Mr. LowRY. I thank you, Mr. Chairman.

Senator CHILES. Now we will have a panel of Mr. Vincent Alto, special counsel for the Administrator; Mr. William Clinkscales, the Chief of the Criminal Division of GSA; and Mr. Howard Davia, the Chief of the Office of Audits. If you all will come forward, please. Do you swear that the testimony you are about to give will be the truth, the whole truth, and nothing but the truth, so help you God? Mr. ALTO. I do.

Mr. DAVIA. I do.

Mr. CLINKSCALES. I do.

TESTIMONY OF VINCENT ALTO, ACTING INSPECTOR; HOWARD R. DAVIA, DIRECTOR, OFFICE OF AUDITS; AND WILLIAM CLINKSCALES, CHIEF, CRIMINAL DIVISION; ALL OF GENERAL SERVICES ADMINISTRATION

Senator CHILES. Mr. Alto, as the Acting Inspector General for the General Services Administration, I want to give you an opportunity to speak at length about what you want to do with the agency. First I would like to discuss a few specific issues with you and your colleagues, if that is acceptable.

Mr. ALTO. That's fine, Senator.

Senator CHILES. Now first I would like to sort of count noses. Mr. Divia, how many auditors have you under your staff?

Mr. DIVIA. We have 90 professional auditors throughout the country.

Senator CHILES. You have 90 auditors to keep an eye on 40,000 GSA employees that spend in excess of $4 billion?

Mr. DIVIA. Closer to $5 billion.

Senator CHILES. What is your audit cycle up to?

Mr. DIVIA. Most recently it is 15 years.

Senator CHILES. Would you explain for me now what that means? Mr. DIVIA. Sure. Let me back into it, if you will. We have 90 professional auditors at the moment throughout the country. We have a perceived need for 273.

Senator CHILES. 273?

Mr. DIVIA. 273, yes. We are at one-third of the strength we think we need to do the audit work that we perceive has to be done, and, of course, this does not include special requests for audits that are coming more frequently now from the Administrator, Mr. Solomon, Normally a 5-year audit cycle is considered ideal. Accordingly, a 15-year audit cycle means we are at one-third strength.

Senator CHILES. What would a 5-year audit cycle mean?

Mr. DIVIA. It is our judgment period, wherein we estimate total staff needs for 5 years. We select 5 years because it conveniently accommodates reviews that we only do once every 3 years, once every 2 years, et cetera. Some reviews are done every year. For example, 85-year period tends to, if you will, level out our needs and take care of any peaks and valleys in that period. Assume, for instance, if we feel an audit area is particularly sensitive and must be done every year, and we estimate the audit need is 100 man-days per year. In our audit universe then, which is 5 years, we would put in 500 mandays. In that same 5-year period, where we perceive another area is not quite as sensitive, but does require some surveillance, we may

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decide to audit, let's say, once every 5 years to monitor what is going on. If we estimate that audit as requiring 100 man-days, only 100 days is entered into the 5-year audit resource need.

Now once we go through this process, accumulating our needs in this manner, we get a total manpower need which we then divide by five to get our annual need. Currently that comes out to 273, as I expressed a moment ago.

Senator CHILES. Well, for me to understand the net result of that, that as of today, you have one-third of the personnel that you need to complete what should be an adequate audit cycle annually, given that you would audit some things maybe every year, and scme only every other year, depending on how sensitive they are and so that is why you set it up on a longer cycle?

Mr. DAVIA. That is correct.

Senator CHILES. Right now you have one-third of what you feel is adequate to cover the area which you are trying to audit?

Mr. DAVIA. Yes. To allow you to fully understand our audit situation, would you mind if I just read briefly from my prepared statement to crystalize what I think is important?

When judging the adequacy of the number of our professional auditors, it is important to note that we have a dual audit mission. That is, we have an internal audit responsibility, and we provide a contract audit service to GSA contracting officers. To our contract audit service, we devote the equivalent of 36 auditors nationwide. These people review the costs being claimed by the multitude of contractors doing business with GSA.

After auditing contractors' records, they provide their professional opinions to the contracting officers to be used at negotiation tables. In an average year, their efforts alone save the Government $20 million in reduced contract costs.

