a standard cost program at one naval shipyard by 1957 which has been extended to other shipyards, and has also developed a cost control system for overhaul and repair of aircraft designed to produce a breakdown of actual costs by organizational segments and to measure such costs against a predetermined standard. The military departments are continuing to develop cost accounting systems and techniques, particularly in connection with industrial-type activities.

The Atomic Energy Commission has employed cost accounting on an extensive scale since inauguration of its industrial-type accounting system on July 1, 1948. Among the many ways that product cost data is used by management are: When production capacity exceeds material requirements, permitting the shutdown of one or more plants, comparative unit cost analyses are used in making the decision as to which plants should be shut down; when additional production capacity is needed, unit cost data are considered in determining the most economical way of increasing the capacity; unit costs are prime considerations in decisions as to whether an operation should be performed in an existing plant, in a modification of an existing plant, or in a new plant; and production schedules for plants capable of producing the same product are established so as to minimize costs.

Some other examples of agencies that made improvements in cost accounting are Forest Service of the Department of Agriculture for reimbursable-type activities; Bureau of Federal Credit Unions of the Department of Health, Education, and Welfare; Southeastern Power Administration, Southwestern Power Administration, Bureau of Reclamation, and government of American Samoa of the Department of Interior; International Boundary and Water Commission of the Department of State; Bureau of the Mint, Bureau of Engraving and Printing, U.S. Coast Guard, and the Division of Disbursement of the Treasury Department; Corps of Engineers of the Department of the Army; General Services Administration; Veterans' Administration; U.S. Government Printing Office; and the joint Senate and House recording facility.

The foregoing list of agencies is not all inclusive of every agency which has or is in the process of developing cost accounting systems, nor is it necessarily indicative that in every agency mentioned the cost systems and its management uses have been developed to their full potential. It is indicative, however, that the development of cost data for agency management use has been expanded throughout the Government during the last 10 years.

COST-BASED BUDGETING

Public Law 84-863 provides for (1) the use of cost-based budgets as the basis of appropriation requests and (2) the use of cost-based budgets by the agencies for the purposes of administration and operations and as the basis of administrative subdivisions of appropriations or funds.

Substantial progress has been made in the number and dollar amount of cost-based budget presentations to the Congress in support of appropriation requests. In the 1957 budget, for example, only four appropriations covering $1.7 billion of the budget expenditures were presented by the agencies on a cost basis. For the 1961 budget,

the agencies presented 353 cost-type budgets for programs involving budget expenditures aggregating approximately $33.5 billion and trust fund expenditures of another $16 billion. These budget presentations reflect the costs of operating the programs or functions (budget activities), the level of resources (inventories, undelivered orders, advance payments, etc.) on hand and planned, and the new money (appropriation) required to finance the work.

These indicate a rather extensive use of cost-based budgets by the agencies in supporting, to the Bureau of the Budget and the Congress, their requests for new funds (appropriations). It is difficult, however, to measure the extent to which agency management is fully using its cost-type budgets throughout the year for the purposes of controlling and directing the administration and operations of the agency. In some large agencies, such as the Army Corps of Engineers (civil functions), Bureau of Reclamation, and Atomic Energy Commission, cost budgets are utilized throughout the year. In May 1959 the Department of Defense issued a directive (No. 7040.1) establishing basic policies for the development of planned programs for the improvement of financial management in the areas of appropriations for operation and maintenance which includes requirements for the use of cost-based budgets for administrative and management purposes in the budget execution process. These planned programs are in the process of development and implementation.

However, some of the agencies apparently are concerned with costbased budgets only once a year-for presentation in support of appropriation requests-but have not yet developed internal management practices under which costs as budgeted are brought into the budget execution phases throughout the year. This area of the use of cost-based budgets for administrative and management purposes, including their use as the basis of administrative subdivisions of appropriations of funds, needs more attention.

