Mr. GARY. Yes, sir. I honestly believe so. I think I must have gotten just a little off the subject just now when you asked about whether legislation would accelerate this process. It seems to me that if all we had to deal with in this problem were the theories and principles of accounting I might well be inclined to agree with the previous witnesses as to setting up definite responsibilities for accounting. However, in the experience that I have had this work is about 50 percent accounting and about 50 percent public relations and personal relations, you have to deal with people. It seems to me that if this accounting job in the Government ever gets done it is going to get done by people rather than by laws. One of the biggest problems, as I see it, is to get enough personnel who are qualified to give the leadership to this program. I do not mean the clerks because there are in my experience fine clerical people in Government, loyal people who can be led to do an efficient job, but the problem is to get the people who develop the systems and install them and provide the administration of them. I think there would be difficulty in obtaining them whether we went outside and recruited them from private business or whether we tried to develop them within the Government. Actually I think we should do both. Even after we do both I think that we will find that we still do not have enough people because the magnitude of the job of an organization spending $40,000,000,000 a year is just hard to imagine. I am responsible at the present time for only a very small segment, which is the Coast Guard, where their appropriation requests this year are $188,000,000 and we feel that if we get an accounting system in the Coast Guard that operates properly within 3 years we have done a pretty good job.

When you apply that yardstick to the Federal Government spending $40,000,000,000 in various agencies and all sorts of activities, it seems to me that no matter what kind of organization you have, no matter if you can get the best brains in the country to work on this problem, and I certainly think we should, there is still a question of time. It is a long-range program and to me the personnel part of it is the biggest obstacle.

I think that any legislation, and I certainly feel that legislation will be needed, should come as a part of the experience with this joint effort operation and not precede the attack on this problem for the reason that the further we go into this thing the more we learn about it and I would say that there are far more problems to be solved than have been solved at the present time. It seems to me that after we have more experience with dealing with these problems we will be able to suggest legislation that will be more appropriate and more workable. Senator SCHOEPPEL. Might I ask a question there?

Mr. GARY. Yes, sir.

Senator SCHOEPPEL. With a war that has just ended and a terrific spending, how much more experience do you think we ought to have? Mr. GARY. The point is that I do not think we should stop. In other words, the thing that this joint effort offers us that the legislation does not is that this program is now being carried on and it is being carried on as rapidly as is humanly possible. I think that here is what would happen: If you had a change in legislation that changed the organizational set-up you would lose the momentum that has already been created because it would be first necessary to determine who the Accountant General should be. It might be

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somebody who has not been familiar with the joint effort, it might be somebody who might have some different ideas and until it could be coordinated again it would seem to me you would lose that momentum, because as I see it, no matter what sort of legislation could be passed, there is still necessity for joint effort. Even with the proposal which was made by the previous witnesses that there should be set up an accountant general and he be given whole authority, you have this problem it seems to me.

First, the operation of the accounting system is undoubtedly a matter for the executive department. Secondly, the audit of the accounts of the Government, it seems to me, beyond question should be under control of the Comptroller General who is responsible to Congress. But when it comes to the point of designing systems and determining policies and principles, there is a joint responsibility and interest. The executive department has an interest in that from the standpoint of obtaining essential information for their management needs to assist them in management, but I think the Congress also has the responsibility that the accounting systems are so designed and the policies and objectives and principles are proper in order that the financial information which finally flows up to Congress is the kind of information that they should have.

I do not see under any kind of organization how Congress would want to be relieved of that responsibility. Therefore, it seems to me that in order to do the job, no matter what kind of organization you have, there still has to be a great deal of cooperation between the accounting officer who in effect represents the Congress, and the accounting officer who in effect represents the President.

It seems to me the reason that so little progress has been made for the last 100 years and certainly since the Budget and Accounting Act of 1921, is that the problem does not lie so much in the defects of legislation as it does in the fact that the three officers-the Comptroller General, the Secretary of the Treasury, and the Director of the Budgetnever got together before and worked this thing out on a joint basis. As soon as they did do that, we have seen tremendous progress.

The CHAIRMAN. Any further questions? Do you have any further comments, Mr. Gary?

Mr. GARY. I have one other comment and that is with regard to section 11 of the bill. I had the old bill with the insert; I assume that is the same section which permits during the two fiscal years following the enactment of this legislation, it permits the departments to make such adjustments in their appropriations as they feel appropriate in order to conform with their performance budgeting. My comment on that is that it seems to me that is a great deal of responsibility for the Congress to delegate to the agency. In the Coast Guard we had the problem of simplifying our appropriation language but we did it through the regular appropriation process by studying our problem and determining what we needed in the way of simplified appropriation and then we presented it to Congress as a part of our regular appropriation bill. It is now before them for approval. We think that that is what we need.

