COMMENTS ON S. 653

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP77M00144R000800140018-3
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 9
• Document Creation Date: December 12, 2016
• Document Release Date: December 18, 2001
• Sequence Number: 18
• Content Type: MF

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MB iBR NDUM FOR: Legislative Counsel
SUBJECT : Comments on S.653
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1. This memorandum sets forth our views on S. 653, a bill to amend
Budget and Accounting Act, 1921, to provide for audits by the Ueneral Accounting
Office of expenditures by intelligence agencies of the Government. The bill
would provide that notwithstanding the provisions of section 8(b) of the
Central Intelligence Agency Act of 1949 (50 U.S.C.408j(b)) or any other pro-
visions of law, the accounts and operations of each intelligence agency shall
be audited pursuant to the provisions of this statute and under such rules
at.-id regulations as may be prescribed by the Comptroller General. The audit
would be done at the request of any Congressional committee having legislative
jurisdiction over any intelligence agency or the appropriation therefor, and a
report submitted to such requesting committee, joint committee or subcommittee.
2. Section 8(b) of the CIA Act of L1949 has provided the Director of Central
Intelligence broad authority to expend monies on his certification alone without
the usual audit by the General Accounting Office. Section $(b) states.:
(b) The sums made available to the Agency may be expended
,without regard to the provisions of law and regulations relating to
the expenditure of Government funds;"" and for objects of a con-
fidential, extraordinary, or emergency nature, such expenditures to
be accounted for solely on the certificate of the Director 4'~ and
every such certificate shall be deemed a sufficient voucher for the
amount therein certificd."
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3. It is important to make clear what are and what are not the reasons
for the presence of Section 8(b), and to do this it is necessary to describe
how the intelligence function differs in its decurity requirements from other
government situations requiring protectioncf information. In most situations
it is the substantive nature of the information that requires protection. Thus,
in the military fiekis the flight chargcteristics of a fighter plane, the accuracy
of a ballistic missile,or war plans and troop movements may require protection until
such information is known to be in the hands of an enemy or is otherwise put in the
public domain. S ,r , In the diplomatic field the substance of diplomatic
negotiations may require protection to preserve important international rela-
tionships. Similarly, in the intelligence field substantive information may
also require protection as when information is obtained on enemy intentions
or capabilities which he believes are not known, thus enabling effective
counter-measures. Safequarding this type of information, however, does not
require different accounting and reporting procedures for dealing with confid-
ential funds.
4. The intelligence community, however, m#st protect another kind of
information -- intelligence sources and methods. In some situations this is
a simple problem to grasp. Thus, a secret agent operating abroad in a hostile
climate must be protected, not only so that he can continue supplying the
intelligence involved, but also becau;-e his freedom, and on vicesion, his
.
l fe, is at stake. The agent is living a false life and his cover mustCin7
inienetrable. Such things as identity cards, credit references, family
relationships, and various other details are vital to his existence. No
outsider can even guess that an apparent insignificant fact may endanger his
cover.
5. Other intelligence activities do not have such obvious security require--
menu. Foreign liaison, that is liaison with foreign intelligence and security
agencies, is extremely important in fields of both positive inteLligence and
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counter-intelligence. Such Liaisons, to be effective, depend on the confidence
of each service that the other will protect the mere fact of the relationships
as well as its sources and methods and sensitive information. Compromise of informat-
ion brings not only protests from the foreign liaison services, but in some cases,
a lessening or even cessation of their cooperation.
6. Covert action operations are by their nature complex and invlve the
covert cooperation of at least a few and occasionally a large number of personnel.
here aga4in their cooperation depends on their confidence that the intelligence
service they are aiding can protect such cooperation and again, no outsider or
one not thoroughly familiar with the activities is capable of determining what
fact, however insignificant, may expose the covert relationship with the intelligence
activity. Such exposn#e would, of course, not only negate an effort determined
by high authority to be in the national interest, but might in many cases
endanger the fortunes, liberties, or even the lives of the participants. Even
overt activities have their own security problems. Thus, many U.S. citizens and
others willing to provide sensitive information to overt intelligence unitslon
condition that their cooperation in this respect is absolutely protected.
7. In the field of technical intelligence collection, such as the intercept
of communication (COMINT), the obvious security problem is that if the foreign
country is aware that an intelligence service is able to read its com unications,
it will take measures to baffle such collection so an important source of intel-
li.gence may be lost. Less obvious aspects of the technical collection field (SIGINT).
are the need to protect new techniques of collection and to take all the necessary
and sometimes most complicated steps to put such techniques into successful operation
These may involve the most secret negotiations with foreign countries for the
establishment of secret collection sites. These countries may wish to cooperate
but cannot do so openly due to conflicting international or domestic poltical
considerations. The agreements so to cooperate must, therefore, be negotiated in
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absolute confidence , and the cooperating country will insist that the fact of its
cooperation must be protected.
