The most important thing, it seems to me, is such an examination as you are now making, taking stock of what has been accomplished under this rather simple but extremely important title in the past 4 years.

Then I think if the Secretary of Defense, the Comptroller of the Department of Defense, the 3 military Secretaries, and 3 qualified civilian comptrollers are themselves determined to put this act into effect, you will have found the most successful route for accomplishing it.

Senator Flanders. Do you think there is still a field left for the new Hoover Commission to reexamine budgetary, fiscal, and accounting practices and procedures in the Department of Defense?

Mr. Eberstadt. This Committee is making such an examination. As to whether there has been such discussion, Mr. Chairman, I would rather that the question be put to Mr. Hoover. He is the Chairman of that situation and he could answer it better than I.

Senator Flanders. On that basis, sir, we will excuse you. You have clarified the original intentions, and from your point of view, the current results of this title IV, and your testimony has been very useful. Thank you for being here.

Mr. Eberstadt. Thank you, Mr. Chairman.

Senator Flanders. Mr. Lovett, will you take the chair? We have, sir, a biography of you which we will put in the record if it meets with your approval.

(The document referred to is as follows:)

Robert A. Lovett

Banker, born September 14, 1895, Huntsville, Tex.; graduated from Yale University with B. A., 1918; partner. Brown Bros., Harriman & Co., 1926; special assistant to the Secretary of War, December 1940 to April 1941; Assistant Secretary of War for Air, April 1941 to December 1945; Under Secretary of State, July 1947 to January 1949; Deputy Secretary of Defense, October 4, 1950, to September 17, 1951; Secretary of Defense, September 17, 1951, to January 20, 1953.

Senator Flanders. Former Secretary of Defense Robert A. Lovett has consented to give the committee the benefit of the knowledge of title IV implementation which he acquired in the 28 months which he spent at the top level of the Department of Defense, 12 months as Deputy Secretary, and 16 months as Secretary, until his resignation on January 20,1953.

His service permitted him to follow all except the first year's work in the implementation of title IV, and I am sure we will gain much from his testimony. We are grateful to you, Mr. Lovett, for taking time out of your busy life to come to Washington to assist us. I understand you have no prepared testimony.

TESTIMONY OF HON. ROBERT A. LOVETT

Mr. Lovett. I have no prepared testimony, Mr. Chairman.

Senator Flanders. During your service as Deputy Secretary and Secretary of the Department of Defense, were there occasions when you believed that financial and statistical information furnished to you was not reliable, and if so, can you give any examples?

Mr. Lovett. Yes, Mr. Chairman, I can. Perhaps a little background may make this clearer.

Senator Flanders. Proceed as you please.

Mr. Lovett. In the first place, I do not believe a Secretary of Defense or the Secretary of any other department of the executive agencies can operate successfully without facts. The only way that I know of that he can get facts in the military establishments is through some sort of comptroller function, because his direction, authority, and control must be exercised largely, in my opinion, in that field.

The accounting systems in the departments differ in many respects, and they have grown up over a long period of years—in the case of the Army over a century. The organization of the three departments differ. Their controls differ. The only thing in which I think that they are similar is in the perhaps understandable reluctance to give up the known for the unknown.

I think that the Secretary of Defense has a special necessity for the establishment of facts which he can rely on—that is, almost "audited facts." He cannot operate successfully without them, and it is an even greater need, I think, in the case of the military departments and their Secretaries. He cannot operate unless he knows where he stands today—he does not know what he can do and he does not know what he needs unless he knows what his position is today.

I emphasize this because inventory, in my opinion, is at the base of successful operation of the military departments and knowledge of inventory, knowledge of what you have, is a prime requisite. Based on that, you can then expand it into what is needed in a variety of circumstances.

So I would say that the facts are the most important essential. And on the basis of those facts, the Secretary has a chance of making a judgment between alternate courses which may be and most frequently are proposed to him.

He must have an inventory. The only way that I know of that he can get that and have it adequately expressed is by a combination of physical inventory and financial statements; that is, a dollar price tag on many of the items.

