will have less to do. This would bear, again, on the question of how large the GAO eventually should become as an agency. In many cases, their interests are more, you might say, on the fiscal side, on the financial audit, whereas we are interested in knowing whether they are carrying out the law as intended by the Congress. I mentioned in our testimony the 1962 legislation called the truth-innegotiations law. In brief, what this law said was that the contractor had to furnish the contracting officer of the Government with current, accurate, and complete information with respect to his costs, if he knew what those costs were, at the time the negotiation of the contract took place. We did a review of 242 contracts on this, beginning in 1964. In other words, 2 years after the law went into effect, we made a review as to how this was working out. We developed information which indicated that the Defense Department really had not fully insisted upon this information, or at least they had not insisted on its documentation to the point that a Government auditor or anyone else coming in later could be sure that that information had been provided. SAVINGS THROUGH GAO EFFORTS Mr. ANDREWS. Have you recouped any moneys as a result of your efforts? Mr. STAATS. We have succeeded in getting a large number of changes made in the procedures by the Defense Department. Some of these are still being worked out as a result of the reports that we did and as a result of hearings which were held by the Joint Economic Committee and the House Armed Services Committee. Mr. ANDREWS, What you are trying to do, in plain, simple language, is to make them do right. Mr. STAATS. To make them improve the administration of the law passed by the Congress. In making this report to Congress, Congress is free to say we are wrong, but in this case they said we were right. How much money is involved in this in terms of savings, it would be impossible to calculate. It could be a sizable amount of money. DEBARMENT OF CONTRACTORS Mr. ANDREWS. Do you have authority to put a contractor on a blacklist if you find, for example, that he is defrauding the Government? Mr. STAATS. The agency has the authority, and in some cases Mr. ANDREWS. Do you make recommendations? Mr. KELLER. In some cases we would develop the information. We had a case just within this last year where the Defense Department put a contractor on the blacklist, on a proscribed list. It is a list of contractors who have defaulted under contracts, or are otherwise in trouble. It is commonly referred to as a blacklist, but it is a list of contractors who are debarred from receiving Government contracts. Mr. STAATS. Debarment is the word I was seeking. Mr. ANDREWS. Everybody knows what a blacklist is. That is a good term. I have heard it used since I have been on the Defense Subcommittee, and that has been a long time. OVERCHARGES MADE BY CONTRACTORS Mr. KELLER. The thing I had in mind was not a default case. It was a case where a contractor was charging the Government many times over what he was charging his regular commercial customers. When this was brought out in information that was developed between the GAO and the House Armed Services Committee, the Defense Department placed the contractor on the debarred list. The contractor is not eligible to receive future contracts. Mr. YATES. Why would the contractor do that? Mr. ANDREWS. Human nature, selfishness, sharp practice. Mr. YATES. I wonder what justification is given to the Government for charging so much more to the Government than to private customers. Mr. STAATS. I do not recall. Do you recall the justification given? Mr. KELLER. In the particular case it seems that the contractor was charging whatever the traffic would bear. In many cases he was charging well in excess of the published catalog price. The Government buyer should have been more careful. Mr. ANDREWs. Was he prosecuted? Mr. KELLER. It was referred to the Department of Justice. Mr. KELLER. About 3 or 4 months. I am not currently up to date on it. Mr. ANDREWS. Of course, it is not your fault if the Attorney General does not press for prosecution. Mr. KELLER. Actually, it was referred by Defense to Justice. (Off the record.) Mr. YATES. What about the contracting officer? Mr. KELLER. I cannot condone the actions of the Government buyers either. Mr. ANDREWs. I read from time to time where certain contractors buy material from one Government agency and turn around and sell it to another Government agency at an exorbitant price. Mr. KELLER. Unfortunately, cases like that do happen from time to time, in the disposal of surplus. Communication does not always work, and you find one Government agency in the market for material which has been declared surplus and sold by another agency. Mr. ANDREWS. Again, that is largely left up to the contracting officer? Mr. KELLER. Yes. We do have in the Government a screening process for the disposal of surplus property which is supposed to catch this type of thing where one agency has an excess which another agency needs. Mr. ANDREWs. We have had that for years. Mr. KELLER. It does not always work, but usually it does. Mr. YATES. How many times have you found cases of overcharges to the Government like the one you mentioned a few moments ago. where he was charging the Government many times more than he was charging his customers? Mr. KELLER. Not too many. The fact that we have not found them does not mean it is not going on to some degree. I think you will find this occurs in the small dollar procurements where the pricing is not carefully checked by the procuring agency. Mr. YATES. It would have to be that kind of item, would it not? You could not get it in the case of a tank or airplane, could you? Mr. KELLER. I agree. In the larger procurements, money wise, many steps are taken to make sure the price is reasonable. Mr. STAATS. Congressman Yates, this does bring out an example of the kind of thing which we are concerned with. In other words, What is the procedure of the Defense Department to reasonably assure they are not being overcharged in this area? We are interested in their system for these small procurements. What kind of people do they have on the job? How well trained are they? Who reviews the judgment made by the person who makes the initial order? These kinds of things we think we can get a better payoff on than if we try to chase down a whole series of small procurements. DISMISSAL OR PROSECUTION OF CONTRACT OFFICERS Mr. ANDREWS. Has your office been responsible for the dismissal and or prosecution of any contracting officer of the Government in the last 12 months? Mr. STAATS. Not that I am aware of. EFFECT OF WAR AND DRAFT ON RECRUITMENT OF STUDENTS Mr. ANDREWS. I notice you say that