his unobligated balance at about $265.8 million. He tells me that the effect of the new rules on the Air Force will only be to increase that about $7 million, the reason being that very little of the Air Force program is coming out of the service stocks.

(The chart referred to follows:)

CONCEPT OF OBLIGATIONS

BASIC CONCEPT

1. Where the order is to be filled from the supplying agency's stocks, the order will be recorded as an obligation by the ordering agency.

2. Each military department acts as both ordering agency and supplying agency.

OLD RULES, ARMY

1. Funds are obligated at time supply directives are issued for end items to be provided from service stocks.

2. "Supply directive" is interpreted to mean the approved program document showing the items to be furnished from service stocks.

3. "Service stocks" include equipment in use, if plans for its replacement are established, in addition to items in storage,

OLD RULES, NAVY

1. Similar to new rules except for determination as to prompt delivery.

OLD RULES, AIR FORCE

1. Funds obligated at time order is issued, without determination as to prompt delivery.

NEW RULES

1. The order must be firm and complete, i. e. :

a. Must request prompt delivery of specific available stock items.
b. Must be accepted by supplying agency.

2. "Available" means items on hand or on order that will be released for prompt delivery.

a. Excludes items subject to repair, rehabilitation or renovation at expense of the services unless subject to sale on an "as is, where is" basis on which repair rehabilitation or renovation will be at customers' expense.

b. Includes items on which repair, rehabilitation or renovation has been completed.

3. "Prompt delivery" normally means with 30 to 60 days from date of acceptance of the order.

The Navy case is in between. The Navy picture, as I recall it, showed unobligated balance on June 30 estimated to be $158 million. Under the new rule it is estimated it would be 302 or 303 million dollars.

The problem, then, is when is an obligation an obligation, and how can we present the case to you honestly and fairly in this very turbu lent fourth quarter of this game?

On the old rules, which we think represent a pretty fair picture, it is the figure we have given you of about $581 million unobligated balance, exclusive of savings. Under the new rules the thing skyrockets up to something more than 1.6 billion unobligated.

Chairman CHIPERFIELD. Mr. Bentley.

Mr. BENTLEY. Mr. Halaby, can I ask you to turn back to chart 2 for a minute? The amount of $151 million held by OSD is a little confusing. You have got that under distribution of unobligated balance, making a total of 959.5. To get your net unobligated balance you sub

tracted savings of 378 from that. But included in the 378 is the same item of 151.1, is it not?

Mr. HALABY. That is right.

Mr. BENTLEY. I do not understand how you use the same item twice. Mr. HALABY. The total here of all these items is 959.5 million. That is inclusive of all these items. The total savings, including this amount, is 378, which we subtract from this amount to get the 581. Mr. FULTON. I do not see that, either.

Mr. BENTLEY. I do not see how you use the figure twice.

Mr. VORYS. Will the gentleman yield? You had a net unobligated balance of 581.5. You have accounted for that much later as unobligated that you want to obligate.

Mr. HALABY. That is right.

Mr. VORYS. The unobligated balance is 959.5. The part that you do not want to obligate but you say can be used to reduce that, that is out now. Then the 581.5, on the lighter sheets, even if it is not obligated, you wanted it obligated because it is part way obligated.

Mr. HALABY. Exactly, sir. This is what we would like you to authorize to be carried over, not that figure.

Mr. BENTLEY. I follow that. I do not see why the same item is used twice on the same chart.

Mr. JUDD. He adds one and subtracts one.

Mr. HALABY. These are not all savings, you see. I think the thing that might be confusing is that these might seem to be the savings figures. They are not. These are the unobligated that we want to obligate as soon as we can. This will never be obligated out of fiscal 1953 funds, but it is part of the unobligated balance which we want to distribute.

Mr. BENTLEY. It is a part of the unobligated balance and it is also a saving?

Mr. HALABY. Yes.

Mr. VORYS. It is sort of an enforced saving by OSD, tentatively withheld and now you say it is going to be withheld.

Mr. HALABY. Yes, sir, it is going to be withheld over considerable complaint.

Mr. JUDD. Some of it is unobligated because you have not yet got around to it. Some of it is unobligated because it is not going to be obligated.

