TESTIMONY OF ROSCOE ALEXANDER DAVIDSON, UNITED STATES NAVAL RESERVE-Resumed

Mr. TOLAND. Lieutenant, you have been present while Mr. Rainey testified?

Lieutenant DAVIDSON. Yes, sir.

Mr. TOLAND. Did you ever have a conversation with any employee of the Navy Department or the Cramp Shipbuilding Co. as to the amount of time that Mr. Rainey was on the job at the Cramp Shipbuilding Co.?

Lieutenant DAVIDSON. No, sir; I did not have.

Mr. TOLAND. Did anybody of your knowledge in the Bureau of Ships or Supervisor of Ship building have any conversation as to the length of time that he was there, the amount of time that he put in? Lieutenant DAVIDSON. Not to my knowledge.

Mr. MAAS. When did you become cognizant of the irregularities in these bids, these purchase-order bids?

Lieutenant DAVIDSON. In August, I believe it was, 1941, we discovered the set of bids that were carbon copies. They were for electrical material, in the amount of some $1,200.

Mr. MAAS. A great many of these complimentary bids went on after that, however. That wasn't the end of it?

Lieutenant DAVIDSON. No, sir; I believe not.

Mr. MAAS. All of these bids had to have your signature, didn't they had to be approved by you?

Lieutenant DAVIDSON. Yes, sir.

Mr. MAAS. Did you sign any of these knowing that they were complimentary bids, or believing that they were?

Lieutenant DAVIDSON. We deferred action on several for some time, pending investigation. Then, under instructions, they were later approved.

Mr. MAAS. Under whose instructions?

Lieutenant DAVIDSON. The Supervisor of Shipbuilding.

Mr. MAAS. In looking through some of these, Lieutenant, I saw some of these carbon-copy bids where Rohleder's bid was a certain figure and the other two bids were identical to the penny, but with your approval on them. They couldn't get paid on any of these purchase orders unless it had the Navy inspector's approval, could they?

Lieutenant DAVIDSON. I think that is right. They could be paid

Mr. MAAS. So that every one of these orders you were talking about

Lieutenant DAVIDSON (interposing). They could be paid; they could not claim reimbursement.

Mr. MAAS. I don't believe they could even be paid on them. But you approved all of these orders we have had submitted to us. They did have your approval?

Lieutenant DAVIDSON. Not all had my approval. They were approved by others in the supervisor's office.

Mr. MAAS. I see. But you did sign some of these, even though at the time you thought they were irregular? Lieutenant DAVIDSON. Yes, sir.

Mr. MAAS. And you did that under instructions? Lieutenant DAVIDSON. That was after we discovered the irregularities, and an investigation had been made, the material was on the job, the job was completed, and they were in order so far as the quantity and quality of the material was concerned. There was no reason not to sign them for reimbursement to the Cramp Co.

Mr. MAAS. What was the purpose of having three bids on all these purchase orders?

Lieutenant DAVIDSON. To attempt to get the lowest price for the material.

Mr. MAAS. Did you know in many cases that the material had already been delivered and in many cases was actually installed or being installed before the additional bids were obtained?

Lieutenant DAVIDSON. There were some instances when I knew that the material had been received. When the quotation approvals came to us, the summary sheets, we checked them against the plans to determine the quality and quantity of the material, and if it was in order we approved it, post-approval rather than prior approval, in order to keep things moving and coming in and let the paper work, which was somewhat slow, follow along.

Mr. MAAS. Did you ever make notations about those cases where you approved it but where you thought it was an irregularity? Did you make a report on it or approve it with reservations?

Lieutenant DAVIDSON. Yes, sir. I think that shows in the forms in

some cases.

Mr. TOLAND. The record shows that Captain Hanson, when he first discovered it, withheld the payment in certain of the cases where irregularities came to his attention. Then, when the members of the staff went in, we consulted with Captain Hanson and a great many of the bids were filed prior to the time-many of them-Lieutenant Davidson and Captain Hanson came there. Then we started in. Then the O. N. I. came; Captain Hanson had asked the Navy Department to have the O. N. I. make an investigation of the subject.

