"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 the right to examine any books, documents, papers, or records of any such department or establishment *

In our opinion all reports of the type here involved are subject to review by this office.

We cannot fully discharge our statutory responsibilities without access to the reports resulting from internal reviews of administrative practices and activities made by Inspector General, Office of Assistant Comptroller, Audit, and other management review groups. The congressional policy is set forth in section 111 (d) of the Accounting and Auditing Act of 1950 which provides that our audit will be directed, among other things, to determining the adequacy of the agencies' internal financial control over operations. Also, the reports on internal reviews of activities are clearly a part of "internal audit and control" within section 117(a) of the Accounting and Auditing Act of 1950, and so specifically required to be considered by the Comptroller General in the conduct of his audits. Such information and factual data should not be withheld or subject to procedures designed to screen official documents, papers, or records before being made available to the General Accounting Office.

Your cooperation is requested in providing a copy of the report entitled "Review of Procurement Activities in the Military Sea Transportation Service," October 1957, to the Defense Accounting and Auditing Division of this Office for use in connection with their current review of procurement activities in MSTS. Mr. Hassell B: Bell, Assistant Director, Defense Accounting and Auditing Division, may be contacted to arrange for the receipt of this report. Because of the importance of this matter and congressional interest in any denial or delay in providing us access to such data, we request that the above report be furnished promptly.

Sincerely yours,

Comptroller General of the United States.

Hon. JOSEPH CAMPBELL,

Comptroller General of the United States,
General Accounting Office,

Washington, D.C.

DEPARTMENT OF THE NAVY, Washington, D.C., October 17, 1958.

MY DEAR MR. CAMPBELL: I have given much thought to the request in your letter of September 9, 1958, for a copy of the October 1957 report by the Procurement Review Group, Office of Naval Material, entitled "Review of Procurement Activities in the Military Sea Transportation Service."

A copy of this report was previously requested by Mr. Leslie Surginer of your office in his letter of July 24, 1958 to the Assistant Secretary of the Navy. Our reply to this request was deferred in accordance with our agreement with Mr. Surginer and Mr. Hassell Bell at a meeting with representatives of the Navy on August 14, 1958.

In considering this request, I have kept in mind both your interest and responsibilities and the spirit of mutual cooperation which has long marked our relations with your office. I most sincerely wish to do what I can to maintain this spirit, which I feel is to the advantage of all.

In an organization of the size and complexity of the Navy, it is essential that management have the benefit of effective internal inspection and self-analysis. To accomplish this, it is necessary to rely upon the Inspector General, and, in the case of procurement, the Chief of Naval Material to make searching inquiries and to report their candid findings, opinions and conclusions. To assist in performing this function, the Chief of Naval Material has established the Procurement Review Group in the Office of Naval Material to review procurement procedures and methods, to recommend revision of existing procedures and methods, and to analyze the effectiveness of purchase management in the Navy Bureaus and Offices. The report which you have requested was prepared by this Group.

I believe that this type of candid self-appraisal, properly utilized, can be one of our most effective management tools. Its effectiveness depends upon the Inspector's receiving and giving frank, outspoken and completely candid expressions of opinion, conclusions and recommendations. If these reports are given broader distribution, there may be a tendency on the part of the Inspector to soften criticism, avoid doubtful matter, and generally be more cautious and restrained. Similarly, if those who are questioned are aware that their views may be circulated outside, they are more likely to hedge their remarks and to speak for the record. Should this happen, the Inspector would be impeded by not receiving the full and frank views of those questioned. Management would suffer by not receiving the candid reports which it needs. And you would not get the type of report that would serve your purpose. Thus our purposes would be defeated without yours having been achieved.

There is, of course, no thought of withholding any facts which you require. We have, accordingly, prepared and enclose for your information a copy of the report which you have requested. In accordance with the principles set forth above, we have omitted from this copy only the recommendations, opinions, and conclusions of the writers. All of the facts contained in the report have been retained.

In this fashion, I hope that we can find a mutually satisfactory way to preserve the candid conclusions which we need and at the same time provide you with all the facts which you require in order to form your own conclusions. Sincerely yours,

W. B. FRANKS,

Under Secretary of the Navy.

COMPTROLLER General of THE UNITED STATES,
Washington, October 30, 1958.

The Honorable the Secretary of the Navy.

DEAR MR. SECRETARY: We acknowledge the letter of October 17, 1958, from the Under Secretary of the Navy, in response to our request for a copy of the report prepared by the Procurement Review Group, Office of Naval Material, entitled "Review of Procurement Activities in the Military Sea Transportation Service," dated October 1957. The letter transmitted a revised report, edited to exclude recommendations, conclusions, and opinions of the writers, in lieu of the report requested. We understand that the full report was withheld because of concern that if such reports are known to be available to groups outside the Navy, there may be a tendency on the part of the reporting group to soften criticism, avoid doubtful matters, and generally be more cautious and restrained.

