Productivity measurements are important when management is interested in matters of economy and efficiency. The cost of a measurable unit of production is determined through cost accounting techniques. The Department of Commerce pamphlet on "Productivity Accounting" illustrates the savings which may be realized through good cost information in the hands of interested managers. The pamphlet states that since its inception in 1964, application of the Productivity Accounting Program in the Office of Administrative Services is credited with a 13-percent reduction in personnel complement in spite of increased workloads in those activities where reductions occurred. The reductions resulted from combinations of:

1. Identification of workload fluctuation;

2. The application of norms (manpower and related dollars required to produce outputs);

3. Utilization of the flexible staff, skill-level concept, which ruled out the necessity to staff for peak workloads in any unit of the organization.

Mention is made in chapter 5 of the need for better cost accounting to provide cost information for consideration in establishing rates to be charged for services rendered (see pp. 15, 16, 21, 34, and 49).

Accounting for property

Adequate monetary property accounting includes internal controls which provide management assurance that property is being adequately controlled and accounted for. The importance of property accounting also rests on the fact that when public funds are invested in such property, there is a need to render an accounting for the use of both the funds and the property.

The need for adequate property accounting has been recognized by the Congress through enactment of several laws including:

National Security Act of 1947 (10 U.S.C. 2701), which requires the Secretary of Defense to have property records maintained on both a quantitative and monetary basis, so far as practicable.

Federal Property and Administrative Services Act of 1949 (40 U.S.C. 483b), which requires each executive agency to maintain adequate inventory controls and accountability systems for the property under its control.

Public Law 84-863 (31 U.S.C. 66a(c)), approved August 1, 1956, which requires that the accounting system of each agency include adequate monetary property accounting records. Since enactment of these laws, the executive agencies having significant amounts of property have, with some exceptions, adopted the concept of monetary property accounting in their accounting principles and standards. Most of these exceptions pertain to property for which the managerial benefits of monetary property accounting are not great. For example, an attempt to reconstruct or estimate and record the original cost of certain monuments, the public domain, or the original cost of roads, streets, and bridges of the District of Columbia would be projects of limited value. There are also practical limitations in monetary accounting for military equipment.

In some cases monetary property accounting procedures have not been developed where, in our opinion, there is management significance. For example, the District of Columbia government does not have current plans to install monetary property accounting for the

cost of water and sewer mains which should be a factor for consideration in the establishment of rates. Another example is the Coast Guard which does not maintain adequate monetary accounting for significant amounts of property such as vessels, vehicles, and certain other equipment.

Some agencies that have adopted monetary property accounting have not satisfactorily implemented the concept. For example, we do not believe that the property accounting systems of the Department of State or the Peace Corps have been adequately designed to include the necessary internal controls to provide assurance that reliable data is contained in the property accounts.

There are other instances where a satisfactory property accounting system has been designed and installed, but is not being operated in an acceptable manner. For example, during fiscal years 1965 and 1966 stock records of selected Department of Defense depot inventories— averaging in value about $10.4 billion-had to be adjusted up or down an average of $2.4 billion annually in order to bring them into agreement with the physical inventory quantities. In an operation as large as the Federal Government, there will always be problems of varying magnitudes in maintaining property accounts once they have been. properly designed and installed. Nevertheless, we believe that more attention to adequate administration and operation of monetary property accounts will produce more accurate information for use in the decisionmaking processes relating to the management of property. Good accounting for property is not only necessary as a matter of accountability, but also for effective use, procurement, and supply of such resources.

Recommendations of President's Conmission on Budget Concepts

This Commission was created in 1967 to make a study of the Federal budget and to recommend how it could be presented to help both the public and Congress to understand it better. The Commission issued its report in October 1967 and the President accepted the far-reaching recommendations of the Commission with regard to the basic concepts for the budget.

The Commission heartily endorsed the trend toward the use of accrual accounting and recommended that budget expenditures and receipts be reported on an accrual basis instead of the present cash basis, stating that this basis would result in budget totals which would provide a better measure of the impact of Government activities on the national economy.

This development put added emphasis on the need for each Federal agency to maintain its accounts on the accrual basis. The Commission recognized that substantial progress had been made in the improvement of agency accounting systems. It also recognized that it was not possible for several key agencies, notably the Department of Defense, to provide immediately the information which was needed to report budget results on the accrual basis. Specific instructions to the executive agencies for implementing the Commission's recommendations are contained in Bureau of the Budget Bulletin No. 68-10, dated April 26, 1968.

Although basic laws and the Comptroller General's prescribed principles and standards of accounting for Federal agencies have long called for the maintenance of accounts on the accrual basis, some

refinement in the application of these principles and standards is necessary to accommodate, primarily at the appropriation level, the reporting, in accordance with the Commission's recommendations, of revenues and expenditures in terms of accruals rather than in terms of receipts and disbursements. Accordingly the heads of departments and agencies were informed on May 4, 1968, that accrued revenue and expenditure data must be obtained and reported on a monthly basis and that in the case of contractors performing work to the Government's specifications, accrued expenditures must be recognized in Federal accounts and reports on the basis of constructive receipt of goods and services, without awaiting physical delivery to or acceptance by the Government.

Special studies were instituted by the General Accounting Office, the Bureau of the Budget, and the Treasury Department to analyze the the problems and develop workable procedures for implementing the accured revenue and expenditure recommendations of the President's Commission on Budget Concepts. The principal problems requiring special study are (1) accounting for costs incurred by contractors but not yet reported to the Government under contracts for the furnishing of materials, facilities, and equipment to the Government's specifications; (2) accounting for costs incurred by recipients of Federal funds under grant-in-aid programs; and (3) estimating revenues from income and other forms of Federal taxes on the accrual basis.

