"Creates an Accounting Service in the Treasury with an Accountant General, to be appointed by the Secretary of the Treasury, at its head and gives the Secretary responsibility for all agency accounting practice regulations, subject to the approval of the Comptroller General. The Secretary and the Comptroller General jointly are to issue regulations governing disbursements of public funds. Repeals numerous statutory provisions.'

As indicated above, pressure was not brought to obtain passage of S. 2054 at the first session of the Eighty-first Congress. General legislation in this area is being withheld for consideration at a later date, pending the accumulation of experience by the armed forces with the budgeting and accounting provisions of title IV of Public Law 216 of 1949.

Meanwhile, other preparatory work on performance budgeting is being carried forward. The staff of the Committee on Expenditures in the Executive Departments is following important departmental meetings at which speakers of the Bureau of the Budget instruct selected fiscal personnel of individual departments and agencies on budgeting and accounting procedures, using illustrative tabular and chart material. Such attendance will facilitate preparation of the necessary factual data for use of the committee at the second session of the Eighty-first Congress.

The Bureau of the Budget recently issued a statement describing the further efforts which it plans for the near future with relation to performance budgeting, whether new legislation is or is not passed, as follows:

"The President announced, in a message to Congress on June 20, that he had instructed the Director of the Bureau of the Budget to work out a system for preparing budget estimates on a performance basis. Both the House and Senate have passed bills requiring a performance budget in the case of the National Military Establishment, and the Senate Appropriations Committee in its report on the 1950 military appropriations endorsed this requirement.

"The change which will be most noticed in the 1951 budget, to be transmitted to Congress next January, is the addition of textual statements on program and performance. Past budgets have primarily presented a tabulation of the financial plan for the year, together with the language of appropriation bills proposed for enactment by Congress. The new budget will present two plans: The financial plan, in tables of figures, and the program plan, in narrative style.

"Another change, which may be less noticeable in form but quite significant, according to budget officials, is the improvement of 'activities schedules.' Where more than half of the appropriations in the past have not been accompanied by any break-down showing how the dollars would be related to programs, it is anticipated that the new budget will break down over 90 percent of the appropriations to show the programs, projects, or activities to be carried on and the dollars to be devoted to each. Comparative figures will be shown for the two fiscal years preceding the budget year.

The

"Missing from the 1951 budget will be the long lists of civilian positions. early budgets, 25 years ago, contained complete lists of positions; recent budgets have listed the titles of positions with starting salaries of more than $4,000 and the numbers of positions in each of the lower grades. The new emphasis upon program and performance, together with the need for space to explain the programs, makes it necessary and desirable to drop out the details of personal services, budget officials said. The Appropriations Committees will be able to obtain from the agencies personnel data tailored in each instance to the committees' needs. Summary figures on the total number to be employed and the dollars involved will be shown in the budget for each appropriation.

"Three additional recommendations of the Commission on Organization will also be involved in performance budgeting, although it will take some time to put them into effect fully, budget officials explained. These involve the improvement of the appropriation structure, separation of budget estimates between current expense and capital outlay, and the presentation of information on an accrual basis.

"Improvements in appropriation structure have been going on for several years, in an attempt to get the costs of any one program into a single appropriation instead of having them scattered among several. In the next budget, further changes in appropriation pattern will be proposed for four departments. Changes for other departments may be proposed in 1952 or 1953.

"Current expense and major capital outlay will be separated in the activities schedules in the 1951 budget, and in addition the schedules will show separately the money the Government spends in the form of grants, subsidies, and contributions. Current expense covers the current operations of the Government.

Major capital outlay relates primarily to public works and improvements, loans, and other payments in which the Government exchanges cash for some other kind of an asset.

"Accrual accounting, which reflects the cost of goods and services received, will not supplant the cash basis of presenting totals or the obligation basis of requesting appropriations in the 1951 budget. However, in a few cases, informational schedules will be shown on accrued expenditures. Further development of accrual accounting, under the joint supervision of the Comptroller General, the Secretary of the Treasury, and the Director of the Budget, is expected to result in more precise statements of 'performance in terms of dollars' in future budgets. "In some respects, the changes being made this year are not as new as they sound, budget officials said. Efforts have been under way for some years to show activities and their costs in the budget, and such schedules are now shown for over one-third of the appropriations. The amount of personal service detail has been shaken down occasionally over the last decade. On the other hand, the officials stated, the 1951 budget will represent a distinct break with the past, and from now on efforts will be marshaled toward a program budget along the lines suggested by the Commission on Organization and others. The 1951 budget will look considerably different from the past documents.

"Further experience, improvements in program reporting and accounting, and additional effort put on the budget will make the documents for 1952 and 1953 improvements over the 1951 document, Mr. Pace declared. 'While the 1951 budget may be described as the first performance budget, it will be far from perfect, and we hope that we can improve it immeasurably in later years,' he said." In response to requests from the chairman for comments on S. 2054, the comprehensive budgeting and accounting proposal, replies have been received from the General Accounting Office, the Treasury Department, and the Bureau of the Budget, and are presented below in that order.

