audit and control and related administrative practices of the respective agencies." [Italic supplied.] .3 Benefit of Financial Internal Audit. Adequate financial internal audit by the bureaus will permit early disclosure of financial weaknesses or deficiencies so that corrective action may be taken without delay. To realize the full benefits of the internal audit program it is essential that reports on audit be promptly submitted and follow-up action thereon taken immediately. This will benefit the administration of the financial management program, serving also to improve it, and in addition should have the added advantage of reducing the time and work involved in the comprehensive audit made by the General Accounting Office. Mr. BROOKS. Did you have any questions, Mr. Wallhauser? Mr. WALLHAUSER. No. I think you have covered the area very thoroughly. Mr. BROOKS. We will now recess until 1 o'clock. (Whereupon, at 12 noon, the subcommittee was recessed to reconvene at 1 p.m., the same day.) AFTERNOON SESSION Mr. BROOKS. Gentlemen, the subcommittee will come to order and we will proceed with the hearing opened this morning. UNDERCHARGES FOR RENTALS AND UTILITIES TO EMPLOYEES IN GOVERNMENT-OWNED QUARTERS I would like at this time to consider undercharges for rentals and utilities in Government-owned quarters occupied by employees of the Department of the Interior. For this purpose we have the Administrative Assistant Secretary Mr. D. Otis Beasley and we would like to call forward Mr. Donald J. Proulx, Chief, Branch of Property and Supply, Bureau of Indian Affairs. Mr. Proulx has been with the Department for a long time in a high-ranking important and responsible job and has submitted a very fine statement which we will accept in the record. The subcommittee has been informed that audits by the General Accounting Office indicate the Interior Department has been undercharging for housing and utilities furnished to its employees. On the basis of preliminary information, it is estimated that the undercharges for housing rentals are in excess of $500,000 a year. We are informed that the undercharges for housing rentals at certain Bureau of Indian Affairs housing locations amount to $39,290 annually, or $117,870 for the 3-year period during which such rates usually remain effective. Bureau of the Budget Circular A-45, revised, requires that charges for rent for housing furnished to Government employees shall be comparable to private housing rentals in the same area. Furthermore, the act of June 20, 1874 (5 U.S.C. 71), provides that no Government employee shall receive any compensation or perquisites, directly or indirectly, from the property of the United States beyond his salary or compensation allowed by law. The subcommittee is informed that these undercharges are caused by two things: (1) The Department's housing rental regulations are not applied in accordance with the spirit and intent of the Bureau of the Budget Circular A-45; and (2) deficient policies and practices are used by quarters evaluation boards in establishing the housing rentals. In some instances, isolation deductions of up to 40 percent are applied to shelter rentals for housing located less than 10 miles from the nearest representative year-round private community, although the regulations permit such deduction only if the community is more than 10 or 20 minutes one-way driving time away. The regulations authorize a maximum isolation deduction of 80 percent where quarters are allocated more than 34.1 miles from the community. In other instances, the isolation deductions are applied to rentals before, instead of after, adjustments for comparability and other factors, thus resulting in excess deductions. The subcommittee is interested in just what is being done to try to bring these rental evaluations up to date in accordance with the exist ing statutes and existing regulations. STATEMENT OF DONALD J. PROULX, CHIEF, BRANCH OF PROPERTY AND SUPPLY, BUREAU OF INDIAN AFFAIRS, DEPARTMENT OF THE INTERIOR Mr. PROULX. Mr. Chairman, I have a prepared statement here which is two pages long. 1. Alleged undercharges for rentals and utilities in Governmentowned quarters occupied by employees of the Department of the Interior. For example, we are informed that the undercharges for housing rentals at certain Bureau of Indian Affairs Governmentowned quarters amount to $39,290 annually, or $117,870 for the 3-year period during which such rates usually remain effective. Rental rates and charges for utilities in Government-owned quarters are set at levels similar to those prevailing for comparable private housing and services in the same general area, taking all relevant, objective, measurable factors into account. The basic regulation which governs such rates is Bureau of the Budget Circular A-45, dated June 3, 1952. This basic regulation recognizes that the principle of equivalence with private rents needs to be modified in instances where Government quarters are located in remote and isolated locations and authorizes a downward adjustment in the private shelter rate to offset the unusual transportation costs incurred by the employees in traveling to communities where shopping, educational, medical, and similar essential facilities are available. The Department of the Interior