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Aircraft Repair and Supply Base and designated bases and depots, are accounted for on a job-order basis with the total cost of each job, including labor, material, contract costs, and overhead, being charged upon completion to the appropriate cost account. As the result of specific legislation (Title 14, United States Code, section 648; P. L. 207, 81st Cong.), industrial operations at the Coast Guard YARD are accounted for more nearly in accordance with commercial practice than is true of other industrial operations of the Coast Guard. This authority can and undoubtedly will be subsequently extended to industrial units other than the YARD.

4. Preparation of monthly financial statements from the books of account which will show (1) costs for each unit and subdivision thereof; and (2) the status of appropriated funds in detail for each allotment heading. The data contained in these reports will be analyzed and interpreted in nontechnical terms for the use of management.

5. Provision for accountability through recognized methods of internal check and control which have been built into the system, and on-the-site internal audits made by the Coast Guard and external audits made by the General Accounting Office which will give recognition to the effectiveness of the internal checks and controls in actual operation. An example of the internal controls which have been built into the system is the provision for a control over military pay and allowances similar to that prescribed by General Regulation No. 102 for civilian pay. This procedure not only provides a basis for accountability but also serves as a means of distributing military pay and allowances to the appropriate cost accounts. Results of internal audits will be reported to management and reports on the external audits will be made by the Comptroller General.

6. Simplification of collection procedures through the elimination of the preparation of schedules of collections and eliminating the processing of collections through the accounts of disbursing officers. Instead, designated officers of the Coast Guard will prepare certificates of deposit and make deposits of all collections directly with designated depositaries.

7. Simplification of disbursement control through a revision of related warrant procedures. The principles of this plan are as follows:

(a) Warrants making appropriated funds available to the Coast Guard are designed to 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.

(b) Assistant disbursing officers of the Division of Disbursement, making payments on behalf of the Coast Guard, are held accountable for all checks drawn by them on behalf of the chief disbursing officer, and discharge their accountability by producing vouchers properly drawn.

(c) Primary responsibility for controlling expenditures within the amounts of available appropriations and funds rests with officers of the Coast Guard designated to control expenditures. However, responsible accounting officials of the Coast Guard, who for this purpose are designated as certifying officers, are personally liable for expenditures of funds in excess of amounts appropriated.

(d) Central accounting for disbursements made under each appropriation is maintained in the Division of Bookkeeping and Warrants, Treasury Department, on the basis of confirmed teletype reports made by assistant disbursing officers that classify checks issued by appropriation. These central accounts are periodically reconciled to reciprocal accounts maintained by the Coast Guard.

8. Provision has not as yet been made, except in the case of the Coast Guard YARD, for coordinating records of nonexpendable property, which are now required to be maintained by quantity only, with the books of account. The desirability of procedures which would accomplish this purpose is recognized. But funds and personnel required to initially establish records of this type would be substantial, and it is felt that this project cannot, as a practical matter, be accorded as high a priority at this time as the initiation of the principles and objectives discussed above. Moreover, it is felt that a basically sound accounting system must be in operation to receive the entries for nonexpendable property or else the advantage to be gained from its development may be dissipated. When installation of the system for which procedures are prescribed by this Accounting Manual has progressed sufficiently, a project will be initiated to provide for the proper treatment of nonexpendable property or fixed assets in the accounts.

The procedures contained in this Accounting Manual are mandatory and shall not be deviated from except upon written authority from headquarters. However, constructive criticism and suggestions for improvement of the accounting processes

prescribed herein are solicited. Requests for deviations from procedures and comments and suggestions should be addressed to Commandant (CF).

These procedures become effective at each Coast Guard unit where the new accounting system is installed on the date of such installation. It is hereby directed that all officers and other persons employed by the Coast Guard, so far as the duties of each are concerned, make themselves familiar with, observe, and comply with these procedures. J. F. FARLEY,

Admiral, United States Coast Guard, Commandant.

