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Mr. Biddle. I note then for the fiscal year 1934 that 2,259 exceptions were taken, amounting, as already appears in the record, to $2,013,326.51, and that of those there have been recommended for removal by your field auditors, 1,988 exceptions, totaling $1,931,864.10, leaving as continuing exceptions on which no recommendation has been made, 271 exceptions, totaling $81,462.41, wbich I recollect was the figure that was suggested yesterday; and that for the fiscal year 1935, that of course is the year ending on June 30, 1935, there were 7,325 originally taken, totaling $2,782,759.76, and that of these 5,886 were recommended for removal, in a total amount of $2,180,610.40, still leaving continuing 1,439 exceptions, totaling $602,149.36. You will stop me if I am not summarizing this correctly.

Mr. Tulloss. Yes, sir.
Mr. BIDDLE. I want to get it in the record.
Mr. Tulloss. Yes, sir.

Mr. BIDDLE. And I note that in 1936, or for the year ending June 30, 1936, there were 5,845 exceptions taken in the amount of $10,586,274.93, of which 4,221 were recommended for withdrawal or removal, in the amount of $6,547,849.11, leaving continuing 1,624, totaling $4,038,425.82.

For 1937, there were 2,044 exceptions taken, in the amount of $3,147,873.11, of which 1,095 were recommended for removal in the amount of $1,919,940.78, leaving 949, totaling $1,227,932.33, continuing

That in 1938, which I note is incomplete, 418 exceptions were originally taken in the amount of $261,675.69; that of these 73 have been recommended for removal in the amount of $54,117.78, leaving 345 exceptions in the total amount of $207,557.91.

Is that 1938 figure covering a period of 1938, or does it simply indicate that 1938 as a year has not yet been fully covered?

Mr. Tulloss. It has not yet been fully covered. This is as of June 15, 1938.

Mr. BIDDLE. Are all of the exceptions for transactions up to June 15, 1938, for that year, noted? Does that cover all of the exceptions taken?

Mr. Tulloss. To the extent that the auditors have recommended exceptions.

Mr. BIDDLE. Yes. You mean additional exceptions for transactions for the year ending June 30, prior to June 15, 1938, might be added to that figure?

Mr. TULLOSS. Yes, sir.

Mr. BIDDLE. So then you have a total of 17,891 exceptions taken for the period, the total period up to June 15, 1938, that year not having been completed, for a total amount of $18,791,910, and of those 17,891 exceptions, 13,263 have been recommended for removal by your field auditors in the total amount of $12,634,382.17, leaving not recommended for removal, continued, 4,628 exceptions, which total an amount $6,157,527.83. Is that correct, my summary of the figures, is that correct? Mr. Tulloss. Yes, sir.

Mr. BIDDLE. Now, I understand that those are substantially exceptions covering the total period, and that the Washington office

like it now.

has not acted on any of those exceptions which are marked recommended for removal, as you, I think, explained yesterday.

Mr. Tulloss. It may have acted on some, but I have no figures on that, and the action that has been taken is still tentative, so I would

say that no final action has been taken. Mr. BIDDLE. I didn't think of a tentative action as being action. I meant in the sense of cleaning the thing off of the books, so I think it would be fair to state, wouldn't it, that no final action has been taken with respect to the ultimate removal of those exceptions which I have summarized, of which removal has been recommended by your field auditors? Mr. Tulloss. That is correct. Representative WOLVERTON. Do you have a copy of that summary? Mr. BIDDLE. This was handed to me by the witness, and I will hand it up to you.

Representative WOLVERTON. Is that the only one?
Mr. BIDDLE. Yes; it was just brought in this morning.
Representative WOLVERTON. May we have it copied?
Mr. Biddle. I will have it copied and distributed, but would you

Mr. Tulloss. I was unable to have it copied this morning before coming over. Mr. BIDDLE. I will send it down and have it copied right now in

office. Representative WOLVERTON. I regret, Mr. Chairman, that there are only three members of the committee present this morning, as I expect to make inquiry as to what I think are some of the important things or features of this examination of the General Accounting Office. However, I assume you desire to proceed.

