(b) Credit and cooperatives.-This project covered commodities financed entirely out of fiscal year 1953 money, although there have been allotments of subsequent fiscal years funds for technicans only. The major areas of disagreement between the USOM and Lebanon officials regarding this project (to which the GAO audit report refers) have now been settled, but there has been a lag on this project. While the amount is small, it must be noted the actual unsubobligated figure as of December 31, 1956, was $14,000-not the $8,000 shown in the GAO report.

(c) Industry institute.-As of December 31, 1956, all fiscal year 1955 and prior years' funds had been subobligated. The initial problem of housing the institute, which had amounted for much of the delay, has been solved and the project is now operating to the satisfaction of both the Government of Lebanon and the USOM. Additional obligations undertaken from fiscal year 1956 and fiscal year 1957 funds amounted to $237,000, of which all but $27,000 had been subobligated by December 31, 1956. At that time only $8,000 of fiscal year 1955 and prior-year funds remained undisbursed.

5. Iran

In December 1955 and January 1956, the mission in Iran very carefully reviewed the then existing pipeline in all technical-assistance projects. This was done with the full knowledge that there is considerable lag in accounting operations, so that the reporting of expenditures on properly subobligated items is often 90 to 120 days back of the actual expenditure, and, further, that, in a technical-assistance program of the magnitude and complexity of the one in Iran, considerable time is required to effect procurement of commodities after the subobligation is properly established. At that time, it was determined that the funds available in the mission for subobligation in projects Nos. 32 (livestock improvement) and 75 (crop production) were so limited in amount that the projects would require additional dollars in fiscal year 1957 for commodities. The rough estimate at that time was that approximately $100,000 might be required properly to continue these 2 projects in keeping wih the detailed plans then in existence for the projects.

In September 1956, the Director of the mission instituted a mission review of the 1957 requests for dollar commodities items. At that time he found that for fiscal years 1952, 1953, 1954, 1955, and 1956, $382,000 had been made available in project 75 (crop production) of which only $29,000 remained unsubobligated, and of the subobligated amount, which totaled $353,000, less than $90,000 still remained unexpended. He, therefore, submitted a request for $51,000 to be made available to the project in fiscal year 1957 for the purchase of commodities. Of the total of $51,000 requested, $30,000 was to be spent for seeds, plants, and rootstock, to introduce better varieties of crops into Iran, $5,000 for the importation of new and more effective fertilizers, and the remainder, $16,000, for supplies, pesticides, and 3 demonstration power sprayers. Similarly, when the Director reviewed project 32 (livestock improvement), he found that there was an unsubobligated balance of only $22,000 and that less than $70,000 remained unexpended out of a total of $317,000 subobligated. On the basis of this review, he requested ICA in Washington to allocate the sum of $50,000 in fiscal year 1957 to the project, of which $12,000 would be utilized for the importation of animals (breeding stock), and $22,000 would be for the importation of selected serum, vaccines, and related supplies and equipment. The remainder, $16,000, would cover the importation of demonstration equipment in connection with livestock handling and breeding.

With regard to the community development project (No. 64), community development activities have been reorganized as indicated on page 17 of the GAO report. As a result of this reorganization, no additional funds have been released to the field for project 64 in fiscal year 1957. In the case of contracts, such as the Near East Foundation contract financed through project 6-4, it must be borne in mind that the funds requested of Congress are designed to finance contracts beginning with the Iranian fiscal year, some 9 months later. There is thus an inherent lag between the beginning of United States fiscal year in July and the beginning of Iranian fiscal year on the following March 21, which is reflected in the pipeline. The reason for attempting to place contracts on an Iranian fiscal year basis is to facilitate an expected transfer of responsibility for financing from United States to the Iranian Government.

6. Israel

(a) Agricultural projects, 1952-55.-Status of agricultural projects as of March 31, 1957, as compared with status shown in GAO report, is as follows:

As can be seen from the above tabulation, considerable progress has been made since the GAO report, indicating success in overcoming lags in the procurement operation. This progress would have been more marked had it not been for the disruption of normal operations in Israel since October 29, 1956, due to the crisis in the Near East, and the evacuation of ICA personnel from Israel.

(b) Mineral exploration, 1953–55.—The comparative status of this project as of March 31, 1957, is as follows:

At the time GAO made its review (June 30, 1955), a contractor employed by ICA was making a 3-month survey of the minerals situation in Israel. This survey was phase I of the project and phase II was to be initiated following the recommendations made by the contractor. Difficulty was encountered by ICA in locating a suitable contractor to carry out phase II of the project, a drilling program with on-the-job training being given to Israeli drillers. This difficulty was overcome with the decision to purchase a small drill and have the firm providing the drill also furnish two drillers to carry out the drilling program. Just as this decision was about to be implemented by the General Services Administration (October 1956), the Near East crisis developed, and abruptly stopped the efforts of GSA to procure the drill and drillers.

