Mr. STAATS. It is in the so-called Federal Acquisition Act, which is before the Senate Governmental Affairs Committee currently. It would have the effect of amending our statute.

Mr. BENJAMIN. Which authorizing committees handle this legislation in the House and Senate?

Mr. KELLER. Banking and Currency, sir.

Mr. BENJAMIN. Both Houses?

Mr. KELLER. Yes.

Mr. BENJAMIN. Since it was limited to defense, why was the restriction put in?

Mr. KELLER. Mr. Chairman, if I could answer that, it was brought about as an amendment to the Defense Production Act. Jurisdiction of the Committee was the main reason. That was as far as they could go.

Mr. BENJAMIN. Is the Defense Production Act still in existence? Mr. KELLER. Yes.

Mr. BENJAMIN. When does it expire?

Mr. STAATS. It was originally intended to be government-wide. Mr. KELLER. I can't answer that, but it started off in 1950 and has been extended by amendment up through the present time. I don't know when it expires.

Mr. MINKIN. Some parts are permanent and some parts require renewal. You just simply have to repeal it if you want to get rid of it entirely. Some parts will automatically expire every two years. Mr. KELLER. The Cost Accounting Standards Board is permanent. Mr. BENJAMIN. Do you want to continue?

Mr. SCHOENHAUT. I was trying to give you who the Board has exempted over the period that it has been in existence. For example, educational institutions, all except those that are federallyfinanced research and development centers, where they get large defense contracts and the bulk of the defense money is in those centers. The other parts of the educational institutions have a smaller amount of government contracting, and they are covered by a set of regulations that are issued by the Office of Management and Budget.

I would point out two things: The law does say that the Board, as soon as practical, figure out who to exempt, and the law does say that special consideration be given to small business, at least through the appointment of a Board member who is knowledgeable about small business; so there is some incentive right within the law for the Board to act quickly to exempt classes and categories of contractors and give special consideration to small business.

Mr. BENJAMIN. Is that in the act, the appointment of a Board member who is knowledgeable about small business?

Mr. SCHOENHAUT. To give special consideration to small business by reason of appointing a Board member.

Mr. BENJAMIN. That is your interpretation, right?

Mr. SCHOENHAUT. Yes, sir.

Mr. STAATS. The background of that was that there was some discussion at the time the law was under consideration for blanket exemption to small business, and rather than doing that, they left it to the Board's discretion, but as an avowed need for considering this, they specify in the law that one of the members of the Board

to be appointed by the Comptroller General would have had background knowledge in problems in small business.

RESEARCH AND DEVELOPMENT OF STANDARDS

It might help in terms of your question to kind of go through the process that we follow. When we are considering a new standard or an exemption, it goes through about four different stages. First, there is a staff paper or a discussion paper which is prepared by Mr. Schoenhaut and his staff. That paper is a detailed analysis of what the problem is and what alternatives would be, what the options would be.

A paper is then sent around to a large number of people who are knowledgeable. They may be in the accounting profession; university people, contractors and government agencies. The staff goes out and talks to these people; they talk to the controllers and the finance officers in the companies and get their ideas about it. Once they have the comments, whether it be informal or formal, from the people they sent this to, up to the 1,400 different people involved here, then they will prepare for our Board a preliminary draft of the standard, and the Board discusses this and still has not taken a position on it, and voted on it, but then it will then be published in the Federal Register for a period of time and get formal comments, then, from anybody who is affected by it or cares to comment on it.

These may be very voluminous comments that we will get. Those are then reviewed by the staff and analyzed by the staff, and then their recommendations are brought to the Board.

We then analyze those; we may say we would like to make some changes and then go back and republish. In some cases we have republished because we were not prepared to go forward with the standard because we had made so many changes in it from the time we sent out the initial draft.

But once that process is completed, then we make a second promulgation in the Federal Register, and this, under the law, must lie before Congress for 60 legislative days before it becomes effective, and Congress during that time would have the option to reject it. To date, we have had only one proposed standard where the Congress has seen fit to hold hearings on it.

