nels-in other words, sell it as surplus-we turn it back to the military. We feel that we could be criticized unduly for acquiring the property which eventually we don't have a use for and trying to make money on the sale of the property.

So, we turn it back to the military who in turn disposes of it, and they keep the funds, we do not.

Mr. WATERS. I might add, Mr. Romney, that the pattern of the StateAID-USIA regulation applies basically to our own generation. I don't think it was intended to cover construction equipment, but rather office equipment.

Mr. WOLL. I said that the military keeps the money. I don't know whether that is true or not. But AID does not get the money.

Mr. MONAGAN. Thank you very much, Mr. Waters and Mr. Woll. Mr. WATERS. Thank you.

Mr. WOLL. Thank you.

Mr. MONAGAN. Our next witness is Mr. Jerome H. Stolarow, Assistant Director, Defense Division, U.S. General Accounting Office. We appreciate your coming and shall be happy to hear you.

STATEMENT OF JEROME H. STOLAROW, ASSISTANT DIRECTOR, DEFENSE DIVISION, U.S. GENERAL ACCOUNTING OFFICE; ACCOMPANIED BY CHARLES W. KIRBY, ASSOCIATE DIRECTOR, DEFENSE DIVISION, U.S. GENERAL ACCOUNTING OFFICE

Mr. STOLAROW. I have with me, Mr. Chairman, Mr. Charles W. Kirby, Associate Director.

Mr. MONAGAN. Do you have a prepared statement which you would like to proceed with?

Mr. STOLAROW. Mr. Chairman and members of the subcommittee, I am pleased to be here today to discuss the work that the General Accounting Office has recently completed in Europe, in connection with Operation FRELOC, as well as our plans for additional audit efforts in this area.

During the fall of 1966, it became evident to us that many of the committees and subcommittees of the Congress would be interested in the events occurring in Europe as a result of President De Gaulle's decision that all foreign military forces must leave France. In order to be able to provide interested members and committees with information regarding Operation FRELOC, we undertook a broad survey covering military supply matters, disposition of surplus material, disposition of real property and related personal property, and new construction requirements arising from the movement of supplies and personnel. The results of the survey are contained in our classified report, copies of which have been furnished to the committee.

The U.S. Government operated and maintained in France, a complex military establishment consisting of several major headquarters activities, depot complexes and Air Force bases. Utilization of French territory provided ports of entry for supplies arriving from the United States, storage areas for war reserve materiel and peacetime operating stocks, a pipeline for the main supply of bulk petroleum, oil, and lubricants, storage for petroleum war reserves, and an extensive communication system. France was strategically important because these facilities were somewhat removed from the geographi

cal areas where an initial attack could be expected in the event of hostilities in Europe and, over the years, the United States invested about $565 million for physical facilities in France, exclusive of the amounts contributed through the NATO infrastructure program. At March 31, 1966, the Army and Air Force had about 660,000 short tons of mission stocks in France, as well as about 150,000 tons of post, camp, and station stocks such as desks, chairs, typewriters and similar items.

We were informally advised that, at the direction of the President of the United States, the military services were required to vacate most of the installations, and to move all of the operating stocks from France by April, 1967. Some activities in France are still open to support dependents who were permitted to remain until the end of the school years. As of March 31, 1967, about 6,000 tons of post, camp, and station stocks remained at these locations, and will be moved or otherwise disposed of during the next several months.

As you can realize, the movement of over 800,000 tons of material was a formidable task, and we believe the military services should be commended for the completion of the relocation by the April deadline. With respect to the real property, only a relatively small number of the installations have actually been turned over to the French Goveinment or to the lessors at this time. A group, known as the Military Liquidation Section, has been established as an integral part of the American Embassy in Paris, to maintain control of the real property until the French Government assumes jurisdiction.

Also, the Military Liquidation Section has been given the responsibility for negotiating, with the French Government, the sales prices for installed equipment that the French have indicated they wish to have remain in place at certain locations. At those locations where the French have expressed no interest, the military services generally followed the policy of removing equipment for which there was a foreseeable need. Other equipment was either to be left in place or disposed of, whichever appeared to be the most economical course of action under the circumstances.

