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COMF’TROLLER

GENERAL

WASHINGTON.

THE

D.C.

UNITED

STATES

20648

B- 106190

Dear

Mr.

Chairman:

This

our

report

contains

selected

significant

audit findings

developed

during

audits

and other

examinations

in the civil departments

and

These

findings

pertain

for the most part

agencies

of the Government,

to matters

on which

we believe

administrative

action,

and in some

is required

to achieve

greater

economy

cases legislative

action,

Some findings

and recommendaefficiency

in Government

operations.

tions

on which

the departments

and agencies

have reported

that carrective

action

was being taken also have been included

because

have not yet observed

the effectiveness

of the reported

action.

This compilation

is made in response

to the request

that information

of this type be made

available

to your Committee

before

the

commencement

of appropriation

hearings

at each session

of the ConConcurrently

with

the

release

this

report,

are

sending

gress.

the departments

and agencies

copies

of the sections

specifically

applicable to them

so that they may be in a position

to answer

any inquiries

which

may be made on these matters

during

the appropriation

hearings,

A report

on significant

audit findings

of Defense

and the three

military

departments

separately,

involving

the Department

is being submitted

Sincerely

yours,

Comptroller

of the United

The Honorable

George

Chairman,

Committee

House

of Representatives

H. Mahon

on Appropriations

General

States

Contents

Page

DEPARTMENTOF AGRICULTURE

Agricultural

Research Service Agricultural

Stabilization

and Conservation

Consumer and Marketing Service

Farmers Home Administration

Soil Conservation

Service

DEPARTMENTOF THE ARMY

Corps of Engineers (Civil

DEPARTMENTOF COMMERCE

Economic Development Administration

DEPARTMENTOF HEALTH, EDUCATION, AND WELFARE

Office of the Secretary

National

Institutes

of Health

Office of Education

Social and Rehabilitation

Service

Social Security Administration

DEPARTMENTOF HOUSING AND URBAN DEVELOPMENT

Federal Housing Administration

Housing Assistance Administration

Renewal Assistance

Administration

Functions)

DEPARTMENTOF THE INTERIOR

Bureau of Commercial Fisheries

Wildlife

Bureau of Indian Affairs

Bureau of Reclamation

Geological

Survey

and Bureau-of

Sport Fisheries

and

DEPARTMENTOF JUSTICE

DEPARTMENTOF LABOR

Bureau of Employees' Compensation

Manpower Administration

DEPARTMENTOF STATE

DEPARTMENTOF STATE, AGENCYFOR INTERNATIONAL DEVELOPMENT

DEPARTMENTOF TRANSPORTATION

Federal Aviation

Administration

Federal Highway Administration

United States Coast Guard

101

TREASURY DEPARTMENT

Office of the Secretary

103

105

EXPORT-IMPORT BANK OF THE UNITED STATES

107.

Pane

GENERALSERVICES ADMINISTRATION

Property Management and Disposal Service

Transportation

and Communications Service

111

113

115

OFFICE OF ECONOMICOPPORTUNITY

Community Action Program

Job Corps

117

119

123

OFFICE OF EMERGENCYPREPAREDNESS

125

SELECTIVE SERVICE SYSTEM

129

S%LL BUSINESS ADMINISTRATION

133

VETERANS ADMINISTRATION

137

VARIOUS DEPARTMENTSAND AGENCIES

Office of Economic Opportunity;

Department of Agriculture;

Department of Health, Education,

and Welfare; Department of

Labor; and Small Business Administration

Department of Health, Education,

and Welfare; Department of Defense; Atomic Energy Commission; National Aeronautics

and

Space Administration;

and National

Science Foundation

Department of State and Department of Health, Education,

and

Welfare

Department of State and Post Office Department

Department of State and Department of Defense

147

GOVERNMENT-WIDE

171

149

161

165

167

169

DEPARTMENT OF AGRICULTURE

Contents

Page

AGRICULTURAL RESEARCH SERVICE

Need to resolve questions

of safety

uses of lindane pesticide

pellets

involving

certain

registered

AGRICULTURAL STABILIZATION AND CONSERVATION SERVICE

Opportunity

to increase income of domestic sugar industry

reduce dollar

outflow by amending the Sugar Act

CONSUMERAND MARKETING SERVICE

Need to improve enforcement

requirements

at federally

and

of sanitary,

facility,

and moisture

inspected

poultry

plants

FARMERS HOME ADMINISTRATION

Need for Farmers Home Administration

to review policies

and procedures for recommending emergency area designations

Need to clarify

legislation

concerning

use of emergency loan

funds

Need to improve lending activities

and to strengthen

management

system for the economic opportunity

loan program

SOIL CONSERVATION SERVICE

Opportunities

for increasing

tion Operations

Program

the effectiveness

of the Conserva-

DEPARTMENTOF AGRICULTURE

AGRICULTURAL RESEARCHSERVICE

Need to resolve questions Of

involving

certain

registered

lindane pesticide

pellets

Safety

uses of

Our review led us to believe that there was a need for the Agricultural Research Service (ARs) to resolve questions of safety involving

certain uses by the public

of pesticide

pellets

containing

the chemical lindane.

and Rodenticide

Act requires the

The Federal Insecticide,

Fungicide,

registration

of all pesticide

products with the Department of Agriculture

Before registrabefore these products can be shipped across State lines.

demonstrating

its safety when

pesticide

must

meet

tests

tion is granted,

used as directed.

We found that ARS registered

lindane pellets

for use in vaporizing

devices on a continuous basis in certain commercial and industrial

establishments--such as restaurants

and other food-handling

establishments--even

though there had been long-term opposition

to this practice

by the Public

Health Service and Food and Drug Administration,

Department of Health, Education, and Welfare, as well as by other Federal, State, and private organizations.

We pointed out that the controversy

associated

with the use of

the pellets

stemmed from varying conclusions

as to the adequacy of the scientific

data that was available

to prove that the continuous vaporization

of lindane pellets

in certain

commercial and industrial

establishments

was

safe.

We noted that ARS had not resolved questions of safety raised by the

other Federal agencies and by State and private organizations,

nor had it

taken action to restrict

or disapprove the use of lindane pellets

in vaporizers in certain commercial and industrial

establishments

since the products were first

registered

with the agency in the early 1950's,

We expressed the opinion that the very existence of differences

of opinion by

various interested

organizations

emphasized the need for ARS to take action

to resolve the question of safety to human health.

We recommended that the Secretary of Agriculture

review the ARS policy

of registering

the pellets,

with a view toward resolving

this question.

The Department of Agriculture's

Director

of Science and-Education

advised

in November 1968that

ARS planned to meet with representatives

of other

Federal agencies to determine steps necessary to resolve lindane problems

and with medical experts who serve as collaborators

to ARS for advice and

counsel on the use of pesticides.

In April

1969, ARS canceled the registration

of lindane products for

use in vaporizing

devices,

subject to appeal procedures available

to registrants.

In its letter

to registrants,

ARS cited our report to the Congress

and stated that, on the basis of its reevaluation

of the toxicology

of lindane, the results

of its recent laboratory

studies,

and the opinion of its

medical advisors,

the continued registration

of the products was contrary

to provisions

of the Federal Insecticide,

Fungicide,

and Rodenticide

Act.

(B-133192, Feb. 20, 1969.)

DEPARTMENTOF AGRICULTURE

AGRICULTURAL STABILIZATION

AND CONSERVATIONSERVICE

Opportunity

to increase income of

domestic sugar industry

and reduce

dollar

outflow by amendinp the

Sugar Act

Our review of the administration

of the sugar marketing quotas established by the Sugar Act of 1948, as amended, showed that, during the 6-year

of sugar by domestic properiod from 1963 through 1968, annual marketings

ducers ranged from 225,000 tons to 913,000 tons --about 4 to 13 percent--below the quotas authorized

by the act.

We found that the substantial

deficits

in domestic marketings developed because continuing,

long-term deficits

have occurred in two domestic

We were insugar-producing

areas--Puerto

Rico and the Virgin Islands.

formed that other domestic areas would have been able to supply the undomestic

filled

quotas.

The Sugar Act, however, requires that unfilled

quotas be allocated

to foreign countries.

Moreover, we found that substantial benefits

could be achieved by allocating

the unfilled

Puerto Rican and

Virgin Island quotas to other domestic sugar-producing

areas rather than to

foreign countries.

These benefits

include a substantial

increase in the

income of domestic sugar producers and a reduction

in dollar outflow for

sugar imports.

We estimated that, had the 1968 Puerto Rican and Virgin Islands deficits been allocated

to the domestic sugar cane and sugar beet areas in

proportion

to their 1968 marketing quotas, domestic producers could have

realized

additional

gross income of about $62 million

and that the 1968

outflow of dollars

for sugar imports could have been reduced by about

S8S million.

No estimate was made of the net effect on the U.S. balanceof-payments position

which would result from revising

the allocation

of the

deficits.

We did not make an assessment of the implications

for sugar prices or

the effect on distribution

patterns between beet and cane sugar which a

shift of unused quotas to domestic production

would have within

the United

States.

Obviously,

careful

consideration

should be given to these factors

before revising

the present legislative

formulas for any purpose of increasing domestic quotas; nevertheless,

we believe that the continuing

severity

of the U.S. balance-of-payments

situation

should be a major consideration in allocating

continuing

long-term deficits.

The Secretary of Agriculture

agreed with our findings

and stated that

it was the view of the Department that, when sugar legislation

is next considered by the Congress, consideration

should be given to enabling the domestic areas to market a substantially

larger proportion

of the national

requirement

than is possible at present.

He stated further

that, in the

course of developing an administration

position

on sugar legislation,

the

Department would consult on this matter with other agencies within

the executive branch.

DEPARTMENTOF AGRICULTURE

AGRICULTURAL STABILIZATION

AND CONSERVATIONSERVICE (continued)

In view of the significant

benefits

which could be achieved, we recommended that the Congress, in considering

extension of the legislation-which expires on December 31, 1971--consider

modification

of the deficit

allocation

provisions

of the Sugar Act of 1948, as amended, to enable the

Secretary of Agriculture

to allocate

continuing,

long-term deficits

of a

domestic area to other domestic areas rather than to foreign countries.

(B-118622, Sept. 23, 1969.)

DEPARTMENTOF AGRICULTURE

CONSUMERAND MARKETING SERVICE

Need to improve enforcement of sanitary,

facility,

and moisture requirements

federally

inspected poultry

plan-

In September 1969 we reported to the Congress that the Consumer and

Marketing Service (C&KS) needed to strengthen enforcement procedures to ensure that minimum standards for sanitation,

facilities,

and moisture absorption were met by federally

inspected poultry plants.

We found that C&MS had-not taken timely

action to suspend or terminate

inspection

services at 40 federally

inspected poultry

plants that were reported by C&MS supervisory

personnel for repeated violations

of minimum

sanitation

and facility

requirements

for periods ranging from 6 months to

Most of the violations

involved sanitation

requirements

over 5 years.

The 40

which were intended to ensure the wholesomeness of the product.

plants accounted for about 6 percent of the 11.2 billion

pounds of poultry

slaughtered under Federal inspectionduringcalendar

year 1967.

We stated our belief

that, because of the lack of timely action to

suspend or terminate

inspection

at plants in repeated violation

of minimum

standards;

the consuming public was not adequately protected

from poultry

that could have become adulterated

or otherwise unfit

for hunan consumption.

During a period of suspension, plants cannot process poultry or I

poultry products for sale in interstate

or foreign commerce.

We stated also that, in our opinion,

the failure

of C&MS to suspend or

terminate

inspection

services at such plants could imply to the management

of other federally

inspected plants that violations

would be treated with

minimum consequence.

In commenting on our findings

and proposals,

C&MS informed us by letter dated Ju$y 24, 1969, that a rigorous national

effort

had recently

been

activated

to ensure adequate sanitation

in inspected plants which had resulted in (1) the suspension of inspection

services at several plants,

being required to make immediate improvements, and

(2) numerous plants'

(3) major long-term

improvements being called for with rigid deadlines established

therefor.

C&MS stated also that suspension action was being and

would continue to be taken on plants unwilling

to provide acceptable

sanitary

conditions

and that instructions

to field

personnel were being

amended to ensure proper plant sanitation.

Although we agreed with the actions taken by CUE, we stated that, in

our opinion,

the intensified

C&MS efforts

to ensure adequate sanitation

federally

inspected plants should be continued as a permanent part of the

enforcement program so as to provide adequate protection

to the consuming

public.

DEPARTMENTOF AGRICULTURE

CONSUMERAND MARKETING SERVICE (continued)

C&MS stated also that the regional

directors

having responsibility

for

the plants identified

in our review had been advised of the need for immediate in-depth reviews of such plants and for taking appropriate

action,

should the nature of the findings

warincluding

suspension of inspection,

rant such action.

We found also that C&MS permitted

44 federally

inspected poultry

plants to ship poultry

in interstate

commerce for sale to the'consuming

on the basis of daily tests,

contained water in expublic,

which poultry,

At the 44 plants, which accounted

cess of that permitted

by regulations.

for over 13 percent of the poultry

slaughtered under Federal inspection

during calendar year 1967, poultry

exceeded moisture requirements

at least

20 percent of the time during 4 to 11 months of that year.

We stated our

belief

that, because C&MS inspection

personnel were not authorized

to retain poultry

containing

excessive water for additional

processing,

the consuming public was not adequately protected against increased 'costs resulting from excessive water in poultry.

With regard to our recommendations on moisture control,

C&MS informed

us that a statistical

control

system of daily tests to be performed by C&MS

inspectors

assigned to the plants was in the final

stages of design.

C&MS

stated that, on the basis of results

of daily tests,

full authority

for retaining

birds out of compliance would be placed in the hands of the plant

inspector

in charge and that the retained birds would not be distributed

the consumer until

excessive moisture had been removed. C&MS stated also

that it planned to put this system into use nationally

in the near future.

(~-163450, Sept. 10, 1969.)

DEPARTMENTOF AGRICULTURE

FARMERSHOMEADMINISTRATION

Need for Farmers Home Administration

review policies

and procedures for

recommendinp emergency area designations

In March 1969 we reported to the Congress that our review of emergency

area designations

for 14 counties in four States showed a need for the

Farmers Home Administration

(FHA> to strengthen its procedures for recommending emergency area designations

in order to prevent the use of3-percent

emergency loan funds in areas where there is not a general need for credit

as a result of a natural disaster.

We stated our belief

that the emergency area designations

for three of

the 14 counties were not warranted because they were based either on inadequate representations

concerning the extent of crop damage and the general

need for credit

or on the possible future effects

of a disaster

on crop

damage and credit.

We found also that the designations

in three other counties should not

have been made on a county basis since the area affected by the occurrence

of a natural disaster

was confined to much smaller, well-defined

parts of

each county or since actual damages were limited

to relatively

minor crops

of a few farmers.

Because of these emergency designations

in the three

counties,

loans were made to individuals

who had not.suffered

production

losses as a result of a natural disaster.

We proposed that FHA revise its procedures to encourage the use of

emergency loans to individuals

who suffer demonstrated losses from natural

disasters

so that the designation

of emergency areas can be postponeti until

such time as the general need for agricultural

credit caused by a natural

disaster

can be accurately

determined.

On August 5, 1968 and March 3, 1969, E'HA strengthened

its.procedures

for recommending emergency area designations

and revised its loan-making

policy so that-emergency

loans will

be provided only to those borrowers who

have demonstrated substantial

production

losses as a result

of a natural

disaster.

(~-114873, Mar. 24, 1969.)

Need to clarify

legislation

concerning

use of emergency loan funds

Our review showed also that 3-percent emergency loans had been made

when substantial

amounts of 5-percent FHA operating

loan funds were available.

Section 321(a) of the Consolidated

Farmers Home Administration

Act

of 1961 requires,.in

part, that a determination

be made that a general need

exists for agricultural

credit which cannot be met from other responsible

sources, including

FHA programs, prior to designation

of a county for‘emergency loan assistance.

No documentation was available

to show that this

determination

had been made prior to designation

of the 14 counties.

DEPARTMENT0~ AGRICULTURE

FARMERSHOME ADMINISTRATION (continued)

,FHA contends that emergency area designations

may be made before applicable

FHA funds are exhausted and that the Congress never contemplated

that a disaster

designation

be withheld

so long as such funds are available.

We found no specific

criteria

in the enabling legislation

or pertinent

legislative

history

indicating

the intent of the Congress in this matter.

We suggested that the Congress might wish to clarify

the law regarding the

use of funds in other loan programs before the use of emergency

loans is

approved.

