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So long as the needs of a full economy are equal to or greater than our ability to supply, with our present'industrial machine, removal of these limitations would in general not have a serious impact on the economy although individual spots might be disrupted to some extent. Should economic conditions change, however, any substantial imports of foreign excess property might have serious repercussions such as were visualized when the limitation on such importation was inserted in the Surplus Property Act of 1944.

It might therefore be preferable at this time to provide for such a limitation on the importation of surplus industrial products to which exceptions could be made as presently through a regulation similar to that issued by the OFLC of the State Department. Such a provision in the proposed act could be deleted by amendment at some later date when it was determined that the restriction was no longer needed.

In conclusion, I am of the opinion that there is a need for standardization of procurement, utilization and disposal of property methods. This bill is an attempt to provide authority for functions where no authority presently exists, to locate in one agency all procurement and surplus disposal functions, and to obtain some measure of uniformity in the administration of these activities. Since a general organization of the executive departments is now being studied, it is my opinio that the committee, when considering this proposal, should also give consideration to other proposals concerning the organizational location of these functions.

DEPARTMENT OF LABOR,
OFFICE OF THE SECRETARY,

Washington, March 25, 1949.
Hon. WILLIAM L. DAWSON,
Chairman, House Committee on Expenditures in the Executive Departments,

House of Representatives, Washington, D. C.
DEAR CONGRESSMAN DAWSON: This is in further reply to your letter of February
19, 1949, asking for my views on H. R. 2781, a bill to reorganize and simplify the
procurement, utilization, and disposal of Government property, and for other
purposes.

It appears that the measure in its present form would enable the procurement and utilization of supplies needed by the various agencies on a more economical and efficient basis, provided handling charges are maintained at a reasonable level.

The consolidation and operation of warehouses, supply centers and similar facilities would, in my opinion, result in more effective storage and distribution of Government supplies.

I also believe that the provision whereby the Administrator would represent all executive agencies in negotiations of carrier rates and charges could result in the saving of an appreciable amount of money.

Although procurement, utilization, and related activities would, of course, be administered through the Federal Works Agency instead of through a proposed Office of General Services, as recommended in a report on Federal supply activities of the Commission on Organization of the Executive Branch of the Government on February 12, 1949, the general objectives of the measure with respect to such procurement and related activities would seem otherwise consistent with this report.

The Bureau of the Budget advises that it has no objection to the submission of this report. Yours very truly,

MAURICE J. TOBIN, Secretary of Labor.

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GENERAL ACCOUNTING OFFICE,

Washington 25, April 14, 1949.
Hon. WILLIAM L. DAWSON,
Chairman, Committee on Expenditures in the Executive Departments,

House of Representatives.
MY DEAR MR. CHAIRMAN: Further reference is made to your letter of February
19, 1949, acknowledged by telephone February 23, requesting an expression of my
views as to the merits of H. R. 2781, Eighty-first Congress, entitled “a bill to reor-
ganize and simplify the procurement, utilization, and disposal of Government
property, and for other purposes,' There have also been made available sev-
eral suggested amendments developed in consultation with the staff of your com-
mittee, and my comments will be directed to the bill as thus modified.

The purposes of the bill, as set forth in section 2 thereof, are to provide for the Government an economic and efficient system for (a) the procurement and supply of personal property and nonpersonal services, including related functions; (b) the utilization of available property; and (c) the disposal of surplus property.

Briefly, the bill would provide for (a) the transfer of the Bureau of Federal Supply together with its functions, records, etc., to the Federal Works Agency; (b) the transfer for liquidation of the affairs of the War Assets Administration to the Federal Works Agency; and (c) the transfer to the Federal Works Administrator of the functions of the Director of Contract Settlement and the transfer to the Federal Works Agency of the Contract Settlement Act Advisory Board and the Appeal Board. The Administrator of the Federal Works Agency would (a) prescribe the policies and methods of procurement of personal property and nonpersonal services and of warehousing, stocking, transportation, and distribution of personal property; (b) operate warehouses, supply centers, repair shops, and other similar facilities; (c) procure personal property and nonpersonal services; and (d) advise all executive agencies on traffic management and represent all such agencies in negotiating rates, etc. As to property utilization, the bill would direct the Administrator of the Federal Works Agency to prescribe policies and methods for the maximum utilization of excess property by executive agencies and for the disposal of surplus property. The bill would provide for the establishment and maintaining of a Federal supply catalog system and for collaboration with the Department of Justice as to the applicability of antitrust laws to any proposed disposition of surplus property.

