Our approach is to work the matter out with the agencies in terms of a very specific analysis of the problem down at the grass roots. That is where the transactions take place, and that is where one has to go to get a practical appreciation of the problem of achieving these very worth-while objectives and making an orderly conversion from what we have now to what we want to get. I would like to emphasize that point, that this isn't only a problem of deciding on objectives. We have done that. It is also a problem of achieving an orderly transition from what accounts are being kept today and all the related procedures of control and audit to what we ultimately want. We are dealing with a going concern. Transactions are taking place every day. We cannot stop the wheels and say we are going to start all over tomorrow on something new. Sometimes it means taking certain phases of it and working that out before you do others. In other agencies the process is a little bit different but we are trying to accomplish it by cooperative work with the agencies all moving in the right direction.

I think it is also important for me to emphasize there the great degree of importance which attaches to the agencies assuming the proper responsibility. After all, they are responsible for the conduct of the transactions, and they should have a big part in the development and molding of their accounting system so they can do their job properly. For that reason we are trying to work in the direction of establishing the Comptroller General's system requirements largely in terms, as Mr. Weitzel pointed out, of a basic framework of principles and standards and other requirements which will assure honest and fair disclosure of what happened to the funds, while at the same time giving them a sufficiently flexible framework within which they can mold and develop their accounting system to meet their day-today needs, so they can take initiative in doing that and not be restrained by over-all limitations. That requires a good deal of discussion and a good deal of consideration of the points of view of people who are out there actually doing the job, who have had many years of association with it and who are in a position to contribute much more on various phases of the problem than any outsider could by taking a very quick and superficial look at the many diverse activities of the Federal Government. We have as much diversity in the Federal Government as there is in private industry in terms of types of businesses which are involved, and there is a very definite limit to the uniformity that can be achieved. The uniformity we are trying to achieve is in terms of principles and standards, the type of tie-in with the budget processes, the type of tie-in with the Treasury, the type of controls that are needed to make sure that the money is properly expended, and so forth.

We feel that by this cooperative approach we are bringing to bear on the total problem the viewpoints of a lot of different people, all of whom have a real contribution to make. I just returned from a short trip that I took to see some of the work that was going on at some of the field offices of the agencies with which we are working. I came back very enthusiastic about the spirit of the people who are down there in the grass roots, down there on projects, keeping these accounts, because they feel it is their system that they have developed, and they have. They have developed many of the aspects of it.

We have coordinated it and we have fitted it into these over-all

objectives, but they are going to keep that system because it is their system and they have had a part in it.

Many of the things that they have done, we have found when we go and tell other agencies about them, can be used in other areas. In other words, contributions are made to this program not just from the three agencies, but from capable people throughout the Government who have dealt with the problem in realistic and practical terms. They are not just theories any more.

The CHAIRMAN. Are you meeting with any resistance or any lack of cooperation from any agency or any official?

Mr. FRESE. No, sir. At this time I would say, Mr. Chairman, that we are getting more enthusiastic cooperation in some agencies than we are in others, but generally I would say there was nothing in terms of actual resistance. I would say we are in the position right at the moment where we have more agencies asking us for help and for cooperative development of their systems than we have been able to serve up to this particular moment. We plan some augmentation of our staff during the next fiscal year, and we hope that we will be able to get on top of it a little bit more, but the agencies that are asking us are those that are anxious and desirous of doing something about their accounting system.

The CHAIRMAN. In other words, you are not sufficiently staffed or equipped now to meet the demand upon you.

Mr. FRESE. Not at this particular moment; no, sir. We hope to correct that. In that connection I might say we have been very careful in our staffing, Mr. Chairman. We want to get people who are first of all good professional accountants, who would meet outside standards for professional accountants. Also people who have judgment and discretion in terms of setting up priorities of what things have to be done, who have some practical experience with the Government's accounting as it now functions so that they can talk the language of the people who are out there and establish orderly means of conversion, and who have the judgment and common sense also to draw the line sometinies between that which is theoretically desirable and what is practically feasible and useful. That needs to be done in many instances because it is possible in accounting, like everything else, to carry it to ridiculous extremes, to the point where the money that it is costing to run it does not justify the final pin-point perfection that you get as a result of going that far, at least in terms of some of the things that can be done as an immediate proposition.

