PERFORMANCE OF RESPONSIBILITIES BY THE EUROPEAN BRANCH

In performing its responsibilities in the Government-owned property area, the European Branch has conducted audits and investigations, assisted executive agencies in developing and reviewing accounting systems and related controls, and participated in executive agency management conferences. These operations and their results are described briefly in the following paragraphs. Audits

The European Branch has conducted audits of the major phases of militarysupply operations in Europe. The work of the Branch in the audit area is described in the following sections.

Air Force.—The Branch has concentrated its audits of Air Force supply operations at the depot level rather than at airbases, mainly because the dollar volume of business is larger at the depot level. Audits have been performed at each of the major Air Force supply depots located at Chateauroux, France; Burtonwood, England; and Nouaseur, Morocco; as well as the Bordeaux Air Depot which was closed in June 1957. The most critical weaknesses noted in the audits have been disclosed in recent audits. The reporting to GAO, Washington, of the facts developed and the related conclusions, recommendations, and corrective actions taken or contemplated is a very important project of the Branch, and all efforts are being extended to accomplish this end in an expeditious manner. It is to be emphasized that, although the Branch has completed its fieldwork at Chateauroux, Burtonwood, and Nouaseur, the results of these reviews have not been reported to GAO, Washington. A few brief statements on the Branch's audits follow.

Central air materiel area, Europe: In April 1953 the Branch examined the supply operations of the Chateauroux Air Depot, now known as central air materiel area, Europe (CAMAE). At that time the depot was in its early stages of operations and lacked warehouses and other facilities to carry out its supply mission effectively. The major weaknesses disclosed in this review were (1) inaccurate inventory records of stock on hand and lack of physical inventories; (2) improper warehousing methods; and (3) lack of necessary safeguards to protect Government-owned property. These deficiencies were pointed out to Air Force officials in Europe who stated that action had been on would be instituted to correct the weaknesses.

A followup review was made in May and June 1955. It was then noted that the storage conditions had been improved and certain necessary safeguards to protect Government property had been instituted; however, other major weaknesses previously reported had not been corrected and additional disclosures were made. The Branch found that (1) the depot had large quantities of supplies on order with prime depots in the United States which were not required ; (2) realistic stock levels had not been established; (3) stock records were inaccurate; (4) stock on hand requiring only minor modifications or inspections was not being considered in satisfying customer requirements; and (5) a complete physical inventory had never been accomplished since the inception of the depot. Recommendations were made to the Air Force to effect improvements in these major areas of deficiency. Immediately thereafter the depot initiated a program to correct these weaknesses. The depot reviewed its outstanding orders with suppliers and found that 30 percent of its 153,000 orders were not required. These excess orders valued at $5,400,000 were canceled. The Air Force informed the Branch that future orders would be reviewed every 90 days and would reflect only valid customer requirements. Other improvements, such as establishment of sound stock levels, 100 percent property location checks, and initiation of inspection and other control programs, were instituted by the depot.

Subsequent to this review the Air Force requested that they be given a reasonable period of time to improve their supply operations at Chateauroux before the Branch initiated a followup review.

A third and more comprehensive review of the depot was completed by the Branch in March 1957. This examination revealed that all of the major deficiencies previously pointed out, except lack of suitable storage facilities, still existed. The review disclosed that administrative actions initiated subsequent to the Branch's previous audit accomplished only partial correction of the immediate deficiencies and did not prevent their recurrence. For example, the depot still had orders with prime depots for significant quantities of stock which were not required, and the stock levels and stock records were again found to be inaccurate. In a test of outstanding orders with prime depots the

Branch questioned the need for certain supplies on order valued at $1,177,000. The depot reviewed these orders and found that orders totaling $815,500 were not required. The depot canceled orders in the amount of $781,000; however, other orders valued at $34,500 could not be canceled because the materiel had been shipped by CAMAE's suppliers.

This review also pointed out that CAMAE had large quantities of stock on hand which were excess to its needs. The excess quantities could not be determined with any reasonable degree of accuracy because CAMAE did not have realistic stock levels, a primary factor in computing excess stocks. However, during the period July 1956 to March 1957 CAMAE reviewed certain categories of stock valued at $90 million and found that of this total over $30 million was excess to its needs.

Based on findings in this review, as well as previous reviews, a large part of CAMAE's excess stocks came into the European theater because the depot and its customers had ordered too much stock from United States depots. A large part of the overordering is attributable to inaccurate stock records and failure of the depot to institute effective controls over ordering and issuing supplies.

