Foreign Military Sales: Improved Air Force Controls Could Prevent Unauthorized Shipments of Classified and Controlled Spare Parts to Foreign Countries
Published: 2003-07-29T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: From 1990 through 2001, the Department of Defense delivered over $138 billion in services and defense articles--including classified and controlled parts--to foreign governments through its foreign military sales programs. Classified spare parts are restricted for national security reasons, while controlled parts contain technology that the military does not want to release. GAO was asked to review the Air Force's internal controls aimed at preventing countries from requisitioning and receiving classified or controlled spare parts that they are ineligible to receive.
section_title: What GAO Found
paragraphs: The Air Force's internal controls for its foreign military sales program using blanket orders are not adequate, placing classified and controlled spare parts at risk of being shipped to countries not authorized to receive them. The Air Force's system has erroneously approved foreign country requisitions for classified and controlled spare parts based on incorrect federal supply classes. The system approves items for shipment based in part on an item's federal supply class--not the item's entire national stock number, which is a combination of the supply class number and a part number unique to the item. GAO found that because the system was not properly programmed and countries used unrestricted supply class numbers, the system erroneously approved 35 of 123 selected requisitions reviewed. For example, one country ordered a controlled outline sequencer used on various aircraft by using a supply class that was unrestricted, but incorrect for the part it requisitioned. Because supply class 1680 was not restricted and the system did not verify that 1680 was the correct supply class for national item identification number 010539320, the system approved the requisition. Had the system validated the entire 13-digit national stock number, it would have found that the number was incorrect and would not have approved the requisition. In addition, the Air Force has no written policies or procedures in place for recovering items that have been shipped in error. The Air Force has not validated modifications to the Security Assistance Management Information System that restrict parts available to foreign countries and has not tested the system since 1998 to ensure that it is working properly. Because modifications were not validated, the Air Force did not detect improperly made modifications to the system, and foreign countries were able to requisition and obtain controlled spare parts that, at the time, the Air Force was trying to restrict. GAO identified 18 instances in which countries requisitioned and received a controlled part for which they were not eligible because programmers had entered the restrictions in the wrong area of the system. Although Air Force officials subsequently told us that the part was improperly restricted, this example nevertheless demonstrates the need to validate system changes. Air Force command country managers did not always document reasons for overriding the recommendations of the system or the foreign military sales case manager. For 19 of the 123 requisitions GAO reviewed, command country managers overrode the system recommendations and shipped classified and controlled spare parts without documenting the reasons for overriding the system. For example, a command country manager overrode the system and shipped four classified target-detecting devices without documenting the reasons for overriding the system.

section_title: Letter
paragraphs: From 1990 through 2001, the Department of Defense (DOD) delivered over  $138 billion in services and defense articles—including classified and  controlled spare parts— to foreign governments through the foreign  military sales programs administered by the military services. The  management of classified and controlled spare parts is critical given their  potential to be used against U.S. interests if the parts should fall into the  hands of countries or terrorist organizations that are ineligible to receive  them.
You asked us to review the adequacy of key internal control activities  aimed at preventing countries from requisitioning and receiving classified  spare parts that they are ineligible to receive. Internal control activities  include the policies, procedures, and processes that are essential for the  proper stewardship of and accountability for government resources and  for achieving effective and efficient program results. In our review, the key  internal control activities we reviewed were in the areas of  restricting access to classified and controlled spare parts to countries  that are eligible to receive them,    validating restrictions loaded into the Air Force’s Security Assistance  Management Information System and testing the system’s logic, and    maintaining proper documentation for overriding system restrictions.
We focused our efforts on the Air Force because it sold 53 million items,  valued at over $1.7 billion, to foreign countries during fiscal years 2001 and  2002. The 53 million items included 1.4 million spare parts, valued at $299  million, that were classified or controlled spare parts. We plan to address  Army and Navy policies, processes, and procedures relating to these sales  in separate reviews.
