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then Comptroller General proposed that Congress adopt an amendment designed for the specific purpose of subjecting the Authority to the procedures prescribed in the Budget and Accounting Act. After full consideration in committee and debate on the floor of both Houses this proposal was rejected.

The same question was presented to the Joint Committee Investigating the Tennessee Valley Authority in 1938. After full public hearings during which representatives of the Authority and the General Accounting Office appeared before the committee, the final report susta ned the Authority's position on every point (Report of Joint Committee Investigating the Tennessee Valley Authority, pp. 109-133).

It was our hope that this carefully considered conclusion of a joint committee of Congress specifically charged with the duty of determining this issue would be accepted as conclusive.

When the present Comptroller General assumed office we reviewed the history of this controversy with him in an effort to convince him of the soundness of our legal position which had been sustained by the Congress in 1935, and again by the Joint Investigating Committee in its report issued in 1939.

It was after the conclusion of these conferences that we received the Comptroller General's letter of December 21, 1940, reiterating the original view of his office on the question of law involved. Upon receipt of that letter we were of the opinion that the only proper way in which to settle a difference of opinion between two agencies of the Federal Government upon a question of the proper construction of a Federal statute was to submit the issue to the Attorney General of the United States for his opinion. Accordingly, on January 31, 1941, we wrote to the Secretary of the Treasury suggesting a change in procedure, knowing that, in accordance with the usual practice, before determining the question, the Secretary would in turn submit the entire issue to the Attorney General. On February 12, 1941, we wrote to the Comptroller General stating that since all that was involved was an issue of law depending upon the construction of the relevant Federal statutes, the Board had concluded that the only way in which the question could be resolved would be by obtaining a ruling from the chief law officer of the Federal Government. Our request to the Secretary was submitted to the General Counsel of the Treasury, who has ruled that the Authority's position is correct. The opinion of its General Counsel was in turn submitted by the Treasury to the Attorney General for his opinion. That opinion sustaining the position of the Authority on every point is now before you.

The Comptroller General takes the position that the Attorney General does not have jurisdiction to determine this matter so as to relieve him of official responsibility. It is impossible for us to understand this position. Legislation is neither needed nor appropriate in order to determine the proper construction of existing law. This same question was considered by the Joint Committee Investigating the Tennessee Valley Authority, which stated :

"The committee doubts whether any useful purpose will be served by legislation clarifying the relations between the Authority and the General Accounting Office. The Authority should be placed on the same basis as other Government corporations, in the affairs of which the General Accounting Office is not permitted to intervene. Congress has already recognized this need in the case of the Reconstruction Finance Corporation, the Inland Waterways Corporation, and the Panama Railroad. The accounts of these corporations are audited by private auditing firms, selected by their respective boards of directors. If, however, it is determined that relations between the General Accounting Office and the Authority shall continue, the General Accounting Office's activities should consist in the making of periodic commercial audits. Such audits should be made in the field and not in Washington. Disputes concerning interpretation of statutes and other legal questions should be referred promptly to the Attorney General for final determination (Committee report, pp. 132–133].”

Furthermore, even Mr. Wolverton, representing the minority of the committee, also suggested that an opinion from the Attorney General should settle the issue.

It has been said that this proposal is necessary in order that the accounts of the Authority may be properly audited. As already pointed out, section 9 (b) of the statute subjects those accounts and all the papers, books, and records of the Corporation to the closest scrutiny of the General Accounting Office. Under that section the Comptroller General is given the broadest possible auditing powers. He has the right to examine every record, every voucher, and every item of income and expenditure. He is under a duty to make his annual audit report available to the President and the Congress; he is under


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the additional duty of reporting especially to the Congress any improprieties or violations of law that he may discover. If the ultimate objective is to assure proper accounting and to protect against dishonesty and extravagance, it is difficult to see why these powers are not sufficient.

In his letter to the Speaker of the House the Comptroller General stated that it is inconceivable

that any agency entrusted with the expenditure of mammoth amounts of funds collected from the people of the United States should desire to evade responsible accounting and scrutiny by an independent office created for that purpose."

This statement is based upon the misconception that there can be no true public accounting except that particular type of detailed administrative supervision exercised by the General Accounting Office. The Authority has never sought to evade accountability to the public. All of its transactions are carried on in the light of continued publicity. In its annual reports to the Congress it accounts for every penny that it has expended and for every move that it has made, and its financial statements are certified to each year by a recognized firm of certified public accountants. Again, in its annual appearances before the Appropriations Committees of the two Houses it gives a detailed accounting. This is accounting to Congress and to the public in the truest sense.

