REPORT OF AUDIT OF CONFIDENTIAL FUNDS FOR THE PERIOD 1 JAN 1948 - 30 JUN 1949 BY THE AUDIT DIVISION, INSPECTION AND SECURITY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP78-04718A000300190027-1
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 14
• Document Creation Date: December 12, 2016
• Document Release Date: August 28, 2002
• Sequence Number: 27
• Publication Date: February 14, 1951
• Content Type: MEMO

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M,'MORANDUM 14 February 1951
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TO : The Comptroller
FROM : Finance Division
SUBJECT: Report of Audit of Confidential Funds for the Period 1 January
1948 through 30 June 1949 submitted by the Audit Division,
Inspection and Security, on 5 February 1951
1. The following data are submitted regarding the procedures, policies,
and accounting mechanics adopted by the Finance Division. The comments fol-
low in the order as submitted in subject Audit Report and will refer to the
paragraphs and page numbers in which each topic is discussed in the Audit
Report.
Paragraph 4, Page 9. The valuables, representing jewelry, precious
stones, rings, watches, etc., carried in an inventory account called "Special
Commodity Assets on Hand" did not reflect any appraised current market value
at the time of the Audit Re ort. Accordingly, the issues evidenced by a re-
ceipt signed by I were never charged to the appropriate operation
since the book v ue of the items so issued were far in excess of the current
market value and greatly exceeded the project allocation. A great deal of
correspondence was prepared in an attempt to re-value these items in accord-
ance with a U. S. Treasury Department Custom Service Appraisal, and considera-
tion was given to writing off the entire inventory to expense as an item of
operational supply with property accountability to be maintained by the
Services Division. Since the whole procedure for the proper handling of
these valuables was being discussed in several other divisions of the Agency,
the charge for the delivery was deferred, pending final settlement for the
accountability or revaluation of these supplies. These items have been re-
valued to their appraised market value and the items issued to
(who in turn delivered them to the principal of an OSO project) have been
charged to the appropriate project. Accordingly, it would appear that no
further action is required of the Finance Division relative to this item.
Para, a h Page 10. The delay in the reconciliation and recording of
the ccounting resulted from a 4-month delay in the submission
of this accounting to,Wa.shington in view of the enforced emergency evacuation
of When the Finance Division was able to reconcile and record this
report, the Audit Division, I&S, began its audit as directed by the Director
of CIA.
Paragraph 1. Page 11. Regarding the comments relative to the follow-up
system to obtain approvals on field accounts which have been reconciled and
recorded, the Finance Division. in the person of the Chief, Accounts Branch,
reviews monthly the status of all outstanding field accounts recorded. but not
approved. Every effort is made on at least a monthly basis to obtain the
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approved accountings for permanent file or an adequate explanation as to the
need for an extended retention by the Foreign Division.
Paragraph 2, Page U. The Finance Division has in effect a continuing
monthly review of each outstanding advance carried on the books to determine
the extent of delinquency in settlement of advances. A report of the review
made by the appropriate Certifying Officer is submitted to the Accounts Branch
and summarized in a. monthly report to the Director. We have enlisted the sup-
port of administrative officials of OSO and OPC who are assisting in the 25X1A
routine follow up of apparently delinquent accounts on a monthly basis.
Paragraph 3. Page 12. A current reconciliation of the subsidiary records
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esigna ion is presently being made, although, because of the pressure of other
more urgent business, it is sometimes found necessary to relax this reconcili-
ation. However, this division is confident that at any moment, the balances
represented in this accrual can be supported, justified, and reconciled.
Paragraph G., Page 12. It is not recommended that advances merle to the
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specia-L
deposits to cover estimated expenditures to be incurred. The sometimes ex-
cessive delay in obtaining such an accounting and refund is not felt to be
a basis for writing off to expense deposits representing estimates of-ex-
penses. We have adopted the practice of charging advance payments to other
Government agencies to expense when it is not anticipated that a detailed ac-
counting will be rendered by the other Agency.
