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have advanced in price 150 per cent, and muslin has advanced 75 per cent. All the way down the list the materials used in the bureau have increased proportionately in cost. I had to buy these materials subject to Congress authorizing an appropriation for them, and I am personally liable for it.

The CHAIRMAN. What is the exact deficit?
Mr. Ralph. $125,000 for materials and miscellaneous expenses.
The CHAIRMAN. That is an ascertained deficit ?

Mr. RALPH. Yes, sir. We knew that on the 2d of July, because we could not make a contract. We have an unexpended balance on compensation of $68,000 and on plate printing of $147,000, making a total of $215,000 that I expect to turn into the Treasury as an unexpended balance.

Mr. Canxon. I want to get this straight in my own head: Not having done all of the printing that would have been done under normal conditions, you were left with that amount of unexpended balance to turn into the Treasury, and you have had to do work in the printing bonds and other urgent matters beyond the amount of your appropriation ?

Mr. Ralph. Yes, sir.

Mr. Caxxox. And not having the power to transfer funds from the appropriation for plate printers and from other appropriations to this specific work that you felt you were compelled to do, you went ahead, and the Secretary of the Treasury agreed with you as to that proposition?

Mr. RALPH. Yes, sir; that is right. I want to say that there was machinery which had to be purchased to carry on the bond work, and that could not be foreseen.

The CHAIRMAN. What work has not been done that it was anticipated would be done?

Mr. Ralph. I can not state specifically-
The CHAIRMAN (interposing). What class of work?

Mr. RALPH. Notes, silver certificates, gold notes, and miscellaneus.

The CHAIRUAN. I wish you would fix up a memorandum showing the amount of work in the various classes that was not done, but that was estimated to be done.

Mr. Ralph. Yes, sir. In addition to that, Mr. Fitzgerald, I reluced our stock of faces and backs, in order to get in a stock of bonds. You see we carry a large stock, about 25,000,000 sheets, that is in process of completion, and the 1st of July we had reduced that very materially, which increased the amount of unexpended money for plate printing.

DEFICIENCY.

MATERIALS AND MISCELLANEOUS EXPENSES, 1917.

Increase in limit.

7,00).000 slieets regular revenue stamps, 4,000,000 sheets war

revenue stamps, 200,000 sheets checks, drafts, and miscellaneous,

amounting to--Increase in prices after contracts had expired. Offset, typographic and power plate presses_

$50, 000 23, 000 52, 000

Estimate submitted May 31,

1917

125, 000

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Linseed oil, $0.78 to $1.33 a gallon.
Millinet, $0.30 to $0.45 per pound.
Steel plates, $0.0324 to $0.05 and $0.055 per square inch.
Printers' blanket, 100 per cent.
Muslin, 60 per cent.

ESTIMATED SURPLUS, 1917.
Compensation
Plate printing

The CHAIRMAN. I would like to have a statement of the work of the various classes which it was anticipated would be done, but which was not done.

Mr. RALPH. Yes, sir; I will be glad to furnish that.

$68,000 147,000

64

Statement of rarious classes of work not done, together with the corresponding

reductions in erpenditures in the 1917 appropriations for Compensation of employees " and forPlate printing."

Compen- Plate sation. printing.

$10,000

2,205,000 sheets plate printed less than estimated and a corresponding increase in

sheets surface and oifset printed.
1,818,000 sheets of national bank and Federal reserve bank currency delivered less than

estimated..
5,525,000 sheets decrease in stock of money backs and faces.
Saving in part loss of leave, and in overtime cost not bearing any pro rata for leave
and holiday pay.....

Unexpended total for 1917...

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WORK OUTSIDE BUREAU.

The ChairMAX. Is any of this work being done outside of the Bureau of Engraving and Printing!

Mr. Ralph. We are having the Jocumentary stamps done outside of the bureau.

The CHAIRLAN. Where are they being printed?

Mr. RALPn. In Buffalo, X. y. It is being done at the rate of about 12,000,000 stamps a day.

The CLAIRMAN. Where is that being done?
Mr. RALPI. In Buffalo.
The CHAIRMAN. Out of what appropriation?

