Representative WOLVERTON. Now, take the T. V. A. report to Congress, for 1934, page 56, and tell me what they reported to Congress as the total inventories.

Mr. TULLOss. $521,034.13.

Representative WOLVERTON. That would seem to be a difference of nearly $800,000. Do you have any explanation of that?

Mr. OWEN. They allocate their expenses between navigation, flood control, and national defense at the end of each calendar period, and part of these inventories apply to those divisions, so that the T. V. A.'s inventories are different from ours, for the reason that they have taken part of theirs and placed it among those allocations, whereas we had taken the actual inventories as such.

Representative WOLVERTON. Well, $800,000 is a good bit of differ

ence.

Mr. OWEN. It is capitalized in one place and not in the other. Representative WOLVERTON. Between two departments who are supposed to be efficient in figuring.

Mr. MATCHETT. Approximately $600,000 of the difference between the two inventories is the amount of materials acquired from the War Department, which were removed from the books of the Authority.

Representative WOLVERTON. All right; now then let us look to T. V. A.'s report to Congress for 1935, at page 63, and what did they then report to Congress was the total inventory value of 1934?

Mr. OwEN. It is general equipment and inventories net, $450,000. Now, that brings out the point that I was talking about Representative WOLVERTON. Out of the total

Senator SCHWARTZ (interrupting). Let the witness question.

answer the

Representative WOLVERTON. I want to get at it as well as you do. Senator SCHWARTZ. Let the witness say what he wants to say. Representative WOLVERTON. Let me put it to him so that he will understand.

do.

Representative BARDEN. He understands it.

Representative WOLVERTON. He does as well as some of the others

Representative BARDEN. Was that intended to be personal?
Chairman DONAHEY. Let us proceed.

Representative WOLVERTON. The figure that I have is $450,713.27. Now, I only want to bring that to your attention so that in whatever explanation you were making you would have in mind what I had it figured at so that it could help you.

Mr. OWEN. It is true that there is a difference there, and it attracts anyone's attention immediately. Now, if you will notice the set-up of this balance sheet in the 1935 report it is definitely set up by navigation and flood control, electricity, national defense, fertilizer and agricultural development, regional studies, experiments, and demonstrations, and that is the total amount of investment in the programs, in this report for 1935.

Now, in 1934, they haven't given that classification; they say fixed assets, Mississippi power, Norris Dam, and fertilizer, and they have changed their classification of accounts, and with that change they allocate a certain amount of the inventories, to these programs, these five programs.

115943-39-pt. 11-10

Representative WOLVERTON. When they reported to Congress, in their 1934 report, at page 56, the total inventories were $521,034.13; it wasn't a true picture if it were to take what they reported in 1935 at $450,000 plus, as a true picture?

Mr. OWEN. No.

Representative WOLVERTON. That is what I can't understand, there is a difference there of some $70,000 between their own figures. Mr. OWEN. We had trouble understanding that, too.

Representative WOLVERTON. Between the different years, no matter what classifications you make, it seems to me that the total ought to be the same.

Mr. OWEN. A part of it is capitalized.

Representative WOLVERTON. Then it means that between submitting the report of 1934 to Congress, and submitting the 1935 report to Congress, they changed the figures that they had submitted to Congress in 1934; is that right?

Mr. OWEN. Yes, sir; that is correct.

Representative WOLVERTON. I wanted to see if that were the case. Now, look at the accounts receivable.

Representative BARDEN. May I ask the witness a question. Have you discussed this with the auditor of the T. V. A. the T. V. A. auditor? Mr. OWEN. Sir?

Representative BARDEN. Have you discussed that with the T. V. A.

auditor?

Mr. OWEN. Yes, and I got a very detailed analysis of it.

Representative BARDEN. Did he explain to you his reasons for setting it up as it was?

Mr. OWEN. Yes, we made him give us the journal entries on it. In other words, they have five programs that they are supposed to divide their investments between, and there is difficulty in allocating it, for instance, to navigation-that is a sort of intangible division there, as between flood control and national defense, so they have a method of allocating it to these different programs, and we got the journal entries in 1935, and the explanations of those items, and it included some of these inventories that were applicable to these five divisions. Representative BARDEN. Did he give you that in the form of a statement or did you request it in the form of a statement?