The operating deficiencies disclosed in our last review have been pointed out to Air Force officials in Europe who have directed CAMAE to take immediate action to correct the deficiencies and prevent their recurrence.

Southern air materiel area, Europe: In January 1957 the Air Force entered into a program to deactivate the southern air materiel area, Europe (SAMAE). This program was initiated to carry out the Air Force policy of direct support of overseas bases by depots in the United States.

The Branch made an audit of SAMAE's operations in July and August 1957 in which special emphasis was placed on determining whether SAMAE was deactirating in a manner which would provide for maximum utilization of existing depot stocks.

Serious deficiencies were found in the deactivation processes. For example, the Branch found that SAMAE had terminated supply support of the bases in the southern area on June 1, 1957. After that date the bases submitted their requisitions directly to prime depots in the United States. A review of the requisitions submitted after June 1957 to the prime depots by two airbases in Morocco disclosed that many of the items needed by the bases and ordered from the United States were on hand at SAMAE. Out of 700 items selected for test it was found that SAMAE had stocks on record in 284 cases. At the time of our review, SAMAE had scheduled two-thirds of the items on hand to be disposed of by local sale or by return to the prime depots.

The Branch informed Air Force officials that the above condition at SAMAE is more critical than the review indicated since other tests made by the Branch had revealed that much of the material in the depot is not on record. A complete inventory has never been accomplished at SAMAE and the stock control records are so inaccurate that they are almost valueless as a basis for any supply action.

The Branch noted that as part of its program for redistribution of depot stocks SAMAE had furnished lists of stock on record to the Chateauroux Air Depot. Chateauroux was to review these lists to determine wbat items could be utilized in its operations. However, SAMAE proceeded to initiate shipping documents to transfer its stock to the disposed facility or to return the stock to the prime depots without waiting for any reply from Chateauroux. The Branch followed up this matter at Chateauroux and found that inadequate action had been taken at that depot.

In addition, our review at SAMAE disclosed that no attempt was made to circularize lists of the depot's excess stocks as required by regulations to make them available to other military services and Federal agencies.

The deficiencies disclosed by the Branch's review at SAMAE were brought to the attention of the Commander, Air Materiel Force, European Area, on August 12, 1957. In a letter to the Branch dated August 19, 1957, he indicated that action was being taken to correct the major deficiencies pointed out so as to insure a more efficient and economical disposition of material during the phasedown of SAMAE.

Northern air materiel area, Europe: The Branch completed the fieldwork in its audit of supply operations of the northern air materiel area, Europe (NAMAE), in July 1957. The major operating weaknesses found at NAMAE closely parallel those which have existed at CAMAE for some time.

For example, the Branch found that large quantities of supplies were on order from United States depots which were not required. A large part of these orders were for supplies peculiar to aircraft for which NAMAE did not have support responsibility. Also, numerous instances were found where high dollar-value serviceable stock had been declared excess to NAMAE requirements. Two months later, when the Branch reviewed the records, it found outstanding orders with prime depots in the United States for the same line items. These examples of flagrant mismanagement of supplies were pointed out to NAMAE officials, and the Branch recommended that all outstanding orders with suppliers be reviewed to determine if the supplies were needed. NAMAE reviewed their outstanding orders and found that orders for supplies valued at $4,600,000 were not required. Orders for these supplies were canceled.

In addition, the Branch noted that NAMAE was repairing stock for which it did not have a foreseeable demand, while, at the same time, stocks on hand needing repairs and needed by customers were not being repaired. NAMAE told the Branch that this situation would be corrected immediately.

Bordeaux Air Depot: In August 1955 the Branch reviewed the operations of the Bordeaux Air Depot and informed the Air Force that by consolidating the depot administratively and physically with the Chateauroux Air Depot as much as $1 million could be saved annually. The Air Force informed the Branch that military considerations in a potential area of hostilities must precede economic factors, and such a consolidation, therefore, was not compatible with the Air Force dispersal program.

However, in January 1956 CAMAE was requested by higher headquarters to make a study of the need for the Bordeaux Air Depot. The headquarters instructed CAMAE to use the Branch's August 1955 report on the Bordeaux Air Depot as a guide in determining the savings to be realized through consolidation of Bordeaux with the Chateauroux Air Depot activities. As a result of this study, the Air Force deactivated the Bordeaux Air Depot, and its phaseout as a supply depot was completed in May 1957.

