tion, and accounting systems despite major organizational changes and revision of appropriation structure. Transition procedures required to maintain such synchronization have been somewhat troublesome, but no major difficulties have been encountered.

With respect to the Commission's observations concerning broad appropriation structure, it should be noted that the Veterans' Administration had a single operating expense appropriation for 1953 and earlier fiscal years. For 1954, 7 such appropriations were established, and then reduced to 5 for fiscal years 1955 and 1956. Continuing study may reveal the desirability of further modification in the number and/or content of the present appropriations. Specific Veterans' Administration recommendations for such modifications will be submitted to the Bureau of the Budget from time to time as the desirability of such action becomes apparent.

RECOMMENDATION NO. 6

"That executive agency budgets be formulated and administered on a cost basis."

Comments of Veterans' Administration

As indicated in the comment concerning recommendation No. 3, the Veterans' Administration now administers its operating appropriation budgets on a cost basis.

With respect to budget formulation, cost data was first available from an integrated accounting system for fiscal year 1954, which constituted the past year in the 1956 appropriation estimates. The operating appropriation estimates for the latter year were in essence formulated on a cost basis, but the detailed data submitted to the Bureau of the Budget and the Congress was reconstructed to constitute an obligation presentation. After extensive consultation with the Bureau of the Budget concerning possible presentation of the 1957 estimates on a cost basis, it has been determined that the estimates for that year would be presented on a constructive obligation basis. In the case of construction appropriations, the complexities of cost type budgeting are somewhat greater and any immediate advantages somewhat less apparent than in the case of the operating appropriations.

RECOMMENDATION NO. 7

"That the executive budget and congressional appropriations be in terms of estimated annual accrued expenditures, namely, charges for the cost of goods and services estimated to be received."

Comments of Veterans' Administration

In the case of operating appropriations, the Veterans' Administration definitely favors replacement of the present system of congressional appropriations in terms of obligational authority by some system of authorizations more closely related to operating costs. Such a change would eliminate or reduce the duplication of controls and management effort now involved in controlling "costs" in terms of goods and services utilized, and in addition, "obligations" in terms of orders placed. This problem has been substantially eliminated within the Veterans' Administration in the case of supplies and equip

ment purchased through the supply fund, but still exists with respect to medical and dental fees and other contractual service items.

However, the Veterans' Administration has considerable question as to whether the "accrued expenditure" concept advocated by the Commission is the best solution either from the standpoint of cost type budgeting within the executive agencies or from that of restoring congressional control of the purse. A brief review of the salient features of the obligation system, of the accrued expenditure system, and of other possible systems of control follows:

Obligations: Under the present system, control is exercised in terms of contracts executed and orders placed. Compliance with the system precludes executive agencies from entering into commitments which Congress has not authorized. The disadvantages such as heavy unexpended balances carried forward and improvident purchases are discussed in detail by the Commission.

Accrued expenditures: The system advocated by the Commission would exercise control in terms of goods and services received. It would be closer to "costs" than the obligation system by the amount of undelivered orders, but would still charge inventory variations to the appropriations unless inventories were financed independently through revolving funds. It also would reduce, but not eliminate, the opportunity of using up balances by increasing inventories.

Applied costs: Such a system would vary from the accrued expenditure approach only to the extent that appropriations would be charged with goods issued for use rather than those received for inventory. It would provide the executive agencies with the most direct mechanism for cost-type budgeting, and would largely eliminate the possibility of using up fund balances late in the fiscal year. However, it probably would require some type of revolving fund technique for financing inventories.

Cash disbursements: Either the accrued expenditure or applied cost approach would give Congress closer control over the cash budget than the present obligation system, but such control would not be absolute because of variations in accounts payable carried over at the close of the year. Appropriations stated in terms of payments to be made; i. e., checks to be issued during the year would provide such control over the cash budget, but would require the agencies to maintain dual controls in terms of both cash and costs in order to attain the other objectives of the accrual concept of budgeting.

Any of the foregoing alternatives to the obligation system of congressional appropriations would require basic revision of the antideficiency statutes, including specific provision for the placing of orders late in a fiscal year in order to provide for the orderly continuation of business during the next year. The accrued expenditure or applied cost approaches would seem to require the authorization of merging fiscal year appropriation accounts along the lines of recommendation No. 17 if extensive bookkeeping complications are to be avoided.

In the case of construction appropriations, which finance the major "long lead time" program in the Veterans' Administration, recommendation No. 7 appears primarily aimed at restoration of congressional control of the purse. The Veterans' Administration accounting structure would be somewhat complicated by reinstitution of the con

tract authorization technique. However, the Veterans' Administration would endorse inclusion of construction appropriations in any overall cost-type appropriation structure in order to maintain uniform. appropriation and accounting concepts.

The Veterans' Administration would appreciate the opportunity of studying specific legislative proposals before making any further comment on recommendation No. 7.

RECOMMENDATION NO. 8

"That legislation committing the Government to continuing expenditures for special programs which are not susceptible to the usual budgetary control ordinarily be enacted for a limited term in order to require periodic congressional review of their usefulness."

RECOMMENDATION NO. 9

"That the Bureau of the Budget keep such programs under continuing review, and the President's budget contemplate amendments to them when their operation conflicts with current budgetary policy." Comments of Veterans' Administration

There are basically two types of veterans' benefits legislation commiting the Government to continuing expenditures: (a) Readjustment benefits for World War II and Korean conflict veterans which have been enacted for limited periods, and (b) compensation, pension, insurance, and related benefits of a continuing nature.

