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include them in a balance sheet * * * it does not reflect its current or longterm debt records in a general fund balance sheet. Finally, although detailed balance sheets are presented for Government corporations, the Government's equity in them is not shown among the assets of the general fund. * *

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No over-all financial report is prepared comparing estimated and actual revenues. Similarly, no statement analyzing the changes in budgetary surplus from the standpoint of estimated and actual revenues as well as from the standpoint of appropriations, expenditures, and obligations is included in any of the financial reports.

Commenting again on the accounting system, another of our research reports states flatly that

This is a costly system. It means freight carloads of vouchers from all over the United States, hauled to Washington for individual examination in the General Accounting Office.

The Office now labors under a deluge of paper work of all kinds which requires about 10,000 people to examine. Of this number of persons and of these total costs, about half result from the central examination of individual expenditure vouchers and documents.

Our task forces, as I have stated, were constantly confronted with the failures, inadequacies, and waste in accounting.

The task force on the Federal supply system discusses at great length in its report the effect of confusion in accounting on the whole operation and with ample detailed examples. It states among other things:

Even more startling is the fact that standards for measurement of cost or work load in the field of supply have not been developed. Very few agencies maintain records of the total overhead costs of purchasing, of storage and issue, or of any other elements of the supply system. In those agencies which do, the records usually fail to take into account either the costs of supervision on an agency-wide basis, or of overhead expenses other than for personal services. Work-load yardsticks are essential for measuring and appraising the output of the individual employees, for efficiency ratings, for proving charges of inefficiency, and for maintaining some semblance of morale and discipline in administration, as well as for budget planning

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They do not exist in our accounting system.

Millions of dollars could be saved each year in personnel and other costs through the elimination of unnecessary procedures and documentation, especially on small purchases and stores transactions.

Our task force on lending agencies, under accountants Price Waterhouse & Co., who are well-known accountants, frequently comment in their report on the lack of systematic accounting. For instance, they say, and I quote again:

Management must be accountable for its own performance. Since a full and proper accounting cannot possibly be made by any one else, the accountability of management must be commensurate with its responsibility and authority. Within a framework of broad accounting policy, the management of each of the Government's agencies should be free to make a complete accounting for the discharge of its responsibilities in the manner best suited to the peculiarities of the enterprise. They had a comment to make on the Farmers Home Administration that seems pertinent. They state:

A substantial revision of this agency's accounting practices would be required if the management is to be held accountable to an extent of its responsibilities * * *

The examination of the Post Office likewise developed a great lack of adequate accounting system. The report states that

Accounting units of the Post Office Department have only 30 days after the close of the quarter to review this mass of material from 42,000 post offices and to

turn it over to the General Accounting Office, which performs the full audit, settles directly with individual postmasters, and turns its report over to the Department some 8 months after the quarter's end; too late for effective use in day-to-day and month-to-month analysis and supervision. Consequently, the Post Office Department must depend, in fulfilling its operating responsibilities and budgeting, on its own partial duplication of certain accounts and estimates of others.

That examination further showed that:

The present system does not permit of competent cost accounting fundamental to efficient management of a business. It is outrageously cumbersome and results in a mass of unnecessary red tape and a host of employees.

Our task force on the Veterans' Administration made many comments on accounting with view to simplification. Among other things they pointed out, and I quote again:

Present procedures require passing of lists and vouchers between this agency and the Treasury as many as five times for every check issued.

Our task force on Government business enterprises, under the accounting firm of Haskins & Sells, condemns the accounting in some of these agencies time and again. At one point they state as to Government-owned hydroelectric enterprises, and I quote:

There is also evidence of inconsistent and misleading accounting practices.

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In their survey of the Maritime Commission they state that:

It is impracticable to present a summary of the financial results of operations in recent periods

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The accounts of the Maritime Commission are presently, and for several years have been, in a deplorable financial condition.

The accounting systems employed in the Bureau of Reclamation

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are in need of revision. Several reports are prepared in different places covering the same subject matter and each set of figures is different in certain respects from the others.

They continue:

Reports prepared by the Bureau of Reclamation for the Congress are incomplete in many respects and, in particular, fail to show cumulative totals by sources of all funds received and the disposition of those funds.