The Department of Agriculture

advised the Chairman of the House Committee on Government Operations in May 1969 that our report correctly

showed the Department's

position

on making 3-percent emergency loans when

other program funds are available

and, because this has been a longstanding practice

without congressional

objection,

the Department did not

see a need for legislation

on this matter.

legislative

history

is not

We believe that, since the law or pertinent

sufficiently

clear regarding the use of funds from other programs before

of existing

legislation

emergency loan funds are used, clarification

(B-114373, Mar. 24, 1969.)

needed.

Need to improve lending activities

to strengthen management. system-for

economic

opportunity

loan program

and

the

Our review of the economic opportunity

CEO) loan program, administered

by the Farmers Home Administration

(FHA) and designed to assist low-income

rural families

in raising

and maintaining

their income and living

standards,

showed that, although the program had helped a number of individuals

raise their income significantly,

the majority

of borrowers had made less,

or only slightly

more, income from their loan-financed

enterprises

during a

l-year period than was needed to meet payments on loan principal.

When viewed from the standpoint

of permanently bettering

the income of

loan recipients,

the program's contribution,

with respect to the majority

of loan-recipients,

was, in our opinion,

very limited.

Our conclusion,

however, was based on an evaluation

of the borrowers'

operations

for a

l-year period, while the loans had repayment periods averaging 10 years.

Therefore our evaluation

did not permit a positive

assessment of whether,

in succeeding years, the loans would achieve their ultimate

objectives.

We believe

(1) that the borrowers'

indicated

limited

progress was attributable,

in part, to the absence of adequate counseling and supervision

by FHA, (2) that, because of the lack of precise loan eligibility

criteria,

loans were made to individuals

whose reported financial

conditions

and

backgrounds indicated

that they were not in the poverty category,

and

(3) that FHA needs to strengthen its planning and management information

DEPARTMENTOF AGRICTJLTURE

FARMERSHOMEADMINISTRATION (continued)

system in order to adequately

its future direction.

assess the results

of the program and to plan

In addition,

FHA was unable to reliably

determine the administrative

costs of carrying

out the EO loan program, substantial

amounts of which

have come from funds made available

for FHA's regular program.

As a result, costs have not been fully

disclosed

to the Congress.

In view of the foregoing,

we recommended that:

--FHA (1) establish

minimum standards with respect to the amount of

supervisory

assistance

that should be given EO borrowers to ensure

that they receive adequate guidance, (2) determine,

consistent

with

the amount of supervisory

effort

needed and maintain

the foregoing,

the level of loan activity

within

the supervisory

capabilities

available,

and (3) establish

procedures and controls

to ensure that

supervision

is furnished

to borrowers at the desired level.

--FHA revise its instruction

so that an applicant's

net assets are appropriately

considered and, in those cases in which an applicant's

net income or net assets exceed those specified,

that proper justification

be shown in the records for making an EO loan under such

circumstances.

--F&J strengthen its management system for the EO loan program by providing data which can be used by its managers to (1) define more

precisely

the number of rural families

whose incomes are deficient

and who represent potential

borrowers,

(2) identify

the problems

that exist in reaching and aiding certain

groups, such as the aged

(3) determine more effectively

the amount of

and nonfarm families,

loan%?unds that will

be needed in the future,

and (4) formulate

the

framework by which loan performance can be readily

and effectively

evaluated.

Although not agreeing with many of our findings

and recommendations,

FHA advised us in March 1969 that it recognized the need for improving borrower counseling and supervision,

documenting the basis for making loans to

individuals

who appear to be ineligible,

and improving its system of program evaluagion.

FHA contended that it would be ill-advised

to balance EO

lending with available

supervision

because far fewer loans would be made,

thus low-income families

would be denied needed help.

We continue to believe that, because low-income families

are being obligated

to repay additional

financial

burdens, the measures recommended,

particularly

with regard to supervision

of borrowers, are needed to increase the probability

that the loan enterprises

will yield enough additional

income to repay the loans and improve the families'

status.

03-130515, Aug. 21, 1969.)

DEPARTBENT OF AGRICULTURE

SOIL CONSERVATIONSERVICE

Ooportunities

for increasing

the

effectiveness

of the Conservation

Operations Program

On the basis of our review, we concluded that opportunities

existed

for increasing

the productivity

and effectiveness

of the Conservation

Operations Program by requiring

all the 3,500 State, area, and work unit offices of the Soil Conservation

Service (SCS) to implement certain management guides prescribed

by SCS. The guides set forth basic policies

and

procedural concepts for organizing,

operating,

and managing the servicing

activities

of SCS work units.

Our detailed

review in four States showed that SCS work units in the

two States where the guides were generally

followed assisted more than

in applying planned conservatwice the percentage of landowners/operators

tion practices

as the other two States where the guides were not followed.

Work accomplishments

in one of the four States showed an increase of

91 percent in the number of landowners/operators

applying planned conservation practices

after implementation

of the guides by the work units.

Our review also indicated

that the SCS work units in the two States

where the guides generally

were followed were more effective

in getting

planned conservation

practices

applied to the land than were the work units

Further,

interin 40 of the 46 States not covered in our detailed

review.

nal audit reports covering 26 of the same 40 States showed that productivity

was adversely affected

because the SCS operating units were not adequately

following

the guides or their equivalent.

the principal

reasons SCS operating

We stated that, in our opinion,

units were not following

the guides were that they had not been specifically directed

to do so and had not been apprised sufficiently

of the usefulness of the;guides.

We proposed that the Administrator,

SCS, require all SCS operating

units to organize,

plan, schedule, and manage their work in accordance with

the provisions

of the guides.

We proposed also that the guides be clarified, where necessary, to more effectively

communicate to all SCS State,

of following

the

area, and work unit personnel the value and necessity

guides.

SCS advised us in May 1969 that it agreed with our findings

and

that correctsve

actions had been taken to accomplish the objectives

stated

in our proposals.

ity

These actions,

and effectiveness

properly

implemented,

should increase the productivof the program.

(~-114833, Oct. 22, 1969.)

DEPARTMENTOF THE ARM-Y

Contents

Paae

CORPSOF ENGINEERS (CIVIL FUNCTIONS)

Need to identify

additional

costs of acquiring

not needed for water control purposes

I.7

fee title

to land

DEPARTMENT

CORPSOF ENGINEERS (CIVIL

OF THE ARPfY

FUNCTIONS)

Need to identify

additional

costs of

acquiring

fee title

to land not needed

for water control purposes

In February 1969 we reported to the Congress that the Corps of Engineers was acquiring,

in fee title,

thousands of acres of reservoir

project

land when less costly flowage easements would have sufficed

or when no interest was required for water control purposes.

Our examination

of 388 selected tracts

at seven reservoir

projects

showed that additional

costs of

about $2.7 million

had been incurred for land that was not essential

for

successful

operation of the projects

for water control purposes.

We recognize that fee acquisition

might be desirable

to satisfy

purposes other than water control.

We believe,

however, that, when greater interests in land than are needed for water control purposes are acquired,

the

costs of these interests

should be identified

separately

by recognized project purposes, mainly recreation

and fish and wildlife.

Also, the justification

reservoir

project

land for

sented to the Congress for

because:

for the additional

cost incurred in acquiring

purposes other than water control

should be preits consideration

in authorizing

the projects,-

--The Fish and Wildlife

Coordination

Act, as amended, indicated

that

the Congress desires information

that would enable it to control

the

cost incurred for fish and wildlife

enhancement.

--Identification

of the additional

cost, and its classification

as-a

separable cost, should enable addition&

financing

of reservoir

land

designated for recreation

and fish and wildlife

purposes through

cost-sharing

arrangements with non-Pedera%.sources

under the provisions of the Federal Water Project Recreation Act.

We proposed that the Secretary of the 'Army consider revising

Corps'

policies

and procedures to provide for identifying

the additional

costs incurred in acquiring,

in fee, reservoir

project

land designated for recreational

uses and for obtaining

from other agencies definitive

planning as to

the use of the land.

We proposed also that such costs, related acreages, and plans

cluded in project

documents for evaluation

by top agency officials,

reau of the Budget, and the Congress.

be inthe Bu-

The Department of the Army stated that information

on acreages and approximate costs to be incurred for such purposes as recreation

and fish and

wildlife

could be furnished

to the Congress, if it was'desired.

We expressed the belief

that the Congress, in prescribing

the nature

and extent of reservoir

project

purposes, might wish to require that all

Federal agencies that construct

water resource projects

identify,

for

,.--

DEPARTMENTOF THE ARMY

CORPS OF ENGINEERS (CIVIL

FUNCTIONS) (continued)

the costs incurred in acquiring

greater intercongressional

consideration,

ests in land than are needed for water control purposes, the purposes for

which such interests

are acquired', the related acreages, and the benefits

be derived from such interests.

We stated also that the Congress might wish to express its intent

as to

whether the additional

costs'incurred

in acquiring

land in fee for recreation and fish and wildlife

purposes should be treated as separable costs

and subject to cost sharing under the Federal Water Project Recreation Act.

(~-118634, Feb. 3, 1969.)

DEPARTMENTOF COMMERCE

Contents

Paae

ECONOMICDEVELOPMENTADMINISTRATION

Need for improvement in determining

amounts of supplemental

grants

DEPARTMENTOF COMMERCE

ECONOMICDEVELOPMENTADMINISTRATIOZ

Need for improvement in determining

amounts of supplemental grants

Our review of the records pertaining

to supplementary grants of

$3.1 million

awarded by the Economic Development Administration

(EDA), De18 public works and developpartment of Commerce, to assist in financing

ment facility

projects

under the Public Works and Economic Development Act

of 1965 showed that, in our opinion,

17 of the grants, totaling

over

$2.6 million,

should not have been made and that one grant of about

$400,000 should have been reduced by about $57,.000.

The law authorizes

direct grants of up to 50 percent of the cost of a

project,

the objectives

of which are to provide new employment opportunities

in designated areas where family income is low and where substantial

and

persistent

unemployment and underemployment exist.

Supplementary grants that do not increase the Federal contribution

beyond 80 percent of project

costs also are authorized,

but in determining

the amount of a supplementary grant, ED4 must consider the relative

needs

of the designated area, the nature of the project,

and the revenues that

the project

can be expected to generate.

We noted that, in determining

the amounts of the supplementary grants

for the projects

we reviewed, EDA had computed the expected revenues incorrectly,

based the computations on questionable

data, or reduced the expected revenues by excessive project

expenses.

The records indicated

to us

that the projects

could reasonably have been expected to generate sufficient net revenues to support loans for the supplementary amounts; hence,

grants should not have been made.

We proposed that more specific

guidelines

be developed for determining

the revenue-producing

capabilities

of projects;

that provision

be made far

supervisory: reviews of such determinations;

and that supplementary grant

amounts be based on the revenues which may be generated during the useful

life of the projects,

during a 40-year period, or during a period equal to

the maximum loan repayment period permitted

by the applicable

statutes,

whichever is less.

The significance

of this matter is indicated

by the fact that, as of

December 31, 1967, EDA had approved 902 projects

for which Federal assistance totaled

$448 million;

of this amount, $54.8 million

was in the form

of supplementary grants.

EDA agreed that more adequate supervisory

reviews should be made and

informed us that it had taken requisite

steps to ensure that they were

carried out.

EDA did not, however, agree with our other proposals.

continued to believe that EDA's policies

and -procedures for determining

the amount of supplementary grants were not adequate and therefore

recommended that all of our proposals be adopted.

DEPARTMENTOF COMMERCE

ECONOMICDEVELOPMENTADMINISTRATION (continued)

Also, we noted that, although EDA's authorizing

legislation

requires

that revenues be considered in-determining

the amount of any supplementary

grant, EDA did not require consideration

of net project

revenues in instances where the basic grant from one Federal agency and the suppiementary

grant from EDA did not exceed 50 percent of the project

costs.

We suggested that, because of the impact of the EDA policy~on

amounts

of grant assistance provided to applicants

and in the interest

of providing

financial

assistance

to as many needy projects

as possible,

the Congress

might wish to express its views as to whether EDA should consider project

revenues when an EDA grant supplementary to a basic grant by another Federal agency does not result

in the total Federal grant contribution

exceeding 50 percent of project

costs.

(B-153449, Feb. 4, 1969)

DEPARTMENTOF HEALTH, EDUCATION, AND WELFARE

Contents

Page

OFFICE OF THE SECRETARY

Need for HEW to provide State agencies with more explicit

guidelines for use in evaluating

requests for high-cost

surplus

property

Need for safeguarding

the independence of the internal

audit

function

and for ensuring adequate internal

reviews of the

external

audit function

Need for improvements in the Department's

automated central

payroll

system

NATIONAL INSTITUTES OF HEALTH

Need for further

action to determine allowable

costs

cover overpayments under general clinical

research

grants

Use of operating funds for building

renovation

and recenter

OFFICE OF EDUCATION

Need to strengthen controls

over the use of academic Eacilities constructed

with Federal financial

assistance

Need for strengthening

practices

followed in adjusting

Federal

grants awarded for construction

of academic facilities

SOCIAL AND R.EHABILITATION SERVICE

Need for specific

procedures for determining

Federal financial participation

in costs of serving handicapped individuals

Need for improvement in controls over State administration

federally

aided public assistance

programs

SOCIAL SECURITY ADMINISTRATION

Questionable

payments under Medicare program for services of

supervisory

and teaching physicians

at Cook County Hospital

Problems in determining

the reasonableness of physicians'

charges under the Medicare program

-36

DEPARTMENTOF HEALTH, EDUCATION, AND WELFARE

OFFICE OF THE SECRETARY

Need for HEW to provide State agencies with

more explicit

guidelines

for use in evaluating

requests for high-cost

surplus property

The Department of Health, Education,

and Welfare (HEW), pursuant to

special conditions

established

by the General Services Administration

(GSA),

made surplus mercury available

to State agencies for donation to eligible

institutions,

such as colleges and universities,

for educational

and public

health purposes.

Because most of the mercury used in the United States is

imported and its purchase tends to adversely affect

the U.S. balance-ofpayments position,

the mercury was made available

with the special requirement that State agencies limit

donations to the 1'2-month supply that donees

otherwise would have purchased on the commercial market.

Also, mercury was

not to be acquired for use in t'ne furtherance

of institutional

programs being financed by Government contracts

or grants.

We found that many donees had received mercury in significantly

larger

quantities

than we believed should have been provided under the special

conditions

applicable

to the mercury donations or could have been justified

by apparent needs. Large quantities

of the mercury were stored and reIt appeared to us that some

mained unused for an extended period of time.

of the mercury had been used for uneconomical purposes or, contrary to the

special donation conditions,

for donee programs financed under Government

Because of the way in which the mercury donation procontracts

or grants.

gram was carried out, one of the major program objectives

intended to be

accomplished by the special conditions

imposed by GSA--the achievement 'of

maximum favorable

effect

on the U.S. balance-of-payments

position--was

not

accomplished.

In a report to the Congress in March 1969, we expressed the belief

that the adverse conditions

surrounding

the mercury donation program were

caused, in part, by (1) misunderstandings

of the special conditions

applicable to the program, (2) inadequate warehousing procedures by State agencies and inadequate controls

over mercury inventories

by donees, (3) allocations and donations based on unrealistic

or inadequate determinations

needs, and (4) inadequate and untimely

surveillance

over implementation

the program by HEW and State agencies.

HEW agreed in general with our recommendations for strengthening

the

administration

of the surplus property program but did not agree with our

proposal that State agencies be provided with more explicit

guidelines

for

use -in evaluating

the reasonableness of institutions'

requests for surplus

HEW stated that, instead,

it preferred

to continue to stress to

property.

State agencies the need for exercising

good judgment and reasonable surveillance

to prevent stockpiling.

Subsequent to the issuance of our report,

HEW officials

informed us

that certain

actions were planned which the Department believed would acIn this

.complish the purpose intended by the guidelines

recommended by us.

2.5

DEPARTMENTOF HEALTH, EDUCATION, AND WELFARE

OFFICE OF THE SECRETARY (continued)

connection

the officials

said that the Department would issue guidelines

State agencies, but only as particular

types of high-cost

property,

such as

mercury, were made available

for donation.

(~-164031, Mar. 21, 1969.)

Need for

internal

safeguarding

the independence of the

audit function

and for ensuring adequate

reviews of the external

audit function

HEW made significant

improvements in the organizational

structure

and

operation

of its audit function.

These improvements included (1) vesting

responsibility

for the entire audit function

in a single organization,

(2)

establishing

an aggressive recruitment

and staff development and training

program, (3) broadening the scope of its audits,

and (4) adopting plans for

improving audit service to top management.

