In view of the substantial costs to the United States resulting from financing shipments of Title II commodities to outports, GAO recommended that AID require the Government of Turkey to arrange for and finance the transportation of these commodities beyond direct ports of call.

GAO believes that this would be a test of Turkey's desire for the commodities and would give it additional responsibility and experience in handling logistics problems so that when the transition from AID programs to programs completely operated by the Government of Turkey is made, the program would function more efficiently and effectively.

In April 1971, AID agreed with GAO's recommendation and advised that steps were being taken to rectify the situation. (Report to the Administrator, AID, B-152538, Aug. 24, 1970)

98. Consolidation of Laundry Facilities Abroad. GAO learned that, for certain locations, the Army obtained laundry services by contracting with foreign firms, whereas the Air Force had its own "in-house" facilities operating at a fraction of their capacity at the same locales.

Calculations made in conjunction with Army and Air Force specialists revealed that meaningful savings could have been achieved through the use of a military interservice agreement which would have enabled the Army to reduce its volume of contracting by using Air Force laundry facilities at Cam Ranh Bay, Vietnam, and U Tapao, Thailand.

Until the time of GAO's examination, the two services had not cooperated to reduce expenditures by consolidating their laundry service operations. After GAO discussed the matter with Army and Air Force laundry specialists, steps were taken to consider an interservice laundry support arrangement for the Cam Ranh Bay

area.

GAO computations showed that annual savings of about $227,000 could be realized by the Government if the Army would reduce its contracts and obtain its laundry services from the Air Force facilities at Cam Ranh Bay.

GAO proposed that the Department of Defense (DOD) undertake studies to determine whether similar interservice support agreements would be beneficial at other overseas locations in view of the potential cost and balance-of-payments benefits that might be realized.

Military specialists agreed that economic benefits were possible by using “in-house” facilities rather than contracting for laundry services and on July 21, 1971, DOD officials advised that the U.S. Army in Vietnam had initiated action with the Air Force for laundry services at Cam Ranh Bay through an approved Military Interdepartmental Purchase Request, which became effective July 1, 1971. (Report to the Secretary of Defense, B-165629, Mar. 15, 1971)

99. Economic Advantages of Using American Ingredients To Satisfy Milk Requirements in Western Europe. In June 1971, GAO reported on the economic advantages of substituting filled milk from the United States for whole milk purchased from European sources to satisfy the milk requirement of military personnel and their dependents in Western Europe. GAO found that the ingredients for filled milk (vegetable oil and nonfat dry milk) were in surplus supply in the United States, were frequently acquired by the Department of Agriculture to support domestic prices, and were disposed of through various domestic and foreign donation programs.

The Department of the Army expressed concern at the possible effects that discontinuance of fresh whole milk procurements might have on troop morale in Europe. GAO stated that the problem apparently would be minimized if the military would give adequate advance notice of its intention to switch to filled milk and to provide material designed to inform military personnel and their families of the wholesome characteristics of filled milk, the general practice of providing filled milk at all other locations, and the overall balance-ofpayments advantages resulting therefrom.

GAO recommended that the Department of Defense (DOD) establish close liaison with the Department of Agriculture (USDA) and with the Department of State in order to minimize the potential economic or political repercussions to broader U.S. interests.

In line with GAO recommendations, the Department of the Army, on behalf of the Secretary of Defense, agreed to conduct an objective consumer acceptance test in Europe.

USDA informed GAO that it was prepared to cooperate with DOD in whatever decision DOD might make in this matter. The Department of State advised GAO that it foresaw no political repercussions and agreed with the decision made by the Secretary of Defense. (Report to the Congress, B-172539, June 3, 1971)

International Activities-General

100. Missing Government-Owned Materials in Vietnam. In May 1967, GAO reported that $120 million worth of U.S. Government-owned material and supplies had not been accounted for by the principal construction contractor for the United States in Vietnam. Subsequently, the contractor reported that it had accounted for all but $5 million worth of the missing materials and supplies.

At the request of the chairman, Permanent Subcommittee on Investigations, Senate Committee on Government Operations, GAO performed a followup review to determine the methods used by the contractor in arriving at the $5 million figure and submitted a report to the Congress in May 1971 on the results of the followup review.

GAO noted that the contractor's method of accounting for the missing materials and supplies could not be regarded as valid. One reason for the invalid estimates concerned the unreliable receiving reports which were prepared many months after the goods were supposed to have arrived in Vietnam, and which were based on purchase or shipping documents rather than on evidence of receipt. Also, the contractor made substantial adjustments, generally not based on physical counts, in inventory records and subsequently reduced the unaccounted for balance. GAO questioned the validity of these adjustments and the contractor canceled them.

