Mr. BIDDLE. The point of the question is that this was really-in major, the criticism of an administrative method of handling auto mobiles on dam-construction jobs by T. V. A.; it wasn't exceptions as an auditor, taken to an item of expense, was it?

Mr. TULLOSS. I would say that, in main, it was a matter of policy. Representative WOLVERTON. It certainly wasn't any suggestion in your criticism that they had to take a competitive bid every time that they wanted one car. You didn't have any such ridiculous idea

in your mind as that?

Mr. TULLOSS. No, sir.

Mr. BIDDLE. I wouldn't think so. It could be competitive bidding without that kind of a situation.

Representative BARDEN. Was there any evidence of any collusion. between the T. V. A. and this concern that rented these cars?

Mr. TULLOSS. We did not find any, that I know of.

Representative BARDEN. Was there any evidence of permitting overcharges? In other words, was this carried on in a business-like manner, even though it may have been administratively wrong-was it carried on honestly?

Mr. TULLOSS. I think that it was.

Representative BARDEN. Well, that is the point.

EXTENT OF EXAMINATION OF AUTHORITY TRANSACTIONS

Representative WOLVERTON. While we are on that subject, there is something similar, in effect, in that question, to the one asked by Mr. Thomason yesterday, of the general character. I want to ask this:

In making your audits, do your auditors look behind the transaction to see if (1) there is possible collusion between the bidders on the T. V. A. contracts and employees of T. V. A. or any other Federal employee or officer; and if you do this, what steps have you taken in this respect in reference to T. V. A.?

Mr. TULLOSS. Is that statement taken from the report?

Representative WOLVERTON. No; that is a question that I am asking you.

Mr. TULLOSS. I beg your pardon.

Representative WOLVERTON. Would you like me to repeat it?

Mr. TULLOSS. I think that I understood you; thank you. We sometimes do investigate behind the scene, so to speak, to see if there is anything wrong, and in fact we do it quite frequently, but we only do it where we have reasons to suspect that there is something wrong. I do not recall that in these cases that we did anything of that kind. Representative WOLVERTON. I have in mind one special report made by you which has come to the attention of the committee, in which you brought to the attention of the committee the facts in the case and stated that your facilities did not enable you to pursue it further, and for that reason the committee took action on its own initiative for further investigation.

Now, is that the situation that you are now giving to us, that you looked behind the scenes or you can't look behind the scenes?

Mr. TULLOSS. In that case we did look behind the scenes, but at the point where our investigation stopped we had not established any fraud or anything that involved culpability, or we could not show anything involving the culpability of anyone dealing in the transaction.

Representative WOLVERTON. You reported that there was evidence of it but that your facilities did not permit you to-enable you to-go further into the matter.

Mr. TULLOSS. I don't remember just what that report stated, but my present recollection is that the nature of the transaction caused suspicion, and I don't think we intended to convey the idea that there was evidence that could be relied upon as challenging the legality of the transaction.

Representative WOLVERTON. Let me ask you this question: Where the lowest bid was not accepted, would your auditors take steps to determine if the bid or specifications were so drawn up as to be misleading, tricky, unbalanced as to quantity, or for any other possible intentional defect that would result in giving the successful bidder an improper advantage over other bidders at the expense of T. V. A.? Mr. TULLOSs. We would examine the terms of the contract and specifications with that in mind.

Representative WOLVERTON. Would you go behind the documents presented to you in the matter and make an investigation of your own among the bidders to ascertain whether the lowest bid had been not accepted on any of the theories that I have suggested in that question? Mr. TULLOSS. If we had grounds to suspect that something of that kind may have taken place, we would make such an investigation. Representative WOLVERTON. Have your auditors made any effort to determine if T. V. A. received the quantity as well as the quality of goods or services called for in the contracts?

Mr. TULLOSS. Yes, sir.

Representative WOLVERTON. In all cases?

Mr. TULLOSS. I think that we did it in all cases, but to the extent the audit is made in Washington we have not questioned the certificate of the proper authority unless the matter was referred to our field party.

Representative WOLVERTON. That is what I wanted to get at, whether you took the certificate of a proper official of the T. V. A., whomever that might happen to be, high or low, as evidence that the quantity and quality was what was required under the terms of the contract, and without your making any independent investigation. Mr. TULLOSS. We generally accept the certificate.

