The DOD is responsible for administering the sales of defense articles and services to friendly countries, but it has failed to operate this program at no cost to the Government as required by law. The Government, therefore, has absorbed millions of dollars in cost which should have been recovered from foreign customers. The establishment of criteria on pricing and cost recoupment has improved the situation, but recent GAO reviews conducted at DOD headquarters showed that ineffective implementation of pricing policies has remained a primary cause of inadequate recoupment. Statutory requirements pertaining to cost recovery and corrective measures taken by DOD in response to GAO criticisms are described. Although official policy decrees that the military departments apply uniform criteria for foreign military sales, wide variations exist in the cost recovery practices of individual departments. These inconsistencies frequently are unnoticed unless brought to DOD'S attention by question or audit. GAO reviews which have addressed these problems since 1969 are summarized. They identified the following cost factors which had not been included in foreign military sales pricing: contract administration; Government-owned assets; transportation; foreign nationals training; technical assistance and training services; normal inventory losses; inventory replacement; and research, development, and nonrecurring production costs. GAO believes that DOD has done an effective job in prescribing adequate policy, but that problems lie in inadequate implementation by the military services and insufficient monitoring practices. A list of GAO reports concerning foreign military sales cost recovery is appended, along with comments on the review from DOD. (Author abstract modified)