The CHAIRMAN. With respect to the last statement, are you convinced that the plan you have proposed would shorten delay? Mr. SELKO. Yes, sir. The CHAIRMAN. You do not think that a general postaudit, such as you and Mr. Meriam have described, would result in greater delay than now occurs? Mr. SELKO. No, sir. We would not add to the delay in making the postaudit which is made at the present time, by our proposals, as I see it. The CHAIRMAN. That is not quite responsive to my question. Perhaps the fact that the question may not have been clear is responsible for it. My question is whether to establish such a preaudit system as your report and recommendation contemplates, would increase or shorten delay? Mr. SELKO. It is our opinion, Mr. Chairman, that it would greatly shorten delay. That is, it would hasten both the payment and the settlement of accounts for the administrative and disbursing officers to be able to avail themselves of advance information as to legality and regularity. The CHAIRMAN. Your plan with respect to a preaudit is that any administrative officer, when in doubt, or when he desires to do so, could go to the General Accounting Office, or whatever other name the authority may be called, and have the proposal for expenditure passed upon and approved in advance, so that subsequently there would be no necessity for a postaudit with respect to the matters that might be determined in the preaudit? Mr. SELKO. Yes, sir. That is now the law. The CHAIRMAN. Does the law authorize the administrative office to have his accounts preaudited? Mr. SELKO. Yes, sir. The CHAIRMAN. What provision of the law do you relate that to? Mr. SELKO. Title 31 of the code has a section in it which provides that specifically. I believe I read it here yesterday. That was provided by section 8 of the Dockery Act. The CHAIRMAN. Of course, if this plan is agreed to it means a preaudit is to be relied on rather than a postaudit. Of course I understand that your plan does not contemplate dispensing with the postaudit, because it would be necessary to see that the terms of the preaudit were functioning, is that right? Mr. SELKO. Yes, sir. The CHAIRMAN. But in all cases where there is a likelihood of a controversy arising the officer who has the responsibility in the first instance would go to the General Accounting Office and have it passed upon before he spent the money? Mr. SELKO. Yes, sir. The CHAIRMAN. Then if he did that and the expenditure were approved that would determine all questions except whether the expenditure were made in conformity to the preaudit? Mr. SELKO. Yes, sir. The CHAIRMAN. And your theory is that, taken generally, that would shorten the accounting rather than draw it out? Mr. SELKO. Yes, sir. The CHAIRMAN. That, of course, means that in order to protect himself the executive officer, the disbursing officer would, in all cases where a probable doubt would arise, avail himself of the preaudit? Mr. SELKO. Yes, sir. The CHAIRMAN. It would enlarge very much the practice that is now being pursued of occasionally having preaudits? Mr. SELKO. Yes, sir. The CHAIRMAN. In what cases, now, can you say, does preaudit occur, or is it of such a diffused nature that it is not possible to classify the cases? Mr. SELKO. It is possible to classify them. The preaudit occurs most generally in the case of transportation vouchers. A regulation of the General Accounting Office, regulation 13, contemplated doing away to a large extent with the necessity of a traffic audit in the administrative establishments, to speed up the settlement of the numerous detailed accounts with transportation companies. As you will recall, the law regarding travel of Government employees is greatly complicated by the existence of such things as the necessity for their taking a land-grant railroad when it is possible, to save money by that means, and this regulation was designed to shorten up the audit by having the transportation vouchers sent directly to the General Accounting Office for direct settlement. However, the practice has been, in the majority of cases with regard to transportation vouchers, to have them handled by preaudit. That is, the vouchers are sent to the administrative establishment, the administrative establishment certifies the vouchers as to their authority, that the money was spent for authorized purposes, and that there was a balance available in their appropriation, and then they send that to the General Accounting Office for examination and approval, and the General Accounting Office examines the voucher for its regularity, accuracy, and legality, and then certifies it back to the administrative officer for payment by the disbursing officer. The CHAIRMAN. So that when it passes the General Accounting Office disputes which might otherwise arise after the money is expended would be settled in advance? Mr. SELKO. Yes, sir. The CHAIRMAN. And only questions arising out of the manner of the expenditure, and as to whether it had been in conformity to the decisions of the preaudit, would arise? Mr. SELKO. Yes, sir. That can largely be taken care of