All projects not included among the program operations with the other American Republics, as explained above, are considered special projects. These special projects differ from the program projects in that after being approved, where such approval is necessary, by the foreign government they are administered by the Institute's technical staff without assistance from the officials of the other American Republics. They are financed, with unimportant exceptions, solely by the United States. A staff of technicians is maintained in each country in which a program is in operation. These technicians supervise all special projects. These projects are carried out in the fields of health and sanitation, food supply, and education, and include such matters as public-health work in the rubber, quartz, and mica areas, motion pictures on health and food-production subjects, training of nationals of the Republics, and furnishing of teaching aids and materials.

THE INQUIRY

Your subcommittee was impressed by the fact that for three successive years the audit reports of the General Accounting Office had included comments and recommendations concerning alleged irregularities and laxity on the part of the Inter-American Affairs Corporations. Consequently, your subcommittee determined to make a study of the matters at issue in order to seek to resolve the differences between the General Accounting Office and the Institute and to effectuate improvements in the operations criticized. When in the course of its studies your subcommittee finds the existence of wasteful and inefficient practices, its policy is to obtain remedies administratively where possible.

Executive-session hearings were called for the purpose of affording officials of the Institute of Inter-American Affairs the opportunity of stating their views with respect to the questions raised in the audit reports with regard to efficiency and economy of operations. The hearings were held in the three sessions, respectively, on April 28, May 5, and July 11, 1949. The Committee on Foreign Affairs and the Appropriations Committee were notified of the hearings and representatives of the Bureau of the Budget were invited to attend.

To expedite the hearings, at the request of the subcommittee, the Comptroller General furnished a summarized statement of his comments, findings, and recommendations. This statement also included a list of transactions which, in his opinion, were illustrative of laxity on the part of the corporations comprising the Inter-American Affairs group with respect to the expenditure of public funds. The General Accounting Office is to be complimented for the thoroughness of the audit reports furnished for the information of the Congress. Reference to these reports published as House documents is recommended for a detailed discussion of the subjects.

The General Accounting Office stated that the irregularities discussed in its report were illustrative of a general situation, and those discussed were merely examples rather than a total picture. In the subcommittee's study of the subject, it found that the points raised by the Comptroller General lend themselves to a grouping into four major categories.

1. Laxity in control over administrative expenditures

Illustrative of this category are various instances of transportation requests improperly used; failure to revise insurance coverage on a barge in keeping with rerouting; advances to "servicios" in excess of amounts specified in agreements; failure to take advantage of available discounts.

2. Programs of questionable legality

This involved activities where technical compliance with congressional authorization or intent was questioned.

3. Items of wastefulness and improper expenditure resulting from_mistaken or questionable judgment made possible through use of corporate device

Under this category fall items involving special allowances to employees based on dubious justification; payment of employees' unauthorized expenses occasioned by employees' negligence; questionable approval of transportation for employees' dependents; losses on equipment purchased which could not be used for the purposes intended

4. Administrative decisions affecting expenditure control

This item relates to the complete elimination of field auditors in the fiscal year 1949.

At the close of the hearings of May 5, 1949, the subcommittee instructed the respective officials of the Corporation and the General Accounting Office to attempt a reconciliation of their differences on as many of the subjects in disagreement as possible. Pursuant to these instructions, the two agencies reported to your subcommittee a partial agreement which was reached administratively. These included some, but not all, of the items enumerated under 1 and 3. Your subcommittee determined, therefore, to hold another hearing on July 11, in order that the differing views of the two agencies could be heard, and in order to seek to resolve further differences; to provide for recovery of such additional funds as appeared feasible; to assure that administrative steps had been or would be taken to prevent a recurrence of questionable practices; and to determine whether specific suggestions should be made to the Foreign Affairs Committee.

THE FINAL HEARING

At the final hearing the subcommittee took up in detail each of the items still in disagreement.

Group 1.-It was found that there had been some apparent laxity on the part of various corporations in the Inter-American Affairs group in failing to correct irregular practices which had been pointed out by their own auditors, but it was also determined that such action as is now possible is being undertaken to recover amounts due from former employees, most of whom are no longer connected with the service. The committee was also assured that administrative action has been taken by the present Institute to avoid recurrences.

It appeared to the subcommittee that the failure of the InterAmerican Navigation Corporation to amend the insurance coverage to conform with a change in a barge routing actually resulted in no loss to the Corporation, although a subsequent loss to the Government may

All projects not included among the program operations with the other American Republics, as explained above, are considered special projects. These special projects differ from the program projects in that after being approved, where such approval is necessary, by the foreign government they are administered by the Institute's technical staff without assistance from the officials of the other American Republics. They are financed, with unimportant exceptions, solely by the United States. A staff of technicians is maintained in each country in which a program is in operation. These technicians supervise all special projects. These projects are carried out in the fields of health and sanitation, food supply, and education, and include such matters as public-health work in the rubber, quartz, and mica areas, motion pictures on health and food-production subjects, training of nationals of the Republics, and furnishing of teaching aids and materials.

THE INQUIRY

Your subcommittee was impressed by the fact that for three successive years the audit reports of the General Accounting Office had included comments and recommendations concerning alleged irregularities and laxity on the part of the Inter-American Affairs Corporations. Consequently, your subcommittee determined to make a study of the matters at issue in order to seek to resolve the differences between the General Accounting Office and the Institute and to effectuate improvements in the operations criticized. When in the course of its studies your subcommittee finds the existence of wasteful and inefficient practices, its policy is to obtain remedies administratively where possible.

