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Mr. William F. Willoughby, who was director of the institute from 1916 to 1932, was adviser to both the Senate and House committees which drafted the Budget and Accounting Act of 1921. In the preparation of the section of that act which provides for an independent audit prior to final settlement, the congressional committees were assisted by Judge Warwick, who at that time was Comptroller of the Treasury. Although the law then in force provided, as it had from the beginning, that the decisions of the Comptroller of the Treasury could not be reversed by any officer in the administrative branch of the Government, Judge Warwick believed that the situation required a higher degree of independence for the Comptroller General and the Congress so provided in the Budget and Accounting Act of 1921. The functions of audit and final settlement were taken out of the Treasury Department, which had become a great operating spending agency, and these functions were placed in the General Accounting Office under the Comptroller General, who although appointed by the President for a 15-year term could only be removed by a joint resolution of Congress.

With respect to the National Government, the Institute for Gorernment Research has not changed its views that final settlement of accounts should only be made after an audit by an independent auditor who has full power to disallow an illegal or irregular payment.

When in 1925 requests began to come to the institute from the States for assistance in the reorganization of the State governments, the institute did some work in that field.

The members of the staff of the institute who did the State work were impressed by the marked practical differences that existed between State governments and the National Government. No State approached the National Government in size, area, diversity of activities, or amount expended. None of them had the Federal practice of making conditional payments, promptly, through bonded disbursing officers whose accounts were subsequently independently audited prior to final settlement. Since in the States all the financial and budgetary officers, with their small number of employees, were located in the same city and generally in the same building, and since the control books were similarly centrally located, the institute never found the necessity for recommending the more elaborate Federal system in any of the States which were studied. To the staff members a proposal to install the decentralized Federal system of disbursing and accounting in the States would be as impracticable as a proposal to use the centralized State systems in the Federal Government. From the standpoint of practical operation the two systems are not comparable, for the Federal Government with its great area, its numerous field establishments, its foreign service, and its ships at sea, cannot operate with a highly centralized system. It must have a decentralized system with mechanisms for prompt, though conditional, payments subject to an audit prior to final settlement of accounts of the administrative and disbursing officers. In the States a postaudit after final settlement can be made immediately following the payment and the auditor and his few assistants can check the books of the other fiscal officers. In the Federal Government a postaudit after final settlement cannot in many instances be made until months after the transaction has taken place

and often it can be completed only at Washington where the central control books are kept.

It is obvious to anyone who reads the extracts from our State reports that, in being practical rather than theoretical, we followed one principle in the States and another in the Federal Government. That inconsistency was never discussed by the staff until recently, when the argument was made to us that the Brookings Institution should become consistent by reversing its 20-year stand with respect to the Federal Government, which its staff members have been studying intimately for those 20 years, both from within and outside the Government service.

Discussion within the staff naturally turned on the question of principle. After full discussion the staff agreed unanimously that the governing principle for proper financial control in American governments with divided powers is that final settlement should be made only after an audit by an independent auditor, responsible either directly to the people or to the representative legislature; and that this independent auditor should have power to disallow an illegal or irregular payment and hold the administrative officer responsible for the illegal or irregular expenditure on his bond.

Attention should again be called to the fact that the movement in the States for what has been called the strong executive is a development of the past 25 or 30 years. From colonial times to the beginning of the present century the customary pattern in State government was the strong legislature and the weak executive. As the importance of administration grew it became apparent that the States needed a general manager and the logical person for general manager appeared to students of public administration to be the governor. All surveyors of State governments made recommendations in that direction. It must be admitted by them all that these movements were in the nature of experiments and that the results of the experiments could not be determined for some years.

Students of public administration generally agree that the time has come for the evaluation of these experiments. Representative Gifford, of Massachusetts, at the hearings expressed himself with some force regarding his views on the results in Massachusetts and many persons in other States which have reorganized share his doubts as to the unqualified success of the various theories when applied in practice.

