2. We recommend that airport officials adopt a system of periodic examinations and intermediate test checks of concessionaires' operations, procedures, and records.

3. We recommend that the accounting department be required to submit periodic reports to management showing the status of concessionaires' accounts with the airport.

RESULTS OF EXAMINATION OF CONCESSION AIRES' RECORDS AND PROCEDURES Game room and coin-operated machines operated by Michael Bushdid

This concessionaire operates a game room containing pinball machines, midget movies, and other machines for entertainment. The contract provided for fees of 35 percent of gross receipts. He also operated other coin-operated devices throughout the airport with fees ranging from 15 to 25 percent of gross receipts. After a study of the records, the administrative officials and the concessionaire agreed to revise the fees to 32 percent of gross receipts, after refunds, for all machines operated by the concessionaire. The new contract became effective August 1, 1952, for a period 31⁄2 years beyond the termination date of the old contract.

The concessionaire had been permitted to deduct from gross receipts amounts refunded or given to customers for free games when machines failed to operate properly. The concessionaire claimed that these refunds amounted to $890 in one 15-week period. At our suggestion, concurred in by administrative officials, the concessionaire now uses slugs instead of coins in the 5-cent coin machines to provide free games. Based on an estimate of the slugs used in the 5-cent machines and the operator's statement of coins refunded to the customers on the 10- and 25-cent machines, the refunds would have been only $145 in the first 13-week period in which slugs were used. As the result of our suggestion, it appears that the government will receive about $800 more each year in fees.

Our examination also disclosed that the cash boxes in the machines were not sealed as required by the terms of the contract.

Advertising concession—Airport Advertising, Inc.

This concessionaire had been granted exclusive advertising privileges for the 5-year period ended April 30, 1950. The contract was extended for 1 year from that date at a time when the concessionaire owed the airport approximately $1,600 in fees, based on gross receipts. After a payment on account in August 1949, the concessionaire made only 1 additional payment of $50. The airport failed to make a billing for March 1950, failed to bill for fees on credit sales, made erroneous billings, failed to obtain certified statements of gross receipts as required by the contract, and failed to obtain a bond for $1,000 as required by the contract. The concessionaire ceased operations before the expiration of the contract, leaving an unpaid balance of $2,275 which airport officials have been unable to collect.

Taxi and limousine concession-Airport Transport, Inc.

The contract with Airport Transport, Inc., provides for taxicab and limousine service for passengers and baggage originating from any point on the airport. The fees payable by the concessionaire, as stipulated in the present and preceding contracts, are:

1. From July 1, 1946, to June 30, 1951: 10 percent of the gross receipts derived from trips departing from the airport, plus 2% percent of gross receipts in excess of $100,000 yearly, and 21⁄2 percent additional on gross receipts in excess of $250,000, except that receipts derived from trips departing from the airport and terminating outside the metropolitan area are not subject to the accelerated rate. During this period the contract provided for the deduction of certain taxes in determining gross receipts.

2. From July 1, 1951, to June 30, 1956: 10 percent of the gross receipts derived from trips departing from the airport, plus 22 percent of the gross receipts in excess of $150,000, and 2% percent additional on gross receipts in excess of $300,000 per annum, except that receipts derived from trips departing from the airport and terminating outside the metropolitan area are not subject to the accelerated rate.

Fees collected from Airport Transport, Inc., under these contracts increased from $46,500 for fiscal year 1949 to $105,000 for fiscal year 1952 because of increased traffic.

Our examination of the concessionaire's books and records disclosed that they are well kept, and no discrepanies were noted.

We questioned why the contracts failed to provide for payment of fees on revenue derived on incoming passengers and baggage. The airport director informed us that the rate was fixed at 10 percent on outgoing traffic in lieu of a rate of 5 percent on both incoming and outgoing traffic.

Food and other concessions—Air Terminal Services, Inc.

