REPORT ON THE PRELIMINARY INQUIRY ON ECONOMY ÅND EFFISEPTEMBER 27, 1910, TO MARCH 8, 1911.

CIENCY.

The PRESIDENT:

As the Commission on Economy and Efficiency was organized for the purpose of continuing the work already begun under the immediate direction of Secretary Charles D. Norton, it is thought a brief statement pertaining to this preliminary investigation should be made by the chairman, who has been associated with the inquiry from the beginning.

The original act under which this inquiry was begun was the sundry civil bill, approved March 25, 1910, authorizing the President to expend $100,000 during the fiscal year ended June 30, 1911

To more effectively inquire into the methods of transacting the public business of the Government in the several executive departments and other Government establishments, with the view of inaugurating new or changing old methods of transacting such public business so as to attain greater efficiency and economy therein, and to ascertain and recommend to Congress what changes in law may be necessary to carry into effect such results of his inquiry as can not be carried into effect by Executive action alone.

THE PURPOSE OF THE PRELIMINARY INVESTIGATION.

A systematic study of the business side of the Government by the Chief Executive had never before been attempted. From time to time investigations have been made by Congress.1 Reports had been submitted in criticism of methods employed and results obtained by executive departments and other establishments; appropriations had been granted for special inquiries under the direction of heads of departments, and changes in detail had been effected, some of which had resulted in economies and better local adaptation. Notwithstanding these many inquiries and the constructive recommendations. which followed, the only part of the machinery of business which might be considered as having resulted from a preconsidered general plan was that established by Alexander Hamilton under President

One hundred and one special inquiries have been made by Congress, a full list being shown in the report of the commission on "The Need for a National Budget" (H. Doc. 854, 62d Congress, 2d sess.).

Washington. The President as Chief Executive, the Cabinet as his advisers, and Congress were still without the means of obtaining regular reports in summary form with supporting details which might be considered as statements of affairs.

Before funds were asked for by the President much had been said about the need for a thorough overhauling of the methods of the Government; it was generally believed that large economies could be made at almost any point to which official attention might be given. It was also assumed by many that the Government could be completely reformed within a few months-Members of Congress in discussing the appropriation expressing the belief that the work provided for in the act could be completed within a year. This view was not shared by those who were asked to initiate the inquiry. Notwithstanding the urgency of demands for results it was thought the character of the undertaking was one which required careful planning.

The theory carried by the act of appropriation was that the President would either issue specific orders or would make specific recommendations to Congress with respect to the details of transactions of the business of a corporation whose activities are almost as varied as those of the combined business world, whose organization and undertakings are continental in scope, and whose activities touch the interests of every person living within the jurisdiction of the United States. The vastness of the business to be inquired into is only suggested when it is said that the annual expenditures of the Government amount to more than $1,000,000,000, and that its monetary transactions amount to over $5,000,000,000 each year-more than one-half of which is trust in character.

Size alone would suggest the need for more than ordinary care before orders were issued making or recommending changes; but further than this, responsibility must be assumed for changing the technical processes and working relations of an institution concerning which not a living man knew, nor had the means of readily ascertaining, how it was organized, what it was doing, what methods were being employed, or what results were being obtained.

As was stated in the special message of the President on the subject, one of the serious difficulties to be overcome in securing economy and efficiency is lack of information which might serve as a basis for intelligent official action. In this relation it was pointed out that not only was information lacking about questions of fundamental importance, but the accounting and reporting methods of the Government were such that in many instances they gave misinformation. As an

1 Special message of Mar. 3, 1911.

example of the character of data contained in official reports, reference was made to the combined statement of receipts and disbursements of the Government for the fiscal year ended June 30, 1910a report required by law and the only statement purporting to give an analysis of expenditures of the Government as a whole:

This shows that the expenditures for salaries for the year 1910 were one hundred and thirty-two millions out of nine hundred and fifty millions. As a matter of fact the expenditures for personal services during that year were more nearly four hundred millions, as we have just learned by the inquiry now in progress under the authority given me by the last Congress.

