dated July 8, 1957, concerning access to classified defense information by representatives of the General Accounting Office. The amendments to Department of Defense Directive 5200.1 should be headed "Paragraph III D and Appendix (3), Enclosure 1, of Department of Defense Directive 5200.1 dated July 8, 1957, are amended to read as follows:" Otherwise, the drafts, if properly implemented, are satisfactory to us, it being understood that should any situation arise in the future which would make the proposed revised procedures unworkable, in that the General Accounting Office would be impeded in carrying out its duties and responsibilities, we would have to insist that the procedures be reconsidered. It will be appreciated if you will furnish us copies of the revised directives as soon as they are finalized and issued. Your cooperation in this matter is appreciated. JOSEPH CAMPBELL, Comptroller General of the United States. EXHIBIT No. 25 B-45101. COMPTROLLER GENERAL OF THE UNITED STATES, The Honorable the SECRETARY OF THE ARMY. DEAR MR. SECRETARY: Our program for the audit and accounting system development work in the Department of the Army is being expanded to cover all significant activities on a more comprehensive basis, rather than to limit our coverage to selected industrial fund activities and other restricted areas of operation. We intend to review concurrently the activities at several selected installations having a coordinate responsibility in a basic program in order to perform a comprehensive review of the program as well as to audit the individual installations. Our audits will be conducted in full recognition of all internal review activities, and will evaluate their effectiveness and eliminate the necessity for duplicating much of their efforts. In this connection we intend, except in the most unusual circumstances, to allow a reasonable period of time to elapse prior to our starting an audit at the site of activities which have been recently subjected to internal audit, review, or inspection. This approach affords responsible officials the opportunity to initiate or effect corrective action where appropriate. During the course of our work we will discuss matters of significance, as they arise, with the responsible officials affected. We feel that our efforts, within the scope of our capabilities, can be of inestimable assistance to responsible management in the identification of operating deficiencies and problems and cooperatively developing appropriate solutions. Upon completion of our work, draft copies of our reports will be submitted to responsible officials for the purpose of such clarifying discussions and comment as may be desired. intend to address our final audit reports to the appropriate management level depending on the significance of the findings and recommendations involved. In this connection we would appreciate advice as to your desires in the matter of transmitting copies of reports. We Recently we have completed a preliminary survey of the operations of the Office of the Deputy Chief of Staff for Logistics and are currently conducting an audit of logistics activities in the Signal Corps. We appreciate fully the cooperation received in the conduct of our efforts in these areas. We are in the process of developing a program for the audit of the Ordnance Tank-Automotive Command. Our present plans are to start the audit of this activity at the site of selected installations in January 1957. Your cooperation in making available all official documents, records, and reports and in establishing arrangements which will facilitate our audit of the Ordnance Tank-Automotive Command and our future work in your Department will be appreciated. Sincerely yours, JOSEPH CAMPBELL, Comptroller General of the United States. EXHIBIT No. 26 DEPARTMENT OF THE ARMY, Washington, D.C., December 19, 1956. The Honorable the COMPTROLLER GENERAL OF THE UNITED STATES. DEAR MR. COMPTROLLER GENERAL: I have received your letter of October 9, 1956 advising of the contemplated expansion of your program for the audit and accounting system development work in the Department of the Army. I view with much satisfaction your intention to give full recognition to internal review activities performed within the Army. The work of the Army Audit Agency has improved consistently in quality and scope, and I believe it to be an effective element of our complete program for financial management and control. Your plan to evaluate the effectiveness of the internal review and concurrent elimination of duplication of the detailed review activity will contribute significantly to the overall effectiveness of the Army Audit Agency and to strengthening of the internal review function which it performs. Of importance, in this connection, is your proposal to allow a reasonable period of time to elapse prior to starting an audit at the site of activities which have been recently subjected to internal audit, review or inspection. The Army has approached the function of internal audit as affording advice and protection to the operator as well as providing an independent appraisal of control and application of resources for the Secretary and the Chief of Staff. It is our desire to foster and maintain both of these benefits of internal audit. The interrelationships between the operating officials and the auditors is a matter requiring special and thoughtful consideration, since the effectiveness of the internal audit and review function is largely a function of the responsiveness of the operating officials to the recommendations arising out of the audit or review based upon their understanding and acceptance of such recommendations. The Army's procedures, therefore, provide that a period of time be allowed for the careful review and study by responsible staff and operating officials of reports of audit in order that they may formulate plans for implementing recommendations and taking corrective action as well as indicate areas in which justifiable differences in viewpoint may exist. We consider this phase in the audit process to be a most important one since it assures consideration of the findings and Judgments expressed in the report by all levels of management responsible for the operations. With this in mind, I am of the opinion that the Army should not be asked to make available internal audit reports or any related working papers until this important phase of the audit process has been completed and until sufficient time has elapsed to permit the implementation of an orderly program of improvement or corrective action on the part of the responsible operating officials. I believe, also, that it would facilitate action and coordination between your office and the Department of the Army if any requests for audit reports or working papers desired by General Accounting Office personnel were directed to my office rather than to field installations or activities or other staff elements of the Army. Prompt review and appropriate implementation of recommendations contained in the reports of audit conducted by General Accounting Office personnel is