NAVAL APPROPRIATIONS
By Captain Charles Conard, P. C, U. S. Navy
INTRODUCTORY
The appropriation system of the Navy Department constitutes a handicap against the uniform advance in industrial and administrative methods which has been and is being made from year to year. As military efficiency is of course affected by the degree of progress made in the industrial and administrative branches, it is important to remedy any defects known to exist therein.
It is unnecessary to say that this condition has been commented on from time to time. Two references only will be made.
Admiral McGowan in his report as paymaster general for the fiscal year 1915, said:
In addition to interfering with the proper distribution of costs, the present complicated method of making appropriations entails a great volume of unnecessary paper work and a mass of bookkeeping detail, the disadvantages of which are felt throughout the naval establishment.
Admiral Cowie in a lecture before the Naval War College, September 3, 1915, said:
The naval appropriations at the present time are very complex, and many of them carry identical clauses. Their consolidation would simplify all business transactions connected with purchases, permit more accurate cost accounting, facilitate the reporting of expenditures and result in an economical distribution of funds by administrative authority at the time the necessity for a particular expenditure becomes apparent.
The navy is in the fortunate position of not having to make any excuses for failure to produce. A request made to Congress to relieve us of the burden of the unsatisfactory appropriation methods cannot, therefore, be ascribed to weakness, but rather to a strength born of overcoming difficulties.
In the following article, it is first shown that the navy has made considerable progress in getting around the obstruction of the appropriation system. But we still carry the deadweight of it, and an attempt is made to indicate how it can be removed from our path without causing any disorganization of our work.
There never was a better time than the present for settling this problem.
The financial, or fiscal, system of the Navy Department runs so smoothly and has so well withstood the strain of the present war, that few outside of those in immediate touch with the details of the problem appreciate the difficulties which have been overcome in the past, or those which still remain to be cleared up. The navy methods for obtaining and handling funds and stores are believed to be superior to those of most other departments of the government; certainly when comparison is confined to the long-established executive departments, where old traditions and inherited systems tend to complicate the routine. Some of the recently instituted departments have undoubtedly been able to start with systems untrammeled by ancient customs, and should therefore be better off in this respect than the older institutions.
In order to obtain a clear idea of the present navy methods, it will be well to describe briefly how money is obtained and handled, and then to glance back over the changes which have been introduced in late years.
To obtain funds for a coming fiscal year estimates from the bureaus, based on reports from the various yards and stations, are submitted to the Secretary, gone over carefully and forwarded to the Secretary of the Treasury for transmission to Congress. These estimates are divided under headings, called appropriations, in accordance with the purposes for which the money is desired. Each bureau has its own group of appropriations, the titles of which indicate more or less closely the ultimate objects of expenditures. However, as the result of long custom, the titles of some appropriations give only a broad indication of the nature of the proposed expenditures, and in that case there is added a somewhat detailed wording intended to specify or describe in a general way the kinds of charges which are to be met under that appropriation. It must be remembered that formerly each bureau maintained a kind of independence, not only as an administrative section of the Navy Department, but also as a managing element of the yards and stations. Consequently, each bureau sought to incorporate in the appropriation bills words to indicate its functions and to tighten its control over the areas in which it was interested. From time to time new activities were taken up and mentioned in succeeding appropriation while more or less obsolete details were still retained, or incorporated only after considerable time. Thus the main or leading appropriations of the several bureaus contain descriptive words which attempts to delimitate, in a certain degree, the function of the bureaus, and which, from the manner in which this listng has been compiled, is unscientific and unsatisfactory.
In addition to the main appropriation of each bureau, other appropriations more specific in their nature are included in the n many cases the objects of expenditures mentioned in these appropriations are also covered in general terms by the appropriations, so that often payments can be made either by the bureau's main appropriation or from one or more of specific appropriations.
Congress having gone over the estimates submitted, the appropriations bill is finally enacted into law. The final figures of the bill were reached only after careful inquiry by the Congressional representees, the Secretary, bureau chiefs, and others concerned with being before these committees and explaining the needs of the service in detail. After the bill is passed and signed by the attendant, it is carried to the treasury books, and the money is available for use. On the treasury books the sums appropriated are recorded under the names of the several hundred appropriations mentioned in the act, and from that point on a second debit account is maintained for each individual appropriately covered by the bill. The same procedure is followed for the Bureau of Supplies and Accounts.
