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The Brookings Institution in its study of the financial administration of the National Government has found three major defects in the present system. These defects are:
(1) The budgetary system fails to provide the President with satisfactory implements for centralized budgetary and administrative management.
(2) Existing provisions for the final audit and settlement of accounts fail both to assure complete control by Congress of the collection, custody, and disbursement of public moneys and to require the preparation of current statements of the financial condition and operations of the Government as a whole.
(3) The existing financial procedure permits unnecessary delay in the liquidation of obligations, and the final settlement of accounts.
Our recommendations to overcome these defects are based on three assumptions:
(1) That the President should have adequate current financial data to enable him to exercise full managerial control over the esecutive branch of the Government.
(2) That there should be some effective, independent control to prevent the expenditure of public funds by administrative officers for objects, or by procedures, which are not authorized by law.
(3) That the system should be so designed that it will operate with maximum dispatch and economy.
Let us consider at the outset that second assumption, that there should be some effective control to prevent the expenditure of public funds for objects or by procedures which are not authorized by law.
The Congress of the United States has from the beginning adopted legislation designed to secure such control. In the Continental Congress and under the Articles of Confederation, the device used was to have committees of the Congress settle the accounts of the administrative officers. In the early days, after the adoption of the Constitution, a number of separate officers, each appointed by the President and confirmed by the Senate, were set up in the Treasury, each independent of the Secretary of the Treasury and each serving as a check on the others. One of these officers was the Comptroller of the Treasury.
Congress placed real control in the hands of the Comptroller of the Treasury by providing that his decisions could not be reversed by any officer in the executive branch of the Government. As time passed, the Treasury Department acquired a number of nonfiscal functions. This situation meant that the Comptroller, who was the final arbiter on matters of the legality of expenditures, was located in a great spending department. It also meant that the Comptroller, who was supposed to be sufficiently independent to exercise proper control over the legality of expenditures, was dependent upon the Executive for continuance in office. Indeed, one President is reputed to have said, “I cannot reverse a decision of the Comptroller, but I can fire him."
In the Budget and Accounting Act of 1921, Congress abolished the office of Comptroller of the Treasury, created the General Accounting Office with the Comptroller General as its head, and provided that although the Comptroller General should be appointed by the President for a 15-year term, he could be removed from office only by joint resolution of the two Houses of Congress, and was not eligible for
reappointment. Thus Congress provided for an independent officer, directly responsible to itself, who could prevent the final settlement of any accounts that were not legal.
Federal legislation on financial administration shows clearly that there are two types of control. The first type, administrative control, is exercised by the President as general manager of the Government to see that the laws are faithfully carried out with economy and efficiency. The second type, auditing control, is designed to prevent illegal action by administrative officers.
Administrative control involves the allotment of appropriations among legal objectives within the appropriation, and the time scheduling of appropriations to see that no deficiency is incurred. The President, or his subordinates, have full power to act within the legal limits of an appropriation and the laws prescribing procedure. But neither the President nor any of his subordinates, by virtue of the executive authority, has power to spend money for an object not authorized by law. If Congress has prescribed a legal procedure to be followed in spending for a legal object, administrative officers have no authority to act by any other procedure. They have no authority to spend more than the amount appropriated, even if both the object and the procedure are otherwise legal.
The second type of control is exercised to prevent an unauthorized transaction by the executive branch of the Government. Such control is of a distinctly different nature from managerial control, for it may even involve control of the Chief Executive.
