B-140928, FEB. 8, 1960

B-140928, FEB. 8, 1960

TO THE SECRETARY OF DEFENSE:

BY LETTER OF OCTOBER 2, 1959, FROM MR. JOHN M. SPRAGUE, DEPUTY ASSISTANT SECRETARY OF DEFENSE, ADVICE WAS REQUESTED AS TO WHETHER OUR OFFICE WOULD BE REQUIRED TO OBJECT TO THE ESTABLISHMENT OF A DEPARTMENT OF DEFENSE POLICY UNDER WHICH THE MILITARY DEPARTMENTS WOULD WAIVE THE INITIATION OF CLAIMS AGAINST COMMERCIAL CARRIERS FOR LOSS AND DAMAGE DISCREPANCIES OF LESS THAN $25. THE WAIVER WOULD NOT OBTAIN UNDER SPECIAL CONDITONS PRESCRIBED BY THE MILITARY DEPARTMENTS TO PROTECT AGAINST PILFERAGE AND INCORRECT RECEIVING PRACTICES. WITH THE LETTER WERE MEMORANDA FROM MR. AARON J. RACUSIN, AIR FORCE DEPUTY FOR PROCUREMENT AND PRODUCTION. THESE CONTAIN RECOMMENDATIONS FOR PROCEDURAL CHANGES IN THE HANDLING OF RELATIVELY SMALL LOSS AND DAMAGE CLAIMS AND AN ESTIMATE OF PRESENT COSTS OF HANDLING SUCH CLAIMS.

THE TOTAL COST OF PROCESSING A REPORT OF SURVEY (DD FORM 46) IS ESTIMATED AT $59.45, CONSISTING OF VARIOUS ITEMS SEGREGATED UNDER THREE MAJOR GROUPS: (1) $35.93 FOR PROCESSING AT BASE LEVEL, (2) $13.52 FOR PROCESSING BY THE AIR FORCE ACCOUNTING AND FINANCE CENTER, AND (3) $10 FOR PROCESSING BY THE FINANCE CENTER, U.S. ARMY. IT IS APPRECIATED THAT ALL OF THE ITEMIZED ELEMENTS OF COST ARE NOT PRESENT IN EACH INSTANCE OF LOSS OR DAMAGE AND THAT THE INDIVIDUAL COSTS ASSIGNED TO EACH STEP IN HANDLING MAY VARY ACCORDING TO THE ACTION REQUIRED BY THE CIRCUMSTANCES IN EACH CASE. THE COST DATA WAS ASSEMBLED FOR USE IN SUPPORT OF THE PROPOSAL WHICH IS NOW SUBMITTED FOR OUR CONSIDERATION, FOLLOWING INTERNAL SUGGESTIONS THAT LOSS OR DAMAGE DISCREPANCIES OF THE VALUE OF $25 OR LESS BE CONSIDERED AS INCONSEQUENTIAL LOSSES NOT WARRANTING INITIATION OF CLAIMS AGAINST COMMERCIAL CARRIERS, AND THAT CLAIMS GREATER THAN $25 BUT LESS THAN $50 IN AMOUNT BE SETTLED AT BASE LEVEL WITHOUT OBSERVING THE REQUIREMENT FOR A DD FORM 46 REPORT OF SURVEY. IT WAS ESTIMATED THAT DURING THE CALENDAR YEARS 1955, 1956, AND 1957, THE AIR FORCE SPENT A TOTAL OF $100,000 IN PROCESSING CLAIMS FOR LESS THAN $25 AND THAT THE AMOUNT RECOUPED AS A RESULT OF THESE EFFORTS WAS APPROXIMATELY $31,000. UNDER THE GENERAL PRACTICE REPORTEDLY FOLLOWED BY THE MILITARY DEPARTMENTS FOR A NUMBER OF YEARS, A LOSS OR DAMAGE DISCREPANCY OF LESS THAN $10 IS CONSIDERED AN INCONSEQUENTIAL LOSS FOR WHICH CLAIM NEED NOT BE MADE.