Because the head of the Audit Agency was under the general supervision

of the Assistant

Secretary,

Comptroller,

who was responsible

for many of the

activities

subject to internal

audit, we recommended, in a report submitted

to the Congress in May 1969, that, to safeguard the existence of an adequate degree of independence, the Secretary

should (1) satisfy

himself

that

the official

to whom the internal

auditors

report not only permits but encourages the exercise of latitude

in setting

the scope of work and in reporting on results

of internal

audits,

(2) concern himself with the scope,

effectiveness,

and staffing

of the internal

audit function

and with the

adequacy of attention

paid to audit findings

and recommendations,

and (3)

provide the internal

auditor with direct

access to the Secretary when the

internal

auditor deems this necessary to fulfillment

of his responsibilities.

Also, we had some reservations

as to whether, ,under the Audit Agency's

existing

arrangement of organization

and staffing,

adequate independent internal review coverage could be given to the external

audits of grantees

We recommended that the Secretary,

from time to time,

and contractors.

satisfy

himself as to the adequacy of this coverage.

In a letter

sent to the Chairman, House Committee on Government Operations,

on July 23, 1969, a copy of which was furnished

to the Comptroller

and Welfare stated that the

General, the Secretary of Health, Education,

Department was taking action in accord with our recommendations.

He said

that, in order to clarify

the Audit Agency's independence, the Department

was revising

its organizational

manual to provide that the Director

of the

Audit Agency have direct access to the Secretary when the Director

deems

this necessary to the fulfillment

of his responsibilities.

The Secretary also informed the Chairman that the Department recognized the need for an independent review of the manner in which the audits

of grantees and contractors

were being carried out and that a formalized

quality-control

program directed

to an evaluation

of all aspects of the Audit Agency's external

audit effort

was being developed.

DEPARTMENTOF HEALTH, EDUCATION, AND WELFARE

OFFICE OF THE SECRETARY (continued)

He said that the Department was establishing

a top-level

committee to

review the Audit Agency's performance on an annual basis in order to provide better control over the scope and effectiveness

of the internal

audit

This committee will

report to the Under Secretary,

and it will

function.

be comprised of three Assistant

Secretaries

and the General Counsel, with

the Deputy Under Secretary acting as chief of staff.

(B-160759, May 9,

1969.)

;

Need for improvements in the Department's

automated central payroll

system

Our review of HEW's automated central payroll

system revealed numerous

errors in employees' earnings,

leave, and payroll

deductions;

errors in the

issuance of savings bonds; delays in forwarding payroll

deductions;

errors

in the issuance of savings bonds; delays in forwarding payroll

deduction

of cash and checks in an unlocked file

drawer.

checks; and the retention

Our review revealed also that, although HEW internal

auditors or special

study groups had previously

commented on the inadequacies of the central

payroll

system, effective

corrective

action had not been taken.

In a report submitted to the Congress in January 1969, we expressed

the opinion that HEW's payroll

system needed substantial

improvements to

fulfill

the requirements

for an effective

payroll

system.

Among the improvements that we believed

to be needed were (1) the establishment

of effective

controls

over checks, cash, documents, and magnetic tapes, (2) the

development and use of predetermined

control

totals,

programmed controls,

and system documentation,

(3) the issuance of revised instructions

for applying pertinent

payroll

laws and regulations,

and (4) the provision

more effective

supervision

of payroll

activities.

In response to our suggestions,

HEW initiated

a number of improvement

actions,

including

a complete redesign of the system.

Also, HEW took steps

to strengthen its staff responsible

for administering

the payroll

system

and to correct errors in the data in the system.

In our report we recommended, among other things,

that the Secretary of HEW assign a high priority

to the redesign of the payroll

system and that he keep these efforts

under

close surveillance

until

the redesign is successfully

completed.

Although this matter was discussed during hearings

appropriations

for 1970, we are bringing

it to attention

that time the Department's

actions toward improving its

(B-164031, Jan. 17, 1969.)

not been completed.

on the Department's

again because at

payroll

system had

DEPARTMENTOF HEALTH, EDUCATION, AND WELFARE

NATIONAL INSTITUTES OF HEALTH

Need for further

action to determine allowable

costs and recover overpayments under general

clinical

research center grants

Since 1959 the National

Institutes

of Health (NIH) has supported a

general clinical

research center grant program to improve and intensify

the clinical

study of human disease and fundamental biological

problems.

Through fiscal

year 1968 about 90 centers had been established

in university medical schools and other health-related

institutions

and had received

about $192 million

in NIH grant funds.

Our review of grants awarded to six selected grantee institutions

showed that five grantees had received grant funds in excess of allowable

costs . We identified

overpayments, estimated at $678,000 out of total payments of $2.3 million

to the six grantees,

for costs of hospitalization

center patients

and for indirect

costs of center operations.

The overpayments for hospitalization

costs occurred because NIH (1) in

the initial

years of the program had reimbursed the institutions

on the basis of a cost formula,

referred

to as the "85-15" formula, which resulted

the allowance of costs in excess of those based on actual patient

days, (2)

had not adequately reviewed the patient

per diem rates proposed by the inand (3) had not examined into the propriety

of the institutions'

stitutions,

reimbursement claims.

The overpayments for indirect

costs occurred because NIH (1) accepted

claims for indirect

costs based on certain direct

costs for which related

indirect

costs were also being claimed through reimbursement of hospitalization

costs and (2) allowed the legal maximum rate rather than apply

lower overhead rates that had already been negotiated

or negotiate

appropriate rates with the institutions,

We found that NIH had taken certain actions toward recovering

overpayments and precluding

future overpayments.

In particular,

NIH had discontinued the use of the cost formula as a basis for reimbursement of hospitalization

costs and had recognized the need for reviewing hospitalization

charges by 59 general clinical

research centers and for making adjustments

in those cases where overpayments had been made because of the use of the

formula.

However, since extended delays had occurred in the determination

and

settlement

of these cases, we recommended, in our report to the Congress in

December 1968, that the Secretary of HEW direct

that (1) the HEX?Audit

Agency make audits of grantees ' records wherever they had not been made and

(2) NIH, on the basis of such audits,

make timely settlements

of all grants

which involved overpayments resulting

from excessive allowances for hospitalization

and indirect

costs.

DEPARTMENTOF HEALTH, EDUCATION, AND WELFARE

NATIONAL INSTITUTES OF HEALTH (continued)

In March 1969 the Assistant

Secretary,

Comptroller,

of HEW advised us

that NIH had requested priority

audits by the HEW Audit Agency of 16 general

research center grants for which determinations

of allowable

costs had not

informed us that, as of June 1969, settlements

been made. NIH subsequently

to overpayments of hospitalization

costs had been made on grants to

48 of the 59 general clinical

research centers where the "85-15" formula

had been used. These settlements

covered excess payments totaling

about

$1,181,000, of which about $671,000 had been refunded to NIH and the balance of $510,000 had been classified

as accounts receivable.

Overpayment.

determinations

were still

in process for the remaining 11 centers.

Regarding possible

excessive payments of indirect

costs, NIH informed

us that it was engaged in a review of indirect

costs paid to 84 centers,

inNIH had notified

the

cluding the five centers mentioned in our report.

grantees of potential

indirect

cost overpayments under grants to 41 centers

and had determined that there were no overpayments for grants to 16 centers.

NIH had not yet completed its review of the remaining 27 centers.

Although the matter of overpayments was discussed in hearings on the

Department's

appropriations

for 1970, we are bringing

it to attention

again

because at that time the Department had not completed its actions to recover

the overpayments we identified

nor its review of payments of indirect

costs

to ascertain

whether they included overpayments that should be recovered.

(B-164031(2),

Dec. 26, 1968.)

Use of operating

funds for

building

renovation

In February 1969 we reported to the Secretary of Health, Education,

and

Welfare that about $535,000 of National Cancer Institute

(NC11 funds had

been used without

statutory

authority

for the renovation

of an existing

Atomic Energy Commission (ARC) production

building

to provide facilities

for

a research laboratory

at the Oak Ridge National Laboratory,

Oak Ridge, TenThe new laboratory

was financed jointly

by AEC and NCI.

nessee.

NC1 funds were used for stripping

and decontaminating

the building

and

In our opinion the conversion of this buildfor relocating

its equipment.

ing constituted

a public improvement within

the meaning of that term as used

in 41U.S.C.

12, which provides that no contract may be entered into for any

public improvement which shall bind the Government to pay a larger sum of

money than the amount appropriated

for the specific

purpose.

involved was not specifIt was our view that, since the appropriation

ically

made available

for the repairs and improvements,

the expenditures

made for such purposes were improper.

Inasmuch as the statute of limitations had expired, we were precluded from taking any action against the accountable officer.

We suggested, however, that copies of our report be

furnished

to cognizant officials

so that they would be made aware of this

DEPARTMENTOF HEALTH, EDUCATION, AND WELFARE

NATIONAL INSTITUTES OF HEALTH (continued)

matter and could take steps to preclude improper

in the future.

(B-164031(2),

Feb. 18, 1969.)

.._.r

._.

.m-------~I--..~.-=“---I-_-I._-

-.__._

_--

“_.--

.._.

expenditures

of this

nature

DEPARTMENTOF HEALTH, EDUCATION, AND WXFARE

OFFICE OF EDUCATION

Need to strengthen

controls

over the use of

academic facilities

constructed

with Federal

financial

assistance

In a report submitted to the Congress in December 1968, we pointed out

the need for the Office of Education (OE) to strengthen

its controls

for determining

compliance with statutory

restrictions

on the use of academic facilities

constructed

with Federal financial

assistance.

The Higher Education Facilities

Act of 1963 authorizes

Federal assisfacilities

to be used as classtance for constructing,

among other things,

facilities

necessary or approrooms, laboratories,

libraries,

and "related

priate for the instruction

of students."

We found that the regulations

issued by HEW were not clear as to the

type of facilities

considered not to be "related

facilities

necessary or appropriate

for instruction

of students"

and that, because of the absence of

adequate guidelines,

some OE representatives

had not determined whether the

facilities

were being used in compliance with applicable

restrictions.

Although we found indications

of only a few violations

of the use restrictions

applicable

to academic facilities

constructed

with Federal assistance,

we believed that there was a need for OE to issue more definitive

guidelines

setting

forth the criteria

and methods for ascertaining

whether

institutions

were complying with the applicable

restrictions

and to make reviews to ascertain

whether there was compliance with such restrictions.

HEW informed us that OE was devoting more attention

to the refinement

of applicable

guidelines

and was developing plans for making systematic

compliance reviews to begin in fiscal

year 1969. We have not yet ascerin the institution

tained, however, whether the actions taken by OE resulted

of adequate controls

over the use of academic facilities

constructed

with

Federal financial

assistance.

(B-164031(1),

Dec. 23, 1968.)

Need for strengthenin?

practices

followed

adjusting

Federal grants awarded for construction

of academic facilities

In a report submitted to the Congress in March 1969, we expressed the

belief

that opportunities

existed for more effective

and equitable

use of

funds granted by OE to institutions

of higher education under title

I of the

Higher Education Facilities

Act of 1963 to assist in financing

the construction of academic facilities

intended primarily

for undergraduate use.

Our review showed that OE had not established

adequate procedures for

making timely reductions

in grant amounts for such reasons as decreases in

estimated construction

costs or ineligibility

of certain costs for Federal

financial

participation.

We found that OE, rather than reduce the amounts

of Federal grants as a result of reductions

in the costs of facilities

DEPARTMENTOF HEALTH, EDUCATION, AND WELFARE

OFFICE OF EDUCATION (continued)

originally

approved, allowed many grantee institutions

to retain and use

such grant funds for procurement of additional

items not included in project

badgets approved at the time the grants were awarded.

It appeared that, for 24 projects,

reductions

of about $500,000 in

grants could have been made; however, OE authorized

the institutions

to retain and use the funds, generally

for procurement of additional

equipment

although the grantee institutions

had provided assurance to adequately equip

the projects.

We expressed the belief

that Federal grant funds could have been made

available

for other eligible

projects

if appropriate

grant reductions

had

been made on a timely basis after a need for such reductions

became apparent.

We pointed out that, at July 1967, OE had made about $755,000 of

title

I funds available

for return to the U.S. Treasury rather than use

them for the title

I program because required reductions

of grants awarded

in fiscal

year 1965 had not been made by OE ,until the time within which the

funds could have been legally

obligated

for other construction

projects

had

expired.

We recommended that HEW require that (1) grant adjustment practices

strengthened with a view toward reducing grants when there are decreases in

estimated project

costs and that such reductions

be made on a timely basis

and (2) project

files

applicable

to existing

grants be reviewed for the

purpose of reducing grants in those cases where available

information

indicates that eligible

development costs will be less than the estimated costs

on which the grants were based.

HEW concurred with our recommendations and stated that actions had been

taken or would be taken to strengthen grant adjustment practices

followed by

OE.' As a part of our continuing

review of HEW's activities,

we plan to

evaluate,

at an appropriate

time, the actions taken by HEW to correct

the

deficient

practices

noted during our review.

(B-164031(1),

Mar. 4, 1969.)

DEPARTMENTOF HEALTH, EDUCATION, AND WELFARE

SOCIAL AND REHABILITATION SERVICE

Need for specific

procedures for determining

Federal financial

participation

in costs of

serving handicapped individuals

Our review of the practices

and procedures followed by the Arkansas Rehabilitation

Service in claiming

Federal financial

participation

in costs of

providing

services to handicapped individuals

under the Federal-State

vocational rehabilitation

program showed that, in its claims,

the Arkansas

Rehabilitation

Service had overstated,

by about $396,000, the costs shown as

being incurred by the State in support of vocational

rehabilitation

programs.

The overstatement

resulted primarily

from errors and misunderstandings by the Arkansas State Hospital--a

third party--in

computing expenses

relating

to food services.

In a February 1969 report to the Administrator,

Social and RehabilitaDepartment

Health,

Education,

tion Service,

and Welfare, we stated our

belief

that the administration

of third-party

participation

in the FederalState vocational

rehabilitation

program could be improved by requiring

State

vocational

rehabilitation

agencies to include in third-party

agreements a

description

of the specific

procedures to be used in arriving

at the costs

to be claimed for Federal financial

participation.

Also, in our opinion inclusion of such specifics

in agreements between State vocational

rehabilitation agencies and third parties would aid the Department in reviewing the

propriety

of claims made by the States for Federal financial

participation.

State officials

agreed that, because vocational

rehabilitation

expenditures had been overstated,

the State's

claim for Federal financial

participation would require an adjustment.

They stated, however, that the Arkansas

State Hospital had provided certain other services

in support of the vocational rehabilitation

program--such as fire protection

and security

services--which

had not been claimed as costs related to the program and that

any adjustment should recognize these factors.

Although consideration

these factors

in making an equitable

adjustment may be appropriate,

we believe that the State's position

further

exemplifies

the desirability

of having an explicit

written

agreement on the matter of allowable costs.

Officials

of the Rehabilitation

Services Administration,

Washington,

to the States concerning third-party

D.C., advised us that new instructions

expenditures

were being developed and that these instructions

would require

the State vocational

rehabilitation

agencies to establish

procedures designed to ensure that claims for Federal financial

participation

based upon

expenditures

made by third parties

are proper.

DEPARTMENTOF HEALTH, EDUCATION, AND WEIFARE

SOCIAL AND REHAEZLITATION SERVICE (continued)

Need for improvement in controls

over State

administration

of federally

aided public

assistance

programs

Our review of HEW's financial

partic-ipation

in certain

administrative

revealed a

expenses for public assistance

programs in the State of Missouri

need for certain

improvements in HEW's controls

over State administration

the public assistance

programs to help ensure that the claims made for Federal financial

participation

are in accordance with existing

Federal and

State regulations

and requirements.

We found that (1) certain

expenses applicable

to nonfederally

aided

programs had been claimed for Federal financial

participation

and (2) Federal financial

participation

at a 75-percent rate had been claimed for certain expenses that appeared to have been qualified

for only a 50-percent

On the basis of our review, we estimated that Federal payments for

rate.

such claims in the State of Missouri

may have amounted to as much as

$1.1 million

in fiscal

years 1964 through 1966.

Act authorized

Federal

Prior to September 1, 1962, the Social Security

payments to States of 50 percent of the total amount expended by the States

in the administration

of their federally

aided public assistance

programs.

Effective

September 1, 1962, the Public Welfare Amendments of 1962 authorized for such programs, among other things, 7%percent

Federal financial

participation

in State administrative

expenditures

incurred for providing

those services designed to help individual

recipients

attain

self-care

and

self-support

or to strengthen family life

(generally

referred

to as defined

social services).