For that reason, we have been trying to concentrate on getting a relatively small, certainly relatively small when compared to the size of the job to be done, but highly competent professional staff which can work with agencies on the basis of the agencies accepting the major share of the responsibility for working out the system within the framework of the objectives that are established. Our staff numbers only 40 people at the present time, which includes what clerical staff we have to deal with forms and things of that kind in day to day work.

We hope, as Mr. Warren pointed out in his original statement, I think, to build it up to around 75 or 76 within the next year. I believe

it is a very competent staff and I believe it will meet practically any professional standards for competence and judgment.

Senator SMITH. I should like to ask, do you think that additional legal authority would help bring about more cooperation to get the results that we want?

Mr. FRESE. I do not believe so, Senator Smith, at least not at this particular point. We have worked a good deal on the principle that if we can sell the product to the agency, and they can accept it as something that they need, if they feel a definite need for it and if they will use it, they will work on it, keep working on it and keep perfecting it. So far, we have been able to work it out pretty much on that basis. Of course, it is very helpful for us to have the authority to prescribe a system, and when it comes to a question of whether a certain accounting requirement will not be observed that is vital to adequate disclosure of public funds or vital to adequate control, we will use our prescribing power which we now have and make it a mandatory proposition.

I believe it is a much healthier growth under this cooperative approach. It is ever so much better for an agency to feel that this system is their system, that their top management needs it, that they have been one of the biggest contributors to it.

The CHAIRMAN. In other words, it is something that they themselves find they need and want, and not something that they are compelled to take.

Mr. FRESE. That is right. I have very grave doubts about the extent to which we would have a healthy accounting growth in the agencies if agencies were keeping their own accounts only because they were required to. Accounting then becomes an end in itself, and if they kept accounting systems only because the General Accounting Office or the Accountant General or anybody told them they had to keep that accounting, I think it would become a rather weak foundation. It can be done on that basis, but it isn't good. Mr. Weitzel happened to mention the Bureau of Reclamation. We used only two people on that work. Our people worked with the responsible people in the Bureau of Reclamation, who did an outstanding job of organizing their own effort and utilizing the practical knowledge of people in the field. You may recall that several years ago they were in a good deal of trouble with their accounting system. I wouldn't want to leave the implication that they have everything worked out now, but the structure is laid and a great deal of progress has been made, and it has been made by utilizing the knowledge of the people down on the projects, the people in the field, who have worked with the central office people and with us. You can't buy the kind of accounting experience that comes from somebody who has been living with a problem for 10 or 15 years, who knows all the practical angles. If you don't know those and embark on what might be theoretically sound paths and you hit those practical road blocks, sometimes it can discredit something that may be perfectly sound. If we can get their viewpoints and be apprised of the difficulties they see ahead and take care of them in advance, I think that we can do much better. I won't have time in the very few minutes that remain to go over some of the objectives that we are trying to accomplish, but I will say that in terms of the broad objectives that we are trying to accomplish, I think that we have just about every one of them installed in one agency or another, which provides us good practical experience for future work to be done on a broader scale.

The CHAIRMAN. Mr. Frese, for the information of the committee would you write out a brief summary of those and incorporate it in the record at the conclusion of your testimony?

Mr. FRESE. I shall be very glad to. I shall keep it as brief as possible.

The CHAIRMAN. If you could just set it out in a brief summary and let it follow your testimony here it might be helpful to us.

Mr. FRESE. I would like to emphasize two things because they were given prominence here earlier today, if I may, sir. One, no one recognizes more than this joint effort that we need a different type of accounting, fundamentally improved, to make this performance budget work. No one realizes that more than we do-and we are working on that. We have done it in individual agencies, big agencies. The Bureau of Reclamation happens to be one. The Atomic Energy Commission is another. They have adopted accounting of the type needed to make the performance budget mean something, accounting in terms of what is called the accrual basis, which was also mentioned, which recognizes expenditures at the time they are incurred, not just when they are paid for; which makes a differentiation between liabilities for actual goods and services which have been received and those contractual obligations which cover goods and services to be received in the future, and which means also the regarding of inventories as costs when they are applied to particular purposes rather than when the inventories are acquired and reflecting the unused investment in inventories for future application. We have been working on that with a number of agencies. That ties right in also to the matter of cost accounting.

