the industrial fund would eliminate the entire stock fund accounting and reporting system and would thereby result in annual savings of almost $100,000 in personnel costs and reduction in computer processing time and keypunch and verification effort.

We proposed that the stock fund accounting system be eliminated at Aberdeen and that inventories now owned by the stock fund be capitalized and controlled under the industrial fund. Similar actions should be taken where practicable at other DOD installations.

DOD agreed that simplification of accounting systems and the elimination of duplication were desirable objectives; however, DOD believed that the financial procedure we recommended was not in accordance with the provisions of law which authorized working capital funds. We believed our recommendations were not contrary to law but were an extension of the current practice of the industrial fund to finance and control inventories needed for its own use. We are continuing to pursue this matter with DOD in the interest of economy and efficiency. (Report to the Congress, B-159797, July 30, 1971)

Transportation

242. Ammunition Distribution System Responsive, but Sometimes Costly.-The Department of Defense's ammunition distribution system responded to military requirements in that ammunition was moved with relatively few delays en route. However, we believe this responsiveness in certain circumstances was achieved at unnecessarily high costs.

As a result of our work, significant economies were achieved by:

Obtaining lower rail rates which saved more than $16 million in 10 months.

Reducing vessel sheathing which should reduce transportation costs as much as $500,000 annually.

No longer using an unnecessary port in Europe. Establishing ammunition renovation facilities in Vietnam, which eliminated shipping ammunition needing renovation out of the country.

Shipping ammunition directly to Vietnam rather than to offshore depots which should save more than $4 million annually in transportation costs.

Computerizing a segment of the management information system to provide information not previously available.

The Department has also promised to study or initiate other corrective measures. (Report to the Secretary of Defense, B-176139, June 19, 1972)

243. Improved Use of Cargo Space on Ammunition Ships. Cargo space on ammunition ships was not fully used. In 1969, 355 Victory- and C2-class ammunition ships departed U.S. ports for the Far East and Southeast Asia with more than 200,000 measurementtons of unused cargo space worth about $6.5 million. In planning ammunition shipments, the Department of Defense (DOD) had restricted the amount of cargo to less than the ships could carry, and thus considerable cargo space was unused.

When we notified DOD officials of this, they increased the shiploads and used space on these ships more efficiently. We estimated that this improvement saved more than $900,000.

Also, DOD had no way of knowing that cargo space had been used ineffectively because it did not require ships to report sailing with unused space. We recommended that DOD establish a reporting system to provide management with current information on cargo space used on ammunition ships and the reasons for any unused space. We also suggested that DOD evaluate ammunition ship utilization in their regular internal audit program.

DOD agreed that there was a need for a reporting system and indicated that a system would be established. Also, one of its traffic management organizations will monitor space utilization on ammunition ships as an integral part of its internal review program.

Although DOD did not agree that faulty planning primarily caused unused cargo space, Victory- and C2-class vessels' average loads increased significantly after planning was improved. However, larger C3- and C4-type vessels had not similarly improved. We therefore recommended that the Secretary of Defense review the load planning on those vessels. (Report to the Congress, B-133025, Mar. 21, 1972)

244. Improvements in the Postal Transportation System. We surveyed the Post Office Department's transportation system before the Postal Reorganization Act was enacted and found that, although its system was responsive to its needs, savings could be realized by:

Using the less costly Star Route Service instead of Government Rural Delivery Service. This could save

as much as $24 million annually in one postal region and about $5 million annually in another.

Using contract service to transfer mail between airports and post offices.

Obtaining more favorable rates from air carriers. We found that over $900,000 annually could be saved on shipments from a single facility to just three destinations if rates at the general commodity level were applied to mail.

Presorting first-class mail. We estimated $779,000 in handling costs could have been saved annually in one postal region and $438,000 in another if large mailers had voluntarily presorted their mail.

The Postal Service-successor to the Post Office Department agreed to take action to achieve these savings. (Report to the Postmaster General, B-114874, June 29, 1972)

245. Control Over Government Transportation Requests. Our review of policies and practices relating to the Army's management and control over Government Transportation Requests (TRs) revealed that the Army made an estimated 60,500 errors totaling $6.2 million in providing transportation to servicemen and dependents during fiscal year 1970.

Of this amount the Army failed to collect about $2.8 million for TRs issued on a cost-charge basis (unofficial travel) because of a breakdown in the flow of paperwork. When we brought this condition to the Army's attention, immediate action was directed to provide for timely collection of such charges under the new centrally computerized pay system.

TRS valued at about $2 million were not properly considered in settling mixed travel claims for official travel when part of the travel was performed at the serviceman's expense. To improve this situation we suggested that TRS involving mixed travel be treated on the same basis as cost-charge TRs.