Paragraph 4, Page 13. Difficulties which the Auditor may have encountered
in attempting to reconcile advances are understandable. However, such diffi-
culties are necessarily occasioned by the tremendous volume of advances,
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transfers of accountability between advancees, accountings, refunds, etc.
It is not an unsatisfactory state of the records that has caused. difficulty,
but rather a tremendous volume of accounts supported by many documents. The
comments relative to the practice of transferring many individual accounts
from one general ledger account to another was in the main occasioned by a
reorganization of the general ledger accounts as recommended. It is a general-
ly accepted accounting practice that when accounts are transferred between
general ledger accounts, the net balances only are transferred, not all of
the detailed debits and credits and descriptions. Further, to have trans-
ferred a sheet representing a subsidiary to one general ledger control into
another subsidiary of a different general ledger control, as recommended,
would cause a great deal more difficulty than has already been experienced.
To illustrate: A voucher indicating a charge to a specific subsidiary would
be most difficult to locate when that subsidiary ceases to exist. Careful
analysis and scrutiny of an advance account will, in every instance, reveal
the source and references of any balance carried forward and subsequent
entries to the account. It is granted that to analyze an advance which has
had continuous activity over several years will entail considerable work
and research, not only because of the multiple transactions involved, but
because of several administrative reorganizations requiring adjustment of
the records. Every balance, every debit, and every credit to any advance
account can be readily analyzed, supported, and documented. There is no
simple way to record one hundred thousand journal entries a year, including
many necessary adjustments, and provide complete analysis of part, or the
whole, of such extensive work at a glance.
Paragraph 2.. Page 14. It does not seem logical to reconstruct another
subsidiary record of advances that will constitute a complete and chronologi-
cal record of the activity to all advances for the past three years when such
information is presently available, though reference may be necessary to one
or more subsidiaries. Duplication of work when dealing in the volume present-
ly being processed would certainly cause administrative problems of time,
personnel, and effort far beyond the benefits derived. Under present competi-
tive employment conditions, it is difficult to obtain, train and retain suf-
ficient clerical assistance to meet current requirements.
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the funds than is presently exercised. It would still be desirable in some
instances to have bulk pre-signed checks in the event both individuals were
transferred or removed from immediate proximity. The account represents
only a signature, and to all intents and purposes is actually cash on hand
for which the Disbursing Officer assumes responsibility. The balances in
these covert bank accounts are kept very low and, accordingly, do not afford
any unreasonable availability to funds. Deposits are generally made as needs
exist and for specific purposes so that the pre-signed checks would not repre-
sent access to but a very small balance. It is emphasized that these accounts
are used sparingly and in connection with the most sensitive
Page 16, 17, 18, and top of 19. The accrued salaries and allowances ac-
count prior to 30 June 1949 was currently giving.the Finance Division some
concern in view of the difficulty of current reconciliations. There was no
neglect of this obligation to reconcile, but it is granted that this time-
consuming task was deferred in favor of more pressing business. This situa-
tion has been so greatly improved that it is a simple process to post cur-
rently and reconcile monthly. The accruals representing compensation payable
abroad of staff employees have been maintained in the Accounts Branch since
June 1949 in a subsidiary ledger with a ledger sheet for each individual em-
ployee concerned. Each credit from the payroll and each debit from field
station accountings are recorded therein, and a balance due to or from an
employee is computed each pay period. The responsibility for the accurate
maintenance of this subsidiary ledger and its balance to the general ledger
control has at all times been charged to a specific accountant in the Ac-
counts Branch. Since it was audited and balanced in 1949, a monthly verifi-
cation of the reconciliation is made by the Chief, Accounts Branch. The in-
dividual differences revealed by the audit are noted and earmarked, however,
much research and considerable time is required to perform the analysis neces-
sary to effect the adjustments. Periodically, personnel have been assigned
to this task, but other more urgent requirements, unfortunately, have neces-
sitated their withdrawal. Another employee has now been assigned the task
of reconciling all discrepancies to date.
Paragraph 3, Pagej. The general ledger accounts of the Finance Division
provide for a control of the gross amount of retirement deductions made from
employees compensation and, correspondingly, paid to the Treasury of the United
States. The detail analysis of the prior years and current year deductions
for each employee is maintained as a statistical analysis in the Payroll Branch.
