B-45101, AUG 10, 1949

B-45101, AUG 10, 1949

PRECIS-UNAVAILABLE

TO THE CONGRESS:

HOSTILITIES OF WORLD WAR II HAVING ENDED SOME TIME AGO, IT IS DEEMED APPROPRIATE AT THIS TIME TO BRING TO THE ATTENTION OF THE CONGRESS THE WIDESPREAD AND GROWING PRACTICE IN SOME OF THE DEPARTMENTS AND ESTABLISHMENTS OF THE GOVERNMENT OF WITHHOLDING FROM THE TREASURY AND DIVERTING TO UNAUTHORIZED PURPOSES SUBSTANTIAL SUMS OF MONEY COMING INTO THE HANDS OF PERSONS IN THE SERVICE OF THE UNITED STATES IN CONNECTION WITH THE PERFORMANCE OF THEIR OFFICIAL DUTIES.

IN ORDER THAT THE CONGRESS MAY BE FULLY INFORMED IN THE MATTER, I AM PRESENTING AT THIS TIME A SPECIAL REPORT ON THE SUBJECT, BASED ON INFORMATION AND EVIDENCE UNCOVERED AND DEVELOPED IN MORE THAN 6,000 REPORTS OF INVESTIGATION MADE BY REPRESENTATIVES OF THE GENERAL ACCOUNTING OFFICE DURING THE PAST EIGHT YEARS. THE REPORT IS DIVIDED INTO THREE PARTS: (1) THIS LETTER, WHICH IS A SYNOPSIS OF THE SUBJECT AND OF THE VIEWS AND SUGGESTIONS OF THE GENERAL ACCOUNTING OFFICE IN RESPECT THEREOF; (2) THE SPECIAL REPORT ITSELF, CONTAINING A DISCUSSION - WITH ILLUSTRATIVE CASES-- OF THE NATURE AND THE PRINCIPAL SOURCES OF THE FUNDS, HOW THEY ARE BEING SPENT AND PERTINENT PROVISIONS OF EXISTING STATUTES, AND THE RECOMMENDATIONS OF THE GENERAL ACCOUNTING OFFICE; AND (3) THE APPENDIX, CONSISTING OF 34 PAGES, WHICH CONTAINS A DIGEST OF CERTAIN INVESTIGATION REPORTS, AND EXCERPTS FROM PAPERS, DOCUMENTS AND EXHIBITS RELATING TO THE SPECIAL REPORT.

PROFITABLE ENTERPRISES

AS THE CONGRESS UNDOUBTEDLY IS AWARE GENERALLY, NUMEROUS AND OFTEN EXTREMELY PROFITABLE REVENUE-PRODUCING ACTIVITIES HAVE GROWN UP IN CONNECTION WITH THE TRANSACTION OF THE BUSINESS OF THE GOVERNMENT. BROADLY SPEAKING, REFERENCE IS MADE TO THE PROVIDING OF CONVENIENCES AND PURVEYING OF SERVICES, BY THE DEPARTMENTS AND ESTABLISHMENTS CONCERNED OR WITH THEIR ASSISTANCE OR SANCTION, WHICH OTHERWISE MIGHT NOT BE AVAILABLE TO GOVERNMENT PERSONNEL AND THOSE ASSOCIATED WITH THEM IN THE PERFORMANCE OF THEIR DUTIES.

DEPENDENT ON GOVERNMENT

THESE REMUNERATIVE "SIDELINES" WOULD APPEAR TO BE INCIDENTAL TO, AND DEPENDENT FOR THEIR VERY EXISTENCE ON, THE EXPENDITURE OF APPROPRIATED FUNDS IN THE ACCOMPLISHMENT BY THE DEPARTMENTS AND ESTABLISHMENTS OF THE GOVERNMENT OF THE SPECIFIC DUTIES ASSIGNED BY THE CONGRESS. AS A MATTER OF FACT, IN MANY INSTANCES THEY ARE SAID BY THOSE MOST ENTHUSIASTIC IN THEIR PROPAGATION TO BE ESSENTIAL TO THE EFFICIENT PERFORMANCE OF SUCH DUTIES, AND MAJOR CONTRIBUTIONS THERETO IN CASH, PROPERTY AND SERVICES ARE BEING MADE FROM APPROPRIATED FUNDS. BUT, YET, IT IS THE RULE RATHER THAN THE EXCEPTION FOR SOME OF THOSE SAME DEPARTMENTS AND ESTABLISHMENTS TO WITHHOLD FROM THE TREASURY ALL OR A LARGE PART OF THE RESULTANT REVENUES AND TO MAKE NO ACCOUNTING THEREFOR TO THE CONGRESS OR TO THE GENERAL ACCOUNTING OFFICE. INSTEAD, THE REVENUES ARE BEING DIVERTED CONSISTENTLY TO ENDS WHICH-- FAR FROM BEING SPELLED OUT BY THE CONGRESS-- ARE WITHOUT ANY SPECIFIC LEGAL AUTHORITY. GENERALLY, THOSE ENDS ARE THE FURTHERANCE OF SO-CALLED "WELFARE" PROGRAMS OR THE LIKE, WHEREUNDER THE MONEY IS APPLIED-- AT THE SOLE DISCRETION OF HEADS OF DEPARTMENTS AND ESTABLISHMENTS OR OF THEIR OFFICERS OR EMPLOYEES-- FOR THE BENEFIT AND BETTERMENT OF GOVERNMENT PERSONNEL OR SELECT GROUPS THEREOF.

OTHER MONEYS RECEIVED

ALSO, THERE HAVE COME TO MY ATTENTION MANY INSTANCES OF THE RECEIPT BY GOVERNMENT OFFICERS AND EMPLOYEES, BY VIRTUE OF THEIR OFFICES, OF OTHER FUNDS OF A QUASI-OFFICIAL OR PRIVATE NATURE FOR WHICH NO ACCOUNTING IS MADE TO THE GENERAL ACCOUNTING OFFICE. EXAMPLE OF THESE FUNDS ARE, AMONG OTHERS, CONTRIBUTIONS AND DONATIONS OF VARIOUS KINDS AND MONEYS DEPOSITED BY PRISONERS AND HOSPITAL PATIENTS FOR SAFEKEEPING. ALTHOUGH SUCH RECEIPTS PERHAPS ARE NOT SO CLOSELY ASSOCIATED WITH THE EXPENDITURE OF APPROPRIATED FUNDS AS IS THE CASE WITH REVENUE-PRODUCING ACTIVITIES, NEVERTHELESS FOR OBVIOUS REASONS, AS SHOWN HEREINAFTER, A PROPER ACCOUNTING THEREFOR WOULD APPEAR TO BE REQUIRED IN THE INTEREST OF THE GOVERNMENT.

ADVICE BY THE GENERAL ACCOUNTING OFFICE.

IN CONFORMITY WITH THE EXISTING POLICY OF THE GENERAL ACCOUNTING OFFICE, THE HEADS OF GOVERNMENT DEPARTMENTS AND ESTABLISHMENTS HAVE BEEN ADVISED IN MANY INSTANCES OF THE DOUBTFUL PROPRIETY OF WITHHOLDING THESE MONEYS FROM THE TREASURY. IN SOME OF THOSE INSTANCES CORRECTION OF IMPROPER PRACTICES HAS RESULTED. HOWEVER, FREQUENTLY IN OTHER CASES - PARTICULARLY THOSE CONCERNING THE MILITARY AND NAVAL ESTABLISHMENTS-- IT HAS BEEN CONTENDED THAT THE MONEYS WITHHELD ARE WITHOUT THE PURVIEW OF EXISTING STATUTES REQUIRING DEPOSIT OF FUNDS INTO THE TREASURY. REGARDLESS OF MY ADVICE AS TO THE PROPER DISPOSITION THEREOF THE MONEYS - COMMONLY REFERRED TO AS "NONAPPROPRIATED FUNDS"-- REPEATEDLY AND CONTINUOUSLY HAVE BEEN DIVERTED TO PURPOSES NOT EXPRESSLY AUTHORIZED BY LAW, AND IT HAS BEEN INSISTED, IN EFFECT, THAT THE MATTER IS OF NO LEGAL CONCERN TO THE GENERAL ACCOUNTING OFFICE.

ALTHOUGH I HAVE CONTINUED TO POINT OUT INDICATED IRREGULARITIES WHERE THERE APPEARS ANY REASONABLE POSSIBILITY OF CORRECTION, I HAVE DISCONTINUED AS USELESS AND INEFFECTUAL THE FURNISHING OF SUCH INFORMATION WHERE ADVICE PREVIOUSLY GIVEN IN SIMILAR CASES HAS BEEN REJECTED OR IGNORED. OBVIOUSLY, IN VIEW OF THE UNCOMPROMISING ATTITUDE OF SOME OF THE AGENCIES CONCERNED, THE CHANCE OF CORRECTION OR IMPROVEMENT IS TOO REMOTE IN THESE CIRCUMSTANCES TO WARRANT THE TIME AND EXPENSE INCIDENT TO FURTHER EFFORT BY THE GENERAL ACCOUNTING OFFICE. ALSO, DURING THE RECENT WAR YEARS IT WAS MY BELIEF THAT CONTROVERSY ON THE MATTER MIGHT HAVE OCCASIONED DAMAGE OUTWEIGHTING ANY PROSPECTIVE BENEFIT. I DID NOT THEN THINK IT ADVISABLE TO MAKE A SEPARATE REPORT ON THE SUBJECT BECAUSE OF THE TREMENDOUS BURDEN BORNE BY THE CONGRESS AND THE ADMINISTRATIVE OFFICERS OF THE GOVERNMENT IN THE PROSECUTION OF THE WAR.

EARLIER RECOMMENDATIONS OF GENERAL ACCOUNTING OFFICE

HOWEVER, FOR SOMETIME PAST I HAVE BEEN DEEPLY CONCERNED WITH THE MATTER-- SO MUCH SO, IN FACT, THAT DESPITE MY RELUCTANCE TO ADD TO THE WARTIME AND IMMEDIATE POST-WAR PROBLEMS OF THE CONGRESS I FELT COMPELLED TO MAKE BRIEF REFERENCE THERETO IN MY ANNUAL REPORTS TO THE CONGRESS FOR THE FISCAL YEARS ENDED JUNE 30, 1945, AND JUNE 30, 1946. SEE PAGES 12 AND 10, RESPECTIVELY, OF THE REPORTS. ALSO, BEFORE I ASSUMED THE DUTIES OF COMPTROLLER GENERAL OF THE UNITED STATES THE SERIOUSNESS THEREOF SEVERAL TIMES HAD BEEN POINTED OUT BY THE GENERAL ACCOUNTING OFFICE, AND SPECIFIC RECOMMENDATIONS FOR THE ENACTMENT OF LEGISLATION DESIGNED TO FACILITATE THE DISPOSITIONS OF CERTAIN FUNDS AND TO PROTECT THE GOVERNMENT WITH RESPECT THERETO WERE CONTAINED IN THE ANNUAL REPORTS OF THE ACTING COMPTROLLER GENERAL FOR THE FISCAL YEARS ENDED JUNE 30, 1937, AND JUNE 30, 1938 (APPENDIX PAGES XIX AND XX).

TREMENDOUS GROWTH NOTED

THE RECOMMENDATIONS OF THE GENERAL ACCOUNTING OFFICE NOT HAVING BEEN ADOPTED THE QUESTIONABLE HAVE BEEN CONTINUED AND EVEN ENLARGED. THE SCOPE AND EXTENT THEREOF AND THE AMOUNTS INVOLVED REACHED VAST PROPORTIONS WITH THE ENORMOUS WARTIME EXPANSION OF THE MILITARY AND NAVAL ESTABLISHMENTS AND OF OTHER GOVERNMENTS FUNCTIONS. MILLIONS OF DOLLARS ARE BEING TAKEN IN AND SPENT ANNUALLY, WITHOUT ANY PROPER ACCOUNTING OR CLEAR AUTHORITY OF LAW. MOREOVER, IT IS APPARENT THAT INCOME AND EXPENDITURES INCIDENT TO SUCH ACTIVITIES WILL CONTINUE FAR IN EXCESS OF THE HIGHEST PREWAR LEVEL. THE EXISTENCE OF SUCH A FAR FLUNG, MULTIMILLION-DOLLAR BUSINESS AS AN OUTGROWTH OF THE GOVERNMENT, WITHOUT ANY INDEPENDENT CHECK OR CONTROL, IS AN OPEN INVITATION TO ALL KINDS OF FRAUD AND PECULATIONS.

FUNDS WITHHELD FROM TREASURY

THE FIRST QUESTION WHICH HAS ENGAGED THE ATTENTION OF THE GENERAL ACCOUNTING OFFICE CONCERNS THE AUTHORITY TO WITHHOLD FROM THE TREASURY REVENUES, DONATIONS AND CONTRIBUTIONS, ACCRUING FROM ACTIVITIES CARRIED ON IN CONNECTION WITH THE TRANSACTION OF THE REGULAR BUSINESS OF THE GOVERNMENT. IT SEEMS TO ME TO BE SELF-EVIDENT THAT THESE FUNDS-- ARISING AS THEY DO FROM THE TRANSACTION OF THE BUSINESS OF THE GOVERNMENT AND USED, ACCORDING TO ADMINISTRATIVE OFFICERS, AS ADJUNCTS THERETO-- NECESSARILY ARE IMPRESSED WITH THE CHARACTER OF FUNDS RECEIVED FOR THE USE OF THE UNITED STATES. UNDER EXISTING LAW FUNDS RECEIVED FOR USE OF THE UNITED STATES GENERALLY ARE REQUIRED TO BE DEPOSITED IN THE TREASURY, TO BE DISBURSED THEREFROM ONLY IN ACCORDANCE WITH AUTHORITY GRANTED BY THE CONGRESS. I FIND NO EXPRESS OR CLEARLY IMPLIED EXCEPTION BY THE CONGRESS IN RESPECT OF THE QUESTIONABLE MATTERS BROUGHT TO LIGHT IN THIS REPORT. ACCORDINGLY, THE PRACTICE OF DIVERTING THE FUNDS FROM THE TREASURY TO VARIOUS "WELFARE" AND OTHER PURPOSES NOT AFFIRMATIVELY PRESCRIBED BY THE CONGRESS WOULD APPEAR TO BE OF DOUBTFUL LEGAL PROPRIETY AT BEST.

PUBLIC PROPERTY GIVEN AWAY

THE SECOND QUESTION CONCERNS THE MANY DISCLOSED INSTANCES OF FREE USE OF PUBLIC PROPERTY AND FUNDS IN CONNECTION WITH THE CONDUCT OF REVENUE- PRODUCING ACTIVITIES. IT HAS BEEN CONTENDED, IN EFFECT, THAT THE ESTABLISHMENT AND OPERATION OF SUCH ACTIVITIES AND THE APPLICATION OF REVENUES ACCRUING THEREFROM TO PURPOSES NOT SPECIFICALLY AUTHORIZED BY THE CONGRESS REPRESENT THE LAWFUL EXERCISE OF ADMINISTRATIVE DISCRETION, INCLUDING IMPLIED AUTHORITY TO GRANT FREE USE OF PUBLIC PROPERTY AND FUNDS. WITH THAT PROPOSITION I MUST DIFFER SHARPLY. BECAUSE OF THE COMPLEXITY OF THE GOVERNMENT BUSINESS, THE CONGRESS ORDINARILY LEAVES LARGELY TO THE DISCRETION OF ADMINISTRATIVE OFFICERS THE OBJECTS AND PURPOSES TO WHICH PROPERTY AND FUNDS IN THEIR CONTROL AND JURISDICTION MAY BE DEVOTED IN THE TRANSACTION OF THE BUSINESS OF THEIR DEPARTMENTS AND ESTABLISHMENTS. BUT IN THE ABSENCE OF SPECIFIC AUTHORITY SUCH DISCRETION CANNOT BE CONSIDERED AS CARRYING WITH IT THE UNQUALIFIED RIGHT TO GIVE AWAY PUBLIC PROPERTY OR FUNDS. ADMINISTRATIVE DISCRETION IN THE MATTER MAY NOT TRANSCEND THE STATUTES, NOR BE EXERCISED IN CONFLICT WITH LAW OR FOR THE ACCOMPLISHMENT OF PURPOSES UNAUTHORIZED BY THE CONGRESS.

GOVERNMENT SHOULD BE REIMBURSED

THE CONGRESS HAS AUTHORIZED THE GIVING AWAY OF PUBLIC PROPERTY OR FUNDS-- WHETHER FOR THE CONVENIENCE OR WELFARE OF GOVERNMENT PERSONNEL OR OTHERWISE-- ONLY ON RARE AND EXCEPTIONAL OCCASIONS, AND THEN IN UNMISTAKABLE TERMS. NO EXCEPTIONAL CASE HAD BEEN MADE OUT FOR THE MATTERS HERE INVOLVED. MOREOVER, IT IS ENTIRELY CONCEIVABLE, ALSO, THAT SUCH USE MIGHT CONSTITUTE A VIOLATION OF THE LAWS PROHIBITING THE ALLOWANCE OF EXTRA COMPENSATION OF OFFICERS AND EMPLOYEES OF THE GOVERNMENT. ACCORDINGLY, ASIDE FROM THE QUESTIONABLE PROPRIETY OF WITHHOLDING FROM THE TREASURY ANY OF THE MONEYS COLLECTED BY REASON OF THE TRANSACTION OF GOVERNMENT BUSINESS, THE USE OF PUBLIC PROPERTY AND FUNDS IN CONNECTION THEREWITH WITHOUT FAIR REIMBURSEMENT TO THE GOVERNMENT WOULD APPEAR OBJECTIONABLE PER SE. EVEN CONCEDING THAT IN SPECIAL CIRCUMSTANCES IT MIGHT BE DESIRABLE AND PRACTICABLE TO DEVOTE NET PROFITS-- AFTER REIMBURSING THE GOVERNMENT'S CONTRIBUTION-- TO THE PRESENT PURPOSE, IN THE ABSENCE OF SPECIFIC AUTHORITY OF LAW NO SOUND REASON IS PERCEIVED WHY REVENUE-PRODUCING ACTIVITIES SHOULD NOT BE SELF SUPPORTING SO FAR AS CONCERNS THE USE OF PUBLIC PROPERTY AND FUNDS.

SERIOUS AUDIT IMPEDIMENT

THE THIRD QUESTION DEALS WITH A SITUATION WHICH IN MY OPINION MUST BE CORRECTED REGARDLESS OF THE FOREGOING. THE PREVAILING CONDITION PRESENTS A VERY SERIOUS AUDIT IMPEDIMENT WHICH IS ADVERSE TO THE INTEREST OF THE GOVERNMENT. FOR ONE THING, AN ACCOUNTABLE OFFICER HAVING IN CUSTODY OFFICIAL FUNDS FOR WHICH HE MUST ACCOUNT, ALONG WITH OTHER FUNDS FOR WHICH HE DOES NOT ACCOUNT, READILY MIGHT CONCEAL A SHORTAGE IN EITHER CLASS OF FUNDS FOR WHICH HE DOES NOT ACCOUNT, READILY MIGHT CONCEAL A SHORTAGE IN EITHER CLASS OF FUNDS WHICH WOULD BE FOUND OUT IF BOTH CLASSES WERE SUBJECT TO INDEPENDENT CHECK AT THE SAME TIME BY THE SAME AUTHORITY. FOR ANOTHER THING, IRRESPECTIVE OF THE NATURE OF THE FUNDS AND WHENCE THEY SPRING, WHEN THEY COME INTO THE CUSTODY OF PERSONS IN THE SERVICE OF THE UNITED STATES BY VIRTUE OF THAT SERVICE THE UNITED STATES-- BEARING A LARGE MEASURE OF RESPONSIBILITY-- UNQUESTIONABLY IS FINANCIALLY CONCERNED, AND SUCH FUNDS SHOULD BE SUBJECT TO THE ACCOUNTING PROCEDURES PROVIDED BY LAW FOR PUBLIC FUNDS AND TRUST FUNDS.