The Commission recommended a conversion to the accrual basis for the 1971 budget, to be submitted to the Congress in January 1970. It was concluded early in 1969 that this target date could not be met because not all agencies had made sufficient progress in converting their systems. Accordingly, by joint memorandum dated March 10, 1969, from the Secretary of the Treasury, the Director of the Bureau of the Budget, the Chairman of the Council of Economic Advisers, and the Comptroller General, the announcement was made that the conversion date would be deferred 1 year-to be made for the 1972 budget to be submitted in January 1971.

Staffing and training

Accounting for the operations of the Federal Government has, over the years, grown more and more complex, necessitating the development of higher skills and the use of more sophisticated equipment. The days when simple fund accounting and manually maintained records were adequate have long since passed. Performance budgeting as recommended by the Hoover Commissions and accrual accounting as required by law (31 U.S.C. 66a) have brought new dimensions to the concepts of financial management in the Federal Government.

More recently, the advent of the planning-programing-budgeting system (PPBS) and the recommendations of the President's Commission on Budget Concepts have brought into focus the breadth of improvements needed in accounting for the operations of the Federal establishment and the urgency for their timely achievement. The addition of a large number and variety of new programs, many involving Federal-State relationships, has added problems. The volume of transactions and the need for timeliness in reporting to management have brought electronic computers into extensive use with the attendant need to apply judgment and skill in the planning, management, and operation of this equipment.

Today, accounting systems must include cost systems which provide an accurate and reliable basis for developing and reporting costs of performance in accordance with the planning-programing-budgeting (PPB) structure, to serve the various needs of each organizational echelon, and to support the budgetary system. The complexities of modern accounting systems to serve the information needs of management has generated a need for an upgrading of accounting skills and the development of skills in the electronic equipment field.

In response to this need, the Civil Service Commission established the Financial Management and PPBS Training Center in Washington, D.C., in 1967. This Center provides training for executives and staff specialists in both accounting and PPBS. It also develops specialized training materials and provides advice and assistance to other agencies in matters relating to training.

During fiscal year 1968, the Financial Management and PPBS Training Center conducted 54 sessions of 15 training programs for 1,904 participants in the Washington area. An additional 46 sessions were conducted in the field for 3,272 agency employees. A substantial number of new courses are under active development for fiscal year 1969. In the field of financial management emphasis is being placed on the development of a foundation curriculum. New courses in financial management will include "Estimating Program Costs" and "Financial Control."

During fiscal year 1968 the Commission completed the establishment of four regional training centers-San Francisco, St. Louis, Atlanta, and Philadelphia. Each regional center will service about onefourth of the Federal service outside the Washington, D.C. area.

The great need for professionally competent accountants makes it highly desirable to relieve such employees of any duties which might be performed by a technician. During fiscal year 1968, the Civil Service Commission established new classification and qualification standards for accounting technicians positions. Managers now have the tools to make appropriate assignments of work to professional accountants and accounting technicians.

Governmental accounting courses at colleges and universities are based almost entirely on accounting practices of municipalities. Courses based on accounting in the Federal Government are not taught for the principal reason that there is no suitable textbook on the subject The joint financial management improvement program has recently initiated a project to develop a textbook on the Federal financial management system primarily for use by Federal managers and financial personnel, and for students and others in the fields of business and public administration.

The recent increased emphasis on training in financial management holds much promise for long-term benefits. At the moment, however, there is a continuing shortage of qualified accountants at a time when the demands for better financial information are still increasing.

CHAPTER 4.-GENERAL ACCOUNTING OFFICE EFFORTS

TO IMPROVE FINANCIAL MANAGEMENT

The General Accounting Office has continued its efforts to improve financial management by cooperating with agency officials in the development and review of statements of accounting principles and standards and of the design and operation of their accounting systems. These efforts include consultations, circulation of examples of good financial management practices, and review of agency systems submissions. This cooperative approach to the systems work provides a basis for making needed or desirable changes as the development work progresses, thereby avoiding possible major changes at a later date. One significant action taken to facilitate orderly cooperative development and to avoid excessive revisions, was to provide for a required two-stage submission and approval process, and an optional intermediate submission and related approval stage. The first stage was established to provide for development, submission, and approval of the principles and standards of accounting to be followed in designing and maintaining an accounting system. The first stage is considered desirable for the purpose of obtaining approval of the underlying principles and standards before investing efforts in the design, development, and implementation of the system. This initial stage is the point at which an agency should make fundamental decisions regarding the financial management plan to be used and the specific concepts of the related accounting system. Accordingly, the statement of principles should be definitive and not general in character. It is important to identify and resolve at an early stage those problem areas that might adversely affect ultimate approval of a system.

The second stage (which is optional for each agency) is represented by the system design. Although a fully developed accounting manual not required when requesting approval at this stage, such a manual may be used to document the design stage. The establishment of this stage provides an additional checkpoint where problems may be identified and resolved prior to development and implementation of the detailed operating procedures.

The third submission and approval stage is represented by a fully developed and documented accounting system which is operational or which has been adequately tested and proven adequate in operation. The change in the submission and approval process has been very useful. As of December 31, 1968, 59 statements of principles and standards had been submitted under the revised procedures and 32 statements had been approved.

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