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Mr. HESTER. The certificates of settlement cover all public accounts including claims.

Representative COCHRAN. Well, if that be true, do you provide anywhere where the new set-up shall pass on the settlement of these public accounts, including all claims ?

Mr. HESTER. Yes; section 308 (a). Representative COCHRAN. Before they are paid ? Mr. HESTER. Oh, no. Mr. BROWNLOW. Oh, no. Representative COCHRAN. Then you are going to let the Secretary of the Treasury, the spending agency

Mr. BROWNLOW. Just as it is now in most cases.

Representative COCHRAN. Oh, no. You are going to let the Secretary of the Treasury settle all claims against the Government, taking all that work that is now in the General Accounting Office out and there will be no review of the settlement ? Is that correct ?

Mr. BROWNLOW. There will be a review of the settlement.
Representative COCHRAN. By whom !
Mr. BROWNLOW. By the Auditor General.
Representative COCHRAN. That is what I mean.

Mr. BROWNLOW. Who reviews the Comptroller General now when he makes a settlement ?

Representative COCHRAN. The Comptroller General is not reviewed now, as I understand.

Mr. BROWNLOW. Certainly, and we think everything ought to be reviewed.

Representative COCHRAN. Just a minute, let me finish. Except by the courts; there is an appeal to the courts from the Comptroller General in certain cases. There is the review, if one is justified.

Mr. BROWNLOW. Yes; in certain cases.
Senator BARKLEY. Very uncertain cases.

Representative COCHRAN. Let me recite this: Here is a contract on a public building, the contractor is performing under a contract; Congress enacts a law which requires him to spend additional money that he did not anticipate at the time he made the bid; he goes to the Comptroller General and he files a claim for additional money; the Comptroller General considers that claim, when it is an appeal from the executive branch of the Government which did not allow the claim. You are putting that now into the hands of the Secretary of the Treasury?

Mr. BROWNLOW. If this bureau
Senator BARKLEY. With no review by the Comptroller General!
Mr. BROWNLOW. No.

Representative VINSON. Take the three sections together—that is, sections 308, 314 (b) and 317—which refer to the certificates issued by the Secretary of the Treasury in settlement of public accounts and require the certificates to be certified to the Auditor General, does that include all claims and demands down here in section 317. Public accounts is a specific term which includes all claims and demands.

Mr. BROWNLOW. But he certifies the settlement only.
Representative VINSON. I see.

Mr. BROWNLOW. And he must make a daily report of that transaction.

Representative COCHRAN. And he certifies

Mr. BROWNLOW. He is checked right there at the time, not 3 years later.

Representative COCHRAN. In other words, he certifies his decision?
Mr. BROWNLOW. He certifies the decision that has been made.
Representative COCHRAN. Has been made?
Mr. BROWNLOW. Yes.
Representative COCHRAN. But only for record purposes?

Mr. BROWNLOW. No. If he takes an exception he makes an immediate report to the Secretary

of the Treasury.
Representative COCHRAN. Before the money is paid ?
Mr. BROWNLOW. No.
Representative COCHRAN. After the money is paid?

Mr. BROWNLOW. After the money is paid. That is now the case with most of the claims against the United States with the exception of transportation and a relatively few that are now preaudited.

Representative COCHRAN. You are misinformed. The Comptroller General receives thousands and thousands of claims other than traveling claims, and I will get a statement for the record that will show that is correct.

Mr. BROWNLOW. Not nearly all of them. It is not passed on until after the disbursing officer has paid the money.

Senator O'MAHONEY. Mr. Brownlow, you do not mean to have the committee understand that under the system you are recommending here the Auditor General in no event would make an exception to a spending ransaction until after it had been completed? My understanding is that under this set-up the Auditor General would have a representative in each of the spending agencies auditing the expenditures as they are being made.

Mr. BROWNLOW. Yes.

Senator O’MAHONEY. And if he should find, for example, that in any particular department an expenditure was being made which he thought was not in accordance with law, he would take exception to it immediately, would he not!

Mr. BROWNLOW. Immediately.

Senator OʻMAHONEY. And make report to the head of the department and to the Congress?

Mr. BROWNLOW. Yes; but he would not have the power to stop the expenditure.

Senator O’MAHONEY. But he would make an exception?

