STATEMENT OF J. C. MCFARLAND, ASSISTANT GENERAL COUNSEL, GENERAL ACCOUNTING OFFICE

Mr. MCFARLAND. As I understand this bill, the requirement of the law with respect to rendering decisions would remain just as it is. The heads of departments could get decisions, disbursing officers could get decisions, but they would get them from the Director of the Bureau of the Budget instead of from the Comptroller General.

Senator O'MAHONEY. You think that that should be retained by the Comptroller General?

Mr. MCFARLAND. I do not see any advantage of changing it. Of course it looks like you could get as good a lawyer one place as another. The CHAIRMAN. If we took the staff of the General Accounting Office over there, that would be all right?

Mr. MCFARLAND. If you had a good man at the head of it.

The CHAIRMAN. I would agree with that, with a good man at the head of it.

Mr. MCFARLAND. It seems to me that there would be some duplication in the audit, with the establishment of an Auditor General. The accounts would be paid by the disbursing officer, apparently, without any audit. Then they would go to the Auditor General for audit. Then they would go to the Director of the Bureau of the Budget for audit and settlement.

Senator O'MAHONEY. Do you find any general defect in this bill? Mr. MCFARLAND. There might be duplication.

Senator O'MAHONEY. Do you find any outstanding defect in this bill?

The CHAIRMAN. Outside of the fact that the lawyers ought to be moved over to the new department.

Mr. MCFARLAND. It is a question as to what would be a defect. You would not have an independent audit.

Senator O'MAHONEY. Mr. McFarland, what I am trying to bring out is this:

Of course any bill that was presented to any committee of Congress would be subject to discussion as to detail, and persons would necessarily disagree as to the advantage of certain details.

Mr. MCFARLAND. Exactly.

Senator O'MAHONEY. That is going on all the time. Of course you can take this measure and pick a lot of flaws in it, and improve it here and improve it there. That goes without saying. What I am asking you is whether from your examination of this bill you see any outstanding defect in it?

Mr. MCFARLAND. So far as the audit and settlement of the accounts and claims are concerned, there would be no change, other than the office in which it is to be done, and the head of the office to do it.

Senator O'MAHONEY. If this bill were passed as it stands with reference to the General Accounting Office, would the public interest, in your mind, suffer any serious loss?

Mr. MCFARLAND. I could not say as to that.

Senator O'MAHONEY. You could not say that it would?

Mr. MCFARLAND. No; except that I do think that there would be an increase of expense.

Senator O'MAHONEY. I can understand that there would be some dispute about that.

Senator BYRD. Do you believe in the principle of an independent control?

Mr. MCFARLAND. Yes; I do. I think it is advisable to have an independent audit.

Senator BYRD. This bill changes that, does it not?

Mr. MCFARLAND. Yes, sir; it puts it in a Bureau of the Treasury Department.

The CHAIRMAN. By that you mean the Director of the Budget, who is appointed by the President and responsible in an administrative way to the President?

Mr. MCFARLAND. Yes, sir.

The CHAIRMAN. It is housed in the Treasury Building; but if he is appointed by the President, and even the compensation of his employees is fixed under regulations approved by the President, he would not be so much under the Secretary of the Treasury, would he? Mr. MCFARLAND. The law makes it a bureau in the Treasury Department.

The CHAIRMAN. Like the National Bituminous Coal Commission is in the Interior Department, but the Secretary of the Interior has nothing to say about the Commission.

Mr. MCFARLAND. I expect that is true.

The CHAIRMAN. But it is in the Interior Department, and the Commission is entirely independent in its functions. I do not want to go into all these independent commissions with you, however. All right, Mr. McFarland.

Mr. MCFARLAND. Thank you.

Mr. ELLIOTT. Mr. Durst is the Chief of the Records Division. I do not know that that enters into this controversy very far. Have you anything to offer, Mr. Durst?

STATEMENT OF V. R. DURST, CHIEF OF THE RECORDS DIVISION, GENERAL ACCOUNTING OFFICE

Mr. DURST. I do not know that I have anything that I could add, except in connection with the mechanics of the audit, with which my Division has quite a bit to do. We receive all the accounts, of course, and analyze them and segregate them and classify them, and make a preliminary examination of them with respect to the order in which they are rendered; whether or not they contain the proper papers, and we segregate them with respect to the vouchers and accounting papers for distribution to the Audit and Accounting and Bookkeeping Divisions, respectively.

