FOREIGN MILITARY 

SALES 

Financial Oversight of 

the Use of Overhead 

Funds Needs 

Strengthening 

Report to Congressional Committees 

July 2018 

GAO-18-553 

United States Government Accountability Office 
United States Government Accountability Office

Highlights of GAO-18-553, a report to 

congressional committees

July 2018

FOREIGN MILITARY SALES

Financial Oversight of the Use of Overhead Funds

Needs Strengthening

What GAO Found

The Defense Security Cooperation Agency (DSCA) has established some 

policies and procedures for financial oversight of Department of Defense (DOD) 

components’ use of Foreign Military Sales (FMS) administrative funds for costs

related to processing FMS cases, but GAO found certain deficiencies in its 

oversight. As part of its oversight, DSCA has taken steps such as clarifying

guidance on how administrative funds may be used, and developing procedures 

for reviewing business processes for the use of these funds. DSCA, however,

lacks the reliable funding data it needs to ensure proper spending and to inform 

its budget decisions. DSCA has not conducted regular reconciliations of the data,

with its financial service provider, to identify and correct data reliability issues, 

including gaps and inconsistencies in reported spending for the Army, the Navy, 

and the Air Force—the primary recipients of this funding. While DSCA conducts

reviews of DOD components’ business processes, providing an opportunity for 

sharing information about positive practices and identifying potential problems, it 

has not followed its annual minimum requirement for the number of reviews to 

conduct, or its requirement for tracking corrective action items. For example, 

DSCA was unable to provide an update on the status of action items from most 

of its reviews conducted since 2012. Moreover, DSCA does not conduct periodic, 

targeted financial reviews to verify components’ obligations and disbursements 

of administrative funds, raising the risk of misuse of funds. 

The Defense Security Cooperation Agency Has Overall Responsibility for Financial Oversight

of Foreign Military Sales Overhead Funds

 

Source

DSCA also has not developed adequate processes for financial oversight of the 

use of contract administration services (CAS) funds for costs such as contract 

management, in accordance with internal control standards. Specifically, DSCA 

lacks reliable data on DOD components’ use of CAS funds. GAO identified

inconsistencies in DSCA’s data, including no, or low, reported disbursements in 

some years for three of the four DOD components that received CAS funds in 

fiscal years 2012 through 2016, which did not align with data that GAO obtained 

from the components. DSCA has not conducted regular reconciliations of the 

data, with its financial service provider, to identify and correct data reliability 

issues. In addition, DSCA does not conduct periodic, targeted financial reviews 

to verify components’ CAS spending. For example, GAO found that at least $89

million in fiscal year 2016 CAS disbursements were incorrectly processed for the

Defense Contract Management Agency— the primary recipient of these funds. 

DSCA periodically communicates with DOD components about problematic 

issues, but generally does not take steps to verify spending, including reviewing 

supporting documentation and any actions taken by components to address such 

issues. As a result, DSCA raises the risk of unallowable or unapproved payments 

that could lead to fraud, waste, or abuse of funds.

View GAO-18-553. For more information, 

contact Thomas Melito at (202) 512-9601 or 

MelitoT@gao.gov.

Why GAO Did This Study

The U.S. government sells defense 

equipment and services worth billions 

of dollars to foreign partners through 

the FMS program. DSCA has overall 

management responsibility for the 

program, and various other DOD 

components are responsible for 

implementing and supporting it. DSCA 

charges purchasers certain overhead 

fees for FMS operating costs, including 

the administrative fee and the CAS fee. 

Overall administrative expenditures 

were $879 million in fiscal year 2017.

Overall CAS expenditures were $182

million in fiscal year 2015—the most 

recent year available with reliable total 

balance data. In past audits, GAO and 

the DOD Office of Inspector General 

raised questions about DOD’s financial 

oversight of these funds. 

House Report 114-537 and Senate

Report 114-255 included provisions

that GAO review DSCA’s use of these 

funds. This report examines DSCA’s 

financial oversight of DOD 

components’ use of (1) administrative 

and (2) CAS funds. GAO assessed the 

reliability of DSCA data for fiscal years 

2012 through 2016 (the most recent 

available) on DOD components’ use of 

these funds. GAO reviewed 

documentation and conducted 

interviews with agency officials.

What GAO Recommends

GAO is making 11 recommendations 

for DSCA to improve its financial 

oversight of administrative and CAS 

funds, such as by collecting reliable 

data on DOD components’ use of 

these funds, and conducting periodic,

targeted financial reviews. DOD 

concurred with GAO’s 11 

recommendations.
Page i GAO-18-553 Foreign Military Sales

Letter 1

Background 4

DSCA Established Certain Policies and Procedures for Financial 

Oversight of FMS Administrative Funds, but Its Oversight Has 

Certain Deficiencies 13

DSCA Has Inadequate Policies and Procedures to Provide 

Reliable Data and Ensure CAS Funds Are Used for Allowable 

and Approved Purposes 31

Conclusions 38

Recommendations for Executive Action 39

Agency Comments 40

Appendix I Objectives, Scope, and Methodology 44

Appendix II Comments from the Department of Defense 48

Appendix III GAO Contact and Staff Acknowledgments 52

Tables

Table 1: Examples of Activities Listed in the Defense Security 

Cooperation Agency’s (DSCA) “Foreign Military Sales 

(FMS) Activity Matrix” for Administrative Funds 15

Table 2: Defense Security Cooperation Agency’s (DSCA) 

Business Process Reviews for Department of Defense 

(DOD) Components’ Use of Foreign Military Sales (FMS) 

Administrative Funds in 2012-2017 24

Figures

Figure 1: Overview of the Department of Defense’s (DOD) 

Process for Collecting and Using Foreign Military Sales 

(FMS) Administrative and Contract Administration 

Services (CAS) Funds 6

Figure 2: Five General Phases of the Foreign Military Sales (FMS) 

Process 7

Figure 3: Various Department of Defense (DOD) Components Use 

Foreign Military Sales (FMS) Administrative Funds 8

Contents
Page ii GAO-18-553 Foreign Military Sales

Figure 4: Several Department of Defense (DOD) Components Use 

Foreign Military Sales (FMS) Contract Administration 

Services (CAS) Funds 9

Figure 5: Components of Internal Control Framework Prescribed 

for Federal Agencies 10

Figure 6: Timeline of Prior GAO and Department of Defense 

(DOD) Office of Inspector General (OIG) Audits with 

Findings Related to Financial Oversight of Foreign 

Military Sales (FMS) Trust Fund 12

Abbreviations 

BeSMART Budgeting, Programming, and Execution Submission

Management and Reporting Tool

CAS contract administration services

DCAA Defense Contract Audit Agency

DCMA Defense Contract Management Agency

DFAS Defense Finance and Accounting Service

DIFS Defense Integrated Financial System

DISA Defense Information Systems Agency

DOD Department of Defense

DSCA Defense Security Cooperation Agency

FAR Federal Acquisition Regulation

FIAR Financial Improvement and Audit Readiness

FMS Foreign Military Sales

LOA Letter of Offer and Acceptance

OIG Office of Inspector General

OMB Office of Management and Budget

SAMM Security Assistance Management Manual

SCES Security Cooperation Enterprise Solution

State Department of State

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Page 1 GAO-18-553 Foreign Military Sales

441 G St. N.W.

Washington, DC 20548

July 30, 2018

Congressional Committees

The Foreign Military Sales (FMS) program provides security assistance, 

such as equipment and training, to over 150 foreign partners, with 

average annual sales of approximately $38 billion in fiscal years 2007 

through 2017.1 The U.S. Department of State (State) reviews and 

approves FMS purchases, and several Department of Defense (DOD) 

components, led by the Defense Security Cooperation Agency (DSCA), 

are responsible for implementing and supporting the FMS program.

DSCA charges purchasers certain overhead fees to cover the U.S. 

government’s costs for operating the FMS program. These fees include 

the administrative fee, which DOD components use to cover costs such 

as civilian employee salaries, facilities, and information systems, and the 

contract administration services (CAS) fee, which components use to 

cover the costs of quality assurance and inspection, contract 

management, and contract audits.2 Administrative and CAS fee 

collections are held in separate accounts within the FMS trust fund.3 For 

fiscal year 2017, overall expenditures paid from administrative funds 

totaled $879 million. In addition, overall expenditures paid from CAS 

 1

We previously reported that annual sales were over $30 billion in each of these years 

except two, and grew 80 percent over the period, from $23 billion in fiscal year 2007 to 

$42 billion in fiscal year 2017. See GAO, Foreign Military Sales: Controls Should Be 

Strengthened to Address Substantial Growth in Overhead Account Balances, 

GAO-18-401 (Washington, D.C.: May 10, 2018).

2

According to DSCA, the authority to collect these fees originates in the International 

Security Assistance and Arms Export Control Act of 1976. DSCA specifically cites 

sections 2761(e)(1)(a) and (h) codified in title 22 of the United States Code. Section 

2761(e)(1)(a) of the act states, in part, that the charge for administrative services should 

be calculated on an average percentage basis to recover the full estimated costs of the 

administration of sales. Pub. L. No. 94-329, § 205, 90 Stat. 729, 737 (codified as amended 

at 22 U.S.C. § 2761). DSCA officials also noted that DSCA collects the administrative and 

CAS fees based on a percentage, in accordance with this provision of the act. 

3

Administrative and CAS fee collections are held in the FMS trust fund, which comprises 

separate accounts for each partner country and several distinct accounts for fees. 

Expenses related to administrative and CAS services are paid from the respective related 

fee account. The administrative and CAS accounts are the two main overhead accounts, 

which as of the beginning of fiscal year 2016 contained about 93 percent of the overall 

FMS trust fund overhead account balances. The third largest account, for transportationrelated costs, contained an additional 6 percent of the overall FMS trust fund overhead 

account balances. We plan to review the transportation account in a subsequent report.

Letter
Page 2 GAO-18-553 Foreign Military Sales

funds totaled $182 million in fiscal year 2015, the most recent year for 

which reliable total account balance data are available.4

We, as well as the DOD Office of Inspector General, conducted a series 

of audits over the past 30 years that found deficiencies in internal controls 

related to DOD’s financial oversight of the FMS trust fund, including 

administrative and CAS funds.5 Although DOD has undertaken steps to 

improve controls, questions remain about whether they are adequate to 

ensure that administrative and CAS funds are used for allowable and 

approved purposes.

House Report 114-537 and Senate Report 114-255 included provisions 

for GAO to review DSCA’s management and use of these funds.6 This 

report examines (1) the extent to which DSCA has established and 

carried out financial oversight policies and procedures to ensure its data 

 4

Overall expenditures equal the amount of funds transferred from the administrative and 

CAS accounts to DOD components. DOD components are responsible for obligating and 

disbursing administrative and CAS funds. In May 2018, we reported on DSCA’s 

management of these fees and the overall administrative and CAS account balances. We 

determined that the overall administrative account balance data for fiscal years 2007 to 

2017, as well as the overall CAS account balance data for fiscal years 2007 to 2015, were 

sufficiently reliable for assessing the account balances and related trends. However, we 

identified issues related to the reliability of DSCA’s overall CAS account balance data for 

fiscal years 2016 and 2017. We included a recommendation for DOD to correct an issue 

that led to the incorrect processing of CAS funds out of a different FMS account. See 

GAO-18-401. 

5

For example, see GAO, Defense Exports: Foreign Military Sales Program Needs Better 

Controls for Exported Items and Information for Oversight, GAO-09-454 (Washington, 

D.C.: May 20, 2009). Other prior GAO reports identified a lack of actual cost information 

for the FMS program as a critical DOD deficiency. See GAO, Foreign Military Sales: 

Redirection of Accounting Improvement Efforts is Appropriate, GAO/AFMD-88-75 

(Washington, D.C.: Sept. 15, 1988), and GAO, Centralization: Best Long-Range Solution 

to Financial Management Problems of the Foreign Military Sales Program, GAO/ FGMSD79-33 (Washington, D.C.: May 17, 1979). In addition, prior relevant DOD Office of 

Inspector General reports include, for example, Foreign Military Sales Administrative 

Surcharge Fund, Report No. 97-227 (Arlington, VA: September 30, 1997), and Contract 

Administration Services for Foreign Military Sales, Report No. 96-049 (Arlington, VA: 

December 20, 1995). See figure 6 in this report for more information about prior GAO and 

DOD Office of Inspector General audits.

