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in terms of standards, principles, and basic forms and procedures. A framework will thus be provided for development and approval of accounting systems consistent with sound principles, fitted to agency needs, and integrated with the central accounting and reporting facilities. Agencies are being encouraged and urged to develop and mold accounting in the light of their particular needs and from the standpoint of operating factors, so that agency accounting systems will be a responsive and dynamic aid to management.
Based upon our experience in the General Accounting Office, we feel strongly that this will be a much more fruitful approach than that in S. 2054, which would centralize to an unworkable degree the supervision of agency accounting operations.
With the committee's permission, I should like to insert in the record, if it has not already been done, a recent report of progress under the joint accounting program. That was prepared just a month ago, and I believe a reading of that will be the best indication of the progress which actually has been made.
Mr. Frese will later touch on particular instances of that.
The CHAIRMAN. I do not recall whether that is on file or not. If it has not been filed heretofore it may be made a part of the record.
You may file it at this time.
PROGRESS UNDER THE JOINT PROGRAM TO IMPROVE ACCOUNTING IN THE FEDERAL
Under the Budget and Accounting Act, as supplemented, authority and responsibility for prescribing accounting systems in the executive departments and establishments of the Government is in the Comptroller General of the United States. However, the responsibility for the day-to-day maintenance of the accounting systems is and must be a responsibility of the various administrative agencies where the work and operations are performed. Moreover, the Treasury Department and Bureau of the Budget have important legal responsibilities, from the standpoint of fiscal administration of the Government, which have a definite relationship to the prescribing of accounting requirements and the operation of accounting systems. In order to coordinate all of these responsibilities and to make accounting, reporting, and bud geting more effective as instruments of fiscal control and management, on Januar 6, 1949, the Comptroller General of the United States, the Director of the Burau of the Budget, and the Secretary of the Treasury approved the joint program containing the following as fundamental principles:
Current accounting and financial reporting are proper functions of the executive branch and accounting systems prescribed by the Comptroller General should be in recognition of this as a fundamental principle;
Audit, independent of the executive branch, is an essential and proper function of the General Accounting Office and properly designed accounting systems are a vital factor to the effectiveness of such independent audit;
Accounting systems should be developed as a cooperative undertaking as an essential to meeting the needs and responsibilities of both the executive
and legislative branches of the Government. At the same time, they announced the following as major objectives of the program:
To provide a body of sound accounting and reporting principles and standards for general observance;
To improve the accounting organizations and the systems of accounting in the various departments and agencies;
To strengthen the facilities and accounting of the Treasury Department as the operating center for current accounting and over-all financial reports of the Government;
To produce more informative financial reports, at less accounting costs;
To improve, simplify, and strengthen the Government's system of audit and control in line with the increased effectiveness of accounting systems;
To coordinate and integrate budget, accounting, and reporting processes. The following summary, indicative of the kind of progress being made, was recently prepared by the joint working staffs for review by the Comptroller General of the United States, Director of the Bureau of the Budget, and Secretary of the Treasury:
ACCOUNTING PRINCIPLES AND TERMINOLOGY
A comprehensive statement has been prepared dealing with 42 subjects concerning accounting principles and practices and providing the framework for a common terminology. This tentative statement is receiving intensive joint review. Meanwhile, many of these principles are being embodied in the accounting systems of particular agencies, thus providing the benefit of practical experi
Based in part on a joint study and recommendations involving inventory control methods, a separate statement of tentative principles and standards for property accounting is being prepared for early consideration by all Government agencies as a step leading to the establishment of ultimate requirements under the provisions of the Federal Property and Administrative Services Act of 1949.
