The INS method of computing the cost of providing services for which fees are charged needed to be revised to comply with Bureau of the Budget Circular No. A-25, Revised. Our review showed that INS's computation of the costs applicable to the services provided in fiscal year 1967 were understated by about $200,000. The Department does not develop costs for USMs' activities.

We recommended to the Attorney General that:

1. The INS fees be set at a level that will recover the cost of providing the services in accordance with law.

2. Procedures be established for determining the USMs' costs of providing services to private litigants.

3. Consideration be given to proposing to the Congress that the USMs' fees be revised to a level that will result in the recovery of the costs of providing the services or that authority for the revision of the fees be vested in the Attorney General.

4. INS be required to utilize the most current and complete information available to determine, on an annual basis, the cost of services provided for which fees are charged.

The Department of Justice officials generally agreed with our findings and recommendations and corrective actions have been planned.

Index No. 65, B-164031 (2), December 12, 1969

IMPROVEMENTS SUGGESTED IN ACCOUNTING METHODS USED IN ESTABLISHING FEE FOR REIMBURSABLE TESTING AND RELATED SERVICES-FOOD AND DRUG ADMINISTRATION, CONSUMER PROTECTION, AND ENVIRONMENTAL HEALTH SERVICE, DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE

Our review showed that the fees charged by the Food and Drug Administration (FDA) were not sufficient to provide for recovery of the full cost for testing, certification, and pesticide tolerance services because FDA, in determining the costs that were chargeable to these services:

1. Had not used reliable and sound methods for determining the applicable portions of certain costs.

2. As a matter of policy, excluded certain administrative costs.

Some costs actually applicable to the reimbursable services were paid from appropriated funds instead of being charged to the revolving fund in which the fees collected were deposited.

FDA has been developing an accounting system which, if carried out effectively, should provide the type of cost allocations needed. However, FDA has not fully devised the methods needed to put this system into effect.

We recommended to the Secretary of Health, Education, and Welfare that FDA should:

1. Give early attention to establishing an adequate basis for allocating costs chargeable to the certification and pesticide tolerance services.

2. Complete its studies of the fee structure of insulin and color additive certification, and pesticide tolerance services as soon as possible. If necessary, fees for these services should be adjusted.

The Department of Health, Education, and Welfare advised us of its belief that the new accounting system being developed for FDA would provide adequate support for fees charged.

Index No. 66, B-114859, May 28, 1970

NEED FOR SPECIFIC CRITERIA FOR ADJUSTING THE INTEREST RATE CHARGED ON INSURANCE POLICY LOANS BY THE VETERANS' ADMINISTRATION (VA)

The Veterans Administration (VA), on policy loans to veterans, has charged 4 percent interest since 1946. By law, the VA cannot charge more than 5 percent interest on policy loans under one of its insurance programs-United States Government Life Insurance.

We reported that:

1. The 4 percent interest rate did not appear to be reasonable because of the recent and substantial increases in market interest rates and in interest rates on investments of the insurance funds and the higher interest rates on loans on commercial insurance policies.

2. VA insurance program funds recently invested in Treasury securities were earning in excess of 7 percent.

3. An interest rate on policy loans which is substantially lower than market interest rates tends to encourage the policyholder to borrow his equity, and this reduces the insurance funds that can be invested in Treasury securities at more favorable rates.

4. When insurance funds are not used to make policy loans but are invested in Treasury securities having interest rates greater than those on policy loans, the interest earnings to the funds would increase and would benefit all policyholders.

5. A policy loan, to the extent not repaid, reduced the proceeds available under the policy in the event of death of the insured, and if the total indebtedness, including any unpaid interest, equals or exceeds the cash value of an insurance policy, the policy ceases and there is a complete loss of insurance protection. In view of the reluctance of VA to adjust the interest rate, the Congress may wish to consider legislation that would:

1. Provide the Administrator of Veterans Affairs with specific criteria for the adjustment of the interest rate on policy loans.

