that consultation he asked for a break-down of the work the General Accounting Office party was doing. In other words he wanted to know how much time is being put in on actual auditing and accounting of financial transactions aside from the examination of files, investigations of sources of receipts, initiation and purposes of projects, and other matters which he apparently considered to be irrelevant to the audit as provided in section 9 (b) of the Tennessee Valley Authority Act. He was told that it was not intended to explain the reasons for wanting files, it was desired to pursue investigations unrestricted, and that there was no record kept to show separately the time actually put in on the various phases of the work; all of which were considered as coming within the scope of existing law. Mr. Carr stated that it was the desire of the Board and the coordinator to have a separate formal written request for each interview, and to have request for files made in writing, specifically setting out just what correspondence was wanted. He was told that, with all due respect, no such arrangement could be agreed to, and while it was desired to work in cooperation, the auditors must be allowed to follow their own method. In a trial to get files through channels by written requests delays have been experienced from a day or two to several weeks. Mr. Carr desired to consult further with the coordinator and the Board and arranged for a conference with the coordinator. Despite several previous efforts this was the first personal meeting with Mr. Blandford. While the greeting was cordial, he voiced his disapproval of what he considered "fishing" methods and of criticisms contained in the Comptroller General's report. Mr. Blandford thought such exceptions could have been cleared up had the auditors pursued their investigation through proper channels and made contact with the proper people. He was informed that the withholding of files has no doubt been responsible for certain conclusions, and that, while there were no objections to discussing in a general way the various exceptions contained in the report, there was no authority to speak for the Comptroller General and that the Authority's reply to the report would have to be made formally. During the conference the various instances regarding the refusal or delay of files were referred to, and after listening attentively and admitting many of the faults and irregularities in the financial transactions of the Authority, Mr. Blandford acknowledged that he had also sensed the adverse attitude on the part of certain division heads and subordinates because of what they considered unfair criticisms in the Comptroller General's report, stating, however, that the action was individual, entirely independent, and by no instructions from him or the Board. The Board was in session during the conference which was several times interrupted by a call from the Board for either Mr. Carr or Mr. Blandford. It was requested that the field force continue in the regular way until they again consulted with the Board as to the best method of preventing a recurrence of the unpleasant experiences, which was accepted as being favorable. They promised to advise of the procedure by which their personnel would be instructed to cooperate on the information required, but up to the present writing nothing definite has been heard from either Mr. Carr or Mr. Blandford. Audit exceptions and disallowances.-Paragraph 2 of letter of Mr. Francis Biddle, General Counsel for the Committee, dated October 21, 1938, reads in part as follows: 66* * * I should like to know how the exceptions are made, and how they are withdrawn, or finally disposed of; what happens to the exceptions that are not disposed of * Before replying to such request it is believed desirable first to point out the distinction between "exceptions" and "disallowances." The two terms or processes have frequently been confused, with the result that what would appear to be a large volume or amount of irregular expenditures is no more than a large volume of vouchers irregularly submitted, inadequately supported, or lacking in certain other minor respects which can be easily explained or corrected upon being called to the attention of the accountable officer by "Notice of Exception" in each case. When such preliminary action or "exception" is taken to an expenditure for any reason, notification thereof is forwarded to the Authority on forms provided for such purpose, with request for correction of the transaction or an adequate explanation. It results, therefore, that in the majority of instances proper action 115943-39-pt. 10-22 is taken or acceptable explanation furnished in the course of the audit, in which event the exception is removed in the regular and periodic course of settlement of the accounts. If for any reason proper correction cannot be made by the accountable officer or acceptable explanation furnished, the amount involved is "disallowed" by deny. ing credit therefor in the accounts of the accountable officer for recovery either by restitution or through action under indemnity bond. In addition to the regular process explained above disallowances may result in various other ways. For example, in the regular audit of the accounts if it can be determined from the facts disclosed by the voucher that the expenditure represented thereby is illegal or irregular to such extent as to warrant such action, disallowance is made forthwith and the officer is notified accordingly. Furthermore, it frequently happens that there is nothing on the face of the voucher to indicate irregularity and credit is allowed in the accounts of the officer, subsequent to which by investigation or otherwise the expenditure is determined to be illegal, in which case the particular account is reopened and the amount disallowed. As explained above, and in the