Finally, we are told that this is really an innocuous bill which would not injury the Authority. In his letter to the Speaker the Comptroller General concedes that,

any governmental agency charged with the responsibility of conducting operations of the character of those of the Tennessee Valley Authority should have some latitude of authority beyond that needed and usually granted by the Congress to the regular departments and establishments of the Government."

He then expresses the opinion that there is no inconsistency between this view and his insistence upon administrative control under the Budget and Accounting Act. With this conclusion we most emphatically disagree. In order to determine the extent of the inconsistency it is necessary to compare the relationship between the Authority and the General Accounting Office under existing law and the relationship that would be brought about by the change proposed by the Comptroller General.

There is widespread misunderstanding concerning the actual operation of the so-called settlement and adjustment procedure of the Budget and Accounting Act. Under this process the disbursing officers of the departments and establishments subject to the act are required to submit monthly or quarterly lists of receipts and disbursements to the General Accounting Office, accompanied by vouchers and other documentary support. The General Accounting Office then determines whether in its opinion expenditures made were legally authorized. At this step in the process it is clear that the Comptroller General reserves to himself the final authority to pass upon the interpretation of all statutes with no possibility of appeal. In this way he is permitted to substitute his judgment, or that of his counsel, for the judgment of the agency charged with the responsibility for administering the statute in question.

The detailed internal control exercised by the Comptroller General over administration is enforced in two ways. By means of his statutory power to disallow a payment already made and to charge the payment against the account of the disbursing officer, he is in a position to force the disbursing officer to follow his interpretations blindly without consideration of their sound

In case of any attempt at resistance to the Comptroller General's view as to law or as to policy, he possesses the ultimate veto power through the threat of disa pproving a requisition for funds. In our prior dealings the General Accounting Office has not limited this asserted veto over administration, at least in theory, to questions of statutory interpretation. Its investigators have repeatedly noted exceptions to transactions solely because in their judgment the expenditures involved were not wise, or necessary, or desirable. In this way, if the Budget and Accounting Act were to be fully applied in practice and the exceptions followed by disallowances, the investigators of the General Accounting Office would be placed in the position of overruling the discretionary decisions of the Board of Directors of the Authority, even though they were in no way responsible for successful performance of the duties which the Authority is expressly directed by statute to carry out. In our opinion, such a situation would constitute the antithesis of responsible administration.


The best way to make clear to this committee how this administrative veto would operate in practice is to cite specific examples from our own experience which illustrate how this veto would affect our actual operations. I shall limit myself to those specific examples relating to the legal business of the Authority. Our comptroller, Mr. Kohler, will discuss the more general aspects of interference with the internal administration of the Authority's business.

In considering this subject, it must be remembered that the Authority is a corporation subject to suit in its corporate capacity, in both State and Federal courts in every county in which it does business. In the course of its opera. tions the Authority enters into thousands of contracts, operates automobiles, high-tension transmission lines, and construction equipment, all of which lead inevitably to numerous claims both in contract and in tort. Every member of this committee who has ever practiced law will agree that any agency so situated must have the final power to decide when and how much it will pay in settlement and when and how far it will litigate. Every lawyer will also recognize two other fundamental facts. First, that the secret of successful claims adjustment is the ability to settle immediately and before the controversy reaches the courts, and, second, that cases frequently arise where, even though liability may be doubtful, compromise is the expedient course when such factors as local conditions, the make-up of local juries, the difficulty of producing proof, and the expense of litigation are considered. These matters seem to any lawyer of experience to be self-evident truths, but not to the investigators of the General Accounting Office. These gentlemen, most of whom have never tried a case and who are necessarily ignorant of local, conditions, insist that under the "settlement and adjustment” procedure they will be under the duty to examine every disbursement and every receipt representing a compromise of litigation or threatened litigation, and to determine for themselves whether the settlement should have been made. If they should determine upon such examination that in their opinion any particular settlement was unwise they would then disallow the payment and charge it against the account of the disbursing officer.

