The CHAIRMAN. Mr. Frese, for the information of the committee would you write out a brief summary of those and incorporate it in the record at the conclusion of your testimony?

Mr. FRESE. I shall be very glad to. I shall keep it as brief as possible.

The CHAIRMAN. If you could just set it out in a brief summary and let it follow your testimony here it might be helpful to us.

Mr. FRESE. I would like to emphasize two things because they were given prominence here earlier today, if I may, sir. One, no one recognizes more than this joint effort that we need a different type of accounting, fundamentally improved, to make this performance budget work. No one realizes that more than we do and we are working on that. We have done it in individual agencies, big agencies. The Bureau of Reclamation happens to be one. The Atomic Energy Commission is another. They have adopted accounting of the type needed to make the performance budget mean something, accounting in terms of what is called the accrual basis, which was also mentioned, which recognizes expenditures at the time they are incurred, not just when they are paid for; which makes a differentiation between liabilities for actual goods and services which have been received and those contractual obligations which cover goods and services to be received in the future, and which means also the regarding of inventories as costs when they are applied to particular purposes rather than when the inventories are acquired and reflecting the unused investment in inventories for future application. We have been working on that with a number of agencies. That ties right in also to the matter of cost accounting.

We know that there needs to be a good deal of improvement in the Government's cost accounting. We feel that it has to be integrated and tied in with the appropriation accounting so that Congress, when it looks at an appropriation can tell the costs of doing the various functions, and that that will be part of a pattern which will develop it in much more detail down in the agency in case that more detailed information is required. I might say that in the Bureau of Reclamation, which I am using only as an example, their cost system has been completely tied into that appropriation accounting system and their regular accounting system. It is all one system and in that case just as an indication of some of the simplifications that have been worked out, 120 accounting forms which were previously used under the old system have been reduced to 10 by reason of tying the two together into one cohesive unit.

I am not sure whether it is 10 or 20 right now, but there was a substantial reduction, in either event.

Senator SMITH. That would be a help, would it not, Mr. Chairman? Mr. FRESE. I might say also we are making progress, not nearly as much as we hope to make in the future, by way of eliminating central requirements which impose extra work on agencies, on a coordinated basis with the improvement of the internal controls in the agencies. Reports that go to the General Accounting Office on the status of appropriations illustrate the point. We have a pattern in terms of experience for eliminating those in agencies where the accounting system is tied into the Budget Bureau's reporting requirements and where the agency has adequate internal control over its appropria

tions. We have eliminated those requirements from about 30 agencies already.

We have eliminated the further requirement for submission of monthly reports on expenditures by limitations, to the General Accounting Office, where we have determined that the agency has adequate control in its system and where we can review it periodically to see how it works. We have eliminated 900,000 annual submissions of advance copies of schedules of collections from the agencies to the General Accounting Office on the basis of some revised procedures. We have also installed a schedule type voucher in which the agency is required only to list the payee when it sends its voucher to the disbursing officer and it retains all the original documents out there for site audit by the General Accounting Office, which eliminates a lot of vouchers coming into central agency offices.

I could go on to indicate some of the things that have been done. I say generally they give us a good basis in terms of practical experience now to go ahead, and our pattern is pretty well set on what we want to do in the future. That experience behind us I think is invaluable. It is no longer a theoretical proposition.

The CHAIRMAN. I shall ask you just one question. Will the enactment of this proposed legislation expedite and facilitate the work that is now being done toward this objective, or would it tend to retard the work?

Mr. FRESE. It will not expedite it, and I would say it definitely would tend to retard it because it would mean that all these carefully worked out arrangements would have to be done over in one way or another. I just don't see how it can ever be done on any other than a cooperative basis.

The CHAIRMAN. Any questions?

Thank you very much, Mr. Frese.

