much and whether there was an exceeding of the appropriation, the audit would not be of any value.

In other words, it is fundamental that an auditor or a comptroller must indicate the accounts to be kept, if he is to make an effective audit. And it is important, too, that that function be exercised independently; that is, one department should not have an advantage over another department. The spending agency is primarily concerned in spending, and that agency should not be permitted to determine the precedent on which its program under the appropriation will be based. That should be done by an unbiased authority.

Senator O'MAHONEY. Should not be permitted to determine the program?

Mr. TULLOSS. What I mean is the precedent for spending. In other words, here is a department which wants to spend certain moneys. It determines that it is legal and proceeds. Now if that is the auditing agency, as well as the spending agency, naturally it is inclined to be liberal in its own determinations. In being liberal with its own program it sets up a precedent for every other agency which it is auditing. In other words, it pyramids its precedent.

Senator O'MAHONEY. But it is not necessary, under the law, for an agency to secure an advance opinion?

Mr. TULLOSS. It is not required; no, sir.

Senator O'MAHONEY. So that any agency, without having obtained the advanced opinion, may proceed and spend the money in the manner in which you have now described?

Mr. TULLOSS. Yes, sir. It is only subject to warrant on the appropriation end and on the advance or payment end. That is, there are two warrants. The appropriation is made available for an obligation by appropriation warrant and available for an expenditure by an accountable pay warrant.

Senator O'MAHONEY. So that to the extent that vouchers are not submitted for pre-audit, and the extent that expenditures are made without an advance opinion, the auditing is now conducted upon the basis or according to the plan which you say would be ineffective? Mr. TULLOSS. You mean under the proposed bill?

Senator O'MAHONEY. No; under the plan which is now operative. Mr. TULLOSS. There has been no change in the auditing practice of the Government, you might say, in its whole history, in that respect. They may have advance decisions or they may have preaudit. That has always been true, so far as I know, but that is a matter of administrative election. It is not required.

Senator BYRD. But it could be required?

Mr. TULLOSS. It could be required, and in many respects the preaudit has its advantages.

Senator BYRD. But there was no authority for preaudit unless it was asked for, until the Accounting Act of 1921 came in, was there? Mr. TULLOSs. Yes, sir.

Senator BYRD. You mean there was authority in the Comptroller General, or whoever the officer was, to put in a preaudit, regardless of any requests which might be made?

Mr. TULLOSS. I do not think the Budget and Accounting Act changed the law in that respect.

Senator O'MAHONEY. That was section 8 of the act of 1894

Mr. TULLOSS. Then the Post Office Department preaudit antedates that.

Senator BYRD. In the present act, it changes the authority of the Comptroller General in the matter of the preaudit?

Mr. TULLOSS. The proposed bill would change it and transfer the preaudit to the Treasury.

Senator BYRD. How long has that preaudit been in the control of the Comptroller General?

Mr. TULLOSS. The preaudit has been in the accounting office from the beginning, in my opinion.

Senator BYRD. And this pending bill makes a change?

Mr. TULLOSS. This would put it back in the Treasury. At one time the accounting offices were in the Treasury, and such preaudit as there was was in the Treasury.

Senator BYRNES. Prior to the Budget and Accounting Act?

Mr. TULLOSS. Yes, sir.

The CHAIRMAN. Whom do you suggest next, Mr. Elliott?

Mr. ELLIOTT. I suggest Mr. Denit, Chief of the Accounting and Bookkeeping Division.

ACCOUNTING

STATEMENT OF J. D. DENIT, CHIEF OF THE ACCOUNTING AND
BOOKKEEPING DIVISION OF THE GENERAL
OFFICE

The CHAIRMAN. Mr. Denit, have you any comments which you care to make with reference to the provisions of this bill?

Mr. DENIT. Mr. Chairman, Judge Elliott said in his remarks that we were not here with a prepared statement with respect to the bill, but I subscribe to practically every objection which has been stated in the letter presented to the committee with regard to this bill.

There are many angles to what is proposed which, in my judgment, would be harmful to the fiscal management and administration of the Government.

There are so many of those angles that, without a prepared statement, it would not be possible to present to you as intelligently as I would want just what my views with respect to them are.

But I assume, since the committee has been considering this matter for some time, that there are some questions which they would like to ask, or some matters as to which there may be some doubt in their minds.

The testimony here today has covered several angles and has been rather far reaching. For example, we have discussed in some detail the matter of preaudit. As I listened to the statements and questions, I have been impressed with the thought that there may be some misunderstanding of just what the preaudit by the General Accounting Office comprehends.

In 1850, or prior to 1850, rather, we had a situation, so far as disbursing officers of the Government were concerned, which was almost intolerable. Disbursing officers were required under the law to be bonded, and they were held personally responsible for all payments which they made under that bond. They had no relief from administrative pressure. They were subordinate to the administrative officers of the Government, and when they were directed to pay they could either pay or find employment somewhere else.

So that in 1850 it appears that Congress undertook to afford to disbursing officers some relief from that condition, and made it possible for them to apply to the then Comptroller of the Treasury for advance decision whenever there happened to be presented to them any voucher for payment, as to which they had some question of doubt regarding its legality.

Now under that provision of the law, this whole system of preaudit seems to have simply evolved naturally.

We had, in the first instance, a rather formal presentation of the matter for an advance decision. Now those presentations might come either from the head of a department or from a disbursing officer.

As time went on, the formality was lessened somewhat, and in more recent years disbursing officers and administrative officers, as well, in undertaking to avail themselves of advance decisions, have, in cooperation with the General Accounting Office, worked out the procedure which we now refer to as "preaudit."

Now preaudit of vouchers, as we are conducting it in the General Accounting Office today, does not in any sense impede administrative action. The expenditure is already made. There remains to be done only the payment of the cash. In other words, the administrative office has proceeded to the point of incurring an obligation. That may be for services or may be for materials. The materials have been delivered, the services have been rendered, the voucher has been stated. It is administratively examined and approved for payment. But before the payment of the cash is actually made, that voucher comes to the General Accounting Office for what we have described here as a "preaudit."

Senator O'MAHONEY. But it comes only when the disbursing officer voluntarily sends it?

Mr. DENIT. That is right. So that the whole advantage in the preaudit up to the present time has been on the side of the administrative officer.

We could discuss the matter of preaudit from several angles.

For example, I made a little study of the amount disallowed in the accounts of fiscal officers over a period, and I found that to be quite a large sum which averaged about $1,000,000 a year.

When you take into consideration that all of that amount disallowed had been paid out and the United States had been put to the expense of collecting it back, and in the meantime deprived of the use of that money, and required, because of the lack of that fund, probably, to issue short-term securities, and things of that sort, to finance its own operations, it appeared as though we were spending approximately $400,000 a year needlessly. I do not have those figures with me today, but I could make them available for the record.

They are based on the average cost of 10 percent to collect the money back, after it had been paid out illegally, plus an interest rate of 4 percent on the money during the time that it remains out of the Treasury. It averages around $400,000 a year. That is one angle to the preaudit which might be taken into consideration when we undertake to determine whether it is a good thing or a bad thing. At present the testimony will disclose that only about 31⁄2 percent of the accounts of the Government are being preaudited.

Senator BYRD. Does that apply equally to the amounts as well as to the number of accounts, that is, the amount of money, do you think?

Mr. DENIT. I think the amount of money involved would probably be less on the preaudited vouchers than on the post-audited vouchers. Senator BYRD. I am speaking of the percentage.

Mr. DENIT. Yes, sir.

Senator BYRD. There would be a less percentage?

Mr. DENIT. There would be a less percentage on the money.
Senator BYRD. In dollars?

Mr. DENIT. Yes, sir; I mean to say that the preaudited vouchers would probably run in smaller amounts than the post-audited vouchers. You have, for example, the Federal-aid payments for road construction, which would run into thousands of dollars, and none of those come through for preaudit. There would be a lot of miscellaneous accounts as to which there would be some question.

Senator O'MAHONEY. The General Accounting Office has never undertaken to expand the preaudit, has it?

Mr. DENIT. No, sir.

