# oversight

## The GAO Review, Spring 1971

Below is a raw (and likely hideous) rendition of the original report. (PDF)

For enle by the Superinlendent of Doct~menls, US. Go%ernment Printing Officc, Washington, D.C. 20402.
Price 40 cents (single copy). Subscription price: S1.50 per year; 50 rents ndditional for foreign mailing.
THE
GAO
REVIEW                                              SPRING 1971

Contents   Managing U.S. Interests i n International Or-
~~

gan izat ions
FRANK C. C O N A H A N . .                                                    1
Neapon Systems Cost-Effectivenes St dies
JAMES P. WRIGHT . . . . . . . . . . . . . . ?
.k
?
’.        F&                 2     9
Jdequacy of Contractors’ Cost RpFJds                         ~7~   -(,

MILTON H. HARVEY . . . . . . . . . . . .&.      .I.$. . r.. . . 17 2oncepts of Auditing and Systems Analysis ELLSWORTH H. MORSE, JR . . . . . Q.42 .,kc>f. 23 -.- 2.,*- lob Satisfactions of Accountants ROBERT H. STRAWSER. J O H N M . IVANCEVICH, A N D LEO 7~4 Pi HERBERT................................ 28 ’ 3ehaviora I Science-A ROBERT Y . HILL, JR , . 37 Legislative Control Over Ex GERALD GOLDBERG . . . 40 An Old Lady Gets a New Dress G.V.GRANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Auditape t o the Rescue . CLIFFORD L. GARDNER .... .... 51 Application of Marketing Concepts to the Analy- sis of a Government Progtam ovAgency BILL c o x , . . , d . 4 ~ . /$ 4 .. . . . . . . .                         60
Cost Accounting Standards Board Appointed . .                                     68
From GAO Speeches.. . . . . . . . . . . . . . . . . . . . . . .                   71
News and Notes.. . . . . . . . . . . . . . . . . .                       2.
74
k , “>      ;

Hearings and Legislation . . A?.. . ;.                                   ....     82
GAO Staff Changes . .                                                             84
Professional Activities                  .                                        92
New Staff Members.. . . . . . . . . . . . . . . . . . . . . . . .                101
Readings of Interest. . . . . . . . . . . . . . . . . . . . . . . .              102

Published quarterly for the professional staffs of the
U S . General Accounting Office
FRANK C. CONAHAN

Managing U.S. Interests
in International Organizations

How do nations that contribute funds to international
organizations influence the management of the activities of
those organizations? H o w do they assure themselves that funds
are being managed and applied properly and effectively?
GAO’s increased involvement in these kinds of questions, as
far as U S . participation in international organizations is
concerned, is described belou?.

Several years ago a cynic was over-            This article discusses a GAO review
heard to say that U S . management of          effort in this area and how it con-
its interests in international organiza-       tributed to clearing the official air.
tions was based on faith, hope, and
charity :                                      Some Necessary Background
-Faith in the ability of the orga-
The United States participates in two
nizations to do the job,
categories of international organiza-
-Hope    that some results will be
tions. One category includes the United
achieved, and
Nations system of organizations, re-
-Charity to show continuing sup-
gional organiza tioris such as the Orga-
port for faith and hope.
nization of American States, and a
We assert that we are not cynics.           rather long list of relatively small inter-
Moreover, at about the time we heard           national cooperative ventures. The
this story, the executive branch was           Secretary of State has primary re-
making representations quite to the            sponsibility for managing U S . interests
contrary. It was contending, at least          in these organizations. The State De-
publicly, that its manaFement of U.S.          partment estimated that the United
interests in international organizations       States would contribute $418 million to was well in hand. these organizations in fiscal year 1971. Mr. Conahan is an assistant director in the International Division. He holds a B.S. degree in accounting from King’s College, Willies Barre, Pa., and completed the Execu- tive Development Program at the University of Michigan Graduate School of Business Administration. Except for 2 years active duty in the Navy, Mr. Conahan has been with GAO since 1955. 1NTERNATlONAL ORGANlZATlONS 2 The other category consists of the lyzing programs and budgets and in international financial institutions such evaluating performance? as the World Bank and the regional Surface problems were easily de- development banks. Responsibility for tected. The United States was contribut- managing US.interests in these institu- ing more to some of the international tions rests with the National Advisory organizations than it wanted to and, Council on International Monetary and because it was not obtaining adequate Financial Policies under the chairman- information from the organizations, it ship of the Secretary of the Treasury. was not entirely certain what the con- The United States has purchased capital tributions were being used for. Other o r otherwise contributed over$9 billion    more deeply rooted problems were
to these institutions.                       beginning to be seen.

Arrive on the Scene, GAO                     Initial Representations
I n 1967 GAO decided to take a look           At an early point this author met
at U.S. participation in the first cate-     with Mr. X who was the responsible
gory of organizations-those for which        State Department official, randomly
the Secretary of State has responsibility    opened a copy of the World Health
for managing U S . interests.                Organization budget document, and
After a preliminary look-see, we saw      asked what Mr. X knew about the pro-
our objective as determining how well        grams discussed on that particular
the executive branch was able to bring       page.
its influence to bear on ( 1 ) the level,        Mr. X said that the State Department
content, and formulation of the pro-         did not have that kind of information
grams and budgets of the organizations       and referred the author to Mr. Y in the
which were supported by our contribu-        Department of Health, Education, and
tions, and (2) the economical and effi-      Welfare who had “all that kind of
cient management of these activities.        information.”
Our objective recognized that GAO had           Mr. Y said it was the U S . Mission
no authority to make audits of the inter-    i n Geneva: Switzerland, the location of
national organizations themselves.           the headquarters of the World Health
From the outset, eyebrows were lifted     Organization, that had “all that kind of
and questions were raised as to just         information” and to see Mr. Z.
what GAO thought it could accomplish            Mr. Z said that he regretted to tell me,
in this area. After all. the United States   after such a long trip, that the Mission
is only one of 100 or more member            did not have the information. He was
governments who do not have any spe-         troubled. however, that I had come all
cific charter rights of inspection or        the way from Washington because it
examination of source data relating to       was Mr. X in the State Department who
implementation of the programs of the        had “all that kind of inforniation.”
international organizations. How far            One might tend to look at the exer-
can one member go, and how far can           cise just described a s a typical run-
GAO expect one member to go, in ana-         around and let it go at that. However,
INTERNATIONAL ORGANIZATIONS                                                             3
consider the following. In March 196‘7,           the Department‘s authority was being
a State Department witness was telling            eroded and its responsibility was being
a House Appropriations Subcommittee:              diffused because other U.S. departments
0 : : Of course we know how many pel-
and agencies enjoyed a relatively more
sons there are i n this [international] organi-   powerful or influential position in re-
zation. When you say, “1-ou negotiate,” I         gard to individual international organi-
don’t personally negotiate. We have field mi.-    zations. Moreover, we were still petting
the Mr. X-1’-Z treatment referred to
Tubby and our people i n Geneva do the
negotiating-our representative in UNESCO          above.
does the negotiating-the Assistant Secretary
is sitting back here i n Washington-these
Two Years Later
people in our missions are all fully familiar
with the number of people in these organi-          In 1969, we made the following re-
zations. And they have the number of people
ports to the Congress:
in these organizations. And they have knowl-
edge not only of personnel, but the programs        US. Participation in the World
in the budget. They have gnt all the intimate         Health Organization iB-164031
details.
(21, Jan. 9, 1969).
At that same time, Ambassador                     U S . Financial Participation in the
Tubby i n Geneva was complaining that                 Organization of American States
the United States did not know nearly                  (B-165850, Apr. 9 , 1 9 6 9 ) .
enough about United Nations projects.               U.S. Financial Participation in the
peatedly reported to the State Depart-                 iB-166’780, July 8, 1969).
ment his deep concern over the total                U S . Financial Participation in the
lack of information from U.S. Govern-                 Food and Agriculture Organiza-
ment sources regarding the effectiveness              tion of the United Nations (B-
of such projects.                                      167593, Nov. 17, 1969).
Other examples could be cited where
In 1969, we also completed a review of
ihe State Department chose to defend its
the United Nations Development Pro-
activity and to make statements indicat-
gram and issued a report to the Con-
ing that a given situation was more sat-
gress on “Management Improvements
isfactory than it actually was rather
Needed in U.S. Financial Participation
than taking those actions required to
in the United Nations Development Pro-
meet and deal with the admittedly very
gram” (B-168767, Mar. 18, 1970).
difficult problems that had to be dealt              Our reviews and reports dealt with
with.                                             problems associated with the role of the
Was this simply a case of the State            United States in relation to the pro-
Department trying to cover up its                 grams and priorities of the organiza-
shortcomings in this area? Such would             tions, improving their management
be understandable enough. Yet, our re-            capability, monitoring their activities,
views were beginning to suggest that              and assessing their accomplishments
international organization affairs com-           and efficiency of operations. We made a
manded a very low priority in the State           number of specific recommendations
Department scheme of things and that             aimed at improving the management of
4                                                                                 1NTER NATlO NA L 0RGA NlZATlO N S

U.S. participation with the view of in-                                  Also in September 1969, a study
creasing the effectiveness of the inter-                             made for the United Nations concluded
national organizations themselves in                                 that the capacity of the United Nations
contributing to their respective objec-                              system to handle development projects
tives.                                                               was overextended and that unless sub-
In light of the long history of                                   stantial reforms were undertaken the
“business as usual” surrounding U.S.                                 capacity of the system to effectively
financial participation in international                             absorb projects was limited to its then
organizations, it should not have been                               current leveL3
surprising that little attention was being                               While all this public debate was
given by the executive branch to seek-                               taking place, we were quietly pursu-
ing the needed improvements. A consid-                               ing our objective-what       needs to be
eration in this history could have been                              done so that the United States can
that U S . contributions to the organiza-                            achieve effective participation in these
tions were relatively small when com-                                organizations?
pared with the U S . bilateral assistance                                In December 1969, congressional
programs.
members of the U S . Delegation to the
24th Session of the United Nations
A Turning Point
General Assembly asked us to come to
However, the decade of the sixties                                 New York and assist in their work.
saw the pendulum begin to swing to-                                   During that visit we emphasized the
ward multilateral assistance and at the
need for according international orga-
end of the decade its momentum ac-
nization affairs a higher priority within
celerated. In September 1969, the Com-
the U.S. Government and recommended
mission on International Development
recommended that aid donors channel                                   that there be established a central
more of their foreign assistance                                      authority within the executive branch to
through international organizations and                               manage U S . participation in the devel-
institutions. The Commission recog-                                   opmental assistance activities of inter-
nized at the same time that improve-                                  national organizations. We said that the
ments w-ere needed in these multilat-                                 central authority within the executive
eral agencies. About a week later, the                                branch should review, coordinate, and
President appointed a Task Force on                                   clear all U.S. positions; develop priori-
International Development. This Task                                  ties and long-range objectives; and
Force recommended in March 1970 that                                  establish appropriate machinery for
international institutions become the                                 appraising, monitoring, and evaluating
major channel for developmental assist-                               the economic and technical assistance
ance and that U S . bilateral assistance
programs of international organiza-
be confined essentially to security
tions. The Delegation’s report cited our
purposes.3
findings and recommended the estab-
1 Partners in D r r r l o p r n e n t . Rrport [to the President        ~~~

of the Torlrl Bank] of the Commission an International               International Development, Rudolph A. Peterson, Chnir-
Development,      Lester   B.    Pearson,    Chairman-Sept.         man-Mar. 4, 1970.
15, 1969.                                                              311 Study of the Capacity of the United Nations De-
U.S. Foreign Assistance in the 1970‘s: A New Ap-                  velopment System, by a team of experts headed b y Sir
proach, Report to the President from the Task Force on               Robert Jackson-Sept. 30, 1969.
INTERNATIONAL ORGANIZATIONS                                                                                                     5

lishment of a central authority? This executive branch organization for
was the first real external support of managing U S . participation in the de-
our views.                                   velopmental assistance activities of
In early 1970, we Tz-ere also auditing international organizations. This out-
a fellowship fund administered for the line was submitted to the subcommittee
United States by the Iriited Nations in on April 15, 1970, and subsequently to
New York. We found incorrect finan- the State Department and the Office of
cial reporting by the United Nations. Management and Budget.
We were also completing, at that time.          The pace quickened. On May 1,1970,
a review regarding the International we testified before the Subcommittee on
Labor Organization. These reviews Foreign Operations and Government
resulted in a report to the Secretary of Information, House Committee on
State entitled, “Review of Adlai E. Government Operations, and subse-
Stevenson Memorial Fellowship Pro- quently detailed a staff member to work
gram” (B-165161, Sept. 14,1970) and with the subcommittee in its further re-
a report to the Congress entitled, “US. view of US. participation in the United
Participation in the International Labor Nations developmental a s s i s t a n c e
Organization Not Effectively Managed” activities.
(B-168767, Dec. 22, 1970).                     On May 6, 1970, the Cleveland Plain
Our conclusions were similar to those Dealer editorialized:
expressed in our earlier reviews. The re-
GbO WARNING ON FOREIGN AID
sponses of the executive agencies were
about the same as their responses to our       There is strong feeling in the R’ixon admin-
istration that less U.S. foreign aid money
earlier reviews--agreement in concept,
should be given directly to other countries,
but little in the way of corrective action. that more should be distributed through inter-
national agencies.
Well and good. That route might be one
Another Platform-Then                    Others             approach to the goal of a “low profile” for
America abroad. But those in the executive
I n early 1970, the Comptroller Gen-                      and legiqlative branches whn go along with
eral was asked to appear before the                         the idea =houlcl heed a caution signal r a i d
hbcommittee on International Orga-                          by the General Accounting Office ( G A O ) .
nizations and Movements, House Com-                            Lnoking into U.N.-administered programs.
G-40 found the United States has no assur-
mittee on Foreign Affairs, during its
ance that the major contribution. it proiides
review of the performance, operations,                      are spent as intended. and that U.S. diplnmatic
and future goals of the United Nations.                     officials in beneficiary nations frequently are
The Comptroller General appeared on                         unaware of the programs.
March 5,1970, and, after a thorough re-                       On June 1, 1970, the House Com-
view of our findings, conclusions, and                      mittee on Appropriations reported out
recommendations, offered to prepare a
the bill making appropriations for vol-
detailed outline of the machinery we
untary contributions to international
felt was needed for a more effective
organizations for fiscal year 1971.5 The
“To S J \ C Suc~~emIrtx
Grnrrntinn-  ..  _’* Report bv
members o f the     5 Delra.ltion to the 21th Srssion of       Rrpnrt f r o m tlw T<mnnittre           on Appropriations         on

the General Acsemhlv of t h e United Nations-H.    Rppt.   the F o r e ~ r n- \ c ~ a , t a n r r a n d Related Programs -4ppropria-
91-837-Feb. 10. 1970.                                      tiom BIIl, 19il-H.         Rept. 91-1134-June         1, 1970.
INTERNATlONAL ORGANIZATIONS                                                            7
request by $37,620,000. The commit- the year. The Department reported that tee’s report said in this connection: it was also working towards an im- According to a recent report from the proved U S . system for evaluating pro- Comptroller General of the United States, grams of the international organiza- dated March 18, 1970, and based on a study tions and for related improvements. entitled, ‘Study of the Capacity of the United Nations Development Sy-stem”, made by a The Department further said that it team of experts headed by Sir Robert Jackson was strongly supporting efforts to im- of Australia, the United Nations Detelopment prove the United Nations develop- Program (UNDP) has not been operating in mental machinery. the most effective manner. Some of the broad Two days later, the Department ap- conclusions reached were * * ”.. During Committee hearings, it was indi- peared before the Subcommittee on cated that these reports were presently under Foreign Operations and Government consideration but no conclu4ons or recom- Information, House Committee on Gov- mendations have yet been formulated. Pend- ernment Operations, and elaborated on ing any positit-e action on the part of the UX the corrective actions taken and ini- Development Program concerning this report, the Committee is of the opinion that a reduced tiated. The Department expressed one- level of funding should be allowed. ness u-ith the objectives of the General Accounting Office and pledged to make In view of all the indications that the every effort to bring about needed administration would propose the improvements. channeling of increasing amounts of In December 1970, at the request of U S . developmental assistance through the chairman of the House Foreign the international organizations, and the Affairs Committee, we made a report mounting criticism of the multilateral to him entitled, “Comments and Sug- machinery and US.participation in it, gestions for Independent Review and some action by the State Department Evaluation of International Organiza- was certainly to be expected. tions and Institutions” (B-161$70,
Dec. 4, 1970). On December 15, 1970,
The Conclusion Seems Near                        the chairman sent a copy of the report
to the Secretary of State and asked to
The President’s September 15, 1970,           be advised of the State Department’s
message to the Congress on “Foreign              plans to implement our suggestions.
Assistance for the Seventies‘’ confirmed
previous recommendations that inter-
national institutions should become the
not been received.) With the increas-
major channel for developniental
ing concern from various quarters, it
assistance.
On September lG, 1970, the State              uould seem that the State Department
Department advised our Office that it            will need to strenuously follow through
had considered the organizational 2nd            on its pledge to work toward needed
staffing changes which were needed to            improvements in this area.
effect improvements and, to improve its             Is the situation thus well in hand?
operations, had initiated action essen-          No. Much, much remains to be done.
tially in line with the steps set forth in       But, the situation is quite different
8                                                                          1NTERNATlONAL ORGANlZATlONS

from that of 3 or 4 years ago when the                      To avert a shut down of this unique,
State Department was telling the Con-                     valuable, and unquestionably effective inter-
gress that it had all the intimate details                national financial institution, its 18 economi-
on the programs and operations of the
Switzerland have agreed, subject to neces-
international organizations-which       it
5ary legislative approval, on a replenishnient
did not-without any mention of the                        of tits1 resources ’> * *.
serious deficiencies both in the man-                                  *      :
;    :;:    *      *
agement of US. interests in the organi-                      The National Advisory Council * * ’:
zations and in the organizations                          fully supports the desirability of continuing
themselves. In this latter connection,                    this useful and important institution at an
although some efforts are being made,                     increased level. I t is economical and effec-
actual accomplishment of financial and                    tive in its operations ‘.’ * ‘ 8 .
management reforms needed within                             Requesting appropriations for a con-
the international developmental agen-                     tribution to another of the financial in-
cies associated with the United Nations
stitutions, the Secretary of the Treasury
seems almost as remote as it did 4 years
said to the Congress:
ago.
Our work is thus not finished. More-                     * *   :h
the United States receives full in-
over, we have not dealt with the inter-                   formation upon not only lending operations
national financial institutions which                     but also policy issues a s they evolve. This
information is used by the Treasury staff and
were mentioned briefly at the outset of
the other agencies of the NAC-including
the Department of State, the Federal Reserve,
our attention to U.S. participation in                    the Expurt-Import Bank, and the Department
these institutions. We again met with                     of Commerce-in advising me how the United
skepticism, foot-dragging, and resist-                    States should instruct the U S . Executive Di-
ance-perhaps even greater than that                       rector t o \-ate on a particular issue. There-
encountered 3 years earlier. But we                      fore, it is with experience, exposure, and full
were resolved to persist here too. As our                information that the United States pursues
operating instructions tell us, start at                 it5 responsibilities with this Rank.
the beginning: legislative history, ap-                     Because the United States has such
propriation considerations, hearings,                     a stake in the international financial in-
etc. We did. And guess what we found.                     stitutions, we believe it is important to
carry on the review we have undertaken
Initial Representations-Again                             in order to make an independent as-
sessment of the “experience, exposure,
In a recent request for appropria-
and full information” with which the
tions for a contribution to one of the
international financial institutions, the                 United States pursues its responsihili-
executive branch said to the Congress:                    ties in these institutions.

0 Special Report of the National Ad\isory Council o n
7 Statement of the Secretary of the Treasury before

International Monetary and Financial Policies-H. Doc.     the Committee on Banking and Currency. House of
29P-Apr. 25, 1968.                                        Keprrsentatires on H.R. 18236-June 30, 1970.
JAMES P. WRIGHT

Weapon Systems
Cost-Effect iveness Studies

Recently there has been increasing scrutiny of the defense
budget b y the Congress. In line with this interest, GAO has
expanded its efforts to inform the Congress of the process b y
which the Department of Defense acquires weapon systems.
An infegralpart of this process-the analysis performed to
compare alternutire methods of fulfilling military objectives-
is discussed below.

During the past 2 years, in response        article the discussion is limited to those
to both stated and implied congression-        studies that compare various complete
al interest, the General Accounting Of-        weapon systems, either existing or pro-
fice has to a greater extent than ever         posed. These studies may be contrasted
before been examining into the decision-       with comparisons of various possible
making process of the Department of            components for the purpose of deciding
Defense as it relates to the acquisition       upon the best combination for use in
of weapon systems. In carrying out             a single system.
such examinations GAO auditors have               Weapon system cost-effectiveness
encountered and are likely to continue         studies are highly technical and often
to encounter reports of the results of         contain much that is relatively un-
cost-effectiveness studies performed           familiar to GAO staff members. Fre-
either by or for a military service and
quently present are complex formulas,
related to the system or systems under
equations, and graphs, as well as un-
review.
familiar terminology. For this reason,
one can easily become lost in the trees
in general terms what an auditor might
expect to find in such a report. Although      and thus lose sight of the forest. I hope
many kinds of analytical effort related        that this article will, by focusing on
to weapon system development and ac-           what a study does and citing some
quisition can be appropriately referred        examples of how it might do it, help the
to as cost-effectiveness studies, in this      auditor to remain forest-oriented.

The author is a member of the Systems Analysis Staff of the Office of Policy and
Special Studies. He has been with GAO since 1961. first with the Philadelphia Regional
Office and, since July 1969. with OPSS. He holds a bachelor’s degree from La Salle
College and an M.B.A. from Temple University.

9
WEAPON SYSTEMS COST-EFFECTIVENESS STUDIES
10
Cost-Effectiveness Defined                  tary objective were the destruction of a
certain kind of target, a weapon system
Perhaps an appropriate point of de- should be judged, as to effectiveness,
parture is the term itself-cost-effec-      on the basis of its ability to destroy
tiveness. Initially, it is important to such targets, not on the basis of the
think of cost-effectiveness as a relative, size of the blast which it produces.
rather than an absolute, concept. It Under the assumption that the reader
does not appear to be very useful to will agree to interpret “bang” as “the
speak of a weapon system as being cost- ability to meet the desired objective,”
effective. The term has significance only I shall continue to advocate the use of
when used to describe a relationship the “bang per buck” definition of cost-
between one system and something else. effectiveness. This distinction between
Thus, whereas a statement such as ILsys- output and effectiveness is, in my opin-
tem A is more cost-effective than system ion, an important one to remember
B” is useful, a statement such as “sys- when reviewing any cost-effectiveness
tem A is cost-effective” seems totally study, whether or not weapon systems
devoid of significance.                     are involved.
Now that this distinction between re]-
ative and absolute cost-effectiveness has
The Study Defined
been made, it would appear useful to
provide a short and simple definition of       Under the above definition, the ob-
cost-effectiveness. I know of no defini- jective of a cost-effectiveness study
tion or description that better captures would be to determine which of the
the essence of cost-effectiveness than known ways of carrying out a military
does the oft-repeated phrase “bang per mission provides the most “bang per
buck.” While suggesting this defini- buck.” This desire to obtain the most
tion as a useful one, I should also point “bang per buck” follows directly from
out that the “bang” portion of it may the traditional assumption of economics
be somewhat misleading.                     that resources are limited. Here, de-
Ordinarily, “bang” connotes an fining resources as dollars available to
amount or degree of blast or firepower: the Department of Defense, one would
eg., one megaton. In that sense. ‘‘bang” probably concede the validity of this
would usually represent not effective- assumption.
ness, but merely output. Although fre-          To ascertain which of the available
quently the size of the blast produced alternatives provides the most “bang
by a weapon system is a prime deter- per buck,” a cost-effectiveness study
minant of its ability to destroy its des-
compares the costs and effectiveness of
ignated targets, and as such is one of
those alternatives. In such comparisons,
the more important output measures
there are two basic approaches, either
related to the system, it is not usually
a valid measure of the system’s effec-
or both of which may be found to have
tiveness.                                  been    followed in any study which GAO
A weapon system: or anything else,       staffs might be required to review.
is effective only to the extent to which       The first is to assume a desired level
it meets its objective. Thus, if its mili- of effectiveness, such as the ability to
WEAPON SYSTEMS COST-EFFECTIVENESS STUDIES                                          11
destroy 100 targets of a specific kind          Thus, if the mission of an antiballis-
per day for a )-ear, and then examine        tic missile system were defined as the
alternative ways of achieving the ob-        protection of Minuteman missile sites,
jective in an effort to determine the        an alternative which could appro-
least costly of the alternatives. The sec-   priately be included in a study related
ond approach is to assume a fixed level      thereto would be a program of harden-
of expenditure, i.e., a budget level, such   ing the Minuteman sites. In such a n
as 5100,000 per year, and then attempt       instance, two distinctly dissimilar ap-
to find the alternative that provides the    proaches, one involving complex data
most effectiveness, again possibly the       gathering and processing hardware and
number of targets destroyed per daj-         software as well as highly sophisticated
for a year, for that budget expenditure.     missile-firing equipment, and the other
I n order to make these “least costly”    involving only the comparatively simple
or “most effective” determinations: it is    process of reinforcing the Minuteman
necessary for those performing the           silos with concrete or other appropriate
study to calculate the costs estimated to    materials, would be viewed as compet-
be incurred under each of the alterna-       ing alternatires in terms of cost-
tives being examined as well as the          effectiveness.
amount of effectiveness expected to be
provided by each. The description of         Cost Estimates
the methods and data used in and the
In accordance with the sequence of
presentation of the results of these cal-
the term, cost-effectiveness, as well as
culations constitute the major portion       that of the alphabet, I have chosen to
of the document that I refer to as the       briefly discuss the cost portion of a
study before proceeding to a more
Before proceeding to a discussion of      lengthy discussion of the effectiveness
the contents of a study, I would like to     aspects. In doing so, I would not wish
mention a second distinction, not totally    to imply to the reader that this is the
unrelated to that between output and         order in which he will find these mat-
effectiveness. This distinction might be     ters presented in a study.
labeled one between “competing” and             Usually a study will refer to the cost
“similar.” As indicated earlier. the em-     model being used. Essentially, the
phasis in a cost-effectiveness study         model, which may appear as a series
should be on determining the most            of lengthy formulas or equations, is
“bang per buck” way of achieving the         merely a description of the manner in
whic-h the costs related to each alterna-
desired objective. In order to be con-
tive have been calculated, or, stated
sidered a competitor for this designa-
differently, the rules followed in mak-
tion, it is necessary onIy that a can-
ing such calculations.
didate system or method be capable of           For example, if. as is usually the
achieving that objective. It is not nec-     case, the study were examining one or
essary that the candidate method be          more proposed systems in comparison
siniilar to the other method or methods      with existing systems, the cost model
being studied.                               would ordinarii!- specify the inclusion
12                                      WEAPON SYSTEMS COST-EFFECTIVENESS STUDIES

of such onetime costs as those of re-        pared. For example, in a study com-
search, development, engineering, and        paring alternative methods of perform-
special tooling in the estimate of the       ing an antiaircraft mission, the scenario
total costs of the proposed system or        might be that there would be an enemy
systems, but exclude such costs from         air attack of a specific number of air-
calculations related to existing systems.    craft, with the attacking aircraft carry-
Such exclusion is appropriate, since,        ing a specific number of weapons and
for existing systems, these items con-       being accompanied by a specific num-
stitute sunk costs, in that they have        ber of escort aircraft. Additionally,
already been incurred, and thus are          there would probably be specific as-
not relevant to a decision regarding         sumptions concerning weather condi-
future actions. It is only those addi-       tions and visibility during the attack
tional costs, which would be incurred as     as well as jamming techniques and at-
a result of a decision to continue the       tack tactics employed by the enemy.
use of an existing system, that should       There would also probably be specific
be considered to be the costs of that        assumptions regarding the geographi-
system.                                      cal location of the site being attacked,
I n addition to specifying the kinds of   and a large number of other assump-
costs included in the study’s calcula-       tions which in total would tend to paint
tions, the cost model will usually set       a picture of the combat environment in
forth the period for which costs have        which the performance of a proposed
been calculated. The time period in-         system and that of possible alternative
volved might be that of a specific com-      systems are to be examined and
bat engagement, a 10-year peacetime          compared.
period, or the total expected life of each      After describing the scenario, a cost-
system being considered.                     effectiveness study will usually present
its calculation of the effectiveness of
Effectiveness Calculations                   each of the various systems in carrying
out the intended mission in that sce-
Although, as mentioned earlier, they      nario. Generally, effectiveness calcula-
may be cloaked in unfamiliar notation,       tions are made either by computer sim-
the cost calculations performed in a         ulation of military engagements or by
cost-effectiveness study certainly do not    the use of any of a number of mathe-
constitute anything which the typical
matical analysis techniques.
GAO auditor has not previously en-
I n some cases, the simulations are
countered. The calculations related to
performed solely by computers, while
effectiveness, however, may often in-
in others, humans are permitted to
volve approaches less familiar to the
GAO auditor.                                 participate, as in the case of some sim-
In reviewing the effectiveness aspects    ulations of aircraft operations in which
of a study, one will usually find refer-     experienced pilots interact with the
ence to a scenario. In simplest terms, a     computer. Whether it be in the form of
scenario is merely a set of assumptions      a computer simulation or that of an
under which the performances of the          extensive mathematical analysis, the
systems being studied are to be com-         calculation of effectiveness is based
WEAPON SYSTEMS COST-EFFECTIVENESS     STUDIES                                      13
upon large amounts of data of varying each competing alternative might be
degrees of reliability.                       stated in terms of the estimated number
For example, in the hypothetical          of target kills per day which one unit
antiaircraft case, the final results of the of each alternative could achieve, as
calculation of the effectiveness of each determined by technical judgments,
system would depend on such factors as computer simulations, mathematical
the probability that (1) the system’s ra- analyses, or combinations thereof.
dar would be able to detect the incom- Thus, the number of target kills achiev-
ing enemy aircraft, (2) the system’s able per day by one unit of each com-
weapons would fire when called upon peting weapon system would be the
to do so, (3) the system’s missiles or measure of effectiveness used in the
other munitions would be delivered study. Each study applies one or more
accurately; i.e., would hit their in- such measures of effectiveness in
tended enemy aircraft targets, and (4) comparing the alternative systems’
when hit, an enemy aircraft would be performance.
rendered harmless.                              The early identification of the effec-
For the existing systems being con- tiveness measure or measures being em-
sidered, much of the required data will ployed greatly facilitates the review of
be historical, although much may of ne- a cost-effectiveness study. For this rea-
cessity be in the nature of informed son, I will now try to illustrate the
estimates. The data related to proposed kinds of measures which a reviefirer
systems, however, often has a strong might expect to find.
flavor of subjectivity in that it essen-        In addition to the target kills just
tially consists of the results of many referred to, the number of enemy cas-
military and engineering judgments ualties inflicted might be an appropri-
as to the probable performance of the ate effectiveness measure. If the mis-
systems. In some studies, it may even sion being addressed in the study were
be that extensive quantitative analysis, essentially defensive, the effectiveness
either electronic or manual, is not in measure used might be the number of
evidence, and instead, the entire effec- attacking enemy vehicles destroyed or
tiveness calculation for each competing the number of US. weapons or per-
system is shown in terms of engineering sonnel surviving the attack.
judgments as to its probable ranking,            Another effectiveness measure that
relative to the other alternatives, in might be found in such a study would
each of several performance character- be the number of days of service of
istics that, in the opinion of military ex- equipment lost as a result of an ene-
perts, are important in carrying out the my attack. Since it is obviously de-
intended mission.                            sirable to minimize such losses, the
competitor achieving the c‘lOw’’ score
Effectiveness Measures                        would be the most effective. Conversely,
Earlier, I cited a hypothetical mili- if in a study related to a defensive mis-
tary objective of destroying targets of sion the effectiveness measure were
a specific kind. In a study related to some element of cost to the enemy, such
such an objective, the effectiveness of as the number of enemy aircraft re-
14                                          WEAPON SYSTEMS COST-EFFECTIVENESS STUDIES

U.S. Navy P h n t o
Prior to approval of continued development of the F-1.l: aircraft, shown here, a Navy study
compared the cost-effectivenessof the F-14 and other aircraft in carrying out specific missions.

quired in order to inflict a specific            mate purpose of performing the study.
level of destruction on U.S. forces, the         In a single study, however, there
most effective alternative would be the          might be several calculations and rank-
one “scoring” the highest.                       ings of cost-effectiveness.
It may be, for example, that separate
Cost-Effectiveness Determinations
for each of several specific combat sce-
After using its cost model to calcu-          narios deemed relevant in light of the
late the costs of each alternative and in        overall mission involved. The scenarios
some way estimating the effectiveness            could differ in either the nature of the
of each, although not necessarily in             engagement or in the level of effec-
that order, a study will compute the rel-        tiveness considered necessary for suc-
ative cost-effectiveness of the alterna-         cess. Similarly, separate calculations of
tives, using either one or both of the           cost-effectiveness might be made for
previously mentioned “least costly” or           each of several expenditure levels.
“most effective” approaches. This rank-             Additionally, within each scenario
ing of the competing alternatives in             one or more assumptions may be
terms of cost-effectiveness is the ulti-         changed, and the cost-effectiveness re-
WEAPON SYSTEMS COST-EFFECTIVENESS STUDIES                                           15

sults examined in that light. The ex-        many factors not included in the quan-
ploration of the cost-effectiveness ques-    tified portion, as stated previously, a
tion under differing assumptions in this     study’s primary objective. and thus the
manner, frequently referred to as sensi-     aspect receiving most attention, is the
tivity analysis, is useful to the deci-      ranking of the competitors in terms of
sionmaker both in allowing him to ap-        cost-effectiveness.
ply his experienced judgment as to the           Their reliance upon assumptions is
relative likelihood that each of the         necessitated by the fact that, regardless
assumptions would be valid and in            of the amount of time and money avail-
providing him with “what if“ informa-        able, no study could possibly examine
tion regarding those occurrences which       every conceivable alternatire under
he believes to be comparatively              every conceivable future circumstance.
unlikely.                                    In this regard, the mark of a satisfac-
To summarize then, a cost-effective-     tory study is the success of those per-
ness study consists of a comparison of        forming it in achieving the currently
the costs and effectiveness of compet-       overworked term, relevance, \\-hen de-
ing systems. The time periods for which      ciding which assumptions to use.
costs are estimated and the kinds of            Some may believe. with some justifi-
costs included in the estimates may          cation, that the limitations of cost-
vary greatly among studies, as may the       effectiveness studies number more than
effectiveness measures used. In all
the two just stated. I have mentioned
studies, however, the essential elements
these two because each should be of par-
remain the same, in that in some way
ticular interest to those of us in GAO.
the effectiveness of each competing sys-
tem is estimated, as are its costs,
R y remaining aware of the first limi-
with the intent of determining the           tation. we may be able to appropriately
most cost-effective of the available         separate in our review work the cost-
alternatives.                                effectiveness decision from the related
weapon choice decision, which might
Limitations                                   reflect considerations not included in
the cost-effectiveness study. It may be
From the standpoint of balance, it         that the most cost-effective system
would seem appropriate before closing         as determined by a study is not the
this article to mention two limitations       “ b e d ’ weapon choice. For example. in
of cost-effectiveness studies. These are
the choice of an aircraft. such possibly
their inability to deal with all consider-
nonquantifiable factors as pilot safety
ations pertinent to a weapon system
might outweigh the quantified conclu-
choice and their reliance upon
sions of a cost-effectiveness study per-
assumptions.
Their inability to deal with all perti-    formed on the subject.
nent considerations follows from the              With regard to the second limitation,
nonquantifiable nature of some such           T would suggest a review of a study’s
considerations. Although it is true that       assumptions as an excellent starting
a study usually contains a narrative           point for an examination into the valid-
portion that qualitatively discusses           ity of its conclusions.
421-039--71-2
16                                     WEAPON SYSTEMS COST-EFFECTIVENESS STUDIES

Value of Studies                            weapon selection. In doing so they can
In spite of these limitations, as well    also serve as valuable information
as others which someone else might          sources to the Congress and to GAO as
point out, these studies can serve a use-   an agent of the Congress, regarding the
ful purpose for the decisionmaker.          decisionmaking process by which the
They can provide him with an orderly        Department of Defense enters upon the
and explicit consideration of factors       costly and complex acquisition of major
important i n the final decision as to      weapon systems.
MILTON H. HARVEY

Contractors’ Cost Records

GAO’s study of the feasibility of establishing and applying
cost accounting standards in the negotiation and administration
of defense contracts, as required b y Public Law 90-370, was
described i n the GAO Review, Spring 1970. In connection with
this study, 15 GAO regional oftices made a special inquiry into
the nature and extent of cost accounting systems and related
records maintained b y selected contractors.

A provision of the Armed Services                small contractors engaged in both Gov-
Procurement Act, as revised in 1936,               ernment and commercial work on a
(10 U.S.C. 2313 ( b ) ) , sets forth that:         wide variety of products. Of these con-
* ”’ :: each contract negotiated under this     tractors, 18 had total annual sales of
chapter shall provide that the Comptroller         more than $50 million; 14 had annual General and his representatives are entitled, sales ranging between$15 million and
until the expiration of three years after final    $50 million ; and 13 had annual sales of payment. to examine any hooks, documents, less than$15 million.
papers, or records of the contractor, or any
of his subcontractors, that directly pertain to,      Efforts were directed toward ascer-
and involve transactions relating to, the con-     taining whether contractor cost ac-
tract or subcontract.                              counting records and the records used
The approach taken in making this               to support price proposals for negoti-
review was to gather information on the            ated contracts were generally ade-
characteristics of cost records main-              quate; in particular, the purpose of the
tained by defense contractors and                  study was to find out:
evaluate their usefulness for specific               -Whether     the accounting system
purposes. The cost accounting records                  provided sufficient data to deter-
of 45 contractors were examined. The                   mine the cost of performing given
selection included large, medium, and                  contracts.

Mr. Harvey is an assistant regional manager in the Philadelphia Regional Office.
He has been with G 4 0 since 1957. He is a CPA (Pennsylvania and Kew Jersey) and
a member of the American Institute of CPAs, the Pennsylvania Institute of CPAs,
the National ilssociation of Accountants, and the Federal Government Accountants
Association.

17
18                                                             CONTRACTORS’ COST RECORDS

-Whether    the accounting records          As shown below, several types of cost
permitted p r i c i n g evaluation      systems were found among the 45
reviews.                                contractors:
-Whether they were useful for other                                                      Number of
T j p e of cost r)strrn                        conIT(Ictors
evaluation reviews such as those        Job order  . . . .         .   .   .   .   .    . .35
for terminations, delay claims, or      Process . . . . .          .   .   .   .   .    . . 2
change-order pricing.                   Product . . . . .          .   .   .   .   .    . . 3
Departmental . . .         .   .   .   .   .    . . 1
A byproduct of this inquiry was the       Job order/process         . . . . . . . . 1
information it provided on the extent       Job order/product         . . . . . . . . 1
of similarity and/or uniformity of cost     None . . . . .            . . . . . . . . 2
records presently prepared by defense                                                               45
~
~

contractors. This information should be
There was little relatinnship between the
useful to the Cost Accounting Stand-
ards Board.                                 type of cost accounting system and the
type of summary or report-type records
available.
Results of Survey
During the survey emphasis was di-
The survey showed that supporting        rected to the following:
documentation was maintained by all            -Adequacy      of contractor cost ac-
contractors for basic accounting trans-           counting records for the calcula-
actions. Material costs, both direct and          tion of cost of performance.
indirect, and regardless of the type of        -Identification of costs by contract,
accounting system, were supported by              line item, and change order.
records such as purchase orders, in-           -Inclusion in contractor records of
voices, receiving reports, vouchers, and          the information required for pric-
paid checks. Similarly, labor costs, both         ing reviews.
direct and indirect, were supported by         -Comparability     of proposal costs
some form of labor timecard or job                with incurred costs.
ticket and other payroll and payment        Each of these points is commented upon
records. To this extent the survey          below.
showed a general uniformity in types of
cost records in use by contractors.
Calculation of Cost of Performance
The area in which contractors’ cost
records were found to differ was in the        From the results of our inquiries, we
summary records prepared from the           classified the adequacy of contractor
above source documents. Reports for         cost accounting records for the calcula-
management summarized material, la-         tion of cost performance. (See the table
bor, and overhead costs in many forms.      on the following page.)
For example, labor costs were summa-           Noteworthy is the fact that the con-
rized by contract, work package, labor      tractors whose records were inadequate
classification. or uhatever other form      were in the lower sales volume groups
was required by management or the           and that more than half in the third
CONTRACTORS’ COST RECORDS                                                                 19

Numher of          Records considered
Annual sales volume             contrdctnrs   -~

Over $50 million. . . .. 18 18 . . ..$15 to $50 million. . . . I4 11 3 or 21yp Under$15 million.      .                       13          6      7 or %yo
_ _ _ ~ _ _ _-___-____
_
Total                                                  33     10
-               -

The 10 contractors whose records         the individual contracts niay generally
were inadequate emploj-ed a variety of      exempt their records from any critical
cost accounting systems and practices,      scrutiny to determine the bases for
but there was little correlation of the     pricing.
type of system with the type of product        The larger defense contractors segre-
or the volume of Government sales.          gate costs in such a manner that sum-
Of the 10 inadequate accounting sys-     mary data related to overall costs of
tems, two did provide for the recording     performance are readily available. They
of costs by contractor or job order. but    maintain not only source documents but
neither of the two contractors effec-       also summaries that identify, in one for-
tively administered its system. For those   mat or another, costs associated with
contractors who employed other than         total contractual effort. However, in
a job order system: our conclusions         only a relatively few cases are contract
that sufficient data were not available     costs segregated as between basic con-
were based on overall aspects of the        tract costs and separately negotiated
systems or practices. For example. one      modifications to the contract. These
contractor’s costs were recorded by de-     contractors, who receive a large per-
partment; as a result, costs applicable     centage of the defense procurement
to Government work were not identifi-       dollars, already have: in effect, stand-
able to specific contracts or products.     ards of their own for summarizing
Two small contractors ij-ho had no cost     costs.
systems maintained only records re-            The reason or reasons for this differ-
quired for basic financial requirements     ence in recordkeeping between large
and operating statements.                   and small contractors were not devel-
Overall, the survey results suggest      oped in depth during this survey. In the
that the nonavailability of sufficient      case of the smaller contractor, however:
summary data to provide cost of per-        it appears that management is more
formance by contract may be limited to      closely associated with production and
relatively small companies having a Ion-    other aspects of operations; thus there
volume or percentage of Gorernment          is less need for records to provide a cost
sales. However, the aggregate of their      control or a reporting system. Con-
prime and subcontract sales to the Gov-     versely, the larger contractor whose
ernment is likely to be quite substantial   management is possibly three or four
even though the relatively small size of    echelons removed from operations finds
20                                                      CONTRACTORS’ COST RECORDS

that a comprehensive reporting system       procedures. However, from the survey
is essential for the assembly of data for   it appears that the problem is not only
informed decisions.                         whether records are available by which
A contractor whose involvement is        a contractor’s interpretation of cost of
substantial in either Government o r        performance can be evaluated, but also
commercial work, or both, develops and      whether the various treatments em-
records significant cost accounting data    ployed by contractors yield uniform
because they are needed for effective       and meaningful cost determinations.
records, the most critically affected       Identification of Costs by Contract,
group of Government contractors may         Line Item, and Change Order
be expected to be those who have out-
We found that contractors whose
grown the personalized control possible
accounting records permit a calculation
in the small enterprise but have not yet
of cost of performance generally pro-
vide for identification of cost by con-
practices that are indispensable when
tract. The survey, however, indicated
responsibility must be delegated. The
adverse effect on the contractor will, to
tions of cost of performance could be
some extent, almost always be passed on
made even though costs were not re-
to the Government.
corded by contract. Typical of such a
Although summary data related to
situation is one in which a contractor
cost of performance of the smaller
with a process or product line cost
contractors may not be available o r
system has records that require only the
readily assembled, and the volume of
establishment of individual contract
transactions involved might seem to
production cutoff points to identify the
limit the significance of this problem
shop costs related to a contract. Appli-
area, the facts, if available, might well
show that this is not the case. Reviews
other costs could then be allocated.
Both large and small contractors
Regional Office have disclosed indica-
tended to minimize the need for cost
tions of significant overpricing which
reporting systems refined to the point
were not reported because of the inad-
of associating incurred costs to line
equacy of documentation available to
iterris or change or-ders. Although the
GAO from existing accounting records.
reasons for minimizing such refine-
On the other hand, we have seen in-         ments in their costs systems were not
stances where failure to summarize cost     developed as a part of this survey, we
data in the normal course of operations     believe they represent the difference
has caused contractors to be unaware        between satisfying the recognized needs
of or to overlook costs that would be       of company management and the
acceptable in price negotiations.           Government in the identification of
With respect to contractor records       costs.
providing cost of performance, we              The identification of cost by line item
made determinations as to adequacy on       o r change order is, nevertheless, neces-
the basis of contractor definitions and     sary in certain instances. For example,
CONTRACTORS’ COST RECORDS                                                        21

contractors’ claims against the Govern- contractors could not be made because
ment occur with some frequency and a data related to cost of performance
reasonably precise identification of cost were not recorded by contract, line
is necessary if an equitable settlement item, or change order to permit com-
is to be achieved. In addition, congres- parison with pricing proposals. As in-
sional inquiries regarding contract dicated previously, individual instances
overruns may request an identification of such a condition may not be signifi-
of cost not only by contract but also by cant in respect to possible adverse con-
items procured under the contract. Al- tract pricing. However, the author be-
so, the segregation of cost by line item lieves that in the aggregate a significant
and/or change order generally pro- number of Government procurements
vides a better basis for identifying pro- and contracting entities are seldom sub-
curement and/or production weak- jected to the restraints provided by in-
nesses. All in all, it would seem that such dependent reviews of pricing and pric-
a desirable refinement of costs has de- ing practices.
pended primarily on a company’s view           For the larger contractors, historical
as to whether the value to management cost data were considered generally ad-
exceeded the added cost.                    equate for pricing reviews. It w-as noted
The Defense Contract Audit Agency that contractor records generally were
and contracting officers are continually retained for a sufficient period to satisfy
required to make pricing decisions that any postaward audit requirements.
rest on the reasonableness and validity
of contract costs. I n addition the Armed Comparison of Proposed and
Services Board of Contract Appeals, Incurred Costs
the GAO, and the Federal courts are
from time to time involved in efforts          Not all desirable comparisons of pro-
which require determination of the          posed and incurred costs could be made
reasonableness or equitability of con-      readily  for 20 of the 45 contractors
tract costs. The fact that such reviews surveyed. For some of these contrac-
may be necessary makes difficult any tors, summaries of cost of performance
persuasive argument for denying the were not available; for others, certain
need for records to be kept in such a comparisons could not be made for
manner as to permit identification, reasons such as the commingling of
when necessary, of cost by significant basic contract costs and change order
line item and/or change order, espe- costs. The deficiencies here concerned
cially for the larger procurements.         the smaller contractors and contracts.
We feel that a close line of reference
Information Required for
should exist between the classifications
Pricing Reviews
of proposed costs and actual costs.
The inability to make a reasonable
Reviews of pricing proposals could comparison appears to be the result of
not be effectively performed at the a lack of similarity between estimating
plants of several relatively small con- and accounting systems. Although such
tractors. Comparisons of proposal costs comparisons may not provide a total
with costs of performance for these measure of a contractor’s efficiency,
22                                                       CONTRACTORS' COST RECORDS

reliability, or overall technical capa-      Concluding Comments
bility, the) do provide a common basis
As mentioned preLiously, the direc-
for evaluating the performance of a con-
tract, procurement decisions, and/or        tiun taken in this inquiry was to gather
the effectiveness of operations by con-      information on the kinds of records
tractor officials as well as by those Gov-   kept by defense contractors arid the ade-
ernment representatives with related re-     quacy of the records for examinations
sponsibilities.                              made by the Comptroller General. All
The degree to which contract costs        of the 45 contractors surveyed main-
should be segregated depends upon the        tained basic transaction records. From
specific circumstances involved. A clear     that point their accounting summations
relationship between line item costs on      ranged from simple operating state-
a proposal and the costs subsequently        ments prepared on an enterprise basis
recorded for the contract should be          to highly sophisticated statements pre-
evident. Where this relationship is not      pared in great detail on a division,
evident, the identification of costs by
contract and cost element should be
or other basis.
the minimum requirement for cost pres-
The existence of a wide variety of sys-
entation. With respect to the recording
temized cost controls certainly is no
of such data, regulations or standards
could provide for specific contractual       surprise to the accountant M ith broad
agreement on the identification of costs     commercial or Government experience.
by change order whenever practicable         Correspondingly, it should be no great
and necessary. In many instances, the        surprise to find inconsistencies among
segregation of change order costs may        contractors as to what should be the
be neither feasible nor economical. In       nature of any selected cost accounting
such instances, contractors might be         principles to be applied in the identifi-
required to satisfy Government pro-         cation, classification, and control of
curement officials, generally in advance     costs. Cost controI systems, whatever
of performance, as to why costs of           their form, can be guided by broadly
change orders cannot or should not be        defined cost accounting standards, when
Improvement in the auditability of
changing present systems or attempting
proposals and performance data for
to introduce uniform systems. Existing
any desired review, including those for
cost controls provide a valuable fund
postaward audit or contract pricing
of information on procedures and s p
purposes, depends largely on improve-
ment in estimating and cost accounting       tems which could serve as a framework
systems and a corresponding improve-         for the development and application of
ment in the relationship between these       sound cost accounting standards that
systems.                                     will gain general acceptance.
ELLSWORTH            H. MORSE, JR.

Concepts of Auditing and
Systems Analysis                                          YJ(5-/ c:

How do the perspectioes and techniques of the practitioners in
these two fields differ? What are the prospects of bringing
them closer together as a further means of expanding the
competence of GAO staffs?

The systems analysis group of the                                    The responses received were quite il-
Office of Policy and Special Studies has                             luminating and, in my opinion, of con-
12 members at the present time. Four                                 siderable value in our continuing
of these came from outside of GL\O.                                  efforts to narrow the hap in thinking
The other eight came from other parts                                and practice between the two groups.
of GAO, either from the Civil Division                               As an overall objective, we in GA0
or from regional offices. Each of these                              should head toward integrating the two
eight individuals spent about a ear of                               approaches for all of our review work
intense, advanced study at major uni-                                as much as possible. In this way we
versities under the Educational Pro-                                 can capitalize on the best from each
the U.S. Civil Service Commission and                                vance our collective capabilities and
the National Institute of Public                                     competence.
Administrati0n.l                                                        The specific views of the ex-auditor
Not long ago I invited those who had                              systems analysts varied somewhat Lut
had experience on the GAO audit staffs                               all struck the common chord that the
to let me have their views on the dif-                               big difference was in the scope of work
ferences in approach and practice be-                                embraced in the systems approach. Use
tween a systems analyst and a GAO au-                                of sophisticated analj-tical techniques
ditor in carrying out an examination                                 !<-asmentioned as a common tool of &e
into the results of a government                                     systems analyst but they all recognized
portunity to learn how to apply these
'  See "Edurntional Prvprnni in S!stem< 4 n a l \ s i c , " LI,
V n r t o n A . 3 1 ~ e r s .the G 40 Rei tetc, Winter 1971, p 53.   techniques.

Mi-.11Ior.e    is the director. Offire of I'olicy and Special Studie.;.

23
24                                                AUDITING AND   SYSTEMS ANALYSIS

The specific views of these analysts  the basis of known or suspected prob-
are synthesized below in a composite    lems and opportunities to contribute
rCsumi of major areas of difference,    to improvement. He would be less con-
together with my own arbitrating        cerned with overall benefits o r program
commentary.                             effects and more concerned with iden-
The comments are analyzed under       tifying weaknesses in management or
Coverage o r scope of work            corrected.
Analytical techniques                    He may cover the management o r
Use of data                           administrative  aspects of an entire pro-
Consideration of alternatives         gram   over a period  of time but his ap-
Use of other analytical studies       proach  would  be  on a piecemeal basis.
He would be more likely to be con-
cerned with the program o r activity of
Coverage or Scope of Work                one agency rather than to examine into
the operations of other agencies in the
The systems analyst considers a pro-
same activity area. Also, he probably
gram o r activity as a system requiring
would not get into State and local gov-
inputs and producing outputs. His ap-
ernment programs and operations un-
proach to examining a system is to re-
less Federal funds were directly
view it in its entirety and to evaluate
all aspects.                             involved.
For a government program, he would Commentary
not restrict himself to the primary
agency responsible for the program but     These approaches are not incompat-
would also look at similar programs ible. Both have very definite merits.
conducted by other agencies o r organi- The audit approach evolved on the
zations. This means, too, that he would basis of hard experience and recogni-
not confine himself to Federal agency tion that government programs and ac-
operations and expenditures. He would tivities are simply too big to lend
also be concerned with State and local themselves to effective examinations of
government operations in the same all aspects in depth and the production
field.
of evaluative conclusions within any
As to outputs produced, he would be
reasonable time period. Also, the audit
concerned not only with benefits to the
primary recipients but with benefits to
approach dealt primarily with input         .
society as a whole. He would also ex- factors, such as costs, and the efficiency
amine into any negative aspects of a and economy with which operations
program, sometimes called disbenefits. were carried out. Recommendations for
*    c   ,

In contrast, the auditor would not changed procedures, bulwarked with
usually take on an entire program or solid evidence in support of the need
activity and examine into all of its as- for change, produced savings in public
pects. He would be more likely to se- expenditures and this. in itself, was
lect specific aspects or segments for (and still is) a desirable audit
penetrating examination, primarily on objective.
AUDITING AND SYSTEMS ANALYSIS                                                     25
Little attention was paid to examin-     significant conclusions. Such tech-
ing outputs or accomplishments and          niques include linear programming,
evaluating them in relation to costs.       regression analysis, queuing methods,
However, with the gradual extension of      netw-ork analysis, Monte Carlo meth-
the scope of audit work to embrace          ods, and decision theory application.
evaluations of results, accomplishments,       Auditors are not usually so trained.
or effectiveness of programs, the more      As a result, they are not prepared to
conventional audit approach and meth-       recognize the usefulness of such tech-
ods need expansion along the lines en-      niques or to apply them. They are more
visioned by the systems analyst.            likely to fall back on specific ex-
The systems approach described is        amples, usually selected on a judgment
somewhat theoretical in that most sys-      basis, to support conclusions.
tems analysts also recognize the im-
practicability of analyzing all inputs      Commentary
and outputs pertaining to a specific
program or to a recognized objective           This difference is one that can be
being sought through government ac-         largely eliminated through training.
tion. Thus, in practice, the scope of the   Even though all GAO staff members
systems analyst’s work would probably       may not acquire all of the skills nec-
not be as comprehensive as described.       essary to directly apply these tech-
The problem of seemingly impossible      niques, knowledge of them and what
scope would also be resolved by the         they can do will enable auditors to rec-
systems analyst in part by not exam-        ognize their usefulness in specific sit-
ining specific operations in great de-      uations and arrange for special assist-
tail. Instead, he would try to make over-   ance in using them. Such assistance
all analyses of inputs and outputs, i.e.,   may be provided either in-house or 1)y
cost-benefit analyses, in an effort to      consultants.
assess overall accomplishments or bene-        By their nature, these techniques
fits in relation to costs and to inquire    are not models of easy understandabil-
into the extent to which the outputs        ity. Systems analysts owe it to the
or results of a program are achieving       users of their work to simplify their
the established objectives.                 terminology and explanations of these
In any reasonably complete exami-        highly technical procedures. This is of
nation of a government program, both        special importance in GAO where the
approaches will need to be followed,        products of such applications will be
preferably in a fully coordinated, if       communicated to the Congress: the
not integrated, manner.                     Members of which have to be assumed
to be laymen.
In practice. it would seem appropri-
Analytical Techniques
ate to prepare the main body of our
Systems analysts are trained to rec-      reports as clearly as possible in nontech-
ognize and apply highly sophisticated       nical terms and include the more tech-
analytical techniques to large aggre-       nical aspects of the analytical work per-
gations of data in their effort to reach    formed in an appendix for the use of
AUDITING AND SYSTEMS ANALYSIS
26
those interested in delving into the tech-     clusions of the kind that might be
nical support and methods used.                reached hi- the systems analyst who is
willing to base his opinions on proba-
bilistic assumptions o r even on aspects
Use of Data
difficult to measure in numbers.
The systems approach often calls for
the use of large amounts of data in try-       Commentary
ing to assess accomplishments and
Under either approach, GAO con-
benefits. The systems analyst is more
clusions must be convincing and sup-
comfortable with large and relatively
portable. There is room for the audit
complex aggregations of data.
approach to embrace the analytical ap-
He is more likely to accumulate the
proaches that make possible reasonable
data necessary, in his judgment, to
conclusions based on data which may
measure the impact of a program or
be imperfect but which represent all
activity, if not otherwise available. He
will test the data that is available or col-   that exists. At the same time, such data
lected for significant differences and         must be analyzed and evaluated with
correlations, where appropriate. At the
skill and due care to avoid improper or
same time, he recognizes that very lit-
considered in all cases are the costs of
tle data is absolutely precise and that
in dealing with program results, the           the various approaches and the ex-
evaluator has to be concerned with             tent to which each approach will sup-
ranges, probabilities, and similarities.       port valid conclusions and constructive
Where models are used in an analysis        recommendations.
and evaluation of programs, they are
usually simplified and include only            Consideration of Alternatives
those factors (i.e., variables) consid-           The systems analyst is concerned
ered significant. This approach to eval-       with alternative programs or activities
uating program results necessarily             and with whether they can accomplish
involves some risk and the making of           specified objectives possibly better or
assumptions.                                   at less cost. He believes that his task is
The auditor, on the other hand, tends       to ( 1 ) discover, describe, and compare
to be suspicious of or even to display         alternatives, (2) provide information,
a dislike of large data banks. This may        and ( 3 ) identify problems for the con-
be due, in part, to a lack of experience       sideration of decisionmakers rather
in using such data which also usually          than addressing specific recommenda-
involves computer handling. It may             tions to them.
also be due, in part, to a desire for more        Auditors, by contrast, do not usually
precision than is likely to exist in large     seek out and evaluate the possibilities
aggregations of data.                          of alternative programs.
The auditor is more inclined to want
to document his findings and conclu-
Commentary
sions with verified facts and specific
examples which support his conclu-               The two approaches are not as far
sions. He tends to avoid reaching con-         apart as these views might indicate.
AUDITING AND SYSTEMS ANALYSIS                                                      27

GAO   audit policy has generafly called      studies and the fact that they are in-
for the identification of better ways of     telligible only to other trained analysts.
doing things in the areas in which ex-       The GAO approach in this case is to
aminations are made. Recommenda-             call for expert in-house assistance to
tions for different (that is, alternative)   examine such work and to assist in de-
courses of action usually result. GAO’s      termining its relevance and usefulness.
audit effort has been directed mostly
at operating matters rather than pro-        General Observations
gram results. Thus, application of es-          The above viewpoints as to GAQ
tablished audit policy in the area of        audit approaches do not fit all GAO
program results will automatically in-       audit groups and it is not likely that
volve consideration of alternatives.         they fit even any one group. It is an
On the other hand, whether specific       unsafe practice in GAO to make gen-
audit recommendations on identified          eralizations as to auditing practices
program alternatives will be made to         among the several operating divisions
decisionmakers, as contrasted with           or even among individual groups within
merely pointing out possible alterna-        a division.
tives, will undoubtedly be determined           However, the contrasts described
on a case-by-case basis considering          above (1) do reflect the views of ex-
such factors as congressional policy        perienced GAO auditors who have be-
objectives, related experiences, judg-      come systems analysts and (2) there-
ments on impact of possible changes,         fore provide useful insights into the
and: possibly, political considerations.     principal cited differences between the
two fields. With the program evaluation
Use of Other Analytical Studies              objectives, at least in GAQ, being the
The systems analyst is more likely to     same, these differences will narrow in
examine and make extensive use of            time.
analyses and evaluations made by                I n expanding GAO efforts into more
others.                                      penetrating evaluations of government
Auditors are less likely to take ad-      programs, our objective should be to
vantage of other studies in the same         amalgamate the best features of both
field.                                       approaches. Incorporation of the con-
cepts of systems analysis into GAO
Commentary                                   audit approaches will be an essential
ingredient in broadening the scope of
On this score, the two approaches          our review work.
should be identical in practice. GAO            Some of the differences referred to
audit policy has long called for ex-         above are already becoming less pro-
amination of all pertinent evidence re-      nounced as GAQ auditors increase their
lating to matters being examined and         efforts in program evaluation work and
this policy extends to review of studies     as understanding of systems analysis
by other groups. In the case of analyti-     concepts by the audit staffs improves
cal studies, failures on the part of         through staff contacts, increased com-
auditors to delve into them may be due       munications, and participation in train-
to the technical coniplexity of the          ing programs.
ROBERT H. STRAWSER, JOHN M. IVANCEVICH,
AND LEO HERBERT

&‘a-     )L-JT
Job Satisfactions of
Accountants

The job satisfactions of many pro-           Research Studies of Motivation
fessional groups such as attorneys,                A precise definition of motivation is
physicians, and educators have been             elusive. I n lieu of adding to the seem-
studied by behavioralists at an increas-        ingly endless list of new and old inter-
ing rate in the last two decades. A com-        pretations of the term, for purposes of
parable group, that of professional             our investigation, motivation is defined
accountants in government, public ac-           as an awareness on the part of the indi-
counting, and industry, however, has            vidual of tension within him which stirs
been virtually ignored.                         him to action intended to relieve that
In this paper our purpose is to com-         tensi0n.l
pare the job satisfactions of account-             Many studies concerned with motiva-
ants employed by agencies of the                tion have utilized the Maslow need-
Federal Government to those of their            hierarchy theory as a conceptual frame-
counterparts employed in public ac-             work and starting point.’ Maslow con-
counting. Hopefully the findings pre-           tends that human needs arrange them-
sented w d l provide needed insight into        selves in hierarchies of prepotency. As
the characteristics of those accounting         one need is satisfactorily fulfilled, it is
replaced by a n ~ t h e r .Man
~ continually
positions in both the Federal Govern-
seeks to gratify some need. The hier-
ment and public accounting which are
perceived to be the most and the least               Leslie Brach and Elon L. Clark, Pyrchology in Buri-
satisfying. For those interested in in-         ness ( N e w York: McCrowHill Book Company, 1 9 5 9 ) ,
p 7.
creasing the psychological rewards                   Atlaptwl from A . 1%. hlaslorv, Motivation and Per.
sonrilrt, ( N e w York : H a r p m and Row, Publishers, Inc.,
obtained from the accountant’s job,             1951) a n d A. H. hl.idnw, “.% Throry of Human Moti.
these findings also can be used to de-          \.itiun.”   Ps?r-hn/opicnl R r r ~ r w , 1‘01. 50 (1913), p p .
37&396.
lineate areas for improvement.                     3 /bid.

Mr. Strawser, a certified public accountant. is an associate professor of accounting a t
the Pennsylvania State University; Mr. Ivancevich is an associate professor of admin-
istrative scienre a t the University of Kentucky; and Mr. Herbert is the director, Officc
of Personnel Management.

28
J O B SATISFACTIONS O F ACCOUNTANTS                                                                  29

H IGHER-ORDE R
NEEDS

LOW E R-BRDE R
NEEDS

archy of needs from the lowest to the      needs, 20 per cent in his esteem and
highest order is presented above.          status needs, and only 10 per cent in his
Maslow characterized these needs as:     self-actualization needs.
Physiological-The requirement for           Lyman W. Porter conducted a series
food, clothes, shelter, sex, etc.      of studies to investigate how managers
Safety-The requirement for physi-        perceived the psychological character-
cal protection.                        istics of their jobs.’ To date, these
Social-The opportunity to develop        studies have excluded accountants.
close associations with other          Porter investigated the relationships
persons.                               between job level, type of work, orga-
Esteem-The prestige received both        nizational size, and line and staff posi-
within and from outside of the         tions on the one hand; and need satis-
organization.                          faction as reported in questionnaire
Self-Actualization-The opportunity       responses on the other. Porter elimi-
for self-fulfillment and accomplish-   nated the physiological need category
ment through personal growth and       discussed by Maslow and added an au-
development.                           tonomy need category. He felt that the
He also regarded these five sets of      physiological needs of managers are
needs as being in a definite hierarchy,    relatively satisfied and investigating
but not in an all-or-none relationship     these needs would not provide any use-
to one another. Maslow felt that de-       ful information concerning motivation.
creasing percentages of satisfaction are   He defined the autonomy need as oppor-
encountered as an upper level need re-     tunity, with related authority, for
placed a lower level one in predomi-       independent thought and a ~ t i o n . ~
nance. For example, an accountant
Lyman W. Porter, ‘‘A S t u d y of Perceived Need
might be 93 per cent satisfied in his      Satisfaction in Bottom a n d Ifiddle hlansTement Jobs,”
physiological needs, 75 per cent in his    Journol of A p p l i e d Ps.+chologj, Vol. 45 (Fel~ruary.1961).
pp. 1-10,
safety needs, 50 per cent in his social      5   Ibid.. p. 3.
30                                                                          J O B SATISFACTIONS OF ACCOUNTANTS

In studies of the effect of job level                           tions.” He defined a professional model
upon satisfaction Porter found, using                               as one in which the individual behaved
samples comprised of first-line super-                              as a professional and a bureaucratic
visors and middle managers, that job                                model as one in which the individual
level did influence need fulfillment.                               behaved as an employee.
Middle managers reported more need                                     The research concluded that CPAs
fulfillment in most categories than did                             with low bureaucratic orientations con-
first-line supervisors. The highest need                            sistently reported lesser degrees of job
deficiency for both groups was found                                satisfaction. The bureaucratic orienta-
in the self-actualization category.6 and                            tion of subjects appeared to be the most
Haire, Ghiselli, and Porter studied                             significant determinant of the level of
3,641 managers from 14 countries in-                                satisfaction.
cluding the United States.8 Managers                                   Do the findings reported in the stud-
in 13 countries (all except Japan) re-                              ies cited above also apply to profes-
ported that the self-actualization need                             sional accountants employed by the
category was the least satisfied. Other                             Federal Government and by public ac-
areas noted to be deficient in need ful-                            counting? To date, this question re-
fillment were the autonomy and esteem                               mains unanswered due to the lack of
areas. The deficit in the self-actualiza-                           empirical research data. We have at-
tion and autonomy needs was more                                    temped to fill this gap with the present
than twice as great as the deficit in the                           investigation.
other three need areas ~ o m b i n e d . ~
A study of union officials by Miller                            Methodology
considered the impact of position in the
union hierarchy upon job satisfac-                                   A modified form of the Porter job
tion.’” This investigation disclosed that                          satisfaction questionnaire was used to
lower level union officials u-ere gener-                            obtain the data for this study. The
ally less satisfied than upper level                               questionnaire contained 12 need items
officers in all five need categories.                              which were randomly arranged in the
questionnaire but are presented below
A study of certified public account-
according to Maslow’s need hierarchy.
ants conducted by Sorenson attempted
Categories are arranged from the lowest
to identify and to analyze commonali-
order (most dominant need) to the
ties and conflicts in need satisfaction
highest order (least dominant).
between professional and bureaucratic
models of public accounting organiza-                              I. Security Need
1. The feeling of security in my ac-
” I h d . , pp. 1-10,                                                   counting position.
Lyman W. PortPr, “Job Atirtuales I” I l a n a g r m m t :
IV. Perceived Deficiencies in Need Fulfillment os a                 11. Social Needs
Function of Size of Company,” Journal of A p p l i e d Psj-            1. The opportunity, in my account-
chology, Vol. 47 (DecembPr. 1963), pp. 38G-397.
Masun Haire, E d w n E. Ghiselli, and Lyman lV.                      ing position, to give assistance to
Porter, Managerial T h i n k i n g : A n Inremotional S t u d y           other people.
(Kew York’ John WIIPYand Sons, Inc., 1966).
I b i d . , p. 175.
lo E. Miller, “Job Satisfaction of National Union Of-             l1 James E. Sorenson, ‘‘Pruf*sstonal and Bureaucratic
ficials,” Personnel P s j c h o l a g y , Vol. 19 (Autumn, 1966).   Organization in the Publlr Arrountlng F~rrn,” The
pp. 261-27L                                                            n u n l r n g R ? , i e c , , I#,l.X L I I I l , , h , 19hi1, pp. 553-565,
.I,<
JOB SATlSFACJfONS OF ACCOUNTANTS                                                                            31
2. The opportunity to develop close               nected with your accounting position.
associations in my accounting                 For each you will be asked to provide
position.                                     two ratings on a 7-point scale:
111. Esteem Meeds                                     a. How much of the characteris-
1. The feeling of self-esteem ob-                     tic is there now connected with
tained from my accounting                          your accounting position?
position.                                       b. How much of the characteristic
2. The prestige of my accounting                       do 1-ou feel should be con-
position within the firm or agency                 nected with your accounting
(that is, the regard receil-ed from               position ?
others in the firm or agency).
3. The prestige of my accounting             For each of the 12 need-related items,
position outside the firm or           the respondents were instructed to an-
agency (that is, the regard re-        swer the above questions by circling a
ceived from others not in the firm     number on a rating scale that ranged
or agency).                            from 1 to 7. The low numbers repre-
sented minimum amounts, high num-
IV. Autonomy Needs
bers represented maximum amounts.
1. The opportunity for independent
thought and action in my ac-           Need Fulfillment Deficiency
counting position.
2. The authority connected with my           The amount of perceived deficiency
accounting position.                   for each of the 12 need items was cal-
3. The opportunity, in my account-        culated by subtracting the rating for
ing position, for participation in     part a of an item (“HOWmuch is there
the setting of goals.                  now?”), from part b of the item (“How
V. Self-Actualization Needs                  much should there be?”) .13 For ex-
1. The opportunity for personal           ample, assume that a respondent com-
growth and development in my          pleted the security need question as
accounting position.                   follows:
2. The feeling of self-fulfillment ob-      The feeling of security in my ac-
tained from my accounting posi-       counting position:
tion (that is, the feeling of being     2. How much is there now?

able to use one’s own unique ca-        (min.) 1 @ 3 3 5 6 7 (max.)
pabilities, realizing one’s poten-      b. How much should there be?
tialities, etc.) .                                      12345@7
3. The feeling of worthwhile ac-            This accountant has circled “2” in
complishment in my accounting         answer to part a and “6” in answer to
position.                             part b. His need-deficiency score would
The accountants participating in the       therefore be “4.“ The assumption is
study were provided with the following       made that the larger the difference,
instructions :
Lyman ‘T. Porter, “Job Attitudes in Management:
13

On the following pages will be          I\-.Pcrreired Drficiencres i n Need Fulfillment as B
Funclion of Job Lerel,” Journal of A p p l t e d P s j c h o l o p i .
listed several characteristics con-        Yo1 46 (DecemhPr, 1962). pp. 3.5-381.

421-0%-il-3
32                                                        JOB SATISFACTIONS OF ACCOUNTANTS

when part a is subtracted from b, the                approximately 60,000 CPAs by name
larger the degree of dissatisfaction or              and agency or firm affiliation.’j Replies
the smaller the degree of satisfaction.              were received from 351 of the 600 ac-
Individual scores are then averaged to               countants (for a response rate of 58.5
derive an overall score for each need                percent). A random sample of nonre-
item for that particular group of ac-                spondents to the survey was contacted
countants.                                           in order to analyze nonresponse bias. It
This method of measuring perceived                was found, however, that there was
need satisfaction is an indirect measure             similarity between respondents and
derived from answering part a and part               nonrespondents on such variables as:
b. The method has two advantages:                    (1) age, (2) education, (3) length of
The subject is not directly questioned     tenure with present firm or agency, and
as to his satisfaction. Therefore, any      (4) length of tenure in present position.
tendency for a simple “response set”
to determine his expression of satis-
faction measure to conform to what         Findings
he thinks he “ought” to put down ver-
sus what he actually feels to be the          Table 1 presents data comparing the
real situation is a ~ 0 i d e d . l ~      average need-satisfaction scores of the
Secondly, this method of measuring        top level accountants. The item scores
need fulfillment is a more conservative
indicate that the largest need deficien-
measure than would be obtained by
a single question concerning satis-        cies (i.e., highest mean value) for both
faction. I t takes into account the fact   groups of respondents occur in the self-
that higher level positions should be      actualization need category. The scores
expected to provide more rewards be-       also indicate that for five need items-
cause it utilizes the difference between
security in position, feeling of self-
obtained and expected satisfaction. In
effect this method asks the respondent:    esteem, prestige inside firm or agency,
“How satisfied are you in terms of         prestige outside firm or agency, and
what you expected from this particular     authority in position-the     public ac-
management position?” Thus, i t is de-     countants perceive more deficiency. For
signed to be a meaningful measure in
the other seven items-opportunity       to
c o m p a r i n g different management
groups.“
help people, opportunity for friend-
ships, opportunity for independent
Sample                                               thought and action, opportunity to par-
ticipate in goal setting, opportunity for
The questionnaire was distributed to
growth and development, feeling of
a random sample of 600 certified public
self-fulfillment, and feeling of accom-
accountants employed by agencies of
the Federal Government and by public                 plishment-the       Government account-
accounting firms in the United States.               ants report higher deficiency. It is in-
The sample was chosen by random                      teresting to note that with regard to one
methods from the membership direc-                   need item, security in job, the Govern-
tory of the American Institute of Cer-                ment accountants report that there is an
tified Public Accountants which lists
l5 American Institute of Certified Public Account.
13   Ibrd., p. 378.                                ants, Alphabetical List of Members (Kew York: Am&.
34   Ibid.                                         can Institute of Certified Public Accountants, 1967).
JOB SATISFACTIONS OF ACCOUNTANTS                                                                              33
TABLE 1
Average Need-Satisfaction Scores of Top Level Accountants:
Federal Government and Public Accounting

Federal              Public
Need categories and items                             Government          accountants:
accountants:          N = 107
x =51

I. Security need:
a. Security in position. .......................                                   (. 29)             **   42
11. Social needs:
a. Opportunity to help people. . . . . . . . . . . . . . . . .                     .57                 .49
b. Opportunity for friendships. . . . . . . . . . . . . . . . .                    .49                 .48
111. Esteem needs:
a. Feeling of self-esteem . . . . . . . . . . . . . . . . . .                      .43                 .56
b. Prestige inside firm or agency. . . . . . . . . .                               .49                *. 82
c. Prestige outside firm or agency. . . . . . . . . . .                            .SO                 .6h
1V. Autonomy needs:
a. Opportunity for independent thought and action.                                 .66                 .60
b. Authority in position. .......................                                  .10                 .46
c. opportunity to participate in goal setting. . . . . .                           .63                *. 35
V. Self-actualization needs:
a. Opportunity for growth and development.. . . . .                               .97                 *. 70
b. Feeling of self-fulfillment, . . . . . . . . . . . . . . . . . . .             .97                 *. 43
c. Feeling of accomplishment. . . . . . . . . . . . . . . . . .                  1. 06                 .95

Note: The larger the average mean valiips the less the perceivrd need satisfaction.
'Designates significant differences at .05 level of confidence as determined by two-tailed t-test.

excess rather than a deficiency. Sta-                        somewhat from the theoretical model.
tistically significant differences were                      For example, the autonomy need is the
found in analyzing five of the 1 2 need                      second most satisfied category and the
items.                                                       esteem need the fourth most satisfied.
The item score for each of the five                       It is Porter's contention that the rank
need categories were combined to de-                         order of need satisfaction from most
rive cluster scores.16 These scores are                      to least would normally be-security,
presented in rank order format for top                       social, esteem, autonomy, and self-ac-
tualization.
level accountants in the Federal Gov-
The findings presented in Table 3
ernment and public accounting in Table
report the average need-satisfaction
2. A review of Table 2 shows that while
scores of middle level Government and
the rankings of the two groups are sim-                      public accountants. The middle level
ilar, the Government accountant rank                         public accountants report greater per-
order is closer to the need hierarchy                        ceived need satisfaction for 11of the 12
model. The security, autonomy, and                           items (all except security in position).
self-actualization needs are ranked ex-                      Four statistically significant differences
actly as postulated by Porter. The pub-                      were found. Again, the largest need de-
lic accountant rank order deviates                           ficiencies are perceived LO he in ihe
opportunities to fulfill the self-actual-
l6 The cluster scores are the average of the item scores
for each need category.                                      ization category.
34                                                                     JOB SATISFACTIONS OF ACCOUNTANTS

TABLE 2
Average Need-Satisfaction Cluster Scores i n Rank Order by Category for Top
Level Accountants: Federal Government and Public Accounting

Federal Government accountants:       N =5l                          Public accountants: N=107
-                                                       __
Rank           Need category                Cluster score                 Need category               Cluster score

1 Security..                                            (. 29) Security.                                           .42
2 Esteem.. .                                            .46       Autonomy                                         .4?
3 Social.. . . .                                        .53       Social.. . . . . .                               .49
4 Autonomy.. . . . .             . .                    .56       Esteem.. . . . . . . . .                         .68
5 Self-actualization..           . .                    .99       Self-actualization . . . . .                     .69

TABLE 3
Average Need-Satisfaction Scores of RIiddle Level Accountants:
Federal Government and Public Accounting
~.

Fedrral            Public
h e e d categorips and i k m e                              Covcrnnient        arcountants:
accountants:         X=128
N=65

1.Security need:
a. Security in position . .                                                           .16                    .40
11. Social needs:
a. Opportunity to help people                                                         .52                    .33
b. Opportunity for friendships. . .                                                   .55                    .51
111. Esteem needs:
a. Feeling of self-esteem. . . .                                                    1. 16                   *. 60
b. Prestige inside firm or agency. . .                                               .''8                    .63
c Prestige outside firm or agency         .                                          .91                    *. 56
1V. Autonomy needs:
a. Opportunity for independent thought and action                                     .86                    .62
b. Authority in position. . . .              ,   .                                    .91                    .71
c. Opportunity to participate in goal setting ,                                     1. 26                   1. 11
V. Self-actualization needs:
a. Opportunity for growth and development      .                                    1. 56                   *. 92
b. Feeling of self-fulfillment. . . . . .                                           1. 23                   1. 12
c . Feeling of accomplishment. . . . . .                                            1.23                    *. 84
'Designata significant differences at . 0 5 level of cnnfidmre as detcrinined hy two-tailrd t-test.

Table 4 brings into clear focus the                         higher, particularly among the higher
rank orders of the cluster scores for the                      level need items.
middle level accountants. The five need
categories are ranked in an identical                          ~               i                  ~            ~           ~   ~
array for both groups of accountants.
It should be noted, however, that the                             Previous empirical studies of the ef-
absolute values of the five cluster scores                     fects of position in the managerial
for the Government group is somewhat                           hierarchy of respondents on perceived
JOB SATISFACTIONS OF ACCOUNTANTS                                                                                                          35
TABLE 4
.!,\.rage            Aeed-Sati3faction Cluster Scores i n llanli Order b> Category- for 1liddle
Leiel Accountants: Federal Goiernment and Public .!,cco~inting
~   ~   ~~~~~               .-   ~~~~~       -        .                                               ~   ~~~~~~~~~~                          ~~~

Fedrral Go\rrnmrnt aclroiint.tnts: h =65                                     I'ublic accountants: 3 = 128
K.i"k                   herd category                     Clubtrr score                 h e e d category                       Clustrr scow
~~              ~~.
.~           ~____~    ~~                               ~      -

1       Securitv                                                 . 20    Security                                                 . 40
2       Social..                                                 . 57    Social.. .                                               .12
3       Esteem . .                                         1. 03         Ebteeiil                                                 .59
4       Autonorn>- .                                       1. 07 Autonorri>-                                                      .80
5       Self-actualization .                               1. 40 Self-actualrzatiou                            .                  .96
~-                 ..~~                       ~~    -

need satisfaction have consistently                                             level positions. It is interesting to note
found that self-actualization needs are                                         that the top level public accountants
the most deficient area of satisfaction.                                        report less satisfaction in the esteem
The present study lends further support                                         need items than do their middle level
to these findings.                                                              colleagues. Although the top level re-
The present research indicates that                                          spondents are more satisfied in the irn-
the security need is fairly w-ell satisfied                                     portant self-actualization category they
for both groups of accountants. A high                                          appear to be less satisfied with their
degree of satisfaction in this category                                         prestige both within and outside their
is hypothesized by Maslow and Porter                                            firms. This finding may indicate that
in their need hierarchy frameworks.                                             the upper echelons of the public ac-
Unprecedented, however, is the finding                                          counting profession may be coping with
that top level Government accountants                                           the question of professiorialisrn in ac-
report too much security in their posi-                                         counting. It has been stated that while
tions. (Middle level Government ac-                                             the public readily accepts the premise
countants and both groups of public                                             that the physician, lawyer, and scien-
accountants report a slight deficiency                                          tist are professionals, there are some
in the security need). It appears that                                          who question the accountant's claim to
further research designed to identify                                           full professional status. This lack of
the specific factors underlying this un-                                        recognition from the public may be re-
usual finding is warranted.                                                     sponsible for the top level accountants'
The results of the present study also                                        responses to the esteem need item ques-
indicate that social needs are relatively                                       tions. Further research must be under-
satisfied for both groups of account-                                           taken to determine the exact reasons for
ants. The public accountants report                                             this finding.
slightly higher need satisfaction in this                                          While middle level Government ac-
category than do their Government ac-                                           countants report relatively low levels of
counting counterparts.                                                          esteem need satisfaction, this situation
At middle level positions, public ac-                                        improves considerably at the top level
countants report significantly higher                                           of Government accounting.
degrees of esteem satisfaction while                                               The certified public accountants em-
exactly the opposite is true at the top                                         ployed in public accounting report
36                                              JOB SATISFACTIONS OF ACCOUNTANTS

higher degrees of satisfaction in the      needs a challenge; it is possible to have
autonomy need in every item except         “too much satisfaction.”
“authority in position” where the op-         In addition, the present research
posite is true for the top level           compares the job satisfactions of CPAs
accountants.                               at top and middle level positions em-
Both levels of Government account-      ployed in public accounting and Gov-
ants report significantly fewer op-        ernment. In some ways, the groups may
portunities to satisfy the important       be somewhat different. In a sense, mid-
self-actualization needs. Statistically    dle level accountants are “still striving”
significant differences were noted in      while those at top levels have usually
analyzing four of the six items in this    attained many of their goals. Also,
category.                                  there may be different methods of effec-
In interpreting the above findings,     tively motivating the CPA in public
it would seem that several “caveats” are   practice as opposed to his counterpart
in Government. All of these factors
in order. First of all, a “0” score for
complicate direct comparisons among
the various “need deficiencies” should
the groups and, to some extent, should
not be regarded as any type of absolute
be kept in mind in considering the find-
goal or objective. As previously indi-
ings reported above and the tentative
cated, different percentages of satis-     conclusions drawn from them. The re-
faction are expected among the various     sults of the study, however, should be
categories of needs. Furthermore, a        useful in designing and implementing
certain amount of “deficiency” is not      possible improvements in programs and
necessarily bad; some need would seem      methods of employee motivation and in
to be a healthy situation. Every job,      identifying those areas where further
especially one of a professional nature,   research seems to be appropriate.
ROBERT Y. HILL, J R .

Behavioral Science-
A Management Pool

Understanding the principles and techniques of behavioral
science can help auditors achieve their audit objectives.

Having problems accomplishing                approaches to management-Theory              X
your audit goals? Perhaps you need to           and Theory Y.
consider behavioral science in your
managerial approach.                            Theory X
What is behavioral science? I t is not
running rats through mazes. Instead,               Theory S is the favorite of the defen-
behavioral science is the study of an           sive boss. He believes that most workers
are untrustworthy, lazy, and irrespon-
individual’s conduct influenced nega-
sible and require close supervision, and
tively or positively by his environment.
that external rewards must be carefully
It is considered a management tool to
rationed to keep workers motivated.
be used to turn men’s irritability into
useful effort, creative and beneficial to          Is this your attitude and approach?
the organization.                               Then undoubtedly you have wondered
what 1-ou did to make that staff member
Behavioral science is an approach
that can be used to avert serious prob-         blow up! Is it possible you need to
think a little before you speak? Per-
lems that men and organizations could
haps you need to remind yourself that
be unconsciously building. I t can assist
the men and women who work with
in identifying organizational hangups,
you, and for you, are people and will
maximizing an employee’s strength,
not favorably respond unless you treat
and assuring audit efficiency and               them as people.
timely reporting.                                  ‘Xhile behavioral science is not a
people-problem panacea, it can help
Management Approaches                           avoid the kinds of misunderstandings
that stifle efficiency and creativity. This
The basic tenets of behavioral scien-        does not mean that individual whims
tists include two distinct and conflicting      are to be humored-but it does mean

Mr. Hill is a supervisory auditor with the Detroit Regional Office. He is a graduate of
Ferris State College, and has been with the General Accounting Office since 1962.

37
BEHAVIORAL SCIENCE
38
that an individual’s viewpoint should         that audit problems are technical in
be understood and considered.                 nature and that the human element
plays only a minor role in the solution.
Theory Y                                      To accomplish the audit objective effi-
ciently, effectively, and timely, however,
Theory Y presumes that people are          requires understanding and manage-
inherently creative, strong, and want         ment of individuals assisting in the
to make a contribution. According to          work.
Theory Y, people work best %hen                  If individuals are allowed to partici-
supervisors stop erecting defenses            pate, does behavioral science lead to
against presumed apathy and act as            better decisions by consensus or cause
though they recognize potential.              wasted audit time in bull sessions?
Have you overheard your nien say,          Wasted time can be prevented if the
“This is not an operation, it is a hap-       sessions are confined to audit condi-
pening!” Perhaps behavioral science is        tions and objectives. The advantage of
the solution. How often has one of your       these sessions is the realization that
men felt he could bypass you when he          consensus, rather than a determination
attention, and come up with a sound            to better decisions.
workable solution that would withstand
scrutiny?
Techniques To Consider
Understanding and Supervising                    Some techniques for consideration,
Your Staff                                    according to Abraham H. Maslow in
his book /Yotivation and Personality,
When did you use a staff member‘s          published by Harper in 1954, are:
potential, tailored to job needs, to
Learn what makes each of your sub-
minimize the amount of time required
ordinates tick.
to audit and issue a report? Each super-
Find out what turns them off.
visor honestly interested in doing a job
Keep an open mind.
should organize his staff by function.
Remember that you are managing
responsibility, and authority to get the
people, not machinery.
most effective performance available,
Key your actions to avoid misunder-
or that can be made available. Without
standings that turn off creativity.
sincerity toward men, difficulty will be
Do not expect miracles from beha-
experienced and the performance of
vioral science. I t is a tool, not a
individuals will slip to the point that
panacea. Use it. but do not let it
productivity is affected.
become a crutch.
Auditing, as well as any management
function requiring technical knowl-               Not all supervisors use these tech-
edge, must be blended with judgment.           niques. Instead. they use conflict to ar-
While it is true that effectively conduct-    rive at a decision or audit procedure
ing an audit requires a thorough              that everyone supports. These super-
knowledge of conditions and objectives,       visors, although considered successful,
some people have the mistaken notion          must learn that attitudes have changed.
BEHAVIORAL SCIENCE                                                                 39
People today will not tolerate this bull-      If taught behavioral science, the su-
of-the-woods approach. Behavioral sci-      pervisors of tomorrow should obtain
ence, therefore, must be used to over-      the desired results and should meet
come such reaction. Supervisors do not      the needs of the employees. If beha-
need new tools. Instead, they should        vioral science is learned and supervi-
learn to practice some of the old ones:     sors satisfy the needs of employees,
awareness, rapport, communication,          efficiency will increase and turnover
patience, and understanding.
rates u-ill decrease.
Behavioral Science: A Solution                 Behavioral science needs to be prac-
ticed in order to audit efficiently and ef-
Ever wonder what supervisors do
fectively. Remember these are not new
with human resources? Do they achieve
the best possible potential from their      techniques-j ust refinements of old
subordinates which, in turn, expedites      ones. Patience, understanding, hon-
completion of the job?                      esty, and fair play still work.
GERALD GOLDBERG
YJf      37;ra-

Legislative Control Over
Expenditures

The author reciews the British and American systems of
legislative control over Treasury expenditures and comments
on their relevance to today’s changing economy.

I n order to adjust to changing eco-
of England ranked third among the
nomic and social conditions, a countrygreat medieval officers of England,
must have a flexible system of finaricial
after the Archbishop of Canterbury
administration. With certain improve- and the Lord Chancellor. The Treas-
ments made over the years, the Britishurer actually held two positions, Lord
system of financial administration,   Treasurer of England and Treasurer of
from which our system evolved, has    the Exchequer. The Office of Lord
proven superior to other types of con-Treasurer advised the king on financial
trol used in other countries.         policies; that is, whether the king could
afford a new palace or fleet. The Office
the development of the British financial
of Treasurer of the Exchequer was ( 1 )
the custodian for some of the king’s
ment’s increasing control over the fi-valuables and ( 21 the accounting
nancial affairs of the Crown (executiveagency responsible for collecting taxes
branchj and ( 2 ) how the British Par- d u e the C r o w n and paying a m o u n t s
liament and our Congress control es-  owed by the Crown in accordance with
penditures of the executive branches oflaw and custom.
the respective Governments.
At first, the British system did not
function properly due primarily to a
Treasurer of England                   lack of supervision of the clerks by the
Lord Treasurer and the Exchequer. In
The Office of the Treasurer of Eng-
land is of Norman origin and dates addition, appointments were made for
from 1216.                             political reasons to the most lucrative
From the middle of the reign of positions and for family reasons to the
Henry I11 ( 1216-1272) the Treasurer average positions. Once appointed, offi-

Mr. Goldherg is a supervisory auditor in the Civil Division. He is a graduate of the
University of Maryland and has been with the General Accounting Office since 1959.

40
LEGISLATIVE CONTROL OVER EXPENDlTURES                                             41
cials could hold their jobs for life since   1667 and in that year he instituted the
there was no procedure for adminis-          first system of Treasury records which
tratively removing dishonest or incom-       showed disbursements and revenues by
petent officials.                            program.
The development of the Treasury as           In 1663 Parliament spelled out the
a department began in the late 1500’s        Treasury’s powers in greater detail.
when the Office of the Lord Treasurer        Basically, all money warrants except
of England started giving instructions       secret service warrants (for intelli-
to executive departments concerning          gence) were required to be signed by
receipts and disbursements of the            the Exchequer and countersigned by
Exchequer.                                   the Treasury Lords. Further, all dis-
In 1612 King James I established the      bursements were required to be made
post of Treasurer of England in the          out of the Exchequer, which meant that
Treasury Commission and entrusted to         the departments must apply to the
a board of five or six persons the duties    Treasury for money. Secret service re-
of providing advice on monetary and          quests for funds came under Treasury
fiscal matters and maintaining account-      control in 1676. Thereafter, all depart-
ing records.                                 ments needed Treasury authorization to
In order to prevent excessive grants      spend any money.
from being issued, the king of England          The British Bill of Rights of 1688
in 1660 required that the Treasury’s         required the Crown to relinquish to
opinion of appropriation laws be ob-         Parliament the right to impose taxes
tained before any warrants were pre-         and the right to control expenditiires
sented for his signature. Warrants are       out of the public revenues. From being
documents authorizing certain officials      a department wholly responsible to the
to disburse monej-s from the Treasury.       king, the Exchequer after 1683 became
responsible to Parliament, with the
Parliamentary Control                        function of determining that no pay-
ments were made out of the public
The origin of the British system of       money without the express authority of
legislative control over financial mat-      Parliament.
ters was the Magna Carta proclaimed             The next major development was
in June 1215, which provided that only       Standins Order No. 73 issued in 1706
the legislature could authorize the im-      by the House of Commons which pro-
position of taxes. The next major de-        vided that only the Crown could initiate
velopment in Parliamentary control oc-       proposals for expenditure. Since 1714,
curred 450 years later when Sir George       the Treasury has been governed by a
Downing persuaded Charles I1 to agree        Board of Commissioners, numbering
to accept a Parliamentary appropria-         seven ministers, who carry out the du-
tion for a specific purpose.                 ties of the ancient office of Lord Treas-
Sir Downing. known as the father of       urer. One Commissioner is the Prime
the principal of “supply” (financing         Minister. another is the Chancellor of
programs throuph specific appropria-         the Exchequer. and the remaining five
tions), was appointed Secretary of the       are Junior Lords, Members of Parlia-
Treasury Commission by Charles I1 in         ment. The Chancellor of the Exchequer
42                                             LEGlSLATlVE C O N T R O L O V E R EXPENDITURES

has the responsibility for preparing the            in arrears. Coinciding with the ad-
annual Estimates (budget) and for de-               ministrative reforms previously
ciding the amounts and details of the               mentioned, an Audit Board con-
Estimates.                                          sisting of five commissioners was
established at the end of the 18th
century. In 1830, the first appro-
Four Principles of Financial                        priation audit was performed in
Administration                                      which the auditors not only ascer-
tained that the payments con-
By the end of the 18th century four
formed to proper official Parlia-
mentary authority, but that all of
the payments were in accordance
-No         money can be obtained or              with the purposes and amount of
spent without legislative authority.        Parliamentary appropriation acts.
The development of this principle
was discussed above.                      These four principles were incorpo-
rated into the financial system of the
-All funds obtained are deposited
in a single fund from which all ex-    United States as follows:
penditures are made. A British            -Article I, section 9, of the United
commission in 1780 recommended              States Constitution of 1789 pro-
that one fund should be established         vides that:
to account for revenues and ex-                 No Jfoney shall be drawn from the
penditures of public money. The              Treasury, but in Consequence of Appro-
Customs and Excise Act of 1787               priations made by Law;
established the Consolidated Fund         -The     fiscal year concept was
(Exchequer) as “a fund into                adopted in 1789 in the first general
which shall flow every stream of            appropriation act passed by the
the revenue and from which shall            Congress (1Stat. 95).
issue the supply for every public         -The fund, with several exceptions,
service.”                                   into which revenues are deposited
-The period of financial account-              and from which expenditures are
ability is a year. From the earliest        made has by usage and custom
English records until 1752 the fi-          since 1789 been called the general
nancial year (fiscal year) ended            fund.
September 29. The financial year          -Responsibility for making audits
was changed several times until              and investigations of Government
March 31 was established as the             agencies was provided for in the
end of the financial year in 18.54.         first Treasury Act of September 2,
-The audit was instituted as a meas-           1789.
ure of supervision and control.
During the 16th and 17th centu-
ries, audits required by Elizabeth    British Budget System
I (1558-1603) of the public ac-
counts were not very efficient and       The British supply or appropriation
the audits were usua!ly many years     process begins December 1, u-hen the
LEGISLATIVE CONTROL OVER EXPENDITURES
43
departments submit their Estimates           and approved by the Ways and Means
I budgets) for Consolidation Fund sup-      Conmiittee with consent of the House
ply services to the Treasury for revielv     of Commons to amend the law authoriz-
for the financial year beginning April 1.    ing the national debt for another )-ear.
Supply services are public services             The House of Commons has a rule
financed bj- annual appropriations of        that nothing may be included in a
the Parliament. The Estimate excludes
Finance Bill which was not covered by
any request for Consolidated Fund
a previous resolution. The Finance Bill,
standing services. Standing services are
which is then introduced and discussed
those items which Parliament has deter-
over a period of 8 to 10 weeks, puts the
mined to be of a permanent nature and
I
include such items as interest and man-      budget proposals on taxation, duties,
agement costs on the national debt. pap-     and the national debt into statutory
ment to the Sovereign and Royal House-       form.
hold, and pensions of former Prime              The House of Commons, after debate
Ministers.                                   on the Estimate in its Committee of
Parliament and the general public        Supply, grants (votes) the sums to be
are informed of the Estimates in Febru-      spent. Before the grants are legally ap-
ary of each year when the “Vote on           propriated, the House of Commons,
Account” bill, which shows the totals        upon approval of its Committee of
for each Estimate, is published by           Ways and Means, authorizes the issue
Treasury. Because it is impractical for      of monej- to meet the voted expendi-
Parliament to go through the entire          tures. The House of Lords must assent
supply process before the financial year     to the Appropriation Act before it is
begins on April 1, the “Vote on              passed. Passage usually occurs at the
Account” also shows the amounts that         end of July.
will be required to cover the first 3 or 5      Other items in the supply process
months of the financial year. Vote is the    include (1) Supplementary Estimates
deed by which Parliament actually            in the March Consolidated Fund Act
grants or appropriates funds. The            and (2) Excess Votes. Supplementary
”Vote on Account” generally becomes           Estimates provide funds to agencies
law as a clause of the March Consoli-        which do not have enough money for
dated Fund Act on the last day of            the current financial year, similar to
March upon the signature of the               supplemental appropriation acts en-
sovereign.                                   acted in the United States. I n the one
I n early April the Chancellor of the       t o cases when it becomes necessary
or M
Exchequer makes the budget statement         for the Crown to make expenditures not
to Parliament, after which the Com-          authorized by Parliament and Parlia-
mittee of Ways and Means of the House        ment is not in session, Excess Votes
of Commons votes immediately on reso-        provide Parliamentary authority for
lutions to continue taxes at the current     the expenditure pursuant to a Treasury
rate: to increase: or to lower them. A       authorization that the need was real and
general resolution is then introduced        urgent.
LEGISLATIVE CONTROL OVER EXPENDITURES
44
United States Budgetary System               for a staff of 587 persons to review the
British expenditures of g11.5 billion
I n the United States, the Office of     ($27.6 billion) in financial year 1968. Management and Budget is responsible The actual process of issuing money for preparing the budget, which is pre- appropriated by Parliament is formal sented by the President to the Congress and is in accordance with Sections 14 in early January of each year. Appro- and 15 of the Exchequer and Audit De- priation and tax bills originate in the partments Act, 1866. Parliament votes House of Representatives. The Ways (appropriates) money for specific pur- and Means Committee of the House of poses to various heads of expenditure Representatives has the power over tax (account symbols and titles) and the measures, and appropriation commit- funds are accounted for under the same I tees in the House and Senate review the heading. Supply grants (appropria- budget requests of the departments. tions) are technically made to the Upon passage by both Houses and ap- Crown and must be released by a Royal proval by the President, appropriation Order before the funds are placed at and tax measures become law. the disposal of the Treasury. Money is We have basically three types of ap- issued in the form of imprests (or ad- propriation acts : ( 1) general appro- vances) from the Exchequer account priation acts which are mainly those to the credit of the spending depart- for the current fiscal year, (2) supple- ments in the accounts of the Treasury. mentary appropriation acts which sup- Pursuant to the 1866 act, the Comp- ply additional funds during the current troller-Auditor General is responsible fiscal year to departments which need for insuring that the Treasury’s request more money than originally appropri- for credit (authorization) is in accord- ated, and ( 3 ) continuing joint resolud ance with the grants of Parliament. tions which provide spending authority Section 15 of the act allows the Comp- for the first several months of the new troller-Auditor General to grant credits fiscal year until the Congress has passed to the Exchequer at the Rank of Eng- the general appropriation acts. land “when any Ways and Means shall have been granted by Parliament or Control Functions resolution of the House of Commons.” The total credits must r i w t exceed the The Exchequer and Audit Depart- amount of Ways and Means granted. ments Act, 1866, established the On the Treasury’s requisition form Exchequer and Audit Department, called an imprest, the Comptroller- headed by the Comptroller-Auditor Auditor General writes the following : General. The Comptroller-Auditor Gen- I hereby grant a credit to the Treasury on eral is independent of the Treasury the Account of the Exchequer at the Bank and the Crown, and is responsible to of England or on the growing balance thereof and reports to the House of Commons to the amount of f ------------,on account of Parliament. of Ways and Means granted for the year The Financial Year 1969 Estimate _---. budgeted$977,000 ($2,344,800) for This is the critical measure that releases the Exchequer and Audit Department the credit. Without the credit, Treasury LEGISLATIVE CONTROL OVER EXPENDITURES 45 would have no legal authority to issue The Treasury’s requisition form, checks from the Exchequer account at “The Department of the Treasury Ap- the Bank of England. A Treasury Lord propriation Warrant.” which author- would run the risk of being held izes disbursement of funds by the accountable for an unauthorized check. Treasurer of the United States, is ini- I n summation, each issue out of the tiated and signed by the Secretary of Exchequer for supply services requires the Treasury and contains the the authority of a grant of Parliament, following: a Roya1 Order, an imprest from the The Congress having. by the Acts hereon Treasury to the Comptroller-Auditor stated, made the appropriations hereunder General, a grant of the credit by the specified. the amounts thereof are directed Comptroller~Auditor General, and a to he estahlished in the general and detailed appropriation account=, totaling in all Treasury Order to the issue of credit.$- - _ _ _ - - _ _ _ _ _ and for so doing this shall be
In the United States, the Budget and      the
Accounting Act, 1921. established the
The authority that releases the credit
General Accounting Office as an inde-
enabling authorized disbursing officers
pendent agency directly responsible to
to issue checks on the account of the
the Congress. In the fiscal year ended
Treasurer of the United States is the
June 30, 1970, the appropriation for
countersigned signature of the Comp-
GAO was $70,273,000 for a staff of troller General or his designated repre- 4,516 persons. In contrast, total out- sentative. The Treasurer of the United lays of all Federal agencies for 1970 States could be held accountable to re- were about$197 billion.
fund any amount issued without this
Article I, section 9, of the United
authorization.
States Constitution states that no
Unlike the British Comptroller-
money shall be spent, except as author-
Auditor General. the American Comp-
ized by the Congress. Amounts are
troller General has statutory power
credited to the accounts of the spendin$pursuant to 31 U.S.C. 74 to make ad- departments in the Treasury’s central vance decisions on the legality of any accounting records for cash operations. proposed disbursements. These deci- The vehicles for issuing the credits are sions are final and conclusive upon the “appropriation warrants.” The actual process of issuing money executive branch. or credits appropriated by the Congress is not spelled out in the Constitution, Conclusion but the practice of using warrants was established in the act of September 2, The British system of lepislative con- 1789 (1 Stat. 6 5 ) , which created the trol over expenditures has proven its Department of the Treasury. flexibility to meet changing needs for The Comptroller General, the head of over 750 years. During that time, Par- GAO, is responsible for determining liament has increased its control over that a request by the Treasury to estab- the financial affairs of the Crown and lish a credit for an agent!- is in accord- has been able to institute important ance with the appropriation of the changes in the Crowi’s financial affairs. Congress. The Comptroller-Auditor General who 46 LEGISLATIVE CONTROL OVER EXPENDITURES is independent of the Treasury and the The principal function of both the Crown provides an important check on British Comptroller-Auditor General financial matters. Also, the “vote on ac- and his American counterpart, the count” method of supplying temporary Comptroller General, is of course not funds for new programs until Parha- to control, but to audit expenditures. ment officially appropriates the funds Recently, a bill was introduced in the provides flexibility in that it allows 92nd Congress to create an agency in Parliament to allocate moneys without the Congress to examine budget re- the entanglements and delays involved quests, program costs and effectiveness, in the regular appropriation process. appropriations, and national priorities. I n the United States, there has been A section of this bill would have the a trend away from detailed legislative Comptroller ceneral furnish copies of control of finances and an inclination analyses of expenditures with respect to toward greater reliance on the executive any department or agency in the execu- agencies to maintain proper controls. tive branch. Congress needs this mech- Nevertheless, I believe that, for eco- anism to help congressional staffs ex- nomic reasons, more congressional con- amine the policies and programs, re- trol over finances should be established. flected in the President’s budget. There There is not enough money to solve all of our social and economic problems. is a great need for the Congess to have For the Congress io allocate funds to the manpower: with the most those programs where it would do the modern computerized methodology, to most good, progr3ms competing for the fully examine and evaluate apPropria- limited funds should be subjected to tion measures with regard to the needs strong legislative control. of the Nation. G. V. GRANT An Old Lady Gets a Mew Dress Since the turn of the 19th century Government auditors hare been required to settle the accounts of accountable officers. The author describes his esperiences in performing such a n audit under the approach prescribed b y the Coniptroller General in 1969 to test theadequacy of agency internal control systems as the basis for settling accounts of accountable officers. “I would like you to prepare an audit accountable officers’ accounts-was program for settlement of accounts of made a duty of the Treasury Depart- accountable officers and then monitor ment by various acts beginning about the subsequent review,” my supervisor the turn of the 19th century. With the stated in February 1969. At first I was passage of the Budget and Accounting not overly pleased at the assignment Act, on June 10, 1921. however, this since settlement review were treated responsibility was transferred to the by many GAO supervisors as necessary General Accounting Office. The act of evils at best. I quickly found, however, May 19, 1947. still in effect, specified that a very challenging and interesting that accounts, generally, must be settled assignment faced me. Before telling you by GAO within 3 )-ears from the date my experiences on the assignment, I of the receipt of the account with three will give some background information very important qualifications : about settlement reriervs. -The 3-year period is suspended during any war in which the Background United States is engaged. -After an account has been settled, Determining the amount due the that settlement is final and conclu- Government from the person held re- sive upon GAO after the expiration sponsible for the receipt, disbursement, of the 3-year period except as to retention, or approval of the expendi- moneys which have been or may ture of public funds-i.e., settlement of be lost through fraud or criminal- Mr. Grant is a super\irury auditor in the Cikil Dibiiiun currently assigned to the Interior audit site. He joined GAO in Fehr-ary 1962 after graduation from Duquesne University and holds a CPA certificate from the State of Virginia. 421.l):s--T1--- 4 47 01.D LADY GETS A NEW DRESS 48 ity on the part of the accountable to do such a review at all locations of officer. the agency concerned. -Amounts found due within the 3-year period may be recovered Audit Program after the 3-year period has expired. While my first thought was that GAO During fiscal years 1967-69. 31 re- had not prepared audit programs for ports on Corps of Engineers (Civil settlement reviews, I was mistaken. In Functions) settlement reviews were sent fact, the Washington Regional Office to agency officials. The amount of time had prepared a program for use in set- spent on a number of these rei’iews ’ was tlement reviews at Federal agencies in disproportionate to the significance of general. Therefore, with their knowl- the findings in the reports. (An un- edge, I was able to use their general known but important factor, of course, program as a guide in writing our is the deterrent value of our settlement specific one. audits.) Other helps in compilin,0 our pro- In the settlement area, our policy has gram were various accounting texts. been to base our review work and re- Since the proposed settlement review lated tests to the extent possible on an was to be a review of the system of evaluation of the internal controls at internal controls over receipt and ex- each location on a cycle basis. On penditure transactions, we decided to August 1, 1969, the Comptroller Gen- include an internal control question- eral sent a letter to the Heads of Fed- naire in our program. Therefore, we re- eral Departments and Agencies in viewed the advice contained in various which he informed them that : accounting and auditing texts. In recognition that the basic responsibility Two problems immediately arose : for proper accounting and internal control ( 1 ) the internal controls mentioned in is that of each agency. t h e GAO audit of the texts were for private business op- accountable officers’ functions will place its major emphasis on the adequacy and effec- erations and did not necessarily apply tiveness of the accounting and internal to Government operations and (2) in controls, including internal audit, of the de- many instances the texts indicated that partments and agencies in assuring that the a client should have a certain internal accountable officers’ functions are discharged control procedure but failed to state correctly and in accordance with the require- ments of all applicahle laws and regulations. w-hy. This second problem was es- pecially troublesome and challenging Thus, our audit approach in the re- because, as accountants, we tend to ac- view just completed was to determine cept certain internal controls as good whether the agency’s overall system of Tvithout questioning the reason why the accounting and internal controls was controls are good. proper. If so, we then could review the To illustrate? one of the questions we adequacy of the system of receipts and thought appropriate for inclusion in disbursements and study the system in the internal control questionnaire in operation, including a test check of our audit program was: Are creditors’ transactions, at a limited number of statements checked by the accounting locations since it would be duplicative department to open accounts payable? OLD LADY GETS A NEW DRESS 49 The first impression is that they trols and a report to the Congress may should be checked to increase internal be justified.) We noted in the report, control. If all vouchers for payment however, that there was a need for: must be properly supported with orig- -Further separation of duties in the inal documents, however, what addi- Finance and Accounting Branch. tional control does the checking to open -Separation of purchasing and re- accounts payable provide? Would such ceiving duties. a checking procedure really add some- -Written notification to be given thing other than additional time and to the Finance and Accounting expense? Our Regional Office even- Branch when purchases are re- tually decided that the other controls turned to and adjustments are re- in the system prevented duplicative or ceived from vendors after the re- unnecessary payments to vendors and ceiving report is sent to the the cited internal control procedure was Branch. nice in theory but unneeded in the in- stant case. The Acting Chief of Engineers in a reply dated November 12, 1970, stated in essence that corrective action would Evaluation of the Corps’ be taken on all matters reported. I n System of Internal Controls addition, the Corps expressed its ap- Our review was conducted using the preciation for our assistance in im- audit program described above in the proving their system of administrative Kansas City District, Missouri River procedures and controls. Division ; the Tulsa District, South- western Division; and the St. Louis Comparison of Results District, Lower Mississippi Valley Di- vision. The Kansas City District was Some of the advantages of the new selected because in addition to paying procedure as shown below are (1) the travel, procurement, and other expenses attainment of an overall evaluation of as do other district offices, it also func- the system of internal controls in an tions as one of the two Central Pay- agency rather than just an evaluation roll Offices (CPO) for most Corps per- of controls at a number of individual sonnel. Tulsa and St. Louis were locations and ( 2 ) a reduction in man- selected because they were within the day requirements and travel expendi- GAO Kansas City Region and were tures. serviced by the Kansas City CPO. A n overall eraluation of the sys- On October 14, 1970, we reported to tem-If implemented properly, the the Chief of Engineers that we found the newly authorized approach insures a Corps system of administrative pro- systematic review of the agencywide cedures and internal controls over ac- system of internal controls over receipt countable officers’ functions to he gen- and expenditure transactions. The tend- erally satisfactory. (While in the case ency in the past was to review indi- of the Corps we directed our report to vidual transactions at the location o r the agency, other agencies’ systems may locations under review. Thus, of the not contain generally satisfactory con- 31 Corps settlement reports issued dur- 50 OLD LADY GETS A NEW D R E S S ing fiscal years 1967-69, none con- The travel expenditures were incurred tained specific romments on the Corps- b!- the Regional Office in trips of short wide system of internal controls. duration to Tulsa and St. Louis. A reduction in man-day require- In the Corps only 11 of 37 locations ments and travel expenditure+-We at which GAO makes settlement audits spent a total of -130 man-days in con- are in the same city as a GAO Regional ducting the current review. This was Ofice location. For reviews performed significantly less than the 2,831 nian- at the other 26 locations there will be days spent on Corps settlement reviews daily travel costs. Thus, in future re- during fiscal years 1967-69 although views, the regional travel costs will in the end result-the clearing of all Corps most instances be higher than such District and Division accountable of- costs on the present review. Even so, ficer accounts €or a 3-year period- however. travel costs will be less than was the same. on past reviews because now we per- In regard to travel expenditures, form our review at a limited number there should also be a reduction in total of locations whereas previously we per- expenses over a 3-year period. 'Total formed our review at about 37 loca- travel expenditures on the present re- tions over a %year period. view bere$914 of which 5735 was                                       i
(
.

spent for travel of regional office per-       At the Corps audit site we found that
sonnel and $179 was spent for travel the new procedure was advantageous of Civil Division personnel. The total and that it resulted in an efficient travel cost for the period 1967-69 in- method of settlement. Also, it was a clusive uas$19,617.                        challenging and interesting assignment.
The present review was performed         I hope that your experiences in up-
primarily in Kansas City, the same city     coming settlement reviews are similar
in which our Regional Ofice is located.     to mine.
CLIFFORD L. GARDNER

Auditape to the Rescue

T h e Fall 1970 issue of the Review included t w o articles
relating experiences with the use of Auditape in the GAO
review of supply management at nacal shipyards. A member
of the Seattle Region's audit team presents the background
that led to the decision to use Auditape and computers in this
examination and discusses the benefits achieved from
the use of these audit tools.

I n October 1969, the Seattle Regional       involved in our lack of familiarity. R7e
Office, as lead region, began a review          obtained the Auditape package, con-
of supply management at naval ship-             sisting of the taped computer pro-
yards. Within a matter of days, we              grams, instruction manual, and speci-
were overwhelmed by the gigantic di-            fication sheets, from our headquarters
mensions of our assignment. The four            Office of Policy and Special Studies;
shipyards selected for review-Puget             learned how to use it /not without some
Sound, Philadelphia, Pearl Harbor, and          occasional problems ; and provided
Mare Island-maintained           approxi-       for its successful use at all four loca-
mately 261,000 individual inventory             tions where a number of significant
records representing an inventory val-          findings were produced. An unexpected
ued at about $60 million. The most per- result of using Auditape was the de- plexing problem facing us was how gree of acceptance of our findings by these records could be manipulated so agency personnel that might not have we could take statistically sound Sam- occurred if we had selected and proc- ples of the inventory items and project essed our samples manually. our results into convincing azldit findings. Gradual Awareness of the ' e knew that several regional offices W Problem in GAO had used the Haskins & Sells Auditape to solve similar problems, but Our adventure into computerland on we lacked personal experience in using this assignment began in July 1969 with it. Nevertheless, we accepted the risks the arrival of a work assignment from hIr. Gardner is a supervisory auditor on the Seattle Regional Office staff. He has been with the General Accounting Offic~since 1968. He holds R.A. and hI.R.4. degrees from the University of Washington. 51 52 AUDlTAPE TO THE RESCUE our headquarters Defense Division au- 2 to 3 week period, it became evident thorizing us to review the management that the work needed to substantiate of the shipyards’ Direct Material In- any findings developed in these areas ventory (DMI) account and the related would be difficult and time consuming activities of the nearby Naval Supply to carry out using manual sampling Centers. We had surveyed this area at techniques. As an example, our survey Puget Sound Naval Shipyard near work in the shop stores area illustrates Seattle in early 1969. Based on our ob- the magnitude of the problems encoun- servations at that time, it appeared that tered which led us t o consider the use material valued at millions of dollars of Auditape in this review. was being ordered and delivered as Our first meeting with the Material much as 1 year in advance of issuance Supervisor and the Chief of the Inven- to work-in-process for ship construc- tory Control Section in the Supply De- tion, repair, or overhaul. As a result, partment at Puget Sound brought out excess inventories accumulated be- the following inventory information. cause of changes in work scope and overprocurement. -All inventory records were main- tained on punched cards and were Our initial assignment was to firm up filed by stock number and shop the findings at Puget Sound. confirm them at other selected locations, define store number in file tubs. the causes, and formulate recommenda- -Inventory items were classified as standard and nonstandard stock, tions aimed at reducing the inventory levels. At this point, no thought was each classification carrying an identifying stock number. given to the possibility of using com- --Shop store items were further sub- puters in any way to manipulate the shipyard DMI records in developing categorized as regular issue, insur- ance, and preexpeiided (charged our findings. The potential use of com- puters on the review was not considered to overhead and issued with no di- until after the responsible Washington rect charge to the user). -There were over 80,000 punched operating group expanded the scope of cards, two cards for each item, the review to include Shop Stores In- filed in two separate file tubs and ventory and supply system responsive- each containing information ness as well as DMI. The Seattle Re- needed for our review. gional Office was also given the respon- sibility for developing the audit pro- From 10 to 12 inventory clerks gram to cover the entire review and worked with the punched card files at coordinate i t with the participating all times, filing updated cards, prepar- regional offices. ing requisitions, consulting with shop Since our previous work had been stores personnel, and offsetting cards limited to the DMI account, we started having receipts, withdrawals, or any additional work in the area of shop other informational change. Each night stores material accounts and supply all cards that had been offset during the system responsiveness prior to devel- day were pulled from the files and sent oping the audit program. During this to the data processing center for up- AUDITAPE TO THE RESCUE 53 dating. The new cards were returned the Staff’s Prior Exposure following morning for filing and the to Auditape old cards were destroyed. We found that while each file tub Once we had tentatively determined contained all the card records for items the scope of our work and the require- carried in one shop store (there were ments for a workable audit program a total of 27 shop stores) there was no that would give us the information we separation by subcategory of items wanted, our next step was to find the within the shop. Filing was by stock best way to handle the problems in- number only, regardless of the category volved. The audit team had had a min- the item was in. Since each of these imum of exposure to the use of the com- categories had special characteristics puter in performing audit work al- which would have to be considered in though we were aware it had been used any analysis of supply management, it successfully on other GAO reviews. One was important that we devise some member had previously been exposed method to separate the shop store items to the potential of the Auditape, par- into the various categories. ticularly in the field of inventory man- Similar situations existed in the areas agement, and based on the situation of supply responsiveness and DMI. in the shipyard as he saw it, suggested While each area had its own character- the possibility of using the Auditape on istics which required identification and this review. The two other team mem- analysis, the common problem was to bers and our regional specialist in the find a method for extracting the infor- computer field agreed that the Audi- mation needed from the mass of record- tape would be a useful and practical ed data in the most efficient and eco- means of manipulating shipyard inven- nomical manner possible. tory data, whether it was kept on tape Once we had determined the m a p i - or on a punched card, to get the infor- tude of the problem at Puget Sound, mation we needed. our next concern was with the situation we could expect to find at the other Auditape a s a Solution three shipyards included in the review. During our short survey of shop store The Auditape system is a set of gen- inventory records, we had met with the eralized computer programs that can Puget Sound data processing personnel. effectively utilize the computer for au- They had informed us that to their dit personnel who are not data process- knowledge Puget Sound was the only ing specialists. No knowledge of how to shipyard still using punched cards for actually operate the computer itself is inventory files, and that the other ship- necessary as sufficient instructions are yards were using magnetic tape for included in the Auditape manual so recordkeeping. The inventory accounts that any computer operator can run the were the same in all shipyards, but in- tapes on the machine. formation on data storage and retrieval The basic requirements for the audi- systems was not available for the other tor are a knowledge of the format of locations. the agency records, the Auditape in- AUDITAPE TO THE RESCUE 54 struction manual, a set of specification we suggested detailed steps to follow sheets to fill out for each program, and that were largely based on what we felt a keypunch machine for putting the in- could be accomplished in a relatively formation from the specification sheets short time by using Auditape and a onto punched cards that can be read computer. by the computer. These programs, or A prejob conference was held with routines, are used to extract various all participating regions and the Wash- bits of data from agency records ington operating group. At this meet- through the edit routine and put them ing, the audit program was discussed in a format on a work tape that is then and one of our team members pre- used as the input for a number of ad- sented our case for incorporating the ditional routines. Among these routines use of the computer and the Auditape in are those that perform arithmetic it. Some of the representatives present calculations, special analyses, and sta- were apprehensive about using the Au- tistical sampling. For example, by pre- ditape, primarily due to lack of experi- paring a few specification sheets and ence. However, all agreed to give it the having them keypunched, an auditor old college try. All regional representa- with no computer knowledge can uti- tives were assured that help would be lize the computer to add material due-in forthcoming if they got into difficulty to quantity on hand, subtract the au- using the Auditape. No attempt was thorized quantity to be held, multiplj- made at this meeting to specifically de- the result by the unit price, and print lineate where the Auditape was to be out the amount of excess, if any. used. It was only pointed out what the The special analyses routines made Auditape could do and the areas where it possible to electronically segregate our experience had demonstrated its all the different categories and subcate- value. gories of inventory items contained in the records and operate on each set as Putting Auditape To Work a separate inventory account, thus solv- ing one of our most perplexing After the audit program was ac- problems. cepted, we armed ourselves with the After we agreed in the Seattle Region Auditape and tackled one of our major that the use of the Auditape appeared to objectives: determination of the ex- be a satisfactory way to solve some of cess material the shipyard had on hand. the problems encountered in attempting The approach we took was rather to manually manipulate the shipyard straightforward. We wanted each in- records, we wrote the audit program to ventory account segregated, as well as guide ourselves and the assist regions. the segregation of all subcategories Based on our experience at Puget within the accounts that had special Sound and on the limited information characteristics requiring a separate we had about the other shipyards, we analysis. For example, the dollar value incorporated the suggested use of the of insurance items carried in the inven- Auditape wherever possible. As we tory account at Puget Sound appeared outIined the information \be wanted to be excessive in retation to total from each participating audit team, shop stores inventory. For us to ade- AUDIJAPE T O T H E RESCUE 55 quately analyze the items in the insur- Problems Encountered ance items category, we had to isolate The Seattle and Philadelphia Regions them from other items in the shop stores had problems that complicated to some records. extent the use of the Auditape. As indi- Once the Auditape's editing routine cated previously, the Puget Sound Ship- had made these segregations for us, we >-ard had all inventory records on could use the Auditape's other routines punched cards which were continually for summarizing, doing arithmetic being updated. The Auditape accepts computations, sampling to manipulate punched cards as input a s well as mag- the data in each account or subaccount. netic tape. However. the shipyard com- and printing out a sample list of items puter had a menlor>- unit too small to for further analysis and projection. If accommodate the Auditape require- necessary, w-e could use the computer ments. so we were unable to use its to age the accounts by length of time computer facilities. The nearest avail- held in inventory. compare one list able computer with all the required of items with a second list for duplica- capabilities was at Portland, Oreg., but tions, and scan large inventory listings it was out of the question to transport for items showing predetermined char- the thousands of inventory records to acteristics, such as low unit cost, non- Portland to serve as input on the com- standard stock numbers- qualit). con- I)uter there. In a meeting with the ship- trol requirements, etc. !-ard data processing personnel. we the Same genera' con\.-incedthem of the desirability, both uras followed at each of the shipyards, to them and us. of using the Auditape the operating conditions and record and the)- agreed to put all the inventory storage at each shipyard varied to some card records for the shop stores degree. The Pearl Harbor and Mare accounts on magnetic tape which u-e Island Naval Shipyards maintained could then take to Portland and use updated master inventory records on with the Auditape. magnetic tape. These tapes included all Once this was done. we applied the the inventory records for the three in- Auditape edit routine to the shipyard ventory accounts, simplifying the work record. extracted the desired informa- of the audit team since all necessary tion. and put it on our own worktape records were in one place. In addition. for further manipulation and analysis. both shipyards printed a quarterlj- ex- The shipyard spent 2 hours putting the cess listing report showing the amount records on tape for us, but they did it of material the shipyard considered to at night so that it did not disrupt the be excess. Consequently, much of the \rork of the inventory control section work that we had to do at Puget Sound personnel at all. This procedure not was already done at these two ship- on14- eliminated a p e a t deal of inter- yards. Roth auclit teams also had rela- ference b!- our staff in the normal work tively free access to computers that had pattern of the ship)-ard inventory clerks. sufficient capacity to accommodate hut it provided u s an inventory record Auditape requirements. cutoff date which would have been very 56 AUDITAPE T O THE RESCUE difficult to get if we had tried to sample tapes so the Auditape programs could the records on a manual basis. be used. Later in our review we found it necessary to go back to our original The Payoff worktape of records for additional in- formation on selected areas of the in- As the result of our review of the ventory accounts. With the Auditape inventory accounts at the four ship- we were able to quickly obtain the in- yards, we were not only able to point formation we needed without disrupt- out the amount of excess material car- ing the work of the shipyard staff. ried by the shipyards, but, in several Based on our sample results, certain specific instances, we were able to pin- areas of shipyard operations appeared point where the excess was being held. to be the focal point for large amounts At Honolulu, the shipyard printed out of excess material. The Auditape a quarterly excess listing report so that allowed us to isolate these areas in their it was aware that excess inventories entirety for further analysis, rather were being carried. The Honolulu audit than having to rely strictly on a sample team's analysis of this excess listing of these items. showed that out of the thousands of line The Philadelphia Region had the items carried in the various shops, 90 biggest problem to contend with in percent of the dollar value was concen- applying the Auditape to shipyard trated in 745 items physically located records.' In September 1969, the ship- in two of the 12 shops. This informa- yard at Philadelphia converted its in- tion was not known to shipyard man- ventory records to conform to the agement prior to our review. At Puget Navy's Management Information Sys- Sound, we were able to show that 91 tem. This system uses the UIL'IVAC percent of the insurance items were held I11 computer, and unfortunately the in three shops. Therefore. our analysis UNIVAC tape record was not compati- of this account was confined to these ble with Auditape. areas, resulting in considerable time The UNIVAC tape must be converted savings. to an IBM format which can then serve While most of our analysis of the as input for Auditape application. The inventory accounts was done on a Sam- audit team at Philadelphia could find ple basis, the use of the computer enabled the audit teams to review the no Government activity in the area with total number of records in certain areas this conversion capability. After an un- and to make comparisons on a scale successful attempt by UNIVAC to con- impossible to achieve by manual meth- vert the tape, one of the programmers ods. The San Francisco audit team from our Office of Policy and Special analyzed all issues from shop stores for Studies was called in and through his 1 month (23.000) to test shipyard efforts, combined with shipyard and compliance with Navy requirements UNIVAC cooperation, finally achieved concerning low-value (under$2.00)
a successful conversion of the inventory
issues. At Pearl Harbor, the audit team
1 See C 4 0 Review, Fall 1970, pp. 48-54.  wanted   to determine whether items
AUDITAPE TO THE RESCUE                                                          57
carried in the insurance category were         1. The auditor’s interruption of the
available in other inventory accounts or    normal work routine in the shipyards’
were shelf items in the nearby naval        inventory sections icas drastically
supply center. A 50-item sample of          reduced. Without the Auditape, manual
insurance items was compared with           sampling would have been required,
over 20,000 standard issue line items       and one or more auditors Ji-ould have
and any duplications were printed out       spent days trying to sort through the
for further analysis. The over 1:000,000    file tubs at the same time the inventory
comparisons were made in approxi-           clerks were working with the records,
mately 13 minutes of computer running       keeping them current. Once we had the
time.                                       records on tape, our need to use the
These examples are only a few of the     card information was minimal since we
Auditape applications made to ship-         could print out any portion of the
yard records, but they point out the        records we needed.
analysis of records that is possible when      2. The Auditape allowed us to do a
the speed and efficiency of the com-        much more extensive analysis of the
puter are utilized.                         inventory accounts and produced more
The difficulties experienced at Phil-    reliable information than would have
adelphia in using the Auditape had          come from manual sampling. With the
some beneficial results. The Auditape       computer’s speed and accuracy, we
applications, particularly in the Sam-      were able to perform a number of math-
pling area, were closely examined by        ematical computations and compari-
shipyard statisticians, and the results     sons which ~ r o u l dhave been be)-ond
of some of the samples taken and the        manual capabilities. To take monetary
evaluations made were discussed w-ith       samples, we needed the dollar value of
them. Consequently, when the results        each inventory item. Multiplying the
of the review made at Philadelphia were     unit price times quantity on hand for
presented to and questioned by ship-        the thousands of items carried in the
yard officials, our GAO team had the        records would have taken a number of
unique experience of having the ship-      man-days. Using the computer, about
yard statisticians assure the officials     2,000 of these computations were made
that GAO’s findings were based on           every minute.
a c c e p t a b 1 e statistical sampling        3. Significant savings in audit time
techniques.                                 were also evident, even considering the
Our review disclosed convincing          extended depth of our analysis. The
evidence that the Navy could and            printouts of sample items and evalua-
should reduce excess inventories, and       tions were used as workpapers, saving
the findings have been included in a
many hours of scheduling time. Thou-
report being issued to the Congress.
sands of items were quickly screened
of Auditape                                 categories of items were isolated and
Based on our experience with using        their location pinpointed, thus elimi-
the Auditape on this review, several        nating unnecessary work being done in
distinct advantages were noted.              unproductive areas.
58                                                         AUDITAPE T O T H E RESCUE

4. More comparable results from            The disadvantages of the Auditape
participating regions were obtained.       were minor. A number of reruns were
We were generally aware of the kinds       required to get the desired information
of information available at each ship-    in final form, but the speed of the com-
yard, but we were not sure of how it      puter tended to counteract this require-
was maintained. With the Auditape, it      ment to some degree. For certain
didn’t make any difference and \\-e        records, additional columns in the
could specify certain steps in the audit   Auditape format would have been use-
program with the assurance that the
ful, but usually the 12 columns were
sufficient.
other regions could easily get us the
information desired. The large number
of records maintained at the shipyards     Conclusion
necessitated the use of sampling tech-
‘The extended use of the Auditape on
niques. Although each audit team could
this review demonstrated to us that its
have selected its own samples, the Audi-
sampling capability is but one facet of
tape sampling routine gave us a com-       a very useful device for improving our
mon procedure that assured impartial       audit performance. The increased depth
selection. By consistently using the       of our analysis, the acceptability of our
same confidence and precision levels,      projections, and the comparability of
there was no questioning our ability to    our results were all made possible
comhine the results from the four ship-    through the use of this easy-to-use
yards and use them in our consolidated     audit tool. The Auditape enabled us not
report.                                    only to develop audit findings, but was
AUDITAPE TO THE RESCUE                                                         59
also beneficial in helping us determine    available from these programs far out-
areas of shipyard operations that war-     weigh the disadvantages due to lack of
ranted little or no further work.          experience. We found that each of the
For audit teams with no prior experi-   regions participating in this review had
ence in computer applications, the use     at least one individual knowledgeable
of Auditape, or any of the other gen-      in the computer area. In addition, the
eralized computer programs, requires a     Washington staff in the Office of Policy
certain amount of learning time. Our       and Special Studies was very willing to
experience has been that the ad\ antages   provide an! assistance required.
BILL   COX

Application of Marketing Concepts
to the Analysis of a Government
Program or Agency

Four marketing concepts are involved when analyzing the
management of a Government program. Only one of these-
failure to produce or distribute needed services-has
historically been emphasized by the GAO auditor. Yet, from
a marketing point of view, the underlying causes for varying
degrees of program ineffectiveness can be found in three
other areas: defined need does not exist, unrealistic allocation
of resources, or an improperly defined target market.

Introduction                                  offer solutions to problems which affect
an agency’s ability to achieve its in-
As the complexities of Government-         tended objectives. In connection with
has the need for valid information upon       to show how problem identification
which new decisions can be based and          techniques used in the field of market-
past decisions reviewed. These com-           ing ran prove helpful in identifying
plexities created a need for the General      problems contributing to an agency’s
Accounting Office to analyze where it
lack of effectiveness.
has been going and where the needs of
the Government will take it. The result
of such an introspection ideally has          Assumptions
been to realize that economy in the
-The legislative, executive, and judi-
Government is a relative term and is
dependent upon how effectively Govern-        cial branches of the US.Government
ment-sponsored programs meet the ob-          form a holding company which makes
jectives they set out to achieve. The         decisions to enter or exit a certain
changing needs of the Government have         market with its products whenever such
increased GAO’s need to identify and          a move seems to be for the ‘‘good of the

Mr. Cox is a management auditor i n the Portland Suboffice of the Seattle Region. He
holds B.S. and M.B.A. degrees from the University of Oregon and is a member of
the American Marketing Association. Mr. Cox has been with GAO since January 1969.

60
APPLICATION OF MARKETING CONCEPTS                                                  61
nation.” It produces these products in           In an attempt to satisfy these social
one or more of its manufacturing plants       needs, the Great Trust appoints existing
(agencies). Although this holding com-        agencies or establishes new agencies
pany has many manufacturing plants at         to produce need-satisfying services.
its disposal, it periodically finds it        Ideally, the agency’s size is directly re-
necessary to establish a new one. One         lated to the complexity involved in pro-
unique characteristic of this holding         ducing need-satisfying services and to
company is that it seldom finds it ex-        the size of the target market for those
pedient to dispose of any of its means        services. Its size should vary only in
of production. Given the dynamic              proportion to changes in the target mar-
nature of the environment in which it         ket and complexity of production.
operates, this characteristic becomes             The key to satisfying a properly
even more unique. We will call this           identified need is proper definition of
holding company the Great Trust.              its target market. (Who possesses the
-A product is that service which an        need?) To effectively establish the cor-
agency provides.                             rect target market, extensive research
-A target market is that group of           of potential consumers must be made to
people who are the prime consumers of          determine the market’s characteristics
a product.                                    and its parameters. Without this knowl-
-There are two basic types of needs:       edge prior to production, not only is
1. Those which when satisfied the        an improperly constructed product
first time disappear.                developed, it is incorrectly marketed.
2. Those which are recurring and         This is a not uncommon failure of the
must continually be satisfied.       Great Trust, which has a tendency to
Which type any specific need is de-         develop general products in order to be
pends largely upon definition. Very
sure the people with the need get helped.
few of type 1 are found in the Great
Much is wasted in such an approach
Trust’s long-range plans. Some have
because either more people than origi-
existed in the short run but tend to be
redefined to a tj-pe 2 by the indi-        nally intended use the service or too
vidual agencies.                           much service is produced and no one
uses it. The reason the welfare system
Factors Qf                                    is now under attack may be explained
a Marketing System                            as a lack of understanding of the char-
acteristics which make up a person in
Before the production of any product       need of public assistance. Such an ap-
can be justified, a need must be deter-
proach can be compared to a hunter
mined to exist for that product. Once
who does not really know what type of
this need is determined to exist and is
game he is after. He buys a shotgun
properly defined, it must periodically
be redefined because needs are not stag-       hoping that whatever presents itself can
nant factors. A major function of the          be handled. He encounters a bear on
Great Trust is defining those social           the first day and can do no more than
needs which will officially exist in the       make it angry by scaring it with all the
public eye.                                    noise. On the second day out he en-
62                                           APPLICATION OF MARKETING CONCEPTS

counters a sparrow and after firing can-         might exist when 100 dollars are
not find the carcass.                            needed to produce a service to
We have been speaking, in general             satiate the target market‘s needs.
terms, of the factors which make up a            There are 100 persons in the
marketing system. More concisely, these          target market as it is identified,
are identification of a need; definition         but only 50 dollars were allotted
of the group most strongly possessing            by the Great Trust. If the agency
thie need (target market) ; production           in question is attempting to spread
of a need-satisfying product; and dis-           the 50 dollars to the 100 persons,
tribution of this product to the target          we get the effect of shooting at the
market in an effective, efficient, and           bear with the shotgun. The pro-
economical manner.                               posed recipients only get angry
If we view the Great Trust‘s opera-           because they require (and have
tions as a system, the needs it identifies       been led to believe they deserve)
should be effectively met by the activi-         more than exists to satisfy them.
ties of its various agencies. If this is         Many of today’s social programs
not being done, some portion of the               fit into this category.
system is malfunctioning. This malfunc-      3 . The target market has not been
tioning can arise from one or more of            well defined or concisely stated in
four problem areas:                              terms of who actually possesses
1. The need as it is defined does not          the need. An example of this can
exist (the definition may require           be found in the low-rent housing
updating or it is a type 1 need as          program which tends to reach the
set forth in the assumptions).              marginal poor rather than the
Therefore, the whole system may             poor poor. This is also the case
have no reason for existing in its           with the Department of Com-
present form. “NOdefined need” is            merce’s commercial exhibition’s
not an uncommon problem. For                program which attempts to in-
example, the Post Office Depart-
crease U S . exports. The focal
ment did not properly define a
points for its efforts have been es-
need when it initiated a midday
tablished exporters and the de-
veloped countries of the world.
tion and Delivery (ABCD) serv-
ice only to realize after an                The program could be more ef-
expensive faux pas that business            fective, however: if it concentrated
would not mail in midday.                   on inexperienced exporters and
2. The target market’s size has not            the developing markets.
been well defined in relation to        4. The agency management involved
existing funds. For example, the             is failing to produce the correct
definition of the target market may          need-satisfying products or is not
be too encompassing to be satis-             distributing what it does produce
factorily reached using the re-              in a manner to reach the target
sources the Great Trust has                  market effectively, efficiently, or
allotted for this purpose. This              economically.
APPLICATION   OF MARKETING CONCEPTS                                               63
The activities of the Federal High-          are in the lowest income group
way Administration (FHWA)                    and cannot afford to pay enough
possibly illustrate this probleni            to cause private enterprise in their
area. For example, if a goal of the          locality or metropolitan area to
FHWA is to reduce accidents                 build an adequate supply of de-
caused by relatively unsafe high-            cent, safe, and sanitary dwellings
ways, it has not been successful.            for their use.” The law does not
It has not produced a system of              specifically state rihich families
hazard-free highways and thus                are in the lowest income group.
the need remains unsatisfied.                The 1959 amendments to the
While many of the newly con-                 Housing Act of 1937 state, how-
structed highways are relatively             ever, “Income limits for occu-
hazard free, many older roads still          pancy and rentals shall be fixed
contain driving hazards. FHWA                by the public housing agency and
has the ability to produce less              approved b!-        the Authority
hazardous roads but it has failed             (HUD‘I after taking into consid-
to distribute this ability to the            eration ( a ) the family size, com-
target market of its services-the            position, age, physical handicaps,
people who drive on hazardous                and other factors which might
roads. This is possibly due to the           affect rent-paying ability of the
agency being more concerned                  family, and (h) the economic
with producing additional high-              factors which affect the financial
ways than w-ith reducing hazards             stability and solvency of the
on all highways.                             project.‘’ Section (b) of the
Failure in this problem area some-           amendments seenis to negate any
times is not solely the fault of the
attempts to reach the poorest of
agency or agencies involved. The
the poor, in that stability of the
problem may be in the Great
housing project forces the local
Trust‘s stated approach to be used
housing authority to place the
in reaching the target market. The
marginal or wealthy poor first
“Trust,“ in its zeal to write legis-
because they can pay a higher
lation, sometimes composes plans
percent of their own rent.
of action in a manner which,
when followed. result in agency-           If GAO used this four-step problem
produced services missing the in-       identification approach in addition to
tended target market.                   its present auditing techniques, prob-
Such is the case with the guiding      lem areas heretofore passed over might
legislation for providing low-rent      be identified. For example, in problem
public housing. The I-nited States      area 1. “defined need does not exist,”
Housing Act of 1937 p r o d e s that   when we are conducting an effective-
low--rent housing shall be avail-       ness review of an agency, we must
able solely for families of low in-    analyze the ohjective the agency is at-
come. The act describes ‘*families     tempting to achieve. If the character of
of low income” as “families who        that objective has changed, it is pos-
421-039-71-5
64                                             APPLICATION OF MARKETfNG CONCEPTS

sible the agency is “hunting for an         Use of Marketing Techniques
extinct animal.”                            To Audit Federal Agencies
Problem areas 2 and 3, “unrealistic
allocation of resources” and “improp-          Any public need is held by a specific
erly defined target market,” are both       social group which is located in a
to be found in the planning stage of a      specific geographical area during a
program’s development. In problem           specific time period and living under
area 2 the agency should plan its activi-   specifically understood social and
ties so that it can significantly satisfy   environmental conditions. The size of
the needs of people in the target market,   this public need can be represented by
because a partially satisfied need re-      the total amount of resources required
mains an unsatisfied need. When             to produce services which will satiate
restricted by funds, the target market      it. These services we will call need-
should be divided into smaller groups       satisfying services.
whose needs can be significantly                As is indicated by the previous para-
reduced with available funds. This          graph, it is necessary to do considerable
would require establishing a priority       research to accurately estimate any pub-
system to determine the order in which      lic need. Under our system of Govern-
the groups should receive assistance. In    ment it is only after this need is felt to
problem area 3, before any action is        have reached a size large enough to
taken, the agency must attempt to deter-    prompt Great Trust intervention in its
mine the exact characteristics of the       reduction that public resources are
possessors of the need identified by the    allocated to it. This critical size is de-
Great Trust.                                fined by the Great Trust. A basic prob-
Problem area number 4, “failure to       lem facing the “Trust,” and therefore
produce or distribute needed services.”      the agencies providing the services it
has historically been the domain of the     has requested, is the lack of research
GAO auditor because this is where           conducted prior to allocating need-
efficiency and economy can be deter-        satisfying resources. The Great Trust
mined. This is also where the few effec-    and its service-producing agencies often
tiveness reviews done by GAO have           do not know exactly what the public
been centered. However, from the            need is because they do not know the
marketing system point of view, prob-       characteristics of the social group
lem areas 1, 2, and 3 are where basic       possessing this need, the location of the
causes of ineffectiveness in Great Trust    group, the social and environmental
programs can be found.                      conditions confronting the group, or
The following section sets forth an      the time period during which this need
approach which may provide some in-         will exist. Because of this, many deci-
sights for applying marketing theories     sions made by the Great Trust and its
to the audits done by GAO. As this sec-     agencies are subject to being based on
tion pointed out, marketing theories        reactions to unsubstantiated informa-
lend themselves primarily to effective-      tion which may significantly overstate
ness audits.                                or understate needs.
APPLICATION OF MARKETING CONCEPTS                                                  65
Analyzing a Program                          Social Group: How large is the group
of people possessing the need? Is
The following elements go into defin-       there more than one distinct group
ing who possesses the need for the serv-       involved? What are the demographic
ices produced by the Great Trust. They         characteristics of the group? These
will be recognized as those presented in       characteristics must be distinctly
this section’s introductory paragraph.         defined.
They are presented in a manner to show
some of the thinking an analyst must go      Location :Is the need for these services
through when looking at each element           limited to a specific geographic area?
and its relationship to the need-              Demand €or a need-satisfying service
satisfying service offered by the              should be analyzed with reference to
“Trust.” It should be noted that               well-defined geographical bound-
assumptions about the elements of a            aries. For instance, the amount of
public need made at the time a program         Indian housing needed in the next
is established are the basis for man!- of      year will naturally vary depending
the decisions which go into creating the       upon whether the boundaries are
new program. It is therefore important         limited to reservations in the State
for anyone trying to analyze the effec-        of Washington or include all reser-
tiveness of a Great Trust program to           vations west of the Mississippi.
determine these assumptions. The pro-        Social and Environmental Conditions:
gram’s ineffectiveness may be caused by        The ability to satisfy any need is
the fact that an assumption about one          affected by many uncontrollable fac-
of the elements was incorrect or short         tors, such as nature, technological
lived. In some cases assumptions made          breakthroughs, economic reversals,
during the course of a program’s opera-        changes in social values, and new
tion can be the cause for that program’s       legislation. A generally stated, inflex-
inability to meet its goals. The analyst       ible set of program operating stand-
should be on the lookout for these also.      ards may be the cause of that
The elements are :                            program’s lack of effectiveness. For
Need-Satisfying Service: The agency            example, because of great climatic
appointed to reduce a need identified        differences, a furnace designed to
by the Great Trust must thorou~hly           heat a house on a New Mexico Indian
understand the characteristics of that       reservation should not be placed in
need. If the need is for housing, it         a house on a Montana reservation
must be known (1) what the poten-            and be expected to perform satisfac-
tial inhabitants of that housing re-         torily. In this case the construction
quire for shelter and (2) what class         standards for low-rent housing on
of shelter is needed; i.e., deluxe or        reservations should reflect the cli-
bare necessity. If the Great Trust           matic differences. In order to most
identifies a need for a postal service,      effectively satisfy needs, a program’s
research must be conducted to deter-         structure must be flexible enough to
mine the type of postal service which        incorporate technological advances
will most effectively satisfy that need.     and ecological requirements into its
APPLICATION OF MARKETING CONCEPTS
66
operations. For example, the develop-     set forth. But any analysis of a pro-
ment of nuclear electric power has        gram’s effectiveness will be incomplete
altered the United States’ means and      unless we answer the basic question-
and ability to satisfy needs for elec-    “Are the people intended to be helped
tricity. An organization like the         being reached?’’ There are various
Corps of Engineers must take these        methods which can be used to estimate
elements into consideration when it       public need and the type of service re-
analyzes the need for more dams.          quired to satiate it. An analyst can use
these methods on a test basis to see if a
Ti:me: Most   needs, if broadly defined,
“Trust” program is actually meeting
are timeless, but the means of satisfy-
the goals it set out to achieve.
ing those needs are ever changing.
Basically, there are three informa-
Any development of a need-satisfying
tion bases upon which an estimate of
service must take into consideration
need or the development of a need-
its potential lifespan. For example,
satisfying product can be established.
the need for electricity may always       Borroir ins terms from Phillip Kotler’s
exist, but the need-satisfying service,
hook.     “Marketing      Management,”
hydroelectric production, has a
~ p 106)
.     these three are: what people
definite lifespan.                        say, what people do, or what people
This section’s introductory statement     have done.
was broken down by its five elements in       What people say involves determin-
order to elaborate on each. They are        ing the opinions of those thought to
not, however, to be viewed as separate      possess a predefined need or of those
or independent. The statement, with the     understanding their plight, such as out-
addition of a provision for feedback.       side experts. In the case of social pro-
describes a “system” or complete entity     grams, for example. those outside
whose total effect is something more        experts would be sociologists, psychol-
than the sum of the individual parts.       ogists, etc. There are two methods we
This system can be of practical appli-      can use to determine these opinions:
cation in auditing agencies and their        (1) contacting the need possessor and
programs in that it gives the auditor a      12) composites of expert opinion.
means of viewing that agency’s or pro-
What people do involves using a test
market or markets to determine if the
gram‘s operation as a whole. It is up
need exists and its intensity by record-
to the auditor to adapt it to his indi-
ing people’s reactions to various
vidual job and to use his personal
stimuli. This method is also used to
knowledge in identifj-ing the program’s
determine the effectiveness of a need-
weaknesses. At best it can only be
satisfj-ing service in reducing a pre-
viewed as a means to identify problems.
defined need.
What people have done involves
Are the People Being Reached?
mathematical and statistical analysis of
In the preceding sectinn a means of       past reactions by the social group in-
analyzinF the elements which go into        \.-olved. or a similar group. to certain
developing a Great Trust program was        stimuli and the projection of these reac-
APPLICATION   OF   MARKETING CONCEPTS
67
tions into the future. The tools used in      identification techniques presented in
this method are usually classical time         this paper, many of the previously
series analysis or statistical demand         unidentified causes of agency and pro-
analysis.                                     gram lack of effectiveness can be under-
-                   stood and corrected. The General
The Great Trust needs valid infor-         Accounting Office should be in a posi-
mation on the results of its agencies'        tion to conduct such analj-ses and
attempts to satisfy the needs it has          report its findings to the Great Trust in
identified as requiring public resources.     order to insure that our Gorernment
If analysis of the '.Trust's" activities is   reall!- is of the people, by the people,
done in terms of the marketing problem        and for the people.
COST ACCOUNTING STANDARDS BOARD
68
Cost Accounting Standards Board
Appointed

duction Act of 1950 passed in August           tion.
1970 which provided for the establish-        The Board members were sworn into
ment of the Cost Accounting Standards      office on February 8 at a ceremony
Board designated the Comptroller Gen-      attended by Members of Congress,
eral as Chairman and authorized him to     GAO officials, and representatives of
appoint the other four members.            executive branch agencies, industry
The law further specified that two of   associations, and other interested orga-
the additional members are to be from      nizations.
the accounting profession; one is to be       The law establishing the Cost
a representative of industry; and one      Accounting Standards Board (Public
is to be from a Federal department or      Law 91-379) was passed by the Con-
agency.                                    gress following an 18-month study by
On January 21, 1971, the Comp-          the General Accounting Office under-
troller General, Elmer B. Staats, an-      taken by previous direction of the Con-
nounced the following appointments         gress. In this study, GAO found that
as Board members:                          such standards were both feasible and
From the accounting profession :         desirable. The directive establishing the
Herman W . Bevis, former Senior        Board was then incorporated in the
Partner of Price, Waterhouse &         amendments to the Defense Production
Co., Kew Tork City.                    Act, approved August 15, 1970. Funds
Robert K . fVautz, Weldon Powell      for the establishment of the Board were
Memorial Professor of Account-        approved recently by the Congress.
ancy, University of Illinois,            The Board will have the responsi-
Urbana, Ill.                          bility for promulgating cost accounting
From industry:                           standards designed for prime contrac-
Charles A . Dana, Manager of           tors and subcontractors to be used in
Government Accounting Controls,        the pricing, administration, and settle-
Raytheon Company.                      ment of negotiated defense contracts
From the Federal Government:             in excess of $100,000, except where the Robert C. Moot, Assistant Secre- price negotiated is based on established tary (Comptroller), Department of catalog or market prices of commercial Defense, and formerly Adminis- items sold in substantial quantities to 69 70 COST ACCOUNTING STANDARDS BOARD the general public or prices set by law or regulation. I n announcing the appointments to the Board, the Comptroller General said : I am delighted to hate a+ociated with me o n the Board inch1 irlunls with such out-tund- ing p r o f t ~ - i o n dclualificationr in tlie hi4d of accounting arid cri-t .tandad.. I ani alw mu.t plt:astd tjitli tliv coolierution wo h a \ e had from the Govcrnrticnt agencie.;, tlit. account- ing prufe+*ion, froni industry groups and other5 in m a k i n g nominations f o r tlir Boaril and i n their offer, fJf ai.i.tance a n d ciiopvra- tion in c a r p i n g out ttic tlitficult a . . i ~ n n i m t with which the Eoard \\ill Iw facwl. 'Th~sc expression- of r ( i o p i ~ a t i i mand offw- of a.-i.t- clnw a u g u r i \ t ~ l l f o r tlic future uork of the Board. On March 3: 1971>Mr. Staats. as Arthur Schoenhaut Chairman of the Board, announced that the Board had selected Arthur Schoen- hlr. Schoenhaut received his B.B.A. haut as Executive Secretary. degree from the City College of New Mr. Schoenhaut has served the Fed- York and is a graduate of the Advanced eral Government since 1950. Until 1967 Management Program of the Harvard he was with the General Accounting Business School. He is a CPA (Vir- Office and served as Deputy Director ginia), and a member of the American of the Civil Division from 1964 to 1967. Institute of Certified Public Account- Since 1967 he has been Deputy Comp- ants, the Federal Government Account- troller of the Atomic Energy Commis- ants Association, and the Kational sion. Association of Accountants. From GAO Speeches Elmer B. Staats, Comptroller Gen- understand it. For example, the budget does eral, speaking on “Public Affairs Chal- not indicate where choices among competing priorities have been made, nor does it identify lenges to Business in the 1970’s” at the the large number of feasible spending alter- scholarship dinner, Florida Atlantic natiies that might be judfied. Senator University, Ft. Lauderdale, Fla., Feb- Charles Percy of Illinois emphasized such ruary 27, 1971: inadequacies when he testified : I n our society, the responiibilities of Gov- ‘-Let me, again, repeat the olirious-we ernment for sohing the Kation’s problemu [the Congress] no lnnger ha\-e the capa- have increased significantly in every decade bility to reiiew rationally and analyze since the “great depression.” The massive critically the national budget. I t has gone growth in population and, hence, in public Lel-ond our present ability.” needs has been a dominant reason in recent Senator Jacob Ja\its, x\-ho introduced the years for continued Government expansion. lrgislation concerning a Federal Office of But a larger part of Go\-ernment’s growth is Goals and Priorities Analyzis, explains his the result of legislator<’ and voter.‘ wanting reasoning in these words. a particular result but hoping to get the “other fellow” to pay for it. ‘-E\ery time we enact a program or an Everything that Government does, of appropriation, we are i n effect making a course, must eventually he paid for by the priority decision, since we are decreasing taxpayer who is the other fellow i n most the resources aiailable for other programs. cases. Confusion ariscs because the accom- Yet, there a r e prohably few RIemhers of plishment of most Government work is sep- Congress who hare abailable to them a arated from the collection of money necessary clear and up-to-date picture of what ha.; to achieve it. As one writer said, “It should already been enacted or appropriated dur- be easy for any government to please the ing that session of Congress, what remains people. All they want is lower taxes and on the agenda or is likely to come up for larger appropriations.” People want more enactment or appropriation, or what con- money spent for schools, roads. pollution con- stitutes the total amount of resources trol, dams, police, and an infinity of other available to the Nation that year.” things; but then they grumble that they can- The question of how we can obtain more not understand why their tax bills rise every comprehendible information and, as a result, year. They have been learning in recent 4-ears more puhlic diqcussion on major budgetary as the fate of many State and local hond programs should he of major concern to every issues will attest. bcsiness group, to every citizen organization, e * * : ; * and, yes, to el-ery univerqity. Unless the Federal budget is sufficiently I have gone into this subject of the Federal understood-and this is very difficult due to budget a t some length because it is the single its length and complexiti--and it5 priorities most important way we ha)-e of determining questioned, the shaping and conduct of the national priorities. I t can readily be seen Nation’s business becomes the virtual prerog- that there are substantial grounds for the ative not just of those in power but of those difficulties, experienced by businessmen in few in power who have the information and the paPt, of understanding the process of 71 72 FROM GAO SPEECHES selecting priorities and that substantial tional Division, speaking on “The changes and reforms are needed. U S . General Accounting Office in the International Field” presented at E. H. Morse, Jr., director, Office of the Thunderbird Graduate School Policy and Special Studies, speaking on of International Management, Phoenix, “Increasing the Visibility of the Gov- Arizona, November 2, 1970: ernment Accountant’s Work” before the Dallas, Fort Worth, and Houston Chapters, Federal Government Ac- I n this context I believe that sometimes the countants Association, February 16 G.40 role, particularly in the international and 18, 1971: field, can be most effective in identifying the fundamental questions, putting them into rea- sonable context with the underlying facts, and I think the professional accounting a w - bringing them before the top people respon- ciations could do much more to promote sible-the department head or the chairman wider puhlic understanding of the account- of a congressional committee-for their con- ant’s job-what he does, how he functions, zidrration and judgment. An unbiased presen- and what he accomplishes. We think we are tation of the pertinent facts in this fashion pretty useful-but do others think the same may sometimes he of more real value than way? our opinions, even though we make every The professional aworiations * * rould effort to assurc that our opinions arc well do more in the way of orienting and educat- founded. ing the public as well a s policymakers and Meanwhile, since we can only report and managers about the accounting function. recommend, we must somehow capture a busy Their journals could do a better job of de- reader’s attention long enough to convey the scribing and interpreting the nature and essence of our message in a report. We are significance of accounting work. And here I using a technique of condensed digests at the a m not referring to the kind of writing, so front of our reports which helps on this score. prevalent in some of these journals these Also, we don’t underestimate the value in days, that displays extensive arrays of math- some cases of a simple illustrative factual ematical formulations. This kind of writing, “horrible example” in engaging reader inter- while useful, is also apparently aimed only est. We are striving, however, to not stop a t the mathematically trained. with the example, but to go hack of it, find The communication challenge for account- the underlying causes, and hopefully make ants is to write in the simple language of constructive recommendations directed to cor- those who provide the money to finance oper- recting those underlying causes. ations whether these operations be private or I n this presentation I have dwelt a t some puhlic. How else can we communicate to length upon the purposes and problems of probably our most important audience? Nor management reviews as GAO sees them. should we write only for our brother (or Before closing I would like briefly to discuss sister) accountants. W e should also give some another element of the management process thought to writing for non-technical pulli- which we believe is very significant and too cations-a field left largely to reporters or little recognized in Government programs- reviewers who seldom have-or take-the time to really delve into what accountants that is the need for clear program objectives do and where they fit into our society. We against which to measure results. I n the field of international relationships, have much to do and much to say. W e need some better ways to get i t said. we recognize that normal definitions or con- cepts of management are not always accept- able. The industrial profits yardstick is not O y e V . Stovall, director, Interna- applicable. The concrete factors by which F R O M GAO SPEECHES 73 G-40 would normally try to measure and opportunities for better application of man- evaluate management results or plans may be agement yardsticks-particularly in the field obscured or some elements may be missing. of debelopmental assistance. Recognizing these unique circumstances, re We believe that program objectives need neverthelws beliebe that U.S. Go\ ernment to be defined. and the results measured activities in the international field offer great against those objecti\eL. On Audit Effectiveness “A mere audit of money is no protection whatever against misuse of money and of power; audit or field studies of results is needed.” Wm. H . Allen, Director, Institute for Public Service. Writing on “The United States Comp- troller General and His Opportuni- ties,” in National Municipal Review, February 1923. Cross Florida Barge Canal tinir.1) .iccount of thr en\ ironmcntal impact of zucli projrct5-.11 that instead of merely President Nixon directed on Janu- halting the ilamage. we prevent it. ary 19, 1971, that further construc- An article in Reader’s Digest for tion of this project be halted “to pre- January 1970 about this project was vent potentially serious environmental noted in the Spring 1970 issue of the damages.” Reuiezir. Entitled “Rape on the Okla- Of the total estimated cost of this \+aha” and written by James Nathan project of about$180 million, about                  Miller, the article was quite critical of
$50 million has been spent. The object this Army Corps of Engineers project. of the canal was to reduce transporta- One of his recommendations was that tion costs for barge shipping. In direct- GAO audit all benefit-cost reports on ing the stoppage, President Nixon projects recommended by the Corps. stated : . . . It was conceived and de4gned a t a GAO Report on time when the focus of Fedcral concern i n such matter3 Ira5 still almoit conipletrly on Water Pollution Cited maximizing economic return. I n calculating Continuing congressional attention that return. the de-truction of natural, eco- logical value5 waq not counted as a coqt. nor is being given to the landmark GAO was a rredit alloaed for actions p r e i e n i n g report on effectiveness of the construc- the environment. tion grant program for abating, con- A natural treawre i5 involced in the case trolling, and preventing water pollu- of the Barge Canal-the Oklawaha River-a tion 1 R-166506, Nov. 3,1969). During uniquely beautiful, semitropical stream, one of a very few of its kind i n the United States, hearings hefore the Conservation and which would he de-troyeil hl- ronstruction of Natural Resources Subcommittee of the the Canal. House Government Operations Com- T h e Council on Environmental Quality ha- mittee in November 1970 on applica- recommended to me that the project he tion of aerospace and defense industry halted, a n d I have accepted it- advice. The Council ha. pointed nut to me that the project technology to environmental problems. could enddnger the unique wildlife of t h r area one witness referred to this report in a n d deqtroy this region of unuiual and unique support of his testimony. The witness, natural beauty. Conpessman F. Bradford Morse of T h e total cost of the project if it were com- hiassachusetts. a proponent of the pleted would be ahout$180 niillion. Ahout
$50 million has alreadv fieen committed tn greater use of systems techniques de- construction. I a m asking the Secretary of the veloped in the private sector in the solu- Army to work with the Council on Environ- tion of nondefense problems, placed the mental Quality i n developing recrmimenda- full digest of the report in the hearing tions for thc. future of the area. record. In requesting permission of the T h e step I have taken today r\ill prekent a past mistake from cauiinp permanent dam- subcommittee chairman, Henry S. age. But more important. w e mu-t a,sure that Reuss of Wisconsin, to include this in- in the future we take not only full but al-o fortnation. Mr. Morse stated : 74 NEWS AND NOTES I n 1969, the General Accounting Office suh- General as part of a study that, mind you, mitted a report to the Congress entitled “An limited only to the feed grain program Examination Into the Effectivenesb of the az it ha- oprratrd in a few cuuntirs in only Construction Grant Program for Abating, six States. Eren 5 0 , the GAO report found Controlling, and Prmenting Water Pollu- "questionable" payments of$618,000 going
tion.” Its conclusion5 were that due both to      to 938 participants in 1969. .4nd a closer study
insufficient funding. and to inadequate plan-     conkinred them that 215 recipients have un-
ning and implementation on a coniprehencive       lawfully collectetl 8116,000 for not planting
and coordinated scale. our efforts have not       on land which lid< no conct.i\al)le agricultural
been as effectir-e as they might or should he.    purpose.
I ask your permission to include in the record        While the areas studies [sic] were not
the digest of this report, and emphaiize the      selected at randoni anti may therrfore not
GAO recommendation regarding the rule that        hy typical, the repurt itself notes that sim-
systems ana1y.k techniques can and ihould         ilar niispayments ob\iou.ly muct habe oc-
play in planning for and implenirnting our        cured [hicl in other areaz and programs as
water pollution control programs.                 well.
hlr. Speaker. I want to point out that the
Improper Payments Under                           that such payment5 are improper, and in a
Federal Feed Grain Program                        re*punse to a draft of this report has indicated
i u m r steps hakc alreatl) bren taken to re-
The GAO report on “Objectives of               coler tlirqe fund. and correct practices which
the Feed Grain Program not Attained               hare permitted this atuse.
because of Inclusion of Nonagricultural             Mr. Conte inserted the digest of the
Land” (B-114824) sent to the Con-                 GAO report in the Record along rtith
gress on January 12,1971, drew a quick            the Department of Agriculture‘s coin-
reaction from one Member. As reported             nients on the report draft and Mr.
in the Congressional Record for Janu-             Conte’s request to the Secretary of Ag-
ary 22, Congressman Silvio 0. Conte               riculture for ‘‘a detailed report on both
improper payments reported by GAO                 rective measures which have and will
for diversion of land from the growing            be taken to prevent their re-occurrence.“
of feed grains to approved conservation
uses.
Congressional Interest in
hlr. CONTE. hIr. Speaker. since 1962, a        GAO Audit Work
nudist colony has been receiring annual farm
subsidy payments, although none of its land         The report of the activities of the
has been farmed.                                  House Committee on Armed Services
I n 1969. $2,000 was paid to another program during the 9 l s t Congress (1969-1970) participant whose acres are within a private has this to say about its interest in GAO ordnance pro\ing ground where “ordnance devices from small caliber ammunition to audit work: bombleta. grenades, and land mines” are Throughout each year, the euhcommittee tested. routinely maintains a continuing review of a I n other cases suhsidies have gone to gar- v8ide variety of military prohlem areas, par- bage dumps, housing developments, and ticularly those brought to its attention by gravel pits. the Gencral Accounting Office. of Decem- These and other shocking items are con- ber 1, 1970, the subcommittee had received tained in a recent report of the Comptroller and esaniined 104 formal reports from G,40. NEWS AND NOTES The subcommittee also keeps abreast of GAO and Rodenticide Act. Under the act, U.S. reviews in progress through continuous con- Agriculture [sic] Research Service can take tacts Hith their operating personnel. action to remove products from the market, cancel registration, and classify those who ship products who violate the law. More on GAO Report on GAO found that in over 2,751 samples of Pesticides Regulation products tested and reviewed during fiscal year 1956, over 750 were found to be in sub- Extended hearings on migrant and stantial \iolation of the law. Of these 70 per- seasonal farmworker powerlessness cent or 520 with major violation of the law. were held in 1969 and 1970 by the A 1967 total of about 5,000 samples were taken and 23 percent were found to be in Subcommittee on Migratory Labor of violation. I don’t consider this to be effective the Senate Committee on Labor and compliance of the regulation. Public Welfare. Several sessions were devoted to pesticides and the farmwork- (Part G A of Hearings, Aug. 1, 1969, er. The subcommittee was chaired by p. 3219) Senator Walter F. Mondale of Minne- The report referred to the need to im- sota. prove regulatory enforcement proce- One witness, Jerome Gordon, presi- dures involving pesticides (B-133192, dent of Delphic Systems Research Sept. 10, 1968). Corp., in testifying on pesticide poison- ing dangers, called attention to Federal Allowability of Training Costs agency regulatory deficiencies reported by GAO in 1968. He stated: From The Defense Contract Audit Agency Bulletin for December 1970: I would like to read from a report that was I n an audit of labor costs incurred under a prepared by US. General Accounting Office C P F F contract awarded to a major manufac- in the course of a review of the entire pesti- turer of computers, a DCAA Branch Office cide regulatory program and released last reported that the contractor at a nearby off- September and probably smothered in the site location had conducted two Basio Pro- back pages of the New York Times. gramming (Electronic Data Processing) On September 10 the US. General Ac- training courses and one Computing System counting Office issued a report on regulatory Course for 50 employees, with the cost of the enforcement of the Federal Insecticide, Fun- training being charged to the Government gicide, and Rodenticides [sic] Act. The sub- contract. Of these employees, 37 were trans- stance of the review was there was little ef- ferred to other contractor locations immedi- fective compliance action and no review by ately after completion of their training, the Justice Department in over 13 years. obviating benefit to the Government csontract. This was true, the GAO found, even in in. Furthermore, any such training was not stances where repeated major violations of within the scope of contractual requirements. the law were cited by the Agricultural Re- DC4A auditors, therefore, recommended that search Service and when shippers did not$192,000, the total cost of the two training
satisfactorily act to correct violations or ig-   courses, be disapproved. The contracting offi-
nored Agricultural Research Service notifica-     cer sustained $145,000 of this amount. tions that prosecutions were being contem- plated. The extent of that violation is in the data Glance at the 1972 Budget accumulated on the samples that the GAO reviewed that did not meet specifications laid The Federal budget for the fiscal down by thc Federal Insecticide, Fungicide, year 1972, submitted by President NEWS AND NOTES 77 Nixon on January 29, 1971, contains table bearing the heading “The Budget a welcome overview in the form of a at a Glance.” THE BUDGET AT A GLANCE (Fiscal gears. In billions) Description 1970 1971 l9i2 actual estimate estuna te Budget receipts.. ......................$193.7             $194.2$217.6
Budget outlays. .......................                      196.6              212.8              229.2

Actual deficit (-)    ......................                  -2.     8        -18.6              -11.6

Full-employment surplus, ...............                            2. 6              1.4               0. 1

Budget authority.      .....................                  213.0             236.3                259.0

Revenue Sharing and                                    States and localities the power to spend cer-
tain Federal tax monies will increase the
Accountability
influence of each citizen on how those monies
One of the debatable aspects of the                 are used. I t will make government more re-
sponsive to taxpayer pressures. I t m-ill en-
proposal for sharing Federal tax reve-                 hance accountability.
nues with State and local governments                     In the first place, there is no reason to think
is the concept of accountability for the               that the local taxpayer will be less motivated
shared revenues. As the debate over                    to exert pressure concerning the way shared
this proposal waxes warmer, it is well                 revenues are spent. For one thing, the local
taxpayer is usually a Federal taxpayer as
to know just what President Nixon said                 well; he would know that i t was his tax
on this point. In his message to the                   money that was being spent.
Congress of February 4, 1971, propos-                      Even if local taxpayers were only concerned
ing a $5 billion program of general about local taxes, however, they would still revenue sharing, the President stated: have a direct stake in the spending of Fed- eral revenues. For the way Federal money is Ironically, the central advantage of revenue used determines how much local money is sharing-the fact that i t combines the advan- needed. Each wise expenditure of Federal tages of Federal taxation with the advantages dollars would mean an equivalent release of of State and local decision-making-is the local money for other purposes-including very point at which the plan is frequently relief from the need to raise high local taxes criticized. When one level of government even higher. And every wasted Federal dollar spends money that is raised at another level, vould represent a wasted opportunity for it has been argued, it will spend that money easing the pressure on local revenues. less responsibly; when those who appropriate Most voters seldom trace precisely which tax revenues are no longer the same people programs are supported by which levies. who levy the taxes, they will no longer be as What they do ask is that each level of gov- sensitive to taxpayer pressures. The best way ernment use all its money-wherever it comes to hold government accountable to the peo- from-as wisely as possible. ple, some suggest, is to be certain that taxing The average taxpayer, then, will be no less authority and spending authority coincide. disposed to hold public officials to account If we look at the practice of government under revenue sharing. What is more, he will i n modem America, however, we find that I Jable ~ to hold them to account far more this is simply not the case. I n fact, giving effectively. NEWS AND NOTES 78 The reason for this is that “accountability” to hold local officials responsible for their really depends, in the end, on accessibility- strwdrdship of d l public funds. on how eusily a given official can Le held In short, revenue sharing will not shield responsible for his spending decisions. The State and local officials from taxpayer pres- crucial question is not where the nioney krires It will work in just the opposite direc- comes from but nhether the official who tion. Under revenue sharing, it will be harder spends i t can be made to a n b ~ e rto those for State and local officials to excuse their who are affected by the choices he makes. error5 by pointing to empty trea3uries or to Can they get their views through to him? Is pa<> the buck by blaniing Federal bureau. the prusprct of their future support a signifi- mats for misdirected spending. Only leaders cant incentive for him? Can they remo\e him whu h a t e the responsibility to decide and from office if they are unhappy uith his the means to implenient their decisions can performance? r e d y he held accountable when they fail. These questions are far more likely to re- ceive a n affirmative answer in a smaller juris- (Weekly Compilation of Presidential diction than in a larger one. Documents, Feb. 8, 1971, Vol. 7, No. 6, For one thing. as the number of issues is pp. lCttl70.) limited, each i>bue becomes more important. Transportation policy, for example, is a cru- New Urban Institute cial matter for niillions of L4n~ericans-yet a national election is unlikely to turn on that Publication issue when the great questions of war and The Urban Institute has launched a peace are a t stake. I n addition, each constituent has a greater new newsletter-type publication to in- influence on policy as the Lumber of con- crease the visibility of its work. En- stituents declines. An angry group of com- titled Search, the first issue which is muters, for example, will have far less impact dated January-February 1971 explains in a Senatorial or Congressional election than in an election for alderman o r county execu- its purposes as follows: tive. And i t is also true that the alderman or Search is a new bi-monthly report that county executive will often be able to change will share the finding.;, insights, data, and the local policy in question far more easily further questions that turn up in the research than a single Congressman or Senator can work of The Urban Institute. change policy at the Federal level. Research is not really complete until what- Consider what happens with most Federal ever emerges from an investigation is made programs today. The Congress levies taxes widely available to possible users. In addi- and authorizes expenditures, but the crucial tion to federal agencies which sponsor much operating decisions are often made by anony- of our reiearch. these uiers include the policy mous bureaucrats who are directly account- makers and administrators who manage cities able neither to elected officials nor to the day after day and officials at the state and public at large. When programs prove un- federal leiel. They include also the citizens, responsive to public needs, the fact that the action groups, scholars and researchers, busi- same level of government both raises and nes5 and labor organizations, writers and spends the revenues is little comfort. others whose concerns and enthusiasms some- At the local level, however, the situation is how get reflected in the kinds of cities we often reversed City councils, school boards have. and other local authorities are constantly The brief descriptions of the Institute proj- spending re\enues which are raised by State ects reported here may stimulate an interest governments-in this sense, revenue sharing in the more extensive studies from which they has been with us for some time. But the are drawn. Usually material on these studies separation of taxing and spending authority is available and requests should he addressed does not diminish the ability of local voters to our publications office. NEWS AND NOTES 79 The publication goes on to explain rector of the Office of Manage- that each issue will feature an account ment and Budget, the Chairman of one of the Institute's projects. The of the Civil Service Commission, first issue features the Beat Commander and the Comptroller General of project in Detroit, described as a new the United States. concept in city crime control. -The second annual summary re- The Urban Institute was organized port of the activities of the JFMIP in 1968 as a private, nonprofit research Steering Committee. The compo- organization to help find solutions to sition of this committee is as the problems and concerns of Ameri- follows: can cities (see GAO Review, Fall 1968, William J. Armstrong, p.$ 2 ) . President of the Institute is          Chairman                     OMB
William Gorham, a former Assistant             Steve L. Comings            Treasury
Secretary of the Department of Health,        Chester Wright                 csc
Education, and Welfare. Its head-             Frederic H . Smith             GAO
quarters are located at 2100 A4 Street,
N.W., Washington, D.C. 20037.              Transportation Financial
Management
Water Usage                                   A major study of the Federal Gov-
ernment's transportation practices was
According to the GAO report on
completed last year under the auspices
"Controlling "ldustrial
of the Joint FirlaIlcial hIanagenlent Im-
tion--Progress  and               (B-      proyernent Program. The study began
166506, Dec. 2, 1970)3 the productioll     in April 1968 as an in-depth examinam
of one automobile requires '070°0 gal-     tion into the transportation practices
Ions of water. Getting even closer to      and procedures of civil agencies of the
home, the report, which is '2 Pages        Government. The objective was to de-
long, notes that 1 0 Sallons of water      velop improvements in docunientation
were required to Produce each COPY Of      and procedures to alleviate problems
the report.                                in procuring, pa)-ing, auditing, and
settling accounts with common carriers
Joint Financial Management                 for freight and passenger transporta-
Improvement Program Reports                tion services used by the Government.
Two reports summarizing activities
chaired the rnultiagenc y working group
and accomplishments under this pro-
making the study. The study group re-
gram over the past year were recently
ceived extensive cooperation from the
released.
-The regular annual progress re-        carrier associations, carriers, and Gov-
port covering the fiscal year 1970    ernment agencies contacted.
and signed by the heads of the           The comprehensive report on the
four central agencies that provide    stud]- contains 58 recommendations for
leadership for the program, the       improving the Government's transpor-
Secretary of the Treasury, the Di-    tation practices. As they are placed into
421-03I)-71-6
80                                                                    NEWS AND NOTES

effect, they are expected to bring sig-         -A    6-months’ pilot test of a pro-
nificant savings in time and money to             posed plan for automatic payment
the transportation industry and the               of airline ticket charges procured
Government.                                       by teleticketing facilities should be
Significant recommendations in the             undertaken.
report are:                                     -A civilian transportation central
-The U.S. Government bill of lad-               payment facility should not be
ing should be extensively revised,          established.
including the elimination of the           -A central point should be desig-
Consignee’s Certificate of Delivery.        nated in each civilian department
-The short form U.S. Government                 and agency to handle all improp-
-Government agencies should be au-              bills identified with that depart-
thorized to pay in cash, under cer-          ment or agency.
tain conditions, for freight charges       Adoption of a number of the recom-
not exceeding $25. mendations is contingent upon enact- -Government agencies should re- ment of legislation to modify certain view their domestic small surface provisions of existing law which affect shipments, including parcel post, the manner in which the Government to determine areas where it is more pays for its transportation serv- efficient and economical to use ices. The General Services Administra- commercial services. tion with the support and assistance of --Government agencies should treat the General Accounting Office has claims for loss and damage on domestic shipments as separate ac- agreed to sponsor legislation to amend tions apart from the carriers’ bills the law. for freight charges, and the Gov- ernment should establish a realis- New Format of Comptroller tic minimum below which it is General’s Annual Report uneconomical or impractical to file formal claims against carriers. The 1970 report of the Comptroller -The General Services Administra- General was submitted to the Congress tion systems concept of automati- on January 21, 1971. This annual re- cally paying freight charges on port, a requirement of the Budget and certain shipments covered by Accounting Act, 1921, describes the freight-all-kinds rates should be activities and accomplishments of the vigorously pursued. General Accounting Office in some -The Government Transportation detail. Request should be revised exten- A number of improvements were sively. made in the 1970 report, all designed -The authorization to pay in cash to increase its usefulness. for passenger transportation serv- -Physical size was increased to ices costing up to$15 should be in-          77h” x             permitting two-
creased to $100 per trip. column printing and therefore NEWS AND NOTES 81 greater readability. The old size, the financial savings attributable 578" x 91/s", had been used since to the work of GAO, a complete the first annual report covering the listing of audit reports issued dur- fiscal year 1922. ing the year, and approvals of -A separately bound appendix was agency accounting principles and prepared containing the compila- standards and systems designs. tion of GAO findings and recom- Both volumes are thoroughly in- mendations for improving Govern- dexed and provide an excellent refer- ment operations which had been ence source for anyone wishing to published as a separate report in inform himself about the operations previous )-ears. Other appendix and accomplishments of the General material includes information on Accounting Office. I HEARING: -li By MARG-IRETL. RI.4CFARL.iXE Chief, Legal Reference Services, Ofice of the General Counsel Export-Im port Bank Lobbying Regulation At the request of the Senate Bank- On March 16, 1971, the Comptroller ing. Housing and Urban Affairs Com- General testified before the House Com- mittee, the Comptroller General, Elmer mittee on Standards of Official Conduct B. Staats, discussed legislation to re- on H.R. 5239, to require public disclo- move the Export-Import Bank from sure of certain lobbying activities. Mr. the budget process at a hearing on Staats directed his statement to the pro- March 9, 1971. The bills before the visions of the bill placing the adminis- committee for consideration were: S. 19 tration of the lobbying regulation under sponsored by Senator Mondale and the Comptroller General. Although Mr. S. 581 sponsored by Senators Spark- Staats indicated that GAO does not seek man, Tower, and Bennett. Mr. Staats the responsibility, it would accept it if restated GAO's traditional position of the Congress so desired and made the favoring the principle of full disclosure legislation clear that the duties would of agency activities to the Congress as be performed by GAO as an agent of well as the annual review bj- the Con- the Congress. I Other participants: gress of budgetary programs. In lieu Messrs. Socolar, Moore, Masterson, and of the proposed legislation, Mr. Staats Thompson.) detailed for the committee several alternative courses of action. The al- ternatives suggested would provide the Ocean Movement of Export-Import Bank with the desired Military Cargo flexibility to promote U S . export ex- At the request of the House Merchant pansion and still permit Congress to Marine and Fisheries Committee, the retain its control. Subsequent to the hearings, the committee ordered favor- Assistant Comptroller General, Robert s. ably reported with amendments 581, F . Keller, presented information con- which passed the Senate April 10. cerning the use of time charters for the (Other participants: Messrs. Smith, ocean movement of military cargo and Hylander, Zappacosta, Moore, Master- its impact on U S . flag vessels offering son, and Blair.) berth service. 82 HEARINGS AND LEGISLATION 83 GAO had issued a report on the Mili- Health Service. (Other participants: tary Sealift Command's ocean trans- Messrs. Moore and Fade.) portation procurement procedures on January 22,1971 (l3-145455), and the Impounding of Funds by the hearing was a followup on the report. Executive Branch (Other participants: Messrs. Sullivan, Shafer, Connor, and Fitzgerald.) The Subcommittee on Separation of Powers of the Senate Judiciary Com- mittee, during a series of hearings on Public Health Service the impoundment of funds by the ex- Hospital Facilities ecutive branch of the Government, in- Follow-ing the issuance of an advi- vited GAO to present its views on sory opinion on February 23, 1971 March 25, 1971. Robert F. Keller pre- tB-156510), at the request of the sented the statement. (Other partici- House Committee on Merchant Marine pants: Messrs. Denzbling. Moore. Litt- and Fisheries, on the legality of the m a n , and Fitzgerald.) proposed closing of Public Health Serv- ice hospitals and clinics. both the House House Post Office and Committee on Interstate and Foreign Civil Service Committee Commerce, Subcommittee on Public The House Post Office and Civil Serv- Health and Welfare, and the Senate ice Committee invited the Comptroller Committee on Labor and Public Wel- General to a briefing-t)-pe hearing on fare, Subcommittee on Health, con- March 18,1971. At this time, Mr. Staats ducted hearings on the closing of such discussed the work GAO had done with hospital facilities. Paul 6. Dem bling, respect to the Post Office Department General Counsel. reviewed for the sub- as well as the type of audit coverage committees the legislative historj- of the and review that is contemplated under various Public Health Service hospital the Postal Reorganization Act begin- system statutes which reflect the long- ning in fiscal year 1972. (Other partici- standing congressional intent that the pants : Messrs. Irieller, Ahart. Moore, facilities be maintained by the Public and Blair.) GAO Staff Marvin Colbs Marvin Colbs was designated as deputy associate director for supply manage- ment in the Defense Division, effective December 14, 1970. I n this position he will share the responsibility for planning, programming, and directing reviews of supply and logistics operations in the Departments of the Army, Navy, and Air Force, and the Department of Defense. Mr. Colbs received a bachelor of science degree in accounting from Temple University in 1950 and joined GAO in the Dayton Regional Office in 1955 after 5 years in public accounting. In 1963, he was transferred to the Defense Division. Mr. Colbs has had broad experience in the review of defense activities both in the field and in Washington. He has had responsibility for assignments in pro- curement, military pay and allowances, construction, and contract audits as well as all aspects of supply management. I n June 1969, Mr. Colbs graduated from the National War College at Fort McNair after a 10-month resident course in national security affairs. He also received a master's degree in international affairs from The George Washington University in September 1969. He is a CPA (Pennsylvania) and a member of the American and Pennsylvania Institutes of CPAs. 84 GAO STAFF CHANGES 85 John F. Flynn John F. Flynn was designated deputy associate director in the Defense Division, effective December 14, 1970. In this position he will assist in the overall super- vision of GAO accounting and auditing work in the procurement area of the Department of Defense. Mr. Flynn served in the U.S. Navy from 1943 to 13-25and has had broad and diversified experience in accounting and auditing in the defense agencies of the Federal Government since joining the General Accounting Office in September 1952. Prior to joining GAO, Mr. F l p n worked in public accounting and private industry. He graduated from the Bentley School of Accounting and was graduated cum Zaude from Northeastern University with a B.B.A. degree in June 1952. He is a CPA iblassachusetts) and a member of the American Institute of Certified Public Accountants and the Federal Government Accountants Associa- tion. Mr. Flynn received the GAO Meritorious Service AMard in 1961. 86 GAO STAFF CHANGES Albert Goldstein Albert Goldstein, assistant general counsel. retired from active service on Jan- uary 29, 1971, after more than 46 years of Government service. Mr. Goldstein was born in Washington, D.C., and earned his bachelor of laws degree from Georgetown University in 1933. He served as an Assistant U.S. Attor- ney for the District of Columbia from 1937 to 1910. Mr. Goldstein was appointed as a principal attorney in the General Accounting Office on July 17, 1940. Later, Mr. Goldstein was appointed to the position of assistant general counsel and served in that position from October 30, 1949, to the date of his retirement. Mr. Goldstein is a member of the District of Columbia Bar and the Federal Bar Association. GAO STAFF CHANGES 87 Kenneth F. Luecke Kenneth F. Luecke was designated as an assistant regional manager, Kansas City Regional Office, effective February 7, 1971. Mr. Luecke received a bachelor of science degree in business administration from Washington University- in 1954. He served as a commissioned officer in the U S . Army from 1954 to 1956. Since joining the General Accounting Office in 1934, Mr. Luecke served in the St. Louis office and in the International Division in Frankfurt, Germany. His overseas assignments included reviews of Army and Air Force supply and mainte- nance activities and foreign aid proFrams. In recent !-ears. Mr. Luecke has been involved in reviews of the management of major weapons systems and has at- tended the Department of Defense Teapon Si-stems Management Course at the Defense Weapon Systems Management Center in Da)-ton, Ohio. 88 GAO STAFF CHANGES Robert L. Rasor Robert L. Rasor, associate director, Office of Policy and Special Studies, retired from active service in December 1970. Mr. Rasor, a native of South Carolina, entered Government service in 1941 with the Ordnance Corps of the War Department. He served in this agency until 1946, most of the time as chief project auditor at Baytown Ordnance Works, Baytown, Tex. In 1946 he joined the Corporation Audits Division of the General Accounting Office. In that division and later in the Division of Audits, he was actively engaged in audits of the Tennessee Valley Authority, the Federal Crop Insurance Corpo- ration, the Commodity Credit Corporation, and Defense contracts. In 1956, as an assistant director, he became a charter member of the Accounting and Auditing Policy Staff, renamed the Office of Policy and Special Studies in 1966. In 1961 he was designated as an associate director. In this assignment, he had primary responsibility for developing the audit policies of the General Accounting Office and related staff review work. In recognition of his consistently outstanding per. formance, he received the GAO Distinguished Service Award in 1969. Prior to entering the Federal service, Mr. Rasor was associated with the public accounting firm of Harris, Kerr, Forster 8i Co. in New York City and Washington. Mr. Rasor attended Columbia University, The George Washington University, and New York University, receiving his B.S. degree from the latter in 1941. He is a CPA (District of Columbia) and a member of the American Institute of CPAs, the District of Columbia Institute of CPAs, and the Federal Government Accountants Association. GAO STAFF CHANGES 89 Robert G. Rothwell Robert G. Rothwell was designated as an associate director for facilities and support services in the Defense Division, effective December 14, 1970. Mr. Rothwell received a bachelor of science degree in 1942 and a master of business administration degree in 1951 from New York University. In 1966 he completed the Advanced Management Program of Harvard Business School. He is a CPA (New York) and a member of the Federal Government Accountants Association. During World War 11, Mr. Rothw-ell served in the U S . Army Counter Intelli- gence Corps. Prior to joining the General Accounting Office in 1951, Mr. Rothwell was a staff member of several public accounting firms in New r o r k City. Since joining the Office, he has been assigned principally to work related to activities of the Department of Defense. He was one of the initial staff members of the European Branch, serving in the Frankfurt suhoffice from January 1953 to July 1955, and he has been assigned to the Defense Division since its inception in 1956. GAO STAFF CHANGES 90 Paul Shnitzer Paul Shnitzer was designated as an assistant general counsel in the Office of the General Counsel, effective February 22, 1971. Mi-. Shnitzer served in the U.S. Army Air Corps from 1943 to 1946. In 1948 he received a &.A. degree from Epsala College, and during 1948-49 he completed a year of graduate I\ ork at the Max\+ell School of Citizenship and Public Affairs, Syracuse University. On June 4, 1954, he received a J.D. degree from The George Washington University. He attended the Judge Advocate General’s School in Charlottesville, Va.. in 1953. Mr. Shnitzer entered civilian Government service in 1949 as a junior manage- ment assistant, serving with the Air Force until joining the GAO as an attorney in the Office of the General Counsel on November 8, 1954. He received the GAO Meritorious Service Award in 1961 and 1963. I n 1954, he was admitted to the bar of the District of Columbia. He has written a number of articles and lectured extensivelj- on Federal procurement matters. He is coauthor of the second edition of West’s Federal Practice Manual and is currently the chairman of the Federal Bar Association’s Government Contracts Committee and the editor of the Public Contract Newsletter published by the American Bar Association. He also has serred as a member of the House Office Building Commission Contract Appeals Board since August 1963. GAO STAFF CHANGES 91 Jerome H. Stolarow Jerome H. Stolarow was designated as an associate director of the Defense Division, effective December 14, 19iO. In this position, Mr. Stolarow will be responsible for the direction of special projects undertaken by the Defense Division. Mr. Stolarow received a bachelor of business administration degree from the University of Oklahoma in 1951 and a juris doctor degree from Georgetown University Law School in 1955. He is a CPA in the State of Oklahoma and the District of Columbia, and has been admitted to the bar in the District of Colum- bia. He is a member of the American Institute of CPAs. Mr. Stolarow served in the U.S. Army from 1951 to 1953. He joined the Gen- eral Accounting Office in 1958 and has been on the staff of the Defense Division since that time. In 1963, Mr. Stolarow attended the Program for Management Development, Harvard Business School, and during 1969-70 he attended the Industrial College of the Armed Forces. He received the GAO Special Education Award in 1970. Professional Activities Office of the Comptroller General The National Institute of Public Affairs Program for Executive Offi- The Comptroller General, Elmer B. cers, Group, Charlottesville, Va., on Staats, addressed the following groups: “The Use of Consultants,” March 5. The Federal Management Confer- The Tax Foundation’s Conference ence, Washington, D.C., on the “Leg- on Federal Affairs, Washington, islative Reorganization Act of 1970,” D.C., on “Program Evaluation Role January 13. of GAO,” and “Proposal to Change The Brookings Institution Confer- Fiscal Year,” March 8. ence on Federal Government Opera- The Financial Management Round- tions, Washington, D.C., January 18. table, Washington Chapter of the The Brookings Institution Round- Federal Government Accountants table on Selected Issues in Public Association, Washington, D.C., on Law, Annapolis, Md., on “The “Issues Facing Financial Managers Changing Role of the GAO and GOV- in the Seventies,” March 11. ernment-Business Relations,” Jan- The National Capital Chapter of uary 19. the American Institute of Industrial The Operational Auditing Semi- Engineers, Washington, D.C., on nar, American Management Associa- “Legislative Reorganization Act, tion, New York City, on “Financial, Particularly as it Relates to Improv- Management and Program Auditing ing Program Evaluation Services in the Federal Government,” Feb- for the Congress and with Particular ruary 1. Reference to the Role of the GAO,” The Graduate School of Business, March 13. Indiana University, Bloomington, Mr. Staats’ address on “Potentials Ind., on “National Priorities and the for Management Improvement,” deliv- American Dream,” February 18. ered at the Federal Management Im- The Scholarship Dinner, Florida pro\-ement Conference, Washington, Atlantic University, Ft. Lauderdale, Fla., on “Public Affairs Challenges D.C., September 21, was printed in the to Business in the 1970’s,” Febru- Winter 1971 issue of the GAO Review. ary 27. It was also printed in the February The Executive Discussion, Armed 1971 issue of the Defense Management Forces Management Association, on Journal which contains other papers “New Army Materiel Acquisition and materials from the conference. Policies and Procedures,” Washing- The Assistant Comptroller General, ton, D.C., March 2. Robert F. Keller: 92 PROFESSIONAL ACTIVITIES 93 Spoke before the Northern Vir- Spoke on “GAO’s Changing Role” ginia Chapter, Federal Government before the Veterans Administration Accountants Association, on “New Legal Seminar, Washington, D.C., Responsibilities for the General Ac- February 25. counting Office in the Legislative Re- Spoke before the Briefing Confer- organization Act, and the Ribicoff ence on Government Contracts spon- Bill, S. 4 3 2 , ” January 5. sored by the Federal Bar Association Participated in the Industry-Go\--- and the Foundation of the FBA in ernment Seminar on President Nix- cooperation with the Bureau of Na- on’s Anti-Inflationary Policies spon- tional Affairs, Inc., Philadelphia, Pa., sored by the Kational Institute of on “Competitive Negotiated Procure- Public Affairs, January 6. ment,” March 1. Spoke on “Controlling Agency Stephen P. Haycock, associate gen- Policies and Programs” before the eral counsel: U S . Civil Service Commission Spoke on “Claims-The Govern- Training Program, Institute for New ment Strikes Back” before the Brief- Government Attorneys, January 20. ing Conference on Government Con- Thomas D. Morris, Special Assistant tracts sponsored by the Federal Bar to the Comptroller General, addressed Association and the Foundation of members of the Federal Bar Associa- the FBA in cooperation with the Bu- tion Briefing Conference on Govern- reau of National Affairs, Inc., Phila- ment Contracts at a luncheon meeting, delphia, Pa., March 1. Philadelphia, March 2. He spoke on Spoke before the Legal Logistics GAO’s organization, staffing, program Officer Course, Advanced, at the planning, and quality control practice. Judge Advocate General’s School, Ralph J . Guokas, Program Planning U S . Army, on “GAO’s Role in the Staff member, received a master of bus- Procurement Process,” Charlottes- iness administration degree in interna- d e , Va., March 10. tional business from The George Wash- ington University, February 15. illelcin E. Miller, assistant general counsel: Spoke before the Defense Procure- Office of the General Counsel ment Management Course on “The Paul G. Dem bling, general counsel : Role of the G.40 in Defense Procure- Participated in the American In- ment,” Fort Lee, Va., February 22. stitute of Aeronautics and Astronau- Robert H . Rumisen, assistant general tics President’s Forum, New York counsel: City, January 26-28. Spoke before the Defense Ad- Spoke before the Annual Confer- vanced Procurement Management ence of the Attorneys of the Army Course on “Problems in Formal Ad- Materiel Command on “Bid Protests vertising,” Fort Lee, Va., January 7. under the Scanwell Doctrine-The Spoke before the Defense Ad- Courts and the GAO,” Alexandria, vanced Procurement Management Va., February 9. Course on “Problems in Formal Ad- 94 PROFESSIONAL ACTlVlTI ES vertising,” Crystal City, Va., March at a meeting jointly sponsored by the 11. National Contract Management As- Paul Shnitzer, assistant general sociation. the Federal Government counsel: Accountants Association, the Federal Spoke before the Government Con- Bar Association, and the National Se- struction Contracting Course spon- curity Industrial Association, Boston, sored by the College of William and Mass., February 23. Mary in cooperation with Federal Spoke before the Basic Course in Publications, Inc., on “Preparation Government Contract Administra- of Drawings and Specifications and tion. conducted by Louisiana Siate Preparation of Bidding,” Dallas, University, New Orleans, La., Tex., January 11. March 12. Spoke before a training class for procurement personnel at Warner Office of Policy and Robins Air Force Base. Macon. Ga.. Special Studies on “Problems in Formal Advertising and Negotiation.” January 13. E . H. Morse. Jr., director. addressed Spoke before the Defense Ad- the following groups: vanced Procurement Mana,wement The Austin and Huntsville Chap- Course on c‘Problems in Formal Ad- ters, Federal Government Account- vertising.” Fort Monmouth, N.J.. ants Association, January 14 and 21, February 5. on “Some Recent Developments in Spoke hefore the Concentrated Federal Accounting and Auditing.” Course in Government Contracts The Dallas. Fort Worth? and Hous- presented by the Marshall-Wythe ton Chapters, Federal Government School of Law. College of William Accountants Association, Febru- and Mary. in cooperation with Fed- ary 16 and 18, on “Increasing the eral Publications, Inc., on “Con- Visibility of the Government Ac- tracting Techniques and Subcon- countant’s Work.” tracting.” Williamsburg, Va., Feb- The Kansas City and Denver ruary 23. Chapters, Federal Government Ac- Participated as moderator a t the countants Association, March 9 and meeting of the FBA Government 11. on “The Expanding Activities of Contracts Committee re ccScanwell- Government Accountants.” Bid Protests in the Courts” spon- The Baltimore Chapter, Federal sored by the Federal Bar Associa- Government Accountants Associa- tion and the Foundation of the FBA tion. March 12, on “Professional De- in cooperation with the Bureau of velopment and the FGAA.” National Affairs: Inc.. Philadelphia. Mr. Morse had an article published Pa., March 1. in the February 1971 issue of The Of- Seymour Efros, deputy assistant gen- fice entitled “Accountants Evaluate eral counsel : Federal Management.” Spoke on “Truth in Negotiation- Frederic H. Smith, deputy director, What Is I t and Where I s It Today,” and Herbert L. Feay, assistant director, PROFESSIONAL ACTIVITIES 95 have been appointed to an Ad Hoc On February 22, Mr. Marvin and Committee of the Federal Government Arthur R. Goldbeck, supervisory audi- Accountants Association’s Federal Fi- tor, jointlj- led a discussion on analysis nancial Management Standards Board for the Congress at the Industrial Col- to study the exposure draft of the lege of the Armed Forces. AICPA on audits of life insurance Mortimer A . Dittenhofer, assistant companies. Mr. Smith is serving as director: chairman of the committee. Addressed the Montgomery-Prince Edward J . Mahoney, deputy director Georges County Chapter of the Fed- for ADP, made presentations on the eral Government Accountants Asso- following subjects : ciation, February 10, on “The Statue GAO’s Government-wide computer of the Audit Standards Project.” program at the American Manage- Addressed the Detroit Chapter of ment Association’s Management the Institute of Internal Auditors, Systems and Sciences Planning March 2, on “The Status of the Audit Council meeting, Key Biscayne, Fla., Standards Project.” January 22. Participated in a Council of State GAO’s ADP activities, particularly Governments Seminar for State audi- those associated with G.40’~ long- tors in Brownsville, Tex., on per- range plans in the ADP area. before formance auditing and presented a special subcommittee of the Inter- two papers: one on the work of the agency ADP Committee studying Audit Standards Work Group and its long-range planning for Government current status, and a second on the ADP activities, Washington, D.C., application of audit standards to the January 26. public sector. “Budgeting and Costing for ADP Is currently serving as a member Activities” at the American Manage- of a Technical Advisory Committee ment Association Data Processing on an audit research project being Seminar, Washington, D.C., Febru- conducted by the Department of Edu- ary 9. cation of the State of Alabama and “Interfacing Peripherals with the by the University of Alabama. Main Frame” at the American Man- The following articles by Mr. Ditten- agement Association’s 17th Annual hofer have been published : Systems Management Conference, “A Systems Approach to Imple- New York City, March 9. mentation to State Audit Systems” Keith E. Muruin, associate director, in a Special Bulletin of the Municipal and Joseph D. Comtois, assistant direc- Finance Officers Association. tor, jointly led a discussion on “What “Application of Audit Standards Accountants Need to Know About Sys- to the Public Sector” in The Federal tems Analysis” at a section of the mem- Accountant, Spring 1971 issue. ber participation meeting of the “Performance Auditing Simpli- Washington Chapter of the National As- fied” in Public Administration Re- sociation of Accountants, January 16. view, March/April 1971. 421-039-71-7 96 PROFESSIONAL ACTIVITIES Earl M . Wysong, Jr., supervisory Max Hirschhorn, associate director, systems accountant : attended the Residential Program in Spoke on “Auditing and EDP’ al Executive Education at the Federal a seminar at The George Washing- Executive Institute, Charlottesville, Va., ton University, March 2. March 7 to April 30. Served as chairman of the Ac- Dean K. Crowther, assistant direc- counting Subcommittee of the FGAA tor, addressed the Third Institute on National Research Committee Bib- Federally Sponsored Grants for Edu- liography Project, which was com- cational Institutions, Non-Profit Orga- pleted in March. nizations, and Governmental Agencies, Served as chairman of the 1911 Iliashington, D.C., February 1. He nominating committee for the Doc- spoke on the “Role of the GAO in toral Students Association of The Auditing Federal Health Activities.” George Washington University. Bernard Sacks, assistant director, attended the Intergovernmental Pro- Frankie L. Schlender, systems ac- grams-Problem Seminar at the Federal countant, participated as a member of Executive Seminar Center, Kings Point, the Accounting Subcommittee of the N.Y., March 8-19. FGAA National Research Committee Frank V . Subalusky, supervisory Bibliography Project. auditor, addressed the members of the 1971 Intergovernmental Affairs Fel- Civil Division lowship Program, Chantilly, Va., Jan- uary 22. He spoke on his participation A . T . Samuelson, director, addressed and experiences while assigned to var- the Calumet, Indiana Chapter of the ious governmental offices at the State National Association of Accountants, level in Harrisburg. Pa. March 23. He spoke on “The General Accounting Office-Its Changing Role.” Gregory J. Ahart, deputy director, Defense Division attended the Conference on Business Charles M. Bailey, director, partici- Operations in San Francisco conducted pated in the January seminar of the Na- by the Brookings Institution, Janu- tional Contract Management Associa- ary 24-29. tion, Houston, Tex. The subject of the Henry Eschwege and Victor Lowe, associate directors, briefed State and seminar was “The Market Place To- local law enforcement officials in day.” His remarks were on the general the Internal Revenue Service Special subject of today’s environment as it Agency Basic School Program spon- affects the market place. Mr. Bailey also sored by the Law Enforcement Assist- addressed the professional military ance Administration-Department of comptroller course, Air University, Justice, February 11 and March 3. Maxwell Air Force Base, Ala., March 8. They spoke on the functions of GAO Jerome H . Stolarow, associate direc- and the results of selected reviews that tor, gave a presentation entitled “Re- have been made primarily by the Civil sults of GAO Should Cost Study,‘’ Division. March 1, at the directors’ meeting of PROFESSIONAL ACTlVITlES 97 the Department of Defense Procure- tion, February 24, Washington, D.C. ment Management Review Program. Their subject was the General Account- John F. Flynn, deputy associate di- ing Office’s review of the Vietnamiza- rector, discussed how the GAO con- tion Program. ducted the defense industry profit John Landicho, supervisory auditor, study before the Chicago Chapter of the addressed the Logistics Executive De- National Contract Management Associ- velopment Course at the Arinj- Logis- ation, February 17. tics Management Center, Fort Lee, Va., Hyrnan S. Baras, assistant director, Januarj- 20. His subject was “GAO and addressed the Procurement Seminar for Military Supply Management.” Auditors and Contract Managers spon- sored by the Interagency Auditor Field Operations Division Training Center, March 8, Washington, D.C. His topic was “How GAO Re- Robert A . Wlodarek, supervisory au- sponds to the Needs of the Congress.” ditor. Chicago, addressed the Federal i5Ia.x Stettner, assistant director, at- ADP Council of the Chicago Federal tended the Civil Service Commission’s Executive Board, December 15. The Executive Seminar at Kings Point, topic of his presentation was “GAO N.Y.. February 1-12. and ADP in the Federal Government.” Joseph J . Kline, assistant director, Dacid P. Sorando. reczional manager, and Charles A . Schulrr, supervisory au- Cincinnati, addressed the American ditor. spoke before the Vietnam Task Society of Military Comptrollers at Group, an intra-Government organiza- their luncheon meeting. February 11, C u ~ r t r r n d a n.4urlit Ofiicials L isit G.40. From leir tu riglit are Sr. Levpdilo .\.-IJCHE: \ow. Comptroller Generul uf Guatenlala: Arthur Angel. I:.S. Apen1.j !or Internutional Det,elop- m e n t : AIjonso J. Strazzullo, i%-eioI‘ork Regional Munager; (2nd Sr. Fernando R O D A S Corzo. Deputv Comptroller General of Guatemala, during a briefing. January 22, on the planning and conduct of G A O audits b y a field office. T h e audit officials of Guatemala were also g i w n a briefing. January 29. b y members o f the Los Anpeles Regional O f i c e . 98 PROFESSIONAL ACTlVlTlES at Fort Benjamin Harrison. His topic improvements adopted by Federal man- was “The Role of the GAO in the Fi- agers. nancial Management of the DOD.” On March 5, Donald L. Scantlebury, Deon H . Dekker, assistant regional regional manager, and James B. Deem- manager, Dallas, participated as a pan- er, supervisory auditor, Washington, elist in the Career Day program at Texas participated in a West Virginia ac- A & M University, College Station, Tex., counting symposium hosted by West January 26. Virginia Wesleyan College, of Buck- Stewart D. McElyea, regional man- hannon, W. Va. The purpose of the sym- ager, Denver, is serving as chairman of posium was to acquaint students and the nominating committee of the Den- faculty members from all the West Vir- ver Chapter of FGAA. ginia colleges and universities with var- Duane Lownsberry, audit manager, ious Government and private account- Denver, took part in a Claims Activities ing careers. Mr. Scantlebury discussed Workshop sponsored by Region 2 of the career opportunities offered by the Gen- Forest Service, January 14. He also eral Accounting Office. participated as a panel manager in a On February 25, Mr. Deemer at- symposium on career opportunities in tended ribbon-cutting ceremonies for Government at the University of South the new Technological Building of the Dakota: February 25. Northern Virginia Community College. Frank B. Graves. supervisory audi- He is a member of the college’s account- tor. San Francisco, addressed the De- ing advisory committee. cember meeting of the Electronic Ap- plications Research Forum in San International Division Francisco on the subject “Federal Trends in Automatic Data Processing.” On February 3, James A . OUR,asso- Irwin M . D’Addario, assistant region- ciate director, and Eugene C. Wohlhorn al manager, Seattle, has been appointed and Frank C. Conahan, assistant direc- chairman of the Subcommittee for Iden- tors, conducted a seminar for partici- tifying Program Conflicts, a subcom- pants in American University’s Wash- mittee of the Seattle Federal Executive ington Semester Program. Participants Board. Also, Mr. D’Addario addressed in the program were government and the Pupet Sound Chapter of the In- political science students selected from stitute of Internal Auditors at Renton. among 200 colleges and universities Wash.. February 23. He discussed GAO throughout the United States. The pur- functions and responsibilities. poses and functions of GAO were dis- L. Neil Rulherlord, supervisory au- cussed with international activities be- ditor. Seattle, was recently appointed a member of the Committee for Improv- ing emphasized. ing the Quality of the Federal Govern- Harold E. Lewis, supervisory auditor, ment. a standing committee of the Far East Branch, Honolulu, was elected Seattle Federal Executive Board. His president of the FGAA Hawaii Chap- area of interest involves increasing the ter for 1971. William J . Anderson, effectiveness and efficiency of Federal supervisory auditor, was elected treas- operations by periodically publicizing urer. Clifford I . Gould, assistant direc- PROFESSIONAL ACTIVITIES 99 tor, and John J. Simon and Richard C. Transportation Division Thabet, supervisory auditors, were elected directors. T . E. Sullivan, director, attended the meeting of the Standard Transporta- tion Commodity Code Committee of the Office of Personnel Management Association of American Railroads, At- Leo Herbert, director, spoke on “The lanta, Ga., February 3-5. He discussed United States General Accounting Of- problems of mutual concern regarding fice-50 Years: A Perspective of Ac- the use of the freight commodity codes. counting,” before the Accounting E. B. Eberhart, supervisory trans- Group of the College of Business Ad- portation specialist. and Lozcsell James, ministration, Texas Technological Uni- supervisory management auditor, at- tended the semiannual meetings of the versity in Lubbock, Tex., February 11. Cargo and Passenger Revenue Account- On February 13, he participated in the ing Committees of the Airline Finance Second Annual Sacramento State Col- and Accounting Conference, Washing- lege Accounting Symposium and spoke ton, D.C., March 16 and 17. Mr. Eber- on “Training for Auditing of Manage- hart discussed various problems en- ment Systems.” Mr. Herbert was se- countered by carriers on Government lected as a member of the Accreditation traffic, including the procurement and Revisitation Team of the American As- payment on excess baggage. hlr. James sociation of Collegiate Schools of Busi- gave a progress report on the imple- ness that renewed the accreditation of mentation of the Joint AFency Trans- the University of Kentucky. March 1-2. portation Study recommendations. Successful Candidates- November 1970 CPA Examination Listed below are the employees who passed the Kovember 1970 CPS examination: REGIONAL OFFICE Name Regional O s c e State James E. Caldwell . . . Philadelphia . . Pennsylvania. Kathan K. Cheney.. , . , Washington , . . Virginia. Thomas G. Coupar . . San Francisco California. John J. Dombrosh) . Detroit. . . . Ohio. John &I. Donnelly . . Philadelphia Pennsylvania. Ronald D. Flynn . Philadelphia Pennsylvania. Stanley C. George . . . . San Francisco . California. Edgerton R. Haskin, J r . Dallas . . Texas. William F. Laurie.. . . . . . . Detroit. . . . , . Ohio. Charles A. McClendon . Kansas City. , . Illinois. Kathryn E. KlcNurlin (Ifiss) Denver .. . . Colorado. J. Peter Sewlon. . . . San Francisco . California. Joseph G. Sakelaridos . . . Philadelphia. . Pennsylvania. Weldon E. Stanley . Dallas Texas. WASHINGTON Name Diaision State Lawrence J. Dychrnan . . . . . .. . Defense.. . . New York. Anthony J. Gabriel. . . . Officeof the Virginia. Comptroller General. Paul J. Granetto International-Far Illinois. East Branch. Charles A. Pistole . ... . Civil.. . . . . . . Washington. D.C. Duane 112. Ponko. . , , . Civil , . . Virginia. Henry J. Steininger . . International Virginia. John N. Toler, Jr . . . Defense. . . . . Texas. Joseph E. Totten. . . . . Civil, . West Virginia. Joanne E. Weaver (bliss) . Civil . Virginia. Gary L. Whittington.. . . . Civil. . . West Virginia. David W. Yeakel . . . . Civil . , , Virginia. 100 New Staff Members The following new professional staff members reported for work during the period December 16, 1970, through March 15, 1971. Civil Division Campbell, Wayne E. Rloomsburg State College Costa, Robert J. Bryant College Cronin, Robert E. University of Maryland Kaulfuss, Ernest J., Jr. Lehigh University Mozzer, Joseph W., Jr. Florida State University Samsell, Lewis P. West Virginia University Defense Division Justice, Floyd B. Florida State University Zipp, Alan S. University of Tennessee International Avalos, Henry Thunderbird Graduate School Division- Nason, Steven L. Thunderbird Graduate School Washington Office of Personnel Culkin. Mary A. (Miss) U.S. Civil Service Commission Management Office of Policy Epley, Harlan B. Department of Commerce and Special Studies Kozura, Ronald Board of Governors of the Federal Reserve System Simonette. John F. Honeywell, Incorporated REGIONAL OFFICES Denver Alvarez, Joseph I. Baylor University Los Angeles Roth, Norman E. California State College Norfolk Radosevich, Joseph J. Virginia Polytechnic Institute 101 Readings of hterest The reviews of books, articles, and other documents in this section represent the views and opinions of the individual reviewers, and their publication should not be construed as an endorsement by GAO of either the reviewers’ comments or the books, articles, and other documents revieued. The GAO: Untapped Source of tial.” He selected one agency-the Congressional Power Tennessee Valley Authority ( TVA - ‘.to serve as the analytical tool for de- By Richard E. Brown: The University picting how, specifically, the GAO’s of Tennessee Press, Knoxville, 1970; audit work serves Congress and for de-$5.95.                                        scribing in some detail the GAO’s
relations with those whose activities it
This is the first book published since
audits.”
1939 which is concerned almost exclu-
Senator Proxmire explains in the
sively with the role and activities of
foreword to the book “This book began
the General Accounting Office (GAO) .
as a case study of the GAO and its
The author is a staff member of the
relationship to the Tennessee Valley
State of New York Legislative Com-
Authority. Professor Brown has ex-
mission on Expenditure Review. He has
worked for the National Security             tended that original plan so that the
book encompasses far more than its
Agency and the Tennessee Valley Au-
original objective.” The significance
thority, and he taught at the College of
of this comment by the Senator becomes
William and Mary. Prior to his present
apparent upon reading the book be-
position he was a consultant to GAO.
cause essentially what the author has
The author limits his attention to
done is to describe briefly in the first
GAO’s auditing and related investiga-
part of the book the legislative develop.
tive functions in this book because            ment of GAQ functions and its role in
-‘these two functions give the GAO             the executive branch. He then proceeds
a special opportunity to make an              in the second part to discuss in some-
invaluable contribution to Congress in         what more detail the conflicts and rela-
carrying out its own enormous respon-          tions between the various Comptrollers
sibilities. To explore in detail the GAO’s     General, starting with the first, and
total responsibilities could easily be-        TVA management. The third part of
come confusing and further obscure            the book is a brief discussion of con-
the area of the GAO’s greatest poten-         gressional use of GAO reports. The
102
final part consists of the author’s evalu-       sible in a political environment-
ation of the work by GAO and his con-             that is, not politically motivated.
clusions concerning the additional             6. The results of the GAO’s audit
services GAO could undertake in the               work must be significant, and the
future to serve the Congress-provided              audit effort must deal with a va-
the Congress is interested in and capa-            riety of timely issues that are im-
ble of carving out for itself a stronger           portant to Congress and to the
position vis-a-vis the executive branch.           departments and agencies directly
GAO staff members will find the dis-            concerned.
cussions of early (1933-1945) TVA
The author concludes that all the
and GAO events particularly interest-         criteria are met except number 4. In
ing because many of these events were         fact, throughout the book GAO fares
part of a conflict scenario in which          quite well except for some not so com-
GAO developed its modus operandi.             plimentary remarks about early TVA
These events are not well known to most       problems and a comment (p. 75) about
of GAO’s staff. In the third section of
a lack of promptness in making audit
the book the author illustrates the con-      reports.
gressional use of GAO reports, but he
offers no analysis of frequency of use
which the author believes would en-
of reports or the manner in which re-
hance the effectiveness of GAO. For
ports have been used by committees.           example, he believes that conflicting
The author’s approach throughout the
agency views on GAO reports should
book is anecdotal.
be put in separate reports attached to
The author’s evaluation in the last
GAO documents in order that the pro-
part of the book of how well GAO real-
fessional views of GA40might not be
izes its full potential is based on GAO
compromised by agency management
performance in relation to four key
criteria established by Joseph Harris in     views ( p. 62). No evidence is presented
his 19M book Congressional Control           to illustrate how GAO views may have
criteria suggested by the author. These      that it may be in the best interests of
criteria are :                               both the GAO and the Congress if GAO
would serve committees but not indi-
1. The GAO must be independent of
the executive branch and respon-       vidual Congressmen ip. 79 1 . The ques-
sible only to Congress.                tion of executive privilege is brought
2. The GAO audit must be a true            up briefly and just as briefly disposed
postaudit.                             of by the comment that “This dilemma
3 . The audit must be comprehensive.       is one which cries out for additional
intensive, and promptly executed.      research and an attempt to establish
4. Congress must be organized to re-       badly needed guidelines.”
ceive, consider, and act on audit         Several further suggestions of par-
5. The GAO must be professionally              GAO could review the program
competent and as objective as pos-         evaluations and program planning
104
and budgeting judgments made by      capabilities are not discussed in the
executive departments (p. 1001.      book although a few passing comments
GAO could provide budget inior-      are made in each of these areas.
mation in the form of a pro forma       Another important subject which
cost-effectiveness analysis of al-   might have been discussed in this book,
ternative courses of action (p.      or in any book concerned with a Fed-
102).                                 eral agency whose principal resource
* GAO could add to its functions is a professional staff, is the philoso-
that of ombudsman, which func- phies and bearing of the agency lead-
tion might be described as the ers- its high level managers. The
< bpeople’s watchdog against abuses
author says almost nothing about such
of power” (p. 103).
matters.
I believe that there is something of        In summary, I believe GAO staffs will
interest in this book for all GAO staff find the book worthwhile reading, but
members and for others who want to they will probably find themselves look-
know something of the workings and ing forward to another book about
products of GAO. Unfortunately, there GAO u.hich is considerably more thor-
is too little discussion of many of the ough and analytical in approach than
topics introduced in the book. The au-
is this one. But. after all, should one
thor’s analysis of GAO products is i1lost
expect much more in only 106 pages?
noticeable by- its near absence, at least
in a statistical sense. Trends of the num-                  Ted M . Rabun,
bers of GAO reports, the scope and                          ASSISTANTDIRECTOR,
types of reports, the uses made of GAO                      OFFICEOF POLICY     AND
reports, and the professional manpower                         SPECIAL   STUDIES.

c
Annual Awards for Articles Published in €he GAO Review
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The judges will evaluate articles from
cant Contribution to Financial Man-
the standpoint of the excellence of their
agement Literature and is presented
overall contribution to the knowledge
during the GAO awards program held
and professional development of the
annually in June in Washington.
GAO staff, with particular concern for:
One award of $250 is available to Originality of concepts. contributing staff members 31 years of Quality and effectiveness of written age or under at the date of publication. expression. Another award of$250 is available to        Evidence of individual research
staff members over 31 years of age at           performed.
that date.                                   Relevancy to GAO operations and
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105
U S   GOVERNMENT P R I N T I N G OFFICE 1 9 7 1
THE GAO REVIEW
LIAISON STAFF

Office of Policy and Special Studies_ _ _ _ _ _ _ _ _ _ E. H . Morse, Jr., Coordinator
Office of the Comptroller General _ _ _ _ _ _ _ _ _ _ _ _ Rodnej E. Espe
Office of the General Counsel _ - - _ - _ _ _ _ _ _ _ _ _ _                  Milton J . Socolar
.  .   . . .
Civil Division _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ _ _ _ _ _ _ _ _ _     Jack L. !Vert-
.  .  .
Defense Division - _ - - _ _ _ - - _ _ _ _ _ _ _ _ - - - _ _ _ _ _ _         Frank   111. Kimmel
.  .  .                                                 Charles   E. Hughes
International Division _ _ _ - _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
European Branch__----_---_---____--------                                    William   L. Martino
F a r East Branch _ _ _ - _ _ _ _ _ _ _ _ _ _ - _ _ _ _ _ _ _ _ _ _ _ _      Clifford  1. Gould
.  .  .
Transportation Division _ _ _ _ - _ - _ _ _ - _ - - - - _ _ _ _              Fred  J. Shafer
...                                               Clyde E . !llerrill
Field Operations Division _ _ _ _ _ - - _ _ _ - - _ _ _ - - - -
Office of Personnel Management - - _ _ _ - - - _ _ _ _ _ - N . E. Cheatham
Atlanta _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _  Andrew F . McCall
Boston __________________________________                                    Charles   F . Carr
Chicago - - _ _ _ _ _ _ _ - __ _ _ - - - _ _ - - - _ _ _ - _ _ _ _ _ _ _ Clement K . Preiizisch
_       _                     _
Cincinnati - - _ _ - - _ - _ - _ - _ - - _ _ _ - - - - _ - - - - _ Daniel L. McCafferty
Dallas _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - - - - - _ _ _ - - - _ Hurold C. Burton
Denver _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ _ _ _ John T . Lacy
Detroit _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - - _ _ _ _ - _ _ _ _ _ - _ _ _ - _ -  Robert 0.Gray
Kansas City _______________________________                                  .drnett E. Burrow
Los Angeles_--___--_____-_------_----_-__ Eugene T . Cooper, Jr.
New York ________________________________                                    William F . Paller
Philadelphia - - - - - - _ - _ _ - - _ _ - - _ - _ - - _ - _ _ - _ _ _ _      Horace   Y . Rogers
San Francisco _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ - - _ - - -      Kenneth    A . Pollock
Seattle__---------------___-------_---___-                                    Richard    0.  Long
_
Washington - - - - - - - - _ _ - - - _ _ _ _ _ _ _ _ - _ _ _ _ _ _ -         George    L.   Egan, Jr.

EDITORIAL ASSISTANCE

Office of Policy and Special Studies-_------_-_                  Josephine :IZ.Clark
Office of Administrative Services_ _ - _ _ _ _ _ _ _ _ _ _       Jane A . Eenoit
Alice E. Graziani
Linda M . Lysne
U S . GENERAL ACCOUNTING OFFICE
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