Mr. WHEELER. This is right, sir. I think I must tell you that I do not think these technological advances would have occurred if we had written the contracts any differently than what we wrote them, that the incentive for the technological advances was provided for in our contracts.

Mr. BROOKS. It was cold cash.

Mr. WHEELER. We paid them for it.

TERMINATION PROVISION IN HELIUM CONTRACTS

Mr. BROOKS. One other thing I wanted to point out: I understand those contracts provide for the GAO to audit those books. I think it is going to be very gratifying as the years go down to see how much money this is costing us that we could have saved. Probably every year you could have another audit and show how bad that contract was because it will probably look worse as we go along.

As I understand the termination clause of these contracts provides, contrary to what I understood your answer to be, that if they do not produce helium, they do get the cost of the plant back?

Mr. WHEELER. No, sir.

Mr. BROOKS. There is no provision whatsoever?

Mr. WHEELER. No, sir.

Mr. BROOKS. What are the termination provisions?

Mr. WHEELER. The companies can terminate these contracts only if they are unable to produce the helium because of things that are beyond their control, other than the gas supply, such as if the Federal Power Commission or some other Government agency or some court should make a ruling which would make it impossible for the companies to carry out their commitments.

Mr. BROOKS. What are the provisions of that termination, if they are terminated under such proviso?

Mr. WHEELER. If they are terminated under such provision we are required

Mr. BROOKS. You are required?

Mr. WHEELER. First the company has an opportunity to keep the plant. We would not pay them anything but if they should not wish to do so, then we would be obligated to buy them and we wrote this into these contracts very deliberately because if these companies cannot recover the helium for some reason beyond their control, we want the plants.

Mr. BROOKS. Why do you want them?

Mr. WHEELER. We want the plants because we can avoid these things that would stop the company and use the plant to operate it as a Government facility to extract the helium.

Mr. BROOKS. This would also put them in the position of where if they do not produce helium and make money out of it you take the plant back, or as you put it first, have an opportunity to repurchase it? Mr. WHEELER. They cannot void this contract because they do not make money.

PROFITS OF HELIUM COMPANIES

Mr. BROOKS. But if they do not produce helium? Is it conceded if they do produce helium in these amounts and get paid for it in accordance with the amounts on the agreement, that they will make money?

SURVEY OF SELECTED ACTIVITIES

Mr. WHEELER. I hope so, sir.

Mr. BROOKS. Didn't you estimate that? We are for them making a reasonable and fair profit.

Mr. WHEELER. Yes, sir.

Mr. BROOKS. Didn't you figure in the cost of the plant and the maintenance, operation, et cetera, and the profits and so if they produce helium you and they both anticipate that they would make a reasonable profit?

Mr. WHEELER. Yes, sir.

Mr. BROOKS. Then if they produce helium they will make a profit? Mr. WHEELER. If they produce helium under the circumstances that we assumed, they will make a profit.

Mr. BROOKS. That is right. You anticipate that they would?
Mr. WHEELER. Yes, sir.

Mr. BROOKS. If they do not do that, their alternative is that the Government then will repurchase the plant?

Mr. WHEELER. No, sir. They have an obligation to operate these plants, to extract the helium and deliver it to us at a price stipulated in these contracts whether or not they make any profit, and regardless of how much profit they make on the other hand. It goes in both directions.

Mr. BROOKS. It looks like it is going in that direction right now, does it not?

Mr. WHEELER. I am not sure of that, sir. I do not think anybody will know for at least 10 years. I do not think you can look

Mr. BROOKS. For 10 years to get cost estimates on operating a plant like that?

Mr. WHEELER. No, sir. You can do it every year, but the gas supply available to these plants will decline over a period of time as gas supplies from gasfields do. Pressure and volume goes down.

Mr. BROOKS. This is calculated to the nth degree by the people that own gas reserves all over this country. You do not doubt they are going to have enough gas to run it long enough to amortize the plants, do you?

It is the same question I asked you a minute ago and you said you really didn't know.

