critical materials. This includes the programs and estimates of the Office of the Secretary of Defense and its associated boards and agencies, as well as those of the Departments of the Army, Navy, and Air Force

The Comptroller will also establish and supervise the execution of principles, policies, and procedures to be followed in connection with organizational and administrative matters relating to the preparation and execution of the departmental budget, to fiscal, cost, operating and capital property accounting, to progress and statistical reporting, and to internal audit. He will also establish and supervise the execution of policies and procedures relating to the expenditure and collection of funds administered by the Office of the Secretary of Defense and by the military departments.

The Comptroller will also be responsible for the establishment of uniform terminologies, classifications, and procedures in such matters insofar as they are applicable to the three departments and all agencies. of the National Military Establishment.

Military Department budget and fiscal organization-departmental comptrollers (sec. 402)

(a) Fiscal practices and procedures in military departments to be consistent with those in Office of Comptroller, Secretary of Defense. This subsection authorizes the Secretary of Defense to require that each of the three departments organize its budget, accounting, reporting, internal audit, and administrative management matters in a manner consistent with the operations of the Office of the Comptroller in the National Military Establishment. This is essential to achieve reasonable coordination and effectiveness in fiscal management.

(b) Departmental comptrollers.-This subsection permits the Secretaries of the three departments to appoint either military or civilian personnel as departmental comptrollers and contemplates the utilization at every echelon of competent civilian personnel and competent. military personnel of either the line or the various staff corps. In order to insure that budget and fiscal matters receive the top-side civilian control and attention necessary to bring about the fullest measure of economy and efficiency, this subsection requires that the comptrollers of the several military departments be directly responsible to either the Secretary, the Under Secretary, or an Assistant Secretary of the respective departments except that the Comptroller may have concurrent responsibility to the Military Staff if the Secretary of the department should so prescribe. Where departmental comptrollers are not civilians, the Secretaries are required to appoint a civilian as deputy comptroller.

Performance budget (sec. 403)

(a) To be used wherever practicable; uniformity prescribed. This subsection requires that the budget estimates of the National Military Establishment be formulated, presented, and justified, and authorized programs administered, in a manner that clearly reflects the cost of performance of functions and activities that can be identified readily as self-contained, integrated operations. The Secretary of Defense is given authority to determine the manner of budget preparation and presentation and the manner of program administration, with these objectives in mind, subject to the authority and direction of the President. The subsection requires that operating and capital costs

be separated, and permits this new form of budget administration to be instituted on a gradual basis in view of the complexity and magnitude of the problems involved in the change-over from the present system. It also requires budget presentations in readily comparable form and uniform pattern, to the extent practicable.

The Commission on Organization of the Executive Branch of the Government and the Task Force Committee on the National Security Organization recommended unanimously that the Federal Government should adopt a budget based on functions, activities, and projects. This type of budget was designated by the Commission as a performance budget.

The performance budget will focus attention upon the general character and relative importance of work to be done and services to be rendered, rather than upon things to be acquired, such as personal services, supplies, equipment, and so on. These items are, after all, only the means to an end. The all-important thing in budgeting is the purpose to be achieved-the work or service to be accomplished-and what that work or service will cost. The performance budget focuses executive and congressional evaluation, action, and direction on the nature, scope, and magnitude of the proposed activities. It places both the accomplishment and the cost of each indentifiable program in a clear light before the President, the Congress, and the public, and permits a more ready determination of how efficiently and economically an approved program has been carried out.

Defects in present budgeting structure.-Under the present budget and appropriation structure, almost every project or program undertaken by the Federal Government requires, for its execution, financing from numerous appropriations. Usually such appropriations are managed or administered by scattered and somewhat unrelated organizational divisions. This situation is comparable to having a business or a farm financed from numerous sources and managed by persons having either varying degrees of operational responsibility or none at all. This kind of absentee administration inevitably hinders the achievement of efficiency and economy

The multiplicity of sources from which operational funds are now derived makes it practically impossible, in activities of any magnitude. to estimate in advance with any reasonable degree of certainty the cost of periormance or operation of an identifiable activity or program. These difficulties prevent accurate and reliable cost accounting and thus deprive budget planners and the Congress of any real guide to the costs of project or budget programs.