Chairman DONAHEY. I can only say, Mr. Wolverton, that they all know of the meeting of this committee this morning, and unless you desire to not continueRepresentative WOLVERTON. No; I won't raise that question. Chairman Donaher. If you don't desire to continue-

Representative WOLVERTON. No; I won't raise that question, if it is your desire to proceed. Chairman Donahey. I am not asking you to proceed. You may

feel that you want to. Representative WOLVERTON. It is just unfortunate that they are not present to hear what the views of the General Accounting Office may be on this matter, or two or three matters that I think are of extreme importance, concerning which they might want to make some recommendation, or give some consideration to it at any rate. But I will go ahead, and maybe they will come in. Chairman DONAHEY. They may come in soon. Representative WOLVERTON. Yes. Chairman DONAHEY. You may proceed.

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COST-PLUS CONTRACTS

Representative WOLVERTON. Has your General Accounting Office had occasion to take exception to tħe granting of contracts by the T. V. A. on a cost-plus basis?

Mr. Tulloss. I believe there are items of that character in the report.

Representative WOLVERTON. I am handicapped in ascertaining by my own investigation as to whether the criticism that was made in the 1934 report with respect to cost-plus contracts being contrary to the law applies also to 1935, 1936, 1937, and 1938. In other words, can you tell me whether the criticism which you made in 1934 with respect to cost-plus contracts continues, or has there been some change of attitude on the part of the T. V. A. in those matters?

Mr. Tulloss. I understand that it continues, and that there is at least one other since then, one other such contract.

Representative WOLVERTON. Well, when you say one other, do you mean that there has only been one instance?

Mr. Tulloss. I only know of one just at this time. There may be others.

Representative WOLVERTON. Oh, you mean that you can only think of one at the present time?

Mr. Tulloss. It is known as the Monsanto contract, Monsanto Chemical Co.

Representative WOLVERTON. When was that entered into?
Mr. Tulloss. About May 1937.

Representative WOLVERTON. Is that contract similar to the one which was previously entered into with the Monsanto Chemical Co. that drew some criticism from your department because it was based upon a renting of equipment by the T. V. A. and the payment of a cost-plus amount for the operation of the T. V. A. equipment by the Monsanto Co.

Mr. MATCHETT. That provision is contained in the contract which you have reference to. I am not informed as to what information has been prepared on that subject.

Representative WOLVERTON. What I am endeavoring to find out is whether the criticism you now speak of in respect to the Monsanto Co. is similar in character to that criticism which you have previously made with respect to the contract between T. V. A. and Monsanto Chemical Co. at a prior date?

Mr. Tulloss. Do I understand that you wish us to say whether or not the criticisms directed, say, to the Stone & Webster contract

Representative WOLVERTON. Yes.
Mr. Tulloss (continuing). Are similar to those
Representative WOLVERTON. Yes.
Mr. Tulloss (continuing). Directed to the Monsanto contract

Representative WOLVERTON. I have in mind the Stone & Webster contract, where a contract was entered into between T. V. A. and Stone & Webster for supervision of the construction of a portion of the fertilizer plant at a price not to exceed $615,000 for which their services were to be 8 percent, not exceeding $48,000, and in the final analysis their compensation reached $83,000 or $84,000, instead of $48,000. And the General Accounting office criticized that type of contract I think, pointing out that there are statutes that prohibit such contracts, and also pointing out the inadvisability of the Government entering into contracts where the ultimate indebtedness is not fixed.

Mr. TULLOSS. I think that is correct. The statutes referred to, however, were pointed to as indicative of the view of Congress on the subject, rather than as making such a contract illegal in this particular case.

Representative WOLVERTON. Well, I don't want to take time discussing a matter that has been corrected, if such is the case. But in reading your 1934 report, I was impressed with the ciritcism that had been made with respect to cost-plus contracts. What I am interested in knowing is whether as a result of that criticism the practice stopped, or whether it continues up to the present time?

Mr. Tulloss. The only other instance that I am able to refer to is the Monsanto Chemical Co. contract, made in May 1937, I believe. So there was one other instance.

