assault.

The pattern is the same; the motives are identical. I do not question for a moment the soundness of the specific improvements in the Government's accounting which the proponents of this plan advocate. But, I feel that they do not give the proper recognition to the constitutional division of authority between the executive and the legislative branch and the resulting responsibility of the Congress over public funds. The specific improvements in accounting which they seek can, in my opinion, be best and most quickly attained, not by theoretical argument over jurisdiction, but by pooling the intellectual resources of both branches of the Government in a cooperative endeavor to satisfy the needs of both branches, as is being done now under the leadership of the three principal fiscal agencies of the Government.

The proposal to create an Accountant General in the executive branch with the functions prescribed by the bill is based upon a recommendation (No. 10, p. 39) by the majority of the Commission on Organization of the Executive Branch in its Report on Budgeting and Accounting. Such a recommendation, dealing as it does with the functions of the General Accounting Office, an agency in the legislative branch (sec. 7 of both the Reorganization Act of 1945, 59 Stat. 611, and the Reorganization Act of 1949, Public Law 109, approved June 20, 1949), went beyond the authority conferred by law upon the Commission. This is pointed out merely to show that even legislative prescriptions in clear and unmistakable terms do not thwart the persistence of those who, under the guise that that is the only way to effect improvements, would isolate the Congress and any agent of Congress from control over the financial transactions of the executive agencies. The sponsors of the proposal will say that accounting is an indispensable tool of management in administering the affairs of the Government, and that in order for the managers to do a good job they should be empowered to set up and supervise their own accounts. The first thesis is not denied-at least, not by the Comptroller General or by the General Accounting Office. In this connection, the following is quoted from the announcement of the Joint Program for Improving Accounting in the Federal Government, signed on January 6, 1949, by the Comptroller General of the United States, the Secretary of the Treasury, and the Director of the Bureau of the Budget:

"(1) The maintenance of accounting systems and the producing of financial reports are and must continue to be functions of the executive branch.

(2) There must be an audit independent of the executive branch which will give appropriate recognition to necessary features of internal audit and control. Properly designed accounting systems are a vital factor to the effectiveness of such independent audit.

"(3) Full opportunity is to be afforded to the executive branch for participation in the development of accounting systems as an essential to meeting the needs and responsibilities of both the legislative and executive branches in the establishment of accounting and reporting requirements."

The deficiency in the basis for the proposal of the Commission's organization of the executive branch lies in the argument that management exclusively must design and supervise its own accounting systems. It is common practice in private business for public accounting firms to devise and install accounting systems in the offices of their clients and then conduct an independent audit of operations under such systems. Various businesses affected with a public interest, such as railroads and power companies, frequently are required by law to operate under accounting systems prescribed by governmental regulatory bodies. In such cases, the accounting system must serve in a dual role, first as an aid to management and, second, as a protection to the taxpaying public.

The restrictions and limitations which the Congress sees fit to impose upon departmental operations must generally be reflected in applicable accounts. Factors such as the proper classification of transactions and the establishment of proper internal controls are essential if there is to be conformance with the legislative will in the expenditure of funds. If the Comptroller General were deprived of all power to prescribe the structure of internal accounting systems the audit of the accounts would be made immeasurably more difficult. The Congress is cognizant of this interrelationship between the accounting systems and the audit function. The Independent Offices Appropriation Acts for 1948, 1949, and 1950 (Public Law 266, approved August 24, 1949) even go so far as to provide that no part of any appropriation or fund contained therein shall be available for installing or maintaining systems for administrative appropriation, fund, or inventory accounting, except such systems as are prescribed or approved by the Comptroller General.

Another recent expression of the will of the Congress is contained in the Federal Property and Administrative Services Act of 1949, Public Law 152, approved

June 30, 1949. Section 205 (b) provides that the Comptroller General, after considering the needs and requirements of the executive agencies, shall prescribe principles and standards of accounting for property, cooperate with the Administrator of General Services and with the executive agencies in the development of property accounting systems, and approve such systems when deemed to be adequate and in conformity with prescribed principles and standards. Other provisions of that section and of section 206 (c) require examination by the General Accounting Office of established property accounting systems to determine the extent of compliance with prescribed principles and standards and approved systems, reports by the Comptroller General to the Congress of failure to comply therewith, and audit by the General Accounting Office of property accounts and transactions. These recent pronouncements of the Congress demonstrates clearly that the Congress desires its agency, the General Accounting Office, to have more, not less, authority over the basic requirements for accounting in the executive branch.