If Congress, on the other hand, feels that that is not what we need, then it is our responsibility to operate under whatever Congress decides.

This other matter of approach, it seems to me, lacks the kind of review and justification that an agency would give for doing that sort of thing.

The CHAIRMAN. You do not have before you the committee print of the bill?

Mr. GARY. No, sir. I have been out of town.

The CHAIRMAN. I do not find the original section 11, what page is that on?

Mr. GARY. I had the bill and then another bill which was to be offered as this bill, called "Amendments.

The CHAIRMAN. There is in the committee print at present a section 11 but that section 11, as I interpret it here, is an amendment offered to the original bill.

Mr. GARY. I have not it here and I had understood that it was coming in and the bill had been revised accordingly and I had assumed it was. I was out of town for the last 3 days.

The CHAIRMAN. The letters which you submitted for the record will be inserted at this point.

(The letters referred to follow:)

Hon. LINDSAY C. WARREN,

TREASURY DEPARTMENT,
Washington, August 30, 1949.

Comptroller General of the United States, Washington, D. C.

MY DEAR MR. WARREN: In the Fiscal Assistant Secretary's letter to you of May 25, 1949, there was presented for your consideration an expenditure classification for use by the United States Coast Guard beginning with the fiscal year 1950. This letter also advised you of the intention to present for your approval the principles and bases underlying the new accounting system as they were developed. In your reply dated May 26, 1949 (B-45109), you expressed satisfaction with the expenditure classification and your interest in the further development of the Coast Guard's accounting system. I understand that the accounting systems' staff of the Coast Guard has been working closely with the Accounting Systems Division of your office and with the Bureau of Accounts of the Fiscal Service in this developmental work.

I have followed with a great deal of interest the accounting improvement program of the Coast Guard. Aside from the fact that it is an agency within the Treasury Department for which I have administrative responsibility, I have the feeling that the work which is going on represents a real opportunity to obtain well-rounded application of the principles and policies for accounting improvement which will serve as a forerunner for wider application throughout the Federal Government. Moreover, the type of accounting organization which has been established in the Coast Guard, the quality of the staff which has been selected, and the manner in which this staff has applied itself to the problem, give assurance that there will be proper application of such principles and policies through the development of sound underlying procedures.

A schedule for installation of the new accounting system provides for the first conversion to be made at headquarters on October 1, 1949. There are, however, certain basic questions affecting the operations of both the Treasury Department and the General Accounting Office which must be settled before preparations for the installation can be completed. These basic questions relate to the application of some of the announced objectives and policies of our program. They are: (1) Provision for on-the-site audit by the General Accounting Office; (2) The depositing of collections by the Coast Guard directly with designated depositaries and elimination of the preparation of schedules of collections; and

(3) Simplification of disbursement control, including revision of related warrant procedures.

ON-THE-SITE AUDIT

In the development of the new accounting system of the Coast Guard, emphasis is being placed on the application of accepted principles and practices for internal control and internal audit. In this connection, it is intended that in addition to the features of internal control that are being built into the system a staff of competent accountants will be employed by the Coast Guard to make periodic internal audits. This is consistent with the policy of our program with respect to the concept of the responsibilities of operating agencies. Also, I believe it affords an excellent opportunity for developing the full potentialities of external audit which will give recognition to the effectiveness of internal control and internal audit in actual operation.

Of particular interest to me is the fact that if it is possible for you to extend this approach to audit to the Coast Guard, savings will result in terms of personnel required to carry on the Coast Guard's accounting operations. This is tied up with decentralization of the accounting system to the maximum extent possible to the various Coast Guard districts and independent offices in order to obtain more current and accurate cost data for day-to-day use in the management of the Coast Guard's operations. It is anticipated that additional cost resulting from the decentralization will be offset, at least in part, by a reduction in headquarters accounting personnel. However, unless on-the-site audit is instituted the savings now contemplated cannot be fully realized. If the Coast Guard must continue internal work geared to present audit methods, it may be necessary to forego certain fundamental improvements in its system due to the tight budget situation. In addition to the foregoing considerations, I am convinced that a comprehensive on-the-site audit can provide information which will be an effective aid both to management in the Coast Guard and to the Secretary of the Treasury in connection with his administrative responsibilities. I also believe that where there is an efficient accounting system in operation with adequate internal audit and controls, an audit on the site which appropriately takes these factors into consideration will result in a more effective and economical independent audit.

An on-the-site audit is now being made of military pay records at Coast Guard headquarters. However, for purposes of economy and to provide better internal control the new system contemplates that pay records will be retained in field offices until they have been audited in accordance with procedures similar to those now in effect for civilian pay under General Regulations No. 102. This would necessitate discontinuance of the audit of such records at headquarters in Washington.

In requesting on-the-site audit for the Coast Guard I am aware of the fact that in carrying out your audit responsibilities there are practical considerations with which you must deal in deciding on the time and places for the adoption of this type of audit. Nevertheless, for the reasons I have previously mentioned, I am hopeful that you will be able to give favorable consideration to the institution of an onthe-site audit for the Coast Guard at this time. In this connection I should like to point out that this would not immediately require a complete change-over in audit methods since the installation of the new accounting system is scheduled to be made at various times in field offices over a period of 12 months and on-the-site audits would be instituted only as the new system is installed at each particular location.

DEPOSIT OF COLLECTIONS DIRECTLY WITH DEPOSITARIES

Closely related to the application of on-the-site audit methods is the simplification of collection procedures. In the case of the Coast Guard it is proposed to eliminate the preparation of schedules of collections and the processing of collections through the accounts of the disbursing officers. Instead, designated officers of the Coast Guard would prepare certificates of deposit and would make deposits of all collections directly with designated depositaries. This will result in improved control over collections, provide a better basis for audit, and effect economies through the simplification and elimination of certain paper work. procedure contemplated is similar to that recently adopted for use in the United States Maritime Commission.

SIMPLIFICATION OF DISBURSEMENT CONTROL PROCEDURES

The

One of the projects under our joint program relates to the simplification of disbursement control through a revision of related warrant procedures. This

involves: (1) Recognition that primary responsibility for control of expenditures under each appropriation rests with the administrative agencies; (2) review of the effectiveness of current accounting and adequacy of internal controls in each administrative agency; and (3) central accounting and reporting by the Treasury Department of disbursements made according to each appropriation. I understand that our respective staffs have been working on this project, that general agreement has been reached with respect to principles, and that the main concern at present is the extent to which desired objectives can be attained under existing law.

The Coast Guard has been anxious to simplify disbursement control procedures by eliminating requisitions and accountable warrants under each separate appropriation. With this in view the Coast Guard, about 6 months ago, proposed legislation which would permit the use of an account of advances similar to that of the State Department. The proposal was discussed by the Coast Guard with the Bureau of Accounts of the Fiscal Service and the Accounting Systems Division of your Office. The desirability of simplifying the disbursing procedures of the Coast Guard was not questioned. In view, however, of developmental work in this field which was going on at that time under the joint program, it was agreed that special legislation for the Coast Guard should not be requested pending the outcome of such work. The plan which has been developed was the subject of further conferences between representatives of the Accounting Systems Division of your Office, the Fiscal Service, and the Coast Guard, and it is the opinion of this Department that if effected it will accomplish desired objectives under the authority of existing law. In principle the plan is as follows:

(1) An appropriate warrant would be designed which would authorize the Treasurer of the United States to pay checks drawn by authorized disbursing officers of the Division of Disbursement against the total amount of appropriations or funds available for use of the Coast Guard.

(2) Assistant disbursing officers of the Division of Disbursement, making payments on behalf of the United States Coast Guard, will be accountable for all checks drawn by them on behalf of the chief disbursing officer, and they will discharge their accountability by producing vouchers properly drawn in accordance with the Certifying Officers' Act of December 29, 1941, as amended (31 U. S. C. 82c).

(3) Primary responsibility for controlling expenditures within the amounts of available appropriations and funds would be that of duly designated accounting officers of the Coast Guard who, for this purpose, would be designated as certifying officers.

(4) Central accounting for disbursements made under each appropriation would be maintained in the Division of Bookkeeping and Warrants, Treasury Department, on the basis of confirmed teletype reports, through that Division's appropriation accounts. These accounts would serve not only as a basis for the audit by the General Accounting Office but would also be the basis for current classification of expenditures to be reported in the Daily Treasury Statement, the annual Combined Statement of Receipts and Expenditures, and the Budget Document. I believe that the Coast Guard with its present accounting program is an ideal place to work out the procedures necessary to put this plan of simplified disbursing control into effect. On the other hand, I would not advocate the installation of such procedures with regard to any administrative agency or subdivision thereof unless it is fully equipped with a satisfactory accounting organization and system' to carry out primary responsibility for controlling its expenditures in accordance with the principles of the plan. Moreover, I think that another important factor involved in the extension of this plan to other agencies is the type of independent audit that will be applied to such agencies and the review of the effectiveness of the procedures in actual operation both in the Treasury Department and the other agencies concerned.

The principles of the three proposals set forth in this letter appeal to me not only because they are in the direction of realizing objectives and policies of our joint program but also because they offer an opportunity for real economy in the accounting, reporting, and auditing activities of the Government.

Very truly yours,

JOHN W. SNYDER, Secretary of the Treasury.