With the exception of the Navy Department, for reasons to be explained below, the general practice of the government when needed to be drawn from the treasury, is to specify the particular appropriation concerned for each intended payment. Thus a disbursing officer having 20 payments to make, each under a different appropriation, must procure the amounts necessary to the different accounts, and must keep each one of these accounts separate and distinct from all the rest. It may be that he may have ample funds under other appropriation bills and would not permit him to make payment of any one of the bills until new funds were obtained from the treasury properly "ear marked" for the purposes intended. For a long time the Navy Department carried out this involved and laborious routine in common with other departments of the government. Delays in payments were frequent, as it was necessary to secure the funds for each voucher by means of requisitions, via the Secretary of the Navy and Secretary of the Treasury, culminating in warrants on the treasury under which the money was placed to the disbursing officer's account.
A necessary modification had been made, however, in the cases of naval vessels. It is evident that ships in all parts of the world could not procure funds in the manner above described, and consequently a practice had grown up of making payments of all kinds from "Pay of the Navy" and afterwards adjusting between that and the appropriations actually concerned.
In 1878 a modification of the law was obtained as follows:
That the Secretary of the Navy be, and he is hereby, authorized to issue his requisitions for advances to disbursing officers and agents of the navy under a "General Account of Advances" not to exceed the total appropriation for the navy, the amount so advanced to be exclusively used to pay current obligations upon proper vouchers and that "Pay of the Navy" shall hereafter be used only for its legitimate purpose, as provided by law. (20 Stat. 167.)
From then on supply officers of vessels and on foreign stations obtained funds under "General Account of Advances." The appropriations chargeable with expenditures were shown on statements accompanying "Accounts Current," and the treasury made the necessary adjustments when the accounts were received. This practice was confined, however, almost entirely to ships and foreign stations, although it became customary to place in the hands of the disbursing officers in the United States small amounts under "General Account of Advances" to be used by them in emergency cases. When so used, however, the disbursing officer promptly forwarded a requisition for funds under the appropriation concerned to cover the payment in question, thus maintaining a complete balance under each appropriation of receipts and expenditures.
In 1907 authority was obtained from the Treasury Department to utilize the law of June 19, 1878 (quoted above), for all payments made by the navy. The system of withdrawing money from the treasury under the names of the multitude of appropriations was completely discarded, and thereafter each disbursing officer was, and is now, supplied with funds entirely under "General Account of Advances." The plan adopted for home stations is simple and efficient. Each disbursing officer is charged with a fixed sum, the amount of which is based on his probable needs. He reports his expenditures periodically (daily, weekly or monthly, according to the size of the office) and is reimbursed with the amounts actually expended, so that an even flow of funds is maintained to his credit, to offset the expenditures actually made. The charges to the various appropriations are made in the Bureau of Supplies and Accounts and in the Treasury Department in accordance with the vouchers submitted by the disbursing officers, "General Account of Advances" being credited at the same time that each appropriation is charged.
A similar method of procedure has been adopted for stores. Formerly all materials were bought under the individual appropriations and held in store in separate lots until used. Where the need arose to use for the purposes of one appropriation stores which had been purchased under another appropriation, it was necessary to effect a transfer between the two appropriations concerned, involving much bookkeeping and paper work. Various regulations were adopted relative to the common use of stock which had been procured in previous fiscal years, but the system was one which led to endless confusion and argument. Congress was induced to appropriate money for the establishment of a "Naval Supply Fund" to be used for purchasing stores for general use. When these stores were used, the values were credited to the fund, and corresponding charges were made to the appropriations under which the materials were utilized. A "revolving fund" was thus maintained. The principle was recognized as being sound and efficient, but the amount of the fund, $2,700,000 was insufficient. Finally the matter was settled by turning all balances of stock into the common fund (excepting certain technical and special articles) and establishing a section of the "General Account of Advances" known as the "Naval Supply Account." At present stock is purchased and held under "General Account of Advances, Naval Supply Account" until used, whereupon the values are credited to this intermediate account, and the appropriation charged.