AT PRESENT A DD FORM 46 REPORT OF SURVEY IS REQUIRED TO SUPPORT ALL LOSS AND DAMAGE CLAIMS OTHER THAN THOSE DETERMINED TO BE INCONSEQUENTIAL, AND THE REPORT IS REVIEWED AT BASE LEVEL AND AT THE AIR FORCE ACCOUNTING AND FINANCE CENTER BEFORE FINAL ACTION IS TAKEN. THE PREPARATION OF THIS REPORT AND THE ASSEMBLY OF SUPPORTING DOCUMENTS TO INSURE THAT AN ADEQUATE RECORD IS AVAILABLE TO THE REVIEWING AUTHORITIES APPARENTLY IS RESPONSIBLE FOR MUCH OF THE BASE LEVEL COST. THE ADOPTION, THEREFORE, OF THE RECOMMENDATION CONTAINED IN MR. RACUSIN'S MEMORANDUM OF APRIL 2, 1959, THAT SMALL CLAIMS BE HANDLED AT BASE LEVEL, IF CAPABLE OF ACCOMPLISHMENT THROUGH ARRANGEMENTS WITH THE LOCAL OR CENTRAL OFFICE OF THE CARRIER, WITHOUT PREPARATION OF A REPORT OF SURVEY AND WITHOUT THE ACTION REVIEWS NOW OBTAINING, WOULD MATERIALLY REDUCE BASE LEVEL COSTS AND WOULD ELIMINATE AIR FORCE ACCOUNTING AND FINANCE CENTER COSTS ENTIRELY. THINK THE PROPOSAL HAS MERIT AND WOULD BE INCLINED TO CONCUR IN ITS APPLICATION, IF OTHERWISE FEASIBLE. WE HAVE SOME RESERVATIONS, HOWEVER, ABOUT THE PROPOSAL TO RAISE THE INCONSEQUENTIAL LOSS LEVEL TO $25.

IF IT WERE KNOWN GENERALLY THAT DEPARTMENT OF DEFENSE SHIPPING LOSSES OF ARTICLES NOT EXCEEDING $25 IN VALUE WERE TO BE WRITTEN OFF WITHOUT INVESTIGATION, SUCH KNOWLEDGE MIGHT GIVE RISE TO AN INCREASE IN SMALL LOSSES DUE TO CARELESSNESS OR THEFT. WHILE ANY SIGNIFICANT INCREASE IN SMALL LOSSES UNDERSTANDABLY SHOULD BE THE SUBJECT OF APPROPRIATE COUNTER- MEASURES DESIGNED TO STRENGTHEN ADMINISTRATIVE CONTROLS AND TO MINIMIZE FREQUENCY OF LOSSES DUE TO SUCH CAUSES, A RISE IN THE INCIDENCE OF SMALL LOSSES COULD MATERIALIZE, POSSIBLY BECAUSE OF AN AWARENESS ON THE PART OF PERSONS HAVING ACCESS TO GOVERNMENT PROPERTY IN TRANSIT, THAT THE RATHER EXHAUSTIVE INVESTIGATIVE PRACTICES NOW PREVAILING HAVE BEEN ABANDONED. THE EXTENT OF INCREASE IN LOSS DUE TO THIS FACTOR IS, OF COURSE, PROBLEMATICAL, BUT IT WOULD APPEAR TO BE AN ELEMENT FOR CONSIDERATION IN ANY ANALYSIS AND APPLICATION OF THE PROPOSED PROCEDURE.

IN ADDITION, IT SEEMS NOTEWORTHY THAT THE ESTIMATED BASE LEVEL EXPENSE INCLUDES CERTAIN ITEMS OF COST WHICH ARE NOT INCURRED IN THE CASE OF LOSSES BUT ARISE ONLY IN DAMAGE CASES. FOR EXAMPLE, THE COST OF PHOTOGRAPHS--- SAID TO BE $5.50--- AND OF OBTAINING A REPAIR STATEMENT--- SAID ALSO TO BE $5.50--- WOULD SEEM NOT TO OBTAIN IN CASES OF TOTAL LOSS. CERTAIN OTHER ELEMENTS OF BASE LEVEL EXPENSE WOULD BE ELIMINATED IF THE PROPOSAL TO HANDLE SMALL CLAIMS AT BASE LEVEL WERE APPROVED. THUS, IT MIGHT BE POSSIBLE, WITH THIS BASIC REFORM, TO ECONOMICALLY COLLECT LOSSES LESS THAN $25 IN AMOUNT.

