Under the plan suggested the time devoted to auditing, the staffs devoted to auditing, we do not believe will be increased, as has been suggested, under the plan suggested it has been intimated that there would be a duplication of auditing. You remember the blueprints or maps that were outlined presenting the precise procedure and timing of the various activities in audit and control. There it was outlined very clearly that the major check-up on the expenditures will be made, as it has always been made, in the departments; first, by the spending officers; second, by the disbursing officers. Then there will be the examination in the field by the representatives of the Auditors office of the disbursements before settlement in the field, with the exceptions noted, and these exceptions noted before settlement by the Treasury. Then the investigation, if there is an exception taken by the Auditor, an investigation by the Treasury before settlement is made; and then that report on the exception will have to come to the congressional committee along with the action of the Treasury in dealing with that individual settlement. Thus the general organization which is set up, the general procedure which is set up, and which was outlined over a 2-day discussion here before the committee by Mr. Buck, indicates that the organization which is going to carry out the audit work will be an independent audit agency under the Auditor General.

The examination of the administrative procedures in the settlement of accounts will be in the hands of the control office of the Treasury, which will be set up as an independent agency within that organ of the Treasury.

It has been suggested, I think by Congressman Cochran, that it might be desirable to set up that control agency outside of the Treasury in an independent position, so that it would not be within a department which had considerable other expenditures, and Senator Byrd has called attention to the extent of expenditures which come under the control of the Treasury.

In that connection we have this to suggest: Under the plan proposed the administrative control would be handled by the division, the special division, the control office, we may call it, in the Treasury, but that would be subject to an independent audit by the Auditor who is independent of the Executive entirely, and is outside of the Department. So that we are not providing a system under which there would be an audit of transactions within the Treasury Department. That audit is made by the independent auditor on the outside. That is no. 1.

Consequently, while it is desirable to have the Comptroller's Of fice in the Treasury really set up as an independent agency within that Treasury, it would not mean that the Treasury is auditing its own accounts. It is not. That audit is being performed by an auditor on the outside. So there is that independent audit in this system which we have suggested.

In the second place, the plan suggested does not provide for settlement before the independent audit by the Auditor General. Under the plan provided that audit will be made before settlement is made, and settlement will not be made until the exceptions of the Auditor General have been noted and reported to the Treasury. So that that report will be before the Comptroller's Office, or the office which would have this thing inside in the Treasury.

As I said a moment ago, it has been suggested that, in order to get even greater detachment from the Treasury on the part of the control office within the Treasury, it might be desirable to set that up outside, having it report directly to the President, perhaps, recognizing that it is an administrative function, putting it in an administrative branch and having it report directly to the President.

You can realize the committee that has been at work trying to cut down the agencies felt it was highly desirable to keep all of the fiscal control agencies in the Treasury, and that there was no serious danger involved in this arrangement, because of the fact that there is being provided now, as there was not in 1921, or at any period since, a completely independent outside audit of the transactions. So this independent control function in the Treasury presented no dangers whatsoever.

It seemed to us, as we say on page 6 of the statement that the main point of the argument against the recommended plan is that the Treasury would audit its own accounts. Prior to 1921 this was indeed the practice, but under the proposed plan there would be, for the first time in the history of the Government, a truly independent audit conducted by the Auditor General, who would take over the auditing functions of the Comptroller General. This is a major feature of the program.

Senator BYRD. I do not want to interrupt, Mr. Gulick, but that is not my main point of opposition. For whom are you speaking? Are you speaking for the opponents?

Mr. GULICK. I was speaking of the main point of attack on the notion that control should be in the Treasury.

Senator BYRD. That is one of the main points, but that is not the main point. That is one of the objections but not the main objection to me. I was wondering whether you were speaking for the opponents or the proponents.

Mr. GULICK. Now, due to the fact that possibly certain phases of the program have not been explained fully in the past, or in systematic fashion, there is apparently considerable confusion over the nature of the program which has been submitted. On page 11 of the memorandum which is entitled-I think it is the first one in your series "Memorandum concerning the differences between the recommendations of the President's Committee on Administrative Management and the Brookings Institution, relating to financial control in the Federal Government"-on page 11 of that you will find the statement that was filed by Mr. Meriam for the Brookings Institution, presenting the five reasons why the Brookings Institution is unable to agree with the program submitted by the President's committee. That was stated in very brief form in a clear fashion. The first paragraph opens with the statement:

For five reasons we are unable to favor having the control books, the examination for final settlement, and final settlement itself made in the Treasury Department with a subsequent postaudit after settlement by an independent auditor representing the Congress.

Well, that indicates that even the Brookings Institution was unable to understand the nature of the program presented. The program presented, as indicated by the various charts and diagrams explaining the program to the members of the committee, indicates that the audit by the Auditor General, the independent postaudit, will be

made before settlement by the Treasury and the exceptions noted will be placed before the Treasury before that settlement is made. So that it is not an audit after settlement, it is an audit prior to settlement.

Now, turning to the individual paragraphs, you find them on page 12 and the following pages.

(1) The Treasury Department is itself an operating agency making large expenditures for personnel, supplies, and construction. The Treasury would he passing upon and settling the Treasury's own accounts.

Well, I think you will see, from the statement I just made, while that statement is correct as far as it goes, it fails to recognize the fact that there will be the independent audit; that therefore the Treasury will not be auditing its own accounts, it will be exercising fiscal control over its own transactions, but not during the audit, because the audit will be done by the independent auditor. The second paragraph on that page:

In general the legality and regularity of all administration officers' expenditures would be settled finally on the basis of examination by dependent, not independent, officers. The administrative auditors would be auditing themselves.

Here all we can say is that final settlement will be based not only on examination of the accounts by the officers of the Financial Control Division of the Treasury, but also upon the examination conducted by the Auditor General prior to settlement.