by an examination of the total amount spent from the face of the check, and the face of the voucher. The CHAIRMAN. Have you, during the course of your studies, or any of you, found evidences of fraud or dishonesty in the accounting system as now pursued? Mr. SELKO. No, sir. The CHAIRMAN. You think that a reorganization under the plan you have proposed would eliminate the defects that you have spoken of and summarized this morning? Mr. SELKO. Yes, sir. The CHAIRMAN. And you think it can be better done in that way than it would be done under the plan proposed by the President's committee? Mr. SELKO. Yes, sir. The CHAIRMAN. There was published in the Washington Herald of today an article by Mr. George Rothwell Brown in which he presumes to quote some of the testimony given during the executive sessions of the committee, or rather, there is a reference to the testimony, and he states his conclusions as to the effect of that testimony. Among other things, he declares that a witness supporting the plan of the President's committee has declared to the committee that the worst system of accounting is to be found now in the Treasury Department. As a matter of fact, the record shows that that criticism to which he refers, was based on the scattered condition of the Treasury system of accounting. For instance, on page 625 of the hearings of March 19 Mr. Buck, in a statement to this committee, referred to the set-up in the Treasury as bad, and justified his statement by saying that while the statement was rather extravagant, it is a terribly scattered accounting system. How does your plan deal with that subject? Mr. SELKO. We refer to the Treasury system of accounting not so much as scattered, but as containing elements which it does not require for purposes of information of the Treasury Department, and that it is not as simple as it might be. The CHAIRMAN. I know this was not even reputed to be your statement, but I wanted to yet your view about that. Do you know what was referred to there when the witness said, "It is scattered", to use his exact language, “Terribly scattered"? Mr. SELKO. No, sir; I do not know to what he referred when he made that statement. The CHAIRMAN. Well, he did not elaborate it in that connection, but he did make the statement that the principal defect in the Treasury system of accounting is that it is scattered. I presume he meant organization. What I was trying to arrive at was whether he had given consideration to that phase of the Treasury accounting system? Mr. SELKO. We have given consideration to the Treasury accounting system and to what, in our opinion, would be an improvement of the system of the Treasury. The CHAIRMAN. Can you tell us how it is scattered? Mr. SELKO. No, sir; I cannot. The CHAIRMAN. You do not know what he meant by that? The CHAIRMAN. Of course, he should have been asked about it at the time more definitely, but that was not done; and I am trying to get the information from you, if you have it. You have made some reference to a centralized system, if I remember correctly. sir. Mr. SELKO. Of budgetary and administrative management; yes, The CHAIRMAN. Yes. Just what do you mean by that in relation to the present system? Mr. SELKO. Well, we conceive of the present system of budgetary and administrative management as being intended as a centralized system; that is, we conceive of the Budget Bureau as an agency of the President, to assist him in exercising his Executive authority with respect to the administrative establishments, with information at hand which will enable him to do so in a centralized manner. That is so that he does not have to deal with each head of an agency separately on each particular question that arises. The CHAIRMAN. You haven't given special thought, I take it from that answer, to the centralization or decentralization of the administrative system of accounting as it affects the Treasury, have you? Mr. SELKO. Yes, sir; we have given very considerable consideration to that question. The CHAIRMAN. Well, I want to get your reaction to that. The CHAIRMAN. I am trying to get the distinction, if I can, between the prevailing system and the system you propose with respect to centralization and decentralization. Mr. SELKO. Yes, sir; we assume that because of the decentralized administrative system itself, and the enormous size of the Federal Government and its wide geographic distribution, and the necessity which administrative officers have on their own part for detailed information regarding the accruing liabilities under their appropriations, and the definite knowledge they need to have of whether or not they are attaining the objectives which they are instructed to attain, we assume that it is necessary for each spending agency to have such detailed accounting system as it needs for its own purposes. We assume that is the first necessity. Now, that necessarily means a decentralized accounting system as the basis. I should think it would be folly to take away from the Department of Agriculture, for example, such administrative books as it or any of its administrative