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Barry McVay's FEDERAL CONTRACTS DISPATCH

DATE: January 3, 2000

FROM: Barry McVay, CPCM

SUBJECT: Department of Defense Memorandum on Foreign Military Sales (FMS) Financial Management

SYNOPSIS: On December 13, 1999, Deputy Secretary of Defense John J. Hamre issued a memorandum to the secretaries of the military departments and other Department of Defense (DOD) officials directing that several actions be taken to address "a number of FMS management problems that manifest themselves in inaccurate or delayed financial management transactions." These actions are intended to "reduce work load, eliminate erroneous payments, lower operating costs, permit FMS cases to be closed sooner, accelerate reimbursements to the Department [of Defense] and the U.S. Treasury, and ensure better customer satisfaction."

DATES: Within 90 days of the date of the memorandum (that is, by March 12, 2000), the Under Secretary of Defense (Acquisition, Technology and Logistics) (USD(AT&L)), heads of DOD components, and directors of Defense Finance and Accounting Service (DFAS) and Defense Security Cooperation Agency (DSCA) are to report their progress to the Under Secretary of Defense (Comptroller) (USD(C)).

SUPPLEMENTAL INFORMATION: The following are some of the more important tasks assigned to the various DOD officials:

• The USD(AT&L) must:
• Require that FMS contract line items be closed out as soon as the closeout requirements are satisfied. "The closeout of FMS contract line items should not be delayed while waiting for requirements to closeout other non-FMS contract line items to be satisfied."
• Require one Contract Line Item Number (CLIN) per Accounting Classification Reference Number (ACRN) for each FMS requirement on a contract.
• Emphasize that Defense Federal Acquisition Regulation Supplement (DFARS) 252.232-7002, Progress Payments for Foreign Military Sales Acquisitions, is to be included in all contracts involving FMS. The clause requires contractors to bill separately for each FMS customer.

• The USD(C) must:
• Revise the DOD Financial Management Regulation (DODFMR) to "allow the use of an 'estimated' price code in reporting the deliveries of major end items if an actual price code is not available within 30 days of date of shipment and require the use of an 'estimated' price code in reporting the deliveries of major end items if an actual price is not available within 90 days of date of shipment."
• Revise the DODFMR to require that payment schedules be updated annually on the anniversary of each major case and/or when the value of a case increases by 10% or more."
• Revise the DODFMR to require that cases be "reconciled financially and logistically on at least an annual basis, preferably on the anniversary of each major case."

• The Director, DFAS, must:
• Establish a "tiger team" to "troubleshoot problems at locations that have major FMS delivery reporting and/or related relocation problems."
• Promote the maximum use of "the authority to eliminate minor unresolved transactions, up to the approved threshold of $200 per transaction using the FMS Administrative Account as the funding source."
• Resolve, on a one-time basis, "problem disbursements aged over 180 days valued up to $1,000 per transaction, using up to $2.2 million provided by DSCA from the FMS Administrative Account. The current number of those transactions is approximately 8,800. The $2.2 million and $1,000 threshold are available only for the remainder of FY [fiscal year] 2000."

• The Director, DSCA, must:
• Expand the ongoing FMS reinvention to include "representatives of the USD(AT&L), USD(C), DFARS, and representatives of the security assistance, financial management, [and] acquisition and logistics communities within the military departments and DLA [Defense Logistics Agency]..."
• Ensure that the ongoing FMS reinvention effort addresses "(1) clarification of organizational responsibilities; (2) roles, responsibilities and authorities of case managers; (3) funds control, to include fiscal accountability responsibilities among DSCA, DFAS and various DOD components; (4) recommendation of a permanent dollar threshold for minor unresolved transactions that can be charged to the FMS Administrative Account...(5) the feasibility of eliminating the Letter of Offer and Acceptance (LOA) for funded consumable item requisitions; and (6) the feasibility of FMS customers using commercial debit/purchase cards for consumable items."
• Revise the Security Assistance Management Manual (SAMM) to "explicitly encourage consolidation of small dollar requirements under one LOA per country."

• The heads of DOD components must:
• Report physical deliveries of items or performance of services to the DFAS Denver Center within 30 days as specified in the DODFMR.
• Ensure compliance with the revision of the DODFMR that allows the use of an estimated price code (see above).
• Require that FMS contract line items are closed out as soon as the closeout requirements for those line items are satisfied (see above).
• Establish with DFAS a tiger team to troubleshoot problems (see above).
• Promote the maximum use of the authority to eliminate minor unresolved transactions up to $200 (see above).
• Resolve with DFAS, on a one-time basis, disbursements aged over 180 days up to $1,000 per transaction (see above).
• Participate with DSCA in the FMS reengineering effort (see above).
• Ensure compliance with all portions of the DODFMR and SAMM that apply to FMS.

FOR FURTHER INFORMATION CONTACT: Barry McVay at 703-451-5953 or by e-mail at BarryMcVay@FedGovContracts.com.

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