In other words, so far as he was concerned, and the Supervisor of Shipbuilding's office, they did everything within their power so far as the Department was concerned, and with our committee, to bring this matter to a head, because they had to make payment eventually on these contracts.

Mr. MAAS. But as soon as these irregularities were discovered it was called to proper officials' attention through channels, was it? Lieutenant DAVIDSON. Yes, sir.

Mr. TOLAND. Do you recall the civilian naval electrical inspector on the job at Cramp?

Lieutenant DAVIDSON. We had four, sir.

Mr. TOLAND. Do you remember one of them dictating a memorandum?

Lieutenant DAVIDSON. Yes, sir.

Mr. TOLAND. Do you remember his name?

Lieutenant DAVIDSON. Mr. Toole.

Mr. TOLAND. Do you remember his dictating a memorandum to the effect that Mr. Rainey was not on the job very much?

Lieutenant DAVIDSON. I saw the memorandum. I don't know at whose request it was made.

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Mr. TOLAND. Do you remember what it said? Do you remember what the memorandum said?

Lieutenant DAVIDSON. It said he spent 50 to 60 percent of his time there, as I recall it.

Mr. TOLAND. I would like to bring to the attention of the committee that, from the Chief of the Bureau of Ships to the Under Secretary of the Navy, on October 31, 1941, as a result of a communication from Captain Hanson dated October 21, 1941, Admiral Robinson stated as follows:

In regard to the supervisor's recommendation that certain firms be barred from future bidding on work at the Cramp Shipbuilding Co., the supervisor has been notified that this matter is in his hands and he can bar such firms as he considers advisable for the best interests of the Government.

Regarding the question of criminal prosecution, it is recommended that this matter be referred to the Attorney General's office for such action as they may wish to take.

I would like to put that statement in the record.

(The statement was received in evidence and marked "Exhibit No. 256.")

Mr. TOLAND. So far as the record shows, they first discovered it. Mr. JOHNSON. Mr. Toland, why was it necessary to pay on these contracts if they knew the bids were irregular?

Mr. MAAS. The Navy didn't pay anything. They approved them so that the

Mr. TOLAND (interposing). So that the banks would pay.

The ACTING CHAIRMAN. I recall very well when the reorganization of Cramp was discussed, that that was one of the requisites. The banks themselves demanded and the Navy demanded that all orders and contracts would have to be finally approved by the Navy representative before the banks would pay them.

Mr. TOLAND. The Navy is not going to actually pay this money, except on the ships, until after the contract has been completed, and it is about 97 percent completed now. But as the chairman said. and my understanding is-the loan agreement between the banks and the company is correct as to what he says-and my understanding is that that also requires a certain number of bids.

Mr. MAAS. What would have happened if there had been a loss and the bank made claim on the Navy Department on the basis that it had approved fraudulent orders? Wouldn't the Navy have been obligated to have made good on them?

Mr. TOLAND. I think they would.

Mr. MAAS. Otherwise there wouldn't have been any purpose in the proviso that the Navy had to approve them.

Mr. TOLAND. Not a bit. The Navy or the Government, either way, would have got stuck.

Mr. JOHNSON. I think the Navy was negligent in approving these. Mr. TOLAND. I don't think the people at this office-I think Captain Hanson and the Lieutenant have done everything within their power. Mr. MAAS. Who actually approved? The bank paid upon the approval of you as an agent of Captain Hanson's, whose approval was it upon which the bank made the payment?

Lieutenant DAVIDSON. I think that is the outside accountants, Arthur Anderson.

Mr. Maas. If you had refused to approve some of these orders that were irregular, wouldn't that have brought the matter to attention very quickly by the bank's refusal to have paid the bills?

Lieutenant DAVIDSON. It did, sir. We refused to approve those and held them in abeyance for quite a period of time; I don't recall exactly, possibly 2 months.

Mr. MAAS. Is that what brought the matter to attention?
Lieutenant DAVIDSON. No, sir; we reported it.