Federal requirements

established

by HEW specify

that, for the purpose

of claiming

Federal funds, a State plan of public assistance

programs must

include a cost allocation

plan that provides for (1) distinguishing

the

costs of administering

federally

aided public assistance

from all other administrative

costs of the agency in such a manner that no part of the costs

of administering

other programs is charged to the federally

aided programs,

(2) allocating

the costs of administering

the federally

aided public assistance programs among the various Federal programs on a reasonable basis,

and (3) determining,

within each federally

aided public assistance

program,

the amount that is subject to 75-percent Federal financial

participation

and

the amount that is subject to 50-percent Federal financial

participation.

Although the methods and procedures followed by the State in arriving

at the amounts claimed for Federal financial

participation

were, in some

cases, in accordance with the existing

State plan which was approved by HEW,

our review indicated

that such claims had resulted

in the payment of Federal

funds to the State in greater amounts than should have been attributed

the costs allocable

to the federally

aided programs.

DEPARTMENTOF HEALTH, EDUCATION, AND WELFARE

SOCIAL AND REHABILITATION SERVICE (continued)

These matters were reported to the Secretary,

HEN, in June 1969 with

our recommendation that the Missouri

State cost allocation

plan be thoroughly reviewed and that the State be required to submit such formal revisions to the plan as deemed appropriate.

With respect to past payments

made to the State of Missouri

for administrative

expenses, we recommended

that the Administrator,

Social and Rehabilitation

Service,

be required

review the basis for such claims --giving

recognition

to the matters noted

during our review--and

to seek equitable

adjustments

for any excessive payments made to the State.

In July 1969 HEM agreed to take action in line

with our recommendations.

(B-164031(3),

June 12, 1969.)

DEPARTMENTOF HEALTH, EDUCATION, AND WELFARE

SOCIAL SECURITY ADMINISTRATION

Questionable

supervisory

payments under Medicare program for services of

and teaching physicians

at Cook County Hospital

Pursuant to a request from the Chairman of the Senate Committee on Finance, -we examined selected payments for physicians'

services under the

Medicare program made by the Illinois

Medical Service (Blue Shield)

to the

Associated Physicians

of the Cook County Hospital

(APCCH), Chicago, Ill.

In accordance with regulations

issued by the Social Security

Administration

(SSA), payments under the su.pplementary medical insurance portion

(part B) of the Medicare program could be made for professional

services

rendered to Medicare patients

by supervisory

or teaching physicians

in a

hospital

in cases where the physicians

were the patients'

attending physicians and provided personal and identifiable

direction

to interns and residents who participated

in the care of their patients.

From April 1968 to April 1969, when, at the direction

of SSA, Blue

Shield suspended payments of APCCH claims, APCCH had received about

$1.6 million

in payments under part B of the Medicare program for the services of attending

physicians.

Our review of selected patient medical records of Cook County Hospital

indicated

that the professional

services billed

by AF'CCHand paid by Blue

Shield had been furnished,

in almost all cases, by residents

and interns atthe hospital

and showed only limited

involvement of the attending physicians

in whose names the services had been billed.

The salaries

of the residents

and interns at the hospital

were allowable

costs under the hospital

insurance portion

(part A) of the Medicare program.

Although SSA issued in April 1969 new and more comprehensive guidelines, which ‘were intended to clarify

and supplement the criteria

for making

payments for the services of supervisory

or teaching physicians,

we suggested that SSA inquire further

into the propriety

of the charges being allowed when such circumstances

as those disclosed by our review existed at

hospitals.

SSA stated that it would inquire further

into the circumstances

described in our report.

Further,

SSA initiated

action to recover from APCCH

payments made for medical services

to Medicare beneficiaries

which had been

provided by residents

and interns and had not involved the services of attending physicians.

(B-164031(4),

Sept. 3, 1969.)

Problems in determining

the reasonableness

physicians'

charges under the Medicare program

In June 1969, we reported to the Secretary of HEW that revised fee

ceilings

established,

effective

June 1968, by the Massachusetts Medical Service (Blue Shield) operating under a contract with SSA to make payments of

Medicare claims for physicians'

services in Massachusetts had been developed

DEPARTMENTOF HEALTH, EDUCATION, AND WELFARE

SOCIAL SECURITY ADMINISTRATION (continued)

by methods which, in our opinion,

resulted

in the establishment

of fee limitations

for certain

surgical

procedures that were 6 to 10 percent higher

than such limitations

would have been had Blue Shield used methods recommended by SSA.

Blue Shield advised 'us that it had requested SSA approval of a revised

method for developing reasonable charges for physicians'

services,

which,

we believe,

should result

in the development of more appropriate

fee limitations.

However, we recommended that SSA review the actual data to be

used by Blue Shield in developing new fee limitations

to determine whether

the method proposed by Blue Shield conformed with the intent of the applicable SSA regulations.

SSA informed us that it had issued new instructions

limiting

future

increases in physicians'

fees payable under the program and that our findings would be considered in connection with the implementation

of the new

limitations.

We reported also that, for services furnished

during 1967, Blue Shield

had made numerous payments in excess of the then existing

fee limitations

without the required supervisory

review to determine whether the higher

payments were justified;

possible

overpayments which we specifically

identified

amounted to about $25,000.

Blue Shield agreed to review the possible

overpayments we identified

Blue Shield agreed also to determine

and to seek recovery where warranted.

the economical feasibility

of identifying

and seeking recovery of other

Also, Blue Shield stated that it had installed

possible

overpayments.

quality-control

system designed to minimize the incidence of payments in excess of reasonable charges.

We recommended that SSA follow up on the adequacy of Blue Shield's

tions to recover overpayments and on the adequacy of its quality-control

system.

SSA informed us that

mendations.

(B-164031(4),

would follow up in accordance

June 30, 1969.)

with

ac-

our recom-

DEPARTMENTOF HOUSING AND URBAN DEVELOPMENT

Contents

Page

FEDERAL HOUSING ADMINISTRATION

Need to increase home mortgage insurance application

fees

Additional

interest

income available

through collection

mortgage insurance premiums monthly rather than annually

Opportunity

to reduce reacquisitions

by changing method of selecting

purchasers of properties

sold by FHA

HOUSING ASSISTANCE ADMINISTRATION

Need to clarify

statutory

provisions

community and neighborhood facilities

regarding

the financing

RENEWALASSISTANCE ADMINISTRATION

Savings available

in Federal share of cost of demolishing

buildings

Improvements needed in the management of the urban renewal

rehabilitation

program

DEPARTMENTOF HOUSING AND URBAN DEVELOPMENT

FEDERAL HOUSING ADMINISTRATION

Need to increase home mortgage

insurance application

fees

Our review of fees assessed applicants

by the Federal Housing Administration

@HA) for processing home insurance applications

showed that the

fees were insufficient

to recover the full processing

costs.

We estimated

that, in fiscal

years 1966 and 1967, costs unrecovered by fees amounted to

about $33 million,

or about 37 percent of the costs of processing applications for insurance in those years.

All costs of the FHA home mortgage insurance programs, including

the

unrecovered costs of processing

applications

for mortgage insurance,

are

borne by mortgagors through payment of fees and premiums and through investment earnings thereon.

Our review showed that about 50 percent of the applications

processed by FHA did not result

in mortgage insurance and that

the unrecovered costs of processing these applications

was therefore

borne

by mortgagors participating

in the mortgage insurance programs.

We pointed out that FHA fees of $45 for an application

pertaining

new housing and $35 for an application

pertaining

to existing

housing would

have had to be increased to $70 and $56, respectively,

to result

in full recovery of the processing

costs.

In our report to the Congress in July 1968, we expressed the belief

that FHA should follow the Government's general policy regarding charges

for services performed by Federal agencies and should establish

fees', and

adjust them annually as necessary, to recover from all applicants,

to the

extent practicable,

the full

costs of processing applications

for mortgage

insurance on home loans.

The additional

net income which would result

from

increasing

fees to recover application

processing costs would serve to increase the reserves for future losses on FHA home mortgage insurance programs. We noted that such reserves were below the requirements

which FHA

deemed necessary to cover estimated future losses in the event of the development of adverse business conditions.

The former Assistant

Secretary-Commissioner,

Department of Housing and

Urban Development (HUD), FHA, in commenting on this matter,

stated that an

increase in application

fees would discourage individuals

from applying for

federally

insured home mortgages.

However, application

fees are a one-time

expense of home ownership, and we stated that we did not believe that fee

increases of $25 and $21 would be any more likely

to discourage those who

desire to purchase a home than would the fees established

in the past.

Accordingly,

we recommended that the Secretary of HUD require FHA to

establish

application

fees at levels which would recover the costs of processing applications

for mortgage insurance.

We also recommended that FHA

be required

to ascertain,

annually,

application

processing

costs and to adjust its fees, to the extent practicable,

for increases or decreases in

such costs.

(B-114860, July 8, 1968;)

DEPARTMENTOF HOUSING AND URBAN DEVELOPMENT

FEDERAL HOUSING ADMINISTRATION (continued)

This subject was covered in our previous report of selected significant

findings;

however, we are repeating it here because HUD has not taken action

to implement our recommendations and we continue to believe that corrective

action-is

warranted.

Additional

interest

income available

through

collection

of mortgage insurance premiums

monthly rather than annually

Our review disclosed

that the remittance

of premiums by mortgagees on

a monthly basis, rather than on an annual basis, would, on the average, permit the Federal Housing Administration

to invest these funds about 6 months

earlier.

We estimated that additional

interest

income resulting

from earlier investment would amount to approximately

$650,000 annually for new insured mortgages during the first

full year of operation

and that the additional

interest

income would increase,

as new mortgages are insured in subsequent years, to more than $4 million

annually.

We proposed that a study be made to determine the most feasible

and

economical manner to implement the administrative

changes required to collect the premiums on a monthly basis and that the FHA regulations

be revised to require monthly collection

of premiums.

HUD advised us that it would not be appropriate

to change premium payment procedures at the time because of mortgage.market

conditions

but that

the desirability

of a change would be considered at a more favorable

time.

In our report to the Congress in September 1968, we expressed the belief

that it would be advisable,

and we recommended, that FHA plan immediately for the time when a change in procedures would be appropriate

so that,

when marketing conditions

permitted,

the change could be made on a timely

basis.

(~-114860, Sept. 26, 1968.)

Opportunity

of selecting

to reduce reacquisitions

purchasers of properties

by changing; method

sold by FHA

Our review of the sales of acquired single-family

residential

properties by the Federal Housing Administration,

Department of Housing and Urban

Development, showed that FHA's selection

of purchasers by a drawing, when

more than one offer was received for a property,

often resulted

in the selection

of purchase offers which were not the most favorable

to the Government.

Generally,

the mortgage loans for these sales were insured by FHA,

Many of the loans were financed by the Government National Mortgage Association (GNMA).

We found that the rate of reacquisition

of residential

properties

quired and subsequently

sold was several times the rate of acquisition

properties

acquired for the first

time.

acof

DEPARTMENTOF HOUSING AND URBAN DEVELOPMENT

FEDERAL HOUSING ADMINISTRATION (continued)

In our report to the Congress in March 1969, we stated that FHA could

reduce the number of its reacquisitions

of residential

properties

and the

amount of borrowings by the Government needed to finance FHA's sales of

these properties

if it would select purchasers on the basis of those offers

We pointed out that the

that are the most advantageous to the Government.

Veterans Administration

(VA) was using an evaluation

procedure to select

the purchaser when more than one offer was received for a VA-acquired

property.

HUD stated that selection

of a purchaser by a drawing provided a fair

and impartial

means of offering

properties

to all potential

home buyers.

Also, HUD said that this procedure was in line with the policy objective

embodied by the Congress, in the Housing and Urban Development Act of 1968,

of providing

a greater opportunity

for lower income families

to own their

own homes.

Although selection

of purchasers by a drawing presumably gives all

persons who bid on an FHA-acquired property an equal chance to be selected,

it does not ensure, but leaves to chance, the selection

of a lower income

family.

In our opinion,

selection

of purchasers through an evaluation

offers,

with consideration

being given to lower income families

to the extent that FHA believes

appropriate,

would give FHA more assurance that it

is contributing

to the goal of helping lower income families

become homeowners.

of purchasers on the basis of

Moreover, we believe that the selection

an evaluation

of the purchase offer terms and such other consideration

FHA believes appropriate

would tend to minimize FHA reacquisitions

of properties and the amount of GNMA financing

required to complete the sales.

we recommended that, when more than one offer is received

Therefore,

for an FHA-acquired residential

property,

the Secretary of HUD require FHA

to select the purchaser on the basis of an evaluation

of the purchase offers received and such other considerations

as may be appropriate.

In commenting on our report during hearings on HUD's appropriations

for 1970 before the Subcommittee on Independent Offices

and Department of

Housing and Urban Development, House Committee on Appropriations,

in May

1969, a HUD official

indicated

that the great bulk of the differences

purchase offers discussed in our report were such that one offer was only

marginally

preferable

over another, and he referred

to shorter maturity

periods and differences

of $100 in down payments as examples of the differences in offers received for FHA-acquired properties.

We believe that the differences

in the purchase offers discussed in

in down payments

our report were significant.

For example, differences

provided for in purchase offers averaged about $1,000 and ranged up to

Some offers provided for an all cash purchase or for

$7,400 a property.

private

financing

not involving

FHA mortgage loan insurance.

DEPARWNT OF HOUSING AND URBANDEVZLOPMFNT

FEDERAL HOUSING ADMINISTRATION (continued)

Moreover, we pointed out in our report that selection

of purchasers on

the basis of an evaluation

of the purchase offers received,

and such other

considerations

as may be appropriate,

could have a beneficial

effect with

regard to FHA's subsequent reacquisition

of properties

and the goal of

helping lower income families

become homeowners. Also, we pointed out that

VA uses an evaluation

method for selecting

purchase offers on its acquired

properties.

(~-114860, Mar. 19, 1969.)

DEPARTMENTOF HOUSING AND URBAN DEVELOPMENT

HOUSING ASSISTANCE ADMINISTRATION

Need to clarify

statutory

provisions

regarding

the financing

of community and neighborhood facilities

Our report to the Congress in January 1969 dealt with questions relating to the authority

of the Department of Housing and Urban Development

(HUD) for allowing

local housing authorities

(LHAs) to provide community

facilities

as part of the low-rent public housing program and to contribute

to the cost of developing neighborhood facilities

under the section 703

grant program.

Our review showed that HUD based its interpretation

of authority

for

allowing LHAs to provide community facilities

as part of low-rent public

housing projects

on section 2(l) of the United States Housing Act of 1937,

which defines the term "low-rent

housing" as embracing "all necessary apHUD believed that community facilities

were needed

purtenances thereto."

for the successful

development and management of public housing projects

and that reasonable expenditures

for these facilities

were eligible

for inclusion in project development costs.

We estimated that HUD had financed indoor community facilities

at more

and that the cost of these facilities

than 3,100 public housing projects

would total about $268 million.

We found in our review that the legislative

history

of section 2(l)

of the act shed no light

on congressional

intent as to what were considered

We did not contend that HUD's interpretato be "necessary appurtenances."

tion of its authority

was contrary to law, nor did we question the benefits

that could result from community facilities;

however, it was our opinion

that HUD's interpretation

was not free from doubt and that, in a program

involving

many millions

of dollars

of Federal funds, any such doubt should

be removed.

We found also that HUD was permitting

LHAs to contribute

funds toward

the cost of neighborhood facilities

to be developed under a Federal grant

program authorized

by section 703 of the Housing and Urban Development Act

of 1965. The combination

of housing assistance

contributions

and neighborhood facilities

grants will

result in the total ultimate

cost to the Fed-'

era1 Government for such facilities

being greater than the amount of the

maximum Federal assistance

authorized under section 703. We expressed the

opinion that':the

statutory

provisions

for the neighborhood

facilities

grant

program needed clarification

regarding contributions

by LHAs.

HUD disagreed with our views regarding the need for clarification

statutory

intent on these points.

It was our opinion,

however, that these

matters warranted the attention

of the Congress.

Accordingly,

we suggested

in our report that the Congress might wish to consider clarifying

the statutory authority

of HUD with regard to authorizing

and financing

the development of project

community facilities

as part of the low-rent public housing

DEPARTMENTOF HOUSING AND URBAN DEVELOPMENT

HOUSING ASSISTANCE ADMINISTRATION (continued)

program and the provisions

of section 703 of the Housing an< Urban Development Act of 1965 with regard to contributions

by LHAs toward the cost of

developing neighborhood facilities

under the Federal grant program estab-lished by the act.

