The auditor definitely must not keep the books. The Securities and Exchange Commission forbids that and the general accounting ethics forbid it. The auditor must not act as director or comptroller. He cannot be more than one thing at once. That I think is a basic principle of accounting and a basic principle of control.

I thought it was worth while to bring that out because it did not seem to be too clearly understood yesterday. It might be a good thing to have that plainly in the record.

There is one Government auditing function which is quite unusual in the private work but which I do not think is necessarily incompatible with auditing, that is, the settlement of accounts. As a rule, in private work, that is the management's responsibility but I can see reasons why in government it is difficult to arrange it otherwise. I do not think it is desirable but I think it is something that we may not be able to help in government.

The CHAIRMAN. I do not quite understand under whose jurisdiction you think that should be placed.

Mr. PELOUBET. I think if it could be done by the administrative head of an agency it would be better.

The CHAIRMAN. At present is it done by the Comptroller General? Mr. PELOUBET. It is done by the Comptroller General. The British practice, with which I happen to be slightly familiar, is for the Office of Exchequer and Audit to audit the accounts, make the statements of exceptions and so forth, and the department involved makes the settlement but I do not think it is too serious for the Comptroller General to have this duty. I would not object to it.

Well, now, with that background I have been thinking a great deal about how we can strengthen the work of the Comptroller General, and increase the value of the auditing work. We all know perfectly well that the history of Anglo-Saxon liberty is largely the history of restraint from the executive, whether he be a king or president, and we must have that in our system of government.

The best and the most effective restraint is the power of the purse, and that is exercised partly by appropriations and partly by those audit functions that the Congress must have for its protection.

Now, with that basis I would say that we ought to strengthen the Comptroller General in four ways: First, require him to audit all agencies of the Government and report on them. He does that for most of them presently, practically all. He should do it for all of them.

Second, increase his powers of investigation and perhaps increase the extent to which Congress uses those powers. I think that in a great deal of this strengthening of control it is not only providing the tool or the weapon but it is the use of it. I think Congress now has the authority to use the Comptroller General's office in special investigations to a great deal larger extent than it does use it and I think occasionally there are investigations made which are made by other means which might very well be made by the Comptroller General. That is something that should have a great deal of study.

I am not going to particularize now, but I have seen work done by committees, their own staff or by special counsel or by special people, which could very well have been done by the Comptroller General.

The CHAIRMAN. In other words, you think that in many instances, taking this committee as an example, where it wants to inquire into certain expenditures instead of undertaking it itself, the Comptroller General is adequately equipped and could probably do a better job than our own staff or a special staff?

Mr. PELOUBET. If the Comptroller General is not adequately equipped to do the job he should be, and in my opinion he is. I think that the Comptroller General should have full authority to disallow illegal expenditures. Now he has that authority. However, he does not disallow them now, I think, at the top level. He disallows them at what we might call the clerical level. The unfortunate disbursing officer is caught and his chief is not. I think the disallowances should be at the administrative level and it should be discretionary in the Comptroller General whether he is going to disallow items or not because in many cases the expense of check is not worth the effort. The errors may be things that will only happen once or the amount may not be significant. Just as in ordinary business, you do not try to check things when it costs more than any possible saving or recovery.

I think there should be considerable discretion in this matter. Also, he should be allowed, if he wants to, to go after small items because they may indicate a trend where the item itself is insignificant which needs to be corrected. In these disallowances I think the point is to keep them at the administrative level, make it discretionary, and get reports so that you understand how the Comptroller is using his discretion.

The CHAIRMAN. I wish you would amplify that, at the administrative level, and differentiate what you mean from what the practice is now. Some of us are just laymen.

Mr. PELOUBET. At the present time a disbursing officer would be liable for errors in a pay roll. Now it is generally not the disbursing officer's fault at all, he is just the man who passes out the money or signs the check. The fault is further up in the organization. Basically the fault is with the head of the organization and he should be responsible. What we mean as to that is to overlook the formalities in these disallowances and get back to the man who is actually responsible. In other words, if you were operating three of four plants in different parts of the country and something went wrong in one plant you would not try to find out which particular clerk or foreman made the mistake, you would go to the manager and say, "You are responsible for this. What happened?"