Mr. WHEELER. I think you have to understand that we are talking about a particular gas supply. We are not just talking about gas. I do not think there is any question that gas companies will have enough gas to meet the fuel needs of their consumers because if they do not get gas from one place, they can get gas from another, but here we are talking about

Mr. BROOKS. I mean a given reservoir that they are estimating in a given area. They build the plants near them. They have pipelines in and out of them.

Mr. WHEELER. I think the gas is there.

Mr. BROOKS. You do not doubt that, do you?

Mr. WHEELER. No, sir, but I do not know at what rate the gas will be produced over a 22-year period.

Mr. BROOKS. The rate they pump it out and release it.

Mr. WHEELER. But it has to come out of there at the rate that was estimated or the company will not make the profits that we estimated. they would make.

If it comes out a a greater or lesser rate, the profit will be different and neither the companies nor we know at what rate this gas is going to

come out.

Mr. BROOKS. With all these doubts that you seem to have about what the pressure is going to be, whether they will ever get enough gas out of there, you would think that if not to protect the American public and the Government, to protect the private businessman, you would have had a redetermination clause in a 22-year contract. Doesn't it seem reasonable? It is not a one-way street. You do not want to have them producing gas and losing their shirts. Neither do you want them profiteering at the expense of a need the Government has for helium.

Mr. WHEELER. I think it probably would have been more to their advantage than to ours.

Mr. BROOKS. It would have been a better, fairer way to handle it. Mr. WHEELER. Yes, sir; but I was making the contract from the standpoint of the Government, not the standpoint of the company. They had adequate legal advice to protect themselves.

Mr. BROOKS. They sure did and when the GAO finishes auditing their profits on these contracts, we will find out who was protected the most, and apparently from the testimony the new technological improvements that we are underwriting, and to some extent paying for, are going to result in lower costs and better operating efficiency for those companies.

Their profits are probably going to be up. In other words, the net cost is going to be down because you already say that we are going to get better contracts on the next four. I should hope that they certainly are.

I do not want to belabor that point. Do you have any further questions?

Mr. WALLHAUSER. I do not have any questions.

Mr. WHEELER. I would like to add this one thing. When the GAO looks at the profits, I would hope that in some way at the same time they would look at the cost of the program to the taxpayer.

Mr. BROOKS. It is estimated to be a billion dollars, is it not? Mr. WHEELER. That is the thing uppermost in our mind, how to carry out this program at a minimum cost to the taxpayer and this is a different factor than profits alone. Profits are only one part of this picture and regardless of what the profits might eventually be, I am convinced that the program could not have been implemented to save any more helium at any lower cost to the taxpayer. We will let our record stand or fall in that regard.

Mr. BROOKS. They will.

Did you have any questions?

Mr. NEDZI. I have no questions.

Mr. BROOKS. If there is anything further you want to add, Mr. Wheeler, at this point you might submit it for the record; if you have another statement you want to add, you may. I did not mean to cut you off. Is there anything you would like to add at this point? Mr. WHEELER. No, sir. I think we have covered most of it. Mr. BROOKS. Thank you very much.

INTERNAL AUDIT

I would like now to go into the matter of internal audit in the Department.

Mr. Beasley, I know you are interested in this matter as Administrative Assistant Secretary of the Department of Interior.

Mr. Paul Zinner, Assistant Director-Programs of the Bureau of Mines, is here.

At this time, the Department of Interior has no overall internal audit system. An internal audit system in which information is funneled directly to the top level without censorship from_bureau chiefs is a primary necessity if both the Secretary and the Congress are to keep intimately informed of departmental operations.

Without a complete system both the Secretary and the Congress are deprived of information relating to possible inefficiencies which might otherwise be uncovered as a matter of routine.

The Department of the Interior has about 64,000 employees as of July 1, 1962—that is as of July 1, I believe, which is seasonably up a little bit, and yet, there is no central office of internal audit. Furthermore, while some bureaus have audit groups, others have no semblance of an internal audit system. The Bureau of Mines, for example, has one employee assigned to this duty.