Because of the rapid movements of material during the several months preceding April 1, 1967, our audit efforts in the area of excess, surplus, and potential donable property were generally limited to obtaining available statistical data and some information on the procedures utilized by the services to screen excess property.

The procedures followed by the services generally called for screening of all excess personal property, both within the theater and by the national inventory control points in the United States. We do know that the military assistance and AID programs obtained supplies and equipment from the services during the move, but we have not yet evaluated the screening procedures to determine if all possible material was transferred to those programs, or to other military commands in other parts of the world.

The data that we were able to obtain prior to April 1, 1967, indicated that during the 12 months ended March 31, 1967, about 72,000 tons of Army excess mission stock was moved from France, and about 10,000 tons was disposed of in France. In addition, about 48,000 tons of Army post, camp, and station stocks were disposed of in France during the same period. Data on Air Force excesses and disposals were not readily available at the time of our survey.

We are currently engaged in a detailed review of the whole area of disposals, surplus property, and redistribution of assets resulting from Operation FRELOC. The objectives of our review are to (1) determine specific types and quantities of material disposed of, (2) determine where the disposals took place, and the recipients, and (3) evaluate the propriety of the disposal actions by reviewing the adequacy of screening procedures utilized to ascertain if other Government agencies had a need for the material. We hope to complete this review by August 31, and to have a report available sometime in September.

With respect to the question of the adequacy of AID's procedures for screening, transporting, rehabilitating and putting into program use excess property made available to it as a result of FRELOČ, we do have some work underway in Europe touching on this matter. However, within the time available to prepare our testimony on this subject, we do not have sufficient information here in Washington to discuss the matter adequately.

Our work in this matter covers all excess personal property being generated in Europe and is not limited just to FRELOC. It deals with (1) transportation of property to and from marshaling sites at Antwerp, Belgium; Livorno, Italy; Rota, Spain; (2) AID's funetions in contracting for rehabilitation of excess property; (3) the use by AID of this property whether as a supplement to their usual program or whether it is being used in lieu of procuring new equipment; and (4) the utilization of excess property by the recipient country. In connection with the subject of excess and surplus material, we believe there is one matter that should be brought to your attention at this time; namely, the Army's policy of retaining certain stocks that are in excess of their operating and war reserve requirements. Under the provisions of Army regulations, oversea commanders are permitted to retain in their inventories quantities of stocks equal to an 18-month supply over and above all computed operating and war reserve requirements. This situation comes about when, for example, computed requirements of an overseas command for a particular item decrease below the quantity of stocks already on hand. Instead of the oversea command reporting this material back to the inventory control point in the United States for possible redistribution, the excess stocks, up to an 18-month supply, are classified as economic retention stock and remain under the control of the oversea command for possible future needs. As a result, the inventory control point in the United States may be procuring the same item to meet the urgent requirements of other Army commands, other services, or the military assistance programs.

On April 10, 1967, we issued a report to the Congress on the availability of selected stocks of the U.S. Army in Europe for requirements of other commands, wherein we stated that repair parts and electronic components which exceeded requirements in Europe were not redistributed to meet urgent needs in other areas because of weaknesses in the Army's inventory reporting procedures and practices.

In our report, we suggested that all existing stocks of items that exceed current operating and reserve requirements should be routinely reported to the appropriate national inventory control points so that the availability of such stocks could be considered in arriving at de

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cisions regarding procurements, redistributions, and disposals. In its reply to our report, the Army stated that:

As a general rule, stocks issued to and owned by tactical forces should not be considered as available for redistribution to satisfy worldwide requirements unless reported as excess in accordance with existing Army regulations.

In our opinion, the Army's policies in regard to retention of material can lead to overprocurements, additional storage costs, and possible shortages in one command while another command has an overstockage. Also, other Government agencies such as AID and MAP could possibly make use of such material if it were made available.

Our preliminary data indicate that some portion of the new construction being planned by the Army, at a cost of about $100 million, in Europe, will be for storage of inventories falling into the economic retention category.

