ILLUSTRATION OF INTERSERVICE SUPPORT IN ALASKA Unified commander: CINCAL. Population: Approximately 38,000 military and civilian personnel; 50 percent are Air Force. COC's at Anchorage and Fairbanks integrate Army and Air Force air defense units. Principal facilities: Army: Fort Richardson, Anchorage; Whittier (port); Haines (port) (POL); Fort Greely. Air Force: Elmendorf AFB, Anchorage; Ladd AFB, Fairbanks; Eielson, AFB, Fairbanks. Navy: Naval Air Station, Kodiak; Naval Air Station, Adak. Function: General administrative and logistic support. Air Force provides Army Nike-Hercules battalion in Fairbanks area (specialized support excepted), approximately 4,000 people. Supply: 1. Army provides all medical supply, subsistence, POL (pipeline operation). 2. Haines-Fairbanks pipeline-Army operates, Air Force uses 85 percent of product. 3. Army provides Air Force with other usual technical service property for items stocked in theater (ordnance-general, engineer-signal, etc.). 4. Air Force provides all oxygen and other gases. Maintenance: Army provides Air Force with all vehicular and construction equipment maintenance through Army supply and maintenance center. Construction: Performed by Army district engineers. Except for contributions to the staff of the commander in chief, interservice activity on the part of the Navy is virtually prohibited because of geographic considerations. Interservicing discussed below is essentially between the Army and the Air Force. Services: Medical: Air Force operates all hospitals. Laundry: Performed by Army. Dry cleaning: Performed by Army. Shoe repair: Performed by Army. Mortuary: Performed by Air Force. Excess redistribution and surplus disposal: Performed by Air Force. Transportation: Water ports: Operated by Army. DEW line. Resupply: Administered by Army. Exchanges: Joint Army-Air Force Exchange. Motion picture service: Army Motion Pictures Service. Army is involved in providing support to Air Force under terms of 19 different interservice agreements. CINCAL estimates $12 million annual savings through these arrangements. Net value of their military prime contract awards, July 1, 1957-June 30, 1958, and defense sales as percent of total company sales, 19581-43 military prime contractors. 1 Number of companies, of the 100 largest military prime contractors, for which these data are published. Majority of business is defense but percentage not stated. Special products for armed services. Sales of rockets, propellants, and associated items (Aerojet General Corp.). Computed. Company operates shipbuilding plant at Bath, Maine, primarily for construction of combatant ships for U.S. Navy. Also does miscellaneous work in fields other than shipbuilding. Source: "100 Companies and Affiliates Listed According to Net Value of Military Prime Contract Awards, July 1, 1957-June 30, 1958." Office of the Secretary of Defense; "Standard & Poor's Corporation Descriptions." Standard & Poor's Corp., NY. Prepared by Raymond M. Wiggs, analyst in industrial organization and corporation finance, Economics Division, Legislative Reference Service. Library of Congress, Nov. 4, 1959. Hon. NEAL SMITH, House of Representatives.. COMPTROLLER GENERAL OF THE UNITED STATES, DEAR MR. SMITH: Pursuant to your request of June 23, 1959, we have investigated the statements made by Mr. Edward Basofin, Columbus, Ohio, in his letter of June 17, 1959, in which he urges consolidation of the Army, Navy, and Air Force audit agencies in the interest of releasing military personnel for military duties and relieving industry of the requirement of complying with three differ ent procedures and different interpretations of the contract cost principles. He refers to recommendations for consolidation made by "a team representing some of the largest public accounting firms in the United States" and the Hoover Commission. The results of our review of recommendations made for consolidation of the audit agencies within the Department of Defense (DOD) referred to by Mr. Basofin and the actions taken by DOD on such recommendations are as follows: Hoover Commission task force report on military procurement Insofar as we were able to determine, there was no formal recommendation for audit consolidation made by the Hoover Commission. However, in the June 1955 task force report on military procurement there was included, as appendix D, industry views on Government contracting. In appendix D, under the heading "Auditing by Government Agencies," was a statement that "According to the survey, contractors overwhelmingly, and military buyers only to a slightly less degree, feel that *** a single audit agency under the Department of Defense could effectively handle the audit requirement of all departments, thus eliminating duplicate staffs and overlapping audits." We understand that the Department of Defense official reply to the Hoover Commission task force report on military procurement did not cover the matter of audit consolidation, presumably because the report made no recommendation for consolidation. Recommendations of team of public accountants In March 1958 the Office of the Assistant Secretary of Defense (Comptroller) arranged with six indivduals from three public accounting firms to conduct a comparative survey of the audit agencies of the Army, Navy, and Air Force. The participants in the survey acted as consultants to the Department of Defense rather than as representatives of their respective public accounting firms and worked as three independent teams, each of which submitted separate reports. In addition, the principal recommendations upon which all three teams were in agreement were submitted in summary form to the Assistant Secretary of Defense (Comptroller). The first of