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Have you ever presented in a blue book on the Defense Department any statement, any admission that a program was well run? Mr. NEWMAN. The answer to that is, no, for a whole program. (The following statement was furnished for the record :)

However, in the ballistic missile report we praised their associate contractor method of management.

Mr. ROBACK. And you have done it in other cases.

Mr. NEWMAN. Not that I know of.

(The following statement was furnished for the record :)

Yes, in audit reports issued on Defense-wide maintenance of noncombat vehicles, proficiency flying, followup on noncompetitive procurement, and others. Mr. ROBACK. Well, let me call to your attention one or two instances, or at least an attempt to do it, but not in the Defense Department. I am reading from a report on the OSO—that is the Orbiting Solar Observatory report to the Congress. The B number is 133340, and the date is January 31, 1964.

While our review of the OSO project showed instances of management action which adversely affected project costs and certain weaknesses in administrative control over contracting operations, these deficiencies should not be considered typical of the entire project. In many of the management areas examined we found no significant weaknesses. We are reporting on those instances and management weaknesses that we did observe for information to the Congress and to assist NASA in minimizing the possibility of reoccurrence of such situations in carrying out future research and development projects. (The document referred to appears in appendix 1H, p. 719.) That is a very modest and moderate statement. Let me see another

one.

Mr. CAMPBELL. That is a

Mr. ROBACK. Excuse me, let me read one more.

Mr. CAMPBELL. That is a civil agency, I think-NASA.

Mr. ROBACK. That is a civil agency that deals with the same contractor base as the Defense Department.

Here is a report on the large surface ship reactor and land-based prototype project. The B number is 114878, submitted under date of January 10, 1962.

Contract administration and management by Government personnel was vigorous and was competently handled

(The document referred to appears in appendix 1G, p. 712.)

And then you go on to discuss some things which you think might be weaknesses in the project, or at least areas that could be scrutinized or criticized.

The only point I am making, and this is for purposes of inquiry, is whether you are giving the Congress evaluative reports as far as the Defense Department is concerned, or are you merely pinpointing deficiencies, so that from the standpoint of trying to evaluate whether the Defense Department is delivering the goods, are we getting the wrong impression?

Mr. CAMPBELL. Well, of course, the Defense problem is so enormous compared to any civil agency that we have all we can do to look into those areas where we feel there are deficiencies.

Mr. ROBACK. Now, you understand, I am not necessarily suggesting that you should do this evaluation. Í am not making a recommendation on it.

Mr. CAMPBELL. Oh, no.

Mr. ROBACK. This is something which the committee can consider. Mr. CAMPBELL. Well, I had this question

Mr. ROBACK. But the theory of the examination of agency performance was to convey to the Congress an idea of the good and the bad. Now, maybe a committee of Congress does not itself have that responsibility, for example, because the investigative resources are limited and the agencies are many and large. The committee might take the position that, "we will take the good for granted and we will criticize the bad." Now, is that the position of the GAO? Do you take the good for granted and criticize the bad?

Mr. NEWMAN. That is right.

Mr. CAMPBELL. I think that is a good expression.

Mr. ROBACK. These other comments were little bonuses or gratuities to these particular projects, when you praised them.

Mr. CAMPBELL. Yes, sir.

Mr. ROBACK. Do you say that is the case?

Mr. CAMPBELL. Yes, sir.

Mr. NEWMAN. In addition to those previously stated we have one report in process that is along this line. It will be out within the next couple of months. It has to do with readiness of Marine combat vehicles and equipment.

Mr. BAILEY. We also issued a report involving the military assistance program that mentioned improvements.

Mr. ROBACK. But there is no question in your mind, Mr. Bailey, or any other witnesses here there is no question in your mind that taking the good for granted and criticizing the bad is not a comprehensive audit, whether in toto or in segments. It is not an evaluation of the agency's performance. You agree with that, do you not, Mr. Campbell?

Mr. CAMPBELL. I agree.

Mr. ROBACK. Yes.

