Mr. BUZHARDT. Yes, Mr. Chairman, they are.

Chairman MCCLELLAN. That is what I meant by an Executive order. A directive would be the same thing from the Defense Department. It would be an Executive order. You call them directives.

Mr. BUZHARDT. Yes.

Chairman MCCLELLAN. It is a matter of terminology, but you do have them in writing?

Mr. BUZHARDT. Yes.

Chairman MCCLELLAN. And you could make those available to us? Mr. BUZHARDT. Yes; we would be glad to if the staff doesn't already have copies of them.

Chairman MCCLELLAN. They do already.

Mr. BUZHARDT. I believe that they do.

Mr. CONSTANDY. We do have some of them, Mr. Chairman.

Chairman MCCLELLAN. I think it would be well for you to submit them, not making them a part of the record at this time, but submit to the staff, copies of all of these orders that have been issued since this investigation got underway, so that they could be evaluated and we might be able to determine from them not only the actions taken, but the progress as a result of these orders.

Mr. BUZHARDT. We will be glad to provide those, Mr. Chairman. (See comments of Mr. Constandy on p. 14.)

Chairman MCCLELLAN. You can provide them to the staff for examination at least, and later we may want them in the record.

Senator GURNEY. I was going to ask him the same thing, Mr. Chairman. I wonder, too, if we couldn't have the responses to the directives from the commanders in the field to whom the directives were sent. Then we ourselves can follow up later and find out what has or has not been done.

Chairman MCCLELLAN. I wanted an evaluation of them and then I assume that the staff would follow on its own initiative and check to ascertain whether these orders have been carried out.

I wonder if you can do that, too. You can make your own report on it.

Senator GURNEY. We can have the responses as well as the directives. Chairman McCLELLAN. I don't know whether they respond in writing or by performing.

Mr. BUZHARDT. Hopefully by action.

Chairman MCCLELLAN. Do your directives require any response in writing? I suppose they would require reports on how they are proceeding.

Mr. BUZHARDT. Mr. BeLieu will provide these, and he has them in the annexus to his statement.

Chairman MCCLELLAN. Mr. Secretary, you may respond.

TESTIMONY OF KENNETH BELIEU

Mr. BELIEU. Mr. Chairman, I do have appended to my statement a list of the asset control actions being taken. I believe they have been furnished to the committee prior to the hearing.

(The document referred to follows:)

LIST OF SIGNIFICANT ACTIONS INITIATED BY THE ARMY SINCE NOVEMBER 1971

PART I-PROPERTY DISPOSAL

1. Reviewed investigative reports provided by the General Accounting Office, Army Audit Agency, Criminal Investigation Command, and Inspector General to determine areas in need of improvement. As a result of this review projects were initiated in areas of training, systems standardization, and career development.

2. Reviewed property disposal regulations to determine adequacy of policies and procedures. As a result action was initiated to develop a standardized operating handbook for use at the disposal yard level. Based on the impending reorganization of the disposal function, this action was transferred to the Defense Supply Agency in June of this year.

3. Action was initiated to develop a career program for civilian employees associated with the disposal program. This project was transferred to the Defense Supply Agency in June 1972.

4. A review of the Armed Services Procurement Regulation was concluded to ascertain adequacy of procedures for the contractor debarment. The review indicated that procedures contained in the Regulation are adequate.

5. Directed improvements in current Disposal Training Course Circular and the expansion of Disposal Orientation Training to all Army Service Schools.

6. Directed a review of the Defense Demilitarization manual. This action which is continuing is intended to provide more definitive guidance on identification and control of munitions list items. In May of 1972 the Assistant Secretary of Defense (I & L) directed the Services and the Defense Supply Agency to completely review the DOD demilitarization policy and procedures.

7. To improve the commanders' knowledge and understanding of property disposal operations, a commanders' disposal review guide was provided major commands worldwide.

PART II-ASSET CONTROL

DISTRIBUTION MANAGEMENT

1. Development of an automated 5-year version of the Major Item Distribution Plan (MIDP) to project requirements and deliveries to Army customers through a 5-year time span.

2. Institution by the Air Force, as Executive Agent for the Department of Defense, of the Materiel Asset Redistribution Center Europe (MARCE). MARCE is an intensive management effort modeled after the Project for Utilization and Redistribution of Excess Materiel in the Pacific Area (PURM), for which the Army is the Executive Agent. Army participation in MARCE commenced in May 72.

3. Initiation of the development of the Standard Army Ammunition System (SAAS) which will result in automated redistribution control studies, automated supply control studies, automated lot number accounting, and automated financial and supply performance evaluation.