OTHER IMPROVEMENTS IN BUDGETARY AND FUND CONTROL PROCESSES

Many and various improvements have been made in streamlining the appropriation structures, budget activities, allotment patterns, and other aspects of the budget processes of the agencies. These improvements have been so diverse that only a few of them will be mentioned in this report as an indication of some of the types of improvements in the budget and fund control processes.

In the Department of Agriculture.-The appropriation structure of the Agricultural Marketing Service was reduced from 7 appropriations with 8 limitations to 4 appropriations with 5 limitations; the budget activities were reduced from 21 to 13; and the allotments were reduced from 216 to 68. The appropriation structure of Agricultural Research Service was reduced from 14 appropriations with 16 limitations to 4 appropriations with 3 limitations; budget activities were reduced from 68 to 10; and allotments were reduced from 274 to 35. The revised system of the Commodity Exchange Authority provides for a single allotment of funds with internal procedures for administrative control under apportionments. In the Office of Solicitor simplification of fund control resulted in a reduction of allotment accounts from 70 to 1 and in the Office of Information from 118 to 9.

In the Department of Justice.-Allotment accounts for administrative and legal activities were reduced in 2 years from 303 to 116.

In the Department of Defense.—A major restructuring of the appropriation pattern for the military functions was accomplished, under which the same basic pattern of appropriations is applied to all three of the military services; the number of Navy appropriations was reduced through consolidations: and the financing of certain research-related purchasing was transferred from procurement appropriations to the research appropriations.

AUTOMATIC DATA PROCESSING SYSTEMS

1. Electronic applications.-The strong trend toward use of electronic equipment in Government operations continues. Virtually all agencies with large volumes of data to process, or large-scale recordkeeping operations, have been affected. About 200 electronic computers were in use in the business and management control systems of the agencies at June 30, 1959, of which about 70 percent were in the Department of Defense. Approximately 100 more were installed during fiscal year 1960, and about 200 additional are planned for installation during the following 18 months.

The Department of Defense has established an automatic data proeessing management program with staffs in military departments and in the Office of the Secretary of Defense. Proposals for new installations are reviewed for compliance with established policy and criteria as well as readiness for economical installation.

Significant developments are underway in connection with certain installations planned in the future whereby magnetic tape record output of certain agencies will become direct input for operations of other agencies involved in a series of interagency functions. Increasing attention is also being given to expanding the automatic interchange of magnetic tape records between industry and Government. (a) Automatic data processing systems that utilize electronic equipment ranging from the small to the large-scale variety were adopted or extended during fiscal year 1959 for the following purposes:

For payroll system in Bureau of Public Roads.

For general and cost accounting in Coast and Geodetic Survey. For centralized inventory control accounting in Marine Corps. Annual savings of $175,000 realized by application to the procedure for testing the retirement status of beneficiaries under the old-age and survivors insurance program in Bureau of Old-Age and Survivors Insurance.

For payroll, power billing, and property accounting in two offices of Bureau of Reclamation.

Annual salary savings of about $30,000 in an application to payroll, leave accounting, cost distribution, and personnel reporting in Geological Survey.

For payroll, leave accounting, and personnel statistics in 2 more regional offices (now covering 7 of 15 regions) in Post Office Department.

For accounting and servicing of inquiries in issuance and retirement of series E savings bonds in punched card form in Bureau of Public Debt.

Completed program for maximum utilization of certain high speed electronic checkwriting equipment in Bureau of Accounts. Government-wide savings of over $2.9 million a year (exceeds original estimates by over $700,000) obtained through completion of system for payment and reconciliation of Government checks in Office of Treasurer of the United States.

Computer facilities at the Federal Reserve Board utilized by the Office of the Comptroller of the Currency for developing statistical data from financial reports of national banks.

Existing system extended to cover 13 additional operations. including application of monthly payments of mortgage interest and principal, in Federal Housing Administration.

Existing system extended by application to routine processing of irregular loan payments in Small Business Administration. (b) Preliminary work was underway at June 30, 1959, in the following organizations incident to ADP systems involving electronic equipment installations scheduled for the near future:

Plans include extension of facilities to cover accounting, certification and related payment procedures for disability rolls of Bureau of Old-Age and Survivors Insurance.

