Mr. TULLOss. That one is.

Mr. BIDDLE. Isn't it true practically all of those activities were for the construction of the dam, and many of them were temporary activities, discontinued, and yet you charge all of that against an operating expense? I should think some of it might be charged against a capital expense, wouldn't you?

Mr. TULLOSS. Well, I don't know. I don't understand that they were that they viewed it that way themselves.

Mr. BIDDLE. Well, they didn't view it at all. They didn't charge it against operating, did they?

Mr. TULLOss. No.

Mr. BIDDLE. Did T. V. A. charge these items against operating? Mr. TULLOSs. No.

Mr. BIDDLE. But you did. Their theory was that you should either charge against a deferred account, over operating, or charge against capital, was that right?

Mr. TULLOSS. We had that election, yes.

Mr. BIDDLE. And you elected to charge all of these what you might term temporary construction expenses, or at least some of them might be called that, against one year's operation, is that right?

Mr. TULLOSS. That is all we had at that time, was the one year, to be carried forward into subsequent years.

Mr. BIDDLE. Couldn't you have deferred it and charged some against that, and carried some over?

Mr. TULLOSS. I suppose it could have been done.

Mr. BIDDLE. That added to the net deficit, of course, didn't it? Mr. TULLOSS. Yes.

Representative JENKINS. Let me ask a question?

Mr. BIDDLE. Yes, sir.

Representative JENKINS. You say that is the way you charged it the first year. Now, how have you charged it in subsequent years? Mr. BIDDLE. There has not been any

Mr. TULLOSS (interrupting). We might say we are tentatively charging it the same way, but the audit reports have not been made. This is the only one that has been made.

Representative JENKINS. What is the difference as to which way you charge those, except if you charged it against the capital, it stays capital, doesn't it?

Mr. TULLOSS. I would say so; yes, sir.

Representative JENKINS. What I have in mind is this, it might have been perfectly appropriate to make the charge as capital when the experiment was being carried on, or whenever they were constructing the dam, but after it was constructed and the town started out on its own, or had its own manager and assistant manager and operated as a town, then don't you think it would have to be removed from the capital expense of the dam?

Mr. TULLOSS. It certainly would at that point. And even at this time they were operating as business activities.

Representative JENKINS. You operated from the very beginning?
Mr. TULLOSS. These were operated as business activities; yes, sir.
Representative JENKINS. From the very beginning?
Mr. TULLOSS. Yes, sir, they were revenue producers.

115943-39-pt. 10-25

Mr. BIDDLE. I know, but the question of whether they were revenue producing does not determine the question of whether they should be charged into capital or operating.

Let's see another thing. For instance you charge administrative costs involved during the period of dam construction to capital, or can charge it against operating expenses for the current year?

Mr. TULLOSS. They were prorated over their expenses according to their own methods.

Mr. BIDDLE. So those charges you did treat as deferred operating charges, and prorated?

Mr. TULLOSS. Yes.

Mr. BIDDLE. Why weren't these just the same? What is the theoretic difference between the two types of charges?

Mr. TULLOSS. I am afraid I am not sufficiently informed as to the whys and wherefores of this. If you would care to ask Mr. Bruk to explain this to you, he could do it.

Mr. BIDDLE. This is the last question on the figures of the audit I think that I wanted to ask you.

Mr. TULLOSS. These were the proportion of the administrative expenses that were deemed properly chargeable to these activities. The remainder have been prorated to the cost of the dam.

Mr. BIDDLE. Why should you charge any construction expense against 1 year's operation?

Mr. TULLOSS. Well, that seems to me a difference of opinion as to whether the one should be treated as a construction expense or an expense of operation of these particular activities.

LOCATION OF PRINCIPAL OFFICE

Mr. BIDDLE. Let's come to page 93. Now, you say on page 93, "The law specifically requires that the headquarters"-the headquarters "of the corporation be established in the vicinity of Muscle Shoals, Ala." Will you look at the act and advise us where in the act it requires that the headquarters be established at Muscle Shoals?

Mr. TULLOSS. The law I believe says "main offices."