(B-118718, Jan. 17, 1969.).

DEPARTMENTOF HOUSING AND URBAN DEVELOPMENT

RENEWALASSISTANCE ADMINISTRATION

Savings

of cost

available

in Federal share

of demolishing

buildings

In a November 1968 report to the Congress, we pointed out that the De'partment of Housing and Urban Development (HUD) had been making grants to

cities

to cover two thirds of the cost of demolishing

unsafe or uninhabitable structures

without taking into consideration

the fact that the cities

subsequently collected

some portion of the cost from the owners of the

the

basis

of the recovery experiences of the cities

inproperties.

cluded in our review, which received 41 percent of the demolition

grants

made by HUD, we expressed the opinion that such grants could have been reduced by about $400,000 if they had been limited

to two thirds of the net

demolition

costs, i.e.,

the gross costs of demolition

less the amounts recovered from property owners.

We proposed that demolition

grants be limited to two thirds of the net demolition

costs.

The Assistant

Secretary for Renewal and Housing Assistance

agreed that

there was a need for corrective

action and established

a policy which provides that the Federal Government be reimbursed for up to two thirds of the

net amount recovered by cities

prior to project completion.

However, since

it appeared that many recoveries

of demolition

costs were being made after

a 2-year time period, which is the period of time under HUD regulations

which a demolition

project

is generally

expected to be completed, we recommended that the Secretary extend the period of Federal participation

in recoveries of costs so as to include recoveries

made after the complet.ion of

demolition

activities.

During hearings before the Subcommittee on Independent Offices and

Department of Housing and Urban Development, House Committee on Appropriations,

a member of the Subcommittee recommended that HUD review its policy

on sharing recoveries

on demolition

projects

and consider extending the

policy to provide for sharing in recoveries

made after the completion of

demolition

activities,

as recommended in our report.

We were informed by a

HUD official

subsequent to these hearings that HUD was not making the

recommended change in policy concerning this matter since it did not believe

that the recovery potential

from such a change was great enough to offset

the significant

administrative

difficulties

which would be involved.

We continue to believe that a change in HUD policy

to provide for Federal participation

in recoveries

of demolition

costs made after the completion of demolition

activities

is warranted.

As pointed out in our report,

we believe that the recommended change in HUD policy would not present any

significant

administrative

problems t.o HUD since either

a locality

could be

relied upon to make remittances

to HUD of its share of any recoveries

after

the completion

of its demolition

activities

or, if HUD believed it neceson a test-check

basis the locality's

demolisary , its auditors could verify

tion cost recoveries

obtained after project

completion,

when they are in or

near the locality

for the purpose of auditing

other HUD activities,

such as

urban renewal projects.

(B-118754, Nov. 12, 1968.)

DEPARTMENTOF HOUSING AND URBAN DEVELOPMENT

RENEWALASSISTANCE ADMINISTRATION (continued)'

Improvements needed in the management of

the urban renewal rehabilitation

program

In an April 1969 report to the Congress, we pointed out that improved

management and increased emphasis on the rehabilitation

program by the Department of Housing and Urban Development was essential

if HUD was to meet

its goal of rehabilitating

about 130,000 dwelling

units,

or an average of

about 43,000 units annually,

during the fiscal

years 1969 through 1971.

Our review showed that the completed rehabilitations

for the 4.5 year period ended December 31, 1967, averaged about 13,000 units a year, or about

30,000 fewer units than the-average annual goal for fiscal

years 1969

through 1971.

We also found that a large percentage of the rehabilitation

accomplishas they did not meet applicable

standards.

ments reported were questionable,

An inspection

of 150 selected properties

in three selected projects

showed

that 78 percent of the properties

did not meet established

property rehabilitation

standards for the areas and that 69 percent did not meet local housing code standards,

even though the properties

were reported as being rehabilitated

by the local public agencies (LPAs).

We found that HUD administrative

reviews at the local level were not

adequately disclosing

(1) the actual progress of rehabilitation

work,

(2) the'weaknesses

in LPA procedures and practices

for determining

when a

property is rehabilitated,

and (3) the failure

of LPAs to carry out a

required program for follow-up

code inspections.

We recommended that the Secretary of HUD reassess the rehabilitation

program on the basis of in-depth reviews at the project

level to identify

and resolve weaknesses, problems, or difficulties

such as those noted in

our review and any others that impede project

completion.

We recommended

also that the Secretary require HUD representatives

to strengthen

their review and administration

of rehabilitation

projects

at the local level.

The Assistant

Secretary for Renewal and Housing Assistance

advised us

that HUD had increased its emphasis on rehabilitation

and that instructions

would be issued strengthening

HUD's administration

of the program.

He advised further

that, within

the limits

of available

personnel,

HUD's regional

offices

would conduct surveys of rehabilitation

projects.

Our report was discussed during hearings held by the Subcommittee on

Independent Offices and Department of Housing and Urban Development, House

Committee on Appropriations.

However, in our opinion,

several statements

concerning the report made by HUD officials

at that time need to be clarified.

DEPARTMENTOF HOUSING AW URBAN DEVELOPMENT

RENEWALASSISTANCE ADMINISTRATION (continued)

These HUD statements indicated

that (1) the projects

included in our

report were approved around 1954, (2) the deficiencies

noted in some of the

project

properties

inspected during our review resulted

from the age factor

because these properties

had at one time been brought up to standards but

had deteriorated

with the passage of time to the point found by our review,

and (3) the properties

inspected during our review did not include properties which had been assisted through rehabilitation

loans authorized

under

section 312 of the Housing Act of 1964.

As pointed Gut in our report,

all the projects

included in our review

were approved for execution well after 1954 and were still

in an uncompleted stage at the time of our review.

MoreOver, the properties

we inspected had reportedly

been brought up to standards at a date relatively

Also, at the time of our review, Fedcurrent to the time of our review.

eral assistance

to help project

residents

to rehabilitate

their properties

was available

in these projects

through rehabilitation

loans and grants.

Some of the properties

we inspected had been rehabilitated

with Federal assistance through rehabilitation

loans and grants.

As noted in our report,

the deficiencies

found with regard to the

properties

inspected during our review

included significant

numb.ers of

needed long-term,

permanent improvements,

such as the installation,

repair,

or replacement of electric,

plumbing, masonry, carpentry,

and heating

items.

These deficiencies

apparently had never been corrected

although so

reported by the local authorities.

There were also deficiencies

of the

short-term

improvement type which were susceptible

to recurrence in a relatively

short time.

HUD officials

correctly

pointed out that HUD had issued instructions

aimed at strengthening

the administration

of the program.

Me have not yet

had an opportunity

to review the effectiveness

of these instructions,

which

were issued subsequent to and as a direct result of our review.

(B-118754, April 25, 1969.)

DEPARTMENTOF THE INTERIOR

Contents

Page

BUREAU OF COMMERCIALFISHERIES AND BUREAU OF SPORT FISHERIES

AND WILDLIFE

Inconsistent

treatment in financing

costs incurred to preserve

the Columbia River Basin as a source of salmon and steelhead

trout

BUREAU OF INDIAN AFFAIRS

Need to improve the system for managing the repair

nance of buildings

and utilities

BUREAU OF RECLAMATION

Need for improved procedures

water users

GEOLOGICALSURVEY

Opportunity

for increased

practices

and mainte57

for

negotiating

contracts

with

revenues

through

changes in map-pricing

DEPARTMENTOF THE INTERIOR

BUREAUOF COMMERCIALFISHERIES AND

BUREAUOF SPORT FISHERIES AND WILDLIFE

Inconsistent

treatment

in financing

costs

incurred to oreserve the Columbia River Basin

as a source of salmon and steelhead trout

In a July 1969 report to the Congress, we stated that the Government's

method of financing

the costs to mitigate

damage to anadromous fish runs

caused primarily

by Federal water resource development projects

in the Columbia River Basin has not been consistent.

Certain costs incurred by the

Corps of Engineers and the Bureau of Reclamation to preserve the Columbia

River Basin as a source of salmon and steelhead trout are treated as part

of the cost of water resource projects

and are being recovered,

in part,

However, similar

through charges for power and water from the projects.

costs incurred by the Bureau of Commercial Fisheries

(BCF) and the Bureau

of Sport Fisheries

and Wildlife

(BSFW) for this purpose are not treated as

costs of water resource development projects

and are not being recovered

from project

revenues.

The major conservation

effort

to mitigate

damage to anadromous fish

runs in the Columbia River Basin has been the Columbia River Fisheries

Development Program which is administered

and financed by BCF. As of

June 30, 1968, the total cost of constructing

fishery

and s-tream improvement facilities

under this program amounted to approximately

$27 million

and the cost of operating and maintaining

the facilities

amounted to about

$26.5 million.

None of these costs have been included as part of the costs

of the water resource development projects

for recovery from revenueproducing project

operations.

We estimated that about $24.7 million

these costs would be assignable to recoverable

project

purposes and subject

to recovery.

By comparison, we estimated that about $87.8 million

of the total costs

of about $141.6 incurred for fishery

facilities

by the Corps of Engineers

as of June 30, 1968, will ultimately

be recovered through charges to users

of power and water and that about $1.6 million

of the average annual cost

of $2.4 million

for operating and maintaining

these facilities

will

be recovered.

Also, costs incurred by the Bureau of Reclamation for the construction

of hatcheries

and for their operation and maintenance during construction,

amounting to about $3.1 million,

are being recovered.

However,

operation and maintenance costs incurred subsequent to completion of the

hatcheries,

which totaled

$4.3 million

between 1945 and 1968 and amounted

to $287,000 in 1968 and which are financed by BSFW, are not being recovered.

In cormnenting on the differences

in the practices

regarding recovery of

costs 3 the Department of the Interior

stated that there were a number of

causes for the decline of the Columbia River fishery

that would have required substantial-fish

programs in the Columbia River Basin even if there

were a complete absence of Federal revenue-producing

water resource projects in the Basin.

Consequently,

the Department concluded that recovery of

funds appropriated

for the BCF or BSFW programs would be contrary to existing statutes.

DEPARTMENTOF THE INTERIOR

BUREAU OF COMMERCIALFISHERIES AND

BUREAU OF SPORT FISHERIES AND WILDLIFE (continued)

We agree that there is no specific

legislative

requirement

that the

costs incurred by BCF or BSFW be recovered from revenue-producing

water reWe believe,

however, that there is a cormnon causative resource projects.

lationship

between the programs of the Corps of Engineers and the Bureau of

Reclamation

and the programs of BCF and BSFW to mitigate

damages to the

fishery

resources.

Consequently,

and because certain

costs of the programs

of the Corps and the Bureau of Reclamation are being recovered,

there appears to be justification

for advocating that similar

costs incurred by BCF

and BSFW be recovered in the same manner.

We brought this matter to the attention

of the Congress for its consideration as to whether the costs incurred,

and to be incurred,

by BCF and

BSFW to mitigate

damage to the fishery

resources caused primarily

by Federal

dams in the Columbia River Basin should be recovered from revenue-producing

operations

in a manner consistent

with the recovery of costs by the-corps

of Engineers and the Bureau of Reclamation.

In the event it is determined

that such costs should be recovered, authority

to recover the costs would

require legislative

action by the Congress.

We suggested also that the Congress might wish to have the Secretary of

the Interior

undertake a study to determine the extent to which costs incurred by BCF and BSFW are attributable

to Federal water resource projects.

(g-157612, JULY 29, 1969.)

DEPARTMENTOF THE INTERIOR

BUREAU OF INDIAN AFFAIRS

Need to improve the system for managing

the repair and maintenance of buildings

and utilities

Our review of the policies

and practices

of the Bureau of Indian Affairs

(BIA) for controlling

expenditures

for the repair,

maintenance,

and

rehabilitation

of buildings

and facilities

showed that large sums had been

programmed and expended to repair,

improve, and rehabilitate

old buildings.

Some of these buildings

were demolished shortly after they had been extensively repaired or rehabilitated,

and others were scheduled for demolition

in the near future.

We found that this situation

had occurred because BIA

had no procedures for systematically

evaluating

existing

facilities

to determine. their remaining useful life,

establishing

replacement standards, and

determining

dates beyond which it would be uneconomical to make further

repairs or improvements.

In addition,

we noted that the Major Alteration

and Improvement (MA&I)

funds and Repair and Maintenance (R&M) funds were used interchangeably

finance the same type of projects

and, in some instances,

the costs of supporting

services were not charged to the proper fund.

Use of R&M and MA&I

funds in this manner does not ensure control of funds by BIA in the manner

that the Congress intended when it made separate appropriations

for these

specific

purposes.

We recommended that BIA make certain revisions

in its system for the

management of buildings

and facilities

and that it take whatever action was

necessary to ensure that R&M and MA&I funds are used only for the purposes

for which appropriated.

We were advised that the Department of the Interior

agreed with our

recommendations and that BIA was developing a management information

reporting and control system along the lines we had recommended. We were

subsequently

advised by a BIA official

that, as of September 15, 1969, some

of our recommendations had been implemented and that work was continuing

the implementation

of others.

We were informed that, among other actions,

rrevised instructions

had been issued to the field offices

concerning the

purposes for which R&M and MA&I funds could be used and that criteria

as to

the frequency and extent of repair and maintenance work were being developed.

As a part of our continuing

review of BIA activities,

we plan to examine into and evaluate,

at an appropriate

time, the adequacy of the actions

<taken by BIA to correct the deficiencies

noted during our review.

(g-114868, Sept. 25, 1968.)

DEPARTMENTOF THE INTERIOR

BUREAUOF RECLAMATION

Need for improved procedures for

negotiating

contracts

with water users

In October 1968 we reported to the Congress that, although water had

been delivered

to users north of the city of Sacramento, California,

through releases from Shasta Dam and Reservoir-- a major unit of the Central

Valley project--from

its completion in 1944, the Federal Government had not

been able, until

1964, to reach agreement with the users as to the amount

of Federal water made available

by the project

for which the users were to

pay $2 an acre-foot.

Calculations

made by the Bureau of Reclamation showed that, during

ZO-year period of negotiations,

the water users used, without charge,

about 6 million

acre-feet

of project water valued at $12 million.

the

We reported that by December 1967 the Bureau had concluded, or had

pending, 141 contracts with water users covering about 2,300,OOO acre-feet

of water.

These contracts

will,

in our opinion,

permit the water users to

use annually,

without charge, 950,000 more acre-feet

of water, having a

contract value of $2 an acre-foot,

than was available

for use in an average

year prior to the operation of Shasta Dam and Reservoir.

We recommended that the Secretary of the Interior,

in future negotiaprior to construction

of a project,

defitions of this nature, establish,

nite limits

as to the quantity

of water that would have been available

without the project

and the maximum period of time for negotiating

acceptable agreements with the users.

We recommended also that, if

acceptable agreements cannot be reached within the established

time period,

the Congress be advised of the situation,

including

the possibility

that

litigation

might be required after the project is constructed

to arrive at

a reasonable settlement.

In this way the Congress could then reconsider

the authorization

of the project.

In December 1968, the Department advised the Bureau of the Budget that

it agreed with the substance of our recommendations.

The Department stated

that the procedures which were currently

being followed in preparing feasibility

reports prior to authorization,

in preparing definite

plan reports

to firm up developments after authorization,

and in processing

appropria'tion requests through the executive and legislative

branches were all aimed

at avoid&g

situations

similar

to the situation

presented in our report to

the Congress.

(B-125045, Oct. 18, 1968.)

DEPARTMENTOF THE INTERIOR

GEOLOGICALSURVEY

Opportunity

for increased revenues

through changes in map-pricing

practices

In September 1969 we reported to the Congress that an opportunity

existed for the Federal Government to realize

additional

revenues if the Geological

Survey would sell its maps at prices based on their fair market

value.

In the determination

of its map-pricing

structure,

Survey has followed the practice

of pricing

its maps on the basis of costs essentially

,accordance with that provision

of Bureau of the Budget (BOB) Circular

No. A-25 which deals with Government services rather than on the basis of

the fair market value as is required by the circular

when the Government

sells property or resources.

Survey sells its maps at prices based on cost because it believes

that

We believe that

map sales are a service and not a resource or property.

maps are tangible

commodities and that they would more properly be considered as resources or property and should not be sold at prices which are

based solely on cost--essentially

the cost of printing

and distribution.

We believe that it is reasonable to price the maps at prices up to fair

market value so as to maximize the recovery of all costs incurred in the

map-making process, including

the more basic survey and original

mappreparation

costs incurred by the Government.

Although the fair market value of Survey's maps is not known, we believe that it could be determined by a marketing research study.

Such a

study could also show the expected amount of sales at various price levels.