There is every disposition on the part of the General Accounting Office to prescribe systems which will aid effective administration in the Government. There is really nothing inconsistent with the exercise of authority by the Comtroller General over basic requirements and the development of accounting by management to serve its own needs. It is my objective to prescribe requirements largely 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. Neither is there anything inconsistent between the exercise of the authority of the Comptroller General and the coordination of the accounting system for the executive branch as a whole, with composite reports based on the integration of agency and Treasury accounting results. The joint accounting program contemplates that this will be done through an operating center in the Treasury Department. The Congress should be under no illusions that it must take the drastic steps proposed in S. 2054 to bring about this result; nor, on the other hand, should it be under any illusions that the General Accounting Office claims the right to maintain the administrative accounting systems of the agencies. Such systems are and should be maintained by the agencies themselves.

Accounting developments and improvements cannot be devised, installed, and put into operation overnight. It must be a gradual process. Recognition of that fact forms the cornerstone of the joint accounting program, referred to above, which is now advancing steadily toward the goal of improved Federal accounting. That program, undertaken by the General Accounting Office, the Treasury Department, and the Bureau of the Budget, has been endorsed heartily by the President and enthusiastically received by the heads of practically all departments and agencies. It was on the basis of the existence of such a program that the Vice Chairman of the Hoover Commission dissented from the majority views on accounting. (See p. 71 of the Commission's Report on Budgeting and Accounting.) It was on that basis, also, that the Director of the Bureau of the Budget stated in his letter of July 5, 1949, to you, that the Bureau does not agree with the recommendations of the Commission concerning the establishment of an Accounant General. And, finally, the Commission itself referred to the joint program as a step in the right direction, although it was of the opinion that "more than voluntary correctives are needed."

For the reasons outlined above, the General Accounting Office is unalterably opposed to the proposal for the establishment in the executive branch of an Accountant General as proposed by S. 2054. That improvements are needed in the accounting systems and methods presently in operation in the Federal Government is recognized on all sides. But the way to work out the rough spots and obtain improvements is by cooperative, voluntary, and realistic efforts on the part of all the agencies concerned. Such efforts are now inherent in the joint accounting program.

By section 22 (a) of S. 2054 the Secretary of the Treasury would be authorized, in consultation with the Comptroller General, to issue from time to time, for the guidance of disbursing and certifying officers, regulations and opinions as to the application, scope, and availability of appropriations made by Congress.

This subsection is one of the most dangerous and unworkable in the whole bill. It would result in a wholly impractical division of responsibility and a watering down to the point of futility of the present control exercised by the General

63233-50- -5

Accounting Office for the Congress over Government expenditures. Indeed, this proposal is not even based upon a recommendation of the Commission on Organization. Its utter lack of feasibility-aside from the absence of any sound basis for the changes in law it would involve suggests to the General Accounting Office that those conceiving the proposal may have been wholly unaware of its connotations and effect.

Under existing law, disbursing officers, certain certifying officers, and the head of any department or agency may apply for, and the Comptroller General is. required to render, a decision upon any question involving a payment to be made by or under them, and such decision when rendered is binding upon the General Accounting Office in passing upon the account containing the disbursement. By far the most important, and by no means the fewest numerically, of the questions submitted for decision are those involving the application, scope, and availability of appropriations. Presumably, it is the purpose of this proposal in section 22 (a) to divest the Comptroller General of his authority to render binding decisions on at least this class of questions-if not on all classes-and to supplant it with authority to consult on such matters with the Secretary of the Treasury, who is to issue the regulations and opinions.

At present, there are approximately 100 attorneys in the Office of the General Counsel of the General Accounting Office. One of their functions is to prepare, for consideration by the Comptroller General or the Assistant Comptroller General, drafts of decisions in response to all questions submitted by heads of departments, disbursing officers, and certifying officers. These questions are of every nature and type conceivable. They may involve the particular appropriation language of every agency in the Government. They may involve, also, the statutes and regulations applicable to every kind of an expenditure made by the Government. During the fiscal year 1948, the Office of the General Counsel prepared over 2,100 drafts of decisions for rendition to heads of departments, disbursing and certifying officers alone, as well as more than 10,000 other drafts of decisions and reports to claimants, to the Attorney General, to the Congress, etc. I refer to these practical matters to show how impractical the proposal here made would be. Is the Comptroller General to "consult" personally with the Secretary? If not-and certainly no one would sanely suggest that each time a question involving the application, scope, or availability of an appropriation arose a consultation would be required-how would the system contemplated by the proposal operate? Without attempting to speak for the Secretary, the proposal seems to me to be just as unfair to him as to the Comptroller General-and just as unworkable.