agencies need for proper administration. Senator BYRNES. Mr. Chairman, when Mr. Meriam first testified, at the request of some member of the committee he stated for the record his experience. Since that time I understood from Mr. Meriam that the primary investigation as to this particular report. was made by Dr. Selko and Mr. Merriam-Mr. Malcolm Merriam. I would like to have in the record the experience of Dr. Selko and Mr. Malcolm Merriam, the gentlemen who made the investigations. Mr. MERIAM. Dr. Daniel T. Selko took his bachelor's degree at Wabash College, with his major work in economics; and his doctor's degree at Yale University, with his major work in public finance and taxation. At Yale University he held a university scholarship and two research fellowships, one of the latter having been jointly financed by Yale University and the Brookings Institution for research in the field of public finance. He was at one time an instructor in economics at Union College and gave the senior course in public finance. He also gave the junior academic course in accounting and a special course in accounting for engineering students. He has also been a research investigator for the New York State Tax Commission. His investigation covered special tax districts and the control of local finance. His report to the State tax commission was published as a special report of the commission. While at the Brookings Institution he has had various individual assignments, and he participated in the survey made by the institute for government research of government organization and administration in Oklahoma. His special assignment on that survey was county administration, including financial administration, and his results appear as three of the chapters of the published survey report of the Brookings Institution. Mr. Malcolm Merriam received the Ph. D. degree from Yale University in 1930. He was formerly employed by the Bank of America in California in various capacities involving accounting and credit analysis. From October of 1933 to June 1934 he held a consulting fellowship with the Brookings Institution and has since been a member of the economics staff of that organization on assignment to special studies. He served as a field investigator in the preparation of the report on the availability of bank credit in the Seventh Federal Reserve District, which was submitted to the Secretary of the Treasury. During the period in which the Banking Act of 1935 was pending before the Congress he was employed by the committee on banking studies of the American Bankers Association in an analysis of that legislation. As a close student of the economic aspects of Federal revenue, expenditure, and debt policies during the past 4 years he has gained familiarity with the problems of administrative procedure. He served as general assistant to Dr. Selko in the Institute for Government Research during the concluding months of the preparation of the report on financial administration of the Federal Government. Representative TABER. May I ask one question, and if they haven't time to give an answer to it now, may they answer it in the record so that it will be ready when we meet again? The CHAIRMAN. You may. Representative TABER. Are the defects of the budgetary system, and those of the audit and control system, of an administrative nature or those which require legislation to correct? Now, I expect that will take a long time to answer, so I am going to ask you to put it in the record. Then I am going to ask what legislation, if any, would you recommend in that connection? Mr. SELKO. In answer to Representative Taber's questions at the close of Thursday's hearing (Apr. 1, 1937) I have prepared the following statement for the record: 1. For the most part, the defects which our study revealed can be corrected by administrative regulation, although adjustments would be required in the amount annually appropriated to certain agencies, as for example (1) the Office of the Commissioner of Accounts and Deposits, (2) Bureau of the Budget, (3) Office of the Treasurer of the United States, (4) General Accounting Office, and (5) various administrative establishments when it is possible to economize on the administrative audit force by substitution of the independent preaudit. The Bureau of the Budget could be reorganized as proposed by administrative regulation, apparently without the necessity of amending the Budget and Accounting Act. Provision for preaudit forces of the independent auditing office could also be provided by regulation without the apparent necessity for amending the Budget and Accounting Act. Legislation appears to be desirable in certain instances, however, in order to avoid duplication of activities and overlapping authority; and, in some cases, legislation appears requisite to effect the changes proposed by our report. 2. The principal matters with respect to which legislation seems either necessary or desirable are as follows: (a) Section 207 of the Budget and Accounting Act should be amended by striking out the words "in the Treasury Department" |