available to them for information regarding program operations in the Executive Branch."

From the time of its creation under the Budget and Accounting Act of 1921 (which also established the Federal Bureau of the Budget), the GAO has been subjected to extraordinary precautions designed to preserve its impartiality and protect it from political pressures. The Comptroller General and his assistant are appointed by the President for fifteen-year, nonrenewable terms, and may be removed only by joint resolution of Congress for specified causes or by impeachment. The nonpartisan (or bipartisan) tradition runs deep at GAO. When Staats. a career civil servant for more than thirty of his fifty-six years, left the Bureau of the Budget in 1966 to become Comptroller General, his associates presented him with a pillow embroidered on one side with the Democratic donkey and on the other with the Republican elephant.

True to its tradition, GAO has frequently issued reports sharply critical

of the Admin a month ago

ration in power. Only even while its defense

industry profits study was coming under fire in the press and on Capitol Hill, GAO released a report compiled at the request of Senator Walter F. Mondale, Minnesota Democrat, which confirmed and documented charges by civil rights groups that the Nixon Administration had improperly disbursed funds intended to help school systems desegregate. The GAO study showed that the Department of Health, Education and Welfare, in its "desire for expeditious funding" of the desegregation program, had awarded grants for purposes entirely unrelated to the program-and in some instances to systems still committed to racial segregation.

GAO's relationship to the Executive Branch is "naturally an adversary one." a GAO auditor told me, and relations with the Administration are often tense. Somewhat ruefully, he added, "Nobody likes an auditor." Confronted on one hand by its Congressional mandate to investigate, and on the other by the bureaucratic instinct for selfpreservation that pervades the Government, GAO is "the birdie caught between the two opponents in a badminton match," the auditor said.

Unfortunately, the instinct for selfpreservation is also a fact of life at the GAO. The agency's recent history--and especially the episode that brought an indignant Comptroller General before a House subcommittee on March 26 demonstrate that the GAO is something less than the "balanced, ob

GAO remains, as one Congressional aide put it, 'the only wheel in town'..."

jective, fair" apparatus claimed by Staats. In fact, the lesson of the defense industry profits study is that when the stakes are high enough, the "watchdog of the watchdogs of the public purse" is capable of cuddling up in the burglar's lap.

For the first three decades of its

existence, GAO's principal responsibility was the routine checking of all Government vouchers-even to the pettiest expenditures before funds were disbursed. The agency's powers were expanded under the Legislative Reorganization Act of 1946, which authorized the GAO to analyze expenditures and report annually on "whether public funds have been economically and etficiently administered and expended." In 1950, Congress gave the GAO authority to ascertain that Federal agencies had carried out the intent of the House and Senate in spending their funds. It was in the 1950s, as the Korean War sent military spending skywards, that the GAO began flexing its muscles as a close and critical monitor of Government contracts. Comptroller General Joseph Campbell, appointed by President Eisenhower in 1954, issued a series of blistering reports on overcharges and other contract abuses--reports which named names and pulled no punches.

It was then that the GAO discovered that its celebrated insulation from political pressures was less than airtight. Richard Kaufman, economistcounsel to the Joint Economic Committee, writes in his recent book. The War Profiteers: "Cumulatively GAO's reports of the late 1950s and early 1960s were a devastating critique of military contracting. But it was ahead of its time. Only a few in Congress were impressed and disturbed over the revelations. The tide of opinion

was in the opposite direction, and many began growing hostile to the GAO green-eyeshade military crit ics. . . . In 1965 a subcommittee of the House Government Operations Committee, headed by Chet Holifield, began an investigation of-guess who? --the GAO."

The GAO is accountable to the Goveinment Operations Committee, which authorizes the agency's annual budget. California Representative Holifield, Democrat who now heads the full Committee while retaining the chairmanship of its Subcommittee on Legis lation and Military Operations, set the tone for the 1965 hearings when he expressed "the great concern that has been shown in industry circles, and recently, in the Department of Defense,

THE PROGRESSIVE

over the difficult and sometimes awkward situations created by the GAO audit reports." Holifield raised these questions: "Is the GAO, as some Government and industry parties believe. enforcing its own standards of procurement on Government and industry without authority of law or without the benefit of the intimate technical and business experience which resides in the parties to the procurement process? Is there developing a clash of procurement philosophies between GAO and DOD?"

