oversight

Financial Management in the Federal Government: Selected Information On Financial Developments In The Federal Government And On Legislation, Both Prepared And Passed, 87th Through 91st Congresses

Published by the Government Accountability Office on 1971-12-13.

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

.'fstSr }                            SENATE                         { jJJ-™



        FINANCIAL MANAGEMENT IN THE
            FEDERAL GOVERNMENT


   SELECTED INFORMATION ON FINANCIAL DEVELOP-
   MENTS IN THE FEDERAL GOVERNMENT AND ON'
   LEGISLATION, BOTH PREPARED AND PASSED, 87th
              THROUGH 91st CONGRESSES




                              PREPARED BY THE

            U.S. GENERAL ACCOUNTING OFFICE
                                     FOR THE
 COMMITTEE ON GOVERNMENT OPERATIONS
                                U.S. SENATE


                                    Volume II




     Printed for the use of the Committee on Government Operations


                     U.S. GOVERNMENT PRINTING OFFICE
 68-109-0                       WASHINGTON : 1971


     For sale by the Superintendent of Docxunents, U.S. Governinent Printing Office
                        Washington, D.C. 20402 - P r i c e $1.75
                 COMMITTEE ON GOVERNMENT OPERATIONS
                        JOHN    L. McCLELLAN,      Arkansas,     Chmrman
HENRY M. JACKSON, Washington                        KARL E. MUNDT, South Dalcota
SAM J . ERVIN, J R . , North Carolina               JACOB K. J A V I T S , New York
EDMUND S. MUSKIE, Maine                             C H A R L E S H. PERCY, Illinois
ABRAHAM R I B I C O F F , Connecticut               EDWARD J. GURNEY, Florida
F R E D R. H A R R I S , Oklahoma                   C H A R L E S McC. MATHIAS, J R . , Maryland
L E E METCALF, Montana                              W I L L I A M B. SAXBE, Ohio
J A M E S B. ALLEN, Alabama                         W I L L I A M V. R O T H , J R . , Delaware
H U B E R T H. H U M P H R E Y , Minnesota          B I L L BROCK, Tennessee
LAWTON C H I L E S , Florida
                     JAMES R . CALLOWAY,     Chief Counsel and Staff        Director
                              JAY E. GOOSELAW, Assistant       Chief Clerk
                           Bn E. NOBLEMAN, Professional         Staff Member
                           THOMAS M. GUNN, Professional Staff Member
                           S. ARNOLD SMITH, Professional        Staff Member
                              MAX PARRISH,  Professional     Staff   Member
                                J. ROBERT VASTINE,   Minority       Counsel
                          BRIAN CONBOY, Special Counsel for the Minority
                                   ARTHUR A. SHARP, Staff        Editor


S. Res. 195
                               IN   THE SENATE OF THE UNITED STATES,
                                                   December ll., 1971.
  Resolved., That there be printed, with illustrations, as a Senate docu-
ment a report compiled by the General Accounting Office at the re-
quest of the Committee on Government Operations entitled "Financial
Management in the Federal Government—Volue I I " ; and that there
be printed one thousand five hundred additional copies of such docu-
ment for the use of that committee.
  Attest:
                                                               FRANCIS R . VALEO,
                                                                                Secretary.
                  LETTER OF TRANSMITTAL

                                                  DECEMBER 13,1971,
The   PRESIDENT OF THE SENATE.
   DEAR MR. PRESIDENT: I submit herewith, for printing as a Senate
document, a report prepared by the General Accounting Office for
the Committee on Government Operations, entitled "Financial Man-
agement in the Federal Government—Volume I I " .
   This report is the second of a continuing series on the subject.
I t is the committee's intention to periodically update the work to
provide a current record of developments in this very complex aspect
of government operations.
   The first volume was printed in February 1961 (S. Doc. 11, 87th
Cong.). The value of the first report is attested by the wide use made of
it both in and out of Government, by legislative and executive officials,
and by researchers and teachers in the field of financial management.
Certainly, no less use can be expected of this volume which updates the
first, in view of the many important financial developments in the
Federal Government over the past 10 years.
   The demand for Senate Document 11 over the years has exhausted
the committee supply. Therefore, for convenience. Volume I is in-
cluded as an appendix to this report.
                                          JOHN   L.    MCCLELLAN,
                  OJiMirman, Gornmittee on Govemment       Operations.
            LETTER OF SUBMITTAL



                 COMPTROLLER GENERAL
                 OF T H E U N I T E D STATES
                 WASHINGTON. D.C. 20540



B-115398

Dear Mr. Chairman:

     Senate Document Number 11, 87th Congress,
contained a history and comprehensive analysis of
"Financial Management in the Federal Government,"
through the 86th Congress. We have now completed the
task of updating material on the subject and have
compiled a second volume covering the period from
the 87th through the 91st Congress. A copy of the
second volume is submitted herewith.

      In the preparation of this volume, we have
had the full and active cooperation of the Director
of the Office of Management and Budget, the Secretary
of the Treasury, the Director of the Congressional
Research Service, and the Chairman of the Civil
Service Commission. The members of the Steering
Committee of the Joint Financial Management Improve-
ment Program and various members of the staffs of
all the agencies also assisted greatly in this work.



                                               l:A^
                                           ely you



                                 Comptroller General
                                 of the United States


Enclosure


The Honorable John L. McClellan, Chaimian
Committee on Government Operations
United States Senate
                             CONTENTS
                                                                                Page
Letter of transmitttal                                                            m
Letter of submittal                                                               v
Introduction                                                                      1
           PART I. FINANCIAL MANAGEMENT LEGISLATION, 87TH-91ST
                           CONGBESSES (1961-70)
Introduction                                                                      3
Congressional attempts to control the budget                                      4
     Limitations on expenditures and obligations                                  4
         Revenue Act of 1964 (Public Law 88-272, February 26,1964)                4
         Continuing appropriations, 1968 (Public Law 90-218, December
            18, 1967)                                                              6
         Revenue and Expenditure Control Act of 1968 (Public Law 90-
            364, June 28, 1968)                                                    7
              Expenditure limitations                                              8
              New obligational authority                                           8
              Unobligated balances                                                 8
         Budget treatment of expenditure and obligation limitations,
            1970                                                                   8
          Second Supplemental Appropriations Act, 1969 (Public Law 9 1 -
            47, July 22,1969)                                                    10
     Continuing appropriations                                                   11
     Civilian employment                                                         12
     Public debt limitations                                                     13
          Increases in the public debt limit                                     14
 Provisions of the Legislative Reorganization Act of 1970                        14
     The budget, appropriations process, and costing of legislative pro-
       posals                                                                    15
     Data processing system and budget standard classification                   16
     Assistance to the Congress                                                  17
 Budgetary and fiscal operations                                                 17
     Presentation of information                                                 18
     Estimates and reports                                                       18
         Long-range plans                                                        19
     Tax-related provisions                                                      19
     Financing through sales of certificates of participation in loans           20
 Management improvement                                                     ;    21
     Accounting methods and restrictions                                         21
         Accounting for indirect costs                                           21
          Department of Defense accounting system for operations       .:        22
          Uniform cost accounting standards                                      23
          Cost Accounting Standards Board                                        25
     The Commission on Government Procurement                                    26
     Contract profit study by the Comptroller General                            27
     Independent research and development and related costs in defense
       procurement                                                                27
     Government procurement                                                       28
          Public Law 87-653, armed services—procurement                           29
          Truth in negotiations                                                   29
     Simplification of the disbursement process                                   30
          Examination of disbursement vouchers                                    30
          Payments to individuals                                                 30
          Duties of disbursing oflicers                                           31
     Reimbursements, transfer of funds, and revolving funds                       32
         Agency reimbursements                                                    32
                                                                          vn
vm                              CONTENTS

Management improvement—Con.                                            Page
        Other reimbursements                                             33
         Transfer of funds                                               33
        General Supply Fund                                              34
        Department of Agriculture working capital fund                   34
        Department of Defense working capital funds                      34
    Settlement of judgments and claims                                   35
         Public Law 87-187, judgments and settlements—payment            35
        Public Law 89-506, tort claims—agency consideration              35
         Public Law 89-508, Federal Claims Collection Act of 1966        36
         Public Law 90-616, claims—executive agencies—overpayment of
           pay                                                          36
    Foreign aid program                                                 36
    Post offlce reorganization                                          37
Federal grants-in-aid to State and local governments                    37
    Intergovernmental Cooperation Act of 1968                           37
         State accounting for grant-in-aid funds                        38
        Transfer of funds                                               38
        Interest earned on grant funds                                  39
   Advance funding                                                      39
    Joint funding                                                       40
    The development of audit standards                                  40
Other financial management legislation                                  41
    Foreign currencies and the balance of payments                      41
   Reserved foreign currencies                                          42
   Coinage                                                              43
        Joint Oommission on the Coinage                                 44
          PAKT II. DEVELOPMENTS IN GOVERNMENT-WIDE FINANCIAL
                           MANAGEMENT, 1961-70
The President's Commission of Budget Concepts                            45
    Recommendations implemented in the annual budget                     46
        Unified, comprehensive budget                                    46
        Broad financial plan                                             46
        Action requested of the Congress                                 46
        Coverage of all programs                                         47
        Distinction between loans and expenditures                       47
        Guarantee of private loans                                       48
         "Participation certificates" in loans                           48
         Presentation of the means of                   financing        48
         Offsetting of proprietary receipts                              49
        No capital budget                                                49
    Recommendations for later implementation in the annual budget        49
         Accrual basis of stating budget totals                          49
         Identification of subsidies in loan programs                    50
    Recommendation on other matters of budget presentation               51
    Possible legislation                                                 51
         Definition of debt subject to overall limitation                52
         Agencies and programs covered by the budget                     52
         Concept of trust fund appropriations                            53
    Other changes related to the Commission's report                     53
         Terminology                                                     53
         Obligation aggregates monthly                                   53
         Exclusion of District of Columbia Government                    54
         Review of deposit funds                                         54
The Planning-Programming-Budgeting System (PPBS)                         54
    Department of Defense innovations                                    54
    History of PPBS from 1965                                            55
    Agency program structures                                            57
    Stafling and manpower for PPBS                                       58
    The use of discounting in systems analysis                           59
    Problems in implementing PPBS                                        61
    Improvements and potential                                           62
         Caveats                                                         62
         Admonitions                                                     63
The Joint Financial Management Improvement Program                       64
    Introduction                                                          64
                                             CONTENTS                                                 IX

                                                                                                     Pase
T h e J o i n t F i n a n c i a l Management Improvement Program—Con.
      Statistical sampling in voucher examination                                                     6g
      Modernization ot central reporting                                                              66
      T h e letter-of-credit method of nnancing                                                       66
      iSurvey of financial a d m i n i s t r a t i o n of F e d e r a l grants-in-aid to S t a t e
          a n a locai governments                                                                     68
       Study of t r a n s p o r t a t i o n in civil agencies                                         69
Increaseu use of computers in financial management                                                    70
      Introduction                                                                                    70
       Kinds and cost of systems                                                                      71
       Computer uses and agency distribution                                                          72
       Presidential support                                                                           74
       Government-wide use of automatic d a t a processing equipment                                  75
       Centralized t a x payment d a t a processing                                                   77

             PART I I I .   AGENCY DEVELOPMENTS I N F I N A N C I A L MANAGEMENT,
                                                       1961-70
 B u r e a u of the Budget                                                                             79
        Financial administration of grant-in-aid programs                                              79
                Oost determination under g r a n t s to educational institutions                       80
                Guides and procedures pertaining to State and local governments—                       80
        Intergovernmental cooperation                                                                  81
 Civil Service Commission                                                                              81
        Recruiting a n d examining                                                                     82
        Management Sciences T r a i n i n g Center                                                     83
                Objectives and scope                                                                   84
                Methods and staffing                                                                   85
                I n t e r n a t i o n a l and State and local activities                               86
 General Accounting Office                                                                             86
        Audit and review of F e d e r a l programs                                                     87
         Use of systems analysis                                                                       89
         Review a n d approval of accounting principles a n d s t a n d a r d s a n d sys-
            tems designs                                                                               90
                Prescribing accoimting principles, s t a n d a r d s , and        related
                    requirements                                                                       90
                GAO assistance in accounting systems development                                       90
                Reviewing and approving agency accounting systems designs                               91
                Reviewing and reporting on agency accounting systems                                   92
         Training and development of professional staff                                                92
 T r e a s u r y Department                                                                             93
         Organization changes                                                                           93
         Central accounting a n d reporting                                                             94
                 Modification of Treasury-agency accounting relationships                               94
                 Scope of reporting                                                                     94
                Monthly T r e a s u r y statement                                                       95
                Foreign currency                                                                        95
                 Other reports                                                                          96
         Central disbursing                                                                             97
                 Technoligical improvements                                                             97
         U.S. T r e a s u r e r ' s operations                                                          98
                 Check payment and reconciliation                                                       98
                 Settlement of check claims                                                             98
                 Improvements in collecting commercial checks                                           98
                 Accounting for Federal Reserve notes                                                   99
          Other improvements in fiscal operations                                                       99
                 F e d e r a l t a x deposit system                                                     99
                 Central payroll service                                                               100
                  W i t h d r a w a l of Federal cash for advances                                     100
                  P a y m e n t s to financial organizations for credit t o employees'
                      accounts                                                                         101
                  Allotments of pay for employees' savings accounts in financial
                      organizations                                                                    101
                  T r e a s u r y Fiscal Requirements Manual                                           101
  Index                                                                                                103
                                                 APPENDIX

  Financial Management in t h e F e d e r a l Government ( S . Doc. 11, 87th Cong.,
    1st sess.)                                                        -,                               111
FINANCIAL MANAGEMENT IN THE FEDERAL
            GOVERNMENT

                                    INTRODUCTION
   The Legislative Reorganization Act of 1946 charged the Senate
Committee on Government Operations with the responsibility for all
legislation relating to budgeting and accounting measures, other than
appropriations, and with exercising continuous surveillance over the
execution of budgeting and accounting laws. The committee was also
charged with the duty of reviewing the economy, efficiency, and effec-
tiveness of the operations of Government at all levels. This report is
submitted to the Senate under this authority.
   This report is the second volume of a continuing series on the sub-
ject of financial management in the Federal Government. The first
report, printed in February 1961 as Senate Document No. 11, was well
received and has been widely used by legislative and executive officials,
and by researchers and teachers in the field of financial management.
The present report, Volume I I , supplements and up-dates the original
report. Like its predecessor, this volume should also prove to be of
considerable usefulness to those who study and work in financial man-
agement. I t is the committee's intention to periodically update this
volume to provide a current record of developments in this most im-
portant area.
   The following definition was used as a guide for selecting the dis-
cussion items in this volume:
     Financial Management . . . [is] that part of total manage-
     ment which is concerned primarily with the financial affairs
     of an organization and the translation of actions, both past
     and proposed, into meaningful and relevant information for
     use in the management process. Depending on how an agency
     decides to set up its financial organization, financial manage-
     ment may encompass all or part of such specific functions as
      programming, budgeting, aocounting, reporting, cash man-
      agement, control of resources, cost reduction, internal audit-
     ing, systems development, and management analysis.^
   This report contains selected information on financial developments
 in the Federal Government and on legislation, both proposed and
 passed, during the 87th through the 91st Congress (1961-70). The
 reader's attention is especially directed to discussions dealing with
 program planning and budgeting, the President's Commission on
 Budget Concepts, and intergovernmental relations. These were impor-
  ^ The J o i n t F i n a n c i a l Management Improvement P r o g r a m in the Federal Government of
the United S t a t e s , U.S. Government P r i n t i n g Offlce, Wasiiington, D . C , 1967, pp. 14, 15.
2      FINANCIAL MANAGEMENT IN THE FEOEBAL GOVERNMENT

 tant concerns in the previous decade and remained timely and pressing
 throughout the decade of the 1960's.
    The Senate Committee on Govemment Operations wishes to extend
 its thanks to the Comptroller General, the Director of the Office of
Management and Budget (formerly the Bureau of the Budget), the
 Secretary of the Treasury, the Director of the Congressional Research
 Service, and the Chairman of the Civil Service Commission for their
cooperation and the assistance of their staffs, as well as to the indi-
 viduals in the several agencies who participated in the preparation of
this report. Appreciation is also extended to the members of the Steer-
ing Committee of the Joint Financial Management Improvement Pro-
gram for their support and guidance.
    The Introduction to Volume I contained these words:
      The committee realizes that one of the most vital require-
      ments for the future administration of the Federal Govern-
      ment, if it is to cope successfully with all the vast problems
      confronting it, is a continual improvement in the handling
      of its finances. I t is with this thought in mind that this docu-
      ment is submitted to the Senate.
    Given the developments over the past decade at home and abroad and
the wide (and seemingly ever-growing) array of complex problems
facing Government today, the relevancy of these words remain un-
changed and the challenge to financial management remains great.
    Efmctive July 1, 1970, the name and functions of the Bureau of the
Budget were transferred to a newly designated agency in the Office
of the President titled the Office of Management and Budget. Because
the activities of the Bureau of the Budget during the decade of the
1960's were in some measure identified specifically with the agency
title or with the initials BOB (e.g., BOB Circulars), the former title
is used in the report narrative. I t is hoped that the reader will make
the translation of Office of Management and Budget whenever he
deems this to be desirable.
   PART I. FINANCIAL MANAGEMENT LEGISLATION,
            87th-91st CONGRESSES (1961-70)
                            INTRODUCTION

   From 1961 through 1970, the years covering the sessions of the 87th
through 91st Congresses, over 3,600 public laws were enacted. Al-
though virtually all these acts dealt with specific matters generally
unrelated to financial management, many included items which might
be broadly classified within the scope of financial management.
   The items in this chapter are not discussed in chronological order
but have been grouped together into broad categories of reference. The
provisions covered are described within the following topics:
        Congressional attempts to control the budget.
        Provisions of the Legislative Reorganization Act of 1970.
        Budgetary and fiscal operations.
        Management improvement.
        Federal grants-in-aid to State and local governments.
        Other financial management legislation.
Due to this type of arrangement, some public laws are discussed under
more than one topic or subtopic.
   I t was decided that the section reporting on enacted legislation
related to financial management should not include the following
items, even though some of them might be considered financial man-
agement. These excluded items for the most part (1) are limited in
scope or coverage, (2) involve no substantive changes in financial man-
agement, or (3) relate to policies in the fields of taxation or money
and credit. These items include:
        —^Laws dealing with the District of Columbia.
        —Agreements with Indian tribes.
        —^Tax laws.
        —^Limits on the Federal share for grant pTograms.
        —^Overall limits on grant funds to any one ^ a t e .
        —Pay acts generally.
        —Provisions, generally in grant programs legislation, that pay-
          ments may be made in advance or by way of reimbursement.
        —Specific dollar limits on the amount that can be transferred
          from one account to another account.
        —Number of years of availability for appropriations or
          authorizations.
        —Recapture rights of the Federal Government.
        —'Interest rates on Federal loans.
        —Laws relating to the banking community and the Govern-
          ment's position as overseer of the insured banks.
        —Clauses in laws which provide that expenditures are to be
          made ". . . only from funds specifically appropriated for
          that purpose."
       FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT

       —Provisions related to relief of specific disbursing officers.
       —Legislative branch items.
       —Establishment of revolving funds.
       —Statements of the responsibility of the Comptroller General
        to audit particular Federal funds.


         CONGRESSIONAL ATTEMPTS To                CONTROL THE BUDGET

           L I M I T A T I O N S ON E X P E N D I T U R E S A N D OBLIGATIONS

    During the debates that accompanied the 1963-64 proposals to re-
duce taxes at a time when the Government accounts showed a deficit,
 the Congress was emphasizing that the prime partner of tax reduction
 is expenditure restraint. However, the topic of restraint and reductions
in expenditures is by no means limited to those times when the Con-
gress is considering tax reduction. When Congress deliberated about
the necessity for a surcharge tax increase in 1967 and 1968, expenditure
 reductions received the same, if not more, attention as in the 1963-64
period.
Revenue Act of 1961^ {Public Law 88-272, Feb. 26,196i)
    At a time when the economy was operating below its potential, the
administration proposed in 1963 that the (Uongress pass a tax reduction
bill in order to stimulate the private sector. Through stimulation of
the private sector, it was argued, the Government would benefit by the
increased Federal tax revenues that would be paid by businesses and
individuals due to the increased economic activity in the country. In its
report on the bill, the Senate Finance Committee pointed out:
          I t may be argued tbat taxes should not be cut while there is
       a budget deficit. However, this overlooks the fact that main-
       taining high tax rates does not produce more revenues unless
       the tax base expands sufficiently—^and the rates themselves in-
       hibit this exfvansion. I t is your committee's considered judg-
       ment that with the current rates it would take longer t o
       eliminate the deficit than would be the case with the lower
       rates of this bill but with the expanded economy induced by
       the bill.
    I n the first section of the bill. Congress declared that the increased
taxes that would be collected through stimulation of the economy
resulting from the tax reduction should be used to eliminate the
deficit in the budget, and then to reduce the public debt. Turning to
the expenditure side of the budget, the act stated:
          . . . To further the objective of obtaining balanced budg-
       ets in the near future. Congress by this action, recognizes the
       importance of taking all reasonable means to restrain Gov-
       ernment spending and urges the President to declare his
       accord with this objective.
    The Senate proposed that this section be stricken from the bill, but
in conference agreed to retain the House version of the declaration,
including it in section 1 of the act.
    FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT                     5

   I n early debate on the bill, amendments were introduced t h a t would
have made the reduction in taxes contingent on expenditure control.
I n commenting on the expenditure ceiling. Representative Thomas M.
Pelly (Washington) said:
         So to make my position clear let me say I certainly favor
      a tax cut if accompanied by a reduction in Federal expendi-
      tures.
         Second, I distrust a pious statement of good intention about
      reducing spending and will not vote for the bill unless some
      sort of ceiling on expenditures is included whereby the bill
      would be inoperative unless Federal spending estimates of
      the President give reasonable assurance that his expenditures
      for fiscal years 1964 and 1965 will not exceed $97 and $98
      billion respectively.
         At this time, Representative Thomas B. Curtis (Missouri) took
a somewhat different tack on the question of expenditure restraint.
I n his remarks of September 24,1963, Representative Curtis observed:
         . . . These are the hard realities of trj^ing to establish pri-
      orities in expenditures, the Appropriations Committees and
      all of us must have a ceiling imposed by ourselves, by Con-
      gress, to limit our expenditures. We propose such a ceiling in
      the tax bill, because of the desire to create this economic stim-
      ulus and to move our society forward. This expenditure con-
      trol technique is available to us. I t is not the best there could
      be but it certainly is a tremendous step forward and coupled
      with our newly acquired knowledge of how to use the debt
      ceiling for expenditure control it becomes of great assistance
      to our lappropriations process.
   President Kennedy reiterated that the Government was pledged to a
course of fiscal responsibility where no wasteful or inefficient Govern-
ment activities would be tolerated. Representative Wilbur D. Mills
 (Arkansas), chairman of the House Ways and Means Committee, in
his statement on the bill, September 24,1963, said:
         I believe that given the passage of this bill, the President
      has committed himself to a course of true economy in Gov-
      ernment expenditures. Of course, it can hardly be expected
      that this will affect his views on programs already sent to us,
      but I do anticipate that this new point of view will permeate
      the programs presented to us this next year. . . . To those
      of you who may not be satisfied with these assurances, how-
      ever, let me point out that in any event, the President cannot-
      spend a nickel unless Congress first authorizes it. As a result,
      we have in our own hands the power to limit Government
      expenditures and I do not believe that we will abdicat,e ^M^-"
      responsibilities.
  Under the provisions of the act, taxes were reduced beginning in
1964, with the full effect coming in 1965. Over a year had passed from
the time that the House started hearings on H.R. 8363 until its passage
in late February 1964. The following table shows the budget effect of
6             PINANrCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT

the Revenue Act of 1964 for the years immediately following its
passage:
                                              |ln billionsl


                                    Expenditures                                   Receipts

Fiscal year          1st estimate    2d estimate          Actual    1st estimate   2d estimate   Actual


1964                       $98.8          $98.4           $97.7           $86.9         $88.4    $89.5
1965                        97.9           97.5            96.5            93.0          91.2     93.1
1966...-                    99.7          106.4           107.0            94.4         100.0    104.7
                                         (101.7)         (100.9).


   During fiscal year 1964, revenues were about $2.5 billion above the
first estimate for the year, and about $3 billion above the 1963 total.
By fiscal year 1966 (which began July 1,1965, and for which the first
estimate was made in January 1965), administrative budget receipts
were over $15 billion more than in fiscal year 1964. On the expenditure
side, fiscal year 1964 spending was about $1 billion below the original
estimate, and in fiscal year 1965 was about $1.5 billion below the first
estimate.
Continuing appropriations, 1968 (Public Law 90-218, Dec. 18, 1967)
   This bill, which started out as a routine measure to provide funds for
those agencies without appropriations for the fiscal year 1968, was en-
larged in conference to include provisions limiting obligations and
expenditures for that fiscal year. The proposal was p u t forward by the
administration in connection with its program to increase taxes
through enactment of a surcharge. The conferees decided to include the
proposal, with some amendments, in the continuing appropriations
bill.
   The provisions of the act dealing with reductions in obligations and
expenditures were as follows:
         SEC. 201. I n view of developments which constitute a threat to
      the economy with resulting inflation, the Congress hereby finds
   . and determines that, taking into account action on appropriation
      bills to date. Federal obligations and expenditures in controllable
      programs for the fiscal year 1968 should be reduced by no less
      than $9,000,000,000 and $4,000,000,000, respectively, below the
      President's budget requests. The limitations hereafter required are
      necessary for that purpose.
         SEC. 202(a). During the fiscal year 1968, no department or
      agency of the executive branch of the Government shall incur ob-
      ligations in excess of the lesser of—
              (1) the aggregate amount available to each such depart-
           ment or agency as obligational authority in the fiscal year
            1968 through appropriation acts or other laws, or
              (2) an amount determined by reducing the aggregate
           budget estimate of obligations for such department or agency
           in the fiscal year 1968 by—
                   (i) 2 percent of the amount included in such estimate
                for personnel compensation and benefits, plus
                   (ii) 10 percent of the amount included in such esti-
                mate for objects other than personnel compensation and
                benefits.
    FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT                        7

   Other sections of the bill provided exceptions and limitations for
various agencies and activities. Excluded from the ceiling limitations
were obligations for permanent appropriations; trust funds; rela-
tively uncontrollable items—veterans pensions, compensation, and in-
surance ; public assistance grants; farm price supports; postal public
service costs and revenue deficit; health insurance payments to trust
funds; the legislative and judiciary branches; interest; and programs,
projects, or purposes not exceeding $300 million in the aggregate,
determined by the President to be vital to the national interest or secu-
rity. I n addition, obligations for national defense were not to be
reduced by an amount exceeding 10 percent of the new obligational
authority (excluding special Vietnam costs) requested in the budget
 for 1968, as amended during the first session of the 90th Congress.
    The reductions were to be made at the department or agency level,
 but the officials of the department or agency were to decide on the in-
ternal distribution of the reductions, subject to the approval of the
 President.
Revenue and Expenditure Control Act of 1968 {Public Law 90-364-,
      June 28, 1968)
    The reductions included in this act were an integral part of the ad-
 ministration's efforts to persuade the Congress to pass an income tax
 surcharge. Although expenditure and obligation limitations were en-
 acted for the fiscal year 1968 in the Continuing Appropriations Act,
 action on the surcharge proposal was held up until the 1969 budget
 program was presented by the administration.
    The bill H.R. 15414, as passed by the House on February 29, 1968,
 merely continued existing automobile and telephone service excise
 taxes which were due to drop on April 1 and provided for an accelera-
 tion of corporate income tax payments. However, during the debate on
 the bill in the Senate, Senators John J. Williams (Delaware) and
 George A. Smathers (Florida) sponsored a floor amendment adding
 the surcharge proposal and spending cutbacks to the tax bill. Some
 members of the House declared that these amendments usurped their
 power to initiate revenue bills. The House, on June 20, 1968, passed a
 motion to lay on the table the following resolution (thereby not hav-
 ing to vote on the resolution itself) introduced by Representative H . R.
 Gross (Iowa) :
        Resolved, That Senate amendments to the bill, H.R. 15414, in
      the opinion of the House, contravene the first clause of the seventh
      section of the first article of the Constitution of the United States,
      and are an infringement of the privileges of this House, and that
      the said bill, with amendments, be respectfully returned to the
      Senate with a message communicating this resolution.
    Other procedural criticism of the bill centered on the concept of
 limiting totals for expenditures and obligations without details by
 department or agency. Many Congressmen argued that although re-
 peated efforts to pass an item veto had failed in each Congress in which
 they were introduced, the provisions limiting overall expenditures and
 obligations in H.R. 15414 would, in effect, give the President an item
 veto.
    Actually the House had tried to provide for an overall total cutback
 in the amendments to House Joint Resolution 888, allowing continuing
      68-109 o—71    2
 8     FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT

appropriations for 1968, but on that occasion the Senate would not
agree to those limitations and the percentage formula for each depart-
ment and agency was adopted. Commenting on the results of the
previous cutback, during the debate on H.R. 15414, Congressman
Frank T. Bow (Ohio), long an advocate of spending limitations, said:
           Results have not been as good as we had hoped, but we did
        lay the ground for the measure we hope to adopt today. This
        year the exijenditure limitation has won recognition as one of
        the most important means of controlling the fiscal excesses of
        a spendthrift administration and an overly generous Con-
        gress. I t has been adopted on four of the six regular appropri-
        ation bills considered by the House this year, on two occasions
       by unanimous action. Even more important is the fact that
        it was adopted by the other body as the Smathers-Williams
       amendment to H.R. 15414 when the tax extension proposal
       was debated.
       Expenditure limitations
     Section 202 provided that expenditures and net lending (referred to
 as Federal outlays in the budget) should not exceed $180,062 million
  in fiscal year 1969, a reduction of $6 billion from the estimate in the
  Budget of the United States Govemment. Excepted from this limita-
  tion were outlays in excess of amounts estimated therefor in the budget
. for the following programs: (1) Special support of Vietnam operation,
   (2) interest, (3) veterans'benefits and services, and (4) payments from
 trust funds established by the Social Security Act, as amended.
       New obligational       authority
     The act limited the total for new obligational authority and loan
  authority for fiscal year 1969 to $191,723 million, or $10 billion under
 the estimate in the President's budget. The same activities were ex-
 cepted from the limitation on obligations as those listed under expendi-
 ture limitations above.
     Also, subsection (b) of section 203 provided that should Congress
  approve obligational autliority in excess of the limitation placed on
  1969 funds, the President was required to reserve amounts of obliga-
  tional and loan authority in order to reduce the total to the imposed
  limitation. At the close of fiscal year 1969 these reserved amounts were
  to be rescinded. The President, at the time of submission of the fiscal
  year 1970 budget, was to repoit to Congress on the amounts reserved
  under this subsection.
     Unobligated balances
  Section 204 of the act required that the President provide for a
special study and analysis of unobligated balances of appropriations
and other obligational and loan authority available during fiscal year
1969, which would remain available in subsequent years, and report to
Congress on the study's findings. The report to Congress was to in-
clude also the President's recommendations for legislation to rescind
not less than $8 billion of such unobligated balances.
Budget treatment of expenditure a,nd obligation limitations—1970
  I n the President's budget message for fiscal year 1970, President
Johnsoii commented on the ceilings imposed in the Revenue and Ex-
penditure Control Act of 1968. H e stated:
     FINANCTAL MANAGEMENT EST THE FEDERAL GOVERNMENT                                                      9

         I n limiting total outlays, the Congress departed from its
      traditional procedure of using individual appropriation ac-
      tions as the primary means of exercising its control over the
      Federal budget. I n contrast with normal practice, the Con-
      gress placed direct restrictions on the amount of checks that
      could be issued or cash disbursements that could be made in
      the 12-month period ending June 30,1969.
          To implement this new restriction, the executive depart-
       ments and agencies have had to add to their financial control
      machinery. In prior years, executive control of the budget
       was exercised at the stage of placing contracts, hiring per-
       sonnel, making loan and grant commitments, or incurring
       some other obligation. These obligations lead, of course, to
       Federal disbursements, sometimes in the same fiscal year
       and sometimes in a later fiscal year. Now, in fiscal year 1969,
       each executive establishment must also exercise direct con-
       trol over the amount of disbursements it makes within the
       year.
  Budget authority for fiscal year 1969 was estimated at $194.6 billion
in the 1970 budget, or $7.1 billion less than the original estimate. The
following table, from the 1970 budget, summarizes the status of budget
authority for 1969, showing the adjustments made to comply with
the provisions limiting new obligational authority included in Public
Law 90-364. (In the 1971 budget, total budget authority for fiscal year
1969 was reported to be $196.2 billion.)
               BUDGET AUTHORITY FOR FISCAL YEAR 1969—RELATIONSHIP TO PUBIC LAW 90-364

                                                     |ln billions]


                                                                          January 1968    Revised
      Description                                                             estimate   estimate   Change

Programs excepted from Public Law 90-364 limitation:
    Special support of Vietnam operations                                       $25.4      $28.0    +$2.6
    Interest           __                                           __           14.4       15.2     +0.8
    Veterans benefits and services                                                7.8        7.5     -0.3
    Social Security Act trust funds...                       ._                  41.8       42.6     +0.9
         Old-age and survivors insurance                             _          (27.2)     (27.8)   (+0.7)
         Disability insurance                    _.                 ._           (3.7)      (3.85   •;+o. 1)
         Health insurance                                                        (6.8)      (7.3)   1+0.5)
         Unemployment insurance                                                  (4.1)      (3.8)   (-0.3)
    Commodity Credit Corporation (price support and related programs)..           3.3        4.8     +1.6
    Public assistance grants to States(including Medicaid)       _                5.8        6.4     +0.7
      Subtotal                                                                   98.4      104.6     4-6.1
Programs covered by Public Lav* 90-364 limitation                               103.3       90.1    -13.2
      Total                                                                     201.7      194.6     -7.1


  In the 1970 budget, Federal outlays (expenditures and net lending)
for fiscal year 1969 were estimated at $183.7 billion, or $2.4 billion
below the original estimate in the 1969 budget. The following table
shows the status of outlays for 1969 as shown in the 1970 budget. (In
the 1971 budget, total actual outlays for 1969 were reported to be
$184.6 billion, $1.5 billion below the original estimate—consisting of
a reduction of $8.4 billion in programs covered by the ceiling and an
increase of $6.9 billion in programs excepted from the ceiling.)
 10            FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT

                    BUDGET OUTLAYS IN FISCAL YEAR 1969-RELATIONSHIP TO PUBLIC LAW 90-364

                                                      [In billions]


                                                                           January 1968        Revised
      Description                                                              estimate       estimate         Change

Programs excepted from Public Law 90-364 limitation:
    Spedal support of Vietnam operations                                         $26.3          $29.2          +$2.9
    Interest.                                                                     14.4           15.2            +.8
    Veterans benefits and services                                                 7.3            7.7            +.4
    Social Security Act trust funds...                                            36.0           36.4            +.4
         Old-age and survivors insurance                                         (24.6)         (24.6)          (+.1)
         Disability insurance                                                     (2.6)          (2.6)
         Health Insurance                                                         (5.8)          (6.2)          (+.5)
         Unemployment Insurance                                                   (3.1)          (3.0)          (-.1)
    Tennessee Valley Authority (portionfinancedfrom povier proceeds
      and borrowing).
    Commodity Credit Corporation (price support and related programs)..
                                                                                    .1
                                                                                   2.8
                                                                                                   .1             +•
                                                                                                  3.6          '+.9
    Public assistance grants to States (including medicaid)                        5.7            6.2          '+.6
    Aid to schools In federally impacted areas(special 1968 supplemental
      payments made in 1969)                                                                        .1            +.1

        Subtotal                              -                                   92.6           98.6           +6.0
Programs covered by Public Law 90-364 limitation                                  93.5           85.1           —8.3
       Total                                     -                               186.1          183.7           -2.4


  > Outlays exceeding the January 1968 estimates by more than $907,000,000 for farm price supports and $560,000,000 for
public assistance grants are not excepted from the Public Law 90-364 limitation.
  'Less than $50,000,000.