WELFARE RECOGNIZED

I DO NOT INTEND TO IMPLY IN THIS REPORT THAT THE GENERAL ACCOUNTING OFFICE QUESTIONS THE PLACE OR THE DESIRABILITY OF WELFARE AND RELATED ACTIVITIES IN THE GOVERNMENT SERVICE. INDEED, TO THE CONTRARY, I AM WHOLEHEARTEDLY IN FAVOR OF SUCH ACTIVITIES WITHIN REASONABLE LIMITS. BELIEVE THAT THEY SERVE A WORTHY PURPOSE, IN MANY INSTANCES TENDING TO PROMOTE THE INTERESTS OF THE UNITED STATES AS WELL AS THOSE OF ITS OFFICERS AND EMPLOYEES. FURTHER, I DO NOT DOUBT THAT SPECIAL CIRCUMSTANCES MAY JUSTIFY THE PARTICIPATION OF A PARTICULAR DEPARTMENT OR ESTABLISHMENT IN THE PROVIDING OF NORMAL CONVENIENCES OR SERVICES WHICH MIGHT NOT OTHERWISE BE AVAILABLE TO ITS PERSONNEL.

USE OF PUBLIC FUNDS MUST BE AUTHORIZED BUT, ALTHOUGH THE VALUE OF THE ACTIVITIES AND THE USUAL ADMINISTRATIVE PURPOSE IN FOSTERING THEM ARE FULLY APPRECIATED, THAT IS NOT TO SAY THAT THE GENERAL ACCOUNTING OFFICE CAN LEAVE UNCHALLENGED IMPROPER PRACTICES ADOPTED AND FOLLOWING IN FURTHERANCE, THEREOF, OR THAT THEY SHOULD BE EXTENDED AND ENLARGED BEYOND THEIR PROPER SPHERE AS AUTHORIZED BY THE CONGRESS. THE QUESTION WITH THE ACCOUNTING OFFICERS OF THE GOVERNMENT IS NOT THE APPARENT GENERAL MERIT OF THE ADMINISTRATIVE OBJECTIVES ON WHICH PUBLIC PROPERTY AND FUNDS ARE EXPENDED, BUT WHETHER THE CONGRESS, CONTROLLING THE PUBLIC PURSE, HAS BY LAW AUTHORIZED THE EXPENDITURE.

LEGAL DIFFICULTY FROM THE FOREGOING DISCUSSION I THINK IT WILL BE CLEAR THAT THE LEGALITY OF THE PRESENT SITUATION IS, AT BEST, EXTREMELY DOUBTFUL -- AND THAT DOUBT HAS BEEN RESOLVED ADMINISTRATIVELY TO THE FINANCIAL DETRIMENT OF THE GOVERNMENT AND THE TAXPAYER. AS POINTED OUT ABOVE, REGARDLESS OF ANY OTHER MATTER I AM FIRMLY CONVINCED THAT THE UNDOUBTED FINANCIAL INTEREST OF THE GOVERNMENT IN ALL MONEYS RECEIVED BY VIRTUE OF PUBLIC OFFICE SHOULD BE PROTECTED BY THE APPLICATION TO SUCH MONEYS OF THE ACCOUNTING PROCEDURE PROVIDED BY LAW FOR PUBLIC FUNDS AND TRUST FUNDS. HOWEVER, IT IS REALIZED, ALSO, THAT THE PRACTICAL AND LEGAL ISSUES INVOLVED IN THE MATTERS OF DEPOSIT AND DISBURSEMENT OF SUCH MONEYS AND OF THE USE OF PUBLIC PROPERTY AND FUNDS IN CONNECTION THEREWITH MAY NOT, UNDER PRESENT STATUTES, BE CAPABLE OF INCONTESTABLE SOLUTION. EXPERIENCE HAS DEMONSTRATED THAT LITERAL COMPLIANCE WITH THE STATUTES REQUIRING THE COVERING OF ALL RECEIPTS INTO THE TREASURY IS IMPRACTICABLE IN SOME INSTANCES. IN THIS CONNECTION, SEE THE STATEMENT RELATING TO SECTIONS 19 AND 20 OF THE PERMANENT APPROPRIATION REPEAL ACT, 1934, AT PAGES 1194-5 OF THE 1938 ANNUAL REPORT REFERRED TO ABOVE (SET FORTH FOR CONVENIENCE OF REFERENCE AT PAGES XIX AND XX OF THE APPENDIX HERETO).

ADMINISTRATIVE PROBLEM

WHILE THE CONDITIONS BROUGHT TO LIGHT BY THE GENERAL ACCOUNTING OFFICE ARE OPEN TO SERIOUS OBJECTION, I AM NOT DISPOSED TO INSIST THAT, WITH SOME CHANGES, THEY ARE ALTOGETHER WITHOUT JUSTIFICATION. RATHER, SOME OF THE FAULT WOULD APPEAR TO LIE IN THE SHORTCOMINGS OF EXISTING STATUTES, WHICH HAVE BEEN INTERPRETED IN ALMOST AS MANY AND CONFLICTING WAYS AS THERE ARE DEPARTMENTS CONCERNED, AND IN THE VIRTUAL IMPOSSIBILITY OF FORMULATING THEREUNDER ANY WELL DEFINED AND COMPREHENSIVE POLICY, SUITABLE TO CHANGING CONDITIONS IN THE GOVERNMENT, TO WHICH ADMINISTRATIVE OFFICERS MAY LOOK FOR GUIDANCE.

WHAT IS NEEDED

IN VIEW THEREOF AND OF THE PROBABLE DESIRABILITY OF MAY OF THE PURPOSES WHICH THE ADMINISTRATIVE OFFICERS ARE SEEKING TO ACHIEVE, I AM INCLINED TO CONCLUDE THAT THERE MAY NOT BE AN ABSOLUTE NECESSITY TO REQUIRE THE DEPOSIT IN THE TREASURY IN EACH AND EVERY INSTANCE-- AS PRESENT STATUTES MAY REQUIRE-- OF ALL OF THE FUNDS NOW BEING DIVERTED TO WELFARE PURPOSES OR OF OTHER RECEIPTS OF A QUASI-PUBLIC OR PRIVATE NATURE. INSTEAD, I THINK, UNDER CERTAIN UNUSUAL CIRCUMSTANCES, THAT IF THE UNITED STATES RECEIVED FAIR REIMBURSEMENT OF ITS CONTRIBUTIONS OF PROPERTY AND FUNDS WHICH ARE DEVOTED TO PURPOSES DETERMINED, IN THE SOUND EXERCISE OF ADMINISTRATIVE DISCRETION, TO BE NECESSARY TO THE EFFICIENT TRANSACTION OF THE BUSINESS OF THE GOVERNMENT, AND IF APPROPRIATE INDEPENDENT ACCOUNTING CONTROLS ARE PROVIDED FOR THE MONEYS INVOLVED, ADEQUATE PROTECTION WOULD BE AFFORDED THE INTERESTS OF THE UNITED STATES.

CLARIFYING LEGISLATION

AFTER CAREFUL ANALYSIS OF THE MATTER I HAVE CONCLUDED THAT THE ONLY PRACTICABLE SOLUTION LIES IN THE ENACTMENT OF CLARIFYING LEGISLATION DESIGNED TO PERMIT THE ACCOMPLISHMENT BY THE DEPARTMENTS AND ESTABLISHMENTS OF THE GOVERNMENT OF THEIR PROPER OBJECTIVES, TO THE EXTENT SUCH OBJECTIVES AND THE METHODS AND PROCEDURES EMPLOYED IN THE ACCOMPLISHMENT THEREOF ARE CONSISTENT WITH THE INTERESTS OF THE UNITED STATES, AS POINTED OUT HEREINBEFORE, AND ARE AUTHORIZED BY THE CONGRESS.

THE BASIC ISSUE IS THE CONFLICT OF VIEWS AS TO EXISTING STATUTES REQUIRING DEPOSIT OF MONEYS IN THE TREASURY AND A PROPER USE AND ACCOUNTING THEREFORE. THAT ISSUE WOULD BE LARGELY RESOLVED BY THE ENACTMENT OF LEGISLATION WHICH WOULD, IN GENERAL, OUTLINE THE ACTIVITIES WHICH MIGHT PROPERLY BE CARRIED ON; THE FINANCING THEREOF, AND THE ACCOUNTING FOR, DISPOSITION, AND USE OF FUNDS INVOLVED, WHETHER AS A RESULT OF DIRECT APPROPRIATIONS OR INCOME RECEIVED.

IT WOULD APPEAR, FURTHER, IN VIEW OF THE INFORMATION CONTAINED IN THIS REPORT AND OF THE DIFFICULTY HERETOFORE ENCOUNTERED BY THE GENERAL ACCOUNTING OFFICE IN THE PERFORMANCE OF ITS STATUTORY FUNCTIONS BY REASON OF LACK OF AUTHORITY TO ENFORCE PROPER CONTROLS IN SIMILAR CIRCUMSTANCES, THAT THE CLARIFYING LEGISLATIONS SHOULD CONTAIN PROVISIONS FOR THE PRESCRIBING OF STANDARDS AND PROCEDURES ESSENTIAL TO THE MAINTENANCE OF ACCOUNTING CONTROLS DEEMED NECESSARY TO PROTECT THE GOVERNMENT; AND FOR THE APPROPRIATE ENFORCEMENT OF COMPLIANCE THEREWITH.

PROMPT ACTION NECESSARY

I AM FIRMLY CONVINCED THAT THE ENTIRE HAPHAZARD STRUCTURE OF SO CALLED "WELFARE ACTIVITIES" IN THE DEPARTMENTS AND ESTABLISHMENTS OF THE GOVERNMENT IS IN URGENT NEED OF OVERHAULING. ACCORDINGLY, THE EARLY ENACTMENT OF LEGISLATION TO ACCOMPLISH THE NEEDED REFORMS, IS STRONGLY RECOMMENDED.

PART II

SPECIAL REPORT

IN THE PERFORMANCE BY THE GENERAL ACCOUNTING OFFICE OF ITS DUTY OF INVESTIGATING, AT THE SEAT OF THE GOVERNMENT AND ELSEWHERE, MATTERS AFFECTING THE RECEIPT, DISBURSEMENT AND APPLICATION OF PUBLIC FUNDS, THERE HAVE BEEN DISCLOSED A GREAT MANY INSTANCES OF THE PRACTICES PREVIOUSLY MENTIONED IN THE SYNOPSIS, WHICH ARE DEEMED TO BE PREJUDICIAL TO THE INTERESTS OF THE UNITED STATES. THERE ARE SET FORTH HEREINAFTER, FOR THE INFORMATION OF THE CONGRESS, BRIEF STATEMENTS OF THE FACTS IN CERTAIN OF THOSE INSTANCES, SELECTED AT RANDOM EXCEPT FOR THAT RELATING TO THE PENTAGON BUILDING, WITH INTRODUCTORY REMARKS, EXPLANATORY COMMENTS, THE TEXTS OF PERTINENT EXISTING STATUTES AND SPECIAL RECOMMENDATIONS OF THE GENERAL ACCOUNTING OFFICE.

NATURE AND SOURCES OF FUNDS

THE TYPES OF THE FUNDS INVOLVED AND THE PRINCIPLE SOURCES FROM WHICH THEY ARE DERIVED MAY BE CLASSIFIED ROUGHLY AS FOLLOWS:

CONCESSIONAIRES PAY LIBERAL COMMISSIONS

PROBABLY AMONG THE MOST LUCRATIVE SOURCES OF THE FUND BEING DIVERTED FROM THE TREASURY TO UNAUTHORIZED PURPOSES ARE THE SUBSTANTIAL PAYMENTS MADE BY PRIVATE ENTERPRISES FOR THE PRIVILEGE OF DOING BUSINESS ON GOVERNMENT PROPERTY. IN SOME CASES OSTENSIBLE "COMMISSIONS" ARE PAID IN LIEU OF RENT FOR PREMISES GRANTED TO CONCESSIONAIRES FOR THE OPERATION OF RESTAURANTS, CAFETERIAS, SODA FOUNTAINS, SNACK BARS, DEPARTMENT STORES, GROCERY STORES, BOOK STORES, DRUG STORES, NEWSSTANDS, BEAUTY PARLORS, BARBER SHOPS, TAILOR SHOPS, SHOE REPAIR SHOPS, GASOLINE STATIONS, GOLF COURSES, THEATERS, AND SO ON ALMOST AD INFINITUM. IN MANY OF THESE CASES NOT ONLY THE PREMISES BUT EVEN THE EQUIPMENT AND FACILITIES USED BY THE CONCESSIONS ARE PAID FOR OUT OF THE PUBLIC PURSE. IN PRACTICALLY EVERY INSTANCE OF THIS KIND I HAVE FOUND, TOO, THAT NORMAL SPACE REQUIREMENTS OF UTILITIES ARE FURNISHED AT GOVERNMENT EXPENSE AND THAT PERSONNEL WHOSE SALARIES OR WAGES ARE PAID FROM APPROPRIATED FUNDS ARE REGULARLY ENGAGED IN THE MAINTENANCE OF PROPERTY, EQUIPMENT, AND FACILITIES, THE TRANSACTION OF BUSINESS WITH CONCESSIONAIRES, AND THE ADMINISTRATION OF REVENUES.

PUBLIC UTILITIES ALSO PAY COMMISSIONS

IN SOME CASES TELEGRAPH COMPANIES PAY REGULAR COMMISSIONS FOR PERSONAL TELEGRAMS HANDLED BY OFFICIAL GOVERNMENT COMMUNICATION CENTERS OR TELEGRAPH OFFICES. IN OTHER CASES FEES OR COMMISSIONS ARE RECEIVED FROM TELEPHONE COMPANIES FOR PAY STATIONS LOCATED IN PUBLIC BUILDINGS. STILL OTHER CASES PRIVATE TELEPHONE SUBSCRIBERS ARE ASSESSED SERVICE FEES FOR THE HANDLING OF UNOFFICIAL CALLS THROUGH OFFICIAL STATIONS OR SWITCHBOARDS. IN SUCH CASES, OF COURSE, THE EQUIPMENT AND FACILITIES-- EXCEPTING THE PAY STATION-- USUALLY ARE INSTALLED AND MAINTAINED BY THE GOVERNMENT. ALSO, IN MANY CASES COMMISSIONS ARE PAID BY TRANSPORTATION COMPANIES ON THE BASIS OF GROSS RECEIPTS FROM THE SALE OF BUS TICKETS AT MILITARY AND NAVAL INSTALLATIONS. ALTHOUGH APPARENTLY THE GOVERNMENT'S CAPITAL INVESTMENT AND EXPENSE OF MAINTENANCE IN CONNECTION WITH SUCH ARRANGEMENTS WITH TRANSPORTATION COMPANIES USUALLY ARE NOT SO GREAT AS FOR THE OTHER UTILITIES MENTIONED, IT APPEARS THAT IN ALL OF THE CASES SOME COST OF NEGOTIATING AND ARRANGING FOR COMMISSIONS, FEES AND SERVICE CHARGES, AND OF CUSTODY AND ADMINISTRATION THEREOF, ARE BORNE BY THE GOVERNMENT.

CANDY "COKE" AND CIGARETTE VENDING MACHINES ARE PROFITABLE

THERE IS SCARCELY A PUBLIC BUILDING OF ANY CONSIDERABLE SIZE, AT THE SEAT OF GOVERNMENT OR ELSEWHERE, WHICH DOES NOT HAVE ITS QUOTA OF AUTOMATIC COIN OPERATED VENDING MACHINES FOR THE DISPENSING OF VARIETY OF DRINKS, REFRESHMENTS, CIGARETTES OR MISCELLANEOUS ARTICLES. THE INCOMES DERIVED FROM SUCH MACHINES-- PATRONIZED AS THEY ARE BY LITERALLY MILLIONS OF GOVERNMENT EMPLOYEES AND PERSONS DOING BUSINESS WITH THEM-- ARE TREMENDOUS. ALTHOUGH BECAUSE OF THE NUMBER AND VARIETY OF THE MACHINES AN ACCURATE CALCULATION OF THE SUM TOTAL OF THE INCOMES THEREFROM IS VIRTUALLY IMPOSSIBLE, IT IS WELL-KNOWN THAT LIBERAL COMMISSIONS ARE PAID BY THE OPERATORS FOR THE PRIVILEGE OF TAPPING THIS PROFITABLE BUSINESS. UNFORTUNATELY, HOWEVER, RARELY IS THERE PROPER PROVISION FOR REIMBURSING ALL EXPENSE INCURRED BY THE GOVERNMENT IN CONNECTION WITH THE MACHINES.

CHARGES ARE MADE FOR SERVICES OPERATED BY THE GOVERNMENT

IN SOME CASES LAUNDRIES ARE EQUIPPED AND OPERATED AT GOVERNMENT EXPENSES, AND FIXED CHARGES MADE FOR THE SERVICES RENDERED. IN OTHER CASES REVENUES ARE OBTAINED FROM THE OPERATION OF GOVERNMENT-OWNED OR GOVERNMENT- CONTROLLED HOTELS, TRAILERS CAMPS AND OTHER LODGING ACCOMMODATIONS. STILL OTHER CASES SUBSTANTIAL SUMS ARE REALIZED FROM THE OPERATION OF PLACES OF AMUSEMENT OR RECREATION ON GOVERNMENT PROPERTY. IN SOME CASES FEES AND OTHER CHARGES ARE ASSESSED FOR THE CARE AND TREATMENT OF PRIVATELY-OWNED ANIMALS, INCLUDING, AMONG SEVERAL THINGS, STABLING AND GROOMING OF HORSES, BOARDING OF PETS, AND VETERINARY AND HOSPITAL SERVICES. IN SOME CASES STEADY INCOMES ARE EARNED IN CONNECTION WITH THE OFFICIAL OPERATIONS OF BOOK SHOPS AND THE SALE OF PRINTED MATTER, ETC. AND IN SOME CASES A PRODUCTIVE SOURCE OF FUNDS IS THE PAYMENT BY ATTORNEYS OF FEES FOR ADMISSION TO PRACTICE BEFORE UNITED STATES COURTS. IN EACH OF THESE CASES THE ENTIRE COST OR A SUBSTANTIAL PORTION THEREOF FALLS ON THE GOVERNMENT, ALTHOUGH, AS POINTED OUT BELOW, THE PROCEEDS SOMETIMES MAY BE USED TO REIMBURSE AT LEAST A PART OF SUCH COST.

OTHER IMPORTANT SOURCES OF REVENUE

THE PRACTICE IS GENERAL-- PARTICULARLY AT MILITARY AND NAVAL STATIONS-- OF COLLECTING FEES FOR THE ISSUANCE OF AUTOMOBILE TAGS OR STICKERS, PERSONNEL IDENTIFICATION BADGES AND THE LIKE. AT LEAST TWO INSTANCES HAVE BEEN REPORTED OF THE PRESCRIBING OF FEES FOR THE ISSUANCE OF LICENSES OR PERMITS TO HUNT AND FISH ON MILITARY RESERVATIONS, AND I AM INFORMED THAT THIS PRACTICE, TOO, MAY BE WIDESPREAD. ALSO, THERE HAS COME TO MY ATTENTION AN EXAMPLE OF THE OPERATION FOR A NUMBER OF YEARS, IN BUILDINGS IN THE CONTROL AND JURISDICTION OF AN ESTABLISHMENT AT THE SEAT OF GOVERNMENT, OF SEVERAL REVENUE-PRODUCING ACTIVITIES, INCLUDING THE SALE OF SOUVENIRS AND ILLUSTRATIVE LITERATURE, ETC., TO VISITORS, THE PROCEEDS OF WHICH WERE TURNED OVER TO A WELFARE COMMITTEE. ALTHOUGH THE OPERATION OF THE SOUVENIR STANDS HAS BEEN TAKEN OVER AS A FUNCTION OF THE ESTABLISHMENT, THE BALANCE OF $35,000 IN THE HANDS OF THE WELFARE COMMITTEE IN 1942 HAS NOT BEEN DEPOSITED INTO THE TREASURY IN ACCORDANCE WITH ADVISE OF THE GENERAL ACCOUNTING OFFICE.

