Detailed estimate. Unit cost: Site, additional water front, at $400 per front foot (312 feet) --- Track in yard and on wharf, at $1.50 per linear foot (2.000 feet) Traveling crane (1). Buoy skids and chain platform, at $1 per square foot (50 by 80 Miscellaneous equipment, lot Fencing, 625 feet at $4 per foot Office for superintendent, 7,000 cubic feet at 20 cents per cubic foot_ Total $125,000 36, 300 3,000 18,750 15,000 1, 200 1, 650 1,900 5, 800 4, 000 5, 000 2, 500 1,400 3, 500 225,000 SATURDAY, AUGUST 11, 1917. COST ACCOUNTING FOR GOVERNMENTAL AND INDUSTRIAL METHODS. STATEMENT OF HON. WILLIAM C. REDFIELD, SECRETARY OF COMMERCE, ACCOMPANIED BY MR. B. S. CUTLER, CHIEF, AND MR. J. L. NICHOLSON, BUREAU OF FOREIGN AND DOMESTIC COMMERCE. Mr. SHERLEY. Mr. Secretary, the following estimate has been submitted in House Document No. 315, Sixty-first Congress, first session: Cost accounting, Department of Commerce, 1918: For arranging and standardizing governmental and industrial cost accounting methods, including personal services in Washington, D. C., and in the field, rental of quarters in Washington, D. C., and elsewhere, purchase of books of reference, periodicals, stationery, office supplies, equipment, printing and binding to be done at the Government Printing Office, travel and subsistence of officers and employees, and all other necessary expenses not included in the foregoing, to be expended during the fiscal year ending June 30, 1918, $65,000. Secretary REDFIELD. Mr. Chairman, I am very glad to have an opportunity to speak of this and introduce Mr. Cutler, the Acting Chief of the Bureau of Foreign and Domestic Commerce, who, with Mr. Nicholson, the chief of the Cost Accounting Division, is here for the purpose of giving any information the committee may desire. I would, first of all, refer to Document 315 and to the letters therein from the Secretary of War, the Secretary of the Navy, and the Chief Constructor of the Navy, the senior member of the board, which speak of the work of this service; and then I would like the committee to see the proof-unfortunately the complete pamphlet will not be ready until Monday-of the first result of this novel and efficient work in the shape of the preparation of uniform contracts and cost accounting definitions and methods, being recommendations made by an interdepartmental conference consisting of delegates from the Departments of War, Navy, Commerce, the Federal Trade Commission, and the Council of National Defense, which I will show to the committee and which indicate the persons who took part in it. The work is being done under the guidance and by the force of this division for the purpose of determining sound methods in Government contracts and of determining costs of operation. There were engaged upon the 9th of August only five men, and I should be very glad to have you know just what these men were then doing. because it will show you the particular confidential and war character of this work. It is all a matter of military value at the moment. In the first place, then, at that time Mr. Nicholson, the chief of the division, was in Philadelphia with the cost inspector for the shipyards in that city, making investigation of special items of cost in connection with Government contracts in the two shipyards there. This was specifically requested by the compensation board of the Navy through Admiral Capps. The report of this division, on one plant, if accepted by the compensation board and the shipbuilding company, represents a saving to the Government in that single plant of over $100,000. At the same time Mr. Nicholson was arranging to meet a committee of the National Canners' Association, representing the canners of milk, to discuss with them the price at which the quartermaster should purchase milk during the month of August. In that investigation the price submitted to the Government by the milk manufacturers was so reduced as to make a net saving to the Government of $10,000 per month. Mr. Mulhern was at the William Cramp & Sons' shipbuilding plant making a special study of the items cf cost which the division was requested to report on there for the Navy, working in conjunction with the United States Navy cost inspection office. Mr. Frank J. Scott was in Philadelphia at the Pennsylvania Shipbuilding Co.. working in connection with the Navy cost inspection office on certain matters in which they desired our assistance. Mr. Wilson was in Washington in cooperation with the food administrator on the subject of cost investigation in bread-baking establishments. Mr. Pfan was in the office taking care of the routine correspondence. We are now able to say to you that the investigation into the cost of peas, tomatoes, corn, and