6

H. Rept. No. 114-537 at 240. This House Armed Services Committee report 

accompanied H.R. 4909, a bill to authorize appropriations for fiscal year 2017 for military 

activities of the Department of Defense and for other purposes. S. Rept. No. 114-255 at 

228. This Senate Armed Services Committee report accompanied S. 2943, a bill to 

authorize appropriations for fiscal year 2017 for military activities of the Department of 

Defense and for other purposes. GAO-18-401 also addressed provisions that were 

included in these House and Senate reports.
Page 3 GAO-18-553 Foreign Military Sales

on DOD components’ use of administrative funds are reliable, and that 

the use of these funds is allowable and approved; and (2) the extent to 

which DSCA has established and carried out financial oversight policies 

and procedures to ensure its data on DOD components’ use of CAS 

funds are reliable, and that the use of these funds is allowable and 

approved.

To assess DSCA’s financial oversight of administrative and CAS funds, 

we reviewed budget, obligations, and disbursements data that DSCA 

collected on DOD components’ use of these funds in fiscal years 2012 

through 2016, the most recent years available at the time of our review. 

We assessed the reliability of the data by reviewing it for potential gaps, 

inconsistencies, or obvious errors and by conducting interviews with DOD 

officials about the data. We found that the data on both the administrative 

and CAS funds were not reliable for our purposes due to gaps and 

inconsistencies that we identified in the data. We report on these data 

problems in the body of this report. We also reviewed DOD documents, 

including DOD and DSCA policies, procedures, and guidance related to 

the use of administrative and CAS funds, and conducted interviews with 

DOD officials, including from DSCA, the Defense Finance and Accounting 

Service (DFAS), the Defense Contract Management Agency (DCMA), the 

Defense Contract Audit Agency (DCAA), the Army, the Navy, and the Air 

Force. See appendix I for additional details on our scope and 

methodology.

We conducted this performance audit from February 2017 to July 2018 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.
Page 4 GAO-18-553 Foreign Military Sales

DOD’s Office of the Under Secretary of Defense (Comptroller) is 

responsible for setting DOD policies and procedures related to the 

financial management, accounting, and audit readiness of security 

cooperation activities, including the FMS program.7 These policies and 

procedures are contained in DOD’s Financial Management Regulation, 

which prescribes that DSCA administers the FMS program for DOD and 

has overall financial management responsibility for the FMS trust fund, 

including reviewing and approving the DOD components’ administrative 

and CAS budgets, and monitoring the use of these funds.8 DFAS 

provides DSCA’s financial services for the FMS program and is 

responsible for accounting, billing, disbursing, and collecting funds for the 

FMS program. DOD components are responsible for annually submitting 

administrative and CAS budget requests along with supporting materials 

to DSCA, and for maintaining administrative and CAS obligations and 

disbursements within allotments.9 The Financial Management Regulation 

also prescribes that DOD components are responsible for maintaining for 

audit purposes supporting documentation for obligations and 

disbursements against allotments.10

DOD’s Financial Management Regulation refers to DSCA’s Security 

Assistance Management Manual (SAMM) for additional information on 

 7

See DOD Directive 5132.03, DOD Policy and Responsibilities Related to Security 

Cooperation (December 29, 2016). 

8

DOD Financial Management Regulation, DOD 7000.14-R, vol. 15, ch. 3-4. DOD’s 

Financial Management Regulation includes distinct policies and procedures for the 

financial management of administrative and CAS funds. 

9

For the purposes of this report, a budget is defined as a detailed statement of anticipated 

expenditures during an accounting period (e.g., fiscal year). An allotment is an 

authorization by an agency head or other authorized employee to incur obligations. An 

obligation is defined as a commitment that creates a legal liability of the government for 

the payment of goods and services ordered or received that can be paid immediately or in 

the future. Disbursements are defined as amounts paid by federal agencies during the 

fiscal year to liquidate government obligations. 

10Standards for internal control in the federal government call for maintaining supporting 

documentation for financial transactions. Specifically, management should clearly 

document internal controls and all transactions in a manner that allows the documentation 

to be readily available for examination. Further, documentation and records are to be 

properly managed and maintained. See GAO, Standards for Internal Control in the 

Federal Government, GAO-14-704G (Washington, D.C.: September 2014).

Background

Roles and Responsibilities 

Related to the Use of 

Administrative and CAS 

Funds
Page 5 GAO-18-553 Foreign Military Sales

DSCA’s policies and procedures. DSCA’S SAMM provides guidance to 

DOD components managing or implementing FMS programs over which 

DSCA has responsibility, including on DSCA’s financial policies and 

procedures for FMS. It also provides information to DOD components, 

including how they can use administrative and CAS funds for preparing 

and executing FMS cases.11 In addition, DSCA officials noted that the 

Federal Acquisition Regulation provides guidance on a range of contract 

administration and quality assurance functions that applies to the use of 

CAS. For example, the Federal Acquisition Regulation list contract 

administration, quality assurance, and audit activities such as ensuring 

contractor compliance with contract quality assurance requirements, 

performing engineering surveillance to assess compliance with 

contractual terms, and submitting information and advice based on an 

auditor’s analysis of the contractor’s records or data as to the 

acceptability of the contractor’s costs.12

Figure 1 provides an overview of DOD’s process for collecting and using 

administrative and CAS funds for costs associated with implementing and 

supporting FMS agreements.

 11An “FMS case” refers to a signed agreement between the United States and a foreign 

partner or ally, and to any subsequent amendments or modifications to that agreement, for 

the partner or ally to purchase equipment or services. 

12See Federal Acquisition Regulation (FAR) Parts 42.1, 42.3, and 46. 
Page 6 GAO-18-553 Foreign Military Sales

Figure 1: Overview of the Department of Defense’s (DOD) Process for Collecting 

and Using Foreign Military Sales (FMS) Administrative and Contract Administration 

Services (CAS) Funds

Multiple DOD components are involved in each FMS case and have a 

range of responsibilities related to implementing and supporting cases, 

throughout the five general phases of DOD’s FMS process. FMS cases 

include various types of equipment and services sold to foreign partners, 

ranging from fighter jets and integrated air and missile defense systems 

to combat helmets and training on the use of equipment. Each FMS case 

follows five general phases, as shown in figure 2.

Recipients of FMS 

Administrative and CAS 

Funds
Page 7 GAO-18-553 Foreign Military Sales

Figure 2: Five General Phases of the Foreign Military Sales (FMS) Process

Fourteen different DOD components received administrative funds in 

fiscal years 2012 through 2016, including the military departments—the 

Army, the Navy, and the Air Force—as well as other DOD components, 

including DSCA, DFAS, and other implementing agencies (see fig. 3).13

Military departments generally use administrative funds for administrative 

costs associated with implementing FMS agreements, such as for 

personnel and other costs associated with case development, execution, 

and closure.14 In addition, for example, the Missile Defense Agency 

 13DOD components include DSCA, DFAS, the military departments and various other 

DOD implementing agencies that prepare and execute FMS cases. 

14Various sub-components within each military department implement FMS cases, such 

as the U.S. Army Corps of Engineers and Army Tank-automotive and Armaments 

Command; the Naval Supply Systems Command and the Naval Sea Systems Command; 

and the Advanced—Medium-Range Air-to-Air Missile International Branch and the F-16 

Program Office in the Air Force Life Cycle Management Center.
Page 8 GAO-18-553 Foreign Military Sales

provides personnel and wireless services support for FMS cases, 

according to agency officials, and the National Geospatial-Intelligence 

Agency provides geospatial intelligence support for FMS cases.

Figure 3: Various Department of Defense (DOD) Components Use Foreign Military 

Sales (FMS) Administrative Funds

Note: Community Information Technology represents administrative funds that DSCA has provided 

for information technology initiatives—such as the Security Cooperation Enterprise Solution, a 

security assistance requisition system that DOD has been developing with administrative funds—for 

the benefit of the FMS community, across DOD. Community Information Technology funds are 

managed and spent by multiple DOD components. Overseas combatant commands that have 

received administrative funds include U.S. Africa Command, U.S. Central Command, U.S. Northern 

Command, U.S. European Command, U.S. Pacific Command, and U.S. Southern Command.
Page 9 GAO-18-553 Foreign Military Sales

Six DOD components have received CAS funds since fiscal year 2012, 

including DCMA, DCAA, the Army, the Navy, the Air Force, and the 

Defense Information Systems Agency (DISA) (see fig. 4).15 DSCA officials 

stated that the majority of CAS funds have been provided to DCMA, 

which provides contract management support to the military departments 

for FMS cases. According to DCAA officials, DCAA uses CAS funds to 

provide audit services and support for FMS contracts, on request by a 

military department.

Figure 4: Several Department of Defense (DOD) Components Use Foreign Military 

Sales (FMS) Contract Administration Services (CAS) Funds

 15DSCA approved CAS obligation authority for the Air Force and DISA for the first time in 

fiscal year 2017. 
Page 10 GAO-18-553 Foreign Military Sales

To address financial risks, and to help ensure that administrative and 

CAS funds are spent for allowable and approved purposes and the 

appropriate funding source is used, both DSCA and the other DOD 

components that receive these funds have a role in tracking and 

monitoring their use. Financial risks for the use of administrative and CAS 

funds include the risk of fraud, waste, and abuse of funds.16 The internal 

control framework prescribed for federal agencies includes five 

components (see fig. 5). These components apply to the use of 

administrative and CAS funds.

Figure 5: Components of Internal Control Framework Prescribed for Federal 

Agencies

The internal control framework prescribed for federal agencies calls for 

designing control activities at various levels, which commonly include toplevel reviews by management and entity-level controls pertaining to 

multiple organizations.

Various audits that we and the DOD Office of Inspector General have 

conducted in recent decades have shown persistent weaknesses in 

DOD’s financial oversight of the FMS trust fund—including administrative 

and CAS funds (see fig. 6). Similarly, we have included DOD financial 

management as a high-risk area for the federal government since 1995, 

partly because of long-standing, uncorrected issues with related systems 

and business processes and material weaknesses in internal control and 

 16According to standards for internal control in the federal government, management 

should consider the potential for fraud when identifying, managing, and responding to 

risks; see GAO-14-704G. GAO has also found that effective fraud risk management helps 

ensure that federal programs’ services fulfill their intended purpose, funds are spent 

effectively, and assets are safeguarded. See GAO, A Framework for Managing Fraud 

Risks in Federal Programs, GAO-15-593SP (Washington, D.C.: July 2015). 

Financial Risks, Internal 

Controls, and Prior Audits 

Related to Oversight of the 

FMS Trust Fund
Page 11 GAO-18-553 Foreign Military Sales

financial reporting.17 DOD’s fiscal year 2017 financial report notes that 

DSCA’s security assistance accounts, including the FMS trust fund, are 

unable to meet full accrual accounting requirements.18

 17See GAO, High-Risk Series: Progress on Many High-Risk Areas, While Substantial 

Efforts Needed on Others, GAO-17-317 (Washington, D.C.: February 15, 2017). 

18According to DOD’s fiscal year 2017 financial report, DSCA and other DOD components 

are in the process of revising accounting systems to record transactions based on the 

U.S. Standard General Ledger. Until all DOD component systems and related processes 

are able to collect and report financial information as required by U.S. Generally Accepted 

Accounting Principles, reported financial data is based on budgetary transactions and data 

from nonfinancial feeder systems. The Federal Financial Management Improvement Act of 

1996 emphasized the need for agencies to have systems that generate timely, accurate, 

and useful information with which to make informed decisions and to ensure accountability 

on an ongoing basis. In addition, the Federal Managers Financial Integrity Act of 1982 

requires each executive agency to establish internal accounting and administrative 

controls in accordance with standards prescribed by the Comptroller General.
Page 12 GAO-18-553 Foreign Military Sales

Figure 6: Timeline of Prior GAO and Department of Defense (DOD) Office of 

Inspector General (OIG) Audits with Findings Related to Financial Oversight of 

Foreign Military Sales (FMS) Trust Fund
Page 13 GAO-18-553 Foreign Military Sales

DSCA has established certain policies and procedures for financial 

oversight of administrative funds, but we found deficiencies in its 

oversight to ensure that DSCA has reliable funding data and that these 

funds are used as intended. First, related to monitoring, and to 

information and communication, DSCA lacks the reliable funding data it 

needs to ensure proper spending and to inform its budget decisions. 