REPORTING OF BUDGETARY SPECIFICATIONS
Important developmental work has been done in connection with the concept of performance budgeting and the use of the accrual method of accounting so that adequate recognition may be given to assets, liabilities, and the true cost of performing work and services by functions or activities. This work has taken advantage of the installation of improved systems of accounting and reporting in such agencies as the Bureau of Reclamation (Interior) and Atomic Energy Commission. The Budget Director has approved in principle, the use of accounting results on the accrual basis for budgetary presentation subject to a full consideration of its practical implications in three large agencies (of which the Treasury Department is one) before deciding upon time schedules for the general use of data on such a basis for budgetary purposes. In addition, Budget-Treasury Regulation No. 1, dealing with apportionments and reports on the status of appropriations, is being completely revised but will need to be reviewed with agencies before making the revision effective. In this connection, separate reports to the General Accounting Office, relating to such data, are being eliminated. Real progress is being made, subject to the approval of Congress, toward improving the appropriation structure for certain agencies both as to reduction in number of appropriations and as to better budgeting and accounting results.
In line with its present audit concepts, the General Accounting Office has set up a program for a comprehensive type of audit. This audit program recognizes that the accoun ing and internal control procedures of each agency are the basic points for effective control of the Government's financial operations. In line with this, it is the policy of the General Accounting Office to utilize audit processes based on an evaluation of accounting systems and the effectiveness of related internal checks and controls in the agencies at the site of operations, to the maximum extent practicable, as a means for fuller and more effective discharge of the Comptroller General's responsibility to the Congress. A new office subdivision has been set up in the General Accounting Office as a means of carrying out the comprehensive audit program.
The United States Coast Guard (Treasury) and Maritime Commission have been placed on a comprehensive audit basis. This is in addition to the hundreds of site audits being performed by the General Accounting Office. Various Government-wide requirements for the submission of documents or reports to the General Accounting Office have already been eliminated, and as the comprehensive audit program progresses such present accounting and auditing processes of the General Accounting Office, based on central review and processing of documents and reports originating with agencies, as are determined to be unnecessary or inappropriate will be eliminated or modified.
ORGANIZATIONAL AND STAFFING CONCEPTS
Progress has been made in the application by some agencies of improved organizational and staffing concepts for accounting performance. The importance of this has been recognized in the Department of Defense, Atomic Energy Commission, Economic Cooperation Administration, and General Services Administration.
The role and status of accounting have been strengthened also in the Bureau of Reclamation and Bureau of Land Management (Interior) and the United States Coast Guard (Treasury).
Ex of work done on legislative recommendations are, the property accounting and audit provisions of the Federal Property and Administrative Services Act of 1949; title IV of the National Security Act Amendments of 1949, establishing the controller function and organization with respect to budgetary, accounting, and auditing along business lines; and consideration of reorganization of accounting and budgeting in the Post Office Department along business lines. In addition, proposals for changes in basic laws needed for carrying out the policies and work of the joint program are being jointly considered.
DISBURSEMENT AND COLLECTION PROCEDURES
Intensive work has been done in simplifying basic procedures for the collection, deposit, disbursement, and audit of funds in certain agencies. Experience is thus gained for wider applications of simplified procedures in the Government generally, in coordination with improved internal control procedures and the expansion of comprehensive audit at the site of operations.
Voucher payment, examination, and audit processes with respect to certain agencies have been simplified by adopting a schedule type of voucher on which a number of authorized payments to different payees are listed. This avoids sending many individual vouchers to the disbursing officers. Instead, the individual vouchers are retained in the agencies for either on-the-site audit or direct transmission to the General Accounting Office. In addition, this new procedure is being given a complete test for all agencies served by the Treasury disbursing office in St. Louis in order to evaluate savings in paper work, double handling of documents, and cost of transporting documents, with the view to its possible broader adoption.
Under procedure developed for trial installation in the United States Coast Guard (Treasury), the accounts of operating agencies will be made to serve as the key points of advance control over the spending of appropriations with a corresponding reduction of accounting work on the part of the Treasury and General Accounting Office, and simplification of the control processes now based on the warrants issued by the Treasury Department and countersigned in the General Accounting Office. The practical problems involved are being worked out in connection with the new accounting installation in the United States Coast Guard, and the results will be reviewed from the viewpoint of wider application in the Government. This development has great potential advantages not only from the standpoint of economy but also as a means for providing proper integration between the central appropriation and cash accounting of the Treasury Department and the accounting of other agencies as the basis for good composite financial reports for the Government as a whole. If properly developed and installed for the entire Government, the improved procedure has the potentiality of eliminating millions of repetitive handlings and postings of documents each year.