authorizes a deduction for isolation ranging from 10 to 30 percent of the basic shelter rent where quarters are located less than 10 miles, but more than 20 minutes one-way travel time to the nearest community, to a maximum of 80 percent where quarters are located more than 34.1 miles from the nearest community. The basic regulations (Bureau of the Budget Circular A-45) also recognizes that certain Government housing may not be built to the same standards as the private housing and that an adjustment in the base shelter rate should be made to reflect the lower standards of amenities when appropriate. While the matter of when allowances. should be made for these elements is based on a finding of fact, the question as to how great this adjustment should be is largely a matter of judgment to be exercised by the quarters evaluation board conducting the survey of private rentals. Employee housing is provided in this Department only at those locations where it is clear that the employees must live at the station to render necessary service or protection, or that adequate private housing is not available in the area. This conforms to the Government's policy on when quarters for employees will be provided as set out in Bureau of the Budget Circular A-18, dated October 18, 1957. Since this is the only real justification for construction or retention of Government-owned housing, it is clear that such housing is provided for the convenience of the Government in order to accomplish its programs and not for the convenience of the employees. Unfortunately, these circumstances often result in our employees being required to live in remote and inconvenient locations, to forgo the advantages of home ownership, and to adjust themselves to a camplike or semipublic environment. In light of the above circumstances, the Department has been unable to see any merit in ignoring fair treatment of its employees and other equitable considerations in the development of realistic rental charges for Government quarters. Our objective is to develop rates which, while conforming to the principles of Bureau of the Budget regulations, do not completely ignore the important element of employee equity. Presumably the reference made in item 1 to alleged undercharges for quarters rentals relates to a recent GAO audit and letter dated July 16, 1962, wherein it is alleged that, in the case of certain Bureau of Indian Affairs quarters an isolation deduction is granted for quarters located less than 10 miles from an established community. The auditors further comment that such deductions do not appear to comply with Bureau of the Budget regulations (BOB Circular A-45) or with the Department of the Interior policy. The Bureau of the Budget regulations do not specify the distance that Government quarters must be located from an established community before an isolation deduction is authorized. These regulations recognize that employees will incur unusual transportation costs when residing in areas outside of an established community, but leave it to the discretion of the agency concerned to determine the extent of such isolation. The GAO auditors failed to recognize that in 1957 they raised this same question and in response thereto the Department granted an exception to its manual requirements to the Bureau of Indian Affairs. When I say "this same question," I am referring to the isolation deduction for quarters located less than 10 miles from the community. Mr. BROOKS. They do grant them for areas that close? Mr. PROULX. As I just said, the Bureau of the Budget regulations do not say how far they have to be away from a community. They just specify to allow certain deductions for removal from the community. The Department's manual is the one that specifies a limit of 10 miles, 50 miles, and 70 miles. It is based on travel time. If it exceeds 20 minutes, then an isolation allowance may be granted. If the travel time is less than 20 minutes there can be no deduction. Prior to this audit of 1956 which came to the Department and us in 1957 we allowed an isolation deduction for quarters located less than 10 miles from the community for various and sundry reasons. Namely, we felt there was an additional expense. We not only felt we could prove there was an additional expense occasioned to these employees that had to live removed from the community-to name a few, the insurance rates they would have to pay for their furnishings and their houses were considerably higher and in some instances they couldn't even get insurance on it because there was no fire protection afforded to these quarters. There is no police protection afforded these quarters. Mail delivery is not free out to these quarters. They have to rent a box in town and go get it. The delivery from the local merchants will extend within the town but not out to our people. at these places, even located as little as 2 miles beyond the city limits. For these reasons we allowed an isolation deduction up to 10 percent. I don't know where this 70 percent comes into the picture, but we have allowed it at 10 percent. Mr. SCHWEIKER. Ten percent of what? Mr. PROULX. Ten percent of the adjusted shelter rent. When this was called to our attention by the GAO audit in 1957 we answered that audit exception explaining why we took