Second, also related to monitoring, and to information and 

communication, DSCA has not followed its minimum requirements for the 

number of business process reviews to conduct annually or for tracking 

the status of action items, and has not selected components for review 

based on a risk-based approach. Third, related to control activities, DSCA 

has not conducted periodic, targeted financial reviews to verify 

components’ obligations and disbursements of administrative funds. 

While DOD’s Office of the Under Secretary of Defense (Comptroller) 

officials noted that, in accordance with DOD policy, DOD components are 

responsible for monitoring their own internal controls over the use of 

these funds, including potential deficiencies and corrective actions, they 

also noted that DSCA should provide direct oversight to ensure the 

components comply with their responsibilities.19 The internal control 

framework prescribed for federal agencies calls for designing control 

activities at various levels, which commonly include top-level reviews by 

management and entity-level controls pertaining to multiple organizations.

DSCA has established certain policies and procedures for financial 

oversight of the use of administrative funds. The internal control 

framework prescribed for federal agencies notes that the establishment of 

effective internal controls can help agencies achieve objectives related to 

efficient and effective operations, reliable reporting, and compliance with 

applicable laws and regulations.20 Examples of DSCA’s internal controls 

for financial oversight of DOD components’ use of administrative funds 

include guidance that DSCA developed on how administrative funds may 

be used, an application for tracking DOD components’ budgeting and 

execution of funds, reviews of components’ business processes for the 

 19DOD Financial Management Regulation, DOD 7000.14-R, vol. 15, ch. 3-4.

20See GAO-14-704G. 

DSCA Established 

Certain Policies and 

Procedures for 

Financial Oversight of 

FMS Administrative 

Funds, but Its 

Oversight Has 

Certain Deficiencies

DSCA Has Established 

Certain Policies and 

Procedures for Financial 

Oversight of FMS 

Administrative Funds
Page 14 GAO-18-553 Foreign Military Sales

use of these funds, and ad hoc reviews of supporting documentation 

provided for components’ requests for additional funding.21

Guidance on how funds may be used. Specifically, in March 2017, 

DSCA released updated guidance for use by DOD components, titled 

“FMS Activity Matrix,” in its SAMM to clarify the types of activities that 

should be funded with administrative funds versus other sources, in all 

phases of the FMS case lifecycle (see table 1).22 According to DSCA, it 

developed the revised guidance to help ensure the proper use of 

administrative funds across DOD components.

 21DSCA also manages and oversees the annual Security Assistance Program and Budget 

Review process, through which DSCA reviews and approves implementing agencies’

administrative budget requests. 

22This guidance defines the list of activities in all phases of the FMS Letter of Offer and 

Acceptance Lifecycle and their appropriate funding source. FMS case-related activities 

funded by the administrative fund are considered standard, indirect charges. Direct 

charges are considered non-standard and are included as line items on an FMS case. 

Other funding sources include, for example, funds appropriated for DOD operation and 

maintenance.
Page 15 GAO-18-553 Foreign Military Sales

Table 1: Examples of Activities Listed in the Defense Security Cooperation Agency’s (DSCA) “Foreign Military Sales (FMS) 

Activity Matrix” for Administrative Funds

FMS phase Examples of activities that may be funded with administrative funds

Pre-Letter of Request Define requirements (logistics, maintenance, training) to help a partner nation write a Letter of Request

Support foreign visits to the United States for potential FMS program or Letter of Request

Case Development (e.g., 

Agreement 

Development)

Enter FMS data and track DSCA metrics

Take necessary actions to process a Letter of Request from receipt through completion

Develop and prepare Letters of Offer and Acceptance, amendments, and modifications

Conduct quality control to ensure legal, financial, and policy compliance

Participate in case development meetings

Case Execution (e.g., 

Acquisition and Delivery)

Establish cost, schedule, and performance goals and objectives for case execution

Process logistics acquisitions and track defense articles from ordering through delivery

Develop integrated master schedule for items on a Letter of Offer and Acceptance

Conduct financial management and case reconciliation of financial and logistical management systems 

until case is complete

Monitor and manage case performance, including scope, schedule of work, cost, problem resolution, and 

financial management services

Maintain case files

Case Closure Perform case closure activities

Case Review Conduct day-to-day case analysis, including review of financial status and related meetings or 

correspondence

Analyze space rental or refurbishment charges, and information technology services or equipment, 

specifically incurred to support the FMS “community” mission

Source: GAO analysis of DSCA information. | GAO-18-553

An application for tracking funds. In addition, DSCA developed an 

application, called the Budgeting, Programming, and Execution 

Submission Management and Reporting Tool (BeSMART), as the 

authoritative database for budgeting and tracking execution of 

administrative funds by all DOD components at both the component and 

the object class23 level.24 According to the application’s user guide, DSCA 

 23Office of Management and Budget (OMB) Circular No. A-11 provides guidance to 

federal agencies on classifying obligations by object class, or items or services provided. 

Major object classes include personnel compensation and benefits, contractual services 

and supplies, acquisition of assets, and grants and fixed charges.
Page 16 GAO-18-553 Foreign Military Sales

developed BeSMART to improve efficiency and accountability, as an 

integrated application that would allow DSCA to analyze budget estimates 

and actual execution and to review manpower levels and average workyear costs.25 According to DSCA officials, DSCA requires DOD 

components to submit funding data, including obligations and 

disbursements, monthly. 26 DSCA officials also told us that DSCA has 

performed monthly reviews of overall status of funds reports from 

BeSMART for certain components. These reports are provided to DSCA 

by DFAS and show data on the status of obligations and disbursements 

for the military departments and overseas combatant commands.

Reviews of business processes. DSCA has conducted periodic reviews 

of DOD components’ business processes related to the use of 

administrative funds, called business process reviews. DSCA developed 

procedures for these reviews, which typically involve 2 to 3 days of 

meetings between DSCA and recipient organizations focused on how the 

components determine resource requirements and apply administrative 

funds to the appropriate types of expenses, in accordance with the “FMS 

Activity Matrix.”27 According to DSCA’s SAMM, DSCA began conducting 

business process reviews to carry out its responsibility to ensure funds 

are used correctly and in compliance with security assistance policies, 

and the purpose of these reviews is to evaluate an organization’s 

 24DOD Financial Management Regulation, vol. 4, ch. 19, notes that the Federal 

Accounting Standards Advisory Board Statement of Federal Financial Accounting 

Standards 4 – Managerial Cost Accounting Concepts and Standards for the Federal 

Government (July 31, 1995) provides cost management guidance and direction to be used 

to support management decision-making across DOD, as well as to provide accurate and 

timely reporting of cost information. DOD’s Financial Management Regulation also notes 

that, according to managerial cost accounting standards, costs reflect resources used or 

consumed to accomplish a given objective, and cost information is an essential 

component of any well-managed, cost-effective organization. DOD’s Financial 

Management Regulation adds that budgetary accounting should be provided along with 

cost information, for use in determining resource needs and future budgets, and that cost 

information should be reconcilable to the original source. Further, it notes that costs 

should be recorded at a level that is discrete enough to establish cost centers and define 

outputs. 

25According to a DSCA official, DSCA began developing the BeSMART application in 

2010.

26DOD’s Financial Management Regulation, vol. 15, ch.3, requires DOD components to 

submit monthly status of allotments reports for administrative funds to DFAS showing 

current allocations, obligations, and disbursements for the end of that reporting month. 

27DSCA officials noted that DSCA’s standard operating procedures for these reviews call 

for DSCA to review case lines for selected FMS cases as part of the reviews. 
Page 17 GAO-18-553 Foreign Military Sales

practices related to the use of administrative funds, to identify any best 

practices and needed improvements.28

Resource management reviews. DSCA has also carried out ad hoc 

resource management reviews, which involve the review of 

documentation provided by components in support of requests for 

additional funding, such as information on an organization’s 

administrative workload and resource management. Specifically, 

according to DSCA officials, DSCA conducted three resource 

management reviews in fiscal years 2012 through 2016: one in fiscal year 

2016 for the Air Force’s civilian pay funded by administrative funds, 

another for the Army Contracting Command in fiscal year 2015, and 

another for the Navy’s Naval Air Systems Command in fiscal year 2013.29

 28The SAMM adds that the business process review is neither an audit nor an inspection, 

but a joint effort, with the applicable implementing agency, to assess and better 

understand the existing processes, and assist with any issues. 

29According to DSCA officials, the purpose and results of these reviews have varied. For 

example, according to Air Force officials, as a result of DSCA’s Resource Management 

Review of the Air Force’s civilian pay in fiscal year 2016, DSCA issued a memorandum to 

the Under Secretary of the Air Force for International Affairs in June 2017 that included a 

requirement for the Air Force to provide evidence to DSCA that it had implemented 

management reforms to prevent sub-organizations from changing the size and shape of 

their administrative workforce without prior DSCA approval.
Page 18 GAO-18-553 Foreign Military Sales

Although DSCA developed an application for tracking DOD components’

budgeting and execution of administrative funds, we determined that 

DSCA lacks reliable data on components’ use of administrative funds, 

because it has not conducted regular reconciliations of the data to the 

components’ source data. We identified gaps and inconsistencies in 

DSCA’s data from the BeSMART application, discussed below. DSCA 

has not conducted regular reconciliations of the data, with the support of 

its financial service provider and other DOD components, to identify and 

correct data reliability concerns, including gaps and inconsistencies in 

reported spending in BeSMART for the Army, the Navy, and the Air 

Force—the primary recipients of administrative funds. DSCA officials 

stated that, in accordance with DOD policy, DFAS, as DSCA’s financial 

service provider, has a responsibility to provide reliable financial reporting 

for administrative funds to DSCA.30 However, DFAS officials noted that 

they have not conducted any reconciliation of the data to ensure that it is 

reliable. As a result, DSCA lacks the information and data that it needs to 

fulfill its financial management responsibility to monitor DOD components’

use of administrative funds, including trends in the use of funds, as well 

as adherence to requirements.31 Without actual spending data, DSCA is 

also hampered in its ability to make informed budget decisions and to 

assess the validity of its approved budgets for components’ use of these 

funds. The internal control framework prescribed for federal agencies 

calls for management to perform monitoring activities, and also for 

management to use quality information to achieve an entity’s objectives.32

We found that DSCA lacks reliable data on DOD components’ use of 

administrative budget, obligations, and disbursements data, by 

component and by object class, in its BeSMART application. DSCA 

provided administrative funding data from BeSMART to us that showed, 

for example, approximately $469 million in reported disbursements by the 

Army, the Navy, and the Air Force in fiscal year 2016. However, DSCA 

cannot be assured that its data are accurate, because it has not taken 

 30According to DSCA officials, DOD Financial Management Regulation, DOD 7000.14-R, 

vol. 6A, ch.2 applies to administrative and CAS funds. This section of the Financial 

Management Regulation notes that the reconciliation of source data is a joint responsibility 

of DFAS and the DOD components. 

31For example, DSCA requires DOD components to expend no more than 8 percent of 

administrative funds on pre-Letter of Request activities. DSCA has delegated 

responsibility to the components for ensuring that they meet the requirement to expend no 

more than 8 percent of administrative funds on pre-Letter of Request activities.

32See GAO-14-704G.

DSCA Lacks Reliable Data 

on DOD Components’ Use 

of FMS Administrative 

Funds

Internal Control Components: Information 

and Communication, and Monitoring

According to internal control standards 

prescribed for federal agencies, management 

should use, and externally communicate, 

quality information to achieve an entity’s 

objectives, and management should perform 

monitoring activities.

Key attributes that contribute to the operating 

effectiveness of the Information and 

Communication principle include identifying 

information requirements; obtaining relevant 

and reliable data in a timely manner; and 

processing, using, and externally 

communicating data into quality information to 

make informed decisions and address risks. 

For Monitoring, key attributes include 

establishing a baseline and internal control 

system monitoring. Common management 

activities include ongoing monitoring, 

including regular management and 

supervisory activities, as well as 

reconciliations, to identify internal control 

issues.