string beans along the same lines as milk will probably result in a saving in those articles of $50,000 monthly to the Government, being the difference in costs submitted by the canners and the findings of our Division of Cost Accounting. We point out as regards the estimates for the coming year that there are probably 100 or more different food products still to be examined. and in a majority of the cases we think a direct saving will result to the Government from the work we will do. Mr. CUTLER. Those savings are monthly, Mr. Secretary. Secretary REDFIELD. Yes; that is $10,000 a month and not $10,000 a year. There are 15 other shipyards to be examined. I point out to you that this work has never been done before. This is not work which has ever been undertaken and has arisen in connection with the special war emergency of the time. Mr. SHERLEY. Mr. Secretary, you have referred several times to your division as though there was an existing division for the doing of this work. What is the fact as to that? Secretary REDFIELD. We have five men engaged in this work, which for lack of a better name, we call a division. Of course, it has no legal existence as a division. Technically, I suppose, they would be commercial agents. Mr. SHERLEY. Has this work been done under the head of the Bureau of Foreign and Domestic Commerce? Secretary REDFIELD. Yes; thus far under the general appropriation for promoting commerce. Mr. SHERLEY. Now, that bureau has an existing personnel, a chief, assistant chiefs, and chiefs of divisions and various clerks and stenographers. Is this force in addition to that, or is it taken from that force? Secretary REDFIELD. It is in addition to that, in the sense that all the men are employed under the promotion of commerce fund. Mr. SHERLEY. Then this has come out of the lump sum "to further promote and develop the foreign and domestic commerce of the United States, including exchange on official checks, $125,000 "? Secretary REDFIELD. I think that is the case, is it not, Mr. Cutler? Mr. CUTLER. Yes, sir. Secretary REDFIELD. That is the broad charter under which it seemed possible and correct to do this work. Mr. SHERLEY. Are you employing men in the District of Columbia? Secretary REDFIELD. No, sir; they are not employed in the District of Columbia, as I have read to you. Mr. CUTLER. They are employed all about the country. Mr. SHERLEY. Have they not been doing work here? Mr. CUTLER. Oh, no. Secretary REDFIELD. The work has been done in Philadelphia and out of town entirely. Mr. CUTLER. You will not find more than one man at any one time in the office here. Secretary REDFIELD. We have had Mr. Pfau in the office here, but he is the only one, and for that reason we are putting it before you in the form of a definite appropriation, because we have not the money to continue the work. It has been done at very low cost. These gentlemen. for the most part, have volunteered their services, but it is of so great economy to the country that I told Mr. Cutler that I thought we should continue it under the promotion of commerce fund only until we could get an estimate before you for your consideration. Mr. SHERLEY. It is a rather novel idea that a fund of that kind should be the basis for the development of a division on cost accounting in a department. We have had, of course, a number of proposals from the various departments for the creation of cost-accounting divisions, some of which we have acquiesced in and some of which we have declined. It is rather novel that you should have unconsciously been developing one under this language. Secretary REDFIELD. The work, you may remember, of cost accounting proper was turned over to us by the Federal Trade Commission, but was not prosecuted, for the reason. I think. that we lost the man that they had employed upon it. Mr. SHERLEY. They made a direct request for an appropriation of funds which Congress did not see wise to allow. Secretary REDFIELD. There comes up here this opportunity and this very necessary thing to be done, which had to be done for the good of the Government and the country, and had to be done at once. We believe that the broad charter for promoting commerce is broad enough to authorize us to begin the work in that way and continue it for the few weeks only that it has gone on. Mr. SHERLEY. When was this division, as you call it, created? Secretary REDFIELD. And in that time we are saving these sums of money which I have read to you. Mr. SHERLEY. You have what personnel? Secretary REDFIELD. Five. Mr. SHERLEY. At what salaries? Mr. CUTLER. Mr. Nicholson, will you please tell the salaries they receive? Mr. NICHOLSON. The salary of the chief of division is $3,600. Mr. NICHOLSON. J. Lee Nicholson, and