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nventories—Continued. Issues:

l'alue of fund Reimbursable.

$106, 280, 655. 44

and changes Against commissary store profits.. 101, 787. 14 during year

$106, 382, 442. 58 Inventories on hand June 30, 1937

66, 601, 503. 23 ncrease in investories

+4, 782, 720. 43 accounts receivable: Balance July 1, 1936.

1, 927, 258. 77 Balance June 30, 1937

1, 369, 461. 56 Decrease in account.

- 557, 797. 21 Accounts payable: Material purchases, in inventories not paid for..

$902, 420. 49 Ration records, balance in suspense account.

83, 740. 94 Transfers from other accounts paid not taken up

11, 035. 31

985, 126. 12 Balance in account, July 1, 1936..

957, 356. 85 Increase in account.

-27, 769. 27 Reserve of profits earned in commissary stores, July 1, 1936.-- 247, 113. 45 Reserve of profits earned in commissary stores, June 30, 1937.. 239, 209. 19 Decrease in account.

+7, 904. 26 Val'le of fund, June 30, 1937.

69, 934, 366. 66 RECONCILIATION OF CURRENT VALUE OF FUND WITH TOTAL APPROPRIATED Appropriated through June 30, 1937

$560, 047, 615. 40 Decreases:

Deficiencies charged to the fund. $233, 757, 477. 23 • Transfers to other appropriations

90, 794, 694. 00 By sale.--

89, 917, 704. 18 By survey and price adjustment.

54, 919, 917. 09 By inventory

26, 245, 773. 58 By transfer to other Government departments.

1, 116, 324. 93 By issue for Japanese relief, earthquake, 1923.

600, 447. 67 l’nderabsorbed f. o. b. transportation costs..

3, 846. 08

497, 356, 184. 76 Increases:

Discounts, unpaid liquidated damages and purchase adjustments.

4, 819, 372. 46 Miscellaneous collections and adjustments by General Accounting Office. 2, 423, 563. 56

7, 242, 936. 02 Net reduction in fund...

490, 113, 248. 74 Value of fund, June 30, 1937.-

69, 934, 366. 66 * Credit. REQUEST FOR FUNDS TO REPLACE FUNDS TRANSFERRED TO OTHER

APPROPRIATIONS A request for an increment to the naval supply account fund is included in the estimate to replace in part funds transferred to other appropriations by Congress during the years 1930 to 1935. This ad

36929—38-20

dition to the fund is to permit increase of present inadequate stocks; replacement of present stocks at prevailing higher prices; to provide stocks of supplies for operating new vessels; to enlarge provision stocks to care for the subsistence of the increased number of men in the service; for increased stock of lubricating oil and gasoline necessary for the operation of the increased number of aircraft; to permit a continuation of the policy of seasonal and slack season purchases, with the resulting economy; and to provide an adequate cash working balance.

NECESSITY FOR INCREASE TO FUND

During the period 1930 to 1935 the working capital of the fund was reduced through the appropriation by Congress of $25,079,694 for transfer to other appropriations. During this period, stocks were curtailed and the necessity for an adequate stock was subordinated to the more immediate national necessity of reducing cash withdrawals from the Treasury. Replacement of a part of the working capital diverted from the fund is now necessary if the present system of financing the purchase and issue of naval stores is to continue, for the reasons set forth:

(a) Rehabilitation of stocks which had been reduced to a point where they become inadequate.

(b) The Labor Department reports a 34 percent increase in prices, 1933 to 1937. Due to this increase in commodity prices the same quantity of stock now requires a larger sum to finance same. Replacement of present stocks will be at higher prices.

(c) The acceleration of shipbuilding program requires a greater investment in material.

(d) To provide for stocks for operating new vessels. The costs of the new vessels are much greater than the cost of the vessels they replace. The stocks necessary for the operation and maintenance of vessels vary with the increased original cost. Increased steaming radius and increased speed require increased oil stocks. Larger crews require increased provision stocks. Larger plants to maintain require increased stocks of general stores.

(e) To provide the additional stock of provisions necessary to meet the increase in number of enlisted men from 78,260 in 1934 to 108,500 for 1939.

(f) To provide supplies, lubricating oil, and gasoline necessary for the operation of the increasing number of aircraft.

(9) To continue financing slow-moving material for which there is the military necessity of providing for emergency needs in event of damage to vessels.

