B-112109, B-121072, SEP 30, 1954

B-112109, B-121072, SEP 30, 1954

PRECIS-UNAVAILABLE

SECRETARY OF THE AIR FORCE:

THERE IS FORWARDED HEREWITH FOR YOUR CONSIDERATION LETTER DATED JULY 23, 1954, FROM LIEUTENANT COLONEL M. S. LIPSKER, AIR FORCE FINANCE OFFICER, CHICAGO, ILLINOIS, TRANSMITTING TO THIS OFFICE RECLAIM VOUCHERS NO. 1 AND NO. 2 OF CHASE AIRCRAFT COMPANY, INC., IN THE AMOUNTS OF $386,267.30 AND $115,762.38, REPRESENTING ITEMS ALLEGED TO BE DUE UNDER COST REIMBURSABLE CONTRACT NO. AF33(038)-22446, WHICH WERE EXCLUDED FROM THE TERMINATION SETTLEMENT OF THIS CONTRACT BY REASON OF GENERAL ACCOUNTING OFFICE FORMAL EXCEPTIONS NOS. 400009 AND R40010.

IT IS NOTED THAT THESE RECLAIM VOUCHERS WERE NOT PROCESSED IN ACCORDANCE WITH SECTION 4-4.410 OF DEPARTMENT OF THE AIR FORCE MANUAL AFM 175-3, SPECIFYING THE METHOD OF PREPARATION AND REQUIRING TRANSMITTAL THROUGH THE OFFICE OF THE DIRECTOR OF FINANCE.

THE VOUCHERS COVER CHARGES BY MONITOR MACHINE TOOL COMPANY AND DESIGN INDUSTRIES, INC., SUBCONTRACTORS TO GIBSON REFRIGERATOR COMPANY AND KAISER MANUFACTURING CORPORATION, COST REIMBURSABLE SUBCONTRACTORS TO CHASE AIRCRAFT COMPANY UNDER THE PRIME CONTRACT. THE EXCEPTION RELATING TO MONITOR MACHINE TOOL COMPANY CHARGES WAS BASED ON EVIDENCE AND INFORMATION THAT THE COMPANY HAD BEEN INDICTED FOR CONSPIRACY TO DEFRAUD AND THE PRESENTATION OF FALSE CLAIMS. THE EXCEPTION TO THE DESIGN INDUSTRIES CHARGES WAS BASED ON EVIDENCE AND INFORMATION THAT THIS COMPANY HAD DEFRAUDED THE GOVERNMENT AND WAS UNDER INVESTIGATION BY THE FEDERAL BUREAU OF INVESTIGATION. GENERAL ACCOUNTING OFFICE REPORTS OF DEROGATORY INFORMATION CONCERNING MONITOR MACHINE TOOL COMPANY AND GIBSON REFRIGERATOR COMPANY, THE LATTER ALSO INVOLVING DESIGN INDUSTRIES, INC., WERE TRANSMITTED TO YOU AND REFERRED BY YOU TO THE DEPARTMENT OF JUSTICE FOR CONSIDERATION AND APPROPRIATE ACTION. THEREFORE, THERE APPEARS TO BE FOR CONSIDERATION THE ADMINISTRATIVE ACTIONS PRESCRIBED IN THE LETTER OF AUGUST 11, 1954, TO THIS OFFICE FROM THE ASSISTANT SECRETARY OF THE AIR FORCE.

THERE IS ALSO FORWARDED HEREWITH COPY OF LETTER DATED JULY 28, 1954, TO THIS OFFICE FROM THE FRAUDS SECTION, CIVIL DIVISION DEPARTMENT OF JUSTICE, RELATIVE TO DESIGN INDUSTRIES, INC., STATING THAT CERTAIN ACCOUNTING DATA DEVELOPED BY THE FEDERAL BUREAU OF INVESTIGATION HAS BEEN FORWARDED TO YOUR DEPARTMENT. ALSO, FORWARDED HEREWITH IS COPY OF LETTER DATED AUGUST 26, 1954, FROM THE GENERAL CRIMES SECTION, CRIMINAL DIVISION, DEPARTMENT OF JUSTICE, WITH RESPECT TO ALLEGATIONS OF IRREGULARITIES AND POSSIBLE FRAUDULENT PRACTICES BY THE VARIOUS SUBCONTRACTORS OF KAISER MANUFACTURING CORPORATION (WILLYS MOTORS, INC.) AND CHASE AIRCRAFT COMPANY, WHICH INCLUDES THE SUBCONTRACTORS HERE INVOLVED, STATING THAT INASMUCH AS THE MATTER IS PRESENTLY UNDER INVESTIGATION, THE DIVISION'S GENERAL POLICY AGAINST SETTLEMENTS IS APPLICABLE.

