one time, but the process is being institutionalized so that it will continue forever more.

Senator CHILES. Knowing that that program is not in effect right now, the marketing research, then our auditors are our first line of defense. Until recently the contractors' odds were about one sevenhundredths of 1 percent.

We could give Howard Davis another $1 million and tell him to hire another 100 or so auditors. But you are still not going to get significant coverage of 8,000 contracts. So the problem seems to be to reduce the amount of territory that the auditors have to cover. That means that we need to reduce the number of contracts that auditors would have to cover until the probability of being audited becomes sufficient that if the contractor has desires to play fast and loose with the Government, and as we have said before, we think the majority of them don't, but for those that do, there will be strong incentive not to do that because of the probability that they might be caught.

Are we going to be able to cut down the number of multipleaward contracts to the point where the auditors will be able to provide effective coverage to protect the Government's interests? Mr. MCCARTHY. I won't attempt to project what the bottom line will be, but I believe on the basis of what we have done to date in looking at the 113 schedules, that we will cut them down significantly and, as you stated at the last hearing, and as Mr. Morris has stated, there will be a need for some multiple-award schedules. But I would say the number will be very considerably lower.

Senator CHILES. When do you think we will really be able to say that we have gone through that, that we reduced the ones thatwe have made it more competitive and that we have control over the multiple-award situation?

Mr. MCCARTHY. At the end of this fiscal year in terms of dollar value, you will have probably seen the review of about 50 percent of all of the dollars that we are talking about.

The remaining items, of course, will be of lower dollar value. We are doing this, by the way, in a high dollar value sequence. We are hitting the big volumes first.

So the remaining 50 percent or so will probably take almost 2 years to complete after this fiscal year.

Senator CHILES. When are we going to know what is in stock at a self-service store?

Mr. MCCARTHY. Sir, we believe that we have sufficiently reviewed the entire self-service store picture now and we can go ahead and set standardized permanent policies and procedures for the stores.

The actual stockage of items in the stores is at the discretion of the regional administrator. It has been moved to that level sinceas I mentioned earlier-the findings that were discussed in the previous hearings. Those regional administrators are determining what items are in the store.

By the way, that currently averages about 1,100 items. It used to be many times that in the past.

Senator CHILES. Maybe the number of items might be in the discretion of the regional administrator. I hope you are not given the discretion as to whether or not they will have an inventory?

Mr. MCCARTHY. Absolutely not. There will be an inventory in the store and there will be this line item accounting of inventory that Mr. Morris addressed.

Senator CHILES. Can you give me a date of when we will have an inventory at the self-service store in effect?

Mr. MCCARTHY. Currently, all the stores have inventories. They constantly are taking inventories. But the new line item accountability system that will provide a perpetual inventory will be installed by the end of this fiscal year. We will have it in all stores. Senator CHILES. By the end of fiscal year 1981, we will have a line item inventory, perpetual inventory in all of the self-service stores?

Mr. MCCARTHY. Yes, sir.

Senator CHILES. When will we know what is in our warehouses, furniture?

Mr. MCCARTHY. We know what is in them. We know how much furniture there is. It is a very large quantity right now because we haven't been shipping it other than for very limited exceptions. Senator CHILES. Do we actually have an inventory now?

Mr. MCCARTHY. Yes, sir.

Senator CHILES. A line item inventory?

Mr. MCCARTHY. Yes, sir.

Senator CHILES. In all of our furniture warehouses?

Mr. MCCARTHY. In our furniture warehouses, yes, sir.

Senator CHILES. I am using the big our, the U.S. Government's furniture warehouses that GSA has nothing to do with.

Mr. MCCARTHY. Yes, sir.

Senator CHILES. When will the credit cards be protected from unauthorized use?

Mr. MCCARTHY. The credit cards are protected currently. They are kept under a running inventory. The card blanks are held at the regional level. When someone requests a card, they print one up for them, they have a running inventory of how many card blanks they have and how many they should have. They keep those blanks under lock and key.

