Mr. BIDDLE. But that is not a final audit in any sense-just a field audit?

Mr. TULLOSs. No.

Mr. BIDDLE. Only one audit as contemplated by the act has been made, is it not?

Mr. TULLOSS. No, sir; it is not complete.

Mr. BIDDLE. No audit has been made?

Mr. TULLOss. No settlement has been made.

Mr. BIDDLE. I didn't ask you about a settlement; I asked you if the audit contemplated by the act had been made except the first audit.

Mr. TULLOSS. Yes; but you have claimed a definition of "audit" that doesn't coincide with mine, you understand, and when I speak of audit I mean the whole thing, including the settlement.

Now, by reason of your definition, I don't know whether you are talking about the T. V. A. interpretation of the word "audit," or whether it is my interpretation.

Mr. BIDDLE. I am not talking about either interpretation, I am talking about the audit required by the act. You have read from the section requiring an audit to be made by your office, have you not? Shall we refer to that?

Mr. TULLOSS. Yes; we have.

Mr. BIDDLE. Let me read the language, so that we are clear what

we mean.

The Comptroller General of the United States shall audit the transactions of the corporation at such times as he shall determine, but not less frequently than once each governmental fiscal year

and also he shall make a report of each such audit in duplicate.

I will ask you this: How many such reports have you made? One? Mr. TULLOss. One.

Mr. BIDDLE. Have you made any other audit in the sense that the word "audit" is required by the T. V. A. Act?

Mr. TULLOSS. Not up to the extent of preparing the report, it hasn't reached that point.

Mr. BIDDLE. What other audit has entirely to be completed, in your sense of the word "audit."

Mr. TULLOSS. I don't think that we will complete any of them until we can accomplish the settlement of those accounts.

Mr. BIDDLE. Then I take it that no audit has been completed, because you mean by "audit" that you have to settle all of the accounts? Mr. TULLOSs. Yes.

Mr. BIDDLE. Supposing that you can't settle them?

Mr. TULLOSS. We can settle them, it will be an audit when we settle them, it will be complete then.

Mr. BIDDLE. Isn't the one ending June 30, 1934, settled?

Mr. TULLOSS. No, sir.

Mr. BIDDLE. What do you mean by "settlement?"

Mr. TULLOSS. By reducing the audit action to the final balance due to the United States from the accountable officer.

Mr. BIDDLE. And you haven't yet reduced any audit to those final bounds?

Mr. TULLOSs. No.

Representative WOLVERTON. May I ask right there, what was the amount of your exceptions, in the 1934 audit report, that have not been as yet completely settled?

Mr. BIDDLE. I have it here, and I will come to it in just a minute. Representative WOLVERTON. I was under the impression that the figure run somewhere around $2,000,000.

Mr. BIDDLE. Two and a half million dollars.

Mr. TULLOSs. Yes.

Mr. BIDDLE. And how many of those exceptions have been released by the field auditors, out of the two million and a half? May I get that figure exactly? I was coming to that a little bit later. It was $2,013,326.15.

Just a minute. I will withdraw that question. The exceptions in other words, taken in the audit, if we can call it an audit, you said it hadn't been completed because it was not settled, but in the report of the auditor for the fiscal year ending June 30, 1934, as I have said, and I think that there is no dispute about it, it is $2,013,326.51.

Representative WOLVERTON. I thought that if we had that outside number and the amount that it now is, it would clearly indicate what you are driving at, by a settlement.

Mr. BIDDLE. I would like to go into those exceptions a little now. When your office, the General Accounting Office, took those exceptions, did it mean that there were shortages, or fraud, or misapplication of funds to the amounts indicated, or did it mean that the General Accounting Office believed that disbursements by T. V. A. might not be or were not in accordance with the General Accounting Office interpretation of the applicable Federal statutes, at least pending further information with respect to the disbursements in question?

Mr. TULLOSS. Exceptions might be for any one or all of those

reasons.

Mr. BIDDLE. Were there any exceptions with respect to fraud, or misapplication of funds?

Mr. TULLOSS. I do not know.

Mr. BIDDLE. You don't know?

Representative WOLVERTON. Would the report show it?

Mr. TULLOSS. Yes, sir.