THE RECLAIM VOUCHERS HERE INVOLVED, AS WELL AS FOUR RECLAIM VOUCHERS COVERING TOOLING COSTS ALLEGED TO BE DUE UNDER COST REIMBURSABLE CONTRACT NO. AF33(038)-18481 WITH KAISER MANUFACTURING CORPORATION (WILLYS MOTORS, INC.), THE AMOUNTS OF WHICH LIKEWISE WERE EXCLUDED FROM TERMINATION SETTLEMENT OF THAT CONTRACT BECAUSE OF GENERAL ACCOUNTING OFFICE EXCEPTIONS BASED ON INFORMATION AND EVIDENCE OF IRREGULAR AND FRAUDULENT PRACTICES OF SUBCONTRACTORS, WERE THE SUBJECT OF A JOINT CONFERENCE ON SEPTEMBER 21, 1954, BETWEEN REPRESENTATIVES OF OUR RESPECTIVE AGENCIES AND REPRESENTATIVES OF WILLYS MOTORS, INC., AND CHASE AIRCRAFT COMPANY, AT THE LATTER'S REQUEST. AT THAT MEETING IT WAS STATED BY AIR FORCE REPRESENTATIVES THAT THE FOUR WILLYS RECLAIM VOUCHERS HAD BEEN FORWARDED BY THE CONTRACTING OFFICER UNDER DATE OF AUGUST 25, 1954, TO THIS OFFICE THROUGH THE FINANCE OFFICER. HOWEVER, THE FINANCE OFFICER HAS INFORMALLY ADVISED THAT THESE VOUCHERS WERE FORWARDED TO THE USAF HEADQUARTERS, HAD BEEN RETURNED FOR PROCESSING THROUGH CHANNELS, AND ON SEPTEMBER 16, 1954, HAD BEEN FORWARDED BY THE FINANCE OFFICER THROUGH THE AIR MATERIAL COMMAND, DAYTON, TO THE DIRECTOR OF FINANCE, USAF. THERE IS NO RECORD OF THE RECEIPT OF THE WILLYS RECLAIM VOUCHERS IN THIS OFFICE.

IT IS INDICATED IN THE LETTER OF AUGUST 11, 1954, FROM YOUR DEPARTMENT, THAT THERE REMAIN OUTSTANDING ADDITIONAL UNSETTLED CLAIMS BY VARIOUS SUBCONTRACTORS INVOLVING REPORTED IRREGULARITIES AND ALLEGED FRAUD WHICH HAVE BEEN RESERVED OR EXCLUDED FROM THE CONTRACT TERMINATION SETTLEMENTS. IT IS ALSO INDICATED IN THIS LETTER THAT SUCH CLAIMS WILL BE SETTLED AT A LATER DATE WHEN THE REPORTS OF CURRENT FBI INVESTIGATIONS HAVE BEEN RECEIVED AND ANLYZED AND DETERMINATION MADE OF ANY AMOUNTS DUE.

IN CONSIDERING CLAIMS INVOLVING IRREGULARITIES AND POSSIBLE FRAUDULENT PRACTICES REFERRED TO THE DEPARTMENT OF JUSTICE FOR CONSIDERATION, IT IS THE ESTABLISHED POLICY OF THIS OFFICE TO TAKE NO ACTION UNTIL AFTER THE NECESSARY INVESTIGATIONS AND EVALUATIONS HAVE BEEN COMPLETED AND ADVICE HAS BEEN RECEIVED FROM THE ATTORNEY GENERAL. IN ALL SUCH CASES THE PROPRIETY OF THE AMOUNTS CLAIMED AND ADMINISTRATIVELY RECOMMENDED FOR PAYMENT MUST BE CLEARLY ESTABLISHED. THESE REQUIREMENTS WERE REVIEWED WITH REPRESENTATIVES OF YOUR DEPARTMENT IN THE CONFERENCE ON AUGUST 17, 1954, RELATIVE TO THE CHASE RECLAIM VOUCHERS, AT WHICH TIME INFORMATION OF RECORD WAS TRANSMITTED WHICH INDICATES THAT SOME OF THE CHARGES CLAIMED BY DESIGN INDUSTRIES HAVE BEEN WITHHELD OR RECOUPED BY THE CONTRACTOR AND HIGHER TIER SUBCONTRACTOR.