NON-PROFIT FUNDS

FROM TIME TO TIME OFFICERS AND EMPLOYEES OF THE GOVERNMENT, BY VIRTUE OF THEIR OFFICES, RECEIVE OTHER FUNDS OF A QUASI-OFFICIAL OR PRIVATE NATURE. THESE FUNDS USUALLY MAY BE ATTRIBUTED TO VOLUNTARY ACTION OF SOME KIND-- SUCH AS DEPOSITS BY PRISONERS OR HOSPITAL PATIENTS OF FUNDS FOR SAFEKEEPING, AND VARIOUS CONTRIBUTIONS AND DONATIONS-- AND, CONSEQUENTLY, ARE NOT CONSIDERED IN EXACTLY THE SAME CATEGORY AS THE FUNDS ACCRUING FROM REVENUE-PRODUCING ACTIVITIES. WHILE ANY EXPENSE INCURRED BY THE GOVERNMENT IN CONNECTION THEREWITH MAY BE INCIDENTAL, AS PREVIOUSLY POINTED OUT THE UNITED STATES IS RESPONSIBLY AND FINANCIALLY CONCERNED WITH THESE FUNDS, AT LEAST FROM THE STANDPOINT OF SOUND AND ORDERLY ACCOUNTING IN THE CONDUCT OF THE BUSINESS OF THE GOVERNMENT.

EXPENSIVE TO THE GOVERNMENT

ALTHOUGH IN EACH INSTANCE CITED THE GOVERNMENT INCURS A GREATER OR LESSER MEASURE OF EXPENSE IN CONNECTION WITH THE ADMINISTRATIVE ACTIVITIES, RARELY IF EVER IS FULL REIMBURSEMENT MADE OR OFFERED. NOR IS ANY INDEPENDENT CHECK OR CONTROL GENERALLY PERMITTED OF RECEIPTS OR DISBURSEMENTS.

GOVERNMENT BUSINESS PRODUCES NEW SOURCES OF FUNDS

IT SHOULD NOT BE ASSUMED THAT THE FOREGOING REPRESENTS A COMPLETE OR COMPREHENSIVE STATEMENT OF ALL OF THE ADMINISTRATIVE SOURCES OF FUNDS WHICH I BELIEVE ARE BEING HANDLED IN A MANNER DETRIMENTAL TO THE INTEREST OF THE GOVERNMENT. ON THE CONTRARY, IT IS MERELY A COMPENDIUM OF THE OUTSTANDING EXAMPLES OBSERVED BY THE GENERAL ACCOUNTING OFFICE. MANY OTHER EXAMPLES PROBABLY COULD BE FOUND, AND IT IS ONLY TO BE EXPECTED THAT NEW SOURCES WILL CONTINUE TO SPRING UP WITH FUTURE OR EXPANSIONS IN THE BUSINESS OF THE GOVERNMENT.

HOW FUNDS ARE SPENT

THE ACTIVITIES DESCRIBED ABOVE AND THE PURPOSES BEING SERVED THEREBY HAVE BECOME DEEPLY ROOTED, AND IT IS OBVIOUS THAT SOME OF THE ADMINISTRATIVE AGENCIES REGARD THEM AS TOO FIRMLY ESTABLISHED FOR ANY QUESTION OR MODIFICATION. THAT MOST CERTAINLY IS NOT THE CASE SO FAR AS I AM CONCERNED. CONTINUANCE OF ABUSES AND SUCCESS IN EVADING THE CONSEQUENCES THEREOF MAY NOT BE ACCEPTED AS CRITERIA FOR WHAT IS PROPER IN THE TRANSACTION OF THE BUSINESS OF THE GOVERNMENT. NOR DO WORTHINESS OF OBJECTIVE AND PURITY OF INTENTION JUSTIFY PRACTICES WHICH ARE DETRIMENTAL TO THE GOVERNMENT. REGARDLESS OF THE NATURE AND SOURCES OF THE FUNDS INVOLVED AND ADMINISTRATIVE OPINIONS OF THE DESIRABILITY OF THE PURPOSE BEING SERVED THEREBY, I AM THOROUGHLY CONVINCED THAT IN MANY INSTANCES SUCH FUNDS ARE BEING RETAINED AND SPENT BY SOME DEPARTMENTS AND ESTABLISHMENTS OF THE GOVERNMENT WITHOUT PROPER REGARD FOR THE PUBLIC INTEREST. MONEY SOMETIMES USED TO SUPPORT ACTIVITIES

THERE HAS BEEN NOTED A TENDENCY TO APPLY THE PROFITS OF CERTAIN REVENUE- PRODUCING ACTIVITIES FIRST TO PURPOSES RELATED TO THE PARTICULAR ACTIVITIES FROM WHICH THE PROFITS FLOW. THUS, A PORTION OF THE INCOME FROM A RESTAURANT OR CAFETERIA MAY BE USED TO SUBSIDIZE MEALS FURNISHED PATRONS BY REDUCING THE COST THEREOF. SOME OF THE COMMISSIONS RECEIVED FROM CONCESSIONAIRES MAY BE USED TO PURCHASE NEW EQUIPMENT OR REPLACE WORN -OUT EQUIPMENT, OR TO IMPROVE THE CONVENIENCE OR SERVICES PROVIDED BY THE CONCESSIONAIRES. ENLISTED PERSONNEL EMPLOYED IN BARBER SHOPS USUALLY SHARE IN THE INCOME OF SUCH SHOPS. TELEGRAPH AND TELEPHONE COMMISSIONS, FEES AND SERVICE CHARGES OFTEN ARE USED TO PAY CIVILIAN MESSENGERS, TO AUGMENT THE PAY OF GOVERNMENT PERSONNEL WORKING IN THE OFFICIALLY OPERATED COMMUNICATION CENTERS OR ON OFFICIAL SWITCHBOARDS, OR TO PURCHASE MISCELLANEOUS ARTICLES OF CONVENIENCE FOR SUCH CENTERS AND SWITCHBOARDS. REVENUE FROM THE OPERATION OF GOVERNMENT-OWNED LAUNDRIES HAS BEEN APPLIED FIRST TO OPERATING EXPENSES OR THE COST OF IMPROVED SERVICE, AND ANY PROFIT TURNED OVER TO WELFARE ACTIVITIES. THE SAME IS TRUE OF CASES INVOLVING THE CARE AND TREATMENT OF ANIMALS. INCOMES FROM LODGING ACCOMMODATIONS GENERALLY ARE USED FOR THE OPERATION AND IMPROVEMENT THEREOF. THE PROCEEDS OF OFFICIALLY OPERATED BOOK SHOPS, ETC., HAVE BEEN USED, AMONG OTHER THINGS, FOR THE PURCHASE OF ARTICLES AND MATERIALS RELATED TO THE PARTICULAR ACTIVITY WHICH ARE NOT AVAILABLE FROM APPROPRIATED FUNDS. FISHING AND HUNTING LICENSE AND PERMIT FEES HAVE BEEN USED FOR THE PROPAGATION OF WILD LIFE ON THE RESERVATIONS WHERE THEY ARE COLLECTED. A PORTION OF THEATER AND AMUSEMENT REVENUES AT ARMY POSTS GOES TO THE UNITED STATES ARMY MOTION PICTURE SERVICE HEADQUARTERS IN WASHINGTON, D.C. AND ADMISSION FEES OF ATTORNEYS HAVE BEEN USED TO AUGMENT SUMS APPROPRIATED BY THE CONGRESS FOR THE PURCHASE OF LAW BOOKS AND LEGAL PERIODICALS AND DOCUMENTS.

WELFARE PROGRAMS LARGELY BENEFIT

IN THE EVENT THE ADMINISTRATIVE OFFICE CONCERNED DOES NOT DEEM IT ADVISABLE TO "PLOW BACK" THE PROCEEDS OF ANY REVENUE-PRODUCING ACTIVITY OR TO RESERVE THE ENTIRE AMOUNT THEREOF TO ACTIVE PARTICIPANTS, THE RESIDUE GENERALLY IS TURNED OVER TO A CHOSEN WELFARE, RECREATIONAL OR SOCIAL PROJECT. THUS, LARGE SUMS REALIZED FROM COMMISSIONS PAID BY CONCESSIONAIRES AND FROM OTHER SOURCES ACCRUE TO LOCAL WELFARE ASSOCIATIONS, TO POST EXCHANGES IN THE ARMY AND TO SHIPS' SERVICE STORES IN THE NAVY, AND LAUNDRY PROFITS AT CERTAIN NAVY STATIONS ARE RETAINED FOR USE BY THE SHIPS' SERVICE STORES OR BY OTHER WELFARE ACTIVITIES.

MOREOVER, SEVERAL OF THE BEST INCOME PRODUCERS REFERRED TO ABOVE ARE NOT OF A CHARACTER REQUIRING THE USE OF ANY SUBSTANTIAL PORTION OF THE REVENUES ACCRUING THEREFROM. CONSEQUENTLY, FUNDS RECEIVED FROM THESE SOURCES-- INCLUDING, AMONG OTHERS, VENDING MACHINE COMMISSIONS, COMMISSIONS ON SALES OF BUS TICKETS AND FEES FOR THE ISSUANCE OF AUTOMOBILE TAGS AND IDENTIFICATION BADGES, ETC-- ARE AVAILABLE AND ARE FREELY USED BY ARMY EXCHANGES, NAVY SHIPS' SERVICE STORES, AND LOCAL CIVILIAN OR MILITARY WELFARE AND RECREATIONAL ASSOCIATIONS, AS THE CASE MAY BE.

CASES AND COMMENTS

AS PREVIOUSLY MENTIONED, INSTANCES OF PRACTICES WHICH ARE DEEMED TO BE DETRIMENTAL TO THE INTEREST OF THE GOVERNMENT ARE PREVALENT IN THE MILITARY AND NAVAL ESTABLISHMENTS. ACCORDINGLY, ILLUSTRATIVE CASES AND RELATED MATTERS WHICH ARE OF SPECIAL PERTINENCE TO THOSE ESTABLISHMENTS ARE PRESENTED FIRST IN THIS PART OF THE REPORT.

PENTAGON BUILDING

BECAUSE THE LARGE SUMS INVOLVED AND THE MAGNITUDE AND DIVERSITY OF THE OPERATIONS DEMONSTRATE THE AMAZING EXTENT TO WHICH ADMINISTRATIVE OFFICERS AT THE VERY SEAT OF THE GOVERNMENT HAVE ASSUMED THE POWER TO SPEND FUNDS ARISING FROM THE CONDUCT OF OFFICIAL BUSINESS, THERE ARE SET FORTH SEPARATELY THE FACTS RELATING TO THE SO-CALLED "WELFARE ACTIVITIES" OF THE DEPARTMENT OF THE ARMY IN THE PENTAGON BUILDING. HOWEVER, AS WILL BE MADE EVIDENT LATER, THE MODUS OPERANDI IS SUBSTANTIALLY THE SAME THERE AS AT ARMY INSTALLATIONS ELSEWHERE.

CREATION OF PENTAGON RESTAURANT AND CONCESSIONS

THE FIRST SUPPLEMENTAL NATIONAL DEFENSE APPROPRIATION ACT OF 1942, 55 STAT. 669, 685-686-- INCLUDING AN APPROPRIATIION FOR THE CONSTRUCTION IN ARLINGTON COUNTY, VIRGINIA, OF THE BUILDING NOW KNOWN AS THE PENTAGON BUILDING-- PROVIDED, IN PERTINENT PART, THAT "MAINTENANCE AND OPERATION OF SUCH BUILDING SHALL BE UNDER THE JURISDICTION OF THE PUBLIC BUILDINGS ADMINISTRATION." NOTWITHSTANDING THAT STATUTORY PROVISION AND THE EXPRESSED OPINION OF THE HEAD OF THE PUBLIC BUILDINGS ADMINISTRATION THAT RESPONSIBILITY FOR OPERATION OF ANY RESTAURANT IN THE BUILDING WAS LODGED BY THE LAW IN HIS AGENCY, IT APPEARS THAT THE DEPARTMENT OF THE ARMY DEMANDED COMPLETE CONTROL OF THE RESTAURANT AND PROFITS ARISING THEREFROM; THAT THE THEN SECRETARY OF WAR DETERMINED THAT OPERATION OF A "POST RESTAURANT," UTILIZING CERTAIN SPACE AND FIXTURES IN THE PENTAGON BUILDING, WAS NECESSARY TO THE CONDUCT OF THE BUSINESS OF HIS DEPARTMENT; AND THAT IN CONFORMITY WITH SUCH DETERMINATION THERE WAS CREATED, UNDER THE PROVISIONS OF AR 210-100, THE PENTAGON POST RESTAURANT COUNCIL (HEREINAFTER REFERRED TO AS THE COUNCIL) FOR THE PRIMARY PURPOSE OF OPERATING THE RESTAURANT. SEE APPENDIX, PAGES XXI TO XXXIII INCLUSIVE, FOR EXCERPTS FROM PERTINENT CORRESPONDENCE RELATING TO THE MATTER. ALSO, WITH REFERENCE TO THE APPARENT CONFLICT AS TO AUTHORITY TO OPERATE THE PENTAGON BUILDING, SEE GLAVEY V. UNITED STATES, 182 U.S. 595 WHEREIN THE SUPREME COURT OF THE UNITED STATES POINTED OUT, INTER ALIA, THAT INSTRUCTIONS AND REGULATIONS ISSUED BY THE HEAD OF AN EXECUTIVE DEPARTMENT OF THE GOVERNMENT MAY NOT BE IN CONFLICT WITH STATUTES CONFERRING RIGHTS UPON OTHERS.

OPERATION OF PENTAGON RESTAURANT AND CONCESSIONS

IT APPEARS, FURTHER THAT THE COUNCIL ENTERED INTO AN AGREEMENT DATED DECEMBER 5, 1942, WITH THE WELFARE AND RECREATIONAL ASSOCIATION OF PUBLIC BUILDINGS AND GROUNDS, INC. (NOW GOVERNMENT SERVICES, INC.), WHEREUNDER THE ASSOCIATION WAS TO OPERATE THE CAFETERIA IN THE PENTAGON BUILDING AS MANAGER FOR THE COUNCIL AND RECEIVE AS COMPENSATION ONE PERCENT OF TOTAL CASH RECEIPTS; THAT SUCH AGREEMENT WAS TERMINATED EFFECTIVE MARCH 1, 1944, AND REPLACED BY AN AGREEMENT WITH A PRIVATE CORPORATION CONTAINING SIMILAR PROVISIONS; AND THAT OPERATIONS HAVE CONTINUED TO DATE UNDER THE LATTER AGREEMENT AND EXTENSIONS OR RENEWALS THEREOF. SEE PAGES 872 TO 874, INCLUSIVE, OF THE HEARINGS ON CAFETERIAS IN GOVERNMENT BUILDINGS, BEFORE A SUBCOMMITTEE OF THE SENATE COMMITTEE ON CIVIL SERVICE, 80TH CONGRESS, 1ST SESSION, PURSUANT TO S. RES. 42 (PART 9, MAY 21 AND JUNE 9, 1947), FOR TESTIMONY SHOWING THAT THE PRIVATE CORPORATION WAS FORMED BY CERTAIN ADVISERS OF THE SECRETARY OF WAR ON FOOD MATTERS, AND FOR THE REASONS GIVEN FOR TERMINATING THE CONTRACT WITH THE ASSOCIATION.

CONCESSIONS OPERATED IN PENTAGON BUILDING

ALSO, IT APPEARS THAT IN ADDITION TO THE RESTAURANT AND OTHER FOOD SERVICES THE COUNCIL CONTROLS VARIOUS CONCESSIONS, INCLUDING A BOOK STORE, A DRUG STORE, A SHOPPING CENTER, A FLOWER SHOP, NEWSSTAND AND VENDING MACHINES; THAT THE OPERATION OF THOSE CONCESSIONS IS LET TO PRIVATE PERSONS OR FIRMS UNDER AGREEMENTS WITH THE COUNCIL PROVIDING, IN SOME CASES, FOR PAYMENT TO THE COUNCIL OF 100 PERCENT OF THE PROFITS - DETERMINED IN ACCORDANCE WITH FORMULAS SET FORTH THEREIN-- AND IN OTHER CASES, FOR PAYMENT TO THE COUNCIL OF VARYING PERCENTAGES OF THE GROSS RECEIPTS; THAT SUCH AGREEMENTS LARGELY GIVE THE COUNCIL THE RIGHT TO REGULATE AND FIX PRICES, HOURS OF SERVICE AND EXTENT OF ADVERTISING, AND TO REQUIRE THE DISMISSAL OF OBJECTIONABLE EMPLOYEES; AND THAT EACH SUCH AGREEMENT IS TERMINABLE UPON 30 DAYS' WRITTEN NOTICE BY EITHER PARTY. FROM THE LIMITED INFORMATION MADE AVAILABLE TO THE GENERAL ACCOUNTING OFFICE, IT IS EVIDENT THAT OPERATION OF SAID CONCESSIONS, INCLUDING FOOD SERVICES, HAS BEEN CONTINUED TO THE PRESENT TIME UNDER THE SAME OR SIMILAR AGREEMENTS. SEE PART 2, PAGE 95 AND PART 9, PAGES 870 AND 871, OF THE MENTIONED HEARINGS.

FINANCIAL ARRANGEMENTS

IT IS UNDERSTOOD THAT IN ORDER TO OBTAIN CAPITAL WITH WHICH TO PURCHASE EQUIPMENT, ETC. FOR THE RESTAURANT AT THE BEGINNING OF OPERATIONS, THE COUNCIL BORROWED $325,000 FROM THE DEFENSE SUPPLIES CORPORATION; THAT ADDITIONAL EQUIPMENT AND REPLACEMENT OR REPAIR OF EXISTING EQUIPMENT WERE TO BE PAID FOR FROM CURRENT OPERATING INCOME; THAT THE EQUIPMENT THUS FINANCED WAS IN ADDITION TO "MACHINERY, OVENS, RANGES, REFRIGERATORS, AND OTHER FIXED EQUIPMENT CAPITALIZED IN THE COST OF THE BUILDING ITSELF"; AND THAT THE ORIGINAL LOAN NOW HAS BEEN LIQUIDATED AND $100,000 MORE BORROWED. (SEE PAGE 874 OF THE ABOVE HEARINGS, AND PARAGRAPH 6 OF STATEMENT INSERTED IN THE RECORD AT THE HOUSE HEARINGS ON THE MILITARY ESTABLISHMENT APPROPRIATION BILL, 1945, PAGES 624-626).

EXPLANATION GIVEN

IN RESPONSE TO INQUIRY OF THIS OFFICE AS TO THE AMOUNTS, SOURCES AND DISPOSITION MADE OF FUNDS ACCRUING TO THE COUNCIL, THE DEPARTMENT OF THE ARMY ADVISED THAT THE RESTAURANT WAS ESTABLISHED UNDER AR 210-100, CITED ABOVE; THAT THE ACTIVITIES THEREOF ARE CONDUCTED ON THE SAME GENERAL PRINCIPLES AS GOVERN ARMY EXCHANGES ESTABLISHED UNDER AR 210 65; THAT UNDER SAID REGULATIONS PROFITS ARE USED FOR THE BENEFIT OF MEMBERS OF THE LOCAL WELFARE ASSOCIATION OR PATRONS OF THE RESTAURANT, AS THE CASE MAY BE, DEPENDING ON THE PURPOSE FOR WHICH THE RESTAURANT WAS ESTABLISHED; THAT AS OF JUNE 30, 1944-- AFTER APPROXIMATELY 18 MONTHS OF ACTIVITY-- A NET PROFIT OF $203,667.16 HAD BEEN REALIZED FROM THE OPERATION OF THE RESTAURANT AND CONCESSIONS, EVEN THOUGH THE RESTAURANT ITSELF LOST $89,527.70; AND THAT NO PART OF THE REVENUE OR PROFIT OF SUCH OPERATIONS ACCRUED TO THE UNITED STATES EXCEPT CERTAIN COMPARATIVELY NOMINAL AMOUNTS PAID THE FEDERAL WORKS AGENCY FOR ELECTRICITY, GAS AND STEAM CONSUMED IN EXCESS OF NORMAL REQUIREMENTS FOR SPACE HEATING AND SPACE LIGHTING. IT IS APPARENT, ALSO, FROM THE PRIMARY PURPOSE OF THE COUNCIL AS POINTED OUT ABOVE AND FROM OTHER INFORMATION RECEIVED, THAT MOST, IF NOT ALL, PROFITS HAVE BEEN USED TO REDUCE THE COST OF MEALS TO RESTAURANT PATRONS. INFORMATION IS AVAILABLE AS TO THE PROPORTION OF CIVILIAN AND MILITARY PERSONNEL AMONG THOSE PATRONS.

