Appropriation reimbursements are probably one of the least known or understood facets of military accounting. Reimbursements are well founded in accounting theory and are similar to cost transfers or the apportionment of costs in a civilian cost accounting system. In governmental fund accounting they also have a logical basis. So, let us digress temporarily for a short course in accounting for appropriation reimbursements.
What are appropriation reimbursements? They are collections, other than refunds such as a soldier repaying an overpayment, for supplies or services furnished between appropriations, to other agencies of the government, or to an individual or firm to be credited to an appropriation account. The term can also include collections for supplies or services furnished between allotments within a Department of Army appropriation. Collections are credited to the appropriation current at the time they are earned, regardless of whether or not an account receivable has been established and recorded. Normally, reimbursements are considered to be earned at the time the services are rendered or supplies are shipped. Earnings can also accrue as expenses are incurred even though the services or supplies are not delivered.
To the extent possible, reimbursements are budgeted, controlled, and accounted for at the level of performance, normally the installation. In certain cases, the use of reimbursements is controlled at organizational levels higher than that at which reimbursements are earned. In such cases, reimbursements are budgeted and accounted for at that higher organizational level.
There are two types of reimbursements: funded and automatic. The latter is the more prevalent and the type which caused problems in Vietnam. The reader can ignore funded reimbursements which were mentioned only for the sake of completeness. For emphasis, it should be noted that the term reimbursable is used with reference to a transaction which eventually results in a transfer or collection of actual funds or money. The transaction involves the sale of supplies or services by the installation to a customer. Authority to engage in automatic reimbursement activity is granted
to the installation on the Approved Operating Budget. The funds are generated or created at the installation when it is necessary to temporarily finance the procurement of supplies or services which will be sold.
Certain specific stages or steps must be present in automatic reimbursement transactions. The first is known as Authority Received. As mentioned, authority is annotated on the Approved Operating Budget or funding document.
The second step, Orders Received, is any firm authorized agreement to furnish equipment and supplies to others, or to perform work or services on a reimbursable basis. Quantities and estimated dollar amounts of supplies or services to be delivered must be stated in an order. Orders may also be recorded based on estimates of reimbursable supplies or services in cases where it is customary to provide services without the use of a specific order. The receipt of orders from reimbursable customers increases the funds available to the installation for obligation. These funds are used initially to provide support to reimbursable customers.
In the third step, Earned Reimbursements, the reimbursement is earned based on the actual delivery of supplies or services to the customer. Any difference between the amount of orders received and the actual amount ultimately earned is adjusted on an individual order basis to insure that these two amounts correspond. A reduction in the amount of orders received reduces available funds by the same amount. Such a reduction can result in an over-obligation of funds at the end of the fiscal year, if earned reimbursements are not accurately estimated. Since reimbursable sales result in an expense to the installation or the relinquishment of an installation asset, an accounts receivable must be established to assure collection from those individuals or activities to which the reimbursable sale is made.
Collection is the final stage and signifies receipt of cash in payment of the bill for the earned reimbursement. Detailed files on the stages are usually maintained. Special accounts are designated to control the handling of reimbursements. Each state of the procedure requires the matching of documents to insure validity of the transaction and increase internal control. A monthly report is submitted to the Department of the Army to assist in the control of and funding for the reimbursement program.
Various agreements are used to determine support to be furnished other installations and activities. The three most used agreement documents are discussed here. The first is the Intra-Army Order (DA Form 2544). This order is a firm agreement between
two installations or activities of the Army authorizing supplies or services of a specific and definite nature to be furnished on a reimbursable basis. The order must be supported in terms of quantities and dollar amounts before it can be accepted. The seller furnishes the required items and periodically bills the customer. If receiving reports match the bills, the customer reimburses the seller.
The second is the Military Interdepartmental Purchase Request (DD Form 448). This interdepartmental request is a method of financing used between the Department of the Army and other departments, offices, and agencies of the Department of Defense. Use is similar to the Intra-Army Order; however, a suballotment and a direct fund citation can be used to finance the request as well as a reimbursable order. The suballotment is a method of financing in which an installation or activity transfers a portion of its allotment to another installation. When a direct fund citation is used, the requester gives the performing activity the authority to cite its funds on all documents and contracts executed on behalf of the ordering activity.
The third agreement document is the Interservice Support Agreement (DD Form 1144). This form is used to document all continuing support agreements between and among Department of Defense components and other participating federal government activities. The requesting activity furnishes the performing activity funding data and the address to which the billing document is to be sent. The agreement states the accord reached between the two activities involved, especially the obligations assumed by, and the rights granted to each. All agreements must be specific with respect to the resources provided by the parties. Agreements are subject to annual review and may be canceled at any time by mutual consent of all parties concerned or with ninety days' notice by either party. Quarterly reports are required.
