Senator CLARK. Perhaps my question was not clear. My question was why, in all of your answers to the questions that we submitted to you earlier, was the audit never mentioned? You said that your first knowledge of it was in November of 1973, and in the questions that were returned to us Mr. CAMPBELL. Well, I could not answer that. I have to find out who provided those answers to you. I did not personally do it, and I do not know. Senator CLARK. As far as you are concerned, the first real knowledge was at the time you ordered the audit? Mr. CAMPBELL. Yes, and the first time that I knew that something was seriously wrong was when we began to get the evidence from our Inspector General's Office, which had to have been, you know, late 1973 or early 1974. Senator CLARK. Who ordered the audit? Mr. CAMPBELL. The audit was requested, as I understand it, by Mr. Peterson of the Agricultural Marketing Service. Mr. PETERSON. Audits resulted from a cycle process, and Mr. Collins can answer more in detail, but the audit is a cycle process. The Office of Audit of the former Office of the Inspector General comes in on a cycle basis auditing all of the organizations within the structure of the Department of Agriculture. There was such a cycle audit, and draft report of it came to me, as I recall, about May of 1973. There had also been some other problems involving the AMS Grain Division which came to my attention, and I have a memorandum that I will be glad to submit for the record, Mr. Chairman requesting a special audit. Senator HUMPHREY. We would like to have that. Mr. PETERSON. Specifically, in April 1973, I requested the then Inspector General to make a full and complete audit of the grain inspection at New Orleans, La., and a second part of that which included something unrelated to do with this hearing. [The following material was subsequently received for the record:] To: Nathaniel E. Kossack, Inspector General. This is a formal request to you for the conduct by your office of a detailed audit of all activities of the Agricultural Marketing Service Grain Division n New Orelans, Louisiana, and of all activities of the identical Division in its Market News Office headquarters at Independence, Missouri. Insofar as the audits requested require audit investigations at other points, it is expected that extension to such points will be included. It would be appreciated if the requested audits could be initiated at an early date and completed as rapidly as professional practice makes possible. APRIL 20, 1973. 60202-1-T. Re Program Audit of AMS Grain Division-Grain Inspection Branch. Administrator, Agricultural Marketing Service. We are expanding our audit of the Grain Inspection Branch to comply with your memorandum of April 9. The expanded coverage will begin on April 23 and it is our intent to have simultaneous reviews at both the New Orelans and Independence offices. We previously planned a fiscal year 1974 program audit covering all AMS Market News operations. For this reason we would like not to delve into program matters at the Independence office except to the extent necessary to determine program operations that affect morale. I will keep you informed as important developments are disclosed during this additional review. LEONARD H. GREESS, Senator CLARK. It it fair to say, Mr. Peterson, that this audit was not a result of someone in the Department of Agriculture responding to any complaints, but rather, was a routine, cycle audit that started your interest? Mr. PETERSON. The cycle audit raised some questions, Senator Clark, and there was a matter involving a shipment of corn to Nicaragua which occurred, I believe, in December or November of 1972, shortly after I came back to the Department. A number of questions aroused my interest, and that is why I asked the then Inspector General for a complete audit, specifically of the Grain Division operations at New Orleans, La. Senator CLARK. Was it the Nicaraguan complaint on the quality of grain that caused you to order the audit, or was it just a routine cyclical audit? Mr. PETERSON. I asked for the audit before I had the report of the routine cyclical audit. Senator CLARK. Mr. Chairman, I would like to make a part of the record the complaint from Nicaragua on the quality of corn imported from the United States, which is dated January 3, 1973. U.S. DEPARTMENT OF AGRICULTURE, Subject: Complaint from Nicaragua on the Quality of Corn Imported from the To: Howard Woodworth, Director, Grain Division. This summarizes the meeting in my office on December 27 with Raymond Ioanes, Administrator, FAS, and Richard Bell, Director, Grain and Feed Division, FAS, and you. The purpose of the meeting was to discuss the complaint received by FAS from the Nicaraguan government with respect to the quality of a shipment of corn imported from the U.S. The shipment is further identified as follows: Name of Vessel: MV North Duchess. Date Loaded: November 1 and 2, 1972. Place of Loading: New Orleans Public Elevator. Quantity Loaded: Yellow corn 227,777 48 bushels and white corn 199,862 48 bushels. Contract Grade: U.S. No. 2 Yellow Corn and U.S. No. 2 White Corn. Date of Unloading: About November 29, 1972. During the meeting it was reported that the Nicaraguans came to the U.S. prior to the purchase of the corn and sought the help of the USDA in specifying the quality desired and needed. Presumably, on the basis of what this representative thought he had learned, a contract was entered into for the delivery of U.S. No. 2 corn. Now, after delivery, a strong complaint has been filed alleging excess of broken corn and foreign material in the shipment. It was also reported that the corn was misgraded by the licensed inspector at the time of loading. Also discussed was the adequacy of the Federal supervision of the licensed inspection personnel under the U.S. Grain Standards Act, who were responsible for the inspection at port of loading. At the close of the meeting, I directed Grain Division, through Mr. Woodworth, Director, to immediately take the following actions: 1. Establish the facts surrounding the Nicaraguan complaint. 