programs, which are only partly funded, is one reason for this decline. Net annual accumulation by private pension plans constituted 33 percent of personal saving in 1963. Projections which were made by Daniel Holland for the National Bureau of Economic Research suggest that this rather sizable element in personal saving could fall to almost zero in the next decade as more people retire and benefit payments rise to nearly equal contributions. Greater economic stability, unemployment, medical and group life insurance have also reduced the need for saving. The same is true of higher interest rates since at higher rates, less money must be set aside to even out income for retirement purposes.10 A continuing shift in the age distribution toward relatively more retired persons and younger workers can also be expected to increase the proportion of households in the time of life when financial saving is typically very low. In the first quarter of 1970, personal saving rose to about 4.46 percent of GNP. The recent rise in consumer saving appears to be a cyclical phenomenon, however. If past periods of recovery from economic stagnation-1949, 1955, 1959, 1962, and 1968 are indicative of the future, the expectation is that personal savings rates will again decline in a rather significant way. Nor is the outlook particularly bright for business saving. Periods of rapid price and wage inflation have almost always been followed by periods of poor growth in business saving. If economic forecasters are correct in predicting something akin to a recession for 1970 it may be some time before the downward trend in business saving rates, which began as far back as 1966, is substantially reversed. Most, if not all, of the corporate surtax reduction which is scheduled to take effect this year will be needed to offset the seven percent investment credit and other provisions of the tax reform bill which impinge heavily upon the cash flow used to finance business investment. The rather bleak outlook for gross private saving could not have occurred at a more inopportune time. Most projections of investment requirements, such as those presented in the recent Economic Report of the President, indicate a need to raise the share of GNP going into investment by as much as several percentage points in the next few years. These projections do make an allowance for the national housing goal of 26 million new units by 1978 but do not include a substantial increase for investments to improve the quality of the envirnoment. Representative WRIGHT PATMAN, [Telegram] CULVER CITY, CALIF., June 19, 1970. Chairman, Banking and Currency Committee, DEAR MR. CHAIRMAN: Because of your longstanding support for small business firms, we believe you will want to consider the very adverse effects which one part of H.R. 17880 will have on small business contracting and subcontracting. This week our committee discussed this bill at a meeting attended by many representative specialists in subcontracting with small firms. This group sees no possibility of requiring all prospective small subcontractors to change their accounting systems in order to qualify for defense subcontracts. Consequently, it seems very clear to us that enactment of the present H.R. 17880 would be likely to cause a sharp reduction in subcontracting to small firms. There is no persuasive evidence that uniform cost accounting standards would be beneficial for anyone, and it is clear that they could be both complicated and costly for the Government, its contractors and its subcontractors, as well as prohibitive for small firms. In this regard, the Government-Industry Committee, established by the Small Business Administration in response to recommendation No. 13 to House Report 1975, 90th Congress, clearly stated that application of uniform cost accounting standards may discourage the development of small business capacity which is contrary to the economic well-being of the individual and private entrepreneurs of the Nation. 10 For the sake of simplicity. let us assume that a person earns a constant amount of income over his working life and that he begins to save at the age of 25 with the expecta tion of retiring at 65 and consuming the same amount of income until his expected death at age 72. If his savings can only be invested in money yielding a zero rate of interest. he will need to save 14.9 percent of his income each working year. Less saving will be required to even out consumption if money can be invested to yield interest. If the interest rate is 4.0 percent, he will only need to save 5.94 percent of his income. If it is 8.0 percent he will need to save 1.97 percent. We believe that no legislation on this subject is necessary or desirable, but if your committee should decide to recommend legislation, we very strongly urge that H.R. 17880 be changed to conform to S. 3302 as amended by the Senate Banking and Currency Committee, and be further amended to provide for an independent board. Only in this way can harmful effects on small firms be minimized. Our spokesmen will be happy to explain these matters more fully if you so desire. Sincerely, M. E. BARCHI, Chairman, Materials Procurement Committee, [Telegram] MINNEAPOLIS, MINN., June 19, 1970. HOUSE COMMITTEE ON BANKING AND CURRENCY, We re-emphasize the statement of the National Association of Accountants on Uniform Cost Accounting Standards before the Senate Banking and Currency Committee on Production and Stabilization on April 2, 1970. We also repeat the necessary for the development of cost concepts prior to deriving uniform cost accounting standards. We urge that a clarification of the objectives of uniform cost accounting standards be developed before legislation is enacted. I. WAYNE KELLER, Chairman, Management Accounting Practices Committee, Congressman PATMAN, [Telegram] MIAMI, FLA., June 19, 1970. Chairman, Banking and Currency Committee, During it's 19th annual national symposium on Friday, June 19, 1970, the Federal Government accounting Associaiton unanimously adopted the following resolution on S-3302 and H.R.