Monthly, a report of this analysis is prepared and submitted to the Fiscal
Division and recorded by the latter in their overall control for the entire
Agency, both vouchered and unvouchered.
Paragraph 3, Page 20. It has been the practice of the Finance Division
to compute income tax deductions on the basis of compensation paid without
relation to the period in which it was earned. This general principal is
followed in the instructions issued by the Bureau of Internal Revenue and
would apply in almost all of the cases in which the Finance Division has had
to pay additional compensation within a pay period for earnings of prior pay
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periods. The rare and unusual exception is referred to in Paragraph 3 of
Page 20. Where an individual receives no compensation for a period of four
or five months and then receives a lump sum of some $3,000, it should be
computed on a per-month earnings basis rather than unnecessarily deducting
an excessive amount of tax. However, the principal followed by the Finance
Division in computing tax on the basis of compensation paid in a given pay
period, is sound and would appear to follow the Internal Revenue instruc-
tions. In the case of recouping indebtedness to this Agency, it would ap-
pear that the most practical solution would be to withhold no taxes in order
to apply gross compensation to the indebtedness. However, we believe that
legal approval should be obtained for such action.
Paragraph 3, Page 21. Upon the receipt in the Finance Division of the
memorandum from the Executive, CIA, which required the Budget Officer to de-
teriaine the future handling of proceeds from sales of autos, together with
instructions relative to the disposition of the net balance of the proceeds
from sales over purchases on 30 June 1950, members of the Finance Division
met with the Budget Officer to discuss the mechanics of the process of dis-
posing of the net balance at 30 June 1950. It was then decided that this
action should be delayed pending the receipt of our entire fiscal year 1951
appropriation, since at the time, CIA was operating on an emergency grant
in lieu of an appropriation. On several subsequent occasions, the Deputy
Budget Officer was queried relative to this action, since it was the desire
of the Finance Division to dispose of this balance. Action has since been
taken to effect this transaction and appropriate procedures have been es-
tablished to govern the disposition of proceeds of sales of automobiles in
the future.
Paragraph 2, Page 22: The miscellaneous receipts balance reflected at
30 June 1949 were paid into the Treasury in July 1949. It is the practice
of this Division to accumulate miscellaneous receipts received during a cal-
endar month and turn in such accumulation immediately subsequent to the end
of the month.
Para aph 2, Page 24: Our present 28-day pay period stems from monthly
payment of salary established by OSS. At the inception of CIG in 1946, con-
sideration was given to revision of the Confidential Funds payroll procedures
to establish a two-week pay period coinciding with vouchered funds. After
full consideration and advice by various officials, the principal CIA Execu-
tive Officer, on the Staff of the Director, determined that for reasons of
economy the two-week pay period would not be established. This can now be
revised if deemed appropriate and our payroll can be converted to a bi-weekly
basis. However, such action would involve additional personnel and at the
present time would also involve additional space. It should be noted that
we do conform to the Pay Act of 1945, P. L. 106, with respect to amounts of
payments, etc., and with respect to the pay periods with the exception that
actual payment is made once each 28 days covering two 14-day pay periods.
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Paragraph 2, Page 27: At the time Executive Order 10000 authorized
salary differential payments to all Government employees engaged at certain
classified overseas posts was promulgated, no interpretative regulations
were issued. The Executive Order, however, provided for the payment of post
differential to employees detailed for duty at a classified post. This prob-
lem was immediately raised by the Finance Division with members of the General
Counsel's office, in view of the fact that the personnel assigned to the
paid in the field and has temporarily detailed a trainee to the Audit Division
for the purpose of posting to an Earnings Record Card the field allowance pay-
ments recorded to date. It is to be noted that this work is performed not on
the basis of unfinished or incompleted Finance Division work, but to make in-
formation more readily accessible.
