Lieutenant Colonel LUNCEFORD. No, sir, there is no dollar limita

tions.

Mr. FORRESTER. Do you think there should be a limitation? In other words, what I am trying to get at, of course when you cash any check there is a risk. The risk may be small, but there is a risk that the man you are cashing that check for is actually not the payee of that check.

I am operating on the idea that certainly there should be some arrangement made where a man overseas should be able to get some money, certainly money to support himself or to support his family. But I am wondering if there should not be some safeguard there where you should not cash checks for an unlimited amount, because if one of those checks were to turn out to be a forgery, then there would be a possibility of a big loss.

Lieutenant Colonel LUNCEFORD. Of course, sir, in any transaction which in any way looks bad to the disbursing officer, he can refuse to cash that particular instrument. He must be completely satisfied.

Mr. FORRESTER. I understand that. But the very best banks in this country get imposed on. That is why I was just asking you if from your experience and from the experience in these matters that you think some limitation on the size of the check should be imposed in this section.

Lieutenant Colonel LUNCEFORD. It would be very difficult to set out an exact scope for such a limitation, and it may very well be undesirable, when you consider areas wherein employees of contractors with the United States are authorized to cash checks. I do not have knowledge of any particular instance, but I can well conceive of a situation wherein the Philco Corp. or an engine corporation may have a number of employees at a particular installation, and under their own procedures it could be, I would think, that they would send one instrument over which would be cashed for the payment of all those employees.

Mr. FORRESTER. I do not see that difficulty myself. On these deficiencies which you enumerated there, you say that the profits or the gains are put into the general fund for miscellaneous accounts, I believe.

Lieutenant Colonel LUNCEFORD. That is right, sir.

Mr. FORRESTER. Then as a matter of fact there is no way to determine whether you actually made money or whether you lost money. It that not about right? In other words, these losses really do not reflect a true picture. You think you do better than these losses

indicate.

Lieutenant Colonel LUNCEFORD. That is right, sir. I looked into the legislative history of the act of December 23, 1944. Prior to that time I understand that as a matter of necessity these transactions had been carried on even though there had been no specific legislative authority for them. So under the terms of this statute it covered all transactions after December 7, Pearl Harbor Day.

In connection with this enactment, at that time we had actually shown a small gain as a result of these transactions.

Mr. FORRESTER. What is your personal opinion. Do you think you actually sustained a loss or that you gained?

Lieutenant Colonel LUNCEFORD. I think they just about cancel themselves out, Mr. Chairman. If in any particular year you have a loss

as a result of devaluation of a foreign currency, it would probably be made up through other gains in other countries in that particular year or at same later date.

Mr. FORRESTER. In other words, you think you have performed a fine service almost without any expense to the Government.

Lieutenant Colonel LUNCEFORD. That is exactly right, sir.

Mr. BRICKFIELD. Colonel, you are speaking with particular reference to the finance officers of the Army, Navy, and Air Force generally? Lieutenant Colonel LUNCEFORD. Mr. Brickfield, the statute contains authority for disbursing officers of the United States.

Mr. BRICKFIELD. My question, then, is this, What other agencies of government besides the Armed Forces have disbursing officers overseas?

Lieutenant Colonel LUNCEFORD. Of course the major portion of this is Armed Forces activities. In addition to our disbursing officers, I understand the State Department has some, for example. I do not know of any other agencies, but it is possible that some other agency has disbursing officers.

Mr. BRICKFIELD. Does the State Department maintain disbursing officers overseas in time of peace?

Lieutenant Colonel LUNCEFORD. Of course some means must be provided for the payment of their employees in the diplomatic and consular service at all times. As to the mechanics for that payment, I am not intimately familiar; but my understanding is a disbursing officer is always available so that they will be able to pay their employees.

Mr. BRICKFIELD. Is there permanent legislation that would authorize other agencies of government other than the Armed Forces to maintain disbursing officers overseas in time of peace?

Lieutenant Colonel LUNCEFORD. It is my understanding that the State Department does have legislation concerning the consular and diplomatic service and that the permanent legislation that we spoke of previously, which is now being prepared by the Treasury Department with the concurrence of the Armed Forces, will take care of the entire problem.

Mr. BRICKFIELD. If a soldier overseas, let us say, in Italy obtained a 500-lira note, he could exchange that into smaller lira denominations at a disbursing office, could he not?