   To satisfy the reporting requirement relating to rescissions of $8
billion of unobligated balances, a special analysis accompanying the
budget reported on the results of the study of these carryover funds.
The President, in his budget message, explained this separate treat-
ment in the following manner:
        I do not favor those rescissions and therefore the tables and
     schedules in the various parts of the budget do not reflect such
     action.
Second Supplemental Appropriations Act, 1969 {Public Lato 91-^7.
     Jidy 22,1969)
   Section 401 of this act placed a ceiling, continuously adjustable by
the Congress, on expenditures and net lending (budget outlavs) of the
Government during fiscal year 1970. The initial ceiling of $191.9 bil-
lion was $1 billion less than the President's projected budget outlays
for 1970, summarized in "Review of the 1970 Budget," appearing in
the Congressional Record of April 16,1969, on pages E2993-E2996.
   Congress controlled the fluctuation of the ceiling through its deci-
sions affecting expenditures and net lending for specific programs and
activities. Under section 401 whenever action or inaction by the Con-
gress on requests for appropriations and other budgetary proposals
varied from the President's recommendations in the "Review of the
1970 Budget," the Director of the Bureau of the Budget was to report
to the President and Congress his estimate of the effect of the action or
inaction on expenditures- and net lending. The Director was also to
estimate and report the effect on budget outlays of other congressional
actions, whether initiated by the President or the Congress. The mov-
ing ceiling was to be adjusted by the dollar differences caused by con-
gressional decisions as estimated and reported by the Director. The
Director's first report was required at the end of the first month be-
ginning after the date of approval of Public Law 91-47; subsequent
    FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT                      11

reports were to be made at the end of each calendar month during the
first session of the 91st Congress and at the end of eatfh calendar quar-
ter thereafter during fiscal year 1970.
    Section 401 provided that the initial ceiling would not be reduced
until net congressional actions or inactions affecting the President's
projected budget outlays in "Review of the 1970 Budget" resulted in
the $1 billion cut from the President's projections to the initial ceiling.
I n other words, congressional reductions were to count toward the cut
 rather than being in addition to it.
    There were two exemptions from the initial ceiling, together not
 to exceed $2 billion. One was for certain uncontrollable items, appear-
 ing on page 16 of the 1970 budget, on which the Congress does not
 act annually:
         (i) items designated "Social security, Medicare, and other social
             insurance trust funds";
        (ii) the appropriation "National service life insurance (trust
             fund) . . .";
       ^iii) the item "Interest"; and
       (iv) the item "Farm price supports (Commodity Credit Corpo-
             ration) ".
 The other exemption was for decline from estimated receipts (credited
 in the budget against expenditures and net lending) derived from:
       (i) sales of financial assets of programs administered by the
            Farmers Home Administration, Export-Import Bank, agen-
            cies of the Department of Housing and Urban Development,
            the Veterans' Administration, and the Small Business Ad-
            ministration; and
       (ii) leases of lands on the Outer Continental Shelf. . . .
    Both of these exemptions could be exercised by the President to the
 extent he estimated that budget outlays for the uncontrollable items
  would be in excess of, and the receipts less than, his projections in
 "Review of the 1970 Budget." The President was required to notify
 the Congress in writing and give reasons for exercising the exemptions
 before invoking his authority to exempt. The adjusted ceilings re-
  ported by the Director of the Bureau of the Budget included the
  amounts exempted by the President.
    The reports from the Director of the Bureau of the Budget fur-
  nished the Congress increased exposure to the comparison of projected
  estimates with actual budget outlays, especially as affected by its own
  spending decisions. On April 15, 1970, the Director reported that the
  ceiling was adjusted upward to $195,300 million based on data as of
  March 31, 1970. Further, the $2 billion allowed under the exemptions
  was reported to have been exceeded by $2,605 million.

                      CONTINUING    APPROPRIATIONS

   When appropriations for the fiscal year beginning July 1 have not
been provided for by Congress in advance of that date, some form
of emergency legislation must be passed by both Houses in order to
finance continuing operations of departments and agencies. Unlike
previous years, at the beginning of fiscal year 1963 (July 1, 1962),
710 appropriations bills had been passed by Congress, largely due to
disagreements on procedural matters between the House and Senate
 12        F I N A N C U L MANAGEMENT IN THE FEDERAL                                  GOVERNMENT

Appropriations Committees. During that session (87th Cong., Second
sess.). Congress passed four temporary or continuing appropriations
bills; the last one extending authority for unfunded departments and
agencies through October 31.
   During the 87th through the 91st Congresses, temporary or con-
tinuing appropriations bills were enacted a total of 36 times. The first
session of the 89th Congress and the first session of the 90th Congress
each passed five continuing appropriations bills, with the 90th pro-
viding authority for unfunded agencies to December 20—nearly half-
way through the fiscal year. The conferenre report on one of those
bills, which became Public Law 90-218, stated:
        I t has become increasingly necessary in recent years to enact
     continuing resolutions in the latter months of each session of
     Congress to make funds available for departments and agen-
     cies for which appropriation bills have not been passed by
     the beginning of the new fiscal year on July 1. Lack of more
     timely annual authorizations for appropriations for many of
     these has been a major factor in these delays. . . .
  The following table illustrates the increased use of continuing ap-
propriations to fund activities of some departments and agencies
through the period of the 87th through the 91st Congresses, as com-
pared with the two previous Congresses.
                ENACTMENT OF TEMPORARY OR CONTINUING APPROPRIATIONS ACTS


                                             Date au-                                                  Date au-
                                             thorized                                                  thorized
                                  Number     in last                                        Number     in last
                 Congress          of acts   act                                Congress     of acts   act


Year:                                                     Year—Continued
    1957         85th,   1st,..         1    July    31       1964         .-   88th, 2d          2    Sept.   30
    1958         85th,   2d....         2    Aug.    31       1965         .-   89th, 1st         5    Oct.    23
    1959         86th,   1st...         3    Sept.   30       1966         ..   89th, 2d          3    Oct     22
    1960         86th,   2d..-.         1    Aug.    31       1967         ..   90th,1st          5    Dec.    20
    1961         87th,   1st...         2    Sept.   30       1968         ..   90th, 2d          3    Oct.    12
    1962         87th,   2d....         4    Oct.    31       1969         ..   91st, 1st         3    Feb.    28
    1963         88th,   1st...         4    Nov.    30       1970         .-   91st, 2d          5    Mar.    30




                                   CIVILIAN EMPLOYMENT

  A portion of the Revenue and Expenditure Control Act of 1968
(Public Law 90-364, sec. 201) enacted limitations on the number of
civilian employees in the executive branch of the Government and
restricted the filling of vacancies which occurred before the ceiling
was achieved. Federal full-time permanent employment was to be re-
duced to the level of June 1966 and departments and asrencies were to
limit appointments due to vacancies to 7o percent. The number of
temporary and part-time employees, for any department or agency,
was limited to the number of such employees during the corresponding
month of 1967.
  Exemptions were provided for persons appointed by the President
with the advice and consent of the Senate, casual employees or those
serving without compensation, and up to 70,000 summer employees
during any month who were hired under programs for the econom-
ically or educationally disadvantaged. Major departments and agen-
    FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT                     13

cies, however, were not granted exemptions since the (x>nferees accepted
the 75-percent-of-vacancies provision instead of the Senate amendment
which would have limited the filling of vacancies to 50 percent. Provi-
sions in later acts exempted certain activities, agencies, or bureaus from
the provisions of section 201.
   The Director of the Bureau of the Budget could reassign vacancies
from one department to another when nece^ary because of a change in
functions or creation of a new department, or for the more efficient
operation of the Government. H e also was authorized to reassign tem-
 porary or part-time positions under the same conditions as those for
 full-time vacancies. I n addition, the Director was to maintain a con-
tinuous study of appropriations and contract authorizations in rela-
tion to personnel and was to reserve from expenditure the savings in
 wages and salaries which resulted from provisions in the act.
   The two ceilings—part-time and full-time—were limited separately
so that agencies could not substitute part-time employees for full-time
employees during those periods when employment was above the June
 1966 level. Moreover, the Bureau of the Budget and agency heads
 were expected to prevent the substitution of contract work for per-
 sonal services performed by governmental employees.
    In the 1970 budget message, the President stated that although the
administration had been successful in enforcing the provisions of
 Public Law 90-364, continued arbitrary reductions in employment
 would interfere with effective management of programs, reduce effi-
 ciency, and increase costs. I n the concluding remarks on Federal civil-
 ian employment limitations, the budget message criticized the use of
 employment ceilings to control Federal employment by stating:
         The Congress should rely on its appropriations process—
      or develop an acceptable accompanying process—^to relate em-
      ployment levels specifically to the work it wants done by each
      agency and for which it provides the necessary funds. . . .
   Congress repealed the employment limitations by section 503 of
 Public Law 91-47, July 22, 1969. The conference committee and Sen-
 ate committee reports on Public Law 91-47 gave inefficiencies result-
 ing from the limitations as the reason for repeal.

                       P U B L I C DEBT L I M I T A T I O N S

  Although some critics of a public debt limitation argue that it is
of no use and therefore should be abolished, others find that the
process of enacting a limitation allows for an overall review of the
Federal budget picture. In practice, the appropriations process makes
no provision for taking a broad look at the totals authorized for
obligation or at those already obligated. Appropriations and other
forms of budget authority are recommended by various committees
and are approved for various agencies, departments, or functions on
a piecemeal basis.
  Many bills have been introduced in each Congress from the 87th
through the 91st (as in previous Congresses) which would provide for
a system of congressional control of the overall budget picture, either
through a single general authorization bill or through congressional
approval of total appropriations. I n addition, bills have been intro-
 /
14     FINANf^AL MANAGEMENT IN THE FEDERAL GOVERNMENT

duced to require (1) updating of budget submissions and estimates
quarterly or even on a monthly basis and (2) a budget status report.
   I n title I I of the Legislative Reorganization Act of 1970 (Public
Law 91-510, Oct. 26, 1970), provision was made for the President's
transmittal of additional budget presentations and expenditure data
to the Congress. Also, the act provided for open hearings on the
entire budget considered as a whole.
Increases in the public debt limit
   From the beginning of the 87th Congress in 1961 through the ad-
journment of the 89tli Congress in 1966, nine temporary increases in
the public debt limit were enacted. In 1959 Congress had enacted a
permanent debt limit of $285 billion, but by the time the 90th Con-
gress met in 1967 the debt limit was at $330 "billion—composed of the
$285 billion permanent level plus $45 billion of temporary debt
limitation.
   I n March 1967, the Congress once again enacted an increase in the
debt limit—^allowing the debt subject to limitation to fluctuate up to
$336 billion. I n voting the increase, the House and the Senate differed
on the question of providing a temporarv increase (House) or an in-
crease in the permanent level (Senate). I n conference it was agreed
to provide a temporary increase and to recommend that an increase
in the permanent debt limitation be considered by the House Commit-
tee on Ways and Means at the time of the next review of the debt
ceiling.
   Before the end of fiscal year 1967, the House and the Senate voted
to enact H.R. 10867, providing an increase in the permanent debt limit.
The act (Public Law 90-39, June 30, 1967) also included a section
allowing for temporary increases in the limit during the fiscal year.
Section 1 of the act provided for an increase in the permanent limit
from $285 billion to $358 billion. Section 3 provided debt management
flexibility by allowing the limit to rise by $7 billion during the period
beginning on July 1 and ending on June 29 of the following year,
but on June 30 the debt limit reverted to $358 billion.
   I n Public Law 91-8, April 7, 1969, the public debt limit was in-
creased to $365 billion, and for the period of April 7, 1969, through
June 30, 1970, an additional temporary increase of $12 billion was
provided. The following year Public Law 91-301, June 30,1970, raised
the limit to $380 billion aiid enacted a temporary increase of $15 billion
through June 30,1971.


     PROVISIONS OF THE LEGISLATIVE REORGANIZATION A C T OF 1970

   The Legislative Reorganization Act of 1970, Public Law 91-510,
October 26,1970, marked the first comprehensive congressional reform
measure since the Legislative Reorganization Act of 1946. Its major
provisions were directed toward improvement of the committee s;7S-
tem and better information flow for legislative decisionmaking. While
both these areas are related to improved budgetary and fiscal opera-
tions, of primary interest in this dcxjument was the congressional need,
recognized in the 1970 act, for the transmission of more timely and
complete budget and lispal information, as well as modern o^giwiiza-
    FINANCIAL MANAGEMENT IN THE FBDERAL GOVERNMENT                     15

tion and techniques, meeting the special requirements of Congress, to
collect and analyze the necessary data. A basic objective of the act,
particularly in title I I , was increased capacity to maintain legislative
authority over Government spending.
   The initial version of the 1970 act was proposed by the Joint Com-
mittee on the Organization of the Congress (S. 3848 and H.R. 17873)
on September 21,1966, after extensive hearings during the 89th Con-
gress. The major characteristics of these first bills were contained in
Public Law 91-510. An identical bill, S. 355, passed the Senate early
in the 90th Congress on March 7, 1967, but failed to move out of com-
mittee in the House. The Senate Government Operations Committee
 reported a similar bill, S. 844, in the 91st Congress. The House Com-
 mittee on Rules developed H.R. 17654 which was finally enacted, after
 floor debates lasting several weeks in the House, with additions by the
 Senate covering its own operations.

  T H E BUDGET, APPROPRIATIONS PROCESS, A N D COSTING OF LEGISLATIVE
                                PROPOSALS

   Title I I of the Legislative Reorganization Act of 1970 contained
several provisions governing congressional review of the budget, the
appropriations process, and the costing of proposed measures in com-
mittee reports.
   The executive branch was called upon for additional budget in-
formation. With respect to new or adciitional legislation proposed in
the annual January budget which would create or expand any func-
tion activity or authority, the President was to submit to the Congress
as part of the January budget a tabulation showing for each such
proposal the amount proposed for appropriation and expenditure in
the ensuing fiscal year and the estimated appropriation in each of
the next 4 fiscal years. To update this information additional expendi-
ture data was to be transmitted to Congress on or before the follow-
ing June 1.
   The President was also required to transmit on or before June 1
a supplementary summary of the budget for the ensuing fiscal year.
The purpose of the summary was to provide the Congress timely in-
formation supplementing the previous January budget message. I t
was to contain all substantial alterations in or reappraisals of estimates
of expenditures and receipts, all substantial obligations imposed on
the Government since the budget was transmitted to the Congress,
and certain other current financial information, including that which
the President considered necessary or advisable.
   I n order for Congress to have an overall view of the budget, the
House Committee on Appropriations, within 30 days after the trans-
mittal of the budget, was to hold hearings on the budget as a whole.
The hearings were to cover in particular the basic recommendations
and budgetary policies of the President in the presentation of the
budget and the fiscal, financial, and economic assumptions used in
arriving at total estimated expenditures and receipts. Testimony was
to be received from the Secretary of the Treasury, the Director of the
Office of Management and Budget, the Chairman of the Council of
Economjc Advisers, and such other persons as the committee might
16      FINANCUL MANAGEMENT EST THE FEDERAL GOVERNMENT

de,sire. The hearings might be held before joint meetings of the com-
mittee and the Senate Committee on Appropriations in accordance
with procedures to be determined jointly by these committees.
    The act repealed those provisions of the Legislative Reorganization
 Act of 1946 which had provided for committee study of the President's
bu(iget recommendations and the formulation of one comprehensive
legislative budget. These procedures had not been used for years. The
 1970 act at least offered a device for study of the budget as a unity,
even though there was separate consideration of each appropriation
measure.
   Provisions of title I I required committee reports accompanying a
bill or joint resolution to contain an estimate made by the committee of
the costs which would be incurred in carrying out the bill in the fiscal
year in which it was reported and in each of the following 5 fiscal years
 (or for the duration of any program authorized by the measure if less
than 5 years). In revenue measures only an estimate of the gain or loss
in revenue for a 1-year period was necessary. The report was also to
Include a comparison of the committee cost estimates with estimates
of such costs made by any Government agency and submitted to the
committee. Exempted from these reporting requirements were the
House and Senate Appropriations Committees, the Committee on
House Administration, the House Committee on Rules, and the House
Committee on Standards of Official Conduct.
   Under the act legislative committees were to study continuing Gov-
ernment programs and activities of Federal agencies which were not
appropriateci for annually in orderto determine whether the programs
might be modified so as to be suitable for annual appropriations. Title
I I provided t h a t the programs and activities were to be appropriated
for annually to the extent feasible.
     DATA PROCESSING SYSTEM A N D BUDGET STANDARD     CLASSIFICATION

  Affording the Congress a tie-in to the modem information and
analytical tools being developed by the executive branch under its
planning, programming, and budgeting system, title I I of the act
provided for (1) a standardized information and data processing sys-
tem for budgetary and fiscal data and (2) standard classifications of
programs, activities, receipts, and expenditures of the Govemment.
  Together, these would comprise a unified information system for all
agencies and instrumentalities of the executive, legislative, and ju-
dicial branches. The system was to be developed, established, and
maintained by the Secretary of the Treasury and the Director of the
Office of Management and Budget in cooperation with the Comptroller
General. The integrated information svstem was to meet the special
needs and applications of Congress, and thv. Comptroller General was
to act as an agent of Congress in order to assure this result.
  This tool would give the Congress added essential capacity to com-
prehend the enormous and complex budgets of modern times. I t would
assist in cost-benefit studies and furnish access to special fiscal in-
formation.
  I n addition, upon the request of any congressional committee, the
Secretary of the Treasury and the Director of the Office of Manage-
ment and Budget were to furnish the committee information as to the
    FINAN'CaAL MANAGEMENT IN THE FEDERAL GOVERNMENT                   17

location and nature of data available on Federal agency programs,
activities, receipts, and expenditures. They were to prepare for the
requesting committee, to the extent feasible, summary tables of the
data.
                     ASSISTANCE TO T H E   CONGRESS

   Several provisions in title I I and I I I , although not confined to
acquisition of budget and fiscal information and its evaluation, pro-
vided for added assistance to the Congress from the General Account-
ing Office, the Library of Congress, and committee staffs.
   The legislative mandates and reporting procedures in the act cover-
ing the General Accounting Office were especially relevant to budget
and fiscal operations because of the agency's focus on this subject
matter area.
   Title I I required the Comptroller General as head of the General
Accounting Office to review and analyze the results of Govemment
programs and activities carried on under existing law, including the
making of cost-benefit studies when ordered by either House of Con-
gress, upon his own initiative, or when requested by a congressional
committee. The Comptroller General was directed to have available
 in the General Accounting Office employees who were expert in analyz-
ing and conducting cost-benefit studies of Government programs. The
head of each Federal agency was required to report in writing to the
 Senate and House Committees on Government Operations and to
 the Appropriations Committees actions taken by the agency on recom-
mendations included in reports of the General Accounting Office. The
 head of the agency was to submit this report to the Government Op-
erations Committee of both Houses within 60 days after the date of
the General Accounting Office report. This report was also to be
submitted to the Appropriations Committee of both Houses with
the agency's first request for appropriations submitted more than 60
days after the date of the General Accounting Office report. Also,
improved procedures were provided for review of General Account-
ing Office reports by congressional committees.
    Title I I I provided for the strengthening of committee staffs to en-
 able the standing committees to (1) better perform the vital function
 of keeping watch over the way laws were administered and authorized
 programs were executed and (2) intelligently determine the advisa-
 bility of enacting legislative proposals and evaluate the probable re-
 sults of such proposals and alternatives.
    I n addition, title I I I redesignated the Legislative Reference
 Service of the Library of Congress as the Congressional Research
 Service, which was given responsibility to assist committees in an-
 alyzing and evaluating the advisability of enacting legislative pro-
posals submitted to the Congress by the executive branch and per-
 forming other legislative research functions.


                 BUDGETARY AND FISCAL OPERATIONS

  During the decade of the 1960's, Congress enacted legislation which
included provisions requiring that certain information be included in
or excluded from the budget document and that the budget present
18     FINANCUL MANAGEMENT IN THE FEDERAL GOVERNMENT

data in a specified manner. I n addition, several acts changed the dates
for payment of taxes and the methods of collecting taxes.
                    PRESENTATION OF I N F O R M A T I O N

   The annual budget document included detailed statistics on the pro-
 curement, rental, use, and disposal of passenger motor vehicles and
 airplanes, as required by legislation dating back to 1914 and amend-
 ments included in the Administrative Expenses Act of 1946. Since the
information was used primarily by the Appropriations Committees,
the Bureau of the Budget in asking for repeal of the relevant pix>vi-
sions stated that it could make this data available through special tabu-
lations which would better serve the needs of the committees and could
eliminate about 25 pages in the budget document. Passage of Public
Law 87-774, 'October 9, 1962, which repealed the requirement for this
information, in no way decreased congressional (^ontrol over the pro-
curement of these vehicles, since specific authorizations are required
prior to purchase of passenger-carrying motor vehicles.
   In the Food for Peace Act of 1966 (Public Law 89-808. Noy. 11.
1966), section 403 required that in presenting the budget the President
classify expenditures under the act with those for intemational affairs
and finance rather than for agriculture and agricultural resources. In
the act providing for expansion of the school lunch T)rogram (Public
Law 90-302, May 8, 1968), the new programs funded by the Depart-
ment of Agriculture—school lunches served in child care institutions
and the pilot breakfast program—^were t o be considered health, educa-
tion, and welfare functions for budget purposes and not classified as
agriculture programs.
                        ESTIMATES AND REPORTS

   The Participation Sales Act of 1966 (Public Law 8 9 ^ 2 9 , May 24,
 1966) included a provision that required the Secretarv of the Treas-
ury to conduct a study of Government loan programs. Within 6 months
of the effective date of the act, the Secretary was to submit his report,
prepared in consultation with heads of Federal agencies carrying on
direct loan programs, on the feasibility, advantages, and disadvantages
of direct loan programs as compared with guaranteed or insured loan
programs. The report was also to include specific legislative proposals
 for conqjressional action on loan programs. The Secretary's report was
submitted to the Conerress on November 24,1966.
   I n Public Law 89-809, November 13, 1966 (Taxation—Foreign In-
vestors—Presidential Election Campaign F u n d ) , Congress included
a nrovision requiring that reports be presented to clarify the national
debt and tax structure. Section 402 stated that the Secretary of the
Treasury should submit to the Senate and the House of Representa-
tives on the first dav of each regular session a report on the aggregate
.nnd individual amounts of the contingent liabilities and the unfunded
liabilities of the Government. Although information on contingent
liabilities was available in reports to specific agencies, the data were
not combined and therefore were not as useful as an overall financial
report would be.
   Contingent liabilities were to include (1) liabilities of the Govern-
ment under its various trust funds, (2) liabilities of Government-spon-
sored corporations, (3) indirect liabilities of the Federal Government
    FESTANCIAL MANAGEMENT m          THE FEDERAL GOVERNMENT              19

not included as part of the public debt, and (4) liabilities of Federal
insurance and annuity programs. Data related to insurance and an-
nuity programs were to include information on their actuarial status
on a balance-sheet basis and a projected source-and-application-of-
funds basis.
    I n addition, the report was to include data on the collateral pledged
or the assets available as security for specified liabilities. The report
was not to limit itself to those specific assets related to liabilities, but
was also to include all other assets which were available to liquidate
liabilities of the Federal Govemment. The Treasury Department has
submitted such reports annually since fiscal year 1967.
Long-range plans
    The Economic Opportunity Amendments of 1967 (Public Law 90-
222, Dec. 23, 1967), included a requirement that the Director of the
Office of Economic Opportunity prepare a 5-year national poverty ac-
tion plan showing estimates of Federal and other governmental ex-
penditures (and also expenditures of the private sector) needed to
eliminate poverty over various periods of time. The plan was to be
presented to Congress and updated on an aimual basis.
    By January 15, 1969, the President was to report to the Congress
on a plan, to be carried out over a 10-year period (June 30, 1968, to
June 30, 1978), for the elimination of all substandard housing and
on implementation of the housing goals as restated in the Housing and
Urban Development Act of 1968 (Public Law 90-448, sec. 1602, Aug.
 1, 1968). The plan was to provide an estimate of the cost of carrying
out each of the related Federal programs for each fiscal year during
the 10-year period to the extent that such costs would be reflected in
the Federal budget. The "First Annual Report on National Housing
Goals" was issued to the Congress on January 23, 1969.

                         TAX-RELATED PROVISIONS

   For tax years beginning prior to December 31, 1963, corporations
 with tax liabilities over $100,000 paid two quarterly payments on the
amount in excess of $100,000 in the year in which the liability arose,
and two payments the following year. I n the Revenue Act of 1964
 (Public Law 88-272, Feb. 26, 1964), Congress provided for placing
corporate income taxes on a pay-as-you-go basis, gradually over a
7-year period. For taxable years beginning after December 31,1963, an
increasing percentage of a corporation's estimated liability would be
paid during the year of the liability. The speedup was to be completed
bv 1970. The t a x Adjustment Act of 1966 (Public Law 89-368,
Mar. 15, 1966), however, further accelerated the current-payments
basis for corporate income taxes in excess of $100,000 by providing for
completion of the process in 1967.
   These provisions to speed up the payment of corporate liabilities
applied only to the amount of tax liability in excess of $100,000. Con-
gress substantially reduced this exemption in the Revenue and Ex-
penditure Control Act of 1968 (Public Law 90-364), placing virtually
all corporate income tax payments on a pay-as-you-go basis by 197i.
   The Tax Adjustment Act of 1966 also changed the method of with-
holding individual income taxes. In order to insure that for most wage
earners the amounts wdthheld would more closely approximate their
total tax liability, the aot provided for a system of graduated with-
20     FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT

holding. Effective for wages and salaries paid after April 30, 1966,
taxes withheld were based on six graduated rates (instead of the flat
14-percent rate in effect at the time of enactment) and reflected the
minimum-standard deduction provision.

FINANCING THROUGH SALES OF CERTIFICATES OF PARTICIPATION I N LOANS

   I n the January 1966 budget message, the President proposed to
 extend to other agencies of the Government the authority that was
 given to the Federal National Mortgage Association (FNMA) in the
 Housing Act of 1964, and earlier to the Export-Import Bank, to pool
 blocks of loans and sell guaranteed certificates of participation in the
 pools. (The F N M A acted as a trustee for its own loan program as well
 as for loans made by the Veterans' Administration.) The stated pur-
 pose of this method of financing was to increase private investment in
loans initially made by the Govemment. Pooling arrangements broad-
ened the market for most issues and provided for more effective co-
ordination of offerings by Federal agencies.
   Enactment of the Participation Sales Act of 1966 (Public Law 89-
429, May 24,1966), provided the increased authority requested by the
President. Assets of the Farmers Home Administration, the Office of
Education (academic facilities), the college housing program, the pub-
lic facility loan program, and the Small Business Administration
could be included in the loan pool. Public Law 89-751, November 3,
1966, extended authority to join in the loan pool to the student loan
programs of the Office of Education. The head of the department or
agency was authorized to set aside a part or all of any financial assets
held bv him and place them in trust with F N M A for inclusion in the
pool. The agency head was required to guarantee to the trustee the
timely payment of principal and interest on the assets set aside.
   Section 2 of Public Law 90-39, June 30, 1967, provided for inclu-
sion in the public debt, subject to limitation, of the face amount of
certificates of participation (except those held by the issuer) of F N M A
obligations issued during fiscal year 1968 and outstanding at any time.
I n the 1967 Report on the Economic Report of the President, the
minority on the Joint Economic Committee commented:
         We urge that participation sales, if they are to be con-
      tinued, be included in the budget as part of the public debt,
      rather than as a reduction in spending.
   Beginning with the Budget of the United States Govemment for
the fiscal year 1969, the sales of certificates of participation in loans
were treated as a form of borrowing. The President's Commission on
Budget Concepts had recommended this treatment of the sales. (See
p. 48.) Previously the method of recording the saV of these certificates
as a sale of an asset allowed for the proceeds from the sale to be
counted as an offset to expenditures.
   Coincident with the adoption of the recommendation of the Presi-
dent's Commission on Budget Concepts relating to their budgetary
presentation, there have been no sales of participation certificates since
fiscal year 1969.
   The Housing and Urban Development Act of 1968 split the Federal
National Mortgage Association into two organizations. The Govern-
     FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT                     21

ment National Mortgage Association remained a federally owned
agency, whereas the portion that is now named the Federal National
Mortgage Association passed into private ownership. The Government
National Mortgage Association, acting as the pool trustee, continued
to operate the special assistance functions and management and liqui-
dating functions, while the Federal National Mortgage Association
was responsible for the secondary market operations (which were
excluded from participation certificate sales).


                      MANAGEMENT IMPROVEMENT

  A number of significant pieces of legislation relating to the way the
Government does business, how it reports on its activities, and the
means for reporting on its finances were enacted during the period
covered by the 10 sessions of the 87th through the 91st Congresses. I n
enacting some of the laws discussed here, Congress was restricting
the activities of the executive branch of the Govemment rather than
expanding the means of "running the Govemment on a day-in-day-out
basis."
               ACCOUNTING METHODS AND RESTRICTIONS

Accounting for indirect costs
   Payments to educational institutions for reimbursable indirect costs
of research and development were authorized to be made on the basis
of predetermined fixed-percentage rates applied to the total of the re-
imbursable direct costs, or an element thereof, by Public Law 87-638,
September 5, 1962. These fixed-percentage rates might be applied in
cost-type research and development contracts (including grants) with
universities, colleges, or other educational institutions. This provision
was enacted to simplify administration of cost-type research and de-
velopment contracts with educational institutions, to allow these in-
stitutions to better prepare their budgets, and to speed up closeouts of
contracts when the work was completed. In supporting this legislation,
the Department of Defense stated that in the past reimbursable indirect:
costs of educational institutions were reasonably stable and the pre-
determined fixed rates that were used were quite close to those based
on audited actual indirect costs.
   Although Govemment agencies previously had used this method of
determining indirect costs, the Comptroller General, in J a n u a r y 1956,
issued a decision holding that the use of fixed overhead rates estab-
lished in advance and applied to an element of direct cost under cost-
reimbursable-type contracts was contrary to law. Agencies then
adopted the method of reimbursing for indirect costs during the year
on the basis of estimated rates with retroactive adjustments made
whenever actual rates were determined for each contra<^r.
   For foreign assistance programs (other than military assistance),
separate authority to use predetermined fixed-percentage rates for
reimbursable indirect costs on contracts or agreements (including
grants) was enacted in the Foreign Assistance Act of 1963 (Public
Law 88-205, Dec. 16,1963). This legislation was necessary because the
Agency for Intemational Development's contracts with universities
22     FINANCUL MANAGEMENT IN THE FEDERAL GOVERNMENT

 were not covered by Public Law 87-638, since they were for technical
 services rather than for research and development.
 Department of Defence accounting system for operations
   I n enacting appropriations for the Department of Defense for the
fiscal year 1968 (Public Law 90-96, Sept. 29, 1967), the Senate added
an amendment, which was agreed to by the committee of conference,
blocking funds for the accounting system for operations ( P R I M E )
which the Defense Department had planned to implement. Section
640 (b) prohibited the use of any funds available to the Department for
the fiscal year for the installation or utilization of any new "cost-based"
or "expense-based" accounting system until 45 days after the Comp-
troller General of the United States (after consultation with the Direc-
tor of the Bureau of the Budget) reported to the Congress t h a t in his
opinion the system met certain requirements set down by the Congress.
   The House Appropriations Committee had denied funds to the De-
fense Department for implementing the system in approving the fiscal
year 1968 budget. The Department asked the Senate to restore $3.5
million to be used for further testing of the proposed improvement in
accounting procedures. Although the Senate Appropriations Commit-
tee did not recommend the allowance of the $3.5 million, it indicated
that there was no objection to the tests being funded from available
resources. In a letter to the chairman of the House Appropriations
Committee, the Secretary of Defense stated that intemal use of the
system—which was not compatible with the appropriation structure
used in the Department's appropriations aot, but was designed to per-
mit transactions to be aggregated under the appropriation structure—
was planned by the Department. In speaking of the Secretary's plans,
Senator John C. Stennis (Mississippi), who introduced the amend-
ment restricting the use of funds for these types of accounting systems,
said:
        . . . this is the implementation, at least partially, of the
     system for which the funds were disallowed and which the
     House committee and Senate committee . . . said should be
     tested further.
   The Comptroller General completed his report on this accounting
system and submitted it to the Congress on April 12,1968. The report
stated that in his opinion the system met the requirements set down
by the Congress, thereby clearing the way for its implementation by
the Department of Defense. The committee of conference on the Sec-
ond Supplemental Appropriation Act, 1968 (Public Law 90-392, July
9, 1968), agreed to allow the Defense Department to proceed with im-
plementation of the proposed budgeting and accounting procedural
improvements with certain restrictions. I n addition, the committee
suggested that in collaboration with the General Accounting Office,
perfecting actions should take precedence over expansion of the
program.
   The Defense Department started implementation of the system on
July 1, 1968. On March 4, 1970, the Comptroller General submitted a
report to the Congress on the status of implementation, indicating
that certain problems were being encountered, but that the system
was basically sound and, if properly carried out, should result in im-
     FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT                       23

proved financial management. The military services and the other
Defense agencies were refining the system to meet the problems which
had been encountered and thereby were trying to perfect the system
in a deliberate manner. For example, the House Appropriations Com-
mittee was informed at hearings on the Defense Appropriation Act
for 1971 that the Navy was reviewing its accounting system in detail
on a 5-year plan basis, including, but not limited to, the accounting
system for operations. The Air Force had commenced a program for
testing additional features which might be included in its accounting
system for operations.
 Uniform cost accounting standards
    During the second session of the 90th Congress the House passed
H.R. 17268, authorizing the General Accounting Office to develop
uniform cost accounting standards for all negotiated prime contract
and subcontract defense procurements over $100,000. After 1 year
the GAO was to report on the standards to be used and recommend
legislation for their implementation. Senator William Proxmire (Wis-
consin) introduced a similar amendment in the Senate, but excluded
the requirement that legislation must be enacted if the GAO deter-
mined that uniform standards would be beneficial to the Government.
    The Senate Banking and Currency Committee, in reporting the bill
to extend the Defense Production Act, made no provisions for the
implementation of uniform cost accounting standards. However, the
Senate overrode the committee and adopted another Proxmire amend-
ment which called for a study of cost accounting standards. I n speak-
ing during the floor debate on the bill. Senator Proxmire stated:
           . . . The GAO also goes on to point out that the disadvan-
       tages may exceed the advantages. However, in the absence of
       a definitive study, the GAO was unable to conclude that uni-
       form cost accounting standards would not be worthwhile.
       Thus, in view of this GAO testimony, a feasibility study
       seems all the more justified. . . . Then, on the basis of t h a t
       finding as to feasibility by the Comptroller General, 'Congress
       would then decide whether to go ahead and ask the Comp-
       troller General to establish uniform accounting standards. At
       a later date, Congress would decide whether to enact it.
    Section 3 of Public Law 90-370, July 1,1968, amending the Defense
Production Act, provided that the Comptroller General, in cooperation
with the Secretary of Defense and the Director of the Bureau of the
Budget, study the feasibility of applying uniform cost accounting
standards to all negotiated prime contract and subcontract defense
procurements of $100,000 or more. The Comptroller General was
directed to consult with representatives of the aocounting profession
and with representatives of companies engaged in defense-related pro-
duction. The Comptroller General was to submit a report at the earliest
practicable date, but no later than 18 months after the date of
enactment.
    The General Accounting Office completed the feasibility study and
the Comptroller General transmitted the report to the Congress on
J a n u a r y 19, 1970. The report, 'bearing the title of "Feasibility of Ap-
plying Uniform Cost-Accounting Standards to Negotiated Defense
     68-109 O—71     3
24    FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT

 Contracts," concluded that it was feasible to establish and apply cost
 accounting standards in negotiating and administering procurement
contracts.
   Because of the significance of this study, the conclusions and recom-
 mendations reported to the Congress are set forth below.
   /. Feasibility.—It is feasible to establish and apply cost-accounting
standards to provide a greater degree of uniformity and consistency
in cost accounting as a basis for negotiating and administering pro-
curement contracts.
      —It is not feasible to establish and apply cost-accounting stand-
        ards in such detail as would be necessary to ensure a uniform
        application of precisely prescribed methods of computing costs
        for each of the different kinds of cost, under all the wide variety
        of circumstances involved in Govemment contracting.
      —Emphasis should be directed to disclosure, consistency, and es-
        tablishment of criteria for the use of altemative cost-accounting
        methods.
      —^To the extent that contractors or divisions of contractors could
        be grouped on the basis of similarities in the nature of their op-
        erations or in contracting situations, the standards for such
        groups could be stated in more specific terms.
      •—The cost-accounting methods to be used in the reporting of
        costs in support of the bid proposal and interim administrative
        actions and in the settlement of the contract or contracts of a
        particular contractor could be specified in greater detail by the
        use of advance written disclosure agreements. I n essence, these
        agreements would further elaborate upon the cost-accounting
        standards and thus would better ensure a mutual understand-
        ing as to the cost-measurement methods to be employed.
      —More explanatory material and better criteria for identifying
        and measuring direct and indirect costs and for the allocation
        of indirect costs should have high priority in establishing cost-
        accounting standards in the interest of providing a better under-
        standing among the users of cost data as to their meaning and
        significance.
   2. Coverage.—Cost-accounting standards should not be limited to
Defense cost-type contracts. They should 'apply to negotiated procure-
ment contracts and subcontracts, both cost type and fixed price. They
should be made applicable govemmentwide.
   3. Benefits and costs.—Cumulative benefits from the establishment
of cost-accounting standards should outweigh the cost of implemen-
tation.
      —Cost-accounting standards for contract costing purposes should
        evolve from sound commercial cost-accounting concepts and
        should not be incompatible with generally accepted accounting
        principles. Therefore extensive modifications to present ac-
        counting systems would not seem to be necessary in most cases.
        Although some modifications to existing systems may be neces-
        sary, we do not see the need for new or separate accounting
        systems.
      —Costs which might be incurred directly by the Government will
        depend largely on:
    FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT                   25

         a. The capability of the agency to which the responsibility
              for establishing and maintaining cost-accounting stand-
              ards is assigned.
         b. The recognition of the need for continuing research into
              the use of cost-accounting standards to keep pace with
              changing technologies.
         c. The cooperation of the accounting profession, of industry,
              and of other Govemment agencies with the designated
              agency.
     —Cost which might be incurred by contractors in implementing
       cost-accounting standards, whether they are ultimately borne
       by the Govemment or by the individual contractor, will vary
       from contractor to contractor and will depend largely on:
          a. The cooperation and capabilities of individual contractors'
             organizations.
         b. The extent to which present cost-accounting and manage-
             ment-information systems can produce cost data for nego-
             tiated contracts in accordance with cost-accounting stand-
             ards.
  4. Responsibility for development.—New machinery should be es-
tablished for the development of cost-accounting standards. The ob-
jective should be to adopt at an early date the standards of disclosure
and consistency and to strive for the elimination of unnecessary alter-
native cost-accounting practices—altematives not required for equita-
ble recognition of differing circumstances.
     —This should be a gradual process building upon past experience.
     —Considerable research in actual operating situations will be
       necessary and should be done in close cooperation with con-
       tractors, procuring agencies, and professional accounting orga-
       nizations.
     —Cost-accounting standards should not be developed under the
       same mechanism or procedures now used for section X V of
       A S P R . Since they should be applied to procurement by all
       Government agencies, it is important that new machinery be
       established to develop the cost-accounting standards and to per-
       form the continuing research and updating that will be re-
       quired for effective administration. Cost-accounting standards
       should be issued as a separate document rather than as a part
       of or amendment to F P R ' s or to A S P R . However, such stand-
       ards could be incorporated by reference in those regulations.
     —Periodic reports to the Congress should be made to keep the
       interested members and committees informed as to the progress
       and status of the assignment.
  5. Need for disclosure.—Contractors should be required to maintain
records of contract performance costs in conformity with cost-account-
ing standards and any approved practices set forth in a disclosure
agreement or be required to maintain the data from which such in-
formation could be readily provided.
Cost Accounting Standards Board
  Emerging from consideration of the feasibility study, an addition
to the Defense Production Act of 1950 by Public Law 91-379, Au-
 26   FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT

 gust 15, 1970, directed to the establishment of the Cost Accounting
  Standards Board as an agent of the Congress independent of the ex-
  ecutive branch. The Comptroller General was designated Chairman of
 the Board and was authorized to appoint the other four members. The
 law specified that two were to be from the accounting profession, of
  whom one was to be particularly knowledgeable about the cost ac-
 counting problems of small business; one was to be a representative of
 industry; and one was to be from a department or agency of the Fed-
 eral Government.
    The Board was to promulgate standards designed to achieve uni-
 formity and consistency in the cost accounting principles followed by
 defense contractors and subcontractors under procurements in excess
 of $100,000. Exempted from the standards were contracts or subcon-
 tracts the prices of which were negotiated in accordance with estab-
 lished market or catalog prices of commodities sold to the general pub-
 lic in substantial quantities or prices set by law or regulation. The cost
accounting standards were to be used in the pricing administration,
and settlement of relevant procurements. Board regulations were to
require covered defense contractors and subcontactors to disclose in
writing their cost accounting principles, including methods of distin-
guishing direct costs from indirect costs and the basis used for allo-
cating indirect costs.
    In addition, the contractors and subcontractors were to agree to con-
tract price readjustment, with interest not to exceed 7 percent, for any
increased costs the United States paid to the contractors because of
their failure to comply with the standards or consistently disclose their
cost accounting practices in pricing contract proposals and in accumu-
lating and reporting cost data on contract performance. Disagreements
over compliance and cost adjustments demanded by the United States
were to be settled under the contract disputes clause.
   Affected parties could make comments on Board-proposed cost ac-
counting standards, rules, regulations, and modifications thereof up to
30 days after publication in the Federal Register. The Board was to
consider the comments before promulgating its proposed measures.
Further, the standards and related regulations and rules were to be
effective no earlier than 60 days after the Board transmitted them to
the Congress. By concurrent resolution during this period Congress
might reject them.

           THE COMMISSION ON GOVERNMENT PROCUREMENT

   The Commission on Govemment Procurement was established under
Public Law 91-129, November 26,1969, to study procurement govem-
mentwide and make findings and recommendations to the Congress. It
was to be composed of 12 members, 11 of whom would be appointed by
the President, the President of the Senate, and the Speaker of the
House. The ComptroUer General was a member ex offtcio.
   The Commission was to direct its attention to the 12 policy clauses
in Public Law 91-129, relating to such matters as effective and efficient
Govemment procurement at reasonable prices and faimess between
parties in the procurement process. The law specifically required the
Commission to study and investigate the present statutes affecting
Govemment procurement; procurement policies, rules, regulations,
    FINANCUL MANAGEMENT IN THE FEDERAL GOVERNMENT                          27

procedures, and practices; and the organizations by which procure-
ment was accomplished in order to determine the extent to which the
12 policy clauses were being facilitated.
  The tenure of the Commission was limited by Public Law 91-129, to
2 years after enactment, and its final report to Congress was due at
the end of this period, that is, Noveniber 26, 1971. [NOTE.—It is
anticipated that the life of the Commission will be extended.]
  The day-to-day work of the Commission staff has been divided
among a number of study groups specializing in a designated subject
matter area and staffed by professionals from Government, industry,
and universities in such fields as engineering, law, procurement, fi-
nance, small business, and auditing. A subject matter of particular
interest to financial management is "controls over the procurement
process," which includes funding restraints and the budget process.
Also, a study group on cost and pricing information has been formed.

        C O N T R A C T P R O F I T S T U D Y BY THE COMPTROLLER GENERAL

  Near the end of the first session of the 91st Congress the Comptroller
General, in the Armed Forces appropriation authorization for 1970
(Public Law 91-121, Nov. 19, 1969), was directed to conduct a study
and review on a selective, representative basis of the profits made by
contractors and subcontractors on negotiated contracts entered into
by the Department of Defense, the National Aeronautics and Space
Administration, and the Coast Guard. Defense-related contracts of the
Atomic Energy Commission were also included. Congress was to re-
ceive a report of the results.
  The Comptroller General submitted his report to the Congress on
March 17, 1971. I t recommended that the Office of Management and
Budget take the lead in interagency development of uniform govem-
mentwide guidelines for determining profit objectives in negotiated
procurement. According to the report, the guidelines should emphasize
as a profit criterion, when price competition is not effective, the total
amount of contractor capital required for performance of the contract.

  INDEPENDENT RESEARCH AND DEVELOPMENT AND RELATED COSTS I N
                          DEFENSE P R O C U R E M E N T

  The 91st Congress sought increased control and visibility of defense
procurement cost allowances for independent research and develop-
ment, bid and proposal preparation, and other technical efforts
undertaken by defense contractors.
  The Department of Defense considers these items indirect costs
(overhead). Contractors doing business with the Department of De-
fense accumulate the costs for this work in various overhead accounts
and allocate them by various methods to the work they perform for
both Govemment and commercial clients. Independent research and
developent (IR&D) is basic and applied research and development in-
creasing the scientific and technological capability of the contractor
generally but not directed toward a specific procurement objective.
When the purpose of the contractor is to include the results of develop-
ment in a specific procurement offer, the cost is for bid and proposal
preparation (B&P). Other technical effort costs ( O T E ) , closely re-
28    FlNrANOIAL MANAGEMENT IN THE FEDERAL GOVERNMENT

  lated to IR&D and B&P, pertain to a variety of technical and engi-
 neering overhead items.
    Members of Congress questioned the fairness of portions of these
 contractors' costs allocated to defense procurement. They considered
 many of the Defense Department's payments excessive. As a result, a
 limitation of IR&D, B&P, and O T E costs was attempted by provi-
 sions in the Armed Forces appropriation authorization for 1970 (Pub-
 lic Law 91-121, Nov. 19, 1969). Costs incurred for these items and
 paid from funds appropriated for fiscal year 1970 were not to exceed
 93 percent of the amount contemplated for such purposes in the 1970
defense procurement and research, development, test, and evaluation
 programs. Specifically exempted from this provision were contracts
under $100,000, formally advertised contracts, and firmly fixed price
contracts competitively awarded.
    More refined control measures were enacted in the Armed Forces
appropriation authorization for 1971 (Public Law 91-441, Oct. 7,
1970). I t provided that after December 31, 1970, the Secretary of
Defense was not to make payments for IR&D and B&P unless in his
opinion the work for which payment was made had a potential rela-
tionship to a military function or operation. Public Law 91-121 had
contained a provision, covering only fiscal year 1970 appropriations,
which prohibited payments for any defense research project or study
unless it had a direct and apparent relationship to a specific military
function or operation. This limitation proved impracticable with re-
spect to IR&D because as an overhead item it bore no direct relation-
ship to a specific defense objective. Consequently, the restriction was
broadened in Public Law 91-441 to include a potential relationship
between IR&D, B&P, and a military function or operation.
    Public Law 9 1 ^ 4 1 also required the Secretary of Defense, after
December 31, 1970, to negotiate advance agreements establishing a
dollar ceiling on IR&D and B&P in the case of companies receiving
more than $2 million, or their product divisions receiving more than
$250,000, in their preceding fiscal year. The negotiated ceilings were to
be based on Department of Defense technical evaluations of plans sub-
mitted by the companies. I f agreements on ceilings were not reached
after negotiations, IR&D and B&P payments were to be substantially
less than the company or product division would otherwise receive. I n
order to make IR&D and B&P payments more visible, the Secretary of
Defense was required to submit on or before March 15 of each year,
beginning in 1971, a report on the operation of these provisions. I t was
to include the companies with which negotiations for ceilings were
conducted, the results of those negotiations, statistics on IR&D and
B&P payments made to major defense contractors, the manner of com-
pliance with the provisions, and proposals for major policy changes.
These control and reporting provisions applied only to contracts for
which the submission and certification of costs or pricing data were
required in accordance with section 2306 (f) of title 10, United States
Code (generally negotiated procurements expected to exceed $100,000).

                      GOVERNMENT PROCUREMENT

  The 87th and 90th Congresses enacted legislation detailing the proc-
ess to be used in contracting for military services and goods for the
     FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT                   29

Armed Forces. Although some of the procedures were already in use
by the Department of Defense through issuance of the Armed Services
Procurement Regulation, there were no comparable provisions in the
law.
Public Law 87-663, armed services—procurement
    I n amending title 10 of the United States Code, Congress expressed
its intent that formal advertising should be used for all purchases of
and contracts for property or services (for the Department of Defense
and the National Aeronautics and Space Administration) wherever
such method was feasible and practicable under the existing conditions
 and circumstances. Only if it was not practicable or feasible could the
agency head negotiate a purchase or contract. The General Accounting
 Office favored enactment of the provision into law, rather than allow-
 ing regulation of the process through the Armed Services Procurement
 Regulation, so that the procedure could not be revised without notice
 or review by the Congress.
    Section 1(c) added a new subsection to procurement law. I t re-
 quired (with certain exceptions) that oral or written discussions be
 held with all responsible parties submitting proposals within a com-
 petitive range for any negotiated procurement of more than $2,500.
    Although the Armed Services Procurement Regulation required
 certification of cost and pricing data, the General Accounting Office
 reported that its examination of major military procurement activities
 disclosed that many noncompetitive procurements were being nego-
 tiated without obtaining required certifications from Defense con-
tractors and subcontractors. This act specified t h a t certification was
 required for negotiated prime contracts of more than $100,000, con-
 tract modifications expected to exceed $100,000, subcontracts over
 $100,000 where the prime contractor and each higher tier subcontractor
 were required to furnish such certification, and changes or modifica-
 tions to subcontracts involving more than $100,000.
    Exceptions from the required certification were limited to nego-
 tiated contracts and subcontracts where the price was based on (1)
 adequate price competition, (2) established catalog or market prices
 of commercial items sold in substantial quantity to the public, (3)
 prices set by law or regulation, or (4) a determination made in excep-
 tional cases by the head of an agency that the requirements should be
 waived, stating, in writing, his reasons for such a determination. The
 head of an agency may prescribe that certification requirements be met
 for contracts and subcontracts in amounts of less than $100,000.
    Prime contracts and modifications to those contracts requiring cer-
 tification were to contain a provision that the Government's price
 should be adjusted to exclude any significant amounts by which the
 head of the agency determined that the price was increased because
 the cost or pricing data fumished was inaccurate, incomplete, or not
 up to date.
 Truth in oiegotiations
    The 90th 'Congress enacted legislation enlarging the provisions of
 the so-called Truth in Negotiations Act (Public Law 87-653, Sept. 10,
 1962) relating to cost and pricing data. Public Law 90-512j Septem-
 ber 25,1968, added to title 10 of the United States Code a section which
 stated that for the purposes of evaluating the accuracy, completeness.
30   FINAN'OIAL MANAGEMENT IN THE FEDERAL GOVERNMENT

and currencv of cost or pricing data that were required, any Federal
employee who was an authorized representative of the head of an
agency should have the right, until the expiration of 3 years after final
payment under the contract or subcontract, to examine all books, rec-
ords, documents, and other data related to the negotiation, pricing, or
performance of the contract or subcontract.
   At the time of enactment of this provision only the General Account-
ing Office had the authority to audit all negotiated contracts and sub-
contracts. The GAO recommended that all contracts negotiated on the
basis of cost or pricing data include a clause giving Defense officials
the right to examine all data related to contract performance in addi-
tion to the data available at the time of certification of the data. The
GAO concluded that post-award audits of actual records of perform-
ance often provided the best means of verifying the accuracy of the
data submitted.
           S I M P L I F I C A T I O N OF T H E DISBURSEMENT PROCESS

Examination of disbursement vouchers
   Public Law 88-521, August 30,1964, provided for the use of adequate
and effective statistical sampling procedures in the examination of
disbursement vouchers for amounts of less than $100. The samp-
ling process was tested in the Departments of Ap'riculture and
Health, Education, and Welfare prior to passage of the legislation and
it resulted in significant savings to these Departments.
   Certifving or disbursing officers acting in good faith were not to
be held liable for improper payment on a voucher which was not sub-
ject to examination under the prescribed sampling system. A payee or
beneficiary continued to be liable if improper payment was received,
and the agency concerned had the responsibility to pursue collection
action. The General Accounting Office has prescribed regulations and
the statistical standards to be followed by agencies in implementing
the act. ( S e e p . 66.)
Payments to individuals
   On December 2, 1963, the Comptroller General ruled that payment
by means of a single check drawn in favor of a financial institution
for credit to the accounts of several individuals was contrary to law,
but stated that he did not object to enactment of legislation to allow
Federal agencies to use this method of payment. Agencies interested
in passage of the lejjislation maintained that the procedure would
reduce the costs involved in making payments through a reduction in
the number of checks drawn and processed and in the reduced postage
costs involved.
   At the request of the Air Force, the House and the Senate during the
first session of the 89th Congress considered bills (H.R. 4653, S. 1309)
authorizinsr Federal agencies to send one check instead of individual
checks to financial institutions desifl:ned bv employees or retirees for
credit to their accounts. As enacted, Public Law 89-145, August 28,
1965, allowed for payment to anv bank, savingrs and loan association
or similar institution, or Federal or State chartered credit union, as
designated bv an emplovee or a person entitled to a pension, retire-
ment, or similar payment from the Federal Government.
     FINANCUL MANAGEMENT IN THE FEDERAL GOVERNMENT                       31

   Three years later on J u n e 29,1968, Congress enacted Public Law 90-
365 (Federal Employees—Payroll Deductions), which provided for
an expansion of the payment procedures established in Public Law
89-145.
   Prior to passage of Public Law 90-365, the head of each agency had
the authority to authorize payroll deductions as he deemed appropri-
ate. No uniform system for all Federal employees existed and, in the
case of most civilian employees, payroll savings were not permitted
except for Federal savings bonds. A payroll deduction bill applicable
 only to Federal credit unions was introduced by Senator John J.
 Sparkman (Alabama) on February 27, 1967. I n committee the bill
 was expanded to authorize payroll deductions for other depository-
 type financial institutions. As finally passed, the law authorized pay-
 ment to an employee in the form of one, two, or three checks sent to a
 designated "financial organization," drawn in favor of the organiza-
 tion for (1) credit to the checking account of the employee, (2) deposit
 of savings, or (3) purchase of shares for the employee. The issuing
 agency was not to be reimbursed for the cost of sending the first check
 for an employee, but only, for the additional cost of sending more
than one check. Reimbursement was to be made by the financial
organizations designated to receive checks.
   If more than one individual designated the same financial organiza-
tion, the agency was authorized, subject to regulations of the Secretary
of the Treasury, to make payment by sending one check drawn in favor
of the financial organization specifying the amount to be credited to
the account of each employee.
Duties of disbursing officers
   Disbursing officers in the Army and Air Force have been permitted
to advance funds to other officers of the same services to act 'as their
agents in paying troops 'and for other authorized disbursements. This
authority dates back to the National Defense Act of 1916 (section 9a),
as amended by the act of June 4,1920. No provision was made for the
performance of these functions by an officer of one service for an officer
of another service, so that unnecessary duplication of effort and ex-
pense existed in the execution of administrative functions. Common
use of disbursing facilities was provided for in the National Security
Act of 1947, 'as amended.
   An officer of an armed force, accountable for public money, was
authorized to entrust it to another officer of an armed force to make
disbursement as his agent through enactment of Public Law 87-480,
June 8, 1962. The act removed the need for more than one disbursing
officer in any one area, resulting in increased efficiency especially in
areas where only a few members of one service were stationed with a
large number from another service.
   Public Law 89-265, October 19, 1965, provided for the advance of
funds by an officer of the Army, Navy, Air Force, Marine Corps, or
Coast Guard accountable for public money to cashiers, disbursing offi-
cers, or members of an armed force of a friendly foreign nation.
Advances could be made for payment of pay and allowances or for
purchase of necessary supplies and services. Previously, only through
the exercise of war powers by the President, could an Armed Forces
disbursing officer make advances to members of friendly foreign 'armed
forces. Supporters of the legislation pointed out t h a t some allied forces
32   FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT

already had authority to make advances to the Armed Forces of the
United States and the act would permit reciprocity to those and other
friendly nations. I n addition, many situations short of war have re-
sulted in the quick assembly of troops of several nations and sometimes
these troops have not had a sufficient disbursing capability of their
own.
   The act required that funds advanced must be reimbursed by the
nation whose military forces had received the payment. I n addition,
any nation benefiting from the authority to advance funds was to agree
to make advances to the Armed Forces of the United States on a recip-
rocal basis. Advances could be made only after the President had en-
tered into an agreement with the country concemed to provide for
reimbursement and for reciprocity. The authority was intended for
use only to advance funds to members of foreign armed forces who did
not have their own disbursing facilities.

     REIMBURSEMENTS, TRANSFER OF FUNDS, AND REVOLVING FUNDS

Agency      reimbursements
   The General Accounting Office suggested that a necessary improve-
ment in budgetary and accounting procedures relating to accounting
adjustments between approprations be enacted into law. The sugges-
tion was an outgrowth of the study and activities of the Joint Finan-
cial Management Improvement Program of the Bureau of the Budget,
the Treasury Department, and the General Accounting Office. Legis-
lation was necessary because the provisions of law as explained in
decisions of the Compti-oller General did not permit intra-agency
reimbursements or transfers between appropriations in the absence
of expressed statutory authority. Such authority had been previously
obtained by a relatively small number of Federal agencies.
   Enactment of Public Law 89-473, June 29, 1966 (Government Op-
erations—Reimbursement Between Appropriations), permitted each
appropriation account available to any executive department or in-
dependent establishment of the Government, or any bureau or office
thereof, to be charged at any time during the fiscal year for the benefit
of any other appropriation available to such department or establish-
ment. The funds could be used for the purchase of materials, for the
financing of services, or for other costs for which funds were available
both in the frnancing appropriation to be charged and in the appro-
priation receiving the funds. All expenses so financed were to be
charged on a final basis during or as of the close of the fiscal year,
with appropriate credit to the financing agency appropriation. The
provision was designed to facilitate accounting for and payment of
common types of service activities and make unnecessary the estimat-
ing, precharging, and settling up of various accounts and appro-
priations.
   Previous legislation specifically authorized reimbursement within
appropriations of the Census Bureau, the Agriculture Department, the
 Agency for Intemational Development, and the Atomic Energy Com-
 mission. The Senate report on the bill to allow reimbursements between
Census Bureau appropriation accounts stated that the purpose of the
 legislation was to authorize the Bureau to make appropriate adjust-
ments so as to permit the installation of cost accounting procedures,
     FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT                     33

enabling the Bureau to allocate the cost of general administration to
the proper appropriation. Authority to permit these reimbursements
originally was included in the 1960 supplemental appropriations bill
but the provision was deleted because it was held to be legislation in
an appropriations bill and the proposal was referred to the Post Office
and Civil Service Committee.
    Authority for the Department of Agriculture to charge one appro-
 priation for the benefit of another appropriation available to the De-
 partment had been provided in Public Law 89-106, August 4,1965. In
 its report on the bill, the Senate Agriculture and Forestry Committee
stated:
         . . . Authority for the Department of Agriculture to finance
       materials and services from one fund of an agency and later
       during the same fiscal year charge benefiting funds of the
       same agency with the correct costs would permit improved
       record-keeping and cost accounting practices. . . .
 Other reimbursements
    I n 1966 and 1967, Congress passed legislation providing for the use
of Veterans' Administration and Public Health Service hospitals and
staff by other hospitals and medical schools on a reimbursable basis.
These provisions, inoluded in the Veterans Hospitalization and Medi-
cal Services Modernization Amendments of 1966 (Public Law 89-785,
Nov. 7, 1966) and the Partnership for Health Amendments of 1967
 (Public Law 90-174, Dec. 5, 1967) made the highly specialized and
costly staff, procedures, and equipment located at V A and P H S hos-
pitals available to the community in which they were located.
    The facilities were to be available to the community during those
periods when the immediate needs of the Govemment did not require
maximum utilization of the equipment and staff. Shared use of V A
and P H S hospitals with affiliated or local hospitals would lallow for
more efficient utilization of diagnostic or treatment facilities at a lower
unit cost for all.
    I n addition, the Veterans Hospitalization and Medical Services
Modernization Amendments of 1966 provided for exchanges of medi-
cal information and techniques with the surrounding medical com-
munity, particularly in remote areas. Although availability was in-
tended on a fee basis, the Administrator in establishing the fee was to
take into consideration the financial status of any user of such services.
Transfer of funds
    Public Law 89-500, July 12, 1966 (Post Office Department Appro-
priations—^Transfers), provided permanent authority to the Post
Office to transfer funds between appropriations. Temporary authority
was first included in the Second Supplemental Appropriation Act,
1948, and since 1954 the transfer 'authority had been renewed annually.
    This act was designed to overcome procedural objections to includ-
ing the transfer authority in an appropriation act by separately
authorizing the inclusion of the transfer authority in appropriation
acts for the Post Office Department. Still, no transfers could be made
imless the annual appropriation 'act provided for such transfers. I n
addition, the Bureau of the Budget was to approve any transfers be-
tween appropriation accounts. Any request for this approval was to be
34   FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT

furnished to the respective Committees on Appropriations and on Post
 Office and Civil Service of the Senate and House of Representatives.
 No appropriation could be increased by more than 5 percent.
General supply fumd
   The General Services Administration administers the general sup-
ply fund—^a revolving fund used to finance the centralized procure-
ment of supplies, equipment, and nonpersonal services for Federal
agencies, 'the District of Columbia, mixed-ownership Govemment
corporations, and, in certain cases, non-Federal 'agencies. Prices are
fixed so that G S A recovers those costs involved in procurement, han-
dling, and distribution of supplies. Although GSA had been charging
t'le entire cost of transportation to the ultimate distributing depot by
including that cost in its billings to the agencies, the Comptroller Gen-
eral on March 11, 1960, ruled that the wording of section 109 of the
Federal Property and Administrative Services Act of 1949, as
amended, limited transportation costs to those incurred to the first
storage point regardless of ultimate distribution.
   GSA allowed certain warehouses to purchase and store particular
items and ship them to another regional warehouse for distribution
when the need arose, since centralized purchasing and storage for all
of its 10 regional warehouses reduced overall costs. Since the Comp-
troller General's objection to the practice of charging transportation
costs to the distributing warehouse was based onlv on the literal read-
ing of the relevant section of the law and not on his judgment of it as
a business management practice, he recommended that the General
Services Administration secure clear legislative authority to continue
the practice. This resulted in enactment of Public Law 87-600, Au-
gust 24, 1962, which authorized the General Services Administration
to use the general supply fund to pay transportation costs and obtain
reimbursement on a delivered price basis for supplies distributed
through the fund.
Department of Agriculture working capital fund
   The Department of Agriculture maintains a working capital fund
of $400,000, without fiscal year limitation, for payment of salaries
and other expenses necessary for central administrative services for
all agencies of the Department. The services were fumished only on
a reimbursable basis until enactment of Public Law 89-106, August 4,
1965, which allowed for advancing funds to the working capital
fund when firm orders were placed for specific services within the
same fiscal year.
   The 'authority to advance funds was sought 'because it had become
difficult for the fund to operate pending reimbursement. The legis-
lation was designed to allow the working capital fund to continue
providing the same services, as well as other services that might be
initiated in the future, without an increase in its appropriation.
Department of Defence workirhg capital fumds
   Congress, in 1966, authorized the Department of Defense to reduce
cash balances in working- capital funds to the amount necessary to
cover dav-to-day cash disbursements from the funds, and to transfer
amounts between such funds as determined by the Secretary of Defense
     FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT                   35

with the approval of the Bureau of the Budget. Prior to enactment of
the Supplemental Defense Appropriation Act, 1966 (Public Law 89-
374, 'Mar. 25, 1966), the Department, by regulation, was required to
maintain cash balances in working capital funds equal to the total of
the accounts payable. These changes allowed for greater use of avail-
able cash. Without this legislation Congress would have had to appro-
priate additional money in order to provide the funds with necessary
capital.
   The authority granted in the 1966 Defense supplemental appropria-
tion specified that it was applicable only to fiscal year 1966 (the House
had provided permanent authority, the Senate voted for annual re-
view) . However, appropriation acts for the Department of Defense
 for fiscal years 1967 and 1968 included provisions extending the origi-
 nal authority for those fiscal years.

               SETTLEMENT OF JUDGMENTS AND CLAIMS

Public Law 87-187, judgments and           settlements—payment
   This act, dated August 30, 1961, made final judgments of State and
foreign courts payable, where appropriate, from the permanent in-
definite appropriation established by the so-called Automatic Payment
of Judgments Act (enacted in 1956). The Attomey General had to
certify that it was in the interest of the United States to pay the judg-
ment, and at the same time consider if the judgment had been properly
rendered.
  The Automatic Payment of Judgments Act allowed for payment
of judgments rendered against the United States not in excess of
$100,000 from a permanent indefinite appropriation instead of with-
holding payment pending a specific appropriation act. However, if
payment could be made from the affected Government agency's funds
or appropriations, these were to be used for making payment. Pay-
ment from available funds, instead of by means of a specific appropria-
tion act, shortened the time between the entry of judgments and their
satisfaction, thereby reducing interest charges accruing upon judg-
ments against the United States.
Public Law 89—506, tort claims—agency consideration
   Prior to passage of this act on July 18, 1966, authority for agency
settlement of tort claims against the Government was limited to cases
where the claim was $2,500 or less. Instead of requiring the instigation
of a suit before any settlement could be made, and then only by the
Attorney General of the United States, this act provided for presenta-
tion of all claims to the appropriate agency for consideration and
possible settlement before a court action was instituted.
   Amending the Federal Tort Claims Act, passed in 1946, the legisla-
tion authorized the head of each Federal agency to settle or compro-
mise any tort claims presented to him whicli arose out of negligent or
wrongful acts of employees acting within the scope of their employ-
ment. Authority of the agency head was exclusive for settlements up to
$25,000. Above that amount, the settlement was to have prior written
approval from the Attorney General of the United States, or his
designee, as well as the agency head.
36    FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT

 Public Law 89-508, Federal Claims Collection Act of 1966
    Prior to enactment of this legislation on July 19, 1966, when an
 agency could not collect an amount it believed was due the Government,
 it could only refer the action to the General Accounting Office for col-
 lection. No agency could compromise a claim (accept a lesser amount in
 full settlement) even if such a settlement was in the best interests of
 the Govemment.
    This act, however, provided for the compromise of claims not ex-
 ceeding $20,000, exclusive of interest, bv the head of an agency, or his
 designee, pursuant to regulations issued in conformity with standards
 set by the Attorney General of the United States and the Comptroller
 General. I t also permitted termination or suspension of collection ac-
 tion where it was apparent that the person did not have the ability to
pay any significant amount, or when the cost of collection would
 probably exceed the amount of recovery. The General Accounting Office
 was given the same authority over claims referred to it for collection.
   The authority to compromise claims could not be used if the claim
involved fraud or misrepresentation, or was based in whole or in part
on conduct in violation of the antitrust laws. Claims based on excep-
tions by the General Accounting Office in the account of an accountable
officer could be compromised only by the Comptroller General.
Public Law 90-616, claims—executive agencies—overpayment of pay
   This act, dated October 21,1968, provided that a claim of the United
States against an emplovee of an executive agency arising from the
overpayment of pay (salary, wages, pay, compensation, emoluments,
and remuneration for services) up to a maximum of $500, might be
waived by the head of any agency when collection would be against
equity and good conscience and not in the best interest of the Govern-
ment. The Comptroller General, however, might waive any claim of
the Govemment for overpayment of pay. Excluded from the waiver
authority were those cases where the claim was the subject of an excep-
tion made by the Comptroller General in the account of an accountable
official.
   The authority to waive a claim was limited to those cases where there
had not been fraud, misrepresentation, fault, or lack of good faith on
the part of the employee or any other person having an interest in the
claim waiver. I n general, it was found tliat claims for overpayment of
pay were small and usually resulted from administrative error.

                        FOREIGN A I D PROGRAM

  The Foreign Assistance Act of 1968 (Public Law 90-554, Oct. 8,
1968) included a provision designed to improve the management of
the foreign aid program. Congress stated that U.S. foreign aid funds
could be utilized more effectively by applying advanced management
decisionmaking and information and analysis techniques such as sys-
tems analysis, automatic data processing, benefit-cost studies, and
information retrieval to the program.
  The President was to establish a management system that would in-
clude the definition of objectives for the foreign assistance program.
The system was to be designed to provide information to the agency
and to Congress relating agency resources, expenditures, and budget
     FESTANCTAL MANAGEMENT IN THE FEDERAL GOVERNMENT                 37

projections to objectives, and to assist in the evaluation of program
performance, the review of budgetary requests, and the setting of
program priorities.
  As required by the act, in July 1969 and 1970, annual reports were
made to the Congress on the steps that had been taken and the prog-
ress made in implementing the management system.

                    POST O F F I C E REORGANIZATION

  The Postal Reorganization Act (Public Law 91-375, Aug. 12,1970)
provided for the establishment of the U.S. Postal Service as an inde-
pendent establishment in the executive branch. Its purpose was to
modernize postal operations, make them more efficient, and provide
high quality service throughout the Nation.
   Postal operations were to be financed largely from postal revenues.
Postal rates and fees were to provide sufficient revenues so that total
estimated income and limited appropriations to the Postal Service
would equal as nearly as practicable its total estimated costs. Congress
was to provide decreasing annual appropriations, beginning with an
amount equal to 10 percent of the fiscal year 1971 appropriation for the
Post Office Department for each of the fiscal years 1972 through 1979.
These appropriations were for reimbursement of public service costs
required by the Postal Service to maintain effective and regular serv-
ice nationwide and were necessary because many communities could
not at present be adequately served on a self-sustaining basis.
   The Postal Service was authorized to borrow on its own credit an
amount not to exceed at one time $10 billion. A t the request of the
Postal Service, the Secretary of the Treasury, if he determined the
public interest would be served, might make the United States liable
for its obligations, including the guarantee of interest and principal
payments. The Secretary of the Treasury was authorized to purchase
obligations of the Postal Service.


     FEDERAL GRANTS-IN-AID TO STATE AND LOCAL GOVERNMENTS

  At the beginning of the 87th Congress, Federal aid to State and local
governments totaled about $7 billion a year. Before the close of the
second session of the 91st Congress, the total for Federal aid to State
and local governments had increased to almost $24 billion for the fiscal
year 1970. During this period Congress enacted several major pieces of
legislation dealing with the methods of appropriating, transferring,
accounting for, and managing Federal aid payments.

