At the outset, the local head of the agency is advised of our desire to discuss our findings at the conclusion of the work. The primary object of such a final interview is not only to verify the factual accuracy of the matters on which our conclusions and recommendations are based but to obtain management's view. points, particularly on controversial issues or actions we consider questionable, for inclusion in our written report. Reporting

Whenever practicable, management officials in Europe are provided with a draft of our proposed report a few days prior to the final interview. Also, the draft report, including pertinent comments of management obtained at the exit interview, is formally submitted to the highest management official of that agency in Europe for written comment. A copy of the report may be furnished to the head of the installation or organizational entity reviewed if deemed appropriate or desirable. Upon receipt of the agency's reply, our findings are further evaluated in the light of any additional information or facts furnished. The draft report is then submitted to our Washington office along with the agency's comments for appropriate action.

Since July 1955, the Branch has issued 152 reports. Some of these concerned matters which were satisfactorily resolved in Europe. Others have been referred to departmental levels in Washington for further consideration and action. Some have involved matters of such significance or concern that they have been or will be referred to the Congress. Annex J, attached, shows the disposition made of the 152 reports submitted by the Branch during the 23month period ended May 31, 1957. Areas for improvement

We are attempting to improve the effectiveness of our administration and operations. There are significant areas where improvement can be effected and corrective action taken. A brief outline of these areas follows.

Headquarters staff personnel.--The ratio of “staff" personnel to "operations" personnel is considered to be unfavorable.

To remedy this condition, line authority is being delegated to the several program supervisors. ( See organization chart, exhibit G.) By so doing, key supervisors will be directly responsible for the execution of work assignments under specific programs.

Programing of agency revip108.---The scope of our reviews of agency activities in Europe will, within available manpower resources, be broadened to include as much as possible of the comprehensive audit concept. Some of the steps already taken to achieve this objective follow.

1. Concentration of available manpower and talent on each review assignment consistent with staffing requirements.

2. Performance of preliminary surveys, where necessary, to determine degree and depth of coverage.

3. Preparation of more detailed review programs.

4. Maintenance of closer liaison and coordination between headquarters and field station personnel.

5. Maintenance of closer coordination with operating dirisions in Washington, relative to proposed work plans.

6. Maintenance of close liaison with the agencies with respect to their major program and policy changes in order to give effect to them in programing future agency reviews.

Continued efforts will be made along the lines described above to extend the degree and depth of our coverage consistent with the need for maintaining & balanced review program of United States activities in the Europe, North Africa, and Near East areas.

Improring agency acrounting.-- In the programing of our work and in execution of our review responsibilities, more attention will be given to major aspects of agenry financial administration. This will include an evaluation of the tynes and effectiveness of management controls existing within an agency; the soundness of its financial policies and procedures and the consistency of their application: the timeliness and usefulness of financial reports generated; and the degree to which the ageney's systems of programing, hudxeting, accounting, and reporting have been integrated. We are stressing the peed for assisting the agencies, to the extent appropriate, to correct defciencies in their systems and management controls and are cooperating in the further development of their accounting systems, as required by section 112 (b) of the Budget and Accounting

Procedures Act of 1950. In view of the passage of more recent legislation which requires the maintenance of agency accounting on an accrual basis as a prerequisite to the submission of cost based budgets, we anticipate a need for a greater effort by our Office in this direction.

Processing of reports.-Efforts are being made to effect improvements in the time required for the headquarters staff to process reports prepared by the various field stations. Organizational changes at the headquarters staff level put into effect in the fall of 1956 have brought about improvements; however, additional improvement is anticipated.

PAST ACTIVITIES

Broadly, past reviews by the General Accounting Office in Europe have concerned the procurement activities of United States agencies in Europe ; military construction programs in Spain, France, England, and Germany; Army and Air Force supply activities, and the military and economic assistance programs. While the manpower available has not permitted complete coverage of these vast activities, our selective reviews have disclosed many fundamental problem areas; have resulted, in many instances, in effective corrective action; and, in specific instances, have achieved substantial savings and recoveries to the United States.

