Page images

that with some States, the investigators from ORS would contact the State agency investigators to determine whether an investigation had been done on any complaint that ORS had currently received.

We think that ORS should place a higher priority on trying to work out with the State agencies what could be done in terms of monitoring corrective activities of the local governments. For instance, one of the problems that ORS has had is that once they have resolved a complaint and the local government has agreed to take certain actions, they were not following up on the complaints. We think that the State agency could assist them there.

It appears that ORS just has not pursued the agreement as a viable alternative. The same thing is true of the Federal agreements.

Mr. FOUNTAIN. We will take this up with the Treasury when they testify.

The subcommittee has received an advance copy of the GAO report entitled, “Compliance with the Requirements to Hold Public Hearings on Use of Revenue Sharing Funds.” In that report GAO found that about 30 percent of small communities did not hold the first hearing on revenue-sharing funds, as required by the act.

Has this finding been brought to the attention of the Office of Revenue Sharing?

Mr. THURMAN. Yes, sir. It has.
Mr. FOUNTAIN. Do you know what they have done?

Mr. CORREIRA. We gave them a list of the communities that have not held hearings. They were going to notify them.

In fairness to ORS, they do remind the local governments that they are required to hold the hearings. In the last 13 letters that they sent out, on a quarterly basis, 8 of the letters did contain references to holding the hearings.

Mr. FOUNTAIN. I realize that some of these funds are going to areas where the population is sparce. They probably have not had anyone show up for some of the hearings and probably do not see the necessity for it. It is like voting. We do not have a lot of people turn out to vote, but they still have the privilege of voting.

I think for a public official, either elected or appointed, to know that somebody may be sitting in, observing, and taking notes, and taking a look at how he is purporting to spend money, is a salutary thing. I think it makes our public officials more cautious about how they spend money.

Then, too, I notice you said that few people were showing up at the hearings, and therefore it might be unnecessary to have them. However, it does not take much time for the appropriate official to call a hearing, whether it is for 30 minutes or 1 hour, whatever it is, and give people a chance to show up.

I think there is a tendency in this country, since we have so many demonstrations with big crowds, to think nobody is interested if we do not see a lot of people at a meeting. A single person may be representing a group and that person may go back and engage in a discussion as to whether or not they want to come back and make some recommendations.

I am aware of instances at the local level where special interest groups were prepared to make suggestions to governing bodies but, when they saw how the funds were being allocated, they were inclined

to agree that the local officials were doing a good job of spending the money.

Do you care to comment on that?

Mr. Staats. This provision had our strong support at the time it was included in the legislation. I think the principle you are talking about is fundamental. It is a little like the audit requirement. Perhaps it takes something like revenue sharing to cause a community to do something which they should have been doing all along.

I recall, when I first went to the GAO, we were looking at some of the problems of communities. At that time the city of Pittsburgh did not even have a printed budget. There had been no opportunity for any comment. That has been corrected, of course.

if the citizens are as concerned about taxes—as I believe they arethere is something missing that would explain why they would not show up for a hearing when the locality is discussing not only how they are going to spend the money but how much they are going to spend.

It may be that the local government is not giving enough publicity to these hearings and doing what it can do to encourage people to attend, just like a community can encourage people to get out and vote. It will not force people to get out, but it will at least give them enough publicity and enough encouragement to cause people to take another look and try to arrange their schedules.

Mr. FOUNTAIN. When we considered this legislation last time, we found that in some instances the requirements of publishing a notice in the newspaper and hearings might take just about all the funds some small communities would get. The amounts that some of them were going to get was very smal Do we not have about 17,000 townships that are receiving funds? Of course, $200 is the minimum.

Mr. STAATS. I do think there might be a question here of whether you need two hearings or one. We have suggested maybe one would be enough, when they are looking at the total budget including revenue sharing, but I would think you would still want to identify how much of that is from revenue-sharing funds.

