oversight

Defense Industry Profit Study

Published by the Government Accountability Office on 1971-03-26.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

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                                          HOUSEca \/Efi$ggi’i’ (Jp&y?TyJo)JS(j,-]~*~t’:Ip&-~E
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                                                                                                                                 LM094432
                                                                                                                                                 .‘
            Nr.     Chairman         and Kembers of the Subcommittee:

                      Me appear          this     morning         in response          Lto your           request     to discuss        0uT

            report         of March 17, 19'71, entitled                       "Defense         Industry          Profit      Study.!'         It

            is my tiderstanding                   tnat     your      reques t originated                   at the suggestion             of

            several         members of the House of Hepresentativcs                                       to obtain        our views         with

            respect         to critical           comments made by the press,                             in particular,         the alle-

            gation         that     GAO had been subjected                    to pressures                from defense         contrac+trs

            and tine defense              agencies,          and had altered                 tne facts          and conclusions              in

            its     report         as a result           of such pressures.                           .

                      Wdle         I welcome this            hearing,             I should     like         to express       my regret

            that      a few,        *but widely          circulated,          premature,            inacc-urate,           and misleading

            press      stories          have made this             hearing          necessary.              In my opinion,            such re-

            ports      are a disservice                  to the Office              which     I head and to tne Congress                           of

            which      the General              Accounting         Office          is a part.              I am pleased        that     most

            press      accounts,          issued         following          t!e     release        of tne GAO report,                 have

            been generally               accurate         and objective.

                      In summary, I would like                       to emphasize             these         points:

                      1.      It    has been the policy                 of the GAO for                    many years       'a refer         draft

            reports          of Tunis Office             to the agencies,               organizations,                and others        speci-

            fically          affected       to obtain          their        views.          This    is done to enable                 us to
report          to the Cclnrr,ess an d thi                    piblic       any disagreements                       as "to the factual

completeness              of the roLmrt              ae L,,_-
                                                         Tnl7 as differences                         with         respect     to our

findings          and conciusis~-,s.

          2.      Not a sir,gle          figpe          has been altered                    at any stage               in the draft-

ing of the reprt                    on defense          ir;dustry          profit          and none has been added or

deleted          as a result          of agency or contractor                         views.

          s*      Our conclusion              in the report                has been unchanged                       since     the original

draft      was sent          to age ncies            and industry               groups       for      review,           The final            re-

port      is critical              of the way in which                    profit      objectives                  have been established

on defense           contracts          in that         profit          objectives           have been primarily                       on the

basis      of cost         of sales          without          adequate          consideration                of return         on

capital          investmerit,           Some contracLmrs                   agree      wiVn our position                      but many do

not,       It     was primarily              to obtain           their       views         on this          subject         t'nat we asked

the agencies              and the contractors,t'nrough                             LnBir     associations,to                  react          to OUT

report.           We believe          that     the Congress                and the public                   should      know that            some

disagree          with     our      conclusion.

          4.      Contrary          to certain          press          reports,        there         was no llpressurell                of

any type.            Neither         I nor any member of our                         staff         received           any follow-up

communications,               oral      or written,              from these           associations                  beyond the formal

respnses           to our          request     for      their          views.

          At this         point,      I would          like      to discuss           our plicy                   of submitting

draft      reports         to agencies           and otner              affected           parties          for     comments prior

to issuance              as an official              report        of the Comptroller                       General         to the

Congress.            In discussing             "inis      point,         we shall,           as you requested,                      relate




                                                                                                                              -2-
draft      0:’         ti;;f.            1 e&.71-t         cs;_i?d       ‘.jhrdJ         17,       1371,              05 ihe Ddeme                   Industry            Profit

s 'iudy *

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                                                                                                                             --___
                                                                                                                                   F$mC’T%D           PAH;I‘IES