Army.-In fiscal year 1954 the Branch began reporting on the Army's supply system in Europe. Reviews were made of the engineer, ordnance, and quartermaster supply operations. In 1955 the signal and medical supply operations were also reviewed, and, in addition, followup reviews were made at those depots and supply control centers where serious deficiencies had been uncovered in previous audits. Currently a followup review of the signal supply operations is in process of finalization.

A number of reports covering the work performed has been prepared. Many of the deficiencies contained in these reports were of major significance and existed in several of the technical service supply operations. Some of the deficiencies were of such magnitude that high Washington officials of the Department of the Army have taken an active interest to eliminate their underlying causes. This interest notwithstanding, the recent review of signal supply operations, which has not yet been reported to GAO, Washington, confirmed the continued existence of many of these deficiencies.

It is, therefore, evident that additional measures are imperative if the Army's supply operations are to attain the efficiency and effectiveness required. And, to be permanently effective, they should be spearheaded by appropriate direction and followup action at the Washington level of the Department of the Army.

The following comments summarize the current status of the major deficiencies found in the Branch's audits of Army supply operations in Europe :

Inaccurate and unreliable records: The original reviews of the Branch disclosed the existence of inaccurate and unreliable records in almost all phases of supply in Europe. Subsequent followup reviews have confirmed the continued existence of the inaccuracies previously reported. The Branch accordingly, in its most recent review of signal supply operations, emphasized this phase and found that inventory records of items on hand in the depots continue to be inaccurate as to quantity, conditions, and location. Records supporting items on order with depots in the United States and on requisition from customers are unreliable. Clerical inaccuracies also continue to be significant with respect to condition of equipment, schedules for maintenance and set assembly, and reservations for special projects. These inaccuracies have delayed excessing action, have led to unnecessary ordering of supplies from the United States, and have resulted in overcrowded warehouses.

The recent tests by the Branch of signal supply operations disclosed that the inventory records and inventory procedures had shown little improvement since the previous review in 1955. An examination of the control records purporting to support $6 million in outstanding orders on depots in the United States disclosed that the amount of the actual outstanding orders was overstated by

approximately $3 million. An analysis revealed that the causes for the inaccuracies were overly complicated systems, inadequate operating procedures, lack of qualified personnel, and lax supervision. Army officials have been cognizant of these weaknesses; however, corrective measures to date as indi. cated by the latest review of signal supply operations have been ineffective in general.

Excessive ordering: The past reviews by the Branch have disclosed that there has been excessive and unwarranted ordering of supplies from depots in the United States. The latest review of signal supply operations has confirmed the continued existence of this deficiency. The Branch found that excessive ordering was due primarily to (1) inaccurate or unrealistic stock levels which had not been adjusted to actual demand experience, (2) inadequate and untimely follow-up on the continuing validity of customers' requisitions, (3) special project reservations for supplies no longer required, (4) failure to screen excess lists before ordering from suppliers to determine whether excess stocks were available to meet customers' demands, (5) lack of timely follow-up on orders previously placed when changes in authorizations have eliminated or reduced the requirements, and (6) duplicate ordering of supplies due to initiation of requisitions by both the using units and their commands.

The recent review of the signal supply operations disclosed that overordering of high dollar value line items continues to be substantial. In a recent test of signal open orders valued at $2.8 million the Branch found that approximately $750,000, or 25 percent, of the orders were not required. The Signal Control Agency reviewed these orders and initiated cancellation action.

The Assistant Secretary of the Army (Logistics) indicated to the General Accounting Office that the recent institution of financial inventory accounting would provide data which would help correct supply deficiencies in many ways. He pointed out that this accounting system which separates the items into logical categories and uses the dollar as a common denominator, would facilitate analysis and review by groups of stock items. He further indicated that this procedure was a practical solution toward solving the problem of trying to adequately review the stock position and activity of each of the approximately 1 million line items in the Army supply system.

The institution of financial inventory accounting is an effective tool and should lead to economies. However, the bulk of the dollar value of the Army inventory is concentrated in a relatively few line items. For example, the Signal Supply Agency in Europe has about 85,000 line items valued at $114 million under its control. About 1,000 line items constitute well over 60 percent of the dollar value of the inventory. For these line items the Branch's reviews have indicated that additional special procedures and controls, as well as closer supervision, are necessary in order to correct existing deficiencies.

Large amounts of excess material: The branch reviews of Army supply operations have disclosed that the program for the disposition of excess material has been and continues to be inadequate. Large quantities of excess material have been and continue to be generated which are not being processed promptly into excessive channels. These excess stocks are taking up warehouse space critically needed for current operations. In addition, care and custody costs are being incurred.

