that there had been established an adequate system of accrual accounting and if the Congress chose to include the limitations in appropriation bills.

The annual accrued-expenditure system, under the terms and provisions of H.R. 8002, would be put into effect by imposing annual accrued-expenditure limitations on appropriations and funds available from prior appropriations. The present method of granting obligational authority would remain the same. The adoption of this system of accrued-expenditure limitations would require an expenditures accounting system in moderate addition to the present accounting system for controlling obligational authority which would be of negligible significance as compared to the tighter congressional budgetary control.

The Congress has absolute control over expenditures by reason of its constitutional responsibility in the granting of obligational authority. Under the terms of H.R. 8002, a majority of the committee feels that the Congress will have an opportunity to exercise better control over the unexpended balances of appropriation, because limitations on expenditures of these unexpended balances will be made each year.

It is provided in the bill that the President's budget may include a recommendation for accrued-expenditure limitations after the President has determined that there exists an adequate and satisfactory system of accrual accounting for the appropriation account involved. Furthermore, the inclusion of such recommendations in the budget would be recommendations which the Congress could allow, disallow, or modify.

It is the view of the committee that it is essential that the Secretary of Defense be given authority to transfer the unused portions of the limitations on annual accrued expenditures. Not to provide such authority could seriously endanger the defense program.

In his message to the Congress on April 16, 1958, pertaining to the reorganization of the Department of Defense, the President stated, in part, as follows:

"* * * In my message of April 3, I stated it as fundamental that the Secretary of Defense, as the civilian head of the Department of Defense, should have greater flexibility in money matters. The current method of providing funds has worked against the unity of the Department. I have directed that the Department's budget estimates for the 1960 fiscal year be prepared and presented in a form to provide the needed flexibility. * * *"

If limitations on annual accrued expenditures were imposed it would be just as necessary, if not more so, that the Secretary of Defense have a wide degree of flexibility to transfer, from one limitation to the other, unused portions of the limitations. Therefore, the committee recommends amendments to the bill to provide the necessary authority for such transfers.

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The language recommended by the committee is general in nature and would authorize the inclusion of such transfer provisions for any department or establishment within such limitations as Congress may determine in each appropriation bill.

The committee desires to make it absolutely clear that the provisions of the bill, if enacted, will have no effect on the liability of the United States to contractors. The Government's liability stems from the grant of obligational authority and not from the limitation on annual accrued expenditures. Subsection (f) states specifically that there is no change in existing law with respect to the method or manner of making appropriations or the making of contracts under appropriations. The committee's recommended amendment to subsection (d) and the elimination of subsection (e) of the House bill is designed to assure that where a contractor makes delivery he will be paid under the appropriations and the limitation applicable to the year in which the delivery was made. Furthermore, it should be clearly understood that in the unlikely event that the limitations on annual accrued expenditures should be exceeded the liability of the Government ultimately to make payment is not affected. If this unlikely event should occur it is almost inconceivable that the further action required of the Congress would not be forthcoming in order to make the payments. However, if by some improbable mischance this should be the case, there is a clear and unequivocal remedy in the Court of Claims.

Section 2 of the bill deals with changes in the rules of the Senate and House of Representatives. The committee has confined its consideration of this section to its effect on the Senate rules.

The bill as it passed the House would make it in order to include accrued expenditures limitations in appropriation bills that apply to funds previously appropriated. The committee recommends that this provision be retained. The committee also recommends an amendment to make it in order to include in any appropriation bill, provisions authorizing the head of a department or establishment to make transfers of the unused portions of the limitations on accrued expenditures within limitations prescribed by Congress in each appropriation bill.

The House bill provides that it would be in order to include in appropriation bills language relating to availability of appropriations of funds previously made. Thus it would be in order to include language to transfer, rescind, or reappropriate funds previously appropriated or to amend limitation in a previous act in an appropriation bill. Such a provision would operate to amend the Senate rules in that the proposed language would no longer be subjected to a point of order and, therefore, a simple majority rather than a twothirds vote would be required to consummate the proposal. The committee recommends the deletion of this provision.

On July 31, 1958, H.R. 8002, as amended, passed the Senate. H.R. 8002 was placed on the House Calendar, and, on August 4, 1958, Congressman Fascell, of Florida, requested unanimous consent for the House of Representatives to concur in the Senate amendments. This was objected to by Congressman Taber, of New York.

On August 6, 1958, Congressman O'Neill, of Massachusetts, Committee on Rules, reported House Resolution 674, a resolution agreeing to consideration of H.R. 8002, under a rule which prohibited further amendment (H. Rept. 2480, 85th Cong.). On August 14, 1958, the House agreed to the Senate amendments and the bill was approved by the President on August 25, 1958, as Public Law 85-759.

PROVISIONS OF PUBLIC LAW 85-759

Public Law 85-759 amended section 201 of the Budget and Accounting Act of 1921 to authorize the application of the accrued expenditure system to all appropriations and fund accounts when the President determines that there has been established an adequate system of accrual accounting. After such determination, the President was authorized to transmit to Congress a proposed limitation on annual accrued expenditures for each appropriation or fund and may include in his budget recommendations for authorizing the head of any department or establishment to make transfers within his department or establishment between such limitations. The limitation on annual accrued expenditures proposed by the President would not be effective unless the Congress chose to include the limitation in an appropriation bill for the agency concerned.

The limitation on annual accrued expenditures was required to be charged with the cost of goods and services received, advance payments made, progress payments becoming due, and any other liabilities becoming payable during the fiscal year. The unused balance of such limitation would lapse at the end of the year and any obligations incurred during the year or prior years which do not become payable were to be charged to a succeeding year limitation in which the obligation becomes payable.

The act provided that the submission of limitations on annual accrued expenditures does not change existing law with respect to the method of making appropriations, authorizing or approving programs or projects. The method of granting obligational authority remains the same and the granting of contract authority is not involved.

Although Public Law 85-759 did not eliminate the carryover of appropriation balances, it does allow Congress to control their use by determining, through the limitation on annual accrued expenditures, the value of goods and services which could be received each year.

Section 2 of Public Law 85-759 deals with changes in the rules of the Senate and House of Representatives. This section makes it in order to include accrued expenditures limitations in appropriations bills that apply to funds previously appropriated and to include in any appropriation bill provisions authorizing the head of a department or establishment to make transfers of the unused portions of the limitations on accrued expenditures within limitations prescribed by Congress in each appropriation bill.

The provisions of Public Law 85-759 expire on April 1, 1962. During this period the annual accrued expenditure system is on trial and the manner in which it operates will have a large bearing on whether this legislation will be extended.

ADVANTAGES OF APPROPRIATIONS ON AN ANNUAL ACCRUED EXPENDITURE BASIS

In his report, dated February 12, 1957, on S. 434 and S. 316, the Comptroller General strongly recommended enactment of the provisions and outlined some of the advantages to be gained from stating appropriations on an annual accrued expenditure basis. The following extracts are taken from his report:

The stating of appropriations on an accrued expenditure basis together with the furnishing of cost data to the Congress, as provided by Public Law 863, would provide the best opportunity for improved correlation of programing, budgeting, and accounting. Congressional control of costs and expenditures can only be achieved by the maximum utilization of many tools. The stating of appropriations on an accrued expenditure basis can be made a very important tool for the Congress if effectively installed.

All of the present safeguards of consideration and control of total program costs are retained under the annual accrued expenditure basis of stating appropriations. Indeed they are improved because, in addition to providing for consideration of the total estimated cost, this method of determining appropriations provides a means of direct congressional control over the yearly segments of planned performance. It provides an orderly review by the Congress of the amount of funds needed in any year in relation to the year-by-year accomplishments and their costs as compared to each year's estimated performance and estimated costs, as well as the continuing needs of the program in relation to current national and international conditions.

There are other advantages of placing appropriations on an accrued expenditure basis. The annual budget surplus or deficit is determined on the basis of expenditures. Placing appropriations on the annual accrued expenditure basis is, in our opinion, a practical approach to a direct correlation between annual appropriations and expenditures. It vests in each Congress a much greater opportunity to control the level of operations during a particular budget year and would mean the elimination of the vast carryover balances now available for expenditure at the discretion of the executive agencies. The present situation concerning available balances stems from the fact that congressional control through appropriation authorization and Budget Bureau control through apportionments are both exercised in terms of authority to obligate rather than budgeted work plans for the cost of goods and services estimated to be received.

It is inherent in the annual accrued expenditure basis of stating appropriations that congressional authority be granted for the advance planning which necessarily precedes the phase of operations covered in an annual accrued expenditure budget. In the past this authority to create obligations in advance of appropriations has been commonly referred to as contract authorization. The authority to include requests for such contract authorizations in the budget, which is contained in the present section 201 of the Budget and Accounting Act, 1921, in view of the definition of the term "appropriation" contained in section 2 of that act, as amended, will not be abrogated by the provisions of S. 434 or S. 316. It is a significant fact, however, that heretofore both contract authorizations and subsequent appropriations were stated in terms of obligational authority whereas under the recommendations herein being considered only the initial authorization would be stated in terms of the broad and difficult to apply concept of obligations whereas annual appropriation of funds could be stated much more definitely in terms of accrued expenditures because of the time factor. The initial authority which may cover a forward period, sometimes as long as 5 years or more, obviously cannot be supported with detailed plans. On the other hand, as those plans take shape in succeeding years much more precise planning and authorizations are practical when stated in terms of accrued expenditures.

The determination of appropriations on an annual basis in terms of estimated performance during that year, i.e., the annual accrued expenditure basis, with concurrent authority to enter into contracts to insure orderly future deliveries on long leadtime programs, is in no way detrimental to the interests of contractors. The Government's liability to a contractor for a contract issued under this method of appropriation and subsequently canceled or terminated would be no different than the Government's liability in similar circumstances under the present method of stating appropriations in terms of obligations. The only change required would be that payments to the contractor for performance each year would be made out of the funds appropriated by the Congress each year for that purpose and not out of funds appropriated in some past year.

The Director of the Bureau of the Budget, in testifying before the committee on S. 434, submitted a prepared statement in which he outlined the advantages contemplated by S. 434 over the procedures then in effect,12 from which the following is quoted:

As contrasted with present procedures, we can see many advantages in the practices contemplated by S. 434. I would like to emphasize that a major advantage of this proposal is the improved program control that is made available to the Congress and the executive branch. Under Public Law 863,

12 Hearings before the Subcommittee on Reorganization of the Committee on Government Operations, U.S. Senate, 85th Cong., on S. 316 and S. 434, p. 53.