A Department of the Army fact sheet written in 1966 noted that during the early stages of the 1965 buildup, complications and administrative problems were beginning to mount because of the multitude of funding channels in Vietnam. The different military services were responsible for providing various types of supplies and services, but generally were responsible to finance only the support of their own force. This led to many peculiar and inefficient situations. For example, up-country military advisers were required to obtain their day-to-day logistical support from Saigon, located 200 miles away, even though the same support could have been
made available at much closer locations, but then would have been financed by funds of another service. Another specific source of delay and paperwork was the fact that Army cargo was carried only on a reimbursable basis on the small cargo vessels operated by the Navy along the Vietnam coastline. This situation required detailed Interservice Support Agreements. The fact sheet observed that "continuation of this situation would involve tactical commanders in financial matters which do not contribute to carrying out their assigned missions."
The solution of minimum record keeping in-country and the accomplishment of reimbursement actions in Okinawa was thought to be a positive decision. However, it was proposed that an optimum solution would be either to make one service responsible for logistical support including necessary funding or to make one service responsible for logistical support, with each service funding costs of its support. Here reimbursement action would be taken on a factored statistical basis at locations out of the country.
A team from the Department of the Army was engaged in preparing a departmental plan for common supply support in Vietnam. The Army, it was contemplated, would provide common supplies with reimbursement at departmental level. In February 1966, representatives from the Office of the Secretary of Defense indicated doubt as to the legality of reimbursement between military services based on the use of statistical factors, and suggested legislation would be required. It was noted in the referenced fact sheet that: "The advantages of a common supply support system would be lost, and its purpose defeated, if it should be necessary for the Army to keep detailed auditable records of supplies issued to other military services."
In early 1967, the Department of Defense requested the Army to submit its plan for common funding to the other services for co-ordination. The Department of Defense had endorsed the plan but restricted application to petroleum, oils, lubricants, subsistence, medical supplies, and some 3,500 common housekeeping items. For various parochial reasons, the Navy, Marine Corps, and Air Force all nonconcurred in the plan. The fact that Mr. McNamara did not force the services to accept the Army plan or some modification is perplexing. For awhile the Armed Forces seemed headed toward more service integration with the establishment of such activities as the Defense Supply Agency and Defense Intelligence Agency. Common funding would have been an even more logical step.
The problems in Okinawa with accounting were even more critical in the handling of reimbursements. The latter, being a much
more involved process, proved too much for Okinawa and this function was also passed to the Centralized Financial Management Agency and will be discussed later.
As mentioned in the discourse on procedures, reimbursements usually start with an order received, thus generating funds to support the transaction. In a June 1967 message from the Department of Army to U.S. Army, Pacific; Military Assistance Command, Vietnam; and U.S. Army, Vietnam; it was noted that this was not presently the case. Army operations and maintenance funds were being used by the Army to finance services and supplies furnished others. Millions of dollars of the operation and maintenance fund were diverted from financing Army needs until bills for reimbursement transactions could be collected. Additionally, billings were not accomplished on a timely basis. Thus, the message warned of an "unwarranted deficiency" and an "unexplainable and embarrassing" situation. Compounding problems was the fact that centralized accounting was not in operation-it came into being one month later, 1 July 1967.
The Department of the Army requested immediate billing to such diverse activities as Air Force, Navy, Red Cross, 5th Special Forces, Pacific Architect and Engineers, and other private contractors. Reimbursements from the military construction to operation and maintenance appropriations were also to be accomplished using statistical estimates. If billings for Class II, IV, and V issues could not be developed on the basis of actual issues, negotiated settlements were to be used. (Designations for classes of supply referenced throughout the monograph are for those used prior to 1969. Class II includes such articles as clothing and weapons; Class IV takes in equipment for fortifications and airborne operations; Class V includes ammunition.) The use of the more normal order system was to be instituted retroactive to 1 May 1967. This procedure would increase fund availability and reduce the threat of a fiscal deficiency. Addressees were given less than six days to advise the Department of the Army if actions could be accomplished and what the amount of earnings could be expected to be.
The use of the order system was also directed for the 1968 fiscal year. This was in addition to the Interservice Support Agreement and provided for quarterly estimates. Adjustments were to be made after comparing estimates with earnings; this procedure seemed odd since the agreement can serve as the basis for recording an order
received. Negotiated settlements were again urged for all government agencies to reduce the backlog of bills and unbilled transactions. It was hoped this would allow fiscal year 1968 transactions to be kept on a more current basis.
