States, and if you had further recommendations to make they would be in accordance with the recommendations you made with regard to the Federal Government?

Mr. MERIAM. Yes, sir.

Senator BARKLEY. Have you changed your views as to whether a preaudit is an executive, administrative, or legislative function? Mr. MERIAM. Yes, sir.

Senator BYRNES. I just want to say, if you have changed your views, that the Oklahoma report was in 1935, 2 years ago.

Mr. MERIAM. Yes, sir.

Senator BYRNES. And since then you have changed your viewpoint?

Mr. MERIAM. Yes, sir.

Senator BARKLEY. Did all these legislatures adopt the plan that you submitted to them in your suggestions?

Mr. MERIAM. No, sir; I do not think they did.

Senator BARKLEY. Did any of them?

Mr. MERIAM. Yes; some of them have adopted them.

Representative BEAM. Were auditors elected as executives in these various States that you have mentioned, or were they appointed? Mr. MERIAM. I do not recall. A great many of them have elected auditors. The fact is that a good many writers on financial administration are in exactly the same boat with us. On the question whether final settlement of accounts should be under the executive or under an independent auditor responsible either to the legislature or directly to the people, they can be quoted on either side. The explanation is to be found in the evolution and development of public financial administration and executive management in the United States.

As we all know, our Colonial forebears were extremely distrustful of the executive because of their conflict with the crown. Colonial executives had represented the crown. Thus for more than a century our States followed in practice the pattern of a strong legislature and a relatively weak executive. In the meantime, the functions of government expanded, bringing about a large increase in the size of the administrative branch of government and in the diversity of its activities.

Early in the present century came the movement to strengthen the executive as the business manager of the administrative branch of the government. The central reform was the substitution of the executive budget for the legislative budget, which meant that the initial budget estimates and recommendations for the administrative branch should be drafted as whole by the Governor as his administrative program and not by legislative committees, acting on the uncoordinated recommendations of the various administrative agencies.

Practically all Government research agencies accepted this principle that the executive should be made the responsible general manager of the administrative machine. Surveyors of State administration almost invariably recommended the establishment under the executive of an office of financial control, a budget bureau. It was the agency through which the executive formulated the budget. and exercised managerial control over the operating units in the

execution of the administrative program as adopted by the legislature on executive recommendations.

Speaking now only for our own group at the Institute for Government Research, I think we should confess frankly that we did not, in our own discussions, distinguish sharply enough between (1) executive control for the purposes of efficient and economical management and (2) auditing control to prevent administrative officers from making an illegal payment. We did not take a stand on this issue as a matter of principle; rather we worked out each case individually. We saw clearly that the mechanical problems of organization and procedure are essentially different at the two levels of government. The States are relatively small and compact. The spending agencies are so close to the capital that there is little delay in getting financial documents to the center. The books of all fiscal officers, comptroller, treasurer, and auditor, are at least in the same city if not in the same building. It is a simple matter to devise a system that will give reasonably satisfactory results, without the decentralization in financial administration that is essential in the National Government.

We have now given the subject far more thorough consideration than we ever have before; and we have reached the conclusion that in principle there should be no distinction between the different levels of government, and that in a democracy which has a government based on the division of powers, audit for legality and regularity should precede final settlement, and that such audit should be made by an auditor independent of the executive, an auditor elected by the people or appointed or controlled by the legislature.

Time

Senator BYRD. Mr. Meriam, as a matter of fact, there is a very vast difference between a State and a Federal Government. and time again in this hearing the question has been brought up that because States have done certain things, that because members of this committee, perhaps, have advocated certain plans for the States, that that plan would be perfectly satisfactory to operate with the Federal Government.

Now, I want to take the time of the committee very briefly, because Virginia has been mentioned in this matter time and time again by Mr. Gulick, claiming that the plan that he is advocating here is the same plan that we have in the State of Virginia. I want emphatically to disagree with that and point out great difference between the two plans.

The Virginia plan has a comptroller who is appointed by the Governor. They have an auditor of public accounts elected by the general assembly, who is absolutely independent of the Governor. The Governor does not appoint him; he is an entirely independent officer.

Then the attorney general of the State is elected by the people, and all decisions with respect to matters of appropriations and other things are decided by the attorney general. His decision has the full force and effect of law, unless he is reversed by a court, which gives another independent check on the executive.

Now, the plan that is proposed here

Representative VINSON. Senator, what is the function of the

auditor?

Senator BYRD. I will bring that out later. The plan that is proposed here gives to the Secretary of the Treasury the control audit. Incidentally, we should all understand, I think, that the control audit is merely to see that the limitations and other legal qualifications of an appropriation are carried out by the spending official, whoever he may be. That control audit is not supposed to control the policies, or anything like that, but it is merely to give to Congress an opportunity to see that the appropriations made are expanded in accordance with the law. That is the fundamental question, as I see it.

The Secretary of the Treasury, to whom this control audit is given under the plan by the President's committee, is one of the largest spending officers of the Federal Government. I have inserted into the record the amount of money that this agency, this department of government that would audit its own accounts, would expend for administrative purposes, which would be approximately $1,000,000,000, excluding debt retirements and excluding the emergency appropriations. It will spend nearly one-third of the normal expenses of the Government, and to that extent will audit its own

accounts.

Under this plan an appeal can only be taken to the Attorney General, and there is no one to take it there within the office of the Secretary of the Treasury; therefore, no appeals will be taken, and that protection will be eliminated.

Under the Virginia plan, and all State plans, the comptroller is not a spending official. For instance, in Virginia he only expends about $76,000, which is for the payment of his employees, out of a total budget of $45,000,000, or a fraction of 1 percent.

