will take the number of phones, and divide that back, that is a service charge for the overhead, and they will get all of the service departments, and transportation, and it may be charged direct, and yet it may go to some administrative function, and they will get all direct charges that they can in the general overhead, and then 10 percent of that.

Mr. BIDDLE. That is perfectly clear, but what I mean-certainly it was testified to with respect to the legal department by Mr. Fly-that very careful studies on time sheets were made in order to determine the amount of time spent by the legal department on power. Did you see the time sheets and did you study them?

Mr. MATCHETT. No. The fact remains that the general overhead was distributed on a flat basis.

Mr. BIDDLE. Certainly. That is perfectly clear.

Representative WOLVERTON. It wasn't distributed on any time basis; it was on the basis of expense in that department, pay-roll expense, wasn't it?

Mr. MATCHETT. That is right.

Representative WOLVERTON. No-I beg your pardon.

Mr. MATCHETT. If a dam had a million dollars expense it had $100,000 overhead, and so on, whereas the distribution should have more nearly been reversed.

Representative WOLVERTON. By this system, then, it would seem to me that there had been a lower amount charged to electricity than there was to construction, because the pay roll was less for production of electrical energy than the pay roll for construction purposes, is that right?

Mr. MATCHETT. That is right.

Representative WOLVERTON. And yet as a matter of fact, the overhead expense was in a much larger proportion used in the electrical energy department than it was in the construction department.

Mr. MATCHETT. That is the expense of certain departments, for instance, the legal division, and probably the Board of Directors. Representative WOLVERTON. Well, the lower the amount that you charged to electricity, the lower would be the operating cost, and the lower the operating cost, the lower you could make the rate, is that right?

Mr. MATCHETT. That is true.

Representative WOLVERTON. Is that a correct analysis?

Mr. MATCHETT. That is true, if the rates are based on cost. Representative WOLVERTON That is a very fine construction there, if the rates are based on cost, but I am assuming that at least the T. V. A. will sooner or later present to this committee evidence that will endeavor to substantiate that fact. I am waiting for them to do so. But, however, the amount that is charged to operating costs is supposed to be reflected in the rate?

Mr. MATCHETT. Yes, sir.

Representative WOLVERTON. And by this means, by which a proportionately low part of the overhead is charged to the electric department, it makes it possible to substantiate lower rates based on operating costs.

Mr. MATCHETT. Yes, sir.

Mr. BIDDLE. Before you leave that item, now, just to clarify myself on this, these operating charges that you were speaking of are, of course, largely construction costs, is that right?

Mr. MATCHETT. What operating charges do you have in mind? Mr. BIDDLE. The operating charges during the construction period. Were you including those with those operating costs that were not chargeable against construction?

Mr. MATCHETT. We have been speaking of the administrative expense proration, is that what you still have in mind?

Mr. BIDDLE. It is. Part of the administration expense was a construction cost, was it not? Don't you allow any administration overhead for construction capital cost?

Mr. MATCHETT. Part of that is distributed to construction activities.

Mr. BIDDLE. A large part of what you have been speaking about? Mr. MATCHETT. Right.

Mr. BIDDLE. That is why I said that I presumed that you had been speaking mainly of that. Then, when the allocation was later made, the entire construction cost included that part of the maintenance charged against construction and, considering that, part of the administration expense was allocated in the allocation study, was it

not?

Mr. MATCHETT. I don't follow you on that. Would you mind repeating that?

Mr. BIDDLE. When the allocation was made between the three dams?

Mr. MATCHETT. That was made.

Mr. BIDDLE. I am not asking you that. I said, when it was made, the costs of the dams, including that portion of the administration overhead, a large part, as you just said, was properly chargeable against construction, was then allocated after this very long, careful study between the three things-power, navigation, and flood control-is that correct?

Mr. MATCHETT. Yes, it was allocated on the basis of capital assets but not the cost of operations.

Mr. BIDDLE. Well, I am speaking of that portion of maintenance during the construction period, which should be allocated against capital cost, and I am only speaking of that. You said that that was a large part of the cost, administrative cost.