COST TO THE GOVERNMENT

THERE HAS BEEN CONSIDERED, ALSO, IN CONNECTION WITH THE MATTER, THE STATEMENT INSERTED IN THE CONGRESSIONAL RECORD UNDER DATE OF MARCH 6, 1944 (VOLUME 90, PART II, PAGES 2290 AND 2291), INDICATING THAT DURING THE FIRST YEAR OF OPERATIONS SOME 13,000 SQUARE FEET OF FLOOR SPACE, COSTING THE GOVERNMENT APPROXIMATELY $2.20 PER SQUARE FOOT FOR THAT YEAR, WERE OCCUPIED BY THE COUNCIL ACTIVITIES FREE OF CHARGE, AND THAT CONSIDERABLE SUMS WERE PAID OUT BY THE GOVERNMENT FOR HEATING, LIGHTING, ETC., REQUIRED FOR THE UTILIZATION OF SAID SPACE. MOREOVER, IT WAS BROUGHT OUT AT THE HEARINGS ON S. RES. 42, SUPRA (PAGES 875 TO 879, INCLUSIVE), THAT CERTAIN ARMY OFFICERS AND CIVILIAN EMPLOYEES OF THE WAR DEPARTMENT WERE ASSIGNED TO WORK OF THE COUNCIL FOR PERIODS RANGING IN DURATION FROM TWO MONTHS TO MORE THAN THREE YEARS. IN THIS CONNECTION, SEE APPENDIX, PAGE XXXIV.

REIMBURSEMENT INADEQUATE

THUS, IT IS SEEN THAT SPACE IN THE PENTAGON BUILDING, WITH NORMAL REQUIREMENTS OF HEATING, LIGHTING AND STEAM, AND THE NECESSARY APPARATUS THEREFOR, WERE PROVIDED BY THE GOVERNMENT, FREE OF ANY CHARGE WHATSOEVER, FOR ALL ACTIVITIES OF THE COUNCIL, AND THAT CERTAIN FIXED EQUIPMENT, ESPECIALLY DESIGNED FOR AT LEAST THE FOOD SERVICES-- APPARENTLY REQUIRING SUBSTANTIAL EXPENDITURES-- ALSO WAS FURNISHED GRATIS. IT IS SEEN, FURTHER, THAT THE EFFECT WAS TO EXTEND TO MEMBERS OF THE LOCAL WELFARE ASSOCIATION, AND PARTICULARLY TO RESTAURANT PATRONS-- INCLUDING CIVILIAN PERSONNEL-- THE ENTIRE BENEFIT OF PROFITS ATTRIBUTABLE IN LARGE MEASURE TO THE FINANCIAL SUPPORT THUS RECEIVED FROM THE GOVERNMENT IN THE FORM OF FREE RENT, LIGHT AND HEAT. CONSEQUENTLY, IT IS EVIDENT THAT NOTWITHSTANDING THE TREMENDOUS CAPITAL INVESTMENT OF THE GOVERNMENT IN SPACE AND FIXTURES AND THE SUBSTANTIAL SUMS PAID OUT BY IT ON SUCH ACCOUNTS AS INTEREST ON THAT INVESTMENT, MAINTENANCE, SPACE, SPACE HEATING AND LIGHTING, DRINKING WATER, AND SALARIES OF CIVILIAN AND MILITARY PERSONNEL DEVOTING THEIR TIME EXCLUSIVELY TO THE WORK OF THE COUNCIL, THE BILL LARGELY HAS BEEN PICKED UP BY THE TAXPAYER. I KNOW OF NO RECOMPENSE MADE TO THE GOVERNMENT OTHER THAN THE MENTIONED PAYMENTS TO THE FEDERAL WORKS AGENCY FOR UTILITIES CONSUMED IN EXCESS OF NORMAL SPACE REQUIREMENTS, AND A PAYMENT OF $12,183 BY THE COUNCIL IN REIMBURSEMENT OF THE SALARIES OF FOUR CIVILIAN EMPLOYEES DETAILED TO WORK IN THE CAFETERIA, MADE AFTER THE OFFICE WAS REQUESTED BY A SUBCOMMITTEE OF THE SENATE COMMITTEE ON THE CIVIL SERVICE TO LOOK IN TO THE MATTER (APPENDIX, PAGE XXXIV). NO CHECK OR CONTROL OF THE FUNDS HAS BEEN PERMITTED EXCEPT THAT MADE BY THE DEPARTMENT OF THE ARMY. SPECIAL COMMENT ON PENTAGON BUILDING

I CANNOT ACKNOWLEDGE THE CONCLUSIVENESS OF ANY OF THE ARGUMENTS PUT FORTH IN SUPPOSED JUSTIFICATION OF THE SITUATION AT THE PENTAGON BUILDING. ACCORDING TO THE DEPARTMENT OF THE ARMY, THE PRESENT ARRANGEMENTS ARE NECESSARY BECAUSE OF THE "REMOTE AND ISOLATED" LOCATION OF THE BUILDING, SO THAT GREAT INCENTIVES MUST BE OFFERED EMPLOYEES WHO ARE ASKED TO WORK THERE. IT APPEARS THAT THOSE INCENTIVES ARE PROVIDED THROUGH THE ACTIVITIES OF THE COUNCIL, SUCH AS THE RESTAURANT AND CONCESSIONS, THE ESTABLISHMENT AND OPERATION OF WHICH (UNDER AR 210-100) RESTS ON THE SAME AUTHORITY BY WHICH POST EXCHANGES ARE ESTABLISHED AND OPERATED. THE REGULATION PROMULGATED BY THE SECRETARY OF WAR TO GOVERN POST EXCHANGES-- AR 210-65-- AUTHORIZES THE ESTABLISHMENT AND OPERATION OF SUCH EXCHANGES IN ANY "POST, CAMP, STATION, OR INSTALLATION" UNDER CERTAIN CONDITIONS.

INCONGRUITY OF PENTAGON BUILDING AS FIELD STATION

ASIDE FROM THE QUESTION OF WHETHER THE PENTAGON BUILDING PROPERTY COULD BE CONSIDERED A "POST, CAMP, STATION, OR INSTALLATION," WITHIN THE MEANING OF THOSE REGULATIONS, IT CERTAINLY SEEMS INCONGRUOUS TO APPLY TO SUCH BUILDING REGULATIONS ADAPTED PRIMARILY FOR MILITARY INSTALLATIONS IN THE FIELD. EVEN THE MOST CURSORY EXAMINATION OF THE LAWS PERTAINING TO THE SUPERVISION AND MAINTENANCE OF PUBLIC BUILDINGS DISCLOSES THAT THE CONGRESS CONSISTENTLY HAS DISTINGUISHED BETWEEN BUILDINGS LOCATED AT THE SEAT OF GOVERNMENT AND THOSE LOCATED ELSEWHERE. CONSEQUENTLY, EVEN IF IT WERE ENTIRELY CERTAIN-- AND IT IS NOT-- THAT THE EXISTING REGULATIONS FOR "THE GOVERNMENT OF THE ARMY" PROVIDE FOR THE USE OF REVENUE DERIVED IN PART FROM THE EXPENDITURE OF APPROPRIATED FUNDS FOR THE BENEFIT OF RESTAURANT PATRONS OR MEMBERS OF LOCAL WELFARE ASSOCIATIONS (INCLUDING CIVILIAN PERSONNEL), OR THAT THE ISSUANCE OF REGULATIONS MAKING ANY SUCH PROVISION IS AUTHORIZED BY LAW, IT APPEARS EXTREMELY DOUBTFUL THAT SUCH AUTHORITY COULD BE CONSIDERED A PROPER LEGAL BASIS FOR THE ISSUANCE OF REGULATIONS REGARDING THE ADMINISTRATION OF THE PENTAGON BUILDING, THE MAINTENANCE AND OPERATION OF WHICH IS PLACED BY STATUTE IN THE PUBLIC BUILDINGS ADMINISTRATION OF THE FEDERAL WORKS AGENCY, NOT THE DEPARTMENT OF THE ARMY. SEE GLAVEY V. UNITED STATES, SUPRA.

SIMILAR CONDITIONS THROUGHOUT THE MILITARY ESTABLISHMENT

INVESTIGATIONS BY THE GENERAL ACCOUNTING OFFICE OF THE ACTIVITIES OF THE DEPARTMENT OF THE ARMY AWAY FROM THE SEAT OF GOVERNMENT HAVE DISCLOSED NUMEROUS OTHER INSTANCES OF POLICIES AND PRACTICES WHICH ARE EQUALLY AS OBJECTIONABLE, FROM THE STANDPOINT OF SAFEGUARDS AFFORDED THE GOVERNMENT, AS ARE THOSE AT THE PENTAGON BUILDING.

SEVERAL EXAMPLES GIVEN

1. A GENERAL ACCOUNTING OFFICE REPORT OF INVESTIGATION DATED DECEMBER 3, 1946, DISCLOSED THAT THERE WAS A BALANCE OF $21,330 IN AN ARMY POST "COMMUNICATION FUND ACCOUNT" IN A LOCAL BANK. SUCH BALANCE REPRESENTED THE RESIDUE OF SUMS COLLECTED DURING AN UNDETERMINED PERIOD AS COMMISSIONS FOR UNOFFICIAL TELEGRAMS TRANSMITTED THROUGH THE OFFICIAL COMMUNICATIONS CENTER AND AS SERVICE FEES FOR PRIVATE TELEPHONE CALLS. EXPENDITURES WERE MADE FROM THE ACCOUNT TO AUGMENT THE COMPENSATION OF MILITARY AND CIVILIAN COMMUNICATIONS OR TELEPHONE PERSONNEL AND TO PURCHASE EXTRA SUPPLIES, ETC., AND BALANCES WERE TRANSFERRED PERIODICALLY TO THE CENTRAL POST FUND FOR EXPENDITURE ON WELFARE PROJECTS (REPORT NO. 8740).

A REEXAMINATION AT THE SAME POST, REPORTED HERE UNDER DATE OF JULY 19, 1948, DISCLOSED A SHORTAGE OF $1,910 IN THE COMMUNICATION FUND ACCOUNT. IT APPEARS THAT THE MISSING FUNDS WERE WITHHELD FROM COLLECTIONS AS FAR BACK AS NOVEMBER 1947, BY A NON-COMMISSIONED OFFICER WHO ABSCONDED BUT WAS LATER ARRESTED AND HELD FOR COURT MARTIAL. THE GENERAL ACCOUNTING OFFICER WAS NOT NOTIFIED OF THE SHORTAGE FOR THE STATED REASON THAT "THE GOVERNMENT HAD NOT SUFFERED LOSS OF ANY FUNDS REQUIRED TO BE DEPOSITED INTO THE TREASURY." THE BALANCE IN THE COMMUNICATION FUND ACCOUNT AS OF JUNE 8, 1948, WAS 4,479, COMPARED WITH THE PREVIOUS FIGURE OF $21,330 (REPORT NO. 10905).

2. AT ONE ARMY AIR FIELD DURING AN EIGHT-MONTH PERIOD NEARLY $4,000 IN REVENUES FROM THE POST RESTAURANT WAS DEPOSITED IN A COMMERCIAL BANK, AND EXCESS WORKING CAPITAL WAS PAID AS DIVIDENDS TO THE CIVILIAN WELFARE FUND. THE SUM OF $430, REPRESENTING A 10 PERCENT SERVICE CHARGE FOR TOLLS COLLECTED ON UNOFFICIAL TELEPHONE CALLS DURING A TEN MONTH PERIOD, WAS DEPOSITED IN A COMMERCIAL BANK AND USED FOR THE BENEFIT OF COMMUNICATIONS OFFICE PERSONNEL OR FOR GENERAL RECREATION AND WELFARE. COMMISSIONS AND FEES IN THE AMOUNT OF $1,701 FOR THE HANDLING OF UNOFFICIAL TELEGRAMS BY THE OFFICIAL COMMUNICATIONS CENTER DURING A TWENTY MONTH PERIOD WERE DEPOSITED TO THE CREDIT OF THE POST COMMUNICATIONS SERVICE ACCOUNT IN A COMMERICAL BANK. NO EVIDENCE WAS FOUND OF APPROPRIATED REIMBURSEMENT TO THE GOVERNMENT OR OF ANY INDEPENDENT ACCOUNTING CONTROL (REPORT NO. 9296).

3. A FRANCHISE WAS GRANTED TO A PRIVATE TRANSPORTATION COMPANY FOR THE OPERATION OF BUS SERVICE AT ONE ARMY POST, UNDER A CONTRACT PROVIDING FOR SALE OF ALL TICKETS THROUGH THE POST EXCHANGE AND PAYMENT TO THE POST AND PAYMENT TO THE POST EXCHANGE OF CERTAIN PERCENTAGES OF TICKET COLLECTIONS. SEVERAL BUS STATIONS WERE PROVIDED AND MAINTAINED BY THE GOVERNMENT, INCLUDING ELECTRICITY AND HEAT, ETC. NO REIMBURSEMENT WAS MADE TO THE GOVERNMENT FOR THE FRANCHISE TO OPERATE ON GOVERNMENT PROPERTY, FOR USE OF THE BUS STATIONS, OR THE COST OF MAINTENANCE THEREOF AND OF UTILITIES CONSUMED THEREIN. COMMISSIONS IN THE AMOUNT OF $91,197 WERE PAID TO, AND RETAINED BY, THE POST EXCHANGE (REPORT NO. 7075).

4. THE VETERINARY HOSPITAL AT THE ARMY POST REFERRED TO ABOVE ESTABLISHED AN "ANIMAL CLINIC" SUPPORTED FROM COLLECTIONS FOR SERVICES RENDERED AND MEDICINES FURNISHED PRIVATELY OWNED ANIMALS. THE FUND HAS BEEN USED TO PURCHASE MEDICINES AND EQUIPMENT NOT AVAILABLE FROM APPROPRIATED FUNDS AND FOR THE WELFARE OF THOSE ON DUTY AT THE HOSPITAL. AS OF APRIL 30, 1945, THE NET WORTH OF THE FUND WAS $2,011.80 (REPORT NO. 7075).

5. AT ONE QUARTERMASTER CAMP A TELEGRAPH COMPANY PAID FEES AND COMMISSIONS TOTALING MORE THAN $47,000 IN LESS THAN SIX YEARS, FOR UNOFFICIAL TELEGRAMS HANDLED BY THE CAMP TELEGRAPH OFFICE. THAT AMOUNT WAS DEPOSITED IN A COMMERCIAL BANK, AND A LEDGER ACCOUNT MAINTAINED AT THE SIGNAL OFFICE SHOWING RECEIPTS, DEPOSITS, OBLIGATIONS, AND CHARGES AND CREDITS TO SURPLUS. AT THE END OF THE PERIOD INVOLVED, THE BANK ACCOUNT REFLECTED A BALANCE OF $23,465. MAJOR EXPENDITURES HAD BEEN MADE THEREFROM TO COVER WAGES OF CIVILIAN MESSENGERS, OVERTIME PAY TO MILITARY PERSONNEL AND THE COST OF PARTIES, REFRESHMENTS, RECREATION AND ENTERTAINMENT (REPORT NO. 8680).

6.ONE ARMY FIELD OFFICE RECEIVED THE SUM OF $8,845 IN COMMISSIONS FOR VENDING MACHINES LOCATED IN A BUILDING OCCUPIED JOINTLY BY SUCH OFFICE AND AN AUDIT BRANCH OF THE GENERAL ACCOUNTING OFFICE. THE MAJORITY OF THE OCCUPANTS OF THE BUILDING WERE CIVILIAN EMPLOYEES. APPROXIMATELY $1,700 OF THE SAID COMMISSIONS WAS TURNED OVER TO THE GENERAL ACCOUNTING OFFICE AUDIT BRANCH AS ITS PURPORTED SHARE OF THE COMMISSIONS, WHICH SUM HAD BEEN DEPOSITED INTO THE TREASURY IN CONFORMITY WITH EXISTING LAW. ACCORDING TO LAST REPORTS, THE "SHARE" OF THE ARMY FIELD OFFICE WAS TURNED OVER TO THE LOCAL EMPLOYEES' WELFARE ASSOCIATION (B-46265).

7. AT A SOUTHERN AIR FIELD THE SUM OF $4,283 WAS COLLECTED IN 3 1/2 MONTHS BY THE ISSUANCE OF LICENSES OR PERMITS TO HUNT AND FISH ON THE MILITARY RESERVATION. COLLECTIONS WERE DEPOSITED IN A LOCAL BANK TO THE CREDIT OF A "FORESTRY FUND," WHICH FUND WAS IN THE CUSTODY OF A COMMISSIONED OFFICER, TO BE ADMINISTERED FOR THE PROTECTION AND PROPAGATION OF WILDLIFE ON THE RESERVATION BY A COMMISSION HEADED BY SAID OFFICER. NINETEEN CIVILIAN EMPLOYEES OF THE GOVERNMENT WERE ENGAGED, AMONG OTHER DUTIES, IN SELLING THE PERMITS OR LICENSED, AND WERE HELD ACCOUNTABLE FOR THE SAME AND FOR THE MONEYS DERIVED FROM THE SALE THEREOF. DISBURSEMENTS FROM THE FUND AS OF SEPTEMBER 16, 1947, WERE $1,205.83, LEAVING A BALANCE OF $3,077.17 WHICH THE COMMANDING OFFICER ORDERED FROZEN WHEN THE GENERAL ACCOUNTING OFFICE QUESTIONED THE ARRANGEMENT. HEADQUARTERS, UNITED STATES AIR FORCES, AND THE JUDGE ADVOCATED GENERAL DEPARTMENT, EACH EXPRESSED THE OPINION THAT THE COLLECTIONS WERE FOR DEPOSIT IN THE TREASURY UNDER THE LAW AND THAT THE USE THEREOF FOR THE ABOVE PURPOSES WAS NOT AUTHORIZED BY ARMY REGULATIONS. LATER THE SAME HEADQUARTERS AUTHORIZED CONTINUANCE OF THE PROGRAM, PROVIDED IT WAS ADMINISTERED BY THE LOCAL OFFICERS' CLUB, WHEREUPON THE SAID CLUB VOTED TO TAKE OVER HUNTING AND FISHING ON THE RESERVATION AS A CLUB ACTIVITY AND TO COLLECT A "DONATION" FROM ANYONE DESIRING TO MAKE USE OF THE PRIVILEGE. IN RESPONSE TO A REQUEST FOR ADVISE OF ANY LEGAL OBJECTIONS TO THE FOREGOING ARRANGEMENT, THE GENERAL ACCOUNTING OFFICE INFORMED THE SECRETARY OF THE AIR FORCE THAT SO LONG AS EXISTING LAW REMAINS UNCHANGED THE AMOUNT OF $3,077.17 FROZEN IN THE FORESTRY FUND, AND ANY FUTURE COLLECTIONS FOR HUNTING AND FISHING PRIVILEGES ON THE MILITARY RESERVATION, ARE FEES PAID FOR PERMITS OR LICENSES TO USE PROPERTY OF THE UNITED STATES AND THUS PROPERLY ARE FOR PAYMENT INTO THE TREASURY IN CONFORMITY WITH THE PROVISIONS OF SECTION 3617, REVISED STATUTES, SUPRA (B-61938).

8. A SIMILAR SITUATION WAS DISCLOSED AT ANOTHER ARMY POST, WHERE A FEE OF $1.25 PER HUNTING LICENSE WAS ASSESSED FOR THE PRIVILEGE OF HUNTING ON THE MILITARY RESERVATION. COLLECTIONS WERE TURNED OVER TO THE POST CAMP WARDEN, WHO IS CHARGED WITH ACCOUNTABILITY THEREFOR AND THE DIRECTION OF EXPENDITURE THEREOF IN THE INTEREST OF HUNTING, FISHING AND CONSERVATION, UPON THE APPROVAL OF THE POST COMMANDER (REPORT NO. 4614).

