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control, and it is not. Also, work is being done with regard to auditing by the services themselves and, therefore, the work by the DCAA is duplicative.

Like the DLA, the DCAA has experienced high personnel growth levels for the past number of years, from 166 employees in 1965 to more than 4,600 employees in 1985. Also, like the DLA, there have been efficiency and proficiency problems at the DCAA. Forty-one percent of the DCAA audits have taken more than 60 days to complete, many more than 100 days to complete. Seventy-five percent of the personnel there that deal with audits are not CPA's.

Most recently, the Secretary of the Army complained to this subcommittee—and I'm well aware of it-about the increased burden that this type of legislation would impose upon the services. He said it would be virtually impossible for the Army to absorb its share of DLA's responsibilities without additional resources. That is in contrast to the Secretary of the Navy, who has indicated to me personally, and indicated to other people who have asked, that they would welcome the opportunity to do the work of the DLA and that they feel they could probably do so without any significant increase in personnel.

Basically, Mr. Chairman, what I am suggesting here is that modern corporations today, those that are large but that are also competitive, and those that are very large who have implemented new management techniques, are moving away from centralization. They are moving away from bureaucratization and they are moving toward accountability and decentralization and deregulation. I would hope that the subcommittee would look at my proposal to move in a direction of decentralization and accountability.

Thank you very much.

Mr. NICHOLS. Thank you very much, Mr. Courter. Without objection, your statement will be made a part of the record.

PREPARED STATEMENT OF HON. JIM COURTER

Mr. Chairman:

I appreciate this opportunity to appear before your Subcommittee today to testify in support of my legislation to abolish the Defense Logistics Agency and the Defense Contract Audit Agency. However, before I proceed, let me commend you for conducting this important and long-overdue inquiry into our military organization; I hope that the result of this process will be a more efficient military establishment in peacetime and a more effective fighting force in wartime.

I want to begin by briefly reviewing my bill, H.R. 4068. Quite simply, this bill would abolish the Defense Logistics Agency and the Defense contract Audit Agency and return their functions to the individual military Services. No increases of Service personnel would be permitted as a result of this legislation, nor would the reconstitution or reconfiguration of the abolished agencies be permitted.

I am well aware that my legislation is viewed by some potentially interested parties with sentiments ranging from concern to panic. It is not my purpose here to allay those concerns; rather, I am here to explain for the Subcommittee the logical foundation upon which my legislation is based.

It is apparent to me and to many other observers that former Secretary of Defense Robert McNamara was mistaken in his belief that the centralization of military functions would promote "effectiveness, economy, or efficiency" as mandated by the Defense Reorganization Act of 1958. By reviewing the history and operations of the DLA and DCAA, I will illustrate the logical bankruptcy of over-centralizing defense management, and, in the process, make the case for my legislation.

The DLA was created in 1961. to procure and manage items used by more than one military Service. These items, for the most part, were not weapons-related. In order to handle these burgeoning responsibilities, particularly during the Vietnam war era, the DLA grew in size by 360%, from 16,000 employees in 1962 to 59,900 employees in 1967. The DLA presently employs approximately 49,000 personnel at 300 locations.

It appears that DLA operations became unwieldy and inefficient when the military Services began to unload certain burdensome buying and management responsibilities, rather than streamlining their own management structures. As one DLA official said several years ago, "Realistically, if the military Services had not transferred missions and functions to DLA, it is probable that they would have achieved savings through management improvements." DLA, in its present form, now manages 2 million items, maintains a $10 billion inventory, and executes $15 billion in procurement actions each year.

DLA's growing involvement in weapons systems management has been a large part of the Agency's overall increase in responsibilities. Since 1981, DLA has experienced a 198% increase in weapons systems items managed, and a 661% increase in the number of weapons systems affected. These developments produce concern in a number of areas.

First, because we have very little we a pons commonality between the Services, the weapons systems items DLA manages are increasingly Service-specific. In fact, 70% of all DLA-managed items are service-specific, thus violating the original Agency mandate to handle items common to more than one Service. In addition, because DLA must handle so many complex weapons systems items for the different Services, mistakes are invariably made, some of them even fatal.

In 1980, for instance, a F-101 fighter crashed, killing two crew members. Subsequent investigation revealed the cause of the crash to be a corroded fuel hose. The fuel hose, purchased by DLA, had an external resemblance to the properly specified hose, but, in fact, it did not meet the specified requirements for corrosion resistance. More generally, DLA-managed items for military aircraft have been responsible for an inordinate percentage of "not mission capable" ratings: 61% of ratings for C-130 transports, 55% of ratings for C-135 aircraft and 47% of ratings for F-111 fighters, among others. It was also recently reported that a DLA-managed helmet contract for the Army had produced 460,000 dangerously substandard helmets, requiring the Army to take corrective action.

Difficulties with the management of weapons systems items are only a subset of the overall management difficulties which have beset the Agency. Many of these problems are attributable to the sheer volume and complexity of the DLA inventory management task.

One important function of DLA is to manage accurately the item inventories for the services. This task requires keeping a current accounting of relevant items, properly coded for priority, or "essentiality." However, GAO recently reported that 64% of the electronic weapons systems items handled by DLA were improperly coded for essentiality. In another case, GAO discovered that 50,00% Navy items managed by DLA had been improperly deleted from the inventory; 1615 Army items suffered the same fate. Another GAO study of two DLA supply centers revealed that 38% of the inventories were inaccurate.

of particular management concern at DLA is the billing and collections function. Again, the sheer magnitude and complexity of the task conspires to create problems which sometimes result in improper disbursements of funds. In 1984, GAO reported that 75% of DLA's 77,000 invoices were paid without proper documentation. In the same year, DLA made improper payments totalling $8.5 million to private businesses and contractors; fortunately, the businesses were conscientious enough to return the undeserved payments to the government. Finally, in its 1985 government financial management review, GAO reported that DLA had paid $23 million for items never received from vendors, and another $53 million for deliveries that were more than 90 days overdue.

