(4) Authorizes the Postmaster General to collect debts due the Department and collect and remit fines, penalties, and forefeitures arising out of matter affecting the Department;

(5) Provides a revolving fund for the Post Office Department; (6) Authorizes the Postmaster General to designate the places where administrative examination of accounts will be made;

(7) Authorizes and directs the Comptroller General to audit the financial transactions of the Post Office Department;

(8) Provides for separately setting out in appropriate reports of the Post Office Department amounts representing certain services which the Department performs free or at special rates;

(9) Transfers to the Post Office Department such records, property, personnel, appropriations, and so forth, primarily connected with functions transferred under the bill;

(10) Removes certain restrictions with regard to leases of real property; and

(11) Repeals certain laws relating to financial control of the Post Office Department which are no longer necessary if this bill is enacted.

The bill will take effect 90 days after enactment unless postponed in whole or in part by the President, but such postponement may not exceed 2 years.

I might say conferences have been held with the Postmaster General and members of his staff and with the Comptroller General's office and his representatives. For a time there was some disagreement about this legislation, but as a result of these extended conferences an agreement has been reached between the Postmaster General and the Comptroller General and the Bureau of the Budget and the Treasury Department, and this legislation was introduced as a result of these various conferences, and it has the approval of all concerned. I think it is unquestionably a step in the right direction. It is farreaching legislation and very important legislation. The Post Office is the only agency or Department of the Government which does not do its own preauditing and keep its own accounts and records, and it is primarily the purpose of this legislation to transfer the preauditing and accounting from the Comptroller General, who has charge of it at the present time, over to the Post Office Department.

The first witness this morning is Mr. Strom, from the Post Office Department. Mr. Strom is accompanied by Mr. Roy C. Frank, Associate Solicitor for the Department, and Mr. John W. Askew, Comptroller for the Post Office Department.

We will be glad to hear you, Mr. Strom. You might state your title to the reporter.

STATEMENT OF ALFER B. STROM, ADMINISTRATIVE ASSISTANT TO POSTMASTER GENERAL, ACCOMPANIED BY ROY C. FRANK, ASSOCIATE SOLICITOR, AND JOHN W. ASKEW, COMPTROLLER, POST OFFICE DEPARTMENT

Mr. STROM. My title is Administrative Assistant to the Postmaster General.

Mr. Chairman, with your permission, I think the letter from the Postmaster General addressed to you very briefly states the position

of the Post Office Department. With your permission, I would like to read that into the record.

The CHAIRMAN. Very well, sir.

Mr. STROM. This letter is dated June 26 and is addressed to the chairman of the committee, the Honorable Tom Murray. It reads:

DEAR MR. CHAIRMAN: Reference is made to your request for a report on H. R. 8923, a bill to provide improved procedures with respect to the financial control of the Post Office Department, and for other purposes.

In its February 1949 report to the Congress concerning the Post Office Department, the Commission on Organization of the Executive Branch of the Government stated (recommendation No. 6):

"We do recommend that the provisions of that law (the Government Corporation Control Act of 1945 as amended) in respect to business management, budgeting, accounting, and audit, be applied to the Post Office."

In keeping with what I consider to be the recommendations of the Commission, with reference to budget, accounting, and audit procedures, I submitted to Congress proposed legislation which would comply with the Commission's recommendations. This proposed legislation was introduced by you as H. R. 5775. Another bill, H. R. 6395, was introduced by a member of your committee.

H. R. 8923 has been drafted as a compromise between the divergent views reflected in H. R. 5775 and H. R. 6395.

Section 2 (a) of this bill would transfer to the Postmaster General those functions now being performed by the General Accounting Office with respect to "the maintenance of administrative appropriation and fund accounts, accounts receivable and payable, and allotment controls; the preparation of financial and statistical reports; the preaudit of expenses; and related administrative, accounting, and reporting functions." However, the financial transactions of the Department would still be subject to audit and decisions on final settlement by the Comptroller General.

The transfer of the above functions to the Postmaster General should result in improvements in the accounting system, and a more expeditious settlement of accounts, inasmuch as H. R. 8923 fixes responsibility for the systems of accounting, internal control, and administrative examination, in the Postmaster General. However, the Postmaster General would not be able to waive the administrative examination of accounts without the concurrence of the Comptroller General. Furthermore, the system of accounting would have to conform to accounting principles and standards prescribed by the Comptroller General, and would be subject to his approval.