Mr. MAAS. How did you ever happen to pay those that were irregular? You said you held them up for a while and then paid them. Were they adjusted before you paid them or did you pay those you thought were irregular?

Lieutenant DAVIDSON. Perhaps I can clarify it by saying that the function of our office was, when these quotation approvals and bid summaries were presented to us by the Cramp Co., with their approval and their initials on them, to check the quantities and the quality of the material against the approved plans. If that was satisfactory to go in the job, we approved it.

Mr. MAAS. How did you check the price, just against these phony bids?

Lieutenant DAVIDSON. We didn't know they were phony, sir. They came up to us individually. They didn't come up 10 or 20 that we could lay out on a table that we could compare.

Mr. MAAS. I recall one of them where Rohleder's bid was $286, and the other two, Walker and Adelphia, were $328.41, both of them being identical, all on the same sheet. That, on the face of it, would have made you suspicious, wouldn't it?

Lieutenant DAVIDSON. Depending on what material was on the order. Electrical materials run very close to a list.

Mr. MAAS. There was a big difference between Rohleder's-not Rohleder's

Mr. TOLAND. Westinghouse.

Mr. MAAS. Westinghouse and the others. There was a very substantial difference in their price. It wasn't a close price at all, but the other two were identical to the penny.

Lieutenant DAVIDSON. I don't recall the one you speak of.

Mr. TOLAND. Isn't it a fact, Lieutenant, that even though these contracts were approved by your office, the company officials and its accountants approved the payment that was made by the company or the bank to the contractors?

Lieutenant DAVIDSON. I believe that is correct, sir. I don't know who paid the contractor.

Mr. MAAS. What I am trying to get at is those that you did approve, that you held up payment on, under what circumstances did you ultimately approve them?

Lieutenant DAVIDSON. After the investigation by Mr. Minor and Mr. Beal, and their report was in. I held those orders in my desk. Then the material was all in the job, the job was completed and the work was satsfactory. They came in, the Cramp Co. representatives came in, and requested that these be approved. Several requests were

made.

Mr. TOLAND. Who was it?

Lieutenant DAVIDSON. I believe Mr. Heacock.

Mr. TOLAND. How many times did he ask you to approve them? Lieutenant DAVIDSON. Öh, he inquired two or three times, I don't recall the exact number. I don't recall all the circumstances.

Mr. MASS. You made a statement a minute ago that you ultimately approved these under direction. Under whose direction?

Lieutenant DAVIDSON. After they had requested that we approve them, that the investigation had been made and there was apparently no monetary loss to the Government, I asked Captain Hanson what we should do with them, whether we should hold them or whether we should approve them. He questioned me as to whether the work was done and whether the material was in. My electrical inspector said it was, and he said then we might as well approve the acquisition of the material. That was our job.

Mr. TOLAND. Lieutenant, you were here while Mr. Beal and Mr. Minor testified?

Lieutenant DAVIDSON. Yes, sir.

Mr. TOLAND. You heard my question, particularly to Mr. Beal, as to the scope of his investigation?

Lieutenant DAVIDSON. Yes, sir.

Mr. TOLAND. Do you think that the investigation he made of the Cramp situation qualified him to make a statement as to whether or not the Government suffered any loss on these bids?

Lieutenant DAVIDSON. If I understand his statement correctly, he accepted Mr. Minor's, or the Cramp Co.'s purchasing department's analysis of these bids.

Mr. TOLAND. And there was no investigation to speak of made by him to determine whether the Government did suffer a loss? Lieutenant DAVIDSON. I think that is correct.

Mr. TOLAND. Isn't that true?

Lieutenant DAVIDSON. That is the way I understood it.
Mr. TOLAND. That is all. Ten o'clock, Mr. Chairman?

The ACTING CHAIRMAN. Ten o'clock tomorrow. Mr. Toland has decided to proceed with the witnesses, Commander Weyerbacher, Mr. Rohleder, and the others, without further reference to the committee in executive session, so the committee will adjourn until 10 o'clock tomorrow morning.

(Whereupon, at 4:40 p. m., the hearing was adjourned until 10 a. m., Friday, May 15, 1942.)