GAO also found that the contractor collected only a relatively small value for loss and damage claims from vendors, shippers, and others because of its failure to follow up, to any substantial degree, on these claims. Finally, from contract inception in 1962 to September 1968, the contractor was relieved of accountability for materials and equipment valued at over $14 million which had become lost, damaged, or otherwise unserviceable.

GAO noted great improvements in almost every aspect of the contractor's material controls since GAO's first report. The almost chaotic conditions existent in 1966 at the three major supply depot operations for the most part have been corrected.

GAO recommended to the Secretary of Defense that (1) further efforts to account for the contractor's unaccounted for materials not be made, (2) the unaccounted for materials be recognized formally in the contract records, and (3) damage reports prepared under the contract be reviewed to determine whether the contractor has made a reasonable effort to fix re

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sponsibility and to process resultant claims against vendors, shippers, or others.

The Department of the Navy considered the report, on the whole, accurate and, in general, the Department of Defense (DOD) responded favorably to GAO's recommendations. DOD stated that the magnitude of the unaccounted for materials was the result of the unprecedented conditions existent in Vietnam. Also, DOD has undertaken a full review of all loss, shipping shortage, and damage claims, and GAO believes this action should result in additional collection. (Report to the Congress, B-159451, May 28, 1971)

101. Control Over Local Currency Made Available to the Republic of Vietnam.-GAO reviewed the effectiveness of corrective actions taken by the Agency for International Development (AID) and the Department of Defense (DOD) to strengthen controls over the budgeting, release, and use of local currency (piasters) in Vietnam. This review was conducted at the request of the chairman, Foreign Operations and Government Information Subcommittee, House Committee on Government Operations. In 1966, the subcommittee found that the AID mission in Vietnam had not established adequate controls over the budgeting, release, and use of U.S. owned or controlled local currency made available for support of Vietnam's civil budget.

From 1966 through 1968 the AID mission in Vietnam made available about 74.3 billion piasters (equivalent to about $629.7 million) to support Vietnam's military and civil budgets. The U.S. Military Assistance Command in Vietnam was responsible for administration of 50.9 billion piasters designated for the military budget. The AID mission was responsible for administration of 23.4 billion piasters assigned to the civil budget.

Since 1966, the U.S. agencies have strengthened their administration and control over the use of piasters, but it was noted that further strengthening was necessary. The controls and procedures established would generally not detect or prevent improper payments by Government of Vietnam personnel, such as payments for unauthorized activities or for padded payrolls. Large sums of piasters were released to the Government of Vietnam before needed, piasters were released on the basis of unverified reports, and only a few postaudits were made.

DOD and AID advised GAO that actions have been taken to strengthen controls over piasters for support

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of Vietnam's military and civil budgets. Both agencies believe that controls and review practices in use plus actions to be taken, including procedural changes and staff increases needed to monitor the funds and programs, would provide adequate control. The agencies have made some improvements in the administration and control over the military and civil budget support programs, but the improvements cited will not provide adequate control. Considerable improvements are needed, especially with regard to verification and other measures to insure that Vietnam's reports of obligations and expenditures are reliable. (Report to the Congress, B-159451, July 24, 1970)

102. Overseas Military Construction Contracts.-GAO examined the justification for the Air Force's engaging a separate contractor to build a single airfield after the Department of Defense (DOD), in early 1966, had directed a U.S. Navy construction contractor to complete the airfield as a part of a large and complex construction program to support the buildup of U.S. military forces in the Republic of Vietnam.

Although the Air Force stated it had an urgent need for the airfield and justified the use of another contractor in Vietnam on this basis, GAO's review disclosed that there were considerable differences of opinion within the various organizational components of DOD as to the necessity for pursuing this course of action, and that added costs were incurred by the U.S. Government. During performance of the contract, a number of problems arose, many of which were related to the lack of experience of the Air Force in administering major construction contracts of this type and to weaknesses in the major subcontractor's equipment procurement policies and practices.

The Navy proposed to DOD that the airfield be constructed by its contractor as a part of its assigned responsibility. The Navy pointed out to DOD that any increase in construction capability should be achieved by taking advantage of existing logistics management, equipment, and material of its joint-venture construction contractor. Nevertheless, DOD authorized the Air Force to use a separate contractor to build the airfield.

It was GAO's opinion that, had the Navy proposal been followed, several million dollars in added costs would have been avoided. Those costs consisted of duplicate equipment purchases (for example, under the Air Force contract a subcontractor purchased heavy construction equipment for about $9.5 million while similar equipment, valued at about $7.4 million, had already been bought by the Navy's contractor for the

same job), duplicate overhead and administrative costs, premium prices paid for construction equipment, and disproportionate fee payment rates.

GAO proposed to the Secretary of Defense that DOD (1) use a single construction agent in any one overseas area, (2) insure parity of construction contractor fees and (3) provide timely procurement guidance to contractors under cost-reimbursable contracts.

GAO also recommended that in the future the Secretary of Defense (1) direct military construction agents to submit for DOD consideration the military justification and a detailed estimate of the duplicate overhead and equipment costs expected if more than one costtype construction contractor is considered, (2) consider strengthening administrative procedures on cost-reimbursable contracts, and (3) in cost-type construction contracts, require that military construction agents obtain advance approval from the Office of the Secretary of Defense for fee rates that are an exception to those prevailing in that area.

DOD's response to the comments offered by GAO was that improvements in the management of any operation are always possible and that GAO's recommendations are accepted in that spirit and will be given full consideration in continued efforts to improve management. (Report to the Congress, B-159451, Oct. 28, 1970)

103. Financial Administration of the Consular Services Program.—An integral part of the Department of State's responsibility over the conduct of foreign affairs is the providing of consular services to both U.S. and foreign nationals. These services include passport and citizenship services and visa services for aliens.

Legislation passed by the Congress on October 21, 1968 (Public Law 90–609) authorized the Secretary of State to set immigrant visa and certain other consular fees on a fair and equitable basis commensurate with the services rendered and moving in the direction of fuller implementation of the user-charge principle.

GAO found, however, that the fees currently being charged for processing and issuing immigrant visas were established in 1952 and that the total cost to the Department for providing immigrant visas exceeded revenues by approximately $9 million in fiscal year 1970. In addition, GAO found that the Secretary of State had not promulgated definitive policy and criteria for the establishment of consular fees, nor did the Department's accounting system provide for the systematic accumulation of cost and revenue data necessary for the establishment of fees and for the

effective financial management of the various consular activities.

Accordingly, GAO recommended that the Secretary of State:

Revise immigrant visa and other consular fees on a basis that is responsive to Public Law 90-609 and in consonance with public policy that services provided to or for any person should be self-sustaining to the fullest extent possible.

Promulgate definitive policy and criteria for establishing consular fees.

Develop an accounting system and related procedures for periodically determining the cost of providing consular services.

Although the Department of State agreed to analyze the existing fee structure to determine the necessity for and extent of a change in the fees, it expressed the view that the costs associated with the investigations of applicants whose visas are not issued should be excluded. The Department agreed to develop definitive policy and criteria for the establishment of consular fees. It pointed out, however, that the fee structure must recognize the foreign policy implications involved.

Regarding GAO's recommendation that an accounting system be developed for systematically determining the cost of providing consular services, the Department of State indicated that it believed that cost-finding techniques were sufficient and that the development of an accounting system for this purpose was unnecessary. GAO firmly believes, however, that without an acceptable accounting system the Department of State is not in a position to obtain reliable cost information necessary for the effective financial management of the consular services program. (Report to the Congress, B-118682, Apr. 14, 1971)

104. Contract Policies and Procedures of the Agency for International Development, Vietnam.— GAO's review disclosed that contract representatives frequently did not prepare required evaluations of contractor's performance. GAO reviewed 40 contract files and found that the required evaluations were not in the files for about half of the contracts. As a result, contracting officers had not received the technical and managerial advice needed to evaluate a contractor's performance or his qualifications for further Agency for International Development (AID) contracts.

In addition, GAO found that the Agency for International Development in Vietnam (AID/VN) had cost-reimbursement contracts for technical services of

third-country nationals (TCN's) which generally did not specify salary rates for TCN's. The contractors had to compute the rates using the general guidelines provided in the contract.

GAO also found that the contracting officers were not reviewing the salaries, and as a result, AID was reimbursing contractors for salaries in excess of the limitations. In one contract, the AID auditors found that a contractor had paid salaries of $860,000 more than the rates allowed in the contract.

GAO recommended that AID/VN review the salaries paid under cost-reimbursable contracts for TCN's to determine whether employees' salaries were established in accordance with the limitations contained in their contract. GAO further recommended that the Area Auditor General, in making final audits of completed cost-reimbursement contracts, place special emphasis on determining allowable salaries.

The Director, AID/VN, advised GAO that these recommendations were being implemented.

In January 1970, GAO found that 274 AID/VN contracts were awaiting closeout action. Some of these had been completed as early as 1964. In addition, GAO noted 89 contracts executed by AID/Washington for which information concerning closeout action was not available at AID/VN.

GAO found that AID's internal auditors had conducted final audits on only seven completed contracts because the Contract Audit Branch had generally not been notified when contracts were completed.

The Chief of the Contract Audit Branch informed GAO that contracting officers had failed to notify his office when contracts were completed. As a result, contract audits were not initiated on a timely basis.

The Director, AID/VN, advised that as of June 12, 1970, closeout procedures had been initiated on most of the expired contracts and that as current contracts reach the completion stage, the closeout procedure will be immediately inaugurated. In connection with GAO's other findings, the Agency advised that corrective action either had been taken or promised by the responsible officials. (Report to the Administrator, AID, B–159451, Aug. 27, 1970)

105. Opportunity To Increase Export Sales of Nonfat Dry Milk.-The Export Marketing Service, in cooperation with the Agricultural Stabilization and Conservation Service (ASCS), conducts a program under which nonfat dry milk of the Commodity Credit Corporation is sold for dollars to American plants overseas based on competitive bids or announced

prices. The basic procedures for the program are set forth in ASCS Announcement MP-23 (hereafter referred to as the MP-23 program).

The GAO review showed that a significant increase in sales of nonfat dry milk under the MP-23 program would be possible if the Department modified its present restrictive procedures slightly in order to be able to (1) accept all reasonable bids and (2) reduce prices as necessary to meet foreign competition.

Under the restrictive bid procedure instituted in August 1970 through early April 1971, GAO found that bids for more than 4.5 million pounds of milk powder with a value approximating $550,000 were rejected. The quantities covered by the rejected bids averaged only nine-tenths of 1 cent per pound below the award price.

Information obtained from an overseas dairy company which buys most of its milk from foreign suppliers indicated that the Department of Agriculture could realize additional revenue of $2.5 million per year if the Department supplied milk to this company. This company advised GAO that it would be willing to purchase U.S. powdered milk if the price was comparable to other foreign sources.

In view of the cost, the balance-of-payments and other benefits possible in an increased program, GAO recommended that the Department of Agriculture consider:

Giving a higher relative priority to MP-23 sales in relation to Public Law 480, Title II, donations. Adopting a more flexible bid policy so that greater quantities might be sold under the program.

Offering price reductions to provide American plants overseas with U.S.-source milk powder on a basis competitive with offshore procurement.

Informing American firms which operate dairy plants abroad of the availability of American nonfat dry milk at competitive prices and encouraging them to use American milk.

Officials of the Department generally agreed with GAO's recommendations and, to the extent feasible, will continue to give consideration to the proposals. However, the officials also stated that in addition to providing donations of nonfat dry milk to overseas voluntary relief agencies to feed the needy, consideration is also given to certain political and humanitarian interests of the United States, such as donations to feed people displaced by earthquakes or other natural disasters and to war refugees. (Report to the Secretary of Agriculture, B-114824, June 16, 1971)

106. Use of U.S.-Owned Excess Foreign Currency in India. In 1971, GAO reported on possible uses of the large amounts of Indian currency (rupees) which the United States had accumulated through the operation of its food and other assistance programs in India. In mid-1969, the amount of Indian rupees available for U.S. expenditures equaled $678 million and would have lasted about 19 years at current expenditure rates. U.S. holdings were expected to increase substantially in the future.

GAO found that important economic, political, and legal factors limited the amount of U.S.-owned rupees that the United States could spend in India during any period. GAO believed, however, that many opportunities existed for increasing the use of rupees in support of U.S. programs.

GAO recommended that (1) the Office of Management and Budget insure that executive branch agencies can seek approval for well-documented excess currency funded projects without regard to overall agency dollar ceilings, (2) the Office of Management and Budget explore with the appropriate committees of the Congress the acceptability of direct appropriations of foreign currency, and (3) the Treasury Department establish more flexible procedures for valuing U.S.-owned Indian rupees in dollars in making sales to U.S. agencies to encourage greater productive use of the funds for U.S. programs in India without compromising congressional control over the use of the funds.

The agencies generally agreed with GAO's recommendations. The State Department noted the urgency of the problems and stated that it had begun a study to complement the GAO report. The Agency for International Development agreed with the recommendations, but expressed reservations about the economic and political impact of greater local currency use in India. The Office of Management and Budget agreed with the intent of recommendation (1), but had some doubts about recommendation (2). The Treasury Department responded with classified comments.

GAO expressed the belief that the Congress might wish to favorably consider foreign currency denominated appropriations as an advantageous funding form and, with regard to the excessive accumulation of U.S.owned foreign currencies in India, might wish to consider (1) whether a reduction in U.S.-owned rupees should be made to preserve good relations with India, (2) whether executive action in this regard meets congressional desires, (3) whether legislative action should be taken concerning the U.S.-owned rupee balance in