We cannot share your concern that internal review groups would not express full and frank views if they knew that their reports were not limited to internal distribution. For nearly 21⁄2 years now, ever since we initially began a comprehensive review of selected Navy activities in the spring of 1956, we have had access to the documents, records, and reports which we needed to perform our statutory responsibilities. Over and above the basic documentation dealing with procurement, supply, and financial matters, we have also had access to inspection, internal review, and other internal audit reports. We have never discerned any tendency to minimize significant findings or to reshape the material in any way by reason of knowing that our professional staff would review their reports and workpapers. In fact, these groups have frequently sought our opinions as to how their work and ours might be better coordinated in the Government's interest. In our relations with the responsible personnel performing these studies, we have been impressed with their competence and objectivity. We cannot perceive that these officials and Government employees would be swayed by reason of the knowledge that their reports and their efforts would be subjected to an impartial and independent review by persons other than those in the Naval Establishment especially when such review is specifically provided by law.

It seems quite evident that some misunderstanding exists as to our need for access to complete reports of the various internal reviews as well as the basic data from which the reports are prepared. Perhaps an amplification of our position will assist you in understanding our need for access to and the right to examine any books, documents, papers, or records of the Navy Department.

As you know, an internal control system takes many forms in different areas; but in all cases a satisfactory system of internal control must include such things as a plan of organization, clearly defined policies and procedures, adequately trained personnel, effective and timely reporting and analysis, and a strong in

ternal review system. A thorough review and evaluation of the effectiveness of an internal control system is an essential part of any meaningful review of the efficiency and economy of activities. The need for such a review and evaluation is universally accepted by professional groups engaged in this type of work and was emphasized by the Congress when it enacted legislation requiring this Office to give due consideration to existing systems of internal audit and control in conducting our reviews of agency activities.

The function of internal review may be comprised of internal audits, inspections, surveys, or special management studies at all levels. Whatever it is called and irrespective of the type of organization or unit assigned the responsibility for it, it is a necessary management mechanism and from our point of view one of the more important ones. We are pleased that its importance is recognized in the Under Secretary's letter.

In the Department of the Navy the internal review or inspection system is diffused through many organizations. The Inspector General, in addition to his other duties, covers many aspects of installation management. Special groups from the Office of Naval Material devote considerable time studying procurement and supply management problems. The internal audit under the Comptroller of the Navy is concerned largely with budgeting, accounting, and related financial management problems.

The work of these groups represents practically the only means by which operating management can determine whether established policies are being followed, whether approved programs are accomplishing their purposes and, in general, whether the functions of the agency are being carried out effectively, efficiently, and economically.

In conducting our reviews we must appraise the performance of this very important segment of the total internal control system in the Navy. In making this appraisal we must be intimately familiar with the scope of work undertaken by these groups, the depth of their study, the extent of the review, the conclusions drawn, the recommendations made, and the agency action on findings and recommendations.

The material submitted in lieu of the report requested consists principally of background data and statistical information, much of which can be obtained from the MSTS Handbook, Organization Manual, MSTS Headquarters Procedural Instructions, and financial and statistical reports. The material, as edited, does not include specific data as to the scope of review, nature of problem areas covered, extent of verification, conditions under which the procurements are made, evaluation of existing controls, or any factural information from which reasonable conclusions can be drawn. Omitted also are the opinions, conclusions, and recommendations of the Procurement Review Group as well as comments of MSTS management with respect to the findings and action taken on the report recommendations. Consequently, we find that the material, as submitted, is not an adequate substitute for our access to the full report and the data in support of the report.

Because of the importance of this matter and the congressional interests in any denial or delay in providing us access to such data, we must insist that an unedited copy of the subject report be made available without further delay. Additionally, I would urge that appropriate instructions be issued to the Naval Establishment directed toward eliminating restrictions as to information required in the performance of our work so as to avoid any other unnecessary incidents of this character.

Your prompt consideration and action will be appreciated.

Sincerely yours,

Hon. JOSEPH CAMPBELL,

(Signed) JOSEPH CAMPBELL, Comptroller General of the United States.

Comptroller General of the United States,

DEPARTMENT OF THE NAVY,

OFFICE OF THE SECRETARY, Washington, D.C., November 22, 1958.

General Accounting Office, Washington, D.C.

MY DEAR MR. CAMPBELL: This will acknowledge receipt of your letter of October 30, 1958, with regard to the report prepared by the Procurement Review Group, Office of Naval Material, entitled "Review of Procurement Activities in the Military Sea Transportation Service".

As indicated in our letter of October 17, management in the Navy must have the benefit of effective internal inspection and self-analysis in order to strive for self-improvement and internal reform. Thus persons such as the Inspector General and the Chief of Naval Material, in making their investigations must be able to obtain frank opinions, advice and criticism from persons at lower levels who are familiar with the facts and problems. If anything were to interfere with the obtaining of such frank and candid statements of view, our ability to work continually for self-improvement and internal reform would be substantially limited. Also, these frank statements of opinion, advice and recommendation sometimes conflict with others, and not all of them are accepted at higher levels. In any event, if we should release them outside the executive branch of the Government, in the future it would only be natural for persons familiar with the facts to soften criticism, avoid doubtful matter, and generally to be more restrained. Self-improvement and reform within the executive branch would then become much more difficult, and the results would certainly be less in the public interest.