Mr. BROWNLOW. He would make an exception at once, but he could not substitute his judgment for the administrator's judgment because once he did his subsequent criticism would be no good. He would be auditing his own books.

Senator O’MAHONEY. You are stepping aside from the criticism which is being made here. The criticism which you must meet, as I take it, is the impression which has been gathered from what has been said that the Auditor General would have no power in the premises until after the complete expenditure had been made. Now, that is not at all your purpose ?

Mr. BROWNLOW. No.

Senator O'MAHONEY. Your purpose is to segregate the control of spending from the auditing of the spending, but you want to provide that auditing shall keep pace day by day with the spending?

Mr. BROWNLOW. Day by day with the spending:

Representative COCHRAN. Let me give you some information which you evidently do not have: The Procurement Division makes a contract for the construction of a public building, which must be completed within a given time; it is not completed within that time limit, and they assess the penalty provided in the contract; the contractor takes exception for one reason or another, and the Procurement Division refuses to pay the contractor immediately or only pay him in part; he appeals from the decision to the Comptroller General, who decides that case; and if the Comptroller General, as in many, many instances, refuses to pay the contractor, he takes the case to the Court of Claims.

Mr. BROWNlow. This would go from the Treasury unit in the same way as it did before 1921. I may say in connection with that that we would like to submit later a precise path of the vouchers as they go through now and as they would go under this system.

Senator O’MAHONEY. Are there any other changes or alterations in the path?

Mr. BROWNLOW. Yes, sir.
Senator BYRD. Mr. Brownlow, could I ask one question?
Mr. BROWNLOW. Yes.

Senator BYRD. In connection with what Senator O'Mahoney said, your draft of the bill says that it would so show the data that the accountants could make a report on accounts that had been improperly settled ?

Mr. BROWNLOW. Certainly.

Senator BYRD. Does that mean they have to be first paid ? It says "improperly settled.”

Mr. BROWNLOW. Yes; we are removing the settlement over into the executive branch.

Senator BYRD. Yes; but you just said that the audit could be coincident with the spending. Exactly how can you audit all accounts of the Government where they are spending money in all the 48 States ?

Mr. BROWNLOW. By decentralization.

Senator BYRD. We do not have to change the law after it is improperly settled? He can only make a report after it has been improperly settled.

Mr. BROWNLOW. We make an exception to that.
Senator BYRD. Before you leave that, Mr. Brownlow

Mr. BROWNLOW. That means deemed by the Auditor General to be improperthat is, in his opinion it is improper.

Senator BYRD. For instance, if they got a $10,000 contract, your idea would be that there would be a special audit of that as you spend it, $,1000 at a time?

Mr. BROWNLOW. The agent of the Auditor General would be right there with the disbursing department.

Senator BYRD. How many auditors would it take?

Mr. BROWNLOW. I think it would take a great many fewer than we have in this system in Washington now.

Representative GIFFORD. In section 309 you state that the Auditor General should have authority to look over the books of the Treasury or any other agency. I want to ask you if the duties of the auditor

would be such as to force the Secretary of the Treasury to properly evaluate the securities held—that is, if the Secretary of the Treasury reported to the Congress and the people that a building worth $1,000,000 had burned down, would they still carry $1,000,000 as assets?

Mr. BROWNLOW. Yes; they could do that. He could look at all of their books, which now does not happen, and to make reports. You will see another section where either House of Congress, any appropriate committee of Congress, can call on him to make special investigations.

Representative GIFFORD. To make that illustration, just this one and I am through, for instance, if the Secretary of the Treasury says we have $160,000,000 worth of notes and loans, book value of $160,000,000, when perhaps they are not worth $30,000,000, what then?

Mr. BROWNLOw. The auditor could examine that and under our plan here the auditor also examines receipts as well as expenditures of the Government.

Representative MEAD. Mr. Brownlow, the auditor under existing circumstances can step in ahead of the expenditure and check the expenditure, but under your system he is going to make a postaudit and reveal irregularities in his judgment to the Congress after that?

Mr. BROWNLOW. Most of his work is postaudit now, approximately 90 percent of it.

The CHAIRMAN. Gentlemen, it is necessary to suspend now. The two Houses will be meeting in a minute or two.