Mr. MATCHETT. There is a difference between maintenance and administrative costs.

Mr. BIDDLE. Well, I am speaking of the administrative costs, allocable to the construction period, and that was reflected in the total costs in which the final or with which the final allocation report dealt, was it not?

Mr. MATCHETT. Yes.

Mr. BIDDLE. I didn't mean to interrupt you, but occasionally when you are through with an item

Representative WOLVERTON. What we want is the facts. If we can get it more quickly by following my lead, I would be glad to have it done that way. What I am interested in is getting a true picture so that

we can determine whether there is a real yardstick down there. That is all that I am interested in.

Now, carrying your attention again to page 85, I note this comment:

In many cases supplies and materials were charged direct to construction cost as purchased and no credit was allowed for portions unused. This practice indicate that construction costs to date are overstated.

Have you any idea as to what amount of materials were unused, that should not have been charged to cost of construction?

Mr. MATCHETT. It would not exceed many thousand dollars, a small sum, relatively speaking.

Mr. BIDDLE. How many?

Mr. MATCHETT. Several thousand. Not much compared to their total disbursements.

Representative WOLVERTON. So that your objection there is very largely to the principle, rather than the amount?

Mr. MATCHETT. That is true.

Representative WOLVERTON. The amount is not substantial, in other words.

Mr. MATCHETT. Not when compared to total disbursements. Representative WOLVERTON. Since bringing that to the attention of the T. V. A., has there been any change in that practice? Mr. MATCHETT. Yes, it has been corrected.

Representative WOLVERTON. At the present time, then, they are observing the practice that you have indicated is the proper one?

Mr. MATCHETT. That is right. [To Mr. Owen] Has that been your experience?

Mr. OWEN. Yes, they have corrected that.

Mr. BIDDLE. When was the correction made?

Mr. MATCHETT. I don't remember.

Representative WOLVERTON. Are all of your suggestions met with? Mr. MATCHETT. Are all mine?

Representative WOLVERTON. I am speaking of the General Accounting Office.

Mr. MATCHETT. No.

Mr. BIDDLE. You drew this to their attention, and it was corrected almost immediately afterward, is that right?

Mr. MATCHETT. In this particular case, I would say that was corrected within a reasonable time.

Mr. BIDDLE. I am speaking of this and no other cases.
Mr. MATCHETT. Yes.

Representative WOLVERTON. If at any time I do mention a criticism of yours that has been corrected, whether quickly or otherwise, call it to my attention, because I am awfully glad that you made criticisms that had been corrected.

EXPENDITURES OF OTHER AGENCIES RE WORK DONE IN CONNECTION WITH AUTHORITY

Now, on page 88, on that page, you seem to criticize the T. V. A. accounting methods in that they fail to show the outside subsidies. For instance:

Although there is capitalized herein the value of services donated by the Civil Works Administration from data furnished the Authority, there have also been large expenditures for labor and other charges by other agencies such as the Civilian Conservation Corps, Federal Emergency Relief Administration, for road

work, soil erosion, and so forth, around Tennessee Valley Authority projects which apparently tend toward improvement, but as no report thereof is made to the Authority, the cost of such work performed by these other agencies has not been taken up on the books and therefore not reflected therein.

Does that situation still prevail?

Mr. TULLOSs. I understand that it does.

Mr. OWEN. Yes, sir.

Representative WOLVERTON. So that if any interested citizen endeavored to ascertain just how much Government money has gone. into the T. V. A., beyond the appropriations of Congress, it would be impossible for him to ascertain that fact from the books of T. V. A.?

Mr. TULLOSS. Yes, sir.

Representative WOLVERTON. Well, when the T. V. A. makes a balance sheet of assets and liabilities, doesn't it set up a value for properties that it holds?

Mr. OWEN. No, sir; not all the properties, only the amount that they spend money for themselves. For instance, they acquired certain plants and equipment from the War Department in 1933. The War Department's books show a cost of about $130,000,000 turned over to them.

Well, up until 1936, I believe, they had placed no valuation for any of those properties on the books.