CURRENT ACTIVITIES

With the gradual increase in the European staff, it has been possible to extend and increase our coverage of areas which have been reviewed in the past and to broaden our examinations to activities which we had not been able to review at an earlier time. Procurement

Current assignments in the procurement area include the review of offshore procurement to determine that exemptions from foreign taxes and other bonifications received by the contractors have been passed on to the United States ; an examination of the current offshore procurement programs of the United States Army, Europe, and the Air Materiel Forces, European area ; the administration of contracts by the London Air Procurement District; local purchasing activities of the 12th Air Force; and an examination of contracts negotiated by the United States Information Agency in Italy. Our examination of procurement is directed primarily toward the actions leading to the award of contracts and their administration after award. Among the conditions which contribute to the complexities of procurement abroad and which must be considered during our review are those listed below.

1. The items being procured are sometimes of American design and specification, Consequently, the European producer has no prior cost or production experience; he must obtain rights to manufacture from the American producer; he must obtain technical assistance from the American manufacturer; and he must guess how quickly his personnel can absorb the technical assistance and production know-how-all of which tend to result in vague estimates of costs and prices.

2. The procurement directive will frequently direct that the contract be placed in certain countries for economic or political reasons or with certain companies so as to maintain a previously established production base. As a consequence, competitive bidding is eliminated and greater effort and reliance must be placed on price analysis and on price negotiations.

3. As a result of certain policy decisions, contracts will oftentimes be placed on a government-to-government basis. In some instances the foreign government does not provide adequate cost estimates, with the result that the procuring officer is unable to make a satisfactory cost analysis of the quoted price. The procuring officer usually has no control over the selection of the subcontractor who performs for the foreign government. Therefore, the contracting officer is not in a position to make any firm determination regarding the propriety of the contract price.

Cost-reimbursement-type or redeterminable price contracts are not used extensively in Europe because (1) price redetermination is foreign to the European way of doing business, (2) prime contractors are reluctant to redetermine prices on subcontracts, and (3) contracting officers find it difficult to obtain agreement with European contractors as to what constitutes costs under their contracts.

At the outset, the local head of the agency is advised of our desire to discuss our findings at the conclusion of the work. The primary object of such a final interview is not only to verify the factual accuracy of the matters on which our conclusions and recommendations are based but to obtain management's viewpoints, particularly on controversial issues or actions we consider questionable, for inclusion in our written report. Reporting

Whenever practicable, management officials in Europe are provided with a draft of our proposed report a few days prior to the final interview. Also, the draft report, including pertinent comments of management obtained at the exit interview, is formally submitted to the highest management official of that agency in Europe for written comment. A copy of the report may be furnished to the head of the installation or organizational entity reviewed if deemed appropriate or desirable. Upon receipt of the agency's reply, our findings are further evaluated in the light of any additional information or facts furnished. The draft report is then submitted to our Washington office along with the agency's comments for appropriate action.

Since July 1955, the Branch has issued 152 reports. Some of these concerned matters which were satisfactorily resolved in Europe. Others have been referred to departmental levels in Washington for further consideration and action. Some have involved matters of such significance or concern that they have been or will be referred to the Congress. Annex J, attached, shows the disposition made of the 152 reports submitted by the Branch during the 23month period ended May 31, 1957. Areas for improvement

We are attempting to improve the effectiveness of our administration and operations. There are significant areas where improvement can be effected and corrective action taken. A brief outline of these areas follows.

Headquarters staff personnel.—The ratio of "staff" personnel to "operations" personnel is considered to be unfavorable.

Procedures Act of 1950. In view of the passage of more recent legislation which requires the maintenance of agency accounting on an accrual basis as a prerequisite to the submission of cost based budgets, we anticipate a need for a greater effort by our Office in this direction,

Processing of reports.—Efforts are being made to effect improvements in the time required for the headquarters staff to process reports prepared by the various field stations. Organizational changes at the headquarters staff level put into effect in the fall of 1956 have brought about improvements; however, additional improvement is anticipated.