your experience over the past 10 years has been that you were able to recruit annually, approximately 350 students of prime quality. What effect will the war and the draft have on that policy? Mr. STAATS. It will hurt us. There are two things that are hurting us at the moment, Mr. Chairman. One is the bidding up of the salaries by public accounting organizations and private industry. The other is, of course, the draft. We are losing a great many of our own people to military service, and also we are losing people that we otherwise would be able to recruit. We are being damaged both ways. PERIODIC STEP INCREASE AND EXTRA DAY'S PAY COST Mr. ANDREWS. Mr. Staats, I notice one item of increase you identified as periodic step increases plus an extra day's pay in 1969, for an additional cost of $876,000. I take it that this is an item that appears in one degree or another in every annual budget request; is that correct? Mr. STAATS. I am afraid it is, Mr. Chairman. I might say here, when I was in the Budget Bureau, I used to insist that this should not happen in an organization, and the staff of the Budget Bureau finally persuaded me that I was wrong; that this had to be in the budget, and that this was a real cost. I come to the GAO and find Mr. Simmons and Mr. Cornett, my budget people, also are able to document this. I think your statement is correct that this is a real cost, and one we have to pay for. Mr. ANDREWS. It is a fairly sizable amount. What about savings 92 655-68- -2 from turnover of personnel? Was not the original idea of the withingrade promotion law, which was enacted some 25 or 30 years ago, that ultimately when the within-grade promotion system matured, savings from turnover would somewhat meet the cost of within-grade increases. Has this whole theory gone by the board? Mr. STAATS. Actually, the lower your turnover, the more this cost will represent, because you do not get the flow in of people at the bottom of the grade. People in the organization, by law, if their performance is satisfactory, get these increases automatically. There have been very detailed analyses made of this in the Budget Bureau. I believe it is pretty well documented now that these costs do exist. As far as this particular figure is concerned, I would have to turn to Mr. Simmons and Mr. Cornett to give you the basis on which they made this calculation. Mr. ANDREWS. You may elaborate on that in the record at this point. Mr. SIMMONS. I would be glad to. (The information follows:) The $876,000 is made up of $191,800 for one additional paid day falling in 1969, and $684,300 for the cost of periodic step increases, which we must pay for in 1969. To estimate the cost of periodic step increases we determine from our records the total number which will become due during a year. The costs of the increases to be paid are determined according to the pay periods during the year in which they will fall due. These costs are then reduced because of the separations and promotions which we estimate will occur during the year. The increase of $684,316 in 1969 for periodic step increases is made up of $261,532 to pay for the full-year cost of those increases granted for only part of 1968 and $422,784 (49 percent of the full-year cost) to provide for an estimated 2,716 step increases coming due sometime during 1969. Mr. SIMMONS. I would like to point out also, Mr. Chairman, that with each pay increase we have had-we have now had six since 1960-the ingrades go up in cost. Take one grade for example, grade 12. The ingrade promotion rate has gone from $260 to $382, an increase of $122. If you have an organization with 400 or 500 grade 12's, that is quite a bit of money. Mr. ANDREWS. Six pay increases since 1960? Mr. SIMMONS. Five not counting 1960. The pay increase legislation has made a terrific increase in the cost of ingrades as well as other salaries. Mr. ANDREWS. I am sure it has, every time the Congress passes a pay increase. Mr. SIMMONS. There is $2,258,000 that would not be in our 1969 estimate if it were not for the increase last October. Mr. ANDREWS. That is an average of almost one pay increase per year since 1960. Mr. SIMMONS. That is correct. We have to pay it. It is a huge amount, $214 million is the amount we are asking for in 1969. Mr. ANDREWS. They are not threatening a pay increase bill this year, but they will next year. Mr. SIMMONS. July 1, 1968. Mr. ANDREWS. That was incorporated in last year's pay bill? Mr. ANDREWS. What I meant is, there is not pending before the Congress at this time a pay increase bill. Mr. STAATS. That is in addition. FEDERAL SALARY ACT OF 1967 Mr. ANDREWS. The bill we had last year was the biggest in history, I guess, because in some cases, if I remember correctly, it provided for three pay increases for Federal postal employees. They got an increase retroactive to last October. Mr. STAATS. October 8. Mr. ANDREWS. They will get another this year. Mr. SIMMONS. July 1, 1968, and another one a year later. Mr. STAATS. Mr. Chairman, the law contemplates there will be further action in addition to these three adjustments, based on the increases in pay in private industry. Mr. ANDREWS. Comparability, they call it. Mr. STAATS. A further comparability adjustment would be contemplated in addition to the one now scheduled to go into effect. Mr. ANDREWS. I voted against that bill last year, and I have found very few Federal employees who did not say they thought I voted correctly. Mr. YATES. How many have you talked to? Mr. ANDREWS. Quite a number. It is just like taking money out of one of their pockets and putting it in another. INCREASES FOR GRADE PROMOTIONS, MANDATORY OVERSEAS ALLOWANCES, ADDITIONAL PROFESSIONAL STAFF, AND CLERICAL SUPPORT On the item of $1,239,000 which you identify as an element of increase, could you break that out approximately as between grade promotions, mandatory overseas allowances, and the amount for the 100 additional average professional staff and the 16 supporting positions? Mr. SIMMONS. Would you like that in the record? Mr. SIMMONS. All right, sir. (The information follows:) Grade promotions of professional accounting and auditing staff. $616, 800 22.000 Increase of 100 man-years in the professional staff_ 498, 700 Increase of 16 man-years in clerical support for professional staff__ 101, 500 Total 1, 239, 000 GRADE PROMOTION PROGRAM Mr. ANDREWS. On the question of grade promotions, tell us something about that. How extensive is this policy? Give us some feel for that item. Mr. STAATS. Yes, Mr. Chairman. I have some data here which bear on our average grade, which is what is involved in grade promotions. We feel in general that we are certainly no more liberal in this regard than the other agencies of the Government, and one index of |