Pursuant thereto the audit of the books, records, and transactions of the Corporation was continued at the offices thereof in Knoxville, Tenn., to the close of the fiscal year 1935. The expenses of such audit were regularly paid from appropriations available to the General Accounting Office and reimbursed by the Corporation on the basis of bills rendered by the Comptroller General.

Section 14 (b) of the act of August 31, 1935 (49 Stat. 1080), amending section 9 (b) of the original act contains the same provision as to audit by the General Accounting Office with the exception that only such part of the expenses of such audit as may be allocated to the cost of generating, transmitting, and distributing electricity is required to be reimbursed by the Corporation. On the basis of such revision it has been found to be difficult with any degree of accuracy to segregate the cost of the audit as between the generating, transmitting, etc., of electrical current from the cost thereof pertaining to other functions of the audit. Furthermore, in view of the cost of maintaining a large field party at the offices of the Corporation in Knoxville and other branch offices in Tennessee and the limited appropriation available to the General Accounting Office it was determined more economical to require the Treasurer of the Corporation to render monthly an account current to this Office and to transmit therewith all vouchers, schedules, and documents necessary for a current audit in Washington of the financial transactions of the Corporation. Such procedure did not contemplate that the field audit required by the act, supra, would be discontinued but only that part thereof pertaining to financial transactions regularly stated on standard forms and included in the accounts of the accountable officer, leaving for audit in the field the books and records ordinarily reviewed in the audit of a similar commercial enterprise.

While the officials of the Authority contended that the act required the General Accounting Office to make a complete audit at the offices of the Authority, leaving all vouchers, schedules, etc., on file there, they consented to the submission of accounts as required beginning with July 1935. Such submission of accounts current with supporting vouchers and schedules permits this Office to make a current audit of transactions and to keep the Authority advised of any exceptions, thereby eliminating, to a great extent, the delay which would be necessary under the former procedure of completing a detail audit in the field. During the fiscal years 1936 and 1937 exceptions were made and the Authority regularly notified on a total of 7,964 transactions involving $15,542,459.70. Of such number and amount there was released, after proper explanation or recovery, a total of 3,077 exceptions amounting to $4,814,950, leaving 4,887 still pending in the amount of $10,727,509.70. Full details of such exceptions and the reasons therefor will be included in the special report on such audit as required by section 14 (b) of the act.

As stated, supra, it was not contemplated that the current audit of the accounts, including vouchers and schedules submitted to Washington, would render unnecessary a further audit of the books and records of the Authority at its home office in Knoxville and other subsidiary offices adjacent thereto. Accordingly, in January 1937 there was detailed a party of 11 representatives of this Office to Knoxville, Tenn., to continue the audit for the fiscal years 1936 and 1937.

On June 30, 1937, the party reported that the audit of the books and records had been completed for the fiscal year 1936 and that it would require approximately 4 months from July 1, 1937, to complete the audit for the fiscal year 1937.

With respect to the cost of such audit the records of the Office reveal that the cost from January 12 to June 30, 1937, amounted to approximately $24,700, of which $16,500 represents salary of the field party and $8,200 represents per diem and travel expenses. On such basis, it is estimated that the total cost of the audit for the fiscal years 1936 and 1937 will amount to approximately $44,000 exclusive of the cost of auditing the accounts rendered to Washington monthly. The field party now engaged on the audit has been instructed, if practicable, to maintain records as to the cost of the audit as pertaining to the generating, transmitting, and distributing of electricity, as distinguished from the cost of audit of other functions of the Authority, in order that bills may be rendered for reimbursement of such cost as provided by the act. It is estimated that approximately 45 percent of the total cost is applicable to generating and transmitting electricity and subject to reimbursement by the Corporation.

UNITED STATES SHIPPING BOARD MERCHANT FLEET CORPORATION AND UNITED STATES MARITIME COMMISSION

The act of March 20, 1922 (42 Stat. 444), provides:

The Comptroller General of the United States is authorized and directed to cause an audit to be made of the financial transactions of the United States Shipping Board Emergency Fleet Corporation in accordance with the usual methods of steamship or corporation accounting and under such rules and regulations as he shall prescribe.

* *

*

Section 207 of the act of June 29, 1936 (49 Stat. 1988), provides:

* * All the Commission's financial transactions shall be audited in the General Accounting Office according to approved commercial practice as provided in the Act of March 20, 1922 * * * The Comptroller General shall report annually or oftener to Congress any departure by the Commission from the provisions of this Act.

