system-M60A1E1 tank turrets, and M60A1E2 tanks which will require substantial modification before they will be fully suitable for operational use. Appreciable quantities were authorized for production despite known development deficiencies in essential components. As a result, many of these weapons were put into storage instead of being added to the combat effectiveness of the Army as planned.

GAO proposed a series of actions for application to current and future development programs to increase management effectiveness and to deploy acceptable weapon systems sooner. The Army concurred in most of the proposals and stated that major actions or improvements had been initiated which should reduce deficiencies in future program management.

Several committees and many Members of the Congress had expressed a strong interest in major weapon systems and how their development and procurement could be improved. To enable the Congress to exercise appropriate legislative controls over the funding of major defense systems, GAO suggested that the Congress might wish to require that (1) a determination be made by the Secretary of Defense, prior to authorizing production of a new system or major modification of an existing system, that all of its significant components have satisfactorily met all prescribed developmental tests and (2) in any case where the Secretary of Defense considers that authorization of production is essential, even though not all developmental tests have been satisfactorily completed, a certification to that effect be furnished by the Secretary of Defense to the appropriate congressional committees such certification to include the reasons for authorizing concurrent development and production and the status of development of each significant component.

GAO findings in subsequent reviews of the development of major weapons, as presented in reports submitted to the Congress in fiscal year 1971 and discussed in Chapter Five (under the caption Research and Development, Major Weapons), tend to add weight to this suggestion. (Need for Management Improvement in Expediting Development of Major Weapon Systems Satisfactory for Combat Use, B-163058, Nov. 17, 1969.)

2. Clarification of law regarding use of available funds under other loan programs before use of emergency loans is approved.-A GAO review in 14 counties designated as emergency areas by the Secretary of Agriculture showed that 3-percent emergency loans had been made when substantial amounts of 52-per

cent Farmers Home Administration (FHA) operating loan funds were available. Section 321(a) of the Consolidated Farmers Home Administration Act of 1961 requires that, prior to designating a county for emergency loan assistance, a determination be made that a general need exists for agricultural credit which cannot be met from other sources, including FHA programs. No documentation was available to show that this determination had been made prior to designation of the 14 counties

The FHA contends that emergency area designations may be made before other available funds are exhausted and that the Congress never contemplated that a disaster designation should be withheld as long as such funds are available.

GAO found no specific criteria in the enabling legislation or pertinent legislative history indicating the intent of the Congress in this matter and suggested, therefore, that the Congress might wish to clarify the law regarding the use of funds in other loan programs before the use of emergency loans is approved.

The Department of Agriculture advised the chairman of the House Committee on Government Operations in May 1969 that (1) GAO's report correctly showed the Department's position on designating emergency areas and making 3-percent emergency loans when other program funds are available and (2) because this has been a longstanding practice without congressional objection, the Department did not see a need for legislation on this matter.

GAO continues to believe that, since the law or pertinent legislative history is not sufficiently clear on this matter, clarification of existing legislation is needed. (Policies and Procedures for Recommending Emergency Area Designations, B-114873, Mar. 24, 1969.)

3. Review of policies and practices for acquiring land for reservoir projects.-The Corps of Engineers was acquiring fee title to thousands of acres of reservoir project land when less costly flowage easements would have sufficed or when no interest was required for water control purposes. GAO estimated that the additional cost of acquiring fee title to 388 selected tracts at seven reservoir projects amounted to about $2.7 million.

It was recognized that fee acquisition might have been desirable to satisfy purposes other than water control; however, GAO found that the Corps had not identified the additional cost incurred for other project purposes, mainly recreation and fish and wildlife. The

Fish and Wildlife Coordination Act indicates that the Congress desires cost information on land acquired for fish and wildlife purposes. GAO found also that the total cost of the land acquired for recreation purposes was paid for by the Federal Government even though some of these costs may have been properly financed by non-Federal interests under the cost-sharing provisions of the Federal Water Project Recreation Act.

In response to GAO proposals, the Department of the Army stated that information on acreages and approximate costs to be incurred for such purposes as recreation and fish and wildlife could be furnished to the Congress, if it was desired. With respect to the additional financing which may have been available from non-Federal sources, the Department stated that this would tend to decrease recreational development by local interests and, at some future date, would cause substantial administrative problems.

GAO suggested that the Congress, in prescribing the nature and extent of reservoir project purposes, might wish to require that the Corps identify, for congressional consideration, the costs incurred in acquiring greater interests in land than are needed for water control purposes, the purposes for which such interests are acquired, the related acreages, and the benefits to be derived from such interests. It was also suggested that the Congress might wish to express its intent as to whether the additional costs incurred for recreation and fish and wildlife purposes should be treated as separable costs and be subject to cost sharing under the Federal Water Project Recreation Act. (Review of Policies and Practices for Acquiring Land for Reservoir Projects, B-118634, Feb. 3, 1969.)