8. Another technique for carrying out some of these as well as other
intelligence activities and covert operations is the use of what are called
"proprietary entities;'
9. The need for spedial protection of intelligence sources and methods
has been well recognized by officials in the Executive, Judicial, and Congressional
branches of our Governmit. For example, the Comptroller General of the United
States, Mr. Lindsay C. Warren,when requested to approve pr-opsaed legislation
which subsequently was enacted as the CIA Act of 1949 examined the provision
granting the Director of Central Intelligence the power to certify the expen-
diture of confidential funds. Mr. Warren stated that while he believed it
provided "for the grantingoS of much wider authority than I woibld ordinarily
recommend for Government agencies generally, the purposes sought to be obtained
by the establishment of the Central Intelligence Agency are believed to be of such
paramount importance as to justify the extraordinary measures proposed therein;~F
Mr. Warren went on to state that the"necessity for secrecy in such matters is
apparent and the Congress apparently recognized this fully in that it provided
in section 102(d) 3 of Public Law 253, that the Director of Central Intelligence
shall be responsible for protecting intelligence sources and methods from un-
authorized disclosure. Under these condLLtions, I do not feel called upon to
object to the proposals advanced...."
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10. Statutory authority for the employment o co
passage of the CI Act of 19/p9.
The secret journals of the Continen-A
tal Congress record numerous appropriations
nsft romilitary'expeditions
where the provisions for accounting were discretion or entirely omitted.
Section 107 of Title 31 of the United States Code, derived from
an original Act of February 9, 1793 (C. 4, Section 2, 1 Stat. 300),
permits the President to settle annually with the General Accounting
Office such appropriations for foreign intercourse or treaties as he
considers may be. made public; with respect to those which he may
think it advisable not to specify, he is authorized to direct the
Secretary of State to prepare a certificate of the amount. Such a
certificate is to be deemed.a sufficient voucher for the sum expended.
Section 107(a) of Title 31 allows the Secretary of State since
January 5, 1946, to delegate to subordinates the authority vested in
him by Section 107.
Section 108 of the same Title 31, deriving from an Act of August
29, 1916 (39 Stat. 557), established the procedure for the Secretary
of the Navy to account, without publicly disclosing, for expenditures
from appropriations for obtaining information. from home or abroad.
His certificate is to be "deemed a sufficient voucher for the sum
therein expressed to have been expended."
-~ a 7Tnr TT L.yi~A
1~. From the very beginning of World War II the need for unvouchered
expenditures grew enormously. Perhaps the best example of this need
for purposes of this study would be the experience of the Office of
Strategic Services. Originally its confidential funds were obtained
from an appropriation for the Executive Office of the President, but
later it received specific appropriations as an independent executive
agency. Obviously, only a portion of its operations were sufficiently
secret to require exception from the ordinary 'rules governing 'audit
of Government funds. For this reason, a portion of the total appro-
priation each year was earmarked for expenditure for objects of a
confidential nature, such expenditure to beaccounted
dicaresolely on
the certificate of the Director and every such
deemed a sufficient voucher for the amount therein certified. With
the cooperation of the Treasury, the Bureau of the-Budget and the
Comptroller General, this system proved workable for wartime pur-
poses.
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 1 ApKgvt J tnC1 i7 ~c~4 3 c 'allowing use
has been exercised to such a degree that certain activities, not in themselves
sensitive but conducted solely in support of highly confidential operations, are
funded under general authorities without invoking the PCI's special authority
to make final accounting therefor.
13. All expenditures of the Agency have been and xt are still subject to the
this Agency's activities, it could have been correctly argued that all of the
funds of the Agency should be expended under the authority of Section 8(b) so that
none of them would be subject to outside audit. Nevertheless, it has been the
policy of the Agency since its creation to limit the exercise of this special
authority to those activities which in the national interest should have the
maximum security protection. To the extent possible Agency funds have been expended
under the other provisions of the let CIA Act C fa eec
eperrt ?=~^~?p ~Lnan ~varlalrr3e-tzr-i;Z4 Geiser This policy
of unvouchered expenditures. Moreover, given the close interrelation of all of
strictest kind of internal control and auditing by the Agency audit staff and
by the Office of Management and Budget. In addition, from its inception all CIA
"vouchered" expenditures were made available to and were subject to a voucher
audit by representatives of the General Accounting Office. Use of the voucher
audit procedure allowed the GAAI to examine expenditure and collection vouchers
and related documents to determine wehether expenditures are made legally and
solely for the objects for which appropriations are made. Use of'the voucher
audit procedure also allowed the CIA. to protect those activities of a confidential,
extraordinary or emergency nature.
