The contention has been made by some contractors that the General Accounting Office is precluded by 18 U.S.C. 1905 from disclosing in its audit reports information relating to costs and profits under Government contracts. Section 1905 makes it unlawful to disclose certain information of this type "to any extent not authorized by law." As previously indicated, the Comptroller General has a statutory duty, under 31 U.S.C. 53, to investigate all matters relating to the receipt, disbursement, and application of public funds and to report to the President and to the Congress on such work and concerning such other matters relating to the disbursement and application of public funds as he may think advisable. He is also directed to make recommendations in such reports looking to greater economy or efficiency in public expenditures.

In certain reports it is necessary to disclose sources of income, cost and profit figures, and other information of a similar nature in order to support the findings, conclusions, and recommendations in our reports. We regard such disclosures in a report to the Congress as within the meaning of the words "authorized by law" as used in 18 U.S.C. 1905, since such reports are made pursuant to our statutory responsibility and duty of reporting to the Congress matters relating to the receipt, disbursement, and application of public funds. Consequently, we cannot agree that the disclosure of information of the type set forth in 18 U.S.C. 1905, in a report to the Congress in furtherance of our statutory responsibilities, is in contravention of the statute.

Further, we seriously question whether 18 U.S.C. 1905 should be construed to prohibit the disclosure of anything other than "trade secrets." There is persuasive evidence in the legislative history of the section that the prohibition against disclosure of the "amount or source of any income, profits, losses, or expenditures" should be interpreted to apply only when such information is obtained from income tax returns. We have filed with your subcommittee a legal memorandum in support of this conclusion. The statute is, of course, a penal statute, and we cannot say with finality what the courts might hold as to its applicability to disclosures of this type of information in reports of the General Accounting Office.

However, regardless of the statute, we recognize the desirability of avoiding, to the extent possible, the disclosure of matters of business privacy in our reports. We have recently issued internal instructions designed to minimize the disclosure of the details of contractors' cost and profit figures and other information of a similar nature. All reports are reviewed by the Office of the General Counsel with 18 U.S.C. 1905 in mind.

There is another point which we would like to mention and that is the matter of the referral of reports to the Department of Justice and the request to the contracting agencies not to effect any recovery from the contractors or to make contract amendments without coordination with the Department of Justice.

A few years ago the former Attorney General became concerned that the Department of Justice was not having an opportunity to consider our contract audit reports that possibly involved statutes under the Department's jurisdiction, prior to the contracting agency's

1 The memorandum referred to appears in appendix 1C, p. 692.

accepting a refund from the contractor or making a contract amendment. After several meetings between officials of the General Accounting Office and the Department of Justice, we revised our procedures. When we believe that the action required as a result of our review is or may be within the jurisdiction of the Department of Justice in addition to the administrative agency, the final report is referred to the Department of Justice for its consideration at the time it is sent to the administrative agency and to the Congress. We suggest to the administrative agency that no steps be taken to amend the contract or otherwise effect recovery from the contractor without prior consultation with the Department of Justice.

In our reviews of contract pricing, we do not make final determinations as to whether the fraud statutes, or other statutes within the jurisdiction of the Department of Justice, have been violated in particular contract transactions. However, where our contract reviews disclose that overpricing may have resulted from overreaching conduct, questionable cost or pricing information, or the withholding of information pertinent to pricing, we refer the report to the Department of Justice for its consideration.

As mentioned earlier, we may find it necessary to ask the Congress for legislation to provide more effective means of enforcement of our right of access to records. Also, we have under consideration other areas in which we feel improvements in contract administration may be needed. Since we are still working in these areas, we are not prepared to make legislative recommendations at this time. Briefly, we are concerned with the possible need for first charging interest on overpayments on contracts, second, more effective warranty clauses and administration thereof, third, more precise rules for documenting lump-sum negotiations to show basic considerations used in arriving at a price, fourth, providing right of appeal by the Government from injudicious decisions of Government contracting officers, and fifth, providing greater and more uniform audit authority for agency auditors. Some of these problem areas may be remedied through amendment of agency procurement regulations. In other areas it may be desirable to recommend legislative action.