            INTERGOVERNMENTAL COOPERATION ACT O F 1968

    During the 89th Congress the House Subcommittee on Executive and
 Ijcgislative Reorganization reached agreement on H.R. 17955—Inter-
 governmental Cooperation Act—but the Committee on Govemment
 Operations was unable to act on the legislation before the end of the
 session. (The Senate had passed a similar bill during the 89th Con-
 gress.) Introduced in the House in the 90th Congress (first as H.R.
 16718, succeeded by H.R. 18826 which included rural areas also) and
38   FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT

in the Senate (S. 698), the Intergovernmental Cooperation Act of
 1968 (enacted as Public Law 90-577, Oct. 16, 1968) covered many
 aspects of Federal-State-local cooperation.
   Section 602 of the act authorized the Comptroller General to study
a grant program upon the request of a committee having jurisdiction
over that program. The study was to include analyses of the extent to
which the program conflicted with or duplicated other grant-in-aid
programs, and whether more effective, efficient, and economical admin-
istration of the program could be achieved by changing the require-
ments and procedures applicable to the program.
   In reviewing grant-in-aid programs the Comptroller General was
to consider the budgetary, accounting, reporting, and administrative
procedures applicable to the programs and then submit reports on
these studies, together with his recommendations, to the Congress.
Reports on expiring programs, to the extent practicable, were to be
submitted in the year prior to the date of expiration.
State aecownting for grant-in-aid     funds
   The Intergovernmental Cooperation Act of 1968 included a provi-
sion (sec. 202) relating to the method of accounting for grant-in-aid
funds by State governments. A State was no longer required to deposit
Federal grants-in-aid in a separate bank account apart from other
funds administered by the State, but it still was to properly account
for all Federal grants-in-aid as Federal funds in the accounts of the
State. The State agency administering the grant was to make regular
reports to the appropriate Federal agency on the status and applica-
tion of funds, liabilities, and other obligations on hand. The Comp-
troller General and the head of the Federal agency responsible for
administration of the grant were allowed access to books, documents,
papers, and other pertinent records for the purpose of audit and ex-
amination of the State's use of the grant funds. [Note.—The act of
1968 referred to only State governments. However, the language of
the bill, which if enacted would become the Intergovernmental Co-
operation Act of 1971, makes clear that it is the intent of the Congress
that local governments are also covered.]
Transfers of funds
   Section 203 of the Intergovernmental Cooperation Aet of 1968 di-
rected Federal departments and agencies to schedule the transfer of
grant funds so as to minimize the time elapsing between the transfer
from the Treasury and the disbursement of the funds by the State.
By so scheduling "the transfers, the Federal Govemment reduced its
borrowing needs.
   At the time of passage of this act, Federal agencies already had
initiated procedures which were designed to decrease the time between
the transfer of a grant from the Government and its disbursement by
the State. Following a recommendation bv the Steering Committee of
the Joint Financial Management Improvement Program, the Treasury
Department issued regulations (Department Circular No. 1075—Regu-
lations Relating to Timing of Payments for Federal Grants, Contribu-
tions, and Other Programs—May 28, 1964) detailing the procedures
for use of letters of credit in making payments of grants to State and
local governments and to educational and other institutions. This
method of payment—which allowed certain grantees to draw funds
     FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT                   39

when needed, within authorized dollar limits, through their commer-
cial bank and the Federal Reserve System—was put into general use
during fiscal year 1965.
   A provision of the Mental Retardation Facilities and Community
Mental Health Centers Construction Act Amendments of 1965 (Public
Law 89-105, Aug. 4, 1965) also aimed to prevent the accumulation of
funds by grantees. Section 6 provided for the establishment of accounts
on the books of the Treasury in which all or part of any grant awarded
by the Secretary or any other officer or employee of the Department of
Health, Education, and Welfare was to be deposited. From time to
time payment was to be made to the grantee from these accounts to the
extent necessary to carry out the purposes of the grant.
Interest eamed on grant fumds
   Congress also included in section 203 of the Intergovernmental Co-
 operation Act of 1968 a provision that States were not to be held
 accountable to retum to the Federal Government the interest earned
 on grant-in-aid funds. With the timely transfer of grant funds, the
 short interval between receipt of grant funds and the disbursement
 thereof reduced the possibility of grantees eaming substantial amounts
of interest on those funds.
    A ruling by the General Accounting Office requiring grant recipients
to reimburse the Treasury for all interest earned on advance payments
of grants (grants to universities and colleges were paid in a lump sum
 at the beginning of the year) led to enactment of section 205 of the
 1965 appropriation act for the Department of Health, Education, and
 Welfare. The act provided relief for recipients of certain types of
 grants by excusing them from liability for interest earned on grant
 payments made before July 1,1964. The provision was enacted mainly
 because it was considered unfair to require the payment of interest
 retroactively.
                           ADVANCE   FUNDING

   I n the 1967 health and education message, President Johnson asked
for early enactment of appropriations for education so that schools
and colleges could plan effectively for the coming year. During the
90th Congress, legislation was enacted which allowed appropriations
for grants, contracts, and other payments to assist education to be in-
cluded in the appropriation act for the fiscal year preceding the fiscal
year for which they would be available. Since schools must commit
themselves in March or April for the school year beginning in Septem-
ber (two different fiscal years), 'advance funding should allow for ade-
quate notice to State and local education officers of available Federal
funds while planning for the coming year.
   Both the Elementary and Secondary Education Amendments of
1967 (Public Law 90-247, Jan. 2, 1968) and the Higher Education
Amendments of 1968 (Public Law 90-^575, Oct. 16,1968) provided for
inclusion of funds for programs under those acts in advance of their
availability. I n amending the relevant section of the Elementary and
Secondary Education Amendments of 1967 (sec. 401 of the act), the
Vocational Education Amendments of 1968 (Public Law 90-576, sec.
301 ( a ) , Oct. 16,1968), expanded the programs covered to include voca-
tional education activities by stating that the provisions of the title
applied to any program for which the Commissioner of Education
      68-109 0 — 7 1   4
40   FESTAN'CTAL MANAGEMENT EST THE FEDERAL GOVERNMENT

had responsibility for administration (Title I—Provisions for Ade-
quate Leadtime and for Planning and Evaluation in Elementary and
Secondary Education Programs).
   Public Laws 90-247 and 90-275 provided that the designated appro-
priations for grants, contracts, or other payments to educational in-
stitutions might be made available for expenditure by the agency or
institution on the basis of a school or academic year differing from
the fiscal year. Public Law 90-576 extended this provision to any pro-
gram for which the Commissioner of Education had responsibility
for administration, as above.

                            JOINT FUNDING

   The Economic Opportunity Amendments of 1967 (Public Law
90-222, Dec. 23, 1967) and the Juvenile Delinquency Prevention and
Control Act of 1968 (Public Law 90-445, July 3i, 1968) included
sections which provided for the designation of one Federal agency to
act for all in administering funds advanced by more than one agency
for a single project. I n cases where the local share requirements varied
among the agencies, a single local share might be established according
to the proportion of funds advanced by each agency. The agency desig-
nated to administer the program might waive any technical grant or
contract requirement which was inconsistent with the requirements of
the administering agency or which that agency did not impose.

                THE DEVELOPMENT OF AUDIT STANDARDS

   The 91st Congress considered two bills (S. 2479 and H.R. 7366) that
were identical in their provision for effecting improvements in the
Federal requirements for accounting systems and financial reporting
of State and local governments. The bills also contained a requirement
that the Office of Management and Budget with the cooperation of
the Comptroller General would develop a body of audit standards that
could be used for determining the reliance that could be placed on the
audits of federally assisted programs that were performed by or for
State and local governments. These bills were not enacted and similar
bills were considered by the 92d Congress.
  Also, in March 1969, the President issued a statement that contained
a requirement that the administration of the assistance programs would
be improved through streamlining, simplifying, and employing re-
sources at State and local levels to the greatest degree possible. This
was interpreted as applying to the accounting, financial reporting, and
auditing areas. The improvement in the first two, accounting and finan-
cial reporting, was considered by two task forces operating under the
direction of the office of Management and Budget and the Department
of Health, Education, and Welfare. The improvements in the area of
auditing were considered by a work group directed by the Comptroller
General.
  This work group, composed of members of the Federal departments
and agencies with the largest grant programs was assisted by three
part-time members from State, countv, and local governments and two
part-time members from university faculties. Professional advice was
provided by the Federal Government Accountants Association; the
     FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT                  41

Municipal Finance Officers Association; the Institute of Internal Au-
ditors ; the American Institute of Certified Public Accountants; and by
a group of State auditors who were members of the National Associa-
tion of State Auditors, Comptrollers, and Treasurers.
   The audit standards, which early in 1971 were in their fourth draft,
were generally patterned after those established in 1963 by the Ameri-
can Institute of CPA's. There were numerous modifications, however,
to adapt the standards to an audit process that had as its objective the
determination of the manner of performance by grantees as to effi-
ciency, economy, compliance, and effectiveness rather than the attesta-
tion of financial statements of a client. Thus, the proposed standards
emphasized the compliance and performance aspects of audits in place
of a single emphasis on financial aspects.
   This expanded audit operation required a broader scope of audit
effort and correspondingly a broader base of audit skill and experience
and a vastly different and more informative type of audit reporting.
   Along with the development of the proposed standards were several
implementing projects that were seen as necessary if the standards
were to become effective parameters for governmental auditing. These
included the development of an intergovernmental audit council, the
establisbment of audit guides for areas of intergovernmental audit-
ing, the training of audit staffs to conduct the more demanding t y p ^
of auditing, the designation and operation of an organization at the
Federal level to implement the standards and coordinate the inter-
governmental audit effort, and the establishment of a pilot project to
test the concepts being developed.


            OTHER FINANCIAL MANAGEMENT LEGISLATION

         FOREIGN C U R R E N C I E S AND THE BALANCE OF PAYMENTS

   The Secretary of the Treasury was authorized by the Foreign As-
sistance Act of 1961 (Public Law 87-195, Sept. 4, 1961) to establish
the exchange rates for all foreign currencies or credits that all agen-
cies and departments were to use in reporting foreign currencies. The
Secretary was responsible not only for valuation of foreign credits
(including currencies), but also for central accounting for all such
credits owed to or owned by the United States.
   The act also required that each agency Or department report to the
Secretary of the Treasury an inventory as of June 30, 1961, showing
the amount of all foreign currencies on hand acquired without the pay-
ment of dollars. The Secretary of the Treasury was to consolidate these
reports and submit a report to the Congress. The report, which was to
be done semiannually after the initial date, was to include a breakdown
of foreign currencies by agency, by country, and by units of foreign
currency, as well as the dollar equivalent of the currencies.
   The interest Equalization Tax Extension Act of 1965 (Public Law
89-243, sec. 6, Oct. 9, 1965) included a section detailing the require-
ments to use foreign currencies owned by the United States. The Comp-
troller General reported to Congress that dollars were being expended
to meet U.S. obligations abroad in those same countries in which the
United States held substantial amounts of local currencies.
42   FINANCIAL MANAGEMENT EST THE FBDERAL GOVERNMENT

   The act provided that, under the direction of the President, the Sec-
 retary of the Treasury should ascertain, by country, the amount of
funds required by the Government to pay its obligations in foreign
countries, including obligations payable in foreign currencies. Agree-
ments, other than those related to agricultural sales and aid, under
which currency of a foreign country accrued or would accrue for the
use of the United States sliould include provisions allowing for the
payment of obligations of the United States in that country with
those foreign currencies. I n addition, if the currencies were not needed
for use in the issuing country they should be convertible to other
foreign currencies or to dollars for use in paying any obligations of
the United States in any foreign country. TheSecretary of the Treas-
ury was designated to determine the amounts considered necessary
for the requirements of the United States. However, in deciding on
currency conversions, the Secretary was to consider the capability of
a country to have its currency converted, as well as the impact on the
balance of payments.
   The Secretary was 'also directed to report annually to the Senate
Committee on Finance and the House Comniittee on Ways and Means
on (1) the expenditures in dollars and foreign currencies used in the
preceding fiscal year to pay the obligations of the Government in
foreign countries, (2) the amounts of foreign currencies available for
use by the United States, and (3) the amounts of foreign currencies
convertible to other foreign currencies or to dollars at the close of the
fiscal year. The report was to show these figures by executive agency
and by country.
   Requirements to use foreign currencies accruing from agricultural
sales for payment of U.S. obligations abroad were included in Public
Law 88-638, October 8, 1964, which amended the Agricultural Trade
Development and Assistance Act of 1954. The 1964 law required that
foreign currencies:
         . . . be convertible to dollars to the extent consistent with the
      effectuation of the purpose of this Act, but in any event to the
      extent necessary to permit that portion of such currencies made
      available for payment of the United States obligations to be
      used to meet obligations or charges payable by the tlnited States
      or any of its agencies to the government of the importing country
      or any of its agencies.
Other sections of Public Law 88-638 dealt with convertibility 'and use
of foreign currencies, as did two later acts—the Food for Peace Act
of 1966 (Public Law 89-808, Nov. 11, 1966) and Public Law 90-436,
July 29, 1968, which amended the Agricultural Trade Development
and Assistance Act of 1954.
                     RESERVED FOREIGN    CURRENCIES

  Federal agencies were granted authority to use reserved foreign
currencies in lieu of dollars for payment of current expenditures pro-
vided that (1) reimbursement was made to the Treasury from appli-
cable appropriations of the agency concerned and (2) foreign cur-
rencies so used were replaced when needed for the purpose for which
they were reserved or set aside. The act providing this authority on
a continuing basis was Public Law 89-677, October 15,1966 (Balance
     FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT                    43

of Payments—Foreign Currency). Temporary authority was previ-
ously provided for using foreign currencies when reimbursement was
made to the Treasury in public works appropriation acts (Public Laws
87-880, 88-257, 88-511, and 89-299) beginning with fiscal year 1963.
The Treasury reported that this authority to use reserved foreign cur-
rencies made it possible to defer or avoid the purchase for dollars of
a considerable amount of foreign currencies, thereby aiding the balance
of payments.
   A provision contained in the Public Works Appropriation Act, 1965
 (Public Law 88-511 Aug. 30,1964), and repeated in the acts for foUow-
m g years, was related to reserved foreign currencies. Section 508 of
the act stated:
       During the current fiscal year, any foreign currencies held
     by the United States which have been or may be reserved
     or set aside for specified programs or activities of any agency
     may be carried on the books of the Treasury in unfunded
     accounts.
                                COINAGE

   In a message to Congress on June 3, 1965, President Johnson said,
"Silver is becoming too scarce for continued large-scale use in coins."
At that time silver consumption far exceeded production, and the sil-
ver stocks of the Treasury were declining. New sources of silver could
not be developed quickly enough, if at all, to meet the long-range needs
of industrial users as well as the continued use of fine silver in coins
at predicted levels of coin production.
  The Coinage Act of 1965 (Pubhc Law 89-81, July 23, 1965) au-
thorized the Secretary of the Treasury to coin and issue half dollars,
quarters, and dimes ". . . in such quantities as he may determine to be
necessary to meet the needs of the public." The coins were to be clad
coins with the weight of the cladding and additional specifications
detailed in the act. Coins of 900 fine silver were to be minted only until
such time as the Secretary determined that adequate numbers of coins
authorized by the act were available; in no event were these coins to be
minted later than 5 years after enactment of Public Law 89-81. No
standard silver dollars were to be minted during the 5-year period
following the date of enactment of the act.
   The authority granted to the Secretary in Public Law 88-580, Sep-
tember 3,1964 (Coins—Date of 1964), to continue using the same date
on coins while they were in short supply was made permanent law in
the Coinage Act of 1965. The act stated that any coins minted after
the enactment of Public Law 89-81 from 900 fine silver were to be
inscribed with the year 1964. Continued use of a date other than the
actual year of coinage was designed to discourage the withdrawing of
newly minted coins from circulation. Other coins were to be inscribed
with the year of coinage or issuance unless the Secretary of the Treas-
ury directed that coins of a particular denomination be inscribed with
the last preceding year inscribed on coins of that denomination in order
to alleviate or prevent a shortage of coins in that denomination.
  Legislation passed prior to the coinage measures had made available
an amount of silver for use in subsidiary coinage. I n enacting Public
Law 88-36, June 4, 1963 (Silver—Purchases—Bullion), Congress au-
44   FINANCIAL MANAGEMENT IN THE FBDERAL GOVERNMENT

thorized the issuance of $1 bills as part of the overall supply of Fed-
eral Reserve notes, replacing the $1 silver certificate. Silver certificates
bad to be 'backed by an amount of silver equal to the face value of
all outstanding silver certificates, whereas Federal Reserve notes did
not need to be backed by silver. The act also repealed provisions in
the law requiring the Treasury to purchase newly minted domestic
silver at 90.5 cents an ounce and authorizing the Treasury to purchase
foreign silver and sell foreign or domestic silver at not less than 90.5
cents an ounce.
   Enactment during the first session of the 90th Congress of Public
Law 90-29, June 24, 1967, provided authority to the Secretary of the
Treasury to write off silver certificates that he determined had been
destroyed, irretrievably lost, or held in collections and never will be
presented for redemption, thereby freeing for other uses the silver
held against those certificates. Any outstanding silver certificates for
which the holder wished to receive silver had to be presented for ex-
change within 1 year of the date of enactment of the act. After that
time the certificates were considered to be legal tender, but could not
be exchanged for silver.
Joint Com/mission on the Coinage
   Section 301 of the Coinage Act of 1965 authorized the President to
establish a Joint Commission on the Coinage composed of the Sec-
retary of the Treasury; the Secretary of Commerce; the Director of
the Bureau of the Budget; the Director of the Mint; the chairman
and ranking minority member of the Senate Banking and Currency
Committee and four Members of the Senate, not members of such
committee; the chairman and ranking minority member of the House
Banking and Currency Committee and four Mem'bers of the House,
not members of such committee; and eight public members, none of
whom were directly interested as such in the composition, character-
istics, or production of the coinage of the United States.
   The Commission was directed to study the progress made in the
implementation of the coinage program established under the act and
to review such matters as the needs of the economy for coins, the
standards for the coinage, the availability of various metals, the re-
newed minting of the silver dollar, and the time when and circum-
stances under which the United States should cease to maintain the
price of silver. The Commission, from time to time, was to give its
advice and recommendations with respect to these matters to the Pres-
ident, the Secretary of the Treasury, and the Congress.
    PART II. DEVELOPMENTS I N GOVERNMENT-WIDE
           FINANCIAL MANAGEMENT, 1961-70
  Several highly significant undertakings toward improving the
budgetary process and providing better information systems Govern-
ment-wide occurred durmg the past decade.


           THE     PREsmENT's          COMMISSION ON BUDGET CONCEPTS

   In March 1967, a Commission on Budget Concepts was established
by the President to examine the methods of measuring the Federal
budget and other issues of budget presentation. The Commission con-
sisted of 16 persons—nine private citizens, four Members of the Con-
gress, the Director of the Bureau of the Budget, the Secretary of the
Treasury, and the Comptroller General of the United States.^ Member-
ship included persons identified with both major parties.
   The Commission, on October 10, 1967, presented its recommenda-
tions "on what we believe to be a truly modem and progressive budget
presentation for the Federal Government." ^
   The Commission identified 13 "major recommendations" in the first
chapter of its report. Observations, comments, and suggestions of a less
major nature appeared throughout the report; while they were not
separately numbered, the Commission's views were thus made known
on 117 different points.
   Three annual budgets have been presented to the Congress since
the Commission's report appeared. Most of the Commission's major
recommendations were followed closely in the budget documents.
   There follows a summary and discussion of the 13 major recom-
mendations, divided into three categories—^those intended for prompt
adoption in the annual budget and related reports, those requiring
some "leadtime" for adoption in the annual budget and reports, and
a recommendation which was focused more upon other matters of
budget presentation than on the annual budget.
   Possible legislation in relation to the Commission's report is also
discussed.
   Finally, there are discussed some other changes in budgeting and
financial management practices which are related, directly or in-
directly, to recommendations by the Budget Commission.

    1 The purposes of t h e Commission were set forth In a W h i t e House press release of Mar.
3, 1967, reproduced as exhibit A (p. 105) In t h e Commission's report. Although the press
release referred to a Commission of 15 members, 16 were appointed. F o r a list of t h e
members, see p . 109 of t h e Commission's report.
   2 Quoted from t h e letter of t r a n s m i t t a l , reproduced on p. vii of the report. The Com-
mission's work resulted in two printed v o l u m e s : (1) Report of the P r e s i d e n t ' s Commission
on Budget Concepts. U.S. Government P r i n t i n g Offlce, 1967, 109 pages, and (2) Staff
P a p e r s and Other Materials Reviewed by the President's Commission, U.S. Government
P r i n t i n g Offlce, 1967, 512 pages.
                                                                                             45
46    FINANCIAL MANAGEMENT EST THE FEDERAL GOVERNMENT

       RECOMMENDATIONS IMPLEMENTED IN THE ANNUAL BUDGET

 Unified, comprehensive budget
    The Commission's most important recommendation was for unified
comprehensive budget totals to replace the three then-existing
concepts.^
    Although previous budget documents presented details regarding
estimates of all transactions for all funds, the conventional totals, some-
times called the "administrative budget," excluded trust funds admin-
 istered bv the Government. A second measure which had been used, the
"consolidated cash statement," covered all funds, but its totals were on
a checks-paid basis. The Federal sector of the national income and
product accounts was considered a third measure of the budget; it
covered most funds, but omitted certain purely financial transactions
such as loans.
    The Commission sought a single measure of the budget with the hope
that other measures would disappear or be clearly subordinated. The
Commission's answer was a statement which included both Federal
funds and trust funds, excluding transactions between funds, so that
totals would represent transactions with the public.
   Both the 1969 and 1970 budgets gave effect to the recommendation
for unified comprehensive budget totals. The 1969 budget carried tran-
sitional figures and explanations in its Special Analysis A. The 1970
budget included an analvsis of the budget by fund groupings in a sep-
arate volume, but the older measures of the administrative budget and
the consolidated cash statement have disappeared, except in certain
historical tabulations. A statement of the budget in terms of the na-
tional income accounts has been retained in a subordinated manner—
in Special Analysis B of the 1969 budget and Special Analysis A of
the 1970 budget.
Broad financial pla/n
  Too much emphasis had been placed on a single number in past
budgets—the surplus or deficit—according to the Commission. The
means of financing the deficit (borrowing and reduction of cash on
hand) had been disclosed in a separate table, somewhat removed from
the presentation of the transactions of receipts and expenditures which
made up the deficit. The Commission recommended instead that the
whole financial plan be brought together in a single statement of the
budget.*
  This was done in table 1 of the 1969 and 1970 budgets, following
generally the style illustrated on page 85 of the Commission's report.
Action requested of the Congress
  More prominence should be given in the budget presentation to
the actions requested of the Congress, according to the Commission.^
The whole budget does not eventuate in congressional action each
vear: most of the revenue laws are permanent in nature, some appro-
priations are reviewed each vear under standing law, and a significant
share of the expenditures and net lending each year flow from bal-
   3 Report of the President's Commission on Budget Concepts, p. 6, major recommenda-
tion No. 1.
   * Ibid., pp. 6, 7, major recommendation No. 2.
   ' Ibid., p. 7, major recommendation No. 3.
     FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT                    47

ances of prior appropriations or revolving funds. Previous budgets
had focused less attention than the Commission desired on the new
actions requested of Congress, as distinguished from the transactions
which would occur under authority granted earlier by Congress.
    Table 1 of both the 1969 and 1970 budgets provided in its first
section the totals on appropriations and other budget authority, as
suggested by the Commission. Table 5 of the 1969 budget and table 4
of the 1970 budget gave a breakdown by agency of the amounts re-
quested of the Congress. Table 5 in the 1970 budget covered estimates
of outlays (expenditures plus net lending) during the year estimated
to result from the action requested of the Congress.
    The analysis of receipts—part 3 in the 1969 budget and part 2 in
 the 1970 budget—distinguished the changes in the level of receipts
 under action requested of the Congress from the changes arising from
 other causes.
 Coverage of all programs
    Flowing from the definition of a budget as a basic part of a com-
 prehensive financial plan, the Commission's view of the budget em-
braced all programs of the Federal Government and its agencies.®
 "Borderline agencies and transactions should be included in the
budget unless there are exceptionally persuasive reasons for
 exclusion."'
    In determining what is a Federal Government agency, the Com-
 mission adopted a criterion based upon ownership. Enterprises which,
 though Government sponsored, were completely privately owned
 should be excluded, the Commission said.
    The 1969 budget included in its regular coverage the following
 agencies which had been treated as "annexed budgets" in the preced-
 ing documents—the Comptroller of the Currency, the Board of
 Governors of the Federal Reserve System (but not the banks), the
 Federal Deposit Insurance Corporation, the Milk Marketing Admin-
 istration of the Department of Agriculture, the banks for coopera-
 tives, and the Federal intermediate credit banks. The exchange sta-
 bilization fund of the Treasury Department was not included in the
 new budget totals.
    The 1970 budget continued the practices inaugurated the year
 before, with certain exceptions. The Board of Governors of the Fed-
 eral Reserve System was dropped. Three enterprises were shown as
 being "phased out" of the budget totals because they had just passed
  from mixed-ownership to all-private ownership—^the secondary
 market operations of the Federal National Mortgage Association,
 the banks for cooperatives, and the Federal intermediate credit banks.
 The Commission had recommended that such enterprises be omitted
  when they became wholly privately owned.
 Distinction between loans and expenditures
     The Commission proposed to divide the budget totals between a loan
 account and receipt-expenditure account. The Commission said that
  the surplus or deficit of the receipt-expenditure account was significant
  for fiscal policy and for analyzing the economic impact of the Federal
 budget. "Public and congressional understanding of the economic

  »Ibid., p. 7, major recommendation No. 4.
  ' Ibid., p. 25.
48    FINANCUL MANAGEMENT IN THE FBDERAL GOVERNMENT

effects of the budget is essential for the attainment of sound appropria-
tion and tax decisions," it asserted.*
    Elaborating on its views, the Commission stated that certain loans
should be reflected in the expenditure account, rather than the loan
account, either because they were loans in name only, such as Commod-
ity Credit Corporation nonrecourse loans, or because they were foreign
loans made on noncommercial terms.
    Both the 1969 and 1970 budgets made the distinction recommended,
using the suggestions of the Commission on where to draw the line."
Both budgets carried the distinction through the table by individual
accounts and into table 1. The 1970 budget included in the appendix an
additional detailed table of the gross and net loan transactions.
Guarantee of private loans
    Federal insurance or guarantee of private loans should continue to
be reflected outside the budget totals, the Commission stated, since
they initially represented neither Federal expenditures nor Federal
borrowing.^" The Commission suggested that the aggregates of such
guarantees be presented as a memorandum item in the overall financial
plan.
    The 1969 and 1970 budgets continued the past practice of excluding
the guarantees, as recommended. They also presented the suggested
memorandum line in table 1 on the amount of insured and guaranteed
loans outstanding.
'•'•Participation certificates'''' in loams
    Several lending agencies had been getting money by selling certifi-
cates of participation in their loans, mostlv through a pooled arrange-
ment managed by the Federal National Mortgage Association (now
by the Government National Mortgage Association). The amounts re-
ceived were accounted for as proceeds from the sale of financial assets,
and therefore, like other sales of assets, were counted toward the reduc-
tion of budget expenditures and deficits. The Commission (with three
members dissenting) concluded that the sale of the certificates in loans
Avhich the Government continued to own had the characteristics of
borrowing and, therefore, should be treated as a means of financing
the deficit (or as an element in the disposition of the surplus) rather
than as an offset to budget outlays and therefore a reduction in the
deficit."
    The certificates of interest which had been issued by the Commodity
Credit Corporation are now also being treated as.borrowing, like the
participation certificates, beginning with the actual transactions of
the fiscal year 1970.
Presentation of the meams of fin/m/dng
    Consistent with its view of the budget as a part of a broad financial
plan, the Commission recommended that there be an explicit presenta-
tion of the method of financing the budget deficit or disposing of the
budget surplus.^^

  » Ibid., p. 8, major recommendation No. 6 and explanatory comment thereon.
 0 However, the budgets used the shorter term "expenditure account" instead of the
Commission's term "receipt-expenditure account."
  '" Report of the President's Commission on Budget Concepts, p. 8, major recommendation
No. 8.
  " Ibid., p. 8, major recommendation No. 9.
  " Ibid., p. 9, major recommendation No. 10.
     FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT                                       49

   The suggested form of presentation on the means of financing (up-
per portion of p. 89 of the Commission's report) was followed in
table 9 of the 1969 and 1970 budgets.
Offsetting of proprietary      receipts
   Prior to the work of the Commission, the budget offset receipts
 (that is, deducted receipts from gross expenditures) and presented net
expenditures in the case of public enterprise funds, intragovern-
mental revolving funds, and incidental reimbursements to appropria-
tions. While agreeing that the budget should continue generally to net
these receipts, the Commission concluded that the rule for offsetting
should 'be based upon the nature of the transaction, rather than the
nature of the fund. I t recommended that those receipts of the Govem-
ment other than taxes which were enterprise or market-oriented should
be treated as offsets to the expenditures to which they were related.^^
The Commission also suggested that the loan account should offset
principal repayment and sales against loan disbursements.^*
    Both the 1969 and 1970 budget totals followed the recommendation
 of the Commission. Budget receipts were limited to those received from
 the exercise of sovereign or "govemmental" powers. The loan account
 showed lending of each program on a net basis. For the expenditure
account, the receipts from such sources as fees, payments for services,
 and sale of products and property were offset (by agency and by
 functional category) in presenting expenditures; the amounts of such
 "proprietary" receipts were set forth in a separate table of the budgets.
 No capital budget
    The Commission "strongly" recommended against a capital budget
 which would provide separate financing of capital or investment ex-
 penditures as distinguished from current or operating expenditures.^^
 Such a budget, the Commission said, would seriously distort the budget
 as a decisionmaking tool. Nevertheless, the Commission commended
 the continued publication and improvement of subordinate budget
 analyses that show capital items.
    The 1969 and 1970 budgets have continued the previous practices
 of a "unitary" presentation, without calculating separate surpluses or
 showing separate financing plans for capital and current items. They
 have also continued the presentation of special analyses on the classi-
 fication of capital, developmental, and current outlays (Special Anal-
 ysis D ) , on the credit programs (Special Analysis E ) , and on public
 works activities (Special Analysis G for the 1969 budget and Special
 Analysis P for the 1970 budget).

          R E C O M M E N D A T I O N S FOR LATER I M P L E M E N T A T I O N I N   THE
                                      A N N U A L BUDGET

Accrued basis of stating budget totals
  The Commission recommended that budget expenditures and re-
ceipts be reported on the accrual basis instead of the checks-issued and
collections-received basis.'" The Commission said that such budget
  " Ibid.,    p . 9, major recommendation No. 1 1 .
  " Ibid.,    pp. 5, 47.
  ^ Ibid.,    p. 9, major recommendation No. 13.
  i« Ibid.,   pp. 7, 8, major recommendation No. 5.
50     FINANCUL MANAGEMENT IN THE FEDERAL GOVERNMENT

 totals would provide a better measure of the impact of Govemment
 activities on the economy. I t defined the 'accrual basis of expenditures
 to take into consideration "constructive delivery" where there was
 performance to meet the Government's special requirements (as dis-
 tinguished from basing accruals on physical delivery where items were
 bought "off-the-shelf"). I t indicated the possible need for more study
 on the issue of accruing personal taxes, as distinguished from corpora-
 tion taxes. The Commission recognized that the change to the accrual
 basis could not be effected immediately because of the need for changes
 in accounting, but expressed the view that it could be accomplished
 for the 1971 budget.
    During the administration of President Jo^hnson, the Bureau of the
Budget announced plans for implementing this recommendation, as
proposed by the Commission. Its Bulletin No. 68-10, issued April 26,
 1968, set forth instructions to executive branch agencies. The Treasury
Department issued instructions on J u n e 20, 1968; 'and the General
Accounting Office issued instructions on May 4, 1968, and J u l y 22,
1968; each within its own sphere of responsibility.'^ A trial of agency
monthly reporting to Treasury on the accrual basis was instituted,
starting with business for July 1968.
   President Nixon, on February 22, 1969, reaffirmed the program for
adoption of the accrual basis, but, in the light of practical difficulties,
deferred the timing of the formal changeover to the 1972 budget.'*
The Bureau of the Budget, in Supplement No. 1 to its Bulletin No.
68-10, issued July 1, 1969, modified its earlier instruction slightly,
called for a new trial period, and set a revised timetable for the con-
version. On August 12, 1969, the President reaffirmed this accrual ac-
counting obiective in his memorandum to all agencies on the Joint
Financial Management Improvement Program.'® On April 13, 1970,
the Bureau of the Budget issued an announcement which permitted
agencies to report figures in the 1972 budjret on a modified accrual
basis. On September 15,1970, the Director of the Office of Management
and Budget rescinded the April 13 instructions and restored cash re-
ceipts and outlays as 'the measure of results for the 1972 budget. The
objective of converting the budget to an accrual basis was reaffirmed,
the current objective being the 1973 budget.
Identification of subsidies in loan programs
  As a concomitant to the breakdown of total outlays between the
loan account and the expenditure account, the Commission recom-
mended separate identification of the subsidies involved in direct loan
programs, such subsidies to be included in the expenditure account
rather than the loan account.^" The Commission proposed that the
subsidy for the whole life of a loan be reported on a present-worth
basis in the year or years in which the loan was made. The subsidy
was interpreted to be the difference between the interest charged the

   " Treasury Fiscal Requirements Manual for Guidance of Departments and Agencies,
Transmittal No. IS, June 20. 1968: General Accounting Oflce Memorandum, May 4. 1968 :
and General Accmintlne Offlce PoHcy and Prof-edures Manual for Guidance of Federal
Agencies, Transmittal Sheet No. 2-21, July 22. 1968.
  " T h e President's memorandum was published subsequently as an attachment to a
joint memorandum for the heads of executive departments and agencies, from the Director
of the Bureau of the Budget, the Secretary of the Treasury, the Comptroller General of
the United States, and the Chairman of the Council of Economie Advisers. Mar. 10, 1969.
   " Weekly Compilation of Presidential Documents, vol. 5, No. 33 (issue of Aug. 18, 1969),
p. 1140.
   "I Report of the President's Commission on Budget Concepts, p. 8, major recommenda-
tion No. 7.
     FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT                              51

borrower and the Treasury borrowing costs, plus an allowance for
losses on loans because Federal loans have a larger element of risk
than Treasury borrowing. The Commission recognized that it might
not be practicable to implement this recommendation at once (in the
 1969 budget) but expressed the view that it might be possible for the
 1970 budget.
   The Bureau of the Budget reported that there had been exploratory
meetings with representatives of lending agencies, but that further
 work on this recommendation had been deferred until the accounting
 changes required by the accrual basis recommendation had been com-
 pleted. I t pointed out that the burden of accomplishing two such major
 accounting changes simultaneously could be too great for the operating
 agencies to absorb.