(h) To permit continuation of the seasonal and slack-season purchase of stock. This necessitates an adequate stock, but results in lower prices with consequent lower cost to appropriations for material.

(i) To provide a cash balance to cover the lag in effecting bookkeepin credits which can only be made at the end of accounting periods. Credits and disbursements are irregular in reaching the Treasury.

Lack of sufficient capital is a serious drawback leading to additional costs with the corresponding necessity for additional appropriation authorizations It results in :

(a) Inadequate stocks of materials.
(b) Hand-to-mouth emergency buying.

(c) Stock depletion with consequent labor loss due to interruption to material supply.

(d) Delay in ship-construction program for new vessels and interruption tú regular orderly construction procedure due to delayed obtention of materials

(e) Delay in completion of emergency repairs to vessels, with consequent separation of vessels from fleet for longer periods.

(f) Increased cost of materials due to necessity of purchasing in small quanties instead of large quantities which in turn affects the appropriations gainst which materials are eventually charged. (g) Necessity for acceptance, at times, of nonspecification or inferior ma'rial due to stock depletion and consequent requirement for immediate delivry or at least a delivery in such a short time as not to permit manufacture of pecification material.

(h) Additional cost to appropriation "Maintenance, Bureau of Supplies and ccounts,” due to the doubling or tripling of procurement work incident to ore frequent purchase, clerical and administrative labor increased. "he necessary value of the fund to meet the present situation and that of the immediate future is ---

$77, 000, 000.00 The present value of fund is :

Inventory, June 30, 1937 $66, 601, 503. 23
Accounts receivable

1, 369, 461. 56 Cash

3, 187, 737.18

$71, 158, 701. 97 Accounts payable

985, 126. 12 ontingent liability

239, 209, 19
1, 224, 335. 31

69, 934, 366. 66 Necessary increase to fund.

7, 000, 000.00 Mr. UMSTEAD. What would be the alternative if the present system were not continued !

Admiral CONARD. The alternative would be to carry an inadequate balance of stock for the Naval Establishment.

ACCELERATION OF SHIPBUILDING PROGRAM AS REASON FOR INCREASING

CAPITAL

Mr. UMSTEAD. Admiral, you mentioned the acceleration of the shipbuilding program as a reason for increasing the capital. Why should not the acceleration help rather than hurt, because materials would be more rapidly issued and made use of ?

Admiral CONARD. In view of the increased demand for issue of stock we should have correspondingly to increase the balance on hand to meet demands as they occur.

Mr. UMSTEAD. Well, the shipbuilding program, certainly to the extent that you handle the material affords a very rapid turn-over of that portion of inventory used for that purpose, does it not?

Admiral CONARD. Yes; but a large part of the material that is used is material that is ordinarily used by the Navy generally, and to buy that part which is required for the construction program alone, just to meet that demand, is not good economics.

Commander Mayo. May I say that in any orderly progress of work you must have your material planned for in advance. If you do not have your material ready when you start your job, you have lost labor, lost overhead, and all of the charges go up in the air. You have got to have the material there, and that does not mean get. ting it there 10 days before. It probably means getting it there months ahead, if your progress in ship construction is going to be regular and economical.

Mr. UMSTEAD. In the first place, of course, your Bureau has nothing to do with nearly 50 percent of the construction, which is built by private concerns. Admiral Conard. Not private concerns, no, sir.

Mr. UMSTEAD. Did I understand you a few moments ago to sa that the lack of sufficient capital has tended to slow up the building program of the Navy?

Admiral CONARD. So far as ships being built at our own nars yards is concerned.

Mr. UMSTEAD. Last year Admiral Land appeared before this conmittee and, as I recall it—and I am not undertaking, except from memory, to repeat what he said-testified as to the causes of delav and the slowing up of the shipbuilding program, and I do not recall that he made the statement that the lack of operating capital in the Navy supply fund was one of those causes.

Admiral CONARD. He at that time had not been actually confronted with delay in material, because we exerted every possible effort to keep ahead and have the material on hand.

Mr. UMSTEAD. Now. Admiral, that was, I think, in the month of February of this year. The large increase in the Navy program has been going on since 1933. If the statement you just made X moment ago is correct, that up until February of this year there had been no inconvenience suffered by reason of the lack of sufficient capital in this fund, then with the peak of the building program certainly having been reached, if not passed, why is it that you now contend that it is necessary for you to have this additional fund to prevent the program from slowing up?

