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Foreign Military Sales: DOD's Stabilized Rate Can Recover Full Cost

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Report Type Reports and Testimonies
Report Date Sept. 18, 1997
Report No. AIMD-97-134
Subject
Summary:

GAO reviewed the Pentagon's use of stabilized rates for charging foreign military sales customers for goods and services sold through the Defense Business Operations Fund. Members of Congress have voiced concern that stabilized rates may not represent the full cost of the goods and services being sold, as required under the law. GAO found that the stabilized rate generally included the cost elements necessary to recover the full cost. GAO did, however, identify two cost factors--pension and postretirement health benefits for civilian personnel working on foreign military sales cases--that were not included in the stabilized rates. GAO estimates that foreign military sales customers were undercharged by more than $40 million during fiscal years 1992-96 and they will be undercharged by millions more in fiscal year 1997. The Defense Department plans to revise its policy to require that all retirement benefits for civilian workers be reflected in the prices charged foreign military sales customers.

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