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The bill under discussion, S. 2054, appears to us to be an acceptable measure, although it may have to be revised in minor technical respects. The measures proposed in that bill fall approximately halfway between the view of the accounting experts outside of the Government who would very drastically overhaul the present system, and those in Government who would do nothing.

After 20 years of poor accounting, it seems to me obvious that Congress should step in and clean up the accounting mess once and for all. The agencies sponsoring the cooperative project, it should be remembered, are the same ones whichdespite significant gaps in their authorities—have been responsible for the Government's accounting for the last 29 years.

The Citizens' Committee's belief is that, although this joint effort may accomplish a great deal, the structural defects in the 1921 act will prevent it from achieving the fundamental reforms needed.

Therefore, the Citizens' Committee believes that the basic act should be completely overhauled. The responsibility for good accounting should be firmly affixed by Congress. The Comptroller General should be relieved of the vast and duplicative masses of paper work he now maintains. Further audit and enforcement should be given an accounting system which would, for the first time in our history, make the accounts intelligible.

These matters call for the passage of wise laws. They do not call for further temporizing. Sincerely yours,

ROBERT L. JOHNSON. Now, Senator, I would like to proceed with my own statement. The Citizens Committee endorses the general principles expressed

On specific matters, the committee realizes that this bill is not perfect. We will submit perfecting amendments; and we hope that others will also attempt to improve the legislation.

The accounting of the executive branch has been unsatisfactory for years. In 1937, the President's Committee on Administrative Management had this to say of it:

Before 1921 there was comparatively little complaint that the ruling of the Comptroller of the Treasury, precursor of the Comptroller General, encroached upon administrative discretion. This was probably because the Comptroller of the Treasury was a part of the Administration itself, even though he had semiindependent status, and because of the practice of referring disputed questions to the Attorney General. From 1921 on, however, the Comptroller General, through numerous rulings, has carried his authority into areas which are clearly in the realm of executive decision. Any volume of the published rulings of the Comptroller General affords a wide variety of examples of this invasion of administrative responsibility. Many of his rulings go far beyond the terms of any statute.

Rulings by an independent auditing officer in the realm of executive action and methods, even when they seem wise and salutary, have a profoundly harmful effect. They dissipate executive responsibility and precipitate executive uncertainty. Many of the rulings of the Comptroller General, though issued in the belief that they are in the interest of strict legality, undoubtedly impede the work of the departments and add to their operating costs. Administrative officers have found it necessary to go not merely

to their superior officers for the aprovals of plans but also to the office of the Comptroller General for the approval of legality, form, and procedure. This division of authority destroys responsibility and produces delays and uncertainty. It has become increasingly difficult, and at times simply impossible, for the Government to manage its business with dispatch, with efficiency, and with economic sagacity.

An effective continuing executive control over the administration of the Government to insure economy,

legality, and expedition is impossible so long as such wide authority over

plans, forms, and procedures is exercised by the General Accounting Office. The Comptroller Ġeneral has also extended his authority into administrative matters by the expansion of the preaudit (i. e., audit before payment), by the increased use of advance decisions, and by his rulings, all of which have constantly brought more and more administrative questions to him for final determination. The operating plans of the Administration are greatly affected, and sometimes controlled, by his rulings. Fiscal practices are to a large extent governed by his decisions. These are areas of control that are customarily


entrusted to executive officers, both in Government and in private business administration.

Over the intervening years, the situation has become no better. The task force of the Hoover Commission found that the major weaknesses were:

1. There is no formal accounting plan for the Government as a whole.

2. No one person is charged with the duty of developing such a plan.

3. There is no one person who would have power to install such a plan and compel compliance with its provisions if one were developed.

4. The statutes make no specific provision for either a complete accounting system or a chief accounting officer to direct accounting activities.

The shortcomings of the Government's accounting are traceable directly to inadequate statutory provisions for the accounting function. One of the most serious results of these deficiencies is that the accounting is not integrated. In spite of much duplication of accountkeeping a complete set of books is not kept anywhere.

Congress has already taken some steps to improve the accounting. In 1945 it passed the Government Corporation Control Act, the principles of which are very similar to those of S. 2054. This Act has been considered a successful measure.

Last summer the Congress applied certain modern principles to the National Defense Establishment. This act also has been considered successful. There is no reason why, if this act is good for the military, the same sort of act would not be good for the rest of the Government.