4. Policies and procedures used in estimating costs, evaluating bids, and awarding contracts for dredging. The law under which the Corps of Engineers awards contracts for dredging (33 U.S.C. 624) stipulates that appropriated funds shall not be used to pay for any work done by contract if the contract price is more than 25 percent in excess of the estimated cost of the Government doing the work with its own equipment and crews.

The Corps has taken the position that it is not required to prepare in-house estimates unless a Government plant is or will be available to do the dredging. Instead, the Corps awards contracts for dredging to the contractor whose bid price is low and is not more than 25 percent in excess of the Corps' estimate of fair and reasonable cost to a contractor, exclusive of profit. GAO's examination of 32 dredging contracts showed

that, based on its estimates of in-house cost, 11 of the contracts were awarded at prices that were about $2.1 million in excess of the statutory limitation and about $4.4 million in excess of the costs that would have been incurred if the work had been done by the Corps itself.

The Department of the Army disagreed with these findings and stated that the policies and practices of the Corps were in accordance with the policies and intentions of both the Congress and the administration.

In GAO's opinion, there was a deviation from the provisions of 33 U.S.C. 624. Therefore, GAO suggested that if the Congress should determine that the Corps' policies and procedures applicable to its dredging operations are to be continued, consideration be given to revising or repealing 33 U.S.C. 624. (Need for Improving Policies and Procedures for Estimating Costs, Evaluating Bids, and Awarding Contracts for Dredging, B-161330, Aug. 7, 1967.)

5. Need for change in interest rate criteria for determining financing costs of Federal power program.The criteria used in determining the cost of financing the Federal power systems of the Department of the Interior and the Corps of Engineers-costs that are repayable from revenues obtained from the sale of power-result in the use of interest rates that are not representative of the cost of funds borrowed by the Treasury during the construction of the various power systems. Consequently, the Government's cost of financing these systems has been significantly understated.

As an example of the understatement of financing costs, the interest rates used in the Federal Columbia River Power System, although established in accordance with long-accepted criteria, have resulted in understating by about $22 million the capitalized interest costs during construction for those major projects still under construction in fiscal year 1968 and in understating by about $2 million the interest expense for fiscal year 1968 on the unrepaid Federal investment related to the transmission facilities of the Bonneville Power Administration.

Although recent changes by the Department and the Corps will result in significant improvements, GAO believes that neither will result in a realistic measure of the cost to the Treasury of borrowing money during the period of construction of power projects.

Accordingly, it was suggested that the Congress might wish to consider changing the interest rate criteria to provide that:

The interest costs to be capitalized as part of the Government's investment in power projects be based on an interest rate prescribed by the Secretary of the Treasury taking into consideration the average market yield, during the year in which the investment is made, on the outstanding marketable obligations. which he considers to be most representative of the cost to the Treasury of borrowing money to construct the power projects.

The interest to be paid to the Treasury annually on the Government's unrepaid investment in power projects be based on a composite of the average market yields used in computing the capitalized interest costs.

(Change Proposed in Interest Rate Criteria for Determining Financing Costs of Federal Power Program, B-167712, Jan. 13, 1970.)

6. Need for guidance to establish purpose to be fulfilled by a water resources project.-The Department of the Interior's feasibility report for the San Luis Unit, Central Valley Project, submitted to the Congress in 1956, stated that an important purpose of the Unit was to replenish the ground water. In 1965 the Bureau of Reclamation amended its contract with the Westlands Water District, the largest user of water provided by the Unit, to include provisions which, if fully implemented, could prevent accomplishment of this purpose.

The contract was amended to prevent ineligible landowners (owners of more than 160 acres of irrigable land) from indirectly benefiting from the water provided by the Unit. To irrigate lands in excess of 160 acres, an ineligible owner would have to pump (use) ground water. Ineligible landowners could benefit from a rise in the water table resulting from non-use of ground water by eligible landowners and from percolation into the ground water of irrigation water applied to the lands of eligible landowners, thus resulting in a reduction of ineligible landowners' cost of pumping ground water.

To prevent these benefits, the contract was amended to provide that Westlands, when directed by the Bureau, pump ground water rather than purchase water. This could result in the Bureau's paying Westlands about $2 million and in the Unit's losing revenues of about $4 million.

The Department stated that it did not share GAO's concern over the financial impact of the amendment, since it believed that Westlands would not be required to pump ground water. GAO suggested, nevertheless, that the Congress might wish to provide guidance to

the Bureau as to which purpose is of primary importance-replenishing and stabilizing the ground water supply or preventing ineligible landowners from receiving benefits from project water.