The General Accounting Office replied at length (13 typed pages). The first two pages discuss briefly but take no position on the budgeting recommendations in part I of the Report on Budgeting and Accounting. The remainder of the letter, quoted below, severely attacks in detail recommendation No. 10, which proposes a new Accountant General, under the Secretary of the Treasury, to prescribe and enforce accounting procedures, subject to approval by the Comptroller General (as prescribed in S. 2054). The recommendation is characterized as another attempt to weaken GAO efforts as the agency of Congress to eliminate illegal or extravagant spending. To solve Federal accounting problems the letter emphasizes at various points the progress already made in the joint accounting project of the General Accounting Office, the Treasury Department, and the Bureau of the Budget. (For views of the Bureau of the Budget see also its discussion of recommendation No. 10 of the Budgeting and Accounting Report, p. 145).

The accounting aspects of the letter (pages 2−13) from the Comptroller General follow:

"Part II (Accounting) deals largely with the recommendation of the majority of the Commission on Organization of the Executive Branch 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 a restricted area, and with other duties set forth in the report of the majority. That recommendation was the subject of a strong minority report by Commissioner Manasco and yourself on the ground that, if there is to be any change in basic jurisdiction to prescribe accounting systems, it should be in the direction of strengthening the hand of the Comptroller General, but that the joint accounting program of the Comptroller General, the Secretary of the Treasury, and the Director of the Bureau of the Budget (the three agencies most concerned with Government accounting) had put aside the jurisdictional question and this is no time to raise it again. The bill, S. 2054, incorporates further provisions based on the report of the Commission's task force, which was repudiated even by the majority of the Commission. "By section 20 of part II the Secretary of the Treasury would be authorized to create in the Treasury Department a service to be known as the Accounting Service with an Accountant General at its head. The Accountant General would be appointed by the Secretary of the Treasury, who could provide for the performance by the Accountant General and the Accounting Service of the functions vested in the Secretary by the act.

"The views of the General Accounting Office on this phase have reference directly to the functions to be performed by the proposed Accountant General and Accounting Service.

"Subject to the authority of the Comptroller General under section 309 of the Budget and Accounting Act, 1921, as it would be amended and weakened by section 22 (b) of the bill, the Secretary of the Treasury would be authorized by section 21 to prescribe by regulation the 'general accounting methods, practices, and procedures (including property and cost accounts and expenditure controls) to be followed by all agencies in the executive branch of the Government,' and also would be authorized to supervise operations under such methods, practices, and procedures in all such agencies. The regulations of the Secretary would provide for frequent reports to him from the agencies as to the status of their accounts. The Secretary would be directed to combine such reports into summary accounts and prepare financial reports covering all the accounting operations of the Government for the information of the President, the Congress, and the public.

"For all practical purposes, this section would transfer to the executive branch a vital and very substantial part of the accounting functions that the General Accounting Office now exercises. There should be no misunderstanding about that. Nor should the seemingly inocuous language of this section be permitted to hide the fact that this is but one more in a series of attempts through the years to deprive the Congress of a proper measure of control over the financial operation of the executive branch of the Government.

"Commencing with the Treasury Act of 1789, which provided for an auditor and a comptroller in the Treasury Department, the Congress has relied upon the accounting offices of the Government to enforce, according to the legislative intent, the statutory provisions governing the spending of, and the accounting for, public funds. From time to time during the period 1789-1921, the status and functions of the accounting officers were reconsidered by the Congress, and on each occasion action was taken to strengthen the control and make more effective the operations of the accounting officers. In 1868 Congress declared that balances certified by the Comptroller of the Treasury should be final and conclusive upon the executive branch of the Government. In 1894 the Dockery Act effected some degree of centralization of supervision over the Government accounting system under the Comptroller of the Treasury, who was given broad appellate and revisionary powers over the other accounting officers. And then, by the final step in the process of evolving an accounting agency responsible directly to the Congress, the Budgeting and Accounting Act, 1921, created the General Accounting Office and made it completely independent of the executive branch.

"But there always have been-and apparently still are those who believe that in the operation of the Government it is for the Congress merely to appropriate the money and for the executive branch to spend it without interference, guidance, or control. This seems to be the theory of the Commission's task force report on fiscal, budgeting, and accounting activities—a report which, as indicated above, subsequently was repudiated by the Commission itself. This report supposedly represented an enlightened view of governmental accounting, does not contain a single significant proposal which had not been made theretofore. It is merely a rehash of the same doctrine presented to the Congress in 1923, 1932, and 1936. Each time the Congress saw through the theoretical arguments and realized, regardless of the basis alleged by the sponsors, that in the final analysis the measures were impelled by the desire to have the expenditure of public funds free from effective legislative control. The Congress must be alert to this new assault. The pattern is the same; the motives are identical. I do not question for a moment the soundness of the specific movements 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, page 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 (section 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 un

mistakable 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 business affected with 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

"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. 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 demonstrate 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 Comptroller 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 as 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 Accountant 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 Accounting Office for the Congress over Government expenditures. Indeed, this proposal is not even based upon a recommendation of the Commission on Organization. Its 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. Presumabiy, 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.