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very clear because an authorization is an integral part of the process of making appropriations.
Mr. MCNEIL. Yes, sir.
Senator BYRD. And he should have the same authority, in my opinion, over authorizations as in recommending appropriations.
Mr. McNeil. This in effect would provide the same authority over the legislative process as it would over the request for appropriations later.
The CHAIRMAN. I believe Mr. Eberstadt has a word to add.
Mr. EBERSTADT. Apropos of the question Senator Byrd asked, my impression is that 405 and 406 do not so much increase the general authority of the Secretary as they clarify his responsibility within that authority.
Mr. MCNEIL. That would be my interpretation.
The CHAIRMAN. In other words, he probably had the authority all the time, but we did not spell out the fact that with that auhority he had a responsibility. Now, in this particular section 405 and section 406 we are giving him the responsibility which, of course, automatically must carry a certain amount of authority to discharge that responsibility. It that right? Mr. EBERSTADT. Yes.
you concur, Mr. McNeil ? Mr. McNEIL. I would, sir.
The CHAIRMAN. Really what you have done here is to fix the responsibility for the performance of a function, which is even more important, in my opinion, than to give him the authority, because he generally can find that.
Mr. MCNEIL. And to clarify the way in which it is carried out. The CHAIRMAN. Yes. Mr. McNeil. Shall I proceed with the next section, sir? The CHAIRMAN. Senator Byrd, after you were called out both Mr. Eberstadt and Mr. McNeil dealt with section 405 and section 406, and stated that the real purpose of the section was to give no authority he probably did not already have but to give him .responsibility.
Senator BYRD. That was my understanding, but I wanted to be sure that is was in the record.
The CHAIRMAN. Are you ready for him to go ahead ?
Mr. MCNEIL. Section 407 authorizes the establishment of working capital funds covering inventories of material, particularly standard stock or common use items and to provide working capital funds for industrial type or commercial type activities. It would put industrial type and commercial type activities on a business basis similar to private industry.
The CHAIRMAN. Give me an example just out of the sky of an industrial type activity.
Mr. MCNEIL. An industrial type activity would be a shipyard which is primarily a large job shop operation.
The CHAIRMAN. I understand.
Mr. MCNEIL. A commercial type activity would be a business operation such as a laundry which was performing common services to Army, Navy, and Air Force elements in a given area.
The CHAIRMAN. I understand.
Mr. McNEIL. The section provides that the Secretary of the Treasury would establish on the books of the Treasury Department such accounts as were necessary to implement working capital funds established under authority of this section. The working capital funds would be charged with the cost of stores and material or for the cost of work performed, and they would be reimbursed from available appropriations for the cost of stores, or supplies issued, or for work performed for the activities which had placed the orders.
It provides that reports of condition of the operation of funds should be made annually to the President and Congress.
It provides that, initial working capital would be provided by capitalizing inventories on hand in the case of stores accounts and by capitalizing work in process in the case of industrial and commercial type activity. It provides that the necessary cash for working capital would be provided first by transfers from appropriations within the limits of the amounts already appropriated. To the degree that it would be possible to either reduce programs or utilize funds on hand, transfers would be made to working capital accounts.
In the event that such funds were inadequate, authority would be granted to present to the Congress requests for such additional sums as would be necessary to make working capital accounts fully operative.
Certain restrictions are placed in this section, for example, no greater cost could be incurred by the requisitioning agencies or the agencies placing orders for material or work to be performed than amounts appropriated for that purpose.
Control of programs is thereby left definitely in the hands of the Congress.
The CHAIRMAN. Could you answer this question: Isn't this the first time that Congress has attempted in the Military Establishment by law to set up an accounting system? Has not the accounting system in the military departments been evolved by the men who have administered it heretofore?
Mr. McNeil. That is correct, sir, but they have had to develop procedures to meet the requirements of individual legislative acts or to meet exigencies arising from time to time.
The CHAIRMAN. They have developed it there, but we never have really fixed the policy before like we are fixing it here under title IV.
Mr. McNEIL. Not in a consolidated manner. There have been bits and pieces provided at different times.
