Budget has a direct bearing on leadership within the executive branch toward fulfillment of the Commission's recommendations. With respect to Federal budgetary practices, the Commission's principal recommendations called for (1) continued use of performance budgeting, (2) formulation and administration of agency budgets on a cost basis, (3) annual appropriations based on accrued expenditures, and (4) authorization for limited periods of continuing Government programs not susceptible to the usual budget controls. Significant among the Commission's recommendations for improving accounting and auditing practices was a proposal for acceleration of efforts to install adequate monetary property accounting records and maintenance of Government accounts on an annual accrual basis, The Commission also made proposals dealing with simplification of allotments, use of a single account in each agency for liquidation of obligations, and other practices in the settlement of claims, and relief of accountable officers. The Commission recommended further examination of revolving fund and internal audit practices. To improve the financial organizations of the executive branch, the Commission recommended the establishment of comptroller organizations in the principal agencies, and that the proposed Office of Accounting in the Bureau of the Budget include among its duties the rendering of assistance to agency comptrollers. The Commission made several recommendations aimed at developing and providing more comprehensive reports on both the financial results and the performance of Government programs. Its recommendations included proposals for increased emphasis upon the improvement of Treasury's central fiscal reports, for a study to eliminate duplicate accounting within the Department of the Treasury and between that Department and other agencies, and also for the development by the Bureau of the Budget of governmentwide reports on executive branch performance and on the financial results of Government operations. FIRST COMMISSION'S RECOMMENDATIONS ON BUDGETING AND ACCOUNTING, 1947-49 The first Hoover Commission, 1947-49, pointed up a great need for reform in methods of budgeting, in the appropriation structure and in the Federal Government's accounting system. It stated in its; report on Budgeting and Accounting: There are serious weaknesses in the internal operations of the Federal Government in the fiscal field. These weaknesses penetrate into the heart of every governmental transaction. The President's budget, as submitted to the Congress annually, does not indicate accurately what the costs of each activity will be over the coming year; and the Government's accounting system, outmoded and cumbersome, does not indicate what was accomplished with the money spent in the year past. Its keystone recommendation to improve the budgetary concept called for the adoption of a budget based upon functions, activities, and projects, which it designated as a performance budget. Such an approach to budgeting, the Commission maintained, would focus attention upon the general character of the service to be rendered or the work to be done rather than upon tangible things to be acquired such as supplies, equipment, and services which it characterized as only the means to an end. The all-important objective in budgeting, the Commission stated, "is the work or the service to be accomplished and what that work or service will cost." In further justification of its recommendations, the Commission declared that a performance budget would expedite action by the Congress on budget estimates, would assure more accurate revenue figures for the forthcoming budgeting period, and would provide more complete estimates to the Congress. In proposing these revisions in the Federal Government's budgetary presentation, the Commission emphasized that its revitalized budgeting-accounting structure would answer two major questions: (1) From the viewpoint of budgeting: "What is the money wanted for?" (2) From the accounting viewpoint: "What do the taxpayers get for it?" In support of these premises, the Commission stated: These two questions lie at the root of any fiscal system. The present budgeting and accounting system of the Federal Government either does not supply answers to these questions, or supplies "half answers. A good system would supply the right answers. Budgeting and accounting go hand in hand. Sums budgeted in advance are subsequently accounted for as obligated and spent. The activities are the same and the accounts themselves must be the same. Only by making comparisons between similar activities, and between the same activity in one year against another year, can efficiency be tested. Only by making the head of each activity financially responsible for all the costs of his program, can he be held to account. Only by modernizing the Federal system of budgeting and accounting will it be possible to tell exactly how much any single program or project is costing. The Federal Government must be able to assess results intelligently. By following our recommendations, the Congress, the executive branch, and the people will have not only the same information they have now, but more information, presented in a more intelligible fashion. In addition to the performance budget, the Commission recommended a general revision of the Government's complicated appropriation structure with the object of simplification of presentation, consolidation of certain appropriations in broader categories to eliminate itemization, which often obscures the totals, and merging of patchwork appropriation procedures into a rational, uniform, easily understandable pattern. Stating that fiscal responsibility is diffused when agencies of the Government are financed from diverse appropriations in the Federal budget under the appropriation process existing at that time, the Commission heavily underscored the necessity of a complete revision of the appropriation structure as essential to the successful adoption of the performance budget. Other recommendations by the Commission in the budgetary field, included separation of capital outlay from current operating expenditures in all budget estimates, and granted authority to the President to reduce appropriations if the objectives proposed by the Congress are achieved without expenditures of the entire amount. Also recommended were various internal reorganizations within the Bureau of the Budget to strengthen that organization as the foundation stone of improved administrative management of the executive branch. Specific recommendations dealt with improvement, reorganization, and better cooperation of the fiscal, estimates, legislative reference, administrative management, and statistical divisions of the Bureau. The Commission considered improvements in the Government's accounting structure of corollary importance to the recommendations in the budgetary field. Emphasizing the absolute importance of accounting to maintenance of financial integrity, the Commission pointed out that accounting not only provides the basis for the summary financial reports by which the executive branch accounts to the Congress, but also in the finality provides for the fixing of responsibility in the disposition of Government funds. It stated: The accounting system of the Government, as it now exists, consists of two general types