mission were in a continuous state of reassignment, temporary duty and detail
to other posts involved in this radio chain. This was necessitated by the
need for continuous rotation and relief due to extremely adverse climatic
conditions and extreme understaffing of each installation. The concensus
was that the only criteria as to the meaning of the word "detail" was in the
Foreign Service Regulations which had previously contained provision for the
payment of post differentials. The Foreign Service Regulations defined de-
tail as temporary duty at a post other than the post of assignment where the
duties performed involved carrying out functions of the post to which the
person is detailed. Upon investigation, it was revealed that the Foreign
Service followed the practice of issuing formal detail actions, thus clearly
establishing the difference between temporary duty and detail duty. In this
Agency no provision had been made for such formal action.. It therefore be-
came imperative to establish some criteria which would differentiate between
normal temporary duty and detail duty. Accordingly, the administrative de-
termination was made that in most instances any temporary duty in excess of
30 days will be considered prima facie evidence of detail for the performance
of duty for the temporary duty post. With regard to differential payments
while on temporary duty of a duration less than 30 days to a non-differential
post, including consultation in Washington, annual leave and inclusion in
lump sum terminal leave payments to employees terminated at an overseas sta-
tion, it was determined that this Agency would adopt as its administrative
policies those set forth in Comptroller General's decisions and would not
adopt the administrative policies of the Foreign Service. We believe this
was a valid administrative decision. General Counsel has been requested to
review the many ambiguities in various post differential regulations and ad-
vise if our regulations should be changed.
Paragraph 2, Page 31. Allowances computed and paid at field stations,
evidenced by proper voucher, are not necessarily for posting on Earnings
Records Cards. On the same basis travel claims, shipment of effects and
other employee benefits are correspondingly not entered on Earnings Records
Cards.. All allowances computed and paid by Washington have been included
in our compensation records since it has been our responsibility for the
correctness of computations. However, in order to facilitate audit, the
Finance Division has adopted the practice of posting allowances computed and
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Paragraph -Pte . Since the payment of quarters' allowance, not to
exceed actual cost of quarters, was a relatively new procedure requiring
statements of actual costs from employees, it was determined that maximum
quarters' allowance would be paid each employee pending receipt of their
claim for quarters' allowance. However, due to the newness of the require-
ment and other circumstances, many employees did not submit their quarters'
costs promptly, thus resulting in subsequent overpayments. This situation,
when apparent, was immediately corrected. This entire procedure was revised
in August 1950 providing for the payment of allowances only after submission
of proper documents.
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were individuals who were put on rolls in 1948 prior to the
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:,. e ermina eave, but were granted leave benefits in accordance with
their CIA employment. It must be recognized that this was the beginning of
a new procedure which has since been greatly improved and standardizUd and
is not considered an example of a situation existing today.
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'asagraph 3, Page . The policy of this Agency relative to the terminal
leave payments for staff employees terminated from the regular payroll to ac-
cept employment under contract is presently being reviewed by the Legal Staff
to formulate an Agency policy which was informally agreed upon by represerg5 B
tives of Legal, Personnel, OSO, OPC and the Finance Division.
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Paragraph 3, Page 37. It is felt that the employee is entitled to have
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differential payments. It is felt there is no compromise of security since
these retirement deductions are not identified by the individual's name in
any report to the Civil Service Commission until such time as that employee
is separated.
tractual salary with this Agency, retirement deductions have been made on
Pages 38, 39. 4.0, 4l, 42, x,44, top of 45. These pages deal with cer-
tain general benefits, privileges, restrictions, etc., on agents' compensa-
tion, travel and operational expenses as detailed in the agent's contract.
The recommendations pertaining to various provisions in these contracts are
of direct interest to the Contracting Officer and may be reviewed by him in
collaboration with the Audit Division, I&S. In view of the rapid expansion
of covert operations, and the many different categories of agents, established
as each operational problem required, it has been necessary to hand-tailor
and individually process each agent contract. iFurther, the security require-
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ments of the covert offices were such as to limit the handling of such con-
tracts to a minimum of Finance Division employees. This authority has been
granted to the covert offices under
This burden has long been recognized and many efforts have been made to both
standardize agent contracts and reduce the security restrictions to enable
the Finance Division to process such contracts on a proper working level in
a routine manner. It is to be noted that an Ad Hoc Committee, comprised of
representatives of OSO, OPC, Legal, Personnel and Finance, has been meeting
regularly since September 1950 to accomplish this objective. Much progress
has been made to date and we have been able to place many "agent" contracts
in our Payroll Section. The few highly irregular or exceptionally sensitive
contracts that will remain with the Certifying Officers will be standardized
and placed on IB14 for journalizing and. processing after computation.
Paragraph . Page 46. It is believed the statements relative to porter
and red cap fees on travel claims being reimbursed, are based upon misunder-
standing. We have, however, recognized baggage transfers charges as reimburs-
able items. Fees and tips have been accepted when processing travel claims
Paragraph 3, Page 50. In order to provide the Services Division with
information relative to the payments made by field installations for the pro-
curement of supplies and equipment, the accounts branch semi-annually prepares
and submits a detailed report to the Procurement and Supply Division, giving
all items of non-expendable supplies end accountable equipment purchased or
sold by field installations.
Paragraph 3, Page 52. Finance Division auditors, who have performed
audits of commercial contracts have, in every instance, analyzed the con-
tractor's total operating costs during the period of contract work, reviewed
the ratios of labor, material, and overhead for the contractor's total opera-
tion, and compared these ratios to CIA contract costs. This comparison is
necessary in any audit in order to establish overhead distribution on the
basis of direct labor costs. Further, there was a review and reconciliation
of the contractor's profit and loss accounts and of the operating costs with
the general books, which is necessary to balance and reconcile expense ac-
counts which record costs. The Audit Reports, submitted in the narrative
form, are supported by volumes of worksheets of financial data covering the
contractor's operations during the period of the contract. The audits of
commercial contracts have been required in numerous cost-plus-fixed fee and
price revision contracts and have been performed by various members of the
Finance Division in several branches. The audit of such contracts was not
initially provided in CIG and was written into the contracts only after re-
peated insistence by the Finance Division. To meet this responsibility,
there must necessarily be provision for adequate personnel. This Division
was not in position, until just recently, to have auditors devoting full time
to this work. The competence of those who have performed these audits as
extra duty has been unquestioned and the quality of the audits has been of
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a degree beyond that reasonably expected under the conditions and circum-
stances with which the auditors have had to work. Generally, one or two
senior accountants have had to go to the field to audit commercial corpora-
tions covering a period of one to three years. Since these accountants had
full time Washington responsibilities, a limitation of three days to two
weeks has been all that could be allowed for the audit, so as not to serious-
ly jeopardize the normal operations of the Finance Division. Accordingly,
it has been found necessary to spot check certain items, negligible in
amounts, review internal controls, verify payments, and analyze allowability
of elements of costs. Complete and detailed reconstruction of costs and
verification of every entry to the corporation books have been both impos-
sible and impracticable. It was a question of performing an acceptable
minimum review in some cases, or no audit at all. All audits have been
accomplished in the light of the terms of the contract applying the rules
of United States Government allowability, as determined by regulations set
forth in the Armed Services Procurement Regulations, which was referred to
in the contracts. All final determinations of cost allowability have been
made by the contracting officer. When the contractor's books of accounts
have been inadequate, this condition too has been brought to the attention
of the contracting officer. Presently, the former Chief of the Fiscal Divi--
sion is assigned the duty of supervising the audit of commercial contracts
on a full time basis. With him is a senior accountant with ten years' Air
Force experience in similar commercial audits, together with clerical as-
oistance. To perform the job satisfactorily, five additional full time em-
ployees are needed and a request has been submitted for the additional T/0.
Para.,arah 3. Page _59. The documentation of reports from field instal-
lations has, to a large degree, been dictated by the covert offices, since
it has been so closely tied in with the security of operations. Documenta-
tion in the form of real name receipts will vary greatly with the sensitivity
of the foreign area and operation concerned. The Finance Division has had
close liaison with the operations officers and has rendered assistance and
guidance with a view to establishing standardization of documentation as
regulations and security permit. The type of documentation should be con-
sistent, wherever possible, regardless of the amount involved. As for re-
ceipts evidencing disbursements, some officials have felt that real name
receipts are a useful tool to retain at the station: other stations cannot
raquire receipts from certain agents, while still others forward the re-
ceipts to Uashington. Operational security is recognized in the Confidential
Funds Regulations, and provision is made for certificates in lieu of receipts.
standard, written audit criteria has been prepared which is being utilized
in auditing all field station accountings. By this means, it is felt that,
inconsistencies can be eliminated and a marked improvement in the form and
content of accountings will be noted.
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been advised that unusual payments reflecting a variation of an agreement
submitted to Washington is evidence of an alteration of the agreement to the
extent of the payment involved, provided such payment is properly approved
and funds are provided in the budget. The prime purpose for obtaining such
contracts or oral agreements is to establish in Washington a record of com-
mitments made to field agents by the field installations, in order to enable
Washington to adjudicate claims made by agents at some subsequent date when
no other information may be available to determine what promises may have
been made to the agent during the term of employment.
:aragraph_ Page 61. The Finance Division has followed the standard
government practices of charging to expense all purchases of expendable sup-
plies; therefore, there would appear to be no basis for carrying operational
supplies as financial accountability. The responsibility for the accounting
of these supplies lies with the services division as property accountability
as provided for in field regulations.
Paragraph 9, Page 62. The inadequate reconciliation existed at one sta-
25X1 C tion durin a period when the Finance Officer was hospitalized. It is provided
in our that substation's accountings will be
reconciled to the principal station's books prior to acceptance and recording.
Our review of field station accountings has indicated that this is currently
being done as evidenced by reconciliation statements attached to the field
voucher recording the substation accounting.
25X1A Page 65 and top of 66. The case of is not representa-
tive and could not be handled in a normal manner. t e request of the
Finance Division, an investigation of this account was ordered by the Direc-
tor in memorandum dated 25 May 1950. With the exception of payments which
were properly approved for security reasons, the Finance Division withheld
all pay and reimbursement of vouchers from that date. The personnel action
25X1 terminating was not received in the Finance Division until 6 Sept-
ember 1950. His account was immediately established on the next payroll,
which was processed on 26 September 1950, the proceeds being applied to
partial liquidation of his indebtedness. Notice from the Civil Service Com-
mission that his retirement funds have been withheld by the Government, as
requested, has been received.. In this connection there is a normal delay
in processing the retirement forms to Civil Service Commission; however, it
should be noted that the interests of the Agency were properly protected by
retention of Civil Service Commission Form #2806 (the basis for refund to an
employee) until the request for diverting such funds to Government accounts
could be submitted simultaneously. Although the matter of withholding taxes
was mentioned in the report of investigation (not available to the 25X1
25X1 =by direction), there is no evidence in our files that the Le-al Staff
25X1A approved the application of withholding taxes toward liquidation of indebted-
ness. It was at the inn ence of the Finance Division that further payments
were not made to and that he was charged with the maximum amount
even though it was own t at the full amount of debt may never be collected.
The action taken by the Finance Division in this case was entirely in the in-
terest of the Government which was at no time jeopardized by the delay in
submission of forms.
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Paragraph 2, Page 67. Through the use of new cash and general journals,
there has been a reduction of bookkeeping entries. However, we regret that
the reduction is offset by additional analytical work in the reconciliation
of Agent Cashier accounts necessary in the preparation of reimbursement vou-
chers for submission to the Treasury. The system in effect more nearly con-
forms to generally accepted accounting practices and it is only because of
the unusual requirements of this Agency that additional work is required.
Paragraph 3, Page 67. It is the opinion of this Division, after consul-
tation with various business machine experts, our own accountants and others
who have had extensive experience with business machines, that IBM is not the
preferable machine for our bookkeeping. Additional posting media for each of
more than 100,000 journal entries annually apparently would be required. Fur-
ther, it has been found to be of utmost importance to have daily and hourly a
current cumulative record of both expenses and advances physically available
for reference and review. The demands for information and statistics are not
confined to monthly reports. Current operational reviews and administrative
control are closely tied in to financial records. It is felt that the National
Cash Register accounting machine is the best machine for our purposes. It is
to be noted that this Division has, on several occasions in past year, recom-
mended mechanized bookkeeping. It is recommended that favorable consideration
be given to our suggestion not only as the most economical, but the most prac-
tical under the circumstances.