One thing is sure. The actual operation of any such system would inevitably result ultimately in giving the executive branch full authority to determine, according to its own ideas, the objects for which an appropriation legally may be expended. The present law vests in an agent of the Congress, the Comptroller General, authority to construe appropriation language. If the Congress is to retain any effective control over expenditures beyond the date when it appropriates the money, the power of the Comptroller General to make legal determinations binding on the executive branch as to the objects for which appropriations. have or have not been made available by the Congress should never be relaxed. Section 309 of the Budget and Accounting Act, 1921, provides that the Comptroller General shall prescribe the forms, systems, and procedure for administrative appropriation and fund accounting in the several departments and establishments, and for the administrative examination of fiscal officers' accounts and claims against the United States. Section 22 (b) of the present bill would amend said section 309 so as to subject the Comptroller General's authority to prescribe such forms, systems, and procedure to the specific requirements set out in section 23 of said present bill relative to administrative examination of accounts in the field.

Section 22 (b) also would direct the Comptroller General to examine the regulations issued by the Secretary of the Treasury under section 21 covering general accounting methods, practices, and procedures, and would confer upon the Comptroller General power to approve, or withhold approval of, the issuance of such regulations insofar as they prescribe forms, systems, or procedures for administrative appropriation and fund accounting. To the extent such regulations were not approved they would not be effective. This latter provision seems particularly impracticable since a disagreement of the Comptroller General with particular regulations could result in operations being conducted without regulatory guidance of any kind. The same situation would result as to phases of accounting control where no draft of regulations were initiated and presented to the Comptroller General because he would have no opportunity either to approve

or disapprove, and the section gives him no authority to initiate a regulation. While this power to approve or disapprove regulations ostensibly might indicate control in the Comptroller General, any failure of the parties to agree could result in complete lack of control and a chaotic situation. If the Comptroller General is to have control in this matter, as he should, then that control can best be realized by letting him retain the authority he now has under said section 309the independent authority to prescribe.

Moreover, subsection 22 (b) is closely allied with section 21 of the bill and the comments made with respect to that section apply here. For the reasons previously outlined, the General Accounting Office is opposed to enactment of the subsection.

Subsection 23 (a) would authorize the head of each agency to conduct his administrative examination of the accounts in the field where the accounts, the vouchers, and supporting documents, regularly are kept. It also would authorize and direct the Comptroller General to conduct his examination, so far as practicable, in the field.

With respect to the administrative examination of accounts after payment, this problem has been examined under the joint accounting program and legislative recommendations are now under consideration.

The desirability of making on-the-spot audits to the extent practicable and feasible has been recognized by the General Accounting Office. The prompt and effective audit of the tremendous expenditures incident to World War II could not have been accomplished otherwise. The Office is making decentralized and site audits today to an extent which is not generally realized. During the past year audits were performed at agency offices and installations or at projects sites in 281 locations outside of Washington. Field or decentralized audits presently being performed include audits of payments under cost-reimbursable contracts having an estimated dollar value of $7,476,000,000; examinations at Veterans' Administration offices and training institutions concerning financial transactions under the Servicemen's Readjustment Act; audits of books of contractors engaged in operating concessions under agreements providing revenue to the Government; audit of revenues and expenses incident to the operation of Government-owned or chartered vessels operated by agents of the United States Maritime Commission; audits of the financial transactions of the Atomic Energy Commission, Farmers Home Administration (Department of Agriculture), Bureau of Land Management (Department of the Interior), and phases of the Economic Cooperation Administration; audits of payments of salaries to civilian employees of the Government in Washington and in 27 area centers outside of Washington; audits of payments under the Soil Conservation and Domestic Allotment Act, the Sugar Act of 1948, and other programs of the Agricultural Conservation Program Branch, Production and Marketing Administration of the Department of Agriculture; and the audit of substantially the entire accounts of the Army, Navy, and Air Force disbursing officers.

I am convinced that much can be gained by the further adoption of site audits in certain types of the Government's operations. It is my announced policy to extend site audits whenever it is to the best interests of the Government. But no new legislation has been found necessary yet to accomplish this result. Should this be the case it will be recommended as a part of the joint accounting program. I object particularly to the policy of this subsection that the department head may direct accounts and vouchers to be transmitted to Washington but the General Accounting Office shall not do so. This is an unconscionable interference with the performance of the duites of the General Accounting Office as the independent auditor for the Congress.