This brief description has been given in order to indicate our present status and to show the improvements which we have found in the naval instructions of to-day, and illustrates pretty well our attitude of mind in regard to the distinctions between appropriations.
As a matter of fact, the question of which appropriation to use for a given piece of work is one that is constantly arising, and is not only a serious difficulty, but usually causes a vexatious loss of time. A recent example is as follows:
The supply officer at a navy yard having worked out, in conjunction with the Public Works Department, a plan for the installation of certain sand unloading machinery, correspondence took place, of which the following is an abstract:
- The public works officer states that his department has no funds available for the equipment. That it is portable equipment similar to other kinds, the property of the storehouse. Requests information as to whether supply officer concurs, as further action is dependent upon determining which bureau shall pay for the equipment.
- Supply officer considers the installation properly chargeable against a public works appropriation.
- Public works officer does not consider argument used by supply officer as sound; furthermore, as prospect of obtaining funds for project from Bureau of Yards and Docks is not bright, suggests that supply officer take such steps as are practicable towards purchasing the equipment.
- Commandant approves.
- Supply officer submits requisition under "Maintenance, Supplies and Accounts."
- Bureau of Ordnance returns requisition, as not chargeable to appropriation indicated. States that it appears to be chargeable to appropriation "Naval Gun Factory Tool and Machine Plants."
This correspondence consumed over two months. A perfectly conscientious effort was made by all concerned to properly locate this charge. It will be noted, however, that the problem was to determine the source from which the funds were to be obtained. The proper head under which to record the expenditures when made, that is, the expense classification, was not even considered. The accounting system will handle that phase of the matter with ease, no matter what appropriation supplies the funds.
The naval accounting system has recognized that an accurate statement of purposes for which money has been expended is essential, the mere record of the amount expended from each appropriation being insufficient. Each expenditure is therefore located under one of the main "titles" of the naval establishment, descriptive of the purpose for which the money was used. Thus, every appropriation is dissected according to these titles. It might be thought that one appropriation would naturally be expendable under one title, and so on. To show how far from the truth such a view is a diagram has been drawn, in which the appropriations for the fiscal year 1917 are listed and connected by lines to the various objects of expenditure, or titles. It was found impracticable to list all the appropriations, on account of the great number of them, so the diagram includes only the most important ones by name, arranged or grouped under each bureau. The number of the remaining ones not named is also stated in each case, and all titles which pertain to these appropriations are indicated by connecting lines.
It is believed that the diagram gives a better idea of the interweaving and complication of the appropriation system than could be described by pages of writing. The fact that every title, or object of expenditure, draws funds from a great number of appropriations is clearly brought out. In other words, although there are such a great number of different sums appropriated, the objects of expenditure are relatively few, and consequently it would seem more reasonable, if separate appropriations for particular purposes are to be made, that at least but one appropriation be allowed for each purpose.
However, this does not really carry us to the root of the matter. The point to be most carefully noted in this connection is that exclusive of sums allowed for specific work, such as items under "public works," the amounts which we carry on our books as appropriations are in fact merely the final approved estimates of the sums which will be needed during the ensuing fiscal year for the various purposes of the naval establishment. When we solidify these estimates into fixed sums, as though we had plans and specifications for definite work ahead, we become involved in many difficulties in the practical carrying on of affairs. Especially is this true under existing conditions where the terms of many of the "appropriations" are vague and incomprehensive, and where so much overlapping exists as to the possible objects of expenditure. Let us examine for a moment the regular course of procedure in expending the sums appropriated for the navy. As we have seen, each bureau, at the beginning of a fiscal year, has at its disposal a group of appropriations to be used in carrying on the work in which such bureau is interested. The money must be so apportioned amongst the various yards, ships etc., that each month the expenditures must average the correct proportion of the totals available, due regard being had to the character of the demands arising. Every effort is made to avoid obligations which will result in the over-expenditure of any given appropriation. Consequently, when it is seen that the monthly demands on such an appropriation are running ahead of the allotted sums, costs which would otherwise be charged to this appropriation are located under other appropriations which, as has been explained in preceding paragraphs, are also chargeable with such expenditures. Attention is largely concentrated on keeping accurate records showing the available balances of the sources of funds (i.e., the appropriations), rather than on clearly showing the exact objects for which sums are expended. It is true that the objects of expenditure are faithfully recorded through the cost accounting system, but their importance is diminished owing to the interest in the appropriation accounting.