In July 1967 the U.S. Army, Pacific, in support of the U.S. Army, Vietnam, sent a message to the Department of the Army in further response to their June message. There were several key facts in this reply. First was that the Centralized Financial Management Agency was activated on 1 July 1967 and that the U.S. Army, Vietnam, had been directed to furnish reimbursable issue documentation clearly marked "Reimbursable Issue Documentation" on a daily basis. Orders received and earned reimbursements were recorded simultaneously. This is a deviation from normal procedures and from the June message of the Department of the Army. The agency had established detailed accounting controls and reports to monitor the reimbursement program. (Chart 9) The U.S. Army, Vietnam, was to be provided monthly feeder information to determine if all documents were reaching the centralized agency and if estimates contained in related Interservice Support Agreements were over- or understated. The reports were to result in improved management of reimbursable transactions.
The Pacific headquarters further replied that the U.S. Army, Vietnam, had been instructed to attempt to negotiate interservice agreements to allow reimbursement on a factored basis, thus reducing the paper mountain. Also, confirmation of shipping was to replace the need for receiving reports. The latter was apparently never accepted and is discussed in a later section. Both attempts are deviations from the normal procedure mentioned earlier.
The U.S. Army, Pacific, also asked reconsideration of the requirement to obtain quarterly orders when the transaction was supported by an interservice agreement. U.S. Army, Vietnam, argued that the agreement is an order received, as noted above, and that further action would duplicate it. The command believed that reimbursements could be monitored using those procedures outlined above.
Evidently the U.S. Army, Pacific, was still uncertain that the Centralized Financial Management Agency could alleviate the reimbursement problem. General Dwight E. Beach, the commanding general of U.S. Army, Pacific, sent a personal message, also in July 1967, to Lieutenant General Bruce Palmer, Jr., the deputy commanding general of the U.S. Army, Vietnam, and Brigadier General Shelton E. Lollis, the commanding general of 1st Logistical Command, on the subject "Loss of Army Resources in Support of Re-
imbursable Customers." Losses of Army resources were valued at $24.5 million based on Interservice Support Agreements. Failure to recoup Army funds was attributed to the failure to require documented requests for matériel and the failure to obtain the issue documentation to furnish it to the centralized agency for billing. The latter was identified as the most prevalent. General Beach wrote:
At the direction of the Comptroller of the Army in January 1967, the U.S. Army Audit Agency performed an audit of reimbursements due from non-Army organizations in Vietnam during the period 15 March to 19 May 1967. The audit covered the fiscal year 1967 transactions up to 31 March 1967. The auditing agency concluded that a more active monitoring of the reimbursement program was required by all levels of command. As a result of the audit and subsequent developments, Chief of Staff Memorandum 67-350 was issued by General Harold K. Johnson, Army Chief of Staff. This memorandum directed the Comptroller of the Army to review the financial management system employed by U.S. Army, Pacific, and recommend actions needed for strengthening these operations. The Army Staff Task Group conducted its survey from
25 September to 21 November 1967. Highlights of the report are discussed below.
No reimbursement program was operative within Vietnam prior to the last quarter of the 1967 fiscal year. Emphasis placed on the problem by the higher commands resulted in positive action at all levels within Vietnam to secure the necessary documentation to support reimbursement billings in fiscal year 1968. Reimbursement documents transmitted to the Centralized Financial Management Agency increased from 404 documents in December 1966 to 13,000 documents in October 1967. However, types of issue documents and procedural instructions varied at all levels in-country, and standardization was needed to strengthen the program. Improvements were effected within the existing logistics system without the imposition of additional financial controls. It should be noted, however, that the new centralized accounting system was in operation and contributed to the accomplishment of these improvements.
Interservice Support Agreements were better monitored due to the procedures referred to earlier. Review by the U.S. Army, Vietnam, of the 146 interservice agreements in effect in September 1967 revealed that potential reimbursements were overstated by $76 million.
Reimbursable issues of subsistence were not always processed for billing because certain subsistence ration breakdown points and depots were not aware that issues to non-Army customers were reimbursable. The 7th U.S. Air Force had received about $200,000 of subsistence per month from one ration breakdown point but had not been billed for over two years. A negotiated settlement was finally made for $5 million. Reimbursable issues by tactical units were not substantial and should be excluded from the program. Issues below depot level from self-service supply centers were insignificant and not worth the cost of reimbursement record keeping. This practice was discontinued in February 1968.
Receipt, storage, distribution, and control of bulk petroleum products posed a major problem. Division of responsibility between the Army and Air Force by type of fund appeared clear as far as initial financing from the Defense Fuel Supply Center. However, storage, distribution, and transportation were an Army responsibility and were accomplished by a complex distribution system using many modes. During the 1966 and 1967 fiscal years, almost no documentation was maintained. Instructions on reimbursable issues were misunderstood; for example, the Air Force was charged for issues from its own fund. Air Force fuel transported by the Army was paid for by the Army although delivered to Air Force users.
Construction supplies were financed by operation and maintenance and military construction funds and were commingled. The operation and maintenance appropriation was, in effect, pre-financing military construction appropriation projects and tying up operation and maintenance funds.