Representative WOLVERTON. I ask then that we have the report. Mr. BIDDLE. The report is here.

Representative WOLVERTON. Is it a matter of the committee's

records?

Mr. TULLOss. Yes.

Representative WOLVERTON. I don't know, has it been introduced? Mr. BIDDLE. We haven't had a chance yet, I am going to examine the witness about that whole 1934

Representative WOLVERTON. So that there won't be any misunderstanding, I am asking that it be made an exhibit.

Mr. BIDDLE. Let us mark it right away. Would you mark this exhibit 492?

REPORT OF TRANSACTIONS OF TENNESSEE VALLEY AUTHORITY

With the permission of the chairman I will now offer exhibit 492, which is the General Accounting Office report of the fiscal year ending

June 30, 1934. It is and I think that I should be very accurate about its title, its title is "Report of the audit of the transactions of the Tennessee Valley Authority from June 16, 1933, to June 30, 1934, made by personnel of the General Accounting Office."

(The document above referred to was marked "Exhibit 492," and received in evidence.)

Mr. BIDDLE. Now, I call your attention, Mr. Tulloss, in view of the last question about which you quite probably stated that you had no knowledge, to a letter to Senator McKellar, from Mr. Elliott, dated March 11, 1938, and appearing in the temporary volume of the Congressional Record, which is entitled "Volume No. 5, February 28 to March 11, 1938," and which letter states as follows

Senator SCHWARTZ. What page?

Mr. BIDDLE. Page 4342. I will read the whole letter, but I will read first the last paragraph.

The report states that exceptions were made to the transaction mentioned which should be understood that the transactions were merely questioned and since many of the exceptions were released "after proper explanation" the report should have been understood as not referring to shortages, and clearly there appears nothing in the report to suggest or imply that the items there involved were shortages.

Mr. TULLOSS. Are you reading that with reference to the audit report for 1934?

Mr. BIDDLE. I think it is that.

Mr. Tulloss. That doesn't refer to that.

Mr. BIDDLE. I thought that it did; I may be wrong.

Mr. TULLOSS. It is referring to the Comptroller General's annual

work report for 1937.

Mr. BIDDLE. For 1937?

Mr. TULLOSs. Yes.

Mr. BIDDLE. Well, I am wrong in that. I am sorry. Let me see if I can find exactly what it does refer to. This refers to the annual report of the Comptroller General to Congress for what year?

Mr. TULLOss. 1937.

Mr. BIDDLE. And in that annual report, Congress received that report in 1937 to include the outstanding exceptions to the T. V. A. accounts, or reference to them?

Mr. TULLOSs. Yes.

MEANING OF EXCEPTIONS CONTAINED IN THE REPORT

Mr. BIDDLE. I might refer to this also, and I think that Mr. McCarl could probably clarify all of this, the House committee hearings in 1935, volume 751, the Committee on Military Affairs, the House of Representatives, in which the matter was discussed at some length, and the question addressed by Mr. Hill, a member of the committee, to Mr. McCarl, as follows:

Mr. HILL. I believe that there are perhaps 20,000 transactions covered in your report

That clearly refers to the 1934 report?

Mr. TULLOss. I think so.

Mr. BIDDLE. Well, it is June 26, 1935, so that it must refer to that report.

Mr. TULLOSS. The report was rendered, as I recall, in April of 1935.

Mr. BIDDLE. And this is June 1935, so that it refers to that. [Reading.]

I want to know whether you have any evidence whatever in your judgment of any fraud on the part of any of the Directors of the Tennessee Valley Authority. Mr. MCCARL. Mr. Chairman, to that question I want to say "No," but I want to be pretty seriously considered now. I think that it is premature for you to question me with respect to these exceptions. I think it is unfair to the Authority, and I think that it is unfair to me. I think that the Authority should have an opportunity and must be given an opportunity to answer them.

And the evidence of that committee, before that committee, resulted, I take it, in the ultimate amendment of the 1933 act of the T. V. A., requiring the Comptroller General to submit exceptions made by him to the T. V. A. before making them public, in his report to Congress? That was what the amendment provided, was it not?