We then take up the audit of the depositary balances of the disbursing officers, which neither the Audit, nor the Accounting and Bookkeeping Divisions handle, and we reconcile the disbursing accountsthat is, the depositary balances of the disbursing officers-against the checks which he issues or moneys advanced him on accountable

warrants.

About the only observation which I could make is in the mechanics. of the audit. As I see it, there would be a great deal of difficulty in the General Auditor's office maintaining any exception taken in the audit immediately after disbursement, if the accounts are sent to the Bureau of the Budget in connection with the settlement thereof. In

other words, if the general auditing office takes an exception to an expenditure on a voucher when it passes through its hands, and delivers the whole account to the Bureau of the Budget, where settlement is to be made, the general auditing office having no control, as we speak of accounting control, for appropriations, and we get a settlement certificate back, on which the Bureau of the Budget has made settlement, there is nothing to which the general auditing office could take exception.

That, however, may be clarified by an Executive order, which I understand the bill contemplates being issued by the President with respect to the various functions.

That, to my mind, is the one thing which is serious.

The CHAIRMAN. A mechanical matter of that kind, as you call it, could be corrected, as undoubtedly some others would be.

Mr. DURST. That is, in case there is provided in the general auditing office an accounting control system similar to what we have now, which could be carried along with the audit proper. That seems to me to be the outstanding weakness with respect to the audit.

Other than that, I do not believe I would make any further observations.

The CHAIRMAN. Thank you very much.

Mr. ELLIOTT. Thank you, gentlemen. That is all we care to put in.

Senator BYRD. My attention has been called to the savings by reason of preaudit. If no preaudit had been made of these claims, I am informed that judgment would have been given in the full amount. So, if the Auditor General is limited to post audit, it would be impossible to consider such claims, and the result would be the losing of millions of dollars by the Government.

Mr. Chairman, I wish to submit the following memorandum which has been furnished me by the General Accounting Office.

Since the General Accounting Office began to receive the jurisdictional acts passed by the Congress relating to Indian tribal claims, the force at work on them-by reason of the effective reports prepared for the consideration of the Court of Claims-has effected a saving to the Government of more than $14,000,000, and the costnot including overhead has amounted to only $164,000 plus. The following claims have been disposed of by the court:

The CHAIRMAN. The committee stands recessed until 10:30 o'clock tomorrow morning.

(Whereupon, at 5 p. m. the hearing was adjourned until 10:30 a. m., Thursday, Aug. 12, 1937.)

(Statement submitted summarizing recommendations made by the Comptroller General in his reports follows:)

I submit for the information of the committee an index to some of the recommendations contained in the annual reports of the Comptroller General of the United States which were designed to facilitate more prompt settlement of public accounts and to bring about greater economy and efficiency in public expenditures.

In connection therewith, with particular reference to progress of the Office, there are set forth in the background to Senate bill 2700, now under consideration by this committee, certain allegations of commission and omission on the part of the General Accounting Office which should not be permitted to go unchallenged and there are advanced theories of financial administration and management which seem to proceed largely from a desire to bring about a new order of government for the United States.

This background to which I refer is the report of the President's Committee on Administrative Management, Senate Document No. 8.

On pages 41 and 42 of such report, in a style that is somewhat convincing, the Committee on Administrative Management avers that the present accounting system of the Government is badly scattered; that it presents a rather incongruous mixture of antique and modern practices; that essential parts of the system are found in the Treasury Department, in the General Accounting Office, and in the various operating bureaus, departments, and establishments; that financial reporting from the various accounts is far from being systematized, is generally lacking in telling information for administrative purposes, and is often delayed beyond the point of any practical value. Such a broad and general denouncement might be interpreted as proclaiming the accounting system of the Government to be utterly demoralized. That is not true. The accounting system of the Government, like the accounting system of any other organization, does not comprise merely the accounts in which records of financial transactions are made. It represents the whole mass of forms, procedure, and records and any consideration thereof must be from that standpoint. Like the accounting system of any large organization, it comprises many integral parts, all of which are now being coordinated into one centralized control in the General Accounting Office.

