"mismanagement," "excessive payments," "weaknesses in performance," and "deficiencies" in procurement practices and in bringing these to the attention of the Congress. GAO has repeatedly stated that it serves no function by reporting instances of savings, good management, underpayments, strength in performance, and efficiency. I submit that no competent auditor should consider his job complete unless he has presented the total picture of the subject matter to which his audit relates, so that mistakes or differences in judgment, both of which are human characteristics, are placed in proper perspective in relation to the total job which has been accomplished.

Many witnesses have cited examples of instances in which GAO has expanded its role far beyond that originally conceived and in which it has released unfair and irresponsible comment on the procurement activities of the executive agencies of the Government. I would like to add a few observations of my own in this regard.

To return specifically to our Denver division operation, we have had GAO auditors in residence at Denver constantly since the first quarter of 1963. While the number has varied considerably from time to time, we had, as an example, a total of 13 GAO representatives assigned to various analyses during the period from March through September of 1964, with an average of 8 investigators at any given time. During that same period the Air Force had its own audit staff of 14 people at the Denver plant, in addition to which there was a large staff of Air Force representatives assigned to the surveillance of other functions such as production, quality, and contract administration. In our past experience, we have come to expect GAO, when it conducts an audit, to describe to us the subject matter of the audit and to outline a plan of conduct. In this case, however, no such organized approach was apparent. Rather, it appears that GAO has merely been exploring our activities in general. So far as we are informed, the results have been limited to after the fact judgments of the GAO taking issue with the judgments made by us and the responsible procurement personnel that were of necessity based on the facts known at the time decisions were made. In connection with the GAO activities at Denver, the Comptroller General wrote to me in June 1964 alleging that he had been improperly denied access to records. In this letter he took the position that virtually all papers in the Denver division were proper subjects of his inspection without regard to the statutory and contractual language that restricts the right of inspection to those records that directly pertain to and involve transactions relating to the contract. For example, he demanded that all internal audits and supporting work papers be turned over to this representatives and that all financial statements, even though designed solely for use by management, should be turned over to the GAO. The demand concluded with the statement that if the matter was not satisfactorily resolved his office would "have no alternative but to pursue, with the heads of the applicable contracting agencies, all available measures relating to the expenditure of Government funds, which should be taken to assure your compliance with the terms of your contracts." Frankly, we interpreted this as a threat to withhold payments on our legitimate invoices unless we acceded to the Comptroller General's interpretation of his rights, with which we disagreed. Nevertheless, we were compelled to refuse access to purely internal management papers which had no direct relationship to any particular contract and the confidentiality of which was essential to effective management of the Denver division.

We invite your attention to the testimony of the Comptroller General before the Subcommittee for Special Investigations of the House Committee on Armed Services on July 21, 1964, as follows:

We

"Another example of costs for outings involves an annual crab feast held by the Martin Co., Denver, Colo., for invited supervisors of the company. found that during 1963 Martin had flown crabs costing $1,800 from Baltimore, Md., to Denver in a company aircraft. The cost of the round trip for Martin's DC-6 aircraft stationed at Denver totaled about $5,600. The entire cost of the crab feast, including the air flight, was almost $12,000."

The Denver division was built around a nucleus of several hundred supervisory people transferred along with their families from our Baltimore division, which, as you know, is located on the Chesapeake Bay. In the early stages of the Titan program, we had several thousand people in the Baltimore division engaged in making critical components of the Titan system. We also operated a DC-6 airplane in support of the Titan program at the direction of the Air Force, and on September 12, 1963, this airplane had to make a trip to

Baltimore to obtain some of these components which were urgently needed on the Titan program. On the return flight, the airplane not being loaded to capacity, a quantity of Chesapeake Bay crabs was taken back to Denver where supervisory people were treated to a "crab feast." Neither the Comptroller General nor any of his staff discussed the subject matter of his testimony with Martin management in advance, which may account for the fact that his testimony completely ignores the basic purpose of the aircraft's flight.

