We can only have so many accounting system engineers, and they have been placed on the higher priority jobs of getting control of our accounts rather than doing accounting architecture at this time. Then the problem of going into inventory in a place where you have not had inventory is a very difficult and tedious one. Mr. BROOKS. And capital equipment, I notice, is scheduled to commence in 1965 ? Mr. HALABY. That is right. Mr. BROOKS. Not before? Mr. HALABY. I think Mr. Dean and Mr. Harper can give you some very specific things they are doing. Mr. DEAN. Mr. Chairman, I think it would be helpful for the committee to recognize that FAA did not even become an independent agency until January 1, 1959, some 3 years after the act. It took us about 1 year, as you indicated earlier Mr. BROOKS. To begin. Mr. DEAN. To organize an accounting division. Mr. DEAN. With systems accountants in place. Thereafter, we set up a steering group on which the Office of the Budget and the Accounting Division of the Office of Management Services were represented, which was given the task of roughing out a workable program. That original program, based on the fact that we had a total of 15 systems accountants, did call for a 1970 schedule. We have, however, not only shortened the target date to 1968, but, what is most significant to the commitee, accrual accounting, the heart of this program, will be basically in effect during the 1964 fiscal year. Therefore, while it is true that some parts of the detailed cost accounting support of our system will require until 1968 for completion, the basic accrual accounting and cost base budgeting will be in place considerably before that date. We do have a directive about to be issued. It is built on experience, and we are certain that it will provide the final management guidance to carry this job through. Now, I must say it may take considerable diversion of our systems accountants from things like imprest funds simplification, better ways of handling vouchers, and automation of payroll, although these are also important things for the efficiency of the Agency. But we plan to move on, and we are working closely with the Bureau of the Budget which is now assigning a full-time person to work with us in this intensive stage and we are also cooperating with the General Accounting Office with whose staff we have periodic meetings on progress. Mr. BROOKS. Mr. Dean, have you considered setting up an interim system, if you are going to have an idea as to the value of your capital equipment that might be acquired in the next 5 years prior to the new target date of roughly 1968 ? NOW HAVE ACCURATE PROPERTY ACCOUNTABILITY Mr. DEAN. More than an interim system is already in place for stocks and stores and for many items of property cost accounting. We now have accurate property accountability records for the first time. It is true that adequate accounting for capital equipment, which is very difficult to appraise because of the many changes that have been made in this equipment since it was installed, may not be fully in place for another 2 or 3 years. But an interim system to be of any value would cost as much as to do it right in the first place, and that is what we now hope to do. Mr. BROOKS. I would ask that when you submit such a policy statement, Mr. Halaby, we would be pleased to get a copy of it, because I think it will indicate a real step forward in accomplishing this. It will give Brothers Dean and Harper a little encouragement when they talk to those people and tell them they have to do it. Mr. HALABY. If I may take a second, I want to introduce Mr. John Provan, who is not as familiar to you, nor as large, as Mr. Harper, but he is very large in our staff because we have been able to attract him from the directorship of management services at the Veterans' Administration to be head of our management services, and he, under Mr. Dean and with Mr. Harper is the man, and we will submit that for the record, and you may wish to ask him some questions. If not, he will give you the results of the work we are doing on this. Mr. BROOKS. We would like a copy of that. I would like to put in the record at this point FAA's report to the Bureau of the Budget as of June 30, 1962, on this financial management improvement program, which I think is significant, and we will appreciate a copy of that. (The document referred to, exhibit 11, follows:) EXHIBIT 11-FEDERAL AVIATION AGENCY REPORT ON THE FINANCIAL MANAGEMENT IMPROVEMENT PROGRAM, JUNE 30, 1962 1. Organization PART A-ACCOMPLISHMENTS AND FUTURE PLANS 1962 ACCOMPLISHMENTS The headquarters organization of the Agency was substantially revised during the fiscal year. An integral part of the reorganization plan is the decentralization of authority and responsibility for program execution to the field organizations, which in turn are undergoing revisions to select from regionally conducted tests and recommendations the form of organization best suited to headquarters and field requirements. At headquarters, two elements directly concerned with financial management were reorganized. The budget function was established as an Office of Budget reporting to the Deputy Administrator for Administration; the internal audit function was raised to division level in the Office of Management Services, which also reports to the Deputy Administrator for Administration. 2. Budgeting Systems modifications.-Concurrently with a major reorganization of the Agency during fiscal year 1962, responsibility for reviewing program requests and accomplishments was delegated to the Assistant Administrators in each of five continental regions, Alaska, and Hawaii, thus emphasizing the role of the local managers in the conduct of financial management affairs within their jurisdiction. From a continuing review of the Agency's budgetary systems to improve the effectiveness and quality of financial management in Washington and in field offices, a plan has been devised to broaden and clarify the authority of Assistant Administrators in the field and other Agency officials to adjust fiscal programs within approved allotment levels without reference to the Washington office. These delegations are expected to be implemented in fiscal year 1963 and will give operating officials wider latitude in the adjustment of funds and positions consonant with the Agency's primary goal of efficient and effective decentralization. In order to enhance the examination of program requirements in greater depth, plans were officially approved during fiscal year 1962 for a major reorganization in the Office of Budget. Under the new organization, the Office will orient its thinking even more than in the past toward budget program analysis. To accomplish this the Office established