of accounts-fiscal accounts and administrative accounts. The fiscal accounts are the overall or general accounts which are kept mainly in the Treasury Department. These accounts comprehend the fiscal operations relating to revenues, custody of funds, disbursements, public debt, and currency. The Comptroller General does not ordinarily concern himself with the form of these accounts or the contents of the reports which are made from them. Nor is he concerned with property or cost accounts. Section 309 of the Budget and Accounting Act of June 10, 1921, provides "*** The Comptroller General shall prescribe the forms, systems, and procedure for administrative appropriation and fund accounting in the several departments and establishments, and for the administrative examination of fiscal officers' accounts and claims against the United States (31 U.S.C., sec. 49)." The authority of the Comptroller General is, thus, by law, limited to prescribing administrative accounts. He does not now have any authority over fiscal or other accounts. He has from time to time issued regulations prescribing in detail the form of these accounts-the latest issue being Regulation 100 of a few years ago. But the Comptroller General has not been particularly concerned with property accounts or with cost accounts. They have been developed chiefly by the departments with the assistance of the Treasury. The development of a complete and up-to-date system of accounting for the Government comprehends both the fiscal or general accounts and the administrative or departmental accounts. All these systems of accounts should be prescribed by the same authority in order to have an integrated system. With some prescribed by the Treasury, some by the depart 61157-61--5 ments, and others by the Comptroller General, it has not been The present unsatisfactory situation has been recognized These efforts are in the right direction. But this Commission feels that more than voluntary correctives are needed. A definite system should be established and given more permanence through legislation and organization. Indeed, the admirable work of the Secretary of the Treasury, the Comptroller General, and the Director of the Bureau of the Budget will be greatly aided if positive action be taken to establish a responsible official with authority to give continuous motive force to reform in accounting. Since accounting is primarily the responsibility of the executive branch, it is proposed that this official should be an Accountant General in charge of a new Accounting Service in the Treasury Department. On the basis of the above conclusions, the Commission recommended the establishment of an Accountant General in the Treasury Department with authority (1) to prescribe general accounting methods, and (2) enforce accounting procedures subject to approval of the Comptroller General "within the powers now conferred upon him by the Congress." In addition, the Commission recommended that the Accountant General should, on a report basis, combine agency accounts into the summary accounts of the Government for the information of the Congress, the President, and the public. Thus, the Commission pointed out that its recommendation would create a single officer in the Department of the Treasury with the authority to prescribe a single system of fiscal accounts; to represent the executive branch in establishing an administrative accounting system with the Comptroller General; and to supervise all departmental accounting activities throughout the executive branch. In addition to its main recommendation for the creation of an Accountant General in the Treasury Department, the Commission made several other recommendations for technical improvements in accounting procedures including spot sampling of vouchers, adoption of an accrual accounting system, and simplification of the Federal surety bonding system. SECOND COMMISSION'S RECOMMENDATIONS ON BUDGETING AND ACCOUNTING, 1953-55 The second Hoover Commission directed its major recommendations on budgeting toward "restoring full control of the national purse to the Congress." It pointed out that under existing procedures there was no effective control over expenditures either by the Congress or the executive branch. Primary factors causing this situation were identified as follows: (1) the broad use of obligational authority extending over several years, (2) use of open-end commitments which limit the exercise of discretion in determining the amounts to be appropriated by the Congress, (3) the creation of working capital funds which escape effective congressional review, and (4) no direct or effective control over costs incurred by Government agencies. The Commission stated: At the present time the Congress finances approved programs by enacting appropriations which authorize the agencies to incur obligations up to specified ceilings. The authority to incur obligations may be limited to 1 year, or the appropriations may remain available until expended (noyear money). Expenditures made pursuant to appropriations are not necessarily made in the same fiscal year in which the funds are appropriated. Consequently huge "unexpended balances" of appropriations accumulate, consisting of both obligated and unobligated amounts. The Commission then quoted its task force, as to the difficulties incurred when appropriations are made on an obligation basis, as follows: (a) "Obligations incurred" is a flexible concept which has been interpreted differently by different people. There is a tendency in executive agencies to state the obligations incurred at the highest possible figures since this action strengthens the budget requests for the following year. The Comptroller General in a report to the House Committee on Appropriations (March 1954) on aircraft procurement obligating procedures stated: "Combined totals of the Air Force and Navy therefore reasonably indicate an overstatement of $8,200 million in the total unliquidated obligation balance at June 30, 1953, of $23,500 million, or 35 percent of the total." As a result of congressional dissatisfaction with agency reporting of obligations incurred, legislation was enacted which attempted to define obligations in a more precise manner than formerly. This legislation requires that annual reports be submitted by the agencies to the Appropriations Committees, the Bureau of the Budget, and the General Accounting Office showing the status of appropriations or funds as of the close of each fiscal year, including information as to the balance obligated but unexpended, and the amounts unobligated. The fact that the Congress found it necessary to enact this legislation emphasizes the inherent difficulties in attempting to control appropriated funds under a concept as fluid as that of "obligations." (b) The present annual budget is not an effective instrument for controlling expenditures as it is not directed to controlling the costs to be incurred in carrying out approved programs. As we explained in the section on "Cost Based Budgeting," inventories, equipment, and facilities, and other items on hand and on order represent resources already available for a program. These resources should be taken into consideration in determining the amount of additional funds required to carry out projected programs. Except in very simple situations, the amount of obligations incurred, now |