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For the specific operating details I will illustrate schematically the stock fund operation using the fiscal year 1961 program. Since financing is associated with banking, I have selected a bank as the starting point for this operational picture. The bank represents working capital or cash.

The Army stock fund began the fiscal year with $560 million in working capital on hand to pay for procurement of supplies—this figure is shown under the bank. In the development of the annual operating program, we forecast our sales or issues to customers on funded requisitions, and our stockage requirement, then we deduct the available assets to determine the obligational authority required for the year. For fiscal year 1961, the Bureau of the Budget ap portioned $2.207 billion in obligational authority as shown under valve No. 1. I would like to stress one important point in our management of stock funds. Under stock fund operations, the obligational authority apportioned becomes an objective amount to be used only when sales or issues meet the programed figure. Estimated procurements are related to estimated sales on a percentage basis and the use of obligational authority is restricted to this ratio throughout the budget year. Whenever there is a shortfall in sales, the Department of the Army withholds the use of obligational authority commensurate with the sales shortfall.

In fiscal year 1960, Army management held the actual amount of obligations incurred to within two-tenths of 1 percent of the programed figure.

Returning to the program, obligational authority is then allocated to the chiefs of technical services who direct the procurement of supplies through their national inventory control points as shown on the chart. You will note that the flow of money is represented by the shaded sections and the flow of supplies by the hatched sections. As indicated by the figures, our deliveries from suppliers during fiscal year 1961 are estimated at $2.144 billion. This figure represents estimated deliveries of fiscal year 1960 and 1961 orders as contrasted to the estimated obligational authority of $2.207 billion which represents fiscal year 1961 orders. The national inventory control points distribute these new supplies into the wholesale depot system as indicated by valve No. 2. Here they join the assets already on hand; and the combined assets are available to meet consumer demands, anywhere the stock fund is extended, which is represented by valve No. 3. These stocks constitute the assets for day-to-day operations and for the war reserve which is available to meet any emergency. I will discuss our inventory position subsequently.

While the Army stock fund program was being developed, appropriated funds were made available to all its customers. These appropriations are providing the means for customers to procure supplies from the stock fund, and thus become the key to the amount of obligational authority necessary. As indicated on the chart, these appropriations will reimburse the stock fund for an estimated $2.394 billion worth of supplies during fiscal year 1961. This figure represents estimated collections as contrasted to the estimated sales of $2.417 billion shown at valve No. 3 and on page 549 of the President's budget.

As I stated previously in the procurement/supply action, the new supplies join those already on hand in the depot system. Some of these assets were procured during World War II and the Korean war and the on hand quantities permit selling to customers without the need for replenishment. During fiscal year 1961, it is estimated that the Army stock fund will sell supplies valued at $2.394 billion and receive deliveries valued at $2.144 billion. This will generate cash or working capital in the amount of $250 million. Such cash generated over and above current operating requirements may be used to finance war reserve require ments or through congressional action, be transferred to other appropriations or returned to the Treasury. For fiscal year 1961, Congress determined that $260 million would be transferred to appropriated funds. From the inception of the Army stock fund through fiscal year 1961, $3.110 billion will have been transferred to appropriate funds or returned to the Treasury and since fiscal year 1959, $147 million will have been used for reserves.

As I pointed out earlier, the basic source of this cash has been the sale of stocks without replenishment. Today, as a result of the Army's vigorous program to balance inventories and to maintain supply effectiveness with a greatly reduced investment, we can foresee the end of this capability to generate cash in any amount over our essential supply requirements. The fiscal year 1962 budget provides for the transfer of $125 million in cash. Any further transfers would jeopardize our war reserve position.

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This chart presents the overall inventory picture for the Army stock fund; actual for June 30, 1959, and June 30, 1960; and projected for June 30, 1961, and 1962. As indicated on this bar, the dotted section is potential excess stock, some of which will be redistributed within Army; the hatched section is our war reserve stock; and the cross-hatched section is our peacetime operating stock. You will note that the total inventory on June 30, 1959, was $5.546 billion. By June 30, 1962, this will be reduced to $3.519 billion. The forecast decrease in excess stocks of $7.6 million in fiscal year 1961 and $84.2 million in fiscal year 1962 reflects our continuing action to dispose of excess stocks.

