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Washington, D.C., March 18, 1975.


Chairman, Committee on Foreign Relations,
U.S. Senate

DEAR MR. CHAIRMAN: This is in response to your request that we inquire into the controls and procedures used by executive branch agencies to insure that the legislative dollar ceiling for Cambodia is not exceeded. We were informed that the Committee was specifically interested in the pricing formulas used by the Department of Defense in providing additional articles from regular defense stocks.

As your staff requested, our review was limited so that the results could be conveyed to you as soon as possible. Therefore, we did not obtain written comments from the agencies involved. We did examine recorded costs at Defense and the Agency for International Development in Washington and made a limited inquiry into the accounting controls and pricing procedures used by the U.S. Army Armament Command. We did not verify actual deliveries from the forward depots to Cambodia. From our limited work, we believe that executive branch agencies are making a concerted effort, within the constraints of their accounting and reporting systems, to report all costs they consider subject to the ceiling. Enclosure I describes the procedures being followed and enclosures II and III show the recent status of the accounts.

It is important to note that ammunition in the pipeline, up to and including the forward depot stocks in Thailand, remains in the inventory accounts of the military services. A charge is not made against the ceiling until an order is issued authorizing the delivery team in-country to call the ammunition forward to Cambodia. Therefore, the ceiling does not preclude ammunition from being shipped to the forward depots to replace ammunition previously delivered to Cambodia. This could then be used if additional assistance were to be provided to Cambodia.

The Department of State advised us that although other U.S. agencies have activities in Cambodia, Defense and the Agency for International Development are the only U.S. agencies providing military or economic assistance.

Sincerely yours,

ELMER B. STATTS, Comptroller General of the United States.


Inclosure I


Section 39 of the Foreign Assistance Act of 1974 (Public Law 93-559, approved Dec. 30, 1974) amended section 655 of the Foreign Assistance Act of 1961 (22 U.S.C. 2415), and placed a ceiling of $377 million on obligations in, to, for, or on behalf of Cambodia during the fiscal year 1975 by gift, donation, loan, lease, or otherwise. In addition to the ceiling on obligations, section 39 authorized Defense to order defense articles and services for Cambodia under section 506 (22 U.S.C. 2318) in an amount not to exceed $75 million.

Section 39 further established the the following subceilings on obligations.

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The remaining $77 million under the ceiling was provided for assistance under the Agricultural Trade Development and Assistance Act of 1954 (Public Law 480). This amount was not established as a subceiling, however, and any funds not used in the other categories were available for Public Law 480 programs.

Section 655 (f) of the Foreign Assistance Act, as amended, requires that, within 30 days after the end of each quarter of the fiscal year, the President submit to the Congress a written report showing the total amount obligated in, for, or on behalf of Cambodia during the preceding quarter. On February 20, 1975, the Department of State submitted reports to the Congress showing that Defense and Agency for International Development obligations and other reportable expenditures cumulative through December 31, 1974, amounted to $296 million. (See enc. II.)

By January 10, 1975, the $200 million authorized for military assistance had been fully committed, and the President authorized the use of the additional $75 million (drawdown authority). Defense records show that, as of February 7, 1975, the funds available under the drawdown authority had been fully committed. (See enc. III.) Defense advised us, however, that as of March 5, 1975, assets valued at $75.8 million had not been delivered to Cambodia. Defense reporting procedures

We made limited tests to determine whether Defense controls and procedures were adequate to insure that the reports submitted to the Congress were reasonably complete and accurate. We also made a limited evaluation of the criteria used in pricing the ammunition provided to Cambodia.

Grant aid and drawdown authority

Defense officials advised us that the guidelines and pricing criteria used for controlling and reporting the $75 million drawdown authority were the same as those used for the $200 million Military Assistance Program (MAP). We were advised that the only difference is that under MAP, the military departments are reimbursed from foreign assistance funds for goods and services provided whereas under the drawdown authority they are not reimbursed. Our tests of the controls and procedures for ammunition provided under both programs confirmed that the same criteria and controls were being applied to that line item. Charges against the ceiling are made when an order is written by the Defense Security Assistance Agency on the military services to supply defense items or perform services. The Agency advised us that, for control purposes, the value of the order is charged against the ceiling when written, even though the order may be rescinded if the military services have not irrevocably committed funds. Financing of ammunition pipeline

The procedure used for financing the ammunition pipeline for Cambodia differs from that normally used for MAP recipient countries and for other military items provided to Cambodia. In accordance with Secretary of Defense instructions, the military departmental appropriations finance the pipeline for the Cambodia program to the forward storage points-primarily depots located in Thailand. Ordinarily the control point is at the military department inventory control points and departmental appropriations are not used to finance the pipeline.

The MAP-Cambodia account is charged when constructive delivery occurs, which is the time the ammunition is issued from the forward depots for transfer to Cambodia. Costs associated with shipping the ammunition from the United States to the forward storage locations are also charged to the ceiling at that time.


