ments, and for the administrative examination of fiscal offi- In accordance with this authorization, the Comptroller General issued Circular No. 27 on July 21, 1926, which was revised in 1943 and released as General Regulations No. 100. These instructions required the various Government departments and independent agencies to maintain uniform accounts showing the status of cash, assets, liabilities, income, and expenses, and to submit various reports to the General Accounting Office from time to time to reflect the condition of these accounts. Basically, the system required each agency to maintain a general ledger in which were recorded the appropriation, fund, asset, liability, and other accounts, and an allotment ledger for recording allotments or allocations for appropriations together with each obligation or expenditure charged thereto. In addition to the foregoing, the system required maintenance of various subsidiary records and the preparation of a number of monthly reports for administrative control and for reporting the status of each appropriation or allotment to the General Accounting Office. MONTHLY REPORTS The General Accounting Office required the various Government departments to submit monthly reports showing the condition of cash (transcript of general ledger account 01. Treasury Cash), Statement of General Account Balances, Standard Form 1116; Schedule of Balances Showing Status of Appropriations, Standard Form 1117; and Statement of Apportionments and Allotment Accounts, Standard Form 1118. The last three reports were prepared by each agency from accounts maintained in the general ledger, allotment ledger and subsidiary records. Investigation by the staff disclosed that these reports were utilized by the General Accounting Office for the purpose of assuring that Office that the agencies were maintaining their accounts in accordance with the Comptroller General's instructions. Under authority of title II of the Budget and Accounting Act of 1921, the President issued, in August 1940, Executive Order 8512, which directed the Secretary of the Treasury to prepare and transmit to the Bureau of the Budget, for information of the President, such financial reports as may be necessary to make known the financial condition and operation of the Government and its various agencies. To carry out the responsibility conferred on the Secretary of the Treasury, the Department of the Treasury and the Bureau of the Budget issued Budget-Treasury Regulation No. 1, which required, among other things, that each agency prepare a Report on Status of Appropriations, Budget-Treasury Form 3. This report was prepared each month and submitted to the Department of the Treasury for information and compilation of summary reports for submission to the President. The reporting agency showed the unexpended balance of appropriations brought forward from prior year appropriations, current appropriations and contract authorizations not covered by appropriations, reimbursements to appropriations, transfers to and from appropriations, cumulative apportionments to end of current quarter, obligations incurred during the current fiscal year, unliquidated obligations brought forward from prior year, expenditures during current fiscal year, unliquidated obligations, and unobligated balances. This information was essentially the same as that required by the General Accounting Office on standard form 1118, except that Budget-Treasury Regulation No. 1 specifically stated that the information shown on form 3 shall be reported on a current basis whereas the General Accounting Office required that the books be maintained on a projected basis. This conflict in reporting stemmed from a difference of opinion between the Bureau of the Budget and the Department of the Treasury on one hand and the General Accounting Office on the other, as to what is an obligation and the method of recording obligations. CONCEPT OF OBLIGATIONS The General Accounting Office, at that time, defined "obligations incurred" as those commitments by designated administrative officials which, until they subsequently accrue, imposed upon the U.S. Government only a contingent liability, and which are subject to reduction or cancellation pursuant to negotiation. The General Accounting Office required that obligations be recorded for the total estimated liability at the beginning of each year or at the beginning of the allotment period. On the other hand, Budget-Treasury Regulation No. 1 used the "legal liability” concept in defining "obligations," which was orders placed, contracts awarded (to the extent to which they are irrevocable), services rendered, and all other transactions during a given period which legally reserved the appropriation for expenditure. This regulation further required that obligations be reported in strict accordance with that concept. In essence, the General Accounting Office believed that obligations should be reported on a combination of actual and estimated figures, whereas the Bureau of the Budget and Department of the Treasury insisted that obligations be reported only for the amount legally bound to the close of the month being reported upon. This conflict caused the various departments and independent agencies considerable unnecessary work in order to comply with the method of keeping accounts as prescribed by the General Accounting Office and at the same time required adjustments in the figures at the end of each month in order to prepare the report required by the Treasury and the Bureau of the Budget. Subsequent enactment by the Congress of the Supplemental Appropriation Act of 1955, section 1311, provided by statute the criteria upon which an obligation is based, the provisions of which are discussed on pages 85-88 of this report. COMMITTEE RECOMMENDATIONS Conferences were held by the committee staff with representatives of the General Accounting Office, Bureau of the Budget, and Department of the Treasury with a view toward improving the accounting system at all levels of administration and adopting business-type methods, procedures, and forms in order that a single monthly report could be prepared that would furnish the information necessary for agency management and at the same time fulfill the needs of the Bu 61157-61-4 reau of the Budget and the General Accounting Office. Specific recommendations of the committee staff were: 1. A mandatory requirement that all apportioned funds be allotted administratively on exactly the same time basis as that for which related apportionments are made. This order should be issued by the President or by the Bureau of the Budget pursuant to an Executive order. 2. The General Accounting Office should amend General Regulations No. 100 making it mandatory that the accounts be maintained in accordance with the order discussed in the preceding paragraph and requiring the recording of obligations in accordance with Budget-Treasury Regulation No. 1. 