   R E C O M M E N D A T I O N O N O T H E R MATTERS O F BUDGET   PRESENTATION

  The Commission made one major recommendation which was not
concemed with measuring budget totals or presenting the annual
budget figures. I t was that communication of budget information to
the Congress and the public should be (1) more frequent, by providing
within-year revisions of January estimates, (2) more detailed, in terms
of breaking down aggregate budget figures into quarterly or semi-
annual units, and (3) more comprehensive, by making estimates which
extended further into the future.^'
   I n keeping with the first part of this recommendation, the Bureau
of the Budget shifted the time for issuing its annual review. Previously,
a review was issued after congressional action on the budget; since
the Commission's report, the review has been issued in the summar
even though Congress was still in ress'on. Also, aftc- the presidential
transition in 1969, there was issued an April 15 review setting forth
the revised budget proposals of the new administration in the total
budget complex; this was more complete than anything which had
been done in the transitions of 1953 and 1961.
   The Bureau of the Budget reported that its staff had worked in-
formally with the staff of the Joint Committee on Reduction of Fed-
eral Expenditures in connection with the preparation of the commit-
tee's series of "budget scorekeeping reports," issued from time to time
for the information of Congress.
   No formal announcement has been made by the executive branch
regarding other aspects of this recommendation. However, the Bureau
of the Budget reported that consideration of the remainder of this
proposal had been deferred until implementation of the pending rec-
ommendations on the annual budget was further advanced.
                                 POSSIBLE    LEGISLATION

  The Commission did not include in its 13 major recommendations
any proposals for legislation, nor did anv of these recommendations
require legislative action. The present budget laws are flexible on how
to measure the budget results, except for requiring that aggregates
of receipts and of expenditures be compared,^^ and that the budget

  11 Ibid., p. 9, major recommendation   No. 12.
  "Sl U.S.C. IS.
52    FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT

give information on "the condition of the Treasury" "^ and "the finan-
cial condition of the Govemment." '*
   However, some portions of the Commission's report suggested legis-
lation or implied the need for legislation, as discussed below.
Definition of debt subject to overall Umitation
   The Commission's recommendations for measuring the budget sur-
plus or deficit on the comprehensive, unified 'basis led it to consider
a new measure of the Federal debt. The Commission's concept of the
debt comprised the sum of the public debt (issued by Treasury) and
the securities issued by Federal agencies (whether or not guaranteed
by the United States), less the portion of all such debt and securities
held by Federal agencies; the result produced the concept of "Federal
securities held by the public." ^= The Commission also proposed that
outstanding notes of the Intemational Monetary Fund and to inter-
national lending organizations not be treated as a part of the debt.
   The Commission suggested that the executive 'branch might wish to
ask that consideration be given by Congress to changes in the statutory
debt limitation provisions that would make the debt subject to limit
consistent with the Federal budget concepts it recommended.^*
   The President in his message of February 24, 1969, to the Congress
on the need for an increase in the debt limitation, recommended that
the definition of debt subject to limit be changed as suggested in the
Commission's report.^'
   The House Ways and Means Committee in reporting a bill on
March 10, 1969, to change the debt limit was silent with regard to the
possibility of the suggested redefinition.^' The House agreed to the
committee's bill. The Senate Committee on Finance accepted the House
version of the bill, and so did the Senate. The bill became Public Law
91-8, approved April 7, 1969, without the suggested change.
Agencies and programs covered by the budget
   I n making its recommendation for the budget to include "all pro-
grams of the Federal Government and its agencies," the Commission
did not note that some exemptions from the executive budget process
were now granted or inferred by statute.
   The agencies and programs for which "annexed budgets" were sub-
mitted immediately prior t o the Commission's study provided such
budgets in a spirit of cooperation, though not specifically required by
law to do so. The budget documents reported that their budgets "have
not been reviewed by the President but are presented in the amounts
submitted by the agencies." ^^ A note to the same effect now appears
with regard to those budgets which were moved from an annexed
 position into the main budget.'"'
   No legislative proposal has been submitted on this matter.
    a Sl U.S.C. 1 1 , clause 9.
    2»3i V.S.C. i i , clause 1 1 .
   =» Report of the P r e s i d e n t ' s Commission on Budget Concepts, pp. 5 9 - 6 1 .
   •"Ibid., pp. 61, 62. The congressional Members of the Commission stated t h a t , while
they had no objection to t h e suggestion, they would not w a n t to be understood as subscrib-
ing to t h e t h o u g h t of a change in t h e overall debt limit in advance of careful study by the
a p p r o o r i a t e committees of t h e Congress (footnote 1, p. 61 of t h e r e p o r t ) .
    " Weekly Complilation of P r e s i d e n t i a l Documents, vol. 5, No. 9 (issue of Mar. 3, 1969),
pp. 314-316. Also printed as H. Doe. 91-79, (91st Cong., 1st sess.).
    ^ H . Rept. 9 1 - 3 2 , t o accompany H.R. 8508.
   » The Budget of the United S t a t e s Government, fiscal year 1968, appendix, p. 1294.
    »> The Budget of t h e United S t a t e s Govemment, fiscal year 1970, appendix, p . 8.
      FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT                                                    53

Concept of trust fund   appropriations
  Appropriations are at present recorded and reported in the amounts
which Congress has made available for obligation and disbursement.
For most trust funds, the statutes appropriate for each year an in-
definite amount equal to the receipts. The Commission's report implied
that the Commission would strongly endorse legislation, if it was re-
quired, to define indefinite trust ^ n d appropriations on the basis of
obligations to be incurred rather than as revenues, as they now are
defined.^'
  The Bureau of the Budget reported that it understood the proposal
to be one that would not change the availability of money in the t m s t
funds, but merely the definition of the measure to be presented in the
annual budget. Because many of the statutes pertaining to individual
funds state explicitly that the revenues are appropriated when re-
ceived, the change would apparently require legislation if it is to be ac-
complished. However, such a change would give two inconsistent mean-
ings to the word "appropriations"—for trust funds, it would mean
how much money is expected to be used, while for other funds, it
 would mean how much could be used.
   No legislative proposal has been submitted on this matter.

           OTHER C H A N G E S RELATED TO T H E C O M M I S S I O N ' S RE'PORT

Terminology
  The creation of the loan account within the budget totals resulted
in the Commission's use of the phrase "expenditures and net lending"
(referring to the expenditure account and the loan account, respec-
tively). The budgets for 1969 and 1970 adopted the shorter term
"budget outlay" (the sum of expenditures and of net lending) for the
same measure.
  The splitting of transactions between the expenditure account and
the loan account also created a need for additional terminology relat-
ing to authority to obligate and/or make outlays. The last two Ijudgets
have applied the old term "new obligational authority" only to the ex-
penditure account, used the new term "loan authority" in a parallel
sense for the loan account, and adopted the term "budget authority" to
mean the sum of the two.'*^
ObUgation aggregates monthly
   The Commission expressed a need for better information on the
aggregate volume of obligations entered into and was encouraged to
note that arrangements had been made by the Treasury Department
and the Bureau of the Budget for publication of such data monthly.^^
   Information on obligations incurred began appearing in the Treas-
ury Bulletin in the issue of September 1967 and has been printed
monthly since that time.
  31 Report of t h e President's Commission on Budget Concepts, pp. 26. 27
  M The Commission suggested the use of t h e word " a p p r o p r i a t i o n s " in t h e meaning now
ascribed to t h e phrase "budget a u t h o r i t y " (pp. 15, 16 of t h e r e p o r t ) . I t did not suggest
any terminology t o distinguish a u t h o r i t y for t h e loan account from a u t h o r i t y for t h e
expenditure account. Nor did it suggest any substitute for t h e t r a d i t i o n a l meaning of
appropriations as distinguished from other forms ot budget a u t h o r i t y (contract a u t h o r i t y
authorizations t o spend debt receipts, reappropriations, e t c . ) .
  33 Report of the P r e s i d e n t ' s Commission on Budget Concepts, p. 38.
54    FINANCUL MANAGEMENT IN THE FEDERAL GOVERNMENT

Exclusion of District of Columbia Govemment
   The Commission proposed that local receipts and expenditures of
the District of Columbia Government be excluded from the Federal
budget.''^ This was done in both the 1969 and 1970 budgets. The budget
for the District of Columbia now appears in a separate volume.
Review of deposit funds
   Deposit funds have been established in the Treasury to account for
moneys held in suspense pending a determination of their disposition,
and for moneys which the Government is handling as an agent for
others (for example, taxes withheld from Government employees for
State or municipal taxing authorities). I n tlieory, there is a liability at
all times to someone for the whole balance of each deposit fund. The
Commission therefore removed deposit funds from its budget totals,
consistent with its recommendations for stating budget revenues and
expenditures on an accrual basis. Recognizing that practices might not
coincide with theory, the Commission also recommended a joint Treas-
ury-Bureau of the Budget review of deposit funds.^"
   The Bureau of the Budget reported that a tentative disposition of
deposit funds was worked out quickly after the Commission reported,
in time for use in the 1969 budget; it generally reclassified as trust
revolving funds those deposit funds which had previously been used
for the "annexed budget" enterprises which were brought into the new
budget totals. The remainder of the deposit funds were excluded from
the 1969 budget totals.
   I t was also reported that the study of deposit funds had been pro-
ceeding. Some reclassifications, both into and out of the deposit fund
category, had already occurred and were reflected in the 1970 and 1971
budgets.


     T H E PLANNING-PROGRAMMING-BUDGETING SYSTEM                                      (PPBS)

   I n August 1965 the President notified the heads of all Federal de-
partments and agencies that a Planning-Programming-Budgeting
System was being introduced in the Federal Government. This system
is commonly referred to as the P P B system.
                         D E P A R T M E N T OP D E F E N S E I N N O V A T I O N S

   Since the establishment of the Department of Defense in 1947, sev-
eral different schemes have been used to classify its budget amounts.
Until 1949 the Department presented a budget for each of the three
separate services. I n 1949 "performance budget" classifications were
made a requirement for all the military services.
   I n 1961 a highly significant change was made in the Department of
Defense budget system. I n effect, the change resulted in presentation
of the Department's budget on a program basis. F o r example, for
fiscal year 1971, the Department's budget for operation and main-
tenance was classified in the following program categories:
        Strategic forces.
        General purpose forces.

 34 Ibid., pp. 25, 30.
 so Ibid., pp. 31, 32.
     FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT                  55

       Intelligence and communications.
       Airlift and sealift.
       Guard and reserve forces.
       Research and development.
       Central supply and maintenance.
       Training, medical, and other general personnel activities.
       Administration and associated activities.
        Support of other nations.
  Department of Defense resources are and have been since 1961 sum-
marized and reviewed for planning purposes in terms of major
programs that cut across the three military services. However, for ap-
propriation purposes, the Congress still acts in terms of organizational
entities and categories of expenditure (such 'as military personnel,
operations and maintenance, procurement, ete.).

                        H I S T O R Y O F PPBS FROM 1965

   While the Department of Defense had not called its system P P B ,
the major characteristics of the system established in 1965 are the
same. F o r example, classification of budget 'amounts, which is an im-
portant part of the P P B system, is designed to cut across organiza-
tional lines as appropriate and is oriented to programs and objectives
rather than to the usual object classes.
   The P P B system introduced in 1965 required t h a t agencies:
     1. Establish long-range planning for goals and objectives.
     2. Analyze systematically and present for agency head and for
        presidential review and decision possible alternative objectives
        and alternative programs to meet these objectives.
     3. Evaluate thoroughly and compare the benefits and costs of
        programs.
     4. Present the prospective costs and accomplishments of programs
        on a multiyear basis.
   The initial instructions conceming P P B from the Bureau of the
Budget to executive agencies were in Bureau of the Budget Bulletin
No. 66-^3, dated October 12,1965. This bulletin required the following
 agencies to adopt the P P B system:
     Departments
          Department of Agriculture.
          Department of Commerce.
          Department of Defense (Including Corps of Engineers).
          Department of Health, Education, and Welfare.
          Department of Housing and Urban Development.
          Department of the Interior.
          Department of Justice.
          Department of Labor.
          Post Office Department.
          Department of State.
          Treasury Department.
     Independent     Agencies
          Agency for International Development.
          Atomic E n e r ^ Commission.
          Central Intelligence Agency.
      68-109 0—71   5
 56   FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT

           Federal Aviation Agency (later became part of the Depart-
             ment of Transportation which was also required to adopt
             the P P B system; the Department of Transportation was
             included in our survey).
           General Services Administration.
           National Aeronautics and Space Administration.
           National Science Foundation.
           Office of Economic Opportunity.
           Peace Corps.
           U.S. Information Agency.
           Veterans' Administration.
 Bulletin No. 66-3 also encouraged 17 other, mostly smaller, agencies
 to adopt the P P B system.
   Each agency was required to develop a series of output-oriented
 categories, commonly referred to as program structures, which covered
operations of the agency and to develop (1) a comprehensive multi-
 year program and financial plan and (2) analyses, including program
 memoranda and special studies. The program structures of agencies
 are discussed in more detail in a subsequent section of this report.
   The multiyear program and financial plan, as approved or modified
by the agency head in conformity with guidance received from the
Bureau of the Budget and the President, was to form the basis for the
agency's 'annual budget requests. Bulletin No. 66-3 also called for a
program memorandum to be prepared annually on each of the agency's
program categories. Each memorandum was to discuss for several
years into the future the program's objectives, effectiveness, costs,
alternatives, and uncertainties. In effect, a program memorandum w^as
to be a document which summarized the program and financial plan
approved by the agency head for a program category and which con-
tained a succinct evaluation and justification for the program. Special
studies, which might involve either an intensive examination of a nar-
row subject or a broad review of a wide field, were to be a d hoc studies
prepared in response to either Bureau of the Budget or agency man-
agement requests.
   The Bureau issued revised P P B guidelines on July 18, 1967, in the
form of Bulletin No. 68-2. A principal change was to require t h a t the
multiyear program and financiai plan prepared by each agency would
show ithe future implications of past and present decisions; it was not
to reflect the effect of possible future decisions. Unlike the program
and financial plan, the program memorandum document was to con-
tinue to outline the strategy for an agency's plans and programs for
future years.
   More recent instructions from the Bureau of the Budget to the exec-
utive agencies were contained in Bulletin No. 68-9 dated April 12,
1968. A^ far as agency coverage was concerned, the effect of Bulletin
No. 68-'9 was to delete the earlier requirement that several small agen-
cies either implement the P P B system or develop and integrate the
system with their budgeting.
   Bulletin No. 68-9, like the predecessor Bulletin No. 68-2, provided
that the program and financial plan ( P F P ) was to be a comprehensive
multiyear summary of all agency programs in terms of their outputs,
costs, and financing needs over a planning period covering the budget
year and at least 4 future years.
     FINANCUL MANAGEMENT IN THE FEDERAL GOVERNMENT                                       57

  Bulletin No. 68-9 did not require agencies to prepare a program
memorandum (PM) for each of their program categories. Instead, a
P M was required only where the agency had a major program issue,
which was defined as a question requiring decision in the current
budget cycle, with major implications in terms of either present or
future costs, the direction of a program or group of programs, or a
policy choice. A P M was to be oriented to major program issues and
thus might cover all or only part of a program category or cut across
several program categories. Where a program category was not in-
volved in a major program issue, the category would not be covered
by a PM. Bulletin No. 68-9 further provided that the P M should (1)
integrate the objectives of the agency program with specific decisions
made on program issues for the budget year, (2) show why particular
choices had Iseen made, and (3) compare alternative programs in
terms of their costs and who paid them, and their benefits and the
group benefited.
   Under Bulletin No. 68-9 each agency received from the Bureau an
issue letter identifying the major program issues for analysis in special
studies and for coverage in PM's for the upcoming budget cycle. Final
versions of each P M were to be submitted on September 30 with the
agency's budget submission. The final PM's were supposed to indicate
the recommendation of the agency head on all identified major pro-
gram issues.
                          AGENCY PROGRAM           STRUCTURES

   Development of a program structure is prerequisite to implementa-
tion of the P P B system in any agency, and the development of a Gov-
ernment-wide P P B structure is believed by some observers to be pre-
requisite to the realization of the full utility of P P B . GAO found
that 20 of 21 agencies included in its 1969 survey of the P P B system
and directed by the Bureau of the Budget to adopt a P P B system had
succeeded in developing a program structure of some description. There
were differences among these structures, and during the survey it
became evident to GAO that there were obstacles to the creation of
a Government-wide structure.^'
   The P P B system is intended to enable Government managers to
focus their attention on major resource allocation problems. The pur-
pose of a program structure is to provide the framework for such
allocation, and the structure establishes the basic classification scheme
for marshaling of information required in analysis for program deci-
sions. I t follows that a program structure should highlight the Gov-
ernment's fundamental objectives and the competing and comple-
mentary progranis involved in carrying out such objectives. For ex-
ample, the program structure of the Department of Agriculture in-
cludes the program category "Communities of Tomorrow" and the
Department of Housing and Urban Development has a program cate-
gory entitled "Decent Housing." Both of these categories focus on
objectives. The fundamental standard of highlighting objectives is
discussed throughout the literature on P P B and in the guidance of

   3» Comptroller General's Report to the Congress. Survey of Progress in Implementing t h e
Planning-Programming-Budgeting System in Executive Agencies ( B - H 5 3 9 8 ) , July 29, 1969,
p. 1.
 58   FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT

 the Bureau of the Budget to the agencies developing program struc-
 tures after October 1965.
    All other considerations in the creation of a program structure
 derive from the fundamental purpose of the structure, as stated above.
 I t can be said, for example, that all functions and activities of an
 agency should be encompassed by the program structure regardless of
 the organizational placement, a clear necessity if the resource alloca-
 tion purpose is to be achieved. Beyond such elementary guidance, how-
 ever, there is latitude for considerable disagreement as to what might
 be appropriate standards for an agency's program structure.
    The Bureau of the Budget, while providing such elementary guid-
 ance, left to the various Federal agencies the basic discretion as to how
 their respective program structures would be developed. The initial
 instructions (Oct. 12,1965) of the Bureau to the agencies on their pro-
gram structures were limited to such considerations as the following:
      1. The program structure should be output-oriented and should
         present data on all the operations and activities of the agency in
         categories which reflect 'the agency's end purpose or objectives.
      2. I t might be desirable to have the basic program categories cut
         across bureau lines to facilitate comparisons and suggest pos-
         sible trade-offs among elements which were close substitutes.
         I t was desirable to develop program formats which facilitated
         comparisons across agency lines.
      3. To facilitate top level review the number of program categories
         should 'be limited. F o r example, a cabinet department should
         normally have fewer than 15 program categories. Agencies
         were advised by the Bureau in April 1968 that an agency gen-
         erally should have between five and 10 categories.
      4. Program categories and subcategories should not be restricted
         by the present appropriation pattern or budget artivity
         structure.
    As goals, objectives, and priorities of agencies shift with time and
circumstances, it may be necessary that P P B program structures re-
flect these changes and 'adapt to them as required if the structures 'are
to be an aid to making resource allocation decisions.

                  STAFFING AND MANPOWER FOR PPBS

   The formal svstem developed for P P B S was based on several prem-
ises. First, P P B S would be tied into the budget cycle, partly because
this was the only recurring administrative process through which
almost all major decisions must pass and partly because it was the
Government's formal resource allocation process and decision forcing
mechanism. Second, the Bureau of the Budget considered the major
responsibility for developing P P B S would belong to the agencies.
Bureau officials considered it obvious t h a t no improvement in the deci-
sion process or increase in the quality of information and analysis
brought to bear on maior issues could be made unless agency decision-
makers were interested in improvement. As a result all but 12 of the
initial staff increases needed to implement the Government-wide P P B
system went to the agencies,' not to the Bureau of the Budget. F o r re-
search in support of P P B S , reliance was placed on agency funds and
capabilities.
     FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT                                       59

   I n its survey of the P P B system, GAO reported on the staffing (full-
time and part-time, excluding the Bureau of the Budget) required to
implement the system. I n 21 agencies in May and J u n e 1968 a total of
1,594 employees, excluding secretarial and clerical employees, were
working full-time on P P B matters, and 2,135 part-time employees,
equivalent to 880 full-time employees, also had responsibilities for
 P P B matters."
    Not all the PPB-related staffs caused net increases in agency staff;
 many staff members were reassigned from similar and other responsi-
 bilities in the agencies. Staff increases in 1966-68, both professional
 and support personnel, were 997, and 148 were added in 1968-69.
              T H E USE OF D I S C O U N T I N G I N   SYSTEMS     ANALYSIS

   Appropriate planning and evaluation of alternative programs call
for an assessment of the present value of costs and benefits which will
be incurred and received in the future. The method used to compute
these present values is termed "discounting." By reducing to present
values alternative courses of actions which have different timings as to
costs and benefits, a decisionmaker is facilitated in making more valid
comparisons of economic value.
   The rationale of discounting is based upon the simple fact that
resources are productive over time. If one invests $100 in a productive
enterprise now, it will be worth (at a 10-percent rate of retum) $110 in
1 year, $121 in 2 years, etc. Because productive investments are avail-
able in the society generally, it follows that any investor—private or
public—^must take account of the opportunities foregone in not making
alternative investments. Thus, the present value of $110 to be received
in 1 year is only $100. Phrased another way, one would pay no more
than $100 for the right to receive $110 a year hence because of the avail-
ability of alternative investments that would yield this much.
   Similarly, the present value of a cost to be incurred in the future
is less than the face value of the cost. A lesser amount, invested at the
present time, will yield enough over time to pay the full cost at the
time it is due.
   In the past, assessments of Government programs have often tended
to ignore the importance of the timing of costs and benefits. Costs not
presently due have been treated as if they were immediate and benefits
which would not accrue for years or even decades have been appraised
at full future value. This has been a serious defect in the analysis of
some Govemment investments.
   The GAO in a January 1968 report to the Joint Economic Com-
mittee of the Congress pointed up the divergent discounting practices
of Federal agencies.^^
   I n evaluating their fiscal 1969 program, 10 of the 23 agencies queried
 reported that discounting was used in making decisions; eight agencies
had not used discounting but planned to do so in the future; and five
 agencies had no plans for using discounting.^® The agencies that did
use the discounting technique used rates which varied over an extremely

   ^1 Ibid., p. 47.
   33 Comptroller General's report to J o i n t Economic Committee of t h e Congress of the
United States, Survey of Use by Federal Agencies of the Discounting Techniques in
E v a l u a t i n g F u t u r e P r o g r a m s ( B - 1 6 2 7 1 9 ) , J a n . 29, 1968, p. 30.
   3» Ibid., p. 10.
60    FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT

wide range—from about 3 percent to 12 percent per annum, reflecting
an absence of common understanding of what the rate was supposed
to represent.^"
   In hearings conducted by the Subcommittee on Economy in Gov-
ernment of the Joint Economic Committee in January, July, and
August 1968 the inconsistencies and variations between agencies in the
use of the discounting were matters of great concern. Again in hearings
before the Joint Economic Committee in May 1969 several economists
pointed up the disparity between discount rates used in the private
sector of the economy and those used by Federal agencies.
   As a result of the inconsistencies in discounting pointed out during
the congressional hearings on the discounting technique, the Bureau
of the Budget issued Circular No. A-94, June 26, 1969. The circular
prescribed standard discount rates and procedures to be used in evalu-
ating the measurable costs, benefits, or outputs of programs when
these accrued over time and could be estimated. The rates and proce-
dures prescribed applied to (1) all programs or projects whose adop-
tion was expected to commit the Government to a series of measurable
costs extending over 3 or more years and (2) all programs or projects
resulting in a series of measurable benefits or outputs that extended
3 or more years beyond the inception date.
   The key provisions of the circular stipulated:
      1. The prescribed rates and procedures were to be included in
         the internal planning documents of the executive branch agen-
         cies and in the program analvses to the Bureau of the Budget
         in support of legislative and budgetary program proposals.
      2. The circular did not supersede agency practices prescribed by
         or pursuant to law, Presidential directive, or BOB Circular
         No. A-76, revised, August 30, 1967, "Policies for acquiring
         commercial or industrial products and services for Government
         use."
      3. The discount rate to be used was to be no lower than the rate,
         related to the current yield on Government bonds, which was
         established bv the Water Resources Council. (The formula used
         to compute this rate was defined in the Federal Register, vol.
         33, p. 19170, Dec. 24,1968.)
      4. The Bureau of the Budget would request that specific higher
         rates be used for some particular projects or program evalua-
         tion efforts.
      5. F o r fiscal year 1970, the discount rate established by the Water
         Resourees Council was 4y8 percent.
    One of the most difficult problems of discounting is the treatment
of uncertaintv and risk. The BOB circular handled two aspects of
this problem in the following manner: (1) The "most likely" estimates
of expected yearlv costs and benefits were to be supplemented with
minimum and maximum estimates and the present value determined
for each of these estimates and (2) uncertainty and risk should be
provided as explicitlv as possible in the altemative calculations of
expected yearly benefits and costs and should not be compensated for
 in the discount rate itself.
  *» Ibid., appendix 1, pp. 1, 2.
       FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT                                                   61

                          PROBLEMS I N          IMPLEMENTING             PPBS

   The P P B S idea was implemented in the civil agencies of the Gov-
emment a t an exceptionally fast rate considering the oibjective of the
system and the state of agency information systems in general. Con-
sequently, some of the basic problems in effectively establishing and
using P P B systems may have been obscured in the fanfare of expecta-
tions and the accompanying accelerated pace of installing the systems.
I n a paper prepared for the Subcommittee on Economy in Govern-
ment of the Joint Economic Committee, Jack W. Carlson, an Assist-
ant Director in the Bureau of the Budget, pointed out a series of basic
problems, the essence of which is presented below.^^
     1. The resources available to the Government were seldom equal
        to the demands for their use. Since most demands for Federal
        funds had some merit the President and his subordinates should
        have useful techniques and methods for determining the most
        effective allocation and use of public funds.
     2. Past legal and moral commitments placed heavy dollar con-
        straints on the Federal budget for any given year, e.g., multi-
        year procurements, income maintenance payments, welfare pay-
        ments, veterans benefits, interest on national debt, etc. Conse-
        quently, two factors required the careful attention of all key
        officials participating in the budgetary process: {a) The small
        uncommitted portion of each annual budget should be man-
        aged through deliberate policy choice and (6) policymakers
        should recognize the impact on future expenciitures of each
        present decision.
     3. I n an organization as large and complex as the Federal Govern-
        ment, workable program measurement techniques were not
        easy to achieve. Nonetheless some basic output measures needed
        to be developed and incentives needed to be given to decision-
        makers at every level to work these techniques into their pro-
        gram planning and program evaluation decisions.
     4. There were some programs in Govemment for which it was
        doubtful that expected benefits would ever equal or exceed ex-
        pected costs. However, the political and moral claims on the
        Government precluded other than careful consideration of the
        programs. Notwithstanding, Government decisionmakers still
        needed to identify these programs and choose the least costly
        alternatives for meeting the objectives of the programs.
     5. Traditionally, program managers have not been held to strict
        performance accountability once money had been committed to
        a budget program. Although selective overview and evalua-
        tion of program performance were accomplished periodically
        by the Bureau of the Budget, the Congress, and the GAO, there
        was a need for development and use by agencies on a day-to-day
        basis of time-cost-performance measures.
   " Jack W. Carlson, "The S t a t u s and Next Steps for Planning, Programming, and Budget-
ing" In The Analysis and E v a l u a t i o n of Public E x p e n d i t u r e s : The P P B System, J o i n t
Economic Committee P r i n t , U.S. Government P r i n t i n g Offlce, Washington, D . C , 1969,
p. 445.
62     FINANCUL MANAGEMENT IN THE FEDERAL GOVERNMENT

                            IMPROVEMENTS AND POTENTIAL

   Some of the critiques of P P B S have tended to paint a pessimistic
 picture of progress. However, viewed from the standpoint of improve-
ments in the budgetary process over the p r e - P P B situation, there are
 distinct benefits in several areas.^^
      1. Many agencies have undergone at leas': a reappraisal of their
          functions and missions, with the result that there has been a
          general increase in the understanding of programs and in the
          awareness of possible alternatives and limitations that would
          not otherwise have occurred.
      2. More solid information has been developed by agencies on pro-
          gram inputs and outputs, related to agency objectives, than
          heretofore.
      3. Decisionmakers have increasingly used the results of systems
          analyses and studies in resolving major policy issue.
      4. Considerable progress has been made by agencies in the
          amount and entries of program evaluation. As the review and
          evaluation of programs become routine parts of program ad-
          ministration, progress in this area will be even faster.
      5. Because of the need to tie broad program decisions into specific
          resource allocations, implementing the P P B process has re-
         sulted in increasing involvement of top officials over the whole
          span of agency planning, 'budgeting, and performance.
      6. There has been a significant increase in recognition, both within
          and outside the Govemment, of the value of systematic analysis
          in providing Govemment officials with a better understanding
          of the outputs, benefits, and costs of the various courses of pro-
          grams or actions available to them.
      7. P P B has permitted better display of related programs in sev-
          eral agencies. F o r example, 24 manpower programs found in
         six agencies, 21 education programs found in five agencies, and
         the 16 health programs found in three agencies could be re-
          viewed with related programs regardless of agency identifica-
         tion.
      8. The Federal experience has encouraged officials at the State and
          local level to start designing planning and programming com-
          plements to their budgetary processes. Since many of the Fed-
         eral programs depend heavily on State and local action for
         effective program accomplishment the P P B S development be-
          low the Federal level is very important.
   In attempting to assess the potential of P P B S , it is well to reiterate
some of the caveats and admonitions of the Subcommittee on Economy
in Govei'nment of the Joint Economic Committee.^''
Caveats
      1. 'Measurements of benefits and costs are significantly more diffi-
         cult in circumstances where marketplace prices or values or
         equivalents are not available. F o r example, in assessing the
         cost-benefit relationship of a proposed dam, it is much more
  « I b i d . , pp. 62ii-628.
  *3The Planning-Programming-Budgeting S y s t e m : Progress and Potentials, provided for
the J o i n t Economie Committee, U.S. Government P r i n t i n g Office, Washington, D . C , 1967,
pp. 9 - 1 1 .
     FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT                   63

       difficult to measure the incidental effects such as long-term
       population movement and esthetic improvement than it is to
       measure benefits and costs in terms of water supply and power
       supply.
    2. The role of P P B S in the basic decision process will always be
       something less than certain. Public policy questions by their
       very nature are frequently resolved with unequal impact upon
       the people; i.e., a public policy decision may increase the bur-
        dens of one group and raise the benefits of another or may cause
       resources to be transferred from one region of the country to
       another. Although P P B S can provide decisionmakers with
       data for forming more rational and cohesive judgments, there
       are many social problems for which quantitative analysis will
       furnish little assistance.
    3. P P B S has not 'been and does not appear to be of much help in
       deciding on the ultimate goals of public policy or in dealing
       with the optimum balance among various programs. F o r exam-
       ple, the technique has not been developed to the point where it
       can furnish the basis for legislators or administrators to decide
       how much the nation should spend on education versus housing
       versus employment, ete.; or whether within 'the broad objectives
       of urban affairs, decentralization of cities should be 'a major
       emphasis or not. The foregoing examples merely point up what
       is fairly obvious to political scientists, namely, the choice of
       ultimate social goals and the balancing of programs within
       stated objectives are basically political decisions 'arrived at
       through political processes of open discussion and negotiation.
       Given a set of stated goals or objectives, cost-benefits and other
       systematic analyses can provide decisionmakers with the basis
       for deciding which alternative would be the most effective
       means of achieving the stated goals or objectives.
Admonitions
    1. Although quantitative evaluation of many Federal programs
       directed at social programs is difficult, the priority as well as
       economy of these programs must be weighed by careful consid-
       eration of their relative costs.
   2. The scope, character, and flexibility of Federal programs
       should provide for as rapid an adjustment 'as possible in these
       programs to reflect changing economic growth objectives and
       changing social objectives. Also, the scope and character of
       Federal spending programs should reflect, wherever possible,
       the comparative economic advantages of various levels and
       combinations of participation by the Federal, State, and local
       governments and of private enterprise in achieving program
       objectives.
   3. Federal budget decisions should be based upon the considera-
       tion of long-range benefits and costs of prospective programs.
       Probably, as a minimum, the budget for each year should be
       presented and reviewed in the context of benefit/cost projec-
       tions for a 5-year period, and regular periodic revisions of
       budgetary estimates shouM be provided on at least a quarterly
       basis.
64    FINANCIAL MANAGEMENT I N THE FEDERAL           GOVERNMENT

     T H E J O I N T FINANCIAL MANAGEMENT IMPROVEMENT PROGRAM

                            INTRODUCTION

   The Joint Financial Management Improvement Program ( J F M I P )
began in 1948 as a result of the combined efforts of the staff of the
Senate Committee on Government Operations, the Comptroller Gen-
eral, the Secretary of the Treasury, and the Director of the Bureau of
the Budget to seek improved means of carrying out the interrelated
activities and responsibilities of the three central agencies and to
coordinate better these efforts with the financial management activi-
ties of the operating agencies. At the request of the other members, the
chairman of the Civil Service Commission joined the program in 1966
to assist in the pereonnel aspects of financial management. The princi-
ples and objectives of the program were embodied in the Budget and
Accounting Procedures of Act of 1950.
   There has been continuous interest at the highest legislative and
executive levels in the joint program since its inception. Exemplary
of attention at tho Presidential level, President Johnson, on May 24,
1966, addressed a memorandum to heads of departments and agencies
expressing his strong and continuing interest in the development of
business-like financial systems. He requested that immediate action be
taken by the head of each executive department and agency t o :
      —Insure that the system of accounting and internal control in his
        agency met management needs and conformed to the princi-
        ples, standards, and related requirements prescribed by the
        Comptroller General.
      —Work with the Civil Service Commission in developing a more
        vigorous program for recruiting and developing the profes-
        sional personnel to design and operate effective financial man-
        agement systems.
      —Assure that financial reports and cost data provided adequate
        support for the planning-programming-budgeting system.
      —See t h a t the agencv's managers were given the basic tools they
        needed—responsibility-centered cost-based operating budgets
        and financial reports—for setting and achieving maximum cost
        reduction goals.
   President Nixon, in recognition of the need for improving the deci-
sionmaking processes of the Federal Govemment and the need for
making more effective the federal system for delivering program
services, issued on Aueust 12, 1969, a memorandum which gave full
support to the Joint Financial Management Improvement Program.
Among other things, the President's memorandum directed the head
of each department and agency to cooperate with the Joint Financial
Management Improvemen't Program ". . . to make the development
of effective financial systems a high priority in strengthening admin-
istrative practices."
   I n Congress, the House of Representatives Committee on Govern-
ment Operations has been interested in the progress being made in
financial management improvements in the Federal agencies since
enactment of the Budget and Accounting Procedures Act of 1950.
The committee held hearings in 1964, 1966, and 1967 on the slowness
of progress bv agencies in improving accounting systems. The com-
mittee issued formal reports on these hearings, which strongly urged
     FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT                              65

constructive and prompt action by the respective operating agencies
and more aggressive attention to this area of financial management
by the central agencies which directed the joint program.
   Although changing concepts and techniques of financial manage-
ment continuously pose problems, the joint program's overall goal has
remained essentially the same over the years; i.e., to promote the im-
provement of financial management practices throughout the Federal
Government in a way to best serve the needs of the Congress and the
executive branch. Specifically that goal, in turn, can be broadly sum-
marized to include the following objectives:"
       1. Strengthening of agency organization and staff facilities to
          provide for the most effective conduct of agency financial
          management operations.
       2. Establishment of responsibility-oriented agency accounting
          systems on an accrual basis that would serve fund and cost
          control needs and include monetary property accounting as
          an integral part of the systems.
       3. Integration of planning, programming, and budgeting prac-
          tices with the accounts to provide adequate support for
          budget formulation and review of annual cost-based appro-
          priation requests.
       4. Development and use of responsibility-centered cost-based
          operating budgets and financial reports that would provide
          goal setting and cost incentives for agency managers in
          terms of the cost of all resoui'ces going into the job.
       5. Simplification of agency appropriation and allotment struc-
          tures and development of the most effective methods of
          control of appropriations, funds, obligations, expenditures,
          and costs.
       6. Use of consistent classifications to bring about effective co-
          ordination of agency programming, budgeting, accounting,
          and reporting practices.
       7. Establishment of suitable intemal control practices, including
          intemal audit, in the agencies.
       8. Effective integration of agency accounting and reporting in
          management information anci control systems that would
          satisfy the requirements of the budget process, intemal man-
          agement needs; and the central accounting and reporting of
          the Treasury Department.
       9. Development of accurate and useful agency and Govemment-
          wide reports on fiscal status, financial results of operations,
          and cost of agency performance of assigned functions.
      10. Education of personnel in effective maintenance and maxi-
          mum utilization of these management tools to effect economy
          Government operations.
    Leadership of the joint program is provided by the Comptroller
 General of the United States, the Secretary of the Treasury, the
 Director of the Bureau of the Budget, and the Chairman of the Civil
 Service Commission. Coordination of Govemment-wide projects and
 financial management improvements in the operating agencies is
 achieved through a steering committee composed of a representative
 of each of the above-listed central agencies. I n addition each operating
  " The Joint Financial Management Itriprovement Program, loc. cit., pp. 5, 6.
66    FrNANCUL MANAGEMENT IN THE FEDERAL GOVERNMENT

agency designates a representative to act as liaison with the steering
committee.
   The effects of joint program efforts over the years have filtered
through many of the govemmentwide as well as individual agency
improvements. Some of the improvements are specifically identifiable
with projects or studies initiated or directed under the aegis of the
joint program. A few of the programs and projects sponsored during
the period 1961-TO are discussed below to illustrate in a concrete way
goals and achievements directly attributable to joint program
initiative.

           STATISTICAL S A M P L I N G I N VOUCHER    EXAMINATION

   A joint program team, comprised of representatives from the
Bureau of the Budget, the General Accounting Office, and the Treas-
ury Department, was set up in 1963 to develop support for legislation
that would permit agencies to use statistical sampling techniques in the
examination of vouchers. This action was taken after the Departments
of Agriculture and Health, Education, and Welfare had made detailed
studies which indicated a potential for substantial economy if the
technique was applied govemmentwide. (See p. 30.)
  The joint program team drafted and submitted to Congress a pro-
posal for legislation. The proposal was amended and reported favor-
ably to the 'Congress by the House Government Operations Committee.
Subsequently the proposal was enacted as Public Law 88-^521,
August 30,1964. As enacted, the legislation authorized agencies to use
statistical sampling techniques in connection with vouchers for less
than $100. Pursuant to requirements of the statute, the General Ac-
countinjif Office issued in February 1965 principles and standards for
the guidance of agencies using statistical sampling techniques. Most
agencies now use statistical sampling on a regular basis in examination
of disbursement vouchers for less than $100.

