of resources and better information for managers on results attained in relation to those planned. While it is not possible to directly measure dollar savings attributable to good accounting systems, such systems can make a significant contribution to the effective use of resources by either making it possible to reduce actual expenditures or attaining greater accomplishments with available resources. Prescribing Accounting Principles and Standards An important accounting responsibility assigned to the Comptroller General by law is the prescribing of accounting principles and standards to be followed by the executive agencies in establishing and maintaining their accounting systems. The first comprehensive statement of these principles and standards, issued in accordance with this requirement, was released in 1952. The establishment of accounting principles and standards is not a one-time action, however, and revisions and additions must be made from time to time to give effect to lessons learned from experience, evolution in financial management concepts, and the requirements of newly enacted legislation. A complete restatement of the accounting principles and standards prescribed by the Comptroller General was issued on June 30, 1965, as Title 2 of the General Accounting Office Policy and Procedures Manual for Guidance of Federal Agencies, and this restatement has been amended from time to time. Accounting Recommendations of the The President's Commission on Budget Concepts recommended in 1967 that budget expenditures and receipts be reported on an accrual basis instead of the cash basis. Specific instructions to the executive agencies for implementing the Commission's recommendations were issued by the Bureau of the Budget (now the Office of Management and Budget) and the Department of the Treasury. Necessary refinements were also made in the principles and standards of accounting for Federal agencies prescribed by the General Accounting Office. During the year the GAO completed two comprehensive studies for the Central Agency Steering Committee on Implementation of the Recommendations of the President's Commission on Budget Concepts. One study was of the significance of variations between accrued expenditures and Federal disbursements on 50 grants-in-aid to State and local governments and universities and the other of accounting for and reporting on accrued revenues and expenditures in the Department of Defense and six of the larger Federal civil agencies. The grant study indicated that: Use of Federal disbursement data to represent Federal accrued expenditures for grant programs would not significantly distort either the Treasury Department's annual reports of total Government expenditures (outlays) on the accrual basis or the yearly budget surplus or deficit when computed on the accrual basis. The use of Federal disbursement data for that purpose would, however, somewhat distort the Treasury Department's monthly accrual-based comparative statement of budget revenues and outlays and budget surplus and deficit. Accrued expenditures for some departments and some grant programs would be significantly distorted in both the annual and monthly reports. The study of accounting for and reporting on accrued expenditures and revenues confirmed the continuation of the major problems in accounting on the accrual basis for certain tax revenues and constructive delivery on procurements to the Government's special order, and concluded that, while there had been marked improvements in the recording and reporting of accrued expenditures and revenues, there still remained many diverse problems bearing upon the reliability of some portions of the data. The data developed in these two studies, together with that in the report of the staff of the House Appropriations Committee on its study of the usefulness of accrual accounting, will contribute materially to decisions by the Comptroller General, the Director, Office of Management and Budget, and the Secretary of the Treasury the Government's three principal financial officials of the extent to which accrual accounting will be employed in Government accounting systems in the future. Cooperative Work in the Development of Accounting Systems To provide further assistance to the departments and agencies in developing and submitting acceptable statements of accounting principles and standards and systems designs, the Comptroller General provided them with detailed guidelines which were issued in November 1970. Under the arrangements made in fiscal year 1970 to restrict GAO approval of agency accounting systems to (1) principles and standards and (2) general systems designs, GAO devoted substantially more manpower to assisting agencies in the development of improved accounting systems and related aspects of financial management. In many cases the cooperative work consisted of active GAO participation with agency staff in systems development work. In others, advice and assistance were furnished on a consulting basis as needed. In the civil and international departments and agencies, in addition to the formal review and approval actions related in the following section, GAO staff was actively engaged at yearend with agencies in developing 23 systems designs which are expected to be submitted for formal approval in the near future. In the Department of Defense, GAO: Continued to actively assist the Office of the Secretary of Defense and the military services in the development of the system design for the Joint Uniform Military Pay System, preparatory to submission of the system for approval. Assistance included participation in the development of automated audit programs, and in the design, testing, and evaluation of system components. Provided cooperative assistance in developing the design of the Department-wide accounting system for operations, including monitoring the efforts of the Air Force which made a test of the system. Worked with the Navy Department accounting improvement team on an active, day-to-day basis to implement the Department's extensive accounting improvement program which is being carried out with the assistance of a national public accounting firm. Began to work cooperatively with officials of the Office of the Assistant Secretary of Defense (Comptroller) in a project to develop a handbook of accounting principles and standards to be applicable throughout the Department of Defense. Assisted the Defense Supply Agency in determining the sufficiency of system design documentation to be provided for GAO review and formal approval of the Agency's Standard Automated Materiel Management