The CHAIRMAN. Thank you very much, Mr. Gary.

The committee will recess until Monday morning at 10 o'clock. At that time we shall hear Mr. McCormick. We have some other witnesses scheduled also.

Tuesday morning the committee will hear from former President Hoover.

(Whereupon, at 12 o'clock noon the committee recessed, to reconvene at 10 a. m. Monday, March 6, 1950.)

TO IMPROVE BUDGETING, ACCOUNTING, AND AUDITING METHODS OF THE FEDERAL GOVERNMENT

MONDAY, MARCH 6, 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, Smith, and Schoeppel.
Also present: Walter L. Reynolds, chief clerk.

The CHAIRMAN. The committee will come to order.

We are resuming hearings this morning on S. 2054. We have three witnesses scheduled, and there probably will be a fourth to appear this morning. We will try to conclude with the three who are here at least before noon.

Mr. Robert L. L. McCormick, will you come around, please? Do you have a prepared statement, Mr. McCormick?

Mr. MCCORMICK. Yes, sir.

The CHAIRMAN. Then you may proceed, sir.

STATEMENT OF ROBERT L. L. McCORMICK, RESEARCH DIRECTOR, CITIZENS COMMITTEE FOR THE HOOVER REPORT, WASHINGTON, D. C.

Mr. MCCORMICK. My name is Robert L. L. McCormick. I am research director of the Citizens Committee for the Hoover Report. Dr. Robert L. Johnson, chairman of the Citizens Committee for the Hoover Report, has asked me to thank you, Senator McClellan, for your kind invitation to hear his views and to apologize because his commitments have made it impossible for him to appear before you today. He has asked me to represent the Citizens Committee in his stead.

If it meets with your approval, Mr. Chairman, I should like to read for the record a short letter of instructions which Dr. Johnson has sent to me.

The CHAIRMAN. You may proceed.
Mr. MCCORMICK (reading:)

PHILADELPHIA, PA., March 4, 1950. Dear BOB: Will you be kind enough to represent the citizens committee, its 45 State committees, and the 80 other organizations which have pledged themselves to accomplishment of the entire program recommended by the Hoover Commission.

The Citizens Committee believes Congress should enact a major statute which would drastically overhaul the Budgeting and Accounting Act of 1921.

The bill under discussion, S. 2054, appears to us to be an acceptable measure, although it may have to be revised in minor technical respects. The measures proposed in that bill fall approximately halfway between the view of the accounting experts outside of the Government who would very drastically overhaul the present system, and those in Government who would do nothing.

After 29 years of poor accounting, it seems to me obvious that Congress should step in and clean up the accounting mess once and for all. The agencies sponsoring the cooperative project, it should be remembered, are the same ones whichdespite significant gaps in their authorities-have been responsible for the Government's accounting for the last 29 years.

The Citizens' Committee's belief is that, although this joint effort may accomplish a great deal, the structural defects in the 1921 act will prevent it from achieving the fundamental reforms needed.

Therefore, the Citizens' Committee believes that the basic act should be completely overhauled. The responsibility for good accounting should be firmly affixed by Congress. The Comptroller General should be relieved of the vast and duplicative masses of paper work he now maintains. Further audit and enforcement should be given an accounting system which would, for the first time in our history, make the accounts intelligible.

These matters call for the passage of wise laws. They do not call for further temporizing.

Sincerely yours,

ROBERT L. JOHNSON.

Now, Senator, I would like to proceed with my own statement. The Citizens Committee endorses the general principles expressed in S. 2054. On specific matters, the committee realizes that this bill is not perfect. We will submit perfecting amendments; and we hope that others will also attempt to improve the legislation.