Senator CHILES. My understanding is that part of the GAO report that we have referred to today found that some of the credit cards were not under lock and key.

Mr. MCCARTHY. I think that that is partly a function of the dates in which that report was developed. That report from its inception to its completion is about a year old now. The information that was in there was constantly changing as they were doing the investigation.

Senator CHILES. You are saying, then, if we sent GAO out today, that all of those credit cards would be under control now?

Mr. MCCARTHY. Yes, sir.

Senator CHILES. We could go on like this all day. I am trying to impress upon you that you are taking on a tremendous job. We certainly wish you every success in it. Hopefully 14 will be your lucky number and our lucky number.

Mr. MCCARTHY. Thank you, Senator.

Senator CHILES. Our last witness will be Adm. Rowland Freeman, the Administrator of GSA.

Will you raise your right hand?

Do you swear the testimony you will give before this subcommittee will be the truth, the whole truth, and nothing but the truth, so help you God?

Mr. FREEMAN. I do.

TESTIMONY OF ROWLAND G. FREEMAN III, ADMINISTRATOR, GENERAL SERVICES ADMINISTRATION

Senator CHILES. We have your statement. We will certainly insert that in the record.

Mr. FREEMAN. I have a shorter version.

Senator CHILES. I am delighted to hear that.

Mr. FREEMAN. Mr. Chairman and members of the subcommittee, I am pleased to again appear before your subcommittee to discuss the concerns which all of us share with regard to the activities of the GSA, but I think it is appropriate while addressing these specific concerns that I also cover a number of other areas which I believe are of interest to this committee, to our customer agencies, and to those with whom we do business.

In my 15 months as Administrator of General Services, I have participated in 17 congressional oversight hearings. While these hearings have covered a wide range of topics, in almost every one I have been asked: "When are you going to tell us all is well with GSA? When can you assure us that GSA is efficiently carrying out its assigned mission?" I have said, and I repeat again today, there is no easy answer to that question. The task before us is complex and difficult, and there are no quick fix solutions.

However, while the job before us may be a difficult one, I disagree with your opening statement, Senator. We have made substantial progress in the last 15 months. We have developed a data base so we can effectively evaluate the impact of our reforms. We are training our staff. We are developing a management team which is committed to what we are doing and which, in turn, is developing the resources to carry out our plans.

We are also establishing and have established the internal checks and balances which will alert us to the problems before it is too late. Our managers should not have to wait for an audit report to find out where we have gone wrong.

As you know, we have been getting a lot of help lately. The GAO, our Inspector General, the press, the trade groups, and of course the Congress, have all been helpful in pointing out where reforms are needed.

Unfortunately, the corrective actions which are required involve a comprehensive restructuring in the way we do business. I think the multiple-award schedules are a classic example of this, as are the retail stores. This task is a slow and painstaking one, just in the area of training, and I would like to report that there have been dramatic improvements. However, I would be foolish to put the case quite that strongly.

We are now implementing the 5-year plan which I put in place on my arrival at the agency. This program will take the entire 5 years to complete, not 3 or 4; it may in fact take somewhat longer. However, as we progress, much has been, and much will be accomplished.

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Before I proceed to a discussion of our program initiatives, I would like to mention briefly a project which I believe will be of great assistance in future evaluations of the agency. In August, I commissioned an independent study of GSA's functions and organization by the National Academy of Public Administration.

