DISCUSSION WITH HSC REPRESENTATIVES CHARLES MATTOX AND SANDRA ZEUNE RE PROPRIETARIES (10:15 MONDAY 18 AUGUST 1975)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89B00552R000100110034-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 5
• Document Creation Date: December 16, 2016
• Document Release Date: September 28, 2004
• Sequence Number: 34
• Publication Date: August 19, 1975
• Content Type: MF

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19 AUG 1975
MEMORANDUM FOR: Chief, Review Staff
SUBJECT Discussion with HSC Representatives
Charles Mattox and Sandra Zeune Re
Proprietaries (10:15 Monday 18 August 1975)
1. The HSC representatives initially asked for a back-
ground briefing on the Audit Staff. .I discussed the initial
effort within the Office of Security in the late 40ts and. the
expanded effort in the 50's due to the increase in proprietary
activity and the lack of auditors trained in commercial audit-
ing. I mentioned that nine members of the Audit Staff had
been recruited from GAO to fill this experience gap. I indicated
that proprietaries have been controlled very tightly over the
years through the regulatory process. In. addition they have
been audited almost entirely on an annual basis. These audits
determined compliance 'with ad}ninistrative plans and project
approvals and emphasized, among other, things, maintaining a
maximum of three months working capital on hand at any time,
2. At this point Mr. Mattox asked a number of questions
the first of which was in regard to our relationship with the
Internal Revenue Service. He was told that we filed all the
appropriate federal and state returns required and that to the
best. of our knowledge there had never, been any real problem
resulting from returns being reviewed by the Internal Revenue
Service. However, we indicated that there was a point of contact
between OGC and the Internal Revenue Service in order to stop
any investigation that might have involved surfacing any intel-
ligence sources and methods. We were not aware of any specific
case in which this contact had been used. The investigators
were advised that an attempt was made to have each proprietary
show a minimum profit in order that they would not attract
undue attention.
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3. It was stressed that the major purpose of proprietaries
was to perform a necessary Agency operation and not to compete
in the commercial market. In response to a query regarding the
number of proprietaries it was indicated that the greatest
number of proprietaries was in the mid 60's and that aftera
formal committee study and report at about that time the number
has been rapidly declining. We also stressed that there are
strict rules regarding the operation of a proprietary and that
these rules are contained-in and elaborated upon in
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4. Mr. Mattox then indicated that they would probably
want a list of all active proprietaries in 1970 with the additions
and deletions from that date to the present. He then asked how
many proprietaries there are currently and I indicated that there
are probably about 1; rojects and maybe as many as corporate 25X1
entities, most of w is are quite small and/or dormant. Mr.
Mattox then asked what is done with regard to the disposition
of corporate assets in dissolution. It appeared than: he had
the mistaken notion ?that we had a warehouse full of excess pro-
prietary property We quickly corrected this
erroneous assumptiorn and indicated that except in the cases with
which he was already'fam.iliar any assets remaining in dissolution
would have been of very minimal value and would of necessity have
been disposed of in a normal commercial manner in order to prevent
showing that the corporation was Government connected.
5. We then discussed the fact that we had over the years
called on several of the "big 8" public accounting firms to do
audits for us. Mr. Mattox wanted to know if this meant that
we could currently call any one of the big eight and ask them
to conduct an audit for us. I indicated that except for a recent
use of it has been a number ofyears since we
had occasion to make any use of these big public accounting firms.
Miss Zeune at that point inquired as to whether we had a CPA
firm of our own. I indicated that we did and it had responsi-
bility for doing any commercial audits which we needed. Miss
Zeune asked who audited the CPA firm and I indicated that this
is done by the Audit Staff. Mr. Mattox then inquired as to
whether companies had ever used their audited balance sheet as
a basis for obtaining a bank loan. To the best of our knowledge
the only occasion in which this happened was. in the case of
and he was thoroughly familiar with that
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6. Miss Zeune then asked whether the corporations invested
in stocks and bonds and I told her that the only significant
.investment of this type was in one proprietary and that this
activity was closely controlled by an investment committee and
investments in stock were onl in listed corporations. I did
25X1 not indicate that this wasi Miss Zeune was also
interested in what "revolving funds" are. We indicated that
where these exist they are relatively small and would be operated
like an imprest petty cash fund although at overseas stations
larger amounts might be involved. Miss Zeune's final question
was with regard to any information we could provide about the
"family jewels". On this matter we could provide no information.
7. Mr. Mattox inquired as to whether our contingency
reserve could be called a revolving fund and we said it was not.
We told him that the contingency reserve is closely monitored
and at no time does it have a fixed amount nor is it reimbursed
for the express purpose of bringing it up to a fixed balance.
The interview ended with an indication that there would be
numerous interviews with other Agency personnel and that they
would be formally requesting numerous documents in connection
with proprietaries.`
ie Audit Staff
Office of Inspector General
Distribution:
,,,Orig. - Addressee
I - O/I6
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