The accounting instructions, in treating of this matter at some length, conclude as follows:
Appropriation charges show the source or legal authorization for the expenditure of the various sums of money devoted to output and maintenance. Cost charges show the disposition of the money, the final resting place of values. The two classifications are independent and cannot be made identical without impairing the legality of one or the correctness and administrative value of the other. The cost of an item of output cannot be correctly determined except by taking into consideration the elements thereof contributed by numerous appropriations.
Now the bureaus concerned, being mainly interested in the charges to their appropriations, do not follow with equal attention the question of costs under the various expenditure heads, especially since those accumulated costs affect a variety of appropriations with many of which a given bureau is not concerned. A glance at the diagram gives some idea of the extent to which this diffusion of sources is carried. It does not tell the whole story, however, as it does not bring out the facts relating to individual pieces of work, or jobs. Not only is it true that several appropriations have charged to them jobs of similar nature, but also it is necessary that the cost of any single job be made up of charges from a variety of appropriations. The resulting complexity is obvious.
Imagine an industrial plant which, in addition to the usual plan of exhibiting its receipts and expenditures in all the detail necessary to give a clear and comprehensive understanding of the business conducted, including a complete cost system, also endeavored to show how every element of income was distributed, tracing each sum received in such a way as to indicate the final disposition of every sum throughout the multiplication of bookkeeping details. Such a plant might then be in position to answer a question like this: "You have spent $10,000 for repairs to buildings. Where did you get the money?" The answer would be: "The sum spent for repairs to buildings was obtained thus: Sales to Wm. Smith & Co., $43.10, interest on investments $7.42, merchandise account $8421, royalties account $3.02, and so on through a list of receipts. Such a system would be well-nigh impossible and perfectly useless. It would, however, be closely similar to our naval appropriation cost accounting system, where actually more attention is given to following the status and distribution of the sources of supply (the appropriations) than to the objects of expenditure.
To improve conditions the first step would be to have all estimates submitted under the same headings as those used for the final expenditures themselves. In this connection the following is quoted from the conference on accounting, June, 1914:
It will not be possible to put into effect an entirely suitable and satisfactory system until the methods and classifications used in submitting estimates to Congress and the wording of appropriation bills are correspondingly modified and revised so that all estimating, appropriating accounting instructions are harmonized and so that identical terms, classifications and meanings will exist throughout.
However, even were estimates submitted under the logical headings provided by the accounting system, if these estimates after approval were embodied into appropriations, as the present estimates are, the situation would be only slightly improved. There would still remain the fact that several distinct sources of supply of funds have to be entered in the treasury books, and that complications would exist due to the necessity of tracing each source to its final disposition, as well as analyzing each expenditure head, to show whether two or more appropriations were involved. The real cure for our troubles is to let estimates remain estimates and not to convert them into separate and distinct appropriations at all, except that the total of all estimates would make the total of the Naval Appropriation Act.
Is any advantage, in the way of strict accountability or accurate information to Congress, gained by the present system of many appropriations? To answer intelligently, let us examine the relations existing between the Navy Department and the Treasury Department and Congress, in regard to these appropriations.
The Treasury Department is charged with the duty of determining whether or not any given voucher covering expenditures of funds by the Navy Department is a proper voucher, and if all legal requirements have been complied with. If found correct in that particular the treasury then proceeds to charge up the voucher to the appropriation indicated on its face, provided of course such appropriation is properly chargeable with such an expenditure. There are thus two distinct questions involved in the auditing' of a voucher: First, is it in legal form? Second, is it chargeable to the appropriation named? The treasury is the only authority on the first question, and the Navy Department must conform absolutely to its rulings. As regards the second question, the treasury is necessarily at a loss, for, as has been shown, many appropriations are often chargeable with a given expenditure. The best the treasury can do is to satisfy itself that at least the appropriation inscribed on the voucher is one of those to which such an expenditure may be charged. It therefore rests with the Navy Department to keep the record straight in regard to appropriations, and that is what actually takes place. It is true that there is a large class of vouchers each of which by its nature could be charged to only one appropriation, and the treasury can judge of itself in such a case whether or not the correct appropriation has been inscribed. Dirt as there is also a great number of vouchers for which the treasury has to rely on the navy for the correct appropriation classification, the effect is practically to leave the whole decision in the hands of the navy. Consequently, no advantage in the way of accountability is gained by maintaining the system of many appropriations, considering only the relations existing between the navy and treasury.
