may be less influenced by the spending philosophy, the Treasury Department must have removed from it the spending agencies which at the present time are not directly connected with its task of fiscal supervision and control. Yesterday Senator Byrd referred to the fact that the Treasury Department now is a large spending department, and to that extent the Treasury tends to get spendingminded. He is right about that. That is one of the reasons why we suggest that there should be moved out of the Treasury particularly such services as the health service, which represents a spending service that does not belong there and which tends to influence the psychology of that department.

The department must be built up as a brake on spending, just as you have got to have in an automobile. You build it with power to go ahead and you also build it with brakes so you can hold the thing down, and keep it on the road. The same thing is necessary in government: Power to go ahead and then brakes built into it so you can slow down and keep the thing on the road. In order to do that you do not want too much power in the brakes. That is the wrong place for that. Similarly in the Treasury Department, you must build that up as a division that is going to try to hold the thing in check, not a division that also has extensive spending agencies of its own which are going forward.

Of course, you have to tie into it the essential elements that are related to the Treasury and have to be there in connection with the collection of revenues, and so forth, but that division of the Treasury which deals with control, that is the pre-audit, should be set up under a separate section of the Treasury Department, so that you will have in the Treasury a bureau which will deal with the current audit of all the expenditures of the other departments, and there you will have men who are not going to be any more popular than the Comptroller General is now. This task of exercising financial control is always unpopular.

I have been much amused to see the statements that have been made in recent months that one of the major reasons why there is an attack at the present time on the office of the Comptroller General is because of the disagreeable experience of Government officials on travel. There was even an article published in the Herald-Tribune, I think it was by Nicholas Roosevelt, on that point, saying he always thought the office should be changed. He has changed his mind now, because he thought there ought to be some control on travel. Now, those controls on travel were not by the Comptroller General, those were developed on the basis of executive order of the President in accordance with the legislation which was passed by the Congress, saying you have got to set up some rules on travel.

I know in any organization we have the same situation. In my own little organization in New York I have experts working for me and they are always kicking against the little comptroller in my office because of what they claim is an absurd provision on travel. Any organization has to have rules on travel. It cannot provide for all of the idiosyncracies of individuals in their desires to give tips of certain types, or to travel in certain types of conveyances. You have to have those rules and regulations.

I went over quite a number of the decisions of the old Government auditor, back in the days before there was the Budget and Accounting Act, and there was the same struggle all the time over the question of travel accounts and travel vouchers, and that will go on. The job of control is always a thankless task. It is always resented by the spending officers and it must be exercised. If that control, however, is set up outside of the stream of responsible management then you have divided responsibility. You have one man saying, “I am going ahead and will do this job. I think the appropriation gives me the authority to do it", and another financial officer looking at it who says, "No, you are wrong about that. You should not do it. I do not think that is the way to do this thing. In my judgment that is not authorized by the law."

Now, the right to decide what is authorized and what is not authorized in these doubtful cases must be left to the administrator in carrying on the administration in the process of the job; otherwise you have two people deciding what is going to be done, and you have divided responsibility and you do not accomplish what you are after. You cannot fix responsibility, you cannot hold a man responsible, with the tendency of spending officers to pass the buck, put it off on somebody else. You have the buck being passed on what is wise with reference to standards of chairs and desks, what is wise with reference to engineering matters, what is wise with reference to construction matters, what is wise with reference to scientific matters-the thing being settled in an office which is not equipped with specialists in any of these fields to do this job. You have got to have one man responsible on that sort of stuff in order to get efficiency, and the man that ought to be held responsible is the fellow that is doing the job, otherwise you are interfering with him.

There must, however, be the independent audit.

Senator MCNARY. I do not want to interrupt, I am very much interested in this, but I would like an opportunity to leave. I have some questions that I will ask some other day.

The CHAIRMAN. Can you be here tomorrow?
Senator MCNARY. Yes, certainly.

