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Admiral РоTTER: Yes, sir.

Mr. FRENCH. When the materials are drawn from this accoun for the use of any bureau, is the account charged with them? Admiral POTTER. They are charged against the annual appropria tion and the account is credited with a corresponding amount. Mr. FRENCH. The particular appropriation under the cognizan of the particular bureau is charged and the account is credited? Admiral POTTER. Yes, and the aggregate of the credits become available for the purchase and manufacture of additional within the account. If the material sold from this account is surplu material, the net proceeds are turned into the Public Treasury and do not remain available for Navy purposes.

APPROPRIATION PURCHASES ACCOUNT

store

Mr. FRENCH. The next account is the appropriation purchase account. Will you indicate to the committee what that account is Admiral POTTER. Within this account are included all stores pai for directly from annual appropriations and from continuing appro priations; that is, which have not been paid for from the Navy supp ply account, from the clothing and small stores fund, or from re serve material, Navy appropriation. So far as the appropriation for all the material needed for the Navy is concerned, the material de signed for the use of one bureau only is often purchased from tha bureau's specific appropriation. These purchases of material ente into and are carried under the head of "Appropriation purchase account."

When material is issued for use from the "Appropriation pur chases account" there is no additional charge against the annual o the continuing appropriation of the particular bureau.

The Secretary of the Navy, moreover, can direct that any of thi material, although originally designed to be used by a particula bureau, may be used by any other bureau, without extra charge. The greater part of the material carried in the appropriation pur chases account is heavy ordnance material, such as guns and ammu nition, aircraft material, and heavy engineering material.

Mr. FRENCH. This account could be regarded rather as a store house where materials intended for the use of the several bureaus and that have been paid for by the bureaus, are kept and drawn fron as needs may arise.

Admiral POTTER. Yes, sir; that is correct.

RESERVE MATERIAL ACCOUNT

Mr. FRENCH. The next is the reserve material account. Will yo indicate what that covers?

Admiral POTTER. The act of March 4, 1917. and the act of Jun 15, 1917, authorized materials to be purchased for the purpose fitting out vessels or acquiring merchant auxiliaries in time of w or in time of national emergency, and the stores account in whic - materials purchased under those acts are carried is called the reser material account of the Navy. This account covers such items evaporators, distillers, blowers, radio sets, searchlights, winche diving apparatus, special navigating instruments, etc. In time war or national emergency the issues can be made from the reser material account free of charge to any other appropriation. C

other occasions, everything that is issued from this account must be reimbursed by the specific appropriation concerned. The whole account is at present unmoving. practically.

Mr. FRENCH. If materials carried in this account are taken off ships, they are placed under your charge, are they not?

Admiral POTTER. Yes, sir.

Mr. FRENCH. And they may be taken out again, put on ships, and again stored?

Admiral POTTER, Yes, sir.

MARINE CORPS ACCOUNT, AND ACCOUNT OF BUREAU OF MEDICINE AND SURGERY

Mr. FRENCH. The next two accounts are the Marine Corps account and the account of the Bureau of Medicine and Surgery. They will be considered later.

Admiral POTTER. Yes, sir.

CLOTHING AND SMALL STORES ACCOUNT

Mr. FRENCH. Will you submit a brief statement in reference to The clothing and small stores account?

Admiral POTTER. The clothing and small stores are handled through a revolving fund which finances the purchase and manufacture of articles of clothing and small stores used by the personnel of the Navy. t also finances the issues of civilian clothing to men discharged inder other than honorable conditions. Its cash assets come from ales to the enlisted personnel, who are required to purchase their lothing after their first free issue of the regulation clothing outfit. The cash assets of the fund are increased by receipts from the sale of condemned articles, which are carried in the account.

NAVAL WORKING FUND

Mr. FRENCH. You may also submit a brief statement touching he naval working fund.

Admiral POTTER. I will do so.

DESCRIPTION OF THE ADMINISTRATION OF THE NAVAL WORKING FUND

Receipts. In addition to the amount of $100,000 appropriated in the naval et May 28, 1924, the "naval working fund" is credited with receipts from the ollowing sources:

Special deposits: Deposits by private parties to cover the cost of work to be one by the various navy yards and stations.

Condemned sales: Deposits by bidders on sales of condemned material. 'ayments by successful bidders for material sold to them.