(c) Vocational training, 1952.-The comparative status of this project as of March 31, 1957, is as follows:

Mr. HARDY. I would like to ask Mr. Rabel just one question about this latter General Accounting Office submission.

Do I understand that these lists contain projects where progress appears to be slow; projects which have been going on for some period of years?

Mr. RABEL. These are projects which continued for a number of years. However, the status of these projects is as of different dates, depending on when we submitted our audit report. It covers reports submitted during the last 2 years.

Mr. HARDY. Do you know whether they are all active projects now? Mr. RABEL. Well, presumably they are in a better condition now. This list does not mean that these projects are still lagging today. We do not know.

Mr. HARDY. Thank you, Mr. Rabel.

Go ahead, Mr. Reddan.

FURTHER STATEMENT OF JOHN H. OHLY, DEPUTY DIRECTOR FOR PROGRAM AND PLANNING, INTERNATIONAL COOPERATION ADMINISTRATION; ACCOMPANIED BY JOHN E. MURPHY, CONTROLLER, INTERNATIONAL COOPERATION ADMINISTRATION

Mr. REDDAN. Mr. Ohly, the subcommittee wanted to give you an opportunity to comment upon the General Accounting Office memorandum which was submitted to ICA in January of this year. On Thursday and Friday of last week we touched on certain portions of it but skipped around, so that I am not entirely sure whether you are satisfied with the comments you have made on those points. So I will just quickly run over the memorandum with you.

I might, before I do that, make this observation and see if you agree with me: that the deficiencies which are pointed out by GAO in this memorandum to ICA, which I will refer to as the January 1957 memo, are the same deficiencies which have been brought to the attention of ICA over a period of some time. Would you consider that a fair statement?

Mr. OHLY. No; I would not. I think some of them have been called to the attention of ICA over a period of time.

Mr. HARDY. And some of them are new?

Mr. OHLY. In their specifics, yes.

Mr. HARDY. Could you illustrate what you have in mind with respect to ones that are new?

Mr. ОHLY. Well, take one specific thing, there is a page devoted to the problem of failure to identify "other costs" properly in the case of a number of countries in the 1957 presentation.

Mr. HARDY. And GAO had not previously brought up that point? Mr. OHLY. Well, I can't say that it was never discussed with us in oral conversations. I don't know. I don't recall any prior report which dealt with that particular problem.

Mr. HARDY. So there will be no confusion about what you meant and about what GAO meant, would it be correct to say that the allegation of faulty presentation with respect to this item of "other costs," although it was made in the GAO memorandum of January 1957, related to a practice that had been recurring over a period of years? Mr. OHLY. I don't believe that it did; no.

Mr. HARDY. That is what I wanted to find out.

Mr. OHLY. There may have been instances in preceding years where items were listed and not properly identified. I am sure those occasions occurred. But I don't recall any GAO report to that effect.

Mr. HARDY. Well, that is what I was trying to inquire about; whether or not the presentation may have contained substantial items of "other costs" which were not properly identified in previous years, even though GAO had not questioned it.

Mr. OHLY. It may have. I think the chances are there would have been instances like that.

Mr. HARDY. Thank you.

Mr. REDDAN. Mr. Murphy, could you tell us whether the criticism relative to the way "other costs" items were included in the 1957 budget presentation had even been brought to the attention of ICA before?

Mr. MURPHY. It had never been brought to our attention, so far as I know.

Mr. REDDAN. Mr. Ohly, for instance, in GAO's memorandum with respect to the budget presentation in 1955, didn't they discuss in some detail overprograming?

Mr. OHLY. Yes; the problem of overprograming has been one which has been discussed with the General Accounting Office from time to time, and not merely mentioned in that report. It has been a continuing problem that we have been working on continuously. We think we have improved our handling of it a great deal. We think the General Accounting Office probably can help us to improve it some more. Some of the suggestions they made for dealing with that problem in the staff memorandum are new, and some of them are very good; on the other hand, some of them recommend actions we actually had taken before this memorandum was written. Mr. REDDAN. Wasn't that one of the items which was referred to in the obligating bases report which was prepared by the General Accounting Office in 1955? Didn't that report refer to overprograming as being one of the administrative deficiencies which resulted in a noninformative and less reliable budget presentation? Mr. OHLY. I believe that is true, Mr. Reddan.

Mr. REDDAN. I would like to put in the record at this point, Mr. Chairman, that portion of the obligating bases report which is pertinent to this hearing.

