the General Accounting Office would do the kind of independent auditing which the outside auditors do in private business.

Senator Flanders. We have not brought up that matter before in these discussion as to the extent to which the internal auditing and the General Accounting Office duplicate their work or what the relation should be—I do not know how thoroughly the GAO goes into an audit. I have been told that they audit the smallest post office in the State of Vermont, which seems quite an undertaking.

Mr. Schneider. I think that is the type of auditing they have done in the past, but I think they now say thev would do this other type of auditing if adequate internal audit was being performed, and in this way make an outside independent audit of the Defense Department on the same basis that some accounting firm would do it, reviewing the practices and saying what they think the situation is.

Senator Flanders. Throughout your report there is an cnphasis on the lack of sufficient qualified comptroller personnel in the Defense Department. How is that going to be remedied?

Mr. Schneider. I think it can be remedied partly by trying to find more people and hire them, but I think an effort also should be made to train some people who show an aptitude for that thing.

Senator Flanders. Do you feel disposed to have the services themselves train their own people—to take them from the armed services and perhaps send them to Harvard Business School or somewhere else for a year or so?

Mr. Schneider. I say get them from wherever you can. If you can pick up some from private industry, get them there. If j^ou can send some of your own people out who have knowledge and inclination, do that. The situation is similar to that existing with regard to scientific personnel—where there is a big shortage. The Department of Defense should try to get its fair share of the existing supply in the first place and then ought to try to train more of this kind of personnel.

Senator Flanders. Are there any recommendations you can make as to the other major defects you have discovered?

Mr. Schneider. I think if you get the organization set up right and if you invigorate these people and keep after them, the solution will come along. I think this thing is where it is going to go over the hill in a year or so. I think the hardest work has been done.

Senator Flanders. What about the legislation itself? Does it need amendment?

Mr. Schneider. I would amend it so that the comptrollers, so-called, or financial managers, have the positions of Assistant Secretaries with full-time jobs as comptrollers and report only to the Secretaries.

Senator Flanders. Those in authority in the Department of Defense, all with one accord, expressed hearty approval of title IV. But in spite of this, the actual installation in practice of title IV has fallen far short of completeness. How do you reconcile those two things? Has there really been sufficient effort in installing title IV, or has it just been given lip service over I lie punt 4 years.

Mr. Schneider. I think there has l>ee.n a good deal of resistance to it in places.

Senator Flanders. Not necessarily at the top?

Mr. Schneider. Pretty close to the top.

Senator Flanders. We will not ask you to be specific,

Mr. Schneider. I also think the civilian Secretaries should take more interest in this part of their duties, which is one of their most important duties—budget, finance, and so forth—and one of the things they are most qualified to do.

I have been a little bit alarmed at your coming back to me about the contents of this report that Mr. Burgess and I prepared. I sent a draft copy over to Mr. Eberstadt for his comments this summer and he sent me back a polite word—I had a ruptured appendix at the time—saying "If you read all of that report, it amply accounts for your condition."

Senator Flanders. Thank you, Mr. Schneider. We are expecting Secretary Stevens at 3 o'clock, and I see that he is here.

Mr. Secretary, will you take Mr. Schneider's place? I will present for the record certain biographical data with relation to you, Mr. Stevens.

(The document referred to is as follows:)

Robert T. Stevens, Secretary Of The Army

Born in Fanwood, N. J., July 31, 1899; graduated from Phillips Academy, Andover, Mass., 1917; Yale University, B. A., 1921; Administrative Representative in the Industry Section of the National Recovery Administration, 1933; Head of the Textile Section, National Defense Advisory Commission, 1940; District Coordinator of Defense Contract Service, Office of Production Management for the New York area, 1941; class B director, Federal Reserve Bank of New York, 1934-42; class C director and chairman, 1948-52; Chairman, Business Advisory Council, United States Department of Commerce, 1951-52; formerly chairman of the board of J. P. Stevens & Co., Inc., and member of the boards of directors of several other corporations; director of the Association of Cotton Textile Merchants; formerly trustee of the Mutual Life Insurance Co. of New York, Roosevelt Hospital of New York, and the Rockefeller Foundation; formerly member of the visiting committee to the Harvard Graduate School of Business Administration, and of the Root-Tilden scholarship committee of the New York University School of Law; appointed civilian aid to the Secretary of the Army, 1951: Secretary of the Army, February 4,1953.

