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 

GAO-04-327


a
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 solisw@gao.gov. 

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: 

• 	 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. 

• 	 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. 

• 	 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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Page i GAO-04-327 Foreign Military Sales 

20 

8 
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. 

Page 1 GAO-04-327 Foreign Military Sales 
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). 

Page 2 GAO-04-327 Foreign Military Sales 
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: 

• 	 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. 

• 	 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 

Page 3 GAO-04-327 Foreign Military Sales 
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. 

• 	 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. 

Page 4 GAO-04-327 Foreign Military Sales 
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. 

Page 5 GAO-04-327 Foreign Military Sales 
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. 

Page 6 GAO-04-327 Foreign Military Sales 
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. 

Page 7 GAO-04-327 Foreign Military Sales 
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. 

Page 8 GAO-04-327 Foreign Military Sales 
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. 

Page 9 GAO-04-327 Foreign Military Sales 
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. 

Page 10 GAO-04-327 Foreign Military Sales 
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 

Page 11 GAO-04-327 Foreign Military Sales 
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. 

Page 12 GAO-04-327 Foreign Military Sales 
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). 

Page 13 GAO-04-327 Foreign Military Sales 
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 

Page 14 GAO-04-327 Foreign Military Sales 
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: 

• 	 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. 

• 	 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: 

• 	 Modify the system so that it identifies blanket order requisitions for 

unclassified items containing military technology that should be reviewed 

before they are released. 

• 	 Periodically test the system and its logic for restricting requisitions to 

ensure that the system is accurately reviewing and approving blanket 

order requisitions. 

Page 15 GAO-04-327 Foreign Military Sales 
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 

Page 16 GAO-04-327 Foreign Military Sales 
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 

Page 17 GAO-04-327 Foreign Military Sales 
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. 

Page 18 GAO-04-327 Foreign Military Sales 
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


Management and Budget; and interested congressional committees. We 


will also make copies available to others upon request. In addition, the 


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


Page 19 GAO-04-327 Foreign Military Sales 
Appendix I: Comments from the Department 

of Defense 

Page 20 GAO-04-327 Foreign Military Sales 
Appendix I: Comments from the Department 

of Defense 

Page 21 GAO-04-327 Foreign Military Sales 
Appendix I: Comments from the Department 

of Defense 

(350374) Page 22 GAO-04-327 Foreign Military Sales 
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