To accomplish our review, we concentrated our efforts on classified and  controlled spare parts that foreign countries requisitioned from the Air  Force under blanket order cases, which define a country’s eligibility to  requisition spare parts. We obtained records from the Air Force Security  Assistance Center on all classified and controlled spare parts that were  purchased under blanket orders and, according to Air Force records, were  shipped to foreign countries for the period October 1, 1997, through July  31, 2002. A preliminary test of 72,057 requisitions, valued at $679.5 million,  identified 525 requisitions, valued at $9.7 million, that appeared to violate  Security Assistance Management Information System restrictions. We  obtained satisfactory explanations from Air Force Security Assistance  Center officials for all except 200 of the requisitions, valued at $ 5.6  million. We reviewed 123 of these requisitions, valued at over $4.4 million,  to determine the reasons classified and controlled items were released for  shipment. Further details are in the Scope and Methodology section of this  report.
subsections: section_title: Background
paragraphs: The transfer of defense items to friendly nations and allies is an integral  component in both U.S. national security and foreign policy. The U.S.  government authorizes the sale or transfer of military equipment, including  spare parts, to foreign nations either through government-to-government  agreements or through direct sales from U.S. manufacturers. The Arms  Export Control Act and Foreign Assistance Act of 1961, as amended,  authorize the DOD foreign military sales program.
The Department of State sets the overall policy concerning which  countries are eligible to participate in the foreign military sales program.  DOD, through the military services, enters into foreign military sales  agreements with individual countries. The Air Force Security Assistance  Center, which is an activity of the Air Force Materiel Command, is  responsible for the administration of the Air Force’s foreign military sales  program.
The center’s responsibilities start with the initial negotiation of the foreign  military sale and end with the delivery of parts and completion of all  financial aspects of the agreements. The center uses an automated  management information system, the Security Assistance Management  Information System, to support its management of the program with  accurate and timely information. For blanket order cases, the system uses  criteria such as an item’s national item identification number, a federal  supply class, or a federal supply group to restrict the parts available to  foreign military sales customers. Once the system has verified a country’s  eligibility and approved a requisition, the requisition is sent to a supply  center to be filled and shipped. The overall foreign military sales process,  as it applies to the Air Force, is shown in figure 1.
This report addresses the portion of the process relating to the Air Force’s  approval or disapproval of foreign countries’ requisitions for classified and  controlled spare parts under blanket order cases. Blanket orders are for a  specific dollar value and generally cover classes of parts that a country  may need rather than a specific item within a class. Under blanket orders,  the Air Force restricts classes of items, such as munitions and nuclear  spare parts, from being requisitioned.
section_title: Internal Controls over Foreign Military Sales Are Not Adequate
paragraphs: The Air Force’s internal controls for foreign military sales using blanket  orders are not adequate to prevent countries from ordering and receiving  classified and controlled spare parts that they are not eligible to receive.  We found that (1) controls based on supply class restrictions were  ineffective and resulted in erroneously approved requisitions for shipment,  and that written policies for recovering the erroneously shipped items did  not exist; (2) the Air Force did not validate modifications to its Security  Assistance Management Information System related to blanket orders or  test the system’s logic for restricting requisitions, and (3) command  country managers did not always document reasons for overriding either  the Security Assistance Management Information System or foreign  military sales case manager recommendations not to ship classified spare  parts. As a result of these inadequate internal controls, classified and  controlled spare parts were shipped to countries not authorized to receive  them. The Air Force Security Assistance Center has taken or plans to take  actions to correct these issues.
subsections: section_title: Use of the Federal Supply Class Resulted in Erroneously Approved Requisitions
paragraphs: Foreign country requisitions for classified and controlled spare parts were  erroneously validated, as a result of an incorrect federal supply class, by  the Air Force’s Security Assistance Management Information System. The  Air Force attempts to prevent countries from obtaining classified and  controlled spare parts by restricting them from receiving spare parts that  belong to selected federal supply classes. Included in the national stock  number is a four-digit federal supply class (see fig. 2), which may be  shared by thousands of items. The national stock number also contains a  nine-digit national item identification number that is unique for each item  in the supply system. A country can obtain a classified or controlled spare  part by using an incorrect, but unrestricted, supply class with an item’s  correct national item identification number.