Joint Chiefs of Staff directive 5848, 15 July 1966, subject: "Responsible Logistics Support for Combined Operations," assigned to the Army responsibility for providing logistical services support on a nonreimbursable common service basis to all U.S. sponsored activities located within a U.S. Army area of jurisdiction in the Republic of Vietnam. Nonreimbursable support was valued at $70-80 million per year or 15 percent of the annual Vietnam operations and maintenance budget. Twenty-one percent of the total 1st Logistical Command personnel were used to support non-Army activities.
It can be seen that many areas were identified for management action, but major problems were still being identified after the Task Group left and much remained to be done. The problem was receiving top-level attention. Also, beginning in November 1967, a special section of the centralized agency was designated to handle reimbursements. There is now (1972) a separate branch established for this purpose as discussed in Chapter III. In March 1968 the Army Comptroller, Lieutenant General Frank J. Sackton, forwarded to General Beach, Commander in Chief, U.S. Army, Pacific, a follow-on report of the Department of Army Task Group discussed earlier.
Noted was a significant backlog of documents awaiting processing. This was caused by the increased workload resulting from renewed emphasis and the activation of the Centralized Financial Management Agency. Collection of actual billings was proving difficult. As of 31 October 1967, $5.6 million had been billed but only $328,000 had been collected. General Beach replied that obtaining the required documentation to support billings was the most difficult problem. The 1968 Viet Cong Tet offensive had further complicated the situation. General Beach reiterated the need for common service funding and simplification of financial accounting requirements.
In June 1968, a message from the Department of Army directed that obligations for petroleum, oils, and lubricants would be based on consumption rather than shipping documents. As with many new procedures involving numerous agencies scattered over a wide geographical area, communications was a problem. The other services were not aware of the revised rules. Accounting and billings
were being accomplished under two separate systems. Duplicate bills were being received. The Air Force was still billing for the fiscal year 1968 although the Army had paid for all of the petroleum, oils, and lubricants for that fiscal year. Even within the Army, some commands had not received the word. The Army Petroleum Command and U.S. Army, Japan, were not following the revised technique. Bills from these two commands exceeded obligations by $7 million. Receipt of bills at the centralized agency for petroleum, oils, and lubricants chargeable to another service was a major problem. Over $5.7 million in bills for these products consumed by the Navy had been received from the Army Petroleum Command. The latter did not appear cognizant of the mission of the centralized agency or the financial organization of the U.S. Army, Pacific. The Air Force and Navy were billing the agency for bulk issues at the retail level. The Department of Army Task Group had recommended cessation of this procedure which was also supported by the Pacific Command in a message to the joint Chiefs of Staff. The joint Technical Assistance Team which was dispatched to review problems with petroleum, oils, and lubricants had also suggested discontinuing billing at the retail level.
In a briefing dated October 1968, it was noted that problems were still being encountered. Full mechanization was not suitable and about one quarter of the work force of the Centralized Financial Management Agency was spending full time on the reimbursement program. This effort was expended for only 1 percent of the agency's dollar volume.
As discussed in Chapter III, General Chesarek visited the U.S. Army, Pacific, in 1969. His visit caused much soul searching and another review of financial procedures. A staff paper written after his trip revealed that reimbursements were yet a problem and that the situation could be expected to continue. Documents were still not being received. Some issue documents could not be matched with a supporting Interservice Support Agreement or with an office to be billed. Additionally, accounts receivable were not being liquidated promptly. Administrative changes were being instituted without much success.
Although recognizing that some improvements had been achieved as a result of the combined efforts of the Department of the Army and the Army in the Pacific, I was still concerned with the low collection rate indicated in financial reports. This was true of fiscal years 1966 through 1969. So, two representatives from the
Department of Army went to the U.S. Army, Pacific, Okinawa, and Vietnam in April 1969 to again review financial procedures and follow up the recommendations of the Department of Army Task Group (CSM 67-350) discussed earlier. Representatives from the Navy and Air Force joined the team in Vietnam. Having representation from the Air Force and Navy proved beneficial. In the Saigon area alone, the Navy representatives located $28 million worth of delinquent bills in their accounting offices.
Improvements in collections for ammunition, subsistence, petroleum, oils, and lubricants were noted. Billings were based on negotiations supported by certain accepted reports. The U.S. Army, Pacific, was now buying bulk petroleum products from the Army Stock Fund through the Army Petroleum Agency, and not using operation and maintenance funds to finance excessive inventories or sales to other agencies.
The reimbursement program was receiving command support and surveillance, although not always to the depth or extent contemplated by the Department of Army Task Group. Down through direct support units, care was being exercised and special emphasis was being placed by logisticians, internal review staffs, and financial managers. Some weaknesses were noted at the lowest levels upon which effectiveness of the system was dependent.
