MDAP-Analysis of fiscal years 1950-53 unobligated balances, estimated June 30, 1953 Approved Programs pending approval 126.0 Estimated unobligated June 30, 1953. Reserved for engineering modifications.. Obligations in process, expected to be consummated July-September Requirements not yet in obligation stage. 258. 6 0 0 119. 1 54. 4 71.6 Colonel CORBETT. I would like to take up first our firm requirements of $119.1 million. We have a large block, $21 million, for engineering items which have not been identified. In other words, we wait for the people in the field to actually identify the item which they require. We have other items which are in such small amounts that it is not economical to allow a contract at present. It will not be economical until the new requirements—that is, the MDAP requirements for 1954-and other Army requirements are all put together in order to allow a contract for them. The requirements are $119 million. In the savings we have two parts. One is a savings of $1.4 million in training. We have a savings of $47.1 million in packing, handling, crating, and transportation. We have what is now an unprogramed amount of $10.7 million. The total of these amounts is $59.2 million. In the second portion, we have savings in the Signal program of $12.8 million, which is a natural savings due to cases in which the price, as it is shown on the program now, is $12.8 million less than what is originally shown on the program when it was submitted. Similarly, we have a savings of $4 million in Engineers and $2.5 million in Quartermaster. The large bulk of the savings shown here, or a large part of the savings shown here, is the maintenance requirement which did not materialize in the fiscal year 1953 because the material was not delivered as we originally expected. If the material was not delivered, the requirement did not exist for the maintenance of that equipment. Therefore, the requirement did not occur during that period and will occur during 1954. Mr. HALABY. Now, Commander Schmeder of the Navy will give you a similar analysis of the Navy funds and then we can get some questions. STATEMENT OF LT. COMDR. C. E. SCHMEDER, BUREAU OF SUPPLIES AND ACCOUNTS, NAVY DEPARTMENT Lieutenant Commander SCHMEDER. Following the same order of presentation as the other two services, this chart shows the composition of the Navy program which consists of $1.8 billion worth of material and services. The largest item is vessels, over 50 percent. Aircraft and other materiel items are also in there. The balance is services and other accessorial costs. The chart on the right shows the source of the portion which is devoted to materiel. United States service stocks, 32 percent; offshore procurement, 20 percent; United States procurement, 47 percent. Lieutenant Commander SCHMEDER. Chart No. 14 shows in summary form the status of the program: Our total program, $1.8 billion; the obligations as of April 30, $1,468 million; unobligated balance, as of April 30, 351 million; our estimated obligations for the months of May and June, $193 million. That leaves an estimated unobligated balance as of this coming June 30 of $158 million. (The table referred to is as follows:) Lieutenant Commander SCHMEDER. The same information and the same figures are given in the total down here, broken down by category of materiel and/or service, showing program, April 30 obligations, estimated obligations, and finally the estimated unobligated balance of $158 million previously mentioned. (The table referred to is as follows:) Lieutenant Commander SCHMEDER. Going back again to the 158 million which we estimate will be unobligated on June 30, we have broken it down to show what the expected purpose is for which these funds will be put on the next chart. Fifteen million is reserved for engineering modifications. That is in connection with our shipbuilding program. Obligations in process, which we expect to be consummated during July, August, and September, 51.8 million. Requirements not yet in the obligation stage but being worked on and in process, 75.5. Our estimated savings under the program, 15.7 million. (The table referred to is as follows:) MDAP-Analysis of fiscal years 1950-53 unobligated balances, estimated June 30, 1953 [Millions of dollars] Approved programs Estimated, unobligated June 30, 1953– 158. 0 15.0 Reserved for engineering modifications. 75.5 15.7 Mr. HALABY. Could you give us some examples of the savings? Lieutenant Commander SCHMEDER. Yes, sir. We have four major items of savings. Two of them are in the training program. The first one is $8 million savings on flight-training costs for France, the United Kingdom, and Italy. The reason for the savings is the inability of the countries to provide qualified personnel in the numbers which were originally programed for. 4.9 million is not required for completion of fiscal years 1950 through 1953 training in other areas than flight training. There was a saving of $200,000 on the cost of development of a new diesel engine, and there is $2.6 million apparent savings in the cost of accessorial costs, meaning packing, crating, and handling and our direct operating expenses and transportation inland and ocean. Mr. HALABY. Gentlemen, this is an attempt to give you a picture in as much detail as you would want of the obligations. I would like to go on in a moment to the definition of an obligation, which is causing us a lot of trouble at the present time. If I may, 33064-53-76 Mr. Chairman, ask for questions at this point on what we have presented to date, I realize that in getting twenty-odd charts the committee has not had a chance to study them carefully. I know that from past experience our figures are somewhat suspect with you. I can only give you the assurance that in the 6 weeks I have been working at this with these very earnest and honest taxpayers here, that we have shaken this program hard. We have tried to crank in the lessons of experience in the overestimating and the underestimating that has characterized the program in the past. These are the best figures, the truest picture, that the