We found that because the Security Assistance Management Information  System was not properly programmed, it erroneously validated 35 blanket  order requisitions (of the 123 in our review), even though an incorrect  supply class number was used, because the countries used supply classes  that were not restricted. For example, in one case, the Air Force restricted  countries from requisitioning parts belonging to the 1377 federal supply  class (cartridge- and propellant-actuated devices and components) on  blanket orders. The restriction included an outline sequencer (national  stock number –1377010539320) used on ejection seats for various aircraft.  The country ordered the sequencer using national stock number  1680010539320. Because supply class 1680 (miscellaneous aircraft  accessories and components) was not restricted and the Security  Assistance Management Information System did not verify that 1680 was  the correct supply class for national item identification number 010539320,  the system approved the requisition. Had the system validated the entire  13-digit national stock number, it would have found that the number was  incorrect and would not have approved the requisition. Subsequently, the  item manager recognized that 1680 was not the correct federal supply  class and corrected the supply class to 1377 before the part was shipped.  This example is summarized in figure 3. Air Force officials were unaware  of this situation until our review identified the problem.
In another case, involving the restricted 1377 federal supply class, a  country ordered a restricted battery power supply for the F-16 aircraft  using national stock number 6130013123511. Because supply class 6130  (nonrotating electrical converters) was not restricted and the Security  Assistance Management Information System did not verify the entire 13- digit national stock number, the requisition was approved. The Air Force  shipped the restricted battery power supply to the country. Neither the Air  Force nor the center had written policies or procedures in place for  recovering the items erroneously shipped. Without these types of policies  and procedures, the Air Force cannot be assured that appropriate steps  will be taken to recover the parts. Air Force Security Assistance Center  officials agreed that the supply class restrictions alone were ineffective  and could be bypassed by use of inaccurate supply class information.
section_title: Failure to Validate the System Could Allow Unauthorized Shipments of Classified Spare Parts
paragraphs: The Air Force has not validated modifications to the Security Assistance  Management Information System that restrict parts that countries can  requisition, and has not tested the system’s logic for restricting  requisitions since 1998 to ensure that it is working properly. As a result,  modifications that were not properly made went undetected, and foreign  countries were able to requisition and obtain controlled spare parts that  the Air Force was trying to restrict.
For example, the Air Force instructed programmers to modify a table of  restrictions in the Security Assistance Management Information System to  prevent certain countries from using blanket orders to requisition  controlled bushings in the 5365 supply class. Although Air Force Security  Assistance Center officials subsequently told us that the bushings had  been improperly restricted, we found that, for 18 of the 123 requisitions we  reviewed, countries had ordered and received the bushings, because the  Security Assistance Management Information System was incorrectly  programmed and did not identify the requisitions as requiring a review by  command country managers. After we brought the transactions to the  attention of Air Force Security Assistance Center officials, they  investigated and found that programmers had entered the restrictions in  the wrong area of the system. Because the Air Force had not validated that  system modifications were properly made, the system had approved the  requisitions. Although the Air Force later determined that the bushings  should not have been restricted, this example nevertheless demonstrates  the need to validate system changes.
The Air Force does not periodically test the Security Assistance  Management Information System to ensure that it accurately reviews  requisitions for compliance with restrictions. For example, when the  system is working correctly, it will identify restrictions relating to parts,  such as ammunition or nuclear spare parts, and will disapprove  requisitions from countries that are ineligible to order these parts. Air  Force Security Assistance Command officials said that the system had not  been tested since 1998 to ensure that it accurately reviews requisitions for  compliance with restrictions. When we tested the system’s ability to  restrict items based on their federal supply class, we found that the system  did not always perform as intended. As discussed earlier, the system did  not perform as intended because countries could requisition and obtain  classified and controlled spare parts using an incorrect, but unrestricted,  federal supply class with an item’s correct national item identification  number.
In the Federal Information System Controls Audit Manual, which lists  internal control activities for information systems, one of the control  activities listed involves the testing of new and revised software to ensure  that it is working correctly. In addition, management of federal  information resources rules require agencies to establish information  system management oversight mechanisms that provide for periodic  reviews to determine how mission requirements might have changed and  whether the information system continues to fulfill ongoing and  anticipated mission requirements. Further, DOD’s ADP Internal Control  Guidelineat the time stated that periodic reviews of systems should be  conducted to determine if they operate as intended.