Source: GAO. | GAO-18-553
Page 19 GAO-18-553 Foreign Military Sales

adequate steps to monitor the data or to ensure that DFAS—its financial 

service provider—has conducted reconciliations of the data.33 We 

identified gaps and inconsistencies at both the DOD component and 

object class level in our review of budget, obligations, and disbursements 

data that DSCA has collected in its BeSMART application on DOD 

components’ use of administrative funds in fiscal years 2012 through 

2016.34 For example,

• DSCA’s BeSMART obligations and disbursements data for the Army’s 

civilian full-time permanent pay object class in fiscal years 2012 

through 2016 were not in line with approved budgets for those years. 

DSCA’s budget data for the Army showed at least $100 million under 

the civilian full-time permanent pay object class in each fiscal year 

from 2012 through 2016. However, we found that reported obligations 

and disbursements—which were generally equivalent—for the Army’s 

civilian full-time permanent pay decreased from approximately $24 

million in fiscal year 2012 to approximately $4 million in fiscal years 

2013 through 2015, and further decreased to approximately $33,000 

in fiscal year 2016, raising questions about the accuracy of the data 

the Army reported for this object class.35

• DSCA’s BeSMART data showed no administrative obligations or 

disbursements for certain DOD components in some fiscal years, 

although DSCA had approved administrative budget requests for

those entities. For example, DSCA’s data showed no administrative 

obligations or disbursements in fiscal years 2012 through 2013 and in 

fiscal years 2015 through 2016 for DFAS—which had total approved 

 33Specifically, such reconciliation should include monitoring the data to identify any gaps 

or inconsistencies, and working with the DOD components to identify the cause and 

correct any data reliability issues.

34DSCA officials noted that OMB Circular No. A-11 does not require them to collect 

administrative funds data at the object class level; however, DSCA established a 

requirement for DOD components to provide the object class data to better inform DSCA’s 

resource decisions. 

35According to DSCA officials, DOD components are required to obligate administrative 

funds within the fiscal year in which funds are approved, and a majority of funds are also 

disbursed within the fiscal year in which they are approved. Army officials indicated that 

the BeSMART data for the Army’s civilian full-time permanent pay object class do not 

represent actual under-execution of administrative funds, but that the data were 

inaccurate due to a systems issue; however, our audit procedures did not include testing 

to verify these costs. Army officials added that, although the BeSMART data was 

inaccurate for this object class, they submitted correct data on their actual spending 

annually to DSCA through BeSMART in a budgetary worksheet as part of the Army’s 

annual budget request for administrative funds.
Page 20 GAO-18-553 Foreign Military Sales

budgets of approximately $86 million for those fiscal years, or for the 

National Security Agency—which had an approved budget of 

approximately $764,000.36 Additionally, DSCA’s data showed no 

administrative obligations or disbursements in fiscal year 2015 for the 

National Geospatial-Intelligence Agency—which had an approved 

budget of approximately $1.1 million; and in fiscal years 2015 and 

2016 for DCMA—which had an approved budget of approximately 

$1.3 million, or for DISA—which had an approved budget of 

approximately $551,000.

• DSCA also was not able to provide actual administrative obligations or 

disbursements data for Community Information Technology Funds. 

According to DSCA officials, in fiscal years 2012 through 2016 these 

funds were provided for the Security Cooperation Enterprise Solution 

(SCES)—a security assistance requisition system that DOD has been 

developing with administrative funds—which had a budget in 

BeSMART of a total of about $205 million in those fiscal years.37 We 

found that DSCA’s budget data for SCES by object class showed a 

total of about $510,000 for military personnel in fiscal years 2013 and 

2015, which is not an allowable use of administrative funds under the 

Arms Export Control Act.38 DSCA officials indicated that the funding 

 36According to DSCA officials, they also received annual data on DFAS’s administrative 

obligations and disbursements from fiscal years 2012 through 2016 outside of BeSMART, 

in end-of-year status of funds reports. However, a DSCA official expressed concerns 

about the reliability of the execution data in the end-of-year status of funds reports, 

because any updates to obligations and disbursements after the end of the fiscal year 

would not be included in the data. In addition, the data in those reports are not provided by 

object class.

37According to DSCA officials, SCES is a system that DSCA has been working to develop 

since 2008 as a replacement for various legacy military department data systems, to serve 

as the primary requisition system for security cooperation programs, including FMS. 

DSCA officials indicated that SCES will not serve as a financial management system for 

FMS administrative or CAS funds.

38Congress amended the Arms Export Control Act in 1989 to exclude from the 

administrative fee certain expenses associated with military personnel who work on the 

FMS program as well as unfunded civilian retirement and other benefits. Pub. L. No. 101-

165, § 9104(b)(1) (amending section 43(b) of the Arms Export Control Act). According to 

DSCA officials, this section of the Arms Export Control Act does not apply to U.S. Coast 

Guard military personnel; however, U.S. Coast Guard military personnel do not have a 

role in SCES.
Page 21 GAO-18-553 Foreign Military Sales

for military personnel likely represented a budgeting error.39 However, 

DSCA was not able to provide obligations and disbursements data for 

SCES, by object class, to show whether actual spending was reported 

for military personnel.40 DSCA officials noted that actual spending 

data for SCES were not readily available, because DSCA does not 

track the actual spending once the funding is approved by DSCA and 

provided to DOD components (e.g., the Defense Logistics Agency 

and the Navy).

DSCA officials indicated that these data gaps and inconsistencies may be 

due in part to a lack of a direct systems interface between BeSMART and 

other components’ systems and to incomplete submissions by some 

components. According to DSCA officials, although DFAS is not 

responsible for BeSMART system maintenance or modifications, DFAS, 

as DSCA’s financial service provider, nevertheless has a responsibility to 

provide reliable financial reporting for administrative funds to DSCA.41

However, DFAS officials noted that DFAS has not conducted any 

reconciliation of the data from the BeSMART application to components’

source data. Instead, DFAS has relied on the components to provide 

complete and accurate data. As a result, DFAS has not reviewed the data 

to identify any actions needed to correct any data reliability issues. 

Officials whom we interviewed at each of the military departments also 

raised questions about the reliability of their BeSMART data, particularly 

for actual obligations and disbursements of administrative funds, and 

 39DSCA officials noted that budget data are not approved by object class and that an 

implementing agency is able to execute funds for an object class even if it did not include 

funds for that object class in its budget. However, DSCA’s annual budget guidance for 

administrative fund states that components should be prepared to explain and defend any 

yearly increases or decreases in requested funding by object class equal to or greater 

than 5 percent above or below inflation.

40In addition, we found that DSCA’s budget data for SCES did not match data provided to 

us by the DOD component that is responsible for SCES program management—the 

Defense Logistics Agency. The Defense Logistic Agency’s data showed that about $199 

million was provided for SCES for those years; these data were not reported by object 

class. DSCA officials indicated that DSCA’s data likely reflected an initial budget, whereas 

the Defense Logistic Agency’s data should accurately reflect the final approved budget or 

obligation authority. 

41DSCA officials referred to DOD’s Financial Management Regulation, DOD 7000.14-R, 

vol. 6A, ch. 2. 
Page 22 GAO-18-553 Foreign Military Sales

noted that the manual data entry could lead to problems with the data.42

DSCA officials noted that, as of January 2018, they were considering 

other options for collecting reliable data, including an application that 

could compile data from direct interfaces with other entities’ systems. 

However, without adequate procedures for monitoring the reliability of the 

data that it receives, DSCA is unable to fully perform its overall financial 

management responsibility.

DSCA has not fully complied with its requirements for conducting reviews 

of DOD components’ business processes related to the use of 

administrative funds. In addition, its policy for selecting military 

department organizations for review does not adequately reflect internal 

control standards, which call for a risk-based approach. DSCA 

established requirements and procedures in its SAMM for reviewing DOD 

components’ business processes related to the use of administrative 

funds. Our review of DSCA’s standard operating procedures and other 

documentation for these reviews conducted since 2012 found that these 

reviews have provided an opportunity to share information between both 

parties about positive practices for identifying resource requirements and 

to identify potential problems such as overlap or inefficiencies in 

staffing.43 However, DSCA has not complied with its SAMM requirement 

to conduct at least two business process reviews with selected military 

department organizations each year. Also, according to DSCA officials, 

DSCA does not maintain a list of organizations and offices within the 

military departments that receive administrative funds. As a result, it is not 

 42For example, officials from the Office of the Deputy Assistant Secretary of the Army for 

Defense Exports and Cooperation noted that they were concerned about the lack of an 

audit trail in BeSMART, since it is not possible to see who has made a change in their 

data in BeSMART or when a change was made. They indicated that because there is not 

a direct interface between BeSMART and the Army’s source systems, changes made in 

source systems would not necessarily be reflected in their BeSMART data. In addition, 

Navy International Program Office officials stated that the Navy’s administrative 

allocations data are reliable, but they cannot attest to the reliability of the Navy’s 

administrative obligations and disbursements data in BeSMART, because the data are 

manually entered and the Navy International Programs Office lacks access to verify 

administrative funds data from Navy sub-component systems. Officials from the Office of 

the Secretary of the Air Force for International Affairs also noted that their BeSMART data 

are manually entered and not linked to the Air Force’s official accounting system and this 

has created limitations in the Air Force’s administrative execution data in BeSMART.

43For example, as a result of the business process reviews that DSCA conducted, DSCA 

updated its SAMM guidance on how funds may be used, to address a discrepancy that it 

identified in implementing agencies’ interpretations of whether activities should be funded 

with administrative funds or other sources.

DSCA Did Not Fully 

Comply with its 

Requirements for Reviews 

of DOD Components’

Processes for Using FMS 

Administrative Funds
Page 23 GAO-18-553 Foreign Military Sales

clear that DSCA is able to select organizations for review based on a riskbased approach. Further, DSCA has not conducted reviews with DOD 

components other than the military departments, and it has not tracked 

and followed-up on action items from the reviews that it has conducted 

with military departments. The internal control framework prescribed for 

federal agencies calls for management to perform monitoring activities 

and to use, and externally communicate, quality information to achieve an 

entity’s objectives, to make informed decisions, and address risks.44

DSCA’s SAMM requires DSCA to conduct at least two business process 

reviews with selected military department organizations each year. In 

addition, the SAMM states that DSCA’s goal is to conduct three reviews 

with military department organizations annually, with one review for an 

organization or office within each of the three military departments. From 

2012 through 2017, we found that DSCA met its goal in 3 years and its 

requirement in an additional year, but DSCA did not conduct any 

business process reviews with military department organizations in 2015 

or 2017. Specifically:

• In 2015, DSCA issued a memo to the military departments noting that 

it was temporarily suspending the reviews, due to ongoing efforts to 

revise the SAMM guidance on the use of administrative funds and to 

implement other initiatives related to DSCA’s 2020 strategic plan.

• In 2016, DSCA resumed the reviews and met its requirement by 

conducting two reviews—one for an Air Force organization in July 

2016, and another for a Navy organization in October 2016.

• In 2017, according to DSCA officials, DSCA did not conduct any 

reviews, due to its ongoing focus on initiatives related to the 

implementation of its 2020 strategic plan, and also to allow time for 

the military departments to implement DSCA’s revised SAMM 

guidance.

Further, the SAMM states that DSCA may also conduct reviews of DOD 

components other than the military departments that receive 

administrative funds, to help ensure that the other components also use 

administrative funds correctly and in compliance with security assistance 

policies, as well as to identify any needed improvements in their use of 

these funds. However, DSCA did not conduct any reviews with 

components other than the military departments in 2012 through 2017.

 44See GAO-14-704G.
Page 24 GAO-18-553 Foreign Military Sales

Table 2 provides a summary of the business process reviews that DSCA 

conducted in 2012 through 2017.

Table 2: Defense Security Cooperation Agency’s (DSCA) Business Process 

Reviews for Department of Defense (DOD) Components’ Use of Foreign Military 

Sales (FMS) Administrative Funds in 2012-2017 

Year

Annual requirement 

for at least two 

reviews with military 

departmentsa met

Annual goal for one 

review per military 

department met

Reviews conducted 

with other DOD 

componentsb

2012   X

2013   X

2014   X

2015 Xc X X

2016  X X

2017 Xd X X

Legend:  = yes, X = no

Source: GAO analysis of DSCA information. | GAO-18-553

a

The military departments are the Army, the Navy, and the Air Force.

b

Other DOD components that receive administrative funding include, for example, the Defense 

Contract Management Agency, the Defense Information Systems Agency, the Defense Logistics 

Agency, the Missile Defense Agency, the National Geospatial-Intelligence Agency, and the National 

Security Agency.

c

In June 2015, DSCA issued a memo to the military departments noting that it was temporarily 

suspending its business process reviews due to ongoing efforts to revise its guidance on the use of 

administrative funds and to develop DSCA’s 2020 strategic plan.

d

According to DSCA officials, DSCA did not conduct any business process reviews in 2017 to allow 

time for the military departments to implement its revised guidance on the use of administrative funds, 

which was released in March 2017.