Paragraph 5, Page 6?: A comprehensive study has been made by members of
the Finance Division who have been charged with the responsibility of review-
ing field reporting systems, accounting forms and supporting documents with
a view toward standardization of these items at all stations and to improve
the procedures presently in effect. The Class B stations submit a monthly
financial report which itemizes an abstract of the expenditures by individual
items which serves the necessary purpose. The Class A stations which have
submitted summaries of disbursements will be advised to submit, in addition
to their present reports, a journal transcript of individual expenditures to
enable this Division to adequately perform its pre-audit.
Paragraph 6, Page 67. This Division heartily agrees with the recommen-
dation of the Audit Division to reduce the number of project accounts pres-
ently being maintained. To this end we have requested officials of OSO and
OPC to consider the matter. These accounts are established as approved proj-
ccts by the covert offices and any action to eliminate or reduce the number
of projects must necessarily originate from the covert offices.
2. The books of account maintained by the Finance Division were recom-
mended by the Audit Division, I&S, and have been operated in strict compliance
with their procedures. Every change has been coordinated with Audit Division,
I&S, and implemented to their apparent satisfaction. Each month the accounts
are balanced and reports rendered without any unaccounted for differences.
The procedure of voucher preparation, posting and balancing in the Accounts
Branch, is controlled to the extent that complete reliance can be placed upon
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the reports so rendered. Adjustments between accounts and correction entries
are numerous and generally result from unusual and extraordinary operational
demands. Numerous reorganizations, allotment changes, project identification,
administrative instructions from OSO and OPC amending object classifications
in operations and accounts chargeable, transfers of funds through many ac-
countable officials and installations, are a few of the many reasons that a
volume of correction or adjustment entries must necessarily be made. It is
desirable that our records reflect at all times the accountable individual
or installation who has physical custody and responsibility for funds, and
each time funds are physically transferred between such individuals and in-
stall.tion_s a voucher must be prepared reflecting such transfers of account-
ability. In view of the tremendous volume of vouchers and journal entries,
together with the unusual nature of the transactions for which no precedent
has been established, it is reasonable that many such adjustments will neces-
carily occur. However, this Division can support by authorized, approved
documentation in its records, adequate justification and evidence of the
necessity for each adjustment or correction recorded on the books. Realiza-
tion of the volume of work processed will better reveal the size and scope
of the increased wort; load. During the calendar year 1950 approximately
18.000 vouchers covering 100,000 journal entries to more than 6,000 accounts
were processed; together with the issuance of approximately 24,000 checks.
It is our estimate that over 95,' of the adjustments processed and. recorded
result from requests or demands upon the Finance Division to more accurately
or clearly reflect statistics required by operations and administrative of-
'ices.
3. There are many improvements in controls, procedures, internal audits
and reviews that have been implemented recently, and plans are presently be-
ing made for additional improvements as facilities will permit. Notably these
are:
(a) The payroll has been mechanized by utilizing the IBM faci-
lities available in the Agency.
(b) There has been a routinization of agent payrolls previously
handled on a tailor-made individual case basis by standardi-
zation of procedure for computation, recording and payment.
The present plans are to follow this by including agent pay-
rolls on IBM.
(c) To the extent practicable. individual memoranda have been
reduced and standardized on printed forms.
((-j) A written audit criteria has been published and followed with
a centralized review, analysis, and audit of all accountings
with a view toward standardization of accountings and support-
ing documentation.
(e) The audits of all travel accounts have been centralized in a
unit which has improved greatly the presentation of travel
claims.
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(f )
(g)
There has recently been established a unit charged with the
responsibility of full time audit end technical advice for
commercial contracts (procurement and Research and Develop-
ment contracts). z
Certifying Officers have been designated at large field sta-
tions which will greatly assist the Finance Division in the
controls and audits exercised over the bulk of the expendi-
tures incurred in the field.
25X1A
Acting Chief, Finance Division
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