          The pract4ce                               of obtsining                     mmmts                 fmm            sffected            parties          on proposed

audit       reports                        is one of' long                         standing            lrithin              tile GAO and it               goes even

further               back in the public                                     accosting                 prcfession,                      just    how far           I do not

know.            It         is interesting                              to note            thst        as early                  as 1935 ihe             Congress,            in

an amendment to the Tennessee                                                       Valley           Authority                   Act,      specifically                 prohibited

issuance              of report                      s on GAO audits                           required               in     the Act -until               TVA "shall

have had reasonable                                        opportunity                   to examine                    the exceptions                 and criticisms                    ss+i,

to point               out errors                          therein,                explain           or answer                   the same, and to file                        a

statement                   which                shall           be submitted                    b37 the kmptroller                            General          rJith     his

report      * If            The practice                             became written                     policy              of t,he Office               when.3.t         krEls in-
                                                                                                                       .
corprated                       into             internal               instructions                    to the Accounting                           and Auditing                staff

in 1454.                    This               policy            became applicable                          to contract                    audit      reports            in 1955.

Prior       TV that                         time      it         was fairly                    common practice                      to obtain            oral       and some-

times       written                         comments from agency officials                                                  and contrac"trs                 on specific

matters               as tk                    individual                 audit          manager may have felt                                 it    was desirable,

          Although                          I can claim                   no responsibility                                for     instituting             such a policy,

 I examined                        this          policy               carefully                when I became Comptroller                                 General-in                1966.
 I endorsed                            the plicy                     and have retained                          it.

          A review                          of the auditors'                           findings                 and conclusions                     by tne person                  or

 organization                            on wnose records                            and operations                         we are reporting                      is desirable

for      a number of reasons.                                             Since          our reports                       deal     with       highly        important




                                                                                                                                                                        -3-
                                                                                                                                                . -
        matters,                 frequentl;:                      of nsti~:r:sl         sigii;fic;nc51                       it     IS esselitsai   that                       a 11 the

        relevant                 facts             be asceri:3in~+S                  ani      that         tsiltyj'        be pXperly              evaluated,                     In our

        opinion,                 ii          is    premat*;cre to rep2r-i                       to        i;ne Cxigress                  ow       findings,                 conclusions,

        and recommendations                                       0:: 'sr,e basis            of inf~~8rxation                      gatkred           at         var2.ou3          agency


        or contractor                             operating             levels        Kithout               considering                  any additional                      pertinent

        information                          wZch          may only           be secured                 from top agency or contractor                                            officials.

                 Tne practice                              of obtaining               advance               comments on drafts                        of our reports

        before           issuance                       as final           reports           and giving                    objective             consideration                    to

        t-ho se COIrIIiIents                       provides             additional              assurance                   that       our       reports               are fair,

        complete                 and objective.

                   Another                      very       important               consideration,                     it      seems "to me, is the fact

        that       obtaining                       comments and reactions                                in advance                  enables         us to present

        t,z ihe Congress                                in one document                 tine whole package--the                                   facts           as we found

        them,           our conclusions                              from those              facts,           ourSrecommendations                               for        corrective

        action           alid.          'ilie      head.          of the ageacyls                    position               on the‘matter.                        If       a disagree-

        ment exists                          between              the Comptroller                    General               and the agency head,                             the report

        reflects                 it,            and the CommAttee or Member is t'nen in position                                                                  to evaluate

        the issues                      from a study                   of t'ne document                       in hand.

                 From                 time         'L      time       we    will      have           exceptional                   sihations               in          which      we

        find       it      appropriate                            Aa proceed           without             awaiting                formal         agency               comment when

        formal           comments are unreasonably                                           delayed.                 However,                 the substance                 -6f a pro-

        posed report                            would        in all         cases b,0 discussed                             with       top agency officials.

        In the -unusual                            cases,            when we proceed                     witnout             formal             comment, we attempt

        "a give            the agency advance notice                                          and indicate                        in the reprt                    why comments

        have not be received.


                                                                                                                                                                            -L-




_.__,
         Kit:?    that     backgrotiii;         in mind,       it        should    not     seem uniusuai or suspect

in any way for             our proposed            fincii~~~gs arid conclusions                    in the Defense                  Industry

Profit      Study        +d have been reviewed                 by the defense                contracting              agencies           and

the associations              of coni rar+brs               ~wrose records             provided      the basis               for    those

findings         and conclusions.                 In fact,          it    would    seem especially                  important

to do so inasmuch               as tine study              M,
                                                           7 Q of such imDortance                   that      it      was directed

by an Act of Congress.                     Therefore,          the hignest              degree      of objectivity,                  in

my view9         was absolutely            essential.

         Let me now discuss                that      study     and re*port             specifica     .lly.          First,         the

study      and its       resulis:

THE DEFENSE INDUSI'RY PROFIT STUDY

         During       the nearings             in November 15@i) and in January                            13&j the Suebcom-

mittee      on Economy in Government                       of tine Joint           Economic         Committee              developed           - ':'-.

in considerable             detail        the need for              a    comprehensive           study       of profits

realized         by defense          contractors.             Subsequently,              .-the Armed Forces                  Appropria-

tion     kinorizaiion               Act for       fiscal      year        l$'O,    P-ublic       Law 91-121,               approved

November 19, 1959,                  directed       GAO to study              profits       earned        on negotiated

contracts         and subcontracts                entered      into        by tne Department                 of Defense,                           I

Wtional          Aeronautics          and Space Administration,                        and the Coast Guard,                         Con-           I5

tracts      of tne Atomic             Energy       Commission             awArded to meet requirements-of                                the      _ ,

Department         of Defense           were also          included.

         In responding              "tx3 the mandat e of t‘ne Gongress                       in that         Act,         we requested

annual      overall        proii'    L, data      from      154 contractors              through         t‘ne use of ques-

tionnaires.




                                                                                                                    -j-
tnro-dgh      1963 00 sales,                   profits,           total       capital          ir~vepLmen?J, aid                p---I
                                                                                                                                .__,: tra pt,-, r

equity       investmenT          for          defense          business        azi~ corn. _. .,!c           co ml;.c-r' C'i 111 s '- -15s .

The I5L       ColitrZCAd3TS            inci&ed             21 large           D@D co,;:t~c~~rs,              63     mkiller*             defer1ce



conirac-tars        9 a:6 10 cont~dc"~rs                          who received            a major        p3~-%ion of their

defense       business          in tne form of subcontract                               awards.         We worked                   closely

with     the contra            lors      in explaining                    ihe questionnaire              and in assisting                            any

contractor         needing            help.           As a result,             we obtained           data         from ail             of the

contractors            except         2 that          had gone out of business.                          The contractors                            that

furnished        data         accounted             for    (1) about           60 percent           of recen;             COD prime                  con-

tract      awards of $lcl,OOO or more,                             (2j      about       80 percent        of similar                   NASA

contract       awards,          aXi      (jj        a significant              part      of AEC and Coast Guard con-

tract      awards,

         Upon receiving                informatior                zr"c'u,;L     Yne*use of questionnairep                                we de-

voted      considerable               effort          to testing            and evaluating             tne data.                     We selected

40 of the 152 completed                            questionnaires              for      site     verification,                  and carefully

reviewed       the remaining                   112 questionnaires.                       As a result              of this             review           we

made visits            to additional                  contra&ors              as we deemed necessary                           for      checking

any apparently                questionable                data.          We did not,            of course,          completely                      verify

all      ihe data        because         it        was not practicable                   to do so,           We     did         the work we

considered          reasonable                in    the circumstances.                     In this       conneciion                   we made

use of       the contractors'                      financial         statements            which      had been audited                         by

their      certified           public          accountants.

         As a resuit            of our 40 site                    reviews       and careful            checking                of tine remain-

ing     112 questionnaires                     the profit            data      was revised            to some extent.                          As an



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i:-,a_7,;ylj:,,-d     vf     ;,i-;F c2XSe.v
                                          ;, j;         ‘;I,? Ar<?, tr.c2 : s”ui,.;‘:, c’:-t 1 ;.r_7 ,~:‘i_ : i!_l                       irlve ~,-~IT,-T’;I
                                                                                                                                                       ~

(yci j q.:;islp&             2~ i'oilok.3:

          /: 0 qcr-;- ---j r: :,I 13-i -ez T'"'Ij "l,.'.f.Z- 5'.IL------
                                                                    Z!? ss ter

          ;!et;:rn     on TCI for             KID wc~rk increasecl                   1.2 percer,L                   from     9:,     $3 13.9

percD:Lt~        8 12.4            percer,t       lncrezse.            -&tfxj-~      c::! '2~:: :':7r c:7pfl‘:r:iei                      kT;r!c ,?e--

creased         6.4 percent                from      13.6     to 13.2       perce!:t,              a ue,:rease             of 2.9 percent.

         212 Questionnaires                       reirieVe5
                                                    -------A.      laI~?eLy        in ----
                                                                                        122S!!iil~tOll



          Return       on 'ICI for            DOD work increased                     9.5 percent                    from     10.3        A& 1ti.S;

percent,          an increase               of 4.9 percerlt.

          Return       on TCI for              commercial             work decreased                      5.1 perce::t             from     13.4        tc3

13.3 perceriii,              a decresse              of 0.7 percent.

Review of Individual
----                                        Defense          Coniracis

          In reviewing                hearings         of the Joint               Economic                Committee          lhlhich ied to this

study,       we noted              some concern              r&t      contractor              capital            requirements               were not

considered            in negotiating                  defense         contract           prices.                Although           not     called        for

specifically                in     tne legislation,                we decided              to attempt                ix determine                whether

it   was practical                  to develop              investment           data      by contra. -t and to see if                                 there

was a tide            range         in profits              as a percent           of invested                   capital.

          By our examination                      we found         that     it     was feasible                     Lo develop             invested

capital          data by contract                    and we believe               that        ii         is feasible           'to forecast               similar
                                                                                                                                       -_
data      for       use in negotiating                      defense       contreats.                     Further,          as stated             in our re-
port,       we believe              that      the wide range               in rates                of return            on cspital               used for
defense          contracts            is due in             som3 degree           ho &he fact                   that,       under         present        pal-

i&es,           Government            procurement             personnel           give        little            consideration                   to contrac-
tors'       capital              requirements          in developing               profit                rate    objectives               for     negotiated
contracts.                 Instead,         profit          objectives           are developed                   as a percentage                   of the



                                                                                                                                                 -?-
anticipated              cost of material,                        labor      and overhetd,                 A.s a result,            jnccpities

can and do arise'among                            contractors              providing          differing             i;rcportions            of the

capital       required              for      contract             performance,              Also,         by relating            profits        to

costs,       contractirs                  have little               incentive          "a make imestmnts                       in ecpipment

which       would        increase            efficiency              and reduce            costs,          Such invest-Gents                 tend      to

lower       rather        than       increase              profits         in the long             run,      Of course,             other       fxtors,

such as whether                or not the program                          will       be continued,            could       be an overriding

consideration               in bringing                   about      contractor            investments              to reduce         costs.

          We believe             that        of the various                  ratios        available          for      evaluating            profits

earned       by contractors,                      the percentage                  of profit         earned          on total        capital           in-

vestment--the               total          investment               in all        assets      used in the business,                         exclusive

of any Government-owned                              items        or leased           items--is           the most meaningful                   for

evaluating              defense           profits.            The rate            of return         on total           capital       investment

relates          earnings           to total              capital         employed,         regardless              of whether         it     vas pro-

vided       by the owners                  of a business,                  its     creditors,             or its       suppliers.             Since

interest          is not         an allowable                     cost under           Government            contracts           and must be

paid      out of profits,                    it      seems only            equitable          to consider              total       capital        in

determining              profits.