Mr. HALABY. That is right. We could have just left this up in the overall figure and not have shown it here, but we wanted to break this down in detail for you.

Chairman CHIPERFIELD. Any further questions?

Mr. SMITH. Will you give me the figures under the new rules of what that unobligated balance should be?

Mr. HALABY. Under the new rules for Army it would be 1,367, approximately. As I say, that is a highly tentative figure because there are so many supply actions in progress. For the Air Force, 273. For the Navy, 302.

The total is 1.942 billion and then you add this 151 to that. It is over 2 billion. You subtract the savings of about 4. It is around 1.6 billion under the new rules that would be shown as unobligated.

I must say again that the bookkeeping on this, I believe, is being straightened out. There were some imperfections in it. We cooper

ated with the GAO. We believe these new rules are pretty good rules, but they raised complete havoc, and it makes it extraordinarily difficult for you gentlemen as well as for us to explain just exactly what is at work and what is not at work. In short, I would say that all but about half a billion of this is, in our view, at work and that will soon be put to work, but the bookkeeping has been thrown into some confusion.

Mr. FULTON. Could I ask you about your deobligations? You would have, of course, cancellations and reductions of programs. On your pie charts you seem to come up with a distribution of funds that is all hardware, administration, or some kind of an end item. What is the cost of that deobligation? Does that go into administrative or where does that expense show up?

Mr. HALABY. There are three major catagories. There are so many different types of savings that we put in here. The largest category is in these accessorial charges. One of the reasons why we have made savings, particularly that 151 million that we withheld in OSD, was that the deliveries have not been as great. As you well know and as this committee has frequently pointed out to us with a lot of vigor, the deliveries have not been going fast enough. When the deliveries do not go fast the packing, handling, crating, and transportation charges are not spent and therefore there is an overestimated amount for that. So a large portion of it comes out of these accessorial charges.

The second big category was in training. Some of the equipment was not delivered, some of the forces were not quite ready, some of the students did not get graduated and did not learn enough English, and so on and so forth.

The third was in price changes. There was a considerable amount of savings, using the Air Force as an example. In the Army it was even larger. A considerable amount of savings resulted from either our overestimating the prices when we put them in the program or industry through volume production and higher efficiency got the price down from what they thought they were going to get it. Those are three main categories. One is accessorial, one is training, and one is materiel.

Mr. FULTON. But you must have had some expense, too, for contracts that you let and obligated and then decided that you would not go ahead with. You either canceled or reduced them.

Mr. HALABY. Cancellations?

Mr. FULTON. That is an expense. That is not a credit for unused funds. Where on your pie chart would that expense be shown, under what category would it appear?

Mr. HALABY. I have the Air Force here. I believe the answer to that is that if you let a contract for air materiel and then cancel it due to some change in circumstances, the funds for cancellation come out of your materiel portion of this pie chart.

Mr. VORYS. I would like to ask, if there is a brief explanation, why the difference in accessorial charges of 3.8 percent for Army, 2.7 for Air Force, and 1.3 for Navy. The Air Force is twice the amount of Navy and the Army is twice the amount of Air Force, roughly.

Mr. HALABY. I think General Stewart could give you the very best

answer.

STATEMENT OF MAJ. GEN. GEORGE C. STEWART, DIRECTOR, OFFICE OF MILITARY ASSISTANCE, OFFICE OF THE SECRETARY OF DEFENSE

General STEWART. I think the answer to that is simply that the Army has a far greater variety of individual items that require packing and handling. You deliver a ship or a vessel under its own power. You can deliver certain aircraft under their own power. In the Army practically everything you deliver has to be packed and physically moved on railroads and shipped. I believe, sir, that is the answer to that question.

Mr. VORYS. That is, shipping is in that accessorial charge?
General STEWART. Yes, sir; packing, crating, and shipping.

Mr. VORYS. Then at the appropriate time-this may be the timeyou no doubt have had this called to your attention, that this 278 million of MSP funds was allocated for the procurement of spare parts for Army stocks in anticipation of an appropriation to the Army for such procurement. The result of this action, therefore, was to report 151 million for the procurement of spare parts for MSP and to obligate 127 million against MDAP as a result of failure to effect procurement. That item may have been up before.

