comprehensive statements of the financial condition and operations of the Government as a whole; (3) the existing distribution of responsibility between financial and administrative officers leads to unnecessary delays in the liquidation of obligations.

In its report to the committees of Congress, the Brookings Institution has made recommendations (1) for improving both current information and research techniques of importance to effective budgetary and administrative management; (2) for meeting the need of the General Accounting Office for information which will make possible full control of the Treasury of the United States; and (3) for proper division of responsibility between financial and administrative officers and the expedition of both the liquidation of obligations and the settlement of financial officers' accounts. These recommendations can readily be incorporated in a reorganization of the present system of financial administration.

Senator BYRD. Mr. Chairman, if they have not already done it, I want to move to insert in the record all the replies from the different executive departments.

The CHAIRMAN. If there is no objection we will put in the replies from the heads of the departments with reference to the bill not heretofore included in the hearings.

I also desire to insert a statement of the President's committee with respect to some phases of the subject of accounting and auditing not previously covered by them.

The committee will now stand adjourned and the hearings will be closed.

(Whereupon, at the hour of 11:50 a. m., the hearings were closed.) (The statement of the President's committee and the letters from the executive departments referred to are as follows:)

FURTHER STATEMENT OF THE PRESIDENT'S COMMITTEE ON FISCAL CONTROL AND

ACCOUNTABILITY

PURPOSE IN VIEW

The proposals of the President's Committee on Administrative Management with respect to the reorganization of the acounting system are designed to cure the present confusion of authority and responsibility between the various departments and establishments and the General Accounting Office. Such a clarification should, on the one hand, focus on the executive its proper responsibility for carrying out the tasks of administration and give it the essential managerial tools for that work, and, on the other hand, strengthen and extend the independent audit of all financial transactions. If this is done the real ability of Congress to hold the executive fully and fairly answerable for its use of appropriations will be enormously increased.

In reaching its conclusions, the committee has sought to follow and apply sound principles of financial administration as tested and established by experience. It has given due regard to the provisions of the Constitution marking out the separation of powers. It is convinced that some features of the existing accounting system are unconstitutional and it proposes to substitute a system that explicitly recognizes those basic limitations upon executive and legislative authority. Above all, it has been concerned to review the practical operation of the Budget and Accounting Act of 1921 and the difficulties to which it has given rise in the day-to-day conduct of the work of government. The committee believes that the main intent of Congress in passing that act, as clearly expressed in debate at the time, was right. It hopes to see a return to that intent. It hopes to correct the faults that experience has developed since 1921 without surrendering any safeguards or abandoning any of the very real progress that has been made in certain directions.

DISTINCTION BETWEEN AUDIT AND CONTROL

The President's Committee regard it as essential to future progress in financial administration that a clear line be drawn between the executive function of current control, or settlement of accounts and the legislative function of audit. The one involves the power to apply the laws and to authorize, or to prevent, particular expenditures. It includes the keeping of the central financial records, the con

trol accounts of the Government. It is indespensible to effective management. Indeed it may be said that real managerial control of current spending, of the execution of the Budget, has never existed in our National Government, before 1921, because there was no budget upon which it could be based, and since 1921 because the necessary powers for exercising it have been vested in an independent officer.

The other function, audit, involves the power to review, to probe, to criticize and report upon, what has been done, and the manner of keeping the records. This includes an auditor's certificate upon the accuracy of the accounts kept, so that Congress may rely upon the figures presented by the administrative officers. It is indispensable that this work be done thoroughly, independently and fearlessly for the sake of public confidence in the Government, and for the sake of enabling the Congress to know that its directions regarding the use of appropriations are being observed. These.two functions are separate and distinct, and the value of both is lost if they are mingled. The one belongs in an agency reporting to he President, the other in an arm of the Congress.

This is no novel, startling, or revolutionary conclusion in any sense. On the contrary, it is supported by the virtually unanimous testimony of students of public finance, both here and abroad; by the sound and tested practices of large, well-managed private businesses, and of most modern governments, including a number of States in this country whose governments have been recently reorganized; by the terms of the Constitution and the understanding of its framers; and by the intent of Congress at the time the Budget and Accounting Act was passed.

Authorities in Public Finance.-Thus Prof. H. C. Lutz in his text on Public Finance (3d ed., N. Y., 1936, pp. 905-6) has criticized the existing Federal system as follows:

* * *

"A second defect * * * is the failure to distinguish between the comptroller and the auditor functions. In the Federal system * * * both * * * are performed by the same official or under his direction it is easy to understand why the error was made in 1921. It is not so easy to understand why this error should have been perpetuated so long * * In consequence the administration has been hampered by * * * decisions of an official beyond the control of the Executive, while there is no present provision for an independent criticism of the comptroller activities."

