may be extra-legal because of the lack of the regulations authorized by section 405 (g).

Do you want to comment on that possibility, first the reasons for the deficiency and second the question as to whether extra-legal?

Secretary Wilson. Secretary McNeil is here, and if it is all right, Senator, I would like to have him speak to this particular point.

Mr. Mcneil. As to the first question, stock-fund regulations were first drafted in the months immediately following passage of the act. They require clearance with the Bureau of the Budget. At that time the stock-fund regulations as drafted were patterned after the operating experience of the naval stock fund which has been in operation since 1893, and as a rather large operation since about 1917.

To make a stock-fund principle work, it has to operate very similar to any merchandising corporation, which means they must have outstanding at any time contracts for delivery in the future, with deliveries scheduled at a rate which can be paid for with the cash they have on hand.

Senator Flanders. Sometimes you have been getting stuff a little bit faster than the funds were coming in, I think.

Mr. Mcneil. In stock funds, sir?

Senator Flanders. You have been too successful in getting deliveries early in view of the rate of the funds coming in.

Mr. Mcneil. That was true, sir, in the first 6 months operation of the Air Force stock-fund system. I am very happy to say, however, that in the last year and a half, I think the way the stock fund has operated is a pride and joy to the Department of Defense.

Senator Flanders. I apologize for my interruption. Go on.

Mr. Mcneil. The whole thing hung on the legal interpretation, the battle of the lawyers, as to whether the stock-fund legislation contained in the title IV of the Security Act permitted the placing of contracts say for a year ahead for monthly deliveries, whether you could anticipate, in other words, reimbursements from the sales in a succeeding fiscal year.

The thing dragged on for months. There were reams of paper written on the subject. We could not get it finally cleared until the closing days of the last Congress, when in the general provisions of the appropriation bill that question was cleared up once and for all, definitely providing that the merchandising corporation, which is a stock fund, does have authority to commit itself for that type of an operation. That is now cleared up.

The regulations are ready for issuance except for one thing. We have an organizational problem in the Army. If the stock-fund regulations provide for the establishment of a single merchandising corporation class of items, under Army organization principles they would have to be broken up into numerous small pockets. In other words

Senator Flanders. The same item would be in numerous pockets?

Mr. Mcneil. In numerous pockets such as overseas depots, posts, camps, and stations which I do not believe is the right principle. It is a question of how soon we can get that problem resolved. Otherwise, it is ready for issuance. It has clearance all the way around with the Bureau of the Budget.

Senator Flanders. You hope to have that point cleared up with the Army?

Mr. Mcneil,. Yes, sir. It took 2 years to get the legislation cleared.

Senator Flanders. I think you have answered the question as to the delay and also indicated that it is in process of solution.

Mr. Mcneil. I might add, Senator, that because in the whole legislative history of title IV, both when the act was written, hearings before this committee and in the House Armed Forces Committee, the whole justification and pattern was contemplated to be similar to that of the Navy. There had never been a question raised in all the history of operation of the naval stock fund whether that was the correct procedure or not. So I am pleased that the House in the last appropriation bill general provisions cleared up that point and now makes this principle workable.

Senator Flanders. On this stock-fund basis, can you tell the committee, for example, the number and value of all track motor vehicles which the Military Establishment now has? I just use that as an example.

Mr. Mcneil. So far it has not been contemplated to put capital items or items that were not strictly standard stock commercial, consumption-type items, into stock funds. It was contemplated that separate and apart from the merchandising corporation we would, however, keep such item under a property-accounting system, very similar, but there would be no cash transaction in the issue and use of them.

But to answer your question broadly, generally, the answer would be "Yes; as soon as it is installed."

In the case of the hundred-thousand-odd items now carried under the naval stock fund, that information is clear, definite, positive, and prompt, both as to item and dollar value. In the case of Air Force clothing, I believe that Mr. Lovett submitted a statement yesterday.

Senator Flanders. He gave a very encouraging report on that item.