WORLDWIDE ASSET POSITION

4. Development of a new continuing balance concept for preparing the Worldwide Asset Position (WWAP) used to support distribution planning and the budget (scheduled for implementation in Dec. 72).

ASSET REPORTING AND VISIBILITY

5. Development of a simplified unit asset reporting system.

6. Implementation of Project SCRUB CLEAN WORLDWIDE designed to reduce the problem of excess assets in units (to be completed by 31 Dec 72).

7. Establishment of a uniform loss reporting system to provide asset data on selected materiel lost from (or recovered by) the Army inventory.

8. Implementation of the first phase (CONUS depot to oversea commands) of an intransit control/intransit accounting system.

9. Development of procedures to obtain visibility over assets located in US Army Europe war reserve accounts.

10. Development of an expanded direct exchange system to control reparables/ recoverables requiring general support and depot level maintenance.

11. Implementation in Europe of procedures to recover items from property disposal holding activities to satisfy current requirements. These procedures involve the maintenance of records by item managers of what has been shipped to property disposal holding activities.

CATALOGING

12. Publication of a new regulation which, when fully implemented, will reduce the tremendous number of changes made each month to the Army Master Data File (AMDF).

RESOURCE PLANNING AND MANAGEMENT

13. Implementation of what is known as the "two man rule" (a double check on important management decisions) in logistic decision making, particularly as it pertains to property disposal actions (e.g., transfers to disposal will be reviewed by the item manager and one echelen of management above him prior to release). Mr. CONSTANDY. Mr. Chairman, as this has progressed, the services have furnished us with copies of the directives and orders that they have undertaken.

Chairman MCCLELLAN. You have them?

Mr. CONSTANDY. Yes, sir.

Chairman MCCLELLAN. Is that all of them?

Mr. BELIEU. All that we have to date. It is a continuing thing and as the hearing goes along, we will have more.

Chairman MCCLELLAN. I wanted to know that the committee has these orders and has the opportunity to examine them and become informed of what action is taken and the results that we are getting from them.

Very well. Are there any further questions of Mr. Buzhardt?
Senator GURNEY. I have some when you have finished.

Mr. Buzhardt, on page 1 of your statement, you mentioned how the investigation was proceeding, that our committee staff was doing some of it and your own people were doing some of it.

Would you explain what your Department is doing on this investigation.

TESTIMONY OF J. FRED BUZHARDT-Resumed

Mr. BUZHARDT. Yes, Senator Gurney. For one thing, of course, we may divide this project into two parts, really. The Department furnished to the committee a number of personnel in the areas they requested.

Second, the Office of Internal Audit of the Secretary of Defense undertook audits of the various aspects of the supply system. These were all in Europe, because that is where the investigation began.

One of these was a very broad audit. Subsequently we have undertaken, or are in the process of considering additional audits suggested by the committee staff.

Senator GURNEY. When was this audit undertaken?

Mr. CONSTANDY. I believe it was in January.

Senator GURNEY. Let the witness reply.

Mr. BUZHARDT. I believe this audit began in January.
Senator GURNEY. Of this year?

Mr. BUZHARDT. Yes, sir.

Senator GURNEY. How many people did you have on this audit and where did you audit?

Mr. BUZHARDT. Senator Gurney, I don't have the specific number of people utilized in the audit. It was done by the European branch of our Office of Internal Audit and they were augmented by the Army audit division. It was a very large undertaking.

Senator GURNEY. What is the difference between these two auditing units?

Mr. BUZHARDT. The Army has its own audit agency. The Army Audit Agency. But the Office of the Secretary of Defense has a separate and independent audit agency, Internal Audit, which is a management tool of the Secretary of Defense.

From time to time audits are scheduled by the Internal Audit Division, either of an activity or of an organization.

Senator GURNEY. These audits were undertaken in January, both of them by Defense and by the Army?

Mr. BUZHARDT. I am speaking of one audit here. The Internal Audit of the Office of the Secretary of Defense, which is in the Office of the Comptroller. They actually conducted the audit, but in the process they supplemented their work with personnel also from the Army Audit Agency.

Senator GURNEY. The Army didn't do a separate audit. It was done by the Department of Defense with personnel from the Army. Mr. BUZHARDT. That is correct.

Senator GURNEY. So you only have one audit.

Mr. BUZHARDT. This is one audit. Subsequently we have considered undertaking two more.

Senator GURNEY. What are they and when were they undertaken? Mr. BUZHARDT. Senator Gurney, I couldn't be precise about it. I would have to furnish it for the record. These were at the request of the committee staff.

Senator GURNEY. First of all, would you tell us or submit a memorandum for the record, about the Department of Defense audit? Mr. BUZHARDT. I will be glad to.

