REVISION OF ACCOUNTING METHODS LETTER FROM COMPTROLLER GENERAL OF THE UNITED STATES TRANSMITTING IN RESPONSE TO SENATE RESOLUTION NO. 350 (72D CONG.) A REPORT RELATIVE TO THE SAVINGS THAT MAY BE EFFECTED THROUGH A REVISION OF ACCOUNTING AND AUDIT PROCEDURES, DISBURSING AND COLLECTING OFFICES MAY 1 (calendar day, MAY 10), 1933.-Ordered 'to lie on the table and to be printed GENERAL ACCOUNTING OFFICE, The PRESIDENT OF THE SENATE. SIR: I have the honor to transmit herewith my report pursuant to Senate Resolution No. 350, Seventy-second Congress. Respectfully, J. R. MCCARL, Comptroller General of the United States. GENERAL ACCOUNTING OFFICE, To the SENATE OF THE UNITED STATES: The possibilities for savings in the field of administrative account keeping, the collecting and disbursing of public moneys, the accounting for all receipts and disbursements, and the final audit thereof, are not only very great but through their accomplishment the methods of transacting the public business can be vastly improved, more effective administrative control over appropriations secured, and reliable information for executive and budgetary uses rendered more accessible and readily available. All of these functions have immediate relation to the receiving and paying out of the public moneys, and the savings and betterments possible are for accomplishment through such centralization of the collecting and disbursing activities as will not only render unnecessary hundreds of present disbursing officers, but dispose of all need for the large annual expenditure now made for what is known as the "administrative examination" of paid accounts, induce at once an improvement now being accomplished but slowly and only by persuasion a uniform administrative account keeping system with elimination of slow, cumbersome, and expensive methods and thousands of costly but unnecessary forms-and provide means for effective administrative control over activities involving the uses of public moneys. Under our constitutional system whereby moneys for the operation of their government are collected from the citizens pursuant to law and may be used only as appropriated by law, there is necessarily required an orderly procedure for making appropriations available for use as so authorized by law, a system for making payments therefrom, and an effective audit to check all uses for legality. An appropriation is ordinarily nothing more than a setting aside in the Treasury of a stated amount of the public moneys, not otherwise appropriated, for a stipulated use. When so appropriated and set aside the moneys are available for obligating by the authorized administrative official for the use so authorized by law. To this point the procedure is more or less routine but thereby the rights, duties, and obligations have become fixed and for an orderly, economical, efficient, and legal conduct of the public business there is required a system providing (1) For an effective administrative control over activities obligating or otherwise involving the appropriation so as to provide means in the administrative head to discharge in an orderly, efficient, and lawful manner his public responsibility; (2) For correct and timely payment from the appropriation of the obligations of the United States incurred through lawful administrative action; and (3) For an effective audit to scrutinize and check all transactions for legality. When the audit can be made before payment (preaudit) unauthorized and unlawful payments are avoided, but to the extent the audit is made after payment credit may be allowed only for payments established to be correct and lawful and the paying officer and his surety must then be looked to for return of payments made and not so established. Present methods of paying obligations of the Government can hardly be called a "disbursing system." Appropriations made for the support of a department, establishment, or other spending agency are not only obligated by such agency but are actually paid out by employees of such agency for whom advances have been obtained from the Treasury. True, these employees are required to account for their uses of the public moneys so advanced to them but too much reliance has been placed upon such accounting. No matter how effective the final audit, if the final balance shows unlawful uses in excess of the employee's bond a loss by the Government almost invariably results. These "disbursing officers" are not selected because they possess wealth from which the Government may protect itself from loss, nor is there any requirement as to experience or other qualification for such responsibility. Their bonds are prescribed, as to conditions or amount, not by the officers to whom they account but by the head of the very department or establishment in which they serve. There are now hundreds of such "disbursing officers" with advances from the Treasury. The number is never constant. At present there are approximately 2,200, exclusive of postmasters. The result of this method is that each spending agency operates as a unit, insistent upon employing its own methods of account keeping and of making payments. Too frequently this makes for lax methods. The knowledge that payment is to be made by a fellow employee rather than a stranger encourages carelessness, and even in cases doubtful as to legality it is difficult for an employee, even though bonded, to take final position contra to the known wishes of high officials of the department or establishment in which he is employed. This results in improper payments with cost of recovering back when disclosed in the audit or ultimate loss where recovery proves impossible. The present system permits defeat of budgetary control, avoidance of appropriation limitation, and embarrassment of the President in exacting law observance by subordinates. No matter how careful and exhaustive the study of appropriation needs to carry on faithfully but economically, authorized activities, not only by the officials of the Bureau of the Budget who must closely scrutinize each item, but by the President in surveying the Government as a whole and considering the relation of each activity to the others, and in the Congress in appropriating public moneys and prescribing the uses thereof, the effort so expended may accomplish little if the system be such as to permit uses of the appropriation other than as planned and directed. Yet, such is not only possible under the existing system of permitting the spending agency to make physical payment of their bills, but such condition encourages lack of frankness and the withholding of information in connection with estimates. There is no intent to convey the idea that there are not now disbursing officers worthy of confidence splendid men and women doing fine work-but those in such class should not be disbursing for a single agency. They are capable of greater service than they are now permitted to render. It is such as these who could successfully function as district disbursing agents-paying the bills of all Federal activities operating in their respective districts. An adequate and economical disbursing system would consist of a trained disbursing officer, with a selected group of experienced