the Congress, I believe, yesterday, on an updated review of what all the departments and agencies are doing in Vietnam.

Mr. ANDREWS. Has the GAO put out audit reports on South Vietnam?

Mr. STOVALL. We have put out several. We made one on this subject a year ago and then another just a couple of days ago.

Mr. ANDREWS. What type of employees do you have over there.

Are they auditors?

Mr. STOVALL. These are professional accountants and auditors.

Mr. ANDREWS. You have eight professional accountants. What about office force?

Mr. STOVALL. We have one young man there who serves as our office manager and does general office work.

Mr. ANDREWS. That gives you a total of 9 in Saigon. Is that all? Mr. STOVALL. We have two more there now on loan to a congressional committee. They are not doing GAO work.

(Discussion off the record.)

Mr. ANDREWS. Just what are your people doing in Saigon?

Mr. STOVALL. We have been concentrating primarily in three areas; one, we have made a review of the construction operation. This was one which has lent itself to a great deal of possibilities of diversions and hasty buildup. A report is being prepared on this which should come to the Congress within this coming month.

Mr. ANDREWs. On construction work.

Mr. STOVALL. All construction.

Mr. STAATS. This is on the military construction work, particularly in the port of Saigon.

Mr. STOVALL. The billion dollar program all the way across the board.

Mr. ANDREWS. Does your interest down there center around civilian contractors?

Mr. STOVALL. Our interest covers the whole range.

Mr. ANDREWS. Plus military construction work.

Mr. STOVALL. Yes, sir.

Mr. ANDREWS. Have you unearthed any shocking facts to date! Mr. STOVALL. We have attempted to direct our efforts to probing the procedures and the possibilities for management improvement rather than investigative-type work. There are many situations which are known and which have been publicized of the diversions.

Mr. ANDREWS. What do you mean by diversions?

Mr. STOVALL. The loss of commodities or thefts in the port and this sort of thing. Instead of directing our efforts to digging up more spe cific cases we have tried to concentrate on areas where we think there are possibilities of improvement in the management process. We have also done work on the commercial import program or commodity import program and we have a report in process on this which I hope will come to the Congress within the next month or so.

Mr. ANDREWS. Have you published any reports on Southeast Asian activities?

Mr. STAATS. Yes, we have. Mr. Stovall referred to a report we did for the House Government Operations Committee.

Mr. ANDREWS. Do you have a copy of it?

Mr. STAATS. Yes. We have submitted two reports on the adequacy of the agencies' own auditing programs in Southeast Asia. These

cover the military services, AID, State Department, U.S. Information Agency, all of the Federal agencies. We felt that they were not devoting enough effort to auditing their own internal programs in this area. So we prepared a report to the House Government Operations Committee. We have just updated that on a more compete basis in a report we submitted in May of this year. It has been out a matter of a few days. I would like also to add to what Mr. Stovall has indicated with respect to the commodity import program. The chairman of the Senate Foreign Relations Committee asked us to review a report prepared by the agency for that committee on the losses of commodity imports. Mr. ANDREWS. You are talking now about foreign aid?

Mr. STAATS. I am talking about foreign aid.

Mr. ANDREWS. Not military supplies?

Mr. STAATS. That is right. We have prepared a report dated April 27, which the chairman has only released in the last few days. Mr. ANDREWS. Would you highlight that report for us? Mr. STAATS. I would like Mr. Stovall to do that.

Mr. ANDREWS. What does this report show? This report covers commodities sent into South Vietnam by the foreign aid program, is that right?

Mr. STOVALL. Yes. It was directed specifically to the committee's request, which was to analyze the AID report made to the President on January 9, 1967, in which the AID set forth certain estimates of losses. That was I believe included in the 5- or 6-percent losses: We were asked to analyze that and to go behind it, to determine the facts and the basis back of AID's estimates. We have done that, and in this report the main tenor and substance is that we do not think that those figures are reliable. We think that the losses were greater, but we think there is no reliable way to determine what the real losses are. Mr. ANDREWS. In other words, you think it is more than 5 percent.. Could it be as much as 20 percent?

