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for the facilities are reduced. Our review has not progressed to the point where we can express an opinion as to the adequacy of these controls, but preliminary findings show that the Air Force has definite procedures established to coordinate construction in progress with its requirements for these facilities.

12th Air Force construction.--We have also reviewed the construction program financed with deutschemark occupation cost funds during the years 1952 through 1956. The object of our review was to determine the degree of control provided over procurement by operating procedures of the 12th Air Force, United States Air Forces in Europe (USAFE), and the extent to which these procedures were being followed by administrative officials. Our review showed that effective control had not been exercised over the procurement phases of the 1952-54 construction program. We brought the discrepancies to the attention of the commander in chief, USAFE, who stated that the weaknesses were due to the requirements of a crash program. A number of corrective measures were taken to improve procurement and contracting operations. However, completely effective controls had not been initiated prior to our review of 1955 and 1956 transactions. A consolidated draft report on 1952–56 activity was recently submitted to the commander in chief, USAFE, particularly to obtain his comments on the findings relative to the period 1955–56. Examination and evaluation of supply activities

The work of the European Branch in the area of supply is concentrated on the review and evaluation of depot supply control centers, storage sites, and special supply programs operated by the military services to give logistic support to the network of widely scattered operational bases used by the United States and NATO forces in the European, north Africa, and Middle East areas. These activities receive, store, issue, and dispose of hundreds of millions of dollars of spare parts and supplies; employ thousands of military personnel, United States civilians, and foreign nationals; and cost millions of dollars annually to operate. Because of strategic requirements and conditions peculiar to operations in a foreign country, we have found that overseas supply activities frequently operate quite differently from their stateside counterparts and follow special rules and regulations within the areas of programing, computation of requirements, management of stocks, and disposal of excesses.

Because of the number and size of the supply activities within the European area, full comprehensive reviews of all military supply commands have not yet been made. However, we are currently making a comprehensive review of Army signal supply activities in Europe and plan to undertake similar reviews of other major supply commands as soon as practicable. We are also examining the Air Force and Army materiel reserve programs and Army engineer supply activities and equipment requirements.

Our review efforts include an evaluation of property accounting, stockage objectives, requisitioning actions, timely generation and return to issue stock of reparable property, and utilization and disposal of excess property. Special attention is given to the effectiveness of procedures for the screening of military excesses on an interservice basis as well as screening against military aid requirements for friendly countries under the mutual security program.

We have found that many of the problem areas within overseas military supply operations are attributable, to some extent, to delays in the dissemination of instructions: inadequacies in supply training programs for military and civilian personnel ; fluctuations in support responsibilities ; failure to conduct timely and accurate inventories; and unreasonable pipeline time from stateside supply points. United States assistance programs

Reviews performed by the European Branch of United States assistance programs to eligible free countries of the world are, for the most part, directed by the Civil and Defense Accounting and Auditing Divisions, headquartered in Washington, D. C.

From time to time, these divisions request the Branch to perform review work on selected organizational entities or activities. To assist us to expeditiously meet GAO review responsibilities, as well as to assure a well-coordinated review effort at the several locations, the responsible operating division outlines the scope of the work and the overall objectives to be achieved. Our review is then performed within this framework.

Military-assistance program.-Based on instructions from our Washington office, our part in the current year's review of the military-assistance p ገ 2, will include an examination of the programs for Greece and Iran, a review of offshore procurement under the fiscal year 1958 program, and a review of the facilities-assistance program in Europe. Generally, our review of the selected country programs include an inquiry on the following major activities:

1. The development of requirements for the buildup, modernization, and maintenance of approved country forces.

2. The controls exercised over the delivery of military end items to the recipient countries.

3. The standards of utilization or performance achieved by the country forces equipped under the military-assistance program and the corrective action taken by MAAG's where necessary.

4. The degree to which MAAG reports and recommendations to higher commands are based on realistic estimates of present and prospective country

capabilities. In addition to the above, we will also scrutinize the programing and provisioning of spare parts and determine whether the phasing of deliveries to recipient countries are in accord with their force buildup and capabilities for utilization.

To accomplish these objectives, emphasis will be placed on the program submissions developed by the MAAG's for fiscal years 1958 and 1959. Review work relative to the development of country requirements and the determination of country deficiencies will be undertaken with particular reference to force goals approved by the United States Joint Chiefs of Staff (JCS) and the programing criteria established by the Assistant Secretary of Defense, International Security Affairs (ASD-ISA).

Economic-assistance program.- Economic assistance is closely tied to our international political relations and thus is governed in large measure by considerations of foreign policy. For this and other reasons, examination of United States economic-assistance programs for selected countries has been performed largely by our Washington office. However, we have had occasion to visit several ICA overseas missions for the purpose of reviewing one or more specific activities or programs. For example, the Branch conducted an examination of several special aid programs to France administered by the overseas mission which concerned the financing of indigenously produced military end items. ICA programs of this nature were evaluated in connection with our review of the military-assistance program. Also, specific requests have been made by our headquarters office to review certain activities of selected overseas missions in conjunction with concurrent review efforts at the agency level. Such reviews were recently made at the United States operations missions in Germany, Yugoslavia, and Spain. Systems development

The Branch is frequently requested to provide technical accounting advice and assistance to the agencies in Europe in the solution of accounting problems which are either peculiar to overseas operations or which are generated by the extension of new accounting concepts. Most recently, the enactment of Public Law 863, 84th Congress, and the implementing policy guidance, such as Bureau of the Budget Bulletin 57–5, dated October 10, 1956, and Air Force Regulation 170-6 on the financial management system, have developed an increasing demand upon the services of the Branch.