Mr. HALABY. That sounds like a portion of the GAO study.

Mr. VORYS. Yes, I imagine it is. I know the Appropriations Committee is studying this. Is anyone here familiar with that?

Mr. HALABY. General Russell and Colonel Corbett look as though they are not quite ready to answer that one.

Mr. VORYS. The point is this: The policy was established that no deobligation of MSP funds would be permitted because of the official statements made to the Congress. Do any of you know about that one?

STATEMENT OF BRIG. GEN. SAM C. RUSSELL, G-4, DEPARTMENT OF THE ARMY

General RUSSELL. We, of course, read that report and the particular item that you are talking about simply falls in the category of all the other items that Mr. Halaby mentioned which would, if the work could be done by the 30th of June, result in a deobligation under our present system of about $1.1 billion. Included in that would be those spare parts.

I have nothing to say about the policy about not making any deobligations on account of what has been said to the contrary. We have certainly been told to make these deobligations now and we are going to do it.

Mr. FULTON. You can see what it amounts to. When you deobligate and then use it for another program that has not been submitted to Congress, you are in effect legislating a new program with the money that we had put up for a primary program that for one reason or another has not been carried out.

Mr. VORYS. Another of these items that impressed some of us was the duplicate obligation-you could call it overprocurement-of $80,728,492 on M-24 and M-41 tanks. Again, I assume that item has been called to your attention. I wonder what is the explanation to that.

Mr. HALABY. I will ask General Russell or Colonel Corbett for that. General RUSSELL. Sir, do you want an explanation of how that

happened or do you want an explanation of how that fits and how that will be corrected under the new rules?

Mr. VORYS. I wanted two things. First, how it is reflected in these figures here. Have we got 80 million more in there for tanks than we have got tanks and is that going to be picked up later, or has it been taken out or where do we stand on it?

General RUSSELL. In the obligations figures as presented under the old rules, I think we have $80 million indicated as obligated for tanks beyond the actual MDAP requirements for tanks.

Mr. VORYS. How did we ever do such a thing? What they did, as I understand it, was to cut down the number but made no change in the bookkeeping item.

General RUSSELL. It was not quite that, sir. The MDAP money was used to order new tanks. When these tanks were ready for allocation, which had been procured with MDAP money, they were given to the Army. Instead of these tanks the Army furnished a different type of tank from Army stocks for MDAP, and the bookkeeping resulted in MDAP being charged for both the new tanks, the procurement tanks, and the tanks which were furnished from Army stock.

Mr. VORYS. I thought that was another item. I thought it was the M-26 tanks were MDAP was charged $200,000 for $81,000 tanks.

General RUSSELL. That is incorrect. As far as I know, MDAP was only charged the proper price for the M-26 tank, which is about $136,000. But the point was, they were also charged for the M-47 tanks which they did not get.

Mr. VORYS. In our notes on the investigation, we have got M-24's and B-47's and M-26's and we understand there were two sets of duplicate obligations or overcharges. Are you familiar with that?

General RUSSELL. The same thing happened with respect to the T-41 or M-41 light tank and the M-24 light tank. What I was talking about was the medium tanks. A similar situation did occur in the light-tank field.

Mr. VORYS. In this very able and clear summary that has been presented here today, are the duplicate obligations in or out of the totals that end up on the first page with available fiscal year 1945 program of 378 million?

Colonel CORBETT. Mr. Chairman, on the figures we have given you there of the dual obligation, it amounts to about 450 million. They are all taken out of the figures as we have reported them here today. The dual obligation where it occurred against service stock, that is also taken care of in our figure under the new rules of how much money we will have under obligation on June 30, 1953.

Mr. VORYS. Then why did we not end up with $450 million available for fiscal year for 1954?

Colonel CORBETT. We had 10 items on this program. We obligated the money for those items against procurement. The Department of the Army furnished four of those items from stock and they charged us for those items. So actually we were charged momentarily for 14 items. We only had 10 on the program.

There were four other items which were on the program which we would not have money to pay for if we had them delivered at that particular moment. We were bankrupt. Therefore, our total amount