STATEMENT OF FRANK M. MIKUS, AUDIT MANAGER, EUROPEAN BRANCH OF INTERNATIONAL DIVISION, GENERAL ACCOUNTING OFFICE, FRANKFURT, GERMANY

Mr. MIKUS. A copy does go to the AID mission, and they are aware this is being shipped to Turkey and it comes in a customs warehouse. At that point, it is up to the Turkish official to get it out of customs. It might go to a specific department, such as the highway department, or be assigned to DMO, which is similar to our GSA. They are supposed to notify the mission they have it out of customs and where it has gone to. This is where the breakdown is. The Government of Turkey is not furnishing this information to the mission.

Mr. MONAGAN. According to this, this is furnished directly to the mission.

Mr. MIKUS. Yes, but when the highway department picks up the equipment the mission does not know. This is the breakdown. Then they are supposed to have 6-month status reports on the utilization which are not received.

Mrs. HECKLER. What reports does the receiving country file at the time they take it out of customs?

Mr. MIKUS. There are local forms. The way the Turkish Government works, in excess property there is no customs. There is a 5 percent handling charge and then they have to pay storage. It is up to the user of the equipment to pay the customs people.

Mrs. HECKLER. In addition to paying the charges, what about a report of acceptance? Isn't there some paperwork involved which the recipient should execute?

Mr. MIKUS. Yes, there is a form A.

Mrs. HECKLER. But the mission is not informed?

Mr. MIKUS. That is where the breakdown is.

Mr. MONAGAN. The breakdown being that the mission does not check up on either the receipt or nonreceipt of this form A?

Mr. MIKUS. Yes. To my knowledge Mr. Gren is establishing what he calls an arrival system for excess property and his primary concern is not to let property stay in a customs warehouse for any length of time. He would probably have someone go to the customs warehouse and see if the property is still lying around there.

Mr. MONAGAN. Are there any auditors attached to the mission to make end-use checks?

Mr. MIKUS. There is a Mr. Intepe with AID who spends 100 percent of his time, practically, going out in the hinterlands and looking at the equipment and how it is being used and we have copies of his reports. Mr. MONAGAN. Is that an adequate staff to do this work?

Mr. MIKUS. He works 7 days a week.

Mr. MONAGAN. That does not answer the question.

Mr. MIKUS. It would be hard for me to evaluate, sir.

Mr. WOLL. If I may clarify that point a little bit, Mr. Intepe is not an end-use auditor. He is connected with the Office of Commodity Import. But the mission does have end-use auditors, as is customary, and they do go out and make a selection of property around the country and make an inspection.

Mr. MIKUS. He works for AID, doesn't he?

Mr. WOLL. Yes, but he is in the Office of Commodity Import.

Mr. MONAGAN. We will make it a point to look into that.

Mrs. HECKLER. I think this is the kind of weakness which must be remedied. It would require more personnel to tighten it up to insure that the right people get the equipment and also that the equipment will be used. It is a question of who is receiving the equipment, who is receiving the enrichment of the U.S. Government and whether or not it is the people the Government wants to help.

Mr. WOLL. I don't know if that was a question.

Mrs. HECKLER. No, that was a statement. That is all, Mr. Chairman. Mr. MONAGAN. Any further questions?

Mr. BARASH. Mr. Woll, do any of your rehab sites guarantee the performance of the equipment that they repair?

Mr. WOLL. When you use the term "guarantee," there is no actual written guarantee but, as I mentioned before, if a complaint comes in and it is a valid complaint we try to rectify it and we always have. Mr. BARASH. Then you would have to assume that cost rather than the contractor?

Mr. WOLL. Yes.

Mr. BARASH. And at none of your rehab sites will the contractor assume responsibility for that?

Mr. WOLL. This particular contractor has used his own funds to my knowledge. I know there was a complaint that came in from Tunisia and he sent his own mechanic at his expense and repaired that piece of equipment.

Mrs. HECKLER. This contractor?

Mr. WOLL. Yes.

Mr. BARASH. You stated that where there is a request for a highpriority project you will repair the piece of equipment at any cost, but what is your BER-beyond economic repair-rate for non-highpriority projects?

Mr. WOLL. Here or worldwide?

Mr. BARASH. Both if you have it.

Mr. WOLL. How much of your BER is not on firm orders?.-
Mr. GIBSON. Very little, less than one-half of 1 percent.

Mr. WOLL. I would go so far as to say our worldwide average would be less than 5 percent, Mr. Barash, on an acquisition value basis. Mr. BARASH. That is all, Mr. Chairman.

Mr. MONAGAN. Mr. Woll, briefly, after looking this contract over, I think I get an outline of the basis on which it is formed. There is a minimum undertaking by the U.S. Government to order supplies or services of $200,000.

Mr. WOLL. This was the original amount. It has been amended upward. This was the original contract signed in November 1964.

Mr. MONAGAN. And at that time the maximum was estimated to be $1.5 million.

Mr. WOLL. Yes, sir.

Mr. MONAGAN. But that was not acquisition value?

Mr. WOLL. No, sir.

Mr. MONAGAN. That was in terms of payment for services?

Mr. WOLL. Yes, sir.

