the subcontractor had agreed to consider the separate negotiation of a voluntary refund AEC's prime contractor made no attempt to obtain the refund. After we brought this situation to the AEC's and the contractor's attention an appropriate adjustment in the price of the tubes was made, reducing by about $390,000 the cost to the Government. The AEC had no stated policy nor was it AEC's general practice to require inclusion of a provision giving the AEC the right to review pertinent contractor records in negotiated fixed-price prime contracts, subcontracts, or purchase orders issued by AEC prime contractors. In accordance with our proposal, the AEC subsequently issued a procurement directive requiring a rider in all negotiated fixed-price contracts, subcontracts, or purchase orders giving the AEC the right to make such audits. The directive specifically provides that audits shall be made when necessary to obtain reliable cost data before negotiating fixed prices on follow-on orders for the same supplies or services, such as the orders for the electron tubes. In our report of March 1962 on Government-furnished housing at Los Alamos, we expressed the opinion that the establishment of rental rates at 30 percent below those prevailing for comparable private housing, on the basis that unusual transportation costs were incurred by Los Alamos residents, did not conform to the Government's rental rate policy established by the Bureau of the Budget. The 30 percent reduction resulted in a loss of rental revenues for the fiscal year 1961 of about $1 million. After we discussed this situation with officials of the AEC operations office, the AEC requested a review of the rental rates by a Housing and Home Finance Agency appraiser. As recommended by the appraiser, the AEC made a 7.5 percent across-the-board increase in Los Alamos rental rates which is expected to bring in additional revenues of about $182,000 annually. The appraiser recommended also that a further increase be contemplated for 12 to 18 months hence. The AEC informed us that it was in general agreement and would make further adjustments following a new survey in 1962. Some of the audit findings reported to the AEC General Manager and the managers of AEC field operations offices and the corrective action taken are set forth below. 1. Our review of overseas and foreign air travel by AEC personnel showed that in many cases first-class accommodations were used on flights having both first-class and economy accommodations. The Standardized Government Travel Regulations urge travelers to use the less costly accommodations when both types of accommodations are available in different sections of the same plane and for flights of relatively short duration. AEC's directive related only to flights of short duration. After we brought our findings to its attention, the AEC revised its directive to provide further restrictions on the use of first-class accommodations which should bring about considerable savings to the Government. The directive also advised managers of field offices to call the new policies to the attention of cost-type contractors. 2. Our review of an AEC negotiated fixed-price contract brought out that a contractor's price proposals included amounts for steel costs that were substantially in excess of prices previously quoted to the contractor by a supplier. Also the contractor did not tell the AEC of a reduction in nickel plating costs received before completion of contract negotiations. The AEC would have been in a position to negotiate a price about $383,000 less than was negotiated if it had been aware of such reductions. In accordance with our suggestion, the AEC issued instructions to its contracting officials to take such changes into account in future price negotiations. In September 1962 AEC negotiated a reduction of $125,000 in the contract price. 3. A fixed fee payable to a subcontractor was reviewed and approved without definite knowledge on the part of the prime contractor or the AEC that (a) the subcontractor's cost estimate was predicated on the assumption that the work would be done by its own forces when the subcontractor had already determined that a large part of the work would be further subcontracted and (b) available cost data applicable to the work to be subcontracted had not been considered in the determination of the estimated costs. Adequate knowledge of pertinent cost factors would have strongly indicated that the subcontractor's cost estimates were overstated by about $1 million with a corresponding overstatement of the fixed fee of about $70,000. Although the operations office and the prime contractor had been pursuing this matter with the subcontractor we recommended that it also be brought to the attention of the AEC contracting officials to emphasize the need for independent reviews and verifications of cost estimates furnished by contractors or subcontractors. 