Mr. RALPH. That will be paid out of the appropriation for materials and miscellaneous expenses.

The CHAIRMAN. How can that be done? What authority have you for doing that?

Mr. Raliul. Under authority in the war-tax bill. That permits work that the bureau can not execute to be done outside of the bureau.

The CHAIRMAX. Under which war-tax bill?

Mr. Ralph. Under the one pending in the Senate.
The CHAIRMAN. It is not a law vet.

Mr. Ralph. I know it is not a law. Would you have me to stop that!

The CHAIRMAN. That is unquestionably an absolute violation of the law. It is a violation of the law to use that money for work done outside of the Bureau of Engraving and Printing.

Mr. Ralph. I am doing most of the work with my people. Practically 85 per cent of the employees on this work are my own emplovees.

The CHAIRMAN. What do you mean by that? That is a plain violation of the law.

Mr. RALPH. Would you have me to discontinue that work now? Would you consider it good business policy to discontinue it?

The CHAIRMAN. I consider it absolutely indefensible for whoever is responsible for it to take money appropriated for work in the Bureau of Engraving and Printing and pay it out for work done on the outside of the bureau in violation of law.

Mr. RALPH. We have not paid it. The CHAIRMAN. And you can not pay it because the statute prohibits it.

Mr. Ralph. We will not pay it until the bill becomes a law.

The CHAIRMAX. If anybody authorizes it to be done, it is absolutely indefensible. It is the setting up of personal authority in defiance of law. What does this contract amount to?

Mr. Ralph. I do not think it will be over $10,000. It will be in the neighborhood of $10,000 or $13,000.

The CHAIRMAX. How much is the contract for!
Mr. Ralph. It is not for any definite amount.
The CHAIRMAN. The contract is for what?
Mr. RALPH. I do not know how many stamps we will print there.

The CHAIRMAN. Please send up a copy of this contract with a statement of the work done under it.

TREASURY DEPARTMENT,
BUREAU OF ENGRAVING AND PRINTING,

Washington, D. C., July 26, 1917.
Hon. John J. FITZGERALD,
Chairman Committee on Appropriations,

House of Representatives. Sir: In compliance with your verbal request and with further reference to the matter of printing stamps by a private concern discussed in connection with the deficiency estimates, I beg to state that no formal contract has been made with the Niagara Lithograph Co. for the reason that the nature of the work required to be done was such that a fair estimate upon a per thousand stamp basis could not be made by them. At several conferences with their representatives, both here and at their plant in Buffalo, the manner and the conditions under which the work was to be done were discussed and mutually agreed upon, subject. howeverto the approval of the Secretary of the Treasury.

On June 5, 1917, I addressed a letter to the Assistant Secretary of the Treasury, Oscar T. Crosby, recommending approval of the informal agreement I had marle with the company, which he did by letter of June 6, 1917. A copy of each of these letters is inclosed herewith. The company's representatives were told that the Secretary had approved of our understanding, and work was promptly started under the supervision of this bureau as verbally agreed upon.

On June 11, 1917, the coinpany addressed a letter to this bureau embracing an outline of a formal contract which it was expected to enter into with this pumpany. This letter was quoted in the memorandum I furnished as a part of the hearings.

On account of the press of work and on account of not knowing the cost and volume of work to be done the formal contract had not been made.

The documentary Stamps were ordered by the Commissioner of Internal Revenue in a letter addressed to the Secretary of the Treasury on May 15. 1917, and referred to this bureau on May 18, 1917, with instructions to execute the order. A copy of this order is also inclosed herewith.

Relative to postal savings certificates, which this bureau has been printing and binding for the Post Office Department for some time, it was decided. owing to the congested condition in the surface printing division, to relieve that division temporarily of the printing of these certficates and to have the printing done at the plant of the Niagara Lithograph Co., the binding and other work continuing to be done at the bureau, as heretofore. Respectfully,

J. E. RALPH, Director.

TREASURY DEPARTMENT,

Washington, June 6, 1917. Hon. JOSEPH E. RALPH, Director Bureau of Engraving and Printing,

Treasury Department. Sir: You recommendation of June 5 is approved and you are authorized to employ the Huebner-Bleistein Co., of Buffalo, N. Y., to prepare offset plates and to print therefrom documentary stamps in anticipation of the new war-revenue bill and postal savings certificates, which are required by July 1, the estimated requirements of which are 2,500,000 sheets of the former and 500,000 sheets of the latter. The method of payment for the above service may be determined later, as you suggest. Respectfully,

Oscar T. CROSBY, Assistant Secretary.