Section 23 (b) would authorize the Comptroller General, notwithstanding any other provision of law, to audit and settle accounts on the basis merely of spot checks, sampling, and other checking processes and to settle accounts and certify balances of accounts pursuant to audits made on such basis. Aside from the unfortunate wording of this subsection, which stresses mere "spot checks," and is not calculated to induce confidence in the results of the audit, the desirability of a selective audit has been recognized here, and steps have been taken to determine the types of accounts in which, and the extent to which, such an audit process will afford a satisfactory result. However, it should be pointed out that the extent to which the General Accounting Office as auditor must examine the accounts of the administrative agencies depends to a considerable degree upon the adequacy of administrative accounting and other administrative controls and practices. As the joint accounting program continues toward its goal of establishing sound and efficient systems within the agencies in the executive branch, it may be possible, more and more, for the General Accounting Office to rely safely upon a selective

type of audit. If any clarification or legislation on this phase of the problem proves desirable, it will be developed as part of the joint accounting program.

Section 24 contemplates the issuance of regulations, prepared jointly by the Secretary of the Treasury and the Comptroller General, prescribing procedures for the drawing of moneys from the Treasury and the making of disbursements, as well as for the receipt, custody, and deposit of public money. The essential feature of this proposal is its recognition of the need for elasticity in these matters-that is, a freedom obtainable under a regulatory authority that is difficult to prescribe by statute. Unless all the hopes and expectations which the sponsors and others have for the joint accounting program are misplaced, the objective sought to be attained by section 24 necessarily will be achieved through the steps that now are and for some time have been in progress, including recommendations for any new legislation necessary to improve and simplify the existing system.

In sum, I do not regard the bill S. 2054 as the proper approach to worth-while improvements in the accounting systems or sound economies in the audit processes. The joint accounting program has already demonstrated that deficiencies in the Government's present accounting systems can best be worked out by the gradual and cooperative approach which has been undertaken. And, as has already been pointed out, there are no legislative obstacles to the adoption of many changes in the accounting and audit procedures which have been found to be practicable and economical, and at the same time have been designed to accomplish a satisfactory result in protecting the interests of the United States and enforcing the control of the Congress over expenditures.

I strongly recommend that any legislation enacted with respect to Federal accounting be an outgrowth of the work now being done by the General Accounting Office, the Treasury Department, and the Bureau of the Budget on a cooperative basis with all Government agencies to effect basic improvements in accounting from the standpoints of individual agency management, the executive branch as a whole, and the needs of the Congress and the public for adequate and accurate disclosure of financial results.

New legislation would, of course, be necessary to accomplish the aims of those who would divest the Congress of all effective check upon the expenditure of public funds. Under existing law, the General Accounting Office acts as the right arm of Congress and stands as the last bulwark for the protection of the taxpayer against illegal and extravagant spending. Any weakening of that arm is a weakening of the Congress itself. And the first step toward relinquishing financial control over the accounting and expenditure of funds is one that will be difficult to retrace. Once the opening wedge is driven, the attack upon the remaining vestiges of control will be intensified.

Sincerely yours,

LINDSAY C. WARREN, Comptroller General of the United States.

The CHAIRMAN. At this time, I should like to have inserted in the hearings immediately following the testimony of Comptroller General Warren the minority report on the Hoover Commission's recommendations with reference to the establishment of an Accountant General. The minority report was signed by myself and by former Congressman Manasco, a member of the Commission. This is done so that this record may be complete. For those who are interested in it, I should like to have the views of the dissenting members of the Commission be printed in the record.

RESERVATIONS OF COMMISSIONERS JOHN L. MCCLELLAN AND CARTER MANASCO TO HOOVER COMMISSION REPORT NO. 7 ON BUDGETING AND ACCOUNTING We disagree with the recommendation of the majority of the Commission that an Accountant General be established under the Secretary of the Treasury with authority to prescribe general accounting methods and enforce accounting procedures subject to the approval of the Comptroller General within the powers conferred upon him by the Congress-to give technical guidance to a chief accountant on the staff of each department head, and to combine agency accounts. on a report basis into the summary accounts of the Government.

Instead of recommendation I (a) and (b), and other similar proposals in the Commission's report on this point we recommend that: