The AECA normally requires FMS monies to be collected in advance of delivery, service performance, or contractual progress payments. Accumulation of large balances in purchaser Trust Fund accounts for substantial periods should be avoided, except for contract holdbacks and other accrued or potential liabilities, or when the purchaser requests an accelerated payment schedule.

C9.11.1. Trust Fund Accounts. DFAS Indianapolis performs accounting for Foreign Military Sales, account 11X8242, by executing against subsidiary accounts: 978242 (Deposits, Advances, Foreign Military Sales, Defense) – receipt of payments and 97-11X8242 (Advances, Foreign Military Sales, Executive, Defense) – disbursements to suppliers. The purchaser makes payments to DFAS Indianapolis for deposit into the FMS Trust Fund (unless the purchaser has an interest bearing account with the Federal Reserve Bank (FRB) New York. FMS Trust Fund Wire Transfer and Check Mailing Information are found on the Letter of Offer and Acceptance Information attached to each LOA. See Figure C5.F5. Payments must identify the case designator and reason for the payment. IAs refer collection problems and questions to DFAS Indianapolis.

C9.11.2. FRB New York Accounts. Some countries may establish an account with the FRB New York, for their FMS deposits. An agreement between the FMS purchaser’s defense organization, the purchaser’s central bank (or an acceptable equivalent), FRB New York and DSCA identifies the terms, conditions, and mechanics of the account’s operation. FMS purchasers should contact the FRB New York or the DSCA (Business Operations Directorate, Country Financial Management Division) regarding these accounts. Except as authorized by law and/or DSCA policy, the FRB New York accounts do not include FMF funds. See Section C9.7. for information on FMF.

C9.11.3. Commercial Banking Account. Some countries may establish an account with a commercial bank for their FMS deposits. Two agreements are required: an agreement between the FMS purchaser and the participating commercial bank, and a separate agreement between the FMS purchaser and DSCA. FMS purchasers should contact DSCA (Business Operations Directorate, Country Financial Management Division) regarding these accounts. Commercial accounts do not include FMF funds.

C9.11.4. Payment Identification. Each deposit made into the FMS Trust Fund is recorded to the appropriate FMS case. If the payment cannot be identified to a specific case, it is deposited in the FMS purchaser’s Holding Account pending identification.

C9.11.5. Excess Funds. Payments received for an FMS case may exceed the final case value or the highest financial requirement (all financial commitments billed to date, plus all financial commitments not yet billed (e.g., contracts awarded but not delivered), and must include below-the-line surcharges). Upon closure, excess funds are retained in the purchaser’s Holding Account pending further instructions. Excess case collections can be applied only to another case at the purchaser’s request. Payments in excess of the value of a particular case may be transferred into the purchaser’s Holding Accounts under the following conditions.

C9.11.5.1. Excess Funds – National Funds. Excess national funds are transferred to a cash Holding Account upon case closure, case cancellation, or purchaser’s request. At the purchaser’s written request, deposits in cash Holding Accounts may be applied to other FMS cases or refunded if the purchaser is not on the current quarter Arrearage Report, there are no collection delinquencies on other FMS cases, and there is sufficient cash reserve to meet financial requirements (including TL if no SBLC applies) for the next quarter. Cash refunds must be approved by DSCA (Business Operations Directorate).

C9.11.5.2. Excess Funds - FMS Credits. DFAS Indianapolis transfers excess credit funds from closed or cancelled cases to the credit Holding Account. Prior to each billing cycle, DFAS Indianapolis moves excess funds in the credit Holding Account to other FMS credit-financed cases (not to exceed the total credits committed to each case). DFAS Indianapolis applies the funds first to credit cases with overdue payments, and then to credit cases with payments due in the next billing cycle. If there are no remaining candidate cases, funds remain in the credit Holding Account. Prior to transferring credits to or from cases at case closure, DFAS Indianapolis requests (via e-mail or facsimile) approval from DSCA (Business Operations Directorate); credit commitment records are adjusted to reflect the final case value.

C9.11.5.3. Excess Funds - MAP Merger. DFAS Indianapolis transfers excess MAP Merger funds from closed or cancelled cases to the MAP Merger Holding Account. Prior to transferring MAP Merger funds to or from cases at case closure, DFAS Indianapolis requests (via e-mail or facsimile) approval from DSCA (Business Operations Directorate); MAP Merger commitment records are adjusted to reflect the final case value.

C9.11.5.4. Excess Funds - Other Funding. Upon reduction or cancellation of FMS cases financed with funds other than those above, DFAS Indianapolis, with DSCA (Business Operations Directorate) coordination, transfers excess funds to the applicable holding account.

C9.11.6. Movement of Purchaser Funds. DFAS Indianapolis moves national funds to and from Holding Accounts or between cases only when such requests are channeled through the FMS purchaser’s designated representative. The use of notes or other references in LOA documents (Basic, Amendment, or Modification) concerning transfers or refunds of FMS purchaser funds, is not authorized. IAs do not enter any remarks on LOA documents transferring purchaser funds from one case to another except for concurrent documents. See Section C6.7.2.3. Such remarks can be misleading, contradictory to instructions provided to DFAS Indianapolis by the Purchaser, and not effective if cross leveling is required.

C9.11.7. Initial Deposit Follow-Up. If DFAS Indianapolis receives a signed LOA or Amendment without the required Initial Deposit, they shall follow-up within 10 working days per the procedures that follow.

C9.11.7.1. Follow-Up Process. DFAS Indianapolis notifies the SCO, the purchaser’s paying office, and the IA that the Initial Deposit has not been received. This notification states that implementation of the LOA or Amendment is held pending receipt of the Initial Deposit. If the Initial Deposit is not received by the Offer Expiration Date (OED), the IA, in coordination with DFAS Indianapolis and DSCA(DBO), cancels the LOA or Amendment. Once an LOA or Amendment is cancelled, a new LOA or Amendment is required if the purchaser’s requirement is still valid. A cancelled LOA or Amendment cannot be reinstated. These procedures do not apply to offers where DFAS Indianapolis has been notified that the Initial Deposit is with another USG agency, that funds have been wire transferred (with transaction number), or where the LOA or Amendment is financed by MAP or FMS credit funds.

C9.11.7.2. FMS Credit (Non-Repayable) or MAP Merger Initial Deposits. If the Terms of Sale are FMS Credit (Non-Repayable) or MAP Merger, DFAS Indianapolis uses funds from the appropriate Holding Account to pay the Initial Deposit.

C9.11.8. Delinquent Accounts. Details on arrearages, indebtedness, delinquent debt reporting formats and frequencies are contained in DoD 7000.14-R, Volume 6A, Chapter 12, and Volume 15, Chapter 5. Most collection problems are caused by late payment, rather than default on payments. It generally takes 45-75 days after the billing statement mailing to receive collection.

C9.11.8.1. Interest on Delinquent Accounts. The AECA requires DoD to assess interest on delinquent FMS program debts. DFAS Indianapolis assesses this interest. Interest is based on the net arrearage owed by a purchaser taking into account cumulative financial requirements and cumulative payments received on each FMS case. The DD Form 645, Quarterly Billing Statement, reflects the amount of interest charged to each applicable case.

C9.11.8.2. Delinquent Accounts Procedures. DFAS Indianapolis is responsible for assessing interest and collecting overdue debts to FMS cash sales. This is accomplished by formal and informal contacts with purchaser representatives, requests for collection assistance from the SCO and DSCA, and contacts with the Department of State to determine additional collection actions. When all collection means have been exhausted, DFAS Indianapolis refers the delinquent account to DSCA (Business Operations Directorate), and provides the following supporting data: the debt history including prior collection efforts; a description of disputes between the purchaser and the United States; a statement that resolution through the normal military channel with responsible foreign officials concerning the collection has failed; and an assessment of any adverse impact on the purchaser if the issue is raised to the diplomatic level. DSCA (Business Operations Directorate) recommends further action to be taken by OSD or refers the debt to the Department of State for diplomatic assistance. DFAS Indianapolis carries delinquent accounts on the accounting records even after primary collection responsibility is passed to DSCA and the Department of State.