As I had gleaned from financial reports, the U.S. Army, Pacific, was encountering substantial difficulty in actually effecting collections from most customers with whom interservice agreements had been negotiated. Billings for Class II and IV supplies were a prime problem. Documentation to support issues which failed to satisfy the criteria of the billed agency aggravated the situation. Geographical separation intensified the critical situation as most customers positioned their funds and accounting offices in Vietnam far from the centralized agency.
The Centralized Financial Management Agency was in the unenviable position of relying on personnel in Vietnam to follow through on billings and to satisfy terms of the Interservice Support Agreement. A deluge of correspondence flowed between Hawaii and Vietnam. Judging from the collection rate and age of the receivables, the efforts in Vietnam were of questionable intensity.
As mentioned numerous times, initial documentation of the transaction was the primary problem. Identification of the customer was often difficult as key information was missing or illegible on the supporting document. Verification by the suspected customer and follow through by the Army in Vietnam seemed endless. If punch cards were used, the source document was destroyed and unavail-
able for use in the audit trail. Use of a charge-plate system similar to the current commercial credit cards was again recommended as it had been several times before. The Department of Army Task Group had considered the idea in 1967 but did not adopt it. The charge plate appears to have been a reasonable idea as the card would have imprinted the required information very legibly on the source document. It also would have eliminated a decision step as to reimbursement at the initial transaction level.
The report reflected that the major recommendations of the Department of Army Task Group had been implemented. It was concluded after the Task Group Study that continued split responsibility between the centralized agency and the U.S. Army, Vietnam, was undesirable. It was suggested that responsibility for the reimbursement program be transferred from the agency to the fiscal office in Vietnam. The Task Group had concluded that the centralized agency was an "expedient" until the U.S. Army, Vietnam, had a requirement to establish its own financial management. This transfer was not executed, however.
Other agencies and activities were concurrently concerned about the reimbursement program. From February to May 1969 the Army Audit Agency conducted another audit of the reimbursement program. Their findings were released in two reportsó70-1, Reimbursements for Interservice SupportóRepublic of Vietnam; and 70-2, The Reimbursement ProgramóRepublic of Vietnam. Succinctly stated, the reports concluded that the reimbursement program in Vietnam had never worked well. This much should be obvious from all that has been said thus far in this chapter. Highlights of the reports are discussed below. Repetition of previous observations are included to emphasize the persistence of the problems and the time involved in correcting deficiencies.
In the 1969 fiscal year reimbursable supply support cost the Army an estimated $138 million. As evidenced throughout the life of the program, much less than $138 million was recovered. Most of the loss was caused by weaknesses in the accounting system. Attempts to upgrade the system have been neutralized by the desire to minimize paperwork in Vietnam.
The effectiveness of the program was almost wholly dependent on the quality and timeliness of the data flow to the centralized agency. Distance, marginal communications, fragmented responsibilities, and volume combined to weaken the program. Use of departmental level negotiation for bulk petroleum products, subsistence, and ammunition was tacit recognition that conventional methods could not be made to work. Findings for these commodities paralleled
the Department of Army Task Group findings in 1967. Some of the recommendations had not been implemented because of the lengthy co-ordination process involved. Also referenced in the report of the Army was a joint Technical Assistance Team made up of Army, Navy, and Air Force representatives who visited Vietnam in January 1968. They also found a complete breakdown in accounting control over petroleum products.
Billings for Class II and IV supplies continued to be a problem, and controls had never been effective. The system relied heavily on the ability of supply personnel to recognize reimbursable transactions and process them correctly. Fluidness of the tactical situation, rapid turnover of personnel, and lack of instructions were causative variables. The report gave examples of lack of knowledge of procedures and showed that some documents were two years old. About 10 percent or 1,500 of the documents sent to Hawaii were returned by the centralized agency to Vietnam each month for correction. This was a time-consuming process, and many documents were never returned. Audit trails were nonexistent, and no control existed over documents going to or returned from the centralized agency. Many documents never reached the agency. In November 1968 the Navy informed the agency that it had over $3.4 million in accounts payable for issues in Da Nang. The Navy was not billed automatically because the agency " never received the issue documents.
As of 31 March 1969, there were 112 interservice agreements naming U.S. Army, Vietnam, as the agency providing support. The estimated yearly value was $138.8 million. Unexplained differences between the estimated value and actual billings were large enough to suggest a breakdown in billing procedures. At the end of the third quarter of the fiscal year 1969, nothing had been billed on 33 of the 74 interservice agreements for equipment, repair parts, and general supplies. Actual billings on the other 41 of the 74 agreements mentioned were over and under the estimates by a gross $25 million. Lacking audit trails and other management aids, causes could not be determined. Lost documents, unrealistic estimates on agreements, and billing lags were probable causes. Even after billing, some bills were not collected because they lacked support documents and customers refused to pay.
