1 have found impressive the breadth of background and experience of comptroller personnel. For example, of the 307 civilians assigned at headquarters who hold positions comparable to those held by officers, 44 percent have bachelor degrees and 19 percent have master degrees or higher; 85 percent have more than 10 years of Federal service and 35 percent have more than 5 years of service in comptroller functions. Of the 162 officers assigned at headquarters, more than half have been assigned to the comptroller function for 5 years or more. Fifty-two percent are college graduates, and 19 percent have master degrees or higher.

We are having difficulty at this time in securing adequate numbers of qualified accountants. This is serious because of the urgent need for accountants to accelerate the development of a number of activities on which we are working and which were contemplated under title IV.

At this time I would like to discuss some of the activities in theAir Force related to title IV. I am told the Air Force was one of the pioneers in developing the performance-budget concept for supporting its appropriation estimates. We recognize that the present system does not readily identify the performance cost of many activities. This is particularly true with respect to the distribution of pay of military personnel and centrally procured, stored, and issued items of equipment and supplies principally of a capital nature. The present budget structure is designed to permit the greatest simplicity of administration within necessary controls and at the same time provide to the extent practicable segregation of operating and capital programs. We propose no major changes in the present structure until such time as we will have installed an improved accrual accounting system which we are currently developing, and which I would like to discuss further with you at this time.

One of the first major steps to improve the cost-accounting and costdistribution system of the Air Force was initiated in 1947, at which time the Secretary of the Air Force directed the development of a system of accounts which would reflect true operating costs similar to systems used by business enterprises. At that time we only had the appropriation and obligation accounts which did not reflect in many instances total related costs.

The system is still deficient, however, inasmuch as we have not reached a point in the development of our basic accounting systems which will permit its complete integration into the budget system. We have currently underway a full-fledged accounting program designed to build this basic system. We have had available for the last 2 years the services of senior partners of the nationally prominent accounting firms of Price, Waterhouse and Touche, Niven, Bailey & Smart. We have also been fortunate in having the assistance of several independent consultants who are members of the faculty of the Harvard Business School. We are nearing the completion phase of research and certain basic test activities, and hope shortly to begin to increase our efforts on the actual installation of elements of the system. During this time, however, we have been able to carry forward a number of worthwhile concepts which are embraced by title F7.

Using the working-capital-fund concept, we have already established a stock fund covering three fields of supply, namely, individual

Senator Flanders. We have been informed that your department continues to review and analyze its budget in the same manner that was utilized prior to the enactment of title IV, even though the Department of Defense has developed thorough and critical budget techniques consistent with the title.

What is your point of view with regard to that?

Secretary Anderson. We have here a chart which I will be glad to furnish the committee, on how we go about the development of the Navy budget, if you would like to have it.

Senator Flanders. Is it or is it not tied into the procedures of title IV?

Secretary Anderson. So far as I know, Senator, we are following all of the outlined criteria in title IV.

Senator Flanders. I would like to be very sure of that because it would seem to me that the clearest understanding on the part of the authorization and appropriation functions of the legislative branch would come from a close following of the title IV procedures in your budgeting practice.

Secretary Anderson. We will do this. I will make a new review to be sure that we are following the procedures in title IV, but I say to you now that so far as I know we are following the procedures that are outlined in title IV. I think that we are.

Senator Flanders. And those procedures have been studied and set forth in a Defense Department document, if my information is correct.

Secretary Anderson. Yes, sir; insofar as I know, we are implementing that. But I will furnish to the committee a chart showing the exact steps which we follow.

Senator Flanders. To what extent do field commanders participate in the preparation of budget estimates? Are the clear lines of management responsibility which are contemplated by title IV established so as to permit participation by field commanders in the preparation of budget estimates?

Secretary Anderson. By "field commanders," do you mean people who are in charge, we will say, of a carrier or a task force or that sort of thing?

Senator Flanders. The various naval districts and theaters of operation, if there are any; the commanders of the various fleets, for instance.