          With     respect           to the individual                       contract         data,        as in the case of the

questionnaire               data,          the information                   was taken            from the      contractors'books  and
                                                                                                                                -_
records.           We did           the verification                      work we thought                 necessary in the circum-

stances          and we believe                   ,that      the data            is reasonably             accurate.             None of the data

has been subject                    to detailed               audit        in the sense of tracing                        cost      from indi-

vidual       source         documents,                such as invoices                   and payroll           records,            to the con-

tractors'          records.                In each case we presented                              our data          to the contractors
involved          for     review           and comment.                   We carefully             considered           the comments re-
ceived       and there              were relatively                   few cases involving                     disagreements.
impracticable          to e:ttemst        tc ob.-airi           a sample that               would         support           a

pro;ection         of t:c.e res:;its       to ail.        defense          contracts.                Some exarqles

of j~he 7~arja-r Lev- t:--~+
                        ..xd cake such a projection                                 impracticable                  are as

follo%Y3:

        1,    ideztificatloz.1           of t'ne SJlrliverse of completed                            contracts              was

              not available.              This would             have had to be developed                             by

              querying       all       of the cczzpanies                 involved,

        2.    There 'Kere several               types      of negotiated                   contracts              represented,

              5ncludi_ng        cost     plus     fixed         fee,      cost      plus         incentive           fee,       fixed

              price     Sncentive,         and firm             fixed      price.

        3.    Ecmerous       product       classes         were involved,                   including              aircraft,

              missile-space,             ships,     tank-automotive,                   weapons,              azrmunition,

              electronics,          comzunications               , and many others.

        4.    Four agencies            had to be covered                   - DOD, %%A., AEC and Cqast Guard.

Considering         the above variables                 plus       (1)     the need for               information                 as to

the statm          of production          involved,             and (2) the fact                   that      there          are

about    180,000       annual      DOD contract            actions          of $10,000               or more,           the       sample

size    required       for   making       a reasonabl;r                accurate       projection                  as to the entire

universe      was prohibitive,              Nevertheless,                  we thought              that      it     was desirable

to review       some contracts            and since             a representative                   sample was prohibi-

tive,    we selected         some contracts               for     review         based on availability                            of

manpower in our regions.

        In summary of our discussion                       on this          point,          it     would          be misleading

to generalize          on overall         defense         contracts           from the individual                           contract



                                                                                                                        -9-
data.           Ti:e qz2sticncaire                  data      covered          $125 billion                  in defense           sales

Vnile      OCR indivi,iua!,                 contract          data      accounted              for     onl:q $4,3 billicn

over approximatel:~                       the same period.                    The questionnaire                     data,       therefore,

pro-vide 6 a bztter                   anti more reliable                 basis          for     reflecting             defense

industry              prof-its*

Preparation
-.                      ---Iof the Final            Report

          I would              n@:r like      to discuss          briefly          some of the                 changes made in

our report               on Defense           profits         after      it     was issued              in draft            form for

comment by those                    concerned.               In our consideration                       here        of these         changes,

I believe              tde should          primarily          concern          outselves              with     whether          the changes

tiproved              the report           in terms          of balance,           objectivity,                    fairness,        and

completeness,

          Much has been said                       about      the placement                   in the report                of the section

dealing          with          our review          of individual               contracts.               ‘The facts             are these.

It      was decided               at the very           outset         of our work that                      the    only       practical

way of meeting                    the requirements               of the law was by the                             use of the question-

naire      in developing                   data     on the overall               profitability                     of defense         work.

Our work on individual                            contracts       was completed                      and the results               were

written          up in draft               form     first.        Tbls         section          appeared            in our draft

first          since      it      was the most complete                       at that          time,         not because we con-

sidered          it      the most significant                    portion          of our work.