Representative WOLVERTON. I think that you are mistaken. We learned yesterday that they put $51,000,000 on in 1933.

Mr. OWEN. To stay on. They left it on for a little over a year, and then wrote it off.

Well, we felt that they were reporting all of their income, and not all of their expenses; in other words, their operating expenses were understated; their operating profit was understated, I mean, by reason of the fact of reporting all of their income and only a part of their expenses. The part that was not reported was the depreciation on this hydroelectric plant, for instance, and the fertilizer plant, and the houses that they were renting, they received from the War Department, so that in order to put all expenses-to offset all of the income, we accepted for depreciation purposes this $51,000,000, to get a valuation for charging depreciation, in order to get the cost. Senator SCHWARTZ. May I ask the witness a question?

Getting back to the C. C. C. and other Federal activities, did you think as a matter of proper accounting and bookkeeping the T. V. A. should set up in its books expenses incurred by other departments of the United States which may go to the benefit of the T. V. A.?

Mr. OWEN. Yes; if they are going to spend money for a project, and some other department comes along and throws in money for the same project, that the accounts of either Government agency will not reflect the true status unless one or the other picks up the total cost of one project.

Mr. BIDDLE. So that according to you, I suppose those expenses for the C. C. C. boys planting trees, should have been reflected both in the books of T. V. Â. and the C. C. C.?

Mr. OWEN. Well, it depends on how they are keeping their books in each place, but if the T. V. A. is going to show a cost, and they spend

on an average of $6,000,000 a year, which they have stated in hearings before, and they are going to show a cost of power and cost of fertilizer, and cost of the activities and show it as such, as a cost, they should include all of the costs.

Mr. BIDDLE. Then the answer is yes, both organizations should have kept the expenses for planting trees, those

Mr. OWEN. They naturally would have to; they wouldn't necessarily make a duplication; one could state it is for the benefit of the other, and the other take it up.

Representative THOMASON. Do the books of the C. C. C. reflect the amount spent for T. V. A.?

Mr. OWEN. Oh, yes.

Representative THOMASON. The spending department will always reflect the amounts so that is easily ascertainable, isn't it?

Mr. OWEN. Yes; you could go to the C. C. C., I understand that they have their detailed records in the capitol of each State. That was some difficulty for us, getting the exact amount, inasmuch as we had other amounts that were definite to look after.

Mr. BIDDLE. I take it that the Geodetic Survey, when they were making plans there as they did for all over the country, should have had those costs reflected in the T. V. A. books as well; I don't mean the special studies made for T. V. A., I mean the general plannings which might indirectly have benefitted T. V. A. should be reflected in the T. V. A. books or would you draw any line between indirect benefit and direct benefit?

Mr. OWEN. I would try to draw a line, if they are going to operate down there and compete, there ought to be a line drawn between incidental, and something that contributes toward

Mr. BIDDLE. Just how would planting of trees contribute to a study of the competition, with the electric companies?

Mr. OWEN. They claim that they are planting trees and grass to stop the erosion, which fills up the dams and the reservoirs, using water to run the power.

Mr. BIDDLE. That is one of the direct charges you think that they should charge, then?

Mr. OWEN. Well, I wouldn't be technical about how direct it is.

Mr. BIDDLE. I was wondering where you should draw the line. I think it is very difficult, and I would have some difficulty from the point of view of bookkeeping which I thought was noting on a book a cash disbursement, and you now draw a line between direct and indirect benefit, and I was wondering how that would help a bookkeeper making a cash entry.

Mr. OWEN. A problem like that, I wouldn't think would be a bookkeeper's problem, to distribute items of that nature, but if you are going to spend money that can be traced into the power, it should be traced.

Mr. BIDDLE. In that connection, yesterday Mr. Tulloss gave a figure of $20,000,000, direct benefits to the T. V. A., and I was wondering where the figure was obtained from. Have you that?

Mr. TULLOSS. That was roughly the $6,000,000 a year that Mr. Owen just mentioned-not benefits, but expenditures.

Mr. BIDDLE. $6,000,000-where did it come from, the $6,000,000?