The CHAIRMAN. That is right.
Mr. McNeil. This title really provides the machinery for placing the operations of the military services on a more business-like basis.
The CHAIRMAN. This brings a real system into it from the congressional standpoint. They may have a good system, but such systems as they have have been evolved by the administrators of the departments themselves rather than by congressional act; is that correct?
Mr. MCNEIL. That is correct.
The CHAIRMAN. Because we will be asked on the floor probably what has happened to the old system that Congress set up, and the answer will be that Congress never really set up a system.
Mr. McNeil. No complete system, bits and pieces have been provided at times, but this is the first attempt, I think, to provide on an over-all basis for business-like operations.
The section also provides that the Secretary of Defense shall issue regulations to govern the operation of activities and the use of inven
tories and outlines the conditions under which the working capital funds involved may be reimbursed by charges against the appropriations and sales made for cash to authorized purchasers.
It provides in subsection (h) of section 407 that the appraised value of stores returned to working capital funds may be credited to the appropriations concerned.
I think that is an important feature of this section. Material once issued and charged to an appropriation, may be returned to the central inventory. One of the problems that exists is that when excess stores have been issued and there has been no incentive to return that material to a central inventory account. This subsection provides such an incentive because the people who withdrew the material could then receive credit for it.
This operation is similar to what we experience in private business. On a construction job, for example, if we purchased too much lumber, it would be returned to the central source for credit. In such a case every usable piece of lumber would be returned to reduce the cost of the job.
Section 408 provides for management funds for the Navy, for the Army, and for the Air Force, each within and under the direction of the respective Secretaries. It provides for a corpus in each fund of $1,000,000, which is deemed sufficient to carry out its purposes. Such a fund has existed in the Navy since 1943 under the title of the naval procurement fund. It would be proposed to change the name of that fund to one that is more descriptive—that of the Navy management fund. There are certain restrictions that would be placed on the use of the existing Navy account, which we think would be proper if such funds are to be continued.
It provides that if two or more departments or two or more organizational divisions of a single department have an assignment to carry out a special mission such as the atomic bomb test operation at Bikini, authority would be provided for the transfer into a single account of funds from different, but proper, appropriations so that such an operation may be financed and managed simply and intelligently.
After such an operation was completed, final adjustments would be made by proper charges direct to the appropriations which should bear the expense. Thus such funds provide a management tool for economical and efficient administration of specific joint operations where the costs are not susceptible of immediate distribution as charges to the proper appropriations.
Section 409 provides that when a function such as the transfer of the purchase function for a particular category of material is assigned from one organization unit to another, or from the department to another, that the necessary funds to support the personnel and the necessary administrative expenses can be transferred from one account to another account together with the applicable personnel ceiling.
A simple explanation is as follows: If the purchase function for hand tools were assigned to the Bureau of Supplies and Accounts the personnel in the Army performing that function could be transferred to the Bureau of Supplies and Accounts of the Navy, together with the funds to support them for the balance of the year. Subsequent budgets would provide for direct appropriations to the Bureau of Supplies and Accounts for their financial support. This section would provide for the adjustment of accounts in the interim until the budget could properly reflect the transfer.
Section 410 provides for simplifying procedures presently required under the Economy Act and provides that sums paid for or on behalf of the personnel of any department or organization for supplies rendered or supplies furnished may be credited to authorized replacing or other accounts.
One of the primary purposes is to eliminate the need for working fund deposits between the military deparments-in other words to have the advantage of operating as a single department despite the fact that each of the three military Departments may each continue to operate as an integral department in itself.
Under this section this would provide that the Army may perform work for the Navy without the necessity of making a prior advance of funds. Navy appropriations could be charged directly for the cost of the work. We save the expense and work of carrying a duplicate set of accounts.
The CHAIRMAN. It makes one transaction when it is over instead of two.