essential if the full potential benefits visualized as resulting from your expanded program are to be realized. Effective implementation of recommendations, however, will in many instances require consideration of basic policies to the extent, in some cases, of actual revision thereof. For this reason, I believe that coordination can best be effected if draft reports are furnished for comment not only to the installation or activity commander and the supervising command (i.e. Technical Service and intermediate command, if any, or the appropriate ZI Army Headquarters) but also to the appropriate management echelons in the Department of the Army, including Deputy Chief of Staff for Logistics, Comptroller of the Army and my Office. Similarly, our mutual management objectives will be best served if final audit reports are furnished to each of these management levels. I appreciate being advised of the planned audit of the Ordnance TankAutomotive Command. Subject to the foregoing, I shall assure that all official documents, records and reports not otherwise prohibited for release are made available as necessary in the conduct of the audit after clearance by my Office. You may be assured that the Department of the Army will con tinue to cooperate to the fullest possible extent with you and the members of your staff. Sincerely yours, EXHIBIT No. 27 WILBER M. BRUCKER, Secretary of the Army. B-45101. COMPTROLLER GENERAL OF THE UNITED STATES, The Honorable the SECRETARY OF THE ARMY. DEAR MR. SECRETARY: This is in reference to your letter dated December 19, 1956, replying to our letter of October 9, 1956, which announced the expansion of our accounting and auditing programs in the Department of the Army. Our letter also asked that the necessary arrangements be established to make available the records and to otherwise facilitate the effective accomplishment of our work. After careful consideration of your reply we believe that the arrangements which you propose would result in such limitations on the availability of documents, papers, records, and reports that the effective performance of the statutory responsibilities of the General Accounting Office would be seriously impaired. Accordingly, we would like to set forth our views in this matter and indicate the problems which we feel are inherent in the working relationships proposed in your letter. In this connection we believe it important to recognize the comprehensive nature of our audit work and the general manner contemplated for its accomplishment as indicated in the legislative provisions which establish our statutory responsibility and authority and which require the departments and agencies to furnish information and access to their records. Section 117 (a) of the Budget and Accounting Act of 1950, provides for audits to be made by the General Accounting Office as follows: "Except as otherwise specifically provided by law, the financial transactions of each executive, legislative, and judicial agency, including but not limited to the accounts of accountable officers, shall be audited by the General Accounting Office in accordance with such principles and procedures and under such rules and regulations as may be prescribed by the Comptroller General of the United States. In the determination of auditing procedures to be followed and the extent of examination of vouchers and other documents, the Comptroller General shall give due regard to generally accepted principles of auditing, including consideration of the effectiveness of accounting organizations and systems, internal audit and control, and related administrative practices of the respective agencies." This broad authority for the Comptroller General to determine the scope and manner in which the audits will be conducted recognizes their comprehensive nature. It also imposes upon us a responsibility to conduct these audits in the best and most expeditious manner. You will note that we are specifically required, in determining our audit procedures, to consider among other things the “*** internal audit and control, and related administrative practices ✶✶ ✶" Section 313 of the Budget and Accounting Act of 1921 contains the legislative requirement for the departments and agencies to furnish information and grant access to their records as follows: "All departments and establishments shall furnish to the Comptroller General such information regarding the powers, duties, activities, organization, financial transactions, and methods of business of their respective offices as he may from time to time require of them; and the Comptroller General, or any of his assistants or employees, when duly authorized by him, shall, for the purpose of securing such information, have access to and a right to examine any books, documents, papers, or records of any such department or establishment ***" The foregoing provisions and their legislative backgrounds clearly contemplate that the General Accounting Office shall conduct comprehensive audits and have free access to any information and records as may be required by the Comptroller General for this purpose. We believe you will also agree that the independent appraisal contemplated would require that all available information pertinent to any matter under study be considered. This information is necessary to assure that our findings and reports will be as complete, accurate, and objective as possible and will thus be of maximum usefulness to interested officials and agencies concerned. Your letter proposes that (a) The Army not be asked to make available internal audit reports or related working papers until they have been analyzed by operating personnel, corrective action has been devised, and sufficient time has elapsed to permit the implementation of an orderly program of improvement or corrective action. (b) Requests for audit reports and working papers be directed to your office rather than to field installations or activities and other staff elements of the Army. Your last paragraph also requires that all official documents, records, and reports be cleared by your office before being made available for use in our audits. We believe that the above procedures are not consistent with those contemplated in the law and which are necessary to effectively discharge our statutory responsibilities. They would preclude the independent and effective evaluations required of us and thereby materially lessen the usefulness of our work and reports both to the departments and agencies concerned and to the Congress. The delay in making reports and workpapers available pending implementation of corrective action would result in important information not being available to us for long periods of time. As you know, the magnitude and complexity of your Department's activities sometimes require many months for recommended improvements to be evaluated, devised, and implemented. We cannot, of course, delay our examinations of important activities until such improvements are effected. However, for the purpose of effective evaluation and objectivity, we believe it necessary to consider in our examination all of