The sale or transfer of U.S. defense items to friendly nations and allies is an integral component in both U.S. national security and foreign policy. The U.S. government authorizes the sale or transfer of military equipment, including spare parts, to foreign countries either through government-to­ government agreements or through direct sales from U.S. manufacturers. The Arms Export Control Act and the Foreign Assistance Act of 1961, as amended, authorize the DOD foreign military sales program. The Department of State sets overall policy concerning which countries are eligible to participate in the DOD foreign military sales program. DOD identifies military technology that requires control when its transfer to potential adversaries could significantly enhance a foreign country’s military or war-making capability. The transfer or release of military technology to foreign countries involves various agencies such as the Department of State and DOD, which are responsible for controlling, in part, the transfer of such technology. The Defense Security Cooperation Agency, under the direction of the Under Secretary of Defense for Policy, has overall responsibility for administering the foreign military sales program, and the military services generally execute the sales agreements with the individual countries. A foreign country representative initiates a request by sending a letter to DOD asking for such information as the price and availability of goods and services, training, technical assistance, and follow-on support. Once the foreign customer decides to proceed with the purchase, DOD prepares a Letter of Offer and Acceptance stating the terms of the sale for the items and services to be provided. After this letter has been accepted, the foreign customer is generally required to pay, in advance, the amounts necessary to cover costs associated with the services or items to be purchased from DOD and then is allowed to request spare parts through DOD’s supply system. The foreign military sales policy and oversight for the Department of the Army are the responsibility of the Deputy Assistant Secretary of the Army for Defense Exports and Cooperation. The Commander, U.S. Army Materiel Command, is the Army’s executive agent for implementing, administrating, and managing the foreign military sales program. The U.S. Army Security Assistance Command performs the executive agent’s functions for the U.S. Army Materiel Command. The United States Army Security Assistance Command’s responsibilities start with the initial negotiation of a foreign military sale and end with the transfer of items and completion of all financial aspects of the sales agreement. The command uses an automated system called the Centralized Integrated System for International Logistics to support the U.S. Army’s management of the foreign military sales program. The command originally developed the system in 1976, and in October 1997, the Defense Security Cooperation Agency transferred the Army’s system to the Defense Security Assistance Development Center. The command retained responsibility for defining system-user requirements, designing new processes, and directing programming modifications to the system’s applications. However, the overall responsibility for providing system information technology maintenance support, such as writing and testing the programs and coordinating infrastructure support, was transferred to the Defense Security Assistance Development Center. Foreign military sales requisitions for Army spare parts and other items initially are processed through the system. For blanket orders, the system uses the security classification code to restrict the spare parts available to foreign military sales customers. Once the system validates a requisition, the requisition is sent to a supply center to be filled and shipped. The Army’s requisition process for foreign military sales of parts and other items is shown in figure 1. The Army’s internal controls over foreign military sales using blanket orders are not adequate, placing classified spare parts, as well as unclassified items containing military technology, at risk of being shipped to foreign countries, who are not eligible to receive them. We found that the Army (1) lacked control edits in its system and allowed the substitution and release of classified spare parts under blanket orders for shipment to foreign countries, and that a written policy does not exist to determine the actions needed to recover these items; (2) lacks adequate control edits in its system to prevent the release of some unclassified spare parts and other items containing military technology, and that a written policy does not exist to determine the actions needed to recover these items; and (3) has not conducted periodic tests to validate that its system is accurately reviewing and approving blanket orders. As a result of these inadequate internal controls, classified spare parts, as well as unclassified items containing military technology, were shipped to foreign countries that may not be eligible to receive them under blanket orders. The Army lacked control edits in its system and allowed the substitution and release of classified spare parts under blanket orders for shipment to foreign countries. The Army and DOD policies prohibit the release of classified spare parts, under blanket orders, to foreign countries. We identified 3 of the 40 requisitions in our review for the period between October 1, 1997, and April 30, 2003, where the Army item manager had released classified parts under 3 separate blanket orders. For these 3 requisitions, the original parts requested were unclassified but not in stock. The item manager