While war reserve stocks decreased $215 million in fiscal year 1960 as a result of new requirement computations, they are programed to increase $86.6 million in fiscal year 1961 and $35.6 million in fiscal year 1962. These increases reflect the receipts from procurement and some returns through normal supply operations in fiscal years 1960 through 1962. We expect that peacetime operating stocks will decrease by $761 million in fiscal year 1961 and $594 million in fiscal year 1962. This decrease includes the sale of supplies without replenishment. Peacetime operating stocks are becoming better balanced and we are able to maintain supply effectiveness with less inventories. As I have pointed out earlier, the sale of stocks without replenishment has been the source of cash generated by the Army stock fund. With the reduction of these inventories as we see them here, this capability has been practically eliminated. The Department of the Army position is that these transfers must stop after the programed transfer in fiscal year 1962 or the Army stock fund will require a new appropria. tion to effect the financing of its essential war reserve program.

Next, let us examine our war reserve position.

Supply support of the Army's wartime capability requires a considerable inventory of supplies, repair parts, and consumables, as well as the major items themselves. Such secondary items and repair parts are purchased through the stock fund war reserve program. This program provides for the support of new equipment now in or entering the supply system, such as parts for new weapons; vehicle parts for the new trucks and armored vehicles; infrared detector and viewing equipment; toxic protective clothing for missile handlers, and repair

parts for communication and radar equipment. We have been able to apply but $147 million for procurement of reserve stocks during the past few years. Many of our assets are items which support older types of equipment; and for many of the newer types, we have only limited quantities.

We are recomputing reserve requirements under a current Department of Defense logistics guidance, and anticipate that the new figure will show a shortage of approxi ately $850 million against the authorized acquisition objective.

In fiscal year 1959, the Army stock fund was authorized new procurements of approximately $75 million toward this war reserve. In fiscal year 1960, procurement was approximately $30 million and in fiscal year 1961, procurement will be $42 million. The fiscal year 1962 budget before you provides for $40 million.

While we have made some progress since 1959, we strongly believe that more resources should be applied toward obtaining a more adequate war reserve. For the accomplishment of the total stock fund mission, the Army advocates a cessation of cash transfers and a selfsustaining, balanced war reserve program.

The third portion of my presentation will cover the significant features of the fiscal year 1962 program.

For fiscal year 1962, collections are expected to exceed deliveries by $210 million. This amount reflects our best estimate of the net effect of (1) the continued drawdown of inventory without replacement; (2) the reinvestment in current stocks necessary to meet our operating requirements; and (3) only a limited addition to war reserve inventory.

A second feature of our fiscal year 1962 management is to obtain optimum utilization of available assets and to reduce inventories to the minimum consistent with effective supply operations. As stated in the budget before you, during the period June 30, 1959, to June 30, 1962, reductions to operating and excess inventories are estimated to aggregate $1.9 billion. This reduction results from sales of peacetime stocks without replacement, disposal of excess, and donations in accordance with the law.

This brings me to the fourth part of my presentation which deals with proposed improvements in supply and financial operations. The Army has formalized a plan for the resolution of the problems encountered in our day-to-day operations under the title : “Plan for Accomplishing the Army Supply Mission More Effectively and Efficiently by Improving the Supporting Supply and Financial Management Operations." The plan has five basic objectives.

OCSLOG)

IMPROVEMENT OBJECTIVES

1. DETERMINE WHERE AND HOW THE STOCK FUND SHOULD BE EXTENDED

2. LIMIT ITEMS IN STOCK FUND TO THOSE WHOSE SUPPLY AND FINANCIAL MANAGEMENT

IS FACILITATED BY THEIR BEING STOCK FUNDED.

3. DETERMINE BEST FISCAL POLICIES AND PROCEDURES AND BUDGETARY STRUCTURE TO

SUPPORT AN EFFECTIVE AND EFFICIENT SUPPLY SYSTEM

A. SIMPLIFY PROCEDURES

5. ASSURE THAT UNDER EMERGENCY CONDITIONS AND IN WAR. SUPPLY SUPPORT OF

OPERATIONS IS NOT IMPEDED BY ANY DIFFICULTIES STEMMING FROM TRANSITION
FROM PRE-EMERGENCY SUPPLY PROCEDURES AND FUNDING POLICIES

CHART.-Improvement objectives

Objective No. 1: Determine where and how the stock fund should be extended. This objective includes the test of the Zone of Interior Installations Division of the stock fund at nine stations in the 3d Army area during fiscal year 1960. As we saw, this division is managed through the Continental Army Command and the 3d Ú.S. Army in lieu of management through the Chiefs of Technical Services. The Department of the Army is analyzing the results of this test as an additional source of information to determine a firm policy regarding (1) the operating level beyond the continental United States wholesale depot system to which stock fund operations shall be extended, and (2) the most appropriate organ. izational structure under which such operations shall be administered.