9. REVENUES ACCRUING FROM VOCATIONAL TRAINING ACTIVITIES OF AN ARMY DISCIPLINARY BARRACKS ARE DEPOSITED IN THE LOCAL BANK AND USED FOR THE OPERATION OF VOCATIONAL TRAINING INDUSTRIES AND FOR OTHER PURPOSES RELATED TO ADMINISTRATION OF THE BARRACKS. EXPENDITURES COVERED A WIDE RANGE OF ACTIVITIES, SUCH AS CAPITAL IMPROVEMENTS, EQUIPMENT, SUPPLIES, SALARIES OF INSTRUCTORS AND FOREMEN, ETC. FROM OCTOBER 1, 1945, TO MAY 31, 1947, RECEIPTS AND EXPENDITURES TOTALED $230,125 AND $214,248, RESPECTIVELY, AND AT THE END OF SUCH PERIOD NET WORKING CAPITAL WAS $53,182. NO ACCOUNTING WAS MADE TO THE GENERAL ACCOUNTING OFFICE (REPORT NO. 9569).

THE CUSTODIAN OF THE "PRISONERS DEPOSIT FUND" AT THE BARRACKS HAD FOR SAFEKEEPING THE AMOUNT OF $28,216, REPRESENTING DEPOSITS OF PRISONERS' PERSONAL FUNDS. THIS AMOUNT WAS MADE UP OF CASH ON HAND WITH THE CUSTODIAN AND ON DEPOSIT IN THREE BANKS. NO ACCOUNTING FOR THE FUNDS HAS BEEN MADE TO THE GENERAL ACCOUNTING OFFICE (REPORT NO. 8208).

10. INVESTIGATION BY THE GENERAL ACCOUNTING OFFICE AT AN ARMY HOSPITAL DISCLOSED THE EXISTENCE OF 90 ACTIVE PATIENTS' ACCOUNTS REPRESENTING DEPOSITS FOR SAFEKEEPING WITH THE HOSPITAL CUSTODIAN. IT APPEARS THAT THE HOSPITAL REQUIRES INCOMING PATIENTS TO SIGN STATEMENTS RELIEVING THE HOSPITAL OF RESPONSIBILITY FOR VALUABLES IF NOT DEPOSITED WITH SUCH CUSTODIAN. AS OF JUNE 20, 1944, PATIENTS' FUNDS IN THE AMOUNT OF $30,241 WERE CARRIED IN A LOCAL BANK ACCOUNT, IN ADDITION TO WHICH $2,915 WAS KEPT IN CASH IN THE HOSPITAL OFFICE. NO ACCOUNTING WAS MADE TO THE GENERAL ACCOUNTING OFFICE FOR ANY OF THESE FUNDS (REPORT NO. 6074).

GENERAL COMMENT ON ARMY WELFARE

THE AUTHORITY OF THE SECRETARY OF THE ARMY TO ESTABLISH EXCHANGES AT ARMY POSTS AND TO PROMULGATE REGULATIONS GOVERNING THEIR OPERATION IS NOT DENIED OR QUESTIONED. THE PROVISIONS OF SECTION 20 OF THE ACT OF JULY 15, 1870, AS AMENDED, 10 U.S.C. 16, AUTHORIZES THE MAKING AND PUBLISHING OF REGULATIONS "FOR THE GOVERNMENT OF THE ARMY" IN ACCORDANCE WITH EXISTING LAW. THE NECESSITY FOR APPROVAL BY THE CONGRESS OF REGULATIONS ISSUED THEREUNDER WAS REMOVED BY THE ACT OF MARCH 1, 1875, 18 STAT. 337. THE COURTS SEVERAL TIMES HAVE RECOGNIZED THE AUTHORITY THUS LODGED IN THE SECRETARY OF THE ARMY FOR THE ESTABLISHMENT OF POST EXCHANGES. IN DUGAN V. UNITED STATES, 34 C.CLS. 458, 466, THE COURT STATED, INTER ALIA, THAT "SUCH REGULATIONS CANNOT BE QUESTIONED OR DEFIED BECAUSE THEY MAY BE THOUGHT UNWISE OR MISTAKEN" AND THAT "SUCH EXCHANGES, THOUGH CONDUCTED WITHOUT FINANCIAL LIABILITY TO THE GOVERNMENT, ARE, IN THEIR CREATION AND MANAGEMENT, GOVERNMENTAL AGENCIES." AND, IN THE COMPARATIVELY RECENT CASE OF STANDARD OIL COMPANY V. JOHNSON, 316 U.S. 481, 483-4 THE SUPREME COURT OF THE UNITED STATES SAID:

"ON JULY 25, 1895, THE SECRETARY OF WAR, UNDER AUTHORITY OF CONGRESSIONAL ENACTMENTS PROMULGATED REGULATIONS PROVIDING FOR THE ESTABLISHMENT OF POST EXCHANGES. THESE REGULATIONS HAVE SINCE BEEN AMENDED FROM TIME TO TIME AND THE EXCHANGE HAS BECOME A REGULAR FEATURE OF ARMY POSTS. THAT THE ESTABLISHMENT AND CONTROL OF POST EXCHANGES HAVE BEEN IN ACCORDANCE WITH REGULATIONS RATHER THAN SPECIFIC STATUTORY DIRECTIONS DOES NOT ALTER THEIR STATUS, FOR AUTHORIZED WAR DEPARTMENT REGULATIONS HAVE THE FORCE OF LAW."

AS WAS POINTED OUT BY THE SUPREME COURT IN THE LATTER CASE, THE CONGRESS HAS-- IMPLIEDLY AT LEAST-- RECOGNIZED AND GIVEN ITS ASSENT TO THE WITHHOLDING OF SUCH REVENUES FROM THE TREASURY BY THE ENACTMENT OF LEGISLATION IN 1933 AND 1934 ORDERING CERTAIN MONEYS DERIVED FROM DISBANDED EXCHANGES TO BE HANDED OVER TO THE TREASURY. SEE, IN THIS CONNECTION, 47 STAT. 1573 AND 48 STAT. 1229. IN OTHER WORDS, IT HAS BEEN RECOGNIZED AS ONE OF THE INHERENT FEATURES OF A POST EXCHANGE THAT PROFITS REALIZED THOUGH ITS OPERATIONS-- NOTWITHSTANDING THAT SUCH PROFITS HAD BEEN MADE POSSIBLE IN LARGE PART BY FINANCIAL SUPPORT RECEIVED FROM THE GOVERNMENT IN THE FORM OF FREE RENT, LIGHT AND HEAT-- ARE NOT REQUIRED TO BE DEPOSITED TO THE CREDIT OF THE UNITED STATES BUT MAY BE USED FOR THE WELFARE OF MILITARY PERSONNEL. FINANCIAL STATUS OF POST EXCHANGES

WITH REFERENCE TO THIS TACIT RECOGNITION WHICH HAS BEEN ACCORDED POST EXCHANGES ESTABLISHED AND OPERATED UNDER AUTHORITY OF REGULATIONS PROMULGATED BY THE SECRETARY OF THE ARMY, I THINK IT IS PROPER TO POINT OUT AND EMPHASIZE THAT ONLY IN RECENT YEARS DO THE MILITARY APPROPRIATION ACTS CONTAIN ANY PROVISIONS FOR THE USE OF APPROPRIATED FUNDS IN ANY WAY TO PAY THE EXPENSE OF OPERATING POST EXCHANGES. IN THE BEGINNING, ARMY EXCHANGES ARE RECOGNIZED AS "ASSOCIATIONS OR SOLDIERS' CLUBS OWNING AND OPERATING A COOPERATIVE STORE" WHICH ARE PERMITTED THE USE OF PUBLIC BUILDINGS "NOT REQUIRED FOR OTHER PURPOSES" (2 COMP. DEC. 56). EVEN TODAY THE LAW FORBIDS THE USE OF APPROPRIATED FUNDS TO OPERATE THE EXCHANGES "SAVE AND EXCEPT FOR REAL ASSISTANCE AND CONVENIENCE *** IN SUPPLYING *** ARTICLES OF SMALL PERSONAL NEED." IN THIS CONNECTION, ACCORDING TO "A HISTORY OF ARMY EXCHANGES" ISSUED BY THE DEPARTMENT OF THE ARMY UNDER DATE OF JULY 26, 1944, SUCH EXCHANGES ARE INTENDED TO BE LARGELY SELF- FINANCING.

FROM THESE FACTS, IT SEEMS APPARENT THAT THE INTENTION OF THE CONGRESS IS, AND ALWAYS HAS BEEN, THAT WHEN THE USE OF PUBLIC PROPERTY OR FUNDS BY EXCHANGES IS PERMITTED, IT IS PERMITTED PRIMARILY FOR THE PURPOSE OF ASSISTING IN THE PROVIDING OF THE SERVICES AND CONVENIENCES MADE AVAILABLE THEREBY-- NOT FOR THE SPECIAL PURPOSE OF EARNING A PROFIT. HENCE, ALTHOUGH THE CONGRESS IMPLIEDLY HAD CONSENTED TO THE USE FOR THE BENEFIT OF MILITARY PERSONNEL OF PROFITS WHICH MAY ACCRUE AS INCIDENTS TO THE OPERATION OF EXCHANGES, I AM NOT AT ALL SATISFIED THAT THE CONGRESS EVER INTENDED OR ANTICIPATED THAT THOSE PROFITS SHOULD BECOME AS HUGE AS THEY NOW ARE, OR THAT PUBLIC PROPERTY AND FUNDS SHOULD BE MADE THE MEANS OF EARNING SUCH PROFITS TO THE EXTENT NOW IN VOGUE, PARTICULARLY WITHOUT ADEQUATE CONTROLS.

BILLION-DOLLAR BUSINESS

ARMY POST EXCHANGES RECENTLY HAVE DONE BUSINESS IN EXCESS OF A BILLION DOLLARS ANNUALLY, AND I AM RELIABLY INFORMED THAT AT THE END OF FEBRUARY, 1949, THE NET WORTH OF THE ARMY EXCHANGE SERVICE WAS IN EXCESS OF $123,000,000. MOREOVER, A SERIOUS QUESTION HAS BEEN RAISED REGARDING THE ENCROACHMENT OF THIS BILLION-DOLLAR BUSINESS ORGANIZATION - SELLING TO MILITARY PERSONNEL AND CIVILIANS ALIKE AT LOW PRICES MADE POSSIBLE BY THE CONTRIBUTIONS OF THE GOVERNMENT-- UPON COMMERCIAL FIELDS. THE LEGISLATIVE HISTORY OF COMPARATIVELY RECENT MILITARY APPROPRIATION ACTS STRONGLY INDICATES THAT THE LANGUAGE USED THEREIN ORIGINALLY WAS INTENDED TO RESTRICT, RATHER THAN TO BROADEN, THE SCOPE AND EXTENT OF EXCHANGE ACTIVITIES, AND THAT SUCH LANGUAGE WAS INSERTED ON ACCOUNT OF VIGOROUS COMPLAINTS FROM PRIVATE BUSINESSMEN OF UNFAIR COMPETITION. SEE THE STATEMENT OF SENATOR THOMAS, INSERTED IN THE CONGRESSIONAL RECORD FOR JUNE 23, 1937 (VOL. 81, PART 6, PAGE 6221). HOWEVER, IN CONNECTION WITH THE MATTER, IT IS TO BE NOTED THAT ARRANGEMENTS HAVE BEEN MADE FOR THE ARMY EXCHANGE SERVICE TO TURN OVER TO THE GOVERNMENT A SUBSTANTIAL SUM FROM EXCESS RESERVES NOT NECESSARY TO THE CONTINUANCE OF EXCHANGE BUSINESS. HAVE NO INFORMATION FROM WHICH I WOULD CARE TO HAZARD A GUESS AS TO THE AGGREGATE OF THE INCOMES, ASSETS OR RESERVES BUILT UP BY OTHER WELFARE ACTIVITIES OF THE DEPARTMENT OF THE ARMY.

DOUBTFUL LEGALITY OF ARMY WELFARE ACTIVITIES

AS INDICATED ABOVE, POST RESTAURANTS, CONCESSIONS AND OTHER SOURCES OF REVENUE-- AND, CONSEQUENTLY, THE WELFARE ACTIVITIES SUPPPORTED THEREBY-- APPARENTLY ARE CONSIDERED AS GOVERNED BY THE SAME RULES AS GOVERN POST EXCHANGES, AND ACCORDING TO THE DEPARTMENT OF THE ARMY THE AUTHORITY FOR THE ESTABLISHMENT AND OPERATION THEREOF COMES FROM THE SAME SOURCE. BUT, WHETHER OR NOT THAT ASSUMPTION IS CORRECT, IT IS NOT EVEN CONTENDED THAT THERE IS ANY SPECIFIC STATUTORY ENACTMENT COVERING EITHER THE ESTABLISHMENT AND OPERATION OF POST RESTAURANTS, CONCESSIONS, AND OTHER REVENUE PRODUCING ACTIVITIES IN CONNECTION THEREWITH, OR THE DISPOSITION OF MONEYS ACCRUING THEREFROM. HENCE, FOR SUCH AUTHORITY, IF ANY, AS THERE MAY BE FOR THOSE ACTIVITIES AS PRESENTLY CONSTITUTED, IT IS NECESSARY TO LOOK TO THE AUTHORITY UNDER WHICH POST EXCHANGES ARE ESTABLISHED AND OPERATED AND DISPOSITION IS MADE OF REVENUES ACCRUING THEREFROM.

BASED ON REGULATIONS FOR POST EXCHANGES

THE REGULATION PROMULGATED BY THE SECRETARY OF WAR TO GOVERN POST EXCHANGES-- AR 210-65-- PRESCRIBES IN A GENERAL WAY THE TERMS AND CONDITIONS UNDER WHICH CONCESSIONS MAY BE GRANTED FOR THE PURPOSE OF PROVIDING SERVICES AND FACILITIES WHICH IT IS FOUND IMPRACTICABLE FOR THE EXCHANGE ITSELF TO PROVIDE. IT AUTHORIZES THE FURNISHING AND MAINTENANCE AT PUBLIC EXPENSE OF BUILDINGS OR ROOMS WITH NORMAL UTILITY SERVICES, FOR THE EXCHANGE ACTIVITIES. IT PROVIDES THAT ONE OF THE PURPOSES OF THE EXCHANGE IS TO MAKE AVAILABLE FROM PROFITS FUNDS TO CONTRIBUTE TO THE COMFORT, RECREATION, AMUSEMENT AND PHYSICAL AND SPIRITUAL WELFARE OF MILITARY PERSONNEL, AND THAT POLICIES WITH REGARD TO PROFITS WILL BE DETERMINED AND ENFORCES BY DESIGNATED OFFICERS. AND IT PROVIDES THAT A POST EXCHANGE MAY BE ESTABLISHED IN "ANY POST, CAMP, STATION, OR INSTALLATION" WHENEVER CONDITIONS MAKE IT DESIRABLE AND PRACTICABLE, BUT THAT THE ESTABLISHMENT OF AN EXCHANGE IS AUTHORIZED ONLY WHERE ENLISTED PERSONNEL ARE PRESENT, OR WHERE, IN THE ABSENCE OF ENLISTED PERSONNEL, "BECAUSE OF THE LOCATION OF THE POST, COMMERCIAL SERVICES SIMILAR TO THOSE SUPPLIED BY AN EXCHANGE, ARE UNAVAILABLE TO CIVILIAN EMPLOYEES."

PROFITS FOR MILITARY PERSONNEL ONLY

THUS, IT IS SEEN THAT THE APPLICABLE REGULATION PROVIDES FOR THE USE OF POST EXCHANGE PROFITS FOR THE BENEFIT OF MILITARY PERSONNEL AND, AS PREVIOUSLY MENTIONED, THAT PROVISIONS HAS THE IMPLIED APPROVAL OF THE CONGRESS. HOWEVER, NO SUCH IMPLIED APPROVAL HAS BEEN EXTENDED TO THE USE FOR THE BENEFIT OF OTHER THAN MILITARY PERSONNEL OF REVENUES ACCRUING FROM THE OPERATION OF POST EXCHANGES OR FROM ANY OTHER ACTIVITY CARRIED ON UNDER THE SAME AUTHORITY. THE REGULATION ITSELF DOES NOT PRETEND THAT SUCH IS THE CASE. IN SHARP CONTRAST TO THE PROVISION THEREIN FOR USE OF EXCHANGE PROFITS FOR THE BENEFIT OF MILITARY PERSONNEL, THE REGULATION PROVIDES ONLY THAT SERVICES AND CONVENIENCES-- NO MENTION IS MADE OF PROFITS-- MAY BE FURNISHED CIVILIAN EMPLOYEES.

SIMILAR MATTERS IN THE NAVY

SECOND IN NUMBER ONLY TO THOSE IN THE MILITARY ESTABLISHMENT ARE INSTANCES DISCOVERED BY THE GENERAL ACCOUNTING OFFICE OF WELFARE AND RELATED ACTIVITIES CARRIED ON BY THE NAVAL ESTABLISHMENT WHICH ARE DEEMED TO BE PREJUDICIAL TO THE INTEREST OF THE GOVERNMENT.

1. AT ONE NAVAL AIR STATION DURING AN EIGHTEEN MONTH PERIOD REVENUES IN THE AMOUNT OF $45,271, ACCRUING FROM THE OPERATION OF A CAFETERIA FOR CIVILIAN EMPLOYEES, WERE DEPOSITED IN A LOCAL BANK TO THE CREDIT OF THE EMPLOYEES COOPERATIVE CAFETERIA ASSOCIATION. REIMBURSEMENT WAS NOT MADE FOR SPACE, EQUIPMENT, HEAT, ETC., FURNISHED BY THE GOVERNMENT, AND NO INDEPENDENT ACCOUNTING WAS MADE FOR THE REVENUES (REPORTS NOS. 5188 AND 5409).

2. IN A LITTLE MORE THAN TWO YEARS ONE NAVAL SUPPLY DEPOT COLLECTED MORE THAN $22,000 IN VENDING MACHINE COMMISSIONS, WHICH SUM WAS PAID TO THE EMPLOYEES CAFETERIA, TO VARIOUS RECREATIONAL AND WELFARE FUNDS, TO THE MARINE BARRACKS, TO THE POST EXCHANGE, AND TO SHIPS' SERVICE STORES. INDEPENDENT ACCOUNTING WAS MADE (REPORT NO. 5963).

3. THE SUM OF $1,181, COLLECTED AT ONE NAVAL AIR STATION FROM THE SALE OF AUTOMOBILE TAGS AND PERSONNEL IDENTIFICATION PAPERS DURING A THREE YEAR PERIOD, WAS DEPOSITED IN A LOCAL BANK TO THE CREDIT OF "YARD OFFICE FUNDS," AND THE BALANCE IN EXCESS OF OUTSTANDING TAGS AND PAPERS PERIODICALLY WAS TRANSFERRED TO THE LOCAL WELFARE OFFICE. NO RECORD WAS FOUND OF REIMBURSEMENT OF ANY EXPENSE INCURRED BY THE GOVERNMENT IN CONNECTION WITH THIS PROGRAM, AND THERE WAS NO INDEPENDENT ACCOUNTING FOR THE FUNDS (REPORT NO. 8269).

4. AT ANOTHER NAVAL AIR STATION COMMISSIONS TOTALING $1,852 WERE PAID BY A TELEPHONE COMPANY FOR PERSONAL MESSAGES HANDLED BY THE OFFICIAL COMMUNICATIONS CENTER. THE SAID AMOUNT WAS DEPOSITED IN A LOCAL BANK TO THE CREDIT OF "COMMUNICATIONS FUND," AND DISBURSED TO THE STATION WELFARE FUND. NO ACCOUNTING THEREFOR WAS MADE TO THE GENERAL ACCOUNTING OFFICE. NO PROVISION WAS MADE FOR REIMBURSEMENT OF THE GOVERNMENT'S COST OF OPERATING THE COMMUNICATIONS CENTER, UNTIL THE MATTER WAS BROUGHT TO ATTENTION BY THE GENERAL ACCOUNTING OFFICE (REPORT NO. 7657).

