for the future under orders issued by the War Department without any adequate protection to the public interest.

I regret that on account of the action and the attitude of the War Department that I am compelled from a sense of public duty to do some very plain talking to this committee today. I shall accurately and I hope fairly, present to you some pretty sorry pictures, and I shall endeavor to convince you and impress upon you that in the national interest the War Department should be peremptorily stopped in what it is now proceeding to foist on the Congress and the Nation, and that Congress should forthwith pass legislation on the subject.

Although the Department came to you last June seeking legislation and has just recently presented you with a revised draft going much further than they originally proposed, I can't make myself believe that they desire any legislation on contract termination and that it would be very happy if you closed the matter now and did not consider it any more. I am led to believe this, because with the subject pending before your committee, the Department has issued these voluminous regulations and instructions to its contracting officers who are proceeding now to terminate contracts under same. At first, we were told they desired legislation because there was some doubt as to their authority to make termination loans, particularly as to contracts terminated after the war is over, but since then under date of August 28 by a release and a memorandum to all Federal Reserve banks they have already set in motion a program for termination loans which would be guaranteed by the War Department against appropriated funds without the sanction of the Congress. Untold billions of dollars are involved and the question is whether Congress is going to permit itself to be circumvented in directing how this program is to be carried out, and throwing around it all safeguards that would protect the public funds and at the same time prevent the bypassing of its own agency-the General Accounting Office-from making an independent audit and settlement of the staggering sums involved.

It has been asserted that the suggestion of participation by the General Accounting Office in these final settlements will amount to an encroachment upon the administrative field of action. If this is so, then most of the contents of the Budget and Accounting Act are equally such an encroachment. I cannot agree with this kind of thinking.

Now, let us see, Mr. Chairman, how the present plans if left undisturbed would result in bypassing the General Accounting Office. The General Accounting Office is charged by law with performing among other functions, two major functions, viz, (1) the settlement and adjustment of claims, (2) the audit and settlement of accounts of all of the disbursing officers of the Government.

As to settlement of claims the Budget and Accounting Act requires that all claims by or against the Government shall be settled and adjusted in the General Accounting Office. This language has been uniformly interpreted to mean that all doubtful demands against the Government shall constitute claims to be forwarded to the General Accounting Office and there settled and adjusted. Is it unreasonable to predict that many of the claims of contractors whose contracts

will be terminated will be possessed of much doubt as to their validity both from the standpoint of law and most generous equity? Are these, therefore, not claims which within the true meaning and intent of the Budget and Accounting Act should be forwarded to the General Accounting Office for settlement and adjustment unless the Congress should by express legislation otherwise decree and would not the planned intent of the war contracting agencies to refuse so to forward them be an unwarranted bypassing of the General Accounting Office? As to the audit and settlement of accounts of disbursing officers after negotiated termination settlements and payments by disbursing officers thereupon, if there is prepared and forwarded to the General Accounting Office in conjunction with such accounts only the very meager supporting record as provided for in the regulations promulgated by the War Department, there would be received in the General Accounting Office no sufficient record to permit the detection of any kind of irregularity including fraud, and that, Mr. Chairman, would result insofar as any beneficial result is concerned in bypassing of the General Accounting Office.

When I read these regulations, I become so amazed and astounded that I have wondered if those officers or civilian employees of the War Department who prepared them ever gave a passing thought that they were in fact servants of the Government, whose interest they were sworn to protect. These regulations have all the appearance of being put forward by special pleaders for industry in disregard of the Government and those other citizens who are paying the Government's bills.

And what are these regulations? Well, they place conclusive and final power in the contracting officer. Even the auditors of the War Department who are instructed as to their duties and procedures in the regulations are cautioned to be constantly reminded that their findings are only for the information of the contracting officer and that he is not bound by anything they may produce or recommend, but have a free hand. The spot check it authorizes in some instances is an insult to proper audit of a matter of this magnitude. They require no verification of the contractor's statement of cost, unless specifically directed to do so by the contracting officer, which probably would only be done in exceptional cases. Under the authority granted to contracting officers by the regulations, it would be possible for them to negotiate a settlement with the contractor without any audit or verification of the items asserted by the contractor as constituting his claim. They provide that in such negotiations no documentary evidence such as is in force on cost-plus contracts shall be submitted to the disbursing officer and that such determination shall neither be reviewed by the disbursing officer nor the General Accounting Office.