To secure control with respect to the legality of action of administrative officers Congress has, in our opinion, the authority to provide a controlling officer responsible either to itself or to the Chief Executive. In all the years during which neither the President nor any of his administrative subordinates could reverse a decision of the Comptroller on the legality of an expenditure, the right of Congress to pass legislation making this officer thus independent of Executive control has never been so challenged that the right has been passed upon by the Supreme Court. In the absence of any definite decision by the Supreme Court, the question is one which the Congress is still free to determine for itself. We believe that Congress could well continue to provide for final settlement of accounts after audit by an independent officer primarily responsible to it. On the other hand, we believe Congress could delegate final settlement to an administrative officer completely subject to the President. If Congress should delegate the power of final settlement, however, it would obviously relinquish its own control and its ability to recover in part, if not in whole, payments made by administrative officers as the result of unauthorized transactions. It is prevented by its own act from exercising effective control over the expenditure of appropriations. In other words, if Congress should delegate the power of settling ac counts to the Executive, it would allow the executive branch of the Government to audit its own accounts.
We have assumed in our report that the Congress would continue its historic policy of providing for an independent audit prior to the final settlement of accounts, for in a Government of divided powers such as ours, the power of audit prior to final settlement is one of the few devices that the elective representative legislature
has for controlling the administrative officers and preventing illegal expenditures. Our recommendations are, therefore, designed to clarify, augment, and speed up the existing system rather than to alter the principles on which it is based.
To avoid the confusion that has arisen from failure to distinguish between (1) Executive control to promote efficient management and (2) legislative control to prevent illegal transactions, we suggest that the name Comptroller General be changed to Auditor General, and that his office be known as the Office of Audit and Settlement
In our plan we provide for the function of Executive management of legal expenditures through the expansion and strengthening of the Budget Bureau as the President's instrument for Executive management. For the prevention of illegal or unauthorized acts by administrative officers we have left the independent agency under Congress in charge of an Auditor General who will, as at present, audit all expenditures prior to final settlement; and in those rare cases in which the acts of administrative officers are unauthorized or irregular, disallow the expenditures and force the administrative officers who have exceeded their powers to reimburse the Government.
We are well aware of the fact that differences of opinion may arise between administrative officers and auditing officers regarding the legality of an objective or the applicability of laws prescribing a procedure. No little part of the existing conflict and delay results when administrative officers proceed in doubtful cases without authoritative legal advice as to both the legality of the object and the legality of the procedure. They not infrequently find that their fundamental objective is legal but their procedure is illegal, especially in the matter of purchases, construction, and contracts. We believe that much of this difficulty could be overcome, and the business of the Government expedited, if the administrative officers could more easily obtain from the Auditor General advance opinions or preaudits that would settle in advance the question of the legality of the objective and, if the objective is legal, indicate clearly the procedure required by law. The Auditor General has no authority to require an administrative officer to take any action that he does not want to take, nor to require him to spend the appropriation made to him for any particular objective. The Auditor General has no policy-making functions. He has the power, however, to say that a particular action is not authorized by law, or if the object is authorized, how it must be carried out if the Congress has by law prescribed the method. The Auditor General in theory interferes with administrative discretion only if the acts of Congress and the administrative regulations made in pursuance thereof interfere with administrative discretion.
In connection with the matter of delay and friction we should perhaps point out three factors that have made the past 5 years distinctive, and raise the question as to whether any system of financial administration could have functioned perfectly under the circumstances. These factors are:
(1) The size of the executive establishment increased from about 572,000 employees in 1933 to over 800,000 in 1936. This means that hundreds of new administrative officers became responsible for expenditures; and in many instances they were not familiar with the great body of administrative law, statutes, regulations, and decisions that have developed through the years to control the action of administrative officers. Unfortunately, this law has not been adequately codified and it is not easy to master. New administrative officers are to be excused for not knowing it. Then, too, it frequently happens that administrators appointed from private business do not appreciate that in public business they must have legal authority for every action. Acts which are matters of discretion in private business are frequently strictly regulated by law in the National Government, especially in the case of purchases and contracts for construction, where much of the friction arises.
(2) The National Government in the recent emergency embarked on many new undertakings which involved the building of new organizations, the selection of new personnel, and the development of new procedures. The fact that in such a situation administration did not move with the smoothness and dispatch that characterizes an efficient, highly developed, going concern is not in the least surprising.
