CHAPTER FIVE FINANCIAL AND GENERAL MANAGEMENT STUDIES Responsibilities The Division of Financial and General Management Studies was established on July 1, 1971, under the supervision of Donald L. Scantlebury, Director, and Frederic H. Smith, Deputy Director. The principal functions of this division are to: Assist other Government agencies in the development of their financial management systems. Represent the Comptroller General in the dayto-day conduct of the Joint Financial Management Improvement Programs. Review Federal agency accounting systems from time to time and settle accounts of Federal accountable officers (except military disbursing officers). Provide expert advisory services and make special studies in the fields of automatic data processing, systems analysis, actuarial science, and statistical sampling. Develop intergovernmental audit standards and improved audit relationships between Federal, State, and local governments. Make special studies of governmental management problems and operations. An organization chart of this division appears on page 44. Financial Management Our major financial management responsibility is to promote the development of the financial management systems of Federal departments and agencies to the end that they provide all data needed (1) in their planning, programing, budgeting, program execution, accounting, and reporting on programs and operations and (2) by the Congress in authorizing and funding programs and in overseeing program results. Among other things, we prescribe accounting principles and standards, including requirements for the design of accounting systems; assist agency staffs in developing their systems designs; review these designs for conformity with prescribed requirements and to identify possible problems; and review accounting systems in operation to determine whether the results are useful and meet the needs of management as specified by the Congress in the Budget and Accounting Procedures Act of 1950. Measuring and Enhancing Federal In response to growing concern as to the possibilities of measuring productivity in the Federal sector of the economy, the Comptroller General joined with the Director of the Office of Management and Budget and the Chairman of the Civil Service Commission in a project to demonstrate the feasibility of developing such measures. This important joint project is under the direction of a steering committee (formed in March 1971) consisting of one member from each agency. Assistant Comptroller General Thomas D. Morris is the GAO representative on the steering committee. A three-phased cooperative project involving 17 Federal executive agencies was planned. In Phase I, the 11 cabinet departments and six independent agencies were surveyed to determine the current use of quantitative measurement systems namely, manpower planning, work measurement, unit cost measures, and productivity index systems. It was found that extensive use of quantitative measurement was currently being made in planning future manpower requirements (50 percent of the employees in the agencies. studied) and in establishing formal work measurement standards by which to gauge the operating efficiency of activities with repetitive, quantifiable outputs (44 percent of the employees in the agencies studied). It was also found that 39 percent of the employees' work was covered by unit cost measures. Overall productivity indexes were in use for only about 20 percent of the employees' work. In Phase II, particular emphasis was placed on the following areas. Testing the feasibility of constructing productivity indexes along functional rather than agency lines. Inquiring into selected agency systems to validate and extend the use of existing measurement systems and to identify disincentives to their use. Encouraging the development and use of unit cost measures where practicable for improving allocation and control of resources. Arranging exchanges of experiences in accomplishing public benefit outputs. Investigating alternative methods of financing productivity-enhancing capital improvements. A report on the study was submitted to the Joint Economic Committee in June 1972 (published as a Joint Committee Print, August 4, 1972). It stated. that a workable technique had been developed that was capable of measuring trends in productivity of about 1,560,000 employees, or about 54 percent of Federal civilian employees, from year to year, on a consistent basis. The indexes developed showed that productivity per man-year for the measured work force. increased by about 7.7 percent-an average annual rate of about 1.9 percent-from 1967 to 1971. The report recommended that the Bureau of Labor Statistics be asked to assess the data and methodology and to propose plans for assuming future collection and publication responsibilities. It also recommended that management practices be improved to enhance productivity in the Federal Government, including taking actions to expand the uses of measurement systems and to reduce disincentives to improved Federal productivity. The project has been extended for another year. During this period an attempt will be made to further refine and improve the initial productivity indexes and their uses and to expand their coverage to additional Federal employees and to functions common to Federal, State, and local governments. Accounting Recommendations of the President's Commission on Budget Concepts The President's Commission on Budget Concepts recommended in 1967 that budget expenditures and receipts be reported on an accrual basis instead of on a 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 accounting principles and standards of accounting for Federal agencies prescribed by the General Accounting Office. In June 1971 the Director of OMB determined that the 1973 Federal budget would again be prepared on a cash basis since accrual data on revenues and expenditures was not yet sufficiently complete or reliable. In July 1971 the Director of OMB, the Secretary of the Treasury, and the Comptroller General requested the Central Agency Steering Committee on Implementation of the Recommendations of the President's Commission on Budget Concepts to study the direction and speed of future developments on accrual accounting and budgeting in the Federal Government and to make recommendations for resolving this matter. The Committee completed its report in September 1971. In May 1972 the Director of OMB advised the Comptroller General that conversion of the budget to the accrual basis was being indefinitely deferred and that whatever resources were thereby made available in the executive agencies should be applied to actively pursuing the improvement of accrual and cost accounting as tools of agency financial management. Md. (Of the 170 systems, 25 are industrial fund systems.) We are also working with Department of Defense personnel in the following areas: Design and implementation of the Joint Uniform Military Pay System for each of the military services-Army, Navy, Air Force, and Marine Corps. Design and implementation of a program to improve the financial management systems of the Navy Department. Development and publication of an accounting handbook which will replace numerous directives and instructions and encompass the accounting principles and standards prescribed for use throughout the Department. Review of a testing and evaluation project of the Air Force in implementing an improved accounting system for operations. Implementation and testing of revisions to the Mechanization of Contract Administrative Services of the Defense Supply Agency to be coordinated with Defense-wide procurement and accounting operations. Development of a civilian pay system for the Air Force to be operated at each of the six Air Materiel areas in the continental United States. Review and Approval of Accounting Principles and Standards and Proposed Systems Designs Statements of principles and standards have been approved for seven of the 11 cabinet departments, but only two departments (Commerce and Housing and Urban Development) have had all of their accounting systems designs approved. In the Department of Housing and Urban Development, the designs of the subsystems within its approved system have not yet been completed. The first two charts in the second column indicate the status of department accounting systems, ranked according to degree of completion. Similar charts for independent agencies are not shown because most of them have only one accounting system. At June 30, 1972, 86 of a total of 149 complete accounting systems designs had been approved in the civil and international departments and agencies, as shown in the bottom chart on page 46. As of June 30, 1972, the Comptroller General had approved 27 statements of accounting principles and standards and four systems designs in the Department of Defense. Two other statements of accounting principles and standards and one system design were under consideration. In approving the Navy industrial fund accounting system, we established a basis for preparing acceptable design documentation for other industrial fund accounting systems. Such submissions will not await the solution to the system identification problem, and action is being initiated to step up the submisssion of approximately 40 different types of industrial fund accounting systems in the Department. The table below summarizes the approvals of agency accounting principles and standards and systems designs during fiscal year 1972. Review of Accounting Systems in Operation The General Accounting Office reviews, from time to time, Federal agency accounting systems in operation as required by the Budget and Accounting Procedures Act of 1950. The objectives of these reviews. are to (1) determine whether accounting systems comply with the principles, standards, and related requirements prescribed by the Comptroller General, (2) identify areas needing improvement and encourage further development effort by the executive agencies, (3) identify ways to improve overall financial management, and (4) settle accounts of accountable officers. Our ultimate concern in the financial management area is that all departments and agencies have at hand the tools for effective financial management, among the most important of which are adequate accounting systems in operation. After an accounting system design is approved, we follow up on the agency's installation and operation of the system. If the system is not put |