the report was being referred to the Justice Department. The mere fact of publicizing the referral in this way was considered by some contractors to place a taint of fraud upon the company, whether or not there was evidence of fraud or grounds for prosecution. The committee recognized that it was entirely proper and obligatory upon the GAO to report possible violations of law to the Justice Department. But since the Department might decide that no laws had been violated, or that there was no ground for suit, or that there was insufficient evidence, it did not follow that the fact of the referral need be publicized. In all other agency referrals of cases to the Justice Department, the first public notice would be the filing of suit.

Upon consideration of the matter, the GAO informed the committee that it would cease to make mention of this referral in the published report, but instead would continue to inform congressional committees and the contracting agency concerned by separate letters and information.

(18) The committee was concerned about the slow disposition of matters referred to the Justice Department. During 1965 and 1966, following our hearings, the bulk of the backlog of cases involving the GAO contract audit reports was disposed. No new cases were referred by the GAO to Justice over a period of 18 months. One group of cases remains for possible Justice review after action in November 1966 by the Defense Contract Audit Agency.

(19) The committee at the same time urged the Comptroller General to consider each audit report carefully in terms of the likelihood and value of legal action, and to refer to the Justice Department only those cases in which he is convinced that a prima facie case for such action exists. No new cases were referred to Justice over a period of more than 18 months.

(20) The committee urged that the GAO publish its contract audit procedures in convenient form so that agency and contractor personnel concerned could understand the purposes and procedures of the audits when GAO auditors undertook their work at any location. Subsequently, the GAO has published a 25-page pamphlet entitled "Audits of Government Contracts" for this purpose.

(21) The committee recommended the development of a statute of limitations to run against the Government, in the interest of fair procedure, expedited determination of the rights of the Government, and in order that contractors not be subjected to claims without limit of time. In several audit reports, the GAO suggested recoveries, not necessarily based on any wrongdoing by the contractor, going back 10 years or more. In one 1964 case, the recommendation would have affected contracts going back to 1941, or 23 years. All parties agreed the matter should be studied. By March 1966 the Justice Department had drafted a statute of limitations bill as part of a group of bills to modernize and improve the handling of all Government claims, and it was introduced by the chairman of the House and Senate Judiciary Committees (see item 7 next following note of enactment of the law).

(22) Estimated dollar recoveries pertaining to individual GAO reports are listed in section III, below. The colllateral benefits of the hearings are intended and expected to derive from increased effectiveness and preciseness in GAO reports, review and attention to full,

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complete, and fair reporting and followup action, and analysis of the costs, benefits, and assumptions contained in report recommendations.

(c) Hearings.-Eleven days of public hearings were held on May 10, 11, 18, 19, 20, 25, 26, and 27; June 1 and 3; and July 8, 1965. Hearings, entitled "Comptroller General Reports to Congress on Audits of Defense Contracts," have been printed.

7. "Defense Contract Audits (Reorganization of the Defense Accounting and Auditing Division of the General Accounting Office),” House Report No. 1796, August 2, 1966. Thirty-Fifth Report by the Committee on Government Operations.

(a) Summary of report. This is a followup report to House Report No. 1344 (item 6 above), reporting developments bearing upon the GAO organization and operations.

By letter of April 18, 1966, Comptroller General Elmer B. Staats informed the committee that the Defense Accounting and Auditing Division would be reorganized on a functional basis, with the following eight subdivisions:

Research and Development

Procurement

Supply Management

Manpower

Facilities and Construction

Support Services

Management Control Systems

Program Direction and Evaluation

In addition, the International Operations Division of the GAO will be expanded by the addition of an office in Saigon, Vietnam, in order to review the large and growing expenditures of U.S. funds in that

area.

The report also took note of the fact that the committee's intent in House Report No. 1344 with respect to a 6-year statute of limitations to run against the Government, equal to that applying to contractor claimants against the Government, had been carried out by the enactment of H.R. 13652 and the signing of Public Law 89-505 on July 18, 1966.

(b) Estimated monetary and other benefits.-The functional reorganization of the Defense Accounting and Auditing Division is expected to result in greater ease, efficiency and adequacy of coordination of audit review with the work of the policy officials in the Department of Defense and the military departments.

The establishment of a Vietnam office is expected to produce new and adequate review of expenditures in that war zone area so that cost controls will be adequately established both for foreign aid and military programs even as the fighting continues in that country.

The new statute of limitations places the Government and private claimants on an equal footing for the first time, and requires that the rights of the Government be identified and established as quickly as possible by the appropriate Government officials. It will permit contractors to manage corporate finances with reasonable certainty after allowing for the period of time for contingencies to arise. (c) Hearings-See item 6 above.

8. "Government Use of Satellite Communications," House Report No. 2318, October 19, 1966. Forty-Third Report by the Committee on Government Operations.

(a) Summary of report. This report examines recent developments in Government use of satellite communications, particularly the procurement of 30 satellite circuits by the Department of Defense, the procurement of communications services for the Apollo program by NASA, and the arrangements being made by Comsat to provide such circuits through the so-called Intelsat II satellites.

The report also reviews the steps being taken to provide the initial Defense communications satellite system, to plan for the advanced Defense communications satellite program, and to develop a tactical satellite communications system.