Contract Cca-NA-559, effective for a period of 11 years from December 18, 1950, provides for the operation of food concessions including dining room, coffee shop, standby lounge, soda fountain, etc., at a fee of 8 percent of gross receipts with additional charges for receipts in excess of $500,000.

Contract Cca-NA-560, effective for a period of 5 years from January 1, 1951, provided for the operation of minor concessions such as news and novelty stands, gift and souvenir shops, tobacco stands, drugstore, barbershop, shoeshine parlor, etc., at a fee of 10 percent of gross receipts for some items and 5 percent for others.

Our examination disclosed that whereas according to the contracts fees of 8 percent were payable on proceeds from some vending machines and fees of 5 percent were payable on others, fees of 5 percent were paid on proceeds from all vending machines. This was brought to the attention of the airport officials, who recomputed the fees and rendered a bill for additional fees of $1,175 for the period from January 1, 1951, to May 31, 1952. The additional amount was paid by the concessionaire.

Our examination also disclosed that:

1. Fees of 5 percent were being paid on barbershop receipts.

Inasmuch as the barbershop was not listed as a concession on which the fee would be 5 percent, fees of 10 percent presumably should have been paid. The omission of the barbershop from the 5 percent list was said to have been an oversight.

2. No fees were being paid on receipts from the operation of a shoeshine stand. 3. No fees were paid on the sale of toys during the 1951 Christmas season. 4. The concessionaire was paying a fee of 5 percent on practically all of those receipts of the drugstore on which a fee of 10 percent should have been paid. 5. The same situation existed with respect to the receipts from the three news and novelty stands.

Payment of the incorrect rate was said to have resulted from a constant turnover of personnel and the large variety of articles sold. In order to arrive at a basis for correcting previous payments and to simplify the terms for future payments, the sales for the 2-week period ending May 3, 1952, were carefully recorded and the proper rates applied. This test was made by employees of the airport and the concessionaire and was reviewed by us. The test disclosed that the fees payable for that period would have averaged approximately 7 percent. As a result of this test, the concessionaire agreed to a modification of the minor concession contract to provide for a fee of 7 percent of gross receipts on all concessions covered by the contract beginning on August 1, 1952. In addition, the concessionaire agreed to pay a fee of 7 percent for the period from January 1, 1951, to July 31, 1952, in lieu of the payments previously made. This resulted in additional fees of $13,950 for that period, which the concessionaire paid in full.

Repair and maintenance of aircraft-Capital Airlines, Inc.

The contract with this concessionaire provided that the concessionaire would pay to the Government fees on repair and maintenance work performed on certain aircraft and equipment. Our examination of Capital's books and records disclosed that additional fees of $3,496 were due the Government for work performed by the concessionaire during the period from May 1948 through December 1948 on engines or component parts of aircraft shipped into the airport. Capital Airlines, Inc., previously had paid only $524 for the period and paid an additional $187 when requested to pay the additional $3,496.

Our examination further disclosed that Capital Airlines, Inc., had failed to pay fees on work performed on aircraft of scheduled air carriers regularly using the airport. Fees due on this work were computed to be $6,378. Capital Airlines, Inc., refused to pay this amount when requested by the airport to do so. The question of whether Capital Airlines, Inc., was liable for the payment of these additional amounts was submitted by the airport to the Comptroller General for decision. The Comptroller General ruled on October 15, 1951 (B-92027), that although the part of the contract relating to fees specified only

the payment of fees on work performed on transient aircraft, the additional work performed on aircraft regularly using the airport and on engines and component parts of aircraft shipped into the airport was so substantial as to constitute the operation of a separate business for which the concessionaire was required to pay additional fees.

The airport then billed Capital for the unpaid amount of $9,687. Capital again refused to pay. The matter was again referred to the Comptroller General who directed that the amount be collected by offset from moneys otherwise due Capital. The full amount was collected by offset on June 17, 1952.