The only system that I know of that will provide that with any reasonable hope of accuracy is the performance budget, and particularly the outline set forth in title IV. All this is by way of background in saying that I believe that title IV is the most hopeful form of control which the Secretary of Defense can get. I think it is possible, I think it is absolutely essential. I think this committee's report of July 28, 1953, is an excellent statement of the situation today, the faults which lie in it and in the main part, the corrective steps which, if taken, would improve it.

I agree with the conclusions for the most part. There is one word in there—and this may be simply a matter of semantics—the word "comptroller" which, depending on the definition, would cause me to depart a little bit from the recommendations made in the report. I will come to that later, if you wish.

Senator Flanders. I will bring up the question of the functions of the comptroller, then, a little bit later in questioning you. What were the specific examples of lack of desirable knowledge on your part as to inventory—I say this because you have stated that the matter of inventories is a controlling necessity for proper performance of the duty of Secretary of one of the divisions of the Defense Department or of" the Secretary of Defense himself.

Mr. Lovett. That is correct, Mr. Chairman. I think that is absolutely essential.

Senator Flanders. What deficiencies in getting accurate inventories existed? Were they general or was it only in certain areas that you lacked the necessary information?

Mr. Lovett. I am sorry to say, sir, that it was fairly general. But the Navy, having started in on a program of working capital funds some years previously, was in better shape on more different types of items, particularly those of common issue, than the other two services. The Army Technical Service organization made it extremely difficult to obtain accurate figures, and virtually impossible to obtain adequate control, because a single depot, for example, might receive its funds from 50 or 100 sources—although the appropriation had been allocated in one amount.

Senator Flanders. In that report to which you referred, there are certain diagrams which show scores or hundreds of lines crisscrossing each other. That would be the result of such procedures, as a result of which you found it difficult to get a budgetary or other proper report from a department.

Mr. Lovett. That is correct, Mr. Chairman. You asked earlier for a specific case. I think the Quartermaster General is a good case. His authority does not run to posts, camps, and stations. He may have authority over a depot of his own.

Senator Flanders. But when equipment and supplies go out of the depot to the post, camp, or station, he knows nothing about it?

Mr. Lovett. That is right, sir.

Senator Flanders. He does not know even whether he ought to issue anything to the post, camp, or station?

Mr. Lovett. That is correct, sir.

Senator Flanders. He does not know but that they may be oversupplied at the moment?

Mr. Lovett. It has to come through a line to get back to him. I think the easiest way to answer it, Mr. Chairman, is the system isv/holly inadequate, and in my opinion unworkable.

Senator Flanders. It has been reported that considerable resistance on the part of the military to title IV was attributable to a fear that the legislation would effect changes in the organizational and command structures of the military branches. Would your experience support this report? I would like to have you go into that just as far as you think would be useful.

Mr. Lovett. Yes, sir; my experience would support that report. I believe that the problem basically here in the military is, of course,. the resistance of the technical services and the General Staff to change. It is an unfortunate but very human failing. Furthermore, there is always the dislike of what they may feel is an invasion of some authority or privilege which they currently have, and the removal of that would cause them distress.

There has been, I believe, a mental block, a psychological difficulty, in some of these services in accepting title IV. Yet, like so many generalizations, it would be unfair to apply that through all the services or through all the branches of the services. I think the easiest way to explain this situation perhaps is to give you a case in point with which I was associated and with which I am familiar. The Department was kind enough to let me have copies of this particular instance in the hope that it would be better than a lengthy explanation.

I am talking now of the Air Force clothing fund which is a workingcapital fund—Air Force-wide, even operating in the combat theaters.

The great resistance of the military departments in general has been the idea that an element of command is essentially that of supplying the theater, so that under the Army system there is a break between the Zone of the Interior in a single depot sense, and the theater, area, corps, or even division. Starting in the latter part of 1950, we proposed to put in a stock fund for Air Force clothing. There was a great deal of resistance to it, particularly when the suggestion was made that it be Air Force-wide. That is, it would embrace overseas operations as well as internal operations.

However, they were prepared to try it. And the Assistant Secretary for Defense (Comptroller) got crews together to make the initial setup of accounts.