The accounting of the executive branch has been unsatisfactory for years. In 1937, the President's Committee on Administrative Management had this to say of it:

Before 1921 there was comparatively little complaint that the ruling of the Comptroller of the Treasury, precursor of the Comptroller General, encroached upon administrative discretion. This was probably because the Comptroller of the Treasury was a part of the Administration itself, even though he had semiindependent status, and because of the practice of referring disputed questions to the Attorney General. From 1921 on, however, the Comptroller General, through numerous rulings, has carried his authority into areas which are clearly in the realm of executive decision. Any volume of the published rulings of the Comptroller General affords a wide variety of examples of this invasion of administrative responsibility. Many of his rulings go far beyond the terms of any statute. Rulings by an independent auditing officer in the realm of executive action and methods, even when they seem wise and salutary, have a profoundly harmful effect. They dissipate executive responsibility and precipitate executive uncertainty. Many of the rulings of the Comptroller General, though issued in the belief that they are in the interest of strict legality, undoubtedly impede the work of the departments and add to their operating costs. Administrative officers have found it necessary to go not merely to their superior officers for the aprovals of plans but also to the office of the Comptroller General for the approval of legality, form, and procedure. This division of authority destroys responsibility and produces delays and uncertainty. It has become increasingly difficult, and at times simply impossible, for the Government to manage its business with dispatch, with efficiency, and with economic sagacity.

An effective continuing executive control over the administration of the Government to insure economy, legality, and expedition is impossible so long as such wide authority over plans, forms, and procedures is exercised by the General Accounting Office. The Comptroller General has also extended his authority into administrative matters by the expansion of the preaudit (i. e., audit before payment), by the increased use of advance decisions, and by his rulings, all of which have constantly brought more and more administrative questions to him for final determination. The operating plans of the Administration are greatly affected, and sometimes controlled, by his rulings. Fiscal practices are to a large extent governed by his decisions. These are areas of control that are customarily

entrusted to executive officers, both in Government and in private business administration.

Over the intervening years, the situation has become no better. The task force of the Hoover Commission found that the major weaknesses were:

1. There is no formal accounting plan for the Government as a whole.

2. No one person is charged with the duty of developing such a plan. 3. There is no one person who would have power to install such a plan and compel compliance with its provisions if one were developed. 4. The statutes make no specific provision for either a complete accounting system or a chief accounting officer to direct accounting activities.

The shortcomings of the Government's accounting are traceable directly to inadequate statutory provisions for the accounting function. One of the most serious results of these deficiencies is that the accounting is not integrated. In spite of much duplication of accountkeeping a complete set of books is not kept anywhere.

Congress has already taken some steps to improve the accounting. In 1945 it passed the Government Corporation Control Act, the principles of which are very similar to those of S. 2054. This Act has been considered a successful measure.

Last summer the Congress applied certain modern principles to the National Defense Establishment. This act also has been considered successful. There is no reason why, if this act is good for the military, the same sort of act would not be good for the rest of the Government. The Citizens Committee strongly recommends passage of an act which will firmly affix accounting responsibility and which will reshape those provisions of the Budgeting and Accounting Act of 1921 which have time and again been proven to be defective.

Now, sir, we have been asked frequently why we think that the Budgeting and Accounting Act of 1921 calls for substantial revision. I thought I would like to speak for a few moments on our views.

First of all, we think it is very difficult to install the program budget and to perfect it without grade A accounting. For example, in the present budget the hospitals were not set up on a full program basis, as we would all like to see them, because there were not available adequate cost figures.

Second, we think that the Government is extremely weak on its cost accounting. An example of that is the fact that, in the survey that was made approximately 2 years ago by the Budget Bureau, it was found impracticable to find out how much the Government's own accounting costs, yet accounting is the science of determining cost. Probably the first thing that a good accounting system would show is how much the accounting costs.

Third, in private business generally, accrual accounting is used. The Government has not an adequate system of accrual accounting. It has no comprehensive record of its liabilities as of a given moment because it does not fully show expenditures which have accrued but have not yet been paid.

I can give you an example of that. If my wife goes down to Woodward & Lothrop and buys a coat, I have made no out-of-pocket expenditure, but I owe Woodward & Lothrop so much money for the coat, so my personal financial position would consist of how much

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