2. Remove the statutory limitation now applicable to one program, United States Government Life Insurance, to give the Administrator the authority to establish the interest rate under this program in accordance with the criteria suggested above.

Index No. 67, B-115378, June 18, 1970

INEQUITABLE CHARGES FOR CALIBRATION SERVICES: NEED FOR ACCOUNTING IMPROVEMENTS AT NATIONAL BUREAU OF STANDARDS-DEPARTMENT OF COMMERCE

We reported that (1) fees charged to customers of the Bureau for calibration services were inequitable, (2) fees charged private industry did not include a factor for building depreciation and departmental overhead costs, and (3) the Bureau's accounting system needs to be improved to correct certain weaknesses. We commented in detail on these matters under three captions as follows:

1. Inequitable charges to customers of Bureau calibration services-The Bureau calibrates instruments for the Nation's scientific and industrial community-both in Government and private industry-and charges fees to recover the cost of providing this service.

Fees were inequitable and resulted in overcharges to the Department of Defense (DOD) and undercharges to private industry and other Federal agencies. During fiscal years 1966 through 1968, DOD was overcharged $806,000 of which $713,500 should have been paid by private industry.

The Bureau of the Budget and the Department of Commerce require that a charge be made to recover the cost of any services provided to identifiable members of the public when the services are above and beyond that provided to the general public.

We proposed that charges for calibration and testing services by the Bureau's Electronic Calibration Center be based on a uniform rate applied to all customers on the basis of direct labor hours. The Director informed us that, beginning in July 1969, the Bureau would adopt a system which would ensure the distribution of overhead among customers in proportion to actual direct workload. As of July 1, 1969, all Government customers are charged the same hourly rate to recover the Bureau's operating costs. We believe that this method will result in an eqiutable distribution and full recovery of overhead costs applicable to customers.

2. Building depreciation and departmental overhead not recovered by the Bureau-In fiscal years 1966 and 1967, the fees charged to private industry by the Bureau for calibration services did not include a factor for building depreciation and departmental overhead costs. Although a factor was included in the fees charged in fiscal year 1968, the fees were not high enough to fully recover Bureau operating costs and building depreciation and departmental overhead. In all, about $111,000 was not recovered from private industry during fiscal years 1966 through 1968. In addition, the factor is not being fully provided for under another Bureau program.

The Director of the Bureau informed us that beginning in fiscal year 1968 private industry was charged an additional 8.5 percent to cover building depreciation and departmental overhead. Although the Bureau is now including a factor for building depreciation and departmental overhead costs in its fees for electronic calibration services performed for the public, the Bureau is not fully providing for this factor under at least one of its other programs.

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We recommended to the Secretary of Commerce that the Bureau ensure that user charges for services performed under all Bureau programs for private industry include a factor for depreciation of buildings and departmental overhead 3. Need for improvement in accounting system-The Bureau's accounting sy tem needs to be improved to correct the following weaknesses.

-Costs which benefit only a limited number of projects make up a significant portion of the Bureau's overhead costs which are distributed to all technical projects.

—Administrative labor costs were being distributed to projects of certain divisions located at Boulder, Colorado, inequitably.

-Unrealistic estimates of the useful life of equipment resulted in an inequitable distribution of depreciation costs among accounting periods, and in inequitable charges to customers.

-The Electronic Calibration Center was allocated more than its share of depreciation expense in fiscal year 1967.

The Director of the Bureau disagreed that there was a need for improving the accounting system in the manner recommended. The Director informed us that the Bureau had invested considerable effort in developing practical techniques for allocating costs and the system in use was similar to the cost accounting systems of private industry whereby overhead costs were distributed among productive projects according to a fixed formula.

After consideration of the Director's comments, we recommended that the Bureau be required to review its methods of allocating overhead costs and make revisions to correct methods which are inequitable or inconsistent. Specifically, the Bureau should:

(1) continue to periodically review Bureau overhead costs to remove those costs which do not primarily benefit all Bureau divisions or projects, (2) clarify procedures to ensure that administrative labor costs will be distributed on a uniform basis,

(3) review determinations of useful life of research equipment periodi cally, and revise them when necessary, and

(4) allocate depreciation expenses to projects of the divisions located at Boulder, Colorado, on a more equitable basis.