About $1.4 million was erroneously paid for travel of dependents. These errors involved reimbursement for travel which had actually been performed by use of TRs, travel of ineligible dependents, and transportation to overseas locations for dependents of servicemen who did not qualify for such benefits. When we brought these errors to the Army's attention, regulations were changed to eliminate the latter abuse.

The Department of Defense agreed, generally, with our report and has initiated actions responsive to its conclusions and recommendations. (Report to the Secretary of Defense, B-173370, May 24, 1972)

246. Transportation of Mexican Aliens.-Although the Immigration and Naturalization Service, Department of Justice, had reduced the cost of transporting Mexican aliens in the Southwest Region, we believed that further reductions could be made by using Government-owned buses rather than airplanes. The Department, in commenting on our report, stated that the Service was extending its use of buses in substitution for movement by airplane.

The Southwest Region of the Service did not request financially able Mexican aliens to pay their transpor tation cost from the point of apprehension to the Mexican border. In contrast, the Northeast, Northwest, and Southeast Regions did request aliens to pay for their transportation.

The Assistant Attorney General stated that, because of the vast number of aliens in the Southwest Region compared with the lesser number in the other regions, it was not operationally feasible to request apprehended aliens to pay for transportation. He said that it was believed that many aliens would refuse to pay for transportation and that the Department did not have authority to force them to pay.

The Assistant Attorney General said also that under the law the Service would be required to conduct deportation hearings for those who refused to pay, which would result in detaining the aliens for longer periods of time. He said that steps were being taken to recommend appropriate legislation to deal with this problem and that, pending action by the Congress, the Service would continue operating in its same manner. (Report to the Attorney General, B-125051, Aug. 26, 1971)

User Charges

247. Collection of Federal Highway Use Tax.We reviewed the effectiveness of the Internal Revenue Service's (IRS) collection of the Federal highway use tax which is paid on the basis of voluntary compliance. IRS denied us the right of access to its records on tax administration on the basis that only the Joint Committee on Internal Revenue Taxation had the right to review the IRS administration of the tax laws. Our review of IRS highway use tax activities was therefore restricted to an analysis of summary data made available by IRS.

In fiscal years 1970 and 1971, IRS collected additional highway use taxes of $1,096,000 and $1,538,000, respectively, as a result of returns compliance work. This work was performed on a manpower-available

basis and was conducted for the most part by nine of 58 IRS district offices. Because our review was restricted to an analysis of summary data provided by IRS, we were unable to ascertain whether the compliance work for the nine districts represented a partial or complete cross-referencing of State truck registration data against IRS records of truck owners who filed highway use tax returns.

We concluded that IRS should strengthen enforcement of the highway use tax law by adopting a longstanding recommendation by the Federal Highway Administration (FHWA) that decals be placed on trucks for which the tax had been paid. FHWA said that, during the normal work activities of its safety investigators with the cooperation of State employees, about 250,000 trucks could be inspected annually for compliance. We believe that the increased compliance that would result from the impact of a decal system on truck owners, as well as the enforcement effect of FHWA personnel reporting violations, would justify any additional administrative expenses.

IRS agreed that a decal system had merit, but said that during fiscal year 1973, it planned to conduct an intensive highway use tax collection program utilizing State registration data. IRS said that an estimated 180 to 200 man-years would be used in the program. In its fiscal year 1973 budget presentation, IRS requested $5 million for 400 additional man-years to identify taxpayers who had never filed returns. As indirated by IRS, 180 of the 400 man-years would be devoted to the highway use tax program resulting in securing an estimated additional 75,000 to 126,000 returns having a maximum assessed value of $26.6 million. Because budget information submitted by IRS indicated that returns compliance work for other types of taxes would result in a higher dollar return per manyear, we believed that this was an inefficient use of manpower. (Report to the Legal and Monetary Affairs Subcommittee, House Committee on Government Operations, B-164497 (3), May 15, 1972)

248. Cost of Processing Business Reply Mail. The Congress intended that fees charged for business reply mail service be adequate for recovering the cost of this service. Although Postal Service costs had increased, the fees had not been changed since they were established by law in 1958.

The Postal Service was not recovering the cost of providing the business reply mail service because personnel costs had increased significantly from the time the fees were established. The average direct labor

cost for each piece of business reply mail exceeded the average fee by .9 cent at 13 postal facilities located in seven cities. The Postal Service processed 733 million pieces of business reply mail during fiscal year 1970.

We recommended that the Postal Service determine the nationwide cost of the business reply mail service and propose to the Postal Rate Commission appropriate fee adjustments to recover the costs of providing this service. The Postmaster General stated that the relationship between costs for a postal service and rates for that service was a matter for review by the Postal Rate Commission.

