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Mr. SHERLEY. You could have conducted it, of course, as a member of a firm of accountants if you had been employed by the Government for that purpose!

Mr. NICHOLSON. Oh, yes: if the Government had employed my firm, I could have handled it in the same manner; I could have handled it for the Government, but the only difference would have been the fee charged.

Mr. CUTLER. There would have been the question of fee and also the cooperation of the business interests.

Mr. NICHOLSON. I would like to state in connection with the matter that the accountancy committee of the Munitions Board tender their services to the Government free. While no doubt they are able to be of very great service to the Government in a great many questions in giving them advice on certain matters in connection with cost matters, and especially in relation to the cost of work that I am doing, yet it is absolutely impossible to give advice without having the data first, and in order to get that data a certain amount of field work is necessary, and, of course, that work is placed on the accountancy committee, unless they were to recommend the employment of a great number of public accountants.

Mr. SHERLEY. I thoroughly appreciate the question of the medium through which that should be done. Now, if I understand the statement the Secretary has made, you have arrived at uniform contracts which you think should be used by the Government in entering into contractual relationship with corporations and individuals touching the supplies to be furnished and the work to be done for the Gorernment.

Mr. CUTLER. Yes; I think so, if I understand your question.

Mr. SHERLEY. Have you covered the field in these uniform contracts?

Mr. CUTLER. The entire.field of industry?
Mr. SHERLEY. Well, the form of contract that should be used.

Mr. CUTLER. We think we have, subject to some modifications that may appear advisable as experience leads to them. We are new at it and so is the Government.

Mr. SHERLEY. This was a meeting of various officials from various departments?

Nr. CUTLER. Oh, not one meeting; this was going on for six weeks.

Mr. SHERLEY. A meeting of the various men from the different departments with you gentlemen, covering, as you say, something like six weeks of time?

Mr. CUTLER. Yes, sir.

Mr. SHERLEY. And as a result of that you have arrived at these uniform contracts.

Mr. CUTLER. Quite right.

Mr. SHERLEY. That work being behind you, what particular activities would you now pursue?

Mr. CUTLER. We would find out whether all of the contractors with the Government pursue the definitions and the directions given in that pamphlet.

Mr. SHERLEY. That would really be a matter of auditing, if I under. stand it right. If you have laid down the form of contract and have defined what shall constitute depreciation and what elements shall go into overhead and what into various other items of cost, then the

question of whether a given manufacturer has or has not made his figures on that basis becomes a matter of auditing his accounts, squared to the standard which you have previously laid down.

Mr. CUTLER. Quite right. Nevertheless there is a variable quantity there. We say that depreciation, for instance, should cover only the quantity used in the articles being bought by the Government. , Frequently a manufacturer will say, “What percentage

• should that be?" In other words, they want a continual and daily interpretation of some of the items; they come to Washington to confer with us on the matter and we sometimes go to their plants and tell them we can not say that depreciation shall be 20 per cent, for instance, but that it should be proportionate. When we go through their plants we tell them exactly what we think it should be, with the compliance, of course, of the contracting officers.

Mr. SHERLEY. I believe the Secretary stated that there had been an acquiescence by the public—that is, corporations and individuals in the statements and standards that have been established.

Mr. CUTLER. Are you asking that as a question?
Mr. SHERLEY. I just wanted to have that developed.

Mr. CUTLER. There has been an acquiescence to the point that they have agreed on the basic definitions. There are some cases where they disagree, but we think the Government should have the first say in the matter and should be the arbiters of it. Mr. SHERLEY. You say " they.” With whom has the matter been

taken up?


Mr. CUTLER. We had a conference many weeks ago-several weeks ago—with the comptrollers of some of the principal industries in the United States, representing the production of automobiles, ships, cash registers, foods, electrical equipment, and everything that is at present going into governmental contracts. We presented this manual to them. On some points they disagreed, but as to a great majority of

points they said we were right as guadians of the Government's money.

Mr. SHERLEY. Have you undertaken to supervise the contracts made by the Government, or the form of them?

Mr. CUTLER. Not those that already are let; our business is only previous to the letting of contracts.

Mr. SHERLEY. But when the Government actually enters into a contract to build a ship, to build a camp, to build a warehouse, or anything else, have you undertaken to advise the Government and to check up the form of the contract?

Mr. CUTLER. No, sir; we have assumed that all contracts so far let were let, whether imperfectly or not, in response to a very grave emergency, and that they were not revocable, but that work from now on, in accordance with our suggestions, would be more perfect and more economical.

Mr. SHERLEY. In determining the form of this contract was the legal phase of it considered? Mr. CUTLER. Quite. Mr. SHERLEY. You had lawyers advise with you about that?

Mr. CUTLER. There are no intricate legal points involved except those that come up customarily, and those can be dealt with by the accountancy committee of the Council of National Defense, whose


will see on the title page.

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Mr. SHERLEY. You are not a lawyer?

Mr. CUTLER. No. The contracting officers of the various departments are quite conversant with the legal questions that come up, and their opinion is embodied in that report.

Mr. SHERLEY. The details of this estimate of $65,000, under the head of employees, are a chief of division at $3,600; one assistant chief of division, $3,000; four accountants, $2,400; two accountants, $1,800; two accountants, $1,400: four stenographers, $1,200; one clerk, $1.200; and two assistant messengers, $720; a total salary list of $30.090?

Mr. CUTLER. Yes, sir.

Mr. SHERLEY. Then you have rental of quarters, $3,000; equipment, $4,000; stationery and supplies, $4,000; printing and binding, $5,000; books, periodicals, etc., $300; telegraph and telephone, $800; transportation of persons, $7,000; subsistence and other traveling expenses, $10,000; and miscellaneous, $810; making a total of $65,000. Where are you housed now?

Mr. CUTLER. We are now housed in the Commerce Building, where the Department of Commerce, or a large part of it, is housed.

Mr. SHERLEY. What assistance have you besides the five people you have mentioned ?

Mr. CUTLER. None.
Mr. SHERLEY. You have no stenographers or clerks?
Mr. CUTLER. We have one stenographer working now; that is all.
Mr. SHERLEY. Where do you expect to be located?

Mr. CUTLER. We have not selected a place as yet, but we realize that larger quarters will be needed if we are allowed to do the work that has devolved upon us from the various departments. We have not yet ascertained our location. It is rather difficult in Washington to say where you are going from month to month.

Mr. SHERLEY. Equipment, $1,000. Does that mean the equipment of the offices you intend to rent?

Mr. CUTLER. That is office equipment; that means tabulating machines, which are quite necessary; desks, pens, etc., all of the smallest items; typewriting machines also. We need a conference room be

Mr. SHERLEY (interposing). In the event the item should be recommended by the committee and it should desire to divide it up the division here represents the view of the department touching the number of employees, their compensation, and also the expenditures that should be made?'

Mr. CUTLER. Yes; if I understand you correctly. That is a very economical estimate, and that would be the minimum force we would need to do the big work that is coming to us.

Mr. SHERLEY. I wanted to ask you about that. Is it your idea that this division would need to examine into the methods of cost keeping of the various industries supplying the Government with supplies in order to be in a position to advise the Government as to whether the offers they made were fair or not?

Mr. ('UTLER. Quite, and also to advise industries whether they are wrong or not in making their quotations.

Mr. SPIERLEY. How big a force do you think would be necessary! The Government is going to spend something over six or seven bil




lion dollars in the next 12 months and it will spend it with all manner of people, in sums running from small ones to very large ones.

Mr. CUTLER. I did not get the first part of your question.

Mr. SHERLEY. I want to know how İarge a force you think would be necessary to do that work, having in mind those expenditures?

Mr. CUTLER. I think that this force here would confine us to the merely basic and elemental work; but if we had enough appropriation and enough force we could do a tremendously greater work along the same lines; but this will suffice, probably, for merely keeping a supervisory eye cn the entire question. I am trying to answer you in general terms.

Mr. Nicholson. Perhaps I can give you a little light on that. If the Government, for instance, were dealing with 10,000 business men, they would be divided up into classes; for instance, the canners throughout the country, the shipbuilding companies, and the refiners of sugar. In investigating the canning industry we might say that there were about 400 or 500, perhaps more; I do not know how many there are. I would select those who are acquainted with that industry and select a certain number of the canneries for study in different parts of the country, those canneries which represent the different prevailing conditions, and possibly 15 or 20 canneries would be selected for examination. You see, that would cover the whole industry.