Mr. OWEN. We requested it in the form of journal entries.

Representative BARDEN. And in dealing with this problem, it appears from your statement that the principal differences are in the different system of allocating the funds and carrying them on the books rather than the evaporation of funds?

Mr. OWEN. Yes. Their books carry definite assets like plant and equipment and fertilizer, and different items that are identified as such, whereas in the accounts they say it is divided up against navigation, and flood control, and so on.

Representative BARDEN. And whether we or anyone else other than their auditing section understands it or not, there is a record of every transaction and of the transfer of these funds.

Mr. OWEN. Yes.

Representative BARDEN. Set out in detail in their journal in their books and other records?

Mr. OWEN. I would like to say that those entries are made on their working papers, and this report here will not

Representative WOLVERTON (interrupting). What report are you referring to?

Mr. ŎWEN. The 1935 report.

Representative WOLVERTON. To Congress?

Mr. OWEN. Yes. It does not reflect what is on the general ledger account. For instance, the general ledger account is set up in an ordinary way like any general ledger, and has no item of navigation on it. They have the different projects that they are building on the general ledger, and later, in order to convert the items on the general ledger in terms of what is called for by Congress, this division between flood control and navigation and national defense and so on, there is later an allocation made for the purpose of this report to Congress, and that was the question that is involved here, that some of the inventories were assigned to various activities.

Representative WOLVERTON. May I call your attention, however, to this fact: The figures that I am giving you are not figures that have been allocated to power or to navigation, or to flood control, I am giving you total figures, which would include and it would seem to me ought to be the same whether you give it to one or give it to another. The final total ought to be the same, and I have pointed out that according to the reports submitted by T. V. A. to Congress in 1934, the total inventories were given as $521,034.13, and the T. V. A. report of 1935 that was submitted to Congress, they state under the Column "1934", for comparative purposes, that it was only $450,713, and what I can't understand regardless of allocation, is how totals could be different in one report, and where they profess to give you the comparative table they don't use the same figures, they use different figures as to totals. That is what I can't understand.

Mr. OWEN. The answer to that is this: There are several classes of adjustments that they are making almost continuously, and we had some difficulty with that ourselves because, for instance, malaria control and idle plant expense, which are rather borderline cases, are first capitalized and then charged to expense, and that throws the account out when it is charged to expense 1 year, and capitalized the next.

Representative WOLVERTON. I would assume that in any bookkeeping system there would be a closing date of the books, and in this case it is June 30, 1934. On the basis of that closing of the books, they report to Congress in December of that year, that there was $521,034.13 as a total inventory, and the following year they give the figure as $450,713.27. It would seem to me that if the books be closed in 1934, that enabled them to report that $521,000 it would be $521,000 in 1935.

Mr. BIDDLE. Did I understand your answer to that

Representative WOLVERTON (interrupting). Let him answer the

question.

Mr. OWEN. Your theory there is correct, that the inventory should be the same inventory in both reports, but the answer is that what they were doing now, in this particular case, they did assign a part of that inventory in 1935 to some of these activities, but there are cases where they keep on adjusting, and not only is it different in 1934, 1935,

1936, and 1937 and 1938, but other accounts vary on account of these numerous adjustments.

Representative WOLVERTON. I know that to be a fact, but I am not in my examination of you at this time, not going to go beyond the 1935 report, because I haven't had the opportunity to look into the others, to the extent that I have this, and you haven't those figures before you.

If we had your 1935 report and your 1936 and 1937 and 1938 reports, then I could do with respect to them the same that I am doing with respect to this 1934 report.

Mr. BIDDLE. Do I understand what you had started to say, which you thought would somewhat explain this, as I understand it, would be that an item which might have been charged in 1934 to operating expenses, such as "Malaria control", might be reflected the next year in a capital expense, or distributed over a period of years which would therefore necessarily change the item?

Mr. OWEN. That is true.