The audit report observed that however desirable remote accounting may be for other reasons, it complicates the problem of accounting control. As discussed, the concept was based on the decision to minimize paperwork in Vietnam. Remote accounting is not unique but the 6,500 mile span is unusual. Communications and document control were difficult. Document control, it was observed,
must originate in-country. Department-level reimbursement was a perceptible improvement. Command emphasis had also helped. The report goes on to Say:
If turnabout is fair play, it was the Army's turn. The 1st Logistical Command was a customer under sixteen interservice agreements. Estimated value of these agreements for the first eight months of the 1969 fiscal year was $40 million. As of 28 February 1969 only $2.5 million had been billed. No check was made on bills and most were not matched with an interservice agreement. They were obligated and disbursed at the same time. The Army Audit Agency recommended that receiving reports be sent to the Centralized Financial Management Agency for comparison with bills received from the supplier.
In reply to the Army Audit Agency, the U.S. Army, Vietnam, and the U.S. Army, Pacific, made several suggestions and comments. First was that new subsistence reimbursement procedures were to be implemented on 1 July 1969. These procedures had been recommended in 1967 by the Department of Army Task Group. It was further suggested that Interservice Support Agreements be sup-
ported by Military Interdepartmental Purchase Requests, thus funding the centralized agency in advance of actual receipt of supplies and services. This would avoid tying up Army funds during the lengthy reimbursement process. New procedures were also instituted for the transmittal of documents. Detailed instructions on handling reimbursable issues were distributed and used in on-the-job training for enlisted personnel. Finally, the use of common service funding was again recommended.
In November 1969 the joint Logistics Review Board was briefed on financial management and procedures in support of Vietnam. Almost one-third of the briefing was based on the two Army Audit Agency reports reviewed above. In the discussion period of the formal briefing that followed, it was pointed out that the Army was trying to make the system work as the Office of the Secretary of Defense had vetoed the use of common service funding and that the use of charge plates was being introduced. The failure of documentation to reach the billing point was mentioned. Common service funding was again recommended. Complexity of the supply system and the need for internal discipline were also discussed.
As time passed, automatic data processing equipment became more sophisticated. Procedures were refined and agreements were renegotiated. Innovations occurred, but many of the old problems persisted. In 1970 command emphasis had not waned, and the reimbursement program was receiving much attention. Computer listings were useful for identifying problem areas and recurring deficiencies. Special master files had been developed such as the Interservice Support Agreement file and the activity index file for identifying reimbursable customers. Unbilled account payables were yet being found during co-ordination visits with customers. Reimbursements from the Army military construction to operation and maintenance funds were still low and inadequate. One of several conferences in Vietnam was held in November 1970 for the primary purpose of discussing reimbursements.
Difficulties were also encountered in paying the Air Force for support received. As in the Army's case, documentation was a problem as well as improperly prepared documents. Additionally, many bills had not been paid because of confusion over responsibility. It was not known if the Air Force should be paid by the Centralized Financial Management Agency or from the in-country funds. This was finally ironed out and the agency assumed action on the disbursements.
In a February 1971 conference at U.S. Army, Vietnam, control of documents was again discussed. Transmittal records and supporting files were in use and of value in proving sales to reimbursable customers. Also mentioned was the problem of maintaining "hard copy" backup. Although the centralized agency was supposed to retain the source document which could be used to support contested bills, some direct support units were destroying the original documents after thirty days when punched cards were prepared. During this time period operating problems were still the subject of much concern. For example, subsistence documents forwarded to U.S. Army Food Service Center, Chicago, Illinois, for submission to the centralized agency for billing were now to be sent directly to Hawaii. The Chicago routine had been instituted in July 1969 as part of revised procedures to increase collections for subsistence. The procedure did eliminate over 3,000 documents flowing into the agency monthly. The direct-to-Hawaii change was made to expedite billing by the centralized agency. Unbilled subsistence items were still significant in November 1971. Procedures for handling contested bills were yet unsettled. Responsibility for data conversion was also being debated. Maximum conversion to automatic data processing had increased the ability of the financial agency to rapidly provide additional and more detailed feedback.
Chart 10 reflects the current system used in handling reimbursement transactions supported by interservice agreements. As reflected here, the Centralized Financial Management Agency now receives most data on magnetic tapes. This allows the agency to manipulate the data to provide various listings and reports. For example, information is furnished the United States Army, Vietnam, showing dollar value of reimbursements by issuing activity and by customer. The agency uses computers to review all supply transactions to detect reimbursable transactions by matchings with a master file of reimbursable customers. The tape system evolved from the introduction of a decision logic table for use by supply clerks. Each clerk was furnished a table listing numerous activity account codes and the action to be taken depending on the status of the requisitioner. Reimbursement transactions almost doubled after the card was introduced. The idea identified the significance of reviewing each transaction. Thus, it was decided to record all information from hard copy documents on magnetic tapes and let the computers decide the status of the transaction.
