when, in fact, the property was not excess. There are three principal reasons for this loss: (1) Billions of dollars' worth of property has been placed in artificial stock fund corporations and not subject to transfer except at a transfer price. In some cases, a needing agency haven't the price to pay 30 and in other cases refuse to pay it, and (2) the millions of items in the numerous military supply systems and extensive depots make it difficult to match current needs from hundreds of points against existing supplies, and (3) the several military services have striven mightily to remain autonomous in supply activities on the theory that supply should be "responsive to their command." 31 CONCLUSION ON SURPLUS DISPOSAL No one can say how much personal property has been disposed of and lost to the taxpayers when it was not surplus to Government needs, but it has amounted to millions upon millions of dollars and the loss continues and will persist until there is a consolidation of common supply systems and more improvement in the use of stock funds. This does not mean the imposition of still another system but rather the unification and reduction of the sum total of the many existing systems. The term "fourth service of supply" employed by opponents of supply integration is "another tired old slogan" as Secretary Lovett recently designated "the man on horseback" and other similar expressions used freely by opponents of improved military reorganization.32 SUMMARY It is beyond any question of doubt that the quality of management in the many aspects of military supply management and related activities is such as to cause great economic loss to the Nation continuously. The projection of this mismanagement against the volume of procurement, storage, issue, surplus disposal, and related matters is such that it should be a matter of major concern to the Congress and to the executive branch. 30 Hearings, pp. 565-588. See also Congressional Record, July 1, 1960, pp. 1423114236 for speech of Senator Douglas on "Purchases of New Government Supplies When Same Items in New Condition Are Available." Full print of Budget Bureau report is included. General Eisenhower said this shibboleth in the Army services is the oldest and the most expensive. Federal supply management hearings before a subcommittee of House Committee on Expenditures, 82d Cong., 2d sess., Feb. 12, 1952, p. 52. 22 "National security seems to me to be more complex than ever. I feel it is a problem we will have with us for generations to come and it is not helped in an open society by either an open mouth or a closed mind. It will most certainly not be solved by trotting out those tired old slogans of warnings about 'reduction of civilian control' and the 'man on horseback' that have been used to divert attention for generations. When you hear them just remember that the chiefs of the branches of the Army used the same 'man on horseback' argument against Secretary Elihu Root's reorganization plan which established the position of Chief of Staff of the Army." See Congressional Record, Aug. 11, 1960, p. A6063, address of Hon. Robert A. Lovett (app. 6). PART III-A CONGRESSIONAL EFFORTS TO IMPROVE SUPPLY MANAGEMENT TOP MANAGEMENT AGENCIES The Congress has given broad authority to two executive and one legislative agency with respect to the management of the Government's property. These agencies are: The Bureau of the Budget, Executive Office of the President. BUREAU OF THE BUDGET The most powerful agency in the executive branch of the Government is the Bureau of the Budget. It is in the Executive Office of the President, has great control over agencies' estimates, fund apportionments and programs and is also the management arm of the President. It has a large role in the issuance of Executive orders, directives, and correspondence. It has, for years, had authority to submit reorganization bills and plans with respect to executive agencies and to conduct management improvement and survey programs. access to the President's emergency fund for special purposes and hires management consultants for special studies. The preeminence of its position in the executive branch is perhaps its greatest power. The Director of the Bureau of the Budget furnished the following information as to (a) creation and authority, (b) functions, and (c) organization of the Bureau: 2 Creation and authority.-The Budget and Accounting Act approved June 10, 1921 (42 Stat. 20; 31 U.S.C. 11-16), provided that the President shall transmit to Congress the proposed annual budget of the United States, together with other budgetary information. The same act created the Bureau of the Budget, locating it in the Treasury Department, but placing it under the immediate direction of the President. Under Reorganization Plan I of 1939, the Bureau was transferred from the Treasury Department to the Executive Office of the President, established at the same time. In addition to being the Federal Government's budget agency, the Bureau serves as the President's staff for the improvement of management and organization in the executive branch, for the improvement of financial management and accounting systems in the Federal agencies, for the clearance of legislative proposals coming from such agencies, and for the coordination and improvement of the Government's statistical activities. 1 See list in hearings on general Government matters appropriations for 1961 before a subcommittee of the Committee on Appropriations, House of Representatives, 86th Cong., 2d sess., pp. 148-167. 2 U.S. Government Organization Manual, 1959-60, pp. 59-62. 