WE HAVE RECENTLY CONSIDERED INQUIRIES FROM THE ATOMIC ENERGY COMMISSION AND THE DEPARTMENT OF THE NAVY PERTAINING TO PROPOSALS TO ESTABLISH $10 MAXIMUM INCONSEQUENTIAL LOSS LEVELS. COPIES OF OUR DECISION OF DECEMBER 14, 1959, B-141106, TO THE COMMISSION, AND OF OUR DECISION OF NOVEMBER 19, 1959, A-24222, TO THE NAVY, ARE ENCLOSED FOR YOUR INFORMATION. WHAT WAS SAID THEREIN SEEMS PROPERLY FOR CONSIDERATION HERE AND SHOULD SERVE TO SUGGEST PROVISIONS OF LAW AND REGULATIONS PERTINENT TO YOUR PROBLEM AND OUR GENERAL VIEWS AS TO THE ESTABLISHMENT OF MINIMUM AMOUNT LIMITATIONS BEFORE COLLECTION ACTION IS INSTITUTED FOR LOSS OF OR DAMAGE TO GOVERNMENT PROPERTY. YOUR PRESENT PROPOSAL, CONTEMPLATING WAIVING INITIATION OF CLAIMS FOR LOSS AND DAMAGE DISCREPANCIES OF LESS THAN $25, UNDERLINES THE NECESSITY FOR FURTHER STUDY OF THE SITUATION WHERE NO DOUBT EXISTS AS TO CARRIER LIABILITY FOR A SMALL LOSS OR DAMAGE AND WHERE A COLLECTION CAN BE EFFECTED WITHOUT FURTHER INTERMEDIATE EXPENSIVE PROCESSING BEFORE REPORT IS MADE TO THE OFFICE WHICH IS IN A POSITION TO MAKE COLLECTION BY SETOFF. THE FACT THAT A $25 LIMITATION IS BEING CONSIDERED WOULD SEEM TO LEND EMPHASIS TO THE POINTS SUMMARIZED IN THE LAST PARAGRAPH OF THE MENTIONED DECISION TO THE SECRETARY OF THE NAVY, THAT---

"* * * THE ANNOTATIONS ON GOVERNMENT BILLS OF LADING OR OUTTURN REPORTS PROPERLY MAY NOT BE DISCONTINUED; THAT WHERE A DETERMINATION IS MADE THAT SUCH A LOSS AMOUNTS TO $10 OR LESS A CONSIDERABLE PORTION OF THE SO-CALLED PROCESSING COSTS WILL ALREADY HAVE BEEN INCURRED; THAT ADMINISTRATIVE COSTS SHOULD NOT BE INCREASED BY COSTLY SURVEY PROCEDURES ONCE A DETERMINATION HAS BEEN MADE THAT THE LOSS OR DAMAGE IS $10 OR LESS AND THE AMOUNT OF SUCH LOSS; AND THAT SUCH SMALL LOSSES ARE NOT USUALLY UNCOLLECTIBLE AND COLLECTION OF THE AMOUNT ADMINISTRATIVELY DETERMINED TO BE DUE SHOULD BE EFFECTED, IF OTHERWISE PROPER, BY DEDUCTION FROM THE CARRIER'S BILL FOR FREIGHT OR OTHERWISE. * * *.'

WE WOULD HAVE NO OCCASION TO OBJECT TO A DEPARTMENT OF DEFENSE POLICY ON THE SUBJECT MATTER WHICH GIVES DUE CONSIDERATION AND EFFECT TO THE COMMENTS AND SUGGESTIONS MADE HEREIN AND IN THE MENTIONED DECISIONS ON THE $10 LIMITATION, INSOFAR AS THEY MAY BE RELEVANT.