Mr. BROWNLOW. Mr. Gulick has a document he would like to file.

Representative Vinson. Mr. Chairman, one question. What changes are made in the submitted drafts? It seems to me that would be helpful to the committee to have lines stricken and lines underscored and brackets used like we have in committees and then we can follow the matter so much better.

The CHAIRMAN. That would be much more convenient.

Mr. BROWNLOW. This one is now the only one that we have submitted. We withdrew the former one and this is merely our report.

The CHAIRMAN. It has no official status.
Senator BYRD. Will this new draft be made part of the record ?
The CHAIRMAN. Yes, sir.

Representative WARREN. May I ask one question? Have you eliminated the salary increases from this new draft?

Mr. BROWNLOW. Ño; this draft is a summary of our report.

Representative TABER. Let us not put it in the record unless he has.

The CHAIRMAN. I think we will not print it in the record unless there is insistence upon it. When will you meet again?

Mr. GULICK. Mr. Chairman?
The CHAIRMAN. Mr. Gulick.

Mr. GULICK. There was some question raised as to the actual provisions of law on audit and control and I believe it is included in my testimony on the 17th and 18th. In view of that fact, I would like to file for the record the exact statement of the provisions of law. It may be valuable.

The CHAIRMAN. Very well. You may discuss them later if any. member of the committee desires you to do so.

(The statement submitted by Mr. Gulick is as follows:) Inasmuch as this committee may proceed to the drafting of an act to deal with the matters submitted to the Congress by the President through his message of January 12, it would seem desirable that we should make available to your honorable body that part of the finance acts of the States of Maine, Massachusetts, and Virginia which bear directly upon the testimony which I presented on February 17 and 18. These are the only States which have within the past 10 years reorganized their systems of fiscal control on modern business principles. (See also recent Tennessee act similar in nature.)

II. STATE FINANCE ACTS

MAINE

Acts and resolves, chapter 216, article II, department of finance SECTION 1. Organization of department: The department of finance shall be organized into three bureaus as follows:

1. Bureau of accounts and control, the head of which shall be the State controller.

2 Bureau of purchases, the head of which shall be the State purchasing agent.

3. Bureau of taxation, the head of which shall be the State assessor.

In connection with the department of finance, the Governor, with the advice and consent of the council, shall appoint a State budget officer, who may be the commissioner of finance.

SEO. 10. Powers and duties relating to accounting: The department of finance, through the bureau of accounts and control, shall have authority:

1. To maintain a system of general accounts embracing all the financial transactions of the State government.

2. To examine and approve all contracts, orders, and other documents, the purpose of which is to incur financial obligations against the State government, to ascertain that moneys have been duly appropriated and allotted to meet such obligations and will be available when such obligations will become due and payable.

3. To audit and approve all bills, invoices, accounts, pay rolls, and all other evidences of claims, demands, or charges against the State government; and to determine the regularity, legality, and correctness of such claims, demands, or charges.

4. To inquire into and cause an inspection to be made of articles and materials furnished or work and labor performed, for the purpose of ascertaining that the prices, quality, and amount of such articles or materials are fair, just, and reasonable, and that all the requirements, expressed and implied, pertaining thereto have been complied with, and to reject or disallow any excess.

5. To make monthly reports on all receipts and expenditures of the State government to the Governor and the State auditor; to make monthly reports on appropriaions, allotments, encumbrances, and authorized payments to the Government, to the State auditor, and to the head of the department or agency directly concerned.

6. To prescribe the forms of receipts, vouchers, bills, or claims to be filed by any and all departments and agencies with the department of finance.

7. To prescribe such subsidiary accounts, including cost accounts, for the various departments and agencies as may be desired for purposes of administration, supervision, and financial control.

8. To examine and approve the accounts of every department or agency receiving appropriations from the State.

9. To report to the attorney general for such action, civil or criminal, as he may deem necessary, all facts showing illegality in the expenditure of public moneys or the misappropriation of public properties,

10. To exercise the rights, powers, and duties heretofore conferred and imposed by law upon the State auditor insofar as these relate to financial administration and general accounting control of the State government involving the keeping of general accounts, the auditing before payment of all bills or vouchers, and the authorizing of all claims against the State for which appropriations have been made.

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