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TREASURY DEPARTMENT,
BUREAU OF ENGRAVING AND PRINTING,

Washington, D, C., June 5, 1917. Hon. OSCAR T. CROSBY,

Assistant Secretary of the Treasury. SIR: I have the honor to state that, owing to the great pressure of work in the surface division of this bureau, in the overprinting and numbering of the Liberty Loan bonds and the various certificates required in connection with the issue of those bonds, it is necessary to obtain additional help for the work of that division, and it would appear to be most practicable to have two large jobs executed outside of the bureau. These jobs are the documentary stamps, in anticipation of the new war-revenue bill, and postal savings certificates, which are required by July 1, the estimated requirement for the former being 2,500,000 sheets and for the latter 500,000 sheets.

Both of these jobs are printed by the offset process, and I arranged with the Huebner-Bleistein Co. of Buffalo, N. Y., who are experts in making offset plates and printing therefrom, to make plates for this work and do the printing, but it is difficult to estimate the cost of the work in advance, and the most feasible method of handling the matter would be to have them do the work at cost plus a fair commercial profit. This is a little unusual, as the practice of your ollice is to require me to submit requisitions with stated amounts as to the cost of the material and service before approval thereof, but I believe that this matter can be handled more economically for the Government by the method above explained.

I, therefore, respectfully request your approval of the plan of having this work done by the firm above named and under the method statel as to cost. but if you do not approve of the method of cost, I would ask that you in any event immediately approve of having the work done at that plant so that I may begin to make arrangements therefor, and later determine the method of payment.

In case of your approval of having this work done outside of the bureau, it would be my idea to send the necessary Watchmen from the bureau to guard the plates, paper, and printed impressions, and any other expert employees that might be needed in the work, and I would go personally to start the operations and see that everything was properly safeguarded. Respectfully,

J. E. RALPH, Director.

TREASURY DEPARTMENT,
OFFICE OF COMMISSIONER OF INTERNAL REVENUE,

Washington, D. C., May 15, 1917. The SECRETARY OF THE TREASURY.

Sir: I have the honor to request that you will instruct the Director of the Bureau of Engraving and Printing to print and deliver to this office the follow'ng internal revenue stamps, if authorized by an act of Congress, this order to be supplemental to that of 1917 :

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Stamps from $30 and higher should be in books, as follows: $30, $60, and 100, forty to a book; $500, eight; and $1,000 four. Respectfully,

DAVID A. GATES, Acting Commissioner. Mr. GILLETT. What do you mean by saying that you use your own employees at the factory?

Mr. Ralph. We sent 12 employees up there to supervise the work. The work is done by a modern process. We could not execute them in the Bureau of Engraving and Printing.• We entered into an agreement with them that when the law is passed they will be paid the actual cost for their presses, plus 10 per cent.

Mr. GILLETT. Do you mean that it is done in some engraving establishment? Mr. RALPH. It is done in the largest lithographic plant in America. The CHAIRMAN. Was the contract made with them by private arrangement? Mr. RALPH. Yes, sir. The CHAIRMAN. There was no actual competition? Mr. RALPH. No, sir. They have the most modern process. The CHAIRMAN. I am asking you now how the arrangement was made. Mr. Ralph. There was no competition whatever. The CHAIRMAN. On what basis is it? Vr. Ralph. On the basis of actual cost, plus 10 per cent. The CHAIRMAN. Who estimated 10 per cent as the allowance to Mr. Ralph. That is what they asked for. The CHAIRMAN. And no effort was made to ascertain whether any of these other concernsMr. Ralph (interposing). We personally inspected their costs.

be made?

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