42 In preparing the budget, the Bureau has authority "to assemble, correlate, revise, reduce, or increase the estimates of the several departments and establishments." Under the Government Corporation Control Act of 1945 (59 Stat. 598; 31 U.S.C. 847), similar authority was given the Bureau with respect to the preparation and review of budgets for wholly owned Government corporations. The Budget and Accounting Procedures Act of 1950 (64 Stat. 834; 31 U.S.C. 18a, 18b) amended the Budget and Accounting Act by revising and simplifying budget and accounting procedures and by clarifying the Bureau's responsibilities with regard to statistical information and the development of better organization, coordination, and management of the executive branch. The act of August 1, 1956 (70 Stat. 782), amended both the Budget and Accounting Act and the Budget and Accounting Procedures Act, mainly to improve further governmental budgeting and accounting methods and procedures. The act of August 28, 1958 (31 U.S.C. 11), provided for proposed limitations on annual accrued expenditures to accompany proposed appropriations transmitted to Congress under that act. Section 3679 of the Revised Statutes, as amended (31 U.S.C. 665), prescribed procedures by which the Director of the Bureau apportions appropriations, made agency systems of administrative control of funds subject to the Director's approval, and authorized the setting of budgetary reserves. Under Executive Order 9384 of October 4, 1943, the Bureau reviews agency reports on Federal public works and improvement projects. Executive Order 10072 of July 29, 1949, and title X of the Classification Act of 1949 (sec. 1001, 63 Stat. 971; 5 U.S.C. 1151) provided that the Director of the Bureau shall issue and administer instructions and regulations to guide the departments in making systematic reviews of their operations on a continuing basis. Under the Federal Reports Act of 1942 (56 Stat. 1078; 5 U.S.C. 139-139f), the Bureau coordinates Federal reporting and statistical services to eliminate duplication, reduce the cost, and minimize the burdens of furnishing information to Federal agencies. By Executive Order 10033 of February 8, 1949, the Director of the Bureau was given authority to coordinate the provision of statistical information to intergovernmental organizations. Additional statutory authorities conferred upon the Director require his approval of the printing of periodicals from appropriated funds, of agency regulations dealing with overpayments to Government employees, and of prospectuses of lease-purchase projects prepared by the Administrator of General Services and the Postmaster General before submission to the Senate and House Committees on Public Works. The Director also has authority to issue regulations in such fields as travel on Government business and allowances for uniforms. On appeal of an agency, he makes final decisions with respect to the establishment of motor vehicle pools. Statement of functions.-Executive Order 8248 of September 8, 1939, establishing the divisions of the Executive Office of the President and defining their functions, sets forth the Bureau's functions as follows: 1. To assist the President in the preparation of the budget and the formulation of the fiscal program of the Government. 2. To supervise and control the administration of the budget. 3. To conduct research in the development of improved plans of administrative management, and to advice the executive departments and agencies of the Government with respect to improved administrative organization and practice. 4. To aid the President to bring about more efficient and economical conduct of Government service. 5. To assist the President by clearing and coordinating departmental advice on proposed legislation and by making recommendations as to Presidential action on legislative enactments, in accordance with past practice. 6. To assist in the consideration and clearance and, where necessary, in the preparation of proposed Executive orders and proclamations, in accordance with the provisions of Executive Order 7298 of February 18, 1936 (superseded by Executive Order 10006 of October 9, 1948.) 7. To plan and promote the improvement, development, and coordination of Federal and other statistical services. 8. To keep the President informed of the progress of activities by agencies of the Government with respect to work proposed, work actually initiated, and work completed, together with the relative timing of work between the several agencies of the Government; all to the end that the work programs of the several agencies of the executive branch of the Government may be ordinated and that the moneys appropriated by the Congress may be expended in the most economical manner possible with the least possible overlapping and duplication of effort. ORGANIZATION The Bureau is headed by the Director, who in its general supervision is assisted by the other principal officials of the Bureau. Office of Budget Review.-This office coordinates the preparation of the budget and supplemental estimates, the system of apportioning appropriations, and the use of financial reports in budgeting. It prepares fiscal analyses, recommends budget policies and guides, and plans improvements in the budget process and structure. Office of Legislative Reference.-This office coordinates and clears, for conformity with the program of the President, recommendations of the various agencies with respect to proposed legislation and enrolled bills. Office of Management and Organization. This office provides guidance and coordination in Bureau activities toward better agency management and organization; conducts organizational studies; coordinates the Bureau's management improvement efforts; and conducts work to improve governmentwide management practices and procedures. Office of Statistical Standards.-This office is charged with the Bureau's responsibilities for the improvement, development, and coordination of Federal statistical services. It serves as the focal point for United States participation in statistical activities of international organizations and maintains surveillance over the publication of statistics in the interests of national security. Office of Accounting.-This office brings about better financial management throughout the executive branch and works cooperatively with the executive agencies in the improvement of governmentwide accounting practices and procedures. Through this office the Bureau participates in the Joint Accounting Program carried out together with the General Acounting Office and the Treasury Department under the Budget and Accounting Procedures Act of 1950. The divisions.