We have, however, no desire to withhold any facts which you may require in this connection. A copy of the report in question, with recommendations, opinions, and conclusions omitted, was previously forwarded to you.

Also, the General Counsel of the Navy stated at the meeting with you on October 17, that if there should be any additional factual material which you might desire in connection with the subject report, we should be happy to furnish it. Your letter now states that the material previously forwarded to you did not include certain specific data as to the scope of review, the nature of the problem areas covered, and certain other information. As a result, the General Counsel has again reviewed the report, and a copy of the report is handed you herewith which contains, I am confident, everything which you may desire with the exception of opinions, conclusions, recommendations and other advisory matter. It presents a full factual picture of the MSTS operations described.

Sincerely yours,

(Signed) THOMAS S. GATES.

Mr. SLAYMAN. The next witness is Mr. Robert Keller, General Counsel of the General Accounting Office, appearing for the Comptroller General of the United States, accompanied by Mr. Lawrence Powers, Director of the Defense Accounting and Auditing Division of the General Accounting Office. He also has with him for consultation George H. Staples, Associate Director, the Civil Accounting and Auditing Division, Owen A. Kane, Legislative Attorney, Office of Legislative Liaison, and Hassel Bell, Assistant Director, Defense Accounting and Auditing Division.

Mr. Keller.

STATEMENT OF ROBERT F. KELLER, GENERAL COUNSEL, GENERAL ACCOUNTING OFFICE; ACCOMPANIED BY LAWRENCE J. POWERS, DIRECTOR, DEFENSE ACCOUNTING AND AUDITING DIVISION; GEORGE H. STAPLES, ASSOCIATE DIRECTOR, CIVIL ACCOUNTING AND AUDITING DIVISION; OWEN A. KANE, LEGISLATIVE ATTORNEY, OFFICE OF LEGISLATIVE LIAISON; AND HASSELL BELL, ASSISTANT DIRECTOR, DEFENSE ACCOUNTING AND AUDITING DIVISION

Mr. KELLER. Mr. Chairman and members of the subcommittee, we appreciate the invitation to appear before you today to discuss the cases where we have been denied access to information, records, and reports which are essential to the proper performance of our audits and reviews of the operations in the executive departments.

Before discussing the individual cases, however, we believe that a brief statement of the functions and statutory responsibilities of the

General Accounting Office would provide background which would facilitate the understanding of the significance of the specific cases of refusal of access to reports and records.

The General Accounting Office, which was established by the Budget and Accounting Act, 1921, (31 U.S.C. 1) is an agency in the legislative branch of the Government, completely independent of the executive branch. The audit work performed by the Office is done as an agency of the Congress. The Office of the Comptroller General, also established by the 1921 act, is unique in Government. The Comptroller General is appointed for a term of 15 years and is not eligible for reappointment. He can be removed from office only by joint resolution of the Congress or by impeachment. The purpose of so establishing the term and mechanics of removal was to insure the independence of the Comptroller General from any control by the executive branch.

(The text of the Budget and Accounting Act of 1921 is set forth as exhibit 5 at p. 282 of the appendix.)

Mr. KELLER. Section 312(a) of the Budget and Accounting Act, 1921, (31 U.S.C. 53) requires that we examine "all matters relating to the receipt, disbursement and application of public funds" and, in order to carry out such work, section 313 of the act (31 U.S.C. 54) provides:

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 the right to examine any books, documents, papers, or records of any such department of establishment **

The legislative history of the Budget and Accounting Act, 1921, makes it clear that the provisions of sections 312(a) and 313 of that act contemplate that we are to examine and report on the economy, efficiency, and effectiveness of agency activities. Also, section 206 of the Legislative Reorganization Act of 1946 (60 Stat. 837) authorizes and directs the Comptroller General to make an expenditure analysis of each agency in the executive branch of the Government which in the opinion of the Comptroller General will enable the Congress to determine whether public funds have been economically and effectively administered and expended.

(Section 206 of the Legislative Reorganization Act of 1946 is set forth as exhibit 6 at p. 294 of the appendix.)

Mr. KELLER. Although the first Budget and Accounting Act enacted by the Congress was vetoed by the President on June 4, 1920 (H. Doc. 805, 66th Cong.) (see exhibit 7 at p. 294 of the appendix), because the Comptroller General was not subject to removal by the President, no question was raised in respect to the right of the Comptroller General and the General Accounting Office of access to all information required for the performance of the responsibilities laid upon them by the enactment. The Budget and Accounting Act as eventually approved on June 10, 1921, made no changes in regard to the requirements for access to such information.

There is nothing in the legislative history with reference to limiting us in our access to the books, records, documents, et cetera, of the agencies as provided in the above quoted section 313 with the single exception of certain expenditures under 291 Revised Statutes involv