Survey could then set its prices at an appropriate

level while still

charging the purchasers no more than the fair market value of the maps being

Information

obtained in our review indicated

that the fair

purchased.

market value of Survey's maps is greater than the prices being charged.

The additional

revenues which could be realized

if Survey sold its maps

at prices based on their fair market value would depend upon variations

printing

and distribution

costs and on the number of maps that could be'

sold, but we believe that it could be significant

because of the large

volume of maps sold by Survey.

We estimate that, if the selling

price of

Survey's topographic

series maps were determined to be 75 cents, rather

than the present 50 cents and if sales remained at the present level,

additional

net revenues to the Government would be about $760,000.

On the basis of our review, we proposed that the Director

of Geological

Survey consider the feasibility

of selling

Survey's maps at a price based

:upon their fair market value.

The Department of the Interior

disagreed

with our finding and remained of the opinion that Survey's maps are a service and should be priced to recover essentially

the cost of printing

and

distributing

the maps.

DEPARTMENTOF THE INTERIOR

GEOLOGICALSURVEY (continued)

BOB advised us, however, that it planned to undertake a review of the

broader issue implied in the question raised in our report,

that is,

whether maps produced by Federal'agencies,

and probably other services or

products supplied by the Government, are services or property.

BOB's objective

in this review will

be to develop policy guidance for the pricing

of services and products that may not fall clearly

into either the service

or product group discussed in BOB Circular

No. A-25.

We consider BOB's planned review to be responsive to the matters discussed in our report.

Because of the potential

additional

cost recoveries

that may be obtainable,

however, we recommended that BOB undertake its review as soon as possible.

(B-118678, Sept. 3, 1969.)

DEPARTMENTOF JUSTICE

Contents

Page

Need to improve the effectiveness

procedures

of debt collection

practices

and

DEPARTMENTOF JUSTICE

Need to improve

debt collection

the effectiveness

practices

and procedures

At the request of a subcommittee of the Congress, we ascertained

and

evaluated actions taken by the Department of Justice to implement previously

made congressional

recommendations for improving the Department's

practices

and procedures relating

to the collection

of money due the United States as

the result of court actions and to have the Department determine and report

Our review

the actual amount of judgments written

off for uncollectibility.

showed that the Department had taken some action on each of the recommendations,

but, in our opinion,

additional

actions need to be taken by the Department to improve the effectiveness

of its collection

practices

and procedures.

The Attorney General's annual reports for fiscal

years 1965 through

1968 showed that the amounts of fines,

judgments, penalties,

and forfeitures

imposed by the courts as a result of the Department's

actions totaled about

$383 million.

During the same period, the Department collected

$163 million.

The House Committee on Government Operations had recommended that the

Department assign to a single division

or branch the overall

responsibility

for judgment collection

activities,

including

the correlating

of the collection

activities

of the divisions

and of the U.S. Attorneys

(USAs).

found that this recommendation had not been carried out.

Consequently,

management had no central source on which to rely for assurance that USAs

were following

prescribed

collection

policies

and procedures or that the

most effective

collection

actions were being taken by the USAs and thehead-,

quarters litigating

divisions.

In addition,

we found that the Department

had no written

guidelines

for use by the litigating

divisions

in monitoring

and supervising

the collection

activities

of the USAs and that the divisions exercised little

control over the collection

activities

of the USAs.

In a letter

dated June 17, 1969, the Assistant

Attorney General for Administration

informed us that the recommendation had received,

and was reactive consideration

but that the Department was by no means cerceiving,

tain or assured that such recommendation,

if adopted, would improve collection activities.

He informed us also that the collection

of judgments in

the Civil,

Criminal,

and Tax Divisions

presented problems peculiar

to each

division

and that it was not clear that a further

centralization

would necessarily

improve efficiency.

We recognize that special problems may exist in collecting

the various

types of judgments or fines generated in these three divisions.

We believe,

however, that, after a judgment or a fine has been imposed, required

collection

actions could be effectively

taken by personnel with collection

expertise,

as is the practice

of commercial collection

agencies, and that

this would result

in the release of attorneys

to perform functions

requiring legal training.

Accordingly

we continue to believe,

as stated in our report

Congress on the Review of Policies

and Procedures for Collecting

to the

Judgments,

DEPARTMENTOF JUSTICE

Fines, Penalties,

and Forfeitures,

Department of Justice

(B-153761, June 16,

1967), that, to improve the effectiveness

of the Department's

coliection

activities,

--a centralized

collection

activities-now

unit should be established

to perform

performed by each litigating

division,

--the centralized

collection

unit should also be given

bility

of reviewing

and evaluating

the effectiveness

efforts

performed by USA offices,

and

the

the responsiof collection

--centralization

should result

in a more economical utili;ation

personnel and should increase the effectiveness

of the collection

effort.

The House Committee on Government Operations recommended aIso that

consideration

be given to extending the IBM/mark-sense reporting

system to

reflect

postjudgment

collection

activities

in individual

cases.

In the

fall

of 1964, the Department took action to revise the system.: Our review

showed that the action taken was not effective,

because the reports issued

were not timely,

did not provide an accurate record of collection

activities,

and were not being used by six of the Department's

seven litigating

divisions.

Also, in inquiring

into actions taken on other recommendations of the

House Committee on Government Operations,

we found that (1) the Department

had decided to augment collection

activities

in the USAs' offices

rather

than to employ private.collection

agencies, (2) memoranda prepared: by the

USAs stating reasons for closing cases under $5,000 for uncollectibility

were not being evaluated by Department personnel,

and (3) actual amounts of

judgments written

off for uncollectibility

were not being reported to the

Treasury Department and to the Bureau of the Budget.

In accordance with

another recommendation of the Committee, the Department has included in its

statement of accounting principles

and standards,

which was approved by the

Comptroller

General on May 29, 1969, provisions

for general ledger controls

for all claims and judgments outstanding.

(~-153761, Aug. 18, 1969.)

DEPARTMENTOF LABOR

Contents

Page

BUREAU OF EMPLOYEES‘ COMPENSATION

Opportunities

for reducing costs of hospitalization,

medical

services,

and drugs provided to Federal employees for jobrelated disablements

MANPOWERADMINISTRATION

Improvements needed in contracting

for

the Manpower Development and Training

on-the-job

training

Act of 1962

under

DEPARTMENTOF LABOR

BUREAU OF EMRLOKEESPCOMPENSATIOX

Opportunities

for reducing costs of

hospitalization,

medical services,

and

drugs provided to Federal employees for

tab-related

disablements

Our review at four of the 10 district

offices

of the Bureau of Employefforts

ees' Compensation (BEC) showed that BEC had not made substantial

available

Federal medical facilities

for the treatment of

use less costly,

We estimated that annual savings of about

disabled Federal employees.

$120,000 would have been possible at just one of the Bureau's 10 districts

facilities

had been used for treating

one

if Federal, rather than private,

common type of disablement requiring

hospitalization.

Also, BEC had not adopted an official

medical fee schedule for use by

the district

offices'

voucher examiners in evaluating

the reasonableness

bills

submitted by private physicians

for their services.

Significant

difservices,

ferences were noted in physicians V fees paid by BEC for certain

although the ailments or conditions

shown on the physicians9

bills

were the

same and the bills

did not show that any additional

services-had

been performed which would have justified

the higher fees charged.

In addition,

we found that BEC's voucher examiners were approving disabled Federal employeesg claims for reimbursement of drug costs without requiring

sufficient

descriptive

information,to

evaluate the reasonableness

the claims.

In January 1969, BEC issued instructions

reminding its personnel of

their responsibilities

to make every effort

to use Veterans Administration

and Department of Defense medical facilities

in appropriate

cases and to

determine whether medical fees are reasonable before authorizing

payment,

The Department of Labor advised us that local fee schedules,

generally

based on Blue Cross and Blue Shield rates, would be established

and used for

determining

the reasonableness of medical fees and, where significantly

higher fees are warranted by special circumstances,

written

justifications

would be required.

The Department of Labor disagreed withour proposal regarding the need

to obtain descriptive

information

necessary to determine the reasonableness

of prescription

drug costs.

The cost, such as salaries

of BEC personnel,

of obtaining

such information

was considered by BEC to far outweigh the

advantages to be derived from the proposed information.

We recommended

that the Secretary of Labor direct

BEC to consider using statisticalsampling techniques to strengthen control

over amounts paid for prescripSuch sampling, in our opinion,

tion drugs.

would not require additional

staff.

(B-157593, May 29, 1969.)

DEPARTMENTOF LABOR

MANPOWERADMINISTRATION

Improvements need in contracting

for

under the

on-the- job training

Manpower Development and Training Act of 1962

In a report submitted to the Congress in November 1968, we pointed out

that certain

contracts

awarded by the Department of Labor to private

firms,

principally

in the Los Angeles County area of California,

to conduct onthe-job

(OJT) training

for disadvantaged

and hard-core unemployed had served

primarily

to reimburse the employers for OJT which they apparently

would

have conducted even without the Government's financial

assistance.

These

contracts

were awarded even though the intent of the contracts

was to in+duce new or additional

training

efforts

beyond those usually carried out.

We found that the Department of Labor had not developed adequate

guidelines

and procedures for its field personnel in implementing

the

"maintenance-of-effort"

clause which is included in every OJT contract

ensure that the contractor's

previous training

efforts

are maintained at no

cost to the Government.

Prior to awarding the contracts,

the Department of

Labor did not ascertain

either the number of employees normally trained by

the employers or their training

costs.

In addition,

we found that (1) the Department had not established

istandards and guidelines

for governing the length of training

to be given

'in the various occupations

that the Government would support under the OJT

contracts,

(2) there was a need for better coordination

of the OJT program

‘in the Los Angeles County area because contracts

were being promoted, de,veloped, and administered

independently

by different

organizations

on behalf

of the Department of Labor, and (3) the programs could be operated more

efficiently

and economically

through greater use of fixed-price

contracts

instead of cost-reimbursement

contracts.

We recommended that the Secretary of Labor prescribe

appropriate

procedures for use by the contracting

officials

in determining

levels of prior

training

effort

and in establishing

the costs to be reimbursed under OJT

we suggested that the Department take steps to es,

contracts.

In addition,

tablish

reasonably uniform standards and guidelines

governing the length of

training

the Government should support for particular

occupations under OJT

contracts,

establish

appropriate

procedures to properly coordinate

the development and administration

of OJT contracts,

and develop a policy to require the use of fixed-price

contracts

where appropriate.

The Secretary of Labor agreed with most of our findings

and pointed

out corrective

actions that had been planned or taken.

The Secretary questioned, however, whether the Department should engage in a costly administrative

process to determine compliance with the maintenance-of-effort

clauses of the contracts

in the absence of a statutory

requirement

therefor.

In our opinion,

the Department's policy of including

maintenance-ofeffort

clauses in all OJT contracts

was formulated

as an interpretation

,legislative

intent,

and we questioned whether any substantive

change of

DEPARTMENTOF LABOR

MANPOWERADMINISTRATION (continued)

policy regarding the maintenance-of-effort

concept was proper without first

obtaining

congressional

approval.

We therefore--urged

that the Secretary of

Labor take corrective

action in accordance with our recommendation on this

issue.

(B-146879, Nov. 26, 1968.)

DEPARTMENTOF STATE

Contents

Page

Need for a more systematic

method of objectively

evaluating

the activities

of the East-West Center

Need for information

for assessing programs of the Organization

American States

Information

furnished was inadequate for ready and firm assessments

of UNICEF projects

Need to improve management and control over nonexpendable property

at foreign posts

Improvements needed in the management of Government owned and

leased real property overseas

Need for a more effective

internal

audit function

Need to improve controls

over utilization

of computer and security

and integrity

of ADP programs and related documentation

DEPARTMENTOF STATE

Need for a more systematic

method of

objectively

evaluating

the activities

of the East-West Center

In a May 1969 report to the Congress, we stated that there was a need

for a more systematic

method of making objectively

based evaluations

the effectiveness

of the various activities

of the Center for Cultural

and

Technical

Interchange between East and West, which is located on the camCenter officials

were aware of this need

pus of the University

of Hawaii.

The purpose of

and were taking steps to establish

evaluation

procedures.

by a grant-in-aid

agreement between the

the Center, which was established

Department of State and the University

of Hawaii pursuant to the Mutual

promote

better

relations

and understanding

beSecurity Act of 1960,

tween the United States and the nations of Asia and the Pacific

through

cooperative

study, training,

and research.

We found that there was not a master plan which would indicate

the

location

of proposed future facilities

and prospective

sites of additional

land that would be made available

to the Center.

Because of an increasing

scarcity

of land resulting

from the expansion of the university,

a need

exists to identify

the long-range land requirements

of the Center.

Under the grant agreement, the university

is primarily

responsible

for the operation of the Center.

It does not, in practice,

play a role in

,the formulation

of Center policy or in the decisionmaking

process at the

This situation

did not apCenter commensurate with that responsibility.

pear to affect

the ability

of the Center to achieve its objective

in a

satisfactory

manner.

We recommended that

the Secretary

of State

should:

--Take the necessary steps to ensure that goals are defined and that

evaluations

are made of the effectiveness

of Center activities

order that the Department and the Congress may have a sound basis

for assessing the exten t to which the statutory

purposes are being

attained.

--Work with the various organizations

concerned to develop a tentative long-range land-use plan for the Center, acceptable

to both

the Department and the university,

with emphasis on establishing

the location

of prospective

facilities

on land provided under the

existing

agreement and on identifying

the possible future needs for

additional

land.

--Consider

revising

the grant-in-aid

reflect

the actual responsibility

university

over Center operations.

agreement with the university

and consequent authority

of the

The university

concurred that there was a need for the development of

a long-range plan for the future expansion of the Center and that additional

land should be made available

as needed. The Department of State

pointed to the provision

for land in the grant agreement and the commitment of the universit>

to make additional

land available

as needed.

7.5

DEPARTMENTOF STATE

The State Department felt that it was unnecessary to revise the grant

agreement in view of the close working relationship

that existed between

This position

was supported by the univerthe Center and the university.

the nasity which believed that the agreement should not be revised until

ture of the relationship,

which is still

changing, became more clear.

(B-154135, May 20, 1969.)

Need for information

of the Organization

for assessing programs

of American States

In April 1969 we reported to the Congress on our review of the Departicipation

in the

partment of State's administration

of U.S. financial

Organization

of American States (OAS).

The United States, like each of the 22 OAS members, has one vote in

the OAS governing body which reviews and approves the annual OAS programs

and budgets formulated

and proposed by the OAS secretariat--the

Pan American Union (PAU).

We found that U.S. representatives

to the OAS governing body had not

*obtained from PAU the information

which was necessary for assessing

whether OAS programs were consistent

with U.S. objectives

to the extent

deemed warranted by the level of U.S. contributions,

which had been established at 66 percent of all members' contributions.

Because of the

ichronic

arrearages of other members, in reality

U.S. contributions

during

the. last 4 years were $10 million

more than they would have been if the

established

66:34 ratio had been maintained.

U.S. contributions

were also somewhat greater than they should have

been because the method used by PAU to reimburse its American citizen

employees for Federal income taxes resulted

in some employees' being reimbursed more than they actually

paid in taxes.

The United States financed

the entire reimbursement.

We found also that the Department of State, other member States, or

PAU management authorities

did not actively

seek resolution

of the recognized long-standing

problems in PAU's financial

and personnel administration.

In commenting on a draft of our report,

the Department of State

pointed out a number of recent actions aimed at obtaining

better information on OAS activities

and improving PAU's administration

and the Department's efforts

to accelerate

quota payments by other members. Also, it

pointed out action it had recently

initiated

to preclude excessive Federal

income tax reimbursements

by PAU.

These actions cited by the Department should pave the way for better

information

on OAS activities

and for improved PAU administration.

We believe,

however, that the Department should work more effectively

with

other member states and PAU management authorities

to promote correction

of the indicated

problems.

(B-165850, Apr. 9, 1969.)

DEPARTMENTOF STATE

information

furnished

and firm assessments

was inadequate for

of UNICEF projects

ready

In a report to the Congress in July 1969, we pointed out that procefor analyzing proposed projects

of the

dures employed by U.S. officials

United Nations Children's

Fund (UNICEF) had to be abandoned in 1968 because UNICEF, over the objections

of the Department of State, discontinued

previous arrangements for providing

the United States with the information

on which the analyses were made. Proposed alternative

arrangements which

to make future analyses are uncertain.

would allow U.S. officials

Although a body of knowledge regarding the general content and direction of UNICEF programs could have been acquired from an analysis

of docu' mentation made available

by UNICEF, it was not sufficient

to permit ready

and firm assessments relative

to actual implementation

of projects.