5. DURING THE PERIOD JANUARY 1944 TO NOVEMBER 1945 REVENUES IN EXCESS OF $250,000 ACCRUED FROM OPERATION UNDER A MANAGEMENT CONTRACT OF A FLORIDA BEACH HOTEL LEASED BY THE NAVY. ALTHOUGH UNDER THE LEASE THE SUM OF $90,000 PER ANNUM WAS PAID BY THE GOVERNMENT, REVENUES FROM THE HOTEL WERE USED TO DEFRAY OPERATING EXPENSES (REPORT NO. 7686).

6. REPRESENTATIVES OF THE GENERAL ACCOUNTING OFFICE WERE INFORMED BY THE EXECUTIVE OFFICER AT ONE NAVAL AMMUNITION DEPOT THAT BUS FARES COLLECTED FROM CIVILIAN EMPLOYEES AND ENLISTED MEN FOR TRANSPORTATION ON BUSES OWNED, MAINTAINED AND OPERATED BY THE GOVERNMENT, WOULD BE USED FOR RECREATIONAL PURPOSES. THE BALANCE ON HAND WHEN THAT INFORMATION WAS RECEIVED WAS THE SUM OF $528, REPRESENTING THE RESIDUE OF COLLECTIONS FOR AN UNDETERMINED PERIOD. NO PROVISION HAD BEEN MADE FOR REIMBURSING THE COST TO THE GOVERNMENT OR FOR A PROPER INDEPENDENT ACCOUNTING OF THE COLLECTIONS. AT THE SAME DEPOT THE POST EXCHANGE OPERATED A LAUNDRY, EMPLOYING 15 CIVILIANS AND 4 MARINES WHOSE COMPENSATION WAS PAID BY THE GOVERNMENT, BUT THE REVENUES ACCRUING FROM THE LAUNDRY WERE TO BE USED, ACCORDING TO THE COMMANDING OFFICER, FOR RECREATIONAL PURPOSES (REPORT NO. 5871).

7. THE COMMANDANT OF THE MARINE CORPS DESIGNATED THE LEATHERNECK ASSOCIATION AS AGENT TO PURCHASE FOR THE SUM OF $800,000 A 12-STORY BUILDING IN SAN FRANCISCO, TO BE OPERATED BY A MARINE MEMORIAL CLUB AND OUTFITTED SO AS TO MAKE AVAILABALE TO ALL ACTIVE AND FORMER MARINES FACILITIES USUALLY FOUND IN A LARGE METROPOLITAN CLUB. THE COMMANDANT AUTHORIZED THE DONATION OF THE SUM OF $500,000 FROM THE MARINE CORPS FUND, TO GO TOWARD THE COST OF THE BUILDING AND ITS OUTFITTING. IT APPEARS THAT A NEWLY FORMED "MARINE MEMORIAL ASSOCIATION" IS TO TAKE OVER THE BUILDING AND ANY BALANCE OF THE SAID $500,000 DONATION, PLUS ANTICIPATED FURTHER DONATIONS OF APPROXIMATELY $37,000 FROM THE MARINE CORPS FUND, TO ASSIST IN LIQUIDATION OF A MORTGAGE AND INTEREST THEREON. THE RECORD INDICATES THAT THE MARINE MEMORIAL ASSOCIATION IS A PRIVATE ORGANIZATION, UNDER THE DIRECTION OF COMMISSIONED OFFICERS, BUT OVER WHICH NEITHER THE COMMANDANT OF THE MARINE CORPS NOR THE SECRETARY OF THE NAVY HAS ANY CONTROL, WHEREAS THE MARINE CORPS FUND, DERIVED PRINCIPALLY FROM PROFITS OF POST EXCHANGES, OFFICERS' AND ENLISTED MENS'S CLUBS, AND CONTRIBUTIONS, IS EXPENDED UNDER THE SUPERVISION AND CONTROL OF THE COMMANDANT OF THE MARINE CORPS, IN ACCORDANCE WITH THE PROVISIONS OF THE MARINE CORPS MANUAL. SUCH FUND IS IN THE NATURE OF A PUBLIC FUND, AND THE LEGALITY OF DONATING MORE THAN ONE -HALF MILLION DOLLARS THEREFROM TO A PRIVATE ORGANIZATION WHICH WILL EXPEND THE DONATIONS WITHOUT ANY OFFICIAL CONTROL OR SUPERVISION APPEARS EXTREMELY DOUBTFUL (B-66453).

8. EXAMINATION BY THE GENERAL ACCOUNTING OFFICE AT ONE NAVAL AIR TRAINING BASE DISCLOSED THAT DURING THE PERIOD FROM MAY 1945 TO APRIL 1947 THE COST OF UTILITIES CONSUMED BY VARIOUS SOCIAL RECREATIONAL AND ENTERTAINMENT ACTIVITIES OF THE COMMISSIONED OFFICERS' MESS (OPEN) WAS CHARGED TO APPROPRIATED FUNDS ON THE BASIS OF AN INTERPRETATION DATED APRIL 6, 1946, OF DEPARTMENT OF THE NAVY REGULATIONS FOR COMMISSIONED AND WARRANT OFFICERS' MESSES ASHORE. THE ACTIVITIES WERE: OPERATION OF OFFICERS' CLUBS AT THREE AIR FIELDS, ONE OF WHICH INCLUDED RESTAURANT, BAR, FOOD AND EQUIPMENT STOREROOM, ENTERTAINMENT AREA AND LIQUOR SALES ROOM; OPERATION OF AN OFFICERS' GOLF CLUB, INCLUDING BAR, CAFE AND GOLF COURSE; AND OPERATION OF A "BUILDING 600 BAR." UPON RECEIPT OF ADVISE FROM THE GENERAL ACCOUNTING OFFICE REIMBURSEMENT IS REQUIRED OF THE COST OF UTILITIES CONSUMED BY OFFICERS' MESS (OPEN) IN CONNECTION WITH ANY SOCIAL, RECREATIONAL OR ENTERTAINMENT ACTIVITIES OF SUCH MESSES, THE SECRETARY OF THE NAVY ADVISED THAT STEPS WERE BEING TAKEN TO AMEND THE REGULATIONS ACCORDINGLY (B-45103).

NAVY FOLLOWS ARMY PATTERN

THE POSITION TAKEN BY THE DEPARTMENT OF THE NAVY IN RESPECT OF THE USE OF PUBLIC PROPERTY AND FUNDS FOR THE ESTABLISHMENT AND OPERATION OF SERVICES, CONVENIENCES, CONCESSION, ETC., AND THE APPLICATION OF REVENUES ACCRUING THEREFROM TO WELFARE PURPOSES, IS SUBSTANTIALLY IDENTICAL TO THAT TAKEN BY THE DEPARTMENT OF THE ARMY. IT IS THE FAMILIAR THEME THAT WHAT IS APPLICABLE TO POST EXCHANGES IN THE ARMY IS APPLICABLE, ALSO, TO SHIPS' SERVICE STORES IN THE NAVY. IT IS NOT CONTENDED THAT ANY SPECIFIC STATUTORY AUTHORITY EXISTS FOR WITHHOLDING OF FUNDS FROM THE TREASURY AND DIVERSION THEREOF TO VARIOUS WELFARE, RECREATIONAL AND SOCIAL PROJECTS OF THE NAVY. HENCE, ALL OF THE LEGAL AND EQUITABLE OBJECTIONS TO THE PRESENT ARRANGEMENTS WITHIN THE DEPARTMENT OF THE ARMY, AS SET FORTH HEREINBEFORE, WOULD APPEAR TO BE APPLICABLE WITH EQUAL FORCE AND EFFECT TO SIMILAR ARRANGEMENTS WITH THE DEPARTMENT OF THE NAVY. IN THIS CONNECTION, IT IS TO BE OBSERVED THAT "SHIP'S STORES PROFITS, NAVY" ARE REQUIRED TO BE DEPOSITED IN THE TREASURY AS TRUST FUNDS PURSUANT TO THE PROVISIONS OF SECTION 20 OF THE PERMANENT APPROPRIATION REPEAL ACT, 1934, INFRA.

SPECIAL STATUS OF MILITARY AND NAVAL FORCES THE FOREGOING DISCUSSION CLEARLY DEMONSTRATES THE DOUBTFUL LEGALITY OF PRESENT ARRANGEMENTS IN THE DEPARTMENTS OF THE ARMY AND NAVY. BUT, THERE IS ANOTHER MATTER RELATED THERETO WHICH APPEARS ALMOST EQUALLY OBJECTIONABLE. THE RELATIONSHIP BETWEEN THE GOVERNMENT OF THE UNITED STATES AND MEMBERS OF ITS MILITARY FORCES, ENTRUSTED WITH DEFENSE OF THE NATION, IS A GREAT DEAL MORE THAN THAT OF EMPLOYER AND EMPLOYEE. MILITARY AND NAVAL PERSONNEL ARE ON DUTY AND SUBJECT TO CALL 24 HOURS A DAY, SEVEN DAYS A WEEK, AND 365 DAYS A YEAR. THEY ARE NOT FREE TO LEAVE THE SERVICE AT WILL AND SEEK EMPLOYMENT ELSEWHERE IF THEY FEEL DISSATISFIED WITH THEIR ASSIGNMENTS, COMPENSATION OR LIVING CONDITIONS. THE UNITED STATES PROVIDES ENLISTED MENS QUARTERS, SUBSISTENCE AND CLOTHING, ETC., PLUS A COMPARATIVELY SMALL SALARY. THE PAY AND ALLOWANCES OF OFFICERS ARE ADJUSTED TO CARE FOR THE SAME BASIC NECESSITIES.

GENERALLY, IT MAY BE STATED THAT THE CONDITIONS UNDER WHICH ENLISTED MEN, IN PARTICULAR, MUST PERFORM THEIR ASSIGNED DUTIES OFTEN ARE SUCH AS TO WARRANT SPECIAL CONSIDERATION IN THE WAY OF WELFARE, RECREATIONAL AND SOCIAL ACTIVITIES-- OVER AND ABOVE THE NECESSITIES OF LIFE AND THE COMPARATIVELY FEW EXTRAS PROVIDED FROM APPROPRIATED FUNDS-- TO WHICH THE GOVERNMENT MAY LEND ITS SPONSORSHIP AND SUPPORT. IN RECOGNITION OF THESE PRINCIPLES, THE CONGRESS HAS MADE SPECIFIED AMOUNTS FOR "WELFARE AND RECREATION" PURPOSES IN THE ANNUAL MILITARY AND NAVAL APPROPRIATION ACTS. ALSO, PROFITS OF ARMY EXCHANGES AND NAVY SHIPS' SERVICE STORES ARE USED FOR THE SPIRITUAL AND PHYSICAL WELFARE OF MILITARY PERSONNEL.

DISCRIMINATION AMONG CIVILIANS

HOWEVER, THE PROPRIETY OF SIMILAR SPONSORSHIP AND SUPPORT BY THE GOVERNMENT IN THE CASE OF ITS CIVILIAN OFFICERS AND EMPLOYEES IS NOT NEARLY SO EVIDENT. TRUE, THEY SOMETIMES PERFORM THEIR DUTIES UNDER CIRCUMSTANCES COMPARABLE IN DIFFICULTY AND INCONVENIENCE TO THOSE CONFRONTING THE MILITARY SERVICE, AND THIS IS PARTICULARLY SO WHERE THEIR DUTY STATIONS ARE REMOTE FROM POPULATION CENTERS. BUT, IN THE ABSENCE OF SPECIFIC STATUTORY AUTHORITY-- SUCH AS IN THE CASE OF OVERSEAS DUTY-- I CAN SEE NO JUSTIFICATION WHATEVER FOR CARRYING THE MATTER FARTHER, AS HAS BEEN DONE IN MANY INSTANCES BY THE DEPARTMENTS OF THE ARMY AND NAVY, AND USING PUBLIC PROPERTY AND FUNDS TO EXTEND TO FAVORED CIVILIAN EMPLOYEES ADVANTAGES WHICH ARE NOT ENJOYED BY EMPLOYEES IN SIMILAR POSITIONS IN OTHER DEPARTMENTS AND ESTABLISHMENTS.

OTHER DEPARTMENTS AND ESTABLISHMENTS

ALTHOUGH INSTANCES OF THE WITHHOLDING AND DIVERSION OF FUNDS PREDOMINATE IN THE MILITARY AND NAVAL ESTABLISHMENTS, THEY ARE BY NO MEANS CONFINED TO THOSE ESTABLISHMENTS. OTHER DEPARTMENTS AND ESTABLISHMENTS OF THE GOVERNMENT APPARENTLY HAVE NOT HAD THE OCCASION TO GO INTO REVENUE PRODUCING SIDELINES TO THE SAME EXTENT, AND PROBABLY THE STAKES ARE NOT SO GREAT OUTSIDE OF THE MILITARY AND NAVAL ESTABLISHMENTS. THAT THE SAME TENDENCIES EXIST, HOWEVER, HAS BEEN AMPLY DEMONSTRATED BY INVESTIGATIONS CONDUCTED BY THE GENERAL ACCOUNTING OFFICE OF WHICH SEVERAL ILLUSTRATIVE CASES ARE SET FORTH HEREINAFTER.

1. THE LIBRARIAN OF A UNITED STATES CIRCUIT COURT OF APPEALS IS CUSTODIAN OF A FUND IDENTIFIED AS "FUND FOR ADMISSIONS AND ENROLLMENTS OF ATTORNEYS UNDER RULE 6 OF THE COURT," COMPRISING MONEYS DERIVED FROM PAYMENTS OF $5 EACH BY ATTORNEYS ADMITTED TO PRACTICE BEFORE THE COURT. THE SAID RULE 6 PRESCRIBES THE PAYMENT OF THE $5 ADMISSION FEE TO THE LIBRARIAN, WHO SHALL RECEIVE SUCH MONEYS, KEEP THEM IN CUSTODY, AND EXPEND THEM UNDER THE DIRECTION OF THE COURT. AS OF APRIL 10, 1947, A BALANCE OF $2,166 REMAINED IN THE FUND WITH A LOCAL BANK. FOR THE FIRST THREE MONTHS OF 1947 ADMISSION FEES TOTALLED APPROXIMATELY $1,990, AND DISBURSEMENTS DURING THAT PERIOD FOR LAW REPORTS, PAYMENT OF PREMIUMS ON BONDS, ETC., WERE IN EXCESS OF $1,000. NO ACCOUNTING FOR THE FUNDS HAS BEEN MADE TO THE GENERAL ACCOUNTING OFFICE OR TO THE ADMINISTRATIVE OFFICE OF THE UNITED STATES COURTS. FIVE OTHER INSTANCES OF THE SAME KIND HAVE BEEN DISCOVERED (REPORTS NOS. 9212, 4187, 6384, 7394, 9422, AND 6118).

2. THE SUM OF $550 IN COMMISSION PAID BY VENDING MACHINE OPERATORS TO A FEDERAL CORRECTIONAL INSTITUTION WAS USED TO PROMOTE GOOD WILL AMONG EMPLOYEES BY PROVIDING ENTERTAINMENT, ETC. THE MONEY WAS KEPT IN A LOCAL BANK ACCOUNT, WHICH REFLECTED A BALANCE OF $343.10 AS OF JANUARY 28, 1947 (REPORT NO. 8981).

3. A FIELD AGENCY OF THE DEPARTMENT OF AGRICULTURE COLLECTED THE SUM OF $158 IN VENDING MACHINE COMMISSIONS DURING A SIXTEEN-MONTH PERIOD, WHICH SUM WAS USED TO PAY BOND PREMIUMS OF FOUR CERTIFYING OFFICERS AND ONE COLLECTING OFFICER. THE BALANCE ON HAND AT THE END OF THE PERIOD WAS $121. NOTHING WAS DEPOSITED IN THE TREASURY, AND NO INDEPENDENT AUDIT OR ACCOUNTING WAS HAD FOR THE FUNDS (REPORT NO. 5232).

4. DURING A THIRTY-MONTH PERIOD THE PUERTO RICO RECONSTRUCTION ADMINISTRATION, SAN JUAN, PUERTO RICO, COLLECTED THE SUM OF $6,549 IN REVENUES ACCRUING FROM THE OPERATION OF A LUNCH ROOM AND SANDWICH SHOP ON GOVERNMENT PROPERTY. APPARENTLY, THE ENTIRE AMOUNT WAS TURNED OVER TO THE LOCAL WELFARE ASSOCIATION AND USED FOR LOANS, GIFTS, AND VARIOUS OTHER PURPOSES. THERE IS NO RECORD OF REIMBURSEMENT OF EXPENSES INCURRED BY THE GOVERNMENT OR OF ANY INDEPENDENT ACCOUNTING FOR THE FUNDS (REPORT NO. 5104).

5. OPERATION OF A POST OFFICE CANTEEN AT CHICAGO, ILLINOIS, FOR A LITTLE MORE THAN A QUARTER OF A CENTURY RESULTED IN PROFITS TOTALING $184,901. THE PRINCIPAL REVENUE PRODUCERS WERE THE CAFETERIAS, DINING ROOM, CIGAR STAND, SODA FOUNTAIN AND LIBRARY OPERATED BY POST OFFICE EMPLOYEES. THE MONEYS HAVE BEEN MAINTAINED IN THREE CHECKING ACCOUNTS, AND THE POSTMASTER DENIES ANY AUTHORITY OF GENERAL ACCOUNTING OFFICE TO AUDIT THE ACCOUNTS. CONSEQUENTLY, NO INFORMATION IS AVAILABLE AS TO THE EXACT AMOUNT OF EXPENSE INCURRED BY THE GOVERNMENT-- BELIEVED TO BE CONSIDERABLE-- OR OF ANY REIMBURSEMENT MADE ON ACCOUNT THEREOF (REPORT NO. 9237).

6. A SIMILAR SITUATION WAS FOUND AT MILWAUKEE, WISCONSIN, WHERE REVENUES ACCRUING FROM THE OPERATION OF IDENTICAL CONCESSIONS HAVE BEEN KEPT IN TWO TRUST FUNDS-- THE MILWAUKEE POST OFFICE FOUNDATION AND THE FIRST AID UNIT TRUST FUND. THE NET WORTH AS OF MAY 3, 1947, WAS $21,282, AND EMPLOYEE MEMBERS PAY $2 PER ANNUM TO THE "FOUNDATION" WHICH OWNED BONDS HAVING FACE VALUE OF $38,100. NO INFORMATION IS AVAILABLE OF THE COSTS INCURRED BY THE UNITED STATES OR REIMBURSEMENT ON ACCOUNT THEREOF, AND NO ACCOUNTING FOR THE FUNDS IS MADE TO THE GENERAL ACCOUNTING OFFICE (REPORT NO. 9524). SEE PART 10 OF HEARINGS ON CAFETERIAS IN GOVERNMENT BUILDINGS BEFORE A SUBCOMMITTEE OF THE SENATE COMMITTEE ON CIVIL SERVICE, SUPRA.

7. A TREASURY BRANCH RECEIVED VENDING MACHINE COMMISSIONS TOTALING $251 DURING A SIX-MONTH PERIOD ENDING JUNE 1942, WHICH SUM WAS USED TO PROVIDE EMPLOYEES DINNERS, GIFTS, ETC. (REPORT NO. 4224).

8. PATIENTS' FUNDS IN THE AMOUNT OF $1,135 WERE DEPOSITED FOR SAFEKEEPING AT A MARINE HOSPITAL DURING AN UNDETERMINED PERIOD, AND WERE KEPT IN THE OFFICE SAFE FOR DISBURSEMENT TO THE DEPOSITORS. IDENTICAL OR SIMILAR ARRANGEMENT, INVOLVING VARIOUS AMOUNTS, WERE DISCOVERED AT THREE OTHER FACILITIES OF THE FEDERAL SECURITY AGENCY. NO ACCOUNTING WAS MADE TO THE GENERAL ACCOUNTING OFFICE (REPORTS NOS. 6021, 5698, 5093 AND 5284).