Executive-session hearings were called for the purpose of affording officials of the Institute of Inter-American Affairs the opportunity of stating their views with respect to the questions raised in the audit reports with regard to efficiency and economy of operations. The hearings were held in the three sessions, respectively, on April 28, May 5, and July 11, 1949. The Committee on Foreign Affairs and the Appropriations Committee were notified of the hearings and representatives of the Bureau of the Budget were invited to attend.

To expedite the hearings, at the request of the subcommittee, the Comptroller General furnished a summarized statement of his comments, findings, and recommendations. This statement also included a list of transactions which, in his opinion, were illustrative of laxity on the part of the corporations comprising the Inter-American Affairs group with respect to the expenditure of public funds. The General Accounting Office is to be complimented for the thoroughness of the audit reports furnished for the information of the Congress. Reference to these reports published as House documents is recommended for a detailed discussion of the subjects.

The General Accounting Office stated that the irregularities discussed in its report were illustrative of a general situation, and those discussed were merely examples rather than a total picture. In the subcommittee's study of the subject, it found that the points raised by the Comptroller General lend themselves to a grouping into four major categories.

1. Laxity in control over administrative expenditures

Illustrative of this category are various instances of transportation requests improperly used; failure to revise insurance coverage on a barge in keeping with rerouting; advances to "servicios" in excess of amounts specified in agreements; failure to take advantage of available discounts.

2. Programs of questionable legality

This involved activities where technical compliance with congressional authorization or intent was questioned.

3. Items of wastefulness and improper expenditure resulting from mistaken or questionable judgment made possible through use of corporate device

Under this category fall items involving special allowances to employees based on dubious justification; payment of employees' unauthorized expenses occasioned by employees' negligence; questionable approval of transportation for employees' dependents; losses on equipment purchased which could not be used for the purposes intended

4. Administrative decisions affecting expenditure control

This item relates to the complete elimination of field auditors in the fiscal year 1949.

At the close of the hearings of May 5, 1949, the subcommittee instructed the respective officials of the Corporation and the General Accounting Office to attempt a reconciliation of their differences on as many of the subjects in disagreement as possible. Pursuant to these instructions, the two agencies reported to your subcommittee a partial agreement which was reached administratively. These included some, but not all, of the items enumerated under 1 and 3. Your subcommittee determined, therefore, to hold another hearing on July 11, in order that the differing views of the two agencies could be heard, and in order to seek to resolve further differences; to provide for recovery of such additional funds as appeared feasible; to assure that administrative steps had been or would be taken to prevent a recurrence of questionable practices; and to determine whether specific suggestions should be made to the Foreign Affairs Committee.

THE FINAL HEARING

At the final hearing the subcommittee took up in detail each of the items still in disagreement.

Group 1.-It was found that there had been some apparent laxity on the part of various corporations in the Inter-American Affairs group in failing to correct irregular practices which had been pointed out by their own auditors, but it was also determined that such action as is now possible is being undertaken to recover amounts due from former employees, most of whom are no longer connected with the service. The committee was also assured that administrative action has been taken by the present Institute to avoid recurrences.

It appeared to the subcommittee that the failure of the InterAmerican Navigation Corporation to amend the insurance coverage to conform with a change in a barge routing actually resulted in no loss to the Corporation, although a subsequent loss to the Government may

have occurred after the barge was transferred to the War Shipping Administration. It is at this time impossible to determine whether any loss actually occurred, and also appears impossible to secure restitution if such loss did occur. The subcommittee was provided with assurance by officials of the present Institute that its regulations and administrative procedures will preclude a repetition of this type of laxity.

The remainder of the items covered under this category were either satisfactorily resolved or assurances were provided that they would

not recur.

Group 2.-It was found that in at least one instance a corporation in the Inter-American Affairs group had conducted a major program which was not entirely in keeping with congressional authorization or intent.

It is entirely possible that the approval of this program was fully warranted by our foreign policy and in keeping with our national interest, but your subcommittee feels that in view of the fact that this activity was conducted in a manner not entirely consistent with congressional authorization, the Congress should have been consulted before final administrative approval was given. It is not clear to the subcommittee that any steps of this nature were taken.

This matter was called to the attention of the management of the present Institute and to the attention of the Foreign Affairs Committee. The president of the Institute has indicated that it is his purpose to comply fully with special requirements and limitations of the Congressional Authorization and Appropriation Acts.

Group 3.-It appears that all of the items in this category were legal, since there is wide latitude of a discretionary nature left to officials and directors of corporate agencies. Nevertheless, your subcommittee felt that there had been some improprieties and instances of faulty judgment in past operations. These were pointed out to the present officials and, in general, agreement was reached. It does not appear that any restitution is in order, but your subcommittee feels that the types of practices criticized should be discontinued and has been assured of the Corporation's determination to do so.

Group 4.-In the Appropriation Act for the fiscal year beginning July 1, 1948, administrative funds for the Institute of Inter-American Affairs were sharply reduced. This necessitated a reduction of more than 50 percent in the total number of employees. Your subcommittee realizes that such a situation imposed on the Institute's management a difficult decision concerning that personnel which would be retained and that which would be released.

The corporation determined to dispense with its entire staff of field auditors and most of the auditing functions within its central office. This action is a focal point of criticism on the part of the General Accounting Office, and this subcommittee concurs in the feeling that it makes impossible any determination by Congress that appropriated funds are properly used. Moreover, the Institute itself lost virtually all control over its expenditures.

The elimination of the auditing staff presented complete frustration for the General Accounting Office because its function with respect to Government corporations essentially is one of postaudit and is of a commercial-type rather than of the type applied to unincorporated Government agencies.