Representative WOLVERTON. Have you criticized the 1937 contract that you now refer to?

Mr. Tulloss. I think my auditors have. I have not seen the report.

Representative WOLVERTON. Of course no report having as yet been prepared for 1937 there has not been opportunity then to formally present your exceptions to the T. V. A. and get their reaction?

Mr. TULLOSS. That is correct, sir. Representative WOLVERTON. In the work that has been done by your auditor, in cases such as we are now speaking of, is it his duty upon finding such a condition to immediately take it up with the T. V. A. and ask for an explanation, or does he merely make a report of it, and subsequently when the report is made by the General Accounting Office an exception is ca'led for?

Mr. TULLOSS. That is left to the discretion of the auditor. If the matter is noted in the field, they may take it up with the officials of the T. V. A. If the exception is noted in Washington, advice of that exception is given T. V. A. in writing.

Representative WOLVERTON. The reason I am asking is to ascertain what is the present attitude of T. V. A. with respect to cost-plus contracts; do they deny the right of the General Accounting Office to criticize cost-plus contracts, or have they accepted the viewpoint that was expressed by the General Accounting Office in its report of 1934, and govern themselves accordingly, or do they pursue their own course with respect to it?

Mr. TULLOSS. I do not know. Judging from the fact that another contract was made, I assume that they feel that they have the right to continue to make such contracts.

PREAUDITING METHODS OF ACCOUNTING OFFICE

Representative WOLVERTON. Now, with respect to this reference which is frequently made to a preaudit; do I understand that the General Accounting Office seeks to establish a preaudit with respect to the T. V. A.?

Mr. Tulloss. I don't believe that we thought that. My recollection is from the correspondence that someone suggested it. There was some correspondence on it, and just who started it I don't recall. Representative WOLVERTON. What is the character of audit conducted by the General Accounting Office? Can it be termed a preaudit, or do you seek a preaudit or not?

Mr. Tulloss. Our audit at present is a post-audit, that is audit after payment.

We feel that there are many advantages in a pre-audit, in that it is less expensive. However, we have not as a rule insisted upon a preaudit.

Representative WOLVERTON. Do you have a system of preaudit in other departments?

Mr. Tulloss. Only as to particular classes of items.

Representative WOLVERTON. I was under the impression that such probably existed. I gained that thought from the case that was related by Mr. Barden, in which he set forth the difficulties he had in obtaining payment of a claim.

He rather inferred that it was due to an objection that had been made by the General Accounting Office. That would seem to indicate a preaudit, if moneys could not be paid out because of an objection that your office had made.

Now, it is because of that illustration that I am asking whether you do have a preaudit in effect in any of the departments.

Mr. Tulloss. We have what might be termed a preaudit as to certain classes of items, particularly where they involve doubtful claims.

Under general regulations 50 of the Comptroller General, all doubtful claims should come to the General Accounting Office for settlement, and that might be termed a preaudit. We do not call it a preaudit. We call it a "claim settlement," but really there is no difference between that and the preaudit.

Representative WOLVERTON. Well, then, so far as the T. V. A. is concerned, there is no holding up of the conduct of business by them as a result of your demand that financial expenditures shall be first submitted to your office, and obtain your approval?

Mr. Tulloss. Absolutely none.

Representative WOLVERTON. The audit at the present time consists, as you have stated, in a post-audit of transactions that have already taken place, and expenditures made in connection with them. Mr. TULLOSS. After payment; yes, sir.

Representative Wolverton. I note from the statement that was read into the record this morning by Mr. Biddle with your acquiescence that there have been originally some $18,000,000 worth of objections or exceptions to items of expenditure of your office by the T. V. A. since its inauguration, and that some $12,000,000 of those exceptions have been removed upon further evidence coming to your attention. That would indicate to me that in a considerable number of the cases that it is largely a question of lack of information on the part of the General Accounting Office that causes exceptions to be made.

Mr. TULLOSS. I think that is true.

Representative WOLVERTON. Now, in some instance-in fact the amount of approximately $6,000,000——those exceptions still remain.

Mr. Tulloss. Yes, sir.

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