Mr. TULLOSS. There was an amendment or such an amendment in the act of 1935, but I don't know that the committee before whom Mr. McCarl appeared, introduced that legislation.

Mr. BIDDLE. I don't think, or I don't know who introduced it, but the evidence was only given before that commitee, it wasn't given before another committee.

Mr. TULLOSs. I don't know.

Mr. BIDDLE. Would you refer to page 4 of the 1934 tentative audit? Have you got it there?

I notice on that page you say:

Notwithstanding that the original investment before the sale of the WarriorSheffield Line was approximately $137,000,000, and that the properties, etc., turned over to the Authority, on the basis of cost amounting to nearly $133,000,000 such properties have been established on the books of the Tennessee Valley Authority at an arbitrary value of $51,000,000, or about 38 percent of cost.

CRITICISM ON VALUATION OF MUSCLE SHOALS PROPERTIES

And on page 84 of the report, you say:

the apparently excessive depreciated value at which the Muscle Shoals property was taken upon the books.

Now, the act requires, doesn't it, that the Board of Directors of the T. V. A. shall make a valuation, and allocation based on present values, and that that report should be sent to the President and shall be final when approved by him?

Mr. TULLOSS. I think so.

Mr. BIDDLE. It was common knowledge, was it not, when the 1934 audit report was prepared, that the Authority was engaged in preparing a valuation, and that the $51,000,000 figure was purely tentative, pending completion of the valuation study, is that correct?

Mr. TULLOSs. I do not know how tentative that valuation was to be.

Mr. BIDDLE. But it must have been tentative, if they were engaged in making a valuation and allocation.

Mr. TULLOSS. I don't know that they were so engaged.

Mr. BIDDLE. You mean you didn't know that an allocation study was being made?

Mr. TULLOSS. I am speaking personally now. They may have, but what this report says is that they are taking this property into their books at $51,000,000.

Mr. BIDDLE. That is right.

Mr. TULLOSs. As a valuation.

Mr. BIDDLE. Now, what is the authority in your act to criticize an engineering allocation-an engineering accounting allocation of the valuation of the Tennessee Valley Authority?

Mr. TULLOSS. To audit the books of the Tennessee Valley Authority, $51,000,000 has been set up on the books and we questionedMr. BIDDLE. That allocation valuation is a complicated engineering accounting problem, is it not?

Mr. TULLOSS. Yes; I would say it is.

Mr. BIDDLE. And who of your office gave you the information on which that statement is based, the allocation, a very technical allocation problem, was improper?

Mr. TULLOSS. I didn't say it was improper; we questioned whether it was.

Mr. BIDDLE. What is the basis of your questioning that valuation? Mr. TULLOSS. The mere fact of reducing the valuation from $137,000,000 to $51,000,000.

Mr. BIDDLE. Did you check the sales of some of the other Government properties similar to this, to see what they had brought in the market?

Mr. TULLOSS. No. Government property always brings a low figure, but this property wasn't for sale. Now, I believe Mr. Ford did offer, if you ask the question-Mr. Ford offered $100,000,000 for the property.

Mr. BIDDLE. How many years before was that?

Mr. TULLOSS. Well, probably when the property was less valuable than it was then.

Mr. BIDDLE. Well, you really think that your office has the function and duty to examine the T. V. A. to see what values they give to these dams and other property owned by them, Muscle Shoals and so on-do you think that that is part of your function?

Mr. TULLOSS. We would not undertake to determine the exact valuation ourselves.

Mr. BIDDLE. But you would undertake to criticize their value. Mr. TULLOSS. We would criticize an obvious departure from true value.

Mr. BIDDLE. What basis have you of knowing whether the departure was an obvious one? Did you make any study?

Mr. TULLOSS. No; I do it just from horse sense, I would say.

Mr. BIDDLE. From your point of view of horse sense you felt that that was too high?

Mr. TULLOss. Too low.

Representative WOLVERTON. Did the T. V. A. submit any supporting data?

Mr. TULLOSS. As I recall, they had some inventories and the like to the property.

Mr. BIDDLE. They had very complete engineering studies, did they not?

Mr. TULLOSS. At this time they did not have.

Mr. BIDDLE. Well, they were engaged then in making them?