The CHAIRMAN. I understand that, but this is what I do not quite understand. How can the Comptroller's position be strengthened to operate at this administrative level that you speak of, and best prevent errors and mistakes from occurring, rather than to find them out after they have been committed? Is that what you had in mind?

Mr. PELOUBET. The disallowances of course would be afterward, but there is no reason why the Comptroller General cannot make some preaudit. I do not want to take the control function away from the Comptroller General. I think that would be a mistake and I think he can exercise this control function in these disallowances before the payments are made as well as afterward. I think generally it would be exercised afterward.

The CHAIRMAN. What I am trying to determine, and I should like personally, if I may express my own views, to see either the Comptroller General's position and power strengthened or some other means devised, to prevent mistakes from occurring rather than to discover them and disallow an item. I do not know how to do that. I do not know how well it is being done now.

Mr. PELOUBET. I think that your prevention basically is in the provision of better accounting and better internal control in the agency. I do not think that the Comptroller General can do much prevention except more or less sporadically if he suspects something. But I do not think he can do that as a general proposition. He can prevent it by seeing that proper accounting is maintained, that there are proper controls, but to step in and determine the validity of transactions before they are carried out, I do not think is usually practical.

The CHAIRMAN. That is what I was wondering. If there is doubt as to the legality of an expenditure in an administrative department, they can check with the Comptroller General before acting on that particular item or claim, can they not?

Mr. PELOUBET. Certainly they can.

The CHAIRMAN. And they do that now?

Mr. PELOUBET. That is done now. Of course they can also check with the Attorney General. I think that sort of checking is proper if it is not carried to excess. I think it can be carried to an extent where sometimes it clogs up the operation. But within reasonable limits I think that is a proper procedure.

The CHAIRMAN. But in the administration of any agency and in the disbursement of funds on any occasion when doubt actually arises in the minds of administrative officials, they do have the opportunity to submit the matter to the Comptroller General before taking action on it?

Mr. PELOUBET. They do, and that is availed of. As I say, my only comment on that is that it is a procedure that should not be used too often because it gums things up sometimes. Where there is serious genuine doubt, then I think that is the proper procedure to take.

The fourth thing to strengthen in connection with the Comptroller General, I would say, is to give him the authority to withhold funds from an agency when his investigation shows that the accounts are inadequate or that they do not fully disclose the operations of the If he did that, I think he ought to give the agency some time, 60 or 90 days, to cure the defect. I think that would be another one of these procedures that ought not be used very often, but I think it would be an element of strength.

With those things you would have a Comptroller General who would really control. I think that most of it is done now but it is not all done. There are spots where control can be improved. Property accounting is one of them, and work is being done there. Improvements can be made by cutting down on work that is not very productive. I think we can make improvements by giving the Comptroller more discretion on some things and encouraging him to use it.

The CHAIRMAN. Just how would that operate? You say you would give him authority to withhold funds from an agency. Congress appropriates these funds and they are available to the agencies. How would the Comptroller exercise that power over the funds and prevent

their expenditure? If funds were withheld by the Comptroller, how would the agency operate in the interim period?

Mr. PELOUBET. It would be a desperate measure. It would be a thing that would be done only in a real emergency. It would be done only if an agency refused or was not able to account for things. It would be a last resort. It would be something that you would not do unless you were forced into it. I think it would be a good policy to have in reserve, a power that ought very seldom to be used. I have seen some situations with some Government corporations during the war where the accounts were so completely lacking and confusing that I think it would have been a good thing in some of those cases to have said, "Now stop for a while. You cannot do a thing until you have made an accounting, until we know what is going on.'

The CHAIRMAN. Generally that would apply and operate not in regard to an agency or department, but to a particular fund largely within that department for a certain program that was not being handled properly?

Mr. PELOUBET. Something of that sort.

The CHAIRMAN. To stop that program or project?

