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REORGANIZATION OF THE EXECUTIVE DEPARTMENTS

TUESDAY, APRIL 27,

1937

JOINT COMMITTEE ON GOVERNMENT ORGANIZATION,

Washington, D. C. The joint committee met, Senator Robinson presiding:

The CHAIRMAN. Gentlemen, I think we will proceed, if you are ready.

At the last meeting of the committee the representatives of the Brookings Institution presented their views as to the differences between their recommendations and the plan of the President's committee, with respect to finance and accounting. It seems appropriate that the President's committee may now be heard in a statement of their views as to the material differences in the two plans.

Mr. Gulick is present, and we will be glad to hear you, Mr. Gulick.

STATEMENT OF LUTHER GULICK

Mr. GULICK. I regret that Mr. Brownlow, who intended to be here this morning to present this, is under the weather and could not make it, so he got hold of me yesterday and asked me to come down and present very briefly the general position, because I am sure it must be clear to the members of the committee after all the talks that have been devoted to this discussion since we first commenced here.

I want to present the ideas which we had under five very brief headings: First, dealing with the duties of the Auditor General; second, dealing with the Treasury functions as suggested under the program which we have presented; third, I wish to clear up the confusion which seems to have arisen with regard to the relationship of settlement to audit; fourth, I wish to turn to the question of underlying principles; and, fifth, to allude very briefly, not to bring up again the whole constitutional question but to allude very briefly to it and raise the question of the original intent of Congress.

Now, as to the functions of the Auditor General under the program as suggested by the President's committee. These were listed as dealing with four activities: First, the postauditing of expenditures and revenues; second, the verification of accounts and financial statements; third, the investigation of financial matters for Congress; and, fourth, the reporting on findings to Congress.

Under the first heading, the postauditing of expenditures and revenues, we have suggested that the functions of the Comptroller General should be as follows: To examine and audit all expenditure documents, that is, vouchers, pay rolls, contracts, and so forth, of any department or establishment of the Government, in whatever detail may be necessary to determine the legality and propriety of governmental expenditures. Second, to examine and audit all transactions relating to revenues and receipts. You remember Mr. Buck outlined in detail the need for expansion in the audit with reference to revenues and receipts. Third, to ascertain whether adequate checks and controls are maintained by the Treasury Department, and by the several spending departments over the expenditures of money and over the maintenance of stores. Fourth, to ascertain whether adequate checks and controls are maintained by the Treasury and by the revenue-producing bureaus over the revenues and receipts, and also to audit the securities owned by the Government, the funds held by the Treasury and by the mints, and so forth. Fifth, to ascertain the condition of all special or trust funds belonging to or under the supervision of the Government as assets and liabilities. Sixth, to examine the operations of the national debt, interest payments, provisions for retirement, sinking funds, and so forth. Seventh, to examine the operations of all Government loan and finance corporations, such as the R. F. C., F. C. A., and the H. O. L. C.

That represents the audit functions. Second, there is the verification of accounts and financial statements. There we outline three specific tasks which would be entrusted to the Auditor General. Third, there is the investigation of financial matters for Congress in case of special investigations dealing with any of the activities and agencies reporting on their financial practices and procedures, and the investigation, at the direction of Congress, of the misapplication of funds or overexpenditure; then, fourth, there is the reporting on findings to Congress, and here we outline three specific tasks which are imperfectly performed under the existing system.

What are the results that may be expected from this redesign of the duties of the Comptroller's Office as it is transformed into a genuine independent audit?

In the first place, Congress and its financial committees will have the opportunity to become fully informed, through a disinterested agency, on how appropriations are expended, on financial practices, and on the general financial management of the executive. The effect of that we believe would be to place in the hands of Congress information over a broad range which it does not get now, and which cannot be secured through an officer who is himself making settlements and participating in the decisions on which the reports are made. The Congress will have the necessary information, through this impartial outside auditor, so that it can bring administrative offices to book; it will have the report on settlements, disagreements with reference to settlements; it will have that information obtained by a man who did not participate in the actual making of those settlements. The full import of that I think I can develop a little later.

The second effect of this procedure would be on the administrative offices. The accounting officers who keep the records will be both in the departments and in the Treasury, and the spending officers will be primarily in the departments. These officers will be required to shoulder their own respective responsibilities for financial transactions. They cannot pass the buck to anybody. They will have to take the responsibility for the financial decisions that have been made, because the decision is made by them and the administration

is carried out by them. They will not be able to escape the responsibility for the decisions that are made.

In the third place, administrative officers, both accounting and spending officers, will consequently have to use greater care in their financial transactions, because they will know that the responsibility rests squarely upon them and that they will be called to account by a special committee of Congress, with full information presented there by the Auditor General.

Therefore, we believe that the end result will be not only the establishment of a full, independent audit, covering all transactions of the Government, which cannot be had under the existing system, but at the same time to equip Congress with far more complete information with reference to the whole field of the fiscal management of the Government of the United States.

Now, just turning for a moment to what is the job that comes into the hands of the Treasury—and on this point I think there has been some confusion because, perhaps, of the lack of clarity of the statement by ourselves in the early stages-what will the Treasury do under the plan that has been suggested? Well, the Treasury will exercise financial control functions which will be transferred to that office, and these are seven in number.

First, the rendering of advance decisions to the heads of departments and establishments, and to disbursing officers regarding the uses of appropriations.

Second, the countersigning of warrants issued by the Treasury Department, including the approval of requisitions of the several departments relating to the disposition of funds.

Third, the maintaining of accounts relating to appropriations, and personal accounts of collecting and disbursing officers.

Fourth, the settlement of personal accounts of collecting and disbursing officers.

Fifth, the prescribing of systems of administrative appropriation and fund accounting in the several departments and establishments, including procedures concerning the administrative examination of claims and fiscal officers' accounts.

Sixth, the settlement of claims against the United States and the certification of such claims to the Treasury; and

Seventh, the recovery of debts due to the United States.

Those will be the activities, the central control functions, that are now exercised by the General Accounting Office and which, under the plan suggested, would be transferred to the Treasury. When transferred to the Treasury, the functions of control which are involved here, the rendering of decisions, the settlement of accounts, all of these functions of fiscal control, will be exercised in a separate division or bureau of the Treasury set up on an independent status within the Treasury, very much as the Budget is set up on an independent status within the Treasury in order that that office may be in a position of considerable freedom and independent from interrelation with the other activities. It cannot be absolutely separated, for the reason that the Budget itself cannot be absolutely separated, because of the necessity of making use of accounting records which grow out of the transactions in other sections of the Treasury.

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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 å 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 Office 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

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