f 3 s I '. - ' -r) ADDRESS BY 4T e ' * 1Il1l1l1111 l1l1 l1 l1 l111111111111 094428 ~ THE COMPTROLLER GENERAL OF THE UNITED STATES ELMER B. STAATS BEFORE THE AMERICAN SOCIETY OF PUBLIC ADMINISTRATION APRIL 21, 1971 1 [NEW PROBLEMS OF ACCOUNTABILITY FOR FEDERAL PROGRAMS 1 I f I were t o ask you as p u b l i c a d m i n i s t r a t o r s and p o l i t i c a l s c i e n t i s t s w h a t p r i n c i p a l l y comes t o mind when one r e f e r s t o a c c o u n t a b i l i t y , I suspect t h a t most o f you would r e p l y i n terms o f accountabi 1it y as i t r e l a t e s t o our c o n s t i t u t i o n a l separation o f . powers--principal l y between t h e executive and t h e l e g i s l a t i v e branches. A r t i c l e I 1 o f t h e C o n s t i t u t i o n provides t h a t t h e President " s h a l l take care t h a t the laws be f a i t h f u l l y executed ** *.'I It further provides t h a t "he s h a l l from time t o time g i v e t o t h e Congress i n f o r - mation on t h e s t a t e o f t h e Union." I n o t h e r words, he i s accountable t o t h e Congress f o r c a r r y i n g o u t l e g i s l a t i o n enacted by i t . T h i s aspect o f a c c o u n t a b i l i t y i s certain1.y a t i m e l y one. The temptation i s g r e a t t o develop i t a t length. We hear much these days about "executive p r i v i l e g e , " questions as t o t h e P r e s i d e n t ' s a u t h o r i t y t o commit our armed forces t o combat, c r i t i c i s m o f t h e President f o r impounding funds a p p r o p r i a t e d by t h e Congress, charges o f a c r e d i b i l i t y gap i n i n f o r m a t i o n made a v a i l a b l e t o Congress, and so on. Concurrently, we hear more and more f r e q u e n t l y t h a t Congress has l o s t i t s "coordinateii p o s i t i o n w i t h t h e executive branch, t h a t Government has become t o o large and too complex f o r adequate l e g i s l a t i v e o v e r s i g h t , and t h a t the President--thanks t o TV--overshadows any s i m i l a r f i g u r e or group c J <' , i o f figures i n the legislative branch, and thus has an overpowering natural advantage in molding public opinion. An equally chall engi ng and tempting aspect of accountability is whether the Congress has weakened i t s capabi 1i t y t o exercise adequate legislative oversight because of i t s outnioded procedures and because of i t s preoccupation w i t h d e t a i l s and hence insufficient attention t o B 1 major program issues. This i s a familiar story t o a l l of us. Perhaps 1 some of you have made these charges yourself. B u t , I shall r e s i s t these temptations. In the brief time I have today, I want t o develop a different b u t increasingly significant aspect o f accountability. I t i s not unrelated t o accountability of the Congress to the electorate, nor t o the subject of separation of powers. Indeed, i t is impossible to separate them. I am referring t o the problem of accountability as i t relates to the increasing use of organizations outside the Federal establishment i t s e l f i n carrying out governmental programs. The idea of carrying out governmental programs through non- governmental organizations i s not a new one i n our history. I t is as old as the Erie Canal, l a n d grants t o the railroads, and the Morrill J 9 Act t o support 1and-grant coll eges . # t! What is new i s the sharply increased dimension i n recent years P o f the use of instrumentalities not directly administered by Federal employees--the private corporation, the quasi-governmental organization, non-profi t groups, international organizations, and s t a t e and local governments. The forms o f sponsorship are many, ranging from Federal charters t o subsidies, froni contracts t o grants. B u t , they a l l have -2- a common denominator i n t h a t they are not administered directly by Federal employees ; they share accountability to thei r own management and t o the Federal Government. The need f o r accountability t o the Government stems from the simple b u t basic consideration t h a t an organization, supported wholly or i n part from public funds, o r established as a r e s u l t o f governmental charter, must be accountable in some manner t o the executive branch P and t o the Congress. I t is a fundainental tenet of democratic society t h a t individuals, agencies, or groups entrusted with public funds and responsibilities, must render an account of their a c t i v i t i e s . Some have described this mixture of governmental and non-governmental arrangements as the "contract s t a t e . " Others have described i t as a I b l u r r i n g of the lines between the public and private sectors. Still others see i t as a dangerous and unhealthy situation i n which the Government i s i n danger of losing--or has l o s t - - i t s a b i l i t y t o a c t i n the public i n t e r e s t . The phrases--"military industrial complex," "educational industrial complex , I ' and "medical i n d u s t r i a l complex"-- a,re used t o describe what some consider t o be an unholy alliance between government and industry under which the taxpayer and the general public come out as losers. S t i l l others f e a r t h a t accountability will bring w i t h i t governmental controls and the seeds of destruction of our p l u r a l i s t i c society. For others, the issue--whether the growing trend is or i s not desirable--is an academic one. They conslder i t inevitable and t h a t the future will see an even more extensive use o f such organizations, As these people view i t , the issue, therefore, i s how the Government can hold these organizations accountable w i t h o u t 1osing -3- 4 6 t h e e s s e n t i a l s o f i n g e n u i t y , creativeness and i n i t i a t i v e which we have associated throughout our h i s t o r y w i t h independent groups i n our society. This i s t h e view which I hold. This l a t t e r t h e s i s has been a b l y voiced i n a c u r r e n t p r o j e c t sponsored by t h e Carnegie Corporation and t h e D i t c h l e y Foundation under t h e heading o f " A c c o u n t a b i l i t y and Independence." Through j o i n t United States-Bri t i s h conferences, through a s e r i e s o f papers commissioned f o r a conference a t D i t c h l e y Park i n B r i t a i n , and through a d d i t i o n a l papers commissioned f o r an upcoming meeting i n Williamsburg t h i s f a l l , t h e Carnegie Corporati on and t h e D i t c h l e y Foundation have underscored and high1 i g h t e d t h e importance o f preserving both accountabi 1 ity and independence . I n t h i s 50th anniversary year o f t h e Budget and Accounting Act, i t i s p a r t i c u l a r y t i m e l y t o focus our a t t e n t i o n on t h i s apparent dilemma. While the s u b j e c t i s n o t e x c l u s i v e l y one o f Federal concern, t h e e x t e n t o f delegation or c o n t r a c t i n g w i t h e x t e r n a l groups has gone f u r t h e r i n t h e Federal Government than i n S t a t e and l o c a l governments. I t i s a l s o an area o f i n t e r e s t t o me as head o f t h e United States General Accounting O f f i c e - - a major concern o f which i s t o a s s i s t t h e Congress i n i t s 1egis1 a t i v e o v e r s i g h t responsi b i 1it i e s . A l i s t i n g and h i g h l i g h t i n g o f t h e p r i n c i p a l forms o f delegation w i l l h e l p emphasize t h e importance and r a m i f i c a t i o n s o f t h e subject. FEDERAL SUPPORT OF INTERNATIONAL PROGRAMS Since World War 11, the United States has been a major c o n t r i b u t o r t o various i n t e r n a t i o n a l organizations, e s p e c i a l l y t h e United Nations -4- E i and its specialized agencies, and the international financial institutions. Let me cite a few statistics: --United States subscriptions i n the International Monetary Fund stand a t $5.2 b i l l i o n ; ' --United States subscriptions t o the World Bank now total $6.3 b i l l i o n ; i Ls --Over the l a s t decade, U.S. contributions to other international lending i n s t i t u t i o n s , such as the Inter-American Development Bank, the International Development Association, and the Asian Development Bank, totaled more t h a n $4 b i l l i o n ; --Direct contributions t o the United Nations and i t s special ized agencies, and other international organizations totaled more t h a n $3.2 billion. In recent years there has been a pronounced tendency toward transferring a greater portion of United States foreign assistance funds t o international organizations. Certain characteristics of these organizations, particularly the - f a c t o f t h e i r being international, create perp exing problems i n devising adequate techniques t o o b t a i n accountabi 1 ty. We must start by recognizing that membership presumes a wi 11i ngness on the p a r t o f member nations to rely heavily upon the manage- . ! ment o f the organization or institution. e have entered into an agreement W ___ - - - -- _.- which Iseverely 1imi t s action . t h a t can be taken u n i 1ateral ly i . For example, developniental assistance carried out through the speci a1 i zed agencies of the Uni t e d Nations involves the international -5- sovereignty, so t o speak, of these agencies. B u t this sovereignty must somehow be reconciled w i t h the need t o o b t a i n sufficient financial, management, and program data t o assure the c o n t r i b u t i n g nations t h a t the programs of these agencies are being carried out effectively. This inforniation i s needed, o f course, f o r the United States t o determine the type and level of support i t should provide these agencies. The General Accounting Office has reviewed many of these programs and i n many instances concluded that not enough information i s available t o the United States t o make a valid assessment of t h e i r operations or results. What is needed t o overcome these inadequacies? We considered the possibility of a u d i t s by t h e United States and other member nations b u t discarded the idea as unwise and impractical. We concluded t h a t the better course f o r providing accountability l i e s i n pushing for better financial controls, program evaluation, and budgetary systems within these organizations. We recommended, and the Department of S t a t e is recommending, t h a t the United States support the establishment of a single United Nations review body t o make independent evaluations of United Nations developmental a c t i v i t i e s . Following the recent announcement by the President t h a t the United States would seek increasingly to channel i t s development assistance through mu1 t i l a t e r a l organizations, the Department of State reorganized i t s Bureau of International Organization Affairs t o strengthen the Bureau’s a b i l i t y t o monitor and evaluate the programs and a c t i v i t i e s of the United Nations and i t s specialized agencies. T h i s reorganization followed closely a plan recommended by our office t o the Department and t o the House Foreign Affairs Committee. This reorganization will provide -6 - c 8 . I greater assurance t o the Congress t h a t channeling more a i d through m u l t i - lateral bodies will s t i l l afford reasonable oversight of expenditures channeled through these organizations. W i t h respect t o the international lending i n s t i t u t i o n s , GAO has similarly been concerned t h a t there be a top level management review body i n each international i n s t i t u t i o n reporting t o i t s governing board, as contrasted w i t h the 1imited lower level audit a c t i v i t i e s reporting to the operating o f f i c i a l s of the banks. This goal has already been accomplished a t the Inter-Ameri can Development Bank. FINANCIAL ASSISTANCE TO STATE AND LOCAL GOVERNMENT ' The national debate now t a k i n g shape,on grants-in-aid and revenue sharing is o f special i n t e r e s t t o those interested in the subject of accountability. Grant-in-aid programs have increased i n the past 20 years from $ 2 . 3 billion i n 1950 t o an estimated $30.3 billion i n 1971. Grants-in-aid have increased over t h i s period on an average of 12 percent a year. By comparison State and local revenues have increased about 9 percent a year. Approximately one-quarter o f a.11 State and local funds are now derived from Federal g r a n t s . An analysis of the Catalog o f Federal Domestic Assistance compiled by the Office o f Economic Opportunity f o r 1970 shows t h a t human resource programs--education, manpower, health , and income maintenance-- account f o r more t h a n half o f a l l Federal grant funds. In 1970, the Department of Health, Education and Welfare alone made 265 grants totaling over $10 b i l l i o n . This compares t o 528 grants made f o r the entire Government i n '1970, w i t h obligations amounting t o nearly $24 billion. -7- i For the future the new budget for 1972 s t a t e s t h a t "this year promises t o be a t u r n i n g p o i n t i n the history of our Federal system," noting t h a t the President's proposals f o r financial assistance t o State and local governments , including revenue sharing f o r f i s c a l year 1972, total $38.3 b i l l i o n , an $8 billion increase i n one year. In the debate on grants-in-aid and revenue sharing the basic question focuses on the primary purpose of such assistance. Is the primary purpose to support programs f o r specific national needs , financed i n substantial part with national revenues and accounted f o r t o the national Government? Or i s t h e i r prime purpose equalization of the t a x burden under a sys tern of Federal ly-coll ected, local ly- administered revenues? The President, i n his February 4 message t o Congress on general revenue sharing, took note of the issue of accountability. He pointed out t h a t many people believe t h a t the best way to hold Government accountable t o the people "is t o be ce tain t h a t the taxing autho 4ty and the spending authority coincide." He disagrees. His conclus on i s that accountabi 1i t y real l y depends n the end "on how easily a given o f f i c i a l can be held responsible f o r his spending decisions *** not where the money comes from, b u t whether the o f f i c i a l who spends i t can be made to answer t o those who are affected by the choices he makes." In b r i e f , the President concludes t h a t the spending rather than the taxing i s crucial i n the accountability issue. The dilemma is posed by the f a c t t h a t the President recommended against allowing the application of the c i v i l rights and equal -8- a employment laws t o be determined b y State and local government. These would continue t o be subject t o Federal a u d i t and Federal control. "Special revenue sharing," essentially, is a program t o consolidate categorical grants. The President's proposal , however, contemplates vastly increased local discretion t o a1 low'local determinations on program p r i o r i t i e s w i t h i n broad categories t o replace judgments of Federal agencies and t o provide f o r minimum'accountabi l i t y t o the Federal Government as to how these'funds a r e extiended. I doubt i f there is any issue i n our generation which has posed the issue of accountability more sharply. Will the Congress, which must raise the taxes, be willing t o s e t t l e f o r the discretion and delegation t o State and local government which the President's proposals contemplate? Can we find alternative ways of achieving accountabi 1 i t y short of the detailed and burdensome requirements which we have today i n so many of our g r a n t - i n - a i d programs? Will the speci a1 interests--concerned wi t h , f o r example, chi 1d care , aid t o the ' mentally retarded, or water pollution control--be s a t i s f i e d t o allow the need for these programs be made by the State and local governments? Whichever way the issue turns , our attention has been focused sharply on the c a p a b i l i t y of State and local government t o a u d i t programs and t o evaluate their effectiveness. The GAO is currently taking the leadership i n an e f f o r t t o develop a u d i t i n g standards which will more clearly define the nature and quality of a u d i t i n g of these programs needed t o provide managers and policymakers, including l e g i s l a t o r s , w i t h information and independent -9- evaluations on what is done and what i s accomplished w i t h the funds expended. We also expect to develop a model s t a t e a u d i t law. If 'f i revenue sharing, as proposed by the President, is adopted, the application o f such standards may well become the major--perhaps the only--accountabi l i ty tool remaining f o r the Federal Government. FEDERAL CONTRACT RESEARCH CENTERS Closely a l l i e d w i t h the issues associated w i t h the grants-in- a i d and revenue sharing, is Federal Government assistance t o s c i e n t i f i c research. During the l a s t 20 years, the Federal Govern- ment's assumption of expanded responsibility f o r s c i e n t i f i c research has led t o increased reliance on contracting with private non-profit organizations. The f i r s t of these was the RAND Corporation, managed by a group of private citizens established a t the Douglas Aircraft Company i n 1946, t o provide systems analysis through a PROJECT RAND contract w i t h the Army Air Corp. From this evolved the RAND Corporation i n 1948. l. By the early 1960's, the number of similar nonprofit corporations created by the defense agencies had expanded greatly. The increased need for strategic analysis led to the formatign i n 1956 of t h e I n s t i t u t e o f Defense Analysis, used by the Joint Chiefs o f S t a f f . Other well known nonprofit corporations sponsored by the defense agencies include: --Analytic Services, Inc. (Air Force) 1958 --Logistics Management I n s t i t u t e (DoD) 1961 --Research Analysis Corporation (Army) 1961 --Center f o r Naval Analysis (Navy) 1962 -1 0- During this period, the Air Force's need f o r systems engineering and technical management resulted in the creation of the MITRE Corporation i n 1958, t o serve i n developing electronic and command control systems. . , The Aerospace Corporati on was formed i n 1960 t o provide technical direction in missile and space programs. The System Development Corporation was spun-off from RAND i n 1956, t o provide computer information programming and processing. Finally, the John tlopkins i. Univers'i ty Applied Physics Laboratory, established i n 1942, has been used by the Navy f o r technical advice on'missile and space programs; the Laboratory i s a Government-financed laboratory, operated as a d i v i s i o n of the University. Nondefense agencies such as AEC, NASA and NSF a l s o sponsor nonprofit research corporations. 