In the internal audit function, we are staffed to the equivalent of only 54 auditors nationwide. So, when we speak of a $5 billion mission, with regards to the internal audit workload, it is 54 auditors which really apply. These audtiors have the awesome responsibility of auditing the internal properity, efficiency, and economy, and program effectiveness of GSA's very complex and geographically dispersed organization, spending about $5 billion a year, much of it in procurement, which is so highly vulnerable to error, misappropriation, mismanagement, and waste.

I would like to note here that I speak of the vulnerability of procurement broadly, Governmentwide, not just GSA. I believe, from my experience, that any agency having large procurement programs has the same problems and the same vulnerability to the irregularities I mentioned.

In total, the our audit office turns out about 400 audit reports a year.

Senator CHILES. You say you have got 36 auditors that are auditing contractors. They are doing work with the Government. How many auditors do you think that you need in that area?

Mr. DAVIA. In the contract area, I would have to look at our audit universe. I can't express it offhand. Right now we make a more or less judgment decision to allocate 40 percent of our resources to that function. If you would accept a top-of-the-head guess, I would suggest that we could double that and still be productive in the sense that we could save procurement dollars in multiples of audit cost.

Senator CHILES. You say that with those multiples and in the same range that 36 auditors save annually approximately $20 million.

Would you say if you doubled that that there could be a savings of

approximately $40 million?

Mr. DAVIA. No; of course not. I think we would be into a diminishing returns situation.

Another 36 auditors would perhaps would return a savings of $10 million.

Senator CHILES. Considerably more than the cost of putting those auditors on by many, many fold.

Mr. DAVIA. Well, for example, at the present time, the cost of those 36 auditors, and I speak of the equivalent of 36 auditors as we have spread the workload throughout the country, including overhead, et cetera, is probably $1,200,000.

Senator CHILES. It would cost you about $1,200,000 for the 36 auditors?

Mr. DAVIA. Roughly speaking, yes. We have almost a 20 to 1 return in that area.

Senator CHILES. The return might drop about 10 to 1 on another 36? Mr. DAVIA. That is a good guess. Right now, what we are doing, is more or less trying to skim the cream off the top. Obviously with more people, we would go into greater depth, after greater support for contracting officers in negotiations. This sort of thing.

Senator CHILES. I understand that some of your self-service stores and business managers would only see one of your auditors now every 4 or 5 years?

Mr. DAVIA. Prior to this time, that is correct.

Senator CHILES. You are seeing them a little more often now.
Mr. DAVIA. We plan on seeing them at least once a year.

Senator CHILES. That means with your present number of auditors, you are pulling them off of something else?

Mr. DAVIA. Yes; obviously, it is a matter of priorities.

Senator CHILES. I would hate to think what would happen if the manager of a Safeway Store or someone like that, was hired by me and I said, "Now be a good boy and be honest and I will come back and see you in 4 or 5 years and see how you are getting along."

Mr. DAVIA. Well, as a matter of fact, and I don't mean to sound apologetic because we try to steer our resources into those areas which are most dollar productive to the Government. However, there are building managers in the country who have never seen an auditor. It has not been dollar effective, at least not up until this time.

Obviously, many of us were very much shocked by current disclosures and, of course, we will change the emphasis of future audits. Senator CHILES. I happened to also wear the cap of being the chairman of the Appropriations Subcommittee of GSA, and in that conrection, I just added 25 auditors to your appropriation. That was the amount that was asked for.

What happened to that number somewhere in between from 273 to 25, one-tenth of what was requested?

Mr. DAVIA. Well, I have been with the Office of Audits for just hort of 2 years, and it is my understanding that prior to that time, the Office of Audits has continually sought to increase its staff because the need for auditors, even by my predecessor, was perceived as in The range I estimated here; in other words, something like a 20-year

audit cycle.

However, during my experience, the budget for the year we are currently in, 1978, was processed during the Ford administration, and as I recall, the President was extremely interested in holding the line on Federal spending.

Senator CHILES. I see this in a lot of areas, and I call it awfully foolish economy when you cut down on auditors, people who are going to help you save in the ranges that you are talking about, 20 to 1 or 10 to 1. You cause the people to have a lack of confidence in their Government when people know that no one is going to come around and check on them for a period of 4 or 5 years. I consider that to be pretty foolish economy, to cut those numbers down.