GAO suggested also that, if it is determined that replenishing and stabilizing the ground water supply should be given primary consideration, the Congress might wish to consider the applicability to the San Luis service area of the provisions of several bills introduced in the 91st Congress which would have had the effect of lessening the need to pump ground water. (Questionable Aspects Concerning Information Presented to the Congress on Construction and Operation of the San Luis Unit, Central Valley Project, B-125045, Feb. 12, 1970.)

7. Leasing of Federal lands for development of oil and gas resources. Most of the leases awarded by the Bureau of Land Management, Department of the Interior, for the development of oil and gas resources on Federal lands have been granted on a noncompetitive basis and, in many cases, at prices less than their indicated fair market value. The lands are leased noncompetitively because of a statutory requirement that lands not located within the boundaries of a known geologic structure of a producing oil or gas field must be leased noncompetitively. Generally, the geologic data needed to determine whether lands offered for leasing are within such a structure are not available to the Department before leasing and drilling.

GAO believes that the Government should and could use competitive bidding to a greater extent to obtain prices that more nearly approximate the lands' fair market value.

Also, indications were found that the statutory right of lessees to assign to other persons leases in units as small as 40 acres impedes rather than induces the development of oil and gas resources.

The Department of the Interior stated that of three alternatives it had considered for extending competitive bidding, it preferred the partially competitive systems. However, GAO believes that disposal of oil and gas rights on Federal lands should be based on the principle of a fair market return to the Government and that this objective can best be achieved under a competitive bidding system.

Accordingly, GAO suggested to the Congress that the Mineral Leasing Act be amended to (1) require that oil and gas leases on all Federal lands be awarded competitively unless otherwise justified and (2) increase the minimum acreage limitation applicable to the as

signment of the leases. (Opportunity for Benefits Through Increased Use of Competitive Bidding To Award Oil and Gas Leases on Federal Lands, B-118678, Mar. 17, 1970.)

8. Acquisition of land for national recreation areas containing improved properties.-The National Park Service (NPS), Department of the Interior, had acquired or planned to acquire high-cost improved properties located on or near the boundaries of authorized national recreation areas although, in GAO's opinion, these properties could have been excluded or could be excluded from the areas without interfering with the areas' development. Changes in boundaries to exclude such properties not yet acquired would result in significant benefits to NPS, especially in those areas where authorized funds have fallen far short of the amount required to complete the land acquisition and where considerable amounts of unimproved land with lower estimated costs an acre remain to be acquired.

The Department of the Interior rejected the suggestion that consideration be given to adjusting boundaries of certain recreation areas to exclude high-cost improved properties and stated that some acquisitions of expensive properties are necessary to protect scenic, historical, and cultural values.

In enacting legislation authorizing the establishment of national recreation areas, the Congress frequently has to define boundaries before important facts, such as the cost of various tracts of land, are known. GAO therefore recommended that the Congress, in enacting such legislation, provide the Secretary of the Interior with guidelines for making changes in established boundaries when the acquisition of high-cost properties located on or near the boundaries is involved.

It was also recommended that the Congress require the Secretary to prepare an analysis of the location and estimated cost of high-cost properties on the perimeter of those authorized recreation areas for which additional funds are needed and to justify to the Congress the desirability of acquiring such properties. (Problems in Land Acquisitions for National Recreation Areas, B-164844, Apr. 29, 1970.)

9. Opportunities for reducing interest costs to the Government on certain types of Federal income tax refunds. Under the Internal Revenue Code of 1954, taxpayers who claim refunds by correction of or amendment to their income tax returns receive a consideration, in the form of interest at the rate of 6 percent, not accorded to taxpayers who claim refunds at the time they file their returns.

For refunds claimed on initial returns, interest is not allowed if the refunds are paid within 45 days following the due date for filing the return or the date the return is actually filed, whichever is later. For those refunds claimed by correction of or amendment to returns, interest usually accrues for the period from the prescribed due date for filing the return until the refund is certified for payment. Returns may be corrected or amended up to 3 years after they are required to be filed.

GAO suggested a change in the Internal Revenue Code to provide that interest on refunds resulting from taxpayers' furnishing additional information to correct or amend their initial income tax returns accrue from the dates the claims for such refunds are filed and that the Internal Revenue Service (IRS) be authorized to establish a reasonable period after such claims are filed within which interest-free refunds may be made. The Department of the Treasury disagreed primarily on the basis that the Congress has recognized that interest should be paid because the Government has had use of the taxpayers' money. Also, the Department believed that, if this proposal were adopted, similar legislation might be required which would make it unnecessary for taxpayers to pay interest on tax deficiencies until the expiration of a reasonable period after being notified of the deficiency. GAO did not agree with the Department because the Congress had previously made various changes in the Code to provide that interest not be allowed on certain refunds when justified by existing circumstances even though the Government had use of the taxpayers' money during the retention period.