Mr. NEWMAN. But I do not think it is humanly possible to make such an evaluation in Defense or the services. As fast as we find these mistakes, they are correcting them. Even under Public Law 87-653, the statutory legislation was passed September 1962; DOD put out directives in November 1962. We audited some contracts and found the directives ineffective. We recommended changes and amended directives were issued October 1964. DOD is constantly making changes and improvements which we recognize in each report. Mr. CAMPBELL. Where we have an operation, particularly among the smaller agencies, where we know they are doing a fine job, my feeling is that if I decided that we ought to spend some time in that agency and have a review made, there would be some people in Congress, I think, who would ask me why I am wasting our slender resources on an obviously good organization.

You have that reaction.

am not pass

Mr. ROBACK. You have that reaction and, as I say, I ing judgment here on which way you ought to do it or whether you can do it any other way; but all I was establishing was that this type of report which we get in the Blue Book does not constitute a balanced evaluation of agency performance. It is a report on deficiencies and excesses or improprieties or irregularities

Mr. NEWMAN. Trouble areas.

Mr. ROBACK. Trouble areas.

Mr. CAMPBELL. I think the Bureau of the Budget are doing more and more of this other sort of thing. I think they recently put out a report on the accomplishments of various agencies; it was a very good story.

Mr. ROBACK. And that

Mr. HORTON. They are, in essence, an arm of the executive branch, as contrasted with your function which is the arm, as it were, of the legislative branch.

Mr. CAMPBELL. That is correct.

Mr. HORTON. What would precipitate any such study to be made of an agency on the part of the GAO? Would this have to come from Congress or would this be something that you would initiate on your own?

Mr. CAMPBELL. I think that it would have to come from Congress. It might be that we would have some occasion to program such an examination or evaluation, but normally I would suspect that it would come from Congress, that is a request to us to look at a particular program from top to bottom or a particular agency. Mr. HORTON. And as I understand, what you have said here today is that the only way that the agency performance is involved is as it may relate to a specific contract which is under investigation and review by your agency.

Mr. CAMPBELL. Yes, sir.

CRITERIA FOR INITIATION OF GAO AUDITS

Mr. HORTON. What brings about your agency looking into a particular contract? I recognize that a Member of Congress or somebody from the committee initiating it, but what initiative procedures do you have in the agency for doing this?

Mr. NEWMAN. In our agency?

Mr. HORTON. Yes.

Mr. NEWMAN. Well, actually, in the contract area we would get into, let us say, the F-4 program. The F-4 program is going to be a very large program; billions will be spent. So we get in and start studying the program, the planning that is done by the military people and

Mr. HORTON. What starts you to studying it? Is is the amount of money involved, because it is called F-4, or what?

Mr. NEWMAN. That is correct, the amount of money involved or direction or congressional interest.

Mr. HORTON. Let us assume that congressional interest is certainly going to precipitate activity on the part of the agency. I am thinking now on terms of your initiative actions.

Mr. NEWMAN. In the first place it would be the money involved.
Mr. HORTON. All right, now what is the limitation on the money?
Mr. NEWMAN. Limitation? There is no limitation.

Mr. HORTON. Well, what is the

Mr. NEWMAN. If we are spending billions for missiles, we get into missiles, and we follow a particular missile program for years. We have been into the Minuteman, the Polaris, and other missiles used by the Army.

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Mr. HORTON. What is the floor that causes you to look into some matter is it $100,000, a million or billion?

Mr. NEWMAN. Unfortunately, we do not have any floor because we do not have enough men to audit. We could use three times, four times the staff we now have.

Mr. HORTON. Well, that means that you do have to have some standard or some guide, so what is the floor that would cause the agency to look at some particular contract?

Mr. NEWMAN. Well

Mr. HORTON. You do not look at all of them.

Mr. NEWMAN. No, we do not look at all of them.

Mr. HORTON. Well, why do you pick out X contract and Y contract and not take A or B?

Mr. NEWMAN. Well, if you went into a contractor's plant-let us say we went into Boeing, I mean with the Minuteman

Mr. HORTON. Then you pick it by industry.

Mr. NEWMAN. By, first by weapons system

Mr. CAMPBELL. Program.