The instant bill is substantially in the form of S. 2754 and H. R. 6276, introduced in the Eightieth Congress, which failed of enactment.

The need for an efficient businesslike system of property management has long been recognized, and various bills toward that end have been heretofore introduced in Congress. However, H. R. 2781, unlike some other bills heretofore introduced in Congress, does not create a new and independent agency but consolidates the functions of procurement, management, and disposition of property in an existing agency which already is performing some of the work covered by the bill. Aside from the fact that under such a centralization there should be achieved considerable economy and a greater degree of efficiency in the purchase, use, and disposition of property as engaged in by the various departments and agencies of the Government, it appears that the proposed system will facilitate the transfer of property-regarded as excess by one agency-to another agency for its use, which should result in considerable savings to the Government. Under the present system, a transfer of property between Government agencies has not been carried out to any large extent largely because of the lack of effective legislation. Viewing the bill as a whole, it is believed that its enactment would result in considerable improvement in the permanent system for the procurement, use, and disposal of Government property. Also, as a result of centralization in one agency of the procurement and disposal policies with respect to property, there will be available dependable property data required by the Congress and the President for policy and administrative determination processes, particularly with respect to new requirements.

While some question might be raised as to whether the scope of the bill should be extended so as to provide an agency to be superimposed upon the contemplated structure for the purpose of prescribing the policies to guide the Administrator and executive agencies in carrying out their respective functions under the bill, it is believed that ample provision to accomplish this purpose has been made in section 106 (a) of the bill wbich directs the President to prescribe such policies as he shall deem necessary.

Section 101 (b) transfers to the Administrator the functions of the Director of . Contract Settlement and the Office of Contract Settlement, and to the Federal Works Agency the Contract Settlement Advisory Board and the Appeal Board under the Contract Settlement Act of 1944, the functions of which boards are to be performed by them under conditions and limitations otherwise prescribed by law. I desire to call the committee's attention to the repeated recommendations made by me for repeal of the Contract Settlement Act and to the limitations placed by the act on the General Accounting Office which made the Office powerless to prevent or correct, or even to question, over-liberal payments made in termination settlements. The audit by the General Accounting Office under the act-after payments had been made and based on such records as might be furnished—was limited to determining (1) whether the settlement payments to the war contractors were made in accordance with the settlements, and (2)

whether the records transmitted to it, or other information, warranted a reasonable belief that the settlement was induced by fraud. Notwithstanding the statutory difficulties in the way of the General Accounting Office in attempting to make any effective contribution in this field, there had been certified to the Justice Department up to December 31, 1948, more than 50 cases, involving over 400 settlements of terminated contracts, in which, in our opinion, reasonable belief was warranted that the settlements were induced by fraud. In addition, up to that date nearly 100 reports of overpayments, involving over 150 settlements of terminated contracts, had been reported to the departments involved and to your committee as part of a program of protecting the interests of the Government to the extent possible under the circumstances, even though the settlements were final and conclusive under the terms of the act.

It is noted that the analysis of the bill presented by the Federal Works Agency indicates that because of the almost complete liquidation of the contract termination program, the contract settlement functions are now routine and insignificant. It is hoped, however, that there will be no disposition to further extend or reenact the provisions of the Contract Settlement Act.

With particular reference to paragraph (iv) of subsection (a), section 102, regarding the representation of executive agencies by the Administrator in negotiations with carriers and other public utilities and in proceedings involving carriers or other public utilities before Federal and State regulatory bodies, this is a step in a direction the General Accounting Office has advocated for many years; that is, the centralization in some agency in the executive branch of responsibility for coordinating the Government's use of transportation facilities and securing the most reasonable rates obtainable therefor. Further discussion of this problem is contained in the attached copy of my letter of June 15, 1948, to the chairman of the Procurement and Buildings Subcommittee of the Expenditures Committee.