Mr. STOVALL. We do not have any basis of knowing.

Mr. ANDREWS. All you do know is that there is a lot of stealing and pilfering going on down there?

Mr. STOVALL. We looked into the method by which AID calculated their estimates and one of the problems we had with their basis was that for many of these things the calculations which they had arrived at were too early in the game, such as commodities on board ship or on harges awaiting unloading, for example. It still left margins for losses in the port, and as the commodities went out into distribution channels. We could not find any reliable way of estimating the total losses.

Mr. ANDREWS. Does your report indicate who does that stealing and how it is carried out?

Mr. STOVALL. No, sir; the report does not go into detail on this. In making this report, we had access to the AID records and investigations, and there are a number of specific cases that are known. Many of them are being investigated.

Mr. STAATS. The principal point here, I would emphasize, that came out of our report is that a great deal of the losses takes place after the Commodities leave shipboard. However, the AID check did not indicate losses on food items after they left the ship.

Mr. ANDREWS. In other words, they claim they had a 5-percent loss. of stuff before it left the ship.

Mr. STOVALL. Before it reached channels of trade distribution.

Mr. ANDREWS. Your audit goes into the question how much is stolen after it is taken from the ship and put on the docks?

Mr. STOVALL. Anywhere along the way, except we found the accountability records are not sufficient to make any reliable estimates. We were attempting to look into any losses anywhere along the way. Mr. ANDREWS. Does your report mention those black markets that existed on the streets of Saigon?

Mr. STOVALL. We do not deal with it as a specific section. It recognizes it, but we do not attempt to trace it out, because this is also impossible, we think.

Mr. ANDREWS. Does your report indicate that any South Vietnamese officials have been implicated in any of these thieveries?

Mr. STOVALL. Perhaps I should mention on that, Mr. Chairman, there has been and is a major increasing effort by the groups of the departments and agencies themselves in this black market area. This was one of the prime purposes of our review, to have the services themselves devote a great deal more effort in this area. The military services are doing this. The port situation, for example, is under much better security control now, but there is still the problem of the things that happen after the goods move from the port.

We do not believe that accountability records are such that these things can really be traced.

Mr. ANDREWS. My question was, does your report indicate that there is any activity on the part of South Vietnamese officials participating in this stealing that is going on down there?

Mr. STOVALL. No direct reference to this.

(Discussion off the record.)

Mr. ANDREWS. On the record.

Mr. STOVALL. We have done some work with the military along these lines, some assistance to them in attempting to control and cut down the losses from the PX's, for example, that they have been working on better inventory controls and also reducing the purchases of some of the items that were being bought that were most subject to black market operations.

Mr. ANDREWS. From what I have heard conditions are pretty bad down there and I am wondering if eight auditors from your office are enough to make a meaningful audit and examination and so forth.

Mr. STAATS. It is a very minimal number, Mr. Chairman. I would like to mention two things. We do intend to augment this number on specific studies and audits by assigning them from other locations.

In that connection, that is a major reason why we are establishing an office in Manila. It is awfully difficult to get people, as you have sug gested, to serve in Saigon for any long period of time. We had originally hoped we could get people to serve for 2 years there. We had to revise that downward to 18 months and now we again had to revise it down to 12 months. We need an office that is reasonably close by whereby we can assign people from Manila to work in Southeast Asia on these specific audits. This also means that we can get more people to serve in Saigon if they can keep their families in Manila so that they can manage to get back and see their families once in a while.

Mr. ANDREWS. Have you opened an office in Manila?

Mr. STAATS. We are just in the process.

Mr. ANDREWS. How many people do you plan to have in that office? Mr. STOVALL. About 15 to begin with, but we plan to staff it depending on need.

Mr. ANDREWS. How can they work on South Vietnamese problems from Manila?

Mr. STAATS. They have to travel from there.

Mr. STOVALL. There has been a major augmentation traveling out of Honolulu of our nucleus group in Saigon. So we have had people going and coming as well as people from Washington.

