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determined from a firm base and are provided as a starting point for determining actual needs.

As the Commission oversight gains experience in conjunction with the neutral bodies, it can set mandatory minimum investigative requirements. For example, if during the past year a neutral body has been unable to comply with the requirement for compliance audits because of priority investigations such as carrier complaints, its present manpower requirement should be revised upward. Similarly, if there is a serious backlog of compliance investigations, as was the situation with one neutral body, Commission oversight would require a similar upward revision of required investigative personnel. At present, an investigator should conduct ten significant investigations a year. This figure should be revised once oversight experience is gained.

Parenthetically, it can be stated to those line officials who are concerned with costs that, during the course of this study, various investigative controls on manpower utilization were suggested to the neutral bodies so that there would not be an under-utilization of manpower. The geographical disbursement of personnel in the shipping industry neutral body business requires that neutral body investigators all be self-starters, and one way to assure that they are is to monitor the investigators' activities adequately.

Requirement for Compliance Audits

Effective neutral body policing demands a total oversight of all of the carriers' operations. Malpractices can start with cargo manipulations and end with the "black bag" transfer. To detect and deter the former requires an ongoing, current review of the lines' cargo movements. The approach of the neutral bodies that have cargo and document inspection procedures is to begin by policing on the piers the cargo and its immediate documents, such as bills of lading. This policy has been successful in deterring carriers from malpractices at the piers.

To complement the inspection procedures of neutral bodies for cargo and documents on the piers, and the approach whereby the responsibility is that of the conferences, an ongoing, current review is necessary of the back-up documents in the main offices. Namely, the compliance audit. A


partial listing of items to be audited is enumerated at Part X(C) (2) (a). To be effective, this compliance audit should be sufficiently timely to preclude carriers from altering the original documents or substituting new documents in place of the originals. If done thoroughly. professionally, timely, and on a surprise basis, a compliance audit would make most operating malpractices extremely difficult to accomplish. When such malpractices depend on the use of devious and complicated schemes, those willing to engage in such activity will diminish in number. In addition, it should be pointed out to those still inclined to engage in malpractices that intricacy in a malpractice case is conclusive proof of willfulness and therefore warrants heavy assessment of damages. The system of inspections and audits described above, should result in decreased incidence of malpractices. Thus, a neutral body would be accomplishing its purpose, and the fact that compliance audits do not uncover major malpractices does not necessarily indicate that they are ineffective.

Whether or not the compliance audit should be patterned after that of Fcs, which is the concentrated twoweek investigative effort, cannot be determined at this time. Inability to observe the audit procedures of FCS or to review those investigations and adjudications resulting from them, limited the effectiveness of this study. The alternative of reviewing different areas of back-up documentation on a monthly, quarterly, semi-annual, and annual basis, as required, seems to have considerable merit. Hopefully, the neutral bodies can hold a dialogue to resolve the question of whether one approach is a more effective deterrent than the other.

Compliance Audit Standards

A neutral body should schedule at least one compliance audit a year for each line. Also, the neutral body should be authorized, as a minimum, to conduct a second audit on one-fourth of the members during the year, especially where it is employed on a permanent basis. The latter authorization precludes lines from considering completion of an audit as a signal to malpractice until the next annual audit is due. The additional scheduling also gives the neutral body leeway in its manpower requirements in that the second audit could be postponed if an unanticipated demand for compliance investigations occurred.

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Using FCS' formula of two investigators for two weeks and one investigator needing a week for write-up, each audit would réquire five investigator work weeks. Averaging conference membership at ten lines, the required twelve and a half audits a year staffs out at a bare minimum figure of one investigator per conference. Consequently, Commission overs'ight would verify that 'one investigator year was allotted to a conference's compliance audits (see Appendix, Article IV (A) (3)).

Presumbably, personnel needs would be indicated by examining the requirement for a neutral body policing several conferences out of the same port, as with ANAFC and the North Atlantic conferences, and by determining the number of sailings and related office documents involved. One investigator is a starting point. Only experience will enable determination of required allotment of manpower. Whatever the cost, the compliance audits must be accomplished. d. Requirement for Compliance Investigations


Routinely, the need for investigations will flow from compliance audits. In the Atlantic and Mediterranean trades, the inspection procedures result also in the need for investigative follow-up. Theoretically, FCS would detect some of these malpractices in its audits. Added to these investigative requirements will be the investigative manpower allotment for carrier complaint investigations and the neutral bodies' self-initiated investigations. Only with the benefit of analysis of such variables over several years' time can a valid manpower requirement appraisal be made. would be impossible to do so based on the limited opportunity for 'observation afforded during preparation of this study.