Our task force on the armed services made an extensive examination of accounting methods with criticism in chapter and verse. I shall refer to that a little later.

With all of this information, of which I have given the committee only a small portion, coming as it does from reliable and skilled men who were part of the Reorganization Commission, I think you will agree that the Commission's first duty was to propose to Congress some sort of solution.

We made no attempt to state what the actual savings would be by such a thorough reorganization of accounting and elimination of its duplications and wastes, but I did ask Mr. Buck to make some sort of approximation as to what it might come to. Mr. Buck is one of the leading men in the Institute of Public Research, which is a nonprofit public activity and has established the budgeting and accounting system of a number of American municipalities and some States and even some Latin-American countries. Mr. Buck's statement was that if these reforms are carried out, at least 18,000 employees of the Federal Government could be eliminated.

This need for reform has been amply verified before your committee by the administration officials. Comptroller General Lindsay Warren,

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for whom I have the highest esteem, has described to your committee the setting up of an interdepartmental committee representing the General Accounting Office, the Treasury, and the Budget Bureau, and in his statement as to that set-up he states that it is "for improvement in accounting," and I quote again, "to bring about needed accounting reforms."

I may add that this committee came to a written agreement in December 1947 as to certain principles of reform.

The Comptroller General, in a letter of October 20, 1948, to the Government departments and agencies, stated the purpose of that interdepartmental committee, and states that it:

Contemplates the full development of sound accounting within each agency, as a working arm of management, in terms of financial information and control. At the same time it envisions the integrated pattern of accounting and financial reporting for the Government as a whole responsive to executive and legislative needs * * *

Certainly I have no quarrel with that statement.

Although the Comptroller General objects to the method of reform proposed by the Reorganization Commission, he obviously believes that reform is necessary from much of the evidence that he has presented to your committee.

Mr. Frederick Lawton, representing the Bureau of the Budget, who appeared before you, described the work of this interdepartmental committee, and used the following sentence, and I quote:

In the judgment of the Bureau of the Budget this program is basic to the achievement of management improvement throughout the Government and should not be interrupted.

The Budget Bureau therefore favors continuing efforts toward reform.

The Assistant Secretary of the Treasury, Mr. Edward F. Bartelt, in a thoughtful public address in May 1949 said:

The accounting system of the Federal Government is still the subject of a great deal of public criticism, and rightly so, because its development has not kept pace with the size of the task or the importance of its mission. It has not kept abreast of progress in the field of management engineering.

Therefore, the statements that have come to you from the Comptroller General, from the Treasury, and from the Budget Bureau all agree that reform is necessary. There is insistence that the interdepartmental committee can do this job.

It was the view of the Reorganization Commission that this very important matter, having hung around for 25 years, needed some more steam and authority than an interdepartmental committee. Mr. James H. Rowe, Jr., and James K. Pollock, members of the Commission on Reorganization, made a comment on the need for legislation which I think is worth quoting. They said:

We do not believe that any "voluntary" system of improvement, however desirable any improvement may be, can long exist. The members of the present interdepartmental committee and their staff assistants are experienced men of good will. But the structural flaws are too much for them. We believe the present confusion-based on the false conception of the Budgeting and Accounting Act of 1921, which puts accounting as well as auditing in a legislative agencyis so irreconcilable, and the strain so deep, this voluntary effort will not long endure.

This accounting failure has been a constant worry to the Congress and the Congress knows the need for reform. The subject is not new.

As you know, changes were recommended in the Harding administration in 1923. I recommended changes to the Congress in 1932. President Roosevelt made very much the same recommendation again in 1937.

You will recollect also the problem of Government corporations. The system of accounting and budgeting proved so cumbersome and so wasteful in Federal agencies of the revolving-fund type that they were constantly resorting to incorporation under State law. The Congress therefore in 1945 passed and subsequently amended the Government Corporation Control Act. This act provided for what was called "a business type of accounting and budgeting and audit,” which placed the responsibility for accounting in these agencies and established the Comptroller General as their auditing authority. Thus a radical reform was established and is today applied to something over $5,000,000,000 annually of Government transactions.