*

A. E. Buck, in his study entitled "The Budget in Governments of Today (N. Y., 1934, pp. 239, 289) (see also his earlier work Public Budgeting, N. Y., 1929, pp. 563-4), wrote in similar vein:

"The Comptroller General is in a dual position, performing certain functions which are essential to complete executive action, and others which, for theoretical and practical reasons, are prerogatives of the legislature. His duties are not only inconsistent in this respect, but they are illogical as well, since he virtually becomes the auditor of his own accounts."

Similar quotations could be adduced from the brief but informative work of G. C. S. Benson, Financial Control and Integration, (N. Y., 1934, pp. 1–5). W. F. Willoughby, who during the first years of the existing system endorsed it because of certain undoubted improvements, has in his latest work, The Government of Modern States (rev. ed., N. Y., 1936, pp. 486–7), made the following criticism:

* * *

"Due to this failure to distinguish between these essentially different functions (audit and control), many of our governments have failed to make provision for any comptroller as a separate officer, his duties being entrusted to the auditor. The most striking example of where this faulty procedure has been followed is presented by the National Government, which, in creating its General Accounting Office has vested the performance of these two functions in the hands of the same officer-a procedure which has given rise to much trouble in operating a system which otherwise has great merits."

* * *

These are all American writers. In Great Britain the distinction has long been recognized and is a basic feature of the Exchequer and Audit Departments Act of 1866, which is still the law today. It is emphasized by C. F. Bastable in his classic treatise Public Finance (3d ed., London, 1922) and by Col. A. J. V. Durell, who has written the most thorough and comprehensive study of the British practice, System of Control Over Parliamentary Grants (London, 1927, pp. 377– 380).

State practice. The reorganizations effected by law in Maine, Massachusetts, and Virginia, and the State reorganization surveys for Alabama, Iowa, Mississippi, New Hampshire, North Carolina, and Oklahoma all recognize this principle explicitly. In addition the Connecticut reorganization enacted by the general

assembly in the spring of 1937, upon the recommendation of a special commission previously appointed for the purpose, follows the same principle.

Constitutional provisions.-The President's Committee believes that the distinction between control and audit follows the line between executive and legislative powers as understood by the framers of the Constitution, who instructed the President to "take care that the laws be faithfully executed." As evidence of their intent, the following quotation from The Federalist is pertinent:

ure

* * *

66* * * the preparatory plans of finance, the application and disbursement of the public money in conformity to the general appropriations of the legislathese, and other matters of a like nature, constitute what seems to be most properly understood by the administration of government. The persons, therefore, to whose immediate management these different matters are committed, ought to be considered as the assistants or deputies of the chief magistrate (No. LXXI.)

* * * ""

In the First Congress it was proposed by Mr. Madison to give the Comptroller of the Treasury a fixed term; but when it was pointed out that this would curtail the President's authority over an officer who was to exercise executive functions, Mr. Madison withdrew his motion. For 131 years thereafter the Comptroller of the Treasury remained within the executive branch.

The distinction between legislative and executive functions was stated by the Supreme Court in the case of Springer v. Phillipine Islands, 277 U. S. 189, 202–3: "Legislative power, as distinguished from executive power, is the authority to make laws but not to enforce them or appoint the agents charged with the duty of enforcement. The latter are executive functions * * *. If (the legislative power) must deal with the property of the Government by making rules, and not by enforcing them."

The provision in article I, section 9, that "No money shall be drawn from the Treasury but in Consequence of Appropriations made by Law", is not a grant of power to Congress, as has sometimes been assumed, for it is not contained in section 8, where the powers of Congress are enumerated. It is rather a limitation laid upon Congress, the Executive and the courts alike. It has been stated that to carry out this provision the Congress must set up its own agent, outside of the executive branch, whose duty it is to see to it that the appropriation acts are observed, and with the authority to enforce compliance. The fallacy of this contention is apparent. By the same reasoning it would be the duty of the Congress to set up its own agents to enforce all laws which it is authorized to enact. If this were done, what would be left of Executive authority, and the separation of powers? This theory is based upon the mistaken assumption that officers in the executive branch may not be trusted to carry out the provisions of law, and represents a failure to grasp the significance and role of executive authority. The position is wholly untenable; it is contrary to the express provisions of the American Constitution vesting the enforcement of laws in the Executive.