Collections are still causing difficulties. Fifty percent of the reimbursable issues are mailed to the customer. This creates a difficulty in proving that the requistioner received the shipment and
that all items ordered or shipped were received. Currently, a transportation control and movement document card is prepared to accompany the shipment, but the card identifies only the first item in the package. Current Army Post Office regulations do not permit return receipts or registered packages. Thus, it is impossible to prove that all items were received if a bill is contested. Complicating the situation is the procedure that bills are produced based on listings of issue documents. Some bills are even refuted because of administrative differences in filling out forms. An attempt is made to avoid duplicate billing. The computer routines of the centralized agency provide for matching reimbursable issue transactions against a one-year history file. In November 1971, duplicates were being identified at a significant volume. Contested bills are forwarded to the U.S. Army, Vietnam, for settlement with the customer. Unfortunately, the Army has a habit of backing off and not pushing for payment. If a bill is canceled, Army funds are used and diverted from their primary purpose of supporting Army requirements. For example, in November 1971, almost $380,000 was outstanding in the accounts receivable files for the fiscal year 1969 and $942,000 was due from fiscal year 1970. The 1971 fiscal year figures were $7.7 million. In 1972 a reserve was established for adjustments to bills. This is a technique similar to the commercial practice of establishing a "reserve for bad debts." There is some question as to the legality of the procedure, but the theory is sound and deserves further consideration. In the first five months of the 1972 fiscal year almost the entire reserve of $1.3 million was exhausted.
One of the more interesting reimbursement transactions is the Realignment Program of the Agency for International Development and the Department of Defense involving a considerable amount of money. For instance, in the 1971 fiscal year the program totaled approximately $80.9 million. The U.S. Army, Pacific, assumed funding responsibility for the program in the latter part of fiscal year 1967, retroactive to I July 1966, based on a memorandum of understanding between the Department of Army and the Agency for International Development, dated 25 May 1967. The Secretary of Defense had determined in November 1966 that certain of the programs performed by the international agency were appropriate functional responsibilities of the Department of Defense.
In hearings from the 1967 fiscal year Department of Defense appropriations before the Senate Appropriations Subcommittee, the late Senator Richard Russell questioned putting funds for the pro-
gram in the Department of Defense budget. As previously noted, the 1967 fiscal year was the second year for the Military Assistance Service Funded so assistance funds were being put in the operation and maintenance appropriations. The senator stressed that very little money should be included in the Department of Defense budget but rather that funds should be included in the economic program. Senator Russell saw this move as a ploy to augment the economic program because no one would oppose military assistance to Vietnam. Senator Russell asked for a breakdown of the value of funds for projects previously funded by the Agency for International Development. The total was $20.8 million. Mr. McNamara further explained that some actions could not be identified as purely military or economic efforts. Items in this gray area which were an essential adjunct to military operations or a result from military activities were being shifted from the economic program to the Department of Defense. The department would refrain from paying for programs not closely related to military operations. Some of the programs covered by the Department of Defense in 1972 are:
Army. This negates maintaining two complete sets of accounting records. Some elements of the program are financed initially by service funds, and then the cost is transferred to the Realignment Program or else reimbursement is effected between the Army and the service concerned. In cases where the international agency reimburses the Army for certain services, it is a round robin affair. The Centralized Financial Management Agency bills the Agency for International Development but the international agency sends their payment to the 7th Finance Disbursing Section in Saigon. The Saigon finance office processes the collection as a "transaction for others," an involved administrative process. It would be simpler to eliminate the Saigon office from the reimbursement channel.
Once again the program is mired in a quagmire of administrative red tape. The verification process of the U.S. Agency for International Development delays payment to the financial agency and often results in contested bills. The development agency has admitted that their records may not be accurate. In June 1971 there was $1.5 million outstanding. Billings to the financial agency are also delayed by a complicated administrative program, and thus the current status in 1972 of the program is not readily available.
Another difficulty is that negotiations with the U.S. Agency for International Development were normally handled at the level of the Office of the Secretary of Defense with the Department of the Army only informed after-the-fact. Additionally, the program grew rapidly from $20.8 million in the 1967 fiscal year to $50.4 million in fiscal year 1968. The figure grew to $78.7 million in the fiscal year 1969, went to $64.5 in 1970, back to $80.9 in 1971, while $65.1 was requested for fiscal year 1972.
