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UNITED STATES GOVERNMENT GENE]
Memorandum
; f775_
RAL ACCOUNTING OFFICE
JUN 2 8 1974
TO
FROM
Comp troller General
Director, FGMSD - D. L.
Scantlebury, 4V
SUBJECT: Use of Military Sealift Command (MSC) IW'sjdrial
Funds to Augment Appropriated Funds
We request a legal opinion on
being used by the MSC with regards
customers for ocean transportation
the authority of 10 U.S.C. 2208.
the propriety of the methods
to its tariff system for billing
costs. The MSC operates under
MSC's revenue is derived primarily from billings at predeter-
mined tariff rates based on the number of measurement tons moved.
MSC's tariffs are based on average anticipated cost to provide
services world-wide; the costs are factored for mileage and accu-
mulated by class of service (i.e., cargo, petroleum, etc.). By
using a tariff based on average cost, MSC attempts to breakeven in
total and does not identify and bill the costs of specific services
between points of origin and debarkation. Tariff rates are developed
by MSC and must be approved by the Secretary of Defense (OSD).
During FY 1974 MSC's operations were significantly affected by
the energy crisis and changing cargo requirements. For example,
between July 1, 1973 and April 1, 1974, the cost of fuel went from
$3.85 per barrel to''$14.94 per barrel. As a result ot these diffi-
culties MSC will lose about $80 million in FY 1974.
Because of the increased cost of ocean transportation, OSD
granted several increases to the FY 1974 tariff rates. These in-
creases, however, were insufficient to recover costs and on April 15,
1974, MSC through the Comptroller of the Navy, requested additional
tariff increases for FY 1974. These increases were not intended to
provide a financial breakeven but would have limited the FY 1974 loss
to about $29 million.
On May 13, 1974, OSD disallowed the request for tariff increases.
(See Attachment I.) While concluding that MSC's operating losses
substantiated the need to increase the tariff rates, OSD stated that
no provision could be made in the customer accounts (Navy, Army and](ViewImageLocal?handle=hein.gao/gaobadrno0001&div=1&collection=&method=preview&ext=.png&size=3)