INTRODUCTORY STATEMENT NOVEMBER 3, 1948. HON. HERBERT HOOVER, Chairman, Commission on Organization of the Washington, D. C. DEAR SIR: In accordance with your instructions, we have made financial surveys of certain Government enterprises in order to assist you in carrying out the purposes of Public Law 162, Eightieth Congress, under which your Commission was appointed. Our surveys have been based upon financial and other information. available from official sources. We have regarded such information. as reliable and have made no attempt to verify it through auditing procedures. Moreover, we have not attempted to form a judgment with respect to the efficiency of the management of the enterprises or as to the wisdom of the national policies in relation thereto as prescribed by the Congress. Our report consists of this introductory statement describing the scope of our work and stating our recommendations, and of the following six parts: I. Government-owned hydroelectric projects. II. The Reclamation Fund. III. Reports on individual Government-owned hydroelectric projects. IV. Other Government enterprises, exclusive of lending agencies. V. Consideration of the use of revolving funds. VI. The use of the corporate form for Government enterprises. The enterprises included under I and IV above are as follows: I. Government-owned hydroelectric projects: I. Government-owned hydroelectric projects-Continued Columbia River Power System, consisting of Bonneville Dam Project, Columbia Basin Project-Grand Coulee Dam-and Bonneville Power Administration. Southwestern Power Administration. Tennessee Valley Authority. IV. Other Government enterprises, exclusive of lending agencies: United States Maritime Commis sion. Rural Electrification Administra tion. Panama Railroad Company. Federal Prison Industries, Inc. Inland Waterways Corporation and Warrior River Terminal Company. Puerto Rico Reconstruction Administration. The Virgin Islands Company. Supplementing parts I and IV, we are including individual reports on the more important projects and on the other Government enterprises listed above and an appendix to part I showing examples of presentations and reports to which we have taken exception. As is more explicitly pointed out later in this report, there are several matters with respect to which we are not qualified to, and do not, express an opinion. In particular, such subjects include the interpretation of legal and engineering matters. We desire to make acknowledgment of the assistance received from the agencies concerned with the foregoing enterprises as well as from many other Government agencies and to state that all information requested was promptly furnished. Recommendations Our recommendations, in the general order in which the subject matter is discussed herein, are as follows: 1. We recommend that an intermediate screening board be established to (1) study the proposals for all power and reclamation projects; (2) review budget appropriation requests during periods of construction; (3) promulgate rules for the preparation of, and review of, allocations of costs, annual reports of operations, and repayment reports; and (4) make recommendations to the Congress based upon the board's studies of proposed projects and reviews of reports on existing projects. It seems doubtful whether the Congress, working through its appropriate committees, has available time adequately to review and study the enormous volume of written material regarding proposed power and reclamation projects1 if, indeed, such committees have 1 The size of the reports on the three principal basin developments is indicated by the following: Missouri Basin development, 211 pages of text. Colorado Basin development, 295 pages of text. Columbia Basin development, revised, 399 pages of text. In each case, the text is accompanied by many maps, charts, etc. available sufficient technical talent to arrive at a sound judgment. Consequently it seems to us that the studies and justifications prepared by the agencies which are to carry out the projects should not be used as a basis for legislative authorization of such projects without a prior complete and independent review, by a board of competent and technically qualified experts, as to the soundness and technical accuracy of such studies and justifications. The board should require all such proposals to be prepared on a consistent basis with standardized and simplified forms of project justification, and in conformity with whatever general rules of policy the Congress may decide upon; should ascertain that all subsidies are clearly indicated; and should eliminate duplicate or conflicting proposals by different agencies. The membership of the board should include persons with engineering and accounting qualifications and, because of the enormous expenditures involved, should include also a representative from the Council of Economic Advisers or from the Federal Reserve Board. The board could also be made responsible for reviewing budget appropriation requests during the construction periods to ascertain that all revisions. of estimates necessary to bring the original justifications up to date are brought to the attention of the Congress. Furthermore, the board could aid the Congress by promulgating rules for the allocation of costs among the various purposes of the projects and for the preparation of operating and financial reports and repayment schedules of projects in operation, and by reviewing such allocations, reports, and schedules before they are presented to the Congress. This procedure should aid in eliminating many of the financial fallacies and inconsistent and misleading accounting practices referred to in greater detail in part I of this report and should result in furnishing the Congress with allocation reports, operating and financial reports, and repayment schedules which would be prepared on the same basis for all projects of like character and which would present the facts as to meeting repayment requirements, the true amounts of subsidies, etc., much more accurately and clearly than has been true in the past. If this plan were made effective, the clear, concise reports, already reviewed by a board directly responsible to the Congress, should make possible a considerable reduction in the time presently required to be spent by congressional committees. 