In closing, I should like to point out that our initial survey, the results of which are contained in the report already transmitted to you, were for the purposes of obtaining general background information and for identifying those areas which appeared to require further audit effort. In this connection, we recently initiated four detailed reviews in Europe, including the review of disposal activities previously discussed. The other three are:

1. Review of stock control procedures.

2. Survey of the procedures and practices of the Military Liquidation Section.

3. Survey of need for new construction in Europe.

The general objectives of the four reviews are outlined in the attachment to this statement. We plan, at a later time, to review FRELOC cost data and the requirements area.

This concludes my prepared statement. I shall be happy to answer any questions that you may have at this time.

Mr. MONAGAN. Thank you, Mr. Stolarow.

First of all, I want to say that I am interested in the activities that you project here, and are now engaged in because I think they are extremely important, and it is encouraging to know that you are making studies along the lines that you have indicated.

Also, I feel that your statement about future construction, and also about the retention of materiel in excess quantities are vitally important, too, and we will look forward to the results of this study which you indicate will be coming in August.

Now, with regard to classification, you have furnished us with certain material, some of which is classified and some of which is unclassified. Of course, the unclassified, we can put into the record at this point.1

Mr. MONAGAN. What is the basis of the designation of the other material?

Mr. STOLAROW. We accept the classifications placed on this material by the Department of Defense.

Mr. MONAGAN. I see. That is not your designation?

Mr. STOLAROW. No, sir.

Mr. MONAGAN. Now, you refer to 10,000 tons of excess mission stock was disposed of in France. And you say around 48,000 tons of Army

1 The report, dated April 1967 and a revision dated May 1967 are classified and are in the subcommittee files. Certain unclassified portions are printed below at p. 34.

post, camp, and station stocks were disposed of. How were they disposed of, and under what regulations?

Mr. STOLAROW. As I have indicated in the statement, we haven't gotten very deeply into this; but I would venture to say that we do have a little information on some of the disposals. For example, certain items were disposed of in France by the use of invitation for bids, and we have a listing of some of these items.

Mr. MONAGAN. Well, it is conceivable, for example, that some of this might be used in the AID program, and I just wonder if you know, what the policy consideration was and what the regulation was that determined that this should be sold at public sale.

Mr. STOLAROW. No, I don't know offhand, sir. I would assume that the AID people did have an opportunity to obtain that property before it was sold. This is the normal procedure. When it is turned over to a property disposal office, the AID people do have an opportunity to screen it.

Mr. MONAGAN. Mr. Woll, do you know anything about this?

Mr. WOLL. I am sorry, sir, I wasn't paying too much attention to what was said. I was reading the opening statement.

Mr. MONAGAN. There were certain stocks that were disposed of in France, and I was trying to determine how the disposition was made, and whether or not AID had an opportunity to acquire the property before sale.

Mr. WOLL. If the property were excess to military needs, sir, I would say that AID had an opportunity before any final disposal action as far as sale was concerned to obtain this property.

Mr. MONAGAN. And other Federal agencies as well. So that although you don't know specifically, this apparently was an action that took place after the screening and offering the property to the Federal agencies?

Mr. STOLAROW. Yes.

Mr. MONAGAN. You speak about your work covering excess personal property being generated in Europe and not just limited to FRELOC. Would there be a substantial amount generated other than through FRELOC? And where would that be principally?

Mr. STOLAROW. Well, there is excess property being generated in the military services at any location where they do store material. This comes about through changes in requirements or changes in technology, whereby certain items become obsolete.

Mr. MONAGAN. This would be in Germany and in Spain?

Mr. STOLAROW. Yes. For Army stocks in Germany and at the air bases and naval bases throughout Europe.

Mr. MONAGAN. You refer to your work involving the utilization of excess property by the recipient country. Just what do you have in mind there, specifically?

Mr. STOLAROW. I would like to ask Mr. Berngartt who is from our International Division, which is responsible for this work, to answer that, if I might, please.

Mr. BERNGARTT. At present, we have people over in Europe who are going to the various recipient countries and checking on the equipment as to the condition that they found the equipment after it has been rehabilitated and ascertaining what use the recipient countries are making of the equipment.