Reimbursement of support furnished the Army of the Republic of Vietnam and the Free World Military Assistance Forces falls into two distinct categories: reimbursable and nonreimbursable. Most support was of a nonreimbursable nature and was a cost transfer between funds of the U.S. Army, Vietnam, under Program 2 and operation and maintenance Program 10, Support of Other Nations. An interesting exception to this program was the payment procedures used by the Australian and New Zealand forces in Vietnam. Agreements between these two countries and the U.S. called for complete reimbursement for all services rendered. This procedure worked both ways and was advantageous to the three countries.
Australia and New Zealand did not want the U.S. to support any of the cost of their forces in Vietnam; however, they realized that
there were many areas of support which we could furnish more economically due to our extensive administrative and logistical system. These areas included items such as billeting for the headquarters personnel in Saigon, fuel and repair parts for aircraft and vehicles, and certain other items of logistical support.
Reimbursement for this support was broken down into two categories: reimbursement on a capitation basis and reimbursement for so-called actuals. Capitation reimbursement was a monthly charge for a particular service. Examples would be charging so much per man per month for billeting or so much per vehicle per month for fuel and repair parts. These rates were reviewed annually and adjusted accordingly. The charge for actuals on the other hand was the charge based on actual cost of a service or the cost of a particular item of supply plus a surcharge to cover transportation expenses. Examples would be the cost of fuel for a visiting aircraft or the cost of repairing a wrecked vehicle. A monthly statement was provided each country reflecting the amount due the U.S. for these services. New Zealand reimbursed the U.S. on a cash basis; the reimbursement from Australia included cash plus other commodities.
To offset an adverse balance of payments deficit in Australia, the U.S. agreed to accept sugar and other commodities as part of the reimbursement. An annual specified amount of sugar was shipped from Australia to Southeast Asia. All reimbursement charges which exceeded the amount of commodities received by the U.S. were paid on a cash basis.
The capitation process worked very smoothly. The cost offset by sugar and other commodities was prorated on the basis of 75 percent for the Royal Australian Army component and 25 percent for the Royal Australian Air Force component. Due to its small size, the Royal Australian Navy component reimbursed the U.S. on a cash basis. The Australian and New Zealand forces furnished the comptroller of the Military Assistance Command, Vietnam, a monthly report which contained information pertaining to strength, vehicle usage, and fuel consumed. This information was used to prepare a formal billing for each country in accordance with the financial working agreements.
Some problems were encountered in the billing for actuals. Original agreements stated that each country would furnish the comptroller a monthly listing of supplies and equipment drawn from U.S. supply sources. These listings were forwarded to the centralized agency for preparation of a formal billing. The listings did not include the original requisition number and the agency had no way of verifying the supplies drawn by cross-checking against
U.S. Army, Vietnam, depot issue listings. The General Accounting Office took exception to this policy, and Australia and New Zealand agreed to furnish requisition numbers on subsequent listings.
As a result of the General Accounting Office audit, the Centralized Financial Management Agency began to bill Australia and New Zealand by comparing the U.S. Army, Vietnam, depot issue listings with the monthly listings furnished by the two countries. This created some duplicate billings due to partial shipments on requisitions. Additionally, Australia and New Zealand were being billed for items which they had not received. These items were on order for direct shipment to them in Vietnam. Under their regulations they could not pay for an item until it was physically received. The Australian Air Force was also being billed under the actuals process for aircraft repair parts which they were paying for based on capitation rates for aircraft operating hours. These items are still being studied in 1972.
Reimbursements between U.S. agencies caused many problems, but procedures worked rather well with the allies. It is true, however, that the costs of U.S. forces have been overstated due to failure to identify all issues chargeable to the allies. This occurred most often when supplies issued to U.S. forces were subsequently furnished the allies and no documentation was prepared.
Looking back at the repetitive phases of the reimbursement problem, it can be concluded that seldom was so much effort expended so fruitlessly. The obvious solution for a joint theater is a common supply plan, an idea suggested numerous times at all levels of command. The parochial interests overshadowed all attempts to impose order on the interface among the services, allies, and government agencies.
Much overhead was created and administrative costs expended attempting to keep the records straight. Many times reimbursable issues were ignored as the easy way out. It was often too much of an administrative hassle to collect for the issues and to document the transaction. The supply clerks who are the cornerstone of the system were often ill-trained or lacked guidance. No amount of sophistication at higher levels could overcome these basic shortcomings.
Reviewing the numerous inspection and audit reports one can see that the defects which reappeared so often were inherent to the system. Many problems have never been reconciled or were
resolved too late; now that the end of the conflict is near the urgency of the matter is gone.
A subtitle for this chapter could aptly state, quid pro quo; the government spent much time, effort, and money identifying who should get something in return. The result is that U.S. Army funds were supporting the major portion of the war while in the continental U.S. badly needed repair and maintenance projects were being deferred from year to year at nearly every installation. The amounts lost through failure to obtain reimbursement would have considerably improved the permanent plant facilities in the continental United States.