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Each cost accounting standard is designed to achieve an increased uniformity in accounting practices among Government contractors and consistency in accounting treatment of costs by individual Government contractors. In the absence of an appropriate market place to establish fair and reasonable contract prices, it is essential for cost allocations to be made on a uniform and consistent basis for use in evaluating proposed contract prices. In dealing with the many billions of dollars involved in these awards, cost accounting standards provide a good set of rules to help obtain reasonably priced contracts.

Most of the standards are concerned with achieving uniformity of accounting practices. In essence, the standards serve to reduce the cost accounting practice alternatives available to contractors. When standards permit alternative practices, the standards include specific criteria for selecting preferable accounting practices.

Increased uniformity is achieved through standards such as number 409 dealing with depreciation of tangible capital assets. The standard provides criteria and guidance for assigning costs of tangible capital assets to cost accounting periods, and for allocating such costs to cost objectives. The result is to provide a systematic and rational flow of these costs to cost

objectives over the service lives of the assets. This serves to better assure that the cost of depreciation is properly allocated to Government contracts.

An example relating to consistency is Cost Accounting Standard 401 which requires contractors to be consistent in estimating, accumulating and reporting costs. Consistency is very important in evaluating contractors' proposals for reasonableness. Contractors generally base their current cost estimates on some similar or identical work in the recent past. Consistency enables Government personnel to rely on the previous cost history to assist them in determining the acceptability of current contractors' proposals. Without this consistency, there could be considerable confusion as well as distortion of the costs of the work to be contracted for. In addition, consistency in accumulating or recording contract costs enables Government personnel to better review and track each contractor's record of performance to compare it with prior estimates.

As another example, let us look at the benefits of Cost Accounting Standard 402, which requires contractors to allocate each type of cost incurred for the same purpose consistently on only one basis to any contract or other cost objective. This standard is sometimes known as the "double counting" standard in that it prohibits contractors from double counting certain costs by charging or allocating certain..jtems on both a direct an indirect basis. The result of double counting, when done in the past, was that the Government paid more than it should have for products and services.

SUMMARY

A prime objective in negotiating noncompetitive contracts is to attain reasonable and equitable prices that approximate those that would have been obtained under competitive conditions. A good set of rules is important in

accomplishing this objective. We believe that cost accounting standards provide the appropriate means to do this. We should not have to pay too much; nor should we pay too little. The standards provide the means for contractors to appropriately allocate costs to assure that they are paid reasonable and equitable amounts, for their products and services. This is especially important when we consider the large amount of noncompetitive contracts that are being awarded each year and the fact that defense procurement is expecting to increase substantially in the near future.

Mr. BENJAMIN. With that, we thank you for coming.

WEDNESDAY, FEBRUARY 20, 1980.

GENERAL ACCOUNTING OFFICE

WITNESSES

ELMER B. STAATS, COMPTROLLER GENERAL OF THE UNITED STATES ROBERT F. KELLER, DEPUTY COMPTROLLER GENERAL OF THE UNITED STATES

MILTON J. SOCOLAR, GENERAL COUNSEL

JOHN D. HELLER, ASSISTANT TO THE COMPTROLLER GENERAL
CLERIO P. PIN, ASSISTANT TO THE COMPTROLLER GENERAL

DONALD L. SCANTLEBURY, DIRECTOR, FINANCIAL AND GENERAL MAN-
AGEMENT STUDIES DIVISION

HENRY ESCHWEGE, DIRECTOR, COMMUNITY AND ECONOMIC DEVELOPMENT DIVISION

RICHARD L. BROWN, DIRECTOR, GENERAL SERVICES AND CONTROLLER

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RYAN S. YUILLE, DIRECTOR, EQUAL EMPLOYMENT OPPORTUNITY OFFICE

DEXTER J. PEACH, DIRECTOR, ENERGY AND MINERALS DIVISION HYMAN L. KRIEGER, DIRECTOR, FEDERAL PERSONNEL AND COMPENSATION DIVISION

HARRY S. HAVENS, DIRECTOR, PROGRAM ANALYSIS DIVISION

DONALD J. HORAN, DEPUTY DIRECTOR, LOGISTICS AND COMMUNICATIONS DIVISION

Mr. BENJAMIN. The subcommittee come to order.

We will now take up the budget for the General Accounting Office and we have the Comptroller General, Mr. Staats, and several members of the GAO staff present.

I believe, Mr. Staats, this will be your 15th appearance before this subcommittee in behalf of your regular annual budget. The subcommittee was assigned jurisdiction over the GAO in 1967 at the beginning of the 90th Congress.

That budget for fiscal year 1968 totalled $54,359,000 and 4,600 permanent positions.

The request for the General Accounting Office for fiscal year 1981 totals $218,070,000 and 5,275 positions.

Dollarwise the budget has increased over four times in that 14year period and is $17,700,000 over the amount appropriated for fiscal year 1980. No new staff is requested.

Mr. Staats, if you will be kind enough to introduce the people with you.

STATEMENT OF MR. STAATS

Mr. STAATS. To my right, Mr. Keller, Deputy Comptroller General; to my left is Mr. John Heller, Assistant to the Comptroller General, and Mr. Socolar, who is our General Counsel.

60-245 0 - 80 - 41

Others will be introduced as they participate.

I might say apropos to your remarks about the growth of our budget, if you take inflation out of that figure, as we have done, it has less than doubled since 1966. We will have more to say on that subject.

Mr. BENJAMIN. I am sure you will.

Mr. STAATS. It shows you what happens with inflation.

Mr. BENJAMIN. Mr. Staats, I know you have a statement and if you would like to submit it fully for the record at this point, or summarize it, it will be agreeable with us.

Mr. STAATS. I do have a statement, and we have tried to make it as brief as possible, but I would like to present it.

Mr. Chairman and members of the subcommittee, our request is for $218,070,000. This amount will be required in fiscal year 1981 to fund 5,275 staff-years, the same staff-year level as in fiscal year 1980.

The increase of $7,481,000 over the $210,589,000 that would be available to us for fiscal year 1980 is needed solely to support current GAO staffing levels.

The GAO Justification of Estimates for fiscal year 1981, which has already been given you, details the basis for our request and how we plan to use the requested resources.

In my statement today I will highlight GAO's plans to meet an increased workload with no increase in staff resources.

I will also summarize some of GAO's accomplishments and the benefits that the Congress, the Federal Government, and the Nation have obtained in the fiscal year ended on September 30, 1979.

BUDGETARY STATUS OF GAO

By way of background I would like to give you a brief picture of our recent appropriation experience. Because of the 5 percent across the board cut in the Legislative Branch appropriations for fiscal year 1979, we received a cut of 44 staff-years below the fiscal year 1978 operating level. This was after you and the Senate Committee had already approved a 120 staff-year increase but we ended up with a net decrease of 44 staff-years.

Last year, for fiscal year 1980, the Congress provided us with funding to support a 175 staff-year increase, against our request of 250 staff years, to help meet the workload expansion that had already occurred. In the past four years we have grown by only 108 professional staff-years.

GAO's fiscal year 1981 budget request provides for no increase in staff resources, despite a continually expanding workload. Moreover, as has been our long-standing policy, its fulfillment will require GAO managers to absorb further workload increases that occur during the budget year. It will, as with prior budgets that we have submitted, require GAO to do more work with less staff. Over the years GAO has had an impressive record of significant accomplishments. During the time since I became Comptroller General, GAO's quantifiable dollar savings alone have totalled $14 billion, $11 billion of which has been achieved in the past three years.

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