In the Federal Government, as I have just said, the Treasury will spend about one-third of the normal expenses of the Government, excluding debt retirements and excluding emergency expenditures. Another difference, of course, is that the average State would spend from $40,000,000 to $50,000,000, and the Federal Government is spending on the basis of about $10,000,000,000 a year, including debt retirements.

In Virginia and I bring that up merely because of the fact that Mr. Gulick, Mr. Merriam, and Mr. Brownlow have endeavored to create the impression that the same plan that they recommend here was made operative in Virginia when I was Governor-I want to call your attention to the fact that there is another difference, and that is that the auditor of public accounts in Virginia has the right to prescribe the accounting methods and the system of bookkeeping, while the plan here transfers that power to the Secretary of the Treasury and takes it out of the hands of the Auditor General.

Representative VINSON. Does the auditor have power there to make the preaudit?

Senator BYRD. Just 1 second and I will answer that. In Virginia the auditor of public accounts has this authority, which is very much greater, to prevent the illegal expenditures than they have under the plan proposed by the President's committee. I will quote from the law:

The auditor

That is the auditor of public accounts

can investigate expenditures to determine if unauthorized, illegal, irregular, or unsafe handling, and if such expenditures are contemplated before actual disbursement is made and you can report to the Governor, the members of the auditing committee of the general assembly and comptroller, and make public to the people such instances of unauthorized, illegal, irregular, or unsafe handling of public funds.

Under this plan the auditor can only make a post-audit on a settled account, because that is so stated in the bill. Under the Virginia plan, if an illegal, irregular, or unsafe handling of funds is in contemplation the auditor of public accounts can make public such irregularity and make a report to the Governor and to the general assembly.

So I want to submit, Mr. Chairman, that while it is very interesting to see what has been done in the respective States, as a matter of fact the condition is very different from what has been done in any of the States that have been mentioned as compared to what the President's committee recommends in regard to the Federal Government.

Mr. SELKO. I would like to add just a brief remark to what the Senator has just said. It should be understood that in taking the position we do, in presenting the statement that Mr. Meriam read, it should be understood that we have in mind a state with a system of divided powers, such as exists in the Federal Government. We would not say, for example, that the fact that the attorney general is elected by the people in Virginia does not distinguish him from the Attorney General who is appointed by the President in the Federal Government. Such comparisons are needed to bring out the differences which exist before our statement should be taken unqualifiedly.

Senator BYRNES. In this report that I have read there is no mention made of Virginia. There isn't any question between us. You do not claim that there is a difference between the State governments and the Federal Government? Both of you have said the principle was the same, and Mr. Meriam has said in his written memorandum; since they have had time to give further study to it they have changed their views on it, is that correct?

Mr. MERIAM. Yes, sir.

Senator BYRNES. That is your position?
Mr. MERIAM. Yes, sir.

Mr. SELKO. We have changed our views with regard to the principle.

Senator BYRNES. You have? Mr. Meriam says "no." Who speaks for Brookings?

Mr. MERIAM. Wait a minute now. Let us get this perfectly straight.

Senator BYRNES. Yes; let us do that.

Mr. MERIAM. We have never before, in the history of the institution, sat down as a group and debated that principle. We have always recommended with respect to the Federal Government virtually the present system.

With respect to the State governments we have developed the recommendations on the basis of what we found in that particular State, without much reference to this question of principle. We

have done it rather on the basis of endeavoring to get the States to develop an adequate budget system.

Now, within the last few months we have had conference after conference within the staff with respect to whether you can have a definite principle which is applicable alike to the State governments and to the Federal Government. The opinion of the Brookings Institution, after those conferences, is that we can recognize that as a general principle, although we had not so recognized it before. We have been proceeding without particular reference to the principle in our previous studies, particularly in the States.

Now, we are of the opinion that the principle which we have always applied with respect to the Federal Government is the correct principle to apply in general, and likewise to apply in the States, because we have recognized more clearly than we had before that this is not a matter of preaudit and postaudit, it is a distinction between the type of control that is exercised by the President for purposes of administrative management, managerial control, and the type of control which ought to be exercised by an auditor to prevent an illegal or irregular payment. Now, whether you do it post or pre is a matter of practicability under a given set of circumstances.

In the Federal Government we have long had this system of conditional payments made by the disbursing officer in advance of the final settlement.

Because of the nature of the Federal Government, with its employees not only all over this country but all over the world, you have to have a system of decentralized payment, prompt payment, for the sake of the expedition of public business. So that in dealing with the Federal Government we have always been dealing with a practical situation, which is entirely different from the practical situation which exists in any other States.

Senator BYRNES. Have you ever filed a recommendation anywhere that the Federal Government should adopt the policy that you now urge, and, if so, in what report?

Mr. MERIAM. Yes, sir. As a matter of fact, in the passage of the Budget and Accounting Act of 1921, Mr. W. F. Willoughby, who was then the Director of the Institute for Government Research, was a technical aide to Representative Good of the House and technical aide to Senator McCormick in the Senate, and the budget part of that act was largely drafted in consultation with him. The Comptroller General part of that act, he tells me-I did not participate in that particular branch of the work-was, in the main, drawn by Judge Warwick, who was then the Comptroller of the Treasury, and Judge Warwick was familiar with the difficulties which had arisen in the administration of the previous system. If I recall correctlyI am not quite sure on this-I think Judge Warwick was a member of President Taft's Commission on Economy and Efficiency. If he was not a member of it he was one of their close advisers.

So in that Budget and Accounting Act, in all the hearings, Mr. Willoughby was before both the Senate and House committees, sometimes day after day, and you will find that there is a flat-footed statement that the Comptroller General should be in the legislative branch. We have a complete monograph, I believe it is now out of print, on the General Accounting Office.