Congressional intent in 1921.-The committee believes that it was the general understanding and intent in Congress in 1921 that the new Comptroller General would serve primarily as an agent of Congress in criticizing and reporting to Congress upon the financial conduct of administration. There is no evidence in the records of any complaint that the duties of the Comptroller and Auditors were not being satisfactorily performed. The sole criticism expressed was that Congress was not being as fully informed of the results of the audit as it might expect to be if the work were done in an independent office. The auditor's function was unquestionably regarded as a post-mortem examination of accounts after they had been paid. There was little debate upon the floor regarding the functions of the General Accounting Office during the consideration of the Budget and Accounting Act, but the following remarks are significant, both for what they say, and because of their authoritative source. Chairman Good of the House Committee on the Budget explained:

"It was the intention of the Committee that the Comptroller General should be something more than a bookkeeper or accountant, that he should be a real critic, and at all times should come to Congress, no matter what the political complexion of Congress or the Executive might be, and point out inefficiency, if he found that money was being misapplied-which is another term for inefficiency-and that he should bring such facts to the notice of the committees having jurisdiction of appropriations." (Cong. Rec., May 5, 1921.)

And Representative Madden, a member of the same committee, who became chairman of the newly consolidated Committee on Appropriations, described the Comptroller General as the "instrumentality through which the legislative branch of the Government can get information which it has not been able to get heretofore, and thus leave the people's representatives to criticize any waste or extravagance of the administration" (Congressional Record, Oct. 21, 1919).

These remarks express a sound view, but one that has not been fulfilled as the office has developed. As the control functions have grown, the reporting has been neglected.

DIFFICULTIES IN THE PRESENT SYSTEM

The committee diagnoses the major difficulties that have resulted from this failure to separate the functions of audit and control as follows:

(1) Interference with effective management.-The powers of current control vested in the General Accounting Office, in countersigning warrants, prescribing accounting forms and procedures, rendering advance decisions, reviewing contracts, and settling accounts and claims, inevitably interfere with effective financial management. They interfere unnecessarily, too, with the work of operating agencies. Conflicts of jurisdiction, with the subsequent substitution of the auditor's judgments for the administrator's; intolerable delays in administrative action; increased costs; injustice to claimants; flagrant disregard of administrative convenience; and encroachments upon the constitutional authority of the Executive, are continuous products of this division of responsibility. The Comptroller General's interpretation of his powers make him a policy-determining officer. He has stated, "If there is a single ministerial function devolving upon the General Accounting Office, I have been unable to observe it.'

(2) Irresponsible action. The situation invites irresponsible action by a Comptroller General who may be so inclined. Arbitrary and technical decisions, serving chiefly to extend his own jurisdiction, have brought complaints from almost all executive agencies. His refusal to be governed by opinions of the Attorney General, or by the unappealed decisions of the lower courts, in the interpretation of laws, is another aspect of irresponsible action. It cannot but lessen respect for his conclusions and obstruct orderly administration.

(3) Inadequate postal accounting. The Post Office Department provides an especially aggravated case of divided responsibility, for there the General Accounting Office performs most of the administrative examination of accounts in addition to its usual functions. Thus the Department must rely on outsiders for its financial data, while the Comptroller General audits the books that he himself keeps the only comprehensive books that are kept. And he has wholly failed to provide any up-to-date accounting system for the largest business enterprise of the Government.

(4) Lack of comprehensive central accounts.—One of the most urgent needs is a single, central system of accounts which will bring together a statement of all receipts and all expenditures of the National Government into one comprehensive picture of our fiscal affairs. This is a first requisite of effective financial management. A national system of accounting and a national balance sheet has been too long delayed. Without such aid, no President is fully equipped to discharge his responsibility for the financial results of his administration; nor, without the results they show, can Congress be in a position to hold him accountable. This was recognized by President Hoover in urging the transfer of the power to prescribe accounting forms and procedures from the General Accounting Office to the Budget (message, Dec. 9, 1932).

(5) Faulty audit.-Aside from its control functions, the audit performed by the General Accounting Office is faulty in several respects. By reason of statutory exemptions, it does not cover come important items, especially receipts from customs and internal revenue, and deposits with the Treasurer of the United States without personal credit. As to other items it is not independent. Claims allowed directly in the General Accounting Office, and paid upon its certificate without any possibility of outside review, amounted to $166,000,000 in the fiscal year, 1937. They have totaled $2,000 000 000 since 1921. It is unsound practice to permit any such payments to be made without an audit independent of the office settling the claims.