interest of uniformity and economical procedure, the General Accounting Office prescribed forms (Nos. 2084, Notice of Exception, and 2085, Reply to Exceptions) for use in the adjustment and settlement of accounts of accountable officers of the Government and its agencies. Such forms, and the procedure for use thereof, were adopted in order that the accountable officers and the administrative officers concerned could be currently notified of exceptions taken so that explanations, or recoveries if required, may be made currently and thus avoid the difficulties involved in the transactions if allowed to accumulate until settlement of the accounts. Current notice to the accountable officers and administrative officers not only facilitates explanation or recovery of amounts to which the exceptions refer but also eliminates the necessity of including hundreds of items on different statements at the time of settlement in order that the interests of the United States and the accountable officers concerned may be more adequately and economically protected. Senator SCHWARTZ. I was just wondering, Mr. Chairman, whether, if counsel has a copy of the paper that is being read by the witness, if it won't be sufficient for us just to put into the record the witness' paper, and not require him to read all of it; and then let counsel inquire. of him about the paper, and if we want to question him we can do thatI am wondering if we won't make time that way. I don't believe that the committee-at least not for myself-I don't think we are getting a very connected story of the position of the Accounting Office. Representative WOLVERTON. What would be the procedure then that the membership of the committee would have with reference to examination of the witness? Chairman DONAHEY. The position of the membership of the committee? Representative WOLVERTON. Yes. Chairman DONAHEY. The members of the committee can ask the witness any question they want to. Representative WOLVERTON. Well, of course, if this statementChairman DONAHEY (continuing). Germane to the statement. Representative WOLVERTON. If this statement is made a part of the record without being read, the membership of the committee has no information until it obtains a copy of the printed record from the stenographer. Chairman DONAHEY. His communication was filed some 3 or 4 days ago, and I placed it in the hands of Mr. Biddle; and he came as a witness this morning, and is now reading his report as filed with the committee, which was the sense of the committee, that he should read it. Now if you want a further reading of this report, make it manifest at this time, or we will dispense with it, as you wish. Senator SCHWARTZ. Of course, if Mr. Wolverton prefers to have it read, I wouldn't offer any objection, but I thought we would save time. Representative WOLVERTON. The thought I had in mind is that I would not be able to know what to examine the witness on unless we have the statement. Now if we had copies of it, probably we could save the time of the witness in reading it. Chairman DONAHEY. There was just one copy filed with us, Mr. Wolverton. Representative WOLVERTON. But without that, why there is absolutely no opportunity whatsoever to examine the witness, because we don't know what he has testified to until we get the finished record from the stenographer. Senator SCHWARTZ. Possibly we ought to let it be put into the record and be printed tomorrow, and then recall the witness after we have studied the testimony. Representative WOLVERTON. I have no objection to that provided when we get a copy of it we can examine the witness. Chairman DONAHEY. Do you agree to that statement? Senator SCHWARTZ. Yes. Chairman DONAHEY. Go ahead, file the report and let it be printed, and the witness recalled. Mr. BIDDLE. Then I can ask my questions now? Senator SCHWARTZ. You can ask your questions because you have a copy. Chairman DONAHEY. Then it is so ordered. Representative WOLVERTON. So that there won't be any misunderstanding, is it the understanding of this committee that this witness will appear again tomorrow for examination? Chairman DONAHEY. I don't know when. Whenever any member of the committee wants him; any member of the committee has a right to recall him. Representative WOLVERTON. Because we won't get the record from the stenographer before tomorrow, and probably not until later, if I judge by past experience. As a matter of fact, I haven't seen any of the record since we started our hearings here in Washington 2 weeks ago. Senator SCHWARTZ. I think we were all supplied with a bunch of papers about that high [indicating]. Representative WOLVERTON. I have those, but they are the hearings conducted at Knoxville. Senator SCHWARTZ. I understood they were a lot of exhibits. Mr. BIDDLE. I think I can arrange to have copies made in my office, and I will have it started immediately and endeavor to have it done by this afternoon late. Representative WOLVERTON. So that I may have an opportunity to go over it tonight? Mr. BIDDLE. Yes. (Further discussion was had off the record.) Chairman DONAHEY. It is so ordered. (The remainder of the witness' statement follows:) Although the forms are used and the procedure followed generally by all departments and establishments, the Tennessee Valley Authority has refused to use Form No. 2085, but insists in writing long letters of explanation the preambles of which are as follows: "In replying to the above notices of exception, we deem it necessary to make it clear that the information contained herein is furnished solely for the purpose of making the requested information available in order to facilitate the audit of the transactions of the Authority required to be made by the Comptroller General of the United States under the terms of the Tennessee Valley Authority Act, as amended. In order that there may be no misunderstanding, we desire to repeat the position of the Authority that the function of the General Accounting Office under the act is to conduct a commercial audit and to report to the President and Congress any transactions which it considers to be contrary to law, which function does not include power to make allowances or disallowances of credit or in any sense to settle and adjust the accounts of the Authority. "You will appreciate, too, that this is merely an interim reply to your current exceptions and is not to be regarded as fulfilling the requirements of section 9 (b) of the Tennessee Valley Authority Act of 1933, as amended, which states: "Provided, That such report shall not be made until the Corporation shall have had reasonable opportunity to examine the exceptions and criticisms of the Comptroller General of the General Accounting Office, to point out errors therein, explain or answer the same, and to file a statement, which shall be submitted by the Comptroller General with his report.' Included and made a part of such letters are long lists of exceptions to which the reply refers and in many instances such replies refer to previous letters, thus making an endless chain of complications for this Office to unravel in the audit and settlement of the accounts. (See, for example, attached copies of such replies.) In the audit of the accounts of the Authority under the provisions of section 9 (b) of the Tennessee Valley Authority Act, 1933, as amended, exceptions, in many instances, consist of requests for further information, approvals, additional data, etc., in connection with disbursement vouchers, and upon receipt of the necessary information such exceptions are generally removed. Such procedure obviates the necessity for inclusion of such items in the report required by the provisions of section 9 (b) of the Tennessee Valley Authority Act, 1933, as amended. Section 8 of the act of July 31, 1894 (28 Stat. 207), as amended by section 304 of the Budget and Accounting Act, 1921, provides: "The General Accounting Office shall preserve, with their vouchers and certificates, all accounts which have been finally adjusted." If the accounts involving expenditures of public funds are to be properly adjusted and settled, the vouchers appertaining thereto for which credit is allowed in settlement should be complete in every respect. The notices of exception and replies thereto are made a part of the vouchers to which they relate and constitute a part of the accounts. Thus each account settled is complete within itself upon which the certificate of settlement, with supporting statement of differences, is based. Except where specifically exempted by law, the accounts of accountable officers of Government owned or controlled corporations are for audit and settlement in accordance with the provisions of the Budget and Accounting Act, 1921, in the same manner as transactions of departments and establishments of the Government. In view of the position taken by the officials of the Authority, it has been extremely difficult to conduct an audit of the financial transactions involved; however, exceptions noted in the audit as of June 15, 1938, are tentatively stated as follows: 17891. Exceptions noted in the audit. - $18, 791, 910. 00 12, 634, 382. 17 4628. Exceptions remaining if recommendations of the auditors are approved... Sincerely yours, $6, 157, 527. 83 R. N. ELLIOTT. Acting Comptroller General of the United States. Chairman DONAHEY. You may question the witness. GENERAL ACCOUNTING OFFICE PROCEDURES Mr. BIDDLE. Mr. Tulloss, you referred to the 1921 act, under which the General Accounting Office functions. That act uses the words "settle and adjust," does it not? Mr. TULLOSS. It is carried in section 236 of the Revised Statutes as amended by that act; yes. Mr. BIDDLE. That carries the words "settle and adjust," does it not? Mr. TULLOSs. Yes. Mr. BIDDLE. Does it cary the word "audit" also, at all? Mr. TULLOSs. I don't recall. Mr. BIDDLE. Well, isn't it a fact that the act does not require an audit, but requires a settlement and adjustment of accounts? Mr. TULLOSS. I won't be sure whether the word "audit" is in there. Mr. BIDDLE. We will get the act in a moment, when my assistant gets back. He has got the material there. AUDITING DONE PURSUANT TO LAWS Now, the examination of accounts by your Office differs from an ordinary commercial examination, does it not-an ordinary commercial examination of any industrial or commercial organization? Mr. TULLOSS. To the best of my knowledge, it does. Mr. BIDDLE. In what respect would you say? Mr. TULLOSS. Well, we audit pursuant to laws. Each year the Congress appropriates in detail for the Government establishments. There are thousands and thousands of those appropriation items. We audit in accordance with the authority there contained, or as otherwise provided in other statutes. Senator SCHWARTZ. If I understand you, it is the ordinary audit plus an ascertainment as to whether or not the expenditures are within the meaning of the appropriations? Mr. TULLOSs. Yes, sir. Mr. BIDDLE. In testing the legality of the transactions under your system, do you require that vouchers and documents be submitted monthly to the General Accounting Office to support the disbursements made by the accounting offices? Mr. TULLOSS. The law requires as to when an accounting shall be rendered. Mr. BIDDLE. Well, that is the system used under the law, is it not? Mr. TULLOSS. No; the law specifically provides that the account shall be rendered either monthly or quarterly. Mr. BIDDLE. What is your practice? Mr. TULLOSS. Our practice is to require them-carry out the law just as it is. We have no regulation other than quoting or copying of the law. The law provides that the accounts shall be rendered-a monthly account shall be rendered-within 10 days after the close of the accounting period. That is the monthly accounting. |