2. Undertake an immediate investigation, under the personal supervision of Mr. Woodworth, of the adequacy of supervision of grain inspection at the port of loading of the Nicaraguan shipment, and the institution of whatever actions required to insure the accuracy of any grain inspections made by the designated grain inspection agency involved. 3. Provide an estimate of the resources needed to provide adequate levels of Federal supervision of export grain shipments generally throughout the U.S. in view of the large volumes of grain now scheduled to move in export, and the anticipated longer term growth of export movement of grains. I would appreciate your providing the above information not later than January 10. E. L. PETERSON, Administrator. JANUARY 17, 1973. Subject: Complaint from Nicaragua on the quality of corn imported from the United States. To: Ervin L. Peterson, Administrator. In your memorandum of January 3 you asked me to establish the facts about the subject complaint, investigate the adequacy of the Federal supervision of the grading, and provide an estimate of the resources needed to provide an adequate level of supervision of the grading of export grain. The facts about the complaint are shown in Exhibit 1, our findings on the adequacy of the supervision are shown in Exhibit 2, and our estimate of the resources needed to provide an adequate level of supervision is shown in Exhibit 3, attached. Information copies are enclosed for Messrs. Campbell, Lyng, and Ioanes. Prior to the purchase of the corn, a representative of the Nicaraguan Government discussed with representatives of the Agricultural Marketing Service (AMS) and the Foreign Agricultural Service (FAS) the Nicaraguan's needs for food corn. The representative emphasized that the white corn should be suitable for food purposes and that all of the corn should arrive cool (not heating) and dry (low moisture content). The representatives of AMS and FAS recommended to the Nicaraguan representative that to obtain the desired quality and to assure a "cool and dry" arrival, the Nicaraguans should contract for a good quality corn and specify the desired maximum moisture content. In making the recommendations, the AMS and FAS representatives did not caution the Nicaraguan representative that a U.S. No. 2 corn grade is a general purpose grade and permits a maximum of 5.0 percent damaged kernels and a maximum of 3.0 percent broken corn and foreign material, and, in the case of white corn, a maximum of 2.0 percent of corn of other colors. In addition, the AMS and FAS representatives did not caution the Nicaraguan representative that U.S. corn was more fragile than Argentine corn, and that care should be exercised in loading and unloading the corn to maintain the quality of the corn. They did caution him that U.S. corn tended to break at a lower moisture content (e.g., 13 percent) than at a higher moisture content (a U.S. No. 2 grade permits a maximum of 15.5 percent moisture). "Type samples" of U.S. yellow and U.S. white corn were given to the Nicaraguan representative at the time of his visit. The purpose of the samples was to show the quality of U.S. No. 2 Corn. In the judgment of our Board of Appeals and Review, Grain, the samples were representative of corn at the middle to bottom of the U.S. No. 2 grade. The samples were not accompanied by a written statement explaining that they may or may not represent U.S. No. 2 corn after transshipment. Portions of the "type samples" were not retained by AMS for reference purposes. 2. Written contract The sales contract for the shipments contained the following quality specifications: U.S. No. 2 Yellow and White Corn. The contract did not contain special limits for moisture, damaged kernels, broken corn and foreign material, or for corn of other colors, or specify that the corn should be suitable for milling for human food, or specify that care should be exercised to minimize the breakage in loading the corn. B. THE LOADING The subject corn was loaded in a normal manner aboard a conventional dry cargo oceangoing vessel (not a self trimmer). A mechanical trimmer was used during the loading to help move the corn to the available storage space and to help minimize the shifting of the cargo en route. NOTE.