3. The General Accounting Office should discontinue the use of Standard Forms 1116, 1117, and 1118, and utilize its investigative staff for policing compliance of its regulations. The obligation concept of the General Accounting Office, Bureau of the Budget, and Department of the Treasury was discussed extensively during these conferences. The three agencies were urged to appoint representatives for the purpose of studying the problems involved, to work out an agreeable solution, and to improve the methods and procedures of the Federal Government's accounting and reporting systems. Representatives of the three agencies agreed with the committee staff that duplication in reporting did exist, and there was a need for a thorough study of the accounting and reporting system in the Government. COOPERATIVE EFFORT TO IMPROVE ACCOUNTING AND REPORTING In late 1947, further discussions were held between representatives of the Comptroller General, Secretary of the Treasury, Director of the Bureau of the Budget, and members of the staff of the committee as to the best approach to the problem. An agreement was reached that the study of improving the accounting and reporting in the Federal Government would be undertaken as a joint venture by the three agencies. This was the beginning of the joint program for improving accounting in the Federal Government which was officially announced to all heads of departments and agencies by the Comptroller General on October 20, 1948. Many improvements in budgeting, accounting, and reporting have resulted from the work done under the joint program and the committee is vitally interested in its continued progress. Further details as to the work and progress of the joint accounting improvement program, now known as the joint financial management improvement program, will be found on pages 41-43 of this report. During 1947-48 the committee staff worked closely with the General Accounting Office in furthering improvements in the methods and accounting procedures. After further study and analysis, the General Accounting Office, in November 1948, informed the committee staff that standard form 1118 was progressively being discontinued and estimated that $500,000 would be saved each year as a result of discontinuing the report. In June 1950, the General Accounting Office amended its regulations and accounting procedures abolishing standard forms 1116, 1117, and 1118. This action completed the recom mendations of the committee in 1947, that GAO should abolish all three monthly reports. In addition, it was estimated that $250,000 would be saved each year by abolishing reports 1116 and 1117, making possible an annual saving of approximately $750,000 each year. During fiscal year 1950, as a result of the committee's interest and recommendations, and General Accounting Office's continued study and analysis, over 300 reports were abolished and 86 others were improved. JOINT FINANCIAL MANAGEMENT IMPROVEMENT PROGRAM The budget and accounting legislation enacted by the Congress sets forth the legal requirements to be observed in these areas by the agencies of the Government, including certain responsibilities imposed on various officials and agencies for carrying out the provisions of these laws. Because of the interrelation of budgeting, accounting, reporting, and other financial management functions in the operations of the Government, the joint program to improve accounting in the Federal Government was established to coordinate and expedite improvement work in these areas. As indicated above, this program grew out of joint discussions begun in December 1947, by members of the staff of the Committee on Government Operations, representatives of the Comptroller General of the United States, the Secretary of the Treasury, and the Director of the Bureau of the Budget as to the needs and problems. of the Government for more effective and economical accounting practices. It was agreed that the three central agencies would work together, in cooperation with the administrative agencies, to develop necessary improvements throughout the Government. On October 20, 1948, speaking for himself as well as the Secretary of the Treasury and the Director of the Bureau of the Budget, the Comptroller General officially announced the joint program in a letter to the heads of all Government departments and agencies. This letter describes the objectives of the joint program thus: The program contemplates the full development of sound accounting within each agency, as a working arm of management, in terms of financial information and control. At the same time it envisions an integrated pattern of accounting and financial reporting for the Government as a whole responsive to executive and legislative needs. Balanced recognition will be given to the need for a flexible basis for accounting development within agencies in the light of varying types of operations and management problems and to overall fiscal, reporting, and audit responsibilities. The accounting and reporting principles, standards and basic procedures established will take into consideration the various areas of responsibility involved, the elimination of overlapping operations and paperwork, and the fuller application of efficient methods and techniques in accounting operations throughout the Government. The joint program was endorsed by the Congress in its declaration of policy contained in the Budget and Accounting Procedures Act of 1950 (64 Stat. 834). In section 111 of that act, the Congress stated: It is the policy of the Congress in enacting this part that (f) The Comptroller General of the United States, the Secretary of the Treasury, and the Director of the Bureau of the Budget conduct a continuous program for the improvement of accounting and financial reporting in the Government. Over the years the objectives of the program have been more precisely defined with relation to the many interrelated financial management functions of the Government. In a brochure issued in May 1958 these objectives were defined as: The basic goal of the program is the improvement of financial management practices throughout the Government in a manner that will satisfy the management needs of the executive and legislative branches and the existing legal requirements. The current objectives include the following: 1. Strengthening of agency organization and staff facilities to provide for the most effective conduct of agency financial management. 2. Establishment of effective agency accounting systems on an accrual basis to the fullest extent this accounting basis is appropriate. 3. Establishment of monetary property accounting as an integral part of agency accounting systems. 4. Establishment of cost-based budgeting practices effectively integrated with the accounts to provide adequate support for budget requests. 5. Simplification of agency appropriation and allotment structures, and development of the most effective methods of control of appropriations, funds, obligations, expenditures, and costs. 6. The use of consistent classifications to bring about effective coordination of agency programing, budgeting, accounting, and reporting practices. 7. Establishment of suitable internal control practices, including internal audit, in the agencies. 8. Effective integration of agency accounting and reporting with the requirements of the budget process and the central accounting and reporting of the Treasury Department. 9. Development of accurate and useful agency and governmentwide reports on fiscal status, financial results of operations, and cost of agency performance of assigned functions. "The Joint Program for Improving Accounting in the Federal Government-Its Scope, Objectives, Concepts, and Methods," which was prepared by the Bureau of the Budget, Treasury Department, and the General Accounting Office. |