DSCA officials indicated that DSCA has focused its reviews to date on the 

military departments, since they receive the majority of administrative 

funds. DSCA officials noted that they learned of potential concerns 

related to one DOD component’s use of administrative funds in the 

summer of 2017. Nevertheless, as of February 2018, DSCA officials 

stated that they had not yet scheduled a review for that component. The 

officials added that they would not begin developing a schedule for any 

business process reviews to be conducted in 2018 for military department 

organizations or any other components until after March 2018—the 1-

year anniversary of the release of the revised SAMM guidance.45 As a 

result, DSCA has not carried out a key mechanism for providing guidance 

 45On March 28, 2018, DSCA officials informed us that they had not yet scheduled any 

business process reviews for 2018.
Page 25 GAO-18-553 Foreign Military Sales

and oversight to military department organizations and other DOD 

components on their use of administrative funds, including 

implementation of the revised SAMM guidance. DSCA may also lack 

timely awareness of any positive practices or internal control deficiencies, 

such as potential inefficiencies or wasteful use of funds.

Further, DSCA has not developed a risk-based approach for selecting 

military department organizations or offices for business process reviews, 

in accordance with internal control standards.46 Specifically, the SAMM 

notes that to identify organizations for review, DSCA is to issue an annual 

request to DSCA and military department officials for nominations of 

organizations or offices that would benefit from a business process 

review. According to DSCA officials, DSCA does not maintain a list of 

organizations and offices within the military departments that receive 

administrative funds and therefore could be the subject of a business 

process review, because DSCA’s selections for these reviews are based 

on nominations by the military departments.47 We requested such a list 

from DSCA, but DSCA was not able to provide it as of April 30, 2018. As 

a result, it is not clear that DSCA has sufficient information needed to 

conduct a risk based approach to selecting the organizations most in 

need of review. Such an approach could include representative sampling 

over time, as well as considering whether an entity has received a prior 

review, the amount of funding received, prior audit findings, or other 

identified risks. However, without a complete list of military department 

organizations and offices that receive administrative funds, DSCA risks 

not having full information to be able to adequately perform monitoring 

activities for all uses of administrative funds.

Additionally, DSCA’s SAMM states that DSCA will prepare minutes from 

these reviews, including any action items, and track and follow up on any 

action items until they have been completed. DSCA was able to provide 

us with a list of action items from 10 of the 11 business process reviews 

that it has conducted with the military departments since 2012. For 

example, prior action items have called for an organization to provide 

DSCA with additional information on FMS personnel and funding sources 

for sub-organizations, as well as for DSCA to determine whether certain 

costs should be paid for by administrative funds. However, DSCA does 

 46See GAO-14-704G.

47DSCA approves administrative budgets at the DOD component level, and the 

components are responsible for allocating funds across sub-organizations and offices. 
Page 26 GAO-18-553 Foreign Military Sales

not have a systematic process to track the status of the action items. 

DSCA officials noted that tracking has varied depending on the official 

who carried out the review and on the level of involvement on the part of 

the reviewed organization. As a result, DSCA was unable to provide an 

update on the status of action items from most of these reviews.48

DSCA has not developed a process for conducting targeted financial 

reviews to verify DOD components’ obligations and disbursements of 

administrative funds, including any review of supporting documentation.49

Such documentation could include timesheets and personnel reports; 

travel orders; documentation from components’ quality assurance reviews 

or studies related to their execution of administrative funds; as well as 

invoices or receipts related to components’ use of administrative funds for 

supplies, equipment, or contractual costs. As a result, DSCA cannot 

provide reasonable assurance that DOD components’ actual spending of 

administrative funds is allowable and approved, and reflects the 

appropriate funding source. DOD’s Financial Management Regulation 

and DSCA’s SAMM require DSCA to periodically monitor the use of 

funds, as part of its financial management responsibility for the FMS trust 

fund. Although DOD components are responsible for their own internal 

control programs, including investigating any potential internal control 

deficiencies and identifying any necessary corrective action, DSCA has 

an overall oversight responsibility to ensure that administrative funds are 

used correctly by DOD components, including DSCA, DFAS, the military 

departments, and other DOD components. The internal control framework 

 48DSCA provided an update on the status of action items for 2 of 11 reviews that it 

conducted since 2012. Specifically, as of August 2017, DSCA had documented updates 

on the status of some action items from two reviews that it conducted in October 2016 and 

August 2014. 

49We have previously defined a targeted financial review as a review by management that 

verifies actual incurred costs compared to planned budgets; appropriately documented 

transactions and internal controls; and provides reasonable assurance that financial 

transactions were properly executed, valid, accurate, and timely. (See GAO-17-224 and 

GAO-14-704G.) Such targeted reviews may vary in scope and frequency, depending on 

factors such as prior audits or risks identified. 

DSCA Has Not Developed 

a Process for Targeted 

Financial Reviews of Use 

of FMS Administrative 

Funds
Page 27 GAO-18-553 Foreign Military Sales

prescribed for federal agencies calls for management to design control 

activities, which commonly include entity-level controls pertaining to 

multiple components and top-level reviews by management, to achieve 

objectives and respond to risks.50 Targeted financial reviews can also 

help identify potential gaps and areas for improvement in internal 

controls, and provide a reliable picture of liabilities and spending.

In its October 2017 report to Congress on the management and use of 

administrative funds, DSCA reported that it conducts regular and multiple 

levels of oversight to ensure sound management and use of these funds. 

However, we found that DSCA’s oversight mechanisms do not include 

any verification of DOD components’ actual obligations and 

disbursements of these funds. For example, DSCA reported that it has 

conducted reviews of the overall administrative account balance and fee 

rate, developed SAMM guidance on how funds may be used, and 

conducted business process reviews.51 While DSCA’s reviews of the 

overall administrative account balance address funds flowing into and out 

of the account, they do not include any verification of DOD components’

actual spending of these funds.52 In addition, DSCA’s business process 

reviews also do not include any cost verification or financial transactions 

testing. Such testing can be used to verify the proper approval, accuracy, 

validity, and completeness of supporting documentation and ensure that 

the dollar amount of a transaction was properly supported. According to 

DOD’s Office of the Under Secretary of Defense (Comptroller), DSCA’s 

oversight responsibilities include monitoring components’ actual 

administrative spending and internal controls over the use of these funds, 

in accordance with DOD’s Financial Management Regulation.

 50See GAO-14-704G.

51See Defense Security Cooperation Agency, Foreign Military Sales Administrative 

Surcharge Fund Management (October 23, 2017.) DSCA provided this report to congress 

in response to a requirement in section 1297(a) of the National Defense Authorization Act 

for Fiscal Year 2017, for the Secretary of Defense to provide a plan to improve the 

management and use of fees collected on transfer of defense articles and services via 

sale, lease, or grant to international customers under programs over which DSCA has 

administration responsibilities. Pub. L. No. 114-328, § 1297(a), 130 Stat. 2000, 2563 

(2016).

52We previously reviewed data reliability for DSCA’s overall administrative and CAS 

account balances (e.g., DSCA’s collections into the accounts and overall disbursements 

out of the accounts) for fiscal years 2007 to 2017, and found the data to generally be 

reliable for our purposes, except for gaps in the fiscal years 2016 to 2017 CAS data. See 

GAO-18-401 for more information. 

Internal Control Component: Control 

Activities

According to internal control standards 

prescribed for federal agencies, management 

should design control activities to achieve 

objectives and respond to risks. Control 

activities are the actions management 

established through policies and procedures 

to achieve objectives. For financial 

management, common control activity 

categories include:

• Top-level reviews by management

• Proper execution of transactions

• Accurate and timely recording of 

transactions

• Appropriate documentation of 

transactions and internal control

• Reviews by management at the activity 

level

• Entity-level controls pertaining to multiple 

components

Source: GAO. | GAO-18-553
Page 28 GAO-18-553 Foreign Military Sales

Monthly status of administrative funds reports for the military departments 

and the overseas combatant commands that DSCA received from DFAS 

showed instances of over or under-obligations and disbursements of 

funds, raising questions about potential internal control deficiencies. 

DSCA’s data also showed that DOD components have obligated and 

disbursed administrative funds for personnel as well other costs, including 

services, equipment, and contractual costs. However, DSCA and DFAS 

officials noted that they do not take any steps to verify components’

reported costs, including review of supporting documentation to verify 

costs and any actions taken by the components to identify and correct 

any internal control deficiencies. As a result, DSCA lacks reasonable 

assurance that any internal control deficiencies that may have led to 

these reporting issues have been identified and addressed. DFAS 

officials noted that they—not DSCA—would generally follow up with 

components to provide information and training, as necessary, on any 

potential issues identified in the monthly status of administrative funds 

reports. However, the DFAS officials added that they do not follow up with 

the components to verify the cause and corrective actions taken to 

address any internal control issues.53 For example, the June 2017 status 

report showed about $4.5 million in over-disbursements for the Navy in 

fiscal years 2012 and 2013.54 DFAS provided supporting documents to us 

that indicated that the Navy had increased obligations to match 

disbursements, but DFAS officials were unable to provide additional 

details on the cause of the issue or steps taken by the Navy to address it.

Further, in fiscal year 2017, DSCA found that the Air Force and DISA had 

been incorrectly using administrative or FMS case funds for contract 

administration services costs that should have been covered by CAS 

 53According to DFAS officials, they have followed up with DOD components on potential 

issues identified in these reports to request that the components research the issues and 

take necessary corrective action, but DFAS does not take any additional steps to verify 

the cause and any corrective actions taken by the components to address any internal 

control issues. 

54Our review of monthly administrative status of funds reports from January 2015 to June 

2017 found that the reports showed ongoing potential issues for several organizations 

within the Navy, such as unobligated balances, unliquidated obligations, and overdisbursements of funds going back to fiscal year 2012. According to GAO’s budget 

glossary, an obligated balance, or unliquidated obligation, is the amount of obligations 

incurred for which payment has not been made. For budget authority that is available for a 

fixed period, the obligated balance remains available to liquidate obligations for five fiscal 

years. At the end of the fifth fiscal year, the account is closed and any remaining balance 

is cancelled. See GAO, A Glossary of Terms Used in the Federal Budget Process, 

GAO-05-734SP (Washington, D.C.: September 2005).
Page 29 GAO-18-553 Foreign Military Sales

funds. According to DSCA officials, as a result, DSCA began providing 

CAS funds to cover these costs for the Air Force and DISA in fiscal year 

2017.55 DSCA officials told us that they became aware of the issue 

following inquiries from the DOD components. The officials added that 

DSCA relies on DOD components to request appropriate funding types 

and levels. In January 2018, DSCA officials indicated that later in fiscal 

year 2018 they planned to begin issuing additional annual guidance to 

DOD in an effort to raise awareness about administrative and CAS 

account funding types and requirements. According to military department 

officials, each of the military departments conducts some reviews related 

to their execution of administrative funds, such as personnel time and 

attendance reviews, to verify that the proper funding source was used.56

However, DSCA officials noted that they do not conduct any reviews of 

military departments’ internal controls related to their execution of 

administrative funds, because, in their view, the DOD components are 

responsible for ensuring spending is allowable and appropriate in 

accordance with approved budgets.

DSCA officials noted that DSCA’s oversight of the use of administrative 

funds has focused on approving budgets, rather than oversight of actual 

spending, because these funds are collected based on a percentage 

charge, and also due to the challenges of tracking actual costs in DOD 

components’ financial systems.57 However, DSCA officials added that 

DSCA plans to audit the trust fund, as well as other security assistance 

accounts, in fiscal year 2022, in conjunction with DSCA’s financial 

 55DSCA approved CAS obligation authority of about $4.7 million for the Air Force and 

$150,000 for DISA in fiscal year 2017. In January 2018, DSCA officials indicated that they 

were unsure about whether any additional steps would be taken to determine how much 

funding was inappropriately used in prior years, or to correct the issue for prior years.

