B-115398, MAY 19, 1964

B-115398, MAY 19, 1964

PRECIS-UNAVAILABLE

MR. SECRETARY:

THE INCREASING MAGNITUDE OF FEDERAL EXPENDITURES MAKES IT MORE IMPORTANT THAN EVER THAT WE USE EVERY REASONABLE MEANS TO OBTAIN FULL VALUE FOR EACH DOLLAR SPENT. ONE MEANS IS TO IMPROVE THE EFFECTIVENESS AND USEFULNESS OF ACCOUNTING IN FEDERAL AGENCIES AND TO BRING ABOUT GREATER USE OF TIMELY AND MEANINGFUL FINANCIAL INFORMATION IN MANAGING FEDERAL PROGRAMS AND OPERATIONS.

IN 1950, IN ENACTING THE BUDGET AND ACCOUNTING PROCEDURES ACT OF THAT YEAR, THE CONGRESS PRESCRIBED THE OBJECTIVES TO BE SOUGHT BY EXECUTIVE AGENCIES OF THE FEDERAL GOVERNMENT IN ESTABLISHING AND MAINTAINING ADEQUATE SYSTEMS OF ACCOUNTING AND INTERNAL CONTROL. THESE OBJECTIVES ARE:

1. FULL DISCLOSURE OF THE FINANCIAL RESULTS OF AGENCY ACTIVITIES.

2. PRODUCTION OF ADEQUATE FINANCIAL INFORMATION FOR AGENCY MANAGEMENT PURPOSES.

3. EFFECTIVE CONTROL OVER AND ACCOUNTABILITY FOR ALL FUNDS, PROPERTY, AND OTHER ASSETS FOR WHICH EACH AGENCY IS RESPONSIBLE.

4. RELIABLE ACCOUNTING RESULTS TO SERVE AS THE BASIS FOR PREPARATION AND SUPPORT OF AGENCY BUDGET REQUESTS, FOR CONTROLLING THE EXECUTION OF BUDGETS, AND FOR PROVIDING FINANCIAL INFORMATION REQUIRED BY THE BUREAU OF THE BUDGET.

5. SUITABLE INTEGRATION OF AGENCY ACCOUNTING WITH THE CENTRAL ACCOUNTING AND REPORTING OPERATIONS OF THE TREASURY DEPARTMENT.

AS FURTHER CLARIFIED BY PUBLIC LAW 84-863, APPROVED AUGUST 1, 1956, THE LAW PROVIDES A BASIC FRAMEWORK OF FINANCIAL MANAGEMENT WITHIN WHICH AN ACCOUNTING SYSTEM MUST NECESSARILY OPERATE IN ACHIEVING THESE OBJECTIVES. IN THE 1950 LAW, THE CONGRESS SPECIFIES THAT THE HEADS OF EXECUTIVE AGENCIES ARE RESPONSIBLE FOR ESTABLISHING AND MAINTAINING SYSTEMS OF ACCOUNTING AND INTERNAL CONTROL WHICH CONFORM TO THE PRINCIPLES, STANDARDS, AND RELATED REQUIREMENTS PRESCRIBED BY THE COMPTROLLER GENERAL OF THE UNITED STATES.

BROAD PRINCIPLES AND STANDARDS FOR FEDERAL AGENCY ACCOUNTING WERE FIRST PUBLISHED BY OUR OFFICE IN 1952, AND A NUMBER OF SUPPLEMENTAL STATEMENTS HAVE SINCE BEEN ISSUED. THESE STATEMENTS OUTLINE THE MORE IMPORTANT FACTORS AND CRITERIA REQUIRING CONSIDERATION BY FEDERAL AGENCIES IN EVALUATING THE EFFECTIVENESS OF THEIR FINANCIAL MANAGEMENT AND ACCOUNTING OPERATIONS, IN DEVELOPING IMPROVEMENT PLANS, AND IN FULFILLING THEIR RESPONSIBILITIES FOR MAINTAINING EFFECTIVE SYSTEMS OF ACCOUNTING AND FINANCIAL MANAGEMENT AS REQUIRED BY LAW.

MANY CHANGES AND IMPROVEMENTS IN FEDERAL AGENCY ACCOUNTING PRACTICES HAVE BEEN MADE SINCE 1950. IN THE NEARLY 14 YEARS THAT HAVE GONE BY, HOWEVER, THE NUMBER OF EXECUTIVE AGENCY ACCOUNTING SYSTEMS THAT HAVE BEEN MODERNIZED, IMPROVED, AND BROUGHT INTO CONFORMITY WITH THE REQUIREMENTS OF LAW AND THE BROAD PRINCIPLES AND STANDARDS PRESCRIBED BY OUR OFFICE IS DISAPPOINTINGLY SMALL.

