Mr. JONES. Suppose the borrower is current in his payments and there is no delinquency. Why do you have to go out and visit with him?

Mr. HORNE. Our visit with him would be more perfunctory than anything else. In that case it could be waived, but the chairman's point is, when we waived them we made no recording of it. In this case, it might very well be waived. Probably in most cases, Congressman Jones, it would be waived.

Mr. JONES. I see no reason why you should go to the trouble of visiting a borrower when he is earning his payments. Why utilize that manpower on a useless visit?

Mr. HORNE. I think you have a good point there, Congressman. Certainly, if you have to make a choice between visiting a borrower who is current and one who is not, the choice ought to be to go to the one who is in trouble. I think the main point here is that we have not recorded the fact that we did not go to see it. We waived visiting him. I think the point is well taken.

Mr. BROOKS. Mr. Administrator, after February 1961, the GAO has not received the Office of Program Analysis reports as theretofore furnished by the SBA on a routine basis. Could you explain this?

Mr. HORNE. Congressman, I suppose there may be some connection here with change of administration. This may be one case where the Small Business Administration has erred. I say this somewhat facetiously, if I may. We have our executive meetings sometimes. I think I have been to executive congressional hearings and, while information is not supposed necessarily to get out, it always does. Some of our people in Internal Auditing probably feel freer not to pull our punches if we think it will be fought out within the agency. It is the question of not washing your dirty linen publicly, so to speak. I think regardless of what we may prepare internally, the chances are it will get out anyhow.

Mr. BROOKS. There are very few secrets, really.

Mr. HORNE. My reaction to your question is that anything the General Accounting Office would want or anything this committee would want that is not in open conflict with some Executive decree or some Executive order, then as far as I am concerned, they can have it.

Mr. BROOKS. This would be helpful to the GÃO and certainly if your Program Analysis is making any reports, they would be helpful. In view of the importance of an effective internal audit system, the subcommittee in previous discussions has pointed out that they should have a specific and express authority to review potential overstaffing and duplication, to make a critical and objective analysis of the opertions. Do either of the two audit sections in the SBA have this express responsibility?

Mr. HORNE. That is my understanding. That has been explained to them, and I shall be glad to repeat it.

Mr. BROOKS. Has the SBA established standards to assure the employment of qualified auditors in this critical evaluation of your entire operation? I mean, do they have the background of a degree in accounting, are they CPA's, or have they had 30 years' experience in Government accounting or equivalent training?

Mr. HORNE. We believe, Congressman, that they do have. Of course, here we follow the standards that are recommended by Civil Service. As you know, sir, these are civil service employees. I have

something here which may be too voluminous for the committee to include in the record. I shall be very glad to leave it for the staff to check, if you want it, sir. For a person as high as a GS-14, management analyst, program analyst, and auditor, we have recorded the qualification requirements. It is my opinion that the qualification requirements are high, and if we are doing our job and making sure the people comply with the qualifications approved by the Civil Service Commission, we should have qualified people.

Mr. BROOKS. On one other aspect of this audit operation, would you object to advising the subcommittee of any adverse action which might affect the SBA internal auditing staffs? In other words, I am trying to be sure these people have a little protection. I do not know who they are and the subcommittee does not know them, but we would like them to be protected from recriminatory practices. We are seriously concerned with some protection so they can make an objective analysis that they can give you freely and without any fear of recrimination or transfer by arbitrary action on the part of the actual operational management which is looking down their throats all the time.

Do you see what the problem is? For instance, if we were auditors, you might think twice about making an impartial critical analysis of your own agency if you worked directly under and subject to the operational control of somebody in between you and the management. Mr. HORNE. Mr. Chairman, I do not believe that any of the people in SBA are fearful of recrimination or feel restricted or restrained in their freedom to make recommendations and to suggest what they please. If the subcommittee wants it, I would be glad to tell the subcommittee of any action that has taken place. I would also ask Mr. Carr and Mr. Hanna and even the heads of their particular divisions, like, for example, Program Analysis, Mr. Bob Page, who reports to Mr. Carr. If the committee thinks it advisable, I will touch base myself with Mr. Page. I want Mr. Carr to know about it because, as you know, you must maintain some semblance of organizational responsibility or you can create chaos in an agency. I would have no objection to telling Bob Page, for example, in Program Analysis, and authorizing him directly from me to tell people under him that I do not want them to feel restrained at all in pointing out what they feel are inefficiencies. If it should arise that there is a conflict somehow between Mr. Page and some of his employees, I would like to know about it. If the committee wants me to report it to them on the basis that it is retaliation because of some recommendation the employee has made, then I would have no objection to reporting that to the subcommittee.