"This inviting tone," Kaufman writes. "was eagerly accepted by the Pentagon and its contractors, who queued up to testify. It was an inquisition . "The first witness, Paul R Ignatius, then the Assistant Secretary of Defense (and now the president of The Washington Post), complained that the number of GAO reports on the Pentagon had risen from 206 in 1962 to 544 in 1964. He did not believe this reflected a deterioration in Pentagon procurement practices; rather, it demonstrated a growing tendency on the part of GAO to violate the integrity of the Government's contracts and force contractors to make refunds.

Robert H. Charles, Assistant Secretary of the Air Force, told the Holifield Subcommittee: "The sanctity of contracts is the bedrock of our commercial system. You nibble away at this and you nibble away at something far big ger than an occasional refund out of the millions of transactions in which we are involved." Chairman Holifield said he was in complete concurrence."

Holifield was in concurrence, too, with the covey of contractors-from Boeing, Lockheed, United Aircraft, Honeywell, Grumman Aircraft, among others who submitted the bulk of the Subcommittee's testimony and who charged that GAO's widely publicized reports on profiteering were undermining the public's confidence in the process of military procurement.

Comptroller General Campbell suffered a heart attack and retired before the Subcommittee issued its report. His successor, Staats, gracefully acquiesced in Holifield's suggestion that the GAO ought to take a more "constructive" tack, avoid such terms as "over

May, 1971

charge," and "respect business privacy."

"The hearings," Kaufman writes, "had whacked the GAO in the head, and in some ways it has still not recovered. Its reports, never considered permanent contributions to the world of literature, have been purged of most of the 'colored' and 'sensational' language that the contractors complained of. Now the reports bear titles like 'Need for Improving Administration of the Cost of Pricing Data Requirements of Public Law 87-653 in the Awards of Prime Contracts and Subcontracts. Nothing sensational about that, and further, one can read that particular report from cover to cover without finding a trace of a contractor's name."

Nonetheless, GAO remains, as one Congressional aide put it, "the only wheel in town"-the only significant resource to which Congress can turn to keep Federal programs and activities under scrutiny. Even the inquiries mounted by major investigative committees of the House and Senate rely heavily on the work of GAO experts who are detailed to Capitol Hill for months and even years at a time. It was only natural, therefore, that when Senator William Proxuere, Wisconsin Democrat, offered an mendment to

the 1969 defense appropriations act calling for a detailed survey of military contractors' profits, the GAO should be specified as the agency to conduct the study. In the mood of skepticism about rising military costs that was then emerging in Congress, the Proxmire amendment was narrow

adopted. GAO was given until December 31, 1970, to file its report; it later obtained a ninety-day extension of the deadline.

The GAO survey was a huge and complex undertaking, which took eighteen months to complete and cost $2.1 million. Staats called it "the most detailed and comprehensive effort made to date comparing profits on defense and non-defense work of private industry." A first draft of the report, dated December 22. 1970, and stamped RESTRICTED TO OFFICIAL USE, contained explosive findings. GAO experts had analyzed 146 defense contracts valued at almost $4.3 billionabout seventeen per cent of the annual defense procurement total-and had found that on these contracts manufacturers earned an annual pre-tax profit of 56.1 per cent on their equity capital-roughly three times the annual profit rate for all manufacturing corporations. While some companies lost money on their defense contracts, at least one firm-no names were mentioned in the report-realized a return of 240 per cent on its total invested capital.

The draft report also contained preliminary findings of a second GAO analysis-one based on information furnished by major contractors in response to a GAO questionnaire. These figures showed a considerably lower pre-tax rate of return-21.1 per cent --on equity capital. But when the GAO attempted to verify the cost and profit figures supplied by manufacturers, it found that they had consistently understated their profits on military work. The GAO concluded that the Pentagon's contracting procedures had encouraged inefficiency and waste on the part of defense manufacturers, and

"You have to

had permitted them to reap inordinately high profits.

