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sions of Public Law 152. We shall be glad to assist this committee in any work which it desires us to do, and the staff has already indicated it would like to have such assistance,

along the lines of further development and improvement in the Government's accounting

We firmly believe, however, that any legislation of this character should be the result of experience under the joint accounting program, and we are unalterably opposed to the accounting provisions of the bill S. 2054.

I thank you, Mr. Chairman.
The CHAIRMAN. Thank you.
Mr. Frese, do you wish to continue?



Mr. FRESE. Mr. Chairman, I am Walter Frese, Chief of the Accounting Systems Division of the General Accounting Office.

Mr. Chairman, in the time that I have left I shall undertake to supplement some of Mr. Weitzel's remarks primarily from the point of view of the method of approach of the joint program to work that is being done and to give some very brief indication and possibly illustrations of some of the progress which we are making toward objectives which I believe every one agrees upon.

The CHAIRMAN. Mr. Frese, as I understand this issue or controversy, there is no disagreement as to the objective.

Mr. FRESE. None whatsoever, Mr. Chairman.

The CHAIRMAN. Every one is in accord, the Hoover Commission, the Citizens Committee, all of the departments affected, and I think the Congress, too, are all in agreement as to the objective.

Mr. FRESE. That is correct, sir.

The CHAIRMAN. There is just a difference of opinion as to where certain authority should be, and what is the best procedure to get the results.

Mr. FRESE. That is correct.
The CHAIRMAX. All right, you may proceed.

Mr. FRESE. I should like to say that I joined the General Accounting Office, Mr. Warren's staff, at the time he initiated this joint program. I should like to say that while that was my first direct association with it, I know that the thought that went into the creation and the initiation of this approach represented a good deal of consideration in all three agencies. I believe this committee, from what information I have, indicated a very early interest in seeing that such a joint approach was followed, and I believe had some consultations with the three officials on that matter.

The CHAIRMAN. I believe that is true, because I think this committee gave some indication of its interest even prior to the time that the act was passed creating the Commission on Organization of the Government. I think the committee indicated its interest even prior to the setting up of the Hoover Commission.

Mr. FRESE. That is my understanding, Mr. Chairman. I should like to say that the work was very carefully planned. It was not a fly-by-night measure of expediency. That careful planning has been continued since we have initiated the joint program. We know that we have a fairly long-range job on our hands to do the job that we



want to do, to attain the desired objectives in an orderly manner with all the viewpoints represented.

I should like to make one initial point, that it is difficult for me to see how the job under any set of jurisdictional alinements could ever be done without a cooperative approach. Accounting in the Government, as any place else, cannot be considered an end in itself. It must always be regarded as a means to an end. The ends to be achieved must justify the procedures that are established. In our Federal Government, with its division of powers and responsibility, there are a variety of needs which must be met and which must be recognized. Without putting them necessarily in the order of their importance, certainly the need for every agency administrator to have an effective and efficient accounting system which brings him the day-to-day information that he needs to control those operations and to make intelligent and wise decisions in their administration, is a fundamental one. There is also a need certainly from the standpoint of Congress to provide for the type of accounting and disclosure that Congress should have for the funds that it provides to the executive agencies for the carrying on of those operations.

Those provisions, in terms of the kind of accounting system that is being set up, must be set up at the outset and therefore it seems to me entirely logical for an agency of Congress to be in the picture as a positive force in setting up certain basic requirements with respect to the funds that Congress has appropriated.

I think it must be intelligently done and it must be cooperatively done so that agencies are not put into a straitjacket. I think we must recognize their needs so that we have an integrated pattern between the kind of accounting that they need to satisfy their requirements and the basic type of accounting and disclosure that needs to be made from the standpoint of the general interest of Congress and the public.

There can be no question about the needs of the top executive agencies such as the Bureau of the Budget and the Treasury Department. Good budgeting depends on good accounting. Unless the budget classifications are synchronized with the accounting classifications and accounting provides the information which is needed for more modern and more progressive concepts of budgeting, such as those that underlie the present performance budget idea, we won't have reliable results.