System. At June 30, 1971, 80 complete accounting systems designs had been approved out of a total of 148 such systems in the civil and international departments and agencies. Progress in approving accounting systems over the past 5 and the current status of effort years are depicted in the chart on the following page. During fiscal year 1971, the Department of Defense submitted for approval the system designs for two industrial fund accounting systems, which, when added to the three systems under consideration at the beginning of the year brought the total under consideration during the year to five systems. Two submissions were returned during this period, one because of proposed changes which would materially affect the design and the other for further development. At the close of the year, GAO had three submissions under consideration including the design of an industrial fund accounting system, an accounting system segment design, and one statement of principles and standards. The Department does not know the number of complete accounting systems and segments of systems in use in its activities which require approval of the Comptroller General. However, it has indicated that approxi mately 40 different types of industrial fund accounting systems will be submitted, as well as other systems. applicable to such areas as procurement, research and development, operations, and stock funds. After approval of a systems design, GAO has a continuing responsibility to follow up on the timely implementation of the approved design and to provide consulting assistance on system refinements. If GAO finds that the system is not being promptly implemented as planned or has been adversely modified, then Cooperative action is taken with the agency to make the needed corrections. If those corrections are not made, GAO will withdraw approval of the design. Special Report on Accounting Systems In December 1970 the GAO issued its second annual report to the Congress summarizing its findings on problems and progress relating to improvements of Federal agency accounting systems during calendar year 1969. (See Appendix, Section I, Item 160.) The House Government Operations Committee, in its report dated March 5, 1968 (H. Rept. 1159, 90th Cong., 2d sess.), recommended that such a report be made. Joint Financial Management The Joint Financial Management Improvement Program (JFMIP) is the principal Government-wide means for coordinating agencies' financial management improvement activities. Leadership of the program is provided jointly by the Comptroller General of the United States, the Secretary of the Treasury, the Director of the Office of Management and Budget, and the Chairman of the Civil Service Commission. A Steering Committee comprised of a representative of each of the central agencies coordinates the Joint Program. The Committee meets regularly to consider problem areas, arrange for and supervise work projects, and evaluate financial management progress throughout the Government. The principals of the program meet from time to time to review overall reports of agency progress and to provide broad program guidance to the Steering Committee. The principal JFMIP events and activities during the year are described below. The Steering Committee met with the top financial management personnel of each of the agencies listed below to review their progress in developing financial management systems. During these meetings emphasis was given to the need for managing programs in terms of performance and costs and for designing accounting systems to meet management needs. Peace Corps (now part of ACTION, a new agency) Federal Bureau of Investigation Department of Agriculture Agency for International Development Civil Service Commission National Aeronautics and Space Administration United States Information Agency During the year, the Steering Committee began publishing a periodic JFMIP News Bulletin as a means of keeping Federal agencies currently informed about financial management improvement activities in the Government. In addition, the JFMIP and several organizations representing State and local governmental interests sponsored the first State-Federal Financial Management Conference in October 1970. This conference was attended by over 200 representatives of various levels of Government including: (1) State treasurers, budget officers, comptrollers, auditors, legislative fiscal review personnel, and governors' financial assistants and (2) Federal agency officials. The purposes of the conference were to improve intergovernmental relationships in the financial management areas and to reduce the misunderstandings resulting from the involvement of a number of Federal agencies having different objectives in various State and local government programs. Presentations were made by top Federal Government and State officials. Follow-on workshops permitted Federal and State officials to discuss mutual problems in detail and plan methods for streamlining the grant-in-aid process. A report of the proceedings was distributed to all conference attendees. Another conference is planned for February 1972. It is hoped that this second meeting will further develop the relationships and improve the communications between the financial officials of Federal, State, and local governments. A task force chaired by a representative of GAO was organized to study the feasibility of developing a single Government-wide computerized payroll system applicable to processing all civilian employee payrolls. The study group met with 14 agencies to gather information on existing systems. At yearend the group was preparing its report. Preliminary findings indicate that complete centralization, although technically feasible, probably would not be practical because payroll data in many cases is used for cost accounting and other accounting purposes that could not be adequately served by a single Federal payroll system. A bill, based on JFMIP draft legislation, was introduced in the Congress in May 1971 to provide for selfinsurance by the Federal Government of military and civilian personnel who are charged with accountability for public funds or public property. The proposed legislation, still under congressional consideration at yearend, would repeal Public Law 84-323 which requires pertinent agency heads to purchase fidelity bonds for the affected accountable employees. It is estimated the proposed legislation would result in net annual savings to the Federal Government of as much as $190,000. The Steering Committee is also drafting a legislative proposal to provide for merging agencies' prior year