The United States and the United Nations recognized the need for, and

have recently

initiated,

some independent evaluations

of UNICEF projects.

We felt,

however, that the current evaluations

were insufficient

in scope

and coverage for officials

to make independent judgments relative

to the

efficiency

and effectiveness

of UNICEF operations

and to provide a basis

for encouraging action by UNICEF to resolve indicated

problems.

We recommended that

considered appropriate,

the Department

of State,

by whatever

means it

--obtain

necessary information

on and make analyses of proposed

UNICEF projects

so that it could make more informed judgments relative to continued support of UNICEF activities,

--elicit

and

from UNICEF more complete

and meaningful

operational

data,

--work out an arrangement whereby U.S. overseas posts would make selective

periodic

evaluations

of UNICEF projects

until

means for internationally

constituted

evaluations

were developed.

The Department of State advised us that it was arranging with the

UNICEF Secretariat

to provide more complete operational

data.

These arrangements seem to be obscure and leave the decision up to UNICEF as to

the nature, scope, and form of information

to be furnished.

We felt that

the Department should be assured that the information

to be furnished

adequate for it to make assessments on the implementation

of UNICEF projects.

The Department advised us also that it performed evaluations

in connection with its annual reviews of proposed projects.

Since UNICEF, in

1968, discontinued

the previous arrangements for furnishing

the information

from which these reviews were being made,.the opportunity

for adequate

evaluation

is dependent on the United States'

making future arrangements

with UNICEF. Moreover, we found little,

if any, evidence in connection

with the earlier

reviews of actual observation

of continuing

UNICEF projects by U.S. personnel--an

essential

element of evaluation.

DEPARTMENTOF STATE

We stated that the Congress might wish to review with the Department

of State the problems and issues dealt with in the report since they were

essentially

the same as those noted in our reviews of U.S. financial

participation

in the World Health Organization

(B-164031(2),

Jan. 9, 1969)

and in the Organization

of American States (B-165850, Apr. 9, 1969).

(~-166780, July 8, 1969.)

Need to_ improve management and control ov_er

nonexpendable property at foreign posts

In a report to the Congress in March 1969 on our review of the management of nonexpendable personal property by the Department of State at

we stated that there was a need for the Deselected overseas locations,

partment to improve its management and control

over nonexpendable personal

property located at foreign posts.

The specific

areas in which it was

noted that improvements were needed were:

--financial

control

over nonexpendable

--physical

inventory

taking,

--property

recordkeeping,

--physical

security

--identification

personal

property,

arrangements,

and disposition

of excess property,

and

--procurement.

In addition,

over this activity

we noted a need for

by the Department.

greater internal

audit

We recommended:

surveillance

--That, the Department develop and implement a satisfactory

property

accounting system that would meet the principles

and standards of

the Comptroller

General for property accounting as set forth in

2 GAO 12.5(c),

including

the basis for control over property.

--That

the Department bring our report to the attention

of the approforeign post officials

and instruct

them to review their

controls

and procedures applicable

to property management and report to the Department whether such controls

and procedures comply

with Department regulations.

priate

--That the Department establish

determine whether corrective

is actually

implemented.

appropriate

follow-up

procedures to

action promised by the foreign posts

--That detailed

and timely

site

audits be made of all

property management at overseas foreign posts.

aspects

--That either the funds advanced to foreign post employee associations

for procurement of .personal property be reimbursed or that the

property purchased be identified

as Government-owned property and

be included in the foreign posts' property inventory.

-DEPARTMENTOF STATE

Department of State officials

agreed, in general,

and recommendations and stated that corrective

actions

were planned.

with our findings

had been taken or

Subsequent to the issuance of our report,

the Department informed all

diplomatic

and consular posts by airgram dated March 25, 1969, of the

findings

and recommendations contained in our report and instructed

all

posts to review existing

controls

and procedures for nonexpendable personal

Department

property and take necessary action to ensure that prescribed

The Department also stated that its inregulations

were being followed.

ternal auditors

and Foreign Service Inspectors

would give special attention to control and management of nonexpendable personal property.

(B-165867, Mar. 12, 1969.)

Improvements needed in the management

of Government owned and leased

real property overseas_

In September 1969 we reported to the Congress on our review of the

Department of State's foreign buildings

program.

This review was undertaken to examine into the efficiency

and effectiveness

with which real

property--i.e.

sites and buildings-has been acquired and managed by the

Department of State at its overseas diplomatic

and consular establishments

and for certain

other Government agencies.

The Secretary of State has had the authority

to acquire real property

abroad since the passage of the Foreign Service Building

Act in 1926.

When title

cannot be acquired by purchase, authority

is granted to .permrt

acquisition

of leaseholds of not less than 10 years.

Leases for less than

10 years were authorized under separate legislation.

The Secretary is authorized

also to alter,

repair,

buildings..

The Office of Foreign Buildings

Operations

these responsibilities

for the Secretary.

and furnish

(FBO) carries

such

out

As of December 31, 1968, the Department reported that approximately

$2.72.6 million

was invested in 1,588 Government-owned and long-term leased

real properties

and that 4,752 properties

were short-term

leased at an annual rate of about $22.8 million.

We believe that a number of areas in the foreign

need improvement.

These include:

--management controls

--accumulation

but retained

buildings

program

not currently

required

designs

the construc-

over the program,

of Government-owned

for a remote future

--coordination

of the acquiring

tion program.

property

need,

of building

with

DEPARTMENTOF STATE

--management

--alterations

practices

over

,.- Government-owned

and improvements on short-term

property,

leased property,

--definitive

criteria

for capitalizing

alterations

Government-owned property;

;. I

--accurate

and informative

real property-records

--internal

audit

and improvements

and reports,

and

surveillance.

We made 14 recommendations to the Department, which, we believe,

strengthen the administration

and management of the foreign buildings

f gram.

may

pro:

Although actions have been initiated

or are planned by the Department

w& plan to review the effecto meet the objectives

of our recommendations,

tiveness of the actions taken at a later date,

Opportunities

exist at'several

locations

for substantial

savings in

leasing and building

operation

costs by disposing -of uneconomical properties and constructing

new buildings.

We reported this matter to the Congress so that it could consider the potential

savings and the related requirements for expending public funds in the light

of competing needs'for

' other programs.

Real properties

were acquired during fiscal

years 1963 through 1966 by

FBO which either were not presented to the congressional

authorization

com4 mittees for consideration

in authorizing

legislation

or for which co'sts

were substantially

in excess of the estimated costs originally

considered

by the committees.

We reported this matter so that the Congress would be aware of,'this

practice

and could consider it in deciding what degree of congressional

control

is desirable

over the Department's

building

program..

In commenting on a draft of our report,

the Department stated that our

review had made a constructive

and useful contribution

toward long-term improvement of the program and that actions on our recommendations.were

already in process or were planned,

(B-146782, Sept. 30, 1969.) -'

Need for

internal

a more effective

audit function

In 1969, we reported to the Congress on our review undertaken to evaluate the effectiveness

of the internal

audit function

at the Department of

State.

The report highlighted.

the need for the.internal

audit function

report directly

to the Department'.s top management in order to be of maximum value.

The other major findings

resulting

from our review were as fol;

lows:

DEPARTMENTOF STATE

--Organizational

placement of the internal

audit function

had the director of internal

audits reporting

to officials

who were responsible for the operations

that the auditors reviewed rather than to

the Department's

top management.

--Operating

funds for internal

auditing

were obtained from appropriations for various Department programs, and audit services were provided to organizations

responsible

for carrying

our those programs

in proportion

to the amount of funds provided.

Both of these methods of administration

could adversely

dependence and objectivity

of the auditors.

affect

the in-

--Internal

audits were directed primarily

toward housekeeping-type

financial functions

and not toward significant

programs and related

documents.

--Audit

reports

were not reaching

top management officials.

--Audit

recommendations were not being followed

ficiencies

were corrected.

up to ensure that

de-

We believe that the conditions

we found existed because Department

policy statements had the effect of restricting

audit coverage to financial

The Department

matters and because audit resources had been insufficient.

had not aggressively

recruited

and trained qualified

people for internal

audit, and constraints

on the scope of the internal

audit had been magnified by the application

of a large part of the limited

staff resources to

external audits of contracts,

grants, and institutions.

We further

the Department

to top officials

believe that our findings

reflected

a limited

concept by

of the value of a comprehensive,

independent internal

audit

as a means of achieving effective

program management.

We recommended that

the Secretary

of State:

--Establish

an entity

made up of internal

audit, contract

and grant

audit, and inspection

elements with a directing

official

at a level

at least equal to the highest officials

operationally

responsible

for activities

subject to audit.

Preferably,

that official

should

report directly

to the Secretary or Under Secretary;

however, if

this is impractical,

the official

should report to the Deputy Under

Secretary for Administration

and should have access to the Secretary

as needed. The Secretary should satisfy

himself regarding

independence, coverage, staffing,

and utilization

of results

of internal

audit.

--Broaden and refine

the internal

audit objectives

so the programming

approach, performance,

and reporting

can be more selective

and balanced in terms of covering the entire range of management responsibilities.

DEPARTMENTOF STATE

--Take necessary action 'to enable.greater

reliance

to be placed on contract and grant audi,ts'~by publicaccountants

and to arrange for maximum utiligation

of cross-servicing

audit facilities

of other Government agencies.

--Increase

efforts

to recruit

qualified-auditors,

provide for adequate

and direct

funding of.:the internal

audit activity,

and establish

practices

to ensure that audit recommendations are carried out.

We recommended also that-the

essary steps to establish-adequate

Director

of the audit function

take necwork plans and written

programs.

The Department, in its reply to our.draft

report,

stated that it would

take action to enable it to pilace greater reliance

on public accountants'

audits and to have more contract

a,nd grant audits performed by other agencies.

The Department also agreed -to establish

adequate work plans and

written

review programs.

The Department has not indicated

that it will

act on our other recommendations.

It asserted that it was already accomplishing

what was being

recommended; however, we hglieve that the Department's

reply did not present adequate evidence that it was accomplishing

what we recommended.

(B-160759, December 16, 1969.)

:Need to improve controls

of computer and security

ADP programs and related

over utilization

and integrity

documentation

Our review of the automatic data processing

(ADP) function

at the

State Department's

Regional Finance and Data Processing Center, Paris,

France, showed that there were internal

management control

system weaknesses

which enhanced the risk'of

unwarranted or unauthorized

use of ADP equipment

and endangered the security

and integrity

of the ADP programs and related

documentation.

The details

of our findings

and specific

recommendations

for strengthening

general management control

and communication processes

and for correcting

other deficiencies

were presented to the Deputy Under

Secretary for Administration

in a report issued in January 1968.

By letter

dated October 9, 1968, the Deputy Assistant

Secretary for

Budget furnished us with specific

comments on our report and indicated

that

certain recommendations with regard to controls

over utilization

of computers and security

and integrity

of ADP programs and related program documentation would be implemented.

In a June 30, 1969, letter

to us, the Department revealed that it had not, and probably would not, implement two of

the six recommendations we made concerning these matters.

Regarding our finding

that unsupervised

console operators had access

to ADP equipment and all documentation and materials

needed to operate the

computer for unauthorized

purposes, the Department stated that, in view of

a tight personnel ceiling

and because of its efforts

to reduce expenditures

overseas, it would not institute,

for all shifts,

a procedure we recommended that would require the issuance of programs, documentation,

and

tapes only for the period of time required for the execution of a routine.

DEPARTMENTOF STATE

The Department stated also that it had deferred the implementation

our recommendation to fireproof

the tape library

and the adjacent computer

room because of limitations

placed on expenditures.

Our report expressed

.concern that the lack of fireproofing

of those facilities

enhanced the danger of loss or destruction

of materials

and equipment applicable

to the ADP

operations.

(B-146703, Jan. 31, 1968.)

DEPARTMENTOF STATE

AGENCY FOR INTERNATIONAL DEVELOPMENT

Contents

Page

Questionable

recoverability

of economic assistance

loans

U.S. economic assistance

funds improperly used to finance vehicles

for defense requirements

Opportunity

for improving the administration

of the economic assistance program in Colombia

Need for improved management and administration

of the cost reduction program

DEPARTMENTOF STATE

AGENCY FOR INTERNATIONAL -DEVELOPMENT

Questionable

recoverability

economic assistance

loans

In September 1969, we reported to the Congress the status of the loan

program financial

activities

of the Agency for International

Development

an analysis

of AID's

(AID) as of June 30, 1968. The report is primarily

recorded economic assistance

lending activities

during the 4 years subsequent to fiscal

year 1964--the last year covered by our prior report on the

loan program.

to the trends of AID's lending activWe called the Congress' attention

ities,

which, in our opinion, made it clear that the furnishing

of economic

assistance

in the form of loans repayable in dollars

did not ensure that

the funds would be recovered.

The Congress placed increased emphasis on

ultimately

recovering

assistance

funds with the passage of the Foreign Assistance Act of 1961. This act not only emphasizes the furnishing

of economic assistance

in the form of loans which are required

to be based on a

finding

of reasonable prospects of repayment but also requires that the

loans be repaid in dollars.

We found that AID's lending had been shifted

to loans repayable in

dollars

but that the dollar

loans were concentrated

in countries

where AID

also had incurred significant

exchange-rate

losses on foreign currency

loans.

At June 30, 1968, 70 percent of all the outstanding

loan balances

were owed by borrowers in 14 countries

whose reduced currency values had

resulted

in 97 percent of the exchange-rate

losses on loans during the preceding 4 years.

We stated our opinion that this concentration

of loans was sufficient

reason for reaffirming

our previously

reported conclusion

that the realizable value of the loans was undeterminable.

We also concluded that the ultimate

recoverability

depend primarily

on the future debt repayment capacities

of the loans would

of the borrowers.

We did not obtain written

comments from AID on this report;

however,

verbal comments made by AID officials

during discussions

with our representatives

were considered and incorporated

in the report as appropriate.

general,

they agreed with our conclusions

but held that, with respect to

the realizable

value of loans and loan recoverability

prospects,

the relationship

between AID and borrowers was not unique and that the same situations existed in all lending programs--Government,

institutional,

or private.

(B-133220, Sept. 11, 1969.)

U.S. economic assistance

funds

improperly

used to finance vehicles

defense requirements

In September

the administration

for

1969, we reported to the Congress on our examination

into

by the Agency for International

Development (AID) of

DEPARTMENTOF STATE

AGENCYFOR ~INTERNATIONAL DEVELCPMENT

-. -._' i,

-'. -:

,/' ._._

selected aspects of commodity import financing

for India.

Since separate

appropriations

are provided for economic development and military

assistance under the Foreign Assistance

Act of 1961, our review sought to determine whether appropriations

for economic development were being used by AID

to finance items directly

.for, or :on behalf of, India's

military,

__,

We reported that abcut $8.6 million-of

AID's economic development appropriations-provided

to -the Government of India (GOI) had been used to

fill

an order from the GO1 Ministry

of Defense for components and parts-i.e.,

knockdown kits-- for l-ton four-wheel-drive

trucks,

known as power

wagons, and for other types of trucks.

The financing

by AID of such items--imported

primarily

in 1963 and

1964--was approved by the AID Mission in India in July 1968 with AID/Washington concurrence,

after AID Mission auditors had reported that the items

were imported under AID loans.

A Mission audit report issued in March 1968 maintained

that the commodities

imported were ineligible

for AID financing

and suggested that a claim

for refund be filed

against GOI. The Acting Mission Director

stated in

July 1968 that no direct delivery

had been made to the military

and that

the commodities at issue were not inherently

"military

type" and were suitable for nonmilitary

use. He determined that the commodities should not be

considered ineligible

and that therefore

it was not necessary or appropriate

to file

a refund claim against GOI.

We believe that these items are, in essence, military

assistance

and

therefore

are not legally

available

for financing

from economic assistance

appropriations.

Consequently,

AID should reconsider

its decision not to

seek refund.

AID's general policy

is that economic assistance

funds are not intended to finance materials

directly

for the account of, or on behalf of,

the defense establishment.

AID has stated that identification

in import

documents of users of commodities-is

pertinent

to this intent,

and AID has

sought refund in cases having similar

characteristics.

Therefore we believe that for AID to construe the exclusion

military-type

vehicles,

components, and parts as pertaining

only to those

items which are inherently

military

indicates

a need to reconsider

its existing

policy intent.

