(1) As soon as the books of the Coast Guard can be closed for this fiscal year, the unobligated balances as of June 30, 1950, of the four operating appropriations for both fiscal years 1949 and 1950 will lapse and be transferred to the appropriation for payment of certified claims.

(2) An amount representing unliquidated obligations for each of these operating appropriations will be transferred to the single appropriation account to be established. This should result in the closing out of these expired appropriations both on the books of the Coast Guard and the Treasury Department.

(3) The appropriation made for fiscal year 1951 will be credited to the new appropriation account.

(4) Through records to be maintained by the Coast Guard in such a manner that will make them readily subject to verification through external audit by the General Accounting Office, the difference between the amounts paid during fiscal year 1951 for obligations incurred prior to July 1, 1950, chargeable against the appropriations merged into the new appropriation account, and the balances of unliquidated obligations brought forward, i. e., the amount transferred to the new appropriation account, shall be determined. If the amount of payments is less than the balance of unliquidated obligations brought forward, an amount equivalent to the difference shall lapse and be transferred to the appropriation for certified claims. If the amount of payments is more than the balance of unliquidated obligations brought forward, the difference shall be absorbed by the 1951 appropriation. Before making this determination, however, all unliquidated obligations as of June 30, 1951, applicable to fiscal year 1949, shall be removed from the books. The adjustment will be made for the net difference of all appropriation accounts rather than on the basis of each appropriation. In no event, however, shall this net adjustment result in expenditures exceeding the amount appropriated for any year, or limitation.

(5) Any claims for payment of unliquidated obligations chargeable to annual appropriations of the Coast Guard made prior to fiscal year 1949 shall be transmitted to the General Accounting Office in the same manner as is presently the case for claims against lapsed appropriations.

(6) It is anticipated that the appropriation language of fiscal years subsequent to 1951 will provide for a continuation of the single account to be established. Your favorable consideration of the above proposal is respectfully requested. Very truly yours,

E. H. FOLEY, Jr., Acting Secretary of the Treasury.

PROPOSED ADDITION TO APPROPRIATION LANGUAGE, "OPERATING EXPENSES, COAST GUARD"

Provided further, That amounts equal to the unliquidated obligations on record as of July 1, 1950, against Coast Guard appropriations entitled "Salaries, Office of the Commandant”, “Pay and allowances", "General expenses", and "Civilian employees" for the fiscal years 1949 and 1950, shall be transferred therefrom and merged with this appropriation, all to be accounted for as one fund (without fiscal-year designation for disbursing and accounting purposes) and to be available for the payment of any obligations properly incurred under and within the limits of such appropriations for the fiscal years 1949 and 1950 together with obligations incurred with respect to the funds appropriated for the fiscal year 1951: Provided further, That the total amount by which the unliquidated obligations thus brought forward may exceed the amount of payments in liquidation of such obligations shall be transferred to the "Payment of certified claims" appropriation as of June 30, 1951: And provided further, That the unobligated balances of the appropriations for the fiscal years 1949 and 1950 shall lapse June 30, 1950, and be transferred to the "Payment of certified claims" appropriation established under the provisions of the Surplus Fund-Certified Claims Act of 1949.

ACCOUNTING MANUAL

INTRODUCTION

This accounting manual contains procedures for a plan of accounting for the United States Coast Guard. It has been developed in close cooperation and with active participation of the fiscal service of the Treasury Department and the Accounting Systems Division of the General Accounting Office. This has facili

tated incorporation into the accounting plan of the basic policies, principles, and objective developed under the joint program to improve accounting in the Federal Government being sponsored by the Comptroller General, Secretary of the Treasury, and Director of the Bureau of the Budget. The plan of accounting has been geared to produce financial information that will be useful in the management of the Coast Guard's affairs in addition to providing those features necessary for accountability, which become increasingly important in the handling of public funds, and with due regard to the requirements of existing statutes and over-all Government regulations.

Principal features of the accounting plan are:

1. Maintenance of a decentralized system of accounts in each of the district offices and designated headquarters units coordinated with the central accounts maintained at headquarters through the use of reciprocal accounts. Accounts for the smaller headquarters units are, for purposes of convenience and economy, kept by the nearest district office or headquarters.

2. Provision for reconciliation with the central appropriation and receipt accounts of the Government through the establishment of reciprocal accounts by the Coast Guard and the Bookkeeping and Warrants Division of the Treasury Department.