-Each division is concerned with a broad segment of the Government's program. The divisions are responsible for the Bureau's functions other than those assigned to the offices described above. The divisions are: Commerce and Finance Division, International Division, Labor and Welfare Division, Military Division, and Resources and Civil Works Division. Each division, for its program area, examines agency requests for funds and for apportionment of appropriations, gives continuing attention to the execution of the budget, reviews and develops recommendations on proposed legislation, stimulates and assists the agencies in the improvement of management and organization, and undertakes special projects, including those relating to long-range budgetary and fiscal analysis and organizational planning. Approved. MAURICE H. STANS, Director. It would be difficult to write legislative language which would give an agency more power than that possessed by the Bureau of the Budget. Despite the broad authority given to the Bureau of the Budget by legislation and by its position in the Executive Office it has been extremely inactive with respect to management improvement in the supply and service areas in the Department of Defense, where so much money is spent and where so much is wasted. There is no area in management more challenging and more prospective of economies. Despite these facts and the repeated reports made by responsible committees and organizations, including the Hoover Commission, the Director of the Bureau of the Budget appeared to be unaware of the enormous surplus property and related supply management programs in the Department of Defense when he testified before the Joint Economic Committee on January 28, 1959.3 Senate hearings on the January 1959 Economic Report of the President, Joint Economic Committee, 86th Cong. 1st sess., pp. 65-68. Representative REUSS. Thank you, Mr. Chairman. The CHAIRMAN. Thank you, Mr. Reuss. Mr. Stans, I want to direct my questions primarily to the field of expenditures of the Department of Defense. Let me say that I do not think that the budget for the Department of Defense should be further reduced. I think you have made your cuts in the wrong places and have not pushed for economies which could be realized. I think the cut in fighting strength of the Army and Marine Corps reduces our capacity for limited warfare. I think the evidence is pretty clear we should spend more for missiles. But those matters are beside the point. I would like to call your attention, if I may, to what seemed to me to be shockingly excessive quantities of supplies which are in stock in the Department of Defense. I have a report of the House Committee on Government Operations. And on page 100 it shows that the supply system inventories of the Department of Defense as of last June 30 amounted to $46,600 million. That undistributed stocks were $2.4 billion; leaving distributed stocks at $44.1 billion. That the peacetime operating reserve was set at $14.5 billion. The mobilization reserve was $12.1 billion. Thus the large reserves both for peace and for war-and a long war at that-came to $26.6 billion. This leaves supplies in inventories of $17.5 billion in excess of needed peacetime and wartime reserves. Now, it is admitted by the Department of Defense that the excess stocks alone amounted to $10.4 billion. Then there are two other categories that certainly seem to me to fall in the line of excess stocks. Economic retention of $5.6 billion, and a contingency retention of $1 billion. This is following out a question that Congressman Curtis raised at conclusion. What should be done is to draw down these reserve stocks for current use and diminish the volume of purchases and then use the money thus saved to provide more combat strength for the Army and the Marine Corps and for more missile strength for the Nation. I would like to have your comments on that. If you do not have that copy of that bulletin, I will be glad to give it to you. It is on page 100. Mr. STANS. Mr. Chairman, I had the opportunity of reading a good bit of this report over the last weekend. And I found it very interesting, as you did. And I have instituted some analyses of the underlying information in order to determine what the Bureau of the Budget can do to help in solving the problem that it portrays. I think there are some things that probably are inherent in this situation. One is that I am sure the stocks of inventories in the Department of Defense still reflect to a large extent the Korean and early post-Korean procurement. Secondly, I am convinced from my own knowledge that this type of information in defense is a result of tremendous improvements in their accounting processes that have taken place in the last few years. Some few years ago it may not have been able to develop this kind of information. The CHAIRMAN. I may say these improvements have been the result of persistent pressures of Members of the House and Senate against the opposition of the Department of Defense and the administration. Representative CURTIS. All administrations, Senator. Mr. STANS. Beyond that I think also, we have to recognize that obsolescence is almost a normal function in defense. The development of new weapons assumes that old weapons will become obsolete. The CHAIRMAN. Yes. But, Mr. Stans, a large portion of this is not in obsolete weapons, but in clothing, food, communications equipment, general supplies, repair parts and so forth, which could be used for peacetime training purposes. In peacetime training you don't have to have the most advanced equipment. Mr. STANS. I understand some of the facts the Senator mentions. And they are in this report. I know that the Department of Defense has a very substantial program to step up the disposal of surplus and to use usable equipment. I don't know what proportion of this inventory is involved in that program. All I can assure you is that since this report came out, it has become quite interesting to us, and we intend to look into the matter with the Department of Defense. The CHAIRMAN. I may say it is the intention of the Senator from Illinois to propose, when the Defense Department bill comes before the Senate, reductions in items calling for purchase of new supplies and a transfer of the funds thus |