordinating any DSCA responses to the audit or report. The ALO ensures that the appropriate organizations are alerted of any significant issues associated with the audit. DSCA is committed to a fully open and transparent process in which the DSCA staff works with the auditor(s) to ensure the requests for information and questions are answered in a timely manner.

C14.3.3. Entrance Conference. An Entrance Conference is conducted as soon as practical between DSCA and the auditor at the beginning of an audit. The DSCA PAO and/or CAO keeps all working notes and memoranda for the record, and provides status updates to the Director, DSCA, with a copy to the DSCA ALO as necessary.

C14.3.4. Exit Conferences. During Exit Conferences, the auditors generally meet with the PAO and/or CAO and the ALO to present their proposed findings and a draft report.

C14.3.5. Audit Findings and Recommendations. Upon publication of the audit or findings, the PAO and CAO review to determine any future course of action.