Pursuant to the provisions of the act of March 20, 1922, supra, the audit of the transactions of the United States Shipping Board Merchant Fleet Corporation was continued by representatives of this office until October 25, 1936, at which time the Corporation was succeeded by the United States Maritime Commission, created under the act of June 29, 1936. The audit of the accounts of the United States Maritime Commission was continued for the remainder of the fiscal year in accordance with the provisions of section 207 of the act of June 29, 1936, supra.

A statement of the scope and volume of such audit for the fiscal year 1937 appears on page 123.

UNITED STATES SHIPPING BOARD MERCHANT FLEET CORPORATION

Disbursing officers-Administrative accounts. On July 1, 1936, there were on hand and unaudited 8 Merchant Fleet Corporation administrative accounts, and from that date to October 25, 1936, there were received 26 such accounts, all of which were examined

during the fiscal year 1937. Such accounts comprised 7,618 vouchers, representing total disbursements of $21,220,010.76. Also there were examined during the same period 1,035 remittance documents, representing total collections of $32,005,257.56.

Of the 7,618 disbursement vouchers examined, exceptions were stated on 34, representing disbursements of $50,155.04, and further exceptions were taken to 4 remittance documents, representing total collections of $73,908.

Exceptions previously noted were removed during the year in the total amount of $1,052,200.75, by collections and clearances.

In the audit of the above accounts but few of the minor exceptions formerly raised by this Office were noted, due to acquiescence of the Fleet officials in the rulings of the Acting Comptroller General. The exceptions noted cover questions on which differences of opinion exist between the officials of the Corporation and the General Accounting Office-i. e., matters on which such officials contended that the Corporation was authorized to act in a private capacity. Such exceptions pertain to compensation to operators under the operating agreement, 1930, as amended, designated "lump sum"; payment of unused 191819 annual leave; Christmas gratuities to employees and others; premiums on pay-roll insurance; premiums on bonds of Government officials; foreign income tax of its employees in excess of that they would be obliged to pay under the laws of the United States; reinsurance of risks carried in the Fleet insurance fund; and compromise of claims in favor of the United States for amounts less than actually due.

Exceptions such as payment of salaries for the last day of a 31-day month, overpayments for printing, travel expense, etc., were readily admitted and properly adjusted.

Operating accounts.-Four lines, comprising 37 vessels, were operated for the account of the Corporation by managing operators under a 1935 operating agreement, which provides compensation of a fixed overhead allowance to the operators, plus a percentage of gross revenue, plus a percentage of net profit earned by the line.

Disbursements for the lines were made through banks from accounts subject to check by special disbursing officers of the Corporation. Accounts were rendered in the form of voyage accounts of vessels, of which 62 were on hand and received by the Corporation for administrative audit during the fiscal year. Only 30 of such accounts have been made available to the General Accounting Office for audit, all of which have been completed. Those made available represent total collections of $992,736.37 and total disbursements of $1,081,726.98.

Contracts and other documents involving the above revenue and expenses are on file with the Corporation for use in the audit by this Office. The officers and employees of the Corporation have fully cooperated with this Office in the audit of such operating accounts. Questionable items called to their attention were adjusted along with the adjustment of items administratively disclosed. Such adjustments often necessitate waiting for information from foreign ports, which, in part, accounts for the delay in the completion of the administrative audit, hence the delay in releasing the accounts to this Office.

UNITED STATES MARITIME COMMISSION

Administrative accounts.-The Merchant Fleet Corporation was succeeded by the United States Maritime Commission, October 26, 1936, under the act of June 29, 1936. Funds of the Corporation in the amount of $88,116,169.79 were transferred to the Commission. Such funds were deposited in the Treasury subject to disbursement by the Division of Disbursement, Treasury Department. Contractual obligations of the Corporation were assumed by the Commission, and, so far as administrative accounts are involved, it was the adopted policy to adhere strictly to Government regulations and practices, thereby changing materially the audit of the accounts by this Office. In contrast with the procedure with Merchant Fleet Corporation accounts under statutory direction, whereby this Office depended upon Corporation records in support of accounts, contracts and all supporting documents are now being furnished by the Maritime Commission with the accounts when submitted for final audit and settlement.