The third paragraph:

If the Congress gives to the administrative officers the power to settle accounts finally, the Congress will be bound by the acts of its duly authorized agents, and its power to recover moneys illegally or irregularly spent will be almost entirely eliminated. It cannot recover on the bonds of the officers for the accounts will already have been finally settled.

Congress would be no more bound by the acts of the Treasury Department than it is now bound by the acts of the Comptroller General.

Representative TABER. There you seem to miss the point that was made, that is, that the bonds are so small that there would be no substantial protection left.

Mr. GULICK. Well, the bond is a protection against minor-
Representative TABER (interposing). Defalcations?

Mr. GULICK. Minor dishonesty.

Representative TABER. That is all.

Mr. GULICK. That, of course, is about the same under any system. The bond is not really a protection against large-scale raisapplication of funds. There the only protection is responsibility.

So, that the point that is here made in the statement by the Brookings Institute is that Congress loses the power to recover. We claim that Congress has just as good a power to recover before as after. As a matter of fact, Congress does not recover, Congress does not go out and collect the money; it is generally collected by the legal department of the Government, even under the existing system. So that there is practically no change in the status at that point.

At the present time there are hundreds of thousands of dollars of settlements made by the Comptroller General which are never

reported adequately and on which there is no independent report whatsoever, and no independent examination whatsoever.

I have been told that the settlements made directly by the Comptroller General's office during recent years have been approximately $100,000,000 a year; that on those settlements there is no independent audit, no independent report. The man who makes the settlement makes the report, files it in his own files, and makes no report to Congress.

Senator BYRD. That can be remedied under the present system. Mr. GULICK. In what way?

Senator BYRD. By strengthening and improving the present system.

Mr. GULICK. How are you going to have the same man making the settlement and the audit? That is what I am complaining of. The only remedy I can see is to put the settlement in one set of hands and the audit in another set of hands; otherwise you cannot get an independent audit.

Representative TABER. How can you get an independent settlement which is effective unless the auditor has power to make the settlement? I would like to have you discuss that.

Mr. GULICK. All right, sir, I will be glad to come back to that. How to make an audit effective without the power of settlement. Representative TABER. Yes.

Representative GIFFORD. Mr. Chairman, may I ask a question there? I am trying to follow you. The talk that you are making this morning, is that not in line with the original draft of your

bill?

Mr. GULICK. Yes.

Representative GIFFORD. Everything in your draft was postaudit, there was no preaudit mentioned, it is a postaudit only.

Mr. GULICK. The preaudit functions are transferred to the Treasury.

Representative GIFFORD. Exactly; but in your draft here there is nothing but a postaudit allowed.

Mr. GULICK. That is what I am talking about now.
Representative GIFFORD. The postaudit?

Mr. GULICK. The postaudit.

Representative GIFFORD. I thought you were talking about pre

audit.

Mr. GULICK. It is a postaudit for the disbursements, but a preaudit before settlement.

There is no

Representative GIFFORD. I think it was distinctly stated that you allowed nothing but a postaudit in your draft to us. suggestion there of any preaudit.

Mr. GULICK. I think you will remember the diagrams which were presented.

Representative GIFFORD. Never mind the diagrams.
Senator BYRD. Just discuss the bill.

Mr. GULICK. I think you will remember the diagrams which were presented in outlining the program presented which showed an audit. in the field which is a postaudit of the transaction which is made prior to the settlement of the account of the disbursing officer.

Representative GIFFORD. That is not in line with the original draft. You are now trying to reconcile it by having a preaudit, but in the original draft presented to us there is nothing but a postaudit. Senator BYRD. The bill as proposed provides:

The Auditor General shall promptly notify the Secretary of the Treasury of, and report to the Congress, or to the joint committee when the Congress is not in session, all public accounts deemed by the General Auditing Office to have been improperly settled by the Secretary of the Treasury.

The CHAIRMAN. What are you reading from?

Senator BYRD. From the suggested draft of the bill that we have before us. It says nothing about whether they have any power to make an audit, it says they can only report it after the accounts have been settled, assuming they have been improperly settled by the Secretary of the Treasury.

Mr. GULICK. My definition of a preaudit is an examination by a fiscal officer prior to the making of expenditures, with the power to withhold the making of the expenditures.

Senator BYRD. But you have just stated that the Auditor General has the power under the control audit. It says here, "upon the examination conducted by the Auditor General prior to settlement." Now, what in the bill that you have prepared here gives him such power?

Mr. GULICK. The part that you just read, what does it show there that he shall do immediately?

Senator BYRD. It says he shall report to Congress on all public accounts deemed by the General Auditing Office to have been improperly settled.

Mr. GULICK. The phrase should not be "to have been improperly settled." The field audit, of course, applies to the transactions as they are taking place. Now, those have not actually been settled in the terms of a settlement with the disbursing officer.

Senator BYRD. Well, do you want to prepare another draft? This uses the words "improperly settled." That means after it has been paid.

Mr. GULICK. As you know, the draft which you have was prepared in order to see what the general picture would look like. We have not submitted any draft for presentation to Congress. Colonel Wren pointed out many things which were not clear in the first draft presented. It has been our thought that this committee would prepare its own bill to carry out the program.

The CHAIRMAN. The draft was presented at the request of the committee.

Mr. GULICK. Yes, sir.

Senator BYRD. It was presented to represent your views. Have you changed your views with respect to this particular clause? Mr. GULICK. No; no.

Senator BYRD. You admit then that this clause does not represent what you actually mean?

Mr. GULICK. I judge that the question of settlement needs further definition.

Representative GIFFORD. Mr. Gulick, you said today that these accounts have been challenged but you could not say they have been held up. They could not hold them up, could they? The