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Mr. RUSSELL, That expense for the building was incurred and also paid under the previous provisions of the statute from which I have read.

Senator MCADOO. Under that general provision?

Mr. RUSSELL. Yes, sir.

Senator McADOO. But no specific authorization of the funds was given?

Mr. RUSSELL. No, sir; no specific authorization of the funds. Senator MCADOO. That is, the amount of the cost of the building and the improvements on the building.

Mr. RUSSELL. The Corporation has nearly $3,000,000 in the building.

Senator McADOO. It owns the building?

Mr. RUSSELL. Yes, sir.

Senator MCADOO. And conducts that business, the cafeteria business?

Mr. RUSSELL. Yes, sir.

Senator MCADOO. Is it restricted solely to the employees of the Corporation?

Mr. RUSSELL. There is nobody in the building except the Federal Home Loan Bank Board, including the Home Owners' Loan Corporation, and the Federal Savings and Loan Insurance Corporation.

Senator MCADOO. You said that which had been invested in the cafeteria building alone. You meant in the headquarters of the Corporation?

Mr. RUSSELL. Yes, sir.

Senator MCADOO. The whole building and everything else. All of the activities of the Board and concentrated in that building?

Mr. RUSSELL. Yes; I meant the space allocated to the cafeteria alone must have cost more than $40,000. The cafeteria is in the building.

Senator MCADOO. Yes; but the statement about it was not clear. Mr. RUSSELL. It is just the space in the building, Senator, to which I referred.

Senator MCCARRAN. Did you attempt to take this item up with the Comptroller General?

Mr. RUSSELL. No, sir.

Senator MCCARRAN. You have not attempted to take anything up with the Comptroller General?

Mr. RUSSELL. Yes, sir. After the Corporation was formed we negotiated for more than 2 years with the Comptroller General in an effort to establish a given procedure and forms which would be used, but we failed to do so, and in August 1936, we wrote the Comptroller General of our conclusion that it was impossible to operate the Corporation and do so using the forms prescribed by him.

Mr. FAHEY. We did that voluntarily. We were not required to do it by law, Senator.

Senator MCCARRAN. That is your construction of it. It is my construction that we differ on constructions. In other words, I think the spirit of the whole proposition is that all expenditures of funds should have the approval of some authority, and that authority, as set by law, is the Comptroller General.

Mr. RUSSELL. That bill says: "Without regard to the provisions of any other law," and that includes the Budget and the Accounting Act of 1921.

Senator MCCARRAN. I understand, but, however framed, that particular clause was very particular not to mention the Comptroller General.

Mr. FAHEY. If we had been operating under the Comptroller General, this corporation would never have functioned.

Senator MCCARRAN. I do not agree with you on that at all. is a matter of disagreement between us.

That

Mr. RUSSELL. We could not have made loans, and we could not have incurred the necessary expenditures. If we had been compelled to operate under the accountable warrant system, these loans would never have been made.

The CHAIRMAN. But you do not seem to have operated under any specific authorization, and, of course, think that Congress ought to be abolished as well as the Comptroller General's office.

Mr. FAHEY. No, indeed; we do not think that.

Senator MCCARRAN. I think this organization has set itself up as above Congress, and above the Comptroller General. I propose, in my vote on this committee and I have to treat it accordingly-to curtail a recurrence of that. I am going to try to see that $40,000, or $40,000,000, of the taxpayers' money is not shot away.

Senator MCADOO. I would like to ask if this is purely a selfliquidating operation in which the Home Owners' Loan Corporation is engaged?

Mr. RUSSELL. That is true. It is a self-liquidating operation. Senator MCADOO. That does not apply to the Federal Home Loan Bank?

Mr. RUSSELL. No; the Federal Home Loan Bank Board is a permanent establishment of the Government, created under a different statute.

The CHAIRMAN. I will call the attention of Senator McCarran to the conception of Mr. Russell of the powers of this Corporation, which covers every objection that you have made. Before the House committee Mr. Russell stated:

The original statute provides that "The Corporation shall determine its necessary expenditures under this act and the manner in which they shall be incurred, allowed, and paid, without regard to the provisions of any other law governing the expenditure of public funds.'

He undoubtedly is liberal in disposing of other people's funds. Senator MCCARRAN. He does not deny it; he is frank about it, anyway.