It is realized that long-time benefit programs of the size and scope. of those administered by this agency present a considerable problem of budgetary control. However, such continuing benefits as compeusation and pension necessarily involve at the outset an appraisal by the Government of its obligation to disabled veterans and their dependents for an indefinite period of time. It would hardly be in keeping with their essential nature and purposes to cast these provisions in a temporary form, since they are not geared to a fixed or limited period. With respect to the comprehensive programs embodied in existing permanent legislation, the question arises whether it would be consistent with the established policies of the Government to convert them to a temporary basis, subject to overall review and reenactment or revision at fixed intervals.

As a practical matter, it may not be necessary from the standpoint of adequate budgetary control to adopt the device of enacting such special programs for limited terms. The Veterans' Administration programs are under continuing study and review in several quarters. The congressional committees and subcommittees subject these programs to almost constant reexamination, and select committees perform the same functions by way of special studies and investigations. A recent example of the latter is the extensive study just completed by the Select Committee on Survivor Benefits of the House of Representatives.

Similarly, these programs are under constant scrutiny within the executive branch. Recommendations to the Congress are frequently made on legislative matters affecting the veterans' programs, in the light of experience and current conditions. This subject is dealt with,

for example, in the annual budget message of the President. The Commission on Veterans' Pensions, of which Gen. Omar N. Bradley, former Administrator of Veterans' Affairs, is Chairman, is illustrative of the surveillance maintained within the executive branch over various governmental programs. Such commissions supplement the continuing activity of the Bureau of the Budget and the various departments and agencies in evaluating Government programs for continuing expenditures.

RECOMMENDATION NO. 10

"That there be established under the Director of the Bureau of the Budget a new Staff Office of Accounting headed by an Assistant Director for Accounting, with powers and duties as follows:

"(a) To develop and promulgate an overall plan for accounting and reporting, consistent with broad policies and standards prescribed by the Comptroller General. These broad policies and standards should continue to be developed in cooperation with the executive branch. "(b) To expedite, guide, and assist in the introduction of modern accounting methods in the executive agencies consistent with the overall plan.

"(e) To set reasonable but definite time schedules for performance and to watch progress.

"(d) To stimulate the building of competent accounting and auditing organizations in the executive agencies and to assist actively in the selection, training, and retention of capable personnel.

"(e) To report at least annually to the Budget Director with respect to the status of accounting in each of the executive agencies."

Comments of Veterans' Administration

This recommendation represents a material change in the viewpoint expressed by the first Hoover Commission which recommended that an Accountant General be established within the Office of the Secretary of the Treasury. Recommendation No. 10 of this report would in effect transfer the primary responsibility for accounting standards, principles, and governmentwide accounting systems from the Office of the Comptroller General to the Bureau of the Budget.

While the Veterans' Administration has had excellent working relationships with the Accounting Systems staff of the Office of the Comptroller General, it is recognized that increasing emphasis on cost-type budgeting and on Bureau of the Budget use of cost data as advocated in recommendations Nos. 1 and 2, would make the proposed assignment of responsibility to the Bureau of the Budget somewhat more logical than the present arrangement in that the executive agencies would have a single primary point of contact with respect to both the use of accounting data in budgetary presentations and the accounting systems underlying such data.

However, the Veterans' Administration is of the further opinion that continuation and strengthening of the cooperative approach of the Bureau of the Budget, the Treasury Department, and the General Accounting Office under the joint program for improving accounting in the Federal Government is of much greater importance than the exact division of responsibility between the three fiscal agencies. Consequently, the Veterans' Administration endorses recommendation No. 10 to the extent that it is mutually satisfactory to the three fiscal

agencies concerned. However, this recommendation should not be so implemented as to weaken the responsibility and authority of the agency, including its authority in the area of selection, training, and retention of accounting and auditing personnel.

RECOMMENDATION NO. 11

"That as an aid to financial management the position of comptroller be established in the principal agencies and major subdivisions thereof embracing the following duties and functions:

"(a) To direct the setting up and maintenance throughout his agency of adequate accounting and auditing systems and procedures in conformity with the provisions of the Budget and Accounting Procedures Act of 1950.

"(b) To direct the recruitment, training, and development of qualified accounting personnel.

"(c) To develop and be responsible for reliable and informative financial reports for (1) internal management purposes, and (2) for issue to the Congress and other executive departments or agencies. "(d) To interpret and advise upon significant aspects of the financial reports.

"(e) To direct the preparation, and review execution of budgets prepared at operating levels for the information of top management which is responsible for budget policies."

Comments of Veterans' Administration

The Veterans' Administration, as a part of its major reorganization of 1953, established the position of Controller for the agency and each of its major subdivisions which positions embrace generally the duties contemplated in this recommendation, and no further action with respect thereto appears required. With reference to subparagraph (b) the recruitment, training, and development of personnel involves staff participation by the Offices of the Assistant Administrator for Personnel and the Veterans' Administration Controller, which furnish assistance and guidance to line officials.

RECOMMENDATION NO. 12

"That the selection of agency comptrollers and the building of competent accounting organizations in the executive agencies through the selection, training, and retention of capable personnel be an important phase of the guidance and help to be given by the Assistant Director for Accounting in the Bureau of the Budget."

Comments of Veterans' Administration

The Veterans' Administration endorses Recommendation No. 12 on the premise that the functions of the Assistant Director for Accounting in the Bureau of the Budget will be advisory rather than directive, and that he should be of material assistance in the establishment of realistic occupational standards and other steps necessary to strengthen Accounting organizations throughout the executive agencies.