56Although Army and Navy officials indicated that their components do not conduct 

transactions testing of their administrative costs, Air Force officials indicated that the Air 

Force conducts transactions testing related to its use of administrative funds.

57Although the administrative fee is to be based on a percentage to recover the estimated 

cost of the administration of sales, best practices for cost estimating and assessment that 

we have previously identified note that criteria for effective cost estimating include the use 

of historical actual cost data to calibrate modeling. In addition, internal control standards 

note that managers need financial data to determine whether they are meeting their 

accountability goals for effective and efficient use of resources. See GAO, GAO Cost 

Estimating and Assessment Guide, GAO-09-3SP (Washington, D.C.: March 2009) and 

GAO-14-704G. As noted earlier, GAO has listed DOD financial management as a highrisk area for the federal government since 1995 partly because of long-standing, 

uncorrected issues with related systems and business processes and weaknesses in 

material internal control and financial reporting. 
Page 30 GAO-18-553 Foreign Military Sales

statement audit.58 DOD has previously found that such an audit can help 

drive enterprise-wide improvements to standardize business processes 

and improve data quality, as well as transparency and accountability.59

DSCA’s Financial Improvement and Audit Readiness (FIAR) team is 

considering incorporating FMS into its financial transactions testing in the 

future, for purposes of financial statement auditability, according to DSCA 

officials. DOD’s FIAR guidance provides suggested test procedures that 

include the use of actual costs in testing. DSCA’s FIAR team shared 

documentation with us from “mock” audit testing that they conducted for 

DSCA’s use of fiscal years 2015 and 2016 appropriated funds, which 

included data reliability questions and testing procedures that generally 

appeared to be appropriately designed.60 We did not independently 

evaluate or perform any testing of the mock audit.61

 58A financial statement audit is an examination of an entity’s financial statements by an 

independent auditor. The purpose of a financial statement audit is to add credibility to an 

entity’s reported financial position and performance, and it can also enhance management 

oversight. DSCA is currently undergoing an audit examination of its use of non-FMS 

appropriated funds, in preparation for its financial statement audit readiness. Also, 

according to DSCA officials, in fiscal year 2017, DSCA began a review of the FMS trust 

fund to assess audit readiness and identify necessary corrective actions in preparation for 

a full financial audit of the FMS trust fund in fiscal year 2022. DSCA officials indicated that 

their efforts are in the early stages, and that focus areas for initial corrective actions to 

enhance DOD financial management of the FMS trust fund will include undertaking a full 

reconciliation of administrative funds across the entire universe of DOD components’

financial systems, and incorporating administrative funds data from across the department 

into a reconciliation and reporting tool to standardize the department’s reconciliation and 

oversight capabilities for these funds.

59For example, DOD has previously reported that a financial statement audit can help 

improve transparency by providing a reliable picture of liabilities and spending. For 

accountability, such an audit can provide feedback on new investments in business 

systems, to better hold vendors accountable for their solutions. See DOD, Department of 

Defense Update on the Financial Improvement and Audit Remediation (FIAR) Plan, 

Testimony Before the House Armed Services Committee (January 10, 2018). 

60According to DSCA officials, DSCA conducted “mock” audit testing of appropriated 

funds that DSCA received to implement activities under section 10 of the United States 

code, such as supporting U.S. contingency operations. 

61Specifically, we reviewed the FIAR team’s “mock” audit documentation to understand 

what their review entailed. We found that the procedures appeared to be appropriately 

designed; however, because this work did not include FMS funds, we did not perform any 

audit procedures on their work.
Page 31 GAO-18-553 Foreign Military Sales

DSCA has not developed adequate controls to ensure that it has reliable 

data on DOD components’ use of CAS funds and to provide assurance 

that components’ use of these funds is allowable and approved. We 

found certain deficiencies in DSCA’s controls for financial oversight of 

DOD components’ use of CAS funds related to monitoring, information 

and communication, and control activities. First, related to monitoring, and 

information and communication, DSCA lacks reliable data on DOD 

components’ use of CAS funds. Second, related to control activities, 

DSCA has not conducted periodic, targeted financial reviews of DOD 

components’ obligations and disbursements of CAS funds. The internal 

control framework prescribed for federal agencies calls for designing 

control activities at various levels, which commonly include top-level 

reviews by management and entity-level controls pertaining to multiple 

components.62 Without conducting periodic, targeted reviews to verify 

CAS costs and controls, DSCA raises the risk of unallowable or 

unapproved payments that could lead to fraud, waste, or abuse of funds.

Although DSCA has collected some data on components’ use of CAS 

funds from budgeting through execution, DSCA lacks reliable data on 

DOD components’ actual spending due to gaps and inconsistences in the 

data it has collected for fiscal years 2012 through 2016.63 DSCA officials 

noted that DSCA did not have an application capable of tracking CAS 

funds across DOD components from budgeting through execution, as of 

January 2018. DSCA officials indicated that financial oversight processes 

have been less formal for CAS, because relatively less funding is 

provided for CAS than for administrative costs. For actual spending, 

DSCA received monthly status of funds reports from DFAS on DOD 

components’ overall CAS disbursements against obligation authority for 

fiscal years 2012 through 2016, according to DSCA and DFAS officials. 

We found gaps and inconsistencies in these reports, including no, or low, 

reported disbursements in some years for three of the four DOD 

components that received CAS obligation authority in fiscal years 2012 

through 2016, which did not align with information and data provided to us 

by the components on their CAS spending. DFAS officials indicated that 

 62See GAO-14-704G.

63DOD Financial Management Regulation, vol. 4, ch. 19, notes that the Federal 

Accounting Standards Advisory Board Statement of Federal Financial Accounting 

Standards 4 provides cost management guidance and direction to be used to support 

management decision-making across DOD, as well as to provide accurate and timely 

reporting of cost information. 

DSCA Has 

Inadequate Policies 

and Procedures to 

Provide Reliable Data 

and Ensure CAS 

Funds Are Used for 

Allowable and 

Approved Purposes

DSCA Lacks Reliable Data 

on DOD Components’ Use 

of CAS Funds
Page 32 GAO-18-553 Foreign Military Sales

they generally have not conducted any reconciliation of the 

disbursements data to components’ source systems to ensure that it is 

reliable.64 The internal control framework prescribed for federal agencies 

calls for management to perform monitoring activities, and also for 

management to use quality information to achieve an entity’s objectives.65

DSCA officials indicated that DSCA’s primary mechanism for oversight of 

DOD components’ actual spending of CAS funds on an ongoing basis is 

its review of monthly status of funds reports regarding components’

overall CAS disbursements against obligation authority, provided by 

DFAS. However, we identified gaps and discrepancies in the status of 

funds reports that DFAS provided for fiscal years 2012 through 2016, as 

of November 2017. For example:

• DCMA. The monthly status of funds reports showed about $64 million 

in fiscal year 2016 CAS disbursements for DCMA—the primary 

recipient of these funds, whereas DCMA’s approved obligation 

authority for fiscal year 2016 was $194 million. DCMA officials 

provided data to us showing that DCMA had disbursed about $187 

million in fiscal year 2016.

• The Army. The reports also showed low disbursements—about 

$174,000—for the Army in fiscal year 2015, and no disbursements for 

the Army in fiscal year 2016, whereas the Army’s approved obligation 

authority was a total of about $7.4 million for those fiscal years. We 

obtained data from the Army that showed a total of about $6.3 million 

in disbursements for those fiscal years.

• The Navy. The reports also showed no disbursements for the Navy in 

fiscal years 2013 through 2016, whereas the Navy’s approved 

obligation authority was about $41.1 million for those fiscal years. We 

obtained data from the Navy that showed approximately $16 million in 

disbursements for those fiscal years.

Although DSCA officials stated that DFAS, as DSCA’s financial service 

provider for FMS, has a responsibility to provide reliable data, DFAS 

officials noted that they generally do not conduct any reconciliation of the 

 64According to DSCA officials, DOD Financial Management Regulation, DOD 7000.14-R, 

vol. 6A, ch.2 applies to administrative and CAS funds. This section of the Financial 

Management Regulation notes that the reconciliation of source data is a joint responsibility 

of DFAS and the DOD components.

65See GAO-14-704G.
Page 33 GAO-18-553 Foreign Military Sales

CAS disbursements data in the status of funds reports to the components’

source data.

In addition, the monthly CAS status of funds reports do not include actual 

obligations data or a more detailed breakdown of the disbursements data, 

such as by object class or by CAS service provided. The four DOD 

components that received CAS funds in fiscal years 2012 through 2016 

generally indicated that they are able to provide data on their CAS 

obligations and disbursements by object class or labor category. DSCA 

began requiring components to provide actual CAS obligations, by object 

class, for the prior fiscal year as part of their annual budget requests 

beginning in July 2016, but we found that the data that DSCA received as 

part of components’ fiscal year 2017 CAS budget submissions for fiscal 

year 2016 were incomplete. For example, the budget request for the 

overseas portion of DCMA’s budget in fiscal year 2017 did not include 

prior actual obligations in an object class table. According to DSCA 

officials, DCMA had the data in its source file but the data was 

inadvertently hidden when it was formatted before it was provided to 

DSCA. DSCA officials added that their focus in reviewing the CAS budget 

requests is on the budgets, rather than prior actual costs.66

Since 2014, DSCA’s annual requests for CAS budget submissions have 

noted that DSCA has been planning to begin use an application capable 

of tracking CAS funds across DOD components from budgeting through 

execution, by object class. However, officials noted that as of January 

2018 DSCA had not yet implemented such an application for CAS. In 

April 2018, DSCA officials indicated that, to improve their oversight of 

CAS funds, they were beginning to use a new application to collect data 

on CAS budgets as part of the fiscal year 2020 budget review process, 

and they plan to track CAS execution data from components’ accounting 

systems through an automated process in this application. However, 

without adequate procedures for monitoring the reliability of the data that 

it receives on DOD components’ use of CAS funds, DSCA is unable to 

fully perform its overall financial management responsibility for these 

funds.

 66In addition, according to DSCA officials, DCMA’s fiscal year 2017 CAS budget request 

included obligation authority, rather than actual obligations, for the domestic portion—

which represents the majority of DCMA’s funding—of its CAS funds for fiscal year 2016. 
Page 34 GAO-18-553 Foreign Military Sales

DSCA also has not developed a process for conducting targeted financial 

reviews of DOD components’ obligations and disbursements of CAS 

funds, including any review of supporting documentation to verify that 

spending is allowable and approved.67 DSCA has periodically 

communicated with DOD components regarding problem issues, such as 

reported under-disbursements and inadequate contractor oversight, 

identified through DSCA’s review of status of funds reports on 

components’ CAS disbursements, as well as components’ CAS budget 

requests. DSCA officials indicated that DSCA relies primarily on 

components to ensure funds are spent for allowable and approved 

purposes and to identify any deficiencies in internal controls or issues 

needing corrective action. Nevertheless, DOD’s Financial Management 

Regulation and DSCA’s SAMM require DSCA to periodically monitor the 

use of funds, as part of its financial management responsibility for the 

FMS trust fund. Targeted financial reviews can also help identify potential 

gaps and areas for improvement in internal controls, and provide a 

reliable picture of liabilities and spending. The internal control framework 

prescribed for federal agencies calls for management to design control 

activities, which commonly include entity-level controls pertaining to 

multiple components and top-level reviews by management, to achieve 

objectives and respond to risks.68

DSCA officials provided documentation to us showing that they generally 

followed up with DCMA, DCAA, the Army, and the Navy via email about 

once or twice a year in fiscal years 2013 through 2016 with reminders 

about timely billing and reporting requirements for CAS or in response to 

reported under-disbursements in the CAS monthly status of funds reports 

that DSCA receives from DFAS.69 However, DSCA and DFAS officials

noted that they generally do not take steps to verify costs or that the 

components have identified and addressed any internal control 

deficiencies that may have caused the issues identified in these reports. 

For example:

 67Such documentation could include timesheets and personnel reports; invoices or 

receipts related to components’ use of CAS funds for supplies, equipment, or contractual 

costs; and documentation from DOD components’ reviews of their execution of CAS 

funds.