Mr. Mcneil. To me that report from the Far East Command was one of the most encouraging that I have seen because it was additional proof that the principle was sound in a command area which was operating under combat conditions.

Senator Flanders. In asking you this question about the track motor vehicles as an example, I am reminded of a conversation with Mr. Eberstadt some weeks ago in which he said he tried to find out how many tanks the Army had and could not find out. They did not know.

Mr. Mcneil. I remember that incident, sir.

Senator Flanders. He was somewhat exasperated. He said "You can not misplace a tank. It does not drop into a crack." So that was pertinent to the particular form of this question.

But you would have some account of these, would you, under your present accounting procedure, your present accounting for property?

Mr. Mcneil. Yes. We are not perfect yet. First, in the case of the Navy, they have property accounting, both item and from a monetary standpoint for all their property. The War Department never carried property by money values in all its history, until they started subject to the passage of this act.

In the case of an item such as you are speaking of, tanks, track vehicles, those are kept on a quantity basis only. But I would say that the situation is far, far better than when Mr. Eberstadt looked into it for the Hoover Commission 4 or 5 years ago. There is no comparison between the quality of the figures then and now.

Senator Flanders. And the methods you are presently installing would give that information in items, but I take it not necessarily in dollars?

Mr. Mcneil. Not as yet in the Army and the Air Force.

Senator Flanders. Would not the maintenance and quantitative and monetary inventories as required by section 410 of title IV make this information readily available?

Mr. Mcneil. Yes, sir.

Senator Flanders. The recommendation has been made by a subcommittee of the Senate Armed Services Committee to your predecessor—I am now addressing myself to you, Mr. Wilson, because so far as my experience goes, Mr. McNeil has had no predecessor, he has always been it—a recommendation has been made by a subcommittee of the Senate Armed Services Committee to your predecessor that he consider whether the public interest would not better be served by the elimination of the separate audit agencies in the three departments and the creation of a centralized audit agency under an official responsible only to the Secretary of Defense. This idea was rejected by the Secretary of Defense at the time.

What do you think about it?

Secretary Wilson. I do not think it makes a great deal of difference. I think I would try to get functioning well whatever is going on now and accept it. In other words, an audit of the three separate services, 1 would assume would be well done, no matter who the auditor happened to report to.

In other words, if they get a technical and professional approach to the job and have pride in their work, I do not think it matters. As I say, in this area of figures, accurate figures will speak for themselves. So I think it is more important that the job be done and that it is understood they have a clear directive to do their job properly .and well.

Senator Flanders. Among other things, will the Cooper committee study the efficacy of setting up commercial and industrial facilities on a so-called industrial fund basis? Is that in their frame of reference?

Mr. Cooper. Yes, it is.

Senator Flanders. Are there commercial and industrial type facilities of the Army and Navy and Air Force which could be discontinued without being adverse to military effectiveness? Are there products and services that are provided by these facilities that could be adequately furnished by private industry at equal or lower costs? If so, would this provide expansion opportunities for private business as well as provide potential for increased revenues for the Federal Government through an expanded tax base?

We have had, as you are doubtless aware, complaints from such industries as local bakeries and local dry-cleaning establishments, who oppose the Army's setting up this type of activity.

Mr. Mcneil. Senator, may I answer the first part of that question and then the Secretary may like to comment. First, in trying to determine whether it was profitable for the Department of Defense to engage in certain of these industrial and commercial-type activities, activities that you just mentioned, there was no way to tell what the end product was costing. Only with the removal of the activity, let's say a navy yard, an arsenal, or something of that kind that had been in existence for some years from the outmoded and archaic Federal budget system as it applied to activities of this nature and the act of organizing it as a "corporation," and not giving it any appropriation subsidy but making it stand on its own feet so that its billings would produce all of the revenue it received, was there any real chance for this committee and the Secretary of Defense or Secretary of any of the services to ascertain the cost of doing a particular job, loading a round of ammunition or overhauling a ship.