Mr. HARDY. Without objection, it will be so ordered. (The document referred to follows:)

EXCERPT FROM THE GENERAL ACCOUNTING OFFICE REPORT ON STUDY OF OBLIGATING BASES AND RELATED ADMINISTRATIVE PRACTICES, FOREIGN OPERATIONS ADMINISTRATION

(Transmitted to the Speaker of the House of Representatives, June 10, 1955)

INTRODUCTION

As part of our audit of the Foreign Operations Administration (FOA), we made a study of the bases established by FOA and the predecessor agencies for obligating funds appropriated to carry out the various mutual-security activities assigned to them, and the administrative practices followed by these agencies in applying the prescribed bases. Our appraisal of these bases and the related administrative practices was made in terms of their conformity with the statutory requirements of section 1311 (a) of the Supplemental Appropriation Act, 1955 (68 Stat. 830). Our report herein presents the results of this study. Scope of examination

FOA conducts a variety of activities authorized in the Mutual Security Acts of the past several years. Although these activities are all dedicated to the common objective of mutual security, they vary in character and financial arrangements between countries or geographical areas and, prior to 1954, were administered by various agencies. By reason thereof, different bases of obligating funds and methods of administration have been employed by the agencies responsible for carrying out these activities.

Our study covered the obligating bases and practices of FOA with respect to all activities assigned to it, with particular emphasis on those conducted in the fiscal year 1954 under the authority of the Mutual Security Act of 1951, as amended (22 U. S. C. 1651). Our report includes a description of the various mutual-security activities and the obligating bases prescribed for each. This description is supplemented by a review of selected obligations, being part of the total unliquidated obligations which FOA reported as of June 30, 1954.

Résumé of obligating bases

Most of the funds appropriated for assistance activities currently assigned to FOA have been obligated on the basis of bilateral agreements in various forms between the United States and individual foreign countries. These agreements commit the United States in stated amounts for the financing of projects, the procurement of commodities or services, or similar assistance activities. They also call for certain undertakings by the foreign countries which, in addition to those required by the mutual-security legislation as requisites for assistance, include in most cases a measure of joint financing or services in connection with specific types of assistance.

Certain basic considerations have led FOA and the predecessor agencies to the use of bilateral (or multilateral) agreements with foreign countries as the medium for carrying out assistance activities and the recognition of these agreements as the basis for obligating funds.

1. The furnishing of assistance to foreign countries, whether it is in the form of commodities, services, or budgetary support, does not rest on unilateral action by the United States, but involves various actions by both the United States and the foreign government. In many cases, a specific request by the foreign country is required indicating the nature, amount, and timing of aid desired. In other cases, the aid program is one of joint planning, financing, and administration of specific projects sponsored by both the United States and the recipient foreign country. The foreign country may have to commit substantial amounts of its own funds, or may have to enter into contractual negotiations leading to commitments with third parties, which it would or could not undertake without the assurance of a firm commitment of United States financial assistance.

2. Procurement action in many instances is handled by the foreign country, with FOA providing the necessary financing. Under these circumstances, information regarding the placing of contracts, or otherwise the incurring of obligations to outsiders, is not directly available to FOA, and the latter would have to rely on systematic and up-to-date reports of such contract action. FOA and its predecessors have not found it practical to require and use such reports to recognize contract commitments by the other country as the basis of obligating United States assistance funds.

Disadvantages of bilateral agreements

The most significant disadvantage of the bilateral agreement as an obligating document is the long time interval between the recording of the obligation and its final liquidation. This has been evident in the wide gap between obligations and expenditures consistently reported by FOA and its predecessors for most assistance activities. In many respects, this is inherent in the nature of the activities.

The implementation of assistance agreements involves decisions and actions which must be taken jointly or separately by the two cooperating governments, and agreement thereon is not always quickly reached; it requires the procurement of long lead items and of specialized equipment; it depends on the successful recruitment of technicians for service in remote countries; it involves the accomplishment of projects which by their very nature require periods longer than 1 fiscal year. Consequently, funds obligated in one year have generally not been expended in the same year and often have remained unliquidated for periods of several years.

This situation has been aggravated by certain deficiencies in the practices followed by FOA and its predecessors in the planning, negotiation, and administration of the activities represented by these agreements. A management appraisal undertaken by FOA shortly after its creation has resulted in a revised accounting plan which, if properly followed, should bring about significant improvements in these areas.

SUMMARY OF FINDINGS

Validity of recorded obligations

In considering whether the aforestated bilateral agreements constitute valid obligations it is necessary to recognize the unique character of the mutual security activities and the broad powers conferred upon the agency in the legislation for executing such agreements, which in a sense evidences the acknowledgment by the Congress of the unique character of the activities. Accordingly, the validity of these agreements as obligating documents does not rest primarily on the criteria applicable to the conventional transactions of Federal agencies.