The other reports reflecting audit of the Denver operation are at the moment in draft form and have been submitted by the Comptroller General on a confidential basis. I am, therefore, not at liberty to discuss them in detail. I can only say that they involve honest differences in judgment and that even on the basis of hindsight we do not concur in them.

We have another report to which I would like to direct the committee's attention. This is Report No. B-146762, dated February 18, 1964, titled "Unclassified Summary of Findings in Classified Report on Development, Procurement, and Deployment of an Unsatisfactory Missile System." We are very familiar with the missile system in question since we built it, although we did not create the basic design. The primary criticism is aimed at the Army for procuring and continuing to procure a system that the GAO did not consider useful in the defense of the country. The report at the outset states:

"The system is an unsatisfactory weapon because of (1) its unreliable accuracy and (2) serious tactical problems in its use, such as unusually stringent maintenance requirements, and a high degree of susceptibilty to electronic interference." The report was published and made available to the press and the public. The title of the report was such that the resulting newspaper headlines were what might have been expected. However, most important to my mind is the attempt by the GAO firstly to pass after the fact upon judgments of professional military men, and secondly, to do so without knowledge or understanding of the world military situation and the contribution that the system in question made to our military posture at the time.

In summary, I repeat my belief that an independent audit activity of the expenditure of public funds in the Defense Establishment is necessary. At the same time, I believe that the agency charged with that responsibility has extended the scope of its activity far beyond that which is appropriate to an auditor and has rather attempted to substitute its judgment for that of the responsible executive agency in connection with detailed day-to-day management decisions. I further believe that it has unfairly taken isolated cases out of context and publicized them to the detriment of responsible Government and corporate management associated with an activity vital to the country's security. I believe that most of these criticisms would disappear if the General Accounting Office pursued the fol lowing basic principles in support of congressional surveillance of executive agencies:

(1) All cases of fraud should obviously be pursued vigorously, subject only to the restraints properly imposed by our laws for the protection of those accused of crime.

(2) The primary audit function of GAO should be directed toward the executive agencies' activities, recognizing that those agencies in turn impose their own controls over contractors by means of audit, small business programs, procurement surveillance, quality control, program and contractor evaluation, etc.

(3) GAO's right of access to the records of contractors, which has been properly limited by statute to those directly pertinent to specific contracts, should be used as a means of identification of problems and verification of the audit of the executive agencies.

(4) As is true of audits of corporations by independent accountants, audits should be selective but when made should take into account and recognize total program activity, not concentrating solely on those things which are judged to be weaknesses but objectively examining total performance.

(5) The scope of activities which should be reviewed (financial matters, quality, performance, etc.) is one for Congress to decide but, in any event, it should be conducted by people who are trained in the particular field of inquiry. By this I mean people trained in accounting are not necessarily equipped to judge military or engineering decisions nor do they in many cases have the perspective to make management judgments which take into account considerations outside of but equally as important as the immediate

dollars-and-cents result. By the same token, experts in engineering or other fields are not likely to be equipped to make financial judgments.

(6) Recognize that in the process of using hindsight, which after all is inevitable in an audit function, judgments, particularly as related to subjective decisions of the past, often can be made unerringly when they no longer count.

Sincerely yours,

Hon. CHET HOLIFIELD,

GEORGE M. BUNKER, President.

FORD MOTOR CO.,

Dearborn, Mich., June 18, 1965.

Chairman, Subcommittee on Military Operations,
Committee on Government Operations,

House of Representatives, Washington, D.C.

DEAR MR. CHAIRMAN: Since learning that two of the General Accounting Office reports, among those selected for review in connection with the hearings in which you are currently engaged, involve Ford Motor Co., we have followed the committee hearings with interest.

With respect to Report No. 146793 concerning the welding equipment used in production of M-151 vehicles, we stated in November 1963, in our reply to the GAO draft report that we were confident that the matter would be settled to the entire satisfaction of the Government and ourselves. Since the matter was disposed of as we had anticipated, it does not seem that further comment at this time concerning the report itself would serve any useful purpose, however, much we disagree with the Comptroller General's conclusion that the cost of the equipment was an improper charge to the contract. From a reading of a transcript of the hearing, however, one might infer that the Army was pressed to make an early and improvident decision to accept unwanted property under threat by Ford to assess storage charges; and as to this, we believe that the record requires clarification.