Lieutenant Colonel LUNCEFORD. Here we are getting into an area which is outside of the disbursing officer's functions and duties, I think in Italy, if a person came in with a 500-lira note and it looked as though he had obtained that in an unauthorized manner, then it becomes a command responsibility to determine the facts and circumstances in that case and take appropriate action.

Mr. BRICKFIELD. When I speak of a 500-lira note, I mean negotiable currency; and he just brings it into a disbursing office and the currency has no earmarks on it and he has to have it broken down into smaller denominations.

Lieutenant Colonel LUNCEFORD. Yes, that is possible.

Mr. BRICKFIELD. They exchange it for him?

Lieutenant Colonel LUNCEFORD. Yes.

Mr. BRICKFIELD. Now, the moneys that these disbursing officers take in in the form of foreign currency, do they pay the exact same moneys back again? In other words, if a disbursing officer takes in a 500-lira

note, sometime during the week would he have that bill on hand to give out again to someone else who would have use for it?

Lieutenant Colonel LUNCEFORD. That is right, sir.

Mr. BRICKFIELD. So that there would be no devaluation or loss in foreign exchange on that particular item.

Lieutenant Colonel LUNCEFORD. The loss from these transactions arises when, say, for example, the disbursing officer knows he has a payroll the next day; so he goes into the market at the legal rate and gets that particular foreign currency and exchanges American dollars for it, or dollar instruments. Then that night while he has the foreign currency on hand the value of the currency becomes less, so that the next day when a man comes in and says, "I want my $10 in pay or $10 worth of foreign currency," the amount of currency which has to be given to that man to make the $10 is actually a greater amount than the disbursing officer received for the $10 he paid out the previous day. Mr. BRICKFIELD. You say there is no way of breaking down these appropriations in which miscellaneous profits are deposited?

Lieutenant Colonel LUNCEFORD. It is possible, Mr. Brickfield, but it would involve an audit of all the accounts of our disbursing officers

overseas.

Mr. BRICKFIELD. Is any of that appropriation prorated and disbursed into those categories of losses which are received by virtue of these foreign-exchange currencies? Each year when the Army, Navy, and Air Force submit their budget plans, do they take into account these miscellaneous profits?

Lieutenant Colonel LUNCEFORD. That is right, sir. They get an appropriation for this purpose. As you know, it is a bad business practice to allow any person to handle Government money in the form of a separate account which he receives payments into and makes payments out of and reports the final product.

Instead of that procedure, all collections go into the Treasury and all losses are separately reported.

Mr. BRICKFIELD. Yes; but in these budgets that they submit, do they put down estimated losses on foreign exchange?

Lieutenant Colonel LUNCEFORD. That is right, sir; they do.

Mr. BRICKFIELD. And there is no balancing of the appropriation between the profits from miscellaneous items and the losses on disbursing of foreign currencies?

Lieutenant Colonel LUNCEFORD. That is right, sir. The reason for that is that the appropriation would be required to be made anyway, even though the transactions actually resulted in a gain to the Government, because the other channel for covering into the Treasury as miscellaneous receipts is not considered in the budget presentation or the appropriation of the funds themselves. Nor can they be offset against any losses.

Mr. BRICKFIELD. This regulation that has been promulgated by the Armed Forces restricting the cashing of checks to certain specified banks and agencies is merely a regulation and is not written into the statute which authorizes the disbursing of these moneys.

Lieutenant Colonel LUNCEFORD. The Department of the Treasury, sir, is the one that issues regulations under this, and you can well recognize-of course, I cannot conceive of any one of these particular institutions going broke, shall we say; but there are areas in the regulation which require a certain amount of flexibility to meet changing

requirements and tightening up here or there, wherever the situation may require, in dealing with more than 40 different foreign countries. Mr. BRICKFIELD. In addition to the Treasury Department, that promulgates regulations, can the area commander supplement those regulations in his particular area?

Lieutenant Colonel LUNCEFORD. He could exercise his normal command authority, but he could not in any way controvert the regulations for the purposes of the act of December 23, 1944, which had been promulgated by the Secretary of the Treasury.

Mr. BRICKFIELD. Say the Secretary of the Treasury directs that all checks by the Chase National Bank will be recognized. Can the area commander say, "Not to exceed $1,000 in amount?"

Lieutenant Colonel LUNCEFORD. I think he could issue such an instruction to his disbursing officers, but I cannot conceive of him wanting to do that. The black-market operations can be controlled through the exercise of his normal command authority.