According to Air Force Security Assistance Center officials, there have  been few changes to the table of restrictions in the system. However, they  did agree that existing changes need to be validated and were working to  accomplish this. Based on our observations, the Air Force’s failure to  validate modifications and test model logic is in part due to an  unquestioning confidence in the Security Assistance Management  Information System’s ability to correctly restrict the requisitioning of  classified and controlled spare parts.
section_title: Documentation for Overriding System and Item Manager Recommendations Is Inadequate
paragraphs: Command country managers did not always document reasons for  overriding Security Assistance Management Information System or foreign  military sales case manager recommendations not to ship classified spare  parts. According to the Standards for Internal Control in the Federal  Government, all transactions and other significant events need to be  clearly documented. The standards state that such documentation should  be properly managed and maintained and should be readily available for  examination.
Of the 123 requisitions we reviewed, the Security Assistance Management  Information System identified 36 requisitions for command country  manager review. For 19 of the requisitions, command country managers  overrode the system recommendations and shipped classified and  controlled spare parts without documenting the reasons for overriding the  system. For example, the command country manager overrode the system  and shipped four classified target-detecting devices, but the case file did  not contain any documentation explaining why the command country  manager did so, and managers we queried could not provide an  explanation for the override. Similarly, a command country manager  authorized the shipment of a controlled communications security part that  the Security Assistance Management Information System and foreign  military sales case manager recommended not be shipped. The case file  contained no documentation explaining why the spare part was shipped.  According to Air Force officials, there were no written policies or  procedures for documenting decisions to override the system or foreign  military sales case manager recommendations. The Air Force Security  Assistance Center plans to issue guidance to command country managers  to document system bypass authorizations.
section_title: Conclusions
paragraphs: The Air Force has not established nor does it maintain effective internal  controls over foreign military sales sold under blanket orders. Specifically,  internal controls involving use of the federal supply class to restrict  requisitions, the modification of tables restricting the access to classified  and controlled spare parts in the Air Force’s system, testing of the system,  and documentation of system overrides were inadequate. Without  adequate internal controls, classified and controlled spare parts may be  released to countries that are ineligible to receive them, thereby providing  military technology to countries that might use it against U.S. national  interests. Further, without written policies detailing the steps to be taken  when the Air Force becomes aware of an erroneous shipment, the Air  Force’s ability to recover erroneously shipped classified or controlled  parts is lessened.
section_title: Recommendations for Executive Action
paragraphs: To improve internal controls over the Air Force’s foreign military sales  program and to minimize countries’ abilities to obtain classified or  controlled spare parts under blanket orders for which they are not eligible,   we are recommending that the Secretary of Defense instruct the Secretary  of the Air Force to require the appropriate officials to take the following  steps:    Modify the Security Assistance Management Information System so  that it validates country requisitions based on the requisitioned item’s  complete national stock number.
Establish policies and procedures for recovering classified or  controlled items that are erroneously shipped.
Establish polices and procedures for validating modifications made to  the Security Assistance Management Information System to ensure that  the changes were properly made.
Periodically test the Security Assistance Management Information  System to ensure that the system’s logic for restricting requisitions is  working correctly.
Establish a policy for command country managers to document the  basis for their decisions to override Security Assistance Management  Information System or foreign military sales case manager  recommendations.
section_title: Agency Comments and Our Evaluation
paragraphs: In commenting on a draft of this report, DOD fully concurred with four of  our recommendations and cited corrective actions that had been taken or  were planned, and it partially concurred with another recommendation.   Specifically, with regard to our recommendation to modify the Security  Assistance Management Information System to validate country  requisitions based on the requisitioned item’s national stock number, the  department said that it has had a change in place since January 2003 to  validate requisitions based on an item’s national stock number.  We  believe that the department’s change is responsive to findings that we  brought to the Air Force’s attention in December 2002.  However, because  our audit work was completed when the Air Force brought this change to  our attention, we did not have an opportunity to validate the change.  The  department also stated that the Air Force (1) will write a policy  memorandum on procedures for recovering classified or controlled items  that are erroneously shipped, (2) will issue a policy memorandum  directing that all modifications to the system be validated in accordance  with existing policies and procedures, and (3) has issued a policy  memorandum specifying those staff who can input transactions for  overriding restrictions and requiring that waiver approvals for using the  bypasses be documented.