9. ONE NATIONAL HOUSING AGENCY PROJECT RENTED TRAILERS AT RATES RANGING FROM $3.50 TO $5 PER WEEK AND USED SUCH COLLECTION TO PURCHASE KEROSENE FOR HEATING AND GASOLINE FOR COOKING, AND TO PAY A JANITOR'S SALARY. ALTHOUGH THE ENTIRE PERIOD COVERED WAS NOT SHOWN, THE BALANCE OF SUCH REVENUES ON HAND AS OF JUNE 7, 1943, WAS THE SUM OF $1,360. NO RECORD WAS AVAILABLE OF ANY REIMBURSEMENT OF THE INVESTMENT OF THE GOVERNMENT, AND THE MONEYS WERE NOT ACCOUNTED FOR TO THE GENERAL ACCOUNTING OFFICE (REPORT NO. 4973).

10. EXAMINATION BY REPRESENTATIVES OF THE GENERAL ACCOUNTING OFFICE OF THE ACCOUNTS AND RECORDS OF A RESEARCH AGENCY OF THE NATIONAL ADVISORY COMMITTEE FOR AERONAUTICS DISCLOSED NUMEROUS INSTANCES OF IRREGULARITIES IN THE HANDLING OF FUNDS AND OTHER MATTERS. UPON ADVICE OF THE GENERAL ACCOUNTING OFFICE, CORRECTIVE ACTION HAS BEEN INITIATED REGARDING (1) FAILURE TO SCHEDULE AND DEPOSIT COLLECTIONS PROMPTLY, (2) UNBALANCED SAVINGS BOND ACCOUNT, (3) COMMINGLING OF OFFICIAL AND UNOFFICIAL FUNDS, (4) INADEQUATE RECORDS OF POSTAGE STAMPS, (5) CONVERTING OF STAMPS TO CASH, AND (6) THE MAINTENANCE OF AN UNAUTHORIZED PETTY CASH FUND FROM WHICH IMPROPER EXPENDITURES WERE MADE.

HOWEVER, THE EXAMINATION DISCLOSED, ALSO, ADDITIONAL IMPROPER PRACTICES, SUCH AS (1) UNBONDED EMPLOYEES HAVING ACCESS TO OFFICIAL FUNDS, (2) BOND PREMIUMS PAID FROM PROCEEDS OF POSTAGE STAMP SALES, (3) INADEQUATE FACILITIES FOR SAFEKEEPING, (4) VENDING MACHINE COMMISSIONS PAID TO NACA EXCHANGE, (5) GOVERNMENT EMPLOYEES ENGAGED IN NACA EXCHANGE AND RECREATIONAL ACTIVITIES, (6) PUBLICATION OF EMPLOYEES' PAPER AT GOVERNMENT EXPENSE, AND (7) EXPENDITURE OF APPROPRIATED FUNDS, WITHOUT REIMBURSEMENT, IN THE OPERATION OF NACA EXCHANGE STORE AND CAFETERIAS (B-24641).

ALSO, IT APPEARS FROM FACTS BROUGHT OUT AT THE SENATE SUBCOMMITTEE HEARINGS ON CAFETERIAS IN GOVERNMENT BUILDING, SUPRA, AND IN HOUSE REPORTS NOS. 1242, 2076 AND 2391, 80TH CONGRESS, 2D SESSION (SURVEY AND STUDY OF THE POSTAL SERVICE), THAT LUNCHROOMS AND CAFETERIAS, ETC., ARE BEING OPERATED IN A NUMBER OF GOVERNMENT BUILDINGS-- AT THE SEAT OF GOVERNMENT AND ELSEWHERE-- WITHOUT ANY PROVISION FOR REIMBURSEMENT TO THE UNITED STATES.

THE LAW AS IT STANDS

THE GENERAL ACCOUNTING OFFICE HAS CAREFULLY REVIEWED EXISTING STATUTES RELATING TO THE RECEIPT AND DISBURSEMENT OF MONEYS IN CONNECTION WITH THE TRANSACTION OF OFFICIAL BUSINESS OF THE GOVERNMENT. PROVISIONS OF THESE STATUTES WHICH HAVE SPECIAL PERTINENCE TO THE SUBJECT FUNDS, AND THE VIEWS OF THE GENERAL ACCOUNTING OFFICE WITH RESPECT THERETO, ARE SET FORTH HEREINAFTER.

DEPOSIT OF MONEYS REQUIRED

WITH REFERENCE TO THE FIRST QUESTION WHICH HAS ENGAGED THE ATTENTION OF THE GENERAL ACCOUNTING OFFICE-- THAT CONCERNING THE AUTHORITY TO WITHHOLD FROM THE TREASURY MONEYS RECEIVED BY THE OFFICERS AND EMPLOYEES OF THE GOVERNMENT BY VIRTUE OF THEIR OFFICES-- CERTAIN STATUTORY PROVISIONS ARE OF PARTICULAR IMPORTANCE.

THE PROVISIONS OF 31 U.S.C. 484 AND 487, (SECTIONS 3617 AND 3618, REVISED STATUTES) ARE AS FOLLOWS:

"SEC. 484. THE GROSS AMOUNT OF ALL MONEYS RECEIVED FROM WHATEVER SOURCE FOR THE USE OF THE UNITED STATES, EXCEPT AS OTHERWISE PROVIDED IN SECTION 487 OF THIS TITLE, SHALL BE PAID BY THE OFFICER OR AGENT RECEIVING THE SAME INTO THE TREASURY, AT AS EARLY A DAY AS PRACTICABLE, WITHOUT ANY ABATEMENT OR DEDUCTIONS ON ACCOUNT OF SALARY, FEES, COSTS, CHARGES, EXPENSES, OR CLAIM OF ANY DESCRIPTION WHATEVER. BUT NOTHING HEREIN SHALL AFFECT ANY PROVISION RELATING TO THE REVENUES OF THE POST OFFICE DEPARTMENT.

"SEC. 487. ALL PROCEEDS OF SALES OF OLD MATERIAL, CONDEMNED STORES, SUPPLIES, OR OTHER PUBLIC PROPERTY OF ANY KIND, EXCEPT THE PROCEEDS OF THE SALE OR LEASING OF MARINE HOSPITALS, OR OF THE SALES OF COAST GUARD CUTTERS, OR OF THE SALES OF COMMISSARY STORES TO THE OFFICERS AND ENLISTED MEN OF THE ARMY, (OR OF MATERIALS, STORES, OR SUPPLIES SOLD TO OFFICERS AND SOLDIERS OF THE ARMY) OR OF THE SALE OF CONDEMNED NAVY CLOTHING, OR OF SALES OF MATERIALS, STORES, OR SUPPLIES TO ANY EXPLORING OR SURVEYING EXPEDITION AUTHORIZED BY LAW, SHALL BE DEPOSITED AND COVERED INTO THE TREASURY AS MISCELLANEOUS RECEIPTS, ON ACCOUNT OF 'PROCEEDS OF GOVERNMENT PROPERTY,' AND SHALL NOT BE WITHDRAWN OR APPLIED, EXCEPT IN CONSEQUENCE OF A SUBSEQUENT APPROPRIATION MADE BY LAW.

THE DIVERSION FROM THE TREASURY OF MONEYS RECEIVED FOR HANDLING UNOFFICIAL TELEGRAPH MESSAGES WOULD APPEAR CONTRARY TO THE SPIRIT, IF NOT THE LETTER, OF THE ACT OF MARCH 3, 1883, 31 U.S.C. 485, WHICH PROVIDES, AS FOLLOWS:

"ALL MONEYS RECEIVED FOR THE TRANSMISSION OF PRIVATE DISPATCHES OVER ANY AND ALL TELEGRAPH LINES OWNED OR OPERATED BY THE UNITED STATES, SHALL BE PAID INTO THE TREASURY OF THE UNITED STATES, AS REQUIRED BY SECTION 484 OF THIS TITLE.

SECTIONS 19 AND 20 OF THE PERMANENT APPROPRIATION REPEAL ACT, 1934, AS AMENDED, 31 U.S.C. 725R, 725S, PROVIDE, IN PERTINENT PART, AS FOLLOWS:

"SECTION 19 *** THAT DONATIONS, QUASI-PUBLIC AND UNEARNED MONEYS CARRIED IN OFFICIAL CHECKING ACCOUNTS OF DISBURSING OFFICERS AND OF OTHERS REQUIRED TO ACCOUNT TO THE COMPTROLLER GENERAL ***, ADMINISTERED BY OFFICERS OF THE UNITED STATES BY VIRTUE OF THEIR OFFICIAL CAPACITY, SHALL BE DEPOSITED SIMILARLY INTO THE TREASURY AS TRUST FUNDS AND ARE HEREBY APPROPRIATED AND MADE AVAILABLE FOR DISBURSEMENT UNDER THE TERMS OF THE TRUST.

"SECTION 20 *** HEREAFTER MONEYS RECEIVED BY THE GOVERNMENT AS TRUSTEE ANALOGOUS TO THE FUNDS NAMED IN SUBSECTIONS (B) AND (C) OF THIS SECTION, NOT OTHERWISE HEREIN PROVIDED FOR, *** SHALL LIKEWISE BE DEPOSITED INTO THE TREASURY AS TRUST FUNDS WITH APPROPRIATE TITLE, AND ALL AMOUNTS CREDITED TO SUCH TRUST-FUND ACCOUNTS ARE HEREBY APPROPRIATED AND SHALL BE DISBURSED IN COMPLIANCE WITH THE TERMS OF THE TRUST ***."

THE PROVISIONS OF SECTION 5 OF THE ACT OF JUNE 30, 1906, 31 U.S.C. 626, ARE AS FOLLOWS:

"THE SECRETARY OF THE TREASURY SHALL REQUIRE, AND IT SHALL BE THE DUTY OF THE HEAD OF EACH EXECUTIVE DEPARTMENT, OR OTHER GOVERNMENT ESTABLISHMENT TO FURNISH HIM, WITHIN THIRTY DAYS AFTER THE CLOSE OF EACH FISCAL YEAR, A STATEMENT OF ALL MONEY ARISING FROM PROCEEDS OF PUBLIC PROPERTY OF ANY KIND OR FROM ANY SOURCE OTHER THAN THE POSTAL SERVICE, RECEIVED BY SAID HEAD OF DEPARTMENT OF OTHER GOVERNMENT ESTABLISHMENT DURING THE PREVIOUS FISCAL YEAR FOR OR ON ACCOUNT OF THE PUBLIC SERVICE, OR IN ANY OTHER MANNER IN THE DISCHARGE OF HIS OFFICIAL DUTIES OTHER THAN AS SALARY OR COMPENSATION, WHICH WAS NOT PAID INTO THE GENERAL TREASURY OF THE UNITED STATES, TOGETHER WITH A DETAILED ACCOUNT OF ALL PAYMENTS, IF ANY, MADE FROM SUCH FUNDS DURING SUCH YEAR: PROVIDED, HOWEVER, THAT THIS SHALL NOT APPLY TO THE QUARTERMASTER CORPS, AS SUCCESSOR TO THE SUBSISTENCE DEPARTMENT. ALL SUCH STATEMENTS, TOGETHER WITH A SIMILAR STATEMENT APPLYING TO THE TREASURY DEPARTMENT, SHALL BE TRANSMITTED BY THE SECRETARY OF THE TREASURY TO CONGRESS AT THE BEGINNING OF EACH REGULAR SESSION." THUS, IT IS SEEN THAT SECTION 3617, REVISED STATUTES, REQUIRES THE DEPOSIT IN THE TREASURY OF THE GROSS AMOUNT OF ALL MONEYS RECEIVED FOR THE USE OF THE UNITED STATES EXCEPT AS OTHERWISE PROVIDED; THAT SECTION 3618 REQUIRES THE DEPOSIT OF THE PROCEEDS OF ANY SALE OF PUBLIC PROPERTY WITH CERTAIN SPECIFIC EXCEPTIONS; AND THAT THE ACT OF MARCH 3, 2883, MAKES EXPRESS PROVISION FOR DISPOSITION IN ACCORDANCE WITH SECTION 3617, REVISED STATUTES, SUPRA, OF PAYMENTS FOR TRANSMISSION OF UNOFFICIAL TELEGRAMS. IS SEEN, ALSO, THAT SECTION 19 OF THE PERMANENT APPROPRIATION REPEAL ACT, 1934, REQUIRES THE DEPOSIT IN THE TREASURY OF DONATIONS, QUASI PUBLIC AND UNEARNED MONEYS, CARRIED IN THE OFFICIAL CHECKING ACCOUNTS OF OFFICERS REQUIRED TO ACCOUNT TO THE COMPTROLLER GENERAL OF THE UNITED STATES, AND THAT SECTION 20 OF SAID ACT REQUIRES THE DEPOSIT OF CERTAIN FUNDS RECEIVED BY THE GOVERNMENT AS TRUSTEE.

WHAT FUNDS ARE FOR "USE OF THE GOVERNMENT?"

AS POINTED OUT IN THE FIRST PART OF THIS REPORT, THE BETTER AND MORE LOGICAL VIEW WOULD APPEAR TO BE THAT ALL FUNDS RECEIVED IN OFFICIAL CAPACITY BY OFFICERS OR EMPLOYEES OF THE GOVERNMENT EXCEPT LAWFUL COMPENSATION, OR THOSE WHICH MAY BE IMPRESSED WITH A TRUST-- SUCH AS DEPOSITS OF PRISONERS AND HOSPITAL PATIENTS LATER RETURNED TO THE OWNERS-- ARE FUNDS RECEIVED FOR THE USE OF THE UNITED STATES. FOR ONE THING, ESSENTIALITY TO THE EFFICIENT TRANSACTION OF THE BUSINESS OF THE GOVERNMENT IS THE SOLE JUSTIFICATION OFFERED FOR THE ESTABLISHMENT AND OPERATION OF THE REVENUE PRODUCING ACTIVITIES FROM WHICH MOST OF THE FUNDS FLOW. FOR ANOTHER THING, THE REVENUES AND OTHER FUNDS ARE BEING DEVOTED CONSISTENTLY TO PURPOSES WHICH ARE DESIGNATED BY THE AGENCIES CONCERNED AS ESSENTIAL OR IMPORTANT TO THE CONDUCT OF OFFICIAL BUSINESS. IT WOULD SEEM TO BE CONTRADICTORY AND ILLOGICAL TO ARGUE IN THE SAME BREATH THAT THE FUNDS THEMSELVES-- ACCRUING FROM, AND SPENT ON, OBJECTS WHICH ARE USEFUL AND EVEN ESSENTIAL TO THE GOVERNMENT-- ARE NOT RECEIVED FOR THE USE OF THE GOVERNMENT.

WITHHOLDING FROM TREASURY UNAUTHORIZED

THE CONGRESS HAS NOT "OTHERWISE PROVIDED" FOR DISPOSITION OF THE INVOLVED FUNDS. IT HAS NOT AUTHORIZED THE WITHHOLDING OF SUCH FUNDS FROM THE TREASURY AND THE APPLICATION THEREOF TO WELFARE PURPOSES OR ANY OTHER OBJECTIVES CHOSEN BY ADMINISTRATIVE AGENCIES. UNDER SPECIAL CIRCUMSTANCES IT HAS AUTHORIZED OR IMPLIEDLY APPROVED THE WITHHOLDING FROM THE TREASURY AND THE USE FOR PARTICULAR PURPOSES OF SIMILAR FUNDS- SUCH AS REVENUES AND PROFITS OF ARMY POST EXCHANGES (47 STAT. 1573 AND 48 STAT. 1229) AND THE PROCEEDS OF SALES BY THE NATIONAL GUARD OF STABLE REFUSE, GRAIN SACKS AND CONTAINER (3618, REVISED STATUTES, SUPRA)-- THUS FURTHER EVIDENCING, BY OBSERVATION, THE INTENTION THAT IN THE ABSENCE OF SUCH SPECIFIC EXCEPTIONS ALL FUNDS RECEIVED IN CONNECTION WITH THE BUSINESS OF THE UNITED STATES SHALL BE DEPOSITED FORTHWITH INTO THE TREASURY.

CONTRARY TO EXISTING STATUTES

IN VIEW THEREOF, IT WOULD SEEM CLEAR THAT REGARDLESS OF THE PRACTICABILITY OR DESIRABILITY OF MANY OF THE ESTABLISHED METHODS OF OBTAINING FUNDS FOR WELFARE PURPOSES IN THE DEPARTMENTS AND ESTABLISHMENTS OF THE GOVERNMENT, SO, LONG A EXISTING LAWS REMAIN UNCHANGED CONTINUANCE OF THE PRACTICE OF WITHHOLDING SUCH FUNDS OR ANY PORTION THEREOF THE TREASURY-- EVEN IF MODIFIED SO THAT THE CONTRIBUTION OF THE GOVERNMENT IS REIMBURSED-- WOULD BE IN CONTRAVENTION OF THE SPECIFIC PROVISIONS OF LAW SET FORTH ABOVE. ALSO, THERE WOULD APPEAR TO BE FOR CONSIDERATION THE QUESTION OF WHETHER FUNDS DEPOSITED BY HOSPITAL PATIENTS AND PRISONERS, ETC., ARE NOT ANALOGOUS TO "MONEYS RECEIVED BY THE GOVERNMENT AS TRUSTEE" WITHIN THE MEANING OF SECTION 20 OF THE PERMANENT APPROPRIATION REPEAL ACT, AND THUS PROPERLY FOR DEPOSIT INTO THE TREASURY AS TRUST FUNDS IN ACCORDANCE WITH THE PROVISIONS OF THAT SECTION. THE ENACTMENT OF APPROPRIATE LEGISLATION WHICH IN THE OPINION OF THE GENERAL ACCOUNTING OFFICE WOULD BEST SERVE THE PUBLIC INTEREST IS RECOMMENDED HEREINAFTER.

CONGRESS CONTROLS PUBLIC PROPERTY

WITH REFERENCE TO THE SECOND QUESTION RAISED BY THE GENERAL ACCOUNTING OFFICE-- THAT CONCERNING THE LEGALITY OF DEPARTMENTS AND ESTABLISHMENTS OF THE GOVERNMENT GIVING AWAY PUBLIC PROPERTY AND FUNDS IN CONNECTION WITH SO -CALLED WELFARE ACTIVITIES-- THE BASIC AUTHORITY FOR THE OBJECTIONS INTERPOSED BY THE GENERAL ACCOUNTING OFFICE TO PRESENT ARRANGEMENTS IS CONTAINED IN THE CONSTITUTION OF THE UNITED STATES OF AMERICA.

SECTION 3 OF ARTICLE IV OF THE CONSTITUTION PROVIDES, IN EFFECT, THAT ONLY THE CONGRESS SHALL HAVE THE POWER TO DISPOSE OF AND TO MAKE ALL NEEDFUL RULES AND REGULATIONS RESPECTING THE PROPERTY BELONGING TO THE UNITED STATES. IN ROYAL INDEMNITY COMPANY V. UNITED STATES, 313 U.S. 289, 294, THE SUPREME COURT OF THE UNITED STATES, CITING THAT CONSTITUTIONAL PROVISIONS, SAID:

"POWER TO RELEASE OR OTHERWISE DISPOSE OF THE RIGHTS AND PROPERTY OF THE UNITED STATES IS LODGED IN THE CONGRESS BY THE CONSTITUTION *** SUBORDINATE OFFICERS OF THE UNITED STATES ARE WITHOUT THAT POWER, SAVE ONLY AS IT HAS BEEN CONFERRED UPON THEM BY ACT OF CONGRESS OR IS TO BE IMPLIED FROM OTHER POWERS SO GRANTED."

IT HAS BEEN ARGUED THAT AUTHORITY TO USE PUBLIC PROPERTY AND FUNDS FOR THE ESTABLISHMENT AND OPERATION OF ACTIVITIES PRODUCING REVENUE FOR WELFARE PURPOSES IS INHERENT IN THE PROVISIONS OF SECTION 161, REVISED STATUTES, 5 U.S.C. 22, WHICH ARE:

"THE HEAD OF EACH DEPARTMENT IS AUTHORIZED TO PRESCRIBE REGULATIONS, NOT INCONSISTENT WITH LAW, FOR THE GOVERNMENT OF HIS DEPARTMENT, THE CONDUCT OF ITS OFFICERS AND CLERKS, THE DISTRIBUTION AND PERFORMANCE OF ITS BUSINESS, AND THE CUSTODY, USE AND PRESERVATION OF THE RECORDS, PAPERS, AND PROPERTY APPERTAINING TO IT."