AT THE PRESENT TIME, 128 ORGANIZATIONS WITHIN THE CIVIL DEPARTMENTS AND AGENCIES HAVE ACCOUNTING SYSTEMS THAT ARE SUBJECT TO APPROVAL BY THE COMPTROLLER GENERAL. ONLY 41 OF THESE SYSTEMS HAVE BEEN APPROVED. PARTS OF SYSTEMS IN 15 OTHER CIVIL AGENCY ORGANIZATIONS HAVE BEEN APPROVED. THE DEPARTMENT OF DEFENSE, ONLY ONE COMPLETE ACCOUNTING SYSTEM HAS BEEN APPROVED - THAT COVERING THE CIVIL FUNCTIONS OF THE ARMY CORPS OF ENGINEERS. PARTS OF SYSTEMS HAVE BEEN APPROVED IN NINE OTHER INSTANCES.

ALTHOUGH 42 COMPLETE SYSTEMS HAVE BEEN APPROVED BY THE COMPTROLLER GENERAL AS ADEQUATE IN THE LIGHT OF LEGISLATION AND REQUIREMENTS THAT EXISTED AT THE TIME OF APPROVAL, THIS NUMBER DOES NOT NECESSARILY REPRESENT THOSE SYSTEMS THAT WOULD BE DEEMED ADEQUATE WHEN MEASURED AGAINST CURRENT PRINCIPLES AND STANDARDS. BECAUSE OF SUBSEQUENT LEGISLATION AND REFINEMENTS IN PRESCRIBED REQUIREMENTS, MOST OF THE SYSTEMS THAT HAVE BEEN APPROVED NEED REEXAMINATION AND APPROPRIATE REVISION IN THE LIGHT OF CURRENT REQUIREMENTS. FOR EXAMPLE, SOME APPROVED SYSTEMS DO NOT INCORPORATE ACCOUNTING ON THE ACCRUAL BASIS TO THE EXTENT CONTEMPLATED BY PUBLIC LAW 84-863, APPROVED IN AUGUST 1956.

THERE IS NEED FOR INCREASED EFFORT TO BE DEVOTED TO MODERNIZING FEDERAL AGENCY ACCOUNTING SYSTEMS SO THAT THEY WILL MEET THE OBJECTIVES SO CLEARLY ESTABLISHED BY THE CONGRESS AND WILL PROVIDE ALL THE ESSENTIAL FINANCIAL INFORMATION THAT MUST BE AVAILABLE FOR EFFICIENT AND ECONOMICAL MANAGEMENT AND ADMINISTRATION OF FEDERAL AGENCY ACTIVITIES. AS A MEANS OF ENCOURAGING SUCH NEEDED INCREASED EFFORT, OUR OFFICE IS PLANNING TO ADJUST ITS CURRENT AUDIT PROGRAMS TO PROVIDE MORE EMPHASIS ON MAKING EXAMINATIONS INTO THE OPERATION OF AGENCY FINANCIAL MANAGEMENT SYSTEMS AND TO SUBMIT REPORTS ON THE RESULTS OF SUCH WORK TO THE CONGRESS. AS A PART OF THESE EXAMINATIONS, SPECIFIC ATTENTION WILL BE DEVOTED TO THE EFFECTIVENESS OF THE ACCOUNTING SYSTEMS IN PRODUCING USEFUL FINANCIAL INFORMATION, IN ASSISTING IN THE CONTROL OF RESOURCES, AND IN OTHERWISE ACHIEVING THE OBJECTIVES FOR FEDERAL AGENCY ACCOUNTING PRESCRIBED BY THE CONGRESS. APPROVALS PREVIOUSLY GIVEN TO AGENCY ACCOUNTING SYSTEMS THAT ARE FOUND IN THESE EXAMINATIONS TO BE DEFICIENT IN THE LIGHT OF CURRENT REQUIREMENTS WILL BE WITHDRAWN UNTIL APPROPRIATE CHANGES ARE MADE.

EVERY ADMINISTRATOR IN THE FEDERAL GOVERNMENT HAS AN INDIVIDUAL RESPONSIBILITY FOR THE ECONOMICAL ATTAINMENT OF THE AUTHORIZED OBJECTIVES OF HIS AGENCY AND FOR REPORTING ON HIS PERFORMANCE AND ON HIS USE OF PUBLIC FUNDS. ADEQUATE AND EFFECTIVE ACCOUNTING PLAYS AN IMPORTANT PART IN THE DISCHARGE OF THESE RESPONSIBILITIES.

I URGE THE HEAD OF EACH DEPARTMENT AND AGENCY TO ARRANGE FOR AN APPROPRIATE REVIEW OF THE STATUS OF FINANCIAL MANAGEMENT IMPROVEMENT WORK WITHIN HIS ORGANIZATION AND TO MAKE EFFECTIVE PROVISION FOR SUCH FURTHER PROGRESS AS IS NECESSARY TO TRANSLATE THESE EFFORTS INTO WORKABLE SYSTEMS THAT ARE EFFICIENT, ECONOMICAL, AND, AS TO THE ACCOUNTING FUNCTIONS, IN CONSONANCE WITH THE BASIC POLICIES AND OBJECTIVES LAID DOWN BY THE CONGRESS AND THE RELATED PRINCIPLES AND STANDARDS PRESCRIBED BY OUR OFFICE. STANDARDS PRESCRIBED BY OUR OFFICE.

SIMILAR LETTERS ARE BEING SENT TO THE SECRETARIES OF THE ARMY, NAVY, AND AIR FORCE.