Mr. BROOKS. We do not have any people picked out that we feel have been discriminated against. We just want to feel sure that they have a fair chance of keeping their job if they do it fairly and honestly in sending their report up.

One other thing. I would be hopeful that you felt that it would be very desirable to have those people feel that they could make a direct report to you as Administrator of the SBA, without the necessity of clearing it in some instances with your assistants, not that Mr. Carr and Mr. Hanna are not competent people, but, for example, they might feel they had a bias of some sort or they do not agree with them, yet they want you to get a look at their recommendations. I think it would be helpful to make clear to people in the auditing capacity that

when they have a recommendation they feel you certainly should have a look at, they should feel free to talk to your secretary and set up an appointment and know they coud talk to you without any hesitancy, and that it was their responsibility to report it to you.

Mr. HORNE. I believe Mr. Page, in Program Analysis, Mr. Fisher, in the Office of Organization and Management, and Mr. Batson, of Audit, feel that way, but I will tell them to feel that way.

Mr. BROOKS. That would be helpful. It sets the ground rules. Most of them go through normal channels, but then they will be available to give you the best information they have, without any fear of recrimination.

Are there any other questions in this particular area of internal audits?

Mr. JONES. Just one question. Mr. Horne, as I understand your discussion of the problems of internal audit, it is established so functionally that if there were faults in the administration of any of the activities, they would naturally come to the attention of the superiors in the various segments of your operation?

Mr. HORNE. That is right, sir.

Mr. JONES. So, under the system of operation, it would be disclosed if there were failures. If you were to put all these activities of the Small Business Administration into one organization, they would still have to carry out all the functions that are now practiced in the agency.

Mr. HORNE. That is right.

Mr. JONES. So, functionally, you will not change anything by this scheme that is proposed to halt this duplication and the other functions, because they must continue if you are to operate your shop properly.

Mr. HORNE. Yes, sir. I believe we have eliminated duplication that once did exist, as pointed out by the General Accounting Office. I believe that by staying on top of it and working as close as we are, we can function satisfactorily as we are presently organized. I do not mean to imply at all that we cannot improve on what we are doing, and we shall continue to try to do so. As you point out, Mr. Jones, the function, of course, would still have to be carried out.

Mr. JONES. It would be continued as presently practiced.

Mr. HORNE. That is right.

Mr. BROOKS. Any further questions on this phase?

(No response.)

ANNUAL REPORT

Now I should like to go to the annual report. In view of the recent amendment to the Small Business Act, it is my understanding that the SBA will henceforth submit only one report per year to Congress. Is that correct?

Mr. HORNE. Yes, sir; that is right.

Mr. BROOKS. After review of this most recent report, the subcommittee felt that future reports could be improved, perhaps, if more detailed financial information were furnished Congress, not only with regard to the loan program but with particular reference to other responsibilities. As an example, it does not give a breakdown as between direct immediate participation and deferred participation loans. What is your feeling about that?

Mr. HORNE. We would be glad in the future to include this information. Whatever the proposal is, I would like Mr. Lanman to make a note of it so we will make certain we do not miss it next time.

Mr. BROOKS. It would be a breakdown in business loans between the direct immediate participation and the deferred participation, the major areas, one of which we are by law supposed to be encouraging

now.

The subcommittee also looked at some other reports and felt that generally these annual reports might well contain the following-I wish you would think about these, Mr. Horne, and if you have any comment on them, we would like to have your recommendations:

(a) A list of specific programs, responsibilities, and objectives. (b) A quantitative and qualitative analysis of the programs, responsibilities, and objectives and their estimated unit cost.

(c) A statement of expenditures by organizational unit and by program, responsibility, or objective, with a specific justification for all personnel.

(d) A list of all GAO reports issued during the year and the action taken in response thereto.

(e) A list of all internal audit recommendations, in your instance from both areas, made during the year and the action taken in response to them.