Index No. 68, B-163453, May 10, 1968

NEED FOR IMPROVEMENT IN MANAGEMENT OF MISSION-SUPPORT AIRCRAFT

DEPARTMENT OF THE ARMY

We evaluated the system used by the Department of the Army to determine its aircraft requirements for (1) combat readiness training of rated officers and administrative support purposes for fiscal years 1966 through 1971, and (2) flying performed for mission support purposes during fiscal years 1965 and 1966. We found that, based on the utilization criteria established by the Department of Defense and the Army, the number of aircraft authorized at the locations we reviewed was generally about 25 percent more than the justifiable requirements. We believe that the overauthorizations resulted from the incomplete criteria and procedures prescribed and used for determining requirements and from insufficient evaluation of the justification for aircraft submitted by the user organizations.

We found also, at most of the locations we reviewed, that the transportation and traffic management policies of the Department of Defense were not being followed and aircraft were used uneconomically. The procedures in effect at the time of our review generally did not provide for a determination, as required by Department of Defense policy, of whether use of commercial or other means of transportation would be practicable and more economical.

We recommended that the Army establish an effective integrated system for managing aircraft for mission-support purposes and outlined the elements we believe should be included in such a system. The Army agreed, in general, with our recommendations and cited actions it was taking toward that end.

Index No. 69, B-164392, September 18, 1968

CONTROL OVER PROCUREMENT, USE, AND DISPOSITION OF MAGNETIC COMPUTER TAPE IN THE DEPARTMENT OF DEFENSE

At June 30, 1967, the Federal Government operated about 3,700 computers at various locations throughout the world. The Government has accumulated over

10 million reels of magnetic tape, valued at about $200 million, to serve these computers. The magnetic tape inventory of the Department of Defense-about 6 million reels valued at about $125 million-is about 60 percent of the Government-wide total. We reviewed the practices of the Department of Defense in the procurement, use, and disposition of its magnetic computer tape.

There is a need for the Department of Defense to centralize its management of magnetic tape. Although the Department has generally established centralized controls over its automatic data processing operations, it has, in our opinion, given inadequate attention to similiar controls over its magnetic tape activities. At the time of our review, the Air Force was the only service that had centralized its management of magnetic tape activities.

We found that in the absence of centralized management, local military commands had

-computed tape requirements without adequate knowledge of the quantity or condition of the tape on hand;

-procured tape with little regard to quantity discounts and other advantages of centralized procurement; and

-accumulated large quantities of used tape without testing or attempting to rehabilitate it for further use.

We found also that in some cases no specific instructions had been established for determining when tape was unserviceable, for disposing of unserviceable tape or for reporting and screening serviceable excess tape for possible use by others. The Department of Defense was in general agreement with our proposals for corrective action. The Department advised us that

-action had been taken to screen tape for reuse;

-consideration was being given to consolidation of tape procurements throughout the Department; and

-studies would be made on the need for a uniform method of computing requirements for tape.

The need for guidance in the control and use of tape has been found necessary and is now being implemented.

Index No. 70, B-166655, July 14, 1969

STATUS OF DEVELOPMENT TOWARD ESTABLISHMENT OF A UNIFIED NATIONAL COMMUNICATIONS SYSTEM

On August 21, 1963, the President directed the establishment of a unified National Communications System (NCS) in order to strengthen the communications support of all major functions of the Government. The objective was to provide necessary communications for the Government under all conditions ranging from normal situations to national emergencies and international crises, including nuclear attack.