the agreed-on recommendations, which was quoted by Mr. Basofin, was: "(1) The advantages that could be gained from the establishment of one contract audit agency within the Department of Defense appear to be of such significance that this matter should be given prompt consideration by the highest appropriate officials in the Office of the Secretary of Defense." Other agreed-on recommendations dealt primarily with steps which might be taken to improve the audit service and the relationship between the audit agencies and the procurement agencies. The full text of the report is contained in the report on hearings for the Department of Defense appropriations for 1960 before the subcommittee of the Committee on Appropriations, House of Representatives, 86th Congress, 1st session, "Part 5. Procurement," at page 146. Testimony by Mr. McNeil, Assistant Secretary of Defense (Comptroller), on March 4, 1959, before the same subcommittee, "Part 4. Operation and Maintenance," at page 41, indicates that the recommendations of the survey teams are being given serious consideration by him as evidenced by the following statements: "There were a number of recommendations in their report. Probably the most important one recommended a single contract audit agency for the Department of Defense instead of the present three separate agencies. "It is possible that that is the right answer. We do not know for sure. "We have, I believe, made progress, not toward a single agency, but trying to get some of the benefits that one might get from a single agency by having only one department audit all contracts held by any particular contractor regardless of the service involved. We have not felt we would get too much advantage by putting the audit agencies together in the past, although these people thought we would have better relations with industry and more uniform application of our audit criteria if we had the single agency. "At the present time we are taking the northeast section of the country and trying to gather information as to what changes would be required, what advantages we would get, what manpower savings we would achieve. "There are some attractive features to it. As yet I am not sure, however, that it is something we ought to do." Our inquiry disclosed that the gathering of information on the northeast section of the country, mentioned by Mr. McNeil, has not been concluded. Therefore, data upon which to estimate the savings in manpower and overhead costs that might be expected to result from a consolidation of the audit agencies are not available to us. The report of the survey teams of public accountants similarly contained no comparative cost information. However, among the advantages predicted by the survey teams, which do not necessarily reflect themselves in cost savings, are (1) better utilization of manpower, particularly of supervisory personnel; (2) efficiency of operation; (3) improved recruiting and training; (4) elimination of different instructions and policies; (5) improved communication channels; and (6) uniformity in dealing with industry. Concerning the last, the report pointed out that, while the audit services have adopted a policy of assigning all audit work at a plant of a particular contractor to one audit service, audit cognizance of a contractor changes occasionally from one service to another, causing organization and personnel problems of each of the two services involved and requiring adjustment to new personnel and procedures by both the contractor and the one or more contracting officers involved. It should be pointed out that the recommendation of the survey team for consolidation of the audit agencies would involve only the consolidation of contract audit activities, leaving internal audit activities under the jurisdiction of the three separate audit agencies of the three military services. The consolidation of contract audit activities would not necessarily relieve industry of the requirement of complying with three different procedures and different interpretations of the Department of Defense regulation on contract cost principles as was suggested by Mr. Basofin. The agency auditors act as advisers to the respective contracting officers in each of the military services and, therefore, the final determination of allowable costs or of the reasonableness of costs for contract pricing rests with the agency contracting officer and not with the auditor. In fact, except for cost-type contracts, the agency auditor rarely performs an audit unless requested to do so by the contracting officer. Conclusion We believe that statutory authorization to consolidate the three audit agencies exists in the Department of Defense Reorganization Act of 1958 (Public Law 85-599, August 6, 1958) and that transfer of funds necessary to effect a consolidation is authorized in section 407 of the National Security Act Amendments of 1949 (63 Stat. 589). The decision whether to consolidate is one which cannot be made without due deliberation and careful evaluation of probable advantages and disadvantages, and it would appear that the Department of Defense should take aggressive action in order to arrive at an early decision in this matter. Chairman, Joint Economic Committee, Congress of the United States. DEAR MR. CHAIRMAN: This will acknowledge your request for the names of former Secretaries of Defense, including Under Secretaries and Assistant Secretaries who have been in the Department of Defense and are now employed by companies now listed among the top 100 companies doing business with the Defense Department. The names of these individuals are included on the attached list. Sincerely, PERKINS MCGUIRE, Assistant Secretary of Defense (Supply and Logistics). |