I can

Mr. PELOUBET. Just say, "We are going to stop for a while until we know something about it." As I say, it is a desperate remedy, but I think it is a remedy that might be sometimes necessary. think of a few instances where I would have recommended that to be done and where in some ways it almost was done in effect.

I think if we do these things we are going to have a good, strong General Accounting Office.

Now, as Mr. Andrews brought out yesterday, and as is undoubtedly the fact, there is no general legal requirement for any agency at the present time to keep adequate accounts or to keep any accounts. However, most of them keep something.

The CHAIRMAN. You mean we have not required by law that they keep adequate accounts?

Mr. PELOUBET. No. There is no law that requires that. There are laws that require specific agencies to do specific things but that if it is not specifically provided for there is no general law that requires accounts to be kept. You seldom find an agency with no accounts at all, but you sometimes find them with extremely primitive ones. think we ought to have some general law that states that and stipulate that every agency has a reporting duty.

The CHAIRMAN. What kind of duty?

I

Mr. PELOUBET. Has a duty to report, a duty to keep accounts and a duty to report.

The CHAIRMAN. To whom should the reports be made?

Mr. PELOUBET. To Congress-that is what I am coming to a little further on-and when we get an Accountant General group provided for, then the reports should go through him. Probably they should go to the General Accounting Office as well. They should go to the Accountant General for administrative purposes and of course they go to the Comptroller General for audit purposes.

While we do not have, as I say, anything general on accounting requirements, we do have some good specific provisions. I think Title IV of the National Defense Act is a splendid provision. With some modification and generalization that might be a good model for a general law.

The CHAIRMAN. Speaking specifically, a number of the provisions in this bill were taken from that act.

Mr. PELOUBET. Yes; I realize that fully.

If we did that, then we would say that we ought to have an accounting officer, possibly in the Treasury for administrative convenience, probably with the rank of Under Secretary or at least Assistant Secretary, who would be the Accountant General and would be responsible for the preparation of statements, who would be responsible, not for the detailed accounting of any agency, but for seeing that there was accounting there. If we had a general law providing for controllership and accounts in all agencies, the Accountant General would ascertain that those requirements were being carried out and he would put the reports together. He would be consolidating those reports wherever they could be consolidated. He would issue the reports, he would determine uniform reporting methods, so far as it was useful, and he would determine uniform accounting methods. He would be the Comptroller of the Government.

I think that is a fair general statement.

Now let us look into the matter and see whether that has been done. The best way to find out whether anything is good is to see whether it has been done and whether it works. I think that those accounting requirements are being carried out. I think that they are working. I think they are working in an area that is covered by about one-third of the budget; that is, in the Department of Defense. We have a comptroller there. If we assume the Department of Defense is the whole Government, Mr. McNeil would be the Government Comptroller and he would be in about the same position, if the Department of Defense were the whole Government, as this Under Secretary of the Treasury would be who would act as Accountant General.

I happen to know about the Army because I have been on the advisory panel to the Army Comptroller for over a year now and it has been very interesting work. I have gotten a good insight, I think, into how the Army fiscal set-up works. I think it is a good object lesson of what Government controllership ought to mean. Senator SCHOEPPEL. Mr. Chairman?

The CHAIRMAN. Senator Schoeppel.

Senator SCHOEPPEL. Would you suggest that that ought to be used as a type of working pattern?

Mr. PELOUBET. I think so. It may be all right for smaller ones to have it with less detail, but certainly for the larger ones, for any major agency, I think it is a very good pattern.

In the Army you have General McClain as Comptroller. General McClain is not a professional accountant. However, he was a banker before he entered the Army and I think, in that particular case, it is a very valuable thing to have a man like General McClain, who has had the combination of distinguished combat experience in the Army and business and banking experience. Now he has a deputy, Mr. Howard Knapp, who has held a number of important controllerships, is a well known authority on controllership, and has done a great deal to establish the concept of controllership in this country. Mr. Knapp is doing the technical work of the Comptroller. In a smaller office you would not need a comptroller and a deputy comptroller but in the Army it is essential to have them.