But beyond that, unless the Congress raises objection, it goes into effect after the end of those 60 legislative days.

Mr. BENJAMIN. Basically what you are telling me is that the Board's function is to draft standards that the Congress may approve or reject.

Mr. STAATS. That is correct.

Mr. SCHOENHAUT. Not approve; reject.

Mr. STAATS. They approve it by not rejecting it.

Mr. BENJAMIN. They approve it by not acting.

Mr. SCHOENHAUT. But it takes an overt act to reject them.

Mr. BENJAMIN. If I recall, the Congress was going to consider doing this, themselves, and it was your suggestion that doing it in legislation would be just too rigid.

Mr. STAATS. It would have been a hopeless job.

Mr. BENJAMIN. To achieve uniformity and consistency, how many standards do you figure we need?

Mr. STAATS. Well, the workload that we have here, which is Appendix B, is as far as we see now, but that doesn't rule out the possibility that the need will be indicated for additional ones.

Mr. BENJAMIN. According to Appendix B, you list four potential standards under item 13: Accounting for Intercompany Transfers, Accounting for the Impact of Inflation, Accounting for Special Facilities, and Cost of Money as an Element of the Cost of Operating Capital.

Mr. SCHOENHAUT. Those are potential standards. The items that precede item 14 are subjects we think will eventuate in standards. Mr. BENJAMIN. From that remark, I assume what you are telling me is that this Board, as far as you are concerned, should work into perpetuity?

Mr. STAATS. I don't think we are saying that. We don't mean to be saying that.

LIFE AND LOCATION OF THE BOARD

Mr. BENJAMIN. How long do you think the Board should be around?

Mr. STAATS. I wouldn't want to give you a date, because I could be proven to be wrong, but we foresee the need at least for a period of time.

The question I think you have to consider, Mr. Chairman, is what would be the way in which this objective would be accomplished if you didn't have the Board. At some point in time, I would believe that Congress ought to take another look▬▬

Mr. BENJAMIN. When?

Mr. STAATS [Continuing]. In terms of how should we do it.
Mr. BENJAMIN. When?

Mr. STAATS. Well, I suppose it could be done after a few years, when the main standards have been issued. But I wouldn't want to try to leave you with the impression that we see this as an organization that is in perpetuity. I recommended at the time that this legislation was under consideration-there is no secret about itthat they establish this function in the executive branch of the government. I had enough to do without this additional workload. Besides, I felt that the function was such that it could be carried on in the executive branch.

But the Congress disagreed with me in pretty strong terms, because they felt that it would not be done objectively and independently. They had had the experience, you know, with the Armed Services procurement regulation, so they were not about to do that.

But my record on it is very clear. So I would like to see this question have another look taken at it. But when I testified on the standard that the Congress held hearings on, they raised this question with me again. But it is perfectly clear they were not about to change their mind as to the establishment of this Board.

Mr. BENJAMIN. When did you testify they indicated to you they would not change their mind?

Mr. STAATS. This would have been two or three years ago; within the last three years.

Mr. BENJAMIN. What was the subject of that hearing?

Mr. STAATS. This was a standard that we issued having to do with the question of depreciation.

Mr. BENJAMIN. Was that 409?

Mr. STAATS. Yes.

Mr. BENJAMIN. In discussing that standard, did they get into the longevity of the Board?

Mr. STAATS. Yes.

Mr. BENJAMIN. And whether or not it would be in the executive branch or legislative?

Mr. STAATS. Yes.

Mr. BENJAMIN. And decided to continue it in the legislative branch; is that correct?

Mr. STAATS. That is correct.

Mr. BENJAMIN. Was that during the Ford administration?

Mr. STAATS. It would have been. But the committee is essentially the same committee now.

Mr. BENJAMIN. The executive is not the same.