Mr. FOUNTAIN. There was a general feeling in 1976 that one hearing would probably be adequate if it were a good, thorough airing. But there were some subcommittee members who felt strongly that one was not enough.

You raise an extremely important point. The important point is to get the job done, to spend the money properly, and to have local people make an input so that local public officials will know that there are some other needs within the community and other areas where they might need to spend money, even though in truth and in fact, as I think ought to be, they are the final arbiters. They determine where the money is going to be spent.

We had a cross-section panel in our 1975 hearings which included a number of social action groups, labor, the League of Women Voters and the National Association of Manufacturers. I asked this question: Assuming that you have differences of opinion about the purposes for which this money should be spent, is there anyone who feels that a private group ought to make the decision, or is it the responsibility of the elected public officials to make the final decision as to how the funds are going to be spent ?

I was delighted to see that they agreed across the board that officials must make that decision after hearing from local citizens and groups.

Mr. CORREIRA. Mr. Chairman, I would like to make a remark relative to what you said. Some of the comments that we heard in checking out the participation requirements, from groups and individuals, were that they preferred to let their elected officials know what their interests were prior to the public hearing, that this was more effective.

Mr. FOUNTAIN. In some cases they do that. For example, I am a constituent of a lot of local public officials. I have not had too much success with getting some things done that I think ought to be done. Occasionally, I picked up the telephone and called the person who represents my ward. I know a lot of other people that do the same thing.

Sometimes this turns out to be effective and accomplishes the same purpose as a public hearing.

Mr. Staats. It is not either or. I think it is both.

Mr. FOUNTAIN. This is my last question since we have other witnesses.

page 6 of the GAO report entitled "Compliance With Requirements to Hold Public Hearings on the Use of Revenue Sharing Funds," you call attention to a Missouri village which decided to withdraw from the program and to give up its annual entitlement of about $1,100 because it no longer needed the funds. Are you aware of any other examples of this kind ?

Mr. CORREIRA. No; we are not, Mr. Chairman.

Mr. FOUNTAIN. Thank you very much, Mr. Staats. I thank you and your colleagues for an extremely informative and comprehensive statement to begin with. It was a thought-provoking one and contained some useful suggestions. I hope our staff and your staff will be able to get together and come up, in those areas where there is concern, with something worthwhile. Maybe we need to make some changes. We appreciate your coming.

Mr. Staats. Thank you very much.

Mr. FOUNTAIN. Our next witness is a man whose name is not unfamiliar in this subcommittee, James R. Fountain, Jr. He is city auditor of Dallas, Tex., and is representing the Municipal Finance Officers Association.

I might say that in some of my travels I used to look up the name Fountain in the telephone directory. In many places I never saw it. But in recent years I have discovered that there are a few Fountains in a lot of places.

In my own State I found three sections where there are groups of Fountains.

It is nice to have you with us, Mr. Fountain.



Mr. J. R. FOUNTAIN. Thank you, Mr. Chairman, and members of the subcommittee. I am James R. Fountain, city auditor for the city of Dallas, Tex. I am testifying on behalf of the Municipal Finance Officers Association. With me is Donald Beatty, the executive director of the Municipal Finance Officers Association.

We of the MFOA, as strong supporters of the general revenuesharing program and advocates of continued improvement in financial reporting and auditing, appreciate the opportunity to present the views of State and local government finance officials throughout the United States to this committee.

To us, general revenue sharing is the centerpiece of the Federal grant-in-aid effort. It is our opinion that the general revenue-sharing program has met critical needs of State and local governments during a time of high inflation and increased fiscal stress.

It has helped to reduce our dependency on property taxes and provided an essential discretionary funding source to assist us in meeting specific high priority needs of our widely different communities. It has helped our governmental unit to continue to provide satisfactory levels of essential services and maintain our infrastructure—streets, storm sewers, police facilities, et cetera—during very trying fiscal times.