-17880 in regard to proposed legislation on uniform cost accounting standard. Be it resolved by Federal Government accounting Association assembled at our 19th annual national symposium that we strongly support the need for legislation requiring the development and promulgation of uniform cost accounting standards for all Federal negotiated contract and subcontract where costs are a factor in arriving should be applied regardless of contract amount. We further believe that the promulgation of such standard should be a continuous function or process and that individual standards or group of standards should be formulated and issued for current application. We respectfully request that this resolution be brought to the attention of the Congress. JAMES A. ROBBINS, Federal Government Accounting Association. Hon. WRIGHT PATMAN, [Telegram] GARDEN GROVE, CALIF., June 19, 1970. Chairman, House Banking and Currency Committee, The Strategic Industries Association represents inventive small business companies engaged in prime contracting and subcontracting with the U.S. Government. This association participated in the recent general accounting office study on the feasibility of uniform cost accounting standards, which study was reported to you in January of this year. A careful review of this report shows that uniform standards are not only not feasible, but are not yet clearly defined-this observation dispite the GAO conclusions. Certain allegations have been made against industry by a few people on Capitol Hill. No investigation has been made as to the veracity of these allegations, nor as to the extent the problem exists generally and throughout industry. The problems cited in the GAO report are generally covered by existing regulations and thus do not establish the need for extensive new legislation: should the allegations be true with respect to a few large contractors the solution should be directed to that limited area rather than reacting unnecessarily on the thousands of businesses not involved. This association strongly urges the following: 1. The Congress find that the need for further legislation as proposed has not been established by the GAO report. 2. That the Congress investigate the alleged improprieties to establish the fact of their existence and the extent to which they prevail in industry before deliberating on their solution. 3. That, in any event, should any of the proposed legislation be enacted, it not be applicable to any small business or any prime or subcontractor with less than 25,000,000 annual renegotiable sales. This association respectfully urges your consideration of its position which affects thousands of smaller independent companies serving the U.S. Government. THE STRATEGIC INDUSTRIES ASSOCIATION, WILLIAM O. FISHER, Past President for the Board of Directors. BLOOMFIELD, CONN., May 21, 1970. Hon. EMILIO Q. DADDARIO, House Office Building, Washington, D.C. DEAR MR. DADDARIO: Currently before the Congress are two bills (Senate 3302 and House 16752) which would require the Comptroller General to promulgate cost accounting standards for all negotiated defense contracts. It seems that the chief advocates are those who know the least about the subject and therefore it must be concluded that their motives are rooted in emotion rather than objective understanding-whether they are well intentioned or not. In fact, the implementation of either of these bills would result in the introduction of a significant rigidity within a large segment of U.S. industry. History appears to demonstrate that rigidities sap the viability of an industry-railroads serve as an example in this country. Although cost accounting serves as a basis for financial accounting to stockholders it is primarily a management tool. As such, it must be flexible and subject to change as problems change. For example, a change in business mix between product lines may necessitate a shift in cost accounting approaches and emphasis in order to adequately manage and control the business under the new circumstances. The long-term cost of such rigidities is obviously great. There is the cost of inefficiency stemming from inadequate data for management control or the cost of duplicate accounting systems. The claims for cost savings by the proponents of these bills are unsupported and specious. For there to be a cost saving, there must be a reduction in the direct or indirect cost of labor, material or fixed assets such as buildings and machinery. In none of the testimony which I have read was there even a suggestion of such a thing. A short letter cannot contain but a brief mention of some of the ills of these bills. However, even these few points should serve to show why your opposition to the bills is warranted. I hope that you will oppose them. Very truly yours, GEORGE E. WILLIAMS. THE BARDEN CORP., Danbury, Conn., June 1, 1970. Subject: House bill 16752. HON. EMILIO Q. DADDARIO, Representative in Congress, House Office Building, Washington, D.C. DEAR SIR: House Bill 16752 directs the Comptroller General to establish uniform cost accounting standards for all negotiated defense contracts, and grants to the General Accounting Office and the procuring agency access to all books and records of the contractor, regardless of their relevance to any specific contract. It is my understanding that the House Committee on Banking and Currency has been holding hearings on HR 16752 during the past month. As Treasurer of The Barden Corporation, a Connecticut defense contractor, I urge that you take a position in opposition to HR 16752 for the following reasons: (1) The need for uniform cost accounting standards has not been demonstrated; (2) Evidence that establishment of uniform cost accounting standards would correct or prevent existing abuses by a very few contractors and by the Government has not been produced; (3) The proposed legislation requires standards that have not been adequately defined; (4) The imposition of accounting standards developed by an agency of the Government without equal representation by industry and the accounting profession in their development would be most objectionable and unfair, particularly when authority for interpretation and enforcement of such standards is reposed in the same agency; (5) The unilateral imposition of uniform cost accounting standards represents an unwarranted interference with management's obligation to manage and properly carry out its responsibilities to stockholders and the investing public; (6) HR 16752 offers no assurance that the proposed uniform standards will be fair, practical and equitable, and provides no