of an objective that has been under discussion in the Navy Department for a period of many years. The objective of the Department is to have group IV (b) employees in the industrial establishments of the Navy charged to the work on which engaged, following a procedure similar to that which has been effective for nearly 30 years in connection with all other civilian employees in these establishments, and a procedure which conforms to the recognized principles of the Navy's accounting system, which, in turn, is based on the generally accepted commercial accounting principles.

The objective which the Navy Department desires to obtain, of having all group IV (b) employees charged to the work on which engaged, cannot be accomplished in the fiscal year 1939 unless the limitation under the appropriation "Replacement of naval vessels" is increased over the amount first submitted to the Bureau of the Budget. This is true because there are a number of group IV (b) employees now paid from the appropriations "Construction and repair," engineering," etc., who are actually engaged on shipbuilding work. These employees should be charged to the shipbuilding appropriation if we want, as we do, to obtain more accurate appropriation costs for our ships.

To permit accomplishment of the department's objective of charging group IV (b) employees directly or indirectly to the job and appropriation upon which they work, just as groups I, II, and III employees are now charged, consideration is being given to administrative changes in connection with accounting procedure. While the total amount of money to be expended in the fiscal year 1939 will not be affected by the adoption of any administrative changes in accounting, there may be increased charges under "Replacement of naval vessels" as a result of any administrative changes that may be made effective, with decreased charges under certain other appropriations. The nature or extent of these accounting changes have not as yet been worked out and therefore it is not now possible to furnish even approximate estimates of the effect of chnages that may occur under the several appropriations. What the Navy Department would like Congress to do in connection with the 1939 appropriation bill is to leave the limitations under all appropriations as now set, with the exception of "Replacement of naval vessels," where we are proposing a 5-percent limitation. While the Navy Department cannot now state what reductions in expenditures under the maintenance appropriations will occur, it is the purpose of the Navy Department not to permit the expenditure of such savings under any appropriations for any other purpose; in other words, the savings in expenditures under the limitations for group IV (b) employees in the several maintenance appropriations-accompanied by corresponding increases in "Replacement of naval vessels"-will be administratively impounded. This 5 percent applied to the total amount of money available for expenditure on July 1, 1938, will give the Navy Department sufficient freedom of action under this appropriation to accomplish the objective previously pointed out, of charging group IV (b) employees to the work to whatever extent or by whatever accounting changes may be finally decided upon.

Under "Replacement of naval vessels" and other "continuing" appropriations the "aggregate amount available" at the beginning of the fiscal year is the sum of the unexpended balance and the amount appropriated. For example, the estimated unexpended balance under

C. and M. is $22,204,653 as of July 1, 1938, while the amount requested to be appropriated for the ensuing fiscal year 1939 is $122,500,000, thus making the aggregate amount available $144,704,653. Thus the "aggregate amount available" at the beginning of a fiscal year is, for a continuing appropriation such as "Replacement of naval vessels," analogous to the amount appropriated for an "annual appropriation." Both represent the sum that may be expended during the ensuing fiscal year. For estimating the amount required for group IV (b) employees under a continuing appropriation, therefore, the aggregate amount available is a more logical basis than the amount appropriated, which may be materially less than the amount available. Congress has already recognized this fact by adopting it for Public Works appropriations (which are "continuing" appropriations) in the naval appropriation acts beginning with the fiscal year 1937. The adoption of this method has proved satisfactory in the case of Public Works, and is equally desirable for "Replacement of naval vessels." It is not possible to make an accurate estimate for group IV (b) personnel under "Replacement of naval vessels" 18 months or so ahead of time. The group IV (b) personnel comprise the engineering, drafting, and clerical forces, and they are thus capable of being figured as a percentage of the total cost of a project or a percentage of its labor cost. The estimates are prepared in August and September, while the unexpended balance cannot be determined until some time after the first of the following July. Also it has frequently happened in the past that after estimates of amounts required for limitations have been made, additional work has been authorized or additional appropriations made with the necessity for increased group IV (b) limitations. Using a percentage rather than a fixed sum automatically corrects any errors in estimating limitation requirements.