As regards the relations between the Navy Department and Congress, we find that Congress approves certain' estimates, and that in passing the naval bill these estimates are solidified into separate and distinct appropriations. If emergencies later arise which require the expenditure of sums greater than those estimated in certain cases, it becomes necessary to obtain deficiency appropriations from Congress. At the same time other estimates may be found greater than needed, but no method is available of using overestimates to offset underestimates, except that of shifting charges, to which reference has been made. This method is not to be commended. How much more sensible it would be to definitely recognize that estimates are in fact only estimates, and to enact a naval appropriation bill providing for a total amount made up of the sum of the estimates which have been approved by both Houses of Congress, but not making separate and distinct appropriations in the case of each estimate.
Such a bill should be composed of general estimates and specific estimates. The first would consist of the regular working amounts which have been called the leading appropriations, and also the supplemental amounts for similar purposes; the second would be those sums allowed by Congress for specific projects, such as for public works, and also for amounts allowed for increase of the navy. The second class of estimates would in reality be allotments, the amounts not to be exceeded; while the first class would be expended as nearly as practicable in accordance with the estimates, with proper explanations of all variations. The general estimates, should, however, be made up to cover the objects of expenditure as laid down by the accounting system, accompanied by such text as would be necessary to substantiate the requests; the present indefinite and misleading wording should of course be abandoned.
A good example of what is meant is found in the current appropriation "Pay of the Navy." Here we find a group of separate estimates for a variety of purposes for which the appropriation is to be used, and then the clause, "and the money herein specifically appropriated for 'Pay of the Navy' shall be disbursed and accounted for in accordance with existing law as 'Pay of the Navy' and for that purpose shall constitute one fund.'' The fact is here recognized that the various estimates are based on probabilities, but that so long as the total is not exceeded, variations from these estimates are permitted.
Another example, not quite so clear, is found under "Ordnance and Ordnance Stores" of the current act, where we find: "Provided further, That ordnance materials procured under the various ordnance appropriations shall hereafter be available for issue, to meet the general needs of the naval service, under the appropriation from which procured." The provision has the virtual effect of closing all the ordnance appropriations into one appropriation, so far as the purchase and use of material is concerned.
An appropriation act passed in the way described above would then be made up of detailed estimates, in which the purpose of each sum would be definitely described. Certain sums would be fixed allotments, not to be exceeded. The others would be simply estimates. The total amount appropriated would then be entered on the treasury books as one sum.
In expending this sum the Treasury Department would continue to exercise its function of passing on the legality of the vouchers submitted. It would make no attempt to classify expenditures under the various estimates. On the other hand, the Navy Department would report to Congress all expenditures made against the corresponding estimates, and would give suitable explanations of all variations made. The estimates and expenditures being made under the same descriptive headings, a complete and satisfactory report would be feasible. Congress would have as much and even more control over the moneys expended than at present, since the best that can now be done is to show on the one hand the expenditures made from the many appropriations, and on the other hand to describe in entirely separate tables the purposes for which money was used.
Another feature should be the cumulation of appropriations from one year to the next, so that there should always be on the treasury books but one appropriation running for current needs. The ordinary practice is to maintain the sums of each fiscal year separate from other fiscal years, and this enormously increases the complexity of accounting. In each appropriation act the balances remaining from the previous year should be re-appropriated for the ensuing year, and closed in to the new appropriation. This has already been done in the current appropriation bill, so far as the appropriations for the preceding year are concerned; each distinct appropriation balance being carried forward and credited to its successor. This principle should be carried further, and all balances should be closed into the one fund.