They specifically provide that no such documentary evidence shall be furnished to the disbursing officer. Hence no such evidence will come to the General Accounting Office. They unctiously state that the Comptroller General is entitled to a copy of the termination settlement agreement, and that he is also entitled to have any payment under the settlement agreement supported by a voucher and documents showing that the contractor has complied with his part of the settlement agreement. With such a record the General Accounting

Office would become a mere rubber stamp in accepting the determination of the contracting officer. There would be nothing for us to audit, and there would be no opportunity to gather vital information that Congress might desire or be entitled to. It would be simply a mockery to send the General Accounting Office what they propose. A $1,200 clerk could audit the record the War Department would send us.

In his statement before this committee on October 15, the Under Secretary of War took sharp issue with the criticism that war contract termination settlements would, under the practice and regulations of the War Department, be negotiated by a single individual, namely, the contracting officer. He stated the views of the War De-. partment, in part, as follows:

The regulations of the War Department and the practice in termination of settlements to date insure, so far as reasonably possible, that they will be negotiated under suitable safeguards. The criticisms seem to assume that the negotiations are conducted by a single individual; on the contrary, they are handled by an organization under a commanding officer usually of high rank and experience. Furthermore, the negotiations are conducted in accordance with comprehensive procedures established by the War Department to insure that the Government's interests are fully protected and that the contractor's settlement proposals are adequately investigated and analyzed.

Then, after outlining generally the procedures followed by the War Department, he stated further:

By these methods the negotiators for the Government have available reliable accounting data and other information on which to reach a fair settlement with the contractor. These negotiators are assisted at all stages by Government accounting, engineering, legal, fiscal, and technical personnel, all of who participate in the negotiations and are consulted where their assistance may be helpful. The settlements eventually reached thus reflect the deliberations and advice of many different Government representatives, each a specialist in some particular field. In addition, the conduct of the negotiations and the final agreement are under the supervision of special agencies created for this purpose. These include a fiscal representative under a duty to report to the commanding officer whenever in his opinion settlements are being improperly handled or considered.

Mr. Chairman, I have no reason to doubt that the Under Secretary sincerely believes that these intradepartmental facilities or measures, which he says "are carefully designed to provide all necessary protection for the Government," are real and substantial and I have no occasion to doubt that they will be set in motion. However, I find nothing in the regulations of the War Department which have been brought to my attention to date in any way requiring the contracting officer to rely upon the assistance, information and advice thus to be available to him and nothing therefrom which would restrict his freedom of action in negotiating termination settlements finally and conclusively, except as provided in paragraph 220 of War Department Procurement Regulation No. 15 when the amount to be paid upon a termination settlement exceeds $1,000,000.

In the War Department Termination Accounting Manual TM 14-320, issued July 7, 1943, containing instructions for accounting personnel, I wish to invite the committee's attention particularly to the following pertinent paragraphs:

1104. Presentation of proposed settlement by contractor.-When a War Department fixed-price supply contract is terminated by the Government, the contractor prepares a statement setting forth his proposed settlement. The contracting officer has the responsibility for passing upon this proposal and arriving at an

agreement with the contractor. In carrying out these functions, it is the further responsibility of the contracting officer to decide the extent to which he requires independent review and verification of the contractor's statement by personnel qualified to deal with accounting matters. In this connection, the accounting personnel will assist the contracting officer in an advisory capacity when such technical assistance is requested by him

1109.1. The findings of accounting personnel, whether based on office reviews or more extensive examinations, will be submitted in an appropriate manner to the contracting officer. It is then the contracting officer's sole responsibility to negotiate a settlement with the contractor. It is to be emphasized that the findings of the accounting personnel are for the general guidance of the contracting officer and do not limit that officer in arriving at what he considers to be a proper settlement.

I try to be conservative in speech, but I measure my words when I solemnly warn you that these regulations will permit a grand cover-up. The preponderance of frauds are discovered through audits. These regulations will preclude any chance to detect frauds. That in some instances they will be used to cover up frauds, I do not have a doubt in the world.