Objective No. 2: Limit items in stock fund to those whose supply and financial management is facilitated by their being stock funded. Aircraft and missile peculiar repair parts were intentionally excluded from the original capitalization into the stock fund on the premise that operational requirements could not be assured since supply through the stock fund was restricted by the inflexibility of the apportionment process and the complexity of consumer funding. However, the experience we have gained in supply management and financial opera. tions now indicates that certain aircraft and missile parts can and should be financed through the stock fund. On the contrary, certain items have been carried in the fund while our current experience indicates that they are more properly financed by appropriated funds. Under this objective, we are reviewing all items of a questionable status for a final determination on their financing for fiscal year 1963.

Objective No. 3: Determine best fiscal policies and procedures and budgetary structure to support an effective and efficient supply system. There are many projects which fall under this objective as fiscal procedures and budgetary structures are being continually evaluated. Examples are the Department of Army war reserve program and the development of an equitable credit-returns policy.

Objective No. 4: Simplify procedures. This objective also incorporates a number of projects. Specific examples are the studies to improve financial inventory accounting and to simplify accounting for low dollar items.

Objective No. 5: Assure that under emergency conditions and in war, supply support of operations is not impeded by any difficulties stemming from transition from preemergency supply procedures and funding policies. As an example, Army has developed provisions for supplying stock fund items under emergency conditions, such as Lebanon, and these procedures are now incorporated in "The Department of the Army Financial Management Plan for Emergency Conditions."

Mr. Chairman, this concludes my presentation.

CASH POSITION OF STOCK FUNDSVALL SERVICES

Mr. Mahon. General Moore, will you have inserted in the record at this point the cash position of each of the various stock funds as of December 31, 1960.

We would want this statement to indicate the number of the days' payments represented by the cash balance.

General MOORE. Yes.
(The information to be supplied follows:)

Army stock fund
Cash position Dec. 31, 1960-

$660, 976, 591 Less transfer to be made to "Military personnel, Army" (74 Stat. 338) effective fiscal year 1961.

260,000,000

Total.--

400, 976, 591 Average daily disbursement is $5.956 million, 67 days.

Navy stock fund Cash position Dec. 31, 1960

$256, 237, 181 Less transfer to be made to “Military personnel, Navy" (74 Stat. 338) effective fiscal year 1961.-

75,000,000

181, 237, 181

Total.
Average daily disbursement is $3.163 million, 57 days.

Air Force stock fund Cash position Dec. 31, 1960.--

$251, 911, 134 (A transfer of $30 million to “Military personnel, Air Force" (74 Stat. 339) during fiscal year 1961 has already been

accomplished.) Average daily disbursement is $3.555 million, 71 days.

Marine Corps stock fund Cash position Dec. 31, 1960-

$25, 911, 275 Less transfer to be made to “Military personnel, Marine Corps" (74 Stat. 338) effective fiscal year 1961.-

500,000

25, 411, 275

Total...
Average daily disbursement is $0.302 million, 84 days.

CONSTRUCTION OF AIRFIELD AT FORT LEE, VA. Mr. SIKES. I do not feel we have attained sufficient information on the procedure whereby an airfield was constructed at Fort Lee, Va. This is a serious matter, apparently it completely disregards the authority and wishes of Congress. It may show an equal disregard for the law.

I think we need to know more about it. We have been told for years that 0. & M. funds were very tight. One of your biggest problems was in O. & M., getting enough money to make ends meet.

I find it hard to understand how in this tight money situation you are able to build an expensive airport which should have been built from construction funds.

I am going to ask that a continuity of information be provided to this committee, and I would like it broken down into detail and into as many sections as is necessary for us to see clearly what the picture is.

For instance, General, I would like to have the authorization, if any, and from what source for each step of this construction.

Then, I would like to have submitted for inclusion in our record, or for the use of the committee, whichever appears best, the complete continuity of the orders that resulted in the construction of this airfield.

I would like to have the continuity of the program of construction.

I would like to have the continuity of planning for this field, from what source, by whom approved.

I would like to know something about the supervisiou—who supervised it, who was responsible, when and where.

In other words, I want the complete story.

General DUFF. May I state with regard to this particular situation that while we have had a great deal of information, the Secretary of the Army felt, because some of this information was developed by inspectors general that reported directly to commands that were involved within the chain of command, that it was desirable to have an independent survey made. He, Secretary Brucker, therefore directed that a further investigation be made by the Inspector General of the Army, and this investigation is still underway, sir.

If I might suggest, if the information that you desire could be supplied at the time this more comprehensive investigation by the Inspector General of the Army is completed

67438—61-pt. 2

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