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Secretary REDFIELD. It is challenged, because it is only a half truth. What is the other half-what is the need for this organization?
Mr. VICHOLSON. If public accountants are going to be employed for the Government, not by the client of the Government but for the Government, it would cost the Government probably fifteen times more than it would cost them through having a bureau here in Washington or a division who could do this work as governmental representatives,
Mr. SHERLEY. That depends somewhat upon the division, and, perhaps, we have had more experience as to the cost of divisions in Government work than even the expert accountants have.
Mr. CUTLER. It is utterly impossible for any individual concern to secure the sympathy of the industries of the country. We frequently have the benefit of the advice of the largest concerns, who are very glad to cooperate with the Government.
Mr. SHERLEY. Is there any difference between men who are acting for the Government and a private concern who is acting for the Government in the sympathy with which they would be received ?
Mr. CUTLER. Very much so. Mr. SHERLEY. I can not see it. Mr. NICHOLSON. May I suggest one more thought which should be taken into consideration. Perhaps, out of 10,000 or more firms of certified public accountants throughout the country there are probably not more than 150 of them that do what we call cost work or who have cost experts on their staffs. So it would be rather a diffivult thing if the Government was employing certified public accountants throughout the country to really find those firms who could do this work, even if they were willing to pay the regular professional rate.
Mr. SHERLEY. Of course, you appreciate that the Government usually, and most of us trust shortly again, will buy through competitive methods in which the protection of the Government comes by virtue of the competition between rival bidders. In that instance, the contract price is not related directly to the cost. Right now the Government is buying very largely. Some departments have been able to get along and take care of their load, though the load has been very heavy, whereas other departments, with a less load, have broken down and have apparently had to go out and get assistance from all sorts of sources to help them perform the functions for which they were created.
Mr. NicHOLSON. Most of the work we have done has been in connection with cost, plus contract. If the Government were making straight purchases it does not seem to me that we would be called into the proposition at all.
Mr. SHERLEY. That is it. The question comes up as to the extent of the work resulting from purchases by the cost plus plan and the facility of the Government to perform that work through existing agencies or through the employment of commercial agencies that exist for that purpose.
Mr. CUTLER. You are asking whether an individual concern could do the work which our so-called division is doing. It would be utterly impossible for any individual or any individual firm to bring
together, for instance, all the canners in the United States within a few hours and get them to agree to give the Government the benefit not only of low prices, but of quick service, which they did when they came before us as an intermediary of a Government department.
Nr. SHERLEY. That is the very function for which the Council of National Defense exists. Washington is so filled with committees that none of us can keep up with them.
Mr. CUTLER. The council is represented there on the departmental manual. They have three of their members there.
Mr. STERLEY. The Council of National Defense has an advisory committee on the subject of accounts, has it not?
Secretary REDFIELD. Yes; in cooperation with us.
Mr. Nicholson. They are not doing any field work. They simply act in the capacity of advisers. They have an officer in Washington and they advise on questions which are brought up. They do not do any field work of any character.
Mr. SHERLEY. As I understand, they do not undertake to check the books of the contractors with the Government; but their function, so far as we have been able to ascertainthat has been one of the unsolved riddles growing out of the war-is to get together the various men engaged in a particular industry, the particular committee dealing with it being composed of large producers, manufacturers, or buyers who have the technical knowledge that enables them to ascertain the extent of production, the time in which it can be had, and what would constitute a fair price. The very theory of their existence has been to do these things. If I understand you aright, it is your purpose to check them?
Secretary REDFIELD. To do the field work for them. They come to us for that work, because they can not do it themselves. That is exactly the point.
Mr. SHERLEY. The purpose for which they have been called into existence they are unable to perform?
Secretary REDFIELD. Not at all. That is an entirely unfair conclusion, not meant to be, and incorrect. They are not constituted for the purpose of doing the field work. They are constituted for the purpose of coordinating, as the law says, and when they need information which their force does not permit them to get, they come to us for it and we aid them to do it, and then the work is coordinated. It seems to me the question here is this, whether there are private means of doing this work on behalf of the Government at a corresponding cost. If there are such they are not known and are not in use, except in certain departments that have their own force. Then has the work proven economical and effective in the saving of money? It is saving in the cost of milk alone, through the investigation of the costs, double the total amount of the cost of the milk.
Mr. SHERLEY. A contract has been let at a price less than that offered by the milk producers, and the conclusion is that that means a saving to the Government.
Secretary Redfield. The inference is not correct.
Secretary REDFIELD. The inference which I gather you are seeking to develop is apparently unfavorable, and which, I think, a candid view does not justify.
Mr. SHERLEY. It is the business of this committee to develop the unfavorable side if it can, in order that it may be known.
Secretary REDFIELD. Surely.
Mr. SHERLEY. We never have the unfavorable side volunteered by men who desire to obtain appropriations.
Secretary REDFIELD. I am ready to leave it entirely to your judgment.
Mr. SHERLEY. I want to secure from you the information which you desire to submit.
Mr. Cannon. There has been an aviation contract let in Champlain. Land was secured with growing crops which were cleared off and there were a whole lot of things to be done in order to have the work completed by the 1st of September. They went to work and in that locality and surrounding counties the cost of carpenters ran up, because they could get employment there at $5, $6, and $7 a day. As I understand, they took teams out of the growing-crop season. not criticizing it at all, but that was stress work.
Out at Fort Benjamin Harrison, it is alleged—I do not know whether it is true or not—water boys are getting $3.50 and $t a day. When that man comes to get his money does this organization in any way deal with the auditing of his accounts?
Secretary REDFIELD. No, sir. The contract is made in such a way that that can not be done. We go deeper than that, and that is the difference. That is the whole difference in the point of view of the chairman.
Mr. SHERLEY. I have not expressed any point of view; I have merely asked questions in order to get information.
Secretary REDFIELD. I understand. This is not an auditing body; we have no use for auditors at all. This is a method of determining whether the cost is kept upon proper principles; whether the elements of cost that are alleged to exist do exist or exist in the same measure in which they are alleged to exist. Now, for example, Mr. Cannon, let me illustrate by a factory with which I am familiar. Suppose I take a contract on the cost-plus-percentage basis and I include in my expense 20 per cent for depreciation. That may be true of certain machinery which goes to pieces very rapidly, but it would be wholly untrue of other machinery which may last for a great many years.
No department can deal with a question like that. We would deal with the accuracy of the methods used; we would go in and determine fundamentally whether that was the right method on which to base the item of depreciation; whether the Government ought to be charged that as a part of the cost or not, and whether it should be 20, 10, or 5 per cent. That same cost runs through all kinds of accounting. Let us come down to this question of milk. There seems no reason to doubt that a contract would have been made at the higher price without our interference, because there existed no means of knowing anything else. The milk manufacturers were sincere enough; I think there is no question about that. They were trying to put nothing over, but the Government was helpless in their hands for it had no means of finding out whether the cost methods, not the cost figures, by which the milkmen got at their price were sound. The Government would have had to make that contract at the higher price had it not had that knowledge, and, therefore, the saving is an absolute and immediate saving, just as I save money when, instead of paying $12 for something, I learn about it and pay $10; then I have saved $2. You are not warranted in assuming it is a supposititious saving, because it is a real one.
Take the case of a shipyard building a large vessel, where we went into one yard and saved a clear $100,000 by making recommendations to the Navy, not based upon the accounting of the books: we do not go through and check up their books; that is not our business; our business was to show whether the prices upon which the Government was being charged cost were right prices or wrong ones; if wrong, then the Government should not pay a percentage on that cost at all.