There is one important omission in the bill as it now stands. That has to do with the field of property accounting and audit. Like the whole field of property management, this aspect needs increased emphasis. Existing property accounting legislation is incomplete and largely antiquated. The general rules for the keeping of inventories in the executive departments are derived from provisions of section 197 of the Revised Statutes, last amended about 1913 (5. U. S. C. 109). Other provisions on property returns and accountability are included in an act of 1894 (31 U. S. C. 89–92). Section 309 of the Budget and Accounting Act, 1921, provides that the Comptroller General shall prescribe the fornis, systems, and procedure for administrative appropriation and fund accounting in the several departments and establishments. However, it makes no mention of property accounting.

Largely because of the unsatisfactory state of property accounting in many Government agencies, the Congress adopted a provision in the Independent Offices Appropriation Act, 1948, which is now carried as section 108 of the Independent Offices Appropriation Act, 1949, as follows:

SEC. 108. No part of any appropriation or fund contained in this Act shall be available for installing or maintaining systems for administrative appropriation, fund, or inventory accounting except such systems as are prescribed or approved by the Comptroller General: Provided, That all agencies for whose activities provision is made in this Act shall hereafter maintain fiscal accounting control of all inventories of supplies, materials, or equip

ment which may be owned by or be in the custody of such agencies. While this provision covers some 25 independent agencies, including the Federal Works Agency, its application is not Government-wide and it is in the form of a limitation on the use of appropriations rather than of permanent substantive law.

The unsatisfactory situation with regard to property procurement, utilization and control had become so acute that in August 1947 the General Accounting Office, the Treasury Department and the Bureau of the Budget joined in a comprehensive survey and analysis of all of the problems relating to Government property. In conducting this survey and analyzing the facts ascertained, the joint staff gave special consideration to commercial practices through information collected from 20 selected business firms by the Controllers Institute of America especially for this project. The staff also considered pertinent information extracted from studies and reports of Government operations which had been made by the Congress, by management engineering firms, and by various Government agencies, as well as studies and reports regarding municipal and business operations, which had been prepared by the Municipal Finance Officers Association and the Metropolitan Life Insurance Co., respectively.

After testing its findings and recommendations through circularizing all the Government agencies, the joint staff which conducted this study has recently submitted its report, a copy of which is attached. The conclusions stated therein recognize the importance of providing for the establishment, by this office, of principles and standards of accounting for Government property, of developing property accounting systems and techniques, and of inaugurating an adequate audit by the General Accounting Office of property accounts and transactions. The report has been unanimously approved by the joint staff which conducted the study and by the representatives designated by the heads of the agencies which joined in the study to review and approve the findings and recommendations of the staff. It is awaiting approval by the agency heads.

As you also probably are aware, for the past year the General Accounting Office, the Treasury Department, and the Bureau of the Budget have been engaged jointly in a special effort to improve accounting and financial reporting in the Federal Government. There are attached copies of the statements dated January 6, 1949, in which I joined with the Secretary of the Treasury and the Director of the Bureau of the Budget to outline the basic objectives of this program and the cooperative method of approach. Particular attention is invited to the emphasis placed by the program in the need for an audit independent of the executive branch and on the place of properly designed accounting systems as a vital factor to the effectiveness of such independent audit. The joint program has received the enthusiastic endorsement of all the agencies. It includes provision for implementing, from an accounting standpoint, the result of the joint property survey and for consideration of the legislative recommendations in the staff report.

I feel that it would be a mistake for the Congress to consider and enact a complete plan for the procurement, utilization, and disposal of property without adequate treatment of the tremendously important field of property accounting and audit. The development of sound principles and standards in this field, the devising and installation of up-to-date systems of inventory control and property accounting, and provision for property audit will go far in aiding man. agement to do its job better by making better use of property, and in fully disclosing financial operations to provide a proper stewardship of public funds and property.

