TUESDAY, MARCH 30, 1971.

COST-ACCOUNTING STANDARDS BOARD

WITNESSES

ELMER B. STAATS, COMPTROLLER GENERAL OF THE UNITED STATES SANFORD H. CORNETT, CHIEF, BUDGET AND FINANCE BRANCH HERSCHEL J. SIMMONS, DIRECTOR, OFFICE OF ADMINISTRATIVE SERVICES

Mr. ANDREWS. Now we will discuss the request of $1,650,000 for the Cost Accounting Standards Board. The first appropriation for this agency was made in the 1971 supplemental, and was $820,000 for a 6-month period.

Do you have a general statement?

Mr. STAATS. I do have and with your permission I would like to insert the statement in the record and brief it.

Mr. ANDREWS. Do that because you went into it very thoroughly last

year.

(The statement follows:)

GENERAL STATEMENT-COST ACCOUNTING STANDARDS BOARD MAR 3 0 1971

MR. CHAIRMAN AND MEMBERS OF THE SUBCOMMITTEE:

We appear before you today to discuss the budget estimates for the operations and continuing expenses for fiscal year 1972, of the CostAccounting Standards Board authorized by Public Law 91-379, approved on August 15 of last year. Mr. Chairman, the budget estimates we are presenting are for the first full fiscal year of operations of the Board. For the last fiscal year, funds were approved in December to establish the Board and commence operations.

In the way of background, the Congress, in extending the Defense Production Act of 1950, included a new section last year--creating a CostAccounting Standards Board, as an agent of the Congress, composed of the Comptroller General of the United States who shall serve as Chairman, and four other members appointed by the Comptroller General.

The new section was passed by the Congress following an 18-month study by the General Accounting Office (GAO) undertaken by previous direction of the Congress. In this study, GAO found that cost-accounting standards

for negotiated procurements were both feasible and desirable and that the cumulative benefits from the establishment of such standards should outweigh the cost of implementation.

The principal function of the Board is to develop and promulgate cost-accounting standards designed to achieve greater uniformity and consistency in the cost-accounting practices followed by defense contractors and subcontractors under negotiated defense procurements in excess of $100,000, except where the price negotiated is based on established catalog or market prices of commercial items sold in substantial quantities to the general public or prices set by law or regulation. A large and growing proportion of defense procurements is of the negotiated type, reaching 89 percent in fiscal year 1970.

Of the members to be appointed to the Board, two, of whom one is to be particularly knowledgeable about cost accounting problems of small business, is to be from the accounting profession; one is to be representative of industry; and one is to be from a department or agency of the Federal Government. The Act empowers the Board to appoint an Executive Secretary at a rate of compensation not to exceed the rate prescribed for level IV of the Federal Executive Salary Schedule.

Mr. Chairman, in January of this year I appointed four members to serve on the Cost-Accounting Standards Board. Appointments to the Board are

as follows:

From the Accounting Profession: Mr. Herman W. Bevis, New York City, who served with Price, Waterhouse & Company, certified public accountants, from 1933 to 1961 and was Senior Partner from 1961 to 1969.

Dr. Robert K. Mautz, Urbana, Illinois, Professor of Accountancy,
University of Illinois, and a leader for many years in the account-
ing profession.

From Industry: Mr. Charles A. Dana, Lexington, Massachusetts, Manager of
Government Accounting Controls, the Raytheon Company.

From the Federal Government: The Honorable Robert C. Moot, Assistant
Secretary (Comptroller), Department of Defense, and formerly
Administrator, Small Business Administration.

Both Dr. Mautz and Mr. Bevis have had extensive accounting experience in small business. Mr. Bevis served as a member of the President's Task Force on Improving the Prospects of Small Business which reported to the President in March 1970. This report served as the basis for the Presidential Message to the Congress in which the President outlined a series of programs designed to assist small business.

These appointments were made after soliciting nominations for members of the Board from 5 professional accounting associations, 11 industry trade associations (including several associations representing small business), 10 Government departments and agencies (including the Department of Defense and the Office of Management and Budget), as well as several prominent individuals in the accounting profession. In response to these solicitations,

we

received the names of over 85 individuals for consideration for appointment to the Board.

The first meeting of the Cost-Accounting Standards Board took place on February 8, 1971, after a brief swearing-in ceremony. At that meeting, the Board reviewed the legislative history of the Act establishing the Board and discussed such matters as funding of Board operations, some of the