The only balance sheet provided to the administrator or to the legislator as a basis for judgment is one which leaves out of consideration all assets other than cash, and all liabilities other than warrants outstanding, as a part of the trust liabilities and the public debt. In the liabilities no mention is made of about $70,000,000 special and trust funds so held. No mention is made of outstanding contracts and orders issued as encumbrances on appropriations; of invoices which have not been vouchered; of vouchers which have not been audited. It is therefore impossible for the administrator to have in mind the maturing obligations, to meet which cash must be provided. There is no means of determining the relation of current surplus or deficit. No operation account is kept, and no statement of operations is rendered showing the expenses incurred the actual cost of doing business-on the one side, and the revenues accrued, on the other. There are no records showing the cost of land, structures, equipment, or the balance of stores on hand available for future use; there is no information coming regularly to the administrative head of the Government or his advisers, advising them as to whether sinking fund requirements have been met, or of the condition of trust funds or special funds.,

Having been without the means of obtaining the information needed as a basis for executive judgment and for central direction and control, the difficulties to be encountered in making any changes had increased each year as the organization itself had grown and the service had become more complex. Not only had custom come to be a formidable factor-one to be considered in attempting to make changes in method and procedure-but, as one department, bureau, division, or subdivision after another had been added, the head of each administrative unit had come to exercise a monopoly over data pertaining to details and technique. Any action which might be taken by the Executive or by Congress, therefore, that was not based on a full understanding of the subject in hand might result disastrously. Ill-considered action might reduce cost at one point, but it might also more than correspondingly increase cost at another; to give orders or recommend laws the effect of which would be to change the manner of doing business or to disturb the customary working relations of branches, technical in their requirements, might result in permanent loss instead of increased efficiency of organization and increased economy with which work is to be done.

CHARACTER OF INFORMATION NEEDED AS A BASIS FOR EXECUTIVE ACTION.

This preliminary investigation was organized under the title of "The President's Inquiry into Economy and Efficiency." Describing the general plan and purpose, an interim report was submitted by Secretary Norton as of December 31, 1910,1 in which it is stated:

It was assumed as a working principle that any constructive proposals or change of method to be recommended should be founded on full knowledge of the following facts:

1. The administrative problem (the work) before each department, bureau, or division head.

2. The organization and equipment provided for dealing with the problem. 3. The methods of procedure employed by those in charge of work.

4. Results obtained.

5. Expert opinion as to what is the matter with the present organization, equipment, method, and result.

Before arriving at this conclusion the general subject was gone into as to what practical considerations were involved. While it does not seem expedient to discuss these considerations in detail at this time, they are set forth in outline. The specific questions concerning which it was thought that expert opinion must be sought, and the technical problems concerning which definite information was thought to be necessary before a well-considered conclusion could be reached as to whether there is waste or inefficiency in any branch of the service, are the following:

1. Pertaining to the problem (of work) before each administrative head: a. What work is authorized to be done and what is being done.

b. What of this work is necessary or desirable and what is unnecessary or undesirable.

2. Pertaining to organization and equipment provided for doing work:

a. What organization has been provided

1. For central direction and control.

2. For departmental management.

3. For technical performance, or the handling of business details. b. In what respect is this organization defective, i. e., in what manner does it fail to provide for the most efficient and economical transaction of the business of the Government.

3. Pertaining to methods and procedure:

a. As applied to central direction and control

1. What methods are employed for submitting to Congress, as well as for executive consideration, a program or plan of work to be done.

2. What methods are employed for legislative consideration of the financial needs of the Government.

3. What methods have been employed for executive direction and control over work approved or ordered by Congress.

1 First published as a confidential document for the information of members of the Cabinet and others; later published as Circular No. 4 of the commission.