Consider the position of the disbursing officer under such a set-up. His own lawyers, after thorough investigation of the facts and consideration of the law, have advised his board of directors that a particular claim should be compromised. The Board, acting upon that advice has adopted a resolution instructing the disbursing officer to pay the claim. If this bill were enacted, the disbursing officer would know that any payment so made would be ubject to final review by the investigators of the General Accounting Office and that he would not be protected either by the advice of his own lawyers or by the directions of his board. Is there any doubt as to who would be the boss in that situation? Is it not clear that a cautious disbursing officer would be forced to refuse to pay any such claim unless such payment had been approved in advance by the Generai Accounting Office? Is it not equally clear that the practical result in such u situation would be that all claims would have to be litigated to final conclusion regardless of the expense and risk involved? This is particularly true since the representatives of the General Accounting Office, accustomed to dealing with claims against departments that are not subject to suit in the courts, have repeatedly taken the position in their dealings with us that no claim should be settled unless the showing of liability is 100 percent perfect. Such a claims policy would make the Tennessee Valley Authority a paradise for lawyers but would be mighty hard on the taxpayers.

In its most recent tentative audit report of Authority transactions, covering the fiscal year 1939, the General Accounting Office actually states as a criticism of Authority policy:

"An examination of payments covering claims against the Corporation for personal injuries sustained or damages to personal property indicates that, when determining the validity of such claims, officials of the Corporation gave careful consideration to such factors as expenses of court action, possibility of unfavorable decision, and public sentiment (p. 230)."

The fact that the General Accounting Office makes this statement as a criticism, while the legal department of the Authority considers it highly complimentary, clearly illustrates the difference in viewpoint.

I want to make clear that the point is not whether we have been 100 percent perfect in the handling of claims and litigation. I have no doubt that we have made mistakes. The point is that final responsibility for determining questions of this nature must rest somewhere, and it seems plain that it should rest upon those public officials charged with the responsibility for the conduct of the program, operating on the ground, familiar with local conditions and the various cross currents that are so often determinative in these matters, and not upon accounting investigators operating by remote control from Washington. A few specific examples of situations commented upon in the audit reports of the General Accounting Office will make the point doubly clear.

All of our more important contracts for equipment and supplies contain the standard liquidated damage clause, together with the act of God clause excusing nonperformance under certain specific conditions. Since there are thousands of these contracts it is inevitable that numerous disputes will arise involving such questions as whether performance has been prevented either by changes in contract requirements or by other causes excusable under the terms of the contract. Most such disputes arise in good faith, and almost all of them involve close and difficult questions both of fact and of law. In many of them there is no way of being certain what the result of litigation would be. Yet the position of the General Accounting Office is that there is no room for compromise in disputes of this character; that black is black and white is white, and the contractor is either 100 percent right or 100 percent wrong. If this bill becomes law, no disbursing officer with any regard for his own safety would dare approve any payment involving a settlement of a liquidated damage claim. The result would be a multitude of protracted, dangerous, and expensive lawsuits.

Two other interesting examples of this attitude of "litigate to the bitter end no matter what the consequences” are found in two comparatively minor controversies with Hardin County, Tenn., and the Alabama Power Co. The Hardin County case arose out of a situation where Hardin County had agreed to pay a certain stipulated sum to the Authority in return for the benefit of entering certain Hardin County pupils in one of the schools which the Authority was operating for its employees. When the time for payment came the county refused to pay on the ground that the contract had not been properly author. ized. After investigating the law we were convinced that while a close question was presented, the contract could be enforced and accordingly filed suit. It soon developed, however, that even if we finally obtained a judgment after litigating through all the courts, collection would be extremely difficult and expensive. The county was without funds that could be reached by execution, and the only possible remedy would be by mandamus to compel the county to levy a special tax for the payment of the judgment. Any lawyer who has ever attempted to collect a judgment against a governmental body by such a procedure fully understands the expense and hazard involved. Accordingly, we finally determined to settle the claim amounting to $4,444.45 for $3,500 paid in cash. We congratulated ourselves upon a very satisfactory outcome. Yet, we find that that settlement is regarded as illegal and unauthorized by the General Accounting Office. The particular case is of little importance. The principle that those accountable for the success of a governmental endeavor must have the final power to direct its administration is fundamental.