At the Institute for Government Research we have been slow to accept the existence of fixed principles of public administration that have not been proved and demonstrated beyond doubt or argument. We do not regard public administration as something which can be set up on the basis of the theory. Insofar as theory is concerned we believe it must be gradually developed through experience. All we can hope to do is to get the facts of the existing situation as completely as possible and to use our best judgment in the presentation of recommendations based on those facts.

In this developing field it seems to us essential to maintain a thoroughly objective attitude; otherwise we should not be able to realize the benefits of judgment ripened by experience.

In conclusion we repeat that in the light of all the facts we recommend for the Federal Government a system which provides for an


audit prior to final settlement by an independent auditor with power to disallow illegal or irregular payments and collect on the bond of the official responsible.

The CHAIRMAN. Are there any further questions to be asked of Mr. Meriam ?

Representative TABER. I have some, Mr. Chairman, if no one else cares to ask any questions at this moment.

Mr. Meriam, I want to ask you this, in connection with the audit of Government accounts. There are, as I view your statement that you made to us this morning and the other day, two outstanding features: The first is that the audit should be made by an officer or an office which is absolutely independent of the executive departments and the spending agencies?

Mr. MERIAM. Yes, sir.

Representative TABER. And the second is that that auditor should make the audit in such a thorough way that no other audit, other than the ordinary accounting in the departments, would be neces sary, and that the auditing officer would have the power to settle accounts.

Mr. MERIAM. Yes, sir.

Representative TABER. As to whether or not the power to settle accounts and to make this audit was a legislative or executive function would depend upon the conclusions—as to how that officer might be set up would depend upon the conclusions that the Congress might arrive at after it had studied that situation.

Mr. MERIAM. Precisely, sir.

Representative TABER. But the independence of the audit, that is to keep it out of the control of the spending agencies, is a matter of extreme importance.

Mr. MERIAM. Yes, sir; that is our position.

Senator BYRD. Mr. Meriam, the President's Committee testified that the existing system of financial supervision had proven a fail

What is your opinion about that? I am speaking about the basic principle, not of some details.

Mr. MERIAM. We see no great body of facts that warrant any such conclusion. We are perfectly willing to admit that the present organization and procedure is not perfect, it is subject to material improvements in detail. We have attempted to make recommendations toward the development and perfection of those details. But we have been operating under that system since 1921. It is not so radical a departure from the earlier system as many people think, and we see no evidence to indicate that the system has in any sense failed.

We appreciate that in any system of control, whether it is control by the Budget or whether it is control by the auditor on final settlement, conflicts are going to arise. If there was no opportunity of conflict I do not suppose there would be any necessity for control. Control means a certain number of conflicts. There is always bound to be a certain amount of friction. There is always bound to be a certain amount of personalities involved, but that is inherent in any human system.

As I tried to point out in my opening statement on this first day, the last 5 years have been an extremely difficult period in public administration because of the necessity of enormous expansion in


the Government service, and bringing in of large numbers of people to undertake new enterprises, and it is inevitable, under those circumstances, that there should be difficulty, and perhaps more friction.

Senator BYRD. How much has been expended under this present system?

Mr. MERIAM. Do you have the total expenditures under the present system? Do you have the figure in your mind?

Mr. SELKO. No, sir; but I can get that statement and insert it in the record, if you wish, Senator Byrd. I am sorry that I do not have that in mind.

Senator BYRD. Mr. Meriam, you are familiar with the President's committee's proposal, are you not?

Mr. MERIAM. Yes, sir.

Senator Byrd. To what extent do you think that will increase costs as it now exists?

Mr. MERIAM. Well, Mr. Selko has some estimates along that line. They are very difficult estimates to make, but we have some approximate estimates.