Because the Postal Service had not compiled information on the nationwide costs of providing the business reply mail service, we believed that an informed decision could not be made as to the fees that are required to recover the costs of providing the service. (Report to the Congress, B-114874, Oct. 28, 1971)

249. Multiple Post Office Box Rentals.-Many commercial firms receiving large volumes of mail had been renting numerous post-office boxes (multiple boxes). Each box was designated by a firm as the address to which its customers and other correspondents were to send particular types of business mail. In many instances there was no actual lockbox, but mail addressed to a box number was sorted and placed in a mail bag for pickup by the addressee. Boxes rented under these circumstances were referred to as phantom boxes.

The costs of providing commercial firms with multiple and phantom boxes at 80 selected large post offices exceeded the revenues by about $3.1 million annually. These additional costs primarily consisted of increased clerical cost of sorting a large volume of mail sent to recipients with numerous post office boxes.

The Postmaster General advised us that the box rental policy would be revised to recover the costs of multiple and phantom box services. However, because the Postal Rate Commission must review proposed fee changes, the Postal Service was not sure when the new fees or services it might propose would become effective. The Postal Service planned to propose a rate change for box service to the Commission in January 1973. (Report to the Congress, B-114874, July 19, 1971)

250. Need for Verification of Claims for Duty Refunds. Refunds of duty paid (drawbacks) are permitted by law upon the exportation of items manufactured from duty-paid imported material or like ma

terial substituted for imported material. With respect to sales to Government agencies, a manufacturer may claim drawback only if the claim is accompanied by a certificate signed by an official of the purchasing agency stating that the right to drawback was reserved by the supplier with the knowledge and consent of the

agency.

Many of the documents supporting recent drawback claims of an oil and refining company for petroleum products shipped abroad showed a subsidiary of the company as the consignee. Some of the documents contained information, however, which enabled us to identify the purchaser as a Federal agency.

A limited review of the Federal agency's files and the oil company's drawback claims indicated that the oil company may have claimed drawback on substantial shipments of lubricating oil abroad under Government agency contracts. We were advised by an official of the oil company that the company had not reserved the right to drawback for any of its sales to the Government.

Customs regulations provided for collectors to refer drawback documents to Customs Agency Service for verification. We believed our review disclosed sufficient information to warrant a verification of the oil company's sales and other records pertaining to drawback claims for 1967 and subsequent years to determine the extent to which drawback was paid or claimed on sales of petroleum products to the Government. The Bureau advised us on April 24, 1972, that this matter was receiving its attention. (Report to the Acting Commissioner, Bureau of Customs, Mar. 30, 1972)

251. Priority Mail Handling of Publications.— Although not authorized by law, the Postal Service traditionally has provided priority handling to certain newspapers and periodicals. These publications receive priority handling for the same postage rates paid by publishers receiving nonpriority service. About 4.1 billion of the 9.4 billion pieces of second-class mail handled in fiscal year 1970 were given priority handling. Priority handling consists of expeditious distribution, dispatch, transit handling, and processing.

The Postal Service provided this priority service to mailers of some second-class matter without recovering the additional costs incurred. The Detroit Post Office incurred an additional $197,000 in letter carrier costs to expedite handling certain periodicals during fiscal year 1970. Also, we estimated that the annual

costs for clerks and mail handlers to prepare priority second-class mail were $114,000 at the Washington, D.C., City Post Office; $40,000 at the Detroit Post Office; and $7,500 at the Seattle Post Office.

Because the criteria for determining which publications qualified for priority handling were vague, local post offices were inconsistent as to which publications should receive priority service.

The Postal Service advised us it would review the mail classification system, including the services needed by publishers, the costs of providing such services, and the appropriate rates to be charged. Although the Postal Service stated that our proposals would be considered in this study, it did not indicate that it would implement the recommendations. (Report to the Postmaster General, B-114874, Mar. 23, 1972)

252. Reduced Postage Rates for Nonprofit Organizations. By law certain types of nonprofit organizations can qualify to mail matter at reduced second- and third-class postage rates. The reduced rates range from 23 to 60 percent less than the regular rates. Organizations such as business leagues, citizens' and civic improvement associations, and social clubs are not eligible for the reduced postage rates.

Because the Post Office Department had not been making proper determinations of the eligibility of nonprofit organizations for reduced rates, the Department had not collected substantial revenues to which it was entitled. At five post offices we reviewed, 115 organizations did not qualify for the reduced postage rates. We estimated that the Department undercharged these groups by $1.5 million during a 1-year period.

The criteria used by postal personnel to determine the eligibility of nonprofit organizations for reduced postage rates was inadequate. Some organizations, as a result, were granted nonprofit mailing privileges at some post offices, while the same or similar organizations were denied these privileges at other post offices. The total amount of lost revenue to the Postal Service could be significant because it delivers an estimated 6.1 billion pieces of nonprofit mail nationwide annually.

On May 24, 1971, the Postal Service issued new guidelines for determining the eligibility of organizations for the reduced third-class postage rates. These guidelines were also being used for reviewing applications for the reduced second-class rates. (Report to the Congress, B-114874, Apr. 4, 1972)