In addition, there is reason to believe that a portion of the $345 million allotted to the Indochina direct forces support program from military assistance funds was not originally contemplated for that program. This situation has served to immobilize substantial amounts by reason of the necessity for holding funds in reserve to meet unanticipated purposes which may eventuate. As a consequence, such funds are effectively not available until the latter part of the year for the assistance activities for which they were specifically appropriated. The uncertainty of the time and amount in which these funds may ultimately be available for designated assistance activities exerts a significant influence on each phase of these activities to the detriment of an orderly and expeditious utilization of funds. Thus these funds, when made available, are allocated late in the year to the recipient countries, resulting often in undesirable haste to finalize negotiations for individual programs in order to obligate the funds before the close of the year. This condition also hampers the advance planning of programs and the degree to which they can be firmed up with recipient countries subject to the level of funds appropriated. This in turn makes more difficult the presentation of a more specific and comprehensive program in the budget request. We believe that these deficiencies can be alleviated by realining the legislative structure to conform to the present pattern of mutual security activities. This can be done by recognizing the two broad categories which characterize these activities from the standpoint of the utilization of funds—(1) plannable activities comprising the regular forms of defense support, economic, technical, and development assistance authorized in previous and current legislation and (2) unforeseeable activities, programs, or events as may be determined by the President and for which funds have heretofore been drawn from appropriations for the activities in category (1). This recognition would take the form of legislative authorization and appropriation for designated activities as heretofore made and separate authorization and appropriation of a contingency fund for use by the President under the same authority and requirement for notification to congressional committees as contained in existing legislation, for such purposes as he determines to be necessary to the security of the United States and in furtherance of the objectives of the Mutual Security Act. Revision of the Mutual Security Act along the lines proposed above would lessen and possibly obviate the need for the transfer authority contained in section 501 of the act, and broad authority for the use of funds permitted by other provisions thereof, and should enable more specific delineation of the plannable activities for which funds are authorized. In our opinion this will make for a clearer understanding of the existing statute and conduce to a more efficient administration of the mutual security program through more orderly planning, programing, and obligation of funds. Moreover, the Congress may expect to receive a more specific and comprehensive budget presentation and thus be able to evaluate more intelligently the performance of the agency and the reasonableness of activities proposed for the coming year. It is submitted that the authorization of a separate contingency fund to the President would not substantially expand the broad authority contained in present legislation, but on the contrary would so segregate this authority as to facilitate identification of its use. Accordingly, we recommend that the Congress consider revision of the Mutual Security Act in the manner described above. RECOMMENDATIONS TO THE AGENCY In the light of deficiencies in administrative practices as disclosed by our examination, we believe it is imperative for FOA to establish clearly defined criteria and develop effective enforcement procedures in the following areas: 1. The assistance project or undertaking should be developed in sufficient detail as to plans for its execution so that upon signing the agreement the project or undertaking can be started promptly. 2. Adequate administrative control should be maintained by FOA to assure expeditious implementation of the project and coordination of procurement and all other actions as they are required by all parties under the terms of the agreement. This includes up-to-date information in the records of FOA on significant fiscal data including subobligations and expenditures. 3. Effective control should be continually exercised by FOA over the progressive utilization of obligated funds so that obligations may be promptly adjusted to current estimated needs, and unliquidated amounts no longer required may be freed and transferred to unobligated status. Although we are generally satisfied that FOA recognizes the need for immediate remedial action and has taken several encouraging steps in this direction, we believe that only by a continued, concentrated effort can the agency be successful in reestablishing the necessary administrative and accounting control over funds previously obligated. Furthermore, it will require consistent and conscientious compliance with the agency's own ground rules, particularly as laid down in the revised accounting plan, to assure that agreements obligating funds are executed only after the preparatory negotiations leading to the prompt utilization of the funds have been solidly firmed up. FOA still faces the task of strengthening and enforcing those procedures which will provide for a more systematic and timely review of existing obligations. Adequate manpower should be made available and their duties properly defined so that prompt action is taken in all cases where unliquidated balances exceed actual financial requirements. In this connection FOA has informed us that the establishment of an obligation review task force to provide for a more systematic and timely review of existing obligations has recently been approved. We believe that the Congress can give much impetus to better control and administration of obligated funds by requiring a more comprehensive presentation of the agency's fiscal activities in the budget request. Such information would include an enumeration of major projects, subobligations thereon, estimated cost, particulars as to outside contracting and physical status of projects, aging of outstanding procurement authorizations and details as to the expenditures, status, etc., of agreements for direct forces support programs. Such information would also furnish the Congress with a firmer basis for