Mr. GULICK. I was nearly through. There must be an independent examination of the financial record that is made. There must be an independent examination of the legality of the decisions that were made by the administrative officers in carrying on their job, and that examination cannot be made by an individual who is tied into the administrative machine-it has got to be an independent audit from the outside.

That, in the main, outlines the broad principles which underlie the program which has been presented by the committee. It presents, very briefly, the specific elements of the program which it was our thought should be in the minds of the members of this committee as they proceed to devise the forms in which this can be carried into operation.

I should like to say this one further thing, that the program that is here suggested is nothing that is new at all. Precisely this suggestion was made by President Hoover in his Comment and Suggestions. It was made by the United States Chamber of Commerce some years ago. As a matter of fact, the suggestion was sub

mitted by a referendum to the membership of the Chamber of Commerce and was endorsed, and there is a record of that. You will find it was recently stated again to the public by the present presiIdent of the Chamber of Commerce of the United States.

It would have the backing, I am satisfied, of the technical authorities in the field of finance, because it represents not only the best experience of Government but also the best experience of private business.

In dealing with this large element of fiscal control and putting on the brakes within a large scale enterprise we are dealing with the same problem. It is very much like the problem encountered in private business. It is a more difficult job in government than in private business, but in many respects it is the same kind of a problem. Senator BYRNES. Are you through?

Mr. GULICK. Yes.

Senator BYRNES. Let me ask you one question. You think the plan you propose would give to the Congress as much supervision as it now exercises through the office of the Comptroller General? Mr. GULICK. Yes; I think it would give more supervision to the Congress.

Senator BYRNES. Why?

Mr. GULICK. It would give strengthening of control, because under the plan now prevailing there is no audit, no complete audit is presented to Congress. In spite of the fact that it would be normal to expect it under the provisions of the Budget and Accounting Act of 1921, no report has been made, no annual report has been made. by the Comptroller General which covers either a certification to the accuracy of the financial records which are presented, which is job. No. 1 of any audit, nor a complete statement of the legality or illegality of the expenditures made by the executive officers. Under the existing procedure a large number of adjustments are made which, I hesitate to say are illegal, but for which provision of law is certainly lacking.

So that it seems to me we must recognize that when you mix audit and control, you lose audit, because the man who is participating in the making of decisions cannot, for psychological reasons, be impartial. It is just impossible for him to make a decision after the event, when he has participated in the making of the suggestion.

As I said yesterday, it is just like the man who is an inspector of woven goods in the mill. If he stands by the loom and advises the weaver in laying on the threads, then when he inspects the goods he is not going to see the blunders that have been made because he participated in making the blunders.

Consequently, under the existing system, you do not have an audit, and it strikes me that requirement no. 1 in any effort of Congress to hold the executive accountable is the provision of an independent audit.

Senator BYRNES. Let me give you a specific case and ask your opinion about the present system and the system you propose.

A few years ago I was told that in the purchase of lands by the Agricultural Department an examination of title was made within a State; the abstract was then passed upon by the solicitor, the legal officer of the Department of Agriculture; it was then sent to the

Treasury and by the Treasury was first submitted to the Department of Justice, where the lawyers of the Department of Justice passed upon it, but then, before payment would be made, the Comptroller's office had lawyers who passed upon it.

Now, is it your idea that under your plan, when the Department of Justice attorneys had passed upon it, it becomes the duty of the Department of Agriculture, in the exercise of its administrative functions, to act, and thereafter, if there was an audit, if there was any irregularity disclosed that your auditor would report it to the Treasury and to the congressional committee? Is that the routine? Mr. GULICK. What the auditor would do would be to examine the particular contracts. He would be examining the expenditures of the Department of Agriculture, and there would be the purchase of land. Under purchase of land he would look to see how the purchases had been made. He would examine probably on a sampling basis, to see what procedures had been followed, whether necessary procedures had been carried out and then he would come down to this particular purchase of land in question. He would say, “Now, how was the legal title to this tested?" He would examine it to see whether it had been properly tested. He might appoint a lawyer with experience in the purchase of land who probably would examine it, and if he found that the procedure had not been satisfactory, or that an error had been made, then he would call it to the attention of the administrative officer and the report would come to Congress.