Representatives of this Office then reqeusted the administrative agency to audit the records of Capital Airlines, Inc., to determine what additional fees were payable for the period from January 1, 1949, to May 14, 1951, the expiration of the contract period. The requested audit, which was made by Civil Aeronautics Administration auditors, disclosed that additional fees of $8,467 were due under the contract as interpreted by the Comptroller General. Airport officials then billed Capital Airlines, Inc., for that amount. Capital paid $142 but refused to pay the remainder. The matter was referred to this Office, and the additional $8,325 was also collected by offset on April 1, 1953, from moneys otherwise payable to Capital Airlines.

Capital Airlines, Inc., has filed a petition in the United States Court of Claims disputing the action of the General Accounting Office in making these offsets which totaled $18,012.

The airport officials entered into a new contract with Capital Airlines, Inc., as of May 15, 1951, authorizing the latter to engage in maintenance and repair of transient aircraft and component parts of transient aircraft whether shipped into the airport separately or flown in as part of an aircraft. Transient aircraft was defined as excluding aircraft owned or operated by scheduled air carriers regularly using the airport. The airport director had previously entered into a contract as of July 1, 1949, with another company authorizing it to engage in the maintenance and repair of aircraft without limiting the type of aircraft. Jewelry concession-Toby Green

The contract with this concessionaire provides for payment of a fee of 10 percent on gross receipts. Our examination disclosed that the concessionaire had failed to pay fees on sales to friends and employees, and had paid fees on credit sales only as collections on account were made. After discussing this matter with the airport director, the concessionaire agreed to include all sales in gross receipts and to record the full amount of credit sales at the time the sales are made. He also paid the entire additional amount of $942 on sales on which fees had not previously been paid.

Parachute repairs and related services

National Parachute Loft, Inc.

Our examination of the records of this concessionaire disclosed delinquencies in payments of fees and rents. The concessionaire did not submit certified statements monthly, as it should have done, but submitted them at irregular intervals. The airport's accounting branch had done nothing to correct this situation. It was determined that the concessionaire had paid only $1,534 for the period from March 1, 1950, through June 30, 1952, although it should have paid $4,063. After discussion with the airport officials, the concessionaire agreed to pay all current bills when due and to pay one delinquent bill each month. By December 1952 the concessionaire had paid $541 to apply on the delinquent balance of $2,529.

Insurance sales—Parker & Co., Inc.

This concessionaire was granted the right to sell airline passenger-accident insurance, baggage insurance, and other types of insurance related to aviation, or such other related services as may be approved in writing by the airport director. The concessionaire agreed to pay fees of 5 percent of the gross premiums with a minimum guarantee, and to pay $900 per annum for the use of 450 square feet of office and storage space.

Our examination of the concessionaire's books and records disclosed that sales of insurance policies not related to aviation were being made in the office. These sales, mainly automobile accident insurance policies, were not reported to the airport authorities, and no fees were paid on them,

After discussion with the administrative officials, the concessionaire paid $552 as additional fees for the period from February 1, 1950, to November 30,

1952. Effective January 1, 1953, a new contract was executed providing for payment of a fee of 3 percent on all nonaviation insurance sales or a minimum payment of $2,250 per annum for the 450 square feet of space instead of the $900 per annum previously payable.

In addition, effective February 1, 1953, the contract covering sales of insurance related to aviation was extended for 3 years, and the fee on these sales was increased from 5 to 10 percent.

Other concessions

A contract dated September 1, 1951, with Herbert J. Baker, who operates a tailor shop, provides for payment of fees of 10 percent of gross receipts to the airport, and that receipts from sales and services shall be recorded on a cash register with sealed totalizer. Our examination in March 1952 disclosed that the concessionaire did not have a cash register and maintained only a penciled record of receipts. The airport director then requested the concessionaire to comply with the contract terms. Shortly thereafter the conces

sionaire obtained a cash register, which he is now using.

The contract dated October 15, 1951, with Bella Weinberg, who operates a beauty shop, provides for payment of fees of ten percent of gross receipts, with a minimum guarantee of $1,500 a year. The concessionaire paid only $551 during the first year and did not pay the balance of $949 required to meet the minimum guarantee until May 18, 1953. The concessionaire vacated the premises on June 14, 1953. Unlike the contract with the operator of the tailor shop, this contract did not require the use of a cash register with sealed totalizer.