Mr. BIDDLE. "Principal office."

Mr. TULLOSS. "Principal office"-well

Mr. BIDDLE. You know, don't you, that "principal office" is a recognized term, having a specific meaning?

I was just wondering why you said "headquarters" there. Was there any reason for that, or do you think the headquarters is synonymous?

Mr. TULLOSS. It is synonymous with "principal office."

Mr. BIDDLE. You think "headquarters" is synonymous with "principal office"?

Mr. TULLOss. Yes.

Mr. BIDDLE (reading):

Where the already completed Wilson Dam, generating plants, transmission plants, fertilizer works, steam and ice plants, permanent homes

and so forth

and other Government-owned property were located and in operation; the Wheeler Dam town site and other contemplated projects are also within the comparatively convenient distance of the prescribed location for the principal offices.

Then you go on to say the Administration Building at Muscle Shoals was reconstructed at a considerable expense to include offices for a certain number of employees, but that the building, however, was only occupied by offices of the manager of Muscle Shoals, part of the Electrical Division, accounting force for the power and fertilizer operation, but that headquarters of the Board however are, and general offices of the organization including the disbursing officer, accounting control, director of personnel, legal divisions, and all other executive departments were established at Knoxville in three rented buildings at a cost of approximately $36,000 a year.

Just under what provision of your authority as "settling and auditing accounts" do you go into this question of the principal office? Mr. TULLOSS. To pay rent in Knoxville when they had offices and buildings or provisions for offices and buildings at other places. Mr. BIDDLE. Did you except?

Mr. TULLOSS. That is paying rent for space when they had space elsewhere.

Mr. BIDDLE. Did you except that item of rent?

Mr. TULLOSS. I think there are exceptions; yes.

Mr. BIDDLE. You excepted as an auditor to an item of rent in Knoxville on the theory that their principal offices should have been at Muscle Shoals, and that your interpretation was therefore they had no legal right to pay rent in Knoxville, was that the theory of the situation?

Mr. TULLOSS. The exception was made by reason of another provision of law with reference to the value of the building.

Mr. BIDDLE. It had nothing to do with the principal-office feature then?

Mr. TULLOSS. Not so stated, however, there is the same question that would be involved. In other words, the same items are excepted for one reason and not duplicated by reason of another condition.

Mr. BIDDLE. In other words, you might have excepted to that item of rent on the ground that the principal office should have been Muscle Shoals?

Mr. TULLOss. Yes.

Mr. BIDDLE. But you had another good reason and therefore did not use the "principal office"?

Mr. TULLOSS. We have used both reasons, but one is stated in the narrative of the report and another is stated in the exception.

did

Mr. BIDDLE. In going into the exception to the "principal office," you consider the-which has been here testified to-greatly added expense to the T. V. A. which would have been involved if the principal office had been centered during the construction period at the dams in Muscle Shoals? Did you go into that in some detail?

Mr. TULLOSS. I didn't go into that in detail but it appeared very obvious to me it would have been cheaper to operate at Muscle Shoals than at Knoxville.

Mr. BIDDLE. But you didn't take

Mr. TULLOSS. I made no particular investigation.
Mr. BIDDLE. It was just a matter of judgment?

Mr. TULLOSS. I made no particular study of it. It looked so obvious; they had numerous dwellings, large buildings at Muscle Shoals, and they had nothing at Knoxville except a building that I believe was an old post-office building that was later made available, I believe.

They had one construction project at Norris as compared with another project at Wheeler. I believe they were comparable in size. There was just as much work needed to be done at Wheeler as at Knoxville, and they would have been nearer that project at least. As it was they were nearer Norris, so they could have saved the rental and many other expenses by being at Muscle Shoals in my opinion. Mr. BIDDLE. You went into transportation costs and housing for employees at Muscle Shoals, and all of that.

Mr. TULLOSS. There was just as much transportation from Norris into Knoxville, and to Muscle Shoals, as there would have been the

reverse.