Mr. BIDDLE. That is true, and the main difficulty here springsor the difficulty of allocation springs-from allocation, that is an exceedingly hard thing to allocate, these joint costs?

Mr. OWEN. Yes; we had trouble in following these items, and we took the matter up with the T. V. A., and raised a racket about it, because it is true that they don't close their books, their books are never closed, they are open all of the time.

Representative WOLVERTON. I heard someone state that the T. V. A. might be taken for "Tain't very accurate."

Mr. BIDDLE. Would it be safe to say that as soon as a permanent allocation has been made, such as has been made with respect to three dams, that that difficulty would to a large degree disappear or should to a large extent disappear?

Mr. ÖWEN. It should, yes.

Representative BARDEN. May I ask the witness a question, Mr. Chairman?

Representative WOLVERTON. Yes, sir.

Representative BARDEN. Thank you, sir.

Representative WOLVERTON. Go ahead, you are entitled to ask questions.

Representative BARDEN. Are you through?

Representative WOLVERTON. I am not through. I am waiting for you to go ahead, before I go on.

Representative BARDEN. Are you through long enough for me to ask a question?

Representative WOLVERTON. Go ahead. You are entitled to ask questions.

Representative BARDEN. In discussing the $26,000,000 item some time ago, a few minutes ago, at which time I asked if this was taken up in the hearings before the Appropriations Committee, I find here on page 270 of the second deficiency appropriation bill hearings in 1935, the following. This is the remark by the chairman of the Appropriations Committee:

The CHAIRMAN. Can you give us the balance on hand now?

Mr. ARTHUR E. MORGAN. Yes, sir. Mr. Ager is our Budget Director, and he will explain it.

Mr. AGER. We received $75,000,000 in appropriations. We have expended and obligated to April 30, $48,400,000. Unobligated as of that date, $26,600,000. Obligations outstanding as of that date, approximately $7,000,000. Making a a cash balance of $33,600,000 as of April 30.

Now, that is the type of explanation that I was talking about.
Mr. TULLOSS. Is that April 30, 1934?

Representative BARDEN. I presume so, that bothered me a little here, in view of the fact that this is a 1935 second deficiency appropriation bill.

Mr. TULLOSS. I think that that is intended for 1935, but probably I should withdraw that answer, and say I do not know.

Representative BARDEN. Do these figures coincide with the reports of April 30, 1934 or 1935?

Mr. TULLOss. 1935.

Representative BARDEN. They do?

Mr. TULLOSs. Yes, sir.

Representative BARDEN. That is all. I don't care to ask any further questions, Mr. Chairman.

Chairman DONAHEY. You may proceed.

Representative WOLVERTON. What were the figures, that $33,000,000 that you read?

Representative BARDEN. I read a lot of them. Now, which one do you want?

Representative WOLVERTON. The $33,000,000 figure.

Representative BARDEN. Cash balance, $33,600,000, as of April 30. Representative WOLVERTON. Do you know whether that is a correct balance, in view of the fact that according to the 1935 report, page 63, it would indicate that it was $37,724,000?

Mr. MATCHETT. The $33,000,000 is a balance at a certain date during the fiscal year 1935, and the $37,000,000 referred heretofore, is the balance at the end of the fiscal year 1934, a difference of 9 months. Representative WOLVERTON. So that it may be that they picked up some cash in the meantime?

Mr. MATCHETT. $25,000,000 appropriation was made available the following fiscal year.

Representative WOLVERTON. And in no case, from the reports that I call to your attention, do the figures that have been read into the record of this hearing, show as having been presented to Congress in the report of the T. V. A.

Mr. MATCHETT. The figures here were given as of April, I believe, 1935, the reports that we use are at the end of their fiscal year.

AMOUNT OF ACCOUNTS RECEIVABLE

Representative WOLVERTON. Now, we will turn our attention to accounts receivable. In the General Accounting Office report, did you find from the books of the T. V. A. what was the amount of the accounts receivable?

Mr. MATCHETT. From the books of the T. V. A., at that time, approximately $150,000, which was adjusted by the General Accounting Office to equal approximately $235,000, by reason of approximately $50,000 being due from the Alabama Power Co., and another