Cost Accounting Standards Board Budget Estimates for Fiscal Year 1972

Published by the Government Accountability Office on 1971-06-07.

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

                                      UNITED STATES SENATE

                                         COST ACCO"NTI,I:NSTANDARDSBOARD
                                      BUDGETESTIMATES FOR FISCAL YEAR 1972


      We appear before you today to discuss                          the budget estimates               for the

operations         and continuing          expenses for fiscal              year 1972, of the cost

Accounting         Standards      Board authorized              by Public     Law 91-379, approved on

August 15 of last             year.      Mr. Chairman,           the budget estimates           we are pre-

senting      are for the first             full      fiscal     year of operations           of the Board.

For fiscal         year 1971, funds were approved in December to establish                                 the

Board and commence operations.

       In the way of background,                     the Congress,      in extending          the Defense

Production         Act of 1950, included                a new section        719 last   year--creating

a Cost Accounting             Standards           Board.      The new section      was passed by the

Congress fallowing             an 18-month study by the General Accounting                          Office       (GAO)
undertaken         by previous         direction>       of the Congress.           In this     study,     GAO

found that         cost accounting           standards         for negotiated       procurements         were both

fefsible         and desirable         and that       the cumulative         benefits    from the estab-

lishment         of such standards           should outweigh          the cost of implementation.

       The principal           function           of the Board is to develop and promulgate                      cost

accounting         standards      designed to achieve               uniformity       and consistency         in

the cost         accounting      practices          followed     by defense contractors           and subcon-

tractors         under negotiated          defense procirements              ii   excess of $100,000,

    except where the price             negotiated     is based on established               catalog        or

    market prices        of comercial        items sold in substantial               quantities        to the

    general     iublic    or prices      set by law or regulation.                A large      and growing

    proportion      of defense procurements               is of the negotiated         type,      reaching

    89 percent      of dollar    volume in fiscal            year 1970.

          The Board was created            as an agent F‘ the Congress, consisting                          of

    the Comptroller         General of the United            States who shall         serve as Chairman,

    and four other members appointed                 by     he Comptroller        General.        Two of the

    members to be appointed             to the Board are to be from the accounting                          pro-

    fession,     one of whom is to be particularly                    knowledgeable      about cost account-

    ing problems of small          business;        one member is to be representative                      of

    industry;      and one is to be from a department                     or agency of the Federal

    Government.          The act empowers the Board to appoint                    an Executive        Secretary

    at a rate of compensation             not to exceed the rate prescribed                    for    level              IV

    of the Federal         Executive     Salary     Schedule.

          Mr. Chairman,         in January of this           year I appointed         four members to

    serve on the Cost Accounting              Standards          Board.     Appointments       to the Board

    are as follows:                           3
    From the Accounting Profession:   Mr. Herman W. Bevis, New York City, who
         served with Price, Waterhouse & Company, certified     public accountants,
      .  from  1933 to 1969, and was Senior Partner from   1961  to 1969.

          Dr. Robert K. Mautz, Urbana, Illinois,    Professor of Accountancy,
          University   of Illinois, and a leader for many years in the account-
          ing profession.

    From Industry:  Mr. Charles A. Dana, Lexington, Massachusetts,                                   Manager of
         Government Accounting Controls, Raytheon Company.

                                                             I               .-                                      i

From the Federal Government: The Honorable Robert C. Moot, Assistant
     Secretary (Comptroller), Department of Defense, and formerly
     Administrator, Small Business Administration.

         Both Dr. Mautz and Nr. Bevis have had extensive                        accounting     experience

in small      business.          Mr. Bevis served as a member of the President's                     Task
Force on Improving           the Prospects        of Small Business,           which reported       to the

President       in March 1970.         This report       served as the basis for the

Presidential         Message to the Congress in which the President                      outlined      a

series     of programs designed to assist                small     business.

         These appointments          were made after         soliciting      nominations       for members

of the Board from 5 professional                    accounting     associations,       11 industry

associations          (including     several     associations       representing       small   business),
10 Government departments              and agencies          (including    the Department of Defense

and the Office          of Management and Budget), as well                  as several     prominent

individuals          in the accounting         profession.        In response to these solicita-

tions,     we received       the names of over 85 individuals                  for consideration           for

appointment          to the Board.

         The Cost Accounting          Standards       Board has held four meetings              to date.

At its     initial      meetings,     the.Board       reviewed the legislative            history     of the

act establishing           the Board, approved the form and structure                     of its    organiza-

tion,     defined      certain     administrative       operations,        including     the extent        to

which the GAOmight               handle administrative           matters    for the Board, and

approved the emp?oyment of an Executive                       Secretary     and other principal
staff     of the Board.

     On March 5, 1971, the Board announced the selection  of Mr. Arthur
Schoenhaut as Executive Secretary.  M;. Schoenhaut, a Certified  Pub1ic

Accountant,        will      bring      to the Board outstanding                       experience      in the account-

fing field.         He has been with                 the Federal          Government since 1950.               From

'that   tim;     until      1967 he was with the General Accounting                              Office     where he

served as Deputy Director                     of the Civil          Division           of that Offs'ce from 1964

to 1967.         Since 1967 he has been Deputy Controller                                  of the Atomic Energy

Commission.                                                         s
        At its      meeting      held April             30 and May 1, 1971, the Board had a series

of informal         discussions             with      several     Federal agencies,             professional          ac-

counting       associations           and industry              associations           concerning      the organiza-

tion,      operation,        and mission              of the Eoard.            Also,      the Board elicited           from

the various         Federal      agencies             and professional            and industry         associations

suggestions         as to how their                 organizations            might best contribute           to the

efforts        of the Board.

          The Board staff            will     be concerned heavily                 in researching          existing

cost accounting             principles             and practices        , reviewing         and analyzing          such

 information        from a technical                  standpoint,         and testing        possible      cost

accounting        standards          in operation.               At its       most recent       meeting on May 28,

the Board approved an overall                          technical        work plan to be followed               by the

staff      in meeting the objectives                     and requirements               of Public      Law 91-379.

  . staff        has initiated              effort      leading      to the development of regulations

requiring        affected       defense contractors                  and subcontractors               to disclose,

 in writing,        the cost accounting                  practices           being followed          in pricing       con-

tract      proposals        and in accumulating                  and reporting            contract     performance

 cost data.         Also,     the staff              was directed           to initiate      exploratory       research

 leading       to early      development and promulgation                         of-certain         cost accounting
 standards.                                                                                                    .

.       .   ”

                       Mr. Chairman, the estimate             of $1,650,000          for the first          full    year of

                operation      of the Board--fiscal          year 1972--as shown in the budget does not

                take in&       account the pay raises           granted to Federal             employees in January

                of this      year.    We are not requesting             the additional         $45,000 cost of this

                pay increase         since we expect to absorb it.

                       On the basis of our estimates,               the $1,650,000 will                 be used as follows:

                       $750,000 for salaries and related benefits of the Board,
                                professional  staff (including    an Executive Secretary)
                                and supportive clerical    staff.

                       $520,000 for travel of Board, its staff and task force teams
                                comprised of representatives  of Government, account-
                             * ing profession and industry.

                       $310,000 for contract        services,  reimbursements for computer
                                      services, administrative    and personal services, and
                                      reimbursements to other Government agencies.

                       $ 70,000 Other--rent,   communications, utilities,                         printing and
                                reproductions,   supplies and materials                         and equipment.

                       Our estimate         is prepared on the basis             that    about 25 professional

                positions       and 12 supportive       clerical        positions       will    be required         to per-

                form the research           and technical      effort     needed for the early              operations

                of this      new organization.

                       Our estimate         takes into'account          the need for coordination                  and coop-

                eration      with other      Government agencies,           the accounting          profession,        and

                iridustry.       For example9 it        is possible       that      the Board will         wish to estab-

                lish   task force       teams.     The size of these teams presumably would vary

                (3 to 5 members cr possibly              more) with usually             one member being from the

                Board's      professional      staff.       These teams may visit              plants     of various       types

                of defense and nondefense industries                    tp obtain       ivformation        on basic cost

                accounting       practices       in use today for the purpose df developing                         cost

accounting standards for specific                      elements of cost.             The task forces
might be comprised of representatives                      of Government, the accounting                    pro-

fession      &d     industry.          In view of the indications              of voluntary        assistance

coming from those sources,                 we anticipate         that     those serving       on the task

force     teams wil?         not be reimbursed          for their        services,      but that     the Board

will     pay the necessary travel              costs invo’ved.
         Our estimate also takes into account that the Board will                                  have to ob-

tain     as consultants         or by contract          t' 2 services        of people highly         qualified

in the technical             aspects     of cost accounting             from industry,       the academic

world,      or the accounting            profession,      whose services             the Board would not

otherwise         be able to obtain         by permanent employment with                  the Board.           We

think     that     the Eoard staf7 should be held to a minimum and that other

qualified         services      should be obtained         through consultants             or by contract

on an as-needed basis.                  In addition      to these services,             the Board has entered

into     a Memorandum
                    of Understanding                    and Agreement with the GAO whereby the
latter      would provide         administrative         services        such as printing,          payroll,

financial         reporting,      budget,     personnel,      security        investigations         and office

services         to the Board on a reimbursable               basis.

         This generally          summarizes our views with                respect      to the initial          opera-

tion of the Cost Accounting                  Standards Board.             I will      be glad to answer any