Plans completed to program weapon stockpile inventories in Atomic Energy Commission.

Existing operation in one region to be installed in two additional regional offices of General Services Administration.

Plans underway for application to earnings accounts. certification of service and compensation data, and statistical data in Railroad Retirement Board.

Conversion of insurance premium billing and accounting to electronic computer planned in Veterans' Administration. Planned installation of data processing equipment will permit conversion to magnetic tape of about 3.7 million national service life insurance accounts in Philadelphia, to be followed by 2.1 million accounts in Denver and St. Paul-offices will be linked to Philadelphia computer by a data transmission network. Accounting and statistical functions for Veterans' Administration disability and death benefits programs will be centralized in data processing center at Hines, Ill., which will also provide magnetic tape for checkwriting in Treasury Department.

Plans underway for computer system for checkwriting in Chicago regional disbursing office of Bureau of Accounts. This is coordinated with Veterans' Administration plans at Hines, Ill.. from which magnetic tape records for about 5 million benefit checks a month will be furnished by Veterans' Administration. Four million other periodic checks issued at the Chicago disbursing office will be prepared with the same equipment. Veterans' checks will be mechanically sorted by the disbursing office according to States and major city destinations to facilitate post office operations. Magnetic tape output of the disbursing system will be used as input in the check payment and reconciliation operations of the Treasurer of the United States.

(c) ADP (electronic) system feasibility studies are in process or are under consideration in such agencies as the Bonneville Power Administration; Bureau of Indian Affairs; Internal Revenue Service,

for a comprehensive system of tax return processing; Federal Housing Administration, with respect to mortgage insurance application processing; Civil Service Commission, with respect to processing the retirement annuity rolls; General Services Administration, for stock replenishment, purchase, distribution, inventory, and financial accounting functions involving stores stock items and General Supply Fund; and Veterans' Administration, for mortgage loan accounting. 2. Electric accounting machine applications. Data processing systems utilizing electric accounting equipment were installed or extended during fiscal year 1959 for the following purposes:

For payroll and loan accounting in Rural Electrification Administration.

For National Institutes of Health payroll operations in Public Health Service-produced manpower savings and improved reporting.

For Washington payroll operations in Department of State— first step toward possible use of electronic equipment.

For processing postmasters' requisitions for bulk quantities of postage and savings stamps-coordinated system in Post Office Department and Bureau of Engraving and Printing.

For centralized payroll operations of western regional offices in Internal Revenue Service-resulting in annual savings of 24 man-years.

Existing system extended to processing mortgage purchases and related statistical reporting in Federal National Mortgage Association.

For recording allotments, obligations, and disbursements in Public Housing Administration-permitting quarterly conversion to accrual basis with a minimum of effort.

For payroll system and reports on building space utilization and assignment in General Services Administration. Transfer of payroll operations to region 3 resulted in annual savings of seven employees for central office. In region 3, mechanization produced annual savings of $59,000.

For payroll, general accounting, and reporting in Interstate Commerce Commission-produced 3 man-years savings in payroll and monthly reports made available 8 days earlier.

For retail stores and service centers in Panama Canal Company. For domestic allotment accounting and cost distributions in three offices of U.S. Information Agency.

Previously tested mechanized mortgage loan accounting system in Veterans' Administration installed at stations with greatest workload. System for benefit payment accounting extended and now 75 percent complete.

To determine the extent to which automatic data processing equipment is utilized by agencies of the executive branch, annual reports are required by Bureau of the Budget Bulletin No. 60-4, dated October 9, 1959. Agencies are required to report on or before December 31 of each year on the ADP equipment used or to be used, the purposes served by using the equipment, and the actual or estimated costs of operation of the equipment.

The Bureau of the Budget issued Bulletin No. 60-6, dated March 18, 1960, to heads of executive departments and establishments trans