The regulations give the opportunity to the contracting officer to wipe out every suspension made by the General Accounting Office of an illegal payment; they give the opportunity to wipe out every collection we have made of illegal payments; judgments awarded in the courts in favor of the Government and against contractors have no effect against these regulations and all may be paid again upon the mere agreement of the contracting officer with no one to curb him. He would have the absolute authority to wipe out all of the gains that have been made in the renegotiation of contracts and the opportunity for unjust enrichment is ever present.

The mere knowledge on the part of contractors, contracting officers, and their staffs that no more record is to be made of the negotiated settlement proposed than is provided for in the existing regulations and directives of the War Department would in itself be an encouragement to extreme generosity with the Government's money, collusion and fraud, and an open advertisement that there would be little, if any, chance for anyone in the future to detect these things.

As the days go by my disillusionment becomes all the more complete. I am now in receipt of a communication, dated September 25, 1943, from the Under Secretary of War. In it I am told in effect that I have no authority to disapprove any payment allowed by a contracting officer except in case of fraud. He objects to and challenges the disallowances we have made, no matter how flagrant and shocking they might be to the public conscience or how far the contracting officer may go beyond his scope of authority. He says the approvals now made by contracting officers on cost-plus-a-fixed-fee contracts are supreme, just as the present regulations purport to make him supreme on termination approvals.

A large number of contracting officers are of proven inefficiency and incapacity. It has been officially reported to me that a great many of them constantly fraternize with the contractor after working hours-golfing, dining, and wining with them. These reports say that this intimate relationship has the tendency to make them more liberal in their dealings with the contractor. In some instances they have approved purchases far beyond the contract needs and the surplus resulting from such excess purchases is later sold as scrap. They feel that their certificate on a voucher should not be subject to question by

the General Accounting Office, even though matters of record disclose that the facts are other than as certified. As an illustration there may be cited many instances where an examination of the records disclosed rejected materials when the contracting officer had certified on the voucher that the materials were received in good condition. Supply officers in the War Department are constantly telling us that they can procure articles locally at a cheaper price than provided for in negotiated (lump-sum) contracts.

I have brought here today 270 cases pulled at random to give you some idea as to just how many contracting officers are doing their job. In some instances the amount may be small but a ruling on a small item affects similar ones running into millions of dollars. I wish to be entirely impersonal and will call no names, but I have here the identity of every case. These are just mere drops in the bucket, and I shall only read a portion of them to you and submit the entire list for the record. While all of these cases represent collections and disallowances made by the General Accounting Office, I assure this committee that we have not been acting capriciously, as we have similarly approved hundreds of vouchers where we thought they were justified by the nature of the contract, even though many of them seem doubtful on their face.

Gentlemen, listen if you will: $356,166.01, representing the purchase price of materials reimbursed to the contractor was collected from the contractor because the material had been rejected on delivery as not meeting specifications but had not been returned to the vendors for credit.

The Under Secretary of War says I have no authority to question that.

Cost of flowers, eyeglasses, and group insurance for employees, reimbursed to the contractor, were not allowable because they were not expenses necessary or incident to the performance of the contract.

Conversion of contract from cost-plus-a-fixed-fee basis to a fixedprice basis was questioned since it was not apparent that the conversion was made in the interest of the Government.

Cost-plus-a-percentage-of-cost subcontract was entered into by a prime contractor with its subsidiary for the performance of an undetermined amount of work, such contract providing for conversion to a cost-plus-a-fixed-fee basis when the amount of work was determined. After more than a year had passed and approximately $21,000,000 had been reimbursed without conversion the subcontract was questioned by us as being in violation of the statutory prohibition against such method of contracting. I am confident that except for the action and scrutiny of the General Accounting Office more than one fixed fee would have been paid in that case.

Mileage allowances paid by the contractor to Government employees for travel within the limits of their official station were not reimbursable because such payments to Government employees are prohibited by the standardized Government travel regulations applicable to such employees for all official travel.

Back wages paid to employees dismissed due to the failure of the contractor to exercise proper care in the selection and retention of competent and careful employees, and subsequently required to be reinstated, are not reimbursable since the fee is paid to the contractor to obtain in part the competent and faithful services of the contractor.