The first of the news accounts which Staats was to denounce as "premature, inaccurate, and misleading" appeared on February 24 in Jack Anderson's nationally syndicated "Washington Merry-Go-Round" column. It contained a summary of the draft report's findings on the 146 contracts, as well as the disclosure that Staats had gone to the Pentagon on February 13 to discuss the findings with Deputy Secretary of Defense David Packard and with contractor representatives who serve on the Pentagon's Industry Advisory Committee.

Subsequent Anderson columns, and more detailed news stories by Bernard D. Nossiter in The Washington Post, revealed that the GAO had submitted its draft report to half a dozen leading industry organizations--the Aerospace Industries Association, the Electronics Industries Association, the Machinery and Allied Products Institute, the American Ordnance Association, the National Security Industrial Association, and the Logistics Management Institute-had solicited their views and, ultimately, had revised its final report in line with "suggestions" from the defense industry.

On March 17, for only the second time in its history, the GAO summoned reporters to a press conference to release its final report on the defense industry profits study. Comptroller General Staats vigorously defended the report as "impartial and objective," and denied that the comments of defense contractors had resulted in significant alterations. "Not a single figure has been changed," he said. "The views of the associations and the agencies did not alter any of our conclusions."

Nonetheless, the newspaper reports prompted a group of thirteen Congressmen, led by Representative Bob Eckhardt, Texas Democrat, to request an inquiry into the circumstances surrounding the GAO report. Their re

quest went, ironically, to Chairman Holifield of the Government Operations Committee, who invited Staats to testify at a hearing on March 26. The first witness was Eckhardt, whose presentation was respectful, almost diffident.

"At the outset I wish to state that I have the highest respect for the institution, the U.S. General Accounting Office, and a very high regard for the able Comptroller General, the Honorable Elmer B. Staats," Eckhardt said. "My statement here is by no means an indictment of the report, of the Office, or of the Comptroller General. But I am in disagreement in a particular area with the Comptroller General: I do not consider press coverage pointing out the divergence between the draft report and the final report as a disservice to the Office or to the Congress but rather as an alert."

Staats insisted once again that the GAO had not been subjected to "pressure of any type"; that the practice of soliciting industry views on GAO reports "provides additional assurance that our reports are fair, complete, and objective"; that there was "no softening of the report as a result of obtain ing comments on the rough draft." At one point he conceded, "I think we did make some changes as a result of the comments we received." Eckhardt's testimony, and the Comptroller General's, and the texts of the two report versions, and the industry associations' letters to the GAO-which GAO made available, on request, to members of Congress but not to the pressrevealed that there were, indeed, "divergencies." For example:

• The data on the 146 defense contracts which earned average pre-tax profits of 56.1 per cent, prominently featured in the draft report, were relegated to the back of the final version, and circumscribed with warnings that they did not comprise "a representative sample." (In a letter to

the GAO dated February 6, Assistant Secretary of Defense Barry J. Shillito had warned that "overplaying" of these figures would give "ammunition to the critics of this industry.")

The report focused, instead, on the more modest profit figures reported by defense contractors in response to the GAO's questionnaires. These, Shillito wrote, were "the more significant data," and had not received enough attention in the GAO's first draft.

Despite the Comptroller General's insistence that no figures had been added, altered, or deleted between the first and final versions of the report, one set of statistics was, in fact, eliminated. It was a table casting doubt on profit studies compiled by the Logistics Management Institute-a Pentago.. think-tank--which have been widely publicized to demonstrate that defense contractors earn low profits (The deletion was urged by Shillito, who served as president of the LM for six years before Pentagon.)

joining the

The concluding line of the first GAO draft, warning against profits "greater than necessary, particularly with the huge unmet social needs of the country," was dropped from the final report. (The Electronics Industries Association had requested the change.)

• In contrast to the first draft, the final report advised the Pentagon to take "risk" as well as capital investment into account in determining proper profit levels. (The National Security Industrial Association had urged this addition.)

The documents and testimony at the March 26 hearing also disclosed that contacts between top GAO offi cials and defense industry representatives were not limited to the February 13 Pentagon meeting reported by Jack Anderson. On February 4, for example,

"GAO's principal weakness is that it must serve too many masters. . ."