The branch has found that excesses have been caused by changes in equipment authorizations generally resulting from reorganizations of using units, unrealistic stock levels and overordering of supplies. Disposition of the excess supplies has lagged due to a lack of effective procedures implementing overall policies governing the disposition of excess stocks, inaccurate records, inordinate time required to initiate excess actions, and continued special project reservations for material no longer required.

Our latest review of Signal supply operations has further confirmed that the excess property had been established. The latest branch follow-up outlined lected line items valued at approximately $23 million. Of this amount, about $1,800,000 had been declared excess and placed in excessing channels. However, another $6 million of which $2 million had been improperly reserved should also have been placed in excessing channels.

The Army has been aware of this problem and in 1955 the General Accounting Office was informed by the Assistant Secretary of the Army (Logistics) that an improved program for the identification, declaration and prompt disposition of excess property had been established. The latest branch follow-up outlined above indicates that the measures adopted are still inadequate and that additional measures are required.

In another area, the branch’s reviews have disclosed that, as to those items that have been declared excess, reviews of these excess lists have been inadequate. In some instances, Army excesses have not been considered in supplying Air Force requirements and excess lists were not being sufficiently circularized so that items listed could be screened for possible filling of customers' requisitions.

In a review of Army Quartermaster supply operations at Giessen, Germany, the branch found another significant weakness in the manner in which the Army ordered supplies. The ĞAO staff examined records of supplies classified as excess and surplus and found that orders for the same types of supplies recently had been placed with depots in the United States. It was found that this was caused by weaknesses in the Quartermaster operating procedures. These procedures did not provide in all instances for considering supplies on hand classified as excess or stock in disposal yards before placing orders with depots in the United States. This was brought to the attention of Army officials in Europe who took immediate corrective action. Subsequently, during the period July 1 to October 31, 1956, the Army saved ordering supplies valued at $14,641,000 by recouping quantities already on hand in excess and disposal channels. No estimate is available on what has been saved since this period.

Inaccurate reporting: The data accumulated in various reports must be accurate if the decisions based on the data are to be sound. The deficiencies previously enumerated include the disclosure that the basic records governing supply actions are inaccurate and unreliable. Accordingly, the reports based upon these records are also inaccurate.

For example one of the more important reporting features recently introduced has been financial inventory accounting. This system provides all levels of management with dollar valuation data which should assist them in correcting deficiencies. Among other things, it is expected to pinpoint those areas in which excess stocks exist. However, the Branch in its most recent review of Signal operations found that substantial amounts of equipment had been reserved for special projects without proper authorization. These improper reservations decreased the amount of equipment on hand in the regular issue accounts and the financial inventory accounting reports reflected a better excess picture than actually existed.

In another area, the using units report the equipment authorized and on hand through channels to Army Headquarters in Europe which, in turn, prepares a report summarizing this information. The Signal Control Agency is one of the recipients of this report. This agency does not utilize to any great extent the information contained in the report because of the wide discrepancies between its records as to the quantities of equipment authorized and on hand and those quantities reported by the using units. In this case the Signal Control Agency does not attempt to reconcile the differences but instead relies upon its own records in making related supply decisions. Accounting systems

Generally executive agencies operating in Europe have encountered numerous difficulties in implementing property accounting systems and related controls. The systems and controls used in Europe have been patterned mainly after those of stateside counterparts. In certain aspects the systems and controls such as stock funding and accounting for supplies in monetary terms as well as unitary terms, used by the Military Establishment in the United States are relatively new and need continual refinement in order to furnish management with essential and accurate information.

The European Branch began implementing the accounting systems phase of its program in 1955. Steps were taken at that time to organize working teams to install and modernize financial management systems both in the Army and the Air Force. These working teams were organized at the top levels of the European commands of the services and active participants were drawn from the military logistics, operating and comptroller areas and the European Branch of the United States General Accounting Office.

Army.-In December 1955, the United States Army Europe (USAREUR) and the European Branch chartered the USAREUR Field Assistance Team (UFAT). Headquarters USAREUR Logistics and Comptroller and European Branch representatives drew up a multiphased program for assisting all parts of Army commands and subcommands in Europe in developing and implementing financial and accounting systems. After the team had been in operation 1 year, the Comptroller General, in a letter to the Assistant Secretary of the Army (Logistics), had this to say about the objectives and accomplishments of the USAREUR Field Assistance Team: