EXHIBIT No. 2 C. A. HISTORY OF THE ACCOUNTING SYSTEM OF THE GOVERNMENT FROM ITS INCEPTION IN 1789 TO THE "DOCKERY COMMISSION' INVESTIGATION IN 1894. The old auditing system of the Government was established in 1789, when the area of the country was 827,844 square miles, its population 3,929,314, and its annual expenditures about $500,000. The Treasury Department was then provided with a secretary, a comptroller, an auditor, a treasurer, and a register, but the accounting business devolved alone upon the auditor and the comptroller. Accounts and claims were presented to, and stated by, the auditor and reviewed by the comptroller, thus combining the requirements of a double audit. Apparently it was the theory of the system, and the early practice thereunder, that all accounts and claims against the Government, with the possible exception of Army and Navy expenditures, were to be paid only on presentation and after audit by the accounting officers. The appropriations for the support of the Government for the calendar year 1789 were expressed in a statute of 13 lines, enacted 27 days after the auditing system was adopted. For nearly 30 years the appropriations for the conduct of the several departments of the Government were made in gross and without reference to the number of persons employed, the salaries to be paid, or amounts for specified objects; and for nearly 40 years all of the appropriations for the support of the Government were made in but one general bill. The general system of auditing and bookkeeping adopted in 1789, with its divided responsibility in the Treasury Department, was perhaps the best that could be devised at that time. The growth of the country, however, and the increase in the expenditures of the Government has required many changes to be made in the original system. The first important change was made by the act of May 8, 1792, which created the office of accountant for the War Department, who was authorized to settle accounts relating to that department, and to whom advances were made for all the expenses of the department. The act of April 30, 1798, created the Navy Department and provided an accountant therefor, who was authorized to settle all accounts in that department. This was followed by the act of 1816, creating an additional accountant for the War Department, but continuing in force the same system of accounting. During this period the accountings for the War and Navy Departments were practically made by the accountants for these departments. It is true, the power of revision still rested in the Treasury Department, but as a matter of practice it was but nominal, for the reason that payments were made on the audits of the accountants of these departments without waiting for the revision authorized by the accounting branch of the Treasury Department. This fact is set out in a report of December 17, 1816, made to the Senate by James Monroe and others. As a reason for this practice of payment before the revision of the Treasury Department, they state that the delays necessary to such revision would result in confusion and obstruct the operations of the Government. The act of 1817 abolished the offices of accountants of the War and Navy Departments and superintendent general of military supplies, and restored the settlement of accounts to the Treasury Department. This act also created the Second Comptroller, the Second, Third, and, Fourth Auditors, and transferred the appropriations for clerk hire in the offices of the accountants of the War and Navy Departments and the superintendent general of military supplies to the auditors' offices, with the duties which they had been performing, thus making it clearly the intention of the act to dispense with all administrative examination of accounts. Other important changes made in the accounting system were the establishment in 1812 of the General Land Office, with an auditing branch in which all land accounts were settled, and the transfer of the General Land Office to the Interior Department, established in 1849, in which the law authorized the continuance of the same audit; and in both cases the accounts passed from the audit in the administrative office directly to the First Comptroller for review. The next important change was made by the act of 1836, under which the Auditor of the Treasury for the Post Office Department was established, the act making his decision final and conclusive except upon appeal to the First Comptroller. Again, in 1849, the office of Commissioner of Customs or Third Comptroller was established for the purpose of relieving the Comptroller of the Treasury from a part of his duties. The Commissioner of Customs was then charged not only with the duties of accounting, but also with the administrative functions which have since been withdrawn from that oflice by the creation of an Assistant Secretary of the Treasury, and the establishment of a division of customs in the office of the Secretary of the Treasury. Yet another change, made in 1867, restored in express terms the administrative examination which was dispensed with by the act of 1817. The experience of the departments of the Government having demonstrated the essential importance of an administrative examination, it was gradually resumed and practiced in the departments until it was finally crystallized in the act of 1862, as amended by the act of 1867, and is now expressed in the Revised Statutes, section 3622, in the following language: Every officer or agent of the United States who receives public money which he is not authorized to retain as salary, pay, or emolument shall render his accounts monthly. Such accounts, with the vouchers necessary to the correct and prompt settlement thereof, shall be sent, by mail or otherwise, to the bureau to which they pertain within 10 days after the expiration of each successive month, and, after examination there, shall be passed to the proper accounting officer of the Treasury for settlement. Disbursing officers of the Navy shall, however, render their accounts and vouchers direct to the proper accounting officer of the Treasury. In case of the nonreceipt at the Treasury, or proper bureau, of any accounts within a reasonable and proper time thereafter, the officer whose accounts are in default shall be required to furnish satisfactory evidence of having complied with the provisions of this section. The Secretary of the Treasury may, if in his opinion the circumstances of the case justify and require it, extend the time hereinbefore prescribed for the rendition of accounts Nothing herein contained shall, however, be construed to restrain the beads of any of the departments from requiring such other returns or reports from the officer or agent, subject to the control of such heads of departments, as the public interest may require. It may be well to say that Massachusetts' great Senator, Hon. Henry Wilson, was the author of the act of 1867 which restored the administrative examination as a part of the accounting system of the Treasury. It thus appears that the original system established in 1789 was changed in 1792, in 1798, in 1812, in 1817, in 1836, in 1849, in 1862, and again in 1867. From its original status with one auditor and one comptroller the system had developed into a system of five auditors, acting under three independent comptrollers, one great department bureau (the General Land Office), settling its own accounts directly with a comptroller without the intervention of an auditor, and a sixth auditor who acted independently of a comptroller except upon appeal. In a report submitted to the House of Representatives under date of March 10, 1886, it appears from the books of the register that the civil accounts of the Government showed balances due the United States of more than $25,000,000. This exhibit only included the civil accounts, and was entirely exclusive of the military and naval accounts and the accounts of balances due the Government in the office of the Sixth Auditor. About 90 per cent of our total appropriations being first expended and then audited, a speedy audit is essential to properly protect the Government and by preventing the advance of money to officers who are either delinquent in rendering their accounts or who have not properly disbursed the public money intrusted to their care. The delays resulting from a triplicate system of examination were so great that the auditors became practically "dead letters" in the administration of the accounting branch and the Government was of necessity compelled to rely largely upon the administrative departments to exercise oversight and secure a proper expenditure of the public money. The requirements of submitting estimates for appropriations and the existing methods of Congress in making appropriations, involving, as they do, a detailed and thorough inquiry by committees not only into the purpose for which appropriations are asked, but also into the manner and results of expenditures previously made, and the act covering back into the Treasury balances of appropriations two years after the year for which they are made, and the law passed in the year 1862, as amended in 1867, requiring the examination of accounts by the administrative departments all combine to make a system of checks absolutely perfect to protect the Government, provided that a final audit can be had practically contemporaneous with expenditures. B. COMMENT OF THE DOCKERY COMMISSION UPON DEFECTS IN THE "ACCOUNTING SYSTEM OF THE GOVERNMENT" AND THE CHANGES RECOMMENDED TO REMEDY THEM. A report was made on the methods of accounting in the Treasury which related to the office of Commissioner of Customs (S. Rept. No. 240 or H. Rept. No. 409, 53d Cong., 2d sess.), and another which related to the offices of First Comptroller, Second Comptroller, Register, and Auditors of the Treasury, and the accounting system generally (S. Rept. No. 293 or H. Rept. No. 637, 53d Cong. 2d sess.). A bill passed the House of Representatives approving the report on the office of Commissioner of Customs and was incorporated in a bill relating to the general accounting system of the Government which was approved July 31, 1894. The offices of Commissioner of Customs and Second Comptroller were abolished and the detailed work was discontinued in the office of the First Comptroller of the Treasury, which was changed to Comptroller of the Treasury, making the responsibilities of this office of a supervisory character and necessarily of greater protection to the Government service, and provision was made for an appeal thereto by the claimant, the head of the administrative department having jurisdiction over the account, or the Secretary of the Treasury, on accounts settled by the various auditors, whose titles and duties were changed, greatly expediting the accounting of public officers; increasing the protection to the Government by requiring the rendition of accounts within stated periods, which is made effective by reason of the requirement that the auditors charged with the settlement of accounts shall approve the requisitions for the advance of money, the approval depending upon the prompt rendition of the accounts, and the further check in the final settlement of accounts by having the warrant for the payment of either advances or settlements accompanied by the requisition or the auditor's certificate, as the case may be, to the Treasurer's office, where the date and amount of payment is noted, the requisition and certificate being returned to the auditor who stated the account, to be filed finally therewith. This change also prevents conflicting constructions of statutes. It dispensed with passing warrants through the office of the Register of the Treasury, where they were recopied to no possible purpose. The personal ledgers were removed from the office of the Register and certain of the auditors to a division of the office of the Secretary of the Treasury known as the Division of Bookkeeping and Warrants. The files of accounts were removed from the custody of the register and put with the Auditor for the Treasury and the Auditor for the State and Other Departments, respectively, having jurisdiction over the accounts, making uniform the filing of accounts with the auditors settling them. The files were removed and adjusted to the new conditions without any interruption to the public business, and they are now uniformly under the jurisdiction of the auditors having the settlements thereof. The department is very much crowded for filing space, but not so much so as would have been the case under the former plan, for the volume of papers to be filed has been somewhat reduced. There was very great delay in the settlement of accounts under the former system. The experts employed by the commission reported that— The time elapsed from the date of rendering until the final settlement of the accounts (by the comptrollers) passing through the several auditors' offices is as follows: First Auditor's office, from two to six months. Second Auditor's office, from six months to two years. Commissioner of General Land Office, from three to four months. These figures represent an average of the various classes of accounts and many, of course, are delayed a much longer period. There are scarcely any accounts finally settled within a reasonable period, while for some of the officers who have gone out of service, as, for instance, Indian agents, it is as much as five years before the accounts are settled, and during all this time the vouchers and papers lie in one or another of the offices of the Treasury or administrative departments. These facts are known and acknowledged by all who are conversant with the condition of the public business in the Treasury Department as they existed. Further evidence of the necessity for a revision of the accounting methods was abundant. In the last annual report of Hon. Charles Foster, Secretary of the Treasury, he tersely reviews the unsatisfactory methods then employed. He said: The desirability, if indeed it be not a necessity, of a change in the methods of disbursing public moneys and the examination, adjudication, and settlement of public accounts has long been manifest, not only to the officers of the Treasury Department charged with and responsible for the official working of these methods, but to many committees of Congress, standing and select, which have inquired into and reported upon such methods. There is now a triplicate system of examination of public accounts which has no counterpart in any other Government, whether European or in the several States of the Union. It is not only vexatious in respect to details, but wrong in respect to system. Beyond that, however, is the fact that it is highly expensive, without compensating results to the Government, while, in spite of the examination by three different offices and "sets' of clerks, accounts and claims are occasionally improperly adjusted or allowed. The whole duty of control and audit appertaining to the public expenditures should be under the administrative direction of a comptroller general or chief comptroller of the Treasury, within whose bureau a board of audit might be created for the determination of quasi-judicial questions arising in the examination, statement, and settlement of accounts, if that mode of procedure should be regarded with favor. Standing and select committees of Congress have from time to time been instructed to inquire into the defects of departmental methods, and have made many valuable reports thereon, recommending or suggesting various changes, many of which have been enacted into law by Congress, with amendments recommended by various Secretaries of the Treasury. Commissions or committees, composed of officers and clerks of the Treasury Department, have from time to time been appointed to examine into the methods of the department, and have recommended changes which have been adopted in whole or part as "Treasury regulations." But these investigations and recommendations, valuable as they were, have fallen far short of meeting the requirements of the situation. In the nature of things it is impossible for committees of Congress, with other duties and obligations as to committee and department work pressing upon its members, to give their entire time to a study of this great problem, and the same is true as to a commission composed of officers and clerks in the Treasury Department. They have their own current work to perform, most of it important (its members being selected on account of their ability and efficiency), which can not be neglected, postponed, or transferred, and then, trained and accustomed as they are to existing methods, it is but natural to suppose that they would be slow to recommend radical changes therein. For this reason it is believed that a nonpartisan commission, similar in its organization to the Interstate Commerce Commission, but limited to a period of say, three years' duration (which can be extended temporarily if necessary), organized exclusively for the purpose of examining into existing methods of business and work in the several Executive Departments, more especially as to the disbursement of public money, and the examination, adjudication, and settlements of public accounts, with the view of either establishing simpler and more accurate as well as economical methods, or providing for a consolidation of the accounting offices of the Treasury Department, thus accomplishing a considerable reduction in the number of employees and a resulting reduction of expenditure for salaries (thereby promoting the efficiency and general good of the public service) is highly desirable, and the subject is earnestly commended to the consideration of the President and Congress. Citations could be multiplied in support of the proposition that some change in the accounting system of the Treasury was necessary to secure a prompt and accurate audit of claims and public accounts. The accounting department of the Treasury is designed to secure a speedy and reliable audit of the receipts and expenditures of the Government; that is to say, the function of the accounting branch is to determine the amount to which the Government is entitled, or the amount the Government should pay under a proper construction of the statutes. The audit, therefore, of the accounting branch |