Mr. RUSSELL. I do not think this job could have been done, Senator, if it had not had that power of exercising discretion in regard to expenses. I would like to tell the committee the language in question is in the R. F. C. statute and I wrote it in the original language of this act. That same language is in the R. F. C. Act. I think it was in certain finance statutes which were passed away back yonder. That same language has been in all of the basic statutes providing Federal Corporations that have been passed. With the widespread activity that the H. O. L. C. is engaged in, an amendment of this kind will prove to be entirely impractical.

The CHAIRMAN. But the Comptroller General does not undertake to control outside of the statutes.

Mr. RUSSELL. That has not been my experience. We operate one budget, the Federal Home Loan Bank Board budget, under the Comptroller General. I have had 5 years' experience with that budget The facts about it are, Mr. Chairman, that in that case the Board has to maintain two sets of books, and the procedure he prescribes will not give the information from which you can operate the business. The CHAIRMAN. Unless there are further questions, Mr. Fahey is excused.

Senator MCADOO. I would like to say, Mr. Chairman, that I did not know that this item of the independent offices was to be taken up this morning. I may have some questions that I want to submit to Mr. Fahey and Mr. Russell. I would like to reserve the right to have them called back again if we need them.

The CHAIRMAN. All right.

Mr. FAHEY. We would be glad, Senator, if you would like information on any of those questions that you may formulate the questions if you will let us have them, so that we can get the information ready for you.

Senator MCADOO. I will see if it is practicable. It may not be necessary to do that.

The CHAIRMAN. Mr. Tulloss and Mr. Yates.

STATEMENTS OF F. L. YATES, ATTORNEY-CONFEREE, AND S. B. TULLOSS, CHIEF OF INVESTIGATIONS, GENERAL ACCOUNTING OFFICE

The CHAIRMAN. You gentlemen have received a copy of Mr. Fahey's letter of January 12, which he has requested be put in the record?

Mr. TULLOSS. Yes, sir.

(The letter referred to is as follows:)

Hon. CARTER GLASS,

Chairman, Subcommittee in Charge of

Independent Offices Appropriation Bill,

United States Senate.

JANUARY 12, 1938.

DEAR SENATOR: I have your letter of January 7, 1938, in reference to the independent offices appropriation bill for the fiscal year 1939, and have examined the bill as it passed the House of Representatives last night.

Subject to the elimination of section 5, referred to below, we believe that we can administer the affairs of Home Owners' Loan Corporation successfully within the amount provided in the bill as it passed the House of Representatives. If section 5 is retained in the bill as at present, we estimate that on account of the expense of duplicate auditing and accounting which will be required, and on account of the expense of delays which will result, administrative expenses will be increased at least $150,000.

However, I call attention to the language in the bill inserted on the floor of the House by amendment and appearing as section 5 of the bill, the effect of which is to require the Corporation to transfer funds for its administrative expenses into an account in the Treasury pursuant to an appropriation warrant or a covering warrant, and to expend the same in accordance with the provisions of the Budget and Accounting Act of 1921, as amended.

After the formation of Home Owners' Loan Corporation, we called upon the Comptroller General of the United States to assist us in establishing accounting procedures and forms satisfactory to him and made efforts for a period of 2 years to establish such accounting procedures and forms, but were unable to do so.

Finally, in August 1936, we notified the Comptroller General of the United States of the necessity for the Corporation to have practicable accounting procedures and forms and of the fact that we could not proceed under the system prescribed by him. This Board felt that it had a responsibility to the Congress and to the President under the statute, and that it had authority to act, and that it was compelled to choose between the prompt performance of its duty on a practicable basis and further efforts to agree with the Comptroller General. We chose the former.

We

We

The Corporation finally succeeded in establishing accounting procedures and forms which we believe to be adequate and, at the same time, practicable. have also established what we believe to be a thorough and complete audit. have no objection to any audit of the books and records of the Corporation by the Comptroller General, but, on the other hand, we have invited such audit.

Our major difficulty with the General Accounting Office, aside from mere accounting forms and procedures, arose from the fact that the Comptroller General insisted upon the accountable warrant system, which we found to be impracticable when applied to the expenditures of Home Owners' Loan Corporation. Under the accountable warrant system funds are deposited in a separate account and expenditures from that account are charged back to officials responsible for such expenditures if the decision of the Comptroller General, from which there is no appeal, is that such expenditures are improper for any reason. The result of this process is that representatives of the Corporation in the field working on salaries will not assume the personal responsibility for miscellaneous expenditures until after approval by the Comptroller General. The resulting delay destroys efforts to operate a business such as Home Owners' Loan Corporation on a practical basis.