The Citizens Committee strongly recommends passage of an act which will firmly affix accounting responsibility and which will reshape those provisions of the Budgeting and Accounting Act of 1921 which have time and again been proven to be defective.

Now, sir, we have been asked frequently why we think that the Budgeting and Accounting Act of 1921 calls for substantial revision. I thought I would like to speak for a few moments on our views.

First of all, we think it is very difficult to install the program budget and to perfect it without grade A accounting. For example, in the present budget the hospitals were not set up on a full program basis, as we would all like to see them, because there were not available adequate cost figures.

Second, we think that the Government is extremely weak on its cost accounting. An example of that is the fact that, in the survey that was made approximately 2 years ago by the Budget Bureau, it was found impracticable to find out how much the Government's own accounting costs, yet accounting is the science of determining cost. Probably the first thing that a good accounting system would show is how much the accounting costs.

Third, in private business generally, accrual accounting is used. The Government has not an adequate system of accrual accounting. It has no comprehensive record of its liabilities as of a given moment because it does not fully show expenditures which have accrued but have not yet been paid.

I can give you an example of that. If my wife goes down to Woodward & Lothrop and buys a coat, I have made no out-of-pocket expenditure, but I owe Woodward & Lothrop so much money for the coat, so my personal financial position would consist of how much cash I have in the bank less the bill from Woodward & Lothrop and others. The Government system does not do that adequately.

The CHAIRMAN. May I ask you at that point, Mr. McCormick, if the Government has any system whereby it can or does keep up with its commitments and obligations, how are the departments able to come before the Appropriations Committee and testify with reference to obligated balances that they have on hand? I know they do that.

Mr. McCORMICK. Yes, sir; the departments do keep such records. Perhaps I give you a misimpression on that. They do, of course, keep records on that, but it is not shown in the over-all financial reports of the Treasury. It is only partially shown, we will say.

Next, we feel that the property accounting in the Federal Government is very weak. For example, in the supply project and in the military project of the Hoover Commission there were attempts made to find out how much property the Government owned. They found that there were not adequate dollar records. For example, their best estimate was that the Government had $27,000,000,000 worth of property, but on those estimates we were informed by the task forces that you could give or take several billion. We think there should be an exact explicit report of dollar inventories.

The CHAIRMAN. May I ask you, would this legislation, the pending bill we are considering, solve that problem? Does it have provisions that would take care of that?

Mr. McCORMICK. It would charge a definite person with the responsibility for that, sir, and also the provisions taken from title IV of the National Security Act would require that there be an adequate dollar record on inventories. Yes, sir; it would.

The CHAIRMAN. What official does this pending bill make responsible for that?

Mr. McCORMICK. The Accountant General. Next, we feel that the Government does not have an adequate overall record of its fixed assets and its real estate and the value of these items. It has specific records on these

The CHAIRMAN. Did we not give the General Services Administration the responsibility for keeping property inventories?

Mr. McCORMICK: It was given the responsibility for improving the records of property inventories, sir, but there is no general provision which requires the maintenance of inventories within the executive branch on a dollar basis.

The CHAIRMAN. I remember we did give them some authority in that bill.

Mr. McCORMICK. Yes, sir; very considerable, primarily in the recording and cataloging.

The CHAIRMAN. All right; you may proceed. These things occur to me and I just want to keep the record straight.

Mr. McCORMICK. Surely.

On fixed assets and real estate in our opinion there is not, as I said, an adequate over-all record of what the Government owns. Each agency maintains its own and they are in varying degrees of completeness. Some are perfected, and some are not.

The next item is the fund accounting which was found by the task force to be deficient. I think the best thing on that would be for the committee staff to study the specific wording in the research report of the accounting task force. Apparently there is commingling of funds which makes it extremely difficult to get the exact status of the fund accounting at any one time. That is a highly technical matter on which I am informed by others but which I am not competent to discuss myself, sir.

The next item is the warrant system which requires complicated countersignatures. We consider that system to be obsolete and cumbersome.

The next item is that there are generally maintained three sets of books in the Federal Government. We think that three sets are too many. In my private discussions with Dr. Johnson he asked me to tell you that he thinks that if the average private business maintained three sets of books, it would no doubt go bankrupt.

. The next item is that at no place in the Federal Government is there a complete set of books.