GAO suggested that the Congress might wish to consider amending the Code to provide that interest on refunds resulting from taxpayers' furnishing additional information to correct or amend their initial income tax returns accrue from the dates the claims are filed, except that IRS be authorized to establish a reasonable period after such claims are filed within which interestfree refunds may be made. It was suggested that, if the Code were changed in this regard, the Congress might also wish to consider making the change applicable to excise, employment, and estate tax refunds. (Proposed Revision to the Internal Revenue Code Governing Interest Payments on Certain Types of Federal Income Tax Refunds, B-137762, Sept. 19, 1968.)

10. Opportunities for reducing interest costs on refunds attributable to net operating loss deductions.The Internal Revenue Code of 1954 permits taxpayers

to offset net operating business losses of a current tax year against a prior year's taxable income and thereby receive a tax refund. Interest on these refunds is paid by the Government at the rate of 6 percent, commencing on the first day following the close of the year in which the business loss occurred. Also, there is no interest-free period allowed the Government within which to process refunds attributable to net operating loss deductions. Therefore, taxpayers who delay filing claims for refunds for periods up to 3 years receive interest for the entire period. Interest paid on all refunds attributable to net operating loss deductions during fiscal year 1964 was estimated to total about $28 million.

GAO suggested that the Congress might wish to consider amending the Code to provide that interest on refunds resulting from net operating loss carryback deductions begin from the date that applications or claims for such refunds are filed instead of from the date following the close of the taxable year in which the net operating loss occurred, except that the Internal Revenue Service be authorized to establish a reasonable period after applications or claims are filed within which interest-free refunds may be made. This change would be consistent with current provisions which allow the Government an interest-free period within which to process ordinary refund payments. The Assistant Secretary of the Treasury for Tax Policy stated that the Treasury is prepared to support legislation to carry out this proposal.

GAO suggested that the Congress might also wish to consider similarly amending statutory provisions concerning interest payments on refunds attributable to investment credit carrybacks, foreign credit carrybacks, and unused deductions of life insurance companies. (Opportunities for Reducing Interest Costs on Refunds Attributable to Net Operating Loss Deductions, B-137762, May 26, 1967.)

11. Proposed revision of law governing financing of salary costs of retired civil service annuitants reemployed by Federal agencies.-GAO recommended that the Congress consider amending the provision of the civil service retirement law relating to the payment of annuities and salaries to reemployed retired employees (5 U.S.C. 8344) to provide that amounts equivalent to the annuities allocable to the period of actual employment, which are deducted from reemployed retired employees' salaries, be transferred by the employing Federal agencies to the Civil Service Retirement and Disability Fund.

449-406 0-72

Amending the civil service retirement law as proposed would result in the full salary costs of reemployed annuitants being financed by the employing agencies rather than a portion of such costs being financed by the retirement fund. (Proposed Revision of Law Governing Financing Salary Costs of Retired Civil Service Annuitants Reemployed by Federal Agencies, B-130150, May 28, 1968.)

12. Need to improve effectiveness of construction grant program for abating, controlling, and preventing water pollution.-The construction grant program for abating, controlling, and preventing water pollution has been administered by the Environmental Protection Agency (EPA) (formerly the Federal Water Quality Administration) for the most part on a firstcome-first-served or readiness-to-proceed basis with little consideration given to the benefits to be attained by the construction of individual treatment plants.

Since the Federal Water Pollution Control Act provides that priority for construction grants be given on the basis of financial as well as water pollution control needs which could result in the award of grants for the construction of waste treatment plants that provide little benefit in terms of appreciably improving water quality or uses-GAO suggested that the Congress might wish to consider amending existing legislation to provide that priorities be established on the basis of benefits to be realized.

In addition, EPA has followed a policy of generally requiring secondary treatment facilities for inland waters. GAO recognized that the requirement of secondary treatment may be desirable as the ultimate objective; but, in view of the magnitude of the problem and the limited Federal funds available, GAO expressed the belief that, as an interim measure, consideration should be given to less than secondary treatment when such treatment would result in enhancing water quality or in attaining the States' water quality standards.

Since EPA disagreed with this position, GAO recommended that the Congress consider requiring EPA to provide for interim goals and to allow communities to construct less than secondary treatment facilities when it can be demonstrated that a lesser degree of treatment will result in water quality enhancement commensurate with proposed present and future water uses. (Examination into the Effectiveness of the Construction Grant Program for Abating, Controlling, and Preventing Water Pollution, B-166506, Nov. 3, 1969.)

13. Clarification of statutory provisions regarding Federal grants awarded for constructing municipal

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