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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 effiicient 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 auditing control to prevent unauthorized or illegal expenditures. We believe that these two types of control are essentially different and should not be consolidated under the Executive.

Senator Byrd. Mr. Meriam, would you explain to the committee the changes in the existing organization that your recommendations would bring about?

Mr. MERIAM. We have here, Mr. Senator, a three-column chart which compares the existing system with the system that we have proposed and the suggestions of the President's committee, Committee on Administrative Management. We have copies of this chart, and they will be distributed.

Existing and suggested financial procedure

I. Existing system

II. Suggestions of the Presi.

dent's Committee on Admin-
istrative Ma ment

III. Suggestions of the Brookings


1. Accounting: Forms and proce- 1. Accounting: Transferred to 1. Accounting: Should be ACdures prescribed by General Secretary of Treasury.

counting Division under Accounting Office.

Director of Budget. Forms and procedures should be concurred in jointly by Director of Budget and Auditor General. (See

below.) * 2. Budget: Nominally under Secre- 2. Budget: Under the President. 2. Budget: Place directly under tary of Treasury. Limited Expand organization.

President. Expand funcfunds available.

tions and organization. 3. Apportionment of appropriations: 3. Apportionment of appropri- 3. Apportionment of appropri. Made by Budget Bureau.

ations: No change.

ations: No change. 4. Allotment of appropriations: 4. Allotment of appropriations: 4. Allotment of appropriations: Made by departments and bu- No change.

No change. reau heads. 5. Encumbrance of appropriations 5. Encumbrance of appropri- 5. Encumbrance of appropri

and allotments: Made by de- ations and allotments; ations and allotments: Made partments and bureau heads. Made by departments and by department and bureau Approval of contracts obtained bureau heads. Approval of heads. Approval of confrom Comptroller General.

contracts obtained from

tracts obtained from Audi. Secretary of Treasury.

tor General. 6. Disbursements: Vouchers drawn 6. Disbursements: No change... 6. Disbursements: No change by departments. Checks

except to expedite payments. drawn by Treasury disbursing

officers. 7. Final settlement: Made by Comp. 7. Final settlement: Made by 7. Final settlement: Made by

troller General, responsible to Secretary of Treasury, with- Auditor General, respon. Congress.

rulings by Attorney Gen- sible to Congress.

eral on major legal issues. 8. Audit: Made by Comptroller 8. Audit: Made continuously by 8. Audit: Made continuously by General, responsible to Congress. Auditor General, respon

Auditor General, respon. sible to Congress but with- sible to Congress, with pow. out power to disallow pay. er to make suspensions and ments.


The CHAIRMAN. Can you state the distinctive or important differences between your plan of accounting and that which is now in force?

Mr. MERIAM. We would expand very materially the accounting data that are available for the President in the Bureau of the Budget. We would get the data for that expanded system of accounting, not by having the original expenditure documents go there and a very large expansion of the bookkeeping staff but through reports made to the Budget Bureau from the necessary accounts kept in the operating units. The forms for those accounts should be made jointly and cooperatively between the Auditor General and the Chief of the Accounting Division in the Budget Bureau, because it is entirely possible to develop one system of accounts that will furnish all the necessary data and all the necessary books for the entire system.

The second change which we would make is in the Budget Bureau. The Budget Bureau as it is at present set up is nominally under the Treasury Department. We would prefer to have it made an independent establishment, directly under the President, not within the Treasury Department at all, and we would expand the functions of the Budget Bureau, both with respect to the accounting and with respect to the machinery, for following the efficiency and economy of the operations of the Government, and we would further expand it for the purpose of coordinating the activities of the various departments.

The CHAIRMAN. May I ask you in that connection: What would be the advantages, in the opinion of the organization, in making the Bureau of the Budget an independent agency directly under the President? Would it in fact be an independent agency if it was put under the President?

Mr. MERIAM. I think it would be more of an independent agency than it is at the present time. One of our major objectives in having it an independent agency is that we do not like to see control agencies--and by "control agencies” I mean both the Bureau of the Budget and the Comptroller General, or the Auditor General, as we call him in a large administrative department which has many functions of expenditure in operation and management. In our judgment, the control agencies and the coordinating agencies should be independent and directly under the President, so that they do not get involved in the same problems of management, control, and operation of the great spending agencies that are involved in all the other major departments.

Senator BARKLEY. As a matter of fact, the Bureau of the Budget is not under the Secretary of the Treasury now, is it?

Mr. MERIAM. No, sir.
Senator BARKLEY. It is only housed in the Treasury Department.
Mr. MERIAM. It is only housed in the Treasury Department.

Senator BARKLEY. It just so happens that the present Acting Di. rector is also an officer of the Treasury.

Mr. MERIAM. Yes, sir.

Senator BARKLEY. Which leaves the impression that it is really under the Secretary of the Treasury, but, as a matter of fact, it is not.

Mr. MERIAM. That was a compromise that was put into the Budget Accounting Act in 1921, when the House demanded that there be an independent agency and Senator McCormick advocated that it be under the Secretary of the Treasury, and the compromise was to put it nominally under the Secretary of the Treasury.

Representative TABER. Well, he really always has been an outand-out independent agent, except perhaps the last couple of years; is that not true? General Lord, General Dawes, and Mr. Douglas unquestionably were independent agents; is that not correct?

Mr. MERIAM. Yes.
Representative VINSON. An independent agency?
Mr. MERIAM. He was virtually independent.

Representative Vinson. He was virtually independent but he was not an independent agency.

Representative TABER. He was not under the Secretary of the Treasury.

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