# COMF’TROLLER

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## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

COMF’TROLLER

GENERAL
WASHINGTON.

OF

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
or
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
we
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
of
this
report,
we
are
sending
to
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

1
3
5
7
9
13

Service

15
17

.

DEPARTMENTOF THE ARMY
Corps of Engineers (Civil

.

DEPARTMENTOF COMMERCE
Economic Development Administration

19
21

DEPARTMENTOF HEALTH, EDUCATION, AND WELFARE
Office of the Secretary
National
Institutes
of Health
Office of Education
Social and Rehabilitation
Service
Social Security Administration

23
25
29
33
35
39

DEPARTMENTOF HOUSING AND URBAN DEVELOPMENT
Federal Housing Administration
Housing Assistance Administration
Renewal Assistance
Administration

41
43
47
49

Functions)

DEPARTMENTOF THE INTERIOR
Bureau of Commercial Fisheries
Wildlife
Bureau of Indian Affairs
Bureau of Reclamation
Geological
Survey

.

53
and Bureau-of

Sport Fisheries

and
55
57
59
61

DEPARTMENTOF JUSTICE

63

DEPARTMENTOF LABOR
Bureau of Employees' Compensation
Manpower Administration

67
69
71

DEPARTMENTOF STATE

73

DEPARTMENTOF STATE, AGENCYFOR INTERNATIONAL DEVELOPMENT

85

DEPARTMENTOF TRANSPORTATION
Federal Aviation
Administration
Federal Highway Administration
United States Coast Guard

93
95
99
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

?

l

149
161
165
167
169

.

DEPARTMENT OF AGRICULTURE
Contents

Page
AGRICULTURAL RESEARCH SERVICE
Need to resolve questions
of safety
uses of lindane pesticide
pellets

3
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

5
and

5

7
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

3

9
10
13

the effectiveness

of the Conserva-

13

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
a
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
US
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.)

3

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.

P

.

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
at
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
in
federally
inspected plants should be continued as a permanent part of the
enforcement program so as to provide adequate protection
to the consuming
public.

7

.

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
to
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.)

8

DEPARTMENTOF AGRICULTURE
FARMERSHOMEADMINISTRATION
Need for Farmers Home Administration
to
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.

m

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.

I

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.)

1

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.

9

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.

1

.

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
is
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
to
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
.
:

.

1

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.)

11

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

if

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

15

I.7
fee title

to land
17

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
17

'
,.--

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
to
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.)

"
.

18

DEPARTMENTOF COMMERCE
Contents
Paae
ECONOMICDEVELOPMENTADMINISTRATION
Need for improvement in determining

amounts of supplemental

19

grants

22
22

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.
We
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)

22

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

25

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

29

26
27

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
of
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

23

25

29
30
33
33
33
35
35
-36
39
39
39

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
of
needs, and (4) inadequate and untimely
surveillance
over implementation
of
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
to
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
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.

+
A

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.

26

+

s

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.)
;

3.

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
of
more effective
supervision
of payroll
activities.

l

*

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.

27

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
of
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
in
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.

29

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
related
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

30

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.)

31
I

_

.._.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
in
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
as

33

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
be
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.)

34

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
of
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
of
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.

35

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
of
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
to
the costs allocable
to the federally
aided programs.

36

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
to
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
of
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
39

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
a
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),

it

would follow up in accordance
June 30, 1969.)

40

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
of
mortgage insurance premiums monthly rather than annually
Opportunity
to reduce reacquisitions
by changing method of selecting
purchasers of properties
sold by FHA

43
43

HOUSING ASSISTANCE ADMINISTRATION
Need to clarify
statutory
provisions
community and neighborhood facilities

47

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

41

of

44
44

47
49
49
50

DEPARTMENTOF HOUSING AND URBAN DEVELOPMENT
FEDERAL HOUSING ADMINISTRATION
Need to increase home mortgage
insurance application
fees

L

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
to
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;)

43

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.

44

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
of
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
as
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
in
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.

45

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.)

46

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
of
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

47

DEPARTMENTOF HOUSING AND URBAN DEVELOPMENT
HOUSING ASSISTANCE ADMINISTRATION (continued)
program and the provisions
of section 703 of the Housing an
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).

4

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.)

76

,

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

i

I

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.
*

h

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
is
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.
77

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

-

4

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

of

--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.

'
d

-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.

I

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

79

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
;. I
--accurate
and informative
real property-records
--internal

audit

and improvements
and reports,

to

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
to
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:

80

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.

c

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

of

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.
82

*

DEPARTMENTOF STATE
The Department stated also that it had deferred the implementation
of
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.)

.

83

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

85

87
87
89
90

DEPARTMENTOF STATE
AGENCY FOR INTERNATIONAL -DEVELOPMENT
Questionable
recoverability
economic assistance
loans

of

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.
In
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

87

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,
__,
1"
_
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
of
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
of
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

88

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
or
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
of
AID strategy
for achieving U.S. and Alliance
developmental
objectives
in
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.

89

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,
is
-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

90

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.)

,

91

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

95
95

96

FEDERAL HIGHWAYADMINISTRATION
Problems arising
from the manner and extent to which Federal
funds are granted for State highway safety programs

99

UNITED STATES COAST GUARD
Potential
savings available
through use of civilians
military
personnel in billets
essentially
civilian

101 :

93

in lieu of
in nature

99

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
V
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
95

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-.
I
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.

96

c

.

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).
h

h

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 s

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Agao%3A33f19b69e7ad81cd. Public record. Not legal advice.