Our price proposal (which included the cost of the welding equipment) and a list of the equipment itself were submitted to the Army in November 1962; shipping orders by which the Government accepted the equipment were received in March 1963. It is true that during this 4-month period we repeatedly asked the Government for disposition instructions, as we were constantly being urged by our subcontractor to remove the equipment from its plant; but in view of the 4 months' interval we cannot agree that an atmosphere of urgency prevailed which precipitated an immediate and ill-considered decision as implied. Accordingly, we offer this information to correct whatever erroneous impression the record might otherwise present in this regard.

With respect to the school bus report, No. B-146829, because the Army has stated that it has the matter under further consideration we do not think it appropriate for us to comment upon it at this time except to point out that (1) the buses were inspected and accepted by the Government, (2) they were not defective, and we are insubstantial disagreement with the findings and conclusions of the GAO report in this respect, and (3) although the comparative listing of GAO reports and amounts involved, which the Army submitted to the subcommittee, alleges $167,000 as being due the Government in Report No. B-146829, only about $37,000 of this amount is concerned with the school bus contract; and in view of the Army's statement to the committee concerning its continuing investigation of the matter, we do not understand that the Army agrees that even the latter amount is owing.

We request that this letter be included in the record of the hearings.

Very truly yours,

FRED G. SECREST, Vice President-Controller.

COMPTROLLER GENERAL REPORTS TO CONGRESS ON AUDITS OF DEFENSE CONTRACTS

THURSDAY, JULY 8, 1965

HOUSE OF REPRESENTATIVES,

MILITARY OPERATIONS SUBCOMMITTEE

OF THE COMMITTEE ON GOVERNMENT OPERATIONS,

Washington, D.C.

The subcommittee met, pursuant to recess, at 10 a.m., in room 2247, Rayburn Office Building, Hon. Chet Holifield (chairman of the subcommittee) presiding.

Present: Representatives Chet Holifield, William S. Moorhead, and Howard H. Callaway.

Also present: Herbert Roback, staff administrator; Douglas Dahlin, attorney; Paul Ridgely and Robert J. McElroy, investigators. Mr. HOLIFIELD. The subcommittee will be in order.

Since our last public hearing we have been advised of the Comptroller General's decision to retire for health reasons. As most persons here know, we postponed our final hearings several times in courtesy to the Comptroller General, in the hope that he would make a speedy recovery and be able to return to his duties. I would now like to read a statement I placed in yesterday's Congressional Record relating to the retirement of Mr. Campbell. I read it because I believe that this should be in this record to show this chairman's attitude toward both Mr. Campbell and the investigation we are holding.

Mr. Speaker, the Honorable Joseph Campbell, Comptroller General of the United States, will retire from that position on July 31, 1965, after more than 10 years of continuous service. I deeply regret that the state of his health will not permit him to continue as Comptroller General for the statutory term of 15 years. As you know, Mr. Speaker, the Committee on Government Operations, of which I am a member, works very closely with the General Accounting Office, which is an arm of the Congress. By rule of the House, our committee receives and evaluates the audit reports of the Comptroller General. We monitor agency responses to the Comptroller General's reports, hold hearings on occasion, and take such other action as is appropriate in connection with these reports.

Recently, Mr. Campbell appeared before the Military Operations Subcommittee, of which I am chairman, to present testimony on contract audit procedures and problems in defense and related fields. Some of the General Ac counting Office audit procedures, as they have developed through the years, have engendered criticism in the Government agencies with large procurement responsibilities, such as the Department of Defense, the National Aeronautics and Space Administration, and the Atomic Energy Commission; and among the defense contractors who have been the subject of General Accounting Office reports on one or another aspect of their activities. These criticisms were so persistent and widespread that our committee believed it was time to hold a hearing and provide a public forum for full and frank discussion of these problems.

The Comptroller General and his staff have been very cooperative in these hearings, and I deeply regret that Mr. Campbell was not able to complete his