Mr. NEWMAN. First, we select a weapons system program based on size of program we picked ballistic missiles. We select Boeing because billions in appropriations will be spent by them on the Minuteman. Now, at Boeing we find out what prime contracts and change orders they have, what subcontractors they have, and study the amount of money being spent on major assemblies, components, and so forth, at this point in time with subcontractors or in-house. Also status of deliveries and the dependability of the product is important. Then we select the subcontractors to be examined.

Mr. HORTON. Well, then do I understand your statement to be that you select by the subject matter of the contract; namely, missiles? Mr. NEWMAN. Well, it may be missiles. It may be

Mr. HORTON. Well, you indicated a moment ago that it had to do with the amount of money involved in the contract.

Mr. NEWMAN. Not necessarily. I mean, we may get into it

Mr. HORTON. Or are they combined factors?

Mr. NEWMAN. There are various ways we get into the selection of contracts. I mean, we may get into requirements

Mr. HORTON. I understand that, and I am trying to find out what some of those ways are and what guidelines you have in the agency as to which contracts you investigate and which you do not.

Mr. NEWMAN. Well, that is left entirely to the status of the contract. If it is halfway down the road, we take a look at it. If there are no costs under the contract, we would not look at it.

Mr. HORTON. All right, then do you look at all contracts that are halfway down the road?

Mr. NEWMAN. No, we cannot look at them all.

Mr. HORTON. Then how do you select the ones you look at?

Mr. NEWMAN. In some cases, we leave this to our regional manager where he would go out

Mr. HORTON. What are the instructions to the regional manager as to which contract he looks at and which one he does not? That is what I am saying.

Mr. NEWMAN. The regional manager will be directed by Washington to audit a particular contract or Washington may instruct him to

pick a contract, say for a particular component or part. In this case it is left to his judgment. In other words, if the contract is not half finished there is no sense getting into the cost end of the contract because there have not been enough deliveries.

Mr. HORTON. Well, then what you are saying is that there are no guidelines in the agency as to which contract

Mr. NEWMAN. It is judgment. It is a professional organization. And with his auditing experience, from 10 to 20 years, he knows what to look at with only general guidelines and objectives from Washington. He knows where auditors would waste time, and where auditors would be most productive.

Mr. HORTON. So you may have a contract for $3 million and not even look at that one?

Mr. NEWMAN. At this particular point in time, you are right, because maybe they just got it last month. But we may come back next year and take a look at that one.

Mr. HORTON. You cover all contracts that are in the amount of $3 million?

Mr. NEWMAN. No, we do not judge our selection by only dollars. Mr. HORTON. Are there some contracts for $3 million or more that never get looked at?

Mr. NEWMAN. Never looked at. There may be contracts 10, 20Mr. HORTON. Then how do you select which ones do and which ones do not?

Mr. NEWMAN. We are doing it on a program basis, or the status of the contracts basis when we visit the contractor's plant.

Mr. HORTON. Then there are some programs that you do not even look at?

Mr. NEWMAN. That is correct. We do not have enough staff.
Mr. CAMPBELL. We have not looked at all of them.

Mr. HORTON. I realize that, but I am trying to find out if you do have some standards or some guides that are objective guides as to who gets audited or checked and who does not get audited or checked. Mr. CAMPBELL. In the normal course, obviously money is a very important factor.

Mr. HORTON. If you told me that any contract of a million dollars or more you looked at, then I could accept that and I could understand it, but now you tell me that it does not have anything to do with it. It may be, it may not be. You indicated it has to do with a program then some programs do not get looked at and others do. And you say it also has to do with a contract and some contractors get looked at and others do not. Apparently if a contractor has had some sort of a reputation then you are going to check him pretty carefully. If another one has not, then you may not ever look at him, is that right? Mr. NEWMAN. We try to cover some phase of practically all types of contracts. Our regional managers have a territory. In this territory there are prime contractors and subcontractors, and it is in our program over a period of years, to cover each one of those contractors in that area.

(The following statement was furnished for the record :)

Each scheduled contract audit is approved by Washington and objectives and time limitations are established.

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