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United States Senate,
Committee On Armed Services,
Preparedness Subcommittee No. 3,

Washington, D. O.

The subcommittee met, pursuant to call, at 10: 30 a. m., Senator Ralph E. Flanders (chairman) presiding.

Present: Senator Flanders.

Also present: Fred B. Rhodes, chief counsel, and F. Bradford Morse of the subcommittee staff.

Senator Flanders. The hearing will come to order. The purpose of our hearings today and tomorrow is to take stock on one of the most important dollar problems which has faced us in modern legislative history. In 1949 the Congress passed an amendment to the National Security Act which was specifically designed to bring about businesslike procedures in our defense efforts.

I will discuss the history of this amendment—title IV of the National Security Act of 1947, as amended—in more detail later.

We all have held high hopes that our legislative efforts would be adopted in day-to-day practice. To inquire into this in June of this year Senator Saltonstafl appointed our subcommittee—which secured the services of Mr. Franz Schneider and Mr. Carter Burgess—to determine just what had happened to title IV in the 4 long years since its enactment. I should like to introduce the letter by which Preparedness Subcommittee No. 3 was established.

(The document referred to is as follows:)

June 3, 1953. Hon. Ralph Flanders,

United States Senate, Washington, D. C. Deab Senator Flandeks: In accordance with the procedure approved by the full committee in executive session on February 26, 1953, I am appointing a subcommittee of 3 Senators, including yourself as Chairman, and Senators Case and Byrd as the other members, to investigate and report on the progress which has been made in the implementation of title IV of the National Security Act of 1947, as amended, and any and all other matters deemed by the subcommittee to be related thereto. Sincerely yours,

Leveeett Saltonstall, Chairman.

Senator Flanders. Messrs. Schneider and Burgess prepared a graphic report of their findings which I shall make a part of the record at a later time.

From this report, and from disquieting statements we have received, we learn that this provision of law has not been utilized to any large extent.

Our job is to inquire into the extent to which the law has been put to work since 1949 and the result of its use in terms of efficiency and economy. Let the record be clear. We do not write this off as a simple problem. We realize that the national defense is a most pressing problem. We devote tremendous amounts of our manpower and our wealth to it. We want to insure that we work efficiently, that we spend wisely; that we buy what we need and that we know what we have in our inventories. Business managers have to adhere to these rules. Our defense people must be in a position to give us the necessary guaranties of protection at the lowest cost in men and money.

Recognizing the size of the task, the Congress, in August 1949, passed title IT which Secretary McXeil described as follows:

This title really provides the machinery for placing the operations of the military services on a more businesslike basis.

No complete system was ever established—bits and pieces have been provided at times, but this is the first attempt, I think, to provide on an overall basis for businesslike operations.

The importance of the legislation was dramatically underlined by its endorsement by former President Herbert Hoover, Air. Bernard M. Baruch. Louis Johnson, Secretary of Defense at the time of the adoption of title IV, and by many other outstanding Americans,

I do not wish to burden this audience with a lengthy history of this legislation so I will insert at this point a staff paper which states the historv of this part of the 1949 amendments to the National Security Act of 1947.

(The document referred to is as follows:)

Title IV had its inception on March 29. 1949, when the Senate Armed Services Commitree discussed amendments to the National Security Act of 1947 proposed by the Hoover Commission, designated S. 1269 (81st Cong.).

Mr. Ferdinand Eberstadt, it will be recalled, testified before tthe committee as an individual but had been the Chairman of the Hoover Commission's Task Force on the National Security organization which made its report to the Commission. Approaching the conclusion of his testimony, Mr. Eberstadt was asked by Senator Byrd if it would be possible for him to prepare specific amendments in accordance with the budgetary and fiscal recommendations of the Hoover report to add to the bill then under discussion.

Mr. Eberstadt. in response to the request adopted by the Senate Armed Services Committee, submitted a committee print under date of May 4, 1949, entitled •"Proposed Amendments to S. 1269 Prepared Under the Direction of Mr. Ferdinand Elvrrsradt at the Request of the Senate Committee on Armed Services on March 29, 1949." It was later incorporated for submission to the Congress as title IV of S. 1S43 under the heading of "Promotion of Economy and Efficiency Tforouzh Establishment of Uniform Budgetary and Fiscal Procedures and Organizations."

The Senate shortly thereafter passed this bill known as S. 1843 as the National Security Act Amendments of 1949. The House had passed H. R. 5632 which was essentially the same bill without title FV. Therefore, the United States Senate on July 20, 1949. passed H. R. 5632 on motion of Senator Russell, of Georgia, and sent it to conference.

On July 29, 1949. as a result of Conference Report No. F142 agreed to by the committee on conference composed of members of both Houses of Congress, it was recommended that the conference report, which incorporated among other things title IV with minor amendments, be submitted for approval by the Congress and to accompany H R. 5632.

As a result thereof. Public Law 216 was passed by the Congress on Ausust 10. 1949. and was entitled "An act to reorganize fiscal management in the National Military Establishment to promote economy and efficiency, and for other purposes." Title IV was included as section LI within this law.

Let me now pass on to what we hope to bring out in these hearings:

1. The magnitude of the problem of implementing title IV;

2. The difficulty of bringing about the reforms it calls for and at the same time carrying on the immense routine operations of the Department of Defense;

3. The reforms which remain to be effected;

4. The savings which can be expected by the elimination of waste at which title IV is directed;

5. The organization which is required in the Department of Defense and the services to accomplish these reforms.

At this point I will place into the record the text of title IV as enacted into law as a part of the National Security Act. (The document referred to is as follows:)


Promotion Of Economy And Efficiency Through EstablishMent Of Uniform Budgetary And Fiscal Procedures And Organizations

Comptroller Of Department Of Defense

Sec. 401. (a) There is hereby established in the Department of Defense the Comptroller of the Department of Defense, who shall be one of the Assistant Secretaries of Defense.

(b) The Comptroller shall advise and assist the Secretary of Defense in performing such budgetary and fiscal functions as may be required to carry out the powers conferred upon the Secretary of Defense by this Act, including but not limited to those specified in this subsection. Subject to the authority, direction, and control of the Secretary of Defense, the Comptroller shall—

(1) supervise and direct the preparation of the budget estimates of the Department of Defense; and

(2) establish, and supervise the execution of—

(A) principles, policies, and procedures to be followed in connection with organizational and administrative matters relating to—

(i) the preparation and execution of the budgets,
(ii) fiscal, cost, operating, and capital property

(iii) progress and statistical reporting,
(iv) internal audit, and

(B) policies and procedures relating to the expenditure
and collection of funds administered by the Department
of Defense; and

(3) establish uniform terminologies, classifications, and procedures in all such matters.

Comptroller of
Department of

Military Department Budget And Fiscal OrganizationDe-
Partmental Comptrollers

Sec. 402. (a) The Secretary of each military department, subject to the authority, direction, and control of the Secretary of Defense, shall cause budgeting, accounting, progress and statistical reporting, internal audit and administrative organization structure and managerial procedures relating thereto in the department of which he is the head to be organized and conducted in a manner consistent with the operations of the Office of the Comptroller of the Department of Defense.

(b) There is hereby established in each of the three military departments a Comptroller of the Army, a Comptroller of the Navy, or a Comptroller of the Air Force, as apppropriate in the department concerned. There shall, in each military department, also be a Deputy Comptroller. Subject to the authority of the respective departmental Secretaries, the comptrollers of the mili- Duties.

Military departments, budget and fiscal organization of.






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