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We disposed of over 9,700 general claims against the United States for amounts totaling $46.5 million, adjusted and settled over 32,000 claims by the United States, and collected over $3.6 million from debtors.

We handled over 4,600 decisions and other legal matters, including more than 749 legislative and legal reports to committees and Members of Congress and 96 reports to the Bureau of the Budget; and

We testified before congressional committees on 18 occasions.

ACCOUNTING AND AUDITING PROGRAMS The expanding requirements for services from the Federal Government, the enactment of new national programs for social, economic, and health purposes, and the significant resources devoted to our defense efforts and international commitments have placed additional heavy responsibilities upon our Office.

During the fiscal year 1969, we plan to direct special attention, through our accounting and auditing programs, to those areas of particular financial significance and congressional interest. These include:

1. Defense activities. We contemplate scheduling approximately 1,000 man-years of our professional staff on reviews and examinations in the major functional areas of defense activities, including procurement, supply management, manpower, research and development, facilities and construction, support services, and management control systems. In fiscal year 1969, defense outlays are estimated as amounting to about $79 billion, or 42 percent of the total Federal budget of $186 billion.

The magnitude and complexity of the operations of the Department of Defense require that we place extremely heavy responsibilities upon our staff. For example, in the area of procurement alone, the Department of Defense is awarding contracts for weapon systems and related equipment and supplies at the rate of over $35 billion annually. The importance of our work in this area can be attested to by the assistance we have provided to the Appropriations, Government Operations, and the Armed Services Committees of both the House and the Senate. Our examinations into procurement have led to:

Enactment of legislation to strengthen the procedures for establishing prices under negotiated contracts—the Truth-in-Negotiations Act, Public Law 87-653.

Improvements in the administration of contract terms and conditions.

More effective utilization of Government-owned equipment in the hands of contractors. There are about $15 billion of this equipment.

*Cancellation of plans to procure equipment or supplies in excess of needs. Department of Defense procurement is such an important and changing area that we must provide further assistance to Congress in this area. Additional details concerning our plans are contained in pages 44 through 57 of our budget justifications.

2. Domestic activities of civil agencies.—New or expanded programs for health, labor, and welfare_including the economic opportunity

programs-education, housing and community development, commerce and transportation, space research and development, and natural resources in recent years have required the allocation of more staff resources to our work in these areas. We expect to program approximately 900 man-years during fiscal year 1969 for management reviews in the civil departments and agencies.

Reviews of the activities of the economic opportunity programs have had a particularly heavy impact on our staff needs for the 6month period ending June 30, 1968, and will continue into fiscal year 1969, as result of the direction to us for an in-depth investigation of these programs in title II of the Economic Opportunity Amendments of 1967, approved December 23, 1967. The law requires us to report on the results of our review by December 1, 1968. This assignment has required acceleration and expansion of our work relating to the OEO programs. To meet the congressional objectives, about 200 of our staff have been scheduled to participate in this review on an accelerated basis. This represented a redirection of effort of nearly 125 staff members who had been previously assigned to other important and highpriority work.

Our plans provide for reviewing the efficiency and effectiveness of all of the major programs financed by the OEO. In addition to the work performed by our staff, we have obtained assistance from consultants to provide advice on standards for evaluating the effectiveness of the various programs and on other matters related to program evaluation. This effort has required an additional $575,000 in 1968 funds for contract services and increased travel which was not reflected in our budget estimate.

Additional details concerning our plans in the civil agencies are contained in pages 29 through 43 of our budget justifications.

3. International activities. Our international effort will require approximately 225 man-years for assignments in about 40 foreign countries. In 1969 we will continue our examinations of the foreign assistance programs, and of other Federal Government activities outside the continental United States. Further attention will be given to possibilities for improvement in the U.S. balance-of-payments situation, and to reviews of U.S. contributions to international organizations.