Mr. BIDDLE. So you felt the administrative problem, it seems to me, the administrative problem of where the principal office was to be was in effect for your office to determine, and that if it was not determined in accordance with your judgment that that would at least be the basis of an exception to rent paid for an office in another city? Mr. TULLOSS. Not necessarily; our judgment there was influenced by the law. The law said Muscle Shoals.

Mr. BIDDLE. You didn't quote the law, though, you misquoted the law.

Mr. TULLOSS. We said "headquarters," and the law said "principal office." But later on you see we used "principal office." Everybody knows what we were talking about.

Mr. BIDDLE. I see.

Mr. TULLOSS. The law was not quoted, it is true. We probably should not have used the word specifically in connection with the word "headquarters," but I don't think anyone has been misinformed by that.

Mr. BIDDLE. No; I don't think they have, but "principal office" has a very definite legal meaning, and "headquarters" has not.

STATUS OF EXCEPTIONS

Now, what were the totals? I want to get to some of the exceptions. Weren't the total exceptions in this audit $2,013,326.51? I think we had the figure once before.

Mr. TULLOSS. I think that was the figure we agreed on yesterday. Mr. BIDDLE. We agreed on that.

Mr. TULLOSS. We agreed on that; I want to be sure.

Mr. BIDDLE. What has been the total exceptions taken by your office during each fiscal year subsequent?

Mr. TULLOSS. I do not have that information. I have given the total of that information in the report of November 22.

Mr. BIDDLE. Have you got that long letter from the Comptroller General? The very last page of your letter gives that, perhaps. Mr. TULLOSS. I don't think that I have that page.

Mr. BIDDLE. You state in your letter:

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:

What is the figure of 17,891?

Mr. TULLOSs. That is the number of items.

Mr. BIDDLE. 17,891 exceptions?

Mr. TULLOSs. Yes.

Mr. BIDDLE. They were noted, totaling $18,791,910. Of thosesee if I am correct in stating this, but I want to get it very accurate― of those 17,891 items of exceptions, exceptions have been recommended for removal by your field staff in the amount of 13,263 of the 17,891. That is because additional evidence was given-totaling in dollars $12,634,382.17, out of the $18,000,000, leaving a balance of $6,157,527.83, and the exceptions remaining over

Mr. TULLOSS. If the proposed removals are approved by the Comptroller General.

Mr. BIDDLE. Have you ever not approved recommendations of your field agents, in the T. V. A. exceptions, do you know?

Mr. TULLOSS. Yes; I think that there have been cases.

Mr. BIDDLE. It is unusual, isn't it?

Mr. TULLOSS. No; not necessarily. The question comes up, the porposal to remove or set up an exception, and that action is subject to review, and it takes a certain course in the office, and the recommendations are finally approved or disapproved.

Mr. BIDDLE. Let me ask you this: How long does it take between the point when the exception is approved for removal-I don't know if I am using the proper language, by your field auditor, and the final decision one way or the other by Washington?

Mr. TULLOSS. Well, there is no definite time. It depends upon the circumstances. In this case, the final action of the Comptroller General would not be until he approves an audit report, and that is, so far as it applies to the Tennessee Valley Authority, the final approval would be upon settlement of it.

Mr. BIDDLE. Now, I am not sure if you can give us this information. I know it is difficult to collect a lot of this in the form that I suggested; I am advised that of the $2,013,326.51, covering exceptions under the first audit, that $1,932,621.46 has been recommended for release, and that that would leave only exceptions on which no action has been taken, in the field at least, of $42,265.04, out of the original $2,013,000.

Have you got your figures there so that you can state whether that is correct?

Mr. TULLOSS. I have no such figures. I do not know that that is correct.

Mr. BIDDLE. Have you any way of telling us how many of the exceptions, of the $2,000,000 worth of exceptions taken in the first year, have been recommended for removal? Have you any way of knowing that?

Mr. TULLOSS. I suppose that we have some information that we could calculate the number that is unpaid.

Mr. BIDDLE. I mean in dollars, though.

Mr. TULLOSS. It would be entirely unofficial. These are-whatever the source of the information so far as I know, it is unofficial, and