With regard to our recommendation to periodically test the system to  ensure that its logic for restricting requisitions is working correctly, DOD  partially concurred. The department said that a program is being  implemented to test new modifications placed in the system and that the  testing of old modifications would be an ongoing effort. Testing the  modifications placed in the system will ensure that they were made  correctly.  However, just testing the modifications will not ensure that the  system is correctly applying its logic to the modifications in order to  restrict requisitions for items that countries are not eligible to receive. For  example, testing modifications may not identify logic problems, such as  the one we identified involving the approval of requisitions based on an  item’s federal supply class.  Thus, we continue to believe that the system’s  logic for restricting requisitions should be periodically tested to ensure  that it is working correctly.  Otherwise, classified and controlled spare  parts that are requisitioned may continue to be erroneously released.
DOD’s comments appear in appendix I.
section_title: Scope and Methodology
paragraphs: To determine the adequacy of the Department of the Air Force’s key  internal control activities aimed at preventing countries from  requisitioning and receiving classified and controlled spare parts that they  are ineligible to receive, we held discussions with officials from the Under  Secretary of Defense (Policy Support) International Security Program  Directorate; Deputy Under Secretary of the Air Force (International  Affairs); and the Air Force Materiel Command’s Security Assistance  Center, Dayton, Ohio. We discussed the officials’ roles and responsibilities,  the criteria and guidance they used in performing their duties, and the  controls used to restrict countries from receiving parts that they are not  eligible to requisition. At the Air Force Security Assistance Center and Air  Logistics Centers at Warner Robins Air Force Base, Macon, Georgia, and  Tinker Air Force Base, Oklahoma City, Oklahoma, we interviewed military  and civilian officials to obtain an overview of the requisitioning and  approval processes applicable to classified and controlled spare parts.
To test the adequacy of the internal controls, we obtained records from  the Air Force Security Assistance Center on all classified and controlled  spare parts that were purchased under blanket orders and approved for  shipment to foreign countries for the period October 1, 1997, through July  31, 2002. We limited our study to blanket orders because defined orders  and Cooperative Logistics Supply Support Agreements specified the parts  that countries were entitled to requisition by national stock number. In  contrast, only Security Assistance Management Information System  restrictions limited the parts that countries were entitled to order under  blanket orders. The records covered 444 blanket orders that resulted in  72,057 requisitions for classified and controlled spare parts. Specifically,  we took the following steps:    We tested the Security Assistance Management Information System by  applying the system’s restrictions that applied to classified and  controlled spare parts that were shipped under blanket orders, and  identified 525 requisitions that appeared to violate the restrictions. We  obtained satisfactory explanations from the Air Force Security  Assistance Command for all except 200 of the requisitions, which were  shipped despite restrictions.
We reviewed case files for 123 requisitions, including 87 requisitions  for which the Security Assistance Management Information System had  approved the shipment of classified and controlled spare parts without  referring the requisitions to command country managers to determine  if the requisitions should be approved. We followed up on these  requisitions by consulting with command country managers.
The case files that we reviewed included 36 requisitions that the  Security Assistance Management Information System had referred to  command country managers for review to determine if they had  documented their decisions to override the system’s decisions. We  followed up on these reviews through discussions with command  country managers.
We conducted our review from May 2002 through May 2003 in accordance  with generally accepted government auditing standards.
As arranged with your office, unless you publicly announce its contents  earlier, we plan no further distribution of this report until 30 days from the  date of this letter. At that time, we will send copies of this report to the  Secretary of Defense; the Secretary of the Air Force; the Director, Office of  Management and Budget; and interested congressional committees. We  will also make copies available to others upon request. In addition, the  report will be available at no charge on the GAO Web site at  http://www.gao.gov.
Please contact me on (202) 512-8365, if you or your staff have any  questions concerning this report. Key contributors to this report were  Lawson (Rick) Gist, Jr.; Jennifer Thomas; Arthur James, Jr.; Lou  Modliszewski; Susan Woodward; John Lee; and Kristy Lehmann.
section_title: Appendix I: Comments from the Department of Defense