PRIVATE BOARD ESTABLISHED

Mr. STAATS. It might be illuminating here to point out that private industry has established a somewhat analogous organization for private corporations, called the Financial Accounting Standards Board. This is financed by the accounting profession and by individual corporations, and they have a budget of $6,100,000 this year, compared with our budget of $1,800,000, and they have a total staff of 110, contrasted with our 29.

In all due respect to them, I don't see their job as being all that more difficult from ours. It is different in many ways, but it is no more controversial than the work that we are involved in. But it has something over three times the budget that our Board has.

PRIOR TESTIMONY DISCUSSED

Mr. BENJAMIN. The following discussion occurred in the Senate Committee of P-oduction and Stabilization:

Mr. STAATS. We want to take advantage of any work that has been done, start from the principles and standards that have been developed by the accounting principles board of the American Institute for example. But from the Government's point of view, we are seeking guidance from the contracting officers and agencies with respect to, under what circumstances would you apply one standard as against the other?

Senator PROXMIRE. These are the reasons you suggest that it is going to take time to put this into effect? Can you give us an idea of how long it would take? Mr. STAATS. If you say essential standards, we can get down to definition. But the three central standards we say could be put into effect fairly readily. We wouldn't have any problem with an 18-month period with respect to those.

But when you get into some of these other areas, such as depreciation and allocation of overhead and many of these other factors, they are so highly complicated that we believe it would not be wise to fix a terminal point on those.

Senator PROXMIRE. It is going to be more than a year and a half? How long? Two or three years? Just so we can look down the road a little bit? We don't want it to be indefinite.

Mr. STAATS. I think 3 or 5 years at least.

The Board has now been in existence for 8 years. Is there any reason why the essential as well as the complicated areas have not been completed?

Mr. STAATS. Well, I was wrong; I was over-optimistic, I guess, in that statement of three to five years. I thought we might be able at that time to at least get a better fix as to the length of time required to issue a full set of standards, but indeed at that point in time we didn't even know all the subjects that would be involved in standards.

Mr. BENJAMIN. That is even though you did an extensive survey of cost accounting standards?

Mr. STAATS. That is correct.

Mr. BENJAMIN. And that survey, I think, took about 18 months. Mr. STAATS. That is correct.

Mr. BENJAMIN. And it involved other units of government and private sector, and there was contracting out, and it is very voluminous, and that is what actually precipitated this; is it not?

Mr. STAATS. That is correct.

Mr. BENJAMIN. And you say you didn't know how extensive it

was.

Mr. STAATS. We knew some of them, but we didn't know all of them, to be very honest with you about that. We didn't see the 1970 study as being a requirement to spell out the specific standards. That was not the function of that study.

Mr. BENJAMIN. No, you wanted to determine whether we should have cost accounting standards?

Mr. STAATS. That is correct.

Mr. BENJAMIN. Do you recall how much was spent on that study? Mr. STAATS. I don't recall; no, sir.

Mr. BENJAMIN. It was at least a half million dollars.

Mr. STAATS. I wouldn't guess without looking at the record. I imagine we still have the record on it, and, if we do, we would be glad to furnish it.

Mr. BENJAMIN. Would you please?

[The information follows:]

Our search of the GAO records has failed to turn up anything in the way of an estimate of the cost of the feasibility study.

FUTURE LIFE OF BOARD

Mr. BENJAMIN. The point is that we have spent an extensive amount of money and had considerable testimony before the House and the Senate, calling a number of outside witnesses, and then when questioned, we talk about having essential standards in 18 months, complicated ones in three to five years. Now, we say we didn't really have a good look at it then.

My question is, again, how long do you think it will take to wind up the standards?

Mr. STAATS. I am not quite as brave as I was when I said three to five years. I do recall making that statement.

I would think maybe a year from now we can give you a much better fix on the timing here, but when we talk about timing we also have to think about where you would put it, and I have made my recommendation, which has been rejected by the Congress. There will be a continuing role here, there is no question about that. There will be interpretations, there will be questions of waivers, there will be questions of regulations, there are going to be