Mr. Chairman, we think it appropriate to emphasize that, for the most part, the cases and problems we are talking about today involve contracts that were negotiated, rather than those awarded on sealed bids after formal advertising. When a contract is awarded after formal advertising, the Government has no authority to audit the contractor's books and records, except where a change order is issued which is in excess of $100,000. Therefore, our audit reports have covered negotiated contracts almost exclusively. Where contracts are negotiated there is lacking the full and free competition that you have in advertised procurements, with the result that additional safeguards must be followed in order that the Government's interest is protected. We have urged over the years that advertised procurement be used to the fullest extent possible, and the military departments are using advertised procurement to a greater extent each year. We believe that this type of procurement is in the best interest of the Government and the contractor.

Mr. Chairman, with that addition which I have just read, my statement is complete.

And I have with me today those men who have given many years of their careers in the Government to this problem.

First, I have Mr. Robert Keller, our General Counsel, who will be very glad to assist me and assist you on legal matters.

Mr. William Newman, a very experienced Director of our Defense Accounting and Auditing Division; his right-hand bower, Mr. Charles Bailey, who is Deputy Director of the Defense Accounting and Auditing Division.

And with us to assist also so that you will have every possible help in this very important matter are the associate directors of the Defense Accounting and Auditing Division, whose names are as follows: Mr. James H. Hammond for the Air Force activities in our office, Richard W. Gutman, who has surveillance of Army activities in our office, Mr. J. K. Fasick for the Navy activities, and Mr. Harold H. Rubin, Associate Director of that Division, who has to do with overall defense activities, Mr. Edward J. Mahoney, who is on our policy staff, is our best man in the field of ADP equipment and has been giving a great deal of time with that, and I believe he is here today.

In regard to the AEC and General Services and NASA contracts, we have present Mr. Arthur Schoenhaut, who is Deputy Director of the Division having surveillance of our interests in those activities, Mr. L. K. Gearhardt, Associate Director of that Division, and Mr. John E. Milgate, Assistant Director of that Division.

I should mention that Mr. Keller has with him Mr. Stephen Haycock who, as you know, from years ago, has had long experience in our office and is one of our very able lawyers. He is one of our Assistant General Counsels.

Thank you, Mr. Chairman.

Mr. HOLIFIELD. Thank you, General Campbell, for your statement and for the introduction of your associates.

Your statement is very comprehensive and gives us a clear insight to the philosophy under which your agency operates.

Mr. Horton.

COMMENTS ON DEFENSE TESTIMONY

Mr. HORTON. Well, I, too, want to commend the Comptroller General on the very comprehensive and clear statement.

Yesterday we had testimony from the Assistant Secretary of Defense for Installations and Logistics, Hon. Paul Ignatius, and in his report he indicated the three areas of disagreement between the GAO and the DOD, and selected as these areas: integrity of contracts, pricing policy, Government involvement in contractor operations. Mr. Comptroller General, would you comment on that testimony and that selection of those areas, indicating whether or not there is disagreement and, if so, what the disagreement is.

Mr. CAMPBELL. Well, I have not seen his testimony, so I really could not comment on it.

Mr. HORTON. Has anybody from your staff had an opportunity to look at it?

Mr. HOLIFIELD. Mr. Bailey, were you here?

Mr. BAILEY. Yes, I was here yesterday, Mr. Horton. And there are some differences or areas of disagreement. I think they are to be expected. As Mr. Ignatius pointed out in his statement, there will

be areas of disagreement between our office and the agency with respect to certain of our findings or conclusions.

Mr. HORTON. Well, do you have any specific comment with regard to the testimony concerning the integrity of contracts?

Mr. BAILEY. Well, Mr. Horton, we recognize the fact that the Government as a contracting party is bound by the terms of the contract. Ordinarily, if an agreement is reached with full understanding by both of the parties, these agreements are binding on the Government. However, as pointed out in the Department of Defense policy, if the Government has been overcharged or has not been paid enough money, and in good conscience and equity the contractor should not retain this amount of money, there would appear to be no bar to asking the contractor for a voluntary refund. I think that by looking at the number of reports we have submitted and the number of cases where the Department of Defense have agreed with our findings, it would indicate that we both have the same general ideas along these lines, although there are instances where there have been disagreements between us and the Department of Defense with respect to whether or not in a particular situation a contractor should be asked for a voluntary refund.