68See GAO-14-704G.

69DSCA’s documentation also showed an increase in follow up communications with the 

Army and Navy regarding these issues in fiscal year 2017 and early fiscal year 2018, at 

least partly in response to our requests for information during the course of our review. 

DSCA Has Not Developed 

a Process for Targeted 

Financial Reviews of Use 

of CAS Funds
Page 35 GAO-18-553 Foreign Military Sales

• DCMA. Systems interface issues and potential inadequate systems 

controls led to reported under-disbursements for CAS in fiscal year 

2016 for DCMA. However, DSCA did not specifically follow up with 

DCMA about the issue until December 2016, even though DCMA 

normally regularly bills for its use of CAS funds, according to DSCA 

officials.70 According to DCMA officials, this issue arose following their 

transition to a new accounting system in late 2015. They noted that 

DFAS had informed DCMA that DCMA was responsible for fixing the 

problem. However, the DCMA officials indicated that in their view, 

DSCA, DFAS, and the Defense Logistics Agency—which was the 

lead DOD component responsible for implementing the new 

accounting system—needed to have a role in resolving it. DCMA 

officials added that they had communicated about the issue with 

officials from DSCA, DFAS, and the Defense Logistics Agency in 

recent months. In January 2018, DFAS officials informed us that they 

had processed corrections totaling about $89 million for a portion of 

DCMA’s CAS bills for fiscal year 2016, which they determined had 

been incorrectly processed from a different FMS account. However, 

as of March 2018, the cause of the issue, including any internal 

control deficiencies, was not clear, and we found that a discrepancy 

remained between the amount of fiscal year 2016 CAS disbursements 

that DCMA reported to us ($187 million) and the amount that DSCA 

and DFAS reported processing for DCMA ($154 million).71

• The Army. In addition to sending the general reminders to DOD 

components regarding timely CAS reporting and billing requirements, 

DSCA communicated specifically with the Army regarding its reported 

low, or no CAS disbursements in DSCA’s status of funds reports in 

 70For CAS funds, DOD components are required to validate and submit monthly billings 

that reflect the actual or proportionate share of CAS funds that they have executed and for 

which they need reimbursement, in accordance with DOD Financial Management 

Regulation, DOD 7000.14-R, vol. 15, ch. 8. DSCA provided documentation to us showing 

that it had sent a general reminder email to DCMA, along with other DOD components, 

about timely reporting and billing requirements in August 2016. According to DSCA 

officials, they did not conduct any other follow up with DCMA about this issue until 

December 2016, when DSCA officials conducting an annual review of the CAS account 

balance noticed the issue and asked DFAS and DCMA officials to look into the cause and 

to resolve it. 

71We previously reported on data reliability issues related to DSCA’s CAS account 

balance data, and on DCMA’s CAS disbursements issues, in GAO-18-401. In that report, 

we noted that DFAS had incorrectly processed a portion of DCMA’s CAS bills for fiscal 

year 2016, totaling about $89 million, out of a different FMS account. However, as of 

March 2018, DSCA was unable to fully explain the cause of the issue. That report 

included a recommendation for DSCA to ensure that DCMA and DFAS work together to 

correct the issue.
Page 36 GAO-18-553 Foreign Military Sales

fiscal years 2015 and 2016.72 We obtained data from the Army on its 

CAS disbursements that showed approximately $2.6 million in 

disbursements in fiscal year 2015 and $3.7 million in disbursements in 

fiscal year 2016, whereas DSCA’s data in status of funds reports for 

the Army showed only $174,000 in disbursements in fiscal year 2015 

and no disbursements in fiscal year 2016. Documentation that DSCA 

provided to us showed that DSCA communicated with the Army to 

remind them about the issue in December 2017 and January 2018. 

According to DSCA officials, DSCA believes that a systems issue 

related to the Army’s CAS invoicing may have caused the reported 

under-disbursements. However, DSCA has not taken any additional 

steps to verify that the Army investigated and corrected the issue, and 

as of March 2018, the problem had not been resolved.

• The Navy. In addition to the general reminders that DSCA sent to 

DOD components regarding timely CAS reporting and billing 

requirements, DSCA also communicated specifically with the Navy 

about its reported under-disbursements for fiscal years 2013 through 

2016.73 DFAS’s reports show no disbursements for the Navy in fiscal 

years 2013 through 2016; we obtained data from the Navy that 

showed approximately $16 million in disbursements for those years. 

DSCA provided documentation to us showing that it had 

communicated via email with Navy officials twice in fiscal year 2014 

and once in fiscal year 2016 about the Navy’s reported underdisbursements going back to fiscal year 2012. DSCA also provided 

copies of multiple emails with Navy officials from fiscal year 2017, 

which showed that DSCA de-obligated $71,122.62 in FY 2012 CAS 

funds on September 30, 2017 as a result of delayed billing by the 

Navy, and that DSCA had instructed the Navy that it needed to take 

steps to ensure that the issue did not recur.74 However, DSCA has not 

taken additional steps to verify that the Navy has identified and 

corrected any internal control deficiencies that may have caused the 

reported disbursements issues, and the reported lack of 

 72We obtained data from DFAS on the Army’s CAS disbursements, and from the Army on 

its CAS disbursements, as of November 2017. 

73We obtained data from DFAS on the Navy’s CAS disbursements, and from the Navy on 

its CAS disbursements, as of November 2017. 

74Specifically, DSCA provided documentation to us showing that it had de-obligated 

$71,122.62 in fiscal year 2012 CAS funds on September 30, 2017 as a result of delayed 

billing by the Navy, and that any future valid bills would need to be paid out of current year 

funds. 
Page 37 GAO-18-553 Foreign Military Sales

disbursements for fiscal years 2013 through 2016 remains unresolved 

as of March 2018.

In addition, we found that DSCA approved over $200,000 in CAS funds in 

fiscal years 2014 and 2015 to repair poor-quality renovations of overseas 

housing for DCAA auditing officials that had previously been completed 

with fiscal year 2010 CAS funds, thereby raising questions about the 

potential risk of wasteful use of funds to redo work that was not properly 

completed.75 Specifically, DCAA officials informed DSCA that the work 

needed to be redone because of a lack of construction oversight or 

inspection during the initial renovations work. The officials noted that 

DCAA had found problems following the initial renovations including 

significant cracks in exterior walls, leaking windows and plumbing, and 

electrical and roofing issues. DSCA required DCAA to submit supporting 

documentation, including a line item budget, before it approved the 

additional funding for the work to be redone. The additional requests for 

fiscal years 2014 and 2015 included budgeted funds for quality control 

and contract oversight to address concerns about the previous work. 

However, DSCA has not conducted any further reviews to verify that any 

internal controls issues that led to the poor quality work were addressed 

and that these funds were actually used for allowable and approved 

purposes.

Although DOD components are responsible for their own internal control 

programs, DSCA has overall oversight responsibility to ensure that CAS 

funds are used correctly by DOD components, including DCMA, DCAA, 

and the military departments. DCMA, DCAA, and Navy officials indicated 

that their organizations conduct reviews of their CAS funding execution to 

ensure that their use of CAS funds is allowable and approved. However, 

Army officials stated that their organization does not conduct any reviews 

to verify CAS expenditures, raising the possibility that no DOD component 

conducts this oversight for the Army.76 Without conducting periodic, 

targeted financial reviews to verify components’ CAS costs and internal 

 75DSCA and DCAA officials provided supporting documentation to show that CAS funds 

may be used for this type of cost, but our review of the documentation provided also 

raised questions about the potential risk of wasteful use of funds to redo work that was not 

properly completed.

76Army officials stated that their reviews have focused on the Army’s requests for CAS 

obligation authority. However, in April 2018 the officials indicated that going forward, the 

Army plans to begin conducting reviews of the appropriateness of the Army’s CAS 

execution.
Page 38 GAO-18-553 Foreign Military Sales

controls, DSCA cannot be assured, in its oversight role, that components 

have the proper controls in place to achieve FMS program objectives.77

The FMS program generates billions of dollars in sales and it has grown 

significantly in recent years. DSCA has overall responsibility for the 

financial management and monitoring of DOD components’ use of 

administrative and CAS funds for costs associated with implementing and 

supporting the program. Establishing effective internal controls for 

financial oversight helps agencies achieve objectives related to reliable 

reporting, efficient and effective operations, and compliance with laws and 

regulations. Prior audits over the past three decades have raised 

questions about DOD’s financial oversight of the FMS trust fund, including 

administrative and CAS costs. While DSCA has undertaken initiatives to 

enhance controls for financial oversight, we found certain deficiencies in 

its oversight. For example, DSCA does not have reliable data on DOD 

components’ use of administrative funds. In addition, DSCA has not 

adhered to requirements for its reviews to assess military departments’

business processes for administrative funds or conducted any reviews of 

other DOD components’ (e.g., other than military departments) business 

processes. DSCA also has not established a risk-based approach to 

selecting organizations for review, nor has it ensured that the officials 

conducting these reviews formally track corrective action items. These 

reviews provide an opportunity for information-sharing about security 

assistance policies and requirements and positive practices. They can 

also identify potential issues, such as overlap or inefficiencies in staffing. 

Moreover, DSCA has not conducted periodic, targeted financial reviews 

to verify that DOD components’ spending of administrative funds is 

allowable and approved. Finally, DSCA lacks reliable data on DOD 

components’ use of CAS funds for costs such as contract management, 

and it has not conducted targeted financial reviews of CAS funds. As a 

result of these deficiencies, DSCA lacks key information needed to fulfill 

 77DSCA’s FIAR team is considering incorporating FMS into its financial transactions 

testing in the future, for purposes of financial statement auditability. According to DSCA 

officials, in fiscal year 2017, DSCA began a review of the FMS trust fund to assess audit 

readiness and identify necessary corrective actions in preparation for a full financial audit 

of the FMS trust fund in fiscal year 2022. DSCA officials indicated that their efforts are in 

the early stages, and that focus areas for initial corrective actions to enhance DOD 

financial management of the FMS trust fund will include undertaking a full reconciliation of 

CAS funds across the entire universe of DOD components’ financial systems, and 

incorporating CAS funds data from across the department into a reconciliation and 

reporting tool to standardize the department’s reconciliation and oversight capabilities for 

these funds.

Conclusions
Page 39 GAO-18-553 Foreign Military Sales

its financial management responsibility, such as having reliable spending 

data that could help DSCA identify trends in the use of funds and inform 

its budget decisions. DSCA also is unable to provide reasonable 

assurance that DOD components’ use of administrative and CAS funds is 

allowable and approved, increasing the risk of the potential fraud, waste, 

or abuse of these funds.

We are making the following 11 recommendations to the Secretary of 

Defense and the Director of DSCA:

The Secretary of Defense should ensure that the Director of DSCA takes 

steps to work with DFAS—DSCA’s financial service provider—and other 

DOD components, as appropriate, to improve the reliability of the data the 

DSCA obtains on all DOD components’ use of FMS administrative funds, 

including actual execution data, at an appropriate level of detail, such as 

by object class. (Recommendation 1)

The Secretary of Defense should ensure that the Director of DSCA works 

with DFAS to conduct regular reconciliations of the data that DSCA 

collects on DOD components’ use of administrative funds, to help ensure 

that the data are reliable. (Recommendation 2)

The Director of DSCA should follow its requirement to conduct at least 

two annual reviews of military department business processes for 

administrative funds. (Recommendation 3)

The Director of DSCA should conduct periodic (e.g., annual or biennial) 

reviews of other DOD components’ (e.g., other than military departments) 

business processes for administrative funds, based on a risk-based 

approach. Such an approach could include consideration of whether an 

entity has received a prior review or representative sampling over time, as 

well as consideration of factors such as the results of prior audits or other 

identified risks. (Recommendation 4)

The Director of DSCA should create and maintain a complete list of 

military department organizations or offices that receive administrative 

funds and are subject to DSCA’s business process reviews. 

(Recommendation 5)

The Director of DSCA should update DSCA’s policy for selecting military 

department organizations for reviews of their business processes for 

Recommendations for 

Executive Action
Page 40 GAO-18-553 Foreign Military Sales

administrative funds, to better ensure that it reflects a risk-based 

approach. (Recommendation 6)

The Director of DSCA should clarify guidance to ensure that the DSCA 

officials conducting reviews of business processes for administrative 

funds periodically track action items until they are completed. 