22

22

61-502 O-75-27

THE PROGRESSIVE

Staats met in his office with Charles Stewart, president of the Machinery and Allied Products Institute, to discuss the draft report. And a letter from the Electronics Industries Association to C. M. Bailey, director of GAO's defense division, included this pas sage: "You will recall that you received a number of firsthand comments from our members as a result of your presentation on this subject at the annual meeting of our Government Procurement Relations Departrent at Key Biscayne. Our review of the draft adds to the concern expressed at the time about the use of data c selected contracts."

troversy could easily undermine the agency's credibility as a "watchdog," Proxmire and other members of Con

gress who frequently call on the GAO investigative services are reluctant to criticize its shortcomings. The GAO, Proxmire has written, "has had to live in the real world. It too gets its funds from the House and Senate appropriations committees. It too is overseen by the government operations committees. The GAO is not unaware of these facts of life, and occasionally it is not as aggressive as it might otherwise be if such were not true."

When I asked Bailey about this meeting, he recalled that he had gone to Key Biscayne in November to give the electronics manufacturers "the general thrust of this study, our procedures, and certain data which were even more preliminary then than in the first draft. There was some discussion... "How many other meetings had he held with industry groups to discuss the defense profits study before the report was issued? "There might have been some others," he replied. "I don't remember precisely. In all cases it was pointed out quite clearly that it was all preliminary and subject to change as the facts came out."

has affected GAO's voluminous studies of antipoverty and welfare programs. Officers of Pride, Inc., a black selfhelp organization in the nation's capital, charged last year that their work had been disrupted by GAO "harassment." Only last month, employes of the GAO railed against alleged discrimination in hiring and promotions at the agency. (Staats, reserved and correct as always, commented that "it is unfortunate that the leaders have chosen to dramatize their difference in this manner.")

Some Congressional staff aides who have frequent dealings with the GAO are more willing than their employers to criticize the agency-especially if they are assured of anonymity. One of these told me that the excellent field work done by GAO investigators "gets massaged, filtered, sanded down, rounded off" by GAO management when the reports are written. "You have to read the reports like a detective to find out what's really going on,' he said. Questions are raised, too, about the GAO's priorities; there are charges that far too many man-hours are squandered in the pursuit of trivia.

More serious is the suspicion that racism in the GAO's upper echelons

With only one exception-Democrat Benjamin Rosenthal of New York, one of the dozen Congressmen who had joined with Eckhardt in requesting an inquiry the members of the Holifield Subcommittee displayed no interest in pursuing these matters with Staats. Their concern was to quiet the critics and vindicate the GAO. "You have done nothing improper," Representative Don Fuqua, Florida Democrat, assured the Comptroller General, "We congratulate you on your desire to protect the public interest," said Chairman Holifield as he dismissed the witness. There will be other hearings on the defense industry profits study, however. Senator Proxmire, chairman of the Joint Economic Committee, has announced he will call Staats to testify, and has made it plain that he believes "the most significant findings concern the results of the on-site inspection of 146 contracts totaling $4.3 billion."

Because the GAO is "the only wheel in town," and because they believe conMay, 1971

GAO's principal weakness, its Congressional critics contend, is that it must serve too many masters whose interests and ideological differences are irreconcilable. GAO's defense contract studies must satisfy Proxmire, who requests them, without offending Chairman Edward F. Hébert of the Ilouse Armed Services Committee, who resents them. Its inquiries into desegregation programs must meet Senator

Mondale's needs without ruffling Senator James Eastland of Mississippi. Most of all, if it wants to receive adequate funding, it must stay on the right side of Chairman Holifield.

"The Congress gets the kind of GAO it wants," says a Senate aide. "If it

Herblock in The Washington Post "Listen-if I hear any more complaints, I may stop hu ying"

ever wants a better one, it will probably get it. You have to remember that the whole concept of legislative

oversight is still at a primitive stage. The Legislative Branch has been in a state of arrested development for about a century."

If Congress is now emerging from that state-and some see evidence that it is in the recent votes against the supersonic transport plane, in the growing Congressional opposition to the war, and in the new willingness to question the Administration's national defense policies-the GAO can probably be transformed into an agency far more effective than it is today in helping to impose checks on the Executive Branch. But before the GAO can be made to perform that function, Congress will have to address itself to this question: Who is going to watch its watchdog?