STATUTES MUST BE READ TOGETHER

HOWEVER, THAT SECTION MUST BE READ SO AS TO BE CONSISTENT WITH OTHER PERTINENT STATUTES, AS POINTED OUT BY THE SUPREME COURT IN GLAVEY V. UNITED STATES, 182 U.S. 595, 605, IN THE FOLLOWING WORDS:

"THE AUTHORITY OF THE SECRETARY (OF THE NAVY) TO ISSUE ORDERS, REGULATIONS AND INSTRUCTIONS, WITH THE APPROVAL OF THE PRESIDENT, IN REFERENCE TO MATTERS CONNECTED WITH THE NAVAL ESTABLISHMENT, IS SUBJECT TO THE CONDITION, NECESSARILY IMPLIED, THAT THEY MUST BE CONSISTENT WITH THE STATUTES WHICH HAVE BEEN ENACTED BY CONGRESS IN REFERENCE TO THE NAVY. MAY, WITH THE APPROVAL OF THE PRESIDENT, ESTABLISH REGULATIONS IN EXECUTION OF, OR SUPPLEMENTAL TO, BUT NOT IN CONFLICT WITH, THE STATUTES DEFINING HIS POWERS OR CONFERRING RIGHTS UPON OTHERS. THE CONTRARY HAS NEVER HELD BY THIS COURT."

CONGRESS HAS NOT RELINQUISHED CONTROL

IT IS THE VIEW OF THE GENERAL ACCOUNTING OFFICE THAT NOWHERE HAS THE CONGRESS EITHER EXPRESSLY OR IMPLIEDLY AUTHORIZED THE GIVING AWAY OF PUBLIC PROPERTY AND FUNDS, FOR WELFARE OR ANY OTHER PURPOSE, TO THE EXTREMES DISCLOSED IN THIS REPORT. ON THE CONTRARY, THE CONGRESS HAS ON NUMEROUS OCCASIONS RECOGNIZED THE DANGER OF PERMITTING UNBRIDLED ADMINISTRATION DISCRETION IN THE MATTER BY THE ENACTMENT OF LEGISLATION EXPLICITLY LIMITING THAT DISCRETION. THUS, SECTION 3678, REVISED STATUTES, PROVIDES THAT:

"EXCEPT AS OTHERWISE PROVIDED BY LAW, SUMS APPROPRIATED FOR THE BRANCHES OF EXPENDITURE IN THE PUBLIC SERVICE SHALL BE APPLIED SOLELY TO THE OBJECTS FOR WHICH THEY ARE RESPECTIVELY MADE, AND FOR NO OTHERS."

ALSO, IN CONNECTION WITH THE MATTER, THERE ARE FOR CONSIDERATION THE PROVISIONS OF SECTION 3 OF THE ACT OF JUNE 20, 1874, 5 U.S.C. 71, WHICH ARE:

"NO CIVIL OFFICER OF THE GOVERNMENT SHALL RECEIVE ANY COMPENSATION OR PERQUISITE DIRECTLY OR INDIRECTLY FROM THE TREASURY OR PROPERTY OF THE UNITED STATES BEYOND HIS SALARY OR COMPENSATION ALLOWED BY LAW."

IN THE SAME RESPECT, SECTION 1765, REVISED STATUTES, PROVIDES AS FOLLOWS:

"NO OFFICER IN ANY BRANCH OF THE PUBLIC SERVICE, OR ANY OTHER PERSON WHOSE SALARY, PAY, OR EMOLUMENTS ARE FIXED BY LAW OR REGULATIONS, SHALL RECEIVE ANY ADDITIONAL PAY, EXTRA ALLOWANCE, OR COMPENSATION, IN ANY FORM WHATEVER, FOR THE DISBURSEMENT OF PUBLIC MONEY, OR FOR ANY OTHER SERVICE OR DUTY WHATEVER, UNLESS THE SAME IS AUTHORIZED BY LAW, AND THE APPROPRIATION THEREFOR EXPLICITLY STATES THAT IT IS FOR SUCH ADDITIONAL PAY, EXTRA ALLOWANCE, OR COMPENSATION."

SPECIAL ATTENTION WAS GIVEN BY THE CONGRESS TO THE MATTERS OF PAY AND ALLOWANCES OF MILITARY AND NAVAL PERSONNEL IN THE PAY READJUSTMENT ACT OF 1942, 37 U.S.C. 101 ET SEQ., BUT THAT ACT ALTERED NEITHER THE LETTER NOT THE SPIRIT OF THE FOREGOING STATUTES RELATING TO EXTRA COMPENSATION.

RENTAL FOR USE OF GOVERNMENT PROPERTY

THE RIGHT TO OPERATE CAFETERIAS AND CONCESSIONS AND TO CARRY ON OTHER COMMERCIAL ENTERPRISES ON PUBLIC PROPERTY CONSTITUTES A VALUABLE PRIVILEGE FOR WHICH THE GOVERNMENT SHOULD BE COMPENSATED, THE RECEIPTS THEREFOR TO BE COVERED INTO THE TREASURY IN ACCORDANCE WITH THE PROVISIONS OF SECTION 321 OF THE ACT OF JUNE 30, 1932, 40 U.S.C. 303B, WHICH ARE:

"EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED BY LAW, THE LEASING OF BUILDINGS AND PROPERTIES OF THE UNITED STATES SHALL BE FOR A MONEY CONSIDERATION ONLY ***. THE MONEYS DERIVED FROM SUCH RENTALS SHALL BE DEPOSITED AND COVERED INTO THE TREASURY AS MISCELLANEOUS RECEIPTS."

IT HAS BEEN HELD CONSISTENTLY BY THE ACCOUNTING OFFICERS OF THE GOVERNMENT THAT MONEY RECEIVED FROM RENTAL OF GOVERNMENT PROPERTY IS FOR THE USE OF THE UNITED STATES WITHIN THE MEANING OF SECTIONS 3617 AND 3618 OF THE REVISED STATUTES, SUPRA.

UPON THE FACTS OF RECORD, I DO NOT THINK THAT ANY PAYMENT ON ACCOUNT OF THE PRIVILEGE OF OPERATING A COMMERCIAL ENTERPRISE ON GOVERNMENT PROPERTY- - REGARDLESS OF HOW SUCH PAYMENT MAY BE ADMINISTRATIVELY DESIGNATED-- REASONABLY MAY BE CONSIDERED AS OTHER THAN A PAYMENT OF RENTAL FOR THE LEASING OR USE OF PUBLIC PROPERTY. ESSENTIALLY, "RENT" IS A PERIODIC RETURN FOR THE PRIVILEGE OF US (NIAGARA FALLS POWER COMPANY V. WATER POWER AND CONTROL COMMISSION, 262 N.Y.S. 217, 237 APP. DIV. 216). THE WORD CONNOTES THE GRANTING BY THE OWNER OF USE OF PROPERTY FOR AN AGREED TERM FOR AN AGREED COMPENSATION TO BE PAID BY THE GRANTEE. IT DOES NOT MATTER WHETHER SUCH COMPENSATION IS PRECISELY FIXED IN AMOUNT FOR THE TERM OR VARIOUS PORTIONS THEREOF, OR IS BASED UPON VARIABLE CONSIDERATIONS. THUS, IF THE OWNER OF PROPERTY GRANTS THE USE THEREOF IN RETURN FOR A SHARE IN THE INCOME OR PROFITS, THE RELATIONSHIP WOULD APPEAR TO BE THAT OF LANDLORD AND TENANT, AND THE LANDLORD'S SHARE-- WHETHER PAID TO HIM OR PERSONS DESIGNATED BY HIM-- MUST BE CONSIDERED AS RENTAL FOR THE USE OF HIS PROPERTY. TO BE MORE SPECIFIC, SHARES OR PERCENTAGES OF PROFITS, OR COMMISSIONS PAID, FOR THE PRIVILEGE OF OPERATING COMMERCIAL ENTERPRISES ON GOVERNMENT PROPERTY-- WHETHER PAID DIRECTLY TO OFFICERS OR EMPLOYEES OF THE GOVERNMENT IN THEIR OFFICIAL CAPACITY OR TO A NON-PROFIT ORGANIZATION, ASSOCIATION OR COUNCIL, ETC., ESTABLISHED BY ADMINISTRATIVE REGULATION- WOULD APPEAR TO REPRESENT RETURNS IN THE NATURE OF RENT FOR THE GRANTING OF THE PRIVILEGE OF USING GOVERNMENT PROPERTY.

THE FACT THAT THE ESTABLISHMENT AND OPERATION OF THE COMMERCIAL ENTERPRISES MAY BE ADMINISTRATIVELY DETERMINED TO BE ESSENTIAL TO THE TRANSACTION OF OFFICIAL BUSINESS OF THE GOVERNMENT DOES NOT MATERIALLY AFFECT THE TRUE NATURE OF THE COMPENSATION RECEIVED. SIMILARLY, THE INTRINSIC CHARACTER OF SUCH COMPENSATION AS RENTAL PAID FOR THE USE OF PUBLIC PROPERTY MAY NOT BE CHANGED BY ADMINISTRATIVE CHARACTERIZATION THEREOF AS "COMMISSIONS," "PERCENTAGES" OR THE LIKE, OR BY A MERE ARBITRARY DIRECTIVE-- OBVIOUSLY DESIGNED TO EVADE THE LETTER AND INTENT OF THE LAWS REQUIRING THE LEASING OF PUBLIC PROPERTY FOR A MONEY CONSIDERATION ONLY AND THE COVERING OF SUCH CONSIDERATION INTO THE TREASURY-- THAT WHEN ARRANGEMENTS ARE MADE TO GRANT USE OF PUBLIC PROPERTY IN RETURN FOR SOMETHING OF VALUE THE USE OF THE WORD "RENT" IN DESCRIBING SUCH RETURN SHALL BE STUDIOUSLY AVOIDED. CF. 7 COMP.GEN. 391-6, 8 COMP.GEN. 628, AND THE PROVISIONS OF PARAGRAPH 10 C (5) OF AR 210-65 (APPENDIX, PAGE XXXIII). ALSO, SEE THE ACT OF AUGUST 5, 1947, 61 STAT. 774.

WELFARE AT PUBLIC EXPENSE SELDOM APPROVED

THE INSTANCES DESCRIBED IN THIS REPORT OF THE USE OF PUBLIC PROPERTY AND FUNDS TO PRODUCE REVENUES FOR WELFARE PURPOSES ARE FAIRLY REPRESENTATIVE OF INNUMERABLE CASES OF THE SAME KIND. THE INCONSISTENCY OF SUCH USAGE-- WHEREBY PRIVATE COMMERICAL ENTERPRISES ARE GRANTED FREE USE OF PUBLIC PROPERTY AND CERTAIN FAVORED OFFICERS AND EMPLOYEES SECURE FROM THE PUBLIC PURSE BY INDIRECTION BENEFITS AND ADVANTAGES NOT ALLOWED OTHER OFFICERS AND EMPLOYEES-- WITH THE FOREGOING STATUTORY PROVISIONS RELATING TO GIVING AWAY OF PUBLIC PROPERTY AND COMPENSATION OF GOVERNMENT OFFICERS AND EMPLOYEES APPEARS TO BE TOO EVIDENT TO WARRANT FURTHER COMMENT. ALTHOUGH, AS I HAVE SAID BEFORE, IN SPECIAL CIRCUMSTANCES NO OBJECTION IS PERCEIVED TO PROVIDING BENEFITS AND ADVANTAGES AS SUCH, TO WHATEVER EXTENT THAT IS DONE AT PUBLIC EXPENSE AND THERE IS NO REIMBURSEMENT IT WOULD APPEAR TO BE IN DIRECT CONTRAVENTION OF THOSE STATUTES, EXCEPT FOR THE COMPARATIVELY FEW INSTANCES IN WHICH SPECIFIC OR NECESSARILY IMPLIED AUTHORITY HAS BEEN GIVEN BY THE CONGRESS.

DANGEROUS AUDIT IMPEDIMENT

WITH RESPECT TO THE THIRD GENERAL QUESTION PRESENTED IN THIS REPORT- CONCERNING THE SERIOUS AUDIT IMPEDIMENT RESULTING FROM THE PRESENT SITUATION-- IT IS REITERATED HERE THAT ALL MONEYS, EXCEPT LAWFUL COMPENSATION, RECEIVED FROM WHATEVER SOURCE BY PERSONS IN THE SERVICE OF THE UNITED STATES BY VIRTUE OF SUCH SERVICE, SHOULD BE SUBJECT TO THE ACCOUNTING PROCEDURES PROVIDED BY LAW FOR PUBLIC FUNDS AND TRUST FUNDS. SUCH FUNDS ARE TAKEN IN AND EXPENDED IN CONNECTION WITH THE TRANSACTION OF THE PUBLIC BUSINESS AND, SO FAR AS CONCERNS THE FINANCIAL INTERESTS OF THE UNITED STATES, ARE IMPRESSED WITH THE CHARACTER OF PUBLIC FUNDS OR OF TRUST FUNDS WHEN THEY ARE PUT INTO THE HANDS OF ADMINISTRATIVE OFFICERS OR EMPLOYEES OF THE GOVERNMENT IN THEIR OFFICIAL CAPACITY. THE WHOLE HISTORY OF PUBLIC EXPENDITURES IS ONE OF GRADUAL BUT CERTAIN RECOGNITION OF THE NECESSITY OF INDEPENDENT ACCOUNTING CONTROLS. SUCH CONTROLS FIRST BECAME NECESSARY BY REASON OF SOVEREIGN PROFLIGACY, AND TOO MANY INSTANCES OF RELAXATION THEREOF HAVE BEEN SEIZED UPON BY GOVERNMENTAL SPENDING AGENCIES AS AN OCCASION FOR ALL KINDS OF WASTE, EXTRAVAGANCE AND EVEN, IN SOME CASES, FRAUD. COSTLY EXPERIENCE HAS DEMONSTRATED CONCLUSIVELY THE NECESSITY FOR CHECKS AND CONTROLS OF PUBLIC SPENDING WHICH ARE ENTIRELY INDEPENDENT OF THE SPENDING OFFICERS. IT IS ONLY BY THE CONTINUANCE AND STRENGTHENING OF THOSE CHECKS AND CONTROLS THAT ADEQUATE SAFEGUARDS FOR THE PUBLIC PURSE CAN BE MAINTAINED.

OTHER PERTINENT STATUTES

SINCE I THINK IT MAY BE TAKEN AS REASONABLY ESTABLISHED THAT SUCH AUTHORITY, IF ANY, AS THERE MAY BE FOR THE ACTIVITIES PREVIOUSLY DISCUSSED RESTS UPON THE CHARACTERIZATION THEREOF AS INTEGRAL PARTS OF THE GOVERNMENT BUSINESS, AND SINCE THE UNDOUBTED FINANCIAL INTEREST OF THE UNITED STATES THEREIN REQUIRES THE APPLICATION THERETO OF ACCOUNTING PROCEDURES PROVIDED BY LAW FOR PUBLIC FUNDS, IT WOULD APPEAR, ALSO, THAT CONTRACTUAL AND OTHER ARRANGEMENTS RELATING TO THE ESTABLISHMENT AND OPERATION OF SUCH ACTIVITIES SHOULD BE SUBJECT TO EXISTING STATUTORY PROVISIONS GOVERNING PUBLIC CONTRACTS AND RELATED MATTERS AND TO REGULATIONS ISSUED PURSUANT THERETO. IN THIS CONNECTION, SECTION 3743, REVISED STATUTES, AS AMENDED, 41 U.S. 20, PROVIDES AS FOLLOWS:

"ALL CONTRACTS TO BE MADE, BY VIRTUE OF ANY LAW, AND REQUIRING THE ADVANCE OF MONEY, OR IN ANY MANNER CONNECTED WITH THE SETTLEMENT OF PUBLIC ACCOUNTS, SHALL BE DEPOSITED PROMPTLY IN THE GENERAL ACCOUNTING OFFICE: PROVIDED, THAT THIS SECTION SHALL NOT APPLY TO EXISTING LAWS IN REGARD TO THE CONTINGENT FUND OF CONGRESS."

SUMMARY AND RECOMMENDATIONS

IN VIEW OF THE INFORMATION AND EVIDENCE ASSEMBLED, AS SET FORTH HEREINBEFORE, CERTAIN CONCLUSIONS APPEAR INESCAPABLE. LARGE SUMS OF MONEY OFFICIALLY RECEIVED BY REPRESENTATIVES OF THE UNITED STATES ARE BEING WITHHELD FROM THE TREASURY IN A MANNER GIVING RISE TO SERIOUS DOUBT AS TO THE LEGALITY THEREOF. THE MONEYS ARE BEING DIVERTED TO PURPOSES WHICH ARE NOT SPECIFICALLY AUTHORIZED BY LAW, AND NO ADEQUATE CHECK OR ACCOUNTING CONTROL IS PERMITTED OF THE RECEIPT, CUSTODY OR DISBURSEMENT THEREOF. PUBLIC PROPERTY IS BEING USED AND PUBLIC FUNDS EXPENDED WITHOUT EXPRESS AUTHORITY OF LAW. PRESENT ARRANGEMENTS, GIVING PREFERENTIAL TREATMENT TO OFFICERS AND EMPLOYEES OF CERTAIN DEPARTMENTS AND ESTABLISHMENTS OF THE GOVERNMENT, ARE HIGHLY DISCRIMINATORY. THE PROVISIONS OF EXISTING LAWS WHICH WERE ORIGINALLY ENACTED TO PREVENT JUST SUCH CONDITIONS HAVE PROVEN EITHER INEFFECTUAL OR LONG OUTMODED. THE MANIFEST INADEQUACY OF THOSE LAWS TO PERMIT THE PERFORMANCE BY DEPARTMENTS AND ESTABLISHMENTS OF THE GOVERNMENT OF FUNCTIONS WHICH ARE DESIRABLE AND EVEN ESSENTIAL IN THE PUBLIC INTEREST UNDOUBTEDLY HAD BROUGHT ABOUT EVASIONS AND VIOLATIONS OF THE LAWS, THROUGH EFFORTS TO ACCOMPLISH ADMINISTRATIVE OBJECTIVES NOTWITHSTANDING THE SHORTCOMINGS OF THE STATUTES. ONCE BEYOND THE LIMITS OF THE STATUTES, SOME DEPARTMENTS AND ESTABLISHMENTS HAVE PROCEEDED UNDER THEIR OWN MOMENTUM, UNTIL NOW IT IS SCARCELY PRETENDED THAT ANY AUTHORITY EXCEPT ADMINISTRATIVE REGULATIONS IS NECESSARY. IT IS AN APPROACH TOWARD GOVERNMENT BY REGULATION IN PLACE OF GOVERNMENT BY LEGISLATION. IN FACT, IN THE CASE OF THE PENTAGON BUILDING, IT SEEMS THAT THE DEPARTMENT OF THE ARMY HAS, IN EFFECT, SUPERSEDED A SPECIFIC STATUTORY PROVISION WITH CONTRARY REGULATIONS OF ITS OWN.

THE PROMPT ENACTMENT OF CLARIFYING LEGISLATION DESIGNED TO AFFORD ADEQUATE PROTECTION TO THE GOVERNMENT AND AT THE SAME TIME REMOVE THE STATUTORY IMPEDIMENTS WHICH HAVE TENDED TO ENCOURAGE THE ADOPTION OF SUBTERFUGE, PRETEXTS AND EXPEDIENTS OF DOUBTFUL PROPRIETY, TO ACCOMPLISH AUTHORIZED OBJECTIVES, SEEMS TO MEN OF UTMOST IMPORTANCE. IT IS URGENTLY RECOMMENDED THAT THE CONGRESS GIVE SERIOUS CONSIDERATION TO THE MATTERS REPORTED HEREIN WITH A VIEW TOWARD ACCOMPLISHING THAT OBJECTIVE. REPRESENTATIVES OF THE GENERAL ACCOUNTING OFFICE WILL BE AVAILABLE UPON REQUEST, TO ASSIST IN THE PREPARATION OF A DRAFT OF NECESSARY LEGISLATION, AND TO FURNISH SUCH OTHER ASSISTANCE AS MAY BE DESIRED.

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