four major divisions, each dealing with a specific program area within the Agency. It is intended that by this technique each division will be able to develop an extensive knowledge of the specific program areas within the scope of its responsibility. This will provide the Office with greater depth of understanding of program issues and will allow the Office to deal more and more with these issues rather than with the mechanics of budgeting. It is felt that this will improve the quality of the staff assistance which the Office of Budget can provide to top management. As an aid to budget presentation for congressional submissions, the Agency developed for fiscal year 1963 a summary budget document. Because of the magnitude and complexities of the Agency's programs, the size of the regular budget document approaches 700 pages each year. A submission of this magnitude is generally necessary in order to describe and explain adequately the programs which the Agency wishes to initiate or expand. It was recognized that a submission of this magnitude is too large to expect a busy Congressman to examine and understand in any detail. Accordingly, the Agency developed a summary budget which identifies in highlight fashion all of the program changes contemplated in the budget submission. It further incorporates in the document all of the important summary tables and graphic presentations in the official congressional submission. The summary also refers back to the more detailed description of the items appearing in the formal submission. This summary document, which consisted of approximately 100 pages, was designed for easy and speedy reading and comprehension. Through its use it was intended that committee members would be able with a minimum expenditure of time to have a general understanding of the nature of the new programs contemplated in the budget submission. In the Bureau of National Capital Airports (BNCA) operating officials responsible for the conduct of the various fiscal programs were indoctrinated in the techniques of the internal development of budgetary estimates, including the fiscal year 1963 program, fiscal year 1964 budget requests, and the 1963-67 5-year forecast, and in the current fiscal program review processes. The practice of internal budget development and control at program activity levels has proven to be highly satisfactory in that it has served to stimulate the interests of operating officials in the financial aspects of their respective programs and to provide more comprehensive justifications in support of proposed program increases and anticipated accomplishments. It has also given those officials an understanding of such matters as the economic feasibility of proposed programs, the relationship and effect of operating costs, and the cost of capital outlays on the results of BNCA operations, the necessity for the conduct and control of fiscal programs within available resources, and the practicability of quarterly review processes so that corrective action can be taken promptly to restrict or accelerate performance as necessary to meet planned program objectives. Improvements in budget financing structure.-BNCA submitted its 1963 fiscal year budget requests on the basis of four appropriations, including an operations and maintenance appropriation and a construction appropriation for each of the two airports. The cost-based budget concept was applied to each request, thereby increasing to four the number of FAA appropriations for which costbased budgets are prepared, each of which involves airport operations. Cost-based budgeting developments.-The Agency is aggressively pursuing a program of developing work measurement systems as a base for budgetary programing. The Aviation Facilities Service developed a work measurement reporting system for 500 employees engaged in material functions in field offices, which provides the necessary management tool to more effectively evaluate field fiscal program requirements for financial and manpower resources. Beginning in May, the Fight Standards Service undertook the fact-gathering phase of a work measurement system for approximately 1,800 employees in district offices. Analyses of the data collected will be completed before the end of August 1962 and will provide the basis for budget support of manpower requirements. Similar studies are planned for the flight inspection and procedures and aircraft operation and maintenance activities. A study is cur rently underway looking toward consolidation of all activity reporting into a single system compatible with the work measurement system noted above. It is expected that this system will be installed early in fiscal year 1963. Materiel management.-The processing of the Agency's supply items for identification under the Federal catalog system is progressing satisfactorily. Over 147,000 items have been reviewed and assigned approximately 118,000 Federal stock numbers, resulting in a 20-percent reduction in the number of items managed. Approximately 75 percent of the 118,000 items were found to be identical with items already in the Federal catalog system and were given the same stock numbers. Substantial savings will accrue to this Agency through the utilization of the Federal catalog system as a supply management tool. It will improve all functions of supply through better inventory control, more intensive standardization, less costly warehousing, and improved utilization of common stock through interservicing between the military departments and the FAA. Implementation during fiscal year 1962 of the economic order quantity theory in determining central warehouse stock levels has permitted the Agency to safely maintain lower inventory levels, with the result that substantial savings will be realized in inventory investment costs. The economic order quantity concept was employed at both Washington National Airport and Dulles International Airport as a means of forecasting financial requirements and procurement practices. 3. Accounting Improvements in cost accounting and cost allocations.