There are complex issues in the Government procurement of satellite services from Comsat. The Department of Defense made a direct contract with Comsat Corp. to provide 30 circuits, notwithstanding an FCC decision that the Government should, except in unique and exceptional circumstances, contract through the established U.S. international carriers. The FCC pointed out to the committee that the carriers other than Comsat can offer composite cable and satellite circuit rates which will bring substantial savings to the Government as a user of such services, and to other private customers as well.

The report reviews the many facets of the procurement negotiations, the policy implications, and the statutory requirements. Also discussed in the report is the question of obtaining operational use from NASA applications technology satellites, the proposal by Comsat to FAA for a special air traffic control communications satellite, and the need for coordinated Government telecommunications management. The report contains 16 recommendations, which may be summarized as follows:

(1) The Department of Defense should take all possible steps to speed the initial Defense communications satellite system into operational readiness, particularly the ground stations.

(2) The Department of Defense should expand the capacity of the IDCSP by a factor of 10 to 20, through an optimum combination of capacity expansion factors.

(3) The IDCSP should be replenished and upgraded for continued useful service until an advanced system is in operation in 1970 or later. (4) The advanced system should be designed to serve more hardcore military needs in future crises, with commercial procurement serving the bulk of routine communications needs.

(5) The tactical satellite communications program needs strengthened management, with a project-type organization.

(6) DCA's contract for 30 Pacific circuits with Comsat Corp. should be assigned to the international carriers, based on across-the-board rate reductions for composite satellite and cable circuits in the Pacific

area.

(7) The FCC should seek rate reductions through the composite rate principle in the Atlantic area.

(8) The DCA should amend its procedures for dealing with the regulated carriers with respect to satellite communications services. (9) The Government agencies concerned with satellite communications policy should cooperate; and, if possible, they should come into

agreement on proposals for clarifying the laws rather than engaging in jurisdictional disputes.

(10) A satellite communications industry liaison committee should be established under FCC leadership.

(11) The Office of Telecommunications Management should be established as a separate office in the Executive Office of the President, outside of the Office of Emergency Planning.

(12) The Director of Telecommunications Management should have a greater role in policy for the national communications system and for Government dealing with Comsat Corp.

(13) Interim regulations should be drafted to clarify delegations of NCS policy and contracting authority.

(14) The constraint on operational use of NASA ATS satellites

should be reconsidered and removed.

(15 The project for a satellite dedicated to air traffic control communications should be fully studied and coordinated before funds are requested.

(16) Requirements for space needs for nuclear power sources should be reviewed by the National Aeronautics and Space Council.

(b) Estimated monetary and other benefits.-The monetary benefits which can be derived when the agencies conclude actions pursuant to the recommendations in the report are substantial.

The composite rate approach which the committee endorses in the report would bring a general rate reduction in the form of a single rate for both satellite and cable circuits, and thus produce very substantial savings for the Government in the large numbers of cable circuits which are presently under lease. Because the policy is to purchase cable as well as satellite circuits in order to provide reliable assurance that some circuits will always be available, these cable circuits will not be abandoned even if satellite circuits are leased.

The FCC economic analysis for the committee shows that about $10.5 million will be saved by the present proposals for composite satellite-cable rates in the Pacific area, on a yearly basis, for all Government users alone. On a 3-year basis, which is simply the 3-year basis of present satellite-circuit contracts, this savings is $31.5 million.

Generally, in utilities and communications (rate regulated) industry matters, a 10-year basis is used for cost comparisons. On this basis, the savings for the Government alone would be $105 million for the Pacific area.

For other commercial users, the potential savings are small in the Pacific area because there are few leased circuits in that area. They amount, according to the FCC estimates, only to about $1.5 million over 3 years, or $5 million over 10 years.

The Atlantic area, to which the report recommends that the FCC give early attention with regard to composite rate considerations, has many more cable circuits already in existence, and a much heavier private and commercial leased line, as well as Government leased line, use. The potential savings in that area may easily equal, or even double, the estimated savings calculated for the Pacific area.

If the composite-rate principle is followed, there will be further savings each time satellite rates are lowered, since such savings should be immediately reflected by the carriers in the composite schedules. Such changes cannot be estimated at this time, but the subcommittee

will review the situation from time to time once the agencies change their policy to follow the composite rate approach.

To the extent that NASA's experimental satellites can be used at a later time for administrative or operational traffic, some savings will accrue in this area. If at least one useful operational circuit can be derived from the two NASA ATS synchronous satellites, its value measured in current rates would be about $300,000 per year.

The Federal Aviation Agency project for air traffic control communications via satellite has been planned to require appropriations of about $5 million per year. If the committee recommendations to study cost-sharing arrangements and to use experimental satellites for this purpose are effected, the committee believes the estimated appropriations for at least 1 year will not be necessary, thus avoiding $5 million in costs.

(c) Hearings.-Public hearings were held on August 15, 16, 17, 18, 19, 29, 30, and 31, and September 1, 6, 7, 12, 13, and 14, 1966, a total of 14 days of public sessions. Hearings were printed and published on October 10, 1966.