6y 1967, the Office of Science and Technology and the Federal Council f o r Science and Techno1og.y had identified 68 Federal contract 'research centers including 17 sponsored by the Department of Defense w i t h varying degrees o f autononiy and having highly differing purposes. Funding of these Federal Contract Research Centers increased from $1.1 billion i n 1962 to over $1.5 billion i n 1970. One of the most recent nonprofit research corporations is the Urban I n s t i t u t e established i n 1968 to study urban problems. Broadly speaking, the relationship of the Urban I n s t i t u t e will be t o the $ Department of Housing and Urban Development as the RAND Corporation is t o the Air Force. Recently announced are plans t o create an Environmental Protection I n s t i t u t e to provide a similar role for the Envi ronmental Protection Agency. Much has been written and s a i d as t o the merits of these centers sometimes referred to as "captive" organizations. The word "captive," -11- a t l e a s t i n the early days, was appropriate since most were not per- mitted a t that time t o undertake work o r receive funds from any organization other t h a n the sponsoring agency. The policy has since changed f o r most o f them, Supporters o f these centers argued i n behalf of their establishment t h a t they could be organized more quickly t h a n a new u n i t i n the governmental establishment; they frequently could borrow personnel and resources already available a t a university location; and, most importantly i t was argued, they would not be subject t o the painstaking accountabi 1 i ty , and admi ni s t r a t i v e requirements o f the bureaucracy w i t h respect t o salaries , budgets , reporting, etc.--matters o f long- s t a n d i n g concern t o governmental in-house establishments. B u t this very independence has also been the source of problems. How truly independent can an organization be, i t i s asked, i f i t s l i f e depends upon a year t o year budget allowance from an agency o r even a subordinate u n i t w i t h i n an agency. Why should an organization f u l l y o r chiefly supported w i t h Federal funds be permitted special privileges or advantages not given to those i n the Federal establishment? One student of the subject summed up the dilemma of the Federal Contract Research Centers i n these ironic terms: the principal issue w i t h them currently, he said, i s how t o preserve the strengths which caused these centers to be established i n the f i r s t place; t h a t i s , how t o preserve professionalism and independence when their future i s t i e d up so closely w i t h the funding o f a particular sponsoring organization. W i t h increasing scrutiny and restrictions , especially from the House Appropriations Committee, these centers have been pushing f o r -1 2- diversification o f support and a t l e a s t one has been cut loose from Government sponsorship and functions in the private sector. And, the end o f the story may not have been told. The question is asked--if we have the ingenuity t o create a special purpose Tennessee Valley Authority, or a Langley Research Center, or a National I n s t i t u t e of Health, why can't we likewise establish the necessary f l e x i b i l i t y and autonomy w i t h i n Government? Can the sponsored research center, i n short, have i t both ways--freedom from market-place competition on the one hand and freedom from accountability t o Government on the other? RESEARCH AND DEVELOPMENT IN COLLEGES AND UNIVERSITIES Another significant measure of Federal support o f science is the growth o f g r a n t and contract funds t o universities. The National Science Foundation plays a major role in such support.' Statistics compiled by the NSF show t h a t obligations f o r research and development conducted by colleges and universities more than doubled from $800 million in 1962 t o $1.7 billion i n 1970. The 1972 budget contemplates nearly $2 billion. I t s goal i s very broad: to insure the v i t a l i t y of research e f f o r t s ; t o develop and support research e f f o r t s t o increase our understanding of the problems of society and t h e i r solution; and t o advance the Nation's economic growth and welfare. T h i s research also provides f o r d h e t r a i n i n g of science and engineering graduate students through employment on the research projects and helps develop needed capabilities in academic institutions t o undertake r e s e a r c h on important national, r e g i o n a l , and local problems. -1 3- . Assessments o f t h e management and r e s u l t s o f these e f f o r t s have l o n g challenged those managing and a u d i t i n g these expenditures. GOVERNMENT-OWNED , CONTRACTOR OPERATED PLANTS I n o b t a i n i n g t h e goods needed by t h e Government t o c a r r y o u t i t s programs, the question o f whether t o make o r whether t o buy i s t h e f i r s t question t h a t must be answered. When i t decides t o make, t h e Government o f t e n i n v e s t s i n p l a n t s and equipment and then c o n t r a c t s w i t h the p r i v a t e s e c t o r t o operate t h e p l a n t s . The Department o f Defense and t h e Atomic Energy Commission both make extensive use o f p r i v a t e c o n t r a c t o r s t o operate Government- owned i n d u s t r i a l p l a n t s . I n f a c t , most o f t h e work i n v o l v e d i n achieving AEC goals i s performed i n Government-owned f a c i l i t i e s under c o n t r a c t s w i t h i n d u s t r i a l and educational o r o t h e r n o n p r o f i t organizations. By t h e end o f f i s c a l year 1970, these AEC c o n t r a c t o r s had approximately 106,000 employees engaged i n operations and 9,000 i n c o n s t r u c t i o n work. This compares w i t h 7,548 f u l l - t i m e AEC employees. Contracts w i t h 350 prime i n d u s t r i a l c o n t r a c t o r s i n 1970 amounted t o $1.6 b i l l i o n . I n the same period, t h e Department o f t h e Army had 28 a c t i v e GOCO i n d u s t r i a l i p l a n t s whose o p e r a t i n g expenses exceeded $1.1 b i l l ion. I t can be seen t h a t t h i s technique i s , e s s e n t i a l l y , t h a t o f pro- c u r i n g t h e management t a l e n t s of t h e p r i v a t e sector. The Government has a g r e a t deal o f c o n t r o l over t h e a c t i v i t i e s o f c o n t r a c t o r s who operate GOCO p l a n t s . The question i s the e x t e n t t o which t h a t c o n t r o l should be exercised. The t r a d i t i o n a l measure o f t h e e f f i c i e n c y o f t h e normal i n d u s t r i a l enterorise--whether i t makes a p r o f i t , i s n o t present -14- w i t h the GOCO's. Government must therefore f i n d the yardsticks to measure the management effectiveness of these contractors. NEGOTIATED PROCUREMENT The Federal Government i s the private sector's biggest customer. Since 1949, when the Federal Property and Administrative Servi ces Act centralized c i v i l i a n procurement, the dollar va ue o f a l l U.S. purchases of supolies and equipment has increased from $9 bil ion t o $55 billion. T h i s i s nearly one-fourth of the Federal Government s total budget. 3 Nearly 90 percent of these purchases is i n the form o f negotiated rather than formally advertised b i d procurement. About one-half i s negotiated w i t h a single supplier, known as sole-source procurement. Where the Government can buy competitively i n the market place, the normal market mechanisms can generally be relied upon t o assure t h a t the goods are procured economical ly. B u t negotiated procurement-- especially negotiated sole-source procurement--requires other controls t o insure reasonable prices t o the Government. Some have even raised the question as t o whether the major defense contractors, whose enti re business depends upon Government consumption and whose sales to the Government are predominately negotiated , are losing t h e i r status as private corporations. A great deal o f i n t e r e s t has been stimulated i n improving 5 Government procurement procedures. For example, DOD i s increasing i t s use o f " f l y before you hu.y" procurement. GAO has recently reconimended greater emphasis on "should cost" analysis t o f i n d ways i n which the Government and the contractors can reduce the cost of weapon systems by applying improved management and engineering -1 5- techniques i n c a r r y i n g o u t t h e c o n t r a c t . The i n t e r e s t o f t h e Congress i s c l e a r l y demonstrated by t h e establishment o f t h e Procurement Commission and t h e Cost Accounting Standards Board which i s concerned w i t h b e t t e r c o s t i n f o r m a t i o n i n n e g o t i a t e d defense procurements. GOVERNMENT UTILIZATION OF PRIVATE ENTERPRISE FOR SOCIAL PURPOSES A r e l a t i v e l y new and d i f f e r e n t technique f o r a t t a i n i n g Federal o b j e c t i v e s o t h e r than through grants and subsidies t o p r i v a t e i n s t i t u t i o n s , i s t h e c h a r t e r i n g o f separate and independent organi- zations which may o r may n o t r e c e i v e i n i t i a l o r c o n t i n u i n g funding by t h e Federal Government. Many a r e intended t o be s e l f - s u p p o r t i n g . Here a r e some r e c e n t i l l u s t r a t i o n s o f t h i s technique. Job Opportunities i n the Business Sector - JOBS Program The JOBS Program, i n i t i a t e d i n 1968, represents a j o i n t e f f o r t by t h e Government and t h e p r i v a t e s e c t o r t o f i n d meaningful employment f o r disadvantaged persons. The N a t i o n a l Association o f Businessmen (NAB) was e s t a b l i s h e d as a p r i v a t e , independent, n o n - p r o f i t c o r p o r a t i o n f o r t h e purpose o f s t i m u l a t i n g p r i v a t e business f i r m s t o h i r e and t r a i n t h e disadvantaged. The present goal o f t h e JOBS Program i s t h e employ- ment o f 614,000 hard-core unemployed i n 125 c i t i e s by June 30, 1971. NAB seeks t o a t t a i n t h i s o b j e c t i v e by c r e a t i n g awareness, involvement and commitment i n t h e business community to s t i m u l a t e them t o p r o v i d e jobs and t r a i n i n g f o r such persons and advise t h e Secretary o f Labor on how the Government can help meet t h i s o b j e c t i v e . GAO r e c e n t l y reviewed t h e o p e r a t i o n o f t h e JOBS Program and I concluded t h a t , i n s p i t e o f growing pains and many remaining problems, -16- i t has been effective i n focusing the attention o f businessmen on the employment problems o f disadvantaged persons and i n e l i c i t i n g broad responses and commitments by many private employers t o hire, t r a i n and retain the disadvantaged. By the end o f June of l a s t year, more t h a n 15,000 companies had hired persons under the JOBS Program and almost one-half niillion jobs had been pledged t o be placed. Medicare Program The Medicare program was established i n 1966 to provide persons over age 65 w i t h hospital and physician care. Physicians' services and other medical and health care i s provided through a voluntary Supplementary Medical Insurance Program. T h i s program is administered by private carriers through contracts w i t h the. Secretary o f HEW. The c a r r i e r s ' functions include: --Determining the rates and amounts of payments on a reasonable charge basis; --Determining the medical necessity o f the payments ; and --Receiving, disbursing, and accounting f o r Medicare funds. By the end of l a s t year, 19.2 million persons were enrolled i n this program and 49 carriers had made benefit payments of about $1.5 billion. I t h i n k we can look forward t o even further use o f the private sector f o r a range o f social-purpose programs. In his Health Message to the Congress e a r l i e r this year, the President called f o r the establishment of health maintenance organizations--known as HMO's-- t o upgrade the delivery o f health services to U.S. citizens. The HMO's are intended t o b r i n g together a comprehensive range o f medical -17- services in a single organization so t h a t a patient i s assured of convenient access t o a l l of them. These medical services are provided for a fixed contract fee which i s p a i d i n advance by a l l subscribers. There i s thus a strong b u i l t - i n incentive for greater efficiency. An advantage o f using private organizations f o r social-purpose programs is the a b i l i t y to develop flexible relationships w i t h the persons being served. B u t to the extent that delivery of services is decenfral ized, accountabi 1i ty problems become more acute. "Bui 1t-i n" accountabi 1i ty--such as the p r o f i t incentive of the proposed H~lO's--thus~ becomes highly important. SPECIALLY CHARTERED W A S I PUBLIC ORGANIZATIONS In addition t o the utilization of private enterprise f o r social purpose programs, a number of quasi public organizations have been established t o carry out functions which traditionally have been who1 ly committed t o the private sector. These quasi pub1 ic organizations were created to f i l l the gap between what the private sector had been able to deliver and what the Government f e l t was required i n the public interest. Here are three examples: Corporation .for Public Broadcasting In 19 7 Congress established the Corporation f o r Public Broad- casting t o provide financial assistance f o r non-commercial educational TV and rad o broadcasting. T h i s nonprofit corporation seeks to strengthen and improve educational radio and TV by providing an independent source o f funds. I t also operates and interconnects i t s own stations. A1 though independent from the Government i n i t s operations, i t t h u s f a r depends upon appropriations by Congress to finance i t s -1 8- . operations. Having no independent source o f income, i t remains subject t o influence by the President and the Congress through the apwopriation process beyond that contemplated when established. Communications Sate1 l i t e Corporation A t the dawn o f the space age i n the early 1 9 6 0 ' ~the ~ Communications S a t e l l i t e Corporation (COMSAT) was incorporated as a profit-making corporation w i t h the goal o f establishing, i n cooperation w i t h other countries, a commercial communications s a t e l l i t e system as part o f an improved global communications network. Financially, this corporation is completely independent of the Government since i t finances i t s operations through issuance of capital stock t o the public. Dual responsibility t o i t s stockholders and the Government can cause a dichotomy i n i t s operations--for example, the State Department can d i r e c t COMSAT t o provide communications f o r areas of the world t h a t are unprofitable and therefore not i n the i n t e r e s t of i t s shareholders. COMSAT also must depend upon NASA f o r launching o f i t s s a t e l l i t e s , and i t s operations are regulated by the Federal Communications Commission. National Rai 1road Passenger Corporation- (RAILPAX) (Renamed AMTRACK) The most recent quasi public corporation, created by the last Congress--the National Railroad Passenger Corporation was established t o provide i n t e r c i t y railroad passenger service. T h i s was i n response t o the threat t h a t railroad passenger service might disappear. By 1970, there were only 500 passenger trains compared t o 20,000 i n 1929. RAILPAX i s chartered as a private, p r o f i t making organization financed -1 9- p r i n c i p a l l y by common and p r e f e r r e d stock; i s a u t h o r i z e d t o operate i n t e r c i t y t r a i n s and make c o n t r a c t s w i t h r a i l r o a d s o r o t h e r companies f o r use o f f a c i l i t i e s and equipment; and can r e l y on r a i l r o a d s t o p r o v i de manpower. A1 though t h e a c c o u n t a b i l i t y problems associated w i t h t h e quasi p u b l i c c o r p o r a t i o n s a r e s i m i l a r t o those r e l a t i n g t o p r i v a t e e n t e r - p r i s e o r g a n i z a t i o n s e s t a b l i s h e d f o r s o c i a l purpose programs--that i s p r e s e r v i n g independence and t h e advantaqe o f market mechanisms--an a d d i t i o n a l f a c t o r t o c o n s i d e r i s t h a t they compete w i t h o t h e r p r i v a t e sector corporations. Thus t h e r e i s i n e v i t a b l y a danger t h a t Federal support o f t h i s t y p e o f quasi p u b l i c c o r p o r a t i o n , i f n o t c a r e f u l l y c o n t r o l l e d , may tend t o undermine t h e e f f e c t o f p r i v a t e s e c t o r c o m p e t i t i o n which may be t h e v e r y reason f o r being o f t h e quasi public corporation. One way t o a v o i d t h i s danger i s t o i n s u r e t h a t these quasi p u b l i c c o r p o r a t i o n s a r e n o t f i n a n c i a l l y dependent upon income from t h e Federal Government. EXPAND1NG ROLE OF FEDERALLY SPONSORED FINANCING AGENCIES A s p e c i a l t y p e o f quasi p u b l i c c o r p o r a t i o n i s t h e f e d e r a l l y sponsored f i n a n c i n g agency. From t h e i r i n i t i a t i o n i n 1917, t h e i r r o l e has grown t o t h e e x t e n t t h a t t h e i r o p e r a t i o n s p l a y i m p o r t a n t r o l e s i n t h e a l l o c a t i o n o f monetary and f i s c a l resources. The f i v e p r e s e n t l y i n e x i s t e n c e are: Federal N a t i o n a l Mortgage A s s o c i a t i o n Federal Home Loan Banks Federal I n t e r m e d i a t e C r e d i t Banks Federal Land Banks, and Bank f o r Cooperatives -20- -..- Each was, a t one time, e i t h e r wholly o r partly Government- I owned. Wow they are entirely privately owned, and are not included i n the budget of the Federal Government. They were established by Congress t o meet national objectives i n the area o f agriculture and housing and, although now privately owned, are s t i l l under Government supervision. The Federal National Mortgage Association i s presently the 1arges t in scope o f the federal ly sponsored f i nanci ng agencies, being involved mainly i n the purchase and sale of FHA insured and VA guaranteed mortgages. In 1970, the outstanding debt of these agencies totaled $35.8 b i l l i o n . Over fiscal years 1970 and 1971, the estimated net increase i n outstanding d e b t of these agencies amounted t o more t h a n $18 billion. Besides affecting the housing and agricultural programs they were designed to a i d , the policies of these agencies are affecting overall economi c s tabi 1i zati on pol i ci es of the Government. Some fear t h a t these agencies, created to supplement the a c t i v i t i e s of the private sector, are .becoming the dominant institutions i n these areas. These people would prefer t o have the operations of these institutions subject t o Federal budgetary control. DELEGATION MY INVOLVE MIXED PUBLIC PURPOSES The accountability issue i s clouded and made more d i f f i c u l t by the f a c t t h a t the Government, in the various forms of delegation o r contracting outlined above, is seeking to accomplish, i n many cases, more t h a n one public purpose. In most if not a l l o f these -21 - arrangements, the Government has the option o f d i r e c t operations. I t s decision not to do so may be influenced heavily by the f a c t t h a t other objectives are sought by the use o f external organizations: 1 --Strengtheni ng private enterprise. --Supporting educational institutions. --Fostering i nternati onal coopera ti on. --Encouraging private investment as a means o f lessening public expenditure requirements. I would n o t argue, as does Peter Drucker, t h a t Government is inherently incapable of e f f i c i e n t management, and thus should 1imi t i t s e l f t o a policy role, b u t many thoughtful students of Government argue t h a t pluralism i n carrying out Government programs, l i k e pluralism i n the private sector, may i n and of i t s e l f be an objective which should be encouraged. I t would be d i f f i c u l t t o conceive o f a situation where we attempted t o carry on a l l Federal a c t i v i t i e s through direct Federal operations. There must be a bal ance between accountabi 7 i t y and delegati on. We now realize the Defense Department's total package procurement concept, for example, which resulted i n Lockheed's problems with the C5A a i r c r a f t and the Cheyenne helicopter, is not a viable arrangement. We now recognize that the Government must have a continuing, intimate, day t o day relationship i n monitoring development and production problems when a weapons system is being purchased which pushes the " s t a t e o f the a r t . " The opposite extreme i s the extent t o which the National Science Foundation once insisted on over-detai led accountability by requiring "total e f f o r t " reporting f o r academic s c i e n t i s t s who received grants from the National Science Foundation. Either extreme is t o be avoided. -22- d . THE AUDITOR'S ROLE IN MANAGEMENT AND PROGRAM EVALUATION Perhaps some of you t h i n k of the auditor as the accountant whose role is limited t o certifying as t o the adequacy and completeness of financial statements. In such terms, his role i s important b u t limited t o making certain t h a t there has been an adequate disclosure o f financial data t o the Congress, t o the executive, and t o the p u b l i c . This aspect of accountability, which I r e f e r t o as f i s c a l accountability, is only a p a r t of the auditor's role. The National Association for the Advancement of Colored People complained t o our Office t h a t a financial a u d i t of grant-in-aid programs' by State auditors was of l i t t l e value i f the auditor was unconcerned as t o whether the program achieved the congressional ly intended purpose. The stockholders of a major corporation n o t long ago sued a public accounting firm who c e r t i f i e d as t o the adequacy of the firm's financial accounts shortly before the company went bankrupt, Their o p i n i o n was too limited, i t was argued, i n that i t d i d n o t analyze bas c management problems o f the company. Indeed, the Budget and Accounting Act of 1921 contemplated t h a t the a u d i t o r would be concerned broadly with the "receipt, disbursement, and application of public funds ** *.I' Similarly, the Legislative Reorganization Act o f 1946 directs the Comptroller General to make expenditure analyses t o "enable Congress to determine whether funds have been economically and e f f i c i e n t l y administered and expended." More recently, the Legislative Reorganization Act o f 1970 c a l l s on the Comptroller General t o make studies of costs and benefits o f Federal programs. -23- The responsibility of the auditor i n the GAO, and elsewhere, embraces three aspects of accountabi 1i ty: --fiscal accountabi 1 i t y , which includes fiscal integrity, disclosure, and compliance w i t h applicable laws and regulations; --nianageri a1 accountabi 1i ty , concerned w i t h the e f f i c i e n t and economical use of personnel and other resources; and --program accountability, designed to assess whether programs are achieving t h e i r intended objectives and that the best program options have been selected to achieve these objectives from the standpoint of total cost and outputs. An accountability system should embrace a1 1 three elements: There must be public confidence as t o fiscal integrity i n the spending o f public funds; there must be assurance that waste does not occur through mismanagement; and, there must be a way t o assess whether programs are accomplishing t h e i r intended objectives w i t h the l e a s t cost and maximum results. I do not intend t o imply that the auditor has an exclusive, o r even necessarily the primary , responsibility f o r management and program evaluation. Other analytical s t a f f s and other systems o f review are also available to the administrator. Too frequently, however, such s t a f f s have been primarily concerned w i t h budget formulation and program planning and not sufficiently w i t h whether on-going programs are achieving t h e i r intended result. T h i s is the area t o which the auditor has a major and increasingly important contribution to make. He has a tradition o f maki-ng his findings -24 - 7 ' , , c J , independent of the operating o f f i c i a l ; he is increasingly equipped with special s k i l l s which go f a r beyond t h a t required f o r financial audits alone; and, most importantly, he is increasingly looked t o by the legislature and by the executive for studies and recommendations on a l l three aspects o f accountability. ACCOUNTABILITY WITHIN THE EXECUTIVE BRANCH I t should be emphasized t h a t , i n any accountability system, the l e g i s l a t i v e branch is concerned w i t h how well the manager i s informed w i t h respect t o his operations; whether he has the necessary s t a f f t o deal w i t h operating problems ; and whether he i s adequately evaluating his program accomplishments. When the Congress, f o r example, uncovers vast i r r e g u l a r i t i e s i n the p o s t exchanges and commissaries of the Defense Department , i t s natural question i s why the Defense Department had not identified and dealt w i t h the s i t u a t i o n . When the Congress i s frustrated as t o whether the economic opportunity and elementary education programs are working, a natural question is what evaluations have the agencies made and w h a t resulted from them. When the Congress is called upon t o increase funding f o r international organizations, the natural question is how much does the State Department o r the Treasury Department know about the effectiveness of international loans and technical assistance. I t i s important, therefore, that the legislative auditor carry out his responsibility i n part by auditing the agency's system of accountability-finding out whether internal a u d i t i s on top of i t s job, whether management has the information i t needs t o prevent cost -25- 1, : over-runs whether i t has the analyses t o jus,tify additional f u n d i n g , and so on. T h i s concept is fundamental i n t h a t i t places the emphasis on accountabi 1i ty a t the p o i n t o f primary responsi b i 1i t y , namely, the agency head or the President. BY WHAT TEST S H A L l X JUDGE PERFORMANCE Unl i ke the market-place t e s t of sales and profits , the Government 1 auditor seldom can apply an equally concrete test o f costs and benefits. Sometimes he can make cost benefit studies i n quantitative terms. Usually he must search the l e g i s l a t i v e history, the appropriations hearings and the translation of sometimes broad statutory charters into statements of program objectives of the operating agency. He must examine evidences o f program impact, of good or bad coordination, and a1 ternately, perhaps, he must exercise subjective judgments based on his own experience as a trained analyst, the conclusions 'reached by management, o r the recipient of the program i t s e l f . In short, there is frequently no established "par f o r the course" by which t o judge perfomlance. The problem is even more sharply focused when Government operates through an external organization. --How do we assess the impact of a model c i t i e s or a community \ : action program designed i n large part to promote citizen action and social change, complicated s t i l l further by the f a c t t h a t funds may come from several agencies--public and private-- under differing statut0r.y provisions? --How do we i s o l a t e the impact o f United States foreign economic assistance f r o m the political climate and the economic development e f f o r t s w i t h i n an underdeveloped nation? y I . k- T --How does the auditor reach a conclusion on how'well research grants are administered i n a given university? The form and extent o f accountability, moreover, cannot be divorced from the legislative or the political climate a t a particular'point of time. All of a sudden people have discovered the meaning of the words "ecology" and "environment. I' These have now become household and school - room words. Ralph Nader has become something o f a national ombudsman. Cost over-runs and efficiency have become headline items, matters o f concern t o the entire Congress, not just the Appropriations and Armed Services Committees. The conclusions for my remarks today can be summed up briefly: --The trend toward using external groups by Government will probably increase i n the years ahead. --Congressional and public concern w i t h respect to accountability systems will grow as Government increases i n s i z e and complexity. --As the concern f o r accountability increases, we must seek new ways t o evaluate management and program effectiveness, keeping i n mind t h a t under our separation of powers the executive branch will continue to have the primary task in the accountabi 1i t y system, and --Finally, a s we recognize the need f o r , and as we can provide f o r an adequate and well-understood accountability system, we will also be serving the objective of a more responsive system of Government, and a more democratic society. -27-
New Problems of Accountability for Federal Programs
Published by the Government Accountability Office on 1971-04-21.
Below is a raw (and likely hideous) rendition of the original report. (PDF)