PAST ACTIVITIES

Broadly, past reviews by the General Accounting Office in Europe have concerned the procurement activities of United States agencies in Europe; military construction programs in Spain, France, England, and Germany; Army and Air Force supply activities, and the military and economic assistance programs. While the manpower available has not permitted complete coverage of these vast activities, our selective reviews have disclosed many fundamental problem areas; have resulted, in many instances, in effective corrective action; and, in specific instances, have achieved substantial savings and recoveries to the United States.

CURRENT ACTIVITIES

With the gradual increase in the European staff, it has been possible to extend and increase our coverage of areas which have been reviewed in the past and to broaden our examinations to activities which we had not been able to review at an earlier time. Procurement

Current assignments in the procurement area include the review of offshore procurement to determine that exemptions from foreign taxes and other bonifications received by the contractors have been passed on to the United States ; an examination of the current offshore procurement programs of the United States Army, Europe, and the Air Materiel Forces, European area; the administration of contracts by the London Air Procurement District; local purchasing activities of the 12th Air Force; and an examination of contracts negotiated by the United States Information Agency in Italy. Our examination of procurement is directed primarily toward the actions leading to the award of contracts and their administration after award. Among the conditions which contribute to the complexities of procurement abroad and which must be considered during our review are those listed below.

1. The items being procured are sometimes of American design and specification. Consequently, the European producer has no prior cost or production experience; he must obtain rights to manufacture from the American producer; he must obtain technical assistance from the American manufacturer; and he must guess how quickly his personnel can absorb the technical assistance and production know-how-all of which tend to result in vague estimates of costs and prices.

2. The procurement directive will frequently direct that the contract be placed in certain countries for economic or political reasons or with certain companies so as to maintain a previously established production base. As a consequence, competitive bidding is eliminated and greater effort and reliance must be placed on price analysis and on price negotiations.

3. As a result of certain policy decisions, contracts will oftentimes be placed on a government-to-government basis. In some instances the foreign government does not provide adequate cost estimates, with the result that the procuring officer is unable to make a satisfactory cost analysis of the quoted price. The procuring officer usually has no control over the selection of the subcontractor who performs for the foreign government. Therefore, the contracting officer is not in a position to make any firm determination regarding the propriety of the contract price.

Cost-reimbursement-type or redeterminable price contracts are not used extensively in Europe because (1) price redetermination is foreign to the European way of doing business, (2) prime contractors are reluctant to redetermine prices on subcontracts, and (3) contracting officers find it difficult to obtain agreement with European contractors as to what constitutes costs under their contracts.

Construction

Our current reviews of construction activities include: the Spanish base construction program which is administered by the Bureau of Yards and Docks, Department of the Navy, under the general direction of the Secretary of the Air Force, the executive agent for the program; the joint construction agency which administers construction contracts for the Departments of the Army, Navy, and Air Force in various sections of Europe; and construction in the United Kingdom and Germany under the supervision of the Department of the Air Force and the High Commissioner for Germany.

Spanish bases.--In Spain, two joint ventures of American firms supervise architectural-engineering services and construction for the Bureau of Yards and Docks, Department of the Navy. Actual construction is performed by Spanish and American subcontractors. In France, the Joint Construction Agency must generally use the services of a French governmental agency for contracts exceeding $50,000. The French agency solicits proposals and awards contracts subject to the approval of the Joint Construction Agency. A similar situation exists in the United Kingdom where the British Air Ministry performs contracting services for the United States Air Force. Occupation cost funds (deutschemarks) were used to finance construction of base facilities and rehabilitation of airfields in Germany. The Army and Air Force contracted directly with German firms prior to February 1, 1957 ; after that date, however, contracting has been carried out through the medium of a German governmental agency.

As construction of bases in Spain progressed, we increased the size of our staff in Madrid and developed a program to review the status of construction of each project or base on a rotating basis. As the same time, we review the central activities of the Joint United States Military Group (JUSMG), the Navy officer in charge of construction (OICC), and the prime contractors in Madrid. Controls over payrolls, purchasing, inventories, and equipment, and accounting and reporting procedures are subject to comprehensive examinations.

Our staff is presently engaged in, or has recently completed, the following examinations :