Reflects cost of performance. Subsection (a) is intended to eliminate these difficulties by financing each identifiable project or budget program from a single source, thus clearly fixing management responsibility, simplifying reporting. and permitting departmental management and the Congress more easily to determine costs and to evaluate progress and accomplishment. Its effect is to make the budget structure parallel the management structure. Thus the cost of performance of functions and activities will be reflected clearly.

Strengthens congressional control. - The performance budget does not dilute. but strengthens, legislative control and responsibility. The Congress retains fully and in all respects its power over appropriations and expenditures. As a matter of fact, the performance budget

sharpens congressional control over the National Military Establishment by giving more comprehensive and reliable information to departmental management officials, as well as to the President, the Congress, and the general public. It affords the individual Members of Congress the means of understanding what the military establishment is doing, and what the costs are. Supporting schedules can be fully provided, and in more understandable and effective form than at present.

Basic principles.-The underlying principles of the performance budget are clear and simple. The performance budget contemplates

(a) that all costs relating to a logical and identifiable program be included as a project or a budget program for presentation and justification by the Department concerned to the Bureau of the Budget, the President, and the Congress, and for administration and reporting after the appropriation of moneys;

(b) that there be a logical and, so far as practical, uniform grouping of projects or budget programs by the primary functions of the military departments, with this grouping paralleling so far as possible, the organization and management structure;

(c) that there be a segregation between capital and current operating categories.

The budget structure not only affects the presentation of budget estimates but runs to the root of management and fiscal responsibility. Management is handicapped when fiscal responsibility is diffused. The financing of an identifiable program from a single source of funds clearly fixes management responsibility, simplifies reporting, and permits departmental management and the Congress more easily to determine costs and to evaluate programs.

(b) Expediting conversion from present basis to cost-of-performance basis. To expedite the change-over, subsection (b) authorizes the Secretaries of the three departments, with the approval of the Presi dent and the Secretary of Defense, for a limited time, to make such transfers and adjustments between the appropriations available to each of the military departments in such manner as will facilitate both efficiency and economy in the management of identifiable programs and activities and concurrently promote the development of complete costs for each separate budget project. The subsection permits the establishment of a new account or the retitling of an existing account in order that the resulting title may be descriptive of the functions to be performed thereunder.

The right to make the transfers and adjustments authorized by this subsection is limited (1) to the end of the second year following the effective date of this act and, (2) to transfers and adjustments between appropriations within a single military department. It is further limited by a requirement that the approval of the President and the Secretary of Defense be obtained.

Subsection (b) is more readily understood if it is realized that the budget processes of the Federal Government require many months. for development and consideration. The budgets for the fiscal year 1951, for example, have been in the course of preparation since the beginning of 1949. Even with the statutory requirement for submission of budgets of a performance type, full implementation will not be possible until presentation of the budget for 1952, nor will the full benefits of a performance-type budget be available until

probably fiscal year 1953, at which time there will have been one year's experience under such a budget. Some benefits of a performance budget, however, can be realized almost immediately by the authorization to convert present budget and accounting methods under currently available appropriations to a performance basis. It is for this reason that subsection (b) authorizes transfers and adjustments between appropriations during the next two years, by which time normal budget presentations to the Congress will identify military requirements on a project or performance basis. All transfers and adjustments must be reported currently to the President and the Congress. The Treasury Department and the General Accounting Office, which are advised of such actions under existing procedures will continue to be so advised.

Obligation of appropriations (sec. 404)

This section requires the Secretary of Defense to approve scheduled rates of obligation of funds appropriated to the departments and agencies of the National Military Establishment before they may obligate any such funds. The power granted to the Secretary of Defense, however, is not intended to interfere with the internal administration of appropriated funds within the three departments and the agencies through the normal internal allotment and allocation procedures once the Secretary of Defense has approved the scheduled rates of obligation authorized under this section.