                MODERNIZATION OF CENTRAL REPORTING

  I n 1961 a team comprised of representatives from the central fiscal
agencies completed a study of govemmentwide financial reports. The
team inventoried existing reports, identified the users and their needs,
and developed recommendations for a coordinated system t h a t would
adequately serve the users' interests. This study resulted in issuance
by the Treasury Department in May 1963 of its Circular 'No. 1073
which established a new monthly report of obligations in the agencies,
classified by object of expenditure. Such govemmentwide data were
determined to be necessary for more effective analysis of the economic
impact of Government operations on the private economy.

            T H E LETTER-OF-CREDIT M E T H O D OF F I N A N C I N G

  Late in fiscal year 1963, a joint program team comprised of repre-
sentatives from the Treasury Department, the Bureau of the Budget,
and the General Accounting Office started a study of practices of oper-
ating agencies in releasing ca^h to recipients of Federal grants and
contributions. The study was initiated because preliminary investiga-
     FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNME'NT                    67

tions showed that some States and intemational agencies participating
in grant and contribution programs were building up cash balances
under existing Federal disbursement practices. These idle funds were
being invested by the recipiente resulting in a situation where the
recipients were benefi'ting from investment earnings while the Federal
Government, because of the accelerated advancement of funds, had to
increase its borrowing and hence increase interest costs. Also, in the
 case of advance to foreign recipienits, 'the premature withdrawals had
 an unfavorable effect on U.S. balance of payments.
    The joint program study resulted in the development of a letter-of-
 credit procedure under which funds to finance programs carried out
 by States, local governments, and other institutions would be advanced
 to them only as required for program purposes. In May 1964, the Treas-
 ury Department issued its Circular No. 1075 which provided instruc-
 tions for use of letters of credit. As general policy, the circular stated
 that advances to grantees and other recipients, prior to performance,
 should be limited to the minimum amounts possible and, normally,
 should be timed to be in accord with the actual cash requirements of
 the recipients in carrying out the purpose of approved programs or
 projects.
    During 1969, a joint program study team, under the chairmanship of
 a representative of the Treasury Department and staffed by represen-
 tatives from the Department of Health, Education, and Welfare; the
 Bureau of the Budget; and the General Accounting Office completed a
 comprehensive review of the methods used by Federal agencies in mak-
 ing cash advances, especially by use of letters of credit.
    The study team found that at least 16 States had excessive Federal
 fund balances because of State laws or regulations interpreted to re-
 quire that funds be on deposit in the State treasury before obligations
 under Federal programs can be incurred. The study team also pointed
 out the need for improvement by Federal agencies of administration of
 letters of credit.
    Responding to the study team's recommendations, the Treasury De-
 partment revised its Circular 1075 which originally established the
 letter-of-credit method of financing. Implementing regulations issued
 in the Treasury Fiscal Requirements Manual provided that (1) a letter
 of credit would be irrevocable (the equivalent of cash available to the
 recipient organization) to the extent that funds had been obligated
 in good faith in executing an authorized Federal program (this should
 alleviate the problem with the States requiring funds on deposit in
 their treasuries before obligations could be incurred), (2) the use of
 letters of credit required that the recipient organization commit itself,
 in basic agreements for advance financing, to requesting cash draw-
 downs at approximately the same time as checks were issued to cover
 program liabilities and to timely reporting required by the program
 agency (failure to meet these commitments would result in revocation
 of the unobligated portion of the letter of credit), (3) where mutually
 determined by the Treasury and the program agency, a recipient
 organization might be asked to authorize its commercial bank to draw
 on a letter of credit in its behalf when checks issued by the recipient
 organization were presented to the bank for payment, (4) advances
 by primary recipients to secondary recipients would conform substan-
 tially to the standards of timing and amount imposed on Federal
68     FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT

agencies which advanced funds to primary recipient organizations,
(5) each program agency should furnish the Treasurv reports show-
ing cash balances in the hands of recipients at each June ?.0 and
December 31, and (6) Treasury checks might be used for making large
advances only when cash benefits to the Treasury equaled those which
could be achieved by use of letters of credit.

SURVEY OF F I N A N C I A L A D M I N I S T R A T I O N OF FEDERAL G R A N T S - I N - A I D TO
                       STATE A N D LOCAL GOVERNMENTS

     In May 1968, the joint program started a study of the financial ad-
 ministration of Federal grants-in-aid to State and local governments
 under the chairmanship of the General Accounting Office and staffed
 by representatives of the Departments of Health, Education, and Wel-
 fare ; Housing and Urban Development; Labor; Transportation; and
 the Treasury; the Bureau of the Budget; and the Office of Economic
Opportunity.
     The objectives of the study were to (1) identify problems of finan-
cial management and related grant administration on the basis of dis-
cussions with Federal, State, county, and citv officials and (2) develop
 recommendations which would lead to simplification and improvement
 ill the financial manaffement of grant programs.
     The survey team visited or contacted organization officials in 55 Fed-
eral, State, and local government entities. Approximately 600 officials
 were interviewed during the study. Tlie reoort of the survey, com-
 pleted in October 1969, set forth principal conclusions and recom-
 mendations as follows:
     1. Program and fund, authorization.—There was a need for Federal
agencies to establish a central source of information about grants; to
expedite the review, approval, and funding of grant applications; and
to furnish prospective grantees with technical and other assistance for
securing grants where there was demonstrable evidence of need for
5iich assistance.
    2. Scheduling and controlling grant performance.—Federal agen-
cies needed to insure, to the maximum extent feasible, that (a) contin-
uing funding would be provided to cover grantees' basic financial
commitments, {b) maior modifications of or curtailments in approved
grant programs would be discussed with grantees prior to grantor ac-
tion, {c) uniform and simplified guides would be di.=seminated by
grantors in respect to instructions for program performance and
evaluation of grantee systems of management and internal control, 'and
{d) authority to make decision recrardina; grant performance would
be placed as near to the scene of performance as practical.
    3. Accounting and reportinq.—Federal ap^encies needed to {a) de-
velop a reporting format which was standardized to cover basic finan-
cial data common to most grant operations but which could be
modified or expanded as necessarv to cover unique or special grant
activities or programs, (6) give increased attention and assistance to
improving the timeliness of grantee reporting, and (<?) develop a
single agency cognizance for determining a grantee's acceptable ad-
ministrative overhead and the related overhead rate.
     FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT                     69

   4. Auditing.—There was a need for Federal agencies to {a) better
identify the potential audit workload and fix the single agency cog-
nizance for audit a t a grantee site, (b) establish better guides for the
review and evaluation of grantees' management and intemal control
systems, including intemal 'auditing, and {c) improve the time-
liness of issue of audit reports and manaxreraent action on audit
recommendations.
   5. Personnel management.—There was need for major grantor
agencies, in coordination with the U.S. Civil Service Commission, to
 {a) help grantees establish acceptable merit systems and {b) increase
the reimbursable training and personnel development assistance now
being furnished to grantees.
   Copies of the report, which should provide significant guidance to
 the grant administration improvement and simplification efforts of the
executive branch, were furnished to major grant agencies, interested
congressional committees, and public interest groups.

             STUDY OF TRANSPORTATION IN CIVIL AGENCIES

   A study team, under the chairmanship of the General Services Ad-
ministration and staffed with representatives of the Departments of
the Treasury; Health, Education, and Welfare; Commerce; 'and Agri-
culture ; the Bureau of the Budget; the General Services Administra-
tion; and the General Accounting 'Office, completed in December 1969
a review of transportation procurement and related financial admin-
istration by civil agencies. The team made about 140 visits and received
232 questionnaire responses from civil agencies, the Department of
Defense, and transportation carriers.
   The objectives of the study were to develop (1) improved methods
for expeciiting payment audit and settlement of carrier bills covering
civil agency transportation, (2) improved procurement and payment
practices and documents relating to freight shipments, and (3) im-
proved procurement and payment practices relating to passenger
transportation.
   On the basis of its review, the study team in its report to the steering
conimittee made major recommendations pertaining to (1) the un-
desirability of a central billing point for civil agencies, (2) the ad-
visability of substituting a carrier certification of good order delivery
for the current consignee's certificate of delivery on Govemment bills
of lading, (3) the desirability of agencies establishing amounts below
which they would not process loss and damage claims, (4) the creation
of a separate Govemment bill of lading for household goods and
persona] effects, (5) the revision of the Goyernment transportation
lequest, and (6) the expanded use of direct cash payment for passenger
transportation.
   The Bureau of the Budget had prepared a bulletin as a first step
in implementing most of the recommendations, and the General Ac-
counting Office and the General Services Administration were prepar-
ing proposals for legislation to remove legal roadblocks to imp ement-
ing some of the recommendations.
70           FINANCIAL MANAGEMENT I N T H E FEDERAL                                                                          GOVERNMENT

            INCREASED U S E OF COMPUTERS I N FINANCIAL MANAGEMENT

                                                                   INTRODUCTION

  At the beginning of fiscal year 1970 there were 4,666 computers in-
stalled in Federal Government activities. Ten years earlier there were
only 403. The attached chart 1 shows this dramatic growth.

                                                                           CHART 1
                              GROWTH IN NUMBER OF COMPUTERS IN THE FEDERAL
                                     GOVERNMENT END OF FISCAL YEAR
N O . OF COMPUTERS
     SpOOr




                        GcfMral ManagMiMntClauIflcarion (nan-«xBiif4)
     3900
                        Special MonoBMnM Cloniricolion -
                        cantrol, c l o u i f M A metilt (mainpl)
     3000               Managaimnt cloulfl mtoni net appli«d
                        prior to 1 W

     2500


     2000


     ISOO




       oL
              Thm rapid yowth in lh« iMMibw e l eoN^tMn In meant y M n it Indicative ef on inoeaiins ueuienew on tiw pott ef
              •tiaien ^ ^ / n m » cenfcooccpivlliliod CNIO t h m \ f , efflclontir, end ecenenilcolly ttreugh ewleeiotion.

              Fcill»,«n|»ierteimi,»ooee(K<elo^e<iatedll<eno>befe(caa(>Mntoba:                               1 » 0 ' 2 i i n i - 3 ; l«S2 - 9; l » 3
              i n s - 49) l < » - Ks I M 7 - laOi ond K M - 290.

              >giiiH otfieolot fcr FY 1970 de net noreiMiIly teflect (fVteoed fcudgel plora.

              S O U R C E i CSA lowcMloiii of Aolewotie Dote Procootlnt EoolpMOM
                            in t l w United Stotoe C c f i i t t e e n t , PV 196?, U.S. Covormoont Printint Office, Weelilnfton. D . C .




   Tae scientific and mathematical computing operations of the 1940's
gav'S rise to development in the early 1950's of electronic data proc-
essing devices for use in business and financial management systems.
A whole series of developments in equipment and systems design fol-
lowed which made it possible to adopt electronic systems to office
loutines, including routine decisionmaking operations, and business
and financial management procedures. I t was these technological ad-
vances that made possible the development of advanced systems in
the fields of information processing, information retrieval, account-
ing, reporting, and analysis operations in management control
operations.
   The first large-scale general purpose electronic computer system
 (the type in general use.today) was delivered to the Bureau of the
Census in 1951. I t s introduction and use were rapidly followed by the
development of many other electronic machines in a wide range of sizes
and capacities.
        FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT                                                                                                                   71

   I n t h e early stages of development, Govemment computers were
largely used as a management tool for specific segments of programs
rather than for integrating controls and procedures in related func-
tional areas. These early systems only started progress toward the real
potential to be achieved though full development of integrated elec-
tronics Systems.
                                                     KINDS AND COST OF SYSTEMS

    The Federal Govemment inventory shows that 4,666 computers,
exclusive of analog computers and those built or modified to special
Government design specifications, were installed in Federal agencies
by 1970. Many private companies designed and built these thousands
of computers. The Federal Government's policy has been t o acquire
these machines through a competitive process to promote a healthy
computer industry. As a result, there is a marked distinction between
the dominance of one supplier in the national inventory of computers
 ( I B M Corp.), which at one time achieved a position approaching 80
percent of the market, and the more diversified supplier representation
in the Federal Government inventory. Chart 2 depicts the computer
distribution in Government 'by manufacturer of the equipment.

                                                                                         CHART 2
                            DISTRIBUTION OF COMPUTERS BY MANUFACTURER
                                                                     INSTALLED AS OF JUNE 30

                                          1           2            3 .        .1*           5          6        7             8         9                          TOTAL
                                         BUR          CDC          DEQ          HON          IBM       NCR       RCA         SDS        UNI        OTHER       SYSTEMS


         OWN6D                            19          242          72            84          437        10        86         107       3S4          163            1,604

         LEASED                          156           90                        61          595       178        59            5      212           47            1,403

         TOTAL                           175          332          72           145       1,032        188       145         112       596          210            3,007

         PERCENTAGE                     5.8          11.1         2.4          4.8         34.3        6.3      4.8          3.7      19.8          7.0              100

         0WN6D                            33          287         158           140          500        10        84         149        445         340            2,146

         LEASED                          161           65            1           53          605       184        73           13       351          40            1,546
1967
         TOTAL                          194           352         159          193        1,105        194       157         162       796          380            3,692

         PERCENTAGE                     5.3           9.5         4.3          5.2         29.9        5.3      4.2          4.4      21.-6        10.3              100-


         OWNED                            20          312         213           172          559        9         92         174       470          413            2,434

         LEASED                          173           88             1          75          641       240        84           12       433           51           1,798
 1968
         TOTAL                           193          400         214          247        1,200        249       176         186        903         464            4,232

         PERCENTAGE                     4.6           9.5         5.1          5.8         28.4        5.8       4.2         4.4      21.3         10.9                 100

         OWN©                             19          324          330          184          660           7      93         199       478          496            2,790
         LEAS 5 }                        176           80             1             87       651       261        96           10      472           42            1,876
 1969
        . TOTAL                          195          404          331          271       1,311        268       189         209       950          538            4,666

         PERCENTAGE                      4.2          8.7          7.1          5.8         28.1       5.7       4.0         4.5       20.4        11.5                 100

        SOUftCEt GSA Invontorr'of AwtoMotlc Dato             Procoailni tqulpownt
                    Iniho UnltoJ StDtoi GovornMnl,           ^ V I M f , U.S. Goromnwnt Prrnting O H k o , Waihlngton, D. C .
           1 - BurrouBh* C o r p .             4.            Honoywoll, Inc.                                   7 . Radio C o r p o r a t i o n o f A m e r i c a
           2 . C o n t r o l OatB C o r p .    5.            Intarnatlonal B u d n a i i M a c h l n t i Corp, B . Sclantiflc Data S y t t a m *
           3 . Digital E q u l p m a n l C o r p .        6 . N a t i o n a l C a t h Raglitar C o .                9 . UnWac D I v l i l o n , Sparry Rand C o r p .




  I n terms of costs, billions of dollars have been invested. These costs
were incurred for the development and use of computers and computer-
related devices, communication facilities, and physical plant facilities;

          68-109 o — 7 1 -
72          FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT

site preparation, purchase, rental, and maintenance of equipment; ma-
chine programs; data processing systems; procedures; software; data
banks; personnel; management know-how; training; miscellaneous
equipment; fixtures; supplies of magnetic tape; other recording de-
vices and media; contractual services for hardware and software; and
other related items. The current governmental expenditures 'are esti-
mated by the Bureau of the Budget to be running at the rate of $2
billion annually. Chart 3 depicts the recent history of expanding dol-
lar costs of data processing effort including the salaries of personnel,
equipment rentals, supplies, contractual services, equipment purchases
and maintenance, and site preparation.
                                                                   CHART 3
M,Luo.so.DOL..»s                                        TOTAL ADP COSTS
     2S00




       OL
                i;60         IMI          19i2          1963        i;6<          1969          1966        1967         1968      1969     1970
                                                                                                                                              ESI.
             Tho onnuol Incrooio. roMjIl primarily from Iho coitlnuod growth In tho mm^or ef eont^tors Iralollod and otqnndod WM of campwton.
             Iho e n t of AOP ofTcrlt Includos tolarlot of ponOfwiol, oqulpoiont rontall, njfpllol, controctuol Mrvlcoi, oqulpfflont purehOMi and
             molntonanco, and tito proparatlon.
            'Excludii eeiti of compwtora mod for control purpoios ond eofflowton Intlollod In cloalflod phyticol locollora, tilthou^ oich computois
             oro includod In tho Inventory count. Tho $l,653jiiIJI|on total AOP cotti drawn for FY 1968 It on odlustnwnt to tho provtously publidiod
             figwro of SI,462 million. Thiiodu«tinontrofloct.r«uiti of actions Inltlotod during'FY'l968bwf«ibMiquontly flnoltzod os chongos to
             original plant.
             SOURCCi GSA lovontcn, of A m t w l o Doto ProcoHtng EoatpoMot
                        to tiM Unltod Stotoa Oot.rooisot, PY 19<9. U.S. C o i o w i o l Priothn Olfkflw WoiMofloo. 0 . C.



                          COMPUTER USES AND AGENCY DISTRIBUnON

   Electronic computers are being used in virtually every important
Government program. The individual uses are too numerous to list.
Chart 4 showing the distribution of computers by Govemment agency
is in itself indicative of the widespread and diverse use to which com-
puters are put. Computer use extends into 'almost every phase, both
administrative and technical, of Govemment operations. Administra-
tive uses include the financial management activities of payroU, gen-
eral accounting and reporting, budgeting, and disbursing; personnel
management; supply and inventory control; and purchasing and con-
                                                                         CHART 4

                                           DISTRIBUTION OF COMPUTERS BY AGENCY
                                                              INSTALLED AS OF JUNE 30
                                                                                                                                                             i
                                                                                                        OTHER  AIR                         OTHER
                     AEC     AGRIC COMM        GSA    HEW      INT    NASA     DOT     TREAS    VA                     ARMY   NAW    DSA    DOD TOTAL
                                                                                                        CIVIL FORCE
                                                                                                                                                             >
1 OWNED              223       25     24        9       17      13    363       21     54       14        21     296    234    259    16    15   1,604

 LEASED               33        3     23       15      28       14    126       10      4       •3        41     573    273    180    67    10   1,403 i

1 TOTAL              256       28     47       24      45      27     489       31     58-      17        62     869    507    439    83    25   3.007
                                                                                                                                                             >
 PERCENTAGE          8.5       .9    1.6       .8      1.5      .9   16.3      1.0     1.9      .6       2.1    28.9   16.8   14.6   2.8    .8     100       o
OWNED                307       27     29       19       20      16    491       45     50       14        34     398   245     413    20    18   2,146

1 LEASED               17       5     12       12      37       18    125       13      2       15        49     633    296    231    66    15   1,546

TOTAL                324       32     41       31      57      34     616       58     52       29        83   1,031   541     644    86    33   3,692       1-1

1 PERCENTAGE         8.8       .9    1.1       .8      1.5      .9   16.7       V.6     1.4     .8       2.3    27.9   14.7   17.4   2.3    .9     IOO       SI
                                                                                                                                                         i
OWNED                396       29     34       18       25      17    537       48      58      14        4«     397    261    501    34    17   2,434
1 LEASED              19        8     19        6      55       18     102      13       1      21        52    671     451   262     8i    19   1,798

TOTAL                415       37     53       24      80      35      639      61      59      35       100   1,068    712    763   115    36   4,232
PERCENTAGE           9,8       .9    1.3 .     .6      1.9      .8    15.1     1.4     1.4      .8       2.4    25.2   16.8   18.0   2.7    .9     100       H
                                                                                                                                                             ft)
pWNB)                547       28     39       21      44       21    562       71      65      15        53    468     273   533     31    19   2,790
                                                                                                                                                             >
                                                                                                                                                             f
LEASED                12       n      20        6      40 •    26      80       29    • 3       25        50    657     521   290     90    16   1,876       Q
                               39     59                       47                                        103           794                                   O
1 TOTAL              559                       27      84             642      100      68      40             1,125          823    121    35   4,666       <J
                                                                                                                                                             H
1 PERCENTAGE        12.0       .8    1.3       .6     1.8      1.0   13.7      2.1     1.5      .9       2.2    24.1   17,0   17.6   2.6    .8     100 1     ft)


                                                                                                                                                             H


SOURCE: GSA Invanlory «f Autotnotle Doto Precsislng Equtpmcnl
        in th* Unltad Stolas Govamment, FY 1969, U.S. Govcrntntnt Printing Offic*, Waihlngten, D, C ,
                                                                                                                                                             oa
74   FINAN'CIAL MANAGEMENT IN THE FEDERAL GOVERNMENT

tracting activities. I n technical applications, computers are used to
process tax returns, control air traffic, service veterans' insurance pol-
icies, process weather data, control space flights, administer social
security benefits, operate the military logistics system, and perform
research in scientific programs. Computers are now and undoubtedly
will continue to be put to new and different uses.
   As might be expected automatic data processing systems are used
extensively throughout the Department of Defense in budgeting, sup-
ply management, accounting and reporting, and related financial man-
asrement activities. I n civilian agencies the following are a few
illustrations of program applications: (1) the benefit payment and
insurance accounting programs in the Veterans' Administration, (2)
wage record and benefit payment operations in the Social Security
Administration and the Eailroad Ketirement Board, (3) mortgage
accounting in the Federal Housing Administration, (4) inventory
accounting in the General Services Administration and the commodity
programs of the Department of Agriculture, and (5) savings bond
accounting and auditing procedures, internal revenue tax return proc-
essing, and the check issuance, payment, and reconciliation oi)erations
of the Treasury Department.

                         PRESIDENTIAL   SUPPORT

  The use of computers has been encouraged at the highest levels of
Government. In 1966, President rJohnson addressed a memorandum
to the heads of departments and agencies stating in p a r t :
        I want the head of every Federal agency to explore and
     apply all possible means to
          —use electronic computers to do a better job
          —manage computer activity at the lowest possible cost.
        I want my administration to give priority emphasis to both
     of these objectives—nothing less will suffice.
        The electronic computer is having a greater impact on what
     the Government does and how it does it than any other prod-
     uct of modern technology.
          *       *      *       *     *        *      *
       I n short, computers are enabling us to achieve progress
     and benefits which a decade ago were beyond our grasp.
       The technology is available. Its potential for good has been
     amply demonstrated, but it remains to be tapped in fuller
     measure.
        I am determined that we take advantage of this technology
     by using it imaginatively to accomplish worthwhile purposes.
          *       *      *       *     *         *     *
   Several progress reports prepared by the Bureau of the Budget in
response to the President's memorandum reported many accomplish-
ments in furtherance of his objectives. F o r example, Federal agencies
reported finding new and different ways of using computers to provide
better service to the public, perform work more efficiently, and reduce
the cost of operations. Government-wide programs have been imple-
mented to improve the procurement process, obtain maximum utiliza-
tion from existing computer facilities before acquiring new ones, and
     FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT                                        75

achieve a greater compatibility among types of equipment offered by
manufacturers and among the data being processed by computers.
   For the most part, electronic computers have come to be regarded as
a major and vital resource to accomplish the primary program re-
sponsibilities of many Government agencies. However, significant
opportunities for improving public service and for increasing the effec-
tive utilization of computers and related software continue to exist.

 G O V E R N M E N T - W I D E U S E O F A U T O M A T I C DATA PROCESSING E Q U I P M E N T

   Concerned over the agency-by-agency approach to automatic data
processing ( A D P ) , the 'Comptroller General of the United States
issued a report on June 27,1958, critical of the trends in Govemment-
wide management of A D P . The report pointed out t h a t no single
agency of the Government was responsible for directing and coordinat-
ing developments in this field. A principal recommendation of the
Comptroller General, therefore, W'as that it was necessary to establish
an effective coordinated A D P program for the various user agencies
in the Government. Again on December 30,1960, the Comptroller Gen-
eral issued a report emphasizing the need for Government-wide coor-
dination in A D P management. A third report on March 6, 1963,
stressed that very sizable sums could be saved if the Federal Govem-
ment purchased, instead of leased, a larger portion of its A D P
equipment.
   Intermittently throughout this period, the Bureau of the Budget
had issued reports and guidelines on the purehase and use of A D P
equipment. The detailed procedures that were to be followed before
acquisition of A D P equipment were clearly advisory and there was no
requirement that 'agencies planning to acquire this type of equipment
follow the Bureau's recommendations. In March 1962, the Budget
Bureau directed agencies to submit annual reports on their use of A D P
and their inventories of A D P equipment. More management guidelines
were issued in August 1963, with the publication of BOB Circular
A-^61.
   In April 1964, the Comptroller General issued another report noting
that while some improvements had been made in A D P management,
optimum efficiency and effectiveness could not be achieved until a
Government-wide coordinated program was implemented. The House
of Kepresentatives, in rJuly 1963, approved H.R. 5171, providing for
coordination in Government-wide A D P management, but the Senate
did not act upon the legislation. The House on September 2,1965, and
the Senate on October 22,1965, passed legislation which became Public
Law 89-306, October 30,1965.
  The act provided for coordination of the Government's A D P pro-
gram, with the General Services Administration administering an
A D P revolving fund for equipment acquisition. This procedure al-
lowed for (1) more adequate management information, (2) optimum
utilization of the equipment, and (3) economic acquisition of Govem-
ment A D P equipment. The Bureau of the Budget would exercise con-
trol over fiscal and policy mattere related to the use of A D P equip-
ment by Government departments and agencies. The National Bureau
of Standards was responsible for technical support for the manage-
ment program.
76    FESTANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT

    Through the revolving fund for Govemment-wide A D P acquisi-
 tion, the General Services Administration acquired the A D P system
 selected by an agency and, in effect, rented the equipment to the
 agency. Each agency then reimbursed the revolving fund at rates re-
 flecting the use value of the equipment. The GSA was able to purchase
 equipment at lower rates as a volume buyer. In addition, Government-
 wide coordination provided an effective means for making "lease-
versus-purchase" evaluations on the basis of overall benefit to the
 Government. Budgetary considerations and funding problems in indi-
 vidual agencies did not interfere with decisions on "lease-versus-
 purchase" advantages since they were made on an overall Govern-
ment-wide basis, with the highest priority given to equipment having
the greatest purchase advantage.
    The General Services Administrator oould not interfere with the
determination by the agencies of their A D P requirements. The agen-
cies set specifications for and selected the type and configuration of
equipment they deemed necessary, and the Administrator procured
and supplied the equipment. If the user and the Administrator dis-
agreed on a proposed determination (notice to agencies of determina-
tions affecting them or the equipment used by them was required), the
matter was subject to review and discussion by the Bureau of the
Budget, or as the President might otherwise direct. The G S A could
exempt individual systeins from the overall program to avoid com-
promise of national security and defense and to assure the most eco-
nomical and efficient use of A D P systems.
    Bureau of the Budget Circular No. A-54, dated October 1961, and
modified in June 1967. presented policies on selection 'and acquisition
of A D P equipment. These policies called for comparisons of overall
costs to lease, to lease with option to purchase, and to purchase the
proposed equipment. These overall costs included maintenance of
equipment. I n April 1968, the Comptroller General issued a report
pointing out that, in most oases, maintenance services for Government-
owned computers were being obtained from computer equipment man-
ufacturers. The report stated that significant savings 'and operating
advantages were being realized by organizations within and outside
the Federal Government which maintained their own automatic da*a
processing equipment. Accordingly, the 'Comptroller General recom-
mended t h a t executive agencies consider in-house maintenance in
reaching procurement and maintenance decisions.
   I n June 1969, the Comptroller General issued another report show-
ing that it was common practice for Government A D P managers to
obtain all required A D P equipment from computer systems manufac-
turers even though certain items of equipment could be procured more
economically from the original manufacturers or from alternate
sources of supply. Manufacturers of peripheral equipment—magnetic
tape units, disk storage drives, etc.—were making a concentrated ef-
fort to compete with the systems manufacturers and to offer selected
items of equipment directly to users. The report identified selected com-
puter components that were directly interchangeable (plug-to-plug
compatible) with certain other systems manufacturers' components
and were available at substantial savings. The principal recommenda-
tions of the Comptroller General were that the heads of Federal agen-
cies should take immediate actions to implement steps requiring
    FINANCUL MANAGEMENT IN THE FEDERAL GOVERNMENT                      77

replacement of leased components that could be replaced with more
economical plug-to-plug compatible units, and pending issuance of
specific policies. Federal agencies should evaluate alternative sources
of supply.
   The Government-wide use of computers in the future will undoubt-
edly involve efforts on the part of all concerned to achieve optimum
efficiency and effectiveness.

             CENTRALIZED TAX P A Y M E N T DATA PROCESSING

  Prior to enactment of Public Law 89-713, November 2, 1966 (In-
ternal Revenue—Data Processing), tax returns were filed in one of the
58 offices of the District Directors of Internal Revenue, as determined
by the district of residence or principal place of business of the tax-
payer. After the initial processing of the return, it was sent to one of
the seven regional centers for completion of processing.
  This act specified that returns were to be sent directly to the regional
service centers, thereby eliminating double handling of returns and
extending the economies of volume processing to the initial processing
of returns. This new procedure was instituted primarily in order to
take full advantage of the automatic data processing system installed
in the Internal Revenue Service's regional centers and the resulting
economies due to the reduction in processing time.
 PART III.      AGENCY DEVELOPMENTS I N FINANCIAL
                   MANAGEMENT, 1961-70
   A further way to describe and analyze significant changes in finan-
cial management in the 1960's is to look a t specific agency develop-
ments. The broader and more far-reaching changes are most clearly
illustrated 'by actions taken by the central or staff agencies—the
Bureau of the Budget, the Civil Service Commission, the General
Accounting Office, and the Treasury Department. These agencies are
responsible for prescribing budget, accounting, personnel, and 'related
requirements to be observed by other agencies. Other developments are
evidenced by the actions taken by the executive or administrative agen-
cies to improve their own intemal financial management practices
within the framework of 'applicable laws enacted by the Congress and
the regulations issued by the central agencies.


                      BTJBEAU or THE    BUDGET

  The Bureau of the Budget (now the Office of Management 'and
Budget) is responsible for assisting the President in the preparation
and administration of the Federal budget and in the development of
improved plans for organization, coordination, and management of
the executive branch. During the 1960's the Bureau gave increasing
attention to providing guidance to Federal agencies, State and local
governments, and universities as discussed below.

       FINANCIAL ADMINISTRATION OF GRANT-IN-Am PROGRAMS

  The decade of the sixties saw a significant increase in the size and
number of federally assisted grant-in-aid programs carried out
through State and local governments and the university community.
The Federal agency with responsibility for la given program developed
instructions to be observed by State and local governments and uni-
versity recipients in the administration of the grants frequently with-
out adequate coordination with other Federal 'agencies, coupled with
the fact that grantees frequently dealt with more than one "Federal
agency, resulted in the imposition of a multitude of different require-
ments on many grantees.
  On March 27, 1969, the President directed the major Federal grant
agencies to work together with the Bureau of the Budget to streamline
the delivery of Federal resources which assist States 'and communities
in programs of service to people. Toward this end a major effort is
underway. As part of this 'total effort two projects are in progress in
the financial area to (1) standardize on 'a Government-wide basis, to
the maximum extent possible, the financial requirements imposed upon
                                                                79
80    FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT

 grantees and (2) develop a common body of policies, standards, 'and
guidelines for use in the audit of grant programs.
    Other 'actions, which have been taken to improve financial admin-
 istration of grant programs, are as follows.
Cost determination under grants to educational      institutions
    I n 1961 and again in 1965, the Bureau of the Budget updated and
refined Circular No. A-21 which set forth uniform principles and
methods for determining costs applicable to research grants and con-
tracts with educational institutions. On January 2,1969, a supplement
to Circular A-21 was issued which provided uniform principles to be
used by all agencies in determining costs under grants and contracts
with educational institutions for training and other educational
services.
    I n 1968, the Bureau of the Budget issued Circular No. A-88 which
established the policy that 'a single Federal agency would be responsi-
ble for negotiating the indirect cost rate and for the audit of all Fed-
eral grants to a single educational institution. The circular provided
for an interagency committee to work out the single agency assign-
ments. This was done and on August 1,1969, a supplement to Circular
A-88 was issued setting forth the single agency assignments fbr ap-
proximately 2,000 educational institutions. This arrangement provided
a coordinated Federal approach in these areas and achieved more effi-
cient use of manpower.
Gioides and procedures pertaining to State and local governments
   'On June 28, 1967, the Bureau of the Budget issued Circular No.
A-85 which established formal procedures "to afford chief executives
of State and local governments a reasonable opportunity to comment
on significant proposed Federal rules, regulations, standards, proce-
dures and guidelines applicable to Federal assistance programs." The
A-85 procedures 'afforded representatives of State and local govern-
ments an opportunity to express their views on proposed Federal regu-
lations at the time of formulation.
   I n recognition of the need for the most effective utilization of all
appropriate audit resources in the audit of Federal grants-in-aid to
State and local governments, the Bureau of the Budget in August
1965 issued its Circular No. A-73 which called upon Federal agencies
to rely, to the maximum extent feasible, on internal or independent
audits performed at the State and local levels and to use the principles
of statistical sampling in their auditing work. The use of cross-
servicing agreements between Federal agencies for obtaining necessary
audit coverage was also encouraged.
   In May of 1968, following extended discussions with Federal agen-
cies and State and local governments, the Bureau of the Budget issued
Circular No. A-87 to establish uniform Government-wide principles
and standards for determining costs applicable to grants and contracts
wuth State and local governments. This standardized, for the first
time, the principles used by the various agencies.
   The circular also provided for working toward the goal of "single
agency" responsibility for the negotiation and audit of indirect costs
of State and local government grantees.
    FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT                    81

                  INTERGOVERNMENTAL      COOPERATION

   Following enactment of the Intergovernmental Cooperation Act of
1968 (Public Law 90-577, Oct. 16, 1968), the Bureau of the Budget
issued a series of circulars during 1969 and 1970 to provide for imple-
mentation of the act.
   Circulars A-95 and A-98 provided for greater cooperation between
Federal agencies and State and local governments in the evaluation,
review, and coordination of Federal assistance programs and projects
and established a system for notifying appropriate State officials of
the purpose and amounts of actual grants-in-aid to the State or its
political subdivisions.
   Circular A-9'6 provided instructions to Federal agencies on eliminat-
ing requirements for maintaining separate bank accounts for Federal
funds apart from other funds administered by the State. I t also pro-
vided for the scheduling of transfers of grant-in-aid funds in a manner
to meet State needs and minimize the time elapsing between the trans-
fer of such funds from the U.S. Treasury and their disbursement by
the State. States were also relieved of accountability for interest
earned on grant-in-aid funds pending their disbursement for program
purposes. Finally, the circular provided procedures whereby statutory
requirements that a single State agency or multi-member board or
commission must administer or supervise any grant-in-aid program
could be waived under authority of section 204 of the act.
   Circular A-97 set forth instructions to Federal agencies regarding
use of the authority granted in section 302 of the act which permitted
the furnishing of specialized or technical services to State and local
units of government.