I wish to call your attention to a statement contained in the Hoover Commission report in connection with recommendation No. 6:

"Currently the service is operated under 58 separate appropriations, each of which must be independently justified by the Department, reviewed and approved by the Congress, and apportioned to individual post offices for each quarter by the Bureau of the Budget."

Apportionments to individual post offices are made by the Post Office Department and not the Bureau of the Budget. The Congress has already provided for greater appropriation flexibility in the appropriation bill for the fiscal year 1951 in reducing the 58 specific appropriations to 4 general service appropriations.

H. R. 8923 and the new appropriation structure are steps toward_carrying out the general objectives of the Commission on Organization of the Executive Branch of the Government with respect to the Post Office Department's accounting and auditing procedures and the attainment of flexibility of expenditures to meet fluctuating demands for postal service and varying conditions of operation on a Nation-wide scale. They should enable the Postmaster General to make better use of accounting procedures as a tool of management.

I call your particular attention to the fact that while the results of the final audit by the General Accounting Office are not known to the Department for as much as 6 months after the close of an accounting period, that fact does not deprive the Department of information with respect to its financial condition. The Department has always obtained data from its field offices which has substantially reflected conditions with respect to receipts and disbursements within 30 days after the close of each month.

In connection with recommendation No. 6, the Commission on Organization of the Executive Branch of the Government stated:

"Such a provision will bring the Department into step with modern business methods and will not lessen executive or congressional controls. At the same

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time it will provide flexibility in management, simplification of budgeting, accounting, and audit which will result in large economies."

Many erroneous statements have been made from time to time to the effect that a modernization of the accounting functions of the Post Office Department would result in large savings. Claims have been made that savings of as inuch as $200,000,000 and even up to $300,000,000 on an annual basis can be made if the provisions of that law in respect to business management, budgeting, accounting, and audit be applied to the post office. These statements are wholly without foundation. It is not believed that there can be any material savings such as these statements would indicate as a result of the proposed change in the accounting and audit system. The system now employed is not outrageously cumbersome and in its operation it does not require the employment of a large host of employees. If the accounting and internal control functions now per formed by the Post Office Department were eliminated entirely and all employees engaged on those functions were separated from the service, it would not result in a reduction of expenses of as much as $12,000,000 a year. The provisions of H. R. 5775, H. R. 6395, and H. R. 8923 do not eliminate such functions. On the contrary, they provide for additional functions.

As previously stated, the Congress has already provided for greater appropriation flexibility in reducing the 58 specific appropriations to 4 general-service appropriations. This action together with the enactment of H. R. 8923 will give the Post Office Department more administrative authority and greater flexibility of expenditures to meet fluctuating demands on the postal service and varying conditions of operation. However, there must be no mistaken idea about the savings to be effected and there must be no presumption that legislation of this kind will produce large economies, as has been represented from time to time.

The proposed legislation will provide for more flexibility in management of the postal service, is a step in the right direction, and the Department interposes no objection to the enactment of this measure.

That concludes the statement, Mr. Chairman.

The CHAIRMAN. Do you have any further observations to make on the proopsed legislation, Mr. Strom?

Mr. STROM. No, sir; I do not believe we do, Mr. Chairman. I think it states as briefly as we can all the facts which are pertinent to this

measure.

The CHAIRMAN. Am I correct in my statement that the Post Office Department is the only agency or Department of the Government that does not already keep its own accounts and do its own preaudit?

Mr. STROM. That is correct, sir. So far as I know, that is correct. The CHAIRMAN. And at the present time the General Accounting Office does all of your pre-audit as well as making the final settlement of accounts for you; is that correct?

Mr. STROM. That office does all of the auditing, including some preaudit work, and also makes the final settlement of all postmaster and other accountable officers' accounts.

The CHAIRMAN. The General Accounting Office has an office in Asheville, N. C., which is engaged in this auditing of the postal service; is that correct?

Mr. STROM. That is correct.

The CHAIRMAN. About how many employees in Asheville are engaged on this work?

Mr. STROM. I imagine the representatives of the General Accounting Office could probably give you more accurate information on that, but we understand there are somewhere between 800 and 900 employees in that Division.

The CHAIRMAN. Are there any questions of the witness?

Mr. HAGEN. That would account for the small cost, then, of $12,000,000 which you indicated as the cost of auditing and supervising

the administration of the accounts and financial records by the Post Office Department. If that were entirely eliminated, it would only save $12,000,000?

Mr. STROM. That is all we could save in cash out-of-pocket costs— those direct costs' which accrue incident to the keeping of our day-today records of expenditures and the auditing which we do in the larger offices.