The system in vogue at the General Accounting Office does not, according to our examination of it for a period of more than 2 years, provide an adequate system of accounts or an adequate audit, and we, therefore, were compelled to establish an adequate system of accounts and an adequate audit of our own. On the other hand, the system in vogue there establishes a control of administrative action which is inconsistent with the prompt and proper performance of our duties. Home Owners' Loan Corporation could not promptly make loans, and it cannot efficiently make collections or administer property on hand if the character of delays must be experienced in connection with these matters that are constantly experienced as a result of salaried officials insisting upon preaudit of proposed expenditures.

However, this bill as amended in the House would subject only administrative expense to the procedures of the General Accounting Office. While it is physically possible to operate the Corporation under General Accounting Office procedure as to administrative expense only, we deem it to be our duty to point out to you some of the difficulties to be encountered under this system, even in the case of administrative expense. The Corporation has several thousand field representatives located throughout the United States, many of them traveling from their homes, and, in some cases, over wide areas. The Corporation has had great difficulty in securing and training satisfactory personnel for this work. They must bear their own traveling expenses and will experience long delays in securing reimbursement, according to all experience with the General Accounting Office, and they will be greatly inconvenienced thereby. We already have great difficulty retaining proper personnel for this work of direct contact with borrowers on the limited compensation we pay, and the red tape inherent in the General Accounting Office system will greatly increase our problem in this connection. Unusual and extraordinary delays will result in the rental and maintenance of space for district, State, and regional offices. Even printing and many other items of necessary expense for the Corporation will be unduly and unnecesasrily delayed on account of such procedure.

We do not believe that the present system of the General Accounting Office is appropriate to the needs of Home Owners' Loan Corporation. We believe that to apply it even to administrative expenses will result in wasteful and expensive delays. The Corporation will have about 120,000 vouchers for administrative expense within the fiscal year, a very large percentage of which originate in the field, and the necessity of clearing each of these individual items through the General Accounting Office in Washington is unduly and unnecessarily cumbersome. We will be compelled, if we operate under this system, to have additional expense for handling such vouchers in this manner, in addition to the injury to our operations as a result of the delay.

If the Congress desires further protection, we suggest that provision be made for a post-audit of the affairs of the Corporation instead of requiring the accountable warrant system, the effect of which is to vest administrative control in a single individual.

We request that this letter be inserted in the record of the hearings on this bill. We will be glad to furnish further information, if you wish.

Very truly yours,

JOHN A. FAHEY, Chairman.

The CHAIRMAN. Mr. Tulloss, have you anything to say about it?

PROCEDURE OUTLINED IN SECTION 5 WOULD NOT IMPOSE RESTRICTIONS ON HOME OWNERS' LOAN CORPORATION

Mr. TULLOSS. I do not agree with the views expressed there, Mr. Chairman. The letter conveys the intimation that the procedure that would be required by section 5 of the independent offices appropriation bill, if followed, would impose many restrictions upon the activities of the Home Owners' Loan Corporation. I do not think that would be the result.

If section 5 is enacted, all that would be required would be to cover these moneys into the Treasury through an appropriation expenditure account, and the drawing of those moneys from time to time by request or warrant, with credit to disbursing officers for expenditure, just as is being done now, except that the Home Owners' Loan Corporation's funds are carried into a different account. They are carried into the equivalent of an appropriation account, but no warrants pass. It is largely a depository account with the Treasury of the United States. In other words, they deposit their own moneys. to the official credit of their disbursing officer, and they draw this money without request or warrant. They render no accounts to the General Accounting Office, but I dare say that they have all of the essentials of a proper accounting system in their own office.

ADDITIONAL EXPENSE IMPOSED WOULD BE SMALL

The additional expense that would be imposed upon the Home Owners' Loan Corporation probably would not amount to very much, and I think it could be absorbed in their present activities. I do not think they would have to disburse a single additional penny to account for those moneys. They account to themselves at the present time, and they could also account to the General Accounting Office.

I do not agree with the statement that this procedure would hamper them in any respect, or that it would cost them $150,000 as alleged.

GENERAL ACCOUNTING OFFICE AUDIT WITHIN THE LAW

The General Accounting Office audit comes within the law. The provision that they rely upon as giving them broad authority would be given just the same effect by the General Accounting Office as equal to any other appropriation or general law, except that, possibly, we would not make quite as liberal an interpretation of it in some

cases.

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