Those are our specific objections, sir, to the present program, and we feel that, although steps can be made to improve the situation under the joint accounting project, essentially it comes down to a revision of the basic laws and having one person in the executive branch charged with seeing that the job is done. Now, sir, I would be glad to answer any questions.

The CHAIRMAN. In Mr. Johnson's letter to you he points out that the structural defects in the 1921 act will prevent this voluntary effort that is now being made from achieving the fundamental reforms needed. Would you comment upon the structural defects in the 1921 act to which Dr. Johnson refers? Can you be specific about those?

Mr. McCORMICK. Yes, sir. I can't, unfortunately, be completely specific, but I can be somewhat specific.

First of all, there is no one charged with the accounting in the executive branch. There are more or less degrees of authority for portions of the accounting, but there is no one charged with the absolute responsibility of accounting

Second, the Comptroller General's authority over accounting is limited. It is limited in two respects. One is that it is limited only to administrative appropriation and fund accounts and does not extend to fiscal and certain other accounts. The other is that, in the 1921 act, he has little enforcement authority.

Third, there are requirements in the 1921 act that original copies of certain vouchers be transmitted to the Comptroller.

Fourth, there are requirements that certain books be maintained by the Comptroller which are already maintained or can be maintained elsewhere. It seems to us that some of the requirements placed on the Comptroller in the 1921 act are unnecessary and somewhat excessive. It seems to us, also, that the 1921 act doesn't give him enough authority in other fields, notably in the lack of authority to enforce his decisions.

The CHAIRMAN. Further in the letter Dr. Johnson says the Comptroller General should be relieved of the vast and duplicative masses of paper work that he now maintains. Just what paper work does he now maintain that is so massive and duplicative?

Mr. McCORMICK. As I read the 1921 act, it is required that on every payment the vouchers be sent to the Comptroller General. He maintains books on those vouchers; presumably books on the same vouchers as are maintained in the agency and in some cases in the Treasury.

It seems to us that he doesn't need to do that.



the warrant system imposes on his office a vast mass of paper work which we do not think is necessary. We think by a strong internal control system in the executive branch and its agencies, it would be possible to eliminate the warrant system.

Those are the major masses of paper work. It is our estimate that perhaps half of the staff of the Office of the Comptroller General is working on unnecessary paper work of this sort, sir.

The CHAIRMAN. If you create this new office of Accountant General in the executive branch, won't it require just as much personnel to do the work in that department as is now being used in the Comptroller General's office?

Mr. McCORMICK. No, sir; because for the most part the same records are already being maintained in the Treasury.

The CHAIRMAN. Do you think there would be a saving effected in personnel?

Mr. McCORMICK. I think there would be a large saving. I think there would be a saving of approximately $10,000,000 to $15,000,000 a year in the operations of the Office of the Comptroller Ġeneral. I think also that any additional personnel that would have to be taken on in the executive branch would be more than offset by the personnel that would be saved through reducing the duplicative paper work. In other words, the executive agencies now have to service both the Treasury and the General Accounting Office with certain figures. We feel that if this were cut in half, it would be possible for the executive agencies to save on personnel of one type, although they would have to make certain increases in the numbers of certified public accountants, and other technical personnel that they would need.

The CHAIRMAN. Dr. Johnson states further audit and enforcement authority should be given to the Comptroller.

Mr. McCORMICK. Yes, sir.

The CHAIRMAN. What further authority with respect to auditing should be given to the Comptroller, in addition to that which he already has?

Mr. McCORMICK. I can't get too specific on that, but the main thing is that his main responsibility is primarily over the administrative appropriation and fund accounts. There are other types of accounts such as fiscal accounts over which he does not have audit authority. Also, unless I am mistaken, he has rather limited authority with respect to veterans payments and rather limited authority in the field of agriculture.

The CHAIRMAN. Does this bill that we are considering give him this increased authority that you are testifying about?

Mr. McCORMICK. I think so. It is supposed to.
The CHAIRMAN. Do you know?
Mr. McCORMICK. I don't know. I can't answer that, sir.
The CHAIRMAN. I guess we had better try to find out.

Mr. McCORMICK. I shall write you a letter on it, sir, for the record. I cannot answer it offhand.

(The letter referred to dated March 16, 1950, is inserted on p. 179).

The CHAIRMAN. It seems that this Citizens Committee generally approves this bill, and I am wondering if this bill in its present form is adequate to accomplish the reforms that the committee feels and

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