In response to congressional requests and interests, we have had to expand our audit coverage of foreign economic and military assistance programs, as well as other Federal Government financial programs. Some of our important current reviews involve:

Countrywide U.S. assistance; that is, assistance to other countries.

Balance-of-payments effect of offshore procurements.
U.S. construction activities in Vietnam and Thailand.
U.S. participation in international organizations,
Foreign military sales program.

Management of the commercial import program for Vietnam. 4. Audit of transportation payments. The continued increase in Government transportation payments, principally freight payments in support of military activity, places a heavy burden on our transportation audit capability. During fiscal year 1967 we audited 24 percent more in freight payments than in fiscal year 1966. In the first half of this year we experienced an increase of about $130 million in freight fiscal year 1967.

For the current fiscal year we planned to allocate an average of 815 positions to our Transportation Division. However, due to a lack of qualified replacements for retirements and other separations in our technical area, we have not been able to achieve this level of staffing. Based on current plans, we will average only 775 positions during fiscal year 1968. For fiscal year 1969 we are requesting an average of 785 positions, 10 more than the average employment for this year.

We are required to maintain our audit of transportation accounts on a reasonably current basis to meet the statutory time limitation of 3 years from the date of payment for the collection of overcharges from most of the transportation carriers. We are operating with less than the average number of positions necessary to keep pace with the payments to be audited. We are approximately 112 months behind our current schedule and about 1 month further behind than we were a year ago. However, a limited overtime program and increased productivity has enabled us to stay within a safe audit time period in relation to the 3-year limit imposed.

5. Review and approval of accounting systems. In the area of accounting systems improvements in the Federal agencies, we are faced with a growing increase in workload. The law requires us to assist the agencies in improving their systems and to review and approve them. As a result of increasing congressional interest in better accounting in Federal agencies as well as Presidential and other executive branch concern, agencies are now exerting larger efforts to upgrade their systems to conform to our principles and standards which we are also directed by law to prescribe. Before the end of 1968 we expect to have over 30 agency systems submitted to us for our review and approval. These are in addition to the 20 systems and eight statements of principles and standards previously submitted and now being reviewed.

We consider this work to be a very important part of our total responsibility, not only because good accounting systems are necessary to good management within an agency but because of the more complete and reliable financial information that can be made available to the Congress on Federal programs and activities. Another factor pointing up the need for better Federal agency accounting systems is the recommendation of the President's Commission on Budget Concepts calling for the national budget to be presented and reported on the accrual basis beginning with the 1971 budget.

This means they will have to have accounting systems in effect by July 1, 1968, in order to present the 3-year period which is the traditional period in the budget.

The single most important asset we have in providing assistance to the Congress is a well-qualified staff. Probably the single most important factor in the long-term effectiveness of the Office is the quality of our personnel. It takes several years to develop junior staff members to their full potential. It is extremely important that we continue a further gradual increase of our professional accounting and auditing positions to provide additional and more adequate audit coverage consistent with our statutory responsibilities.

During the current fiscal year, we are making every reasonable effort to economize without disrupting our work by delaying the filling

of vacancies, rigorously reviewing all proposed travel, and eliminating or deferring purchases. While we generally have been able to absorb a substantial part of previous general pay increases, this year we have necessarily had to apply the saving which we planned to utilize for this purpose to our additional work, particularly the effort currently being directed to the review of the Office of Economic Opportunity programs which I described earlier, and the increased number of assignments in South and Southeast Asia for which we have had to provide an additional $375,000 in our revision of the 1968 estimate.

I have covered only some of the highlights of our operations and activities. We will be glad to go into more detail in any of the areas in which you may have questions.

I would like to recapitulate here that the $575,000 which we have had to program to meet the work directed on the poverty programs, plus the $375,000, adds up to a total of $950,000, which we otherwise would have been able to apply to the Pay Act absorption.

This concludes my statement, Mr. Chairman. I will be glad to attempt to answer any questions you may have.


Mr. ANDREWS. Thank you, Mr. Staats.