Accordingly, the starting point for a neutral body's compliance investigations requirements should be what the various neutral bodies have now. This should be supplemented with ongoing analysis and comparison of the neutral bodies' policing conferences operating out of the same ports. Such an analysis was contemplated, had the scope of this study been extended. As it is, future comparisions will have to be made by Commission oversight personnel. The following should be examined: the compliance investigations staffing in New York of Freight Conference Services (Far East Conference),


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Neutral Enforcement Authority (North Atlantic/Mediterranean Freight Conference and Mars/NAUSAFC), and Associated North Atlantic Freight Conferences with its policing responsibilities for the North Atlantic and Latin American conferences. Comparisons should be made on the West Coast between the staffing of Freight Conference Services (Pacific Westbound Conference) and Associated North Atlantic Freight Conferences (Pacific Coast Eastbound Conference).

The reporting requirements suggested below (see Part XII(C) (6)) will facilitate this comparison. Specifically, the neutral bodies will be required to state on a semi-annual basis their pending caseload in the various categories, the projection of investigative time required to complete pending cases, and the number of cases closed during the reporting period. Eventually, a pattern will evolve of average conference caseload and average investigator caseload and production. Staffing requirements for the current and/or projected caseload can be determined from this experience, abetted by what the respective neutral bodies have in place now and claim to be sufficient.

Presumably, current manpower will be able to meet the investigative requirements for the pending caseload and the compliance audit program. Therefore, the present investigative staffing should be deemed adequate. However, a backlog of delinquent cases and a projected investigative time for the current caseload which cannot reduce the delinquency should cause the neutral body to request additional funds from the conference for investigative assistance. The Commission would be aware of the request and of the conference's reply when making the annual determination of the adequacy of the conference's self-policing system (see Part XII(B) (5), below).

In summary, the Commission should accept as adequate the investigative manpower allotment that is now in place. The above described analysis of the required manpower would be made with the Commission's oversight mechanism. A backlog in compliance investigations or inability to conduct compliance audits would be evaluated and would result in the necessary directives. The Commission would know approximately what the investigative manpower situation is for each conference and, while the need for flexibility in staffing is recognized, the Commission would be in a position to require, as a minimum, adequate staffing.

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Compliance Investigation Standards

The compliance investigative manpower requirements for a neutral body for a conference requiring full-time self-policing should be what is now in place. Using the current experience, the requirements will be subject to revision. However, no self-policing agreement will be approved by the Commission unless the budget and manpower figures are incorporated into that agreement, and no reduction in either should be approved unless completely justified. In effect, a freeze should be imposed upon those conferences and the neutral bodies that would seek to lower the staffing for their compliance investigations requirements. The previously mentioned restrictions on investigative personnel who do not perform inspection functions allows for an easier monitoring of the respective functions. It also prevents conferences from requiring neutral bodies to assign investigative personnel to the more financially remunerative inspection procedures, at the expense of developing malpractices. e. Financial Analyses Investigations


The need for a sophisticated investigative approach and methods of implementing it are discussed in Part XI (A) and (B), below.

During the course of this study, the author stated that no evaluation would be made of the adequacy of the self-policing provided by the various neutral bodies; they would not be compared nor would they be rated. One of the goals of this study was to evaluate self-policing methods. This goal still obtains.

On the issue of evaluation of self-policing methods, portions of the initial report should be restated so that the reader can review obvious conclusions as to the adequacy of present self-policing methods in the area of cash rebates.

"From what has been observed thus far, the
problem of cash rebates has not been seriously
approached from an auditor/investigator's
viewpoint by any of the neutral bodies. There
is a defeatist attitude amongst shipping
officials on the issue of proving the payment
of cash rebates. There has been no analysis
by trained financial investigators of the art
of cash rebating and what investigative
techniques could be tried in combatting it.

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