A final brief word about DLA personnel is in order here. Without casting unwarranted aspersions on groups or individuals, I should note that 75% of DLA's operating costs are personnelrelated, and that these costs rose 70% from 1979 to 1984. In addition, in 1984, GAO reported that DLA employee productivity was down, resulting in $23 million in increased labor costs. Wade from OSD informs me that DLA only requires 17,500 personnel to handle all of its procurement actions, but that only causes me to question the functions of the remaining 31,500 personnel at DLA.

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The personnel question has another broader dimension, that being the question of truly accountable civilian control over the peacetime military establishment. with the creation of the 11 central defense agencies, the Congress has been conceding more and more military decisions to career civil servants and military officers. As Navy Secretary John Lehman has said, "Ultimate authority (over the Defense Department) must be exercised by those responsible to the source of political power, which, in a constitutional democracy, is the electorate..."

Defense Agencies, including DLA and DCAA, are in a fundamental sense, beyond effective political control and, as a result, beyond true accountability. We should not be encouraging this trend; we should be reversing it, which is what I seek with my legislation.

The other agency affected by my legislation is the Defense contract Audit Agency (DCAA). My objection to this agency is mostly philosophical; I feel the agency should be under effective political control, but, at the same time, I feel it duplicates the activities of the audit services which currently exist within the military Services.

DCAA has not been without its management difficulties, although they have been less visible and damaging than those of DLA. Like DLA, DCAA has experienced high personnel growth levels, from 166 employees in 1965 to 4600 in 1985. Also, like DLA, there have been efficiency and proficiency problems at DCAA; 41% of DCAA audits take more than 60 days to complete, and many take more than 100 days. And it is disturbing to note that 75% of DCAA a uditors are not CPAS, particularly when we consider the cost and complexity of some of the weapons systems being audited.

As I noted before, I am well aware that certain interested parties have been vocal in their denunciation of my legislation. I recall what Admiral Rickover once said about the Defense Department and its Machiavellian intrigues: "If you must sin, sin against God, not the bureaucracy. God may forgive you, but the bureaucracy never will."

Most recently, the Secretary of the Army complained to this Subcommittee about the increased burden that my legislation would impose upon his Service. He said "it would be virtually impossible for the Army to absorb its share of DLA'S responsibilities without additional resources..." I do not doubt that there would be difficulties, but I can only urge the Service Secretaries to take a page from Secretary Lehman's book and move to streamline and reorganize their own operations before Congress has to step in. I understand that the Senate Armed Services Committee is seriously considering the actions envisioned in my legislation, so this matter may have to be addressed sooner rather than later.

Once again, I appreciate the opportunity to appear before this Subcommittee to explain my legislation, and I can only urge my Armed Services Committee Colleagues to be both judicious and bold as you consider proposals for defense reorganization. The time for cosmetic reforms has long past, and Americans are looking to us to help restore the Defense Department to fighting trim.

I would be happy to answer your questions at this time.

Mr. NICHOLS. I think it should be shown for the record that General Wickham, Chief of Staff of the Army, testified that they purchased about 900,000 out of a total of 1.2 million items that the Army buys from DLA, and that they were well-satisfied and they had no desire to change. I believe that was concurred in by all of the other Chiefs that were present at that meeting.

Let me just ask you one question here. The Army and Air Force have both testified that they cannot absorb DLA's function without an increase in resources. I agree that DLA has increased substantially over the years, I believe they're talking about asking for 53,000 employees for the 1986 fiscal year. Do you have any facts or figures or statistics to show that breaking up DLA and returning their functions to the services would be cost effective?

Mr. COURTER. There are no facts because DLA has existed for many, many years. My argument, first of all, is the fact that since I have been a Member of Congress, no department or agency or office has come and testified saying that they're broke and they need fundamental reform or change. It's just an inherent truism that they will defend the status quo. That's bureaucracy in America today, No. 1.

No. 2, I think most people on the subcommittee would well recognize the fact that the agencies are outside of the scope of real oversight capabilities of the Congress. There is no accountability. People can't be fired. The Secretary of Defense can't do anything about bad work or sloppy management inside the agencies themselves.

Also, I would suggest that the corporate model of today, a lean and large corporation, has moved toward the idea of accountability. They would never create a Defense Logistics Agency. I think they recognize the importance of having decentralization and increased line accountability.

So I obviously can't cite figures. It is my belief that, philosophically, we should be moving in that direction. The model is clear in the private sector that most corporations have.

Mr. NICHOLS. Mr. Hopkins.

Mr. McCURDY. Mr. Chairman, may I just ask unanimous consent that I be recorded as voting in support of the issuing of the subpoe

Mr. NICHOLS. Without objection, Mr. McCurdy will be recorded as voting in support of the subpoenas being issued on the Arrow Air crash investigation.

Mr. Hopkins.
Mr. HOPKINS. Mr. Chairman, thank you.

First let me, if I may, thank my colleague, Mr. Courter, for presenting a very well-thought-out and a very factual presentation, one that perhaps will be very difficult to argue against.

Mr. Courter, your bill contains provisions calling for the abolition of two of the major Defense agencies, the Defense Logistics Agency and the Defense Contract Audit Agency. During the testimony that this subcommittee has heard in the course of the present hearings over the last few weeks, we have had all of the Joint Chiefs of Staff come by and we have had the Secretary of the Army and we have had the Secretary of the Navy, and we have

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