We are conscious of that and working at it from that viewpoint. We know that there are serious deficiencies in the financial reporting of the Government today from the standpoint of its composite statements which summarize the results of operations for the Government as a whole.

To accomplish the correction of that deficiency and to greatly improve those financial statements requires that the accounting results produced in the agencies be tied in and integrated with the Treasury's accounts with respect to the receipts and disbursements and appropriation balances for the Government so that they can be pulled together on an orderly and accurate basis to produce more comprehensive financial statements for the Government as a whole. That runs through all the work that is being done.

So much for the variety of interests involved. It is inconceivable to me that we can proceed in developing accounting without overlapping and duplication and so on, unless we recognize all that range and area of interests and needs.

Our approach is to work the matter out with the agencies in terms of a very specific analysis of the problem down at the grass roots. That is where the transactions take place, and that is where one has to go to get a practical appreciation of the problem of achieving these very worth-while objectives and making an orderly conversion from what we have now to what we want to get. I would like to emphasize that point, that this isn't only a problem of deciding on objectives. We have done that. It is also a problem of achieving an orderly transition from what accounts are being kept today and all the related procedures of control and audit to what we ultimately want. We are dealing with a going concern. Transactions are taking place every day. We cannot stop the wheels and say we are going to start all over tomorrow on something new. Sometimes it means taking certain phases of it and working that out before you do others. In other agencies the process is a little bit different but we are trying to accomplish it by cooperative work with the agencies all moving in the right direction.

I think it is also important for me to emphasize there the great degree of importance which attaches to the agencies assuming the proper responsibility. After all, they are responsible for the conduct of the transactions, and they should have a big part in the development and molding of their accounting system so they can do their job properly. For that reason we are trying to work in the direction of establishing the Comptroller General's system requirements largely in terms, as Mr. Weitzel pointed out, of a basic framework of principles and standards and other requirements which will assure honest and fair disclosure of what happened to the funds, while at the same time giving them a sufficiently flexible framework within which they can mold and develop their accounting system to meet their day-today needs, so they can take initiative in doing that and not be restrained by over-all limitations. That requires a good deal of discussion and a good deal of consideration of the points of view of people who are out there actually doing the job, who have had many years of association with it and who are in a position to contribute much more on various phases of the problem than any outsider could by taking a very quick and superficial look at the many diverse activities of the Federal Government. We have as much diversity in the Federal Government as there is in private industry in terms of types of businesses which are involved, and there is a very definite limit to the uniformity that can be achieved. The uniformity we are trying to achieve is in terms of principles and standards, the type of tie-in with the budget processes, the type of tie-in with the Treasury, the type of controls that are needed to make sure that the money is properly expended, and so forth.

We feel that by this cooperative approach we are bringing to bear on the total problem the viewpoints of a lot of different people, all of

a whom have a real contribution to make. I just returned from a short trip that I took to see some of the work that was going on at some of the field offices of the agencies with which we are working. I came back very enthusiastic about the spirit of the people who are down there in the grass roots, down there on projects, keeping these accounts, because they feel it is their system that they have developed, and they have. They have developed many of the aspects of it. We have coordinated it and we have fitted it into these over-all objectives, but they are going to keep that system because it is their system and they have had a part in it.

Many of the things that they have done, we have found when we go and tell other agencies about them, can be used in other areas. In other words, contributions are made to this program not just from the three agencies, but from capable people throughout the Government who have dealt with the problem in realistic and practical terms. They are not just theories any more.

The CHAIRMAN. Are you meeting with any resistance or any lack of cooperation from any agency or any official?

Mr. FRESE. No, sir. At this time I would say, Mr. Chairman, that we are getting more enthusiastic cooperation in some agencies than we are in others, but generally I would say there was nothing in terms of actual resistance. I would say we are in the position right at the moment where we have more agencies asking us for help and for cooperative development of their systems than we have been able to serve up to this particular moment. We plan some augmentation of our staff during the next fiscal year, and we hope that we will be able to get on top of it a little bit more, but the agencies that are asking us are those that are anxious and desirous of doing something about their accounting system.