The Alabama Power Co. controversy further illustrates the point. At the time that the Authority took over the properties at Muscle Shoals under the terms of the original act it was found that the Sheffield steam plant which had been leased from the Army by the power company on a year-to-year basis was in a rundown condition, making certain repairs necessary. The Authority proceeded to make the necessary repairs. Under the terms of the lease with the War Department the power company had agreed to return the plant in as good condition as when received, ordinary wear and tear expected. There was a serious question, however, as to whether or not the War Department, in accepting the return of the plant after inventorying the equipment, had not released any claim that might have existed under the lease. Despite the existence of this question we immediately made claim on the power company for reimbursement for the expense of repairs. The power company refused payment, and negotiations proceeded. Despite the fact that we explained this situation in full detail, including the serious legal question involved, to the investigators of the General Accounting Office, they insisted on carrying in the audit reports as an exception the amount of money that we had expended on the repairs on the ground that we should have immediately collected from the power company. Obviously we couldn't take the money by force our only alternatives were to negotiate or liti. gate. We elected to negotiate because we were convinced that there was less than a 50-percent chance for recovery, and we finally concluded a settlement that resulted in a payment of $20,000 on a total claim of $32,497.59.

In its tentative audit report for 1939 the General Accounting Office apparently admits (p. 48) that the settlement agreed upon was a highly desirable one from the Authority's standpoint, for it states that the conclusion of the settlement agreement removes the basis for its prior exception. But had the General Accounting Office been in a position to enforce its original exception, the Authority would have had no opportunity to enter into the settlement in question. Instead, it would in effect have been forced to follow the General Accounting Office's original instructions and resort to litigation. In such case, instead of receiving a credit of $20,000 in connection with a general settlement of outstanding claims between the parties, there is every probability that it would have recovered nothing.

Another example of the possible effect of the application of the Budget and Accounting Act on the Authority's operations may be cited. Recently the Authority was engaged in a controversy with the Southern Railway Co. and one of its subsidiaries, the Cincinnati, New Orleans & Texas Pacific Ry. Co., concerning deliveries of coal which will be needed for Watts Bar steam plant. This plant was authorized by Congress in July 1940 as an emergency nationaldefense project. It is being constructed on a rush schedule and is expected to go into operation about October or November of this year. The plant is located at Watts Bar Dam, which is about 7 miles off the main line of the Cincinnati, New Orleans, and Texas Pacific. Connecting it with the main line is an access track which was originally built by the Authority to permit deliveries of materials needed in constructing Watts Bar Dam. In connection with deliveries of coal over this access track for use at the Watts Bar stream plant, a dispute arose between the Authority and the railroads as to whether the railroads were obligated to deliver coal to the steam plant without any extra freight charges over and above those in effect to Spring City, Tenn., the nearest point on the Cincinnati, New Orleans, and Texas Pacific main line. The railroads claimed that they were under no obligation to make deliveries of coal off the Cincinnati, New Orleans, and Texas Pacific main line and stated that they were willing to do so only on payment by the Authority of a charge of $10 per car over and above the rates in effect to Spring City. Proceedings relating to the dispute were instituted in the United States District Court for the Eastern District of Tennessee, in the Interstate Commerce Commission, and in the Railroad and Public Utilities Commission of Tennessee. Recently, however, a compromise has been agreed upon under which the railroads will make the deliveries required at a charge of $1 per car over and above the Spring City rates.

Suppose, however, that the Budget and Accounting Act had been applicable and the Authority forced to submit the question for settlement with the railroads by the General Accounting Office. The Authority's lawyers and engineers presumably would have had to commute between their regular posts of duty in Tennessee, Alabama, and elsewhere, and Washington, taking time from other duties which had to be performed in order to acquaint the General Accounting Office with all of the facts and background which might become relevant in the course of negotiations. Necessarily, the General Accounting Office would have had to deal with the case on its individual facts, without employing any bargaining power possessed by the Authority in connection with its other operations. If the General Accounting Office decided that no compromise agreement should be entered into, the Authority would have been forced to pursue its remedies before the courts and commissions having jurisdiction. In such case, the railroads presumably would have refused to make any coal deliveries to Watts Bar Dam until the issue had been decided, and the commencement of the operation of the steam plant delayed indefinitely.

A different type of interference with responsible administration of the act is found in the attitude of the General Accounting Office toward the purchase of the properties of the Mississippi Power Co. Included in the properties purchased were a large number of transmission line rights-of-way. Title to those rightsof-way had been acquired by the Power Co. in different ways-some by warranty deed, some by quitelaim deed, and some by adverse possession. Everyone familiar with the utility business knows that the utility companies, in dealing for rights-of-way, acquire the best title they can without insisting upon clearing every possible defect. This is done upon the theory that the consideration involved in the purchase of such rights-of-way is so small that the expense of clearing all possible defects is not justified since it will be cheaper in the long run to take the title with the defect and clear it later if the necessity arises.

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