(The information to be furnished by Mr. Frese follows:)

Since a progress report summarizing the work which has been and is being done under the joint program has been included as a part of Mr. Weitzel's testimony, this statement will be confined to a summary of a few of the major types of improvements which are being made in connection with achievement of basic objectives for accounting improvement throughout the Government. While, at this stage, the accomplishment of some of these types of improvements, in a complete sense, is restricted to certain individual agencies, work in the same direction is under way in many others and the work which has been done in particular agencies provides a foundation of practical experience which will expedite orderly transitional accomplishment of these types of improvements for the Government as a whole.

1. Conversion to accrual basis of accounting.-There have been major accomplishments in certain agencies in conversion to an appropriate degree to the accrual basis of accounting in connection with both revenues and expenditures and related assets and liabilities. Application of this basis of accounting has resulted in utilization to an increased extent of the accounting and financial reporting methods common to business. Under this method of accounting assets (such as inventories) are established in the accounts when acquired (even though payment is made later) and are reflected as costs for the periods in which they are used, the unused balances being shown as resources available for future operations. Likewise, liabilities are established for all goods and services received but not yet paid for. Unliquidated obligations in the form of contracts or orders for future delivery are separately stated and controlled, and are not reflected as actual liabilities, expenditures, assets acquired or costs until the goods or services are received. Application of the accrual basis of accounting also provides for taking up all revenues or other amounts due the Government as earned with corresponding control and disclosure of receivables for uncollected amounts. Of particular importance in the work which has been done in the application of this method of

accounting in various agencies is the pattern which has been developed for more complete realization of the objectives of the "performance" budget through synchronization of accounting cost classifications with performance categories. Work in expanding conversion to this basis of accounting is being closely coordinated from budget, accounting and management viewpoints. The application of this basis of accounting has also been accompanied with the development of substantially simplified accounting procedures for control of obligations and improved and simplified control and audit methods for amounts due the Government.

2. Property accounting.-Establishment of accounting controls over property acquired, used, and on hand is one phase of the application of the accrual basis of accounting and has received extensive attention in that connection. In addition, there has been considerable specialized effort on the matter of property accounting itself. A comprehensive report and recommendations based on the joint study of property management and accounting in the Federal Government by representatives of the General Accounting Office, Bureau of the Budget, and Treasury Department was completed in June 1949 and has been distributed to all Government agencies. This report, which also had the benefit of the views of numerous accountants and professional groups outside the Government, has been approved by the Comptroller General, the Director of the Bureau of the Budget, the Secretary of the Treasury, and the Administrator of the General Services Administration as providing the basic guide lines for the improvements to be worked out in property accounting and property management. The work done in connection with this project contributed to the development of some of the provisions of the Federal Property and Administrative Services Act of 1949. Specific working arrangements were agreed upon by the Administrator, General Services Administration, and the Comptroller General for coordinating development of property accounting under the joint program with needs of the General Services Administration. These arrangements provide assurance that property accounting development under the joint program will be coordinated with the uses it should serve for better property management in individual agencies and for the Government as a whole from both the budgetary and day to day management viewpoint.

3. Development, integration, and improvement of cost accounting.—Through application of the accrual basis of accounting to expenditures, including adequate property and inventory accounting, improved bases have been developed for unifying detailed cost-accounting systems for various types of operations and activities with appropriation accounting. This provides a means for more accurate and useful cost-accounting results for management and other purposes in operations where this detailed cost accounting is needed and also leads to simplification and elimination of overlapping in cases where cost-accounting systems have previously been developed separately from other accounting.

4. Application of improved methods for decentralizing accounting within agencies.— As a phase of the general objective of making accounting more useful to management on a day-to-day basis, considerable importance is attached to decentralizing accounting to the points of operations where accounting results are most needed for management purposes. Procedures applied for accomplishing this in certain agencies have also resulted in eliminating repetitive recording of transactions at various levels in the organization while also assuring over-all control and current information. Considerable progress has been made in this connection in the adaptation and installation of methods and procedures common in business for decentralizing detailed accounting to branch offices through use of interlocking accounts which provide adequate central control and also provide an effective basis of consolidating accounting results for the agency as a whole.