4. We pointed out that savings could be effected if certain management services were performed by an AEC operations office or by its operating contractor rather than by the contractor performing these services inasmuch as the scope of the work had been materially reduced. After we brought this observation to AEC's attention on several occasions, the AEC requested the contractor to review its personnel requirements for this work. The performing contractor then reduced its personnel requirements, thus reducing the cost to the AEC by $90,000 a year. CIVIL AERONAUTICS BOARD During the fiscal year 1962, we completed a review of selected financial transactions and related administrative activities of the Civil Aeronautics Board for the fiscal years 1960 and 1961. In a report to the Chairman of the Board in June 1962 we commented on certain deficiencies in property accountability, on inadequate controls over travel advances, and on the desirability of a change in the Board's policy on compensatory leave. The Chairman of the Board indicated that corrective actions would be taken. CIVIL SERVICE COMMISSION Our audit work at the Civil Service Commission during the fiscal year included examination of various phases of the Federal employees' group health and life insurance programs and the Civil Service retirement and disability program. We also made a preliminary review of recruiting, examining, inspection, and financial management functions in 2 of the 10 regional offices of the Commission. In May 1962 we issued a report to the Congress on certain aspects of operations of the Federal employees' group life insurance program. Our report pointed out that costs of providing insurance under the program, as estimated by the Commission, exceed the premiums by about $18 million annually. We recommended that the Congress consider increasing premium rates to cover costs and that rates be increased in the future when amendments to the act or other conditions increase benefits and costs. As an alternative we recommended that the Congress (1) authorize the Commission to revise the rates as the need arises, and (2) fix the percentage that is to be borne by the employer and the employees, respectively. We also made recommendations regarding improved accounting and reporting practices, more frequent actuarial studies, and limiting the privilege to convert, at the expense of the insurance fund, group insurance to individual policies when employees leave Federal service. Our examination of selected payments from the Civil Service retirement and disability fund to annuitants, survivors, estates of deceased employees and annuitants, and persons leaving Government employment brought out the need for adjustments of certain awards. These adjustments, which were later made by the Civil Service Commission, prevented overpayments of about $86,000 and underpayments of about $54,000. DEPARTMENT OF JUSTICE Our audit work in the Department of Justice during the fiscal year 1962 included an audit of the Federal Prison Industries, Inc., for the fiscal year 1961 as required by the Government Corporation Control Act. It also included an examination of the activities and financial transactions of the penal and correctional institutions operated by the Bureau of Prisons at Ashland, Ky., Chillicothe, Ohio, Leavenworth, Kans., Lewisburg, Pa., Lompoc, Calif., and Springfield, Mo. We submitted a report on our audit of the Federal Industries, Inc., to the Congress in January 1962. Prison We ex pressed the opinion that the financial statements presented fairly the financial position of the corporation and the results of its operations. At the close of the fiscal year, we had issued reports on our audit findings at four of the penal and correctional institutions to the wardens of the institutions. The more significant findings pertained to weaknesses in property management. TRANSPORTATION LITIGATION During the fiscal year 1962 we continued to provide legal and technical assistance to the Department of Justice in the prosecution and defense of transportation suits by and against the United States. Transportation specialists and attorneys-in addition to furnishing technical advice and assistance participated in 27 trials or pretrial conferences before the Court of Claims in Washington, D.C., and in 14 actions in United States district courts in Dallas, Houston, and Lubbock, Tex., New York, N.Y., Miami, Fla., Denver, Colo., Cheyenne, Wyo., and Chicago, Ill. We continued working with the Department of Justice and the United States District Court for the Southern District of Florida, Miami Division, to dispose of suits of intervenors in the basic suit decided by the United States Court of Appeals for the Fifth Circuit in No. 17607 of March 8, 1960. Basically, the decision holds that the air carriers must be paid for charges for the total mileages their aircraft were required to be flown unloaded in charter flights for the military, regardless of previous specific agreements or bids. Nine of the 13 cases involved are settled and we are working closely with the Department of Justice to reach settlements on the 4 remaining cases. We reported to the Department of Justice for collection debts against carriers involving 187 items in the sum of $579,186. During the fiscal year, similarly reported debts involving 2,533 items in the sum of $621,461 were settled by collection of $245,570 through judgments, compromises, or otherwise. During the fiscal year, we received from the Department of Justice requests for reports on 81 suits filed by carriers against the United States involving 15,259 separate shipments on which |