We found that many of the issues and problems that were hampering attainment of the objectives of the NCS were of long standing and in need of early resolution. The interest and concern expressed over the years by a number of congressional committees have not been dealt with in bringing about improvements in the policy formulation and direction of the telecommunications resources of the Government. In the more than five years that have elapsed since the President directed that the NCS be established, hundreds of millions of dollars have been expended annually in the procurement, construction, operation, and maintenance of component networks with little effective centralized direction and control.

Except for the President of the United States, there was no individual or organization in the Government with the authority, stature, and resources to provide the essential policy, direction, and control required to establish a unified system. Authority and responsibility were widely dispersed among the various departments and agencies involved. The functions of basic planning and general design control were performed largely in an agency-oriented environment rather than in an NCS frame of reference. Consequently, there was no basic plan to chart the course of the NCS from its present confederation of agency networks to the goal of a unified system. But even if there were such a plan, there was no effective or authoritative overview to ensure that agency planning and funding conformed with the plan.

We recommended that the President give consideration to a major realignment, of the existing structure and organizational arrangements of the NCS, which would establish an organization with sufficient stature, authority and resources

to provide a strong central authority as a focal point in telecommunications matters.

The Special Assistant to the President for Telecommunications assured us that our recommendation would be given thorough consideration. Other executive branch agencies and offices also recognized the need for a strengthened policymaking structure. There was, however, a diversity of opinion among them as to the organizational activity to which certain of the roles and functions should be transferred.

The Office of Telecommunications Policy was established in the Executive Of fice of the President on February 9, 1970, by the President's Reorganization Plan No. 1 of 1970. The Office is to (1) serve as the President's principal advisor on telecommunications policy, helping to formulate government policies concerning a wide range of domestic and international telecommunications issues; (2) help formulate policies and coordinate operations for the Federal government's own vast communications systems; (3) enable the executive branch to speak with a clearer voice and to act as a more effective partner in discussions of communications policy with both the Congress and the Federal Communications Commission. This should provide the focal point and overview which we recommended in our report.

Index No. 71, B-163762, October 15, 1969

COST REDUCTION AND MANAGEMENT IMPROVEMENT PROGRAM IN SELECTED DEPARTMENTS AND AGENCIES

We reviewed the operation of the Cost Reduction and Management Improvement Program (cost reduction program), in the Departments of Agriculture, Defense, and the Interior, Agency for International Development and General Serv ices Administration.

Comments on the status of implementation of the programs in the five departments and agencies follow.

Department of Agriculture-Our review indicated that the Department had taken aggressive action to encourage employee participation in the cost reduction program and to disseminate program results throughout the Department. Deficiencies noted in the manner in which the program was carried out related principally to the procedures for validating claimed savings to ensure their conformance with prescribed criteria and the reporting of savings which, in the opinion of the Bureau of the Budget (BOB), had not represented true cost reduction items.

Department of Defense-The cost reduction program in the Department, initiated on a comprehensive basis in 1962 several years prior to the implementation of the program generally in the executive branch, had been aggressively implemented in all components of the Department. The policies and procedures that governed the operation of the program had been developed at the highest level of management and were outlined in several comprehensive instructions issued by the Department.

Department of the Interior-In our opinion the Department had not exercised effective management control over its cost reduction program. This opinion was based on our findings concerning (1) the reporting of savings which did not meet the criteria established in BOB Circular No. A-44, Revised, (2) the inadequate procedures for validating reported savings, and (3) the inadequate disseimination of cost reduction ideas throughout the Department.

Agency for International Development-AID had adopted a low-keyed approach to the cost reduction program, devoting a minimum of manpower and other resources to it. As a result the program was functioning at the minimum level needed to comply with the BOB requirements that each agency have a program and that semiannual accomplishments reports be submitted to the President.

General Services Administration-GSA's cost reduction program consisted of an internal program that covered management actions taken to improve the agency's internal operating efficiency and to reduce the cost of its internal op erations and a Government-wide program that covered GSA's actions to improve operational efficiency and to contribute to the avoidance of expenditures in other Government departments and agencies. GSA had issued a handbook setting forth responsibilities and prescribing procedures for the organization and op eration of its cost reduction program.