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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 misapplication 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 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 approxiniately $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 preaudit.

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

Representative GIFFORD. I think it was distinctly stated that you allowed nothing but a postaudit in your draft to us. There is no 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

Treasury could pay them in spite of the Auditor General's objection?

Mr. GULICK. No; the administrative officers can proceed to incur the expenditures in spite of the objections under the plan which we present.

In this draft of the bill Mr. Harris calls my attention to the fact that section 307 reads as follows:

The General Auditing Office shall make a postaudit of all public accounts, which audit shall be conducted as nearly as practicable in the vicinity of disbursing offices of the United States located in the District of Columbia and elsewhere. The representatives of the General Auditing Office in the District of Columbia and elsewhere shall furnish daily to the accountable officers concerned, the Secretary of the Treasury and the Auditor General, notice of any exceptions taken to items in the accountable officers' accounts, which accounts such officers are required by section 314-A to furnish to the General Auditing Office, together with statements of the reasons therefor.

In other words, there in section 307 of the bill it says that this shall be done in the field as the transactions are being made, that the exceptions shall be taken and shall be reported to the Treasury, so that the audit by the auditor, independent auditor, is there before the Treasury, before the settlement takes place.

Representative GIFFORD. But what authority has he? He simply sends it back and they go ahead and pay it.

Mr. GULICK. That is correct, but if they do settle it on that basis, then the Comptroller General presents his statement to the Congress and the Congress can call them before them, and that material will be available in connection with the following year's Budget.

Senator BYRD. After the money has been spent?

Mr. GULICK. After the money has been spent in certain cases, if the Treasury so decides. Undoubtedly in a case of that sort it will get the opinion of the law officer before it will settle the account. The Attorney General is called in.

Senator Byrd. When is the Attorney General called in? How is he called in?

Mr. GULICK. He may be called in by the head of the department.

Senator BYRD. Could the Treasury Department call him for their own account that they audit themselves?

Mr. GULICK. The head of any department has the right to call him in.

Senator BYRD. Would it be likely that the Secretary of the Treasury would call the Attorney General in for some controversy within his own department?

Mr. GULICK. He might, as a protection for himself.

Senator BYRD. The Attorney General is only called in when there is a conflict between the Secretary of the Treasury and someone to whom the payment is due. The Secretary of the Treasury would not call in the Attorney General to overrule his own decision, very likely.

Representative GIFFORD. All they can do is this: They simply send back exceptions; they look into it, they pass on it, then the bills are finally paid, and then you say they report to this committee of Congress what they consider a wrongdoing, then the committee can send for that official and he is privileged to defend himself. What comfort is there in that?


Mr. GULICK. The general control of the Congress through the Budget over the department, the general influence is the effective method of holding them responsible with reference to the larger items of expenditures.

Representative GIFFORD. How do we know who is to be sent for?

Mr. GULICK. Because the Auditor General, standing outside of the picture and watching the thing from day to day, knows where the men are.

Representative GIFFORD. He reports that there has been a certain expenditure wrongfully made which is contrary to the expenditure which, in his opinion, should have been made?

Mr. GULICK. Yes. Representative GIFFORD. Can he identify the actual person for whom Congress can send?

Mr. GULICK. Yes; he can identify the responsible person from whom to get the full factual material. He makes a special investigation of the case.

Representative GIFFORD. Then he might send in a man of small

Mr. GULICK. No. Wherever a case of this sort arose the responsibility would have to be assumed up the linė, probably the head of the Bureau, or the Secretary of the Department. The responsibility could not be taken by the man down the line in a case of any significance.

Representative GIFFORD. Now, in a situation of that kind, it would probably be carried right up to the top of the department, to the department head, would it not?

Mr. GULICK. It probably would.

Representative GIFFORD. If it came to the Treasurer himself, you do not expect the committee would discipline him very inuch, do you?

Mr. GULICK. Well, you can cut off the salaries of the heads of departments. You can cut their appropriations unless they promise to do certain things. We do that now. I do not see where there is any difference.

Senator BYRD. When has it ever happened that the salary of the "head of the department has been cut? When he has not agreed to appointments ?

Mr. GULICK. The chief executive officer?
Senator BYRD. Yes.
Mr. GULICK. I will leave it to you, sir.
Senator BYRD. I am asking you.
Mr. GULICK. I would rather withdraw the statement.

Representative GIFFORD. The Senate Appropriations Committee did it in one case the other day.

Mr. GULICK. Yes, sir.

Senator BYRNES. Mr. Gulick, as it now operates, a question arises in the field, it is sent to the Comptroller General and he can settle it finally, can he not? When he settles it you say he files it in his files. "Is there any audit?


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