We recommended that the Administrator,

AID, direct

a reexamination

AID's guidelines

for the purpose of reiterating

or amplifying

its intent in

loan agreements and supporting

documents, so that the country,

supplier,

and responsible

AID officials

will be in a better ,position

to implement

this intent.

ation

We recommended also that the Administrator,

of the decision not-to,seek

refund in this

AID, require a reconsiderparticular

case.

DEPARTMENTOF STATE

AGENCY FOR INTERNATIONAL DEVELOPMENT

In commenting on a draft of our report,

conclusions

and recommendations.

(B-167196,

Opportunity

for improving

of the economic assistance

AID did not concur with

Sept. 18, 1969.)

our

the administration

propram in Colombia

At the request of the Chairman of the Foreign Relations

Committee,

U.S. Senate, we reviewed the administration

and management by the Agency

for International

Development (AID) of its economic assistance

program for

nonproject

purposes in Colombia and submitted our report to the Comnittee

financed imports in support of Colomin July 1968. Nonproject assistance

bia's development program without tying these imports to specific

projects.

Project assistance

has been directed

to individual

capital

projects

technical

assistance.

Economic assistance

to Colombia from all sources

from 1946 through December 1967 totaled $1.6 billion.

Of this amount,

$430 million

was provided by AID, 91 percent of which was made available

during the Alliance

for Progress.

AID's program in Colombia is its third

largest

in Latin America.

Our review showed that Colombia's aggregate economic and social progress during the first

5 years of the Alliance

for Progress (1962-66) was

less than AID and Alliance

goals.

During the Alliance,

AID has not made

systematic

or substantive

evaluations

of Colombia's progress and performance in many areas.

There has been a serious lack of basic data in Colombia, and no substantial

progress has been made during the Alliance

toward

developing a system for timely gathering

and assessing basic data.

In Colombia, AID:

--Did not develop a system for accumulating

prior

plication

in developing its future strategy.

experience

--Was not explicit

targets.

in its

--Did not tailor

performance.

or definite,

its

level

in many instances,

of assistance

to specific

levels

for

ap-

goals

and

of country

AID made no independent overall

review of the adequacy and effectiveness

AID strategy

for achieving U.S. and Alliance

developmental

objectives

Colombia.

Accordingly,

we proposed that the Administrator,

AID, take the

actions necessary to:

1. Ensure that substantive

evaluations

are made on a systematic

basis

of Colombia's performance and progress in each key area affecting

its economic and social development.

2. Develop alternative

lored to specific

annual levels of assistance

for Colombia

levels of Colombian performance.

tai-

~DRPARN

OF STATE

AGENCY FOR INTERNATIONAL DEVELOPMENT

3. Develop a method of increment&

funding'whereby

the release

assistance

is conditioned

on, and proportionate

to, specific

provements in Colombian performance.

of AID

im-

4. Require that the overall

effectiveness

of AID assistance

strategy

in Colombia be reviewed at appropriate

intervals

by knowledgeable

internal

or external officials

who have no responsibility

for management of the program.

AID did not agree with our proposals that substantive

evaluations

were

needed in many areas and that AID should develop alternative

annual levels

of assistance

for Colombia tailored

to specific

levels of Colombian perforthat substantive

evaluations

already had been

mance. AID took the position

carried out.

We did not agree that they had been carried out,.and we

pointed out a great number of areas where they had not been:

-p

"0.

Furthermore,

we believe that AID has not developed an annual level of

assistance

for Colombia tailored

to specific

levels of Colombian performance ,. as previously

discussed.

AID's failure

to do so, in our opinion,

-contrary

not only to its own stated policy and public pronouncements but

a1s.o to prudent management and thus deserves reappraisal.

Because of the fundamental importance of these two matters to the effectiveness

of the AID program in Colombia, we highlighted

these matters

fdr the Committee's

further

consideration.

(B-161798;July

8, 1968.)

Need for improved manapement and administration

of the cost reduction

pro&ram

We reviewed the Cost Reduction-and Management Improvement Program of

the Agency for .International

Development (AID), to determine the status of

implementation

of the program and to identify

areas where the program might

be improved.

We found that (1) AID had adopted a low-keyed approach to the program,

devoting a minimum of manpower and other resources to it, (2) the programs

.in fiscal

years 1967 and 1968 were geared primarily

to compiling material

suitable

for inclusion

in the required semiannual reports to the President

and only incidentally

to fostering

a sense of cost consciousness

throughout

(3) support for the program by top management was lackthe organization,

ing; some officials

expressed a negative attitude

toward it, and (4) the

program was not being promoted actively-and

therefore

resulted

in limited

It was our view that programs such as the

participation

by AID personnel.

cost reduction

program must have the full

support of top management and the

..broad participation

of AID personnel in order to be successful.

Accordingly,

'in our April 1969 report to the Administrator,

AID, we

recommended that (1) the program be redirected

so that it serves not only

as a reporting

medium for cost reduction

actions but, more importantly,

also as a means to stimulate

and encourage a sense of cost consciousness

DEPARTMENT OF STATE

AGENCY FOR INTERNATIONAL DEVELOPMENT

within AID, (2) top management demonstrate full

support for the program and

be more actively

involved in it, possibly

through the establishment

of a

cost reduction

committee at the assistant

administrator

level,

(3) the program be actively

promoted and publicized

throughout the year, and (4) certain internal

guidelines

governing the program be revised and othersbe more

These guidelines.

concern the criteria

for reportable

closely adhered to.

cost reductions,

reporting

requirements,

review and validation

of savings,

and dissemination

of cost reduction

information.

In July 1969, we were advised by AID that it disagreed with our overall evaluation

of its program on the basis that, in its view, due consideration had not been given to the situation

AID was in at the time of our review.

Factors mentioned by AID included a reduction

in force in Washington,

cuts in overseas staff under the President's

balance-of-payments

exercise,

and a record low in appropriations.

AID stated that in its view it was understandable

that, in such a period,

the formal requirements

of, and the

orderly long-range planning involved in, the cost reduction program received less emphasis and enthusiasm than in times past.

AID advised us also, that it was its understanding

that the Bureau of

the Budget was planning to revise the directive

governing the program and

that AID did not plan to review the presently

constituted

program or to revise its regulations

until

guidance was received from the Bureau of the

Budget.

Notwithstanding

any unsettling

effect of the cutbacks in AID's staffing and funding, we do not agree that these factors should have had a detrimental

effect on the cost reduction program.

It appears to us that, in a

period of budgetary stringencies

such as AID and other Federal agencies had

experienced in the past 2 years, the searching for techniques to carry out

programs and projects

at lower costs would be intensified.

We therefore

believe that our evaluation

of AID's program was a fair one and that AID

should initiate

measures to upgrade and improve its program along the lines

outlined

in our recommendations.

(B-163762, Apr. 21, 1969.)

DEPARTMENTOF TRANSPORTATIGN

Contents

Page

FEDERAL AVIATION ADMINISTRATION

Need to increase reimbursement rates to recover costs of flight

inspection

services furnished

to foreign countries

Proposed schedule of fees for certifying

aircraft,

aircraft

components, airmen, and others should be based on current and adequate data

FEDERAL HIGHWAYADMINISTRATION

Problems arising

from the manner and extent to which Federal

funds are granted for State highway safety programs

UNITED STATES COAST GUARD

Potential

savings available

through use of civilians

military

personnel in billets

essentially

civilian

101 :

in lieu of

in nature

101

DEPARTMENTOF TRANSPORTATION

FEDERAL AVIATION ADMINISTRATION

Need to increase reimbursement rates to

recover costs of flight

inspection

services

furnished

to foreign countries

In a report dated September 18, 1968, we pointed out that reimbursement

rates established

by the Federal Aviation

Administration

(FAA) for flight

inspection

services provided to foreign countries

in the European Region

were not sufficient

to fully

recover the costs of providing

such services.

We estimated that operating

costs of about $375,000 had not been recovered

because certain

during the 3-year period ended June 30, 1967, primarily

costs had been excluded from the cost base used in establishing

the rates.

but it was not practicable

to comIn addition,

other costs were omitted,

pute their amount.

Charging insufficient

rates is contrary to the provisions

of title

of the Independent Offices Appropriation

Act, 1952 (31 U.S.C. 483a), and

the Bureau of the Budgetqs policy for implementing

the statute as expressed

in its Circular

No. A-25, dated September 23, 1959.

FAA's practices

pertinent

to its implementation

of Circular

No, A-25

were also the subject of a report (B-133127, March 26, 1964), issued by

this Office to the Congress, in which.we recommended that FAA establish

procedures that would result

in full

recovery of costs in providing

services, as required by law and by Bureau of the Budget (BOB) policy.

Although FAA did not concur in our recommendation,

it was suggested

during hearings before the Subcommittee on Independent Offices of the House

Committee on Appropriations

in February 1964 that FAA adhere to our recommendation.

FAA then notified

BOB in June 1964 that appropriate

instructions would be issued promptly to clarify

this policy for all elements of

FAA.

As a result of this decision,

FAA issued a policy directive

in March

1965, providing

for full recovery of costs as required by Circular

No. A-25.

However, although the rates were revised upward, the increases were still

not sufficient

to fully

recover the costs of providing

the services.

In discussing

this matter with FAA headquarters

officials,

we were advised that FAA did not consider those costs that were excluded as being

properly chargeable to reimbursable

flight

inspection

services.

Among the

excluded costs were the group chief's

salary and group overhead.

Also excluded were indirect

costs, such as depreciation

of buildings

and equipment, interest

on the Government's inv&stment,

and a proportionate

share of

management and supervision

costs.

Because reimbursable

flight

inspections

constitute

only about 10 percent of al.. flight

inspection

work in the European Region, the excluded costs, in Flags view, will be incurred regardless

of whether any reimbursable

flight

inspection

work is performed.

isting

In response to our inquiries,

FAA officials

acknowledged that the expractices

were not in conformity

with either FAA's stated policy or

DEPARTMENT

OF TRANSPORTATION

,FEDERAL AVIATION ADMINISTRATION

(continued)

the notice of June 8, 1964, to the Bureau of the Budget and that PAA's basis

for assessing reimbursement charges was notsubstantially

different

from

what it had been previously.

-- :.'. t-.

Therefore we proposed that the FAA Administrator

directthat

reimbursement rates for flighk' inspection

services' furnished

to foreign countries be intireased SO that full

costs thereof would be recovered., as required by law, Circular

No. A-25, and FAA's stated policy,

In a letter

dated March 25, i968, the FAA Administrator

expressed

stating

that the agency had initiated

a review

agreement with our probosal,

to establish

reimbursement rates for flight

inspection

services -furnished

to foreign countries

in accordance with statutes,

BOB circulars,

and agency

policpes.

In January 1969, FAA revised its flight

inspection

rates to include the

Federal salary increases which became effective

in July 1968. Further,

the

order which transmitted

the revised rates stated that the matter of overand interest

on the Government's inof aircraft,

head costs, depreciation

vestment was being studied and that these additional

costs were expected to

be incorporated

into the rate structure

at a later date.

Our follow-up

of this matter in August 1969 showed that a report on

the study had not yet been completed and that, consequently,

a,decision

inspection

rate

regarding the inclusion

of indirect

costs in the flight

(B-164497(1) Sept. 18, 1968.)

structure

had not yet been reached.

'Proposed schedule of fees for certifying

aircraft,

aircraft

components, airmen, and others

should be based on current and adequate data

Our review of the supporting data for a schedule of proposed fees

to be charged by FAA for the partial

recovery of costs incurred in issuing

certificates

which attest'to

the airworthiness

of aircraft

and aircraft

components and the competency of airmen, air agencies, and air carrier

and commercial operators showed that the cost data used in establishing

the

fees was obsolete and that the man-hour data, to-a great extent,

lacked a

basis from which an independent determination

of reasonableness

could be

made.

FAA's effort

to:establish

fees for certification

services was made in

accordance with the President's

message to the Congress on the budget for

fiscal

year 1966, whkh recommended,implementation

of user charges in Government programs.

We.had 'previously

reported to the Congress (B-133127,

tirch

26, 1964) -that FAA did not,assess

charges for certification

services,

and we recommended that-fees

,be established

in accordance with BOB Circular

No. A-25, which sets forth .general guidance -for the-establishment

of user

, ',;

charges.

DEPARTMENTOF TRANSPORTATION

FEDERAL AVIATION ADMINISTRATION (continued)

on the

In establishing

the proposed fees, FAA based its computations

certifipremise that only 50 percent of the costs incurred in performing

The decision to recover only 50 percation services should be recovered.

cent of costs was based on the fact that FAA considered 50 percent of the

costs as being attributable

to providing

special benefits

to the recipients; the remaining costs were considered as being incurred in the public

interest

(i.e.,

air safety).

FAA estimated that the proposed fees would result

in revenues totaling

about $4.7 million

a year.

On the basis of total costs initially

allocated

which were based on fiscal

year 1966

by FAA to the certification

services,

budget data, we estimated that the proposed fees would result in the recovery of about 33 percent of the total costs involved.

The schedule of proposed fees was approved by the Director,

BOB, in

incorporating

this fee schedApril 1966. A notice of proposed rulemaking,

ule, was published

in the Federal Register in April

1967. With one exception,

relative

to import products,

the schedule would have provided a

fixed fee for each certificate

or permit issued.

However, up to December

1968, fees had not been assessed.

In view of the fact that the cost data used in establishing

the fees

was obsolete and that the man-hour data, to'a great extent,

lacked a basis

from which an independent determination

of reasonableness

could be made,

we proposed to the Department of Transportation

in December 1968 that the

implementation

of the proposed fees for FAA certification

services be deferred until

FAA had made an adequate in-depth study to determine the costs

of performing

the certification

services.

We stated that this study should

give consideration

to the total costs (direct

and indirect)

incurred in

furnishing

certification

services and should provide full disclosure

of the

basis for, and the amount of, costs which FAA considers as being incurred

in the public interest.

We stated also that the in-depth study should be

given priority

and should not serve as a basis for further

delaying the

assessment of fees which has been pending since April 1966.

-I

We proposed also that consideration

be given to charging fees, espe.

cially

for certificates

issued to aircraft

manufacturers,

based on a fixed

rate for each man-hour spent in performing

the certification

service.

Fees

established

on this basis would be reasonably consistent

with the amount of

work required to issue the certificates.

By letter

dated April

14, 1969, the Assistant

Secretary of Administration,

Department of Transportation,

stated that a study, as proposed by

new fees, the determinaus, would be made and that, prior to establishing

tion of, and the rationale

for, that portion of the certification

costs

which are subject to recovery would be fully

documented.

In addition,

the

Assistant

Secretary informed us that the Department would consider the desirability

of establishing

variable

fees based upon man-hours spent in performing the certification

services.

(B-133127, June 26, 1969.)

DEPARTMENTOF TRANSPORTATION

FEDERAL HIGHWAYADMINISTRATION

Problems arising

from the manner and

extent to which Federal funds are

granted for State highway safety proprams

The policy established

by the Federal Highway Administration

(FRWA) for

Federal participation

in the cost of State highway safety activities

permits

the States to use the cost of their on-going safety activities

to match Federal funds made available

for additional

safety efforts

undertaken pursuant

to the Highway Safety Act of 1966. We believe that this policy may not be

consistent

with the intent of the Congress because the legislative

history

of the enabling legislation

indicates

to us that the Federal funds are to be

used to assist the States by sharing proportionately

with them in the cost

of additional

safety efforts.

Further,

we believe that FHWA is administering

the program inequitably

noted

that,

result

FHWA's policy,

some

among the various States.

States were obtaining

full reimbursement for the cost of federally

approved

additional

highway safety activities

undertaken and that other States were

sharing in the cost of such activities.

We recommended to the Secretary of Transportation

that FHWA revise its

policy to ensure that the matching of Federal and State funds be applied to

the cost of additional

safety efforts

and that the practice

of using expenditures

for existing

State activities

to match Federal funds be discontinued.

The Department of Transportation

disagreed with our interpretation

Basithe enabling legislation

and declined to accept our recommendation.

cally,

the Department believes that the intent of the Congress was to permit the States to match the available

Federal funds with expenditures

for

on-going safety activities

of the States.

We do not believe that either

the enabling legislation

or the legislative

history

supports the Department's position.

We suggested to the Congress that it may wish to consider providing

whatever additional

guidance it deems necessary to clarify

its intent with

respect to the manner and extent to which Federal funds are to be used for

funding State highway safety programs.

(~-165355, June 19, 1969.)

DEPARTMENTOF TRANSPORTATION

UNITED STATES COAST GUARD

Potential

savings available

through

use of civilians

in lieu of military

personnel in billets

essentially

civilian

in nature

In a report to the Congress, dated May 1969, we concluded that, although the Coast Guard had converted many

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