DOD Audit of DEF dated August 15, 2000
Department of Defense
Office of the Inspector General — Audit
Defense Enterprise Fund — Report No. D-2000-176
Date: August 15, 2000
This audit was performed in accordance with Public Law 102-511, "Freedom for Russia and Emerging Eurasian Democracies and Open Markets Support Act of 1992," section 102(d), "Accountability for Funds," October 24, 1992. This is one in a series of reports being issued by the Inspector General, DoD, on the policies and procedures for executing the Cooperative Threat Reduction Program. The Cooperative Threat Reduction Program was initiated in FY 1992 to reduce the threat posed by weapons of mass destruction remaining in the territory of the former Soviet Union. In June 1994, DoD established, through a grant agreement, the Defense Enterprise Fund to assist Belarus, Kazakhstan, Russia, and Ukraine in the privatization of defense industries and conversion of military technologies and capabilities for civilian use. The Departments of Defense and State provided funding of $66.7 million. Currently, the value of the fund's assets has declined to $31.3 million.
The overall audit objective was to review the policies and procedures related to the execution of the Cooperative Threat Reduction Program. The specific objective for this segment of the audit was to assess Cooperative Threat Reduction Program Office oversight and planning for the Defense Enterprise Fund. A subsequent report will discuss whether funds obligated under the Cooperative Threat Reduction Program were used in accordance with agreements made between the United States and the governments of Belarus, Kazakhstan, Russia, and Ukraine. A subsequent report will address the adequacy of the management control program.
The Cooperative Threat Reduction Program Office needed to improve oversight and planning for the Defense Enterprise Fund. As a result, the Cooperative Threat Reduction Program Office could not effectively evaluate the status of the Defense Enterprise Fund or plan for the expiration of the grant agreement. In addition, the fund manager was not able to achieve the revenue and investment objectives in the Defense Enterprise Fund long-range plan for self-sufficiency.
We recommend that the Director, Cooperative Threat Reduction Program Office, ensure the use of a standard review methodology and document the results of Defense Enterprise Fund semi-annual progress reviews and visits made to offices of the fund manager and investment sites; establish measurable performance goals to evaluate the success of the Defense Enterprise Fund; update the Defense Enterprise Fund long-range plan for self-sufficiency to reflect the current status of the fund and economic condition of the former Soviet Union; and initiate efforts to develop an exit strategy for liquidating or selling the Defense Enterprise Fund.
The Deputy Director, Defense Threat Reduction Agency, concurred with the report's recommendations and has initiated corrective actions. A discussion of management comments is in the Finding section of the report and the complete text is in the Management Comments section.
To obtain copies of Office of the Assistant Inspector General for Auditing Reports, contact the Secondary Reports Distribution Unit of the Analysis, Planning and Technical Support Directorate at (703) 604-8937 or FAX (703) 604-8932.
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