The committee says that although the Budget and Accounting Act, 1921, had as one of its main objects the improvement of the Government's accounting system, very little of real and lasting value has resulted. Such statement prompts the inquiry as to how extensively the committee inquired into the status of the Government's accounting system prior to 1921. It would not be necessary to examine accounting systems of more than 2 or 3 of the major departments and establishments to determine that during the past 15 years very noteworthy improvements have been made and that such improvements are continually being made. The committee concedes in the next paragraph of its report that the authority which the General Accounting Office has exercised over departmental accounting procedures has, in many cases, improved the accounts in the departments and establishments but that the requirements imposed have continually stressed the bringing of accounting information into the General Accounting Office, with little consideration for the informational needs of the Bureau of the Budget, of the Treasury Department, and ultimately of the President. The report of the committee does not state exactly what they consider the informational needs of the Bureau of the Budget, the Treasury Department, and the President to be. In any event, it is submitted without fear of contradiction that in all of the accounting systems prescribed by the General Accounting Office for departments and establishments the obvious and paramount purpose of the accounts is administrative, budgetary, and executive control. The committee says that because of the lack of interest in administration little effort has been made, for example, toward the development of unit or cost accounts. The standard system of accounts prescribed by the General Accounting Office for use by all departments and establishments provides accounts for available cash balances in the Treasury and with disbursing officers; loans receivable; investments; stores; equipment; fixed property; work in process; costs by jobs; organization units' activities, and objects of expenditure; trust obligations; and budgetary accounts representing unexpended appropriation balances, such budgetary

accounts being supported by administrative allotment accounts showing allotments, encumbrances, liquidations, and expenditures, all of which elements by their very nature are essentially and exclusively administrative. In reading the indictment by the committee of the General Accounting Office for its alleged failure to prescribe accounts necessary for the purpose of administrative, budgetary, and executive management and control-it is wondered not whether the committee looked very carefully into the systems which have been prescribed but whether they looked into them at all.

It seems proper here to invite attention to the fact that the law imposes upon the Comptroller General of the United States the responsibility for prescribing the forms, systems, and procedures for administrative appropriation and fund accounting in the several departments and establishments. The authority to prescribe carries no power to enforce adoption of the prescribed systems. The law also directs the Comptroller General of the United States to furnish such information relating to expenditures and accounting to the Bureau of the Budget as it may request from time to time. The responsibility in this case to furnish information can be discharged only when there is a request for information. These provisions of the Budget and Accounting Act, 1921, are called to attention because the committee's report does not contain any comment on the extent to which the system prescribed by the General Accounting Office has been installed and is in use in the several departments and establishments of the executive branch of the Government; nor is there found in the report any recorded attempts on the part of the Bureau of the Budget to secure from the General Accounting Office information relating to expenditures or accounting in order that the Bureau of the Budget might be enabled better to carry on its work.

In such connection there is submitted correspondence between the Comptroller General and the Director of the Bureau of the Budget in which the Comptroller General attempted to establish a closer cooperation with the Bureau of the Budget to the end that administrative accounting systems prescribed would supply all information required by the said Bureau in carrying out its prescribed function. Letter dated August 29, 1931, from the Comptroller General to the Director, Bureau of the Budget:

The DIRECTOR, BUREAU OF THE BUDGET.

AUGUST 29, 1931.

SIR: In pursuance of the provisions of section 309 of the Budget and Accounting Act, 1921, this Office has in contemplation during the present fiscal year the inauguration of a program looking to the coordination of such fiscal and accounting systems as have been and are to be installed in the several departments and establishments of the Government with the procedures and records of the Bureau of the Budget and the Treasury Department in order that the budgetary and fiscal, requirements of the United States may, to the fullest extent practicable, be served through an orderly and systematic accounting routine and without the necessity for duplication of record or effort.

As an aid to the accomplishment of this task it is desired to procure for study the different types of financial statements and reports which the Bureau of the Budget must, for the purpose of carrying out its functions, require the several departments and establishments to submit either regularly or for special needs. Insofar as practicable it is desired also to obtain with respect to each such statement and report a brief outline of the purposes which it serves. Your cooperation in supplying the material herein requested will be appreciated. Respectfully, J. R. MCCARL, Comptroller General of the United States.

Reply thereto by the Director, Bureau of the Budget, under date of September 4, 1931: SEPTEMBER 4, 1931.

Hon. J. R. McCARL,

Comptroller General of the United States.

MY DEAR GENERAL MCCARL: I appreciate very much your letter of August 29, concerning the program which you contemplate inaugurating under section 309 of the Budget and Accounting Act of 1921, and I will be very glad to cooperate with you in this matter, as it is one which vitally affects the operations of this office.

In this connection, however, I think you should know that the President has recently advised me that he has under consideration a recommendation to Congress that the provisions of section 309 of the. Budget and Accounting Act of 1921