Economy in Governm' Hearings Joint Economic
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ECONOMY IN GOVERNM' HEARINGS BEFORE TEE JOINT ECONOMIC COMMITTEE CONGRESS OF THE UNITED STATES NINETIETH CONGRESS FIRST SESSION MAY 8, 9, 10, AND 16, 1967 PART 1 Printed for the use of the Joint Eaonomic Committee FOR RELEASE FOR AZ PDJUL5 ATHU J 6 AFTER 6 P.M. NEWSPAPERS U.S. GOVERNMENT PRINTING OFFICE 79459 WASHINGTGN: 1967 For sale by the Superintendent of Documents, U.S. Government Printing Office Washington, D.C. 20402 - Price 70 cents JOINT ECONOMIC COMMITTEE (Created pursuant to sec. 5(a) of Public Law 304, 79th Cong.) WILLIAM PROXMIRE, Wisconsin, Chairman WRIGHT PATMAN, Texas, Vice Chairman SENATE HOUSE OF REPRESENTATIVES JOHN SPARKMAN, Alabama RICHARD BOLLING, Missouri J. W. FULBRIGHT, Arkansas HALE BOGGS, Louisiana HERMAN E. TALMADGE, Georgia HENRY S. REUSS, Wisconsin STUART SYMINGTON, Missouri MARTHA W. GRIFFITHS, Michigan ABRAHAM RIBICOFF, Connecticut WILLIAM S. MOORHEAD, Pennsylvania JACOB K. JAVITS, New York THOMAS B. CURTIS, Missouri JACK MILLER, Iowa WILLIAM B. WIDNALL, New Jersey LEN B. JORDAN, Idaho DONALD RUMSFELD, Illinois CHARLES H. PERCY, Illinois W. E. BROCK 3n, Tennessee JOHN R. STARK, Executive Director JAMES W. KNOWLES, Director of Research ECONOMISTS WILLIAM H. MOORE GEoaoa R. IDEN JOHN B. HENDEaSON DANIEL J. EDWARDS DONALD A. WEBSTEa (Minority) SuBCOMMITTEE ON EcoNoMY IN GOVERNMENT WILLIAM PROXMIRE, Wisconsin, Chairman SENATE 1 E HOU& j aR*A TATIVES JOHN SPARKMAN, Alabama WRIGHT PATMAN, Texas STUART SYMINGTON, Missouri MARTHA W. GRIFFITHS, Michigan LEN B. JORDAN, Idahtfa WILLIAM S MfjH ennsylvania CHARLES H. PERCY, alln W1U THOMAS BLs LJuri DONALD RUMSFELD, Illinois A" coyolic,RAT0E Consultant CONTENTS Page Opening remarks of Chairman Proxmire -P-__-______ge_-_____ 1 Letters to Comptroller General Staats __- __-___- ___-_-__ 2 CHRONOLOGICAL LIST OF WITNESSES Staats, Hon. Elmer B., Comptroller General of the United States; accom- panied by Frank H. Weitzel, Assistant Comptroller General; Robert F. Keller, General Counsel; William A. Newman, Jr., Director, and James H. Hammond and Daniel Borth, Associate Directors, Defense Account- ing and Auditing Division; Gregory J. Ahart, Deputy Director, Civil Accounting and Auditing Division; Oye V. Stovall, Director, Interna- tional Operations Division; and Fred Thompson, Legislative Liaison Staff Hn-.C s JR-------------------------------------------eiCnrso t Mathias, Hon. Charles McC., Jr., a Representative in Congress from the Sixth Congressional District of Maryland -32 Ignatius, Hon. Paul R., Assistant Secretary of Defense (Installations and Logistics), and Vice Adm. Joseph M. Lyle, Director, Defense Supply Agency; accompanied by Paul H. Riley, Deputy Assistant Secretary of Defense (Supply and Services); John M. Malloy, Deputy Assistant Sec- retary of Defense (Procurement); Maj. Gen. John A. Goshorn, Deputy Director, Contract Administration, DSA; and Wilfred J. Garvin, Comp- troller, DSA -86 Gainsbrugh, Martin R., senior vice president and chief economist, Na- tional Industrial Conference Board, Inc. (NICB), New York, N.Y - 146 Marshall, R. Douglas, chairman, Board of Trustees, National Association of Wholesalers -179 Metcalf, Hon. Lee, a U.S. Senator from the State of Montana -199 Knott, Hon. Lawson B., Jr., Administrator, General Services Adminis- tration; accompanied by H. A. Abersfeller, Commissioner, Federal Supply Service; and John G. Harlan, Jr., Commissioner, Defense Ma- terials Service -208 Hughes, Hon. Phillip S., Deputy Director of the Bureau of the Budget; accompanied by John B. Holden, Acting Chief, Property and Supply Management Branch, Bureau of the Budget -232 STATEMENTS AND EXHIBITS Staats, Hon. Elmer B., Comptroller General: Statement of-the-military-supply-systems-in-meeting-opea- 3 Responsiveness of the military supply systems in meeting opera- tional needs -_- 4 Adequacy of inventory controls-- 6 Control over Government-owned property in the possession of defense contractors ---- 6 Property accounting systems -7 Utilization of Government-owned property -S Program for obtaining increased competition in procurement of parts and components - 9 National supply system ----------------- 10 Competition in procurement - 11 Civil agency construction ----------------------- 12 Automatic data processing ---- 13 Interagency coordination to improve administration of common activities ----------------------------- 13 Audit work overseas ---------------- 14 List of attachments; with contents- 15 III IV CONTENTS Staats,Testimony Hon. Elmer B., Comptroller General-Continued of Comptroller General Staats: Page Budget Bureau Circular No. A-76 -35 President Johnson's memorandum on Government commercial industrial activities -40 Memorandum from the President to heads of departments and agencies - 40 Amended criteria considered - Congressional 41 attitudes - 42 Need for followup on specifics -43 Sloppy inventory management -43 Facts-Prerequisite to inventory management -43 Agency compliance to GAO suggestions - 43 Illustrations of civil agency reactions to GAO reports on construction - 44 Adequacy of internal audits -45 Congressional responsibility - 45 Department of Interior not in accord with GAO -45 Insufficient rentals collected for use of Government equipment 45 Inadequacies not unusual - Reports 46 of competitive procurement - 46 Purchases under $2,500 reported as competitive - Function 47 of Joint Economic Committee - 47 Distribution of GAO reports -48 GAO relationship with subcommittee-- 48 GAO report on financing agency program - Application 49 of common accounting principles - 49 DoD to install improved accounting system -51 Defensewide audit - 51 Technical data for procurement -51 Competitive procurement reports - 51 Interpretation of "competitive"- - 51 Procurement of aeronautical spare parts - Definition 52 of "competition" - 52 Competition possible on small purchases -53 Variance in Navy and Air Force methods -53 Rules and their interpretation -53 Construction contrast in Vietnam -54 R 6sume of report on construction in Vietnam -54 $79 million annual procuree m nt 5-5 $60 billion defense procurement in 1966 -55 Competitive and noncompetitive procurement -55 Progress in reducing cost reimbursement type -56 Areas where improvement can be made - 56 Control of Government-owned property -57 $11 billion contractor controlled Government property -57 Why no control of special property? -57 Responsibility? -57 Government equipment on nondefense work -58 Use of 8,000-ton press -58 Lack of uniformity of notes -58 GAO plans ---------------------------------------- 58 Reporting on small purchases -59 Competitive procurement of tires and other items - 59 Adequate internal audits -60 Architect-engineer fees ------------------- 60 "Truth in negotiations" law--_--_-_-_-_-_ -6 61 Delay in enforcing -61 GAO considers law clear - 62 Serious lack of compliance -62 242 cases tested by GAO -62 185 of 242 cases awarded under law -62 In 165 of the 185 cases records lacking - 62 No records for remainder - 62 20 of 185 cases in full compliance -63 Accurate data essential - 63 Auditing requires backup data - 63 Law protects contractor - 64 CONTENTS V Staats, Hon. Elmer B., Comptroller General-Continued Testimony of Comptroller General Staats-Continued Page Government has recourse if prices misquoted - -64 DoD responsibility - -64 DCAA responsibility- 4 Postaudit needed to determine refunds - -65 Inadequate postauditing- 65 GAO reports to Congress - -65 Reports to committees _-_-_---- 65 GAO and Renegotiation Board - -66 Statement on GAO relationships with Renegotiation Board 66 Statement on whether problem areas are brought to the attention of Congress by the Board -67 Effectiveness of Renegotiation Board re use of Government property ---- --- ------- 67 Consideration given by the Board to Government property in the hands of contractors- 68 Recouping from contractors - Use of 68 Government property on commercial work- 68 Role of Justice Department Negotiation 69 without records on Government furnished property 69 Defense Contract Administration Service (DCAS) - -69 Role of DCAS in negotiations - -69 GAO report on DCAS - -- GAO 70 report on "Truth in negotiations," February 1967- - 70 Importance of cost estimating systems -71 Volume of business requires a system -71 Need for feedback from DCAS to DCAA 71 Postaudit system -72 GAO and DoD disagreement on intent of act -72 DCAA postaward audits -72 Auditor's access to records -73 Recouping through Renegotiation Board -73 Government furnished equipment -74 Use of sales receipts "backdoor spending" .- 74 Receipts from sales of real and related personal property -75 Use of receipts from sales of sealskins -75 Wide discrepancy in use of receipts - 75 Statement relative to protection, harvesting, and sale of Pribilof fur seals ---------------- 76 No formalized accounting on use of receipts -77 President's commission on budget concepts -- 77 Categories of situations re use of receipts - Business-type 77 enterprises - ------------------- 77 Repayment to loan funds -------- User charges 77 - 77 Sale of stamps- 78 Receipts from sales of property -78 Access to company records - DoD exploring 78 problem- 78 Review of negotiation process -79 Access authority to review contractors' records -79 DoD has access to certain data -80 "Truth in negotiations" and postaudit -So Pecking at the problem 81 Postaudits forclosed by DCAA if "Competition" claimed -1 Competitive procurement jumped from $5 billion to $10 billion in 1966 - ------------------------------------------ 1 GAO disagrees on definition of "competition"- Audits Si requested