Mr. STAATS. We feel we need to have a minimum number of people in these locations in order to be familiar enough with these problems in order to know what to look into. If we have to handle all of this on a temporary duty basis we are in trouble. That is the reason we plan to have a small office in New Delhi, Saigon, and Manila. Then we can augment our resident staffs on major studies and major audit work by assigning people on a temporary duty basis.

Mr. ANDREWS. You do feel that you have a great problem before you in Southeast Asia?

Mr. STAATS. We certainly do.

Mr. ANDREWS. One of the biggest you have ever had, I guess.

Mr. STAATS. That is right. I would like to add to Mr. Stovall's remarks of a while ago on the matter of internal audits by the various agencies. We could furnish for the record the increase in the number of audit personnel assigned to Southeast Asia by the operating agencies as a result of our efforts and our report we made to the House Government Operations Committee.

Mr. STOVALL. I have some information on that. Since we were there and made our report last summer it is known that a major part of our concern was to induce the departments and agencies to increase their efforts. At that time the principal internal auditors were the AID mission auditors, there were about 19 Americans and 20-odd nationals and a small contract group, six military men in defense contracts. Since that time, as Mr. Staats mentioned and our report will point out, the total effort has roughly tripled. We have been able since that report to obtain a reconsideration by the Defense Department to permit their auditors to go in. Up to that point they had considered this a combat zone and were not letting the regular auditors of the Army, Navy, and Air Force go in. They reconsidered that policy. They are now going in. Their contract auditors have expanded from six to 19. Our report which will be forthcoming within the next 2 week on this construction operation will point out the woeful need for additional audits of the construction activities.

Mr. ANDREWs. Why the woeful need?

Mr. STOVALL. We think that six auditors there who had the primary responsibility for a billion-dollar operation did not begin to touch the need. They have increased that to about 19-I think about 15 on board now-and are increasing to 19.

(Discussion off the record.)

INCREASED AUDIT EFFORT IN AID PROGRAM

Mr. STOVALL. If I might add on the AID mission auditors, they have approximately doubled. All in all I think with the plans that are now in being for people being lined up to go to Vietnam for the various departments, there will be a little more than tripling of the effort being applied over there.

Mr. STAATS. Mr. Chairman, could I make the general point here, we have come to the conclusion that we have not really done an adequate job in the review of our overseas AID program generally. Many countries we have not been into at all.

Mr. ANDREWS. What is that due to?

Mr. STAATS. This has been lack of personnel. We have now on March 31, 1967, increased our number of personnel assigned to work on the international area from 144 as of June 30, 1966, to 171. In our current program for 1967 we plan to go up to 187. We have plans in our 1968 budget, if it is approved by the Congress, to go up to 225. This means that we will be able to go into some areas that we have not been into before, particularly on foreign aid programs.

We also plan to review on a fairly comprehensive basis all the aid programs in a given country. This includes programs of the Export-Import Bank, Economic Assistance and other agencies of Government such as Treasury, Labor, and Agriculture. We feel that this is an area that we really have not given enough attention to.

Mr. ANDREWS. With all that overseas responsibility and the war on poverty at home, you are going to have your hands full for the next few years.

Mr. STAATS. We really will.

Mr. ANDREWS. The President has said there would be no letup on the war on poverty and for fiscal 1968 there would be a minimum of $25 billion available to aid the poor in fiscal 1968. That is in all Government agencies.

SHIFTS IN ASSIGNMENT OF GAO STAFF EFFORTS

Mr. Staats, will you explain your statement on page 3 which reads as follows:

In prior years we have been able to more than offset increases in our professional staff by decreases in our fiscal voucher audit work and in other areas of the office.

Mr. STAATS. AS I have indicated in my statement, we have had a growth in our professional accounting and auditing staff, but in terms of total employment for the GAO as a whole we have been able to offset those increases numberswise by reductions in our staff on transportation audit and claims. We had hoped this might be possible for next year. Because of the increase in the audit work for transportation bills growing out of the Vietnam operations, we are going to have to have an increase in that area-an increase of 40-Which I mentioned in my statement.

Mr. Sullivan, who is head of our Transportation Division, is here and if you would like he could give you a brief résumé of how this increase in transportation audits work has come about.