the information which has been developed pertinent to the subject and particularly the actions planned, in process, or partially completed to remedy situations requiring improvements. This is clearly in accord with the concept expressed in the law that in the conduct of our audits we must give due regard to the internal audit and control and related administrative practices. These include all management evaluations and internal reviews regardless of the organizational units responsible for their performance. It is also compatible with the objectivity of our auditing and reporting processes. As a practical matter, the lack of access to these reports and workpapers would probably mean that your latest and most significant information would not be available to us. This appears to be a particularly serious matter considering that much of your internal audit work is probably focused on the more important activities, as is true with our work. It is likely also that the larger and more important activities will frequently pose greater problems and require more time for corrective action. It is also clear that the lack of this information will preclude adequate recognition of your internal audit work when we are planning and carrying out our own audits. This will result in unnecessary duplication of audit effort and, in some cases, will impose a dual burden on the operating personnel, in having to undergo similar reviews by two groups of auditors. Normally we would utilize your internal audit work as well as other internal control work as much as possible and supplement them only to the extent we considered necessary. These internal control mechanisms and management appraisals, as well as the action on the findings and resultant recommendations, are themselves integral parts of the agency's financial management system. As such, they warrant particular consideration as contemplated in the Budget and Accounting Act of 1950. We heartily endorse your stated and laudable objective of establishing a process which will provide for a careful study and formulation of plans for the implementation of internal audit findings and recommendations. We also appreciate the importance of the interrelationships between the operating officials and the internal auditors as well as the need for responsiveness of the operating officials to the auditors' recommendations. However, we also believe you will agree that sound and effective management must insist upon fairness and objectivity in the acceptance, as well as in the preparation, of operating evaluations. Resistance to disclosure or other improper defensive measures or attitudes should not be permitted to impair accurate and expeditious appraisals nor the responsiveness of operating officials to recommendations. The suggestion that audit reports and workpapers be requested only through your office and the requirement that clearance by your office be obtained prior to making documents, papers, and records available, would seriously impair our audits. Even if immediate and complete access were granted, and such is unlikely if the clearance process is to serve any purpose, the mere processing of requests and approvals would result in a loss of audit time. Of even greater importance, however, is the fact that this control over the information to be made available is inconsistent with the concept of complete access to all pertinent information which is contemplated and is necessary for the independent and objective evaluations of the agency's activities required of us under existing laws. We are convinced, irrespective of the legal requirements, that the proposed procedures would produce far more disadvantages than benefits. It appears that little purpose would be served by such restrictions under a cooperative effort to improve Government operations. The General Accounting Office has always recognized its responsibility to avoid the improper release of information, and has successfully fulfilled this responsibility without restrictions being placed by the agency under audit on the availability of any documents, papers, records, and reports needed in the conduct of its audit. As you know, draft copies of reports which result from our normal audit activities have in the past been made available to your Department for review and comment prior to their release. This procedure has been found to be satisfactory by various operating officials in your Department and has resulted in the expeditious consideration and adoption of many important recommendations. We expect to continue this process and it should afford ample opportunity to avoid inappropriate release of information. Accordingly, in view of the statutory responsibilities of our respective agencies and the practical effects of the proposed procedure, we cannot agree that audit reports and workpapers, as well as other books, documents, papers, and records, should not be made available until after corrective action has been taken and clearance has been granted by your office. We shall be glad to furnish, in accordance with your request, such additional copies of our report drafts as you consider desirable for the use of various organizational components. Our objective is to facilitate your review and obtain the comments of your Department as expeditiously as possible. We would suggest, however, that you consider establishing a basis for expeditious coordination of the comments of all interested echelons of command and for the conduct of such discussions as may be desired in connection with the draft reports at a single point in your Department. In view of the importance of this matter and the need for a more clearly defined policy in the Department of Defense relative to internal audit functions and the relationship of such activities and resulting reports and working papers to audits being conducted by the General Accounting Office, a copy of this letter is being forwarded to the Secretary of Defense for his information. This is a matter of serious concern to me and I hope that it will receive your personal consideration and result in prompt action to facilitate and coordinate the necessary arrangements to insure the successful accomplishment of our respective responsibilities. Sincerely yours, JOSEPH CAMPBELL, Comptroller General of the United States. EXHIBIT No. 28 Hon. JOHN L. MCCLELLAN, COMPTROLLER GENERAL OF THE UNITED STATES, Chairman, Committee on Government Operations, DEAR MR. CHAIRMAN: There has developed a situation between the Department of Defense and the General Accounting Office concerning the availability of records of the Department of the Army which has most serious implications. Under date of October 9, 1956, we addressed a letter to the Secretary of the Army advising him that we intended to commence an audit of the OrdnanceTank Automotive Command, and requested the Secretary's cooperation in making available all official documents and reports in order to facilitate the audit. By letter dated December 19, 1956, the Secretary of the Army proposed certain procedures under which the records of the Department of the Army would be |