an intelligent evaluation of the agency's past performance and proposed programs. Mr. REDDAN. I would also like to put into the record a copy of the memorandum prepared by the General Accounting Office on the 1955 budget presentation of ICA (then Foreign Operations Administration), together with accompanying letters of transmittal and acknowledgment. Mr. HARDY. Without objection, they may be included in the record. (The documents referred to follow :) Mr. JOHN E. MURPHY, GENERAL ACCOUNTING OFFICE, DIVISION OF AUDITS, Washington, D. C., November 12, 1954. Controller, Foreign Operations Administration, Washington, D. C. DEAR MR. MURPHY: Early last summer we made a broad review of the mutual security budget presentation for the fiscal year 1955. With the preparation of the 1956 budget probably now at least in its preliminary stages, I thought it might be appropriate and useful to apprise you of some observations which we made in the course of our review. They are presented in a separate memorandum which is attached hereto. With respect to item 9 in the presentation section of this memorandum, we have discussed with representatives of your Office on several occasions the desirability of preparing FOA financial statements on a current year basis in lieu of the present basis which for many program activities is cumulative from the inception of the respective programs. Possibly it is necessary to maintain cumulative figures on program activities but if so, it seems to me that it could be kept as statistical information in somewhat less detail. As I see it, the primary needs of the management are for information the current size, progress, and status of programs during the current year, and it would seem that the financial statements should be designed to meet that need. The observations set out in the attached memorandum are offered for your consideration in the hope that they may be of assistance in your efforts to make the budget presentation-a complex document at best-as complete and understandable as possible. Insofar as any of the matters discussed in this memorandum are outside of the province of your Office, I shall appreciate it if you will refer them to the attention of the officials within FOA who have responsibility for them. We are considering the desirability of sending a copy of the attached memorandum to the Bureau of the Budget for its consideration in the examination of the budget presentation for 1956. In such case we would naturally point out to the Bureau that FOA has not indicated its reaction to the suggestions discussed in the memorandum. Needless to say, we shall be pleased to discuss any of these points further with you or other representatives of FOA who may be concerned. Very truly yours, GEORGE H. STAPLES, Assistant Director of Audits. FOREIGN OPERATIONS ADMINISTRATION MEMORANDUM ON EXAMINATION OF 1955 BUDGET PRESENTATION SIZE AND SCOPE OF PROPOSED PROGRAMS We have in several reports and informal discussions on various segments of FOA activities called attention to the considerable lag in many countries in carrying out the annual programs, especially those for development, investment, or technical assistance. We have expressed the belief that this lag derives principally from overoptimistic program planning which has led to annual programs beyond the capacity of the agency to get underway within the fiscal year for which the funds were appropriated. This belief was borne out by the relatively low level of obligations during the first three quarters of 1954 which we noted in our review. FOA was able to execute bilateral agreements which made possible the obligation of substantially all available funds before the end of the fiscal year. The only real effect of this, however, was to tie up 1954 funds for programs most of which could not be initiated even as to preliminary steps until the following fiscal year. The House Appropriations Committee took cognizance of this in its critical comments on the last minute rush to sign agreements and authorizations in order to commit substantially all 1954 funds so that they could be reported as obligated, although there was no reasonable possibility that any action toward implementing them could be taken within the fiscal year. The Further evidence of overoptimistic planning was indicated in a comparison of the records on proposed and actual recruitment of overseas personnel. budget for 1955 proposed a total of 4,392 overseas positions, technical and administrative, in spite of the fact that at March 31, 1954, only 3,118 of an authorized total of 3,751 were actually filled. In the light of past experience of FOA and its predecessor agencies in recruitment for overseas duty-particularly of technical personnel, which represented about 80 percent of the total-it seemed unrealistic to program for almost 1,300 additional positions as well as maintaining the present staff in the field. This situation may be pointed up more specifically by taking as an example the 1954 program in Latin America which called for 936 technicians and contract personnel. At March 31, 1954, there were 549 persons actually on board, or about 60 percent of those authorized. The 1955 program proposed a strength of 875. Considering the record in Latin America, an area which compares favorably in working and living conditions with other parts of the world, it seems doubtful whether the 1955 goals for personnel procurement can reasonably be met in this and other areas of FOA operations. The training program proposed for 1955 seemed equally overly ambitious in the face of past experience. Of 4,597 trainees authorized for 1954 in all areas, only 3,115 had been processed at March 31, 1954, and even this included an unknown number authorized from the 1953 appropriation. Again taking Latin America as a better than representative area, the record shows that 40 percent of the total funds obligated for the entire fiscal year 1954 were obligated in June. Again in the light of this experience, the proposed program of 4,418 for 1955 hardly seems attainable. The point of these references is to suggest that in developing the programs to be proposed for 1956, greater weight should be given to past experience in respect of the time required to negotiate country agreements and implementing outside contracting, personnel recruitment, and other actions in order that the scope of the programs proposed may be more nearly in line with what FOA may reasonably expect to get fairly well started (something beyond the execution of country agreements) in that fiscal year. FORM OF PRESENTATION While in general the form of presentation of the 1955 