TIMELAG OF AUDIT REPORTS

Mr. HORTON. One question that came out yesterday, or one general area concerned was the receipt of reports substantially after the contract had been entered into and performance had been effected. Mr. BAILEY. Yes.

Mr. HORTON. Would you have some comment with regard to that? Mr. BAILEY. Yes, sir. I think one thing that was not brought out yesterday in the case of one of the contracts discussed, the Lane case, where it was mentioned that our question was raised some 5 years after the contract was let and some 2 years after the work was completed, was the fact that final payment had not been made under the contract at the time we raised our question. The contractor had not received all of the payment called for by the contract, so the contract was still an open contract at the time we raised our questions.

I think it is also pertinent to observe that our audits are postaudits; that is, they are made after action or payment by the agency.

Naturally, our audit is going to lag where a contract is let, the work is performed by the contractors, some payment is made-sometimes all of the payment is made before we make our postaudit-we are required by law to make a postaudit. We do not make preaudits.

Mr. HORTON. The thing that concerns me is the completion of the contract and the right to the moneys by the contractor from the agency involved without a firm basis on which he can rely that the contract will not be opened up again by a report subsequent to the performance of the contract.

Now, do you have many instances in which GAO submits these reports subsequent to performance and subsequent to payment?

Mr. BAILEY. I think in most cases our reports are subsequent to performance and subsequent to payment.

Mr. HORTON. Well, I am more interested in the time, the time element.

Mr. BAILEY. Many of these

Mr. HORTON. Excuse me, let me ask the question.

Mr. BAILEY. Yes, sir.

Mr. HORTON. Are most of your reports made within a fairly short period of time after completion of contract and payment, or completion of performance and payment?

Mr. BAILEY. Well, under the law, Mr. Horton, the contractor's records remain available to us for 3 years after date of final payment. This is the limitation on the time period in which we have to work. We make our examinations within the period of performance of the contract or within these 3-year periods, and I would say most of our reports are issued within these periods.

Mr. HORTON. That is a limitation, is it not, on the books and records that GAO can go into, but that is not a limitation on the time in which you can report that information, is it?

Mr. BAILEY. No, sir; it is not.

Mr. HORTON. You can report it any time.

Mr. BAILEY. Yes, but we do not delay a report after we make our investigation.

Mr. HORTON. Have there been any instances in which action has been recommended after the 3-year period has expired?

Mr. BAILEY. Sir?

Mr. HORTON. Have there been any instances to your knowledge in which recommendations and reports have been issued subsequent to the expiration of the 3 years from final payment?

Mr. BAILEY. Yes, sir; there have been some. I would not be able to say how many offhand.

I might also observe, Mr. Horton, in connection with this Lane contract that I mentioned earlier, this was an advertised fixed-price contract. The reason we made an audit of it was the fact that there were substantial change orders under the contract, the prices of which were negotiated after the contract was let.

Mr. HORTON. Turning to another area, the Department of Defense indicated there was some disagreement in the pricing policy, and indicated that there was a difference between the cost-type approach and the fixed-price approach.

Would you have any comments with regard to that testimony?
Mr. BAILEY. Yes, sir.

In that respect, we do not advocate the use of cost-type contracts, in instances where it is feasible to use a fixed-price-type contract. In cases where there is little or no basis on which to negotiate a firm fixed price, we believe that another type of contract may be more acceptable. I do not think that in any of our reports will you find that we have specifically advocated the use of a cost-type contract, but we do advocate, in cases where there is considerable doubt as to what the performance of the work is going to cost, that some flexible pricing type of contract be used, such as a price redeterminable contract, a fixedprice incentive contract, or even a cost plus-incentive-fee contract. It depends on the amount of the information available with respect to what it should cost the contractor to perform the contract, as to the type of contract that can be used. This is reflected in the Armed Services Procurement Regulation in its delineation of circumstances under which specific types of contracts should be used.