Surplus sales: Deposits by bidders on sales of surplus material. Payments by iccessful bidders for material sold to them.

Other Government departments: Funds received for small jobs of work not overed by an advance payment. When collected are credited to the funds. dvance payments for large jobs when advances are made in cash.

Exception: Advances made by transfer on the books of the Treasury are not edited to the fund but are credited on the books of the Treasury to a Navy lotment under the appropriation heading under which it is carried by the epartment concerned, e. g., "Coast Guard, 1925 (Navy allotment)." After ork is completed an adjustment is made charging the Navy allotment and editing the "naval working fund" with the cost of the work. The unexpended alance of the Navy allotment is returned to the other department by an approriation warrant.

Expenditures. - Special deposits: The fund is charged with all labor and material expended in accomplishing the work required, with refund to the unuse

balance of the deposit and with any profit made by the transaction when the profit is turned into the Treasury as a credit to "Miscellaneous receipts."

Condemned sales: The fund is charged with the amount of all refunds of the deposits of unsuccessful bidders, with the cost of preparing the material for sale. with the cost of packing and shipping material sold and with the net proceeds of the sale when turned into the Treasury.

Surplus sales: The fund is charged with the amounts refunded to unsuccessful bidders, with all expenses of the sale and with the net proceeds of the sale when turned into the Treasury.

Other Government departments: The fund is charged with the cost of all work done for other Government departments, with the unexpended balances of refunds of cash advanced, when the job for which the advance is made is completed.

Allotments. Expenditures under the "naval working fund" are controlled by allotments authorized as follows:

Special deposits: All deposits by private parties for work to be done by the Nav Navy Department are automatically allotted to the naval station receiving the funds. These allotments are available until expended.

Condemned sales: Refunds to unsuccessful bidders are made by automatic allotments. Expenses of sales must be covered in advance by an allotment to the station making the charge. These allotments are available only for one month. The net proceeds of the sale are transferred to the Treasury by action of the Bureau of Supplies and Accounts.

Surplus sales: Refunds to unsuccessful bidders are made under automatic allotments. Expenses of sales must be covered by allotments made in advance of the expenditure to the station making the charge. The net proceeds of sales are transferred to the Treasury by action of the Bureau of Supplies and Accounts.

Other Government departments: Allotments are made on a monthly basis to the various navy yards and stations to cover expenditures under small jobs of work for other Government departments where no advance is received prior to the completion of the work. For all jobs in excess of $10,000 an advance must be received prior to beginning the work. These advances received are allotted to the various yards and stations and are available until expended,

NAVAL SUPPLY ACCOUNT

Mr. FRENCH. The next is the naval supply account, stores and cash. At this point, Admiral, will you insert this short table appearing in connection with the naval supply account, showing the stock that you have on hand classified as active, inactive, and dead.

Admiral POTTER. I will do so.

There is given below an estimate of the proportion of active, incative, and dead stock in the various accounts.

Active stock is material or equipment which it is estimated will be turned over completely within two years.

Inactive stock is defined as stock not subject to regular issue, but which must be retained by the Navy for military reasons or to comply with war plans. This includes such items as batteries and equipment of vessels now out of commission, harbor mines, batteries for merchant vessels, spare propellers and shafting, airplanes, and spares, and miscellaneous equipment which is difficult to obtain or slow of procurement.

Dead stock is defined as material not required by the Navy because surplus. obsolete, or deteriorated. This will be disposed of by sale or scrapping as rapidly as possible.

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115, 552, 295

Mr. FRENCH. I notice from the table that the total value is $115,552,295, and that you classify 66 per cent of it as active stock. What do you mean by "active stock"?

Admiral POTTER. Active stock, roughly, covers material and equipment which should be completely turned over every two years. Mr. FRENCH. And what do you mean by inactive stock?

Admiral POTTER. Inactive stock is stock that is not ordinarily subject to regular issue, but is held for military reasons, particularly to comply with the war operating plans.

Mr. FRENCH. And what is dead stock?

Admiral POTTER. Dead stock is stock that is not required by the Navy because it is surplus, obsolete, or even deteriorated, but it is stock that still has a value when sold.

Mr. FRENCH. The inactive stock is a desirable stock to have?
Admiral POTTER. Yes, sir..