Mr. BIDDLE. Don't you also spot check inventories in the field and check inventories and supplies in the field?

Mr. TULLOSss. Yes.

Mr. BIDDLE. In addition to taking the certificates?

Mr. TULLOSs. Yes.

Representative WOLVERTON. You say that you did so in some instances. Were those cases of magnitude, or were they small, trifling character?

Mr. TULLOSS. It was generally done by classes; that is, we would make some spot check as to every possible class but not every transaction under the class.

Representative WOLVERTON. Would you feel that under such an examination that you made, aside from a certificate that was given to you by T. V. A. officials, that you would be prepared to say that all goods measured up both as to quantity and quality with requirements of the contract?

Mr. TULLOSS. No, sir; I could not say that.

Representative WOLVERTON. That is what I thought. Does the General Accounting Office consider it a part of their duties in making an audit to ascertain by independent investigation whether any employees or other persons in or out of the Government service have improperly made any profit as a result of any contract or otherwise?

Mr. TULLOSs. We watch for that, but there is no actual investigation unless we have some reason to suspect some particular individual; we haven't felt it necessary to investigate a whole force, for instance, to see whether any one individul may be doing that. We would have to have some lead to work on.

Representative WOLVERTON. I think that that is what would be expected. I can't imagine that the General Accounting Office would be required to go out and make an investigation back of the audit to determine whether there had been any improper profits derived, and it is for that reason that I am wondering to what extent as a result of audits made that you could give a clean bill of health.

Mr. TULLOss. Well, we haven't-as I said before we haven't found any evidence of fraud; and in fact, I don't know that we have had many instances where we have suspected fraud.

Representative WOLVERTON. But there has been nothing in these cases, for instance, using that as an illustration-and I don't wish to infer that it has any reference to the instances that I spoke of yesterday in my examination, because they were merely taken as illustrative as to letting of contracts to other than the lowest bidder-but there were approximately 200 pages in this report of instances where the General Accounting Office had made exceptions to certain accounts. Now, it certainly dosen't seem from your testimony now that you went behind the audit to ascertain whether in that type of cases, where there has been no competitive bidding, and if it has been it has not been let to the lowest contractor, to determine whether there was any collusion on the part of any individual.

Mr. TULLOSS. No, sir; I do not believe that we investigatedpossibly none of those cases; I don't know that we investigated any. Representative WOLVERTON. Don't have any misunderstanding on the basis of my questions that I have had in the back of my mind any instances where it has happened. I am merely asking as a general question how far your investigation would entitle you to give a clean bill of health on the character of all officials inside and outside of the T. V. A. by saying that in all of those transactions there was no evidence of fraud when you didn't look for it.

Mr. TULLOSS. I meant by my answer this-that we approach this from a different angle. If I am to say that there was fraud, I must show the fraud, and I must show evidence of it, and I am unable to do that.

Representative WOLVERTON. That is just exactly what I understood to be your position. You could not testify any further than what was actually before you as an auditor, so that if there was anything wrong in any of those instances, or in any of the business transactions of the T. V. A. over a period of 5 years, the General

Accounting Office has no facilities for making an investigation to ascertain that fact.

Mr. TULLOSS. We make investigations, but so far as I know we had no occasion to investigate any of these particular cases, with the one exception that was mentioned awhile ago.

Representative WOLVERTON. That wasn't the only exception that I mentioned yesterday, of phosphate; there was one instance, if I remember correctly, where it was stated that there had been 500,000 tons of phosphate represented to be in a particular property, and when it was measured it was only found to be a third or quarter of that. That might not have been fraud, it might not have been anything criminally wrong, and it may have been a matter of bad judgment, poor judgment; but even if it is the latter situation, it develops a loss to the T. V. A. Now, in that case, for instance, were there any inquiries made beyond the mere statement of the facts that you have set forth in one of your reports?

Mr. TULLOSS. I think that I see your point now. We would not have the facilities to ascertain the phosphate in that land, and to that extent I will modify my answer, because we have no scientists who can determine those things for us. We would have to go on the record.

Representative WOLVERTON. Well, that is what I had in mind.