Senator Flanders. Secretary Stevens, through his association at the top-management level with numerous American industrial organizations, is regarded and respected as an authority on management matters. Like Secretary Wilson, Secretary Anderson, and Secretary Talbott, he has had an opportunity to observe title IV in action but for a fractional period of its life, but I am sure that in that brief period he has gained knowledge of it and opinions regarding it in which the committee is very much interested.

Secretary Stevens' military experience in the Procurement Division of the Office of the Quartermaster General during World War II exposed him at shirtsleeves level with some of the problems into which we are inquiring. We feel confident that he will be able to assist us to a great extent in determining the status of title IV in his Department at this time.

Do you have a prepared statement?

Secretary Stevens. No, sir; I do not, Senator Flanders.

Senator Flanders. Then unless you wish to make some preliminary statement

STATEMENT OF THE HONORABLE ROBERT T. STEVENS, SECRETARY OF THE ARMY, ACCOMPANIED BY IT. GEN. G. H. DECKER, COMPTROLLER OF THE ARMY, AND LEONARD W. HOELSCHER, DEPUTY COMPTROLLER OF THE ARMY

Secretary Stevens. I thought I might make a short preliminary statement, if that is all right. First of all, I would like to thank you, sir, for the opportunity of appearing here, because I am very interested in'title IV, which has been on the books for some time, and I am very much interested in trying to implement it as fully as possible, and in doing it as rapidly as possible. I am completely in accord with the objectives of title IV, and I am very happy to say that in my efforts to implement title IV, I have had excellent cooperation from the Comptroller of the Army, General Decker, and his associates.

If there is opposition to doing this job, I have not come in contact with it, Senator Flanders.

Senator Flanders. You would distinguish between opposition and difficulties?

Secretary Stevens. Yes, sir; I would. Five months ago to the day, I appeared before the subcommittee of the Senate Appropriations Committee in connection with the Army budget for fiscal 1954. In the course of my remarks there, I told the committee of a move that I was on the point of making, having to do with the installation of an adequate property accounting system in the depot system within the United States. As you know, we have had an accounting system which dealt in quantities of end items, but we have never had an adequate accounting system which dealt in dollar value, and of course the legislation indicated that we should be able to put this on a dollar basis and that is what I intended to do.

So I mentioned it to the Appropriations Committee and stated that what I proposed to do had been approved by the Bureau of the Budget and by the General Accounting Office, and everybody was quite enthusiastic about getting this project goinc. The committee, I think, was favorably impressed with the idea. We proceeded to contract with six of the leading accounting firms in the United States to take on this job of property accounting so that we could come up with figures, dollar figures, which would give our management and the Army a chance to relate its activities to turnover and other considerations which any good business manager will use.

Senator Flanders. Does this cover more or less the whole field or related to Quartermaster

Secretary Stevens. This covers the whole field, sir.

Senator Flanders. Quartermaster, Ordnance, and all the rest?

Secretary Stevens. That is right, sir. I would just like to mention in answer to that question, on the Ordnance Corps, we contracted with Peat, Marwick & Mitchell and Lybrand, Ross Bros. & Montgomery. There were two firms assigned to that job because that is about 60 percent of the dollar job and is the biggest by far. The Quartermaster Corps we assigned to Ernst & Ernst, and then the Signal Corps and Medical Corps, we grouped together and contracted to Alexander Grand & Co.

The Engineer Corps job was undertaken by Arthur Young & Co., and the Chemical Corps and Transportation Corps by Touche, Niven, Bailey & Smart

I indicated that we hoped to get this job finished in the depots of the United States within this fiscal year. It is a considerable undertaking. Of course, that is only the start because we want to carry it through to posts, camps, and stations and also to overseas theaters.

Senator Flanders. We understood from this morning's testimony that quartermaster stores, at least so far as wearing apparel is concerned, has been carried by the Air Force right through to the combat theater.

Secretary Stevens. That may be true in the Air Force.

Senator Flanders. That is my recollection as to the testimony that was given, I think, by Mr. Lovett.

Secretary Stevens. I am very hopeful that we will complete this job within the United States sooner than the end of the fiscal year, which I mentioned earlier. We feel that several of the technical services, conceivably all of them, might have this property accounting system by the first of the year.

Senator Flanders. Of course, there is more to it than the inventory itself.

Secretary Stevens. Oh, yes.

Senator Flanders. That is useless unless you establish the present value in each item, unless you take into account the receipts and the shipments.

Secretary Stevens. Correct.