Secretary Anderson. I do not know just how far down the line you would want us to take the problem, but the commanders of the primary units, as, for example, the commander of the Pacific Fleet, would have a part in the budgetary process. Of course, he in turn would have to depend upon the other type, the lower type of commanders which are under his jurisdiction. But each of the major activities, both from fleet operation and in shore establishments, do have a part in the preparation of budgetary requirements.

Senator Flanders. Under presently existing systems, military requirements are determined by officers senior in rank and position to the military budget officers.

Does this seniority in rank and position seriously impair the review and analysis made by the budget officers? Would it be more desirable for military requirements to be reviewed by personnel responsible directly to the civilian Secretary 1

Secretary Anderson. Let me say that I have found that military deputies we currently have are people of great courage and that they are very frank and free to express themselves in our budgetary processes.

May I say also that we have established in the Department of the Navy an Office of Analysis and Review, which is staffed entirely by civilians, and which examines coincidentally with the military organization the generation of requirements, so that they are responsible directly to the Secretariat, and they bring to us the point of view of one who is not necessarily in the chain of command.

Senator Flanders. We have been told that military personnel costs are not identified with the function to which the costs relate in the preparation of performance budgets. Can you answer as to whether that information is correct; and if so, what the reason for it is?

Secretary Anderson. I think that is essentially correct, Senator.

Senator Flanders. Do you have a specific reason for not assigning the personnel costs to specific functions?

Secretary Anderson. I am turning over in my mind your question as to the reason for it. The difficulties which would be encountered would be that if you did program your military personnel with each of the individual activities it would be very difficult indeed to have the total personnel figure as to what the personnel costs were. By having all personnel under one funding program, and particularly in the realization that the primary individuals in that program are

Eeople who are potential combat men, you do have a capability of nowing what your total program costs.

I am just thinking here for the moment that probably the knowledge of what the total program, personnelwise, would cost, and having that funding under one program might have considerably more desirable features than breaking it down into, we will say, a number of activities which would require an accumulation of all of those to have a good personnel cost figure.

Senator Flanders. I can see that there might be some errors made in adding up the parts to accumulate the whole. But it does not seem reasonable to me offhand that the function costs should not include the personnel feature. I would think that you would find it a most valuable thing budget wise and control wise for determining the costs and value of various functions.

Secretary Anderson. I can see that there would be some advantages. From a statistical point of view, Senator, we would know how many people go into the various functions. In other words, there would not be any problem of knowing how many individuals were concerned with a particular function. But in budgeting for those people under a performance budget, we put all of the people under one personnel, military personnel, group—again in order to have a fixed responsibility for personnel costs, personnel distribution.

Senator Flanders. But is there not also a responsibility to the man in charge of a particular function to see to it that his personnel costs are not excessive or to see what he can do toward reducing them?

Secretary Anderson. Yes. The current way in which he would operate would be to maintain as nearly as he could efficient levels of personnel which would be controlled in terms of individuals rather than controlled in terms of dollars allocated to personnel costs.

Senator Flanders. Let us leave that matter, sir, as being one to which you may wish to give further thought.

Secretary Anderson. I think it is one that is entitled to further thought.

Senator Flanders. Our information is that at the end of fiscal year 1953, your Department had brought 20 percent only of its total commercial and industrial-type activities under working capital funds. What obstacles have prevented the utilization of working capital fund financing that have caused this deficiency?

Secretary Anderson. I would like to refer back to my original statement, Senator, in which we indicate that we now have 28 activities of this type, and down further in the statement, that during the current fiscal year we plan to convert eight more additional industrial-type activities.

The primary limiting factor we have found is that this is a new type of activity and the number of personnel that we have qualified to operate on the industrial fund is rather limited. We are develop-ing those as rapidly as we can.

Senator Flanders. You did cover that, but I wish to get it into the record at this point. Now in order to conserve your time, I believe that I will ask one more question and then ask if you will designate one of your associates here to talk to us about the rest of them.

Do you approve of the principle of title IV? Are there any reservations which you have about the legislation or about any of the procedures which it requires to be installed. And constructively, have you any suggestions for amendment of the law 1