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transactions to the extent necessary in the circumstances for determining compliance with applicable laws. The expansion of this type of audit is being coordinated with the elimination or modification of such central control and audit procedures based on submission of documents and reports by agencies to the General Accounting Office in Washington as are determined to be unnecessary. This type of audit, and audit reports based thereon, will provide much more complete information relative to agency operations to agency administrators, top executive agencies and the Congress. It is in keeping with the general objective of making agency accounting systems, and related procedures, the foundation for control over the Government's financial operations and utilizing, to the extent practicable, site audits incorporating evaluation of such systems and controls for GAO control and audit purposes.

It should be stated that the accomplishments being made are not attributable to any one agency or group. They reflect the results of cooperative effort of many agencies and viewpoints involved in the accomplishment of mutual objectives.

Particular importance is attached to the contribution of the operating agencies directly concerned, since a major purpose of the program is to mold and develop accounting systems adapted to their particular operations and responsive to their management needs. Exercise of initiative and constructive work by such agencies in the development of accounting improvements will be a vital factor in the further work to be done and the ultimate accomplishment of objectives for the entire Government on an orderly transitional basis.

It should also be emphasized that by far the biggest part of the job is still ahead but the experience gained in cooperative work which has been done will be of material assistance in the future work to be done. This is particularly true in connection with the careful attention which must be given to effecting an orderly transition from present methods and procedures and avoiding premature disruptions which would seriously impair current control and management of continuing operations.

The CHAIRMAN. Tomorrow the committee will hear former President Hoover and also the Comptroller General, Mr. Warren, and possibly one other witness,

The committee will recess until 10 o'clock tomorrow morning.

(Whereupon, at 12 noon the committee recessed until 10 a. m., Tuesday, March 7, 1950.)

TO IMPROVE BUDGETING, ACCOUNTING, AND AUDITING

METHODS OF THE FEDERAL GOVERNMENT

TUESDAY, MARCH 7, 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, O'Conor, McCarthy, Ives, Smith, and Schoeppel.

Also present: Walter L. Reynolds, chief clerk.
The CHAIRMAN. The committee will come to order.

We will resume hearings on S. 2054, and we are very happy this morning to have with us the former President of the United States and Chairman of the Commission on Organization of the Executive Branch of the Government, who had a tremendous influence and made a great contribution toward the report of that Commission. This bill is one to implement the reports and recommendations of the Commission. We are very happy this morning to have Mr. Hoover with us to give us his views on this proposed measure.

STATEMENT OF HON. HERBERT HOOVER, FORMER PRESIDENT

OF THE UNITED STATES; CHAIRMAN, COMMISSION ON ORGANIZATION OF THE EXECUTIVE BRANCH OF THE GOV. ERNMENT

Mr. HOOVER. Mr. Chairman, before I start I should like to take a moment on nomenclature: The long title for the Commission on Organization of the Executive Branch of the Government is rather cumbersome, so I shall refer to it as the Reorganization Commission, and likewise the Inter-Departmental Committee of the Treasury, the Comptroller and the Budget Bureau is rather a long title and I shall call that the Interdepartmental Committee.

The CHAIRMAN. You know without my reminding you that we refer to it as the Hoover Commission, and that shortens it still further and it is still more descriptive.

Mr. HOOVER. I think that is a faulty reference because there were 11 stout-minded men on that Commission who had a powerful lot to do with any conclusions, including yourself.

The proposals before the Committee relate to reforms in budgeting and accounting. They are of course somewhat interrelated.

On budgeting it seems to me from what I have read of the committee proceedings that there is pretty general approval of the major proposal of a performance budget. In fact, it has already been initiated by the Bureau of the Budget, and it no doubt.requires some more authority in law. But I don't think it is necessary for me to go into that subject. You are pretty familiar with it, and there does not seem to be any great difference of opinion about it.

The accounting seems to be the major question before your committee. I believe we can demonstrate to the committee that there is practically universal condemnation of the present system of accounting in the executive branch.

I do not need to state that under the present laws the accounting of the executive branch is largely under the control of the General Accounting Office. While that is an agency of the legislative branch and is outside the field of the Commission on Reorganization, yet it is impossible adequately to consider this subject of reforms in accounting without including some considerations of the methods of that agency itself. That is not done in any spirit of criticism but in an endeavor to find constructive remedies.