(The memorandum submitted follows:)

OFFICE OF THE ASSISTANT SECRETARY OF DEFENSE,
Washington, D.C., August 18, 1972.

MEMORANDUM FOR RECORD

Subject: Audit of Property Disposal Activities in Europe.

The purpose of this memorandum is to provide information requested on July 26, 1972 by the United States Senate Permanent Subcommittee on Investigations of the Committee on Government Operations, concerning the subject matter. The audit of Property Disposal Activities in Europe was undertaken to review the adequacy of actions taken to resolve problems disclosed by previous audits, inspections and investigations and evaluate the effectiveness of the current management and control systems. In accordance with arrangements made by the Secretary of Defense, the audit work was coordinated with the efforts of the Senate Permanent Sucommittee on Investigations that was inquiring into allegations of irregularities in the disposal of surplus U.S. military equipment in Europe.

In order to cover the many facets of the redistribution and disposal functions in Europe, work was performed at 33 activities in Europe and the U.S. A list of activities visited is attached.

The audit was started on January 11, 1972, and the field work and draft report were completed on June 16, 1972 and July 13, 1972, respectively. The results

of the review are presently being staffed with Army and Air Force Commands in Europe, the Military Department Headquarters and OSD offices.

Auditors from the Office, Deputy Assistant Secretary of Defense (Audit), U.S. Army Audit Agency (USAAA), and U.S. Air Force Audit Agency (USAFAA) participated in the audit. The offices of the U.S. Navy Auditor General and the Defense Supply Agency (DSA) Auditor General also provided some assistance. The number of personnel assigned to the audit varied as they were phased into and released from the audit, as necessary, during the period January through June 1972. At the peak of the effort, 25 auditors worked on the subject audit. The preliminary results of the audit are summarized below.

The most serious problem encountered in transferring usable property to disposal activities and then to buyers has been the inability to identify Munitions List items that are lethal or have a strictly military application. These items should either be demilitarized or sold under closely controlled conditions. Because the specific items have not been properly identified, procedures intended to control the disposition of Munitions List items have been generally unworkable and many Munitions List items have been sold to unauthorized purchasers without being demilitarized.

Action was taken by the Assistant Secretary of Defense (I&L) in May 1972 to have DSA and the Military Departments develop a system for identifying and controlling militarily sensitive items. Due to the volume of line items in the DoD supply system, this may be a difficult and long range effort. If so, interim action should be taken to identify categories of items by Federal supply class that can be freely disposed of without critical review because they have no potential of being classified as Munititons List items. Items in questionable Federal supply classes should be retained in the supply system until they are demilitarized under controlled conditions or critical reviews have been made to assure that the items can be freely disposed of without control. Controls should also be established to assure that undemilitarized Munitions List items are sold only from the supply systems to approved purchasers under Foreign Military Assistance Sales procedures and controls.

Only about 30 percent of 500,000 transactions processed in calendar year 1971 by the disposal systems in Europe were adequately controlled from receipt to final disposal of the item. The major impediment to establishing an acceptable and workable accounting and control system has been the inability to identify and segregate Munitions List items from common use items. As a result, many common items were unnecessarily accounted for and controlled while control over many Munitions List items was lost and they were disposed of without regard for Security Trade Control requirements.

We concluded that it was not feasible to control and administer the thousands of transfers from U.S. Army, Europe (USAREUR) and U.S. Air Forces, Europe (USAFE) supply systems to the disposal system on a line item basis. In conjunction with the takeover of the Defense Disposal System in Europe, DSA should revise the system for turning in low dollar value nonsensitive items. DSA should also revise or develop new procedures to provide positive control and accountability over sensitive and valuable items. To the maximum extent feasible, disposable property should not be physically moved if it can be more economically left in place pending final sale. Better controls should be established to assure that militarily sensitive items are not accepted by disposal yards until a competent authority has certified that demilitarization has been completed and that the items can be handled as scrap.

Substantial improvements could also be made in lotting and merchandising disposable property for sale in Europe through better use of supply management data. Many lots of new unused parts and supplies, valued at up to $200,000, were offered for sale as miscellaneous items while low value used items in poor condition were advertised in detail. As a result of inefficient merchandising procedures, returns on some sales were not sufficient to defray administrative costs.

Better screening procedures and practices could have resulted in the redistribution in calendar year 1971 of an estimated $34 million of materiel that was excess to the local needs of USAREUR and USAFE activities and Military Assistance Program (MAP) supported countries. Neither USAREUR nor USAFE supply activities were fully participating in established programs for utilization of local excesses. In some cases, available excesses were not reported for screening and in other cases foreseeable requirements were not considered for utilization. Better controls were needed to make sure that all requisitions initiated