It should be evident that the plan proposed differs entirely from the method sometimes designated as that of "lump appropriations," in that detailed estimates are made and finally reported up, which is not true of the usual lump appropriation.
To make clear the plan proposed, the amounts found in the current appropriation act have been rearranged and distributed in the way they would appear under the new system. Following the usual preamble would appear:
NAVAL ESTABLISHMENT
For all necessary purposes of the naval establishment, except for the Naval Academy and for the marine corps, in accordance with the following approved estimates, $1,412,314,455; Provided, That the amount here appropriated shall constitute one fund, and shall be disbursed and accounted for as such. And Provided further, That the Secretary of the Navy shall report to Congress the expenditures made for each approved estimate included herein. And Provided further, That those estimates marked "Specific" shall in no case be exceeded.
Following these estimates would appear all the matter in the bill relating to legislation of various character now found there. The appropriations for the Naval Academy and for the marine corps would next appear. And finally the provision for unexpended balances of prior appropriations being continued and made available would be inserted.
Comparison with the current appropriation bill will show that the list of estimates above has been made up by placing each of the appropriations under one title, as far as possible, and those not capable of being so placed have been distributed among the titles in the proportions which past expenditures indicated as probable for the ensuing year. Undoubtedly, had these distributions been made by the bureaus concerned, at the time the estimates were originally submitted, the proportions would have differed from those chosen. However, the principle would have remained the same.
In handling such a bill very much the same methods as those now employed would be followed. Each bureau would submit its own estimates, and would explain them to the Congressional committees. Items would be stricken out, decreased or increased, as at present. Finally the bill would be passed with the final approved estimates included. The total sum appropriated for "Naval Establishment" would then be taken up on the treasury books and would be charged with all vouchers submitted. The question of the separate estimates would not be handled by the treasury at all, in a bookkeeping way, although these estimates might serve as a guide from time to time in passing upon the legality of certain payments made. Thus, the treasury might be in some doubt about passing vouchers for the Virgin Islands, were it not for the estimate "Temporary Government for West Indian Islands."
In the Navy Department the bureaus would maintain cognizance of the estimates for which they were responsible, somewhat in the same way as they now manage their appropriations. There would be this great difference, however; allotments of funds for working purposes would always be directly toward the objects of expenditure, with no considerations of various sources of supply, as at present. In deciding whether or not to authorize funds for a contemplated purpose the first and primary point to consider should always be the desirability or necessity of the expenditure. The second point is in regard to how much has already been expended for similar purposes. If expenditures made and contemplated bid fair to exceed the yearly estimate for the particular purpose, the unforeseen reasons should be recorded, so that at the end of the year perfectly definite explanation may be submitted to Congress relative to the over-expenditures. Similarly, estimates which have not been fully utilized should carry a note of explanation in the report. Of course, the total of the whole appropriation could not be exceeded without having obtained a deficiency appropriation.
It is believed that one of the greatest obstacles in the past to amending our appropriation system has been the fact that each year the estimates for the various appropriations could be compared with the estimates of the preceding years submitted in the same form, and a fair check could thus be maintained by Congress, as long as conditions did not greatly vary from year to year. The war has upset all that. It is impossible to gage now the amount needed under a given appropriation by the amounts appropriated last year or the year before. Consequently, now is the time, if ever, to introduce the reform.
The simplest method to pursue would be to add to the naval appropriation bill now in course of legislation, wording about as follows:
Provided, that the amounts here appropriated (except for the Naval Academy and for the marine corps) shall constitute one fund to be called "Naval Establishment" and shall be disbursed and accounted for as such. And provided further, that the Secretary of the Navy shall report to Congress the expenditures of the naval establishments, divided according to the accounting headings of the naval accounting system, and hereafter all estimates shall be submitted under those headings. And provided further, that the amounts marked "Specific" herein shall not be exceeded.
All unexpended balances of appropriations made for the naval establishment, except for the Naval Academy and the marine corps, shall on June 30, 1919, be transferred and credited to the appropriation "Naval Establishment," and for that purpose such balances are made available for the fiscal year, 1920. Provided, that all unexpended balances of appropriations for the Naval Academy and for the marine corps shall be transferred and merged with the corresponding appropriations contained in this act.