The probable number of group IV (b) employees needed in connection with "Replacement of naval vessels" and the corresponding amount of the limitation will vary greatly from year to year, depending upon conditions that cannot be predicted in advance. As an example, if ships are built at navy yards more drafting and clerical employees will be required than if they are built by contract at private yards. Also, if a number of vessels are to be constructed from the same plans, fewer group IV (b) employees will be needed than if the vessels are all of different types, each requiring its own set of drawings. Delays, whether due to strikes, design difficulties, changes in design, or whatever cause, will also affect the number of group IV (b) employees needed in any one year. Such factors with their elements of uncertainty, make it a part of wisdom to include a wide margin of safety in estimating the "limitations." For the current fiscal year the limitation under "Replacement of naval vessels, construction and machinery" has proved inadequate and the Department has already requested a deficiency item of $465,000 to meet its need up to July 1,

1938.

The President has directed that the construction of naval vessels be expedited. Inability to employ a sufficient number of group IV (b) personnel due to inadequate limitations" may cause delays in the shipbuilding program. The Navy Department is therefore now requesting a larger sum and a more flexible arrangement to care for the contingencies that may arise, such as an emergency involving a definite speeding up and increase in the shipbuilding program.

Of course it may be said that even under our present methods we do obtain shipbuilding costs which include the proper proportion of group IV (b) employees. This is true, but we get it only by the utilization of what is known as the "Statistical cost method." Under our present methods, insofar as the mechanical employees are concerned, we automatically get job costs which are appropriation costs; but to this job cost we have to add, by the statistical method, certain overhead charges which are, in part, made up of the cost of the group IV (b) or office employees. What the Navy Department desires to accomplish with the proposed change in wording under the appropriation "Replacement of naval vessels" is to automatically obtain proper appropriation cost for group IV (b) employees as is now done for the mechanical employees. We need some freedom of action in connection with limitations in order to work out the details of the plan to be adopted, and the latitude is obtained for the fiscal year 1939 by leaving the limitations unchanged except under the appropriation "Replacement of naval vessels."

Until the passage of the Naval Appropriation Act of 1930 the group IV (b) employees at the industrial establishments could be charged only to maintenance appropriations. Specifically they could not be charged to the shipbuilding appropriation "Increase of the Navy." In the appropriation bill for that fiscal year the following provision was included under "Increase of the Navy":

Provided, That of the appropriations contained in this Act under the head of "Increase of the Navy" there shall be available immediately such sums as the Secretary of the Navy may from time to time determine to be necessary for the engagement of technical services, including the purchase of plans, and the employment of additional clerks, draftsmen, and technical employees in the Navy Department and in the field owing to the construction authorized by the Act of February 13, 1929.

The several appropriation acts for the following fiscal years have included similar provisions permitting charging group IV (b) employees to the shipbuilding appropriations. The essential difference between the original provision, that in the 1930 act, and in the following acts, is that the first provision permitted the Secretary of the Navy to employ as many of this class of personnel as were required for the work in hand-no monetary limit being established. In the appropriation act for the fiscal year 1931 and again in the act for the fiscal year 1932, limits under the appropriation "Increase of the Navy" were set; the limits for the 2 years in question being $20,000 each year.

It was not until the Appropriation Act for the fiscal year 1933 that a limit sufficiently high to take care of what was then considered to be the proper number of group IV (b) employees for shipbuilding work was set. The limit for that fiscal year was $790,000. Even in 1933, however, and in the fiscal years following, the shipbuilding appropriation limit has not been sufficiently high to take care of the salaries of all group IV (b) employees who were directly or indirectly engaged on shipbuilding work. It has accordingly been necessary to employ and pay, under the maintenance appropriations, a number of group IV (b) employees who were actually not engaged on maintenance work but were engaged on shipbuilding work. If Congress desires to continue limitations under the several naval appropriations for the fiscal year 1940 and thereafter, the Navy Department will be prepared, in presenting the estimates for that fiscal year, to give more

accurate estimates of what should be the reduced limitations under the maintenance appropriations and the increased limitations under "Replacement of naval vessels."

Mr. UMSTEAD. Admiral, the effect of the proposal as to this bill would be to make possible an aggregate expenditure of $2,477,264 greater for group IV (b) employees paid from "Replacement, Navy" than would be permissible under the present law; is that correct?

Admiral Du BOSE. Yes, sir; but not an additional expenditure over and above what would otherwise be expended.

Mr. UMSTEAD. If the committee should approve the modified proposal, you would charge to the amount thus made available the pay of certain employees now charged to the so-called working appropriations of a number of bureaus, which would relieve such appropriations to the extent that such a course were pursued?