FURTHERMORE, IN VIEW OF THE EXTENDED INVESTIGATIONS AND CONSIDERATIONS HERETOFORE ACCORDED TOOLING PROCUREMENT UNDER THE WILLYS AND CHASE CONTRACTS AS DISCLOSED BY THE EXCHANGE OF REPORTS AND CORRESPONDENCE, AND THE SPECIAL CONSIDERATIONS FOUND ADVISABLE BY YOUR DEPARTMENT AS SET FORTH IN THE LETTER OF AUGUST 11, 1954, AND HAVING IN MIND THE INFORMATION AND DATA WHICH HAS BEEN MADE OF RECORD AND REFERRED TO THE DEPARTMENT OF JUSTICE WITH RESPECT TO ALLEGED IRREGULARITIES AND APPARENTLY FRAUDULENT PRACTICES AND TRANSACTIONS OF SUBCONTRACTORS UNDER THESE CONTRACTS, IT SEEMS MANIFEST THAT ALL THE CLAIMS OF EACH SUBCONTRACTOR SHOLD BE CONSIDERED TOGETHER IN MAKING THE FINAL DETERMINATION REQUIRED.

MOREOVER, THESE CLAIMS, WHICH MAY INVOLVE AMOUNTS PAYABLE OR FOR COLLECTION BY THE GOVERNMENT, ARE NOT FOR ADJUSTMENT OR SETTLEMENT AND PAYMENT ADMINISTRATIVELY, BUT ARE FOR TRANSMITTAL TO THE GENERAL ACCOUNTING OFFICE FOR CONSIDERATION AND APPROPRIATE ACTION. THE TRANSMITTAL OF THE CLAIMS SHOULD BE ACCOMPANIED BY A COMPLETE ADMINISTRATIVE REPORT. SUCH REPORT SHOULD INCLUDE APPLICABLE DATA IN ANY EXISTING SETTLEMENT AGREEMENTS, APPLICABLE AUDIT AND INVESTIGATION REPORTS, AND ACCOUNTING DATA WITH APPROPRIATE ANALYSES THEREOF, DETAILED INFORMATION AS TO THE STATUS OF PAYMENTS BETWEEN THE GOVERMENT, THE CONTRACTOR, AND THE VARIOUS SUBCONTRACTORS, DOCUMENTED BY SUPPORTING EXHIBITS AND PERTINENT EVIDENCE, TOGETHER WITH SUCH EVALUATIONS AND APPRAISALS BY THE AIR FORCE AS ARE NECESSARY TO SHOW WHETHER THE CHARGES CLAIMED HAVE BEEN FOUND TO BE FAIR AND REASONABLE, AND THAT THEY ARE PROPERLY ALLOCABLE AS REIMBURSABLE COSTS OF THE CONTRACT. IT WOULD SEEM NOT ONLY DESIRABLE BUT NECESSARY IN THIS CASE TO GIVE PARTICULAR CONSIDERATION TO THE APPARENT LACK OF EFEECTIVE CONTROLS OVER THE TOOL PROCUREMENT COSTS IN QUESTION WHICH INDICATE INCOMPETENCE OR NEGLIGENCE ON THE PART OF THE PRIME CONTRACTORS AND MAJOR SUBCONTRACTORS, AS WELL AS CONCOMITANT LACK OF ADEQUATE ADMINISTRATIVE SUPERVISION AND REIVEW BY THE RESPONSIBLE GOVERNMENT OFFICERS.

THERE IS ENCLOSED FOR YOUR INFORMATION A COPY OF MY LETTER OF TODAY TO THE ATTORNEY GENERAL B-112109, B-121072, WITH RESPECT TO THIS MATTER.