-A comprehensive cost accounting structure was developed for introduction in the southern region. The structure includes the codes and account definitions necessary to recognize the appropriation, limitation, cost center, function or end-product, and object class at any level of operations at which management responsibility and authority is placed. Obligation and cost data are available from the same basic controlled punchcard operation, and labor distribution is provided as a byproduct of payroll operations. The system will be implemented and refined on a phased basis in the region during the next fiscal year. A job cost system was installed in the headquarters printing plant. The system is based on the control provided by the printing jacket method, and enables plant officials to develop costs by type of operation (or process) within the plant and by major customer. Part of the cost distribution process was later converted to punchcard methods. The entire process is being included in a costaccounting handbook to provide the basis for installing a similar system at the Aeronautical Center in Oklahoma City next year. The National Aviation Facilities Experimental Center continued the program of the installation of a comprehensive cost-accounting system at the center by integrating the entire Supporting Services Division at NAFEC within the system. Also, a centerwide cost report was issued to all divisions in the area of personal services, related costs, and leave. The operations of the aircraft maintenance contractor (Lockheed) were included within the cost-accounting system and as of December 1961 reports have been issued in the area of maintenance, modification and operation of aircraft, analyzing such costs by function to reflect the cost per flight hour of all aircraft within the fleet. A manpower utilization reporting system has been designed to encompass not only civil service employees, but also contractor technical personnel assigned to the service under the personal services type contracts in effect. The system, which is to be placed in effect at the beginning of fiscal year 1963, will furnish management with manpower utilization data by type of employment, nature and type of work, as well as a method of accumulating the cost thereof related to programs and projects. The Bureau of National Capital Airports issued directives to prescribe the policies and procedures for recording as elements of operating costs (1) current year accrued annual leave, and (2) depreciation expense in a manner comparable to the methods used by other municipal airports. 4. Reporting An improved EAM personnel statistical reporting system was developed during the year for implementation on July 1, 1962. One of the results of this new system will be the ready availability of more meaningful personnel data for consideration by top management in the development and execution of national programs directly related to the primary mission of the Agency. In the Agency's capital equipment appropriation revised and improved fiscal program reporting procedures and scheduling were tested, found to be beneficial to the more effective and efficient review and timely completion of review procedures, and have been adopted for general use. During the third quarter of fiscal year 1962, for the first time, a complete report on AID projects status was made. During the preparation of these reports and since that time comprehensive review, correction, and updating of accounting records has resulted in improvement of the timeliness of the reports and the financial data contained therein. The Research and Development Service initiated a monthly financial report to its top management. This report is aimed toward informing higher levels in the service of the financial situation in terms of achieving program goals. Narrative explanations, graphs, and charts are used consolidating the monthly status report into a more usable document. 5. Internal auditing The Agency issued to its regional offices an integrated Agencywide audit program, providing objectives and guides for the various types of audit work to be performed in fiscal years 1962 and 1963. Emphasis is being placed on Agencywide internal audits in such areas as procurement and supply management, payroll services and wage administration, and reporting systems. Increased audit assistance is also being provided in the evaluation of contractor's initial pricing proposals and claims for contract price adjustments. Special training was provided Agency auditors in the use of improved methods to be introduced in fiscal year 1963 for the audit of projects under the Federal-aid airport program. Plans and interim procedures were established for using Agency auditors to determine the financial capability of air carriers, as an aid in administering the carrier certification program of the Agency. Guidelines are being developed for release under the Agency's new directive system covering responses to GAO audit reports, distribution of internal audit reports, examination of Federal-aid airport program project costs and other audit areas. The elevation of the headquarters audit office to division status, effective July 1, 1962, is expected to enhance the effectiveness of audit leadership and facilitate communications within and without the organization. 6. Training The Agency conducts extensive and varied training programs, because it must "grow its own" thousands of traffic controllers and electronics technicians. Within this strong background and capability for training it also conducts a management development program. An important course of training-the Management Institute, initiated in 1962-includes sessions in financial management presided over by professional accountants and budget analysts. Agency personnel responsible for executive management are thus being trained in the techniques of financial management through the use of obligation data and operating costs in reports which portray the financial effects of plans in terms of obligations and performance in terms of applied costs. 7. Automatic data processing New systems applications.—Punchcard equipment is being installed in regional offices in order to provide in-house capability for data processing operations being done by commercial service bureaus and to convert manual and quasimechanical systems to more effectively meet management and operating requirements. The development of a mechanized system for accounting has proceeded to the point of implementation. This system will begin operating in the new southern region in July 1962 and will provide the accounting information more efficiently than is being done on bookkeeping and manual systems. Payroll automation.-Punchcard payroll procedures for regional offices have been developed and implemented in the southern region. This application has resulted in savings in payroll personnel, in addition to providing the capability for expansion without increasing costs significantly. A payroll operations handbook has been prepared for Agency-wide distribution and use by the other regional offices in 1963. The existing punchcard payroll operation at the National Aviation Facilities Experimental Center was completely automated on a computer. The further automation of payroll resulted not only in the savings of manpower, but also furnished the center with better and more timely management type reports in the personal services area. |