We know that there needs to be a good deal of improvement in the Government's cost accounting. We feel that it has to be integrated and tied in with the appropriation accounting so that Congress, when it looks at an appropriation can tell the costs of doing the various functions, and that that will be part of a pattern which will develop it in much more detail down in the agency in case that more detailed information is required. I might say that in the Bureau of Reclamation, which I am using only as an example, their cost system has been completely tied into that appropriation accounting system and their regular accounting system. It is all one system and in that case just as an indication of some of the simplifications that have been worked out, 120 accounting forms which were previously used under the old system have been reduced to 10 by reason of tying the two together into one cohesive unit.

I am not sure whether it is 10 or 20 right now, but there was a substantial reduction, in either event.

Senator SMITH. That would be a help, would it not, Mr. Chairman? Mr. FRESE. I might say also we are making progress, not nearly as much as we hope to make in the future, by way of eliminating central requirements which impose extra work on agencies, on a coordinated basis with the improvement of the internal controls in the agencies. Reports that go to the General Accounting Office on the status of appropriations illustrate the point. We have a pattern in terms of experience for eliminating those in agencies where the accounting system is tied into the Budget Bureau's reporting requirements and where the agency has adequate internal control over its appropria

tions. We have eliminated those requirements from about 30 agencies already.

We have eliminated the further requirement for submission of monthly reports on expenditures by limitations, to the General Accounting Office, where we have determined that the agency has adequate control in its system and where we can review it periodically to see how it works. We have eliminated 900,000 annual submissions of advance copies of schedules of collections from the agencies to the General Accounting Office on the basis of some revised procedures. We have also installed a schedule type voucher in which the agency is required only to list the payee when it sends its voucher to the disbursing officer and it retains all the original documents out there for site audit by the General Accounting Office, which eliminates a lot of vouchers coming into central agency offices.

I could go on to indicate some of the things that have been done. I say generally they give us a good basis in terms of practical experience now to go ahead, and our pattern is pretty well set on what we want to do in the future. That experience behind us I think is invaluable. It is no longer a theoretical proposition.

The CHAIRMAN. I shall ask you just one question. Will the enactment of this proposed legislation expedite and facilitate the work that is now being done toward this objective, or would it tend to retard the work?

Mr. FRESE. It will not expedite it, and I would say it definitely would tend to retard it because it would mean that all these carefully worked out arrangements would have to be done over in one way or another. I just don't see how it can ever be done on any other than a cooperative basis.

The CHAIRMAN. Any questions?

Thank you very much, Mr. Frese.

(The information to be furnished by Mr. Frese follows:)

Since a progress report summarizing the work which has been and is being done under the joint program has been included as a part of Mr. Weitzel's testimony, this statement will be confined to a summary of a few of the major types of improvements which are being made in connection with achievement of basic objectives for accounting improvement throughout the Government. While, at this stage, the accomplishment of some of these types of improvements, in a complete sense, is restricted to certain individual agencies, work in the same direction is under way in many others and the work which has been done in particular agencies provides a foundation of practical experience which will expedite orderly transitional accomplishment of these types of improvements for the Government as a whole.

1. Conversion to accrual basis of accounting.-There have been major accomplishments in certain agencies in conversion to an appropriate degree to the accrual basis of accounting in connection with both revenues and expenditures and related assets and liabilities. Application of this basis of accounting has resulted in utilization to an increased extent of the accounting and financial reporting methods common to business. Under this method of accounting assets (such as inventories) are established in the accounts when acquired (even though payment is made later) and are reflected as costs for the periods in which they are used, the unused balances being shown as resources available for future operations. Likewise, liabilities are established for all goods and services received but not yet paid for. ́ Unliquidated obligations in the form of contracts or orders for future delivery are separately stated and controlled, and are not reflected as actual liabilities, expenditures, assets acquired or costs until the goods or services are received. Application of the accrual basis of accounting also provides for taking up all revenues or other amounts due the Government as earned with corresponding control and disclosure of receivables for uncollected amounts. Of particular importance in the work which has been done in the application of this method of