Our purpose today is to indicate our continued strong support for general revenue sharing and to provide information that we believe will be important to you in considering certain features of the program.

Since 1976 and the enhancement of the audit requirement of general revenue sharing, we believe that significant improvements have been made in governmental accounting, auditing, and financial reporting. We believe these represent only the initial steps in a continuing process that is rapidly gaining momentum and support.

It is evident that the general revenue-sharing audit requirement has been a major contributor to the process. Also, the increased involvement of professional accountants, CPA's, academicians, and investors in municipal securities have increased overall awareness and support for needed improvements.

The efforts have resulted in considerable progress which, if properly nurtured and supported, can lead to meaningful solutions to many of the issues currently confronting us in State and local government.

State and local governments have, we believe, felt the need to comply with the requirements of the General Revenue Sharing Act and have initiated improved accounting and reporting systems and efforts to assure that quality audits are being performed. In fact, it is our understanding, which was confirmed by the Office of Revenue Sharing this morning, that almost all of the required 11,000 State and local governments have submitted either audit reports or their plans for completing the audit.

We believe this is firm evidence of the good faith of our efforts to comply. This is not, however, meant to lead you to believe that we are completely satisfied with the current state of auditing, accounting, or financial reporting. We recognize that much is left to be accomplished, especially in improving the quality of governmental auditing and financial reporting.

The Municipal Finance Officers Association has, since its inception, been a strong proponent of accountability in government. We strongly support the use of annual budgeting and annual financial reporting based on sound accounting principles designed to provide users with information necessary to ascertain if the governmental unit is meeting its stewardship responsibilities.

An important part of this is the independent annual audit of financial statements. We therefore find ourselves in the somewhat difficult position of testifying against the expansion of the general revenue sharing audit requirements yet favoring the annual audit ourselves. However, we believe that there are extenuating circumstances surrounding the issues that indicate that there may be other, more effective alternatives in accomplishing what both the MFOA and the subcommittee desire-improved accounting, auditing, and financial reporting for government.

It is our belief that the efforts currently in progress are having a meaningful impact and that the imposition of an annual or even a biannual audit requirement at this time would not be in the best interests of either the Federal, State or local governments.

Our reasons for this belief follow :

First: The current requirement has been interpreted as requiring an audit at least every 3 years. That is being met by a large portion of the 11,000 affected governments. However, this is causing a serious drain on available audit resources.

A more stringent requirement would be likely to severely tax the ability of many jurisdictions to comply with the law.

Second: A further increase in resources allocated to the auditing of financial statements would, in our opinion, reduce the audit time avaiiable for audits of economy, efficiency, and program results of governmental programs. Since governmental units do not operate in an efficient competitive market and do not have readily measurable performance indicators—such as net income or earnings per share-analysis and audits that extend beyond the scope of the traditional financial audits are vital.

A shift of resources from these audit efforts would be detrimental to the performance and productivity of governmental units, in our opinion.

Third: We believe that beyond a certain minimal level of mandatory compliance, it is often more effective to use incentives and other less drastic methods to encourage improvements. It would appear to be more effective at present for some form of positive economic incentive to be offered to governmental units to encourage them to provide audited annual financial reports.

Fourth: Efforts now, we believe, need to be aimed at improving the quality of reports being submitted, not necessarily increasing the quantity of the reports. Although significant improvements have been made in the quality of government financial reporting, there is still the need for further enhancement and attaining compliance with generally accepted accounting principles.

As an alternative, we believe that the use of the independent statewide commissions should be considered. The commissions, included in early drafts of the administration's reauthorization message would address two fundamental sources of local fiscal problems, one of which is improved financial management practices. We believe that such statewide commissions which would address the areas of accounting, auditing, and financial reporting could effectively bring about a significant number of improvements for State and local governments.

As professional finance officers, we would naturally like to see State and local governments audited on an annual basis, according to gen

« PreviousContinue »