5. Development of consistent and integrated accounting and financial reporting structure for Federal Government as a whole.-An underlying objective in all work being done to which continuing attention is being given is to achieve a sufficient degree of consistency and integration in the pattern of accounting for the Government as a whole to provide a foundation for the ready preparation of comprehensive, accurate, and readily understandable financial reports for various purposes, including adequate disclosure of the results of financial operations of the Government to the public. The Treasury Department will be the operating center for the preparation of such reports which will be based on consolidation of accounting results developed by the various agency accounting systems, and reporting to the Treasury, with those derived from the Treasury's own accounting. With the conversion of agency accounting systems, to an appropriate degree, to the accrual basis of accounting this will make it possible to reflect in over-all Treasury reports the various types of assets and liabilities involved in agency operations or in their custody, and costs of conducting various functions and activities. The basic key to the achievement of this general objective is the establishment of appropriate

accounting systems in the various agencies, adapted to particular types of operations. However, coordinate work to assure achievement of the necessary degree of consistency, uniformity, and integration is also necessary and is being done. The following are examples:

(a) A comprehensive tentative statement of principles and standards and related terminology for accounting for the Government as a whole has been prepared and is receiving intensive joint review in the General Accounting Office, Treasury, and Bureau of the Budget. The principles and standards are being applied in the work done with individual agencies and are being modified where necessary in the light of actual experience. These principles and standards provide the guide lines for coordinating all transitional work being done in line with ultimate objectives in establishing the necessary basic concepts from a Government-wide viewpoint for coordinated development of accounting, budgeting, financial reporting, independent audit and related matters.

(b) Methods and procedures for integrating agency accounting with Treasury accounting have been worked out for a number of agencies in line with the objective of having definite accounting relationships between agency and Treasury accounting which will permit ready consolidation of accounting results for over-all statement purposes.

(c) Various improvements are being made in the Treasury's own accounting both from the standpoint of its direct management needs and to make it an effective nucleus for the accounting and financial reporting system for the Government as a whole. The recent improvement and simplification of accounting for interest on the public debt in terms of the amounts payable (rather than merely the amounts paid) is one example. Substantial improvements have also been worked out by the Treasury in the methods and bases for accounting and reporting for receipts and disbursements and cash balances, handling and control of revenues, public debt transactions and related matters.

(d) Special cooperative work is being done in obtaining appropriate uniformity of agency accounting and financial reporting for similar types of operations or activities carried on by various agencies throughout the Government. Examples of this include work being done on: (1) the development of costs in connection with the acquisition, operation, and maintenance of motor vehicles; (2) obtaining, in an appropriate degree, uniformity in accounting and reporting for Government hospitals; and (3) obtaining better integration and appropriate uniformity between accounting and required Budget Bureau reports on the status of appropriations.

6. Simplification of accounting procedures, reduction of paper work, and elimination of repetitive accounting operations.-A major objective in connection with all work being done is to effect all possible simplification and economies in accounting operations. Among other benefits, this provides the means of releasing funds and energy in agencies for needed development of more useful phases of accounting. Such economies have been achieved in a variety of ways which include: (1) simplifications and modernization of internal agency accounting and control procedures and paper work; (2) effecting closer integration between interrelated accounting operations of different agencies and corresponding elimination or avoidance of repetitive work; and (3) elimination or modification of certain central control or audit processes of the General Accounting Office and related requirements for preparation, submission, and forwarding of documents or reports. The latter is accomplished on a coordinated basis with establishment of improved systems of accounting and internal control in various agencies together with expansion of on-the-site General Accounting Office audits. There has been substantial progress under all three of these categories. Only a few examples are presented as illustrations:

(a) An analysis of 47 representative accounting forms and procedure cases submitted to the General Accounting Office for approval shows that 362 forms were abolished by substitution of 86 improved forms. Agency suggestions contributed materially to these accomplishments.