That study is expected to be completed by December 1980; it will t assess the functions and organization of GSA as a central purchaser for most Federal agencies of buildings, supplies, computers, telephone and other telecommunications services, and as manager of excess real and personal property. The Academy will compare GSA's operations with similar activities elsewhere in government and in private industry, and the impact of the 1949 Property Act and subsequent legislation. The report will evaluate how GSA is carrying out its mission, and where we should go from here. I am looking forward to sharing the results of that with the Congress. I would like to address some of the major program areas which I know are of particular concern to this subcommittee. These include three Federal Supply Service initiatives: (a) the furniture management reform program; (b) the multiple-award schedules; and (c) self-service stores. I will then discuss several other areas where I believe significant changes are taking place to put in context the scope and magnitude of the actions it is going to take to make this agency a cost-effective and efficient operation. GSA is an $8 billion operation with 38,000 people; you can only correct a problem of that magnitude very slowly.

Finally, I would like to present an overall assessment of our activities, what we have accomplished, and where we are going from here. While this may be repetitious, I think it important to put it in context from my perspective as Administrator of GSA and the one where the buck stops.

On February 27, 1980, with the support of the Office of Management and Budget, we launched a five-part program of reforms in the purchase and utilization of office and household furniture by the executive branch. I repeat, by the executive branch. I believe this is the most far-reaching set of reforms ever attempted in the management of commercial type commodities by the Federal Government. The effort is a direct result of the hearings and actions by this committee.

We now have in place a permanent program of management improvements which assisted in implementing the $220 million rescission mandated in fiscal year 1980. Far greater attention will be paid to furniture purchases than has heretofore existed. The five achievements of this program are as follows:

First, property management officers have now been appointed by 70 agencies.

Second, as we promised the committee in March, we have undertaken a thorough purification of agency requisitions which had been received through last February.

Third, we launched Operation Cleansweep to identify idle furniture on hand in individual agencies which could be made available for reutilization elsewhere in government. The surveys began nationwide in April, and nearly 1,300 have been conducted to date.

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Fourth, we have applied substantial analysis to eliminating unnecessary items from the furniture inventory and to improving our means of contracting and distribution.

Fifth, and perhaps most important to this committee, is the requirement that every executive agency obtain OMB approval of its plans for furniture purchases in fiscal year 1981 before it will be permitted to resume ordering of new furniture.

As you know, Mr. Chairman, we are now reporting quarterly to this committee on our progress in each aspect of the furniture management reform program, and what I have covered today is at brief update.

I would like to mention one other matter. On July 28, the GAO issued a final report on its review of the GSA systems furniture test program. As you know, I suspended this program last March pending meticulous review by the GSA Systems Acquisition Review Council chaired by my deputy.

That review has continued and the suspension of the program remains in effect today. Certain points are already clear:

Any future proposal for the use of systems furniture must contain an auditable plan for the utilization of existing conventional furniture, either in combination with systems furniture or in some other valid application. In some areas we will have to look at a combination because the basic designs were laid down to try to accommodate the systems furniture.

The analysis of the cost/benefits to be achieved from a proposed systems furniture installation must be objectively reviewed by a team which GSA forms or approves whenever the investment is significant.

The agency must present a plan as to how it plans to monitor and document the economies targeted, subject to Inspector General or GAO audit.

MULTIPLE AWARD SCHEDULES PROGRAM

As Mr. McCarthy and Mr. Morris testified on multiple award schedules, in May of 1980, in a hearing before our Appropriations Subcommittee, we outlined a plan to attack this longstanding problem area. We are submitting quarterly reports to you, the first of which was dated August 1, 1980.

Today, I would like to report recent progress on three aspects of the program; namely: (1) Removing items from multiple award schedules whenever we can obtain competitive procurement; (2) improving our procedures for negotiating multiple award schedules, as stressed in GAO's report to Congress, dated August 22, 1980; and (3) recent actions to improve controls over price reductions to which the Government may be entitled based on audits conducted after the award of multiple award schedule contracts.

1. PROGRESS IN REMOVING ITEMS FROM SCHEDULES

In this area our progress since May has been significant. We have reviewed 23 schedules totaling $487 million of annual purchases. We have canceled 13 schedules with annual purchases of $85 million, and we have developed 91 commercial item descriptions to support competitive procurement.