                      CrviL   SERVICE COMMISSION

   The U.S. 'Civil Service Commission (CSC) was created by an act of
Congress in 1883, the so-called Pendleton Act, which initiated a re-
form movement in the Federal personnel system. The fundamental
purpose of the laws was to establish, in the parts of the Federal service
covered by its provisions, a merit system whereby selection for appoint-
ment would be made upon a basis of demonstrated relative fitness with-
out regard to religious or political consideration.
   The Chairman of the Civil Service Commission in May 1966 joined
with the Secretary of the Treasury, the Comptroller General of the
United States, and the Director of the Bureau of the Budget in the
already established Joint Financial Management Improvement Pro-
gram. Commission participation in this program resulted from the
conviction that lasting and substantial improvements in the financial
management of Federal programs would not be possible unless the
quality of financial managers kept pace with legislative and technical
advances.
  There are two areas in which the Commission contributes actively
toward improving the quality and professional competence of financial
management personnel: in recruiting and examining and in the train-
ing of executive branch employees.
82    FINANCUL MANAGEMENT IN THE FEDERAL GOVERNMENT

                      R E C R U I T I N G AND   EXAMINING

    Several phases of the CSC's recruiting and examining activities
 assist in bringing well-qualified personnel into the Government. Chief
 among these are pay adjustments, separate examining vehicles, and
 creation of technician positions to support the work of highly skilled
 professionals.
    Specifically, in the pay area, 5 U.S.C. 5303 permitted the Commission
 to establish higher than regular salary rates for an occupation when
 private enterprise rates were causing staffing or retention problems
 in Federal agencies. These special salary rates have been established
 for accountant and auditor positions at certain grade levels so that
 Federal agencies can compete with private employers for these scarce
employees. These higher rates are reviewed regularly with employing
agencies to determine if adjustments are warranted in the light of
 their staffing needs and labor market conditions.
   Another primary recruiting aid is the establishment of separate
examinations for occupations whore special skills are needed. The
Commission, through its Interagency Board network, has announced
such examinations for professional accounting and auditing positions.
Persons with full professional qualifications can apply at any time
under these announcements without taking a written test. Lists of
 eligibles established under these examinations are then used for staffing
purposes by all executive agencies as well as the General Accounting
 Office and the District of Columbia Government.
    I n times of critical staffing shortages, the CSC may authorize indi-
vidual agencies to recruit and examine candidates under open an-
nouncements and, in many cases, to offer immediate appointments to
 particularly well-qualified applicants. These authorities are constantly
reviewed in light of changing labor market conditions and have proved
a useful tool in staffing accounting and auditing positions.
   As an adjunct to its efforts in the professional area, the Civil Service
Commission recently completed 'an occupational study of accounting
technician positions which resulted in new classification and qualifica-
tion standards for the occupation. The study refined the concept and
clarified the relationships between the accounting technician and the
professional accountant. As the support counterpart to the profession
of accounting, the technician occupation was defined as including
routine accounting functions which required less than full professional
knowledge, skill, and ability. Establishment and clarification of the
accounting technician occupation should help to improve career oppor-
tunities for persons with less than full professional accounting qualifi-
cations. High-quality applicants and employees who once had little
future beyond the clerical occupations because they had never had the
advantaa^e of professional 'accounting experience or education, now
have career possibilities in the technician occupation t h a t might other-
wise have been denied them. Establishment of the accounting techni-
cian occupation not only provided 'a means to relieve the professional
accountant of detailed and routine work, but at the same time helped
to improve career opportunities for persons with less than full pro-
fessional accounting knowledge. Hence, these standards contributed to
better utilization of employee skills within the financial management
function.
     FESTANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT                    83

   During 1968, the 'Civil Service Commission revised the qualification
standards for professional accounting positions. The new standards
recognized the value of educational courses in data processing, man-
agement audit, and other related areas, in addition t o the more tradi-
tional accounting courses. They tied in with trends in the accounting
curricula of many colleges toward broader study in areas related to
the aocounting mission, but not specifically identified in the traditional
core of basic accounting courses. The changes enhance the 'ability of
the Federal Government to recruit well-rounded professional 'account-
ing personnel.
   The Civil Service Commission has also made several refinements, as
described below, in its continuing efforts to improve the practices of
recruitment and examination for financial management positions
above the entry level.
   Positions in Grades GS-13 through GS-15.—All positions in finan-
cial management at grade levels GS-13 through GS-15 are under the
open continuous nationwide examination for senior level positions.
This examination makes possible active recruitment by agencies of
well-qualified candidates for career jobs and provides for the use of
agency subject m'atter experts in the evaluation of applicants'
qualifications.
   Positions in Grades GS-9 through GS-12.—Aocounting positions at
these grades with agencies in the Washington, D . C , area are filled
through ian open continuous examination announced by the Inter-
agency Board of U.S. Civil Service Examiners for Washington, D.C.
Auditor positions are filled through a nationwide open continuous
examination. Now in the planning stages is an open continuous nation-
wide examination which will include all professional accounting and
auditing positions in grades GS-5 through GS-12. This m i l provide
agencies with a single vehicle through which to recruit and will utilize
agency subject matter experts to evaluate candidates' qualifications
for positions at grades GS-11 and GS-12.
   Other positions in financial management fields are covered by an
open continuous nationwide examination for mid-level positions,
which was 'announced in October 1967.

               M A N A G E M E N T SCIENCES T R A I N I N G   CENTER

   Another important area in which the Civil Service Commission is
working to aid financial managers throughout the Govemment is in
the field of training personnel and upgrading skills.
   I t was with this key activity in mind that in 1967 the Commission
created a Financial Management and Planning-Programming-
Budgeting Training Center within the Bureau of Training. On
July 1. 1970, this training activity was redesignated as the Manage-
ment Sciences Training Center. This was done to more accurately
reflect the growing responsibilities of the Center, particularly in the
area of operations research. The Management Sciences Training Cen-
ter is one of six such Centers in Washington, D . C , under the direction
and control of the Director of the Bureau of Training in the Civil
Service Commission. This Bureau was formally established on Mav 1?
1967. I t absorbed the responsibilities previously lassigned to the Oifice
of Career Development as well as those outlined in Executive Order
84    FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT

11348, April 22,1967, and the Report of the Presidential Task Force on
Career Advancement.^ Additionally, The Bureau of Training directs
the activities of Regional Training Offices and the Executive Seminar
Centers at Kings Point, Berkeley, and Oak Ridge. I n fiscal year 1969,
attendance at Center-sponsored financial management training pro-
grams increased sevenfold. I n recognition of the critical importance
of training to the future of financial management in Government, the
Director of the Center was selected to represent the Commission on the
Steering Committee of the Joint Financial Management Improvement
Program.
Objectives and scope
  The Management Sciences Training Center has the following
objectives:
     —To provide responsive and practical interagency and inter-
       governmental training and development programs in special-
       ized disciplines used and technical elements involved in the
       management of public programs; and to focus on the develop-
       ment of critical communication links between the manager and
       the information-producing specialist;
     —To provide management sciences training support to Civil
       Service Commission Regional Training Institutes;
     —To provide advice and assistance to individual agencies and
       State, municipal, and local governments attempting to reform
       and improve their management systems, financial programs,
       and analytic capabilities;
     —To stimulate, encourage, and participate in the exchange of
       information about the most significant and innovative ideas
       originating within the professional communities; and
     —To assist in the management and administration of special
       intern and fellowship programs.
   Since the creation of the Center, several steps have been taken to
help realize these objectives. A skilled professional staff has been
assembled. A considerable body of new training material has been
created and more is being developed. The active assistance and con-
tinuing consultation and advice of the Office of Management and
Budget and the General Accounting Office have been sought and
provided. The staff maintains liaison with the professional community
through active membership in the American Economic Association,
the Federal Government Accountants Association, the American
Accounting Association, the American Institute of CPA's, and the
Association for Public Program Analysis.
   The purpose in designating a separate training center for manage-
ment sciences training was to permit the assembling of a professional
staff whose entire 'attention would be directed to this area of specializa-
tion. An underlying theory of the Center was that through the employ-
ment of subject nv&tker specialists 'and continuing research, the Center
would be able to serve in time as a center of innovation and advance-
ment in financial management training. The operation of the Center
has been subsequently augmented by the creation of four regional
 '^Investment for Tomorroiv: A Reoort of the Presidential Task Force on Career Advance-
ment, U.S. Government P r i n t i n g Offlce, 1967, p. 69.
    FINAN'CLVL MANAGEMENT IN THE FEDERAL GOVERNMENT                    85

Financial Management Institutes in Philadelphia, St. Louis, Atlanta,
and San Francisco.
   Innovation and application of better methods have now become
dominant characteristics of governmental planning and control sys-
tems. I n such times there is a particular newJ for 'an intensified educa-
tional program to insure that valid innovations are rapidly assimilated
throughout the Govemment. Thus, the entire range of financial man-
agement techniques forms one important arm of the Center's intel-
lectual reach.
    The balance of the Center's courses are divided into two program
areas: management systems training and program analysis training.
Mamagemyent Systems Training programs offer core conceptual skills
training in fundamental disciplines (mathematics, statistics, and eco-
nomics), decisionmaking, management information systems, and
scientific methods of analysis. Orientations, seminars, and workshops
are used extensively in this area of continuing training for managers,
specialists, and professionals. Program Analysis Traiming is oriented
toward the needs of the producer of analysis, both the neophyte and
the professional. 'Courses range from training in basic and 'broadly
used analytic techniques to specific applications. Seminar-type pro-
 grams and workshops are included in this group of courses.
    The great potential of the management sciences is to improve deci-
sionmaking processes by generating alternative courses of action more
systematically and assessing their costs and benefits more accurately
than less exacting methods. The effective management of financial
 resources not only assists planners in the analysis of alternatives and
 managers in the accomplishment of program goals, it also helps them
adjust operations quickly and selectively to solve short-range economic
 and social problems.
    The Center provides advanced intensive training for executives and
staff specialists who need to understand the fundamental concepts of
 financial management and the other systems-centered management
 planning and control techniques. I t identifies new needs for employee
 development and develops training opportunities to satisfy the require-
 ment through a progressively expanding curriculum.
    Developing programs for financial management technicians reflect
 the legitimate aspirations of lower graded employees to improve them-
 selves and to advance into professional level positions.
Methods and staffing
    Instructors and course developers of specialized training programs
were called in from industry, universities, and the consultant field to
 augment in-house and governmental resources. The cooperation of uni-
 versities and private industry was sought for the development of new
 training programs. A significant innovation introduced in the Center's
 programs has been the unprecedented level of cooperation between the
 Center and many universities. Center personnel have worked side by
 side with outstanding academic experts at the planning boards and in
 the classroom to introduce into Center programs a good blend of theory
 and experience.
    For the first few summers a new approach was used to help develop
new courses, all with the able assistance of the General Accounting
Office. University experts in financial management were hired by tha
•86   FINANCUL MANAGEMENT IN THE FBDERAL GOVERNMENT

GAO to work on the development of material that would benefit
both the GAO and the Financial Management and PPB               Training
Center. Important outputs were a research paper on the application
of marketing techniques to planning government programs and two
training courses. Determining Program Costs and Management Use
of Financial Information. Another university representative helped
develop a course in Accrual Accounting.
   Considerable emphasis has been placed on the development of spe-
cial training materials to make training programs more effective and
more meaningful to Federal employees. Under the Center's direction,
25 case studies and two management "games" have been produced by
skilled university case writers. The Bureau of the Budget has super-
vised the writing of 10 additional teaching cases. Not only has this
specially prepared educational material improved the quality of
training, but also it is being used widely by colleges and universities
to improve the quality of instruction afforded young people prepar-
ing to enter the public service. To insure the widest possible use of
the material, dissemination responsibilities were placed with the Inter-
Collegiate Case Clearing House at Harvard, where the materials are '
available to all educational and training organizations at cost. Under
the auspices of the Ford Foundation, an additional 10 cases have
been produced, covering problems in the State and local govemment
area. The Center cooperated in the development of these cases as
well. In total, therefore, 45 case studies of financial management prob-
lems are now available. These cases have materially increased the
effectiveness of courses offered by the Center.
Intemational and State and local activities
  Even before the Intergovernmental Cooperation Act of 1968 was
passed, the Center had been actively assisting training efforts at levels
other than the Federal Government. For example, the Director of the
Center participated with Ohio State University in planning a seminar
to introduce State vocation education administrators to P P B concepts.
A special 1-week P P B Seminar was presented at the University of
Puerto Rico for about 90 participants composed of faculty, graduate
students, and officials of the Pureto Rican Bureau of the Budget.
   I n cooperation with the Office of Education, a regional planning
conterence was conducted in Massachusetts for directors of special
education and State planing officials from the New England area.
   Foreign participants in the Center's programs came from Germany,
Iran, Ceylon, Indonesia, New Zealand, Canada, Saudi Arabia, the
United Nations, the Philippines, Japan, India, Pakistan, and Ireland.
Japan, which sent 18 students in fiscal year 1969, has asked for space
for 15 in fiscal year 1970.


                    GENERAL ACCOUNTING OFFICE

  The purposes, functions, and responsibilities of the General Ac-
counting 'Office (GAO) may be divided into five general categories:
    —Auditing and reviewing the manner in which Federal programs
      are carried out.
    —Providing direct assistance to the Congress.
    FINANCUL MANAGEMENT IN THE FEDERAL GOVERNMENT                       87

      —Prescribing Federal agency accounting requirements and coop-
        erating with Federal agencies in the development of laccounting
        systems.
      —'Providing legal advice and rendering legal opinions at the re-
        quest of heads of departments and agencies.
      —Settling claims by and against the United States.
   I n the sections following there is brief discussion of GAO's activ-
ities in (1) auditing and reviewing Federal programs, (2) using sys-
tems analysis techniques, (3) reviewing and approving principles and
standards and designs for agencies' accounting systems, 'and (4) train-
ing and developing professional staff.

               AUDIT AND R E V I E W OF FEDERAL PROGRAMS

   The primary purpose of GAO audits and reviews is to make for the
Congress independent examinations of the manner in which Govern-
ment agencies discharge their financial responsibilities. This includes
inquiring into such questions as whether (1) funds and other resources
are utilized only for authorized programs and 'activities and are prop-
erly accounted for and reported, (2) agency resources are managed
efficiently and economically, and (3) programs are 'achieving the ob-
jectives intended by the Congress.
   GAO approaches its audit responsibilities with a presumption that
each agency will design its system of management and related controls
to achieve effective, efficient, and economical operations. Consequently,
the major focus of GAO audit examinations and reviews is to test
an agency's system of controls in operation, evaluate the apparent
strengths and weaknesses of the controls, and report on the conditions
found together with appropriate conclusions and recommendations.
I n selecting areas for review GAO gives primary attention to those
agency programs and operations known or considered to be of direct
interest to the Congress or which in the judgment of GAO officials
permit the GAO to render the maximum assistance to Congress and
the executive branch.
   I n recent years GAO has increased its capability to appraise the
adequacy of program management and has placed additional em-
phasis on determining whether Govemment programs are achieving
the purposes intended by the Congress. Considerable progress has
been made toward increasing the effectiveness of audit work through
 broader scope and multi-agency reviews which are believed to be more
 useful to the Congress.
    The reports issued to the Congress by GAO constitute one of its most
important means of assisting the Congress. The reports provide the
 Congress as well as the agency heads an objective appraisal of the
operations of the agency or activity covered. The number of GAO
 reports has grown steadily over the years reflecting, at least in part,
the growth and complexity of Government operations. I n fiscal year
 1960, 224 reports were submitted to the Congress or its committees
 and Members, and an additional 551 reports were addressed to agency
 officials. I n fiscal year 1970, 524 reports were submitted to the Congress
 or its committees and Members and 644 were addressed to agency
 officials.

      68-109 O—71    -7
88    FINANCUL MANAGEMENT IN THE FEDERAL GOVERNMENT

   GAO audit reports cover a wide variety of subjects including such
matters as the uses made of foreign currency; military and economic
assistance to foreign governments; urban renewal; space exploration;
antipoverty programs; and the procurement, production, and opera-
tion of major weapons systems in the Department of Defense.
   Each year the GAO submits to the Congress a compilation of its
findings and recommendations for improving Government operations
identified during the course of audit. The purpose of this special report
is to provide a convenient summary for the use of the Congress and
Federal agencies showing opportunities for savings and other improve-
ments in Government operations.
   WTiile the financial benefits attributable to the audit and review work
of the General Accounting Office cannot always be fully measured, cash
collections and other measurable benefits resulting from such work are
substantial. For example, in fiscal year 1970 the measurable savings
amounted to about $250 million.
   Examples of broad scale reviews made by GAO in recent years are
discussed below.
   Staff of GAO, supplemented by consultants as necessary reviewed
the principal programs authorized by the Economic Opportunity Act
of 1964, as amended. The review, performed pursuant to the require-
ments of title I I of the Economic Opportunity Act Amendments of
1967, was made during fiscal years 1968 and 1969 and consisted of such
activities as:
      —Interviewing program participants.
      —Assessing program evaluation methods used by administering
        agencies.
      —Making analyses of selected manpower programs.
      —Evaluating financial and other reports and other information
        used by program management.
   GAO's report to Congress, March 18, 1969, commented upon the
effectiveness of selected programs and made recomendations for im-
provement in the overall financial administration of economic oppor-
tunity programs. In addition, GAO subsequently issued about 50 sup-
plementary reports on the individual examinations made at various
program sites.
   Because of the significant cost involved and the strong interest of
the Congress in the acquisition of major defense weapon systems, the
General Accounting Office increased its attention to procurement ac-
tivities of the Department of Defense, with particular emphasis on
the acquisition of major weapon systems. In February 1970, GAO
reported to the Congress on the results of its review of the status of
57 major weapon systems.
   GAO provides assistance to the Congress on a worldwide basis
wherever Federal assistance or other governmental activities are tak-
ing place. A number of reports have been issued to the Congress on
U.S. assistance piovided to foreign countiies. These comprehensive
and analytical reports on the total U.S. assistance to a given country
have been helpful to the Congress in identifyinj? areas where econo-
mies and efficiencies can be achieved. Because of the substantial ex-
penditures of Federal funds and the strong interest expressed by the
Congress, a considerable portion of the overseas effort of GAO has
been devoted in recent years to the programs and activities in Viet-
     FINANCUL MANAGEMENT IN THE FEDERAL GOVERNMENT                               89

nam. During fiscal year 1970, 35 reports were issued on programs and
activities being conducted in Vietnam and other Southeast Asia
countries.
                          USE OF STSTEMS ANALYSIS

   Because of greater emphasis in Congress and the executive branch
on program outputs or results, GAO in recent years has increased its
use of systems analysis concepts and techniques as an integral part
of its studies of individual agency and Government-wide programs.
One study pertaining to use by Federal agencies of the discounting
technique was referred to in previous discussions.^ Another report
 (B-115398, July 29, 1969) advised the Congress of the progress and
status of the Federal Planning-Programming-Budgeting system
 (PPBS).
   A study completed by GAO during fiscal year 1970 which involved
systems analysis and effectiveness evaluations concerned an examina-
tion into the effectiveness of the construction grant program for abat-
ing, controlling, and preventing water pollution. In this study the
GAO analyzed and evaluated information relating to State and
Federal water pollution control plans, programs, and water quality
standards as they affected the approval and award of Federal con-
struction grants to municipalities. Improvements resulting from the
construction of selected waste treatment facilities were also reviewed.
   When it became apparent that systems analysis techniques might be
used to improve the planning aspects of the construction grant pro-
gram in the water pollution control program, GAO engaged a con-
sulting engineering firm to assist them in demonstrating that systems
analysis techniques could be used in planning for and implementing
water pollution control programs. In its report to Congress, Novem-
ber 3, 1969, GAO concluded that construction grants should not be
awarded on a first-come-first-served or readiness-to-proceed basis;
rather they should be awarded on a more systematic basis after con-
sideration had been given to benefits to be attained from the grants.
GAO also concluded that the present level of Federal funding would
not be sufficient to enable a significant increase in the effectiveness of
the program.
   The GAO report on the effectiveness of the water pollution grant
program required the use of cost-effectiveness analysis, a computer
simulation program, and a computer mixed-integer program.
   In another instance involving an evaluation by the Department of
Health, Education, and Welfare ( H E W ) and the New York State
Department of Social Services (State), the GAO responded to a re-
quest of the chairman of the House Ways and Means Committee to
monitor the evaluation. GAO employed the services of a professional
sociologist for assistance in assessing the results of the H E W and
State review phase relative to the study of reasons for the rise in the
Aid to Families with Dependent Children (AFDC) caseload and ex-
penditures in New York City during 1966-68.
   The A F D C study and report, which GAO reviewed, involved three
statistical analyses: (1) A F D C caseload characteristics in differing
points of time, (2) migration hypotheses, and (3) correlations of

  ' Survey of Use by Federal Agencies of the Discounting Techniques in Evaluating Fu-
ture Programs, loc. cit.
90    FINANCUL MANAGEMENT IN THE FEDERAL GOVERNMENT

various social and economic factors with A F D C caseloads in 11 cities
including New York City. Throughout the H E W - S t a t e study GAO
made numerous suggestions to improve and insure the reliability of
the evaluation conclusions, and <^hese sugfirestions, together with other
comments and caveats conceming the H E W - S t a t e report, were re-
ported by GAO to the House of Representatives Committee on Ways
and Means, October 17,1969.

REVIEW A N D APPROVAL OF A C C O U N T I N G P R I N C I P L E S A N D STANDARDS A N D
                          SYSTEMS DESIGNS

  Four responsibilities relating to accounting in the Federal Govem-
ment are vested in the Comptroller General by the Budget and Ac-
counting Procedures Act of 1950. They are:
     —Prescribing accounting principles, standards, and related
       requirements.
     —Cooperating with Federal agencies in the development of their
       accounting systems.
     —-Reviewing and approving agency accounting systems.
     —Reviewing and reporting on agency accounting systems.
  I n the 1961-70 decade GAO steadily increased its efforts to guide
and assist Federal agencies in the development of improved account-
ing systems as outlined below.
Prescribing accounting principles, standards, and related requirements
  The initial accounting principles and standards prescribed by the
Comptroller General and incorporated in title 2 (accounting); title 6
(pay, leave, and allowances); and title 7 (fiscal procedures) of the
GAO Policy and Procedures Manual for Guidance of Federal Agen-
cies were substantially revised and updated during the 1960's t o :
     —Consolidate pronouncements made in different documents over
       the years into one comprehensive statement.
     —^Clarify the statement of principles.
     —Make the stated principles and standards more specific.
     —^Incorporate statements of principles on matters not previously
       covered.
     —Simplify guidelines for obtaining the Comptroller General's
       review and approval of agency accounting systems designs.
     —^Revamp the organization of the statement to produce a more
       cohesive document.
The revised title 2 (accounting) also was issued in periodically up-
dated pamphlet form to make it available for wider use in Federal
agencies.
   The last two of the revisions of title 2, in 1967 and 1968 emphasized,
respectivelv, the requirements that agency accounting systems (1)
provide adequate support in the form of costs and other financial in-
formation for their planning, programming, and budgeting ( P P B )
svstems and (2) produce monthly data on accrued expenditures and
revenues in accordance with the recommendations of the President's
Commission on Budget Concepts.
GAO assistance in accounting systems development
  I n the systems development process, Federal agencies are encour-
aged to take up possible problem areas with GAO representatives to
determine acceptable solutions. There has been a marked acceleration
     FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT                     91

during the second half of the 1961-70 decade in the amount and direc-
tion of GAO effort devoted to cooperation with agencies in the devel-
opment of their accounting systems and related financial management
improvements. The agencies have significantly renewed their own
improvement efforts in response to the emphasis that GAO has placed
upon:
     —Developing a continuing day-to-day working relationship with
       agency officials and staffs to facilitate cooperative systems devel-
       opment efforts.
     —Keeping currently well informed on agency improvement efforts.
     —Identifying for agency officials the specific areas in which im-
        provements are believed to be needed.
     —Working closely enough with agency officials and their staffs
        to reach a common understanding of the concepts of the account-
       ing systems to be developed.
     —Providing technical assistance and guidance as needed in the
        design and development of accounting systems.
     —Fumishing advice on obtaining professional consulting assist-
       ance where necessary to initiate or expedite systems develop-
        ment work.
     —Being available at all times to encourage improvement efforts
        and help resolve problems.
     —Communicating with agency officials on problems being en-
        countered as they are identified and working with agency staffs
        on a continuing basis in the solution of these problems.
     —Advising agency officials on observed staff training needs.
     —^Cooperating with agencies and the Civil Service Commission
        in developing conducting Government-wide training programs
        in financial management.
Reviewing and approving agency accounting systems designs
   The GAO in 1966 published a review guide designed to help agencies
determine whether their accounting 'systems either under development
or in operation, conformed in material respects to the Comptroller
General's prescribed principles and standards and therefore were ready
for submission for approval. This guide is now being updated to reflect
the revisions since that date of principles and standards and guidelines
for obtaining approval of agency accounting systems designs.
   Until April 1967, the guidelines for obtaining Comptroller General
review and approval of agency accounting systems provided for sub-
mission of completely documented accounting systems that were in
operation. Advance submission of agency principles and standards,
although encouraged, was not mandatory. I n April 1967 'approval
procedures were revised to require agency submission of accounting
systems in at least two stages: (1) the accounting principles and stand-
ards underlying the system and (2) the documentation for the account-
ing system, or segments thereof, in operation.
   The change was made primarily in recognition of the desirability of
establishing adequate underlying 'accounting principles and standards
upon which to build 'accounting system design. I t also was intended,
however, to facilitate systematic and early identification and resolu-
tion of design problems, thereby expediting the completion of a satis-
factory sj^teni and minimizing the design effort. I n July 1968 that
requirement was modified to provide t h a t accounting systems might
92   FINANCUL MANAGEMENT IN THE FEDERAL GOVERNMENT

be developed and Comptroller General approval requested in three
stages in order to more effectively guide Federal agencies through
 (1) the development of accounting principles and standards, (2) the
design of the accounting system, and (3) the accounting system in
operation.
   I n an October 1969 letter to Federal agencies, the Comptroller Gen-
eral further amended accounting system approval procedures to
provide that Federal agencies need only submit their accounting
principles and standards and systems designs (the first two stages) for
Comptroller General review and approval. To fully accomplish 'these
functional changes, the GAO in early 1970 consolidated all of its
accounting systems review and approval responsibilities in the Finan-
cial Management Staff of its Office of Policy and Special Studies.
   At the end of the 91st Congress in J a n u a r y 1971, the Comptroller
General had approved a total of 76 complete accounting system de-
signs of civil and intemational departments and agencies of 146 such
systems subject to approval. Of the 37 approvals during the 1960's 11
were given in the last 12 months. Also, 20 system segment designs had
been approved, 18 complete system designs were being considered for
approval, and 22 more were in process of active cooperative develop-
ment during January 1971. I n the Department of Defense, four com-
plete systems designs and three system segment designs had been ap-
proved—all within the past 3 years. T h a t Department has not spe-
cifically ascertained the total number of systems subject to approval.
Reviewing und reporting on agency accoiMiting systems
   Concurrent with the October 1969 amendment of the accounting
system approval procedures limiting agency submission to their prin-
ciples and standards and systems designs, the Comptroller General
announced that the GAO no longer would undertake to formally ap-
prove accounting systems in actual operation. I n lieu thereof, greater
effort would be spent in the GAO review of agency accounting opera-
tions from time to time, as required by law, with reports to agency
officials and to the Congress, setting forth the GAO evaluations and
recomendations.

         TRAINING AND DEVELOPMENT OF PROFESSIONAL STAFF

   I n 1961, the General Accounting Office staff of 5,001 included 2,004
professional audit staff members, all with backgrounds of accounting
education and experience. By December 31, 1970, total GAO employ-
ment had been reduced to 4,742 accompanied by a notable increase in
the professional audit staff to 2,904. This shift to a proportionately
larger professional audit staff, while reducing overall GAO employ-
ment, was made possible by continuing emphasis on revised auditing
approaches and techniques initiated in the prior decade.
   Along with the buildup of the professional complement of GAO's
total staff resources, the composition of the professional audit staff
also changed during the decade 1961-70. Due to economic, social, and
technological advances and changes in Federal programs and the need
to broaden GAO's capability to review and evaluate management
performance in all areas of Federal activity, an interdisciplinary
staffing program was started in 1967. During the 4 years staff mem-
bers trained in other professional fields, such as systems analysis.
    FINANCUL MANAGEMENT EST THE FEDERAL GOVERNMENT                    93

computer technology, actuarial science, economics, business adminis-
tration, mathematics, and engineering, have been added to the staff
a'ong with accountants and auditors. At December 31, 1970, the pro-
fessional staff included 593 members trained in fields other than
accounting, most of whom were recruited at the college graduate
level.
   For years GAO has provided an extensive career development pro-
gram for its professional staff. Commencing in the early 1950's GAO
began directing its training to preparing the staff for expanded man-
agement audit responsibilities. During the 1960's, the program was
considerably accelerated, largely because of revisions in auditing
approaches and techniques in the Office and the recruiting of staff
members with educational background in disciplines other than
 accounting.
    Today, the internal training program of GAO offers courses cover-
 ing broad scope management audits and review and automatic data
 processing. Courses and workshops have been developed in systems
 analysis, statistical sampling techniques, report development, writing
 skills, reading skills, basic supervision, and modem management con-
cepts. Experienced consultants from outside GAO and members of
 GAO's professional staff are used as instructors in these courses. GAO
 also encourages staff members to participate in training provided by
other Government agencies, colleges, universities, and other private
 organizations.
    GAO provides assistance in developing training programs to other
 Federal agencies and State and local governmental units. F o r example,
 GAO helped the Civil Service Commission design programs in finan-
cial management; planning, programming, and budgeting; systems
analysis; statistical sampling techniques; and intergovernmental re-
lations. GAO has also cooperated with (1) the Brookings Institute and
the Civil Service Commission in establishing a Federal fellowship
program at State and local government levels and (2) the National
 Institute of Public Affairs in developing a seminar dealing with urban
 affairs.

                       TREASURY DEPARTMENT

  The Treasury Department is responsible for preparing Government-
wide reports covering the results of the financial operations of the
Government and for maintaining a system of central accounts that
will provide a basis for consolidation of accounting results of other
executive agencies with those of the Treasury Department. As a part
of its total fiscal responsibilities, the Department prescribes, with the
approval of the Comptroller General, forms, procedures, and reports
to be observed in the fiscal processes throughout the Government.
Some of the highlights of financial management activities of the Treas-
ury Department during the decade of the 1960's are discussed below.

                        ORGANIZATION   CHANGES

   Reorganization in the 1960's of the Bureau of Accounts resulted in
consolidation of (1) central 'accounting and reporting operations and
related Govemment-wide accounting systems development functions
into a new Division of Govemment Financial Operations 'and (2) all
94    FINANiCUL MANAGEMENT IN THE FEDERAL GOVERNMENT

administrative accounting operations, budgeting, auditing (both in-
ternal and external), claims and liquidation activities, and other
Bureau financial management functions into a comptrollership orga-
nization, the Division of Financial Management. These moves mate-
rially improved manpower utilization and strengthened the Bureau's
management structure. Departmental responsibility for internal audit
policy 'and administrative accounting policy was transferred from the
Fiscal Service to the Assistant Secretary for Administration. The
Bureau now has three operating divisions—Financial Management,
Government Financial Operations, and Disbursement.

                 CENTRAL ACCOUNTING AND REPORTING

Modification of Treasury-agency accoumling relationships
   The Treasury Department adopted a modified system of central
accounting and reporting in July 1%1. Since t h a t date. Treasury re-
gional offices keep accounts for disbursing transactions in total only
at the level of each agency station relationship. Classifications of trans-
actions by appropriation, fund, and receipt accounts are furnished to
the Treasury in monthly reports of the operating agencies, derived
from their own accounts. The modified system has provided
more efficient integration of Treasury's central accounts and the de-
tailed accounts in the operating agencies and has produced annual
recurring savings of $150,000.
Scope of reporting
   I n the part I I discussion of selected projects sponsored under the
Joint Financial Management Improvement Program, a project by the
central agencies' representatives to modernize central reporting was
briefly described. The project team in 1961 recommended two new
areas for developmental emphasis—a comprehensive annual financial
report to serve as a keystone for an overall integrated reporting sys-
tem, and additional data for more effective analysis of the impact of
Govemment operations on the economy.
   In June 1967, the Secretary of the Treasury, the Comptroller Gen-
eral, and the Director of the Bureau of the Budget jointly approved
recommendations designed to provide a policy framework for long-
range development of central financial reporting. I n addition to fur-
ther development of the two new areas mentioned above, recommen-
dations were approved t o :
      1. Provide for a modest expansion in central financial reporting
         to meet priority needs of public and private users but only
         after careful evaluation of need in relation to cost.
      2. Perform developmental work on a Government-wide balance
         sheet, keeping pace with improvements in agency financial
         systems.
      3. Strive for an earlier year-end closing of the Government's
         books.
      4. Consider development of program-oriented financial reporting
         after the P P B system was more fully developed.
      5. Provide for GAO examination of agency reports submitted to
         the Treasury (the examination to be part of GAO's review of
         agency financial operations), with the imderstanding that the
    FINANCUL MANAGEMENT IN THE FEDERAL GOVERNMENT                     95

         recommendation would have to be implemented on a gradual
         basis depending on staff facilities.
   These recommendations will be carried out coordinately with the
more recent recommendations of the President's Commission on Budget
Concepts.
   The October 1967 report of the President's Commission on Budget
Concepts included a wide range of recommendations with a significant
impact on Treasury's central accounting and reporting system. Their
adoption represents, potentially, the most significant development in
Government-wide accounting and reporting since the Budget and
Accounting Procedures Act of 1950. The Bureau of Accounts, in
coordination with the Bureau of the Budget, made basic changes in
all published Treasury reports to give effect to key recommendations
of the Commission that were incorporated in the President's budget
for 1969. These recommendations included the unified budget concept,
the separation of loan transactions from other receipts and expendi-
tures, the netting of certain receipts against related expenditures, and
the showing of all related assets and liabilities comprising "means of
 financing."
    The most significant recommendation still to be implemented in-
 volves the reporting of the Government's budget results on the basis
 of accrued revenues and accrued expenditures (in lieu of the cash
basis). To accomplish this recommendation, the Bureau of Accounts
 plans to add selected noncash assets and liabilities—^the bridge between
the cash and accrual bases—^to its central accounting system. I n June
 1968, the Bureau issued instructions requiring agencies to report such
 assets and liabilities in a Govemment-wide pilot operation to test the
current Government-wide capability for making the conversion. I n
 September 1970, it was apparent that the conversion could not be made
 prior to the fiscal year 1973 budget to be submitted to the Congress
 in January 1972. Many improvements in agency accounting remained
 to be achieved as a prerequisite.
    Also still under consideration for future implementation is the
 Commission's recommendation that the full amount of the interest
subsidy on loans compared to Treasury borrowing costs be reflected
 and specifically disclosed in the expenditure account of the budget,
 and that it be measured on a capitalized basis at the time the loans
 are made.
 Monthly Treasury statement
    The monthly Treasury statement—a statement of official budget
 results—has undergone numerous changes to conform with the con-
 cepts and classifications presented in the budget document. The pres-
 entation of budget receipts and expenditures in the monthly Treasury
 statement was most recently revised in January 1968 to reflect the
 unified budget concept recommended by the President's Commission on
 Budget Concepts and adopted in the budget for fiscal year 1969.
 Foreign currency
    In 1963, legislation was submitted to Congress which would permit
 using, for regular operating purposes, the foreign currencies which
 by law were held in a reserve status for funding specific programs.
 Many of these currencies were held idle for long periods, and, in the
96   FINANCUL MANAGEMENT IN THE FEDERAL GOVERNMENT

meantime, the Govemment bought such currencies on the market to
meet regular needs.
   Pursuant to section 508 of Public Law 88-257, approved December
31, 1963, new accounting and reporting procedures for the reserva-
tion of foreign currencies on an "unfunded" basis were implemented
in fiscal year 1964. The reservation of foreign currencies on an un-
funded basis has had a favorable impact on cash financing costs and
on the balance of payments. Dollar outlays for the purchase of foreign
currencies have been deferred in the amount of $430.4 million, cumu-
latively through June 30,1968.
   The first semiannual consolidated report of foreign currency bal-
ances was submitted to Congress in 1963. I n June 1966, further in-
structions were issued to agencies for reporting on overseas expendi-
tures, foreign currencies available for conversion, and estimated
foreign currency collections, all of which are reported annuallj^ to
the House Committee on Ways and Means and the Senate Committee
on Finance as required by the provisions of section 6 of the Interest
Equalization Tax Extension Act of 1965 (Public Law 89-243,
Oct 9, 1965).
Other reports
   Regulations were issued in fiscal 1963 to obtain monthly data on
gross obligations (by object class) incurred by Federal departments
and agencies. This new reporting, effective July 1963, was undertaken
at the request of the Director of the Bureau of the Budget, in recog-
nition of the need for timely data on the economic impact of Govern-
ment operations on the private economv. This new monthly series
was first published in the September 1967 Treasury Bulletin covering
fiscal years 1964 through 1967.
   The first "Statement of Liabilities and Other Financial Commit-
ments of the United States Government" (as of June 30, 1967) was
submitted to the Congress in January 1968. This annual statement,
compiled in accordance with Public Law 89-809, November 13, 1966,
shows the liabilities of the Federal Government as of the end of the
fiscal year and other financial commitments which may subsequently
become liabilities, contingent upon a variety of future conditions and
events. This is further discussed in part I of this report in the section
entitled "Budgetary and Fiscal Operations—Estimates and Reports."
   A comprehensive annual report on Federal credit programs was first
published as of the end of June 1961. I t covered direct, insured, and
guaranteed activities; and included information, by agency and pro-
gram, on amounts outstanding, range of maturities and interest rates,
and fees or other charges on loan guarantees and insurance.
   A new Treasury circular was released in 1967 requiring Government
agencies engaged in lending activities to submit monthly reports sum-
marizing activities in direct sales of loans and mortgages and sales of
participation certificates as authorized by the Participation Sales Act
of 1966, Public Law 89-429 (80 Stat. 164). These data were published
in the Treasury Bulletin beginning February 1967.
   I n 1967 a central data bank was established where all relevant data
on the various foreign lending programs of the U.S. Government could
    FINANCUL MANAGEMENT IN THE FEDERAL GOVERNMENT                      97

be stored for ready retrieval 'and analysis. One end product of the
central data bank was the reports required under section 302(c) of the
Foreign Assistance Aot of 1966. This section provided t h a t the Secre-
tary of the Treasury shall transinit to the Congress semiannual reports
showing as of June 30 and December 31 of each year the repayment
status of each loan made under authority of this act, any p a r t of the
principal or interest of which remains unpaid on the date of the report.