substituted 11 classified digital processors for the unavailable parts and then released these parts under blanket orders for shipment to a foreign country. According to Army officials, the foreign countries were not entitled to receive these items under blanket orders. However, according to Army officials, the foreign countries would be entitled to these items because they have the equipment that these classified spare parts support and that these countries could obtain the parts under a different process such as a defined order. Therefore, according to the officials, in this particular case there is no need to retrieve the items. Based on the Army officials’ response, we agree with their decision. Until we identified the problem, Army officials at the United States Army Security Assistance Command, who are responsible for implementing, administrating, and managing the Army’s foreign military sales program, were not aware that these classified parts had been substituted for the originally requisitioned unclassified parts. Based on our review, the Army has modified the system to validate substituted parts selected by item managers. According to United States Army Security Assistance Command officials, they have no written policy to determine the actions the Army needs to take to recover classified spare parts or unclassified items containing military technology that were shipped to foreign countries that are not eligible to receive them. Army officials indicated that they have procedures to recover items shipped in lieu of the items ordered; however, the procedures do not address the recovery of items shipped that the foreign country was not eligible to receive. During our review, the officials did not agree with us that they should have written procedures in place to recover these items indicating that this responsibility belongs in the foreign military sales end-using monitoring program. They suggested we contact the Department of State and the Defense Security Cooperation Agency for additional information on recovering these items. While the Army may not be responsible for recovering these items, the Army would initially be aware that these items were shipped to foreign countries that may not be eligible to receive them, and could initiate recovery of these items. However, in discussions with officials on a draft of this report, officials indicated their current policies and procedures to recover items shipped in lieu of items ordered need to be modified to include items shipped to foreign countries that may not be eligible to receive them. The Army lacks control edits in its system to prevent the release of some unclassified items containing military technology to foreign countries under blanket orders. As a result, the Army has shipped some unclassified items containing military technology to foreign countries that may not be eligible to receive them. Officials from DOD’s Office of the Deputy Under Secretary of Defense Technology Security Policy and Counterproliferation indicated that the Army should have control over unclassified items containing military technology. In addition, the Defense Security Cooperation Agency indicated criteria for releasing these items should be considered on a country-by-country basis prior to releasing any items to a foreign country. The agency also stated that the military departments should use the applicable codes available as a means to help identify spare parts that contain military technology to ensure that the appropriate means are taken and adequate controls are in place to prevent unauthorized releases. Within the 21,663 requisitions for unclassified items containing military technology that were shipped, we found the following requisitions were not identified and reviewed before they were released: (1) 17,175 requisitions were for 381,245 items such as circuit card assemblies, fire control units, and electron tubes that require their inherent military capability to be destroyed or demilitarized prior to their release to the public; and (2) 387 requisitions were for 2,267 items that foreign countries are prohibited from requesting using blanket orders because the spare parts require release authority from inventory control points. Based on our review, the Army had initiated action to modify its system to cancel blanket orders for parts that require release authority from inventory control points. With such a modification, these 387 requests would be canceled. However, the action to modify the system is pending based on the official interpretation of the Army regulation on spare parts that requires release authority from inventory control points. In addition, as previously mentioned, according to United States Army Security Assistance Command officials, the Army has no written policy for recovering classified spare parts and unclassified items containing military technology that were shipped to foreign countries not eligible to receive them. According to Army officials, the foreign countries were entitled to receive these items. Therefore, according to the officials, in these particular cases there is no need to retrieve the items. Based on the Army officials’ response, we agree with their decision. In 1991, the Army had a control edit installed in its system that identified requisitions for parts containing military technology for manual review. This control edit caused thousands of requisitions to be referred for manual review. Army documents indicate that it removed the control edit because according to guidance from the U.S. Army Defense Systems Command and System Integration and Management Activity, the parts containing military technology do not require protected storage.