In all of these efforts and also based upon our reviews of systems and procedures, we work very closely with the agencies on a cooperative basis and have had considerable success in accomplishing improvements. Where problems cannot be solved locally, because of policies or procedures emanating from higher authority, we bring these to the attention of responsible officials at higher echelons with generally favorable results. In instances where corrective action is required at the department level, we submit coordinated evaluations of systems or procedures with recommended simplifications through simultaneous Army or Air Force and GAO channels to top-management officials in Washington. Three of these joint studies by our office and the military services achieved worldwide changes in policy and improved procedures in a relatively short period of time.

In addition, the Branch has encouraged Army and Air Force initiative through the organization of cooperative systems teams, with General Accounting Office participation. Most notable of these organizations is the United States Army, Europe, Field Assistance Team which was established in November 1955. This approach to the solution of many of the problems in accounting and related areas proved to have a number of advantages over other possible methods of operation, It has facilitated carrying out the provisions of the Budget and Accounting Procedures Act of 1950—which requires the General Accounting Office to cooperate with the executive agencies in the development of their accounting systems consistent with the overall principles, standards, and related requirements as prescribed by the Comptroller General-with a relatively small expenditure of our manpower since the systems teams and assigned projects are under the chairmanship of Army or Air Force officers and staffing is predominately military. This cooperative and constructive approach has greatly improved our relations with these agencies without infringing upon our independence of action and has resulted in our becoming more knowledgeable of their operational problems.

During the past year we assisted USAREUR in implementing the depot cost accounting system at several installations as a preliminary to converting each depot to the Army depot command management system. Currently, we are assisting USAREUR in testing the implementation of the Army command management system at the Headquarters Area Command (HACOM) which is just outside of Heidelberg, Germany. This system is designed to meet the requirements of budgeting in terms of costs and maintenance of accounting on the accrual basis. Legal assistance

The primary responsibility of the legal staff is to furnish advice and counsel to the Director and staff members. The variety and scope of the audit, accounting, and investigative functions necessarily have generated a wide range of legal problems which must be resolved before the product can be released by the European Branch.

The legal work of the Branch includes a review of the laws, regulations, and other pertinent material in connection with current assignments. In this manner, problem areas may be highlighted and the assignments directed accordingly.

Also, upon the request of other agencies, legal assistance and advice is furnished on matters ordinarily within the jurisdiction of the General Accounting Office. Special investigations

Investigations are undertaken by the Branch as requested by the Comptroller General. Such investigations are for the most part based on special requests from Congress or stem from matters developed during the course of agency reviews.

One of the particular problem areas encountered in the investigative work of the Branch is the restriction placed upon the interrogation of foreign nationals, even when such individuals are employed by United States activities. In order to interview such personnel or to obtain information from hotels, banks, and/or foreign corporations, time-consuming special arrangements are often necessary.


A copy of the latest quarterly progress report submitted by the Branch is attached as annex K.

PLANNED WORK In the future, we plan to continue to emphasize our work on the activities of the Department of Defense in Europe and selected portions of the United States assistance programs. A schedule of specific assignments planned for the period July 1 to December 31, 1957, will be furnished to the committee upon their arrival in Europe. This list will illustrate the varied and complex assignments which comprise the work of the European Branch. Exhibit L, attached, is a schedule of the estimated expenditures for fiscal years 1957 and 1958 for the major United States activities in the European area. These figures are subject to adjustment, but they illustrate the magnitude of the areas with which the Branch plans to concern itself.



THE BUDGET AND ACCOUNTING ACT, 1921 Specific authorizations. The following authorizations for the examination of financial transactions of the United States Government and related activities are included in the Budget and Accounting Act, 1921.

Section 312: "(a) The Comptroller General shall investigate, at the seat of government or elsewhere, all matters relating to the receipt, disbursement, and application of public funds, and shall make to the President when requested by him, and to Congress at the beginning of each regular session, a report in writing of the work of the General Accounting Office, containing recommendations concerning the legislation he may deem necessary to facilitate the prompt and accurate rendition and settlement of accounts and concerning such other matters relating to the receipt, disbursement, and application of public funds as he may think advisable. In such regular report, or in special reports at any time when Congress is in session, he shall make recommendations looking to greater economy or efficiency in public expenditures” (31 U. S. C. 53 (a)).

"(b) He shall make such investigations and reports as shall be ordered by either House of Congress or by any committee of either House having jurisdiction over revenue, appropriations, or expenditures. The Comptroller General shall also, at the request of any such committee, direct assistants from his office to furnish the committee such aid and information as it may request (31 U. S. C. 53 (b)).