the deduction. That we thought it was within the intent of A-45 to bring rental rates on an equality basis for our employees. The Department forwarded this answer to the General Accounting Office and since we heard no more or they took no exception to our answer, we assumed that they had accepted our policy and it has been continued to this day. We allow the isolation deduction for quarters located at less than 10 miles from an established community. We constantly review these isolation deductions and as a result of these reviews since the GAO audit report in 1957 we have eliminated the isolation deduction at Haskell Institute, which was included in the GAO audit report that you have there. Some figure of $2,200, I believe, a year that we are allowing at Haskell. This is erroneous. We do not allow that deduction. We discontinued it in 1957. Mr. BROOKS. We will indicate that to the GAO and that indicates a step forward. Mr. PROULX. Also we eliminated Shawnee AFO, Potawatomi AFO, and Pierre Agency. Pierre Agency appears at $1,280 a year. We eliminated those. We reduced deductions as much as 25 percent at Chilocco, Cheyenne, Arapaho, and Fort Sill schools which are located in this. Seventy-five percent below the figures that are indicated on this GAO audit report that you have.We have reduced them back as far as 1957. Therefore, by these reductions and by these eliminations from the audit report that you have that $30,390 figure per year should have been reduced to $18,875. This is an isolation deduction that we are currently allowing for quarters located less than 10 miles from the community throughout the entire Bureau of Indian Affairs. I have no doubt but what some of these will be eliminated in the near future. As the communities expand and enlarge they bring in some of these facilities to us and therefore the deduction is no longer applicable. Mr. BROOKS. I would say that you apparently have devoted some time to correcting these deficiencies and have already made considerable progress in eliminating previously authorized deductions. I would just point out that in the light of current living conditions I believe that you would find that most of the people, for example who work in Washington, have in excess of 20 minutes travel time to get to their offices and yet I don't guess any of them get any special deductions as a result of it. I want to point out that one of my staff personnel used to live about a 45-minute to an hour travel time away, not on a nice quiet isolated road but on that Shirley Highway, and as a result of that he is now in the process of moving and reacquiring some property in the immediate area here. Under circumstances where his wife wants to use the car, for example, he will walk to work. Mr. BEASLEY. May I point out, Mr. Chairman, in the situation you explained the individual does not have to travel 10 miles to get to a store or a doctor or to some service shop to get what he needs. There are local shopping centers, so he is not exposed to this 20-minute travel time. If he is in one of these areas isolated up to 10 miles from a community, the only way he can get to those services is to drive. Mr. BROOKS. It is a steady, continuing problem of evaluation. Apparently Mr. Proulx is aware of the need for a continuing reevaluation of allowances in this field and I take it you are making a continuing review of these allowances and of the undercharges in these areas where they exist and you are trying to correct them. Mr. PROULX. At least every 3 years and before that, when conditions changed or it is called to our attention that they ought to have another evaluation or another look at it. We do this. Every 3 years anyway. To the second part of the contention that we made erroneous computations at some agencies in the Phoenix area, on this we must admit they did. It is a matter that crept into the procedures down in Phoenix. We cannot explain how it did. I feel that our auditors would have caught this when they go into Phoenix starting about in October for their annual audit. The program has been in Phoenix from about mid-1961. Immediately on getting this letter from the GAO we contacted Phoenix and we have a wire from them saying that they have already recomputed these things in the manner as prescribed. Mr. BROOKS. Well, this is certainly some progress. Mr. WALLHAUSER. What did that error amount to? Mr. PROULX. It would have amounted to $8,924 a year but in most instances it has not been in effect for a year, so it has to be less than $8,924. I don't know exactly. Mr. WALLHAUSER. It was a great idea to catch it right now? Mr. PROULX. Yes, sir. I think our auditors would have caught it this fall. Mr. BROOKS. We will submit the letter of the GAO at this point to which reference was made. (The document, exhibit 14, follows:) EXHIBIT 14-LETTER FROM R. S. LINDGREN, ASSISTANT DIRECTOR, GENERAL ACCOUNTING OFFICE, TO PHILLEO NASH, COMMISSIONER, BUREAU OF INDIAN AFFAIRS, JULY 16, 1962, WITH ATTACHMENTS Mr. PHILLEO NASH, U.S. GENERAL ACCOUNTING OFFICE, Commissioner, Bureau of Indian Affairs. DEAR MR. NASH: In connection with our review of the Department of the Interior's housing rental program, we have examined selected housing files of the Bureau of Indian Affairs maintained in Washington, D.C. This examination |