appropriation accounts with the current year appropriation accounts for each appropriation title. This recommended procedure would simplify agency appropriation accounting. More detailed information about accomplishments and activities under the JFMIP will be found in the separately published annual progress reports on the program. Intergovernmental Programs and Operations GAO continued to provide technical guidance and assistance to State and local audit staffs and to develop a body of audit standards to govern the audit of governmental programs, particularly those conducted by State and local governments with Federal financial assistance. In providing assistance to State and local organizations GAO staff members have: Presented technical papers for State and local auditors at meetings of the: National Legislative Conference National Association of State Auditors, Comp- Municipal Finance Officers Association. Arranged for a series of workshops for State auditors, dealing primarily with performance auditing. Assisted in the developmental effort of audit staffs in certain States. Conducted or arranged for the presentation of three courses for State auditors through the auspices of the Interagency Audit Training Center, administered by the Department of Commerce. In addition, substantial progress was made during the year in developing a set of auditing standards for governmental programs. This work was done under GAO leadership and largely by an interagency work group organized in February 1970, composed of members of the Federal departments and agencies with large grant programs and part-time consultants from States, local governments, and universities. It is planned to complete and publish these standards during the next fiscal year. Thereafter a substantial effort will be needed to generate acceptance, arrange for training, and carry out other activities to upgrade the quality of auditing of governmental programs. =Automatic Data Processing The use of data processing services by the Federal Government has increased very rapidly. At June 30, 1961, there were 730 general-purpose computers in use in the Government. By June 30, 1971, this number had increased to about 5,500 computers. The Federal Government now spends over $2 billion annually for the purchase, lease, and operation of automatic data processing equipment. The use of this equipment to carry out Federal Government functions has had a significant impact on the operations of almost every major agency of the Government. In the Department of Defense, the principal applications are in command and control, supply and logistics programs, and financial management operations. In these activities computer systems are processing millions of transactions monthly. Numerous small-scale computers are being used throughout the Department for base-level operations and extensive communication facilities are being used to transmit data between using organizations and computer centers. In the civil agencies, many large-scale paperwork operations have been converted to automatic data processing systems. Important examples are found in the Treasury Department, the Social Security Administration, the Veterans Administration, the Department of Agriculture, the Postal Service, and the Census Bureau. GAO continued to provide advice and assistance to Federal agencies on questions involving the acquisition and use of automatic data processing systems. GAO reviewed with agency officials deficiencies related to the planning for and use of such systems disclosed during its audits. Currently, GAO is conducting a general survey of ADP activities in civil departments and agencies throughout the Federal Government to examine the overall management and control of ADP activities, and the participation of internal audit groups in ADP matters. In response to the growing need for effective and efficient means for auditing computer-based systems, GAO conducted a number of special studies to explore the impact of computers on auditing activities in the Federal Government. These studies dealt primarily with computer operations that require input data to be coded and collected into groups or batches for processing. Particular attention was devoted to: Internal auditing of computer-based systems—to determine whether effective independent reviews and appraisals were being made. Use of computer techniques to audit computerbased systems to assist other Government auditing organizations in auditing computer-based systems. (See Appendix, Section I, Item 202.) GAO continued to work with the Civil Service Commission and the internal audit staffs of the Government to provide a training program for auditing in an automatic data processing environment. This course is now being offered by the Civil Service Commission to auditors of all Federal agencies. As a result of its continuing studies in this field, GAO made recommendations for improvements in the management and administration of ADP facilities on a Government-wide basis. Studies are now being made as a followup to earlier studies which were the subject of comprehensive reports to the Congress in June 1958, December 1960, March 1963, April 1964, August 1965, April 1968, and June 1969. Copies of these reports were widely distributed to Government agencies to assist in the development of ADP programs throughout the Government. The latest report in this series, entitled "Acquisition and Use of Software Products for Automatic Data Processing Systems in the Federal Government," was issued on June 30, 1971. This report pointed out that many changes in marketing practices by computer manufacturers have occurred during the past few years. These included the separate pricing (unbundling) of software 1 products, the introduction of diverse contractual arrangements for acquiring software, the advent of general-purpose proprietary software packages, and the licensing of the use of software products. with overly restrictive provisions. The Federal Government has had no centrally guided or unified approach for dealing with these changes. (See Appendix, Section I, Item 198.) Many broad management problems were found during the GAO study. For the most part, Federal users acquired their needed computer software without centralized direction or guidance. As a result, they: Procured computer programs unnecessarily since they were already available at other data processing locations within the Government. 1 Software is a term that has come into use to identify computer programs, procedures, and related documentation and to distinguish such features from the hardware components of the system. |