Pricing of ammunition

The U.S. Army Armament Command has primary responsibility for computing the unit prices for ammunition delivered from U.S. Army inventories to Cambodia. We noted that the prices charged to MAP-Cambodia for ammunition were computed on the same basis as those charged to other MAP recipient countries of the program. Prices were generally inflated to estimate procurement costs at a future point in time. The Armament Command stated that this action was based on its interpretation of Army Regulations, which permit price modifications to allow for pending contract changes and other factors.

According to Armament Command officials, ammunition unit prices include a factor for transportation costs to the first destination in the United States. In October 1974 the price list included a 4.5-percent factor for these charges. Other packing, handling, and overseas transportation costs for ammunition are charged to the ceiling upon delivery to Cambodia.

Administrative support costs

Defense reported that $27,117,000 had been committed for administrative support costs for the Cambodia program as of December 31, 1974. This included an amount for supply operations, administration, and U.S. military personnel costs. Although not all of these costs are reimbursed from MAP funds, they are charged to the ceiling amount.

Supply operations

Defense Security Assistance Agency officials advised us that the $25.5 million reported under this category represented the best estimate available at that time, and included (1) the cost of the airlift and barge contracts, (2) U.S. Air Force maintenance cost, except for personnel costs, for the C-130 aircraft flown under contract by Birdair Company, and (3) an amount for packing, crating, handling, and overseas transporation costs. We were advised that the reported amount did not include a percentage factor to recover the U.S. Air Force investment in the C-130 aircraft or an amount for pay and allowances for U.S. Air Force personnel engaged in maintaining the aircraft. The officials told us that they may include an amount for military pay and allowances in subsequent reports. Administration and military personnel

We were advised that the $750,000 reported as administrative costs as of December 31, 1974, represented 50 percent of the fiscal year 1975 budget for operating the military equipment delivery team, Cambodia. Actual obligations under the team's operating budget may not correspond to this amount, but it appears that the amount reported is a reasonable estimate for half the fiscal year. The $867,000 reported for military personnel costs is for those individuals assigned to the team.

We were told, however, that the reported amounts do not include personnel and administrative costs of the Cambodia program incurred by the Commander in Chief, Pacific, or by the Defense Security Assistance Agency in Washington. Excess defense articles and MAP redistributable property

Defense reported that, as of December 31, 1974, excess defense articles valued at $419,000 and MAP redistributable property valued at $14.3 million were provided to Cambodia. Defense Security Assistance Agency officials advised us that the amounts reported represent the fair market value of the item, but not less than one-third of the acquisition cost. From our limited review, we are not satisfied that the procedures and controls are adequate to insure that all excess defense articles and MAP redistributable property delivered to Cambodia are included in the ceiling report or that the amounts reported are correct.

We noted that program lines are authorized for excess defense articles and MAP redistributable property, but the authorization does not fix a dollar limit on the amount which can be provided. Defense Security Assistance Agency officials stated that, although the authorized program lines do not establish a dollar limit, the ceiling will not be exceeded because the Commander in Chief, Pacific, controls the delivery of such material to Cambodia. The Agency, however, does not receive sufficient documentation to insure that all deliveries of excess defense articles and MAP redistributable property will be reported.

The delivery of a large quantity of ammunition from Laos to Cambodia provides an example of the inadequate controls with respect to excess defense articles and redistributable property. We were advised that a large amount of

ammunition owned by the Laos MAP was transferred to Cambodia. The December 31, 1974, ceiling report included $12.7 million for ammunition obtained from other MAP countries, and we were told that about $12.1 million of this amount came from the Laos program. However, no documentation was available at the Defense Security Assistance Agency to substantiate this transfer from Laos to Cambodia. We were told that a value for this ammunition transfer was reported on the basis of verbal instructions and that the amount reported represented only 50 percent of the acquisition value, although no information was available at the Agency concerning the condition of the ammunition. Agency for International Development reporting procedures

The Agency reported that, as of December 31, 1974, $35 million had been obligated for economic assistance under the Indochina Postwar Reconstruction program, and $76.3 million for Public Law 480 programs. Except for $8,000 provided from excess property, the amounts reported for economic assistance and Public Law 480, Title I programs represent country-to-country agreements signed with the Cambodian Government. The amounts reported for Public Law 480, Title II programs represent that portion of the Voluntary Agencies' estimated annual requirements that the Agency for International Development has approved. The amounts reported as obligations, however, do not represent the amount delivered to Cambodia.

Based on our limited review, it appears that the controls for those items reported are adequate. However, we noted that several categories of costs related to economic assistance to Cambodia were not included in the Agency for International Development's December 31, 1974, report.

-Cambodia Mission operating expenses estimated at $440,000.

-Agency for International Development/Washington administrative costs related to economic assistance to Cambodia estimated at $155,000.

-Ocean transportation costs of about $368,000 paid by the Department of Agriculture for Public Law 480 Title I commodities.

-Transportation costs associated with the Public Law 480 Title II programs estimated at $190,000.

In some cases the Agency has taken the position that the costs are not reportable under the ceiling; however, in other cases it has not reached a formal conclusion. At this time we have not determined whether the costs should be included under the ceiling and reported pursuant to section 655 (f) of the Foreign Assistance Act.

Enclosure II


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