3. Combination in a single integrated accounting system of the requirements for appropriation or fund accounting and the development of cost data. Allotment accounts are few in number and are established according to administrative authority for the expenditure of appropriations for broad general purposes. Detailed cost accounts are maintained to produce financial data on the cost of each facility or unit operated by the Coast Guard.

(a) Commitments against appropriations are accounted for at each stage that is required either for management needs or because of over-all Government regulations, from the time that they originate until funds are disbursed as follows:

(1) In order that management may be advised daily of the balance of funds available, commitments are posted to allotment ledgers as obligations generally for an estimated amount at the time that a definite decision is made by management to commit funds, i. e., requisitions, letters of agreement, travel orders, and estimated pay rolls. At the close of the fiscal year, unliquidated obligations will be adjusted so as to remove any items not legally payable from expiring annual appropriations. In such cases, if the materials or services involved are still required, they will be reobligated against appropriations of the following fiscal year.

(2) Monthly reports of obligations required by Budget Treasury Regulation No. 1, Revised, are prepared in accordance with the concept of obligations contained in that regulation by deducting from the amount of unliquidated obligations shown by the books, the total of those unliquidated obligations included therein which do not represent obligations as defined in Budget Treasury Regulation No. 1, Revised.

(3) Obligations are liquidated on the basis of materials and services received in order that the amounts of expenditures shown by the allotment ledger may be coordinated with the amount of expenditures shown by the cost ledger for which the accrual basis of accounting is required. The amount of such expenditures posted to the allotment ledger on the accrual basis is carried to payable accounts maintained by appropriation.

(4) For convenience in balancing, payables are transferred on the basis of certified voucher lists sent to the disbursing officer for payment to a transit account maintained by appropriation only.

(5) The transit account is liquidated and the cash account credited on the basis of copies of the voucher lists returned by the disbursing officer advising of the issuance of checks. This is the same basis upon which the central appropriation accounts are charged by the Division of Bookkeeping and Warrants of the Treasury Department.

(b) Cost accounts are maintained on an accrual basis. In addition to the accrual principles observed in accounting for expenditures in the allotment accounts with which the cost accounts are coordinated, this basis of accounting is further utilized in cost accounting to distinguish between those expenditures applicable to balance sheet and expense accounts. However, for the reasons explained in paragraph 8, full provision has not been made for applying this basis to capital costs and fixed assets. To the extent deemed practicable, stores inventory accounts are provided to which expenditures for items placed in stores are charged and which are credited with issues that are in turn charged to the appropriate cost accounts. Moreover, industrial operations, such as those conducted at the Coast Guard YARD, the

Aircraft Repair and Supply Base and designated bases and depots, are accounted for on a job-order basis with the total cost of each job, including labor, material, contract costs, and overhead, being charged upon completion to the appropriate cost account. As the result of specific legislation (Title 14, United States Code, section 648; P. L. 207, 81st Cong.), industrial operations at the Coast Guard YARD are accounted for more nearly in accordance with commercial practice than is true of other industrial operations of the Coast Guard. This authority can and undoubtedly will be subsequently extended to industrial units other than the YARD.

4. Preparation of monthly financial statements from the books of account which will show (1) costs for each unit and subdivision thereof; and (2) the status of appropriated funds in detail for each allotment heading. The data contained in these reports will be analyzed and interpreted in nontechnical terms for the use of management.

5. Provision for accountability through recognized methods of internal check and control which have been built into the system, and on-the-site internal audits made by the Coast Guard and external audits made by the General Accounting Office which will give recognition to the effectiveness of the internal checks and controls in actual operation. An example of the internal controls which have been built into the system is the provision for a control over military pay and allowances similar to that prescribed by General Regulation No. 102 for civilian pay. This procedure not only provides a basis for accountability but also serves as a means of distributing military pay and allowances to the appropriate cost accounts. Results of internal audits will be reported to management and reports on the external audits will be made by the Comptroller General.

6. Simplification of collection procedures through the elimination of the preparation of schedules of collections and eliminating the processing of collections through the accounts of disbursing officers. Instead, designated officers of the Coast Guard will prepare certificates of deposit and make deposits of all collections directly with designated depositaries.

7. Simplification of disbursement control through a revision of related warrant procedures. The principles of this plan are as follows:

(a) Warrants making appropriated funds available to the Coast Guard are designed to authorize the Treasurer of the United States to pay checks drawn by authorized disbursing officers of the Division of Disbursement against the total amount of appropriations or funds available.

(b) Assistant disbursing officers of the Division of Disbursement, making payments on behalf of the Coast Guard, are held accountable for all checks drawn by them on behalf of the chief disbursing officer, and discharge their accountability by producing vouchers properly drawn.