Do you think those would be the kind of items that could be included in a report? Some of them are already included. What is your feeling about that type of item for inclusion in the annual report?

Mr. HORNE. I shall be glad to include them, Mr. Chairman. Let me make certain I understand your request. You do not mean for us to bind within our annual reports

Mr. BROOKS. Certainly not, not the GAO reports in detail or your internal audit reports in detail.

Mr. HORNE. But simply a list of them?

Mr. BROOKS. A list and analysis of them. If there is one which is particularly significant on which you did not act, say you did not agree; or if it was significant and you did agree and took action on it and made the appropriate changes in the management and operation of your agency, then report that.

Mr. HORNE. I see no reason why not. It would take more time to do it, but if this will be of help to the subcommittee, we will do it.

Mr. BROOKS. I think a list of criticisms and the affirmative or negative approaches taken to them would be helpful for Congress and anybody analyzing the agency, in understanding what other people thought about it and what was being done. They may all have been acted upon. They may all be your internal audit reports.

Could you give us any information on the cost of preparing the last semiannual report?

Mr. HORNE. I think the people that I asked to work up this figure, Mr. Chairman, submitted originally a cost of approximately $5,600. This included the cost of printing 5,000 copies, and also included the personnel time, as best we could estimate it, spent by the Office of Information Services, which has the major responsibility of preparing the annual reports.

Incidentally, Mr. Chairman, the reason we had difficulty tying down specifically the cost is that this is not something to which you allocate people and they work on this and nothing else. Various employees

may each spend several hours. The best we could analyze it by checking with the head of the Information Services, the combined cost of his personnel and the cost of printing the 5,000 copies came to about $5,600.

As I analyzed this, I realized that there were other personnel in other divisions within the agency who also spent some time getting the material together to turn over to the Information Services. For example, I know I spent about 4 hours on this report before it was published. I went to each of the operating divisions within the agency to get an estimate of the time that personnel within their divisions also spent helping the Information Services or preparing the material for the Office of Information, and it came out to total hours, the best we could estimate, of about 450. Fguring that on the basis of what we thought the average cost would be with the GS-15's and people below, it came to approximately $1,939.

I would suggest that to the figure of $5,610 we also add the $1,939. I believe this would give a fairly accurate estimate as to the total cost of our preparing and printing the 5,000 copies that made up the last report.

Mr. BROOKS. Thank you.

We will include as an exhibit the report we received from, I think, Mr. Hanna which gives further detail on that.

(Exhibit 2 follows:)

EXHIBIT 2-THE SEMIANNUAL REPORT

As the members of the committee know, the Small Business Administration formerly was required to report semiannually to the President and Congress, but under the 1961 amendments to the Small Business Act will report in the future on an annual basis.

The 17th and last semiannual report of the agency covered operations from June through December of 1961. Our next report will deal with operations during all of 1962.

Preparation of the SBA reports is an agencywide undertaking in the sense that all operating offices contribute material on their activities for possible use in the report, or to meet requirements set by the Small Business Act, such as the stipulation that the report must list all business loans approved in the period covered.

In this connection, it should be noted that the material prepared as a basis for the report, as well as the completed report itself, serves a variety of purposes. For example, the material often is used in preparing congressional testimony, in drafting recommendations on proposed legislation, as reference material for speech and similar informational purposes, and for other uses.

Moreover, the report serves additional purposes besides its primary one of informing the President and Congress of SBA activities. We find it is of interest and value to the agencies represented on the White House Committee on Small Business; to agencies with which SBA has cooperative programs; to individual small businessmen and their associations; to banks which participate or are prospective participants in SBA loans; to foreign governments which have or are considering small business programs, and to many others who want to know what the Federal Government is doing to help America's small businesses. Normally, in the preparation of such an SBA report, those most directly concerned are staff members of SBA's Office of Information Services and of the Graphics Unit, Office of Organization and Management. Those who participated in preparation of the 17th semiannual report were a GS-14 ($12,730), a GS-13 ($10,635), and two GS-4's ($4,040 each) of the Office of Information Services, and a GS-11 ($8,080), a GS-9 ($6,435), and a GS-4 ($4,670) of the Graphics Unit.

The staff members of the Office of Information Services planned, wrote, edited, and typed the report, while those of the Graphics Unit provided necessary design, art, and layout services.