The

The value of an audit, like the force of gravity, diminishes with the square of the distance at which it lags behind transactions. At present the audit is not prompt enough to be properly helpful. The value of an audit to the Congress or to the public also depends on their being informed of the results it shows. General Accounting Office has never published any audit report appropriately summarizing the Government's financial transactions as a whole for any fiscal year. It has not even published an annual report-which, under prevailing practice, is not an audit report—since 1932. Congress and the public are left in the dark as to the work of the office.

The audit is entirely too much of a paper audit. The General Accounting Office is satisfied if a justification of a transaction, on paper, in proper form, is laid before it in Washington. This puts too high a premium on regularity of form as distinguished from substance. It encourages routine and hypocrisy. It

plays into the hands of bureaucrats. The man who is merely honest and frank may be penalized. This results largely from the administrative practice of the General Accounting Office, centralizing all the flow of accounts and records into one office. Fraud and wrongdoing are not always to be discovered by a clerk mulling over papers in Washington. A decentralized audit conducted in the vicinity of the payments would enable the auditors to get a much more realistic understanding of what has happened, and to distinguish between form and substance. It would help also to overcome one of the greatest weaknesses of the General Accounting Office, its inability to see the woods for the trees. The main purpose of an audit, to assure the genuineness and legality of transactions as reported, is lost sight of in all this paper work.

(6) Inadequate investigational service.-The Office provides an inadequate investigational service to Congress and its committees. The Claims Committee, and, on occasion, the House Committee on Expenditures, get information from the General Accounting Office on specific cases when they request it. The Appropriations Committees, however, which have the power and are in the position to make effective use of an auditor's knowledge, turn automatically to the Budget and the Treasury for their information.

(7) Inadequate accountability.—It follows from the two preceding sections that Congress does not adequately hold the Executive accountable. Congress gives orders to the Executive; it does not see that they are obeyed. It gives orders to the Comptroller General and does not see that they are obeyed. It entrusts the whole function to him in the unwarrantedly optimistic belief that he is its agent. He is not their agent any more than department heads are. Both administer acts of Congress. There is no reason to suppose that Congress controls the policies and operations of the General Accounting Office in any greater degree than those of other departments.

The lack of proper executive accountability to Congress is due not only to the failure of the General Accounting Office to supply information in a usable form. Congress acts through committees. Until it provides for the creation of a committee specifically charged with the dury of receiving and acting upon an auditor's reports it will have no means of assuring itself that "no money shall be drawn from the Treasury but in consequence of appropriations made by law * * The Congress cannot afford to bury its head in the sand and assume that the auditor is doing his work because it cannot see what he is doing.

PRESENT SAFEGUARDS DEPEND UPON EXECUTIVE COOPERATION

Disallowances. It is commonly supposed that the present system safeguards the Treasury against loss, because the Comptroller General disallows and recovers from bonded disbursing officers any illegal or erroneous payments. It is not commonly realized that these are safeguards not so much against the executive as within the executive. Disallowances are merely bookkeeping actions. Recoveries are not made automatically. Except in the case of offsets against claims settled directly in the General Accounting Office, recoveries, if made at all, are effected by executive action, through voluntary refunds, offsets, and suits. The General Accounting Office cannot sue anyone, or discharge or stop the pay of an officer it does not employ. Over 90 percent of suspensions and disallowances are cleared by further explanations-most of them are purely technical and serve little useful purpose. A considerable share of the remainder is relieved by acts of Congress. What is left is collected back only if the executive officials concerned can and will do it. Where executive officers refuse to effect recoveries demanded by the Comptroller General, by reason of their belief that there is no legal warrant for doing so, the money does not come back. That any high degree of collections actually made is a testimonial, first to the honesty of purpose of executive officials, and second to the fact that they are except in the service departments, under too much pressure to accomplish their primary tasks to afford the time and effort to assert all their legal rights. Indeed, there is reason to believe that many refunds are made simply because it is not worth the payees' while to take the matters to the courts. It should also be noted that the amount of collections by no means represents a net saving to the Treasury.

Bonding. The bonding of disbursing officers, by itself, is a wholly inadequate protection. Treasury disbursing officers are now bonded in a total sum of $4,700,000. The largest individual bond is $50,000. There are at present outstanding against them suspensions amounting approximately to $268,000,000, most of them, to be sure, of a purely technical character. Similarly, in the War Department the bonds of disbursing officers total $700,000, with a maximum of $10,000 as to any one officer, against suspensions of $15,000,000. Judgments in the courts against the surety companies on these bonds are almost unknown.