The same view was expressed by me in a letter dated April 12, 1944, to Senator Walter F. George, chairman, Special Committee on Post-war Economic Policy and Planning, United States Senate. While certain language in my report of February 22, 1944, supra, appears to have been interpreted as indicating my approval of the bill S. 1718, I wish to emphasize that the language was not intended to have any such effect and that I do not approve of the program proposed under the said bill. In this connection your attention is invited to my letter of May 4, 1944, to the Honorable James E. Murray, United States Senate, appearing on page 4125 of the Congressional Record of May 5, 1944. Subsequent to the letter of February 22, 1944, I appeared before the Committee on Naval Affairs and before a subcommittee of the Post-War Economic Policy and Planning Committee, House of Representatives, and urged the adoption of a program which would provide for an independent review of proposed settlements of termination claims prior to the making of final payments thereunder. Also, in my reports of March 23, April 11, and April 25, 1944, to the House Committee on Naval Affairs, I emphatically recommended against the enactment of legislation which would not provide for such an independent review. At no time have I taken any other position or indicated approval of proposed legislation containing no such provision. I might add, however, that of the many bills introduced relating to the termination program, the amended bill, H. R. 3022, as reported by the House Committee on Military Affairs, if enacted with certain amendments suggested by me, would appear to offer the greatest protection of the Government's interest under the program. I have suggested that the said amended bill H. R. 3022, as reported, be amended for the purposes, primarily, of (1) creating, as an independent agency, an Office of Contract Termination with a Director of Contract Termination at the head thereof who would be charged with administration of the program, since it would appear to be desirable to separate the administrative functions from the independent function of reviewing settlements; (2) setting forth, in general terms, the basic elements for consideration in the making of settlements, thus affording a yardstick for administrative guidance; and (3) establishing not less than one Regional Board, of three members, in each State for the consideration of tentative agreements, in lieu of one or more termination claims adjusters in each judicial district. This office would heartily endorse the enactment of the reported bill H. R. 3022 should it be amended as suggested. Since the bill, H. R. 4717, does not provide for an independent review of proposed settlements of termination claims prior to the making of final payments thereunder I cannot recommend its enactment. Aside from my objection to the general plan proposed in the bill, H. R. 4717, there are certain specific features of the bill which I consider to be objectionable even if such general plan is to be adopted. Section 3 (c) of the bill provides that the Comptroller General shall keep the Congress adequately informed concerning the administration of the program. In accomplishing that end the Comptroller General would be required to report to the Congress, from time to time, on whether the settlement methods and procedures employed by Government agencies functioning under the program are of a kind and type designed to result in expeditious and fair settlements, whether such methods and procedures are followed by the agencies with care and efficiency, and whether such methods and procedures adequately protect the interest of the Government. While the said section may give the appearance of imposing upon the General Accounting Office a new and effective duty to perform, actually it would not do so. On the contrary, it apparently would operate to limit, insofar as the termination settlements are concerned, the general duties and authority which the General Accounting Office now has under sections 312 and 313 of the Budget and Accounting Act, 1921 (42 Stat. 25, 26). Furthermore, the making of such reports to the Congress long after the settlements have been made would not, from a practical standpoint, serve any useful purpose. It is recommended, therefore, that subsection 3 (c) of the bill be eliminated. Section 4 of the bill provides, generally, that whenever the interests, rights, and property of the Government cannot be adequately protected in the settlement of a claim, no settlement shall be made until after an audit of the claim has been made and a certificate has been executed as provided therein. The said section sets forth the basis for determining whether the interests of the Government can be adequately protected and authorizes the contracting agencies to make such determination with the privilege of requiring the Director of Contract Settlement to make the determination. The Director would be required to make necessary audits and certifications but could authorize that they be made by the contracting agencies. The purpose of section 4 of the bill is stated in your letter of May 1, 1944, to the chairman, Post-war Economic Policy and Planning Committee, House of Representatives, to be "to protect the Government's interest and to prevent wasteful expenditures in the settlement of terminated war contracts, while not impeding rapid settlement in these vast majority of cases where the contractor is a responsible operator." In my judgment, the provisions of section 4 would not accomplish that purpose but, as a matter of fact, could operate to the serious detriment of the Government's interest because it is the interested contracting agencies which would be authorized to make the determination, a favorable determination under the first contract would govern the settlement of subsequent termination claims of the same contractor for a period of 12 months, and apparently in such case none of the claims so settled would be audited. It seems to me that such a procedure would increase considerably the possibility of fraud, collusion, or favoritism in the settlement of termination claims. Even in the case of an unfavorable determination the extent of the audit required to be made is not set forth and it is noted that the Director could delegate to the contracting agency involved the authority to make the audit. In this connection it would appear that the audit could be one in name only in view of the provisions of subsection 16 (b) which