          When the              report      draft       was released              for         comments,            our analysis             azd

verification                   work on the questionnaire                        data          had not yet been completed

and the results                    were     tentative          only.           In the final                  report,        we believed           '

it      only     logical           that     the portion               of our report                  which     we concluded                to


                                                                                                                                   - 10 -
be responsive            to the      statutory            directive           be discussed       first.           We then

bring       5n the individ>Jal              contract         data       in developing          our point          that

contrac-iiors        f invested          capital         should      be given       greater      emphasis           in

negotiating            defense     contracts.               Further,       we do not believe               there          is

a problem        of subordination                  of    points       in this      report      involving          oril)

55 pages and containing                     a summary of four                   and one-half       pages.

          In developing           the final             report      we decided        to have a single               conclu-

sions       section.           We also      deleted         from the conclusions                section          information

concerning           benefits      to contractos                 attributable         to defense          work since

benefits        also     flow     to defense             work from com~~ercial              work     of defense                con-

tractors.            We had not developed                  ~cifically             in our review           the extent             of

such benefits            and whether           there        was a preponderance                of benefits           to co111-

mercial       or defense          stork.       Further,           we had not been asked to evaluate

defense       profits          in terms      of whether            they    were too high           or too low,                  Our

purpose       was simply          to find          out what the profits                were,

          There are numerous                changes         in wording          between     the draft            and final

repoti.         This     occurs      in almost            every      report       we issue.        Our review

processes        require         consideration              of our reports           by our Office               of Policy

and Special            Studies     and by our Office                    of General        Counsel,        as well          as

by report        reviewers         in our operating                  Divisions       responsible           for     the

assignment.             Sometimes          changes        are made at meetings                 of two or more of

these       review      groups.

          I believe       it     is reasonable             to think        that     many of editorial                changes

involved        in the report            would          have taken        place     even if      we hadn't           received

agency       or contractor          comments.              For example,            one change we made in word-

ing was made regarding                     consideration             of return       on investment               in developing

                                                                                                                 - 11 -
profit          objectives               in price       negotiations.                     In our final        report       we added

thas      risk          complexity           and other           factors            should     also     continue         to receive

consideration.                         Some n;ay consider               this        a softening         of our position;             we

do not agree.                     It     is simply        reflective                of our conclu sion            that     the return

on investment                    cannot      be the only            criterion,                I would      like     to emphasize

that      there          was no softening                 of the report                   as a result       of obtaining

comments on the rough                         draft.

          One colwr;nist                  reported        that      we had weakened the report                           by eliminating

a phrase           in our recommendation                         that          profit      guidelines       %ressV          return       on

capital          in determining                profits.             Actually              in the recmmendation                in the

final          report       it         is stated       that      the profit               guidelines       should        "emphasize"

consideration                    of the total         amount of contractor capital   required.   We
                                                                    .
think          the final           wording         is just as strong if not stronger    than the original

wording.

RELEASE
a------- OF SPECIAL GAO REPORTS

          Now, Mr. Chairman,                       you have asked that                      we discuss        the point        concerning

our policy               with      regard      to the release                     by GAO--or       non-release--of             reports

made to Committees                        or individual             Members at their                   request,

          It     has been the policy                      in the General                   Accounting       Office        as far     back

as anyone in our Office                            knows to accord                      to the requesting           Member or

Committee               Chairman          complete        control              over the report           he receives.           Without

his      approval          or unless           he himself               makes public            the     contents,         we do not

consider           it     proper          to release          copies            to any one else.              I think       co*urtesy

demands this               kind          of treatment,




                                                                                                                             - 12 -
.          .




                That      is not to sa!;,                   however,            that     a ?I&ber                could     effectively

    Yock         up " infomation                     OT, m-y certain                   matter      by skply                requesting           GAC

    to review             it     and report            to     him,.           We would most certainly                          honor          the

    suze request                 fro;-, other          members and we would,                                if    necessary,          I:.al:e a

    similar            report       to other           requesting                members at the same time,                               regardLess

    of the relative                     timing        of the requests,                      NOrrr,all;.~,            an accor.odation                    can

    be arranged                 so that        one report,                with         copies       available              to other           interested

    members,            will       suffice,           eliminating                the time           and expense               of separately

    addressed             reports.             However,            if     necessary,             making             similar         reports

    simuI.taneously                 to more than                one member is a small                              price      to pay for

    harmony e             In practice,                problems            in this          respect               arise     only      infrequently.