(Recommendation 7)

The Director of DSCA should develop a process for conducting periodic 

(e.g., quarterly or annual), targeted reviews of DOD components’ use of 

administrative funds, including transactions testing, to verify that actual 

costs incurred are allowable and approved. (Recommendation 8)

The Secretary of Defense should ensure that the Director of DSCA takes 

steps to work with DFAS and other DOD components, as appropriate, to 

improve the reliability of the data that DSCA obtains on all DOD 

components’ use of CAS funds, including actual execution data, at an 

appropriate level of detail, such as by object class. (Recommendation 9)

The Secretary of Defense should ensure that the Director of DSCA works 

with DFAS to conduct regular reconciliations of the data that DSCA 

collects on DOD components’ use of CAS funds, to help ensure that the 

data are reliable. (Recommendation 10)

The Director of DSCA should develop a process for conducting periodic 

(e.g., quarterly or annual), targeted reviews of DOD components’ use of 

CAS funds, including transactions testing, to verify that actual costs 

incurred are allowable and approved. (Recommendation 11)

We provided a draft of this report for review and comment to DOD and 

State. DSCA provided written comments on behalf of DOD, which we 

reproduce in appendix II. DOD also provided technical comments, which 

we incorporated as appropriate in this report. In its comments, DOD 

concurred with our 11 recommendations. State did not comment on the 

report.

We are sending copies of this report to the appropriate congressional 

committees; the Secretaries of Defense and State; the Secretaries of the 

Army, Navy, and Air Force; and the Director of DSCA.

Agency Comments
Page 41 GAO-18-553 Foreign Military Sales

If you or your staff have any questions about this report, please contact 

Thomas Melito at (202) 512-9601 or MelitoT@gao.gov. Contact points for 

our Offices of Congressional Relations and Public Affairs may be found 

on the last page of this report. GAO staff who made major contributions to 

this reports are listed in appendix III.

Thomas Melito

Managing Director, International Affairs and Trade
Page 42 GAO-18-553 Foreign Military Sales

List of Committees

The Honorable John McCain

Chairman

The Honorable Jack Reed

Ranking Member

Committee on Armed Services

United States Senate

The Honorable Bob Corker

Chairman

The Honorable Robert Menendez

Ranking Member

Committee on Foreign Relations

United States Senate

The Honorable Richard Shelby

Chairman

The Honorable Dick Durbin

Ranking Member

Subcommittee on Defense

Committee on Appropriations

United States Senate

The Honorable Lindsey Graham

Chairman

The Honorable Patrick Leahy

Ranking Member

Subcommittee on State, Foreign Operations, and Related Programs

Committee on Appropriations

United States Senate

The Honorable Mac Thornberry

Chairman

The Honorable Adam Smith

Ranking Member

Committee on Armed Services

House of Representatives
Page 43 GAO-18-553 Foreign Military Sales

The Honorable Ed Royce

Chairman

The Honorable Eliot Engel

Ranking Member

Committee on Foreign Affairs

House of Representatives

The Honorable Kay Granger

Chairwoman

The Honorable Pete Visclosky

Ranking Member

Subcommittee on Defense

Committee on Appropriations

House of Representatives

The Honorable Hal Rogers

Chairman

The Honorable Nita Lowey

Ranking Member

Subcommittee on State, Foreign Operations, and Related Programs

Committee on Appropriations

House of Representatives
Appendix I: Objectives, Scope, and 

Methodology

Page 44 GAO-18-553 Foreign Military Sales

We examined (1) the extent to which the Defense Security Cooperation 

Agency (DSCA) has established and carried out financial oversight 

policies and procedures to ensure its data on Department of Defense 

(DOD) components’ use of administrative funds are reliable, and that the 

use of these funds is allowable and approved; and (2) the extent to which 

DSCA has established and carried out financial oversight policies and 

procedures to ensure its data on DOD components’ use of Contract 

Administration Services (CAS) funds are reliable, and that the use of 

these funds is allowable and approved.

To address our first objective, we reviewed DOD documents, including 

DOD and DSCA policies, procedures, and guidance related to the use of 

administrative funds, such as DOD’s Financial Management Regulation, 

DSCA’s Security Assistance Management Manual (SAMM), and DSCA’s 

annual security assistance programming and budget guidance for 

administrative funds, as well as documentation from other DOD 

components related to their use of these funds.1

In addition, to assess the extent to which DSCA established and carried 

out financial oversight policies and procedures to ensure that data on 

DOD components’ use of administrative funds are reliable, we reviewed 

budget, obligations, and disbursements2 data that DSCA has collected on 

DOD components’ use of these funds in fiscal years 2012 through 2016,3

at both the DOD component and the object class level, in its Budgeting, 

Programming, and Execution Submission Management and Reporting 

 1

We did not review DSCA’s Security Assistance Program and Budget Review process 

because it was not within the scope of our review, which focused on DSCA’s financial 

oversight of DOD components’ actual spending (e.g., obligations and disbursements) of 

administrative funds. 

2

For the purposes of this report, a budget is defined as anticipated expenditures during an 

accounting period (e.g., fiscal year). An allotment is an authorization to incur obligations. 

An obligation is defined as a commitment that creates a legal liability of the government 

for the payment of goods and services ordered or received that can be paid immediately 

or in the future. Disbursements are defined as amounts paid by federal agencies during 

the fiscal year to liquidate government obligations.

3

We did not include fiscal year 2017 data on DOD components’ use of administrative and 

CAS funding in our scope because fiscal year 2017 data were not yet finalized at the time 

of our review. GAO previously reviewed data reliability for DSCA’s overall administrative 

and CAS account balances (e.g., DSCA’s collections into the accounts and overall 

expenditures out of the accounts) for fiscal years 2007 to 2017, and found the data to 

generally be reliable for our purposes, except for gaps in the fiscal years 2016 to 2017 

CAS data. See GAO-18-401 for more information. 

Appendix I: Objectives, Scope, and 

Methodology
Appendix I: Objectives, Scope, and 

Methodology

Page 45 GAO-18-553 Foreign Military Sales

Tool (BeSMART) application.4 We also reviewed monthly status of funds 

reports from BeSMART that the Defense Finance and Accounting Service 

(DFAS) provided to DSCA on the Air Force’s, the Army’s, the Navy’s, and 

the overseas combatant commands’ administrative obligations and 

disbursements from January 2015 through June 2017. We assessed the 

reliability of DSCA’s data by reviewing it for potential gaps, 

inconsistencies, or obvious errors and by conducting interviews with DOD 

officials about the data. We contacted certain DOD components, including 

the Defense Contract Management Agency (DCMA), the Defense 

Information Systems Agency, the Defense Logistics Agency, the Joint 

Strike Fighter Program, the Missile Defense Agency, the National 

Geospatial-Intelligence Agency, and the National Security Agency, with 

questions about the data they had submitted to BeSMART and to 

determine whether we could obtain reliable data from those components 

directly. However, the responses that we received did not establish the 

reliability of the BeSMART data or provide us with reliable data across the 

components. Due to gaps and inconsistencies that we identified in the 

BeSMART data that we reviewed, both within and across DOD 

components, we found that both the DOD component-level and object 

class data were not reliable for our purposes. We report on these 

problems with the administrative funding data in the body of our report.

Additionally, to assess the extent to which DSCA established and carried 

out financial oversight policies and procedures to ensure that the use of 

these funds is allowable and approved, we reviewed documentation on 

DSCA’s Financial Improvement and Audit Readiness (FIAR) and 

Managers’ Internal Control Program activities related to the FMS 

program.5 We also reviewed documentation such as meeting minutes and 

action items for FMS business process reviews that DSCA conducted 

 4

Office of Management and Budget (OMB) Circular No. A-11 provides guidance to federal 

agencies on classifying obligations by object class, or items or services provided. Major 

object classes include personnel compensation and benefits, contractual services and 

supplies, acquisition of assets, and grants and fixed charges. DSCA officials noted that 

OMB Circular No. A-11 does not require them to collect administrative funds data at the 

object class level; however, DSCA established a requirement for DOD components to 

provide the object class data to better inform DSCA’s resource decisions.

5

DSCA is currently undergoing an audit examination of its use of Title 10 (non-FMS) 

appropriated funds, in preparation for its financial statement audit readiness. We reviewed 

the FIAR team’s “mock” audit documentation to understand what their review entailed. We 

found that the procedures appeared to be appropriately designed; however, because this 

work did not include FMS funds, we did not perform any audit procedures on the team’s 

work.
Appendix I: Objectives, Scope, and 

Methodology

Page 46 GAO-18-553 Foreign Military Sales

with the Air Force, the Army, and the Navy in fiscal years 2012 to 2016. 

We also conducted interviews with DOD officials, including from the 

Office of the Under Secretary of Defense (Comptroller), DSCA, DFAS, the 

Air Force, the Army, and the Navy.

To assess the extent to which DSCA established and carried out financial 

oversight policies and procedures to ensure that its data on DOD 

components’ use of CAS funds are reliable, and that the use of these 

funds is allowable and approved, we reviewed DOD documents, including 

policies, procedures, and guidance related to the use of CAS funds, such 

as DOD’s Financial Management Regulation, as well as documentation 

from other DOD components related to their use of these funds. We also 

conducted interviews with DOD officials, including officials from DSCA, 

DFAS, and from the four DOD components that received CAS funding in 

fiscal years 2012 through 2016—DCMA, the Defense Contract Audit 

Agency (DCAA), the Army, and the Navy. In addition, we reviewed data 

that DSCA obtained on components’ CAS disbursements in fiscal years 

2012 through 2016 from the Defense Integrated Financial System 

(DIFS).6 We were not able to review data on components’ CAS 

disbursements by object class, or on CAS obligations, from DIFS 

because this data was not available in DIFS, according to DFAS officials.7

As a result, we contacted DCMA, DCAA, the Army, and the Navy to 

determine whether we could obtain reliable data from them directly on 

CAS obligations and disbursements, by object class. However, we were 

not able to obtain reliable data directly from the components. We 

assessed the reliability of the CAS disbursements data from DIFS, as well 

as the data that we received from the components directly, by reviewing it 

for potential gaps, inconsistencies, or obvious errors and by conducting 

interviews with DOD officials about the data. We found that the data were 

not reliable for our purposes due to gaps and inconsistencies that we 

identified in the data. We report on these data problems in the body of 

this report.

We conducted this performance audit from February 2017 to July 2018 in 

accordance with generally accepted government auditing standards. 

 6

DIFS is DFAS’s primary system used to consolidate FMS delivery and disbursement 

data, and it is used to account for and report the status of DOD’s Foreign Military Sales 

program.

7

We did not review DSCA’s annual CAS budget review and approval process because it 

was not within the scope of our review, which focused on DSCA’s financial oversight of 

DOD components’ actual spending (e.g., obligations and disbursements) of CAS funds.
Appendix I: Objectives, Scope, and 

Methodology

Page 47 GAO-18-553 Foreign Military Sales

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.
Appendix II: Comments from the Department 

of Defense

Page 48 GAO-18-553 Foreign Military Sales

Appendix II: Comments from the Department 

of Defense
Appendix II: Comments from the Department 

of Defense

Page 49 GAO-18-553 Foreign Military Sales
Appendix II: Comments from the Department 

of Defense

Page 50 GAO-18-553 Foreign Military Sales
Appendix II: Comments from the Department 

of Defense

Page 51 GAO-18-553 Foreign Military Sales
Appendix III: GAO Contact and Staff 

Acknowledgments

Page 52 GAO-18-553 Foreign Military Sales

Thomas Melito, (202) 512-9601 or MelitoT@gao.gov

In addition to the contact named above, Hynek Kalkus (Assistant 

Director), Elisabeth Helmer, Martin De Alteriis, Kelly Friedman, Jeff 

Isaacs, Heather Latta, Grace Lui, Susan Murphy, Moon Parks, Laurel 

Plume, Heather Rasmussen, Chanetta Reed, and Aldo Salerno made key 

contributions to this report. Jaime Allentuck, Amanda Bartine, Emily 

Desai, Dave Hancock, Chris Keblitis, Reid Lowe, and Kira Self provided 

technical assistance.

Appendix III: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(102501)
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