authorizes contracting agencies, war contractors, and other persons to rely upon certificates of war contractors without any corroboration or investigation whatever. This provision will encourage officials to accept the facts presented to them by contractors, without an independent determination or examination on their part, in the knowledge that they may do so without liability, and I have no doubt that it will encourage many contractors to make incorrect and improper certifications as to facts, for their own gain, in the knowledge that such certifications will be accepted and relied upon without an ascertainment of the correctness of the statement of facts so certified. I see no reason why an audit should not be required in all cases or why facts certified by a contractor should not be properly verified before being accepted. It is recommended, therefore, that section 4 and subsection 16 (b) be eliminated from the bill and that provision be made in the bill requiring an audit of all claims prior to settlement thereof. The provisions of section 16 (a) of the bill, which would relieve contracting officers and other officials of liability for all acts except those established to be fraudulent, appear to be prejudicial to the Government's interest and are quite the opposite of recognized concepts of responsibility and care. While an overpayment in a given case might not be the result of fraud nevertheless it might have been made under such circumstances as to be inexcusable, for which the party responsible should be held to account. Furthermore, fraud in such matters is difficult of proof, in the absence of which guilty parties would escape liability. It would seem, therefore, that, in its practical application, the said provision, if enacted, would encourage laxity and carelessness by officials involved by reason of the knowledge that they would be responsible only for acts that could be established as fraudulent. I believe the provisions of section 16 (a) are entirely too broad and that some liability should attach to responsible officers, in addition to their liability for fraud. It is suggested, therefore, that consideration be given to amending seid section 16 (a) to provide that no officer or employee of the Government shall be personally liable, under the circumstances stated therein, in the absence of fraud, negligence, or carelessness on his part. Section 24 of the bill H. R. 4717 would authorize the Director to delegate any authority and discretion conferred upon him to the head of any Government agency, and to authorize successive redelegation of such authority and discretion. I seriously doubt the wisdom of this provision of the bill. Not only is the necessity for such delegation and redelegation not apparent, but there can be no doubt that the whole scheme of having supervision and control of the settlement program independent of the contracting agencies would be weakened if not entirely destroyed-depending on the extent to which the authority to delegate and redelegate be exercised-as complete authority with respect to the settlement of termination claims, interim financing, loans, etc., could be delegated to the contracting agencies and the various contracting officers thereof whose action is not subject to appeal except in the interest of the contractors. Consequently, I recommend that subsection (a) of section 24 of the bill be eliminated. I notice that in your letter of May 3, 1944, to the contracting agencies, you have solicited comments and suggestions on the relationship of the bill to speeding the day of victory and, after victory, aiding in a healthy conversion of American industry to the ways of peaceful prosperity by, among other things "protecting the Government's interests against overpayments, arising out of hurried or careless settlements with even a few irresponsible contractors. Failure to provide effective safeguards against such overpayments could easily culminate in severe losses to the Government, shocking post-war scandals and general disapprobation of the executive agencies." My principal efforts in connection with the termination program have been directed to insuring that the interests of the Government shall be adequately protected. Based on a careful study of the problem for a long period of time, it is my considered judgment that it would be possible under the provisions of H. R. 4717-which would operate to confer tremendous authority upon contracting, agencies-that the very things which the bill purportedly is designed to avoide could happen. I reiterate, therefore, that I cannot recommend enactment of the bill. Sincerely yours, (Signed) LINDSAY C. WARREN, Comptroller General of the United States. EXHIBIT 3 OFFICE OF WAR MOBILIZATION, ADVISORY UNIT FOR WAR AND POST-WAR ADJUSTMENT POLICIES, Hon. ESTES KEFAUVER, House of Representatives, Washington, D. C. MY DEAR MR. KEFAUVER: Upon my return to the city I find your letter of May 3, together with the copy of the letter addressed to the Honorable William M. Colmer. I am pleased to know you are giving your attention to this matter. Since Mr. Hancock, my associate, has been devoting almost his entire time to this problem of the settlement of terminated war contracts, I am leaving to him the detailed comments on your bill, H. R. 4717. He is writing you in his capacity as Acting Chairman of the Joint Contract Termination Board. The importance of prompt enactment of contract-settlement legislation is all that you say it is both for speeding victory and for the return of industry to peaceful prosperity with jobs for all. This fact is ably set forth in the report of the Special House Committee on Post-war Economic Policy and Planning in endorsing H. R. 4789, on May 11 and there is little that I can add to this fine treatment of the subject. Scandals must be avoided and the Government protected in every way. Just as important as anything else is the fact that the public retain confidence in Government and in the people administering its rules and regulations. The recommendations in our report of February 15, 1944, do insure adequate protection of the public, while making for fast, fair, and final settlements. The whole purpose of terminating war contracts is to save the public money by halting the production of war goods as soon as they are no longer needed. The rights of the contractor-what he is entitled to-are set forth in the contracts themselves, specifically in the uniform termination article which was developed under the direction of our