we have two staff men at salaries of $2,400, and one at a salary of $1,800, and then we have one at $1,400, and one stenographer at $1,000. Mr. SHERLEY. Now, this organization was created on what date? Mr. NICHOLSON. Well, officially, I guess some time in June. I have been working on it perhaps since about the 1st of June, but just in a general way. Mr. SHERLEY. Were these five men engaged in governmental work prior to this time or have they just been gathered into this service? Mr. CUTLER. They have been gathered into the service. Some of them were already in the department, two of them. The other three are volunteers. That is, in the sense that they have accepted merely nominal compensation to do very important work. They are rated as the best cost accountants in the United States. They have volunteered. Mr. SHERLEY. That is, three men from commercial auditing companies who volunteered their services to the Government have been doing certain work? Mr. CUTLER. Yes, sir; as individuals they volunteered. Secretary REDFIELD. And are paid a salary? Mr. CUTLER. Yes, sir; a nominal salary. Mr. SHERLEY. What do you mean? Mr. CUTLER. They could easily make from $5,000 to $8,000 a year, and all we can pay them is something between $1.800 and $2.400 a year. Mr. SHERLEY. On that basis they volunteer? Mr. CUTLER. Yes, sir; that is true, except that they have no means of livelihood outside of their own personal services. Their income ceases when they stop work. Secretary REDFIELD. There has been formed in the technical sense no division at all. We have to have some language by which to speak of this work. Mr. CUTLER. It is merely a subsection. That might, perhaps, be a better term-a subsection in the bureau. Mr. SHERLEY. The Army and Navy are employing regular accountants in connection with their cost-keeping accounts with various corporations and individuals doing business for the Government. Is it the plan to create a division that shall take over that work; is that contemplated here? Mr. CUTLER. The accountants employed by the Navy and Army have certain duties to perform; that is, to inspect costs when the contract is in operation. We, on the other hand, do quite different work. They have all agreed that there should be basic principles by which to guide the auditors as to the cost methods in operation. They are strictly auditors; we are not auditors. Mr. SHERLEY. You are scientific creators of a system of cost keeping? Mr. CUTLER. Yes, sir. Those accountants represent all the contracting officers and experts in the Government. Secretary REDFIELD. It is a case of cooperation. Mr. SHERLEY. These men simply met for an informal conference and discussion of the standardization of cost-keeping methods? Mr. CUTLER. That is true. They were delegated by their own secretaries to perform just that work as being highly essential to the emergency. Mr. SHERLEY. They having done that, what is the need of creating a division to do it? Mr. CUTLER. They have acted entirely under the guidance of the division. They can take no action except as volunteer advisers, committeemen. Mr. SHERLEY. Presumably they were men with some experience as to the cost of doing various work? Mr. CUTLER. Yes, sir. Mr. SHERLEY. They met in a cooperative effort to standardize certain methods? Mr. CUTLER. Yes, sir; under our leadership. Mr. SHERLEY. I do not quite understand what you mean by that. Mr. CUTLER. "Under our leadership"? Mr. SHERLEY. Yes, sir. Mr. CUTLER. Mr. Nicholson, the chief of the division, being, perhaps, the leading cost accountant in the United States, was able to organize their efforts and to guide them along definite lines. He was the chairman of that conference, and they were all very glad to consult with him in that respect. Mr. SHERLEY. Of course, I have not had an opportunity and can not read this report which has just been handed me. They have agreed on certain standardized methods? Mr. CUTLER. Yes, sir. Mr. SHERLEY. What do you gentlemen expect to do-make another standardization? Mr. CUTLER. For the future work. Mr. SHERLEY. You are asking for $65,000. to which that is to be devoted? What is the purpose Mr. CUTLER. The Quartermaster General and the food administration have asked us, as part of our future duties, to investigate the cost of about 400 commodities. They give us 2 or 3 at a time. Mr. SHERLEY. What becomes of the Federal Trade Commission? Mr. CUTLER. The Federal Trade Commission investigates the accuracy of the costs. We only investigate methods by which they are brought together. Mr. SHERLEY. How do you think the Federal Trade Commission determines the one question without determining the other? Mr. CUTLER. They could not very well, since our work antedates theirs. |