There is a host of evidence that the accounting system is inefficient and wasteful, that it fails to establish proper responsibility of officials and is unable to present the full picture to the Congress. I can show you, I think, that there is no difference of opinion either in the Reorganization Commission or in the Interdepartmental Committee officials who have been before you that reform is needed and necessary. The differences are wholly as to the method.

The Commission on Reorganization, as one of its very first acts, in September 1947, appointed a special task force to investigate these questions under Mr. John Hanes, a former Under Secretary of the Treasury, and with him were a battery of leading accountants and budget experts of the country. Six of our task forcers found it necessary also to investigate accounting questions in order to make constructive recommendations on this particular subject. They were comprised of some 50 experienced and skilled men and equipped with research staffs. The task forces that were involved were on the Armed Services, the Post Office, the Veterans' Administration, the Federal Supply System, the Government lending agencies, and the Government business agencies.

Several members of the Commission on Reorganization itself had had a good deal of experience in Government relating to this subject. Several of them had been engaged in governmental work over a great many years. Having myself been a member of the administrative committee in 1921 which aided in formulating the foundation act of that year and having dealt with its workings for 12 years as a member of the Cabinet and in the White House, I have some little familiarity with the trouble.

I think the committee would be interested if I presented to them some of the information which was laid before the Reorganization Commission by the various research staffs which we employed in that matter, together with the task force reports. These reports have not been printed, they have not been circulated, and I hope the committee will bear with me in some rather extensive quotations because I think they make the case more vividly than it can be done otherwise. Those reports, of course, are available to the committee

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at any time. These quotations from the task force on accounts are of imporance:

Most of the Federal Government's accounting procedures are based on antequated concepts of accountability, which originated as early as 1776. These concepts have not only been responsible for countless duplication in the maintenance of records and handling of documents but also have resulted in the confusions and intermingling of accounting and audit functions

* No one person or agency is charged with the responsibility either to prescribe a complete plan of accounting for the Federal Government or to supervise its operation or to enforce it

as a result

accounting and overall reporting is incomplete, it is inconsistent, duplicative, cumbersome, based on certain accounting principles not generally accepted either in commercial or governmental accounting practice

The audit of the accounts of accountable officers is directed solely toward the determination of accountability for receipts and disbursements. It not only fails to include the verification of other assets and liabilities but gives no indication of the correctness of the books maintained by the departments and establishments or the extent to which financial reports prepared from these books can be relied upon. This is a rather important omission since financial statements supporting the congressional budget justifications of the departments and establishments are prepared from their accounting records.

One of these investigations points out, if I may quote again:
Receipt documents are posted into five sets of accounts.

Appropriation warrants, including transfer appropriation warrants, transfer and counter warrants, adjustment, surplus fund and restoration warrants are posted to five sets of accounts.

Requisitions and accountable warrants are posted to six sets of accounts.
Disbursements are posted to six sets of accounts.

Seven records varying in their degree of completeness and currency are maintained for public-debt transactions of which six are located in the Treasury Department.

Another one of these investigations points out, and I quote again:

The assigning of account symbols and titles jointly by the Treasury Department and the General Accounting Office necessitates the maintenance of staffs in each of these agencies to perform the same tasks.

The many ways used by Congress in making funds available through the various kinds of appropriations and contract authorizations and authorizations to treat expenditures as public-debt transactions complicated accounting and financial reporting.

Although some form of official acknowledgment of the availability of funds is needed, the warrant system is cumbersome and, particularly because of the requirement for countersignature, it delays the recording of accounting transactions. Warrants acknowledging the covering of receipts into the Treasury serve no useful purpose.

Another one of these investigations points out, and I quote again:

A variety of bases have been used for accounting and reporting, some of which contradict each other

There is a lack of uniform terminology. Different terms are frequently used to designate the same thing both in different reports and in the same report. On the other hand, the same term is sometimes applied to different types of transactions.

That task force further pointed out that

There is a lack of understanding and recognition on the part of the management of many departments and establishments of the use and value of financial information and the place of accounting in their total organizational structure.

A sound accounting and reporting system is one which provides for showing complete information regarding the financial condition and financial operations of a government. The Federal financial reporting system fails to do this.

Another one of these investigations points this out, and I quote again:

Although the Government owns many investments and prepares statements to show their composition, interest earned on them, and other details, it does not

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