                One may question--the                         more basic                policy         of honoring                requests          at

    all        from individual                 Members of Congress                         for      reviews,              audits,        or investi-

    gations            of specific               subjects.               The law does not expressly                                 require         it

    but,        to the extent                 that     available                resources           permit,              the Office           has

    always,            so far       as I can learn,                      followed          the policy                of complying              with

    all        reasonable           requests           for      such assistance                     by Jilembers.                 &.ny    times,

    in so doing,                 we find          situations              which         need correcting                    and some which

    indicate            a more general                 problem                needing      attention.                    Instances        of bad

    management                 or poor        controls          are sometimes                    brought            to light         wi,ich         we

    might        not have discovered                         but        for     the request.

                We are told              frequently             by Members that                      they          consider         the General

    Accounting                 Office      as the           only        independent              and objective                 source         available




                                                                                                                                         - 13 -
.     ,.




    to     t:,e~! for      is.foxztion            regarding        p:-cgm~            operaticns               in the Executi.ve

    Branch.

              Of course,          we do not as a mtter                       of policy               a~to~atically                accede

    to every           request      we receive.               Tine custoxar:,;          practice               is to discuss

    with      the requesting              Mexber      or Comittee                 at the very                 outset       just     what

    we may be able               to do in a given                situation            and,      if         necessary,         insist

    on cor.fining           the        job to mmageable              and reasonable                        boundaries,             AlSO,

    we wo,tid          not undertake            reviews        outside            our nonmal               jurisdication            such

    as one designed               to reflect          upon a potential                  political                opponent,          for

    exsxple.            We would         not undertake            purely           criminal.          type       investigations

    since      these       should        be handled           by appropriate              law enforcement                    agencies.

              When a review              or investigation             requested                specially             by an individual

    results           in significant            findings        which      we know should                      be of broad              interest,

    we take       the initiative                in attempting            to arrange                  for     wider       distribution

    of the       information.              We may arrange             with          the requester                 for      us to address

    the      report      to Congress            or,   failing        that,          we would               urge the Mexnber to

    either       make the wider                distribution          himself           or permit               us to do it.                I

    know of no significant                      case in which            we have been unable                            to obtain

    wider      distribution              when we considered                  it     ;Important              to do so.

              IQ-. Chairn;an,           with      regard       to special            requests               and special            reports,

    I think       it     is pertinent            to note the cements                      of the House Committee                               on

    Rules      in its       report        on xI,R, 17654,           which           was enacted                as the Legislative

    Reorganization               Act     of 1970.          In discussing               the provisions                    of the bill




                                                                                                                                  -u-

                                                                                                                                                    :-
The report   states   at page 13:

             “The Cc3mptroUcr       Genes21    mst exercise     some discretion
      in deciding %%a-&constitutes           a ‘report 0 ’ Tnere are -Limes
     when the Cozplxolld-er ClneraX and a Hember or comittee                   of
     Congress have a confidential.           relationship     such as might
     exist betxeen an attorney            or an accoun-&n-t and his clien.t,
     Committee frequently          ask the Coxptxoller       General.. for
     info-d-lria-ixion to be used during commit’cee hearings           in the
     examination       of witnesses o It would clearly          be unwise Lo
     reauire      the Comptroller      General to make the contents         of
     thise reports       avaiILab2.e on request       in advance of their
     intended use D”

     Mr, Chairman,     this   comp-letes   my prepared     s”ca’cemen’c.   I@ associates

and f: vi%% be happy to respxd         Lo any questions       you Mary have.




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