-Mechanical trimmers tend to break dry corn and their use may result in an increase in the broken corn and foreign material content. C. THE SAMPLING AND GRADING AT ORIGIN The corn was sampled and graded throughout the course of loading at origin by samplers and inspectors employed by the New Orleans Board of Trade inspection department and licensed by AMS under the U.S. Grain Standards Act. An AMS approved mechanical sampler and an approved Ellis cup sampler were used in the sampling of the grain as it was being conveyed to the loading vessel. This dual method of sampling is believed to give fairly representative samples. A total of 11 sublots (specific portions of the lots) were graded and recorded during the loadings. All of the sublots were found by the inspector to grade U.S. No. 2. The damaged kernel content ranged in the lots from a low of 3.5 percent to a high of 4.7 percent; the broken corn and foreign material content ranged from a low of 2.7 percent to a high of 2.9 percent; and the corn of other colors in the white corn ranged from a low of 1.5 percent to a high of 1.8 percent. The inspector's analyses of the composite samples for the two lots are shown, in part, in attachment 1-A (column 2). Export certificates were issued by the inspector in accordance with the inspector's findings. D. THE UNLOADING Available information indicates that the corn was unloaded from the oceangoing vessel to a ligher by means of a pneumatic (vacuum type) unloader and from the lighter to a shore facility by means of pneumatic (vacuum type) unloaders. The use of pneumatic unloaders is a conventional method for loading and unloading grain. NOTE.-Pneumatic unloaders tend to break dry corn and their use may result in an increase in the broken corn and foreign material content. E. SAMPLING AND TESTING AT DESTINATION The corn was sampled and analyzed by a Nicaraguan laboratory at destination. Results of the analyses are shown on attachment 1-A (column 1). It is not known how the sampling was performed or how representative the samples may have been. (In most foreign ports, the sampling of U.S. grain is performed by hand (scoop) from selected locations as the grain is at rest in the oceangoing vessel.) Available information indicates the Nicaraguans were concerned most with the excess broken corn and foreign material and the excess damaged kernels in both lots and the excess corn of other colors in the lot of white corn. NOTE: A "breakage test" conducted at Beltsville on the origin samples showed that the yellow corn was substantially more fragile than the white corn. The test results tend not to confirm the apparent increase in the percentage of broken corn and foreign material in the white corn after transshipment. F. FLDERAL SUPERVISION The sampling at origin was not supervised by AMS. The grading at origin was post supervised by our New Orleans Field Office. Post supervision involves the grading by an AMS grader of the grain in the composite sample used by the licensed inspector, and is an approved method of maintaining uniform grading. The results of the post supervision are shown in attachment 1-A (column 4). On the basis of the post supervision results, the licensed inspector was asked by AMS to regrade the corn remaining in his composite samples. The results of the regrading are shown in attachment 1-A (column 3). The inspector's separations (analyses) from the regrading were then reviewed by our New Orleans Field Office. The results of the review are shown on attachment 1-A (column 5). The composite samples from origin, the inspector's separations, and the destination samples were graded by the AMS Board of Appeals and Review at Beltsville. The results of the grading are shown in attachment 1-A (columns 7, 8, and 9). The inspection and supervision results on the origin samples indicate the quality of the corn was at the bottom of the U.S. No. grade or the top of the U.S. No. 3 grade. The inspection and supervision results are within expected levels of variation, according to AMS statisticians and do not establish that the corn was incorrectly graded by the licensed inspector. NOTE. If appeal inspections had been requested on the inspector's file samples, the results of the appeal inspections would have been as shown in attachment 1-A (column 6). G. SUMMARY The Nicaraguans apparently believed they had a valid complaint in that they did not receive the quality of corn they wanted and needed. The dissatisfaction may have been the result of several contributing causes including: 1. A lack of understanding of the U.S. corn standards. (They are general purpose standards and not food standards.) 2. A lack of understanding of the fragility of U.S. corn and the relationship of moisture content, handling practices, and breakage. 3. The receipt of "type samples" with no disclaimer statement. (See 1-A, paragraph 4.) 4. The loading of corn at the bottom of grade 2 or the top of grade 3. 5. The use of mechanical trimmers and pneumatic unloaders to load and unload the corn. EXHIBIT 2 2. THE ADEQUACY OF THE FEDERAL SUPERVISION A. MAINTAINING INSPECTION ACCURACY The results of the gradings by the inspector, the Field Office, and the Board of Appeals and Review on the origin samples, see Attachment 1-A, are within expected variation, except in one instance where the Field Office result was slightly beyond the expected variation. The licensed inspector has, however, been cautioned about an apparent "lenient" interpretation of "damaged kernels.' In my opinion, the results represent an acceptable level of inspection accuracy (For expected variations, see Attachment 2-B). NOTE.-Moisture and broken corn and foreign material determinations are objective tests. A damaged kernel determination is a subjective test. (Objective tests are subject to less variation than subjective tests.) B. SURVEILLANCE FOR DECEPTIVE PRACTICES The corn was loaded over a period of two days. The post supervision of the grading by the licensed inspector, see 1. F above, was in accordance with approved procedure. (Post supervision is a partial surveillance of deceptive grading, but not of deceptive sampling, handling, or loading.) Although a Federal grader performed surveillance at another elevator during one of the two days, there was no surveillance of the loading or sampling of the corn at Public Elevator. |