With the establishment of this principle, we now can commence to get competent comparative figures. Since this principle has been established, there have been, I believe, two activities discontinued. One of them was the clothing factory in Brooklyn. When the appropriation subsidy was eliminated, the cost of operation of producing the end product was higher than could be justified and the place was closed.

But until some system of this kind is in operation, it is difficult to tell—under the regular appropriation system—what action is necessary.

Senator Flanders. Then title IV will provide the financial criteria for deciding what operations are profitable and what are not?

Mr. Mcneil. It is the only way I know of in which we can have a chance to get a comparison.

Senator Flanders. Will these operations which could be performed under contracts with industry be removed from consideration of the Cooper committee, or will they recommend that industry undertake certain of these activities?

Mr. Mcneil. I think the Cooper committee can probably contribute most by speeding the installation of systems in order that determination later can be made.

Senator Flanders. What in your opinion has been the greatest deterrent in the past years to the implementation of title IV? That is for you, Mr. Secretary.

Secretary Wilson. The size and magnitude of the job and the natural human resistance to change. I remember during the war General Campbell was in Detroit and we had a tremendous war job. He pointed out that if you had an elephant to eat, the only way to eat him was to cut him up in little pieces and eat them one at a time. That is the kind of a job this is.

It is a big elephant. To get through the whole thing and get it done, you have to take it piece by piece and you have to have a lot of of patience. There are people that worship the gods of things a3 they are—there are a considerable number of them—and there you have the problem.

Senator Flanders. My Democratic friend here on my starboard side is rather pleased by that notion of chopping up the elephant. Could you not amend that to a hippopotamus or something else?

Secretary Wilson. I had not thought about that.

Senator Flanders. Are military commanders in all echelons sufficiently impressed and educated as to their responsibility in implementing title IV?

Secretary Wilson. I do not know for sure.

Senator Flanders. When you find one, you will educate him.

Secretary Wilson. That is right.

Senator Flanders. I do not know that you can give any answer. Have you found any considerable number of identifiable individuals who are resisting?

Secretary Wilson. I have not found any active resistance to the business. It is just the inertia of things, and of course there are hundreds of thousands of officers altogether and I do not know how each one of them feels about it.

When Mr. McNeil or any of the rest of us run across one, we try to show him the true light.

Senator Flanders. Do you have any reservations about and of the machinery provided by title IV? May you be recorded as endorsing it in its entirety? You do make some exceptions concerning civilian departmental comptrollers with the rank of Assistant Secretaries.

Secretary Wilson. I think that is correct, Senator. I do think there should be provided assistant secretaries for financial management for each military department. I would never like to 100 percent endorse anything so big and complicated that should probably grow and improve with experience and the changing of the times. So I would not like to say now whether title IV was perfect in all its ramifications. I think it is a good act and was quite suitable at the time, and it is designed to serve a very useful purpose.

I know no reason, however, why any little part of it or a piece of it, even though it is relatively important, we should not bring up before the proper people and have them agree to improve it.

In other words, I never take the position that things as they are are not subject to improvement, because I think they are.

Senator Flanders. You feel that you can make a good deal of progress with it between now and the next time the Congress gets its hands on it?

Secretary Wilson. Yes, sir. And as far as I am concerned, we will try to carry it out faithfully or come up and tell the right people what changes we think should be made to improve it.

Senator Flanders. Does it repose sufficient authority in the Secretary of Defense adequately to control the fiscal affairs of the Department of Defense?

Secretary Wilson. As far as we know, it does.

Senator Flanders. If you find that it does not, in some respects, you will come back and tell us.

Secretary Wilson. That is right, sir.

Senator Flanders. That is my last question.

I thank you for your patience, your presence and wish you well.

Secretary Wilson. Thank you.

Senator Flanders. We will now adjourn. We will convene at 10: 30 tomorrow morning and continue our session with Secretary Stevens.

(Whereupon, at 4: 45 p. m. the committee adjourned to reconvene at 10: 30 a. m., November 3,1953.)