Mr. SHERLEY. Am I to draw from that the conclusion that would seem to be warranted, that by taking 10 or 15 canneries you would get sufficient information touching the cost keeping of the canning industry as to enable the Government to say whether the prices were right or not? Mr. NichoLSON. Yes.

Mr. SHERLEY. If that be true, how do you square it with the idea that until now there has never been any uniformity, or even an attempt at it on the part of the business people, touching methods of cost accounting, and what should and what should not be charged and what percentage?

Mr. CUTLER. That willingness on their part to act as a body proceeds purely from patriotic motives and from a desire to serve the Government at this time. Heretofore they have all worked on what I might term as truly competitive and individual lines; that is, they have tried always to get the most from the Government with the Government trying frequently to get the least from them.

Mr. SHERLEY. But I do not know that you quite catch my point. Here are Jones & Co. and Smith & Co.; they are both engaged in canning vegetables; one of them has one kind of machinery and the other another kind; one figures on a 10 per cent depreciation and the other figures on a 12 per cent depreciation, and there is a similar difference as to what shall be charged as overhead: similarly, one carries his own insurance and the other one insures. Now, as I understand you, the purpose of this work is to check up a man's method of cost keeping in order to determine whether when he says it cost him so much to make a thing it is true or not. If that be so, how can an examination of a handful of men give you information as to a thousand others whose methods may all vary one from another?

Mr. CUTLER. They advise each other that certain approved methods should be immediately put in operation in their plants. Two men in Wisconsin growing peas are delegated by us to investigate and to advise the canners in Wisconsin that they must have uniform methods in accordance with this pamphlet here, and we assume that they are following it until such time as the prices of those individual canneries are in doubt and then we can investigate.

Mr. SHERLEY. Of course, in seeing that they have followed instructions, you are acting as an auditor.

Mr. CUTLER. As an auditor of his bookkeeping system but not of his figures.

Mr. SHERLEY. Of course, there must be some examination of his figures in order to know whether or not he is charging a certain percentage.

Mr. C'UTLER. Well, if I can see the form used in bringing the figures together, I will know whether he is proceeding on the right line, and so will you, and then the Government auditor may investigate the accuracy of the figures.

Mr. SHERLEY. The Government is doing business with thousands of people, and many of them are not associated in any voluntary or other associations so as to enable them through advice from any central source to adopt a suggestion when it is laid before any one of them. For instance, the Government is building hundreds of buildings. Is it your idea that you will be able to check up or to cause to be brought into existence such a system of cost keeping by these various builders as to enable you to know, when they make an offer of a price to do a given piece of work, whether that offer really represents cost and a certain percentage over?

Mr. CUTLER. We are confident of spreading the scientific accuracy of such a plan so that its general use will be easily ascertained by the Government, by the contracting officers of the Government before they place contracts. Does that answer you? I think we will make that a general thing throughout the United States if we are allowed to do so by reason of being able to work further.

Mr. SHERLEY. So far as it now exists, there is neither any allowing or disallowing. There is no reason why it should not be adopted by any department or by any manufacturers, if they want to do so.

Nr. OUTLER. It will rest with us to make it a general matter in the industries at such points where the contracting officers themselves do not touch. There will be some cases like this, where the contracting officer places an order, we will say, for vast quantities of bread with one manufacturer. Now, we will try to see that the other manufacturers are acquainted with this system, leaving the real contracting officer to the tuition of the Government.

Mr. SHERLEY. Now, the Federal Trade Commission was created for very much the same purpose.

While their work may not be identical with this, they are certainly closely associated with it.

Mr. CUTLER. You are quite right.

Mr. SHERLEY. I recall that Mr. Hurley made the statement, which was much challenged over America, that the average manufacturer did not know what it cost him to do business, and that one of the special purposes of the Federal Trade Commission was to teach those men how to run their business. Now, is it your idea, to the extent that you have indicated, to supersede that work of the Federal Trade Commission?

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