For example, you may recall in Germany sometime ago they called in all military payment certificates and made a reissue.

Mr. BRICKFIELD. What brought the question to my mind was this, that the people in foreign lands know when the Army is to be paid, or when these civilian employees are to be paid, and it could be very easy, either in concert or by themselves, to have a devaluation overnight between the time the disbursing officer goes out into the market and purchases these moneys and the time he in turn pays them out to Army personnel.

Lieutenant Colonel LUNCEFORD. They have been very cooperative with us in that respect. Of course any hint of a pending devaluation of the currency of a foreign country has such a terrific impact throughout the entire economy of that country that I am sure its government would not deliberately take such a step for that purpose.

Mr. BRICKFIELD. It changes from day to day as much as 2 or 3 pennies daily, I think.

Lieutenant Colonel LUNCEFORD. That is right.

Mr. BRICKFIELD. And if you had a million-dollar payroll, a few cents on each dollar would be a sizeable amount.

Lieutenant Colonel LUNCEFORD. That is right, sir. But again the economy of that country has a much greater total effect upon the value of its currency than the very small numbers of our military personnel which may be there and the very small amounts of the currency of that foreign country which we do deal in.

Mr. FORRESTER. Is that all now, Colonel?
Lieutenant Colonel LUNCEFORD. Yes, sir.

Mr. FORRESTER. Is that the only witness on that section, Mr. Burrus?
Mr. BURRUS. That is right, Mr. Chairman.

Mr. FORRESTER. What is your next witness, please, sir?

Mr. BURRUS. We have an item that does not involve a witness which we wanted to put into the record, and now I think would be a good time to do that. It involves section 3, which provides in substance that certain powers of the Air Force shall be extended by the bill in the same way that it extends powers of the Army. Mr. Pollak can explain that.

Mr. FORRESTER. Is that in the document?

Mr. BURRUS. Yes, that is section 3, page 31 of the document.

STATEMENT OF FRANKLIN S. POLLAK, ON BEHALF OF THE BUREAU OF THE BUDGET

Mr. POLLAK. The text of this provision, as Mr. Burrus has said, is the whole of section 3 on page 10 of the bill; and since it is only one sentence, with your permission, Mr. Chairman, I should like to read it.

SEC. 3. Authority now conferred upon the Secretary of the Air Force under the statutory provisions cited in this act is hereby extended to the same extent as the authority of the Secretary of the Army thereunder.

The purpose of that sentence, I think, can be best made clear by taking a particular example of what it is for. You will note that it does not introduce any new statutory provision into the bill. It refers only to statutory provisions which elsewhere in the bill are extended. Mr. FORRESTER. What is the the purpose of it, then, if it is extended. elsewhere?

Mr. POLLAK. If I may take a specific example, Mr. Chairman, I think the purpose will become clearer. I would like to take as an example item 1 (a) (14), which is explained on page 16 of the pamphlet. That is an item on which you have already heard testi

mony.

That deals with acceptance of certificates of officers of the Armed Forces for pay and allowances without substantiation otherwise. The whole point is this. That statute, as it was drawn, having been drawn before the establishment of the Department of the Air Force, spoke only of the Department of War and the Department of the Navy. Nevertheless the Department of the Air Force is now exercising authority under it and is doing so by virtue of the National Security Act.

So we have here a statutory provision which in terms speaks only of the War Department and the Navy Department, but which nevertheless does now confer authority on the Department of the Air Force by reason of the way the Department of Air Force was set up.

We want to be perfectly clear beyond any shadow of a doubt that when we extend this provision, which in terms refers only to the Department of War and the Department of the Navy, we are extending its application to the Department of the Air Force as well as to the Department of War-Department of the Army now-and the Department of the Navy.

I might just add one word as to how this situation has arisen. The National Security Act did not undertake to repeat at length and in detail, in establishing the Department of the Air Force, the whole body of statutory law which already existed in relation to the Department of the Army-the Department of War it was then called. Instead of repeating all this body of law, it provided in substance. authority whereby the Secretary of Defense could transfer to the Department of the Air Force authority already given to the Department of the Army, so that, by the decision of the Secretary of Defense, authority previously given to the Secretary of the Army or the Department of the Army could be extended as well to the Department of the Air Force and the Secretary of the Air Force.

That is why we now have statutory provisions referring only to the Department of Navy and the Department of War by their own words under which the Department of the Air Force is also exercising authority.

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