Analysis of Government expenditures.—The following authority is set forth in the Legislative Reorganization Act of 1946.

“The Comptroller General is authorized and directed to make an expenditure analysis of each agency in the executive branch of the Government (including Government corporations), which, in the opinion of the Comptroller General, will enable Congress to determine whether public funds have been economically and efficiently administered and expended” (31 U. S. C. 60).


Audit of property accounts.The Federal Property and Administrative Serv. ices Act of 1949 provides the following audit authority with respect to Government-controlled property.

"The General Accounting Office shall audit all types of property accounts and transactions at such times and in such manner as determined by the Comptroller General. Such audit shall be conducted as far as practicable at the place or places where the property or records of the executive agencies are kept and shall include but not necessarily be limited to an evaluation of the effectiveness of internal controls and audits and a general audit of the discharge of accountability for Government owned or controlled property based upon generally accepted principles of auditing" (40 U.S. C. 487 (c)).

Development and review of property accounting systems.--Also, section 205 (b) of this act provides for the development and review of property accounting systems by the General Accounting Office.

Section 205: "(b) The Comptroller General, after considering the needs and requirements of the executive agencies, shall prescribe principles and standards of accounting for property, cooperate with the Administrator and with the executive agencies in the development of property accounting systems, and approve such systems when deemed to be adequate and in conformity with prescribed principles and standards. From time to time the General Accounting Office shall examine such property accounting systems as are established by the executive agencies to determine the extent of compliance with prescribed principles and standards and approved systems, and the Comptroller General shall report to the Congress any failure to comply with such principles and standards or to adequately account for property” (40 U. S. C. 486 (b)).


Policy of Congre88.-The Budget and Accounting Procedures Act of 1950 was approved on September 12, 1950. Title II of this act, known as the Accounting and Auditing Act of 1950, defined in more specific terms the existing audit authority of the General Accounting Office. It contains the declared policy of the Congress with respect to auditing for the Government, as set forth in the following paragraph.

Section 111 (d) of the act provides that it is the policy of the Congress that:

“The auditing for the Government, conducted by the Comptroller General of the United States as an agent of the Congress be directed at determining the extent to which accounting and related financial reporting fulfill the purposes specified, financial transactions have been consummated in accordance with laws, regulations, or other legal requirements, and adequate internal financial control over operations is exercised, and afford an effective basis for the settlement of accounts of accountable officers" (31 U. S. C. 65 (d)).

Audit provisions.—The specific audit provisions of the act are stated in section 117 (a) as follows:

“Except as otherwise specifically provided by law, the financial transactions of each executive, legislative, and judicial agency, including but not limited to the accounts of accountable officers shall be audited by the General Accounting Office in accordance with such principles and procedures and under such rules and regulations as may be prescribed by the Comptroller General of the United States. In the determination of auditing procedures to be followed and the extent of examination of vouchers and other documents, the Comptroller General shall give due regard to generally accepted principles of auditing, including consideration of the effectiveness of accounting organizations and systems, internal audit and control, and related administrative practices of the respective agencies" (31 U. S. C. 67 (a)).

Development and review of accounting systems. This act provides also that the General Accounting Office will cooperate in the development and review of the accounting systems of the executive agencies.

Section 112: “(b) The General Accounting Office shall cooperate with the executive agencies in the development of their accounting systems, including the Treasury Department, in the development and establishment of the system of central accounting and reporting required by section 114 of this part. Such accounting systems shall be approved by the Comptroller General when deemed by him to be adequate and in conformity with the principles, standards, and related requirements prescribed by him.

"(c) The General Accounting Office shall from time to time review the accounting systems of the executive agencies. The results of such reviews shall be available to the heads of the executive agencies concerned, to the Secretary of the Treasury, and to the Director of the Bureau of the Budget, and the Comptroller General shall make such reports thereon to the Congress as he deems proper" (31 U. S. C. 66 (b), 66 (c)).


Examination of records under the Budget and Accounting Act, 1921.-Section 313 of the Budget and Accounting Act, 1921, provides: "All departments and establishments shall furnish to the Comptroller General such information regarding the powers, duties, activities, organization, financial transactions, and methods of business of their respecttive offices as he may from time to time require of them; and the Comptroller General, or any of his assistants or employees when duly authorized by him, shall, for the purpose of securing information, have access to and the right to examine any books, documents, papers, or records of any such department or establishment. The authority contained in this section shall not be applicable to expenditures made under the provisions of section 107 of this title" (31 U. S. C. 54).

Examination of contractors' records.-Section 304 of the Federal Property and Administrative Services Act of 1949, as amended (41 U. S. C. 254 (c)), and section 4 of the Armed Services Procurement Act of 1947 (41 U. S. C. 153 (c)), as amended, provide that:

"All contracts negotiated without advertising pursuant to authority contained in this (chapter) (Act) shall include a clause to the effect that the Comptroller General of the United States or any of his duly authorized representatives shall until the expiration of three years after final payment have access to and the right to examine any directly pertinent books, documents, papers, and records of the contractor or any of his subcontractors engaged in the performance of and involving transactions related to such contracts or subcontracts."

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