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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 rear ago. However, a limited overtime program and increased proluctivity has enabled us to stay within a safe audit time period in relation to the 3-year limit imposed.

5. Reriew 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 systeins 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 orer 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 recommnendation 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 ('ongress 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.

CONTINUOUS GROWTH OF GAO FUNCTIONS

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 high quality staff, we shall not be able to find these opportunities for sa vina 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 o growth.

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

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 4,411 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 saya

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 services and facilities and construction were for a while at a lower priority than procurement and inventory management and supply management. Now we have tried to have a more rounded approach, giving more emphasis to manpower and the other things that I just mentioned.

We knew they needed attention, but we felt that the others would produce more benefits from our audit attention at the time.

COORDINATION WITH AGENCY AUDITING OFFICERS Mr. ANDREWS. Is it not true that most Government agencies have their own internal auditing forces ?

Mr. STAATS. That is true.

Mr. ANDREWS. In the military, they have their inspectors general. Is there any conflict between your effort and the effort on the part of the intraservice auditing?

Mr. STAATS. I do not think there is any conflict, Mr. Chairman. We utilize audit reports made by agencies by internal audit. We are able to save time that way.

ACCURACY OF INTERNAL AUDITS

Mr. ANDREWS. Generally speaking how good are those internal audits?

Mr. Staats. In terms of accuracy, I could not really speak to that so much as I could in terms of their usefulness. We will not accept an internal audit as final. We do not think this would be the correct interpretation of our responsibility to Congress. We sometimes can use their material and go back of it and check it out and, if it looks as if it covers the area thoroughly and well, then we will do less work in that area. Mr. ANDREWS. You do not accept their findings at face value. Mr. Staats. No, sir.

Mr. ANDREWS. In how many cases, percentagewise, do you find they are incorrect? I know some of the defense agencies take a great deal of pride in their internal audit setup. The Navy, for instance, has a system that was instituted under Mr. Franke several years ago. His auditing system was his pride and joy.

Mr. STAATS. I would like to give you a couple of examples relating to the Defense Department. I would like to preface it by making this statement:

We welcome strengthening of internal audit in these agencies. In fact, we are doing what we can to try to encourage them. We have been making reviews of the adequacy of these reports, highlighting these. We have been sending these reports to Congress. We will have 12 or 15 of these reports before we are through. We have just finished one on the Defense Department.

In these, we are trying to make suggestions for improvement in internal audit in terms of the organizational location in the agency, in terms of their statutory authority or the internal authority given to them by management. If we can strengthen internal audit, it means we will have less to do. This would bear, again, on the question of how large the GAO eventually should become as an agency.

In many cases, their interests are more, you might say, on the fiscal side, on the financial audit, whereas we are interested in knowing whether they are carrying out the law as intended by the Congress.

I mentioned in our testimony the 1962 legislation called the truth-innegotiations law. In brief, what this law said was that the contractor had to furnish the contracting officer of the Government with current, accurate, and complete information with respect to his costs, if he knew what those costs were, at the time the negotiation of the contract took place. We did a review of 242 contracts on this, beginning in 1964. In other words, 2 years after the law went into effect, we made a review as to how this was working out.

We developed information which indicated that the Defense Department really had not fully insisted upon this information, or at least they had not insisted on its documentation to the point that a Government auditor or anyone else coming in later could be sure that that information had been provided.

SAVINGS THROUGH GAO EFFORTS Mr. ANDREWS. Have you recouped any moneys as a result of your efforts?

Jr. Staats. We have succeeded in getting a large number of changes made in the procedures by the Defense Department. Some of these are still being worked out as a result of the reports that we did and as a result of hearings which were held by the Joint Economic Committee and the House Armed Services Committee.

Jr. ANDREWS. What you are trying to do, in plain, simple language, is to make them do right.

Jr. STAATS. To make them improve the administration of the law passed by the Congress.

In making this report to Congress, Congress is free to say we are wrong, but in this case they said we were right.

How much money is involved in this in terms of savings, it would be impossible to calculate. It could be a sizable amount of money.

DEBARMENT OF CONTRACTORS

Vr. ANDREWs. Do you have authority to put a contractor on a blacklist if you find, for example, that he is defrauding the Government?

Jr. STAATS. The agency has the authority, and in some cases-
Jr. INDREWs. Do you make recommendations?

Vr. KELLER. In some cases we would develop the information. We had a case just within this last year where the Defense Department put a contractor on the blacklist, on a proscribed list. It is a list of contractors who have defaulted under contracts, or are otherwise in trouVle. It is commonly referred to as a blacklist, but it is a list of contractors who are debarred from receiving Government contracts.

Jr. STAATS. Debarment is the word I was seeking.

Jr. ANDREWS. Everybody knows what a blacklist is. That is a good term. I have heard it used since I have been on the Defense Subcomuit tee, and that has been a long time.

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