Mr. BIDDLE. That would need technical scientists to investigate the phosphate purchases, I suppose, would it not?

Mr. TULLOSs. I think so.

Mr. BIDDLE. I think so, too.

Representative WOLVERTON. Now, will you turn to page 374?

Mr. BIDDLE. Before you come to that, may I continue with this question on the audit because I want to be clear also on what you do. In addition to the usual commercial audit of a commercial firm, you investigate any items for which you have any grounds of suspicion or to which your attention is called by a rejected bidder or otherwise, you spot check inventories, you go into the policy and methods of purchasing, of advertising, and other matters connected with your general investigation, so that truly yours is not merely an audit, but a thorough investigation of the transactions of the T. V. A., is it not? Mr. TULLOSS. Not a thorough investigation.

Mr. BIDDLE. Well, an investigation.

Mr. TULLOSS. But we investigate to the extent that the particular transaction and the record seems to warrant.

Mr. BIDDLE. More completely than any audit system of which you know?

Mr. TULLOSS. I think so, yes, sir.

Mr. BIDDLE. I think so, too.

Mr. TULLOSS. Yes, sir.

Senator SCHWARTZ. Could you tell me approximately how many vouchers the Accounting Office passes on yearly in all departments that come under your observation?

Mr. TULLOSS. No, sir; I could not give you that information

offhand. I can obtain it.

Senator SCHWARTZ. I just want your estimate. I am not confining myself to the T. V. A., but the entire scope of your work.

Mr. TULLOSS. This report is broken down by divisions, and the material is not in any one place. These transactions run into the millions.

Senator SCHWARTZ. That's what I thought.

Mr. TULLOSS. I would have to take time to bring them together to show the total for the whole office. For example our post-office audit is separate from the general audit. We have shown different classes of vouchers that have been handled, but I do not find a statement as to just how many the total amounted to. Chairman DONAHEY. Proceed with the witness.

CANCELATION OF ICE PLANT LEASE

Representative WOLVERTON. Now, turning your attention to page 374, under the caption "Cancelation of O'Kain Lease on Ice Plant"a reading of that indicates that the T. V. A. entered into a contract with A. H. O'Kain of Nashville, Tenn., by which the Authority agreed to rent its ice plant for a sum of money equivalent to a dollar and a quarter for each ton of ice manufactured, payable monthly. The minimum rental, yearly rental, was fixed at $10,000, provided this figure did not exceed a dollar and a quarter per ton for the maximum production, and so forth.

Now, that contract, according to your statement of it, had been entered into by the T. V. A. authorities with Mr. O'Kain, and that subsequently the ice dealers of that locality, Muscle Shoals or Sheffield, made a serious objection to the contract, because it interfered with their business, as a result of which they raised a fund of $1,500 to enable the T. V. A. to buy off Mr. O'Kain, to whom the contract had already been given.

In

Now, what answer has been made with respect to that item? other words, with a contract entered into that was to net the T. V. A. $10,000 a year, a minimum of that amount, it was abrogated, and the person who held the contract was bought off by funds that had been produced by competing icemen of that territory.

Mr. TULLOSS. On page 325 of the reply of the Tennessee Valley Authority, the following appears:

This is another instance where a matter is discussed at considerable length in the report on pages 374 to 377 in a critical manner without any clear indication of the reason for including such discussion in the audit, or of the grounds for criticism. It appears that this matter involves merely a question of policy and administration and presents no question of legality or accounting practice. Nevertheless, since it is included in the report, we deem it proper to set forth a brief statement of the facts.

In the summer of 1933, before it had become possible to coordinate all of the activities of the Authority with the policies and activities of other Federal agencies, the Authority entered into an agreement to lease the ice plant in question to Mr. O'Kain.

Almost immediately and before the formal lease was executed, serious objection was interposed by the code authorities in Washington, due to the fact that the local ice manufacturers already in the field felt that the Authority by encouraging a competitor of this size to enter the field would destroy their business.

It also developed that Dr. H. A. Morgan, who had taken charge of the fertilizer program, was of the opinion that this lease might seriously interfere with the operation of the Muscle Shoals fertilizer plant.

The Authority had committed itself to such an extent that it had become the direct cause of O'Kain incurring certain expenses in preparing to carry out his part