The record shows that beginning with the year 1964, you had a total appropriation of $45,700,000. In 1965, the appropriation for the General Accounting Office was $46,900,000. In 1966, $47,435,000. In 1967, $49,650,000. In 1968, $52,800,000. You are requesting this year, for 1969, $57,742,000.

Mr. STAATS. That is correct.

Mr. ANDREWS. That is a continuous escalation of requests before the committee. Is there any end in sight? Do you see the time when you can level off down there and still meet the responsibilities of your office?

Mr. STAATS. As I see it, Mr. Chairman, the GAO budget has to be in some relationship to the growth of the budget as a whole.

Mr. ANDREWS. In other words, the more money the Federal Government spends, the more need there is for your services to police and patrol the expenditure of those funds.

Mr. Staats. That is correct. As I pointed out in my statement, we have grown since 1961 about 41 percent, whereas the Government's budget as a whole has increased about 90 percent. So, we have grown less than half as fast as the budget as a whole.

As I see it, another very important factor in our case as to how fast we should grow is our ability to get highly qualified people and train them to be able to review these programs. In other words, there is no point in our taking large numbers of people on, just to keep the numbers up. We have to have a high-quality staff. If we do not have a highquality staff, we shall not be able to find these opportunities for savings and do the kind of work that I think we have the reputation of having been able to produce for the Congress.

So, our ability to recruit has been a limiting factor on the rate of growth.

If you were to ask me how big we should ever be from the standpoint of operating efficiency, I believe here we have a different kind of question. We are a professional organization and we have been growing on the pr rional side, around 100 people a year, for the past 10 years.

We also have been cutting back in the nonprofessional area, in our Claims Division and in our Transportation Division.

I believe, like a large management consulting organization or a large public accounting organization, there is a factor of size that we have honestly to face. I do not believe we are at that point. I am confident that we are not.

I am making really three points in answering your question.
One is, we haven't grown as fast as the budget as a whole.

The second is that our growth has been conditioned heavily upon the availability of good people that we can bring in and train in our organization.

Third, we have an unresolved question of how big GAO should eventually become from the standpoint of being able to manage a large professional staff.

Mr. ANDREWS. I notice on page 108 of the justifications that your actual employment has grown from 4,306 permanent positions in 1967 to 4,499 in 1968, estimated, and 4,606 is projected for 1969.

Mr. STAATS. Those are gross positions, Mr. Chairman. We do not, as you know, finance all of those positions. The lapse takes into account our gap in filling positions and turnovers.

Mr. ANDREWS. I was giving the total number of permanent positions. Mr. STAATS. That is correct.

Mr. ANDREWS. The average number of employees for those years: 4,071 for 1967, 4,280 estimated for 1968, and 2,411 projected for 1969.

Mr. STAATS. That is correct, sir.

Mr. ANDREWS. You think that will be the average increase in growth of the General Accounting Office for the next few years!

Mr. Staats. When you say the next few years, I would certainly say

Mr. ANDREWS. Five years?

Mr. Staats. If I had to make the judgment at the moment, I would say yes; but again, I would want to condition that upon what happens to the budget as a whole.

Mr. ANDREWS. You are saying again, that as the Federal budget increases, the need for additional appropriations and manpower in GAO increases?

Mr. Staats. That is right. I believe this to be correct.

INCREASE IN PROFESSIONAL CAPABILITY Mr. WEITZEL. I might point out, Mr. Chairman, our staff is increasing its professional capability, as we will cover later. In the defense area, we are going into many areas of activity which we did not adequately cover before. In the civil area, we are going into construction contracts, for example, in GSA and the Veterans Administration, where we have not done too much work before.

As we develop a larger professional staff, we can go into areas that we have not really tapped before.

Mr. YATES. How does it happen you are going into those now and did not go into them in previous years?

Mr. WEITZEL. Largely because we did not have sufficient staff to cover all of the work that needed to be covered. For example, in the Defense Department, research and development and certain support

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