Mr. DAVIA. It is my understanding for the budget which is now under consideration that our management is very much concerned at this time that we do increase the audit resource. It was generally felt that the most-in fact, as I understand it, there was a considerable dialog held with the OMB with regard to justification of additional personnel, and they felt that at this time that 25 people was the manageable figure. If I am not mistaken, Mr. Solomon, our Administrator, expressed in his testimony either before the House or the Senate that he felt there was a need at this time at least for 50 auditors. I would concur that 50 would be a manageable figure to assimilate into our organization. In other words, even though I say there is a need for 273, there is a limit to how many people we can absorb efficiently and effectively, so I would concur that at this time probably 50 would be more realistic, and there is testimony to that effect.

Senator CHILES. Fifty is all that you could assimilate properly? Mr. DAVIA. Yes. We could take in the entire 273, but obviously many of the new people would be brought in at entry level. It would be a matter of training, supervision, and gearing up to the task.

Let me rephrase that statement. Fifty we could take in, I think, very efficiently because we probably would put 25 or more into our field offices, where we need an incremental increase of 3 or 4 in each of the 9 regions, as well as a heavy number at this location.

If we take in any more, we would have a supervisory and a training problem. I would like to get the entire increment up to 273 immediately, but there is the matter of practicality; that is, what numbers are practical at this point.

Senator CHILES. Your bill is going to be on the floor tomorrow. It has already gone through the committee and markup and the full committee. It contains 25 auditors now. Based on what you are telling me today, I am going to make a floor amendment tomorrow and add 25 or try to add 25, and then I want you to provide for me a schedule of how quick you can assimilate properly the rest of these auditors. Mr. DAVIA. The entire 50 or those beyond the 50?

Senator CHILES. Those beyond the 50.

Mr. DAVIA. We certainly will.

Senator CHILES. I am very concerned that auditors and investigators have been looked upon as overhead expenses by a lot of agencies. Has GSA included those as overhead expenses?

Mr. DAVIA. I daresay they have. We are located in the Administrator's appropriation, which is an executive directive of appropriation. I hesitate to say we are an overhead function because it all depends on the attitude, I believe, of the Administrator. I happen to know in our present case, Mr. Solomon does not look upon audits that way. As I

indicated briefly in my statement, he has recognized the resource that he has in the audit staff. He has asked us to perform quick response reviews to ascertain whether or not a certain corrective action that is in order has been taken, so I would hardly call this an overhead function.

I am not quite sure that in the past, at least before my time, that it perhaps hasn't been looked upon as an overhead function. I couldn't speak authoritatively on that. I think traditionally in the Government, however, audits are looked upon as overhead.

Senator CHILES. Mr. Alto, we are talking about auditors and the need for them. Certainly they are not criminal investigators, but they are kind of the first-line of the fence. Point out where something is wrong and they certainly would screen out the questionable areas, and give you the information as to where you should put the investigators. Would that be fair to say?

Mr. ALTO. There is no question about that, Senator.

Senator CHILES. I think then that you are in agreement with the need for more auditors. It would seem to me also very important, especially if we are going to hire some bright people that are going to come in and find out what is wrong, to make sure one is going to pay attention to them. Even with the number of auditors that we have had, which is grossly inadequate, we have seen time after time where that audit report pointed out the wrongs, and nothing was ever done about these. The case in point seems to be, from reading the newspapers last week that GSA, again the Government, is doing business with what could be organized crime fronts. Organized crime appears to be able to do such business because it is organized. I am not sure that the Government is.

For example, it appears that GSA has been doing business with Rusco Industries. You are aware of that matter and the press coverage of it, I am sure?

Mr. ALTO. I was made aware of it, Senator, by The New York Times in their daily edition last week some time.

Senator CHILES. And you know that Rusco has a contract worth $1 million a year with the Government, including the FBI and the Internal Revenue Service, for security systems?

Mr. ALTO. Yes; I am.

Senator CHILES. And you are aware of the charges that the mob is wandering money through the company which might be why the prices could be so attractive to where they can underbid other people? I understand that there is a volume dated January 19, 1972, which is entitled "General Services Administration Organized Crime Program." It is marked for official use only, so I would ask you, Mr. Clinkscales, if you had a chance to review this before I put it in the record? Are you familiar with this?

Mr. CLINKSCALES. Yes, sir, I am familiar with this.

Senator CHILES. This document that I have, the purpose of this book in part is, and I quote, "to alert GSA and contracting officers that organized crime has infiltrated legitimate businesses and seeks contracts with the Federal Government. It is to encourage procurement personnel to seek office of investigations assistance and to coordinate such requests with regional organized crime strike forces and others."