Mr. MONAGAN. And in return for that the contractor agreed to do certain specified services but that is calculated on an hourly labor rate?

Mr. WOLL. Yes, sir.

Mr. MONAGAN. And that is in the contract?

Mr. WOLL. Yes, sir.

Mr. MONAGAN. I could not understand why this variation in the hourly rate was so important, but the contract is based on this hourly

rate.

Mr. WOLL. That is right.

Mr. MONAGAN. Does that include the profit or whatever you want to call it?

Mr. WOLL. Yes, sir; it does.

Mr. MONAGAN. Do we have any breakdown of that $2.85 or whatever it is?

Mr. WOLL. This is a point that the GAO has raised in relation to the contract. I was under the impression that when this contract was procured for us by the Air Force in Europe acting as our agent, that the financial capability

Mr. SCORDAS. Price analysis.

Mr. WOLL (continuing). Price analysis was made at that time, sir. Mr. MONAGAN. But you don't know. In other words, it is not entirely accurate to state this as labor; I guess it is direct labor. You get the impression it is what you pay the labor per hour, but actually it includes your overhead and profit and everything else?

Mr. WOLL. That is right, with the exception of material.

Mr. MONAGAN. Is any study of this being made at the present time? Mr. MIKUS. We tried to get a price breakdown which we can't find. We have attempted to make an analysis of financial records here but it isn't possible. The internal auditors from Athens attempted the same thing but there is considerable difficulty in doing this.

Mr. MONAGAN. Of course, the method of calculation of the hours would be important because that is the multiplying factor, and the efficiency and so forth would be tied to that. I think it would be helpful if you would look into the method by which this was calculated. Mr. WOLL. Yes, sir.

(Subsequently, AID supplied the following information :)

Concerning the question of a breakdown of the hourly rates, the following are the elements:

a. The base pay of the employee which is established by Belgian law, by trade: Skilled $1.20; semi-skilled-$1.12.

b. The fringe benefits established by Belgian law include employee compensation, retirement, health and accident insurance, severance pay (6 months), sick and annual leave. Benefits equal 52% of base pay.

c. Overhead, to accomplish the contract includes foreman, fiscal, inspection, receiving and documentation, and contract administration.

d. General and administrative expenses which include tools, heat, lights, water, building maintenance, taxes, fixtures, and also profit.

Mr. ROMNEY. With reference to the document received for the record "Requisition and Invoice/Shipping Document," this particular copy has certain blank spaces. I wonder why these spaces are not filled in?

Mr. WOLL. You will see under the name of the vessel you have the shipping date. This is the estimated time of departure from Antwerp is given and the estimated time of arrival in Turkey is given.

Mr. ROMNEY. But the item in the form says "Date shipped." We have the ETD and ETA but we do not have the voucher numbers in These spaces and do not have the date the materiel is required.

Mr. WOLL. We have never found it necessary to put that date.
Mr. MONAGAN. Maybe you ought to get a new form.
Mr. WOLL. This is a military form we have been using.

Mr. ROMNEY. There is no need for the bill of lading number?
Mr. WOLL. No, sir.

Mr. ROMNEY. Or the voucher number?

Mr. WOLL. No, sir; or at least we have not found a need to date.

Mr. MONAGAN. Wouldn't that help to follow up this property to determine whether or not delivery had been made and obviate some of the difficulty at the other end, this identification and use?

Mr. WOLL. It probably would, but the same criteria would have to be used. The AID mission would have to check with the shipping company in the country to which the property was going to ascertain the date of receipt in the country.

Mr. MIKUS. May I interject something on the bill of lading? We looked at Mr. Gren's accounting system and the key piece of information for him is the bill of lading.

Mrs. HECKLER. Who is Mr. Gren?

Mr. MIKUS. He is the AID mission's controller in Turkey.

Mr. WOLL. In answer to Congresswoman's Heckler's question as to how much property has been shipped out of this installation to Vietnam, from July 1, 1966, to May 6 of this year, $4,165,255.

Mr. MONAGAN. In acquisition cost?

Mr. WOLL. Yes, sir; in acquisition cost. And our total outshipments from all of our European operations through March 31 were $11.8 million.

Mr. ROMNEY. One final question, Mr. Woll. Mr. Waters, at our prior hearings, stated he anticipated the weekly man-hour rate by your contractor's operation here might reach 9,000 hours?

Mr. WOLL. Yes.

Mr. ROMNEY. Will this involve an amendment to your present contract?

Mr. WOLL. No, sir.

Mr. ROMNEY. Does it represent an expansion of the contractor's present capability?

Mr. WOLL. Only in terms of hiring additional employees by the contractor. His capability would be expanded with more people, but his facilities are capable of producing this production.

Mr. ROMNEY. That is all, Mr. Chairman.

Mr. MONAGAN. The hearing is adjourned.

(Thereupon, at 11:30 a.m., the hearing was concluded and the subcommittee proceeded to visit the premises of plant No. 1, the Hoboken/ Antwerp plant, of J. & M. Adriaenssens N.V.; also one of the company's warehouses. Following lunch, the subcommittee proceeded to visit the dock area at Antwerp and plant No. 2 of the company, known as the Hansa plant, which inspections were concluded at 4 p.m.)