The possibility of introducing an improved and more economical system for reconciling the checking accounts of disbursing officers of the Government is being fully explored by the General Accounting Office and Treasury Department together. In this undertaking all related operations are being consideredstarting with the issuance of checks and following through to their final payment, along with the necessary processes of accounting and audit. It should be emphasized that at this stage it is a matter of looking fully into a large and costly operation to see what possibility there may be of strengthening, improving, and simplifying present methods with attendant economy to the Government. Certain proposals and procedures which have been developed are being carefully considered but conclusions as to their merit cannot be reached without a thorough analysis and testing in the light of all operating and policy factors.
Simplified collection procedures, involving elimination of the preparation of schedules of collection and their submission to disbursing officers and the General Accounting Office, have been installed in the United States Maritime Commission and United States Coast Guard. Wider application of such procedures will follow extension of on-the-site comprehensive audit to other agencies in appropriate circumstances.
Improved and simplified collection controls, based on site audit, have also been installed by the Bureau of Land Management (Interior). Billing and collection procedures in that agency have been simplified and integrated with its control over accounts receivable.
Regulations of the General Accounting Office have been amended to provide for Government-wide discontinuance of the submissions to that Office of advance copies of all schedules of collection prepared by administrative agencies. In addition to the saving in paper work involved in the submission and handling of these documents, there is a saving in eliminating the posting of the collection schedule numbers on the covering warrants issued by the Treasury Department.
ACCOUNTING SYSTEMS OF AGENCIES
Work under the program has been concentrated heavily on the improvement of the accounting systems and procedures of individual agencies. This approach is of great importance not only from the standpoint of benefits to the individual agencies involved but also of providing realistic and practical methods, which have stood the test of actual experience, for Government-wide application.
A new series of accounting releases has been initiated by the General Accounting Office to accomplish interim modifications of existing regulations and otherwise provide a flexible basis for stimulating accounting development by agencies themselves consistent with principles and other broad requirements necessary to effect proper integration of accounting in the Government generally and permit assembling over-all financial data on the proper plane. All agencies were advised that the present basic regulations of the General Accounting Office on accounting (General Regulations No. 100) were to be regarded as a flexible starting point for developing improved accounting. This has provided an effective means for revising existing requirements along the right lines and for obtaining the proper degree of initiative on the part of the agencies in contributing to such revisions. Work done along these lines has reached into almost every agency of the Government but only a few of the agencies in which the work has concerned major accounting installations or conversions are cited here as examples.
A completely revamped accounting system for the Bureau of Reclamation (Interior) has been installed. Operations have largely been decentralized to projects, with a resulting reduction of accounting work loads in Washington and the regional offices., Accrual accounting, with development of project costs, has been integrated with appropriation accounting. A completely revised system of financial reporting provides the information needed by management from an operating standpoint and affords the basis for a performance budget in terms of actual costs.
Major revision of the accounting system of the United States Maritime Commission has accomplished a strengthening of the control over all assets and greatly simplified and improved the accounting procedures. Such simplification and improvement has been principally concerned with receivables and related collection procedures, property accounting, trust fund accounting, and the cleaning up of sizable backlogs in accounting work. The revisions in accounting procedures have been developed in coordination with application of on-the-site comprehensive audit. Technical improvements have been accompanied by a decrease in the accounting staff.
Work in planning for the accounting system of the Economic Cooperation Administration (before legislation was enacted) contributed to the establishment of the accounting organization at the highest level with the appointment of an outstanding professional accountant as controller. The system, as developed, has been approved in principle and is being reviewed in actual operation in the light of all needs to be served. Features of the system of special interest from the standpoint of the joint program are: accrual accounting; decentralization of responsibility for control of expenditures to the points of obligating authority, subject to internal audit by the ECA controller; and special techniques and methods in the direction of simplified and economical account keeping, reporting, and control.