Mr. FRENCH. As emergencies may arise.

Admiral РотTTER. Yes, sir.

Mr. FRENCH. Dead stock, on the other hand, is stock that you would like to be free of or to have translated into money as rapidly as possible.

Admiral POTTER. Yes, sir; as the market allows, and we are in process of translating it into terms of money continually.

NATURE AND VALUE OF STOCK INCLUDED IN NAVAL SUPPLY ACCOUNT

Mr. FRENCH. What is the nature of the stock carried in the naval supply account?

Admiral POTTER. It is every sort of material, such as miscellaneous hardware, both large and small, textiles of all kinds, both in the raw and manufactured state, boat and boat apparatus, engine and engine apparatus, and all sorts of material, covering altogether about 37,000 items.

Mr. FRENCH. It is largely structural material, is it not? It does not include, for instance, ordnance?

Admiral POTTER. No, sir. It does not include armor, armaments, guns, ammunition, or any of the heavier ordnance materials. Those materials are carried in the appropriations purchase account.

Mr. FRENCH.. The distinction between the naval supply account and the appropriation purchase account is rather an arbitrary one, is it not?

Admiral POTTER. Yes, sir; in a sense. If we had sufficient money to buy everything in one general merchandise account, we would probably do so. In other words, the appropriation purchase account and the naval supply account under ideal conditions would be one account, which could be called, if you will, the general merchandising account. Heavy ordnance, all kinds of ammunition and armor, etc., are a part of the appropriation purchase account, and are not carried in the naval supply account.

Mr. FRENCH. How large ought the stock to be that you have on hand? This covers, of course, materials brought over from the war. Admiral POTTER. The naval supply account, stock and money together, under ideal conditions, would be about $150,000,000. We are below that now. The fund is $134,766,000. If it were a balanced stock, I should like to see it at about $150,000.000.

Mr. FRENCH. How much in money and how much in stock? Admiral POTTER. The money that at a given time ought to be available would amount to, perhaps, $10,000,000. We are below that now.

Mr. HARDY. It is $20,000,000, is it not?

Admiral POTTER. Yes, sir; but that is practically all obligated. The actual available cash is not very much. We are living from current sales or transactions.

Mr. FRENCH. Did you refer to war reserves or peacetime reserves! Admiral POTTER. I was referring to peacetime reserves. We used to get along in the naval supply account with about $72,000,000 or $73,000,000, but about twice that much for a modern navy I do not think would be too much. Twice that would not be too much if we had the navy we would like to have.

Mr. FRENCH. For the most part, the stock has a turnover every two years.

Admiral POTTER. Yes, sir.

Mr. FRENCH. You think, from the standpoint of economy in purchasing, that you ought to have that period of turnover in the stock! Admiral POTTER. Yes, sir. We have worked over that a great deal, and that is the average, of course. The turnover for some of it is more that two years and for some it is less. We endeavor to reach an average according to the nature of the material.

DISPOSITION OF DEAD STOCK

Mr. FRENCH. Referring to the dead stock, you are disposing of that from time to time?

Admiral POTTER. Yes, sir; more or less continually. We have an average of about two auctions per month. The rate of selling now varies very much in a year, but it is between $600,000 and $1,000,000 per month. I mean to say that the moneys we get out of the sales represent that.

Mr. FRENCH. Then, you will clean up this dead stock within the next ten months?

Admiral POTTER. This particular stock; yes, sir; but we must consider the total amount in connection with sales from other accounts. Mr. FRENCH. Then, this $1,000,000 per month that you mention does not refer to the naval supply account alone?

Admiral POTTER. No, sir; that means all accounts. Perhaps I should say that about the time this stock of supplies is diminished. the bureaus may decide to release more surplus material for sale. Mr. FRENCH. When a certain type of material gets to the point where it is not usable, it is reallocated to the dead stock?

Admiral POTTER. Yes, sir.

Mr. HARDY. Does this figure here represent the purchase price of the dead material?

Admiral POTTER. In book values, the prices were adjusted after the war. We adjusted the prices in accordance with the act of March 1, 1921. We will get on that, as a guess, 20 per cent of recovery, and possibly more. On the clothing we get better than that. On clothing we run from 50 per cent to 65 per cent on recoveries.

Mr. FRENCH. You spoke of sales by auction.

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