14. Subsequent to the enactment of the CIA legislation, GAO changed its
audit procedures and adopted what it termed a "comprehensive audit approach" This
review includes' a determination that the expenditure of funds and the utilization
of property and personnel are in the furtherance only of authorized programs or
activities and that the programs and activities are conducted in an effective, eff-
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ic:ient, and economical manner; an examination of Organization structure and
a review of Agency policies for conformance with legislative intent and
applicability to Agency activities; and includes. an examination of Agency
practices and procedures in carrying out such policies.
15. In 1959, the GAO raised with the CIA Subcommittee of the House Committee
on Armed Services the desirability of an expanded audit of Agency activities
more in line with the regular comprehensive audit approach. At the same time
the Comptroller General stated that he did "not recommend any change in section
10 (now section 8) of the Central Intelligence Agency Act" and that "any broad-
ening of our audit activities should not include an evaluation of the intelligence
activities of tie Agency." Allen Dulles, then Director of Central. Intelligence
agreed that` the GAO shold expand its current audit activities in a considerable
portion of the Agency, cautioning only that the comprehensive audit would have
to be limited so as to remain outside the area of sdnsitive security operations
for which by law the Director's certificate shall be deemed a sufficient voucher
for the amound therein certified.
16. By 1961 the Comptroller General informed the CIA Subcommittee that it
planned to discontinue the GAO audit of CIA activities. The Comptroller General
acknowledged that "various steps were taken by the CIA to place the General
Accounting Office in a position to make a comprehensive audit of the overt
activities of CIA." He stated , however, that GAO "cannot effectively review and
evaluate activities of the Support Component beca,ie the confidential and overt
activities of this compenent are integrated to such an extent that we cannot make
,reason4y comprehensive audits." He further stated "we have been given sufficient
access to ,make reasonably comprehensive reviews of the overt activities of the
Intelligence Component, but such reviews, in our opinion will not be productive
of significant evaluations because we cannot feasibly evaluate the extent to which
needed overt information is available for collection or determine the need for the
intelligence information selected for collation and use in the production of
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intelligence reports." In short, the Comptroller General was arguing that the
philosophy underlying GAO's comprehensive audit approach woihld not tolerate a
distinction betw4en ovdrt and covert activities and expenditures.
17. Both the DCI and Mr. Vinson, ChairmanvT of the House Committee on
Armed Services requested the Comptroller General to continue to audit -thu
Agency affairs on a limited basis.
c on of As intelligence activities
and should be maintained. Also, Mr. '
McLane has
informed us that among the reorganizational steps
he has carried out is a major
comptroller and internal audit functiionsninthe the
Agency. Consequently, I believe you have met the
objectives of my letter of May 18, 1961, which
recommended that you continue your work at that time,
and since you feel confirmed in your opinion that it is
not a worthwhile effort, I am agreeable that you with-
draw from further audit activities in the Central
Intelligence Agency.
... the restrictions you met with in the Central
Intelligence Agency are necessary, I believe, for
the proper rote 4 - 4
P8* GAO continued its limited audit of CIA for about
one year. On 21 June 1962 the Comptroller General wrote
Chairman Vinson expressing his continued view that security
restrictions precluded an effective audit of CIA. The Comp-
troller General stated his belief that to conduct a maximum
effective audit, "it would be necessary to have nearly complete access to CIA a-for ctivit esGAO/ audit staff
u
that it would be possible to perform "reasonably c11 omp Yle pre h hensi e psi ed
perform reviews... if... permitted complete access to the administrative
activities, such as financial, procurement, property, and
personnel management and internal review activities that are
Performed in support of both sensitive and nonsensitive opera-
tions of CIA. {Emphasis added. )
19. Upon consideration of the audit problems as expressed
in the Comptroller General's latest letter, Chairman Vinson
agreed that GAO withdraw from further audit of CIA activities. In
a letter to the Comptroller General, which was drafted by the
Agency, Mr. Vinson said.
a vhnrn? r1 \ly A, th , p hra s 3\ot audited MA---k-,.-r-
m y 4iz~~E~ Auc!it Staff ancl~
a-, Agenci proprietar
CP Y
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 np ,%Fy e ,2qRCdkWhgARPPaUM9A44M0 14f W A ncy
continues to believe that GAO ought to be included in the CIA audit process.
We Agree with the views thn 31 Comp. Gen. 193L that the Director's special powers under
section 8(b) do not pertain to the normal administrative or operating problems
which confront the ordinary Government agency and each succeeding Director of
Central Intelligence has been assiduous in limiting the exercise of this speical
authority to those activities requiring special protection. As in the past,
our only concern is to protect sensitive intelligence sources and methods.
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