employees, located at the seat of government and in each Federal Reserve city, with possibly an equal number similarly trained, to operate from such central offices on special or temporary assignments, and with the military-all to be under the administrative supervision of the Treasurer of the United States. Payments made in and from Washington, being of exceptional magnitude, might require a division of the work between two disbursing officers, one to pay personnel and another all other obligations. While payments should be made promptly, when due, delays under existing conditions are seldom due to slowness by disbursing officers but rather to failure of administration to perfect the record for action by the disbursing officer, and it is believed that, ordinarily, payments within any Federal Reserve district could be made with sufficient promptness by checks mailed from the Federal Reserve city within such district. Such a system would make possible the use of the best talent in the existing service and the elimination of the rest, with a very substantial saving. It would require the adoption and observance of uniform administrative methods in supporting and submitting vouchers approved for payment, which would encourage, if not require, uniformity in account keeping and use of none but standard forms. It would require such completeness, carefulness, and law observance, in administration, before vouchers could safely be approved and forwarded for payment, as to place administration on a safe basis and remove all need for an administrative examination of paid vouchers such as now exists-and at a huge annual cost. The "administrative examination" of paid accounts now authorized by law as to most of the spending agencies, which requires bonded disbursing officers to surrender their accounts with the documents relied upon to obtain credit for payments made, for examination and perusal by administrative officials before they are transmitted to the accounting officers of the Government for final audit, appears not only unnecessary but to involve elements of danger for the disbursing officer. It is he and his surety who are financially concerned in his securing credit for payments made, and the propriety of preventing direct contact with the accounting officers is not apparent. To the extent such examination permits the then securing of information concerning a payment made, it is late. Such information should have been acquired before payment was authorized or permitted. To the extent it permits the securing of information respecting action taken by subordinate officers and employees, resulting in payments, it should not be relied upon as means of discovering lax or improper administration-and apparently, as to this, a list of payments as made would serve every administrative need. Administrative appropriation control, payments, and final audit, while each a separate and distinct function and necessarily so, have such relationship in actual operation, covering as they do each transaction involving the use of an appropriation from its inception through all stages to final audit action, must operate under such system, if lost motion, duplication, confusion, and unnecessary costs and delays are to be avoided, that each action from the first will be taken in such manner and form as not only to serve its own purpose but supply facts essential to future actions thereon. Thus, administrative account keeping should be such as to afford adequate appropriation control and the obligating procedure such as to build a clear record of facts, as to each transaction, sufficient to justify payment by a disbursing officer paying on his personal and bonded responsibility, and to likewise justify the General Accounting Office in allowing credit for the payment as made. From the beginning to the end the system and procedure should be no more elaborate than is essential, and, to make possible standardization of forms, records, etc., with elimina tion of all unnecessary printing and record keeping, there should be such uniformity in account-keeping methods and obligating procedure in all spending agencies as their respective activities and responsibilities will permit. Such system, to be uniform, must be for working out by a single agency, and to be economical, must be for prescribing and improving by an agency charged with a duty to accomplish economies and in a position to constantly observe actual operations-from the appropriating action to and including final audit action. The matter of the proper agency for this work was given serious study during consideration of the measure that became the Budget and Accounting Act of 1921, and because of the imperative need that it have complete control over methods of accounting to it for moneys drawn from the Treasury, which control must necessarily influence administrative procedure if duplication and waste are to be avoided, its advantageous opportunity to constantly observe operations, its independent status and duty to accomplish economies, the measure as enacted placed the work in the General Accounting Office. Much has been accomplished and improvements are constantly being made, but so long as the law permits each spending agency to function completely within itself— including the drawing of moneys from the Treasury and paying its own bills the outlook for savings through uniformity will not be bright. The system must not hinder administration, it must be helpful, but any agency possessing not only authority to obligate an appropriation but authority to actually draw the appropriation from the Treasury and pay its own bills, can so complicate its routine as to render attempt to harmonize its procedure with any general plan, futile. But a centralized disbursing system, a system requiring administration and record making to be such as to justify payment of its bills by a disbursing officer having an independent status and paying on his personal and bonded responsibility, would tend to encourage, if not require, administrative assistance and cooperation in accomplishing uniformity in account keeping and obligating procedure, with savings accumulating year after year. PREAUDIT All uses of public moneys must, in the end, be examined and passed upon by the accounting officers of the Government for legality. When this examination is possible before payments are made (preaudit), it avoids erroneous or unlawful payments and the expense of accomplishing recovery. When it is possible only after payments have been made (postaudit), erroneous or unlawful payments must be charged to the one responsible and recovery undertaken. Based alone upon the amounts actually recovered during the last 10 years, but which is only a part of the picture, a preaudit of all vouchers would prove highly advantageous to the Government, but under our present decentralized system of making payments a preaudit of all vouchers would be difficult and expensive. However, with adoption of a centralized disbursing system and a bringing together of such volume as to permit preaudit on an economical basis, there could be secured not only the savings and benefits available through preaudit but a minimizing of record keeping and other detail by the disbursing |