During the year there were received 5 administrative accounts rendered by the Division of Disbursement, Treasury Department, 3 of which have been audited, involving collections of $5,052,905.60 and disbursements of $777,359.80, represented by 1,255 vouchers. Exceptions were taken to 33 vouchers, 7 disallowed in part, a total of $12,393.23, and 26, totaling $920.80, were suspended.

Since the employees of the Corporation transferred to the Maritime Commission were not familiar with established Government procedure, some time was necessary to accomplish the change from the commercial practices of the Corporation. Consequently, the earlier accounts were examined with the view to aiding in the transition rather than stating formal exceptions. Many questions were discussed informally with the proper authorities and doubtful practices and procedure thus corrected. The principal objections raised involved the failure to secure competition in purchases of material and services, failure to properly support payments, etc. A cursory examination of later accounts indicates that efforts toward eliminating the former Corporation practices are having the desired effect, especially in the home office. District accounts are improving, but more slowly, due, apparently, to the failure to comprehend the exact meaning of instructions issued by the home office.

Operating accounts. The agreements under which the four lines were operated by managing agents for the account of the Merchant Fleet Corporation were continued by the Maritime Commission. The bank accounts, however, through which the Corporation handled the funds involved, were discontinued. All funds are now deposited into the Treasury and disbursed by special disbursing officers, who render monthly accounts.

There were received during the year 28 of such accounts, representing total revenue of $4,306,390.39 and total disbursements of $4,324,319.03.

The disbursements are covered by 12,379 approved vouchers, Standard Form 1034, but no supporting documents are attached. The disbursements represent expenses in connection with the operation of vessels, and all supporting documents are assembled in the

voyage accounts which are submitted separately. There are now available for administrative audit 96 voyage accounts, supporting, in part, the 28 disbursing officers' accounts on hand. The audit of such accounts is dependent upon the completion of the administrative audit by the Commission.

Ocean mail contracts-Settlements.-Under the Merchant Marine Act, 1936, all ocean mail contracts operative under the Merchant Marine Act, 1928, were canceled as at June 30, 1937, and the Maritime Commission was authorized to effect settlements with the contractors and enter into operating-subsidy contracts in lieu thereof. Settlement agreements have been made with 23 ocean-mail contractors, holding 32 of the 43 foreign ocean-mail contracts, and operating-subsidy agreements with 16 operators. These agreements will be for examination by this Office when available.

General. Because of the unsettled condition in the organization of the Maritime Commission, first under the temporary Commission and then under the permanent Commission, with a change to some extent in personnel, this Office has found it somewhat difficult to accomplish all that might be desired. However, the general spirit of cooperation with the efforts of this Office as shown by officials and the personnel of the Maritime Commission should be commended, especially with regard to administrative transactions. In the operating activities there still exists, to some extent, the attitude of the Merchant Fleet Corporation, that, since its operations are in competition with commercial agents, it is in the same status as commercial or private corporations and is authorized to act accordingly.

UNITED STATES MARITIME COMMISSION-SPECIAL AUDIT

In addition to the continuous audit of the transactions of the Commission, as summarized and discussed, supra, the Chairman of the Commission informally requested the Acting Comptroller General to render a decision as to the authority of the Commission to engage the services of a private firm of auditors to make an audit of the assets taken over and liabilities assumed as at the date that the permanent Commission took office, April 16, 1937. The Chairman was advised that no such authority existed, but that this Office was equipped and authorized to perform such special audit.

Accordingly, there has been made a special examination by representatives of this Office of the assets and liabilities of the Commission, based upon a balance sheet and supporting schedules prepared from the books as at April 15, 1937.

The revised balance sheet prepared as a result of such audit will be found on pages 76 to 78.

There follows letter to the Chairman of the Commission, dated August 6, 1937, transmitting the report on such audit, which contains, among other things, full explanations of the adjustments that were made in the amounts of assets and liabilities as a result of the audit:

Pursuant to your informal request for an audit of the assets and liabilities (with certain exceptions, infra) of the United States Maritime Commission as at the date that you assumed the duties of Chairman of the Commission, such audit has been made on the basis of a balance sheet prepared by representatives of your office from the books of the Commission as at April 15, 1937, and there is submitted herewith the original and two copies of the adjusted balance sheet with supporting schedules.