Funds were not requested for fiscal 1963 nor has any administrative action been taken to establish an acceptable audit system, although the Department has requested additional employees for several hundred positions involving work of lesser importance.

Reports of adverse action taken against internal auditors in some agencies have suggested that agencies should be required to report adverse actions against internal auditors to an appropriate congressional committee for review. The GAO feels such a requirement would greatly strengthen the internal audit program.

I would say that with that short synopsis I had some specific questions I would like to ask about the audit system. Mr. Beasley, with the assistance of your associate, Mr. Zinner, why hasn't the Department established a comprehensive and effective audit system?

STATEMENT OF D. OTIS BEASLEY, ADMINISTRATIVE ASSISTANT SECRETARY, DEPARTMENT OF THE INTERIOR; ACCOMPANIED BY PAUL ZINNER, ASSISTANT DIRECTOR, PROGRAMS

Mr. BEASLEY. Mr. Chairman, I think it important to make clear the arrangements in the Department for internal audit. We do have an internal audit system in the Department that has leadership from the Office of the Secretary and installed almost completely throughout the Department.

Mr. BROOKS. Just concisely how does that operate from the Secretary? Does he draw up an order appointing this?

Mr. BEASLEY. Yes, sir. We have a manual on internal audit within the Department.

Mr. BROOKS. A recent manual or one that you have had a long time?

Mr. BEASLEY. It is of fairly recent date, 1959. It replaces one of 1955. The Department has been engaged in the installation

internal audit procedures for more than 10 years. We do have it. I will have to admit that there is a very wide difference in the effectiveness of it from bureau to bureau because we have to rely upon the willingness of the bureau to subject itself to internal audit procedures. We have a total of 79 internal auditors in the Department.

You have referred to the Bureau of Mines. It is true they have only one. It is one of our weaker bureaus in the Department. Mr. BROOKS. He may be an efficient auditor.

Mr. BEASLEY. It could well be one.

Mr. BROOKS. Particularly efficient.

Mr. BEASLEY. We feel where we do have an acceptable internal audit procedure it has worked very effectively. I am somewhat surprised that the GAO has indicated any particular weakness generally throughout the Department on this because we make these internal audit reports available to them. It becomes the basis for their determining how extensive they must get into their comprehensive audit. If these internal audit reports are not adequate they go in more detail. If they are adequate it relieves the GAO auditors, after making spot checks, of going further into the operations. This leadership does come from the Office of the Secretary.

Mr. BROOKS. Who heads that, Mr. Beasley?

Mr. BEASLEY. Mr. Larson is the Director of Budget and Finance. Our chief finance position at the moment is vacant but we had one of the most able men in the Government heading it up until recently, a gentleman who came from the Corporations Audit Unit of the GAO and was largely responsible for devising the system we have now.

Mr. BROOKS. This is now headed by Mr. Larson. To whom does he report?

Mr. BEASLEY. He reports to me.

Mr. BROOKS. This is the distinction that I think I wanted to make. As I understand the audit system you have just described, it is primarily concerned with the financial auditing of the operations of the entire Department. I noticed that the manual that you referred to states that this is the policy and I want to clarify it because I did not quite understand

It is the policy of the Department, therefore, to require the establishment of appropriate internal audit covering all the activities of a financial nature in all bureaus in order for management to fulfill its financial responsibilities properly.

And so I would say that I believe we probably should make a distinction. By internal audit we are speaking not only of a financial accounting of what each department does, but we are speaking of the possibility and the desirability of an internal audit section which would have expressed responsibilities to include recommendations relative to overstaffing and duplication, as well as any financial discrepancies of which they might be aware. This type of internal auditing system would not necessarily be composed of a large number of perople but it would operate under the direction of the Secretary and in accordance with his directives, be free to report to him any comments they might have on the management, the operation in a general nature, rather than just a specific accounting responsibility. That is the distinction I am making. That is why we were gratified that Secretary Hodges in the Commerce Department made just such a recommendation. He already had, of course, his accounting procedures, as you have, and probably in a good detail.