(c) Primary responsibility for controlling expenditures within the amounts of available appropriations and funds rests with officers of the Coast Guard designated to control expenditures. However, responsible accounting officials of the Coast Guard, who for this purpose are designated as certifying officers, are personally liable for expenditures of funds in excess of amounts appropriated.

(d) Central accounting for disbursements made under each appropriation is maintained in the Division of Bookkeeping and Warrants, Treasury Department, on the basis of confirmed teletype reports made by assistant disbursing officers that classify checks issued by appropriation. These central accounts are periodically reconciled to reciprocal accounts maintained by the Coast Guard.

8. Provision has not as yet been made, except in the case of the Coast Guard YARD, for coordinating records of nonexpendable property, which are now required to be maintained by quantity only, with the books of account. The desirability of procedures which would accomplish this purpose is recognized. But funds and personnel required to initially establish records of this type would be substantial, and it is felt that this project cannot, as a practical matter, be accorded as high a priority at this time as the initiation of the principles and objectives discussed above. Moreover, it is felt that a basically sound accounting system must be in operation to receive the entries for nonexpendable property or else the advantage to be gained from its development may be dissipated. When installation of the system for which procedures are prescribed by this Accounting Manual has progressed sufficiently, a project will be initiated to provide for the proper treatment of nonexpendable property or fixed assets in the accounts.

The procedures contained in this Accounting Manual are mandatory and shall not be deviated from except upon written authority from headquarters. However, constructive criticism and suggestions for improvement of the accounting processes

prescribed herein are solicited. Requests for deviations from procedures and comments and suggestions should be addressed to Commandant (ĈF).

These procedures become effective at each Coast Guard unit where the new accounting system is installed on the date of such installation. It is hereby directed that all officers and other persons employed by the Coast Guard, so far as the duties of each are concerned, make themselves familiar with, observe, and comply with these procedures. J. F. FARLEY,

Admiral, United States Coast Guard, Commandant.

The CHAIRMAN. Thank you very much, Mr. Gary.

The committee will recess until Monday morning at 10 o'clock. At that time we shall hear Mr. McCormick. We have some other witnesses scheduled also.

Tuesday morning the committee will hear from former President Hoover.

(Whereupon, at 12 o'clock noon the committee recessed, to reconvene at 10 a. m. Monday, March 6, 1950.)

TO IMPROVE BUDGETING, ACCOUNTING, AND AUDITING METHODS OF THE FEDERAL GOVERNMENT

MONDAY, MARCH 6, 1950

UNITED STATES SENATE,

COMMITTEE ON EXPENDITURES IN
THE EXECUTIVE DEPARTMENTS,
Washington, D. C.

The committee met, pursuant to recess, in room 357, Senate Office Building, Senator John L. McClellan, chairman of the committee, presiding.

Present: Senators McClellan, Hoey, Smith, and Schoeppel.

Also present: Walter L. Reynolds, chief clerk.

The CHAIRMAN. The committee will come to order.

We are resuming hearings this morning on S. 2054. We have three witnesses scheduled, and there probably will be a fourth to appear this morning. We will try to conclude with the three who are here at least before noon.

Mr. Robert L. L. McCormick, will you come around, please? Do you have a prepared statement, Mr. McCormick?

Mr. McCORMICK. Yes, sir.

The CHAIRMAN. Then you may proceed, sir.

STATEMENT OF ROBERT L. L. McCORMICK, RESEARCH DIRECTOR, CITIZENS COMMITTEE FOR THE HOOVER REPORT, WASHINGTON, D. C.

Mr. MCCORMICK. My name is Robert L. L. McCormick. I am research director of the Citizens Committee for the Hoover Report. Dr. Robert L. Johnson, chairman of the Citizens Committee for the Hoover Report, has asked me to thank you, Senator McClellan, for your kind invitation to hear his views and to apologize because his commitments have made it impossible for him to appear before you today. He has asked me to represent the Citizens Committee in his stead.

If it meets with your approval, Mr. Chairman, I should like to read for the record a short letter of instructions which Dr. Johnson has sent to me.

The CHAIRMAN. You may proceed.
Mr. MCCORMICK (reading:)

PHILADELPHIA, PA., March 4, 1950.

Dear BOB: Will you be kind enough to represent the citizens committee, its 45 State committees, and the 80 other organizations which have pledged themselves to accomplishment of the entire program recommended by the Hoover Commission.

The Citizens Committee believes Congress should enact a major statute which would drastically overhaul the Budgeting and Accounting Act of 1921.