The CHAIRMAN. In other words, you are not sufficiently staffed or equipped now to meet the demand upon you.

Mr. FRESE. Not at this particular moment; no, sir. We hope to correct that. In that connection I might say we have been very careful in our staffing, Mr. Chairman. We want to get people who are first of all good professional accountants, who would meet outside standards for professional accountants. Also people who have judgment and discretion in terms of setting up priorities of what things have to be done, who have some practical experience with the Government's accounting as it now functions so that they can talk the language of the people who are out there and establish orderly means of conversion, and who have the judgment and common sense also to draw the line sometinies between that which is theoretically desirable and what is practically feasible and useful. That needs to be done in many instances because it is possible in accounting, like everything else, to carry it to ridiculous extremes, to the point where the money that it is costing to run it does not justify the final pin-point perfection that you get as a result of going that far, at least in terms of some of the things that can be done as an immediate proposition.

For that reason, we have been trying to concentrate on getting a relatively small, certainly relatively small when compared to the size of the job to be done, but highly competent professional staff which can work with agencies on the basis of the agencies accepting the major share of the responsibility for working out the system within the framework of the objectives that are established. Our staff numbers only 40 people at the present time, which includes what clerical staff we have to deal with forms and things of that kind in day to day work.

We hope, as Mr. Warren pointed out in his original statement, I think, to build it up to around 75 or 76 within the next year. I believe it is a very competent staff and I believe it will meet practically any professional standards for competence and judgment.


Senator Smith. I should like to ask, do you think that additional legal authority would help bring about more cooperation to get the results that we want?

Mr. FRESE. I do not believe so, Senator Smith, at least not at this particular point. We have worked a good deal on the principle that if we can sell the product to the agency, and they can accept it as something that they need, if they feel a definite need for it and if they will use it, they will work on it, keep working on it and keep perfecting it. So far, we have been able to work it out pretty much on that basis. Of course, it is very helpful for us to have the authority to prescribe a system, and when it comes to a question of whether a certain accounting requirement will not be observed that is vital to adequate disclosure of public funds or vital to adequate control, we will use our prescribing power which we now have and make it a mandatory proposition.

I believe it is a much healthier growth under this cooperative approach. It is ever so much better for an agency to feel that this system is their system, that their top management needs it, that they have been one of the biggest contributors to it.

The CHAIRMAN. In other words, it is something that they themselves find they need and want, and not something that they are compelled to take.

Mr. FRESE. That is right. I have very grave doubts about the extent to which we would have a healthy accounting growth in the agencies if agencies were keeping their own accounts only because they were required to. Accounting then becomes an end in itself, and if they kept accounting systems only because the General Accounting Office or the Accountant General or anybody told them they had to keep that accounting, I think it would become a rather weak foundation. It can be done on that basis, but it isn't good. Mr. Weitzel happened to mention the Bureau of Reclamation. We used only two people on that work. Our people worked with the responsible people in the Bureau of Reclamation, who did an outstanding job of organizing their own effort and utilizing the practical knowledge of people in the field. You may recall that several years ago they were in a good deal of trouble with their accounting system. I wouldn't want to leave the implication that they have everything worked out now, but the structure is laid and a great deal of progress has been made, and it has been made by utilizing the knowledge of the people down on the projects, the people in the field, who have worked with the central office people and with us. You can't buy the kind of accounting experience that comes from somebody who has been living with a problem for 10 or 15 years, who knows all the practical angles. If you don't know those and embark on what might be theoretically sound paths and you hit those practical road blocks, sometimes it can discredit something that may be perfectly sound. If we can get their viewpoints and be apprised of the difficulties they see ahead and take care of them in advance, I think that we can do much better.

I won't have time in the very few minutes that remain to go over some of the objectives that we are trying to accomplish, but I will say that in terms of the broad objectives that we are trying to accomplish, I think that we have just about every one of them installed in one agency or another, which provides us good practical experience for future work to be done on a broader scale.

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