Mr. McNeil, Section 411 provides for the common use of disbursing facilities. We have situations over the world where there are Navy, Army, and Air disbursing facilities. In some instances two of the facilities may be discontinued leaving only one to carry a disbursing account. In other instances there is a large Army installation with only a few naval personnel assigned to the area. We would expect, therefore, not to assign a Navy disbursing officer to service this small number of Navy personnel, but would have their pay accounts carried by the Army disbursing officer, who would be authorized to charge Navy pay appropriations directly.
The CHAIRMAN. Or vice versa.
Mr. McNEIL. Or vice versa. Section 412 requires reports of property annually to the President and Congress and requires that the Secretary of Defense will cause property records to be maintained in the three military Departments, so far as practicable, on a quantitative and monetary basis under regulations which he shall prescribe. Such property accounts will include fixed property—that is, installations and their equipment, major items of combat equipment as well as supplies and material carried in the working capital stores accounts.
It would not be proposed to carry, on both a quantitative and monetary basis the cartridges in the gun in the holster of the guard at the gate. Those materials, however, that were in store and had not actually been issued for consumption would be so carried and reported.
Senator Byrd. That would enable Congress to get a list of materials on hand, together with the value.
Mr. McNEIL. Yes, sir. I would like to say that they would have to do that on a very practical basis. It would be impossible to list 5,000,000 separate items. Such a report would be of no value to the Secretary of Defense or to the Congress, but when carried by major classes such a report is of value in budget work within the Military Establishment, and it is of value to the appropriations committees of the Congress.
Senator BYRD. You could get a fair value of what equipment and other things they had on hand, and the Secretary of Defense would establish the regulations so that you would not carry it down to & point where it would be difficult to operate.
Mr. McNEIL. That is correct, sir.
The CHAIRMAN. You can carry a machine gun, for example, but you would not carry all the parts?
Mr. McNEIL. You would carry the parts in store.
Mr. McNEIL. Under this bill the screws and standard stock and common use items would be carried in your working capital accounts and, therefore, all stores of that kind would be carried and reported under monetary control by classes of material.
Mr. EBERSTADT. These reports would, perhaps, be the most important and effective documents for discovering duplications of installation and duplications of equipment and duplications of material on hand, which from physical inspection, in view of the vastness of the thing, would be impossible.
The CHAIRMAN. I would imagine if you got into a war where you fellows had to practically start on virgin soil to find out what we had before you started to make your allocations in the War Production Board, this would be of infinite value there, where before you had to really comb the whole thing over to see where you stood before you started out.
Mr. EBERSTADT. Yes, sir.
Mr. McNEIL. Practical application of this procedure would contemplate being carried on in reasonable detail in peacetime and probably to a more limited degree in wartime. When this material was actually issued and went into a combat zone, during wartime probably it would be charged at that time. Later, after the emergency was over, the material would be picked up as a gain by inventory to insure its subsequent inclusion in inventory accounts.
The CHAIRMAN. The Treasury has given us approval without qualification. The only thought that has been offered that we' might reconsider, and before you leave, was in section 401 and, I believe, section 402, where the suggestion was made by the Budget Bureau that we ought to bestow these functions on the Secretary of Defense and then have the comptrollers come along under that function to carry it out, rather than to sort of bestow it initially on the comptrollers themselves.
Have you any thought on that, Mr. McNeil, or did you canvass that when you put it in originally?
Mr. McNEIL. The position of the Secretary of Defense was stated in his letter to the committee of yesterday.
For myself I would like to say, sir, that in the development of section 401 and section 402 I felt, because of my connection with the Military Establishment and at the same time being assigned to work with Mr. Eberstadt and his group, that I should participate as little as possible in the exact wording of those two sections.
I do feel that the comptroller's function is necessary. I felt, however, that from a personal standpoint, I should stay out of discussions on the organization of the office of the comptroller.
Senator BYRD. Mr. Eberstadt probably already covered it.
The CHAIRMAN. It seems to me hard to understand why that objection should be made. Here is the way the law reads:
In order to implement the provisions of section 202 (a), conferring upon the Secretary of Defense authority and control over the military budget, there is . hereby created in the Office of the Secretary of Defense an office to be known as the Office of Comptroller of the Department of Defense, which shall be headed