Mr. SELKO. Senator Byrd, as Mr. Meriam has suggested, it is very difficult to make an estimate of the additional expense involved, since we cannot be absolutely certain as to how the President's committee's proposals would be effectuated, but suppose we assume that the audit for final settlement and the necessary control accounting which is now done in the General Accounting Office were to be transferred to the Treasury Department, it seems to us that it would be necessary to duplicate the establishment which now exists for that purpose, or, we will say, just leave the establishment which exists for that purpose.

Now, if it were then required to perform a postaudit, which was a thorough postaudit designed to advise Congress of every irregularity or illegality in expenditure, to make a complete and comprehensive report on all expenditures made it seems to us very likely that a staff comparable to the size of the existing General Accounting Office would be necessary to perform such a functon.

Senator BYRD. Well, if that is correct, what would be the additional cost each year?

Mr. SELKO. The additional cost on that basis, assuming no other larger organization were involved in placing postauditors in the field, or anything of that kind, we would estimate that the present cost of the General Accounting Office might be duplicated, which is about $8,000,000 in round numbers.

Senator BARKLEY. We have spent a lot of time here talking about bookkeeping, postauditing, preauditing, checking and doublechecking, all of which is important but which is only one phase of this question that this committee has undertaken to consider, and I think we have spent a disproportionate time to consider it. Has the Brookings Institution been asked to make any investigation or has it made any report with respect to the big question of reorganization, of consolidation of departments, bureaus, agencies, and the other things?

Mr. MERIAM. Yes, sir. We have divided the activities of the Government into several fields, broad fields of activity, and we have prepared reports on each of those broad fields. They are being submitted now. I think Dr. Powell said yesterday that he thought the remaining ones would be ready to come to the Senate committee at about a one a day now.

This system of cooperative research that we use at the Brookings Institution holds us up every now and then, because we have to get the group in complete agreement. Now, in my judgment most of those disagreements have been washed out and the reports will be coming to the Senate committee. I think, Senator Byrd, probably we can clean this thing up. There is one report on public works that we haven't been entirely satisfied ourselves with, because of the very complicated nature of water and water control, and we are trying to strengthen the report along that line, but I think that work is very nearly done.

Senator BYRD. I would like to state for the benefit of the Senator from Kentucky that Mr. Meriam and the Brookings Institution are appearing here at the suggestion of the chairman with respect to this particular matter. The chairman recalls that he asked them to appear in regard to this accounting proposition.

Senator BARKLEY. I am not questioning that at all. That matter has been gone into. The other phase of this investigation has not been touched upon.

The question of whether your system or the President's committee's recommendations will be a little more or less expensive by a few million dollars is largely a question of opinion and estimate. There isn't going to be enough saved by either plan to enable the United States to declare an extra dividend unless Congress quits appropriating so much money. I am not saying whether I am for or against that, but the saving of money is going to be the result of appropriations, not the result of any bookkeeping or bonding, or any of these technical matters that go on within the department.

Mr. MERIAM. I wish it would not cost us such a tremendous amount of money to handle these accounting matters, these details of bookkeeping. That is one of the things that always distressed me when I was in the service, how much money we had to spend to keep thuse detailed things straight. I am sorry, Senator, that it involves such large numbers, but it is a very expensive matter.

Senator BARKLEY. Leaving out the question of whether one system or another might save a few million dollars, does the Brookirgs Institution regard this matter, the whole subject that we are considering, the subject of reorganization, consolidation, the grouping of these different bureaus, 130 odd, that are independent of anybody, does the Brookings Institution regard that as the more important phase of our duties here, or do they regard the question of bookkeeping, the saving of a few million dollars, or the increase of a few million dollars in the cost of auditing as more important ?

Mr. MERIAM. Well, sir, we are of the opinion that insofar as the Federal Government pays for the cost of administration of course, as we all know the costs of administration constitute a relatively small part of the expenditures of the Federal Government–if you are going to make savings in administration you are not going to find one great big place where you can show savings through administration. The gross savings are the sum totals of relatively small savings at different points. This matter of, say, three or four million dollars here and few hundred thousand there, or something else some where else, taking them all together, they will amount to an appre

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