23

C ́PETER GRUENSTEIN

Not long ago, a Congressional aide asked his boss, a respected senior member, to talk with Elmer Staats, Comptroiler General of the General Accounting Office (GAO), about a problem that needed attention. After getting Staats on the line, the aide handed the phone to the Congressman who, covering the mouthpiece with his hand, inquired of his assistant: "What's this guy's name?" A second later he bellowed into the phone: "Hello, Elmer?"

The member's ignorance of Staats is not surprising. After more than fifty years of existence, the GAOalmost invariably described as "Congress' watchdog agency"-remains one of the most obscure of important government agencies, not only to the general public but to many members of Congress and their staffs. Yet, at a time when Congress is attempting to regain some of its lost authority and prestige from the now dominant executive, the GAO is one of its potentially most potent-but at present least utilized-resources.

The GAO was established under the Budget and Accounting Act of 1921, which also established the Budget Bureau (now the Office of Management and Budget). The Act gave the comptroller general "access to and the right to examine any books, documents, papers, or records" of all federal departments and agencies. It hasn't completely worked out that way. The Pentagon_and State Department have denied GAO access to records involving U.S. relations with foreign countries and international lending institutions. The Internal Revenue Service has consistently refused the GAO access to tax returns and other records, which has prevented the agency from monitoring the efficiency of IRS revenue collections ($208 billion in fiscal 1972). The Emergency Loan Board has denied GAO's right to examine records involving the more than $200 million government bailout of Lockheed Corporation. By statute, the GAO cannot examine any records of intelligence agencies.

Through World War II GAO aptly fit the image of the bow-tied, green-visored bookkeeper, hunched over ledgers to make sure that the 500 reams of paper ordered by the General Services Administration were duly received and paid for. It was only after the Korean War, under Comptroller General Joseph Campbell, that the GAO began actively to investigate the efficiency of federal agencies.

Peter Gruenstein, a Washington free-lance writer, was formerly a legislative assistant to Rep. Les Aspin. 722-734

Campbell's GAO began to churn out tough, frank exposés of the Pentagon-identifying waste, illegal actions and deception, and naming specific contractors.

But, alas, GAO was ahead of its time. In 1965 a government operations subcommittee under Rep. Chet Holifield (D., Calif.) began an investigacion-more appropriately, an inquisition of the GAO's new-found vigor. Holifield asked: "Is the GAO, as some government and industry parties believe, enforcing its own standard of procurement on government and industry without authority of law or without the beseft of the intimate technical and business experience which resides in the parties to the procurement process? Assistant Secretary of the Air Force, Robert H. Charles answered: "The sanctity of contracts is the bedrock of our commercial system. You nibble away at this and you nitble away at something far bigger than an occasional refund out of the millions of transactions in which we are involved." Holifield agreed and, by the time the holocaust was over, Campbell had suffered a heart attack and resigned as comptroller general. Many believed he would have been forced to resign anyway.

President Johnson then appointed Elzer Staats, a career civil servant who was serving as deputy director of the Budget Bureau. (The comptroller general is appointed to a fifteen-year conrenewable term at the present salary of $42,500 per year. He can be removed only by a joint resolution of the Congress which requires the assent of the President.) Staats immediately agreed to tone down GAO's investigative zeal. The Defense Department reports became culler and less frank.

Under Staats, however, GAO has expanded its operations enormously. Last year, operating on budget of $95 million and with 3,150 professiccals mostly accountants and lawyers) on its staff, the GAO churned out 898 reports to Congress and agencies many of them recommending ways to increase eficiency and reduce waste. The reports cover a very wide range of government activity; recent examples include: "Purchase of Equipment from the Hamilton Watch Company, and the Related Award of a Contract, to Produce M-565 Time Fuses," "Use of Local Freight Companies by the Chicago Federal Supply Service" and "Questionable Efectiveness of a $20 Million Grant Supporting India's Family Planning Program."

The quality of GAO's professional staff is probably higher than that of other government agencies. The accuracy of its investigative work is generally excellent and

THE NATION/June 4, 1973 214