Senator Flanders. So that is part of it.

Secretary Stevens. Yes, sir.

Senator Flanders. It is not just a sort of an annual inventory?

Secretary Stevens. Oh, no. This will account for every transaction affecting inventory.

Senator Flanders. This is a continuous inventory, in other words.

Secretary Stevens. That is right, sir. Incidentally, I have here a financial property accounting manual which has just been submitted by Ernst & Ernst to the Acting Quartermaster General of the Quartermaster Corps. I thought perhaps the committee might be interested in seeing this first manual that has come along. I will submit that for your information.

Tnis matter of property accounting and other phases of title IV are tied in, Mr. Chairman, in my mind, with the activities of the two committees which are currently working on the problem, and allied problems, within the Department of Defense and the Department of the Army. I am sure you know about those committees, but I would like to mention the so-called Cooper committee on fiscal organization and procedures which was set up by the Secretary of Defense several months ago in an effort to assist in the completion of the job of implementing title IV.

That committee—I would like to read just very briefly a paragraph as to what it is:

The objective of this study is to develop recommendations for an effective, simplified, and standardized fiscal and reporting system, as well as an improved organization for all financial matters, in the entire Department of Defense. It should provide managers and commanders throughout the Department of Defense with a fiscal and reporting structure which will help them achieve maximum effectiveness at all echelons in the management of defense activities.

This committee, under the chairmanship of Mr. Cooper, is an excellent committee. It is hard at work. It has a staff that is helping it. You know most of the members of it. I do not know if you have received the papers indicating the organization, the membership, and the mission of the committee, but, if you have not, I will submit that to you.

Senator Flanders. We might well receive them. They may go into the record as well.

(The documents referred to are as follows:)

Secretary of Defense—Terms of reference for the Advisory Committee on Fiscal Organization and Procedures.

An Advisory Committee on Fiscal Organization and Procedures is hereby established under authority of section 308a of the National Security Act of 1947, as amended.

It is desired that this committee conduct a thorough study of the organization, responsibilities, principles, and procedures of the Department of Defense related to fiscal and accounting matters.

The committee's work will encompass:

1. Evaluation of the effectiveness of existing procedures.

2. Expediting and refining procedures now installed or in process of installation.

3. Developing and scheduling new fiscal and accounting procedures which should be adopted.

The objective of this study is to develop recommendations for an effective, simplified, and standardized fiscal and reporting system, as well as an improved organization for all financial matters, in the entire Department of Defense. It should provide managers and commanders throughout the Department of Defense with a fiscal and reporting structure which will help them achieve maximum effectiveness at all echelons in the management of defense activities.

This study may disclose certain organizational weaknesses which should be corrected. Accordingly, it will assist in the establishment of clear-cut lines of authority and responsibility to serve as a basis for an account structure which, by being parallel with management and command channels, will make it possible for managers and commanders to exercise sound financial management and expense control.

The committee will not consider or make recommendations regarding procurement but may make recommendations regarding procedures for dealing with excess inventory accumulations, inventory turnover, and related matters.

It is desired, also, that the committee advise on the implementation of its recommendations. Such recommendations should result in the more complete realization, at an early date, of the objectives of title IV of the National Security Act in promoting economy and efficiency in the management of the defense programs. The results of the committee's efforts should also be of assistance to the President and the Congress, in carrying out their respective responsibilities in relation to defense.

These terms of reference, of necessity, are general in nature and any lack of specific directives on relevant problems is not to be construed as limiting this committee's work or judgment in the establishment of more effective procedures necessary to the efficient and economical operation of the Department of Defense.

In conducting this study, the committee is authorized to consult with or to invite as witnesses authoritative and competent persons and organizations as it may wish, within or without the Department of Defense. It may also request the services of individuals in the Department of Defense, and the pre vision of such information as it deems appropriate. Under cooperative arrangt ments, it may also request that staff assistance and information be obtained from the Bureau of the Budget, the General Accounting Office, the Department of the Treasury, and other agencies or organizations as may be appropriate.

The Office of the Secretary of Defense, with the support of the military departments, will provide offices, funds, and services as are needed in the conduct of this study. Full cooperation is assured because there is wide recognition of the Importance of the task the committee is called upon to accomplish.

There will be a continuing close working relationship between the committee and the Secretary of Defense in order that progress may be evaluated and Interim recommendations for action may be considered for implementation at the earliest practicable date.

C. B. Wilson.

August 18,1953.