Admiral Du BOSE. Yes, sir.

Mr. UMSTEAD. The amount of such transfers you are not now prepared to give?

Admiral Du BOSE. That is correct, sir.

Mr. UMSTEAD. But, instead, you and the Assistant Secretary, Mr. Edison, have stated that money thus freed to the working appropriations would be impounded and not expended?

Admiral Du BOSE. That is correct.

Mr. UMSTEAD. We are to understand, then, that we would have. somewhat of a contract with you that if we should go along with this proposal that method would be followed?

Admiral Du BOSE. Yes, sir.

Mr. UMSTEAD. Do any Government departments, to your knowledge, other than the Navy Department, have limits imposed upon them in their appropriations for pay of field employees of any description, classified or unclassified?

Admiral Du BOSE. I know of no such limitations under any other Government department.

Mr. UMSTEAD. I believe you are not now restricted in your expenditures for personal services except as to services falling under the group IV (b) classification?

Admiral Du BOSE. That is correct, sir.

Mr. UMSTEAD. If such limitations upon Navy appropriations were eliminated altogether, would it not be practicable to include in the Budget a list of such employments, actual and proposed, just as we have presented under the departmental salary items?

Admiral DU BOSE. That would be possible, sir, but it would not make it easy, as a practical measure, to do what the Navy Department wants to do-to charge group IV (b) people to the work on which they are engaged. Specifying the number of people that we are going to have would limit, of course, the number, but personally I do not see any necessity for limiting the number of group IV (b) people any more than limiting the number of mechanics. We want enough people to do the work, whatever it may be.

Mr UMSTEAD. My question, of course, would not contemplate a limitation; but if that should be done we would then be advised how well you had lived up to your previous estimates and also as to how you proposed to apply the appropriation being asked for the next fiscal year would we not?

Admiral Du BOSE. Yes, sir.

I think I can make clear what we have in mind by an example. I will discuss the appropriation Construction and Repair alone, briefly, but the same thing applies to the other appropriations.

We now submit estimates under what are called "Personal services." Personal services means the expense of group IV (b) people in the field inspection offices-inspectors of naval material. We also submit to Congress estimates for repairs to ships; and we also submit estimates for "Maintenance and operation of shore stations." Under "Maintenance and operation of shore stations," insofar as the appropriation "Construction and repair" is concerned, and "Personal services," are included all of the group IV (b) people paid from the "Construction and repair" appropriation.

What is contemplated in the Navy Department's objective would be a transfer of the charges to some extent from "Maintenance and operation of shore stations" to "Repairs to ships." Today we are charging draftsmen and clerks at navy yards under the general heading or object of "Maintenance and operation of shore stations." Specifically we are not charging draftsmen and clerks to the object "Repairs to ships." We would like to be able to transfer those charges to the proper heading. There would be, in ensuing years, a reduction under the object "Maintenance and operation of shore stations" and an increase under the heading "Repairs to ships", just as this specific proposal means a transfer from certain maintenance appropriations of certain sums to the shipbuilding appropriation.

Now, as regards the ship-building appropriation, I would like to make one statement. In the drafting rooms today at the six east coast navy yards, where the work is primarily ship-building work, there is approximately $400,000 for "Construction and repair" paid draftsmen and $240,000 for "Engineering" paid draftsmen, or a total of $640,000 for draftsmen paid from those two appropriations. A large part of those people-60 or 70, maybe 80 percent of them-are actually working on new construction.

Mr. UMSTEAD. And what you are now seeking is to obtain permission to charge their salaries against the actual thing upon which they are working?

Admiral Du BOSE. Yes, sir. And to whatever extent we should transfer these "Construction and repair" and "Engineering" paid draftsmen over to "Replacement of naval vessels," thereby saving under the "Construction and repair" and "Engineering" appropriations, the Navy Department proposes administratively to impound that sum of money.

Mr. UMSTEAD. As to your departmental force, I believe the Budget estimates submitted allow very little leeway for making administrative promotions.

Admiral Du BOSE. Yes, sir.

Mr. UMSTEAD. Without a limitation upon your field force of comparable employees, there would be no hindrance, other than administrative, to pursuing a most liberal attitude as to administrative promotions, and in that way your field force would have a decided advantage over your departmental force. Would the Department endeavor, if this change were made, to keep the compensation of the two groups more or less in balance, and not show advantage to one over the other?