The language which has been developed to supply these needs is as follows: In section 106, page 18, line 1, insert a new subsection (b) as follows:

(b) The Comptroller General shall prescribe principles and standards of accounting for property, cooperate with the Administration and with the executive agencies in the development of property accounting systems, and approve such systems when adequate and in conformity with prescribed principles and standards. From time to time the General Accounting Office shall examine such property accounting systems as are established by the executive agencies to determine the extent of compliance with prescribed principles and standards and approved systems, and the Comptroller General shall report to the Congress any failure to comply with such principles and

standards or to adequately account for property. and redesignate present subsections (b) through (g) as (c) through (h). In section 107, page 20, line 20, add a new subsection (c) as follows:

(c) The General Accounting Office shall audit all types of property accounts and transactions at such times and in such manner as determined by the Comptroller General. Such audit shall be conducted at the place or places where the property or records of the executive agencies are kept and shall include but not necessarily be limited to an evaluation of the effectiveness of internal controls and audits, and a general audit of the discharge of accountability for Government-owned or controlled property based upon

generally accepted principles of auditing. For the reasons already stated, I strongly recommend that the committee consider for insertion in the bill the above-quoted proposed language, which has been designed to be completely consistent with the objectives and methods outlined in the joint accounting program.

I will be glad to have representatives of my office appear and testify concerning any of the matters in this report. Sincerely yours,

LINDSAY C. WARREN,
Comptroller General of the United States.

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TREASURY DEPARTMENT,
BUREAU OF FEDERAL SUPPLY,

Washington 25, April 15, 1949. (Attention : Thomas A. Kennedy, Committee Counsel.) DEAR MR. KENNEDY: In the course of his testimony before the House Committee on Executive Expenditures on H. R. 2781, Mr. Willis MacLeod promised to provide a statement on the beenfits and savings which could be expected from únified cataloging and other standards agency. I enclose a statement at his request.

I was unable to reach anyone at your office this afternoon, so I am having this dropped in the chute.

I can be reached after 2 p. m. tomorrow, Saturday, at my residence Ordway 0366 if any clarification is desired.

ROBERT L. TOTTEM.

APRIL 14, 1949.

BENEFITS AND SAVINGS RESULTING FROM THE FEDERAL CATALOG SYSTEM AND OTHER

STANDARDS OPERATIONS OF THE BUREAU OF FEDERAL SUPPLY

(Statement for the House Committee on Expenditure in the Executive

Departments)

I. THE FEDERAL CATALOG SYSTEM

Under the present situation, the various methods used by Federal agencies for identifying and classifying the same commodity items make it extremely difficult to exchange information on all supply matters between one agency and another. This inconsistency in the numbering, description, and classification of commodities is caused by the fact that, to meet the emergency of the war years, Federal agencies developed some 17 major cataloging systems. The situation has caused confusion in all channels of supply—to the person initiating a requisition, to the purchasing officer placing an order, to the commercial supplier, the warehouseman, and the user.

In addition, in all phases of the supply process, it has been almost impossible for Federal agencies to coordinate their operations or to exchange supply information. An example of this difficulty is in the disposal of surpluses liy the War Assets Administration and its predecessor agencies. Without uniform numbers and descriptions of surplus items, it is impossible to determine exactly what is on hand and how to properly identify the material. On the other hand, if the same stock number and commodity description always referred to the same item, excesses discovered in one agency could readily be distributed or transferred to another agency requiring them. The utilization of these excesses will cause a corresponding reduction in total Federal inventories and will obviate the need for new procurement by the agency receiving the goods. Furthermore, manufacturers now considering buying materials from surplus often find it more economical to purchase new material rather than to stand the cost of completely verifying that an item not properly described or numbered is what they desire.

The Federal catalog system, by completely and uniformly numbering, describing, and classifying each of the approximately 3,000,000 items used and bought by Federal agencies, will provide a common supply language for the Government and serve as an important means of achieving Government-wide standardization of commonly used commodities. Cataloging, and the accompanying standardization process, results in the selection of the most economical and serviceable commodities for the desired purpose, the elimination of duplicate items from the supply system, and the determination of interchangeable and substitutable items. It is estimated, for example, that the over 12,000,000 items carried in present catalogs will be reduced to about 3,000,000 through uniform Federal cataloging. As a result of this elimination of duplicates, the number of items carried in stock can be materially reduced. In procurement, the unit cost of material decreases with the quantity purchased. Again, through the elimination of duplicates and through the proper identification of interchangeable spare parts, greater volume purchasing will be made possible thereby reducing both administrative costs and the purchase price for the Government. Federal expense for equipment and maintenance should also be decreased, for as rapidly as more efficient and more serviceable equipment is put into use the annual cost for maintaining and replacing that equipment is reduced. This in turn reduces consumption demand for the equipment and reduces the need for new procurement.

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