services can give you in the light of that experience. The boys who have to carry the mail, these officers who have just been talking to you, are here. They are ultimately responsible and we will try to answer any questions we can on the obligations picture. Chairman CHIPERFIELD. Are there any questions? Mr. VORYS. I have a question, Mr. Chairman. Mr. VORYS. You have got in there the Air Force, Navy, and Army percentage obtained from service stocks. I have here a statement that I think refers just to the Army. It shows obligations of $4,326 million, or 55 percent of the total at June 30, 1952, represented interdepartmental orders. Have you any idea what the total of the obligations that you have given us is, that is procurement? As I understand it, that is a contract with a third party outside the Government. And how much is service stocks or interdepartmental orders or requisitions or bookkeeping? I do not term that an obligation. I just wanted to see how much of it is an obligation of the Government to somebody and how much of it is a departmental or bookkeeping transaction. Mr. HALABY. I will give you a general answer and Colonel Corbett or General Russell can supplement it. This pie chart here showing the total materiel of 7.8 billion shows that in contracts for the purchase of goods and services-these are contracts-the Army has placed 3.85 billion. They have placed 1.3 billion in contracts outside the United States. From service stocks they have placed 2.7 billion. That gets us immediateily into what these service stocks are and how the Army keeps its books. I thought I would try to give you a rough example of what happens. Let us take the Danish program, for example. Suppose the Danish MAAG chief, in consultation with the Danish Chief of Staff, determines that he needs 50 6 by 6 trucks during the calendar year 1953. He recommends that to Washington and to Frankfurt. They screen the program and they agree that this is a firm requirement of the Danes. It comes up from the Army to the Secretary of Defense and is approved and it is recommended to Governor Stassen for approval. He approves it and asserts that there are appropriations available. Those 50 6 by 6 trucks then are programed, the money is allocated to Defense and suballocated to the Army. The G-4 in the Army has the job of getting those trucks to Copenhagen. There is a physical problem and then there is a fiscal problem. The trucks happen, in this example, to be out in a United States Army unit in the Middle West. There are some 6 by 6 trucks that the Army bought with its own funds, either in World War II or subsequently. They are being used by an Army unit in the Middle West. So the G-4 sends a piece of paper to the Chief of Ordnance and says, "On an approved program, with allocated funds appropriated by Congress"—and he puts an appropriation symbol on it-"get 50 trucks to Copenhagen within this calendar year." The Chief of Ordnance gets word to the ordnance supply control point in Rossford, Ohio, and they determine that those 50 trucks that they knew were available in this unit in the Middle West are about to be replaced by 50 new 6 by 6 trucks off the production line. Therefore, those 50 trucks become available for rehabilitation in an Army automotive rehabilitation center. They are then rehabilitated and shipped to Copenhagen. When was there an obligation of the funds? According to the rules which the Department of the Army and generally which the other services have been applying for the last 3 or 4 years, there was an obligation of those funds on the day that the G-4 approved the supply directive. On April 7 the Comptroller General, after very extensive and very able study of this bookkeeping situation, sent a letter to the Secretary of Defense. He had had a task force in the Department of Defense several months working with our comptrollers and the service comptrollers, and he said, "I do not think that was an obligation as of the day the supply directive was issued." He said, as we have tried to abbreviate here, "Some new rules have gone into this game." In a way we are getting into a very complicated story, I am sorry to say, but it is like having played three quarters of a football game on some old rules and at the quarter time a new referee comes in with some new bookkeeping rules. He says, "The new rules require that when those trucks are requisitioned from service stocks the Army Department must first make certain that the trucks are available. They must then have a requisition from the G-4 to the Ordnance. The Ordnance must send a piece of paper back to the G-4 saying the trucks are available and can be delivered promptly." I would like to put a copy of this Comptroller General's letter in your record, and then I would like to put also a copy of the Defense Department Comptroller's interpretation of that letter in the record. (The information referred to is as follows:) COMPTROLLER GENERAL OF THE UNITED STATES, The honorable the SECRETARY OF DEFENSE. MY DEAR MR. SECRETARY: The current study of the accounting procedures followed by the Department of Defense and the various military operating departments in the financial control, recording, and reporting of obligations, being made by the General Accounting Office in collaboration with representatives of your Department and the Bureau of the Budget has revealed serious deficiencies in the various bases used to obligate funds for material to be furnished from stock of the various military departments. Not only is there a lack of uniformity between the military departments as to when funds are obligated for material to be furnished from stock, but in many cases invalid obligations in substantial amounts have been recorded. These practices are highlighted under the mutual-security-assistance programs carried out by the Department of Defense for which funds have been allocated by the Director of Mutual Security. The allocation letter of March 30, 1950, from the then Secretary of State to the then Secretary of Defense and subsequent allocation letters contain the statement "MDAP funds may be obligated at the |