(b) A recent simplified procedure for revised standard forms of pay roll change slips issued by the General Accounting Office for use of all Government agencies in effecting periodic and longevity pay increases and other changes in civilian pay resulted in substantial reduction in paper work illustrated by the fact that there is a minimum saving of $75,000 per year in the form printing costs alone. reduction in clerical work will, of course, amount to many times this figure for the entire Government.

The

(c) A revised accounting system for the field offices of the United States marshals resulted in a substantial decrease of accounting and paper work illustrated by the fact that basic accounting forms have been reduced from 30 to 4 and

month-end paper work of preparing deputy marshals' accounts reduced from 70 to 80 percent.

(d) In connection with the large-scale operations of issuing dividend checks on veterans' insurance, closely integrated mechanized procedures between the Veterans' Administration, the Treasury's Division of Disbursement and the General Accounting Office were developed to provide such economies as the following:

(1) Direct mechanical reproduction of punched card checks by the Treasury from punched cards produced by the Veterans' Administration as an integral part of its procedure in developing the amounts of dividend payments.

(2) Direct transfer by the Division of Disbursement, by mechanical means, of name and address inscriptions from the payment voucher to the checks eliminating the necessity for typing and proofreading in the Division of Disbursement. This is made possible by the use of special type carbon paper when the vouchers are prepared by the Veterans' Administration.

(3) Provision for payment of checks by first receiving Federal Reserve bank thereby eliminating usual necessity of transferring paid checks by the various Federal Reserve banks and the Treasurer of the United States.

(4) Simplification and mechanization of General Accounting Office operations for reconciling disbursing officers' accounts through utilization of punched cards for checks issued, previously utilized by the Division of Disbursement in the preparation of such checks, and mechanical matching of paid checks against such cards.

(e) The requirement for submission of monthly accounting reports relating to status of appropriations to the General Accounting Office has been eliminated for about 30 agencies.

(f) Monthly preparation and submission to the General Accounting Office of analyses of disbursements and collections by appropriation limitations have been eliminated in several agencies by determination of adequacy of internal agency control procedures and periodic on-the-site General Accounting Office audit or other inspection.

(g) Repetitive handling of vouchers, and related operations, have been materially reduced by installation in a number of agencies of a new schedule type voucher form. This provides for agencies listing a number of payees on a single form and submitting only such schedule to the disbursing officer as authorization for the payments to be made. Basic supporting documents are retained by the agency office and no longer have to be handled by the disbursing officer and by the central office of the agency in Washington. This is also being coordinated with the extension of on-the-site audits of the retained documents by the General Accounting Office.

(h) The requirement for submission of advance copies of schedules of collections to the General Accounting Office, and the operations relating thereto, have been eliminated for the entire Government. About 900,000 documents annually were involved under the old procedure.

(i) Paper work and repetitive operations involved in deposit and control of collections have been further reduced in some agencies by complete elimination of the preparation of any collection schedules and by direct deposit of collections with the Treasurer of the United States or designated depositaries, rather than through disbursing officers. This is being done in connection with application of on-the-site audit.

(j) Simplification of warrant procedures.—A major revision of the operations and procedures revolving round the issuance and countersignature of warrants has been developed for trial installation in the United States Coast Guard. It will be analyzed in actual operation from the standpoint of suitability for wider application. The procedure provides an effective way of integrating agency accounting with Treasury accounting, greatly simplifying agency accounting work and eliminating or simplifying operations in the Treasury and the General Accounting Office.

In obtaining general application of procedure simplifications such as those illustrated above, careful attention is being given to the transitional problem of converting from present to revised procedures or control. Existing methods are being eliminated or modified on an orderly transitional basis with positive determination that the revised and simplified methods will adequately take care of any necessary control or other purposes involved.

7. Improved and more efficient audit.-The Comptroller General has established a "comprehensive audit" program which is based on audits of agencies at the site of operations. Such audits will incorporate many features of the audits now performed for Government corporations. These include examination of individual