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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?
Mr. SELKO. No, sir.

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.

Mr. SELKO. Of budgetary and administrative management; yes, sir.

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.
Mr. SELKO. Yes, sir.

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"

(see p. 62 of rept. no. 5) to give the Budget Bureau independent status under the President.

(6) Section 309 of the Budget and Accounting Act should be amended to (1) require concurrence of the members of the proposed interagency committee in accounting systems prescribed by the Office of Audit and Settlement, and (2) permit the Office of Audit and Settlement (subject to review by the interagency committee) to hold up an appropriation in the event that a prescribed system is not followed by an administrative agency.

(c) Legislation would be advisable to transfer the budgetary apportionment and obligation records from the Division of Bookkeeping and Warrants, Treasury Department, to the Bureau of the Budget, since these records have authority for their present location in Executive Order 6226, of July 27, 1933, which has now become law.

(d) Legislation would be advisable also to provide for developing an improved system of Treasury accounting to be prescribed, after study, by the Office of Audit and Settlement, with concurrence of the members of the interagency committee on problems of financial administration.

(e) Section 242 of title 31 of the United States Code (derived from 248 Revised Statutes) should be amended by deleting the clause "shall, from time to time, prescribe the forms of keeping and rendering alí public accounts and making returns;

Under our proposed plan this power would be exercised by the Auditor General under section 309 of the Budget and Accounting Act, as amended, to provide for joint concurrence of the proposed interagency committee.

(f) Legislation appears to be necessary to effect the transfer of the Division of Disbursement to the office of the Treasurer of the United States. Its present location was provided by Executive Order 6166, of June 10, 1933, which has become law.

(9) Legislation appears necessary to provide for the bonding of administrative officers. (See p. 76, Report No. 5.)

(h) Amendment of section 302 of the Budget and Accounting Act should be considețed to provide for two Assistant Auditors General -one to devote his attention primarily to the legal aspects of audit and control and the other to devote his attention primarily to the accounting aspects.

(i) In order that there be no doubt as to the question of accounting statements for the Federal Government, the Office of Audit and Settlement should be required by law to render a comprehensive current statement of the financial condition and operations of the Government as a whole.

(j) Legislation would not be required to establish the interagency committee proposed in our report, but it seems advisable, in order that ample authority could be given that committee to study the accounting and budgetary needs of the Government and to develop and maintain the most efficient system possible.

(k) Legislation should be considered to clarify the laws relating to the audit of collections. (See pps. 91–93 of Report No. 5.),

(2) Legislation should be considered to clarify the legal issues: involved in the approval of contracts and titles and the Attorney General's opinions relating to appropriations.

(m) Legislation would be required apparently to transfer the research staff of the National Resources Committee of the Bureau of the Budget.

(n) Legislation would also be required to transfer the functions of the National Emergency Council to the Bureau of the Budget.

In answer to Senator Byrd's question as to the total amount of Federal expenditures since the enactment of the Budget and Accounting Act, the following figures are submitted :

Including expenditures from postal revenues the total is $80,168,000,000. The amounts expended each year are shown in the following table prepared from the Annual Report of the Secretary of the Treasury for 1936, pages 392–393:

(All figures in millions]

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The CHAIRMAN. The committee will adjourn, subject to the call of the Chair.

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