Senator O'MAHONEY. So far as the General Accounting Office is concerned, you have been content to allow this to remain upon a voluntary basis?

Mr. DENIT. Yes, sir.

Senator O'MAHONEY. What, in your opinion, is the advisable procedure? Should there be preaudit of every item?

Mr. DENIT. No, sir; we should not have a compulsory preaudit of every item, because that would be impracticable.

Senator O'MAHONEY. All right. Are there any advantages of a preaudit?

Mr. DENIT. There are very decided advantages, both from the standpoint of economy and from the standpoint of efficient administration. For example

Senator O'MAHONEY. Let me say this, to explain what I have in mind:

It appears to me from the law that there are two sets of advance decisions. First, the advance decision upon particular vouchers which you call the preaudit.

Mr. DENIT. Yes, sir.

Senator O'MAHONEY. And, secondly, the advance decision which is handed down at the request of the head of a department or of a bureau as to the legality of a particular type of expenditure.

Mr. DENIT. Yes, sir.

Senator O'MAHONEY. Both of these are purely voluntary?
Mr. DENIT. That is right.

Senator O'MAHONEY. And, as I understand it, they have developed largely because of the desire on the part of disbursing officers, in the case of the preaudit, to protect themselves on the actual outlay of funds, and, secondly, upon the part of the head of executive bureaus from a desire to determine in advance whether a particular expenditure has been authorized by law?

Mr. DENIT. Yes, sir.

Senator O'MAHONEY. And will be eventually approved and allowed, when it comes to your office?

Mr. DENIT. Yes, sir; but I might amplify that statement to this extent:

The preaudit would be, from the standpoint of the disbursing officer, to protect himself against the payment of an amount which

may later be charged back against his bond; and, also, from the standpoint of an administrative officer, cooperating with a disbursing officer, to secure to the disbursing officer that degree of protection. That is a preaudit.

The advance decision matter which you mentioned is not in any sense a preaudit action and should not be confused in the discussion of this matter of preaudit.

Senator O'MAHONEY. That is my understanding.

Mr. DENIT. That is right. I just wanted to make that clear.
Senator O'MAHONEY. Yes, sir.

The CHAIRMAN. When you talked about the cost, how much did you say it cost? You said they saved $400,000 a year?

Mr. DENIT. Approximately $400,000 a year would be saved to the Government if a preaudit could be had on all payments by the Government. That figure I reached by taking into consideration the average amount disallowed each year in the postaudit, and figured 4-percent interest on that.

The CHAIRMAN. How did you reach 4-percent interest?

Mr. DENIT. Just an arbitrary interest rate.

The CHAIRMAN. You mean, if the Government was out that amount of money, you would figure 4-percent interest?

Mr. DENIT. The Government charges approximately 4 percent on its loans.

The CHAIRMAN. But the Government does not pay 4-percent interest. Mr. DENIT. No, sir; it pays 2, 21⁄2, or 24.

The CHAIRMAN. If the Government was out the money and could borrow it and pay 2 percent and charge 4 percent, they would make a little money on the deal, would they not?

Mr. DENIT. I had in mind how you could determine that there would be real economies in the matter of the preaudit. This interest rate which you used would have the effect of increasing or decreasing the estimated saving.

Senator O'MAHONEY. That is not in this bill, and that is not in the present law?

Mr. DENIT. What?

Senator O'MAHONEY. To require preaudit.

Mr. DENIT. No; I only brought that out, Senator, for the reason that the question has been asked here on several occasions as to whether the General Accounting Office has undertaken to extend the preaudit. I wanted to show that while there are, in the judgment of some of us, good grounds for extending the preaudit, we have not undertaken to do so.

Senator O'MAHONEY. I think I understand your position to be this: You personally believe that the preaudit for all expenditures would be a desirable thing and would save the Government money in the end? Mr. DENIT. If it could be accomplished economically.

Senator O'MAHONEY. If it could be accomplished economically, but there is no law now making it mandatory upon all the departments?

Mr. DENIT. That is correct.

Senator O'MAHONEY. And there is nothing in this bill which affects it?

Mr. DENIT. That is correct.