Admiral ConARD. I do not think you can justly draw the conclusion that during the building program Admiral Land had not been confronted with lack of material. Pertinent to this point I would like to insert in the record an extract from a joint letter issued by the Bureaus of Engineering, Construction, and Repair, and Supplies and Accounts, under date of February 1, 1937.

The Bureaus note that delays in the construction of vessels in nary raris are, in many cases, attributed to the failure to receive the materials by the dates they are actually needed for orderly progress of the vessels under construction. Such delays in the receipt of materials are conducive to increa cost of building the vessels, as well as to delay in completing the ships.

Mr. UMSTEAD. I understood you to make that statement just a few moments ago. It was not a conclusion of mine.

Admiral CONARD. I did not intend to convey that impression. The danger of its being delayed was always existent, and the situation has been met, but not met as it could well be if we had more capital.

Mr. U'MSTEAD. Much of the new material going into the construetion of new ships would not be used for any other purpose. That is correct, is it not?

Admiral CONARD. I think that is a fair statement.
Commander Mayo. That is correct except-

Mr. UMSTEAD. Then why should not such material as is not used for any other purpose be bought directly under "Replacement, Vary rather than first charged to the naval supply account fund !

Admiral CONARD. That practice is followed in certain cases.

Mr. UMSTEAD. If that is followed, why do you put in your justification the slowing up of the building program as one of the reasons for increased capital?

Admiral CONARD. We are referring to that part of the material than is bought under the naval supply account. It is true a proper tion of the material is financed directly from the building program

uthorization, but a large proportion is procured through this fund, 21,000,000 last year, and it is that part which is liable to slow up he building program.

Mr. U'MSTEAD. Omitting from consideration "Replacement, Navy." unds, what other bureaus of the Department draw any considerable mount of material from the naval supply account?

Admiral CONARD. All bureaus of the Navy draw material from the la val supply account.

Mr. UMSTEAD. Well, a very large percentage of their appropriations s expended upon personal services, is it not?

Admiral CONARD. Some of them, but not the large technical bureaus. CORMAL VALUE OF SUBSISTENCE AND FUEL OIL STORES CARRIED IN NAVAL

SUPPLY ACCOUNT Mr. UMSTEAD. What would be the normal value of subsistence stores "arried in the naval supply account?

Commander Mayo. We have a stock of provisions which runs 42.600,000. That may be taken as the approximate average stock throughout the year. Our issues of provisions amounted to $14,076,139.88 for the year.

Mr. L'usTEAD. What about fuel oil? How much do you carry in the naral supply account, on an average ?

Commander MAYO. $4,322,000, in round numbers. This includes all fuel and gasoline.

Mr. U STEAD. That is approximately half of the entire amount appropriated for the fiscal year 1938 ?

Admiral CONARD. That $4,000,000 ?
Mr. UMSTEAD. Yes.

Commander Mayo. Of course, we have certain stocks, I do not bnow

Mr. U'MSTEAD. What possible justification can there be for having one-half of a year's supply of oil on hand at one time in the naval-upply account?

Admiral Conard. It is distributed to all of the ships of the Navy, the oil that they are using from day to day, and also in our fuel depots.

Mr. U'MSTEAD. Is it necessary, in order to meet normal requirements, to keep a 6 months' supply on hand?

Admiral COXARD. Yes. It is only good business to have that amount of fuel on ships and in our storage depots.

Mr. l'MSTEAD. Other than subsistence and oil, give us the normal value of the principal other classifications of supplies.

Admiral COXARD. We have it all classified.

BALANCES OF STORES BY CLASSES
Total stores, balances, by classes, June 30, 1937

Stores

Naval supply

account

1 2

4

Guns (antiaircraft, boat, coast defense, drill) etc..
Arms, small and all accessories, outfits and parts.
Mines, nets, torpedoes, torpedo tubes, etc
Ammunition, ammunition details, bombs, blasting apparatus.
Flags, bunting -
Anebors, anchor chains, and other ground tackle (hoat and ship)
Fuel, charcoal, coal, coke, dust fuels, gas, etc..
Motor vehicles, bicycles, trailers, etc.
Bosts.

$361, 785. 16

516, 620.93 4, 322, 471. 34

7,878. 72 109. 196. 41

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