The purpose of the section is to prevent overdrafts or deficiencies. An exception is provided, however, where deficiencies are permitted under existing law, as in case of expenditures for fuel, subsistence, and transportation.

The Report of the Commission on Organization of the Executive Branch of the Government indicated that present apportionment procedures are inadequate to prevent agencies of the Government from actually incurring deficits or to control the incurring of obligation and expenditures in that neither the Bureau of the Budget nor the Treasury seems to have any direct check or control over what the agencies report. Under these circumstances the authority of the Bureau of the Budget to approve all apportionments on behalf of the President is not fully effective in actually preventing the incurring of deficits. In order to correct the weakness of the present system of apportionments, this section requires the Secretary of Defense to approve scheduled rates of obligation for the purpose of restricting obligations and expenditures to such degree as may be necessary to prevent overdrafts or deficiencies in any fiscal year for which appropriations are made. Existing laws authorize the incurring of deficiencies in specific areas such as fuel, subsistence, and transportation. The continuance of this authority is considered necessary. Working-capital funds (section 405)

This section provides for the businesslike operation of activities in the National Military Establishment which most readily lend themselves to such arrangement. The section covers inventories of stores, supplies, materials, and equipment, which also are known as stock funds, and industrial-type activities and commercial-type activities which provide common services. In each instance the stores, supplies, materials, and equipment included in such inventories, and the industrial and commercial-type activities involved, are those which the

Secretary of Defense may designate. Initially, items in inventories would be standard stock or common-use items. This section is not intended to require that all items stocked by the military services would be included in this type of inventory. For example, materials with a high obsolescence factor, or semicapital items, such as harbor nets or tanks, normally would not be included. For this reason, a power of designation is granted to the Secretary which is intended to permit the most economical and efficient grouping of inventory items or activities and to permit the proper scheduling required for orderly transition in operations.

(a) Purposes; authority to create.-This subsection authorizes the Secretary of Defense to require the establishment of working-capital funds in the departments and agencies of the National Military Establishment to finance inventories and to provide working capital for industrial-type and commercial-type activities of the kind referred to above.

This subsection also lists the purposes which the inventories and integrated activities are intended to achieve. They are-most effectively to control an account for the cost of the programs and work performed, to provide adequate, accurate, and current cost data which can be used as a measure of efficiency, and to facilitate the most economical administration and operation of the military departments. (b) Establishing working-capital funds on books of Treasury.-This subsection is a directive to the Secretary of the Treasury to honor the request of the Secretary of Defense to establish the workingcapital funds accounts on the books of the Treasury Department. (c) Charges and reimbursements.-This subsection provides legal authority for the operation of the funds. The subsection provides that the working-capital funds shall be charged in appropriate circumstances with the cost of stores, supplies, materials, and equipment which are procured or otherwise acquired or which are manufactured, repaired, issued, or consumed. It also provides that the workingcapital funds shall be charged for services rendered or work performed. Provision is also made for reimbursing the funds from available appropriations or otherwise crediting them (such as by payments received in kind or in cash) for the cost of stores, supplies, materials, or equipment furnished by the inventories, or for the cost of services rendered or work performed by such activities. The amounts which are to be charged or reimbursed to the funds are to include applicable administrative expenses involved. The operations of these funds are required to be reported annually to the President and to the Congress.

(d) Sources of capital for working-capital funds.-This subsection delineates the sources from which the corpus of working-capital funds will be obtained. It authorizes the Secretary of Defense to capitalize inventories on hand; that is, assign a dollar value to such stores, supplies, materials, or equipment as he designates to be transferred to, and carried in, an inventory or stock fund. He may also, until December 31, 1954, with the approval of the President, transfer unexpended balances of any appropriations of the military departments and agencies to such funds to the extent necessary to provide the working capital which he deems to be required. The unexpended balances which he may transfer must not have been carried to the surplus fund of the Treasury, nor may any deficiency be incurred in any appropriation, from which such a transfer is made, as a result of