The accounting of contractors dealing with the Atomic Energy Commission has been integrated with the Commission's accounting system, on an accrual basis, thus avoiding duplication and overlapping. This method of accounting has been coordinated with audit procedures utilizing contractors' books of account in lieu of requiring numerous reimbursement vouchers. Only about one voucher a month is needed, supported by statements which key the voucher into the contractor's accounts. Operations for the Commission are drawn together on a cost basis and utilized for budgeting in terms of costs and performance with appropriate reconciliation to total obligations. Accounts have been established for the investment of the Government in capital assets and working capital available for future operations.
Cooperative effort contributed to the development of the provisions of title IV of the National Security Act amendments of 1949, which laid the groundwork for a transition to fundamentally improved methods of budgeting, accounting, and reporting for the entire Department of Defense, and established the Office of Comptroller in that Department and coordinated jurisdiction over these functions. Progress is being made, through continuing cooperative effort, in the direction of establishing performance budgeting, accounting in terms of costs on the accrual basis, improved internal control and internal audit, and simplified fiscal accounting and disbursing processes: Full time working liaison has been established from the standpoint of the joint program.
A completely revamped accounting system is being installed in the United States Coast Guard which will provide better control and information, particularly with respect to the cost of operations by programs or activities. Comprehensive audit by the General Accounting Office at the site of operations has been instituted. Collections are being deposited directly with the United States Treasurer thereby eliminating double handling of cash and extra accounting. Further, procedure for controlling and accounting for disbursing funds is being simplified so as to reduce paper work and avoid certain duplication in accounting under present methods which have been traditional in the Government. All that is being done here will be analyzed and reviewed from the standpoint of its wider implications for improving accounting and related fiscal operations in the Treasury and other agencies of the Government.
In the Bureau of Customs procedure for the rendition of collectors' accounts for audit has been improved, providing for a better basis of accounting and overcoming certain administrative difficulties previously encountered. The framework for a revised system of revenue accounting has been developed on the principle of strong internal audit and control, without duplication as between collectors and controllers of customs, and improvement of on-the-site audit by the General Accounting Office.
A complete revamping of the Bureau of Engraving and Printing's accounting system is being cooperatively developed in line with a proposal to give the Bureau a business type budget with a revolving fund method of financing and comprehensive on-the-site audit by the General Accounting Office. Target is the budget for fiscal year 1952 but conversion cannot take place until executive and congressional policy is finally settled in the light of the planning work being done.
An improvement has been made in the accounting in the Treasury Department for interest on the public debt. The expenditures for such interest are now accounted for on the basis of the interest which becomes due and payable rather than payments made by the Treasurer of the United States. Not only does this provide better accounting results but it also has accomplished savings in processing paid interest coupons.
Constant effort is being directed at improving the classifications and bases for reporting the Government's receipts and expenditures in the daily statement of the United States Treasury. The public debt interest matter is a case in point. The change made in showing refunds as a deduction from receipts rather than as an expenditure is another example. Also considerable work has been done in developing procedures through which a more current classification might be obtained of the expenditures of the Department of Defense which to some extent must now be distributed for precise classifications on the basis of transfer and counterwarrants processed about a month after the transactions take place.
A completely revised system of accounting has been installed in about onefourth of the offices of the United States marshals. Installation work is proceeding in the remainder. Improved control and information are being accomplished, with substantially less paper work, through adoption of the new system.
A completely revamped accounting system is being installed in the Bureau of Land Management (Interior). This is being coordinated with application of on-the-site comprehensive audit. Simplified disbursement and collection procedures have been installed and integrated with appropriate accounting control over all receivables.
In addition to the afore-mentioned illustrative cases, intensive work has been done or is under way with the following agencies in accomplishing more or less complete revisions of accounting systems: General Services Administration, Bureau of Mines (Interior), Department of State (military assistance program),