I must point out here, I think, Mr. Chairman, that this is one of the most difficult parts of the enterprise because unlike business experience, where if you buy a company it usually is following an audit and you have books of accounts to start from, in this case there is nothing. You do not know what the inventory is. You are not sure what the rate of issue is. You are not sure what the rate of consumption is.

The clothing stock fund was instituted Air Force-wide, and it operated, I think, with rather startling proof of the desirability and the wisdom of title IV. I have these figures, and I will read you the salient ones, try to interpret them for you, sir, and then provide this to you if you wish to have it as a part of the record.

Senator Flanders. Thank you.

Mr. Lovett. In the first financial statement of the Clothing Division of the Air Force stock fund, which was submitted on December 31, 1951, they showed cash on hand of $15.5 million. I will round these figures out. It shows inventory of $386.2 million of stock on hand.

Senator Flanders. That is overseas or wherever?

Mr. Lovett. This is total, Air Force-wide.

Senator Flanders. Whether it is headquarters or in the field?

Mr. Lovett. That is right. At that time, as I recall it, the Air Force thought that their sales or consumption would be about $210 million worth a year. At the time this came out they had plans for purchasing approximately $400 million more. When we got these figures, of course, that was canceled out—the $400 million.

The latest report which was conveniently available on the same basis,, using simply the cash item and the stock inventory, was $82.2 million on May 31, 1952, of cash, and $271.2 million of inventory, and their actual sales in 1953 were about $60 million, as compared with the estimated

Senator Flanders. They only drew $60 million on the $271 million?

Mr. Lovett. Yes, sir.

Senator Flanders. And they had been talking in terms of a $20O million annual requirement?

Mr. Lovett. It was an estimate of what they would require. Now, to show the effect of this—and I think that is a very good example—

Mr. Eberstadt. I do not think that the qualifications are well specified in the statute. I think that the duties of the Comptroller of the Department are well specified. The statute provides that there shall be a comptroller in each of the three military departments, but the duties and qualifications of such comptrollers are not specified.

Such comptrollers can be civilians of experience or they can be military people. The statement which you read from the 1949 testimony I think experience has tended to bear out. I believe that we would have made more progress toward the accomplishments contemplated under title IV had the three military comptrollers been qualified civilians with responsibility only to their Secretaries, instead of this rather vague and confusing thing called concurrent responsibility.

Senator Flanders. Now that leads to the question as to how far down in the military organizations you would carry the idea of civilian comptrollers. Would you carry it just down to the Army, Navy, and Air Force comptrollership, or would he have under him other civilians going down through the organization and its separate branches?

Mr. Eberstadt. Mr. Chairman, I would not in the law specify the need for civilians or military people below, let us say, the rank of Deputy Comptroller. I think the law would be getting into management if it did that. If the law provides that the Comptroller and the Deputy Comptroller shall be civilians, it is sufficiently clear and. definite to fix responsibility.

Senator Flanders. You do definitely feel that joint responsibility to a civilian and to a military superior is unworkable?

Mr. Eberstadt. I think so. I thought so then and I have seen nothing since that has made me change my mind.

Senator Flanders. Does or does that not lead to an interference or a change in the command structure of the services?

Mr. Eberstadt. I do not think it has any relation whatsoever to the command structures. I think that the fiscal and accounting aspects and budgetary aspects meet the command aspects at the desk of the Secretary. If these comptrollers I am speaking of were civilians responsible only to the Secretary, their work would be done in accordance with the rules and regulations that the Secretary lava down, whereas I fear that in those departments where there has been concurrent responsibility, it has not been because the budgetary aspects have interfered with the command structure. The command structure has interfered with the budgetary aspects.

Senator Flanders. Supposing comptrollership was a civilian function down to and including the Deputy Comptrollers in the services, can you conceive of any way in which they could interfere with the command structure?

Mr. Eberstadt. It would be very unlikely; very unlikely.

Senator Flanders. You feel if they should, the responsibility for that would be up to the Secretary of Defense?

Mr. Eberstadt. Yes. They are his deputies. But I emphasize my feeling expressed in 1949 that it is impossible for a comptroller to accomplish his functions if he has concurrent responsibility to the Chief of Staff and General Staff on the one hand, and to an Assistant Secretary or Under Secretary on the other. It cannot be done.