                          CENTRAL   DISBURSING

Technological     improvements
   Great strides were made from 1961 through 1968 in the central dis-
bursing operations of the Division of Disbursement, Bureau of
Accounts, including the systematic installation of electronic data
processing equipment, electronic m.icrofilm equipment, and a thermo-
ghaphic check printing process.
   Following the initial installation of a computer system in January
1961 in the Chicago Disbursing Office, additional computer systems
have been installed in seven other offices to facilitate the processing of
an ever-increasing payment workload for the programs of virtually
all civilian agencies of the Government. Procedures were coordinated
with the operating (program) agencies for interchanging magnetic
tape update material. Ninety-seven percent of all checks and bonds
issued are now produced on computers, with the highest degree of effi-
ciency and economy ever achieved.
   A microfilm record is maintained for all checks issued. Commencing
in 1964, electronic microfilming equipment was installed which permits
the most economical preparation of microfilm directly from magnetic
tape.
   Checks for miscellaneous payments (e.g., to vendors) were type-
written at the average rate of 900 per man-day until 1964 when a
thermographic check printing process was adopted. This doubled
production. Further improvements in the production of checks for
these "one-time" payments are now under development, including
adaptation for computer processing.
   The continuing technological improvement program has been most
significant in the mass-production operations of the Government's
central disbursing function applicable to virtually all civilian agencies
of the executive branch. In 1961, the Division of Disbursement issued
about two-thirds of all the Government's checks; it now issues about 80
percent of the total. I n this same period, the average cost to produce a
check decreased by 39 percent, from 4.4 cents to 2.7 cents on the average
notwithstanding the fact that salaries increased by 33 percent and costs
of materials and other services escalated substantially during the
period.
   The workload output increased by 45 percent over this period; never-
theless the average number of employees decreased by 39 percent—a
productivity increase of 138 percent. A general comparison of 1961 and
1968 follows:
98       FINANCUL MANAGEMENT IN THE FEDERAL GOVERNMENT

                                                                                                Percentage
                                                            Fiscal year    Fiscal year
                                                                   1961           1968      Increase         Decrease


Workload (cliecksand savings bonds)                        304,000,000    440,000,000            45
Average number of employees (man-years)                          1,831          1,114 _._   _    _._               39
Average production per employee               _                166,000        395,000           138.
Average salary per employee.-                                   $4,802         $6,364            33
Total salaries                                              $8,793,000     $7,602,000           .._.              14
Average processing cost per item (all operating costs,
  including depreciation of owned equipment. Does not
  include the "fixed" cost of postage which is unrelated
  to the measurement of performance in the Bureau of
  Accounts) (cents)                                               4.4             2.7                              39



                                   U.S.
 Check payment amd reconciliation
  The acquisition in 1961 and 1962 of new higher speed electronic
equipment 'and components enabled the Treasurer's 'Office to pay and
reconcile the ever-increasing volume of Government checks more effi-
ciently and economically. I n addition to annual recurring savings of
$3 million (based on salaries in 1959) 'by use of high speed electronic
data processing machines in the reconciliation and payment of Govern-
ment checks begun in 1956, the purchase rather than leasing of 90
percent of the Treasurer's A D P equipment, which was phased in be-
tween 1962 and 1963, resulted in savings of over $1.6 million between
1963 and 1968. This same equipment is still being used with a resulting
savings of $900 thousand annually compared to what the costs would
be if the equipment were leasee!. The number of checks processed
through the A D P system increased from 430,181,000 in 1961 to
569,730,000 in 1968. Greater efficiency in the check operations enabled
the Treasurer's 'Office to take on the processing of postal money orders
for the Post Office Department on a reimbursable basis. The number of
postal money orders processed has increased from 125,307,000 in 1963,
when the program began, to 198,000,000 in 1968. The system has im-
proved the control and servicing of money orders and through sharing
of E D P equipment has resulted in an 'annual savings to the Govem-
ment of $750,000.
Settlement of checTc claims
  The Check Forgery Insurance Fund was increased $50,000 by con-
gressional appropriation at the 'beginning of fiscal year 1964 to provide
more flexibility in the revolving fund which is used for settlement with
the rightful payees of lost or stolen Government checks prior to re-
covery of proceeds from the endorsers. The increased funds permit
ea'riier settlement of several thousand check claims oases per year.
Improvements in collecting commiercial checks
  Beginning in 1966, commercial checks deposited with the Treasurer
in Washington were encoded and shipped to the Richmond Federal
Reserve Bank to be absorbed in their sorting operations. I n 1967 a
local Washington bank took over the job of sorting and distributing
the checks for colleotion. This and related operations improvements
have resulted in substantially earlier availability in the Treasury of
     FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT                  99

the funds collected, and a reduction of 5 man-years in operations of
the Treasurer's Office.
Accounting for Federal Reserve notes
   Early in fiscal year 1967 the Treasurer of the United States took
over the function of accounting for transactions and balances relating
to Federal Reserve notes which was previously performed by the
 Comptroller of the Currency. The changeover resulted from legisla-
 tion passed in May 1966 which authorized the Secretary of the Treas-
 ury to prescribe procedures for canceling, destroying, and accounting
 for unfit Federal Reserve notes. By the end of fiscal year 1968 the
 Secretary of the Treasury had delegated authority to the Federal
 Reserve banks to verify and destroy unfit Federal Reserves notes of
 $1 through $100 denominations and had prescribed improved methods
 of verifying the notes and reporting the data to the Treasury.

             OTHER I M P R O V E M E N T S I N FISCAL   OPERATIONS

Federal tax deposit system
   Since 1943 when the Current Tax Payment Act of 1943 was enacted
and until 1967, most employers were required to make monthly depos-
its of taxes in designated depositaries for which a receipt was issued.
This was referred to as the "depositary receipt system." The detailed
operations were centered largely in the Federal Reserve banks, where
the depositary receipts were received, validated, credited to the
account of the Treasurer of the United States, and returned to the
business concerns for attachment to their quarterly tax returns to the
Internal Revenue Service as evidence of payment, and for later sub-
mission by Internal Revenue Service to the Federal Reserve banks,
where they were mechanically checked against the records of the
original payment.
   In 1967, this system was modified and redesignated the "Federal
tax deposit system" and was used initially to collect 1967 corporate
income taxes. Since then it has been extended to all taxes collected
under the old system; i.e., withheld income and F I C A taxes, em-
ployers' F I C A taxes and railroad retirement, and certain excise taxes.
The new system involved joint effort of the Internal Revenue Service
and the Fiscal Service of the Department of the Treasury (includ-
ina: the Bureau of Accounts and the Office of the Treasurer of the
TTnited States), the Federal Reserve banks, and the designated depos-
itaries. The new system provided a major realignment in the organi-
zational distribution of operating responsibilities. The flow of work
more closely paralleled the regular and specialized operating func-
tions of the three different Treasury bureaus involved and of the
Federal Reserve banks, capitalizing on the computer capabilities of
the several different organizations and culminating in a better inte-
gration of the operations within the computer system of the Internal
Revenue Service.
   The system required only one mailing each quarter to each business
 concem by the Bureau of Accounts, which sent a supply of preinscribed
 Federal tax deposit forms sufficient to meet each organization's needs
100    FINANCIAL MANAGEMENT IN THE FBDERAL GOVERNMENT

for the entire quarter. This effected a substantial reduction in postage
costs because, under the old system, every organization used several
depositary receipts each quarter and as many pieces of mail were
engendered as there were individual depositary receipts. The Federal
tax deposit punchard included a small stub which the business con-
cern detached as its retained record, at the time of payment, and
identified each such item in its quarterly tax return, and no longer
had to attach anything as a validated receipt document.
  I n summary, the benefits realized as a result of the system change
were that (1) it increased the availability of cash in the Treasury,
(2) the operating costs of collecting the taxes as well as the postage
costs were reduced by approximately 50 percent, and (3) it provided
a simpler means of internal operations for all concerned including the
business organizations. This general simplification provided a better
integration of all the related processes.
Central payroll service
   The Fiscal Service Automatic Data Processing Payroll Svstem
Manual was approved by the Comptroller General on May 3,1967. T h e
three Fiscal Service bureaus' payrolls in Washington—Accounts,
Public Debt, and the Treasurer's Office—were combined in fiscal year
1964 to be processed on the Treasurer's Office A D P system. Since then
the payrolls of seven additional agencies have been added to the Treas-
urer's payrolling activities. This same system was installed in five
regional offices of the Bureau of Accounts, Division of Disbursement,
to serve the Bureau's own payrolling of its field offices. The entire
undertaking of this Fiscal Service automated payrolling system had
the corollary objective of providing an economical facility for offering
such service, as an adjunct of the central disbursing functions, for
small agencies who could not economically acquire their own com-
puters for this purpose. The Bureau of Accounts regional offices are
now providing that service on a reimbursable basis for the field offices
of several agencies at 89 different field stations.
Withdraioal of Federal cash for advances
   Cash advanced under Federal grant and other programs constitutes
a significant portion of the Federal budget and has a substantial im-
pact on Treasury financing costs and the level of the public debt. I n
1965, Treasury established the policy that these cash advances would
be made only as and w^hen actually needed by grantees for their actual
disbursements. Where the annual amount advanced to an organization
was less than $250,000, advances were to be made monthly or more
freqiiently depending upon disbursing needs. F o r annual advances of
$250,000 or more, the timing and amount of cash advances were to be
as close to actual daily needs as was administratively feasible. F o r the
large operations ($250,000 or more annually) where there was a con-
tinuing relationship between the Federal Government and the recipient
organization, the Treasury introduced the letter-of-credit method of
advancing funds. A discussion in part I I of this report of projects
sponsored by the Joint Financial Management Improvement Program,
contains a brief description of the manner in which this method origi-
nated. This method permitted the recipient, as authorized by the pro-
    FINANCUL MANAGEMENT IN THE FEDERAL GOVERNMENT                    101

gram agency, to draw on the Treasury, through its commercial bank
and the Federal Reserve System, promptly and only wihen funds were
actually needed to make disbursements. Since inception of the system
in 1965, annual withdrawals by letter of credit have increased from
$1.5 billion to $18.3 billion in 1968. The resultant deceleration of cash
withdrawals from the Treasury attributable to the letter-of-credit
method has an imputed value of at least $20 million a year in savings
of public debt interest.
Payments to financial organizations for credit to employees^ accounts
  The enactment of Public Law 89-145, approved August 28, 1965,
made it permissible to pay a person, at his request, in the form of a
check payable to a designated financial organization for credit to his
account. Prior to that legislation, payment to a person, by check,
could be made only by having the check drawn in favor of that
person. Public Law 89-145 also provided that a single (composite)
check could be drawn in favor of a financial organization, covering
the aggregate of the several amounts payable, in those cases where
more than one person designated the same financial organization to
leceive their payments. Since that time a substantial number of Fed-
eral employees have elected to receive their net pay in the form of
checks drawn payable to their financial organizations for credit to
their accounts, and the Government has realized the operating econ-
omy provided by the issuance of a single (composite) check drawn
to a financial organization, accompanied by a list of employee
accounts to be credited, where a significant number of employees in
the same payroll have designated the same financial organization.
Allotments of pay for employees'' savings accounts in financial
     organizations
   Public Law 90-365, approved June 29,1968, superseded Public Law
89-145. The basic procedural authorizations originally provided by
Public Law 89-145 have been retained in Public Law 90-365. I n addi-
tion. Public Law 90-365 made available to Federal employees, at their
option, allotments of pay to financial organizations for credit to sav-
ings accounts. Under the law, an employee may authorize one or two
allotments of pay for savings with one or two financial organizations.
The law provides that the Government's cost in the administration
of the savings allotments system shall be recovered from the financial
organizations by deduction of a service charge from the amounts of
savings allotments remitted to the financial organizations.
Treasury Fiscal Requirements Manual
   On July 22, 1965, the Fiscal Assistant Secretary notified all Gov-
ernment departments and agencies of the planned publication of a
new Treasury Manual titled "Treasury Fiscal Requirements Manual
for Guidance of Departments and Agencies" ( T F R M ) to be issued
by the Commissioner of Accounts. The new manual was designed to
encompass in revisa'ble manual form, the pertinent fiscal requirements
eliminated from titles '6 and 7 of the General Accounting Office Policy
and Procedures Manual for Guidance of Federal Agencies, as well as
certain operating procedures relating to fiscal requirements contained
in various Treasury cireulars. The initial release of the T F R M was




                                                  ^ ,
102   FINANCUL MANAGEMENT IN THE FEDERAL GOVERNMENT

made on April 29, 1966, consisting of Part I—Introduction, and Part
III—Payrolls, Deductions, and Withholdings. From April 29, 1966,
through December 3, 1970, 54 different TFRM releases were issued
for the guidance of all departments and agencies, covering such sub-
jects as advance financing, payrolling, central accounting and report-
ing matters, remittance of net pay and allotments of pay for savings
to financial organizations for credit to accounts of Government em-
ployees, and accrual accounting and reporting requirements.
                                        INDEX

                                                 Automatic data processing (See Page
Accounting:                              Page      also "Computers")                        16,
    Accrual                 49, 65, 86, 90, 95                       17, 82, 75-77,93, 98,100
    And reporting, central, 66, 93, 94^-97 Automatic Payment of Judg-
     Methods and restrictions           21-26      ments Act                                 35
     Positions:
         Professional, standards                                       B
           for                              83
         Teclinical, study of               82 Banks for Cooperatives                        47
     Standards, uniform cost            23-26 Broolsings Institute                           93
     Systems:                                    Budget:
         GAO responsibilities re-                     Accrual basis of reporting         49, 50
           lating to           22, 23, 90-92           Administrative                        46
         Hearings on improving-             64         Annexed                        47,52,54
Accounts, Bureau of__ 93, 95, 97,99,100                Authority                       9,47, 53
Accrual accounting           49,65,86,90,95            Capital                               49
Administrative budget                       46         Classifications, standard             16
Administrative Expenses Act of                         Concepts, President's Com-
  1946                                       18           mission on          20, 45-54,90, 95
Agency for International Devel-                        Legislation enacted affecting- 17-21
  opment                            21,32,55           Measures of                            46
Agricultural Trade Development                         Outlay      -               9-11, 47, 53
  and Assistance Act of 1954                42         Recommendations         concern-
Agriculture, Department of                  18,           ing                     45-54,94-96
         30, 32-34, 47, 55, 57, 66, 69, 78, 74 Budget and Accounting Proce-
Air Force, Department of the                23,      dures Act of 1950                64,90, 95
                                    30, 31, 73 Budget, Bureau of the (See also
American Accounting Associa-                         "OflSce of Management and
  tion                                       84     Budget")                                    2
American Economic Association-               84        Accrual accounting. Instruc-
American Institute of Certified                           tions on                            50
  PubUc Accountants                      41, 84        ADP In Government              70, 74-76
Annexed budget                       47, 52, 54        Appropriation accounts, ap-
Armed Forces Appropriation Au-                            proval of transfers be-
   thorization :                                          tween                           33,35
     For 1970                            27,28         Budget presentation                18, 51
     For 1971                                28         Bulletins:
Armed Services Procurement                                   66-3        -            55, 56, 58
  Regulation                                 29              68-2                             56
Army, Department of the                  31, 73              68-9                         56, 57 .
Association for Public Program                               68-10                            50
   Analysis                                   84        Circulars:
Atomic Energy Commission                    27,              A-21                             80
                                     32, 55, 73              A-54                             76
Attorney General                          35,36              A-61                              75
                                               (103)
        68-109 O — 7 1 -
104    FINAN'CIAL MANAGEMENT EST THE FEDERAL GOVERNMENT

Budget, Bureau of the—Continued              Checks—Continued
    Circulars—Continued              page        Payment and reconcilia- page
         A-73                           80          tion                             98
        A-76                           60    Civilian employment, limitations
         A-85                          80      on                               12, 13
         A-87                          80    Civil Service Commission, U.S.:
         A-88                          80         Chairman:
         A-94                          60              Assistance In preparing
         A-95                           81               this report                  2
         A-96                           81             Participation  of,    In
         A-97                           81               JFMIP               64, 65, 81
         A-98                           81        Financial management, con-
    Deposit funds, review of           54           tributions to            64,81-86
   Director, responsibilities con-                Grant programs, responsibili-
      cerning :                                     ties concerning                  69
         Accounting systems            22         Recruiting and examining       82, 83
         Budget ceilings            10,11        Training programs— 83-86,91,93
         Central accounting and              Claims, settlement of judgments
           reporting               94, 95      and                           35,36,98
         Civilian employment            13   Coast Guard                         27, 31
         Commission on Budget                Coinage Act of 1965                 43, 44
           Concepts                     45   Commerce, Department of            44, 55,
         Cost accounting stand-                                                  69,73
           ards                         23   Commission on Budget Con-
         Joint Commission on the               cepts                  20,45-54,90,95
            Coinage                     44   Commission on Government Pro-
         Joint Financial Manage-               curement                          26, 27
           ment      Improvement             Committee of Conference on the
           Program              64, 65, 81      Second Supplemental Appro-
    Discount rates prescribed                  priations Act, 1968                   22
      by                                60   Commodity Credit Corporation             9,
   Financial management, con-                                                10,11, 48
      tributions tO--               79-81    Comptroller of the Currency         47, 99
   Grant-in-aid programs            79-81    ComptroUer General of the
    JFMIP surveys, participa-                   United States, responsibilities
      tion in                   32, 66-69      concerning. [Sec also General
    Loan programs, subsidies in,               Accounting Office.)
      report on                         51        Accounting systems— 22,23,90-92
    Obligations, monthly report                   ADP equipment, reports on_- 75, 76
      of         -                  53, 96        Assistance In preparing this
    PPBS, responsibilities con-                      report                            2
       cerning                  55-59, 61         Budget                              16
    Training programs                   86        Central accounting and re-
    Trust fund appropriations,                       porting                      94-96
       comments on                      53        Claims                              36
Bureau (See other part of name.)                  Commission on Budget Con-
                                                     cepts                            45
                                                  Commission on Government
                    C
                                                     Procurement                      26
Capital budget                          49        Contract profit study               27
Career Development, Offiee of           83        Cost accounting standards-- 23-25
Census, Bureau of the               32, 70        Cost Accounting Standards
Central Intelligence Agency             55           Board                        25, 26
Checks:                                           Cost-benefit studies of Gov-
    Claims for, settlement of          98            emment programs                  17
    Commercial, collecting             98         Decisions               21, 30,32,34
      FINANCUL MANAGEMENT IN THE FEDERAL GOVERNMENT                                                     105

Comptroller General, etc.—Con.                  page    Electronic d a t a processing. (See
     Foreign currencies, report                             "Automatic d a t a processing"
        on                                         41       and "Computers.")
     Forms, procedures, and re-                         E l e m e n t a r y and Secondary Edu- Page
         ports prescribed by Treas-                         cation Amendments of 1967-_               39
         ury                                       93   Exeeutive.Order 11348                     83, 84
     Grant-in-aid p r o g r a m s              38, 40   Expenditu Ve account              48, 49, 50, 53
     J o i n t F i n a n c i a l Management             Expenditures:
         Improvement P r o g r a m - 64, 65, 81                Distinctions between loans
Computers, increased use of, in                                   and                                 47
  financial management                            70-          Limitations on                      4-11
                                      77, 97, 98,100    Export-Import Bank                        11,20
Congressional Research Service- 2,17
                                                                                   F
Consolidated cash statement                        46
                                                        F a r m e r s Home Administration— 11, 20
Continuing Appropriations Act,
                                                        Federal Aviation              Administra-
  1968                                           6, 7
Contract profit study                              27      tion                                            56
Corps of Engineers                                 55   Federal Claims Collection Act of
Oost        Accounting             Standards                   1966                                        36
  Board                                        25, 26   Federal credit programs                            96
Cost accounting s t a n d a r d s , uni-                Federal debt, new measures of_-                    52
  form                                         23-26    Federal Deposit I n s u r a n c e Cor-
Council of Economic Advisors                       15      poration                                        47
                                                        Federal Government Accountants
                         D                                 Association                                 40, 84
Data processing. (See "Automatic                        Federal Housing A d m i n i s t r a t i o n -      74
  d a t a processing" and "Comput-                      Federal           Intermediate      Credit
  ers.")                                                   Banks                                           47
Defense Appropriation Act for                           Federal National Mortgage Asso-
  1971                                        23           ciation                          20, 21,47,48
Defense, D e p a r t m e n t of             21-         Federal Property and Adminis-
       23, 27-30, 34, 35, 54, 55, 69, 74, 88, 92           t r a t i v e Ser\-ices Act of 1949             34
Defense Production Act of 1950- 23, 25                  Federal Reserve banks                          98, 99
Defense Supply Agency                         73        Federal Reserve notes                          44, 99
Department. (See other p a r t of                       Federal Reserve System                  39, 47,101
  name.)                                                Federal t a x deposit system                  99,100
Deposit funds, review of                      54        F e d e r a l T o r t Claims Act                   36
Discounting techniques               59, 60, 89         Financial m a n a g e m e n t :
District of Columbia Govern-                                   Agency          developments       in,
  ment                                 3, 54, 82                    1961-70                           79-102
                                                               And Planning-Programming-
                         E                                           Budgeting Training Cen-
Economic Advisors, Council of             15                        ter                                83-86
Economic Opportunity Act of                                     Computers, increased use of
  1964                                    88                         in                                70-77
Economic     Opportunity       Act                             Definition of                                1
  Amendments of 1967             19,40,88                      Govemmentwide,             develop-
Economic    Opportunity,   Office                                    ments in, 1961-70                 45-77
  Of                             19,56,68                      Institutes                                  85
Educational institutions, g r a n t s                          J o i n t Financial Management
  to                             38-^0,80                            Improvement P r o g r a m         64^9
Education, Commissioner of            39,40                     Legislation, S7th-91st Con-
Education, Offlce of                  20, 86                         gresses affecting                  3-44
106       F I N A N C U L MANAGEMENT IN THE FEDERAL                                GOVERNMENT

Financial management—Continued                      Government National Mortgage page
    Positions, CSC recruitment Page                  Association                                         21, 48
      a n d examination for        82,83            Government Procurement, Com-
    Training programs i n - 83-86, 91, 93             mission on                                          26,27
Financial    organizations,  pay-                   Grant-in-aid programs                               37-41,
  ments to                    30,31,101                                                     66, 68, 79-81
Food for Peace Aet of 1966         18, 42                                         H
Foreign aid program                    36
                                                    Health, Education, and Welfare,
Foreign Assistance A c t :
                                                      D e p a r t m e n t of                                 30,
    Of 1961                            41                                        39, 40, 55, 66-69, 73,89
    Of 1963                            21           Higher Education Amendments
    Of 1966                            97             of 1968                                                 39
    Of 1968                            36           House of Representatives, U . S . :
Foreign currency             41^3,95,96                   BiUs of:
                           G                                      H.R. 4653                                   30
General Accounting Office. (See                                   H.R. 5171                                   75
   also "Comptroller General of                                   H.R.    7366                                40
  t h e United States.")                                           H.R. 8363                                    5
      Accounting systems, respon-                                  H.R.    10867                              14
         sibilities concerning—22, 23, 90-92                       H.R. 15414                                7,8
      Accrual accounting, instruc-                                 H.R.    16718                              37
          tions on                             50                  H.R. 17268                                 23
                                                                   H.R. 17654                                  15
      Agency reports submitted to
                                                                   H.R. 17873                                 15
          Treasury, examination of-             94                                                            37
                                                                   H.R. 17955
      Appropriations, a d j u s t m e n t s                                                                    37
                                                                   H.R. 18826
          between, recommendations
                                                           Committees of:
          on                                    32
                                                                   Appropriations                             12,
       Claims, authority to collect
                                                                                              15-18, 23, 34
          or compromise                         36
                                                                   B a n k i n g and Currency—                 44
       Congress, added assistance
                                                                   Government Operations-                     17,
          to                           17,87-89
                                                                                                     37, 64, 66
       Cost accounting s t a n d a r d s ,
                                                                   House Administration—                       16
          uniform, report on                23-25
                                                                   P o s t Office a n d CivU
       Discounting practices, report
                                                                      Service                                  34
          on                                59, 89
                                                                   Rules                                    15,16
       F e d e r a l programs,     audits
                                                                    Standards         of     Official
           and reviews of              17, 87-89                      Conduct                                   16
       Financial management, con-                                   W a y s a n d Means                         5,
           tributions to                84,86-93                                      14,42, 52, 89,90,96
       Government procurement               29, 30          J o i n t Resolution 888                             7
       G r a n t funds, ruling on                39         Subcommittee on Executive
       J F M I P studies, participation                         and Legislative Reorgani-
           In                           32, 66-69               zation                                          37
       Manual                         50, 90,101 Housing Act of 1964                                            20
       P P B systems, survey                         Housing and Urban Development
           of                       57,59,61,89        Act of 1968                                          19,20
        Staff, professional             82, 92, 93 Housing a n d Urban Development,
        Statistical sampling, princi-                  D e p a r t m e n t of                    11,55,57,68
           ples for                          30,66
        Systems analysis, use of— 89,90
        T r a i n i n g programs         85,91-93 I n s t i t u t e of of I n t e r n a l A u d i t o r s -     41
 General Supply F u n d                          34 I n t e r e s t :
 General            Services   Administra-                  Certificates of                                     48
     tion                        34,55,69,73-76              E a m e d on g r a n t funds                       39
     FINANCIAL MANAGEMENT IN THE FEDERAL GOVERNMENT                                                        107

I n t e r e s t Equalization T a x Exten-        Page Local governments, grants-in-aid page
    sion Act of 1965                            41,96   to                37-41, 67,68, 79-81
Intergovernmental                Cooperation
                                                                                   M
    Act:
        Of 1968                       37-39,   81, 86    Management a n d Budget, Office
        Of 1971               -                    38     of (See also Budget, B u r e a u
Interior, D e p a r t m e n t of the           55, 73     of t h e )                       2,27,40,84
I n t e r n a l Revenue Service                77, 99       Director of                    2,15,16, 50
I n t e r n a t i o n a l Monetary Fund            52    Management Sciences T r a i n i n g
                                                          Center                                 83-86
                                                         Marine Corps                               31
                                                         Mental R e t a r d a t i o n Facilities
.Toint Commission on the Coinage-                        44
                                                          and Community Mental H e a l t h
J o i n t Committee on Reduction of                       Centers      Construction         Act
   F e d e r a l Expenditures                            51
                                                          Amendments of 1965                        39
J o i n t Committee on the Organiza-                     Milk Marketing Administration—             47
   tion of the Congress                                  15
                                                         Mint, Director of the                      44
Joint Economic Committee                        20, 59-62Municipal Finance Officers As-
J o i n t Financial Management Im-                        sociation                                 41
    provement P r o g r a m                               2,
                    32, 38, 50, 64-69, 81, 84, 94,100                                   N
 Judgments, settlement of claims
                                                              National Aeronautics and Space
   and                                               35,36
                                                               Administration                        27,29,55,73
 Justice, D e p a r t m e n t of                          55
                                                              National Association of State
Juvenile Delinquency Prevention
                                                                Auditors, Comptrollers, and
    a n d Control Act of 1968                            40
                                                               Treasurers                                       41
                                                              National B u r e a u of S t a n d a r d s         75
                                                              National Defense Act of 1916                      31
 Labor, Department of                                55, 68 National income a n d product ac-
 Legislative Reference Service                            17    counts                                          46
 Legislative Reorganization Act of                            National I n s t i t u t e of Public
    1946                                           1,14,16      Affairs                                         93
 Legislative Reorganization Aet of                            National Science Foundation                       55
     1970                                             14-17 National Security Act of 1 9 4 7 —                  31
                                                              Navy, D e p a r t m e n t of the          23,31, 73
 Letter-of-credit method of financ-
                                                              New obligational authority                     8, 53
     ing                                        38,66,100
                                                              New T o r k State Department of
 Liabilities of the U.S. Govern-
                                                                Social Services                                 89
    ment                                          18,19,96
 Library of Congress                                      17                            O
 Loan:
                                                              Obligations:
         Account                              47, 49, 50, 53
                                                                     Limitations on                          4-11
         Authority                                     8,53          Monthly report of                  53, 66, 96
         Programs:                                            Office. (See other p a r t of name.)
                 Government, study of---                  18
                 Identification of subsi-
                     dies in                              50 Participation certificates- 20,21,48,96
  Loans:                                                      Participation           Sales       Act   of
         Distinction between expendi-                           1966                                    18,20,96
            tures and                                     47 P a r t n e r s h i p for H e a l t h Amend-
         Monthly report on sales of                       96    ments of 1967                                   33
         Participation certificates i n -                20, PayroU services, central                    100,101
                                                      21,48 Peace Corps                                          56
         P r i v a t e , g u a r a n t e e of              48 Pendleton Act                                      81
108       FINAJSrCUL MANAGEMENT IN THE FEDERAL                                  GOVERNMENT

Planning - P r o g r a m m i n g - Budget- Page          Public Laws—Continued             page
   ing System                                      16,       90-96                            22
                         54-63, 64, 65, 86, 89,90,93         90-174                           33
Postal Reorganization Act                           37       90-218                     6, 7,12
Postal Service, U.S                                 37       90-222                       19, 40
Post Office D e p a r t m e n t         33,37, 55, 98        90-247                       39, 40
Procurement:                                                 90-302                           18
       Government                               28-30        90-364              7-10,12,13,19
                Commission on                   26, 27       90-365                      31,101
                Defense                         27, 28       90-370                           23
P r o p r i e t a r y receipts, offsetting of       49       90-392                           22
Public debt                                 13,14, 52        90-436                           42
Public Debt, B u r e a u of                         10       90-445                           40
Public H e a l t h Service                          33       90-448                           19
PubUc L a w s :                                              90-512                           29
      87-187                                        35       90-554                           36
       87-195                                       41       90-575                       39,40
       87-480                                       31       90-576                       39,40
       87-600                                       34       90-577                       38, 81
       87-638                                   21,22        90-616                           36
       87-653                                       29       91-8                          14,52
       87-774                                       18       91^7                     10,11,13
       87-880                                       43       91-121                       27, 28
       88-36                                        43       91-129                       26,27
       88-205                                       21       91-301                           14
       88-257                                   43,96        91-375                           37
       88-272                                 4-6,19         91-379                           25
       88-511                                       43       91^41                            28
      88-521                                    30,66        91-510                       14-17
       88-580                                       43   Public Works Appropriation Act,
       88-638                                       42     1965                               43
       89-81                                        43
       89-105                                       39                         R
       89-106                                   33,34
                                                         Railroad R e t i r e m e n t B o a r d        74
       89-145                                 30,101
                                                         Receipt-expenditure account                   47
       89-243                                   41,96
                                                         Revenue Act of 1964                       4-6,19
       89-265                                       31
                                                         Revenue and E x p e n d i t u r e Con-
       89-299                                       43
                                                           trol Act of 1968                 7-10,12,13,19
       89-306                                       75
       89-368                                       19
                                                                                S
       89-374                                       35
       89-429                               18, 20, 96   Second Supplemental Appropria-
       89-473                                       32     tions A c t :
       89-500                                       33        Of 1948                      33
       89-506                                       35        Of 1968                      22
       89-508                                       36        Of 1969                   10,11
       8fr-677                                      42   Senate, U.S.
       89-713                                       77        Bills of:
       89-751                       .               20             S. 355                  15
       89-785                                       33             S. 698                  38
       89-808                                   18, 42             S. 844                  15
       89-809                                   18, 96             S. 1309                 30
       90-29                                        44             S. 2479                 40
       90-39                                     14,20             S. 3848                 15
    FINANCUL MANAGEMENT EST THE FBDERAL GOVERNMENT                                                      109

Senate, U.S.—Continued                                   Treasury, D e p a r t m e n t of the—Con.
   Committees of:                                               L e t t e r s of credit, instructions Page
        Agriculture and               For-    Page                 on                                       67
          estry                                  33             Obligations, monthly reports
        Appropriations                          11,               of                                 53,66,96
                                    16-18, 22,34               P P B system                                 55
         Banking and Currency                23, 44             Secretary,             responsibilities
         Finance                      4, 42, 52, 96                concerning;
         Government Opera-                                              Assistance in preparing
            tions                  1,2,15,17,64                             this report                      2
         Post Office a n d CivU                                         Budget                              16
             Service                         33, 34                     Central financial report-
Small Business Administration                11, 20                         ing                         94,95
Social Security Act                           8-10                      Coins                           43,44
Social Security Administration                   74                     Commission on Budget
State, D e p a r t m e n t of                    55                       Concepts                          45
State governments, grants-in-aid                                        Federal Reserve notes               96
  to                          37-41, 67, 68, 79-81                      Foreign currencies              41,42
Statistical sampling                 30, 66, 80, 93                      Government loan pro-
Subcommittee on Economy in                                                   grams                          18
  Government                                 59-62                       J o i n t Commission on the
Subcommittee on Executive and                                                Coinage                        44
  Legislative             Reorganization,                                J o i n t Financial Manage-
  House                                          37                          ment        Improvement
Supplemental Defense Appropri-                                               Program                 64,65,81
  ations Act, 1966                               35                      Liabilities of the Gov-
Systems analysis                 59, 60, 89, 90, 93                          ernment                     18,19
                                                                         Payroll checks                     31
                                                                         Postal Service, U.S., obli-
T a x Adjustment Act of 1966                     19
                                                                             gations of                     37
T a x P a y m e n t Act of 1943                  99
                                                                         Silver certificates                44
Tennessee Valley Authority                        10
                                                                 Silver, required purchase of
Training, B u r e a u of                         83
                                                         T r u s t fund appropriations                      53
Transportation, D e p a r t m e n t of_          56,
                                                         Truth-in-Negotiations Act                          29
                                              68,73
Transportation in civil agencies,
   J F M I P study of                               69                            U
T r e a s u r e r of the United S t a t e s - 98-100     United  States               Information
Treasury, D e p a r t m e n t of t h e :
                                                          Agency                                           55
       Accrual accounting, instruc-
           tions on                                 50
                                                                                  V
       ADP, use of                              73, 74
       Circulars:                                        Veterans Administration                          11,
               1073                                 66                           20, 33, 55, 73,           74
               1075                             38, 67   Veterans   Hospitalization    and
       Deposit funds, review of                     54    Medical Services Modemization
       Exchange stabilization fund-                 47     Amendments of 1966                              33
       Financial management, con-                        Vocational Education      Amend-
           tributions to                      93-102       ments of 1968                                  39
       Ftscal Requirements Man-                          Voucher examination, statistical
         ual                      50, 67,101-102          sampling in                                      66
       Fiscal Service                         99,100
       Grant-in-aid funds                   38, 39, 81                            W
       J F M I P studies, participation
           in                               32,66-69     W a t e r Resources Council                       60