If there is anybody else who can do this work in private lines, then let them do it. But we have never heard of any; there is none offering this service to the Government. But these people have taken up the work and made a great success of it and as a matter of money and of finance they are saving during every three months to the Government at least the total estimated cost per annum, and I can only refer you to—I do not think it is necessary to take the time of the committee longer-to the viewpoint of the Secretaries of War and Navy, and especially to the viewpoint of the compensation board and to the contract made. In this you will find a report upon the depreciable property, reserve-fund charges, etc., of the following companies, and then follows a list of the shipbuilding companies of the country.
Now, it is not the business of Price, Waterhouse & Co. or J. Lee Nicholson Co. to go into an establishment like mine, or those I have been referring to, and tell me whether my methods of charging up depreciation are wrong or not. That is not their duty, as the Gorernment has an accountancy committee whose duty it is, and it can not be the duty of a private concern to say to a shipbuilding company
“ Your methods of determining your depreciable property are wrong or your figures are wrong.” but they say “Your whole prin
, ciple is wrong, and you must deal with the Government on another principle."
Now, it is nothing to us, gentlemen, whether you give us this money or not. We do not care to contest for it for a moment, only we have saved the Government, perhaps a half million dollars in eight weeks by doing it. If it is not worth it, and if there is any other agency to do it, let them do it.
Mr. Byrns. Is it expected that this division will be exclusively employed in making investigations with reference to Government contracts ?
Secretary REDFIELD. For the present we think that is all that it is possible for it to do. If we should go into any larger work it would have to be very greatly extended beyond what we think is proper.
Mr. Byrns. The estimate submitted provides “For arranging and standardizing governmental and industrial cost-accounting methods."
Secretary REDFIELD. Here you will find a very fine piece of work, and work of this kind inevitably reacts upon everybody. Here is a very fine piece of work, and I call your attention to the fact that it is
the first and only thing of its kind. Never in the history of the Government has it ever been done, and it answers at once every question as to the value of the work. There it is in print and approved by these great departments that have worked together upon it. In it there appears a standard form. In the first place, for the first time here is a definition of depreciation and here is a standard form for cost and contract. There never has been such a thing as that prepared. The departments have been entirely independent one of another. I think I am right in that respect. Here for the first time the Government is given a standard form, which is a form accepted by industry as well as by the Government. That has never been done before. It has never been possible for a contracting officer of the Government to lay his hand upon a standard form of contract, but this is the standard form, uniform throughout, and acceptable to the Government and acceptable to industry, too. In the first place, here is a standard form for purchasing contracts. There are three of them here and they are entirely new. They have been done after careful cooperation between all of these buying departments and the industries. At least, gentlemen, this is true: They may be deceived; the War Department, the Navy Department, the Commerce Department, the Trade Commission, and the Council of National Defensethey may all be deceived, but they all think and they say in writing that this is new; that it never has existed before; that no private organization has ever suggested doing it before, and for the first time in the history of the Government I present to you forms of contracts, agreed upon officially between the Government and industry, to which there is no exception on anybody's part, and which for the first time are thoroughly protective of the Government.
Now, this is my last word and this refers a little bit to patriotism. The Government has been accused—and has been accused here in Congress of buying carelessly, of buying heedlessly, of buying ignorantly, and there are those who have pointed the finger of scorn at it in the past, and past administrations have been accused of carelessness in those respects. Now, for the first time we have provided a check against it and here it is; it is right or it is wrong, but we submit it for what it is worth. Take the contracts and put them before an accountant or any private scientific critic; if they are wrong, they ought to fall, but if they are right they ought to stand. Yet this work has never been attempted in the history of the Government before.
Our purpose in doing this work is not to create a division. In heaven's name, gentlemen, Mr. Nicholson is earning five times as much at home as he is getting here, and Mr. Cutler is doing the same thing. They can not afford to fool with these things for the purpose of getting a division created. Take it out of the Commerce Department and put it in the hands of a committee of Congress or put it wherever you will, because everything that suggests suspicion is unworthy of you and of me. We are trying to save our country money in a practical and scientific way. Now, let it end with that.
Mr. SHERLEY. Mr. Nicholson, you conducted this milk examination?
Mr. NICHOLSON. Yes.