budget document was a considerable improvement over that of prior years, there were certain areas in which it did not furnish significant information or did not furnish it as fully or as clearly as we believe is necessary or desirable for an intelligent understanding and evaluation of what was done and what is proposed to be done. 1. Proposed programs for project type aid should be reasonably set out in the budget to show for each country the major projects to be undertaken within each field of activity, supported by such data as the estimated total cost, past performance if any, requirements for personnel and materials, and such other pertinent information as will give a more comprehensive picture of the purposes for which the requested funds are to be used, and enable a more intelligent evaluation of the proposed programs. In order to avoid excessive detail it is contemplated that the above information would be shown for individual projects in which the estimated cost is above a certain minimum. 2. Deobligations of funds obligated in prior years were not brought out in the budget. Since such deobligations add to available funds during the current fiscal year, we believe that deobligations of significant amounts resulting from revisions in prior years' programs should be disclosed with such description as may be appropriate, and included in the amount shown as available funds for the year. 3. Available funds should be reconciled with the amounts appropriated for the current year for each appropriation, in order that the application of funds may be readily traced and accounted for. For example, the appropriation for mutual defense financing showed available funds of $364.6 million whereas the total appropriation for 1954 was $335.7 million, the difference representing the net of transfers to and from other mutual security appropriation accounts. 4. The budget document did not make a full and clear presentation of transfers between appropriation accounts which would permit a ready understanding of what transfers were made and the appropriation accounts affected. 5. The excess of $7.5 million obligated under the agreement with the Maritime Administration was not specifically set out or otherwise explained. Actually this was an unobligated balance and should properly have been shown as such, but if there was reason for including it in obligated funds it should have been specifically explained. Items of a similar nature should be fully and clearly described for what they are. 6. The budget document should show the total of subobligations, i. e., the portion of the prime obligations contracted with third parties--for major projects conducted under project agreements. Such information furnishes the real measuring stick for evaluating program action and progress. 7. Again for a better understanding of the reasonableness of program requests and of the budget document as a whole, we believe that proposed programs should be presented in such schedule arrangement that they can be readily compared with the amounts obligated and expended during the current fiscal year on the same types of programs, rather than presented in separate sections of the budget request. 8. There did not appear to be adequate coordination between the Accounts Division and the Budget Division in preparing the revised budget document for fiscal 1955. This was evidenced by the fact that the Accounts Division was not sufficiently informed as to the source of certain data in the budget, and therefore not well prepared to furnish the Controller accurate financial data requested during the hearings before the congressional committees. These Divisions must necessarily work closely together to insure complete and accurate information and support therefor, not only in the budget document but in response to requests growing out of the hearings. 9. As long as FOA continues to present its regular financial statements largely on a cumulative basis which do not clearly show the financial progress of the current year programs and the status of the current year appropriation accounts, the Controller's Office should prepare special statements containing this data for the knowledge of congressional committees, as well as for an intelligent understanding by the top management of the agency. These statements should be keyed to the annual budget document and support the latter in an easily understandable manner. Mr. GEORGE M. STAPLES, FOREIGN OPERATIONS ADMINISTRATION, Assistant Director of Audits, General Accounting Office, Washington, D. C. DEAR MR. STAPLES: I appreciate your thoughtful letter of November 12, 1954, with a statement attached thereto titled "Memorandum on Examination of 1955 Budget Presentation." Each congressional presentation seems to present a different set of problems and unusual situations which we have tried to handle in what we consider the best possible manner at the particular time. No doubt the oncoming presentation to Congress will precipitate new and unusual conditions and I wish to assure you that we will review your suggestions carefully and where appropriate utilize them with the view to reflecting more accurately and comprehensvely the 1956 program presented to the various congressional committees. Sincerely yours, J. E. MURPHY, Controller. Mr. REDDAN. We might also, if we may, include in the record at this point the GAO memorandum concerning the 1957 budget presentation, with letter of transmittal to ICA and ICA's reply to GAO. Mr. HARDY. Without objection, that will be included. (The documents referred to follow :) Mr. JOHN B. HOLLISTER, COMPTROLLER GENERAL OF THE UNITED STATES, Director, International Cooperation Administration. DEAR MR. HOLLISTER: Herewith for your information and appropriate consideration are three copies of a memorandum by our audit staff on its review of the program presentation by the International Cooperation Administration to the congressional committees for the fiscal year 1957. The suggestions offered in the attached memorandum are aimed toward facilitating a better understanding and evaluation of the presentation by the congressional committees. We hope that they will be helpful in the continuing efforts of ICA to improve the form and content of its annual presentation. Representatives of our office will be pleased to discuss the contents of this memorandum in further detail with you or members of your staff. A copy of this memorandum is being transmitted to the Bureau of the Budget for its information and use in connection with future annual program presentations. Sincerely yours, JOSEPH CAMPBELL, Comptroller General of the United States. |