remedy to the contractor for handling disputes; (7) The economic penalties in competing for defense business with more controls and less return make such business increasingly unattractive; and (8) There is a better way to solve the alleged problem, if indeed a real problem exists, than that provided by HR 16752. An Advisory Committee consisting of equal representation from the Defense Department, industry and the accounting profession might be created by the Secretary of Defense. It would be the duty of such a committee to investigate and identify the cost accounting problems alleged to exist, and thereafter to recommend appropriate solutions. Recommendations by the Committee, if adopted, could take the form of changes in regulations or in administrative procedures, Department of Defense instructions, or the like. It is respectfully requested that you consider the foregoing when HR 16752 is presented to the House for action. Yours very truly, D. W. GORDON, Treasurer. HUMBLE OIL & REFINING CO., Hon. WRIGHT PATMAN, Washington, D.C. DEAR MR. PATMAN: I would like to express my opposition to House Bill 16752 which would direct the Comptroller General of the United States to promulgate cost accounting standards for all negotiated defense contracts and to amend or rescind rules and regulations to implement the standards and impose penalties on contractors for failure to comply. As a member of the accounting profession and a representative of industry, my experience indicates to me that Federal promulgation of cost accounting standards is impractical and unnecessary. I see no correlation between any problems that have been identified with defense contracts and the capabilities for remedying them through detailed and bureaucratically imposed accounting rules and procedures. Moreover, imposition of standards by an agency of the government without equal representation for industry and he accounting profession would be particularly undesirable if the same agency would have authority for interpreting and enforcement of the standards. I believe that there is a very real danger that the imposition of such a system on defense contractors would seriously interfere with their ability to carry out effectively their responsibility to government, their stockholders, and the public. In my opinion, our present system offers reasonably adequate protection and sufficient guidelines to form an environment within which industry can effectively and efficiently furnish defense needs. Efforts to devise uniformity and conformity will unduly increase further the costs of goods and services. The Armed Services Procurement Regulations (ASPR) go into considerable detail in defining cost principles and procedures, and it is believed that existing difficulties in costing defense contracts arise, at least in part, from promulgations which are in too much detail. Additional pronouncements, it is feared, could only lead to additional frustration and problems. Other safeguards, such as contract audit provisions and renegotiation reports, are in our opinion sufficient to preclude any serious cost accounting abuses which are understood to be few in number and probably could not be abated in any event without undue cost. It seems to me that uniform accounting standards could only weaken the industrial base of our national security. We believe that there is adequate room for improvement under the present system of defense contracting and that the entire defense industry should not be penalized with a burdensome system of rules and regulations in order to correct a few problem areas. In the 1968 hearing ceding the enactment of Public Law 90-370, overwhelming opposition to this legislation was expressed by representatives of the industry and the accounting profession, and we believe this sentiment has not changed. Proponents of the legislation are recommending that the "standards" be extended to SEC reporting requirements and renegotiation reports. The potential expansion of such "standards" is unlimited, including possible adoption by the IRS for tax purposes. I am confident you will not wish to be a party to the unnecessary extension of Federal regulations which would serve only to impede busines without benefit to either the government or to the public interest. Your consideration of the above views will be greatly appreciated. Very truly yours, J. O. EDWARDS. DANIEL, MANN, JOHNSON, & MENDENHALL, HON. WRIGHT PATMAN, Chairman, Banking and Currency Committee, DEAR MR. PATMAN: This is to advise that, after careful review of the facts and of the development of the proposed legislation, we are absolutely opposed to House Bills 16752 and 17880, dealing with Uniform Cost Accounting Standards. Such legislation appears to be based upon an assumption that accounting is an exact science, which obviously is not true. Under the proposed legislation, implementation must result in either (a) a cost accounting structure so detailed and rigid as to be impossible to fit all situations, or (b) loosely defined groundrules which would fail to accomplish the objectives of the legislation. We further recommend that you consider certain alternatives and variations to this proposed legislation which are enumerated herewith. 1. Rather than create the monster as proposed, defer action on the subject and have the Secretary of Defense appoint a representative body of experts from various areas of the Government and business community to work in conjuction with the Commission on Government Procurement and develop recommendations for corrective action on the subject. 2. If legislation in the form proposed by the aforesaid House bills is inevitable, it should be put into effect in such a manner so as not to create traumatic effects on industry. (How does one bid on contracts when the definition of "costs" may take months or years to refine?) 3. Again, if legislation is inevitable, an impartial group, not the GAO, should develop the groundrules. We believe the negative effects of this proposed legislation on the defense industry, in order to attempt to punish a few violators, is much more far-reaching in increasing the cost of doing business than what appears on the surface and will inevitably increase the cost of Government procurement. Thus, we again reiterate strongly our opposition to these measures. Sincerely, CHARLES L. CARLSON, |