Moreover, as the result of the very full blooded and detailed criticism of the accounting system in the armed services by the Reorganization Commission and its task force, the Armed Services Committees of both House and Senate were led to introduce what is generally known as section IV in the recent act. That section makes far-reaching reforms in the accounting of this department and covers 13%1⁄2 billions of expenditures of the Government. That would seem to indicate some reform needed generally.

The Reorganization Commission's report on the Federal supply activities pointed out that there was no adequate property accounting in the Government and led the Congress to enact certain accounting provisions in the General Services Administration law which I hope will remedy that question.

Now I come to the recommendations of the Reorganization Commission itself. The heart of the Commission's majority recommendation in this matter lies in two paragraphs. It proposed that

An Accountant General be established under the Secretary of the Treasury with authority to prescribe general accounting methods and enforce accounting procedures. These methods and procedures should be subject to the approval of the Comptroller General within the powers now conferred upon him by the Congress.

The Accounting General should, on a report basis, combine agency accounts into the summary accounts of the Government and produce financial reports for the information of the Executive, the Congress, and the public.

The Reorganization Commission further proposed that a chief accountant be established directly under the head of each important Government agency, accounting upon lines laid down by the Accountant General.

In commenting on the work of the interdepartmental committee, we said that it was a very useful step. Our comment was that stronger steps and more authority would need to be enacted if they were to be successful.

The recommendation of the majority of the Reorganization Commission was frankly an attempt to find a medium ground between two opposite poles. Like any compromise it receives attack from both ends. Four of the Commission members held somewhat different views from the majority, but in this case two of each were at the opposite poles. Mr. Chairman, you and Congressman Manasco, in your dissenting report, considered that the Comptroller General or

the General Accounting Office should not be touched. You yourself, however, proposed that

An operating center be established under the Secretary of the Treasury for an up-to-date system of central accounting and reporting.

You made a number of other constructive suggestions including that of a chief accountant in each principal agency.

Two other members of the Commission, Mr. Rowe and Mr. Pollock, supported the creation of the Accountant General in the Treasury and chief accountants in the different agencies for the purposes outlined by the majority of the Commission. They, however, took an entirely different view that would have reduced the General Accounting Office and the Comptroller General to purely an auditing agency for the Congress.

All of that will indicate to you the difficulties of the problem and the difficulty of finding a solution.

In so difficult a problem no doubt the governmental agencies' criticisms of the Commission's proposals warrant consideration. I have great respect for those officials who have appeared before you, but I think you will find that little of their criticism helps the Congress to do anything about it.

I might add my personal view that a vast and energetic reform of Government accounting is imperative and is one of the cornerstones o any reform in the executive branch, no matter where it comes from.

It is my belief that this reform requires somebody in authority in the executive branch to see that it is done, that it is continuously operated, and that there is some enforcement, somebody that the Congress can hold responsible. The major dispute before you among your many witnesses I think is as to who and where it is to be done. I think, Mr. Chairman, that presents the situation as I see it. shall be glad to answer any questions that I can.

The CHAIRMAN. Thank you very much. Do you regard this bill that we have before us as carrying out the majority recommendations of the Reorganization Commission?

Mr. HOOVER. I think it well for me to state a word on the origins of that bill.

You will recollect, Mr. Chairman, that your committee requested the Reorganization Commission to draft its proposals in the form of legislation for the use of the committee; we engaged staff for that purpose, including Mr. Morgan of the Legislative Service. The drafts of this bill had not been completed before the Reorganization Commission was dissolved under the law. You will realize that this task required a tremendous amount of research if you will only look at the end of the bill and the fabulous number of acts that had to be reviewed. Therefore, the bill was not put into form before the Reorganization Commission dissolved, and the Commission had no opportunity to review it.

The Citizens Committee, however, took up the work from that point, and parts of the bill are remnants of the work done under the Commission, parts of it are their development of what they believed the ideas of the Commission represented, and parts of it come from the Bureau of the Budget, or at least with their approval as to matters relating to that Bureau. It has a kind of mixed paternity, but it is merely an attempt to get down on paper something on which the committee can work.

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