2. We recommend specifically as to Tennessee Valley Authority (1) reconsideration by the Congress of the present repayment requirements and (2) that all new construction be authorized by the Congress except in case of unforeseen emergencies, as to which a fund of $1,000,000 is available. While our computations indicate that the Authority is presently earning more than sufficient power revenues to repay the investment in power facilities, with interest, we recommend that the Congress re consider the requirements for repayment as specified in the Government Corporations Appropriation Act of 1948 in view of the intent stated in the act "to make the power projects self-supporting and selfliquidating" and in particular that it determine (1) whether TVA should not pay into the Treasury all of its net income, or (2) whether the repayments should not be increased so as to be sufficient to repay the investment in 50 years with interest at 3 percent. In the latter case, while the amounts so required to be repaid would be almost double the present requirement, the earnings on the basis of 1947 results would be more than sufficient for that purpose. In either case, the computations of the amount to be repaid should provide for construction interest and also for interest on the unpaid balance of the debt allocable to completed power facilities. All new construction should be authorized by the Congress, new appropriations being made therefor, and the Authority should not be permitted to construct new facilities with its power revenues, except in case of unforeseen emergencies as to which the fund of $1,000,000 is available and with respect to which subsequent approval could be obtained from the Congress. 3. We recommend that the reclamation laws be codified and clarified. In our accompanying report on Government-owned hydroelectric projects, under the section "Legislation is Complicated and Indefinite," we point out some of the respects in which it is difficult, at least for a layman, to interpret the intent of Congress. Also, a great mass of separate laws (aggregating in excess of 800 pages) has accumulated over a period of many years, reflecting changes in reclamation policy arising from new conditions and new developments. It would seem that this would be an appropriate time to coordinate and simplify these laws, both in terms of general policy and of clearer and more detailed definitions of the various applications of that policy. 4. We recommend that the Congress require the Bureau of Reclamation to furnish a complete and accurate report of the reclamation fund in all of its aspects. Reports prepared by the Bureau of Reclamation for the Congress are incomplete in many respects, and, in particular, fail to show cumulative totals, by sources, of all funds received and the disposition of those funds. In view of the large sums already appropriated to reclamation projects from general funds of the Treasury (which, under present law, will be repaid to the reclamation fund), and the vastly greater amounts that will be required if the proposed future programs are carried out, complete and accurate information on the source and use of these funds appears to be imperative. Such a report would be of great value to the Congress in the reexamination of reclamation. policy recommended above. Further comments on the need for this report are included in part I of this report, under the section entitled "The Reclamation Fund." 5. We recommend that the authority of the General Accounting Office to make business-type audits of Government corporations be extended to all Bureau of Reclamation projects and all other power projects. Under the authority conferred by the Government Corporation Control Act, the General Accounting Office makes audits of all wholly owned Government corporations in accordance with principles and procedures applicable to commercial corporate transactions and under such rules and regulations as may be prescribed by the Comptroller General of the United States, and makes annual reports thereon to the Congress. These audits have proved to be an important and necessary means of control of the financial transactions of Government corporations. The only Government-owned hydroelectric project so audited is Tennessee Valley Authority, although Bonneville Power Administration is audited by independent public accountants. The Secretary of the Interior has recently requested that the General Accounting Office make business-type audits of all projects under the authority of the Bureau of Reclamation. We concur in this recommendation and recommend also that the necessary legislation be enacted to give the Comptroller General the same authority as he presently has with respect to Government corporations. We recommend, further, that this legislation specifically require the General Accounting Office to audit the reclamation fund and all other power projects. The magnitude of the operations of power and reclamation projects and of the reclamation fund is such that it is logical that the Congress should employ the same methods of control as are exercised with regard to wholly owned Government corporations, many of which, by comparison, are of lesser importance. 6. We recommend that the accounting systems and organization of the Bureau of Reclamation be revised. The accounting systems employed in the Bureau of Reclamation and the lines of authority and responsibility are in need of revision. Several reports are prepared in different places covering the same subject matter and each set of figures is different in certain respects from the others. The principal difficulty seems to stem from a lack of definition of lines of accounting authority and lack of sufficient authority in the comptroller. It is essential that the Comptroller of the Bureau of Reclamation, which carries on a business of great magnitude, should have complete authority over the accounts and should be responsible to the Commissioner of the Bureau, to the Secretary of the Interior, and to the Congress for all financial reports emanating from the Bureau. |