Mr. HAGEN. In other words, most of the work is done by the General Accounting Office now, and that is why you have such a small cost to the Post Office Department?

Mr. STROM. That is correct, insofar as we understand auditing functions as intended by this act.

Mr. HAGEN. I recall some mention in the first part of your statement that there would probably be some saving or economy, and then in the latter part you indicate there would not be any great savings effected by this legislation respecting economies.

Mr. STROM. If there are any economies, as I see it, they will be between the two Departments where there might be some duplication now in the over-all costs, but there will not be any economies insofar as the Post Office Department is concerned or with reference to the postal deficit.

The CHAIRMAN. As I understand it, there will be some saving, but it will be nothing like $200,000,000 or $300,000,000.

Mr. STROM. No, sir. There could not possibly be that much. Mr. HAGEN. You mentioned in your report that there necessarily will be considerable additional functions to be performed by the Post Office Department.

Mr. STROM. Insofar as the Post Office Department is concerned, there will be a decided additional expense.

Mr. HAGEN. Would that require considerably more personnel and expense?

Mr. STROM. To the Post Office Department?

Mr. HAGEN. That is right.

Mr. STROM. Surely.

Mr. HAGEN. Yet on page 5 the bill states that the system of accounts and internal control maintained by the Department shall be according to the generally accepted principles of auditing. According to the generally accepted principles of what type of auditing? Do you mean governmental principles or private business principles?

In the course of our investigation of the Federal Security Agency and other agencies, we find that a 50-cent or a $1 item or a $5 or $10 item, because of the writing up of the order and all of the other details connected with it, would run up to a cost of $20, even though the item itself cost only 10 cents to 50 cents, and on top of that there is an auditing program for the auditing of accounts. So, on top of an order for a 50-cent or $1 item, they have another expense of auditing all of those expenditures and bringing the cost up another $10 or $15 for each item.

So, if you are going to follow those principles in this new plan, you are going to have a greater expense in the Post Office Department than you have now, so I wonder what type of principles you are going to follow in doing the auditing-whether you are going to follow your principles, private business principles of auditing, or governmental

principles which we now have in some agencies. What does that mean?

Mr. STROM. The generally accepted principles of auditing are that you should not go to the auditing expense on small items where you cannot possibly save anything.

Mr. HAGEN. Would there be some provision for the exemption of small items, so-called, from auditing?

Mr. STROM. I do not think you would exempt them all. It is a question of determining whether the systems and procedures are such that you protect the Department and Government as a whole.

Mr. HAGEN. And it should be left up to the administrator as to whether or not he wants to audit a series or group of small items? Mr. STROM. That is correct-subject, of course, to the principles laid down by the Comptroller General and whatever agreement we can effect between that Office and the Post Office Department.

Mr. HAGEN. In other words, he will tell you how you shall audit your accounts. How can you have any responsibility in the Postmaster General if another agency tells you how to do your business? Mr. STROM. He can approve the system and examine controls. The CHAIRMAN. That is why we have the Comptroller General; that is the purpose of having the Comptroller General.

Mr. HAGEN. That is all very true, but Mr. Donaldson and these other heads do not have any control over expenditures or administrative procedures if another agency tells them how to run their Department.

The CHAIRMAN. The Comptroller General approves the standards and procedures of auditing in deference to getting some uniformity about auditing in all of these establishments so as to improve the auditing and accounting system. That is the very purpose of giving the Comptroller General the right to approve standards and procedures to be followed by the Post Office Department and other departments in making these audits.

Mr. HAGEN. It is a very laudable objective, but I notice the Comptroller General's Office is increasing in size all the time. Where would the saving be?

The CHAIRMAN. Do not you agree that the Post Office Department should do its own bookkeeping?

Mr. HAGEN. Yes; I certainly do. I think they should have full control of it all the way through.

The CHAIRMAN. Are there any further questions?

Mr. GROSS. Why is the office located at Asheville, N. C.?

The CHAIRMAN. The Comptroller General can tell you that when he testifies. It has been there for a good many years.

Are there any further questions of Mr. Strom?

Mr. REES. It is the view of the Post Office Department that this legislation is in line with the recommendations of the Hoover Commission?

Mr. STROM. Not entirely; no, sir. It is a step in the direction of accomplishing their objectives.

Mr. REES. It is part of the recommendation?

Mr. STROM. That is right.

Mr. HAGEN. Is there any portion of this bill which sets up the socalled regional offices recommended by the Hoover Commission? Mr. STROM. No, sir.