Representative TABER. What good would that do at that time? Mr. GULICK. If he discovered that an error had been made, that fraud had been committed, or that the title was not good, then what he would do would be to say this: No. 1: The procedure is not satisfactory to congressional committees, who, on investigation, perhaps would decide that the procedure needs change.

Second, he would say that this particular officer was apparently in error, That particular officer should then be brought vigorously to account, and if there is financial liability involved a suit would be taken for collection; otherwise it would be a matter for discipline, and the matter would be taken care of in that way.

Senator BYRNES. If the title should be examined by the Comptroller General is there is there any excuse for examination by the Department of Justice, the solicitor of the Department of Agriculture, and other lawyers?

Mr. GULICK. It seems to me nothing is gained, in the good management of Government, by placing one man to do the job and another man to see that he does it. That is not efficiency.

Senator BYRD. I would like to ask about the bonds of the different departments. For example, suppose, under your plan, that a department head would give a contract to make expenditures illegally, did not advertise for bids, for example, and if there was a loss to the Governinent by reason of that how would that be recovered?

Mr. GULICK. Well, if a contract were let without advertising-in the first place it would probably be extremely difficult to do it, because before that would be done it would be cleared by the Treasury Department's division of audit, just the way that it is done now.

Senator BYRD. Let us assume that a loss has occurred to the Government of a million dollars by a particular department head not carrying out the law, how would that be recovered?

Mr. GULICK. In the first place, before the thing is carried to any extent, before any considerable funds are paid, there would be a current audit in the Treasury. Second, there would be a current post-audit, or what we call a "hot" audit, carried on under the direction of the Auditor General. He would have his men scattered around wherever there are settlement officers of the Government watching the thing as it is being carried forward, and then if he discovered any irregularity in connection with the very first payment that was made, that would be reported. If funds were actually paid, in spite of all these checks, on the basis of a contract which the Auditor General later reported that he had suspected were illegal, if there is a difference of opinion I think they can go ahead and spend the money anyway, and if it was then decided by Congress that this was in violation of the provision, of their desire in the matter, so that there was actually a payment of funds in violation of the policy laid down by Congress, then you would proceed, as I have said, to collect. The contract would be a nonvalid contract. There would be possibly a suit there. There would be the question of bonds, discipline of the officer, and so forth.

Representative TABER. Would you have to wait for action by Congress before anything of that kind could be done?

Mr. GULICK. No, the Attorney General could proceed immediately. Representative TABER. I was just following what you said.

Senator BYRD. That is not the theory of your proposition, though. The theory is that the Auditor General reports to Congress annually, and if the Auditor General finds by a post-audit that the irregularities have occurred then Congress must act. He does not report to the Attorney General.

Mr. GULICK. He reports also to the Treasury. I think vour suggestion is good, that he should report also to the Attorney General. That certainly should be included in the bill.

Senator BYRD. Let us go further. Let us assume, for the sake of argument, that a contract has been made by reason of having no pre-audit and no independent control, about which you and I differ, and that there has been a loss of a million dollars in the Department of Agriculture, for example; what are the bonds of the official of the Department of Agriculture that would guarantee to the Government that they could recover that amount?

Mr. GULICK. There would be no bond to cover the million dollars. Senator BYRD. What bond is there?

Mr. GULICK. Senator Byrd, you know that up until 1921, including the expenditures of the World War, the expenditures were audited under the precise general principle that we allow here, without any independent audit, without the independent audit which we say is essential and must be provided to make any large enterprise safe, and there was no serious question raised on matters of this sort.

Senator BYRNES. In some instances they have followed the course where the Treasury would withhold the payment of refunds for taxes, where individuals or corporations had been paid money which was deemed to be paid in violation of law, have they not?