office and put into effect last January by Director of War Mobilization, James F. Byrnes. I have never heard any suggestion that this uniform article treated war contractors liberally at the expense of the Government. There have been complaints on the other side. This uniform article provides stiffer standards of payment than was followed after the last war. In no sense whatever are contractors being given anything. They are to be paid only what the Government owes them and it is to the public interest that these settlements be arrived at quickly. Your letter speaks of two groups, one desiring speed of settlement and another desiring protection of the public, and you say "The two objectives of both groups are sound and desirable and are by no means irreconcilable". We have reconciled those two objectives in the recommendations in our report by providing for adequate safeguards before the final settlements are made. Finality of settlement is vital for it is the only effective way of insuring speed of settlement throughout industry-to subcontractors and suppliers particularly and of promptly clearing plants to make room for peace production without moving all of this stuff into inadequate storage facilities where its use will be lost and values evaporate. 99189-44- -7 in respect of accelerated amortization under certificates of 1 by section 124 of the Internal Revenue Act as income-tax coladed from any termination settlement. hanged into the profit and loss account of the contractor or costs hallowed but not yet charged off must be excluded. luded in any claim previously asserted or settled or otherwise o rombursed must be excluded.' to provik gjeater umformity and to remove any possibility of uneer- icd are to be excluded from other claims it would seem meet condition with respect thereto—that is, an express he amount of any claim so settled is to be added to lement proper for the purpose of determining, under the That the total amount payable under the cone but not compensated, shall be no greater than ading profit and actual expenses incident to the een received for the work done had the contract „exed this imight be accomplished by eliminating di sentence of paragrapa 4 and adding the words The amount allowable under the prime sentence of paragraph numbered I of this sub e provisions of the quoted draft might seed on d of S. 1718, or in section 7 of H. R. soi cruded it is suggested that it might seccións 3 13 and 7 (a) of S. 1718, or subast may be, since certain provisions hose subsections. under section 4 (a) (2) and section 4 (b) (1); or, to insert two new subsections in section 4 (a) and (b), respectively, as follows: (Sec. 4 (a)) "(5) where Office of Price Administration price ceilings, if any, are applicable to materials in inventory or to products, completed or in process, claims allowed for such materials and products shall not exceed such applicable Office of Price Administration ceilings.' (Sec. 4 (b)) "(5) applicable Office of Price Administration price ceilings, if any, have been ascertained and claims for materials or products subject thereto do not exceed such applicable price ceilings." Without the suggested changes, the contractor and the Government agency might infer that Office of Price Administration ceiling prices, if any, could be disregarded. The Office of Price Administration is presently engaged in determining the effects of price controls in this area and will take necessary steps to see that undue impediments to quick settlements are avoided, while at the same time protecting the interests of the Government and of subsequent purchasers from the Government of such materials. Lacking such safeguards there is real danger that high prices paid under contract terminations may be reflected in higher costs of production and increased costs of living when the materials and products so purchased by the Government are resold and used for the production of civilian type goods. Again thanking you for giving me the opportunity to express my views on the proposed bill, I am Sincerely yours, CHESTER BOWLES, Administrator. EXHIBIT 6 Mid-year meeting, Council of the American Institute of Accountants, WaldorfAstoria Hotel, New York, Tuesday, May 9, 1944 RESOLUTION ON AUDITING IN SETTLEMENTS OF TERMINATED WAR CONTRACTS Whereas certain proposed legislation before the House of Representatives would provide for participation by the General Accounting Office in decisions as to amounts to be paid to war contractors whose contracts have been terminated for the convenience of the Government; and Whereas such participation by the General Accounting Office would inevitably lead to delay in settlements and duplication of audits or accounting reviews which in any event would have to be conducted by the procurement agencies, and sufficient trained personnel is not available to do the extra work; Whereas sound business practice has demonstrated that the person responsible for audit of completed transactions should have no share of responsibility for the administrative decisions governing such transactions; be it Resolved, That the Council of the American Institute of Accountants, assembled in regular meeting, May 9, 1944, urges Congress to enact legislation providing: (1) That the procurement agencies have the responsibility for settlement of terminated war contracts, and that their settlements once made be final and binding except for fraud. (2) That the General Accounting Office, by tests and samples, in accordance with generally accepted auditing practice, make postaudits of the records of the completed termination settlements at the offices of the procurement agencies to the extent necessary to satisfy it as to both whether or not fraud existed, and whether or not the procedures followed by the procurement agencies in termination settlements were functioning properly, with adequate safeguards; reports of the findings of the General Accounting Office to be submitted periodically to the proper administrative authorities and to Congress. (3) That the Comptroller General have no participation in settlements by the procurement agencies, either with or without a vote, because he would thereby be disqualified from making an independent audit of decisions in which he had himself participated; and be it further Resolved, That the Council of the American Institute of Accountants approves the provisions of Senate bill 1718 relating to this subject, which appear to be wholly in conformity with the principles outlined in this resolution. |