E. W. BELL, Associate Director of Audits.

Mr. KANE. Mr. Chairman and members of the committee. The General Accounting Office is pleased to be here this morning at your request to discuss the incorporation of the $28.5 million Washington National Airport as proposed in the bill S. 3435, 83d Congress.

The General Accounting Office is the agency of the Congress for checking on the financial transactions of the Government. And as an arm of the Congress, we place special emphasis on our obligation to furnish assistance to the Congress and its committees. Accordingly, since the concern of the Congress in the past decade has been to reduce the number of Government corporations, we gave very careful consideration to this legislative proposal.

The Acting Comptroller General, in response to your request for a report on the bill, advised that he did not think that the reasons advanced for incorporating the airport warranted passage of the bill. I would like to make it clear the General Accounting Office subscribes to the underlying purposes of the bill-to increase operating efficiency of the airport-but we believe that it can be accomplished without converting the airport into a Government corporation.

In the interest of time I will summarize the main points contained in our report to this committee. As outlined in its request for enactment of the bill, the Department asserts that is could achieve more efficient operation if it had authority to

First, apply business-type accounting, budgeting, and auditing; Second, use business-type financing, including the use of revenues; Third, award contracts without advertising.

With respect to the first item, the Congress has provided ample authority for the Secretary of Commerce to install business-type accounting and budgeting with respect to the operations of the airport. Government accounting, budgeting, and auditing procedures were modernized by the provisions of the Budget and Accounting Procedures Act of 1950 which eliminated the inflexibility of Government

fiscal procedures that had been considered as a handicap in conducting Government business enterprises. That act has placed squarely on the shoulders of the heads of departments and agencies the responsibility to put into effect proper and appropriate accounting systems for all activities under their jurisdiction.

The act also authorized the Bureau of the Budget to require the submission of business-type budgets when deemed appropriate for the activity concerned. This is no longer a novel procedure as the budget for 1955 included many business-type budget presentations.

The Budget and Accounting Procedures Act also modernized the audit authority of the General Accounting Office. We now may make the type of audit most appropriate for the Government operation involved. As a matter of fact, the General Accounting Office is currently examining the financial transactions and operations of the airport on a business-type basis and will continue to make such annual audits and will furnish the reports to the Congress.

We have found that the accounting system of the Washington National Airport is inadequate. For example, a complete review is necessary in order that the accounting records will be able to accurately show:

1. Cost of the various operations;

2. Revenues derived from the various operations;
3. Cost of fixed assets, including equipment.

Obviously, a mere metamorphosis of the airport into a Government corporation will not automatically cure the existing accounting deficiencies.

With respect to the second item, we concur in the suggestion of the Secretary of Commerce that the airport be authorized to employ business-type financing. This can be achieved by the use of a revolving fund. It does not require incorporation as many noncorporate Government agencies have revolving funds for their business-type activities.

This Congress in the last few months in passing the Small Business Administration Act revised the bill as introduced which provided for a corporation, and changed it to make it a normal type Government activity under revolving fund operations.

In establishing a regular revolving fund for the airport it could be capitalized as proposed in the bill and charged with all ordinary business expenses, including depreciation and interest, and employees' retirement, disability, and compensation costs.

The CHAIRMAN. That could all be done without additional legislation?

Mr. KANE. It would require legislation to do it. The funds would have to be authorized and the act should specify what should be charged to it.

The CHAIRMAN. The revolving fund?

Mr. KANE. That is correct.

I should like to point out, however, that while airport revenues now exceed expenses, it would appear that if the airport is required to bear interest and depreciation expense, there probably will be annual deficits unless additional revenues were obtained from concessionaires.

In all likelihood it would have to be in the nature of a subsidy operation and Congress would have to make annual appropriations for some time in the future at least.