(3) In the emergency, the Congress adopted the practice of making large appropriations directly to the President of the United States instead of to the bureaus or offices as is the usual procedure. The result was that the President was given great discretion in the allocation of emergency appropriations. At the same time, however, he was placed in a position similar to that of the head of an administrative agency such as a bureau with respect to rendering an account to Congress. In the past when the Comptroller General disallowed a payment of a bureau chief for failing to follow proper procedure, nobody got excited about it, and the newspapers said little about it, if they mentioned it at all. Rarely did it become a major matter of partisan politics. When the great body of administrative law and the decisions became applicable to the President of the United States as a direct spending officer, the whole situation was changed. An official long considered necessary for the adequate safeguarding of the Treasury had to apply law designed for bureau chiefs and other subordinate officials to the Chief Executive, who is also the leader of a major political party. Thus ordinary routine matters of administration became front-page news. Under conditions such as there it is not surprising that friction developed.
That the President of the United States needs adequate financial data to permit of more effective executive management is perfectly obvious. It is equally obvious that the managers of the operating agencies of the Government, the bureaus, and even some of the subordinate divisions of bureaus, especially field establishments, need accounts, accounts in even greater detail than is required for centralized executive control. Likewise, an auditor who must currently see that final payments are not made in excess of appropriations and appropriation limitations must have accounts or be in a position currently to audit existing accounts. The problem is to avoid duplication and waste in the keeping of these accounts, for in an organization as big and as geographically far-flung as the Government of the United States the costs of keeping books runs into the millions of dollars. Expenditures for bookkeeping are essential, but they
do not directly advance the economic and social welfare of the country.
Many enterprises, both public and private, have a central overhead office and operating units scattered over a wide territory. When these operating units require complete accounts in their own offices, it has been found entirely practicable to base the central overhead accounts for managerial control not on complete accounts going back to the original receipt and expenditure documents but on reports from the operating units. In these days of machine bookkeeping and looseleaf books these reports may be carbon copies of the books of the operating units from which totals only are posted to the books in the central managerial office. This system is relatively cheap, efficient, and prompt, and we have been unable to find any obstacle to its use in the National Government. It does not require a great centralized bookkeeping plant in the central managerial office, and it leaves the detailed accounts where they are needed most—in the operating units. We are accordingly recommending the use of this system in the Bureau of the Budget. To use commercial terminology, the bureaus of the Government are its operating subsidiaries and several of the departments are virtually parent companies. The President's office is not an operating office; it is a great central agency for overhead control of the greatest network of operating subsidiaries and parent-company departments in the country. It seems to us that the President's office should not be confused with that of the head of an operating unit.
To audit the accounts in the National Government the auditors must examine the original expenditure documents for their legality, accuracy, and regularity. They must either check the entries on the administrative books, keep a duplicate set of books, or get copies of the administrative books with the original expenditure documents. To check the entries on the administrative books of so widely scattered a service as that of the National Government would be slow and expensive. Under the present system the device of control books and transcripts is used, and to us it seems the most efficient and practical system to meet the needs of the situation. We do not recommend any radical change, although by decentralizing auditing we would provide for more prompt passage on the legality of transactions, so that that necessary part of auditing could, insofar as possible, be done in advance.
To prevent duplication in the bookkeeping of the Government and to make a single efficient system serve the three major needs of (1) complete, detailed accounts in the operating units, (2) central managerial data in the President's Bureau of the Budget, and (3) necessary accounts in the auditing office to control legality of expenditures, we recommend a cooperative committee further to develop the bookkeeping system of the National Government. If this committee is unable to agree, that fact should be reported to Congress for its consideration. Pending congressional action, we believe the Auditor General should have the power to prescribe such accounts as are necessary for efficient auditing to establish the legality of the acts of administrative officers.
In conclusion may we again emphasize the fact that we distinguish between executive control for the purposes of management and audit