A-84213, MAY 14, 1937, 16 COMP. GEN. 1002

A-84213: May 14, 1937

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TELEPHONE SERVICE - BLANKET AND "INVENTORY METHOD" CONTRACTS - TENNESSEE VALLEY AUTHORITY BLANKET TELEPHONE CONTRACTS COVERING ONLY RATES AT WHICH SERVICE IS TO BE RENDERED WITH NO PROVISION FOR QUANTITY AND NO SUPPLEMENTAL AGREEMENTS COVERING CHANGES IN SERVICE. - THOSE IN WHICH CHARGES FOR THE MONTH ARE BASED ON SERVICE AS OF A PARTICULAR DATE WITHOUT REGARD TO PRIOR TERMINATIONS OR SUBSEQUENT ADDITIONS. - ARE UNAUTHORIZED. WILL NOT BE FURTHER OBJECTED TO IF PROPERLY SUPPORTED FOR AUDIT PURPOSES. 1937: THERE WAS RECEIVED YOUR LETTER OF FEBRUARY 16. AS FOLLOWS: WE HAVE IN THIS OFFICE A NUMBER OF LETTERS FROM THE CONTRACT EXAMINING SECTION OF THE UNITED STATES GENERAL ACCOUNTING OFFICE IN WHICH REFERENCE IS MADE TO SEVERAL OF OUR CONTRACTS WITH THE SOUTHERN BELL TELEPHONE AND TELEGRAPH COMPANY AS LISTED BELOW: TABLE CONTRACT NO.

A-84213, MAY 14, 1937, 16 COMP. GEN. 1002

TELEPHONE SERVICE - BLANKET AND "INVENTORY METHOD" CONTRACTS - TENNESSEE VALLEY AUTHORITY BLANKET TELEPHONE CONTRACTS COVERING ONLY RATES AT WHICH SERVICE IS TO BE RENDERED WITH NO PROVISION FOR QUANTITY AND NO SUPPLEMENTAL AGREEMENTS COVERING CHANGES IN SERVICE, AND "INVENTORY METHOD" CONTRACTS--- THOSE IN WHICH CHARGES FOR THE MONTH ARE BASED ON SERVICE AS OF A PARTICULAR DATE WITHOUT REGARD TO PRIOR TERMINATIONS OR SUBSEQUENT ADDITIONS--- ARE UNAUTHORIZED. PAYMENTS UNDER SUCH CONTRACTS OF THE TENNESSEE VALLEY AUTHORITY FOR SERVICE RENDERED PRIOR TO JULY 1, 1937, WILL NOT BE FURTHER OBJECTED TO IF PROPERLY SUPPORTED FOR AUDIT PURPOSES.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE CHAIRMAN, TENNESSEE VALLEY AUTHORITY, MAY 14, 1937:

THERE WAS RECEIVED YOUR LETTER OF FEBRUARY 16, 1937, FROM THE COMPTROLLER OF YOUR AUTHORITY, AS FOLLOWS:

WE HAVE IN THIS OFFICE A NUMBER OF LETTERS FROM THE CONTRACT EXAMINING SECTION OF THE UNITED STATES GENERAL ACCOUNTING OFFICE IN WHICH REFERENCE IS MADE TO SEVERAL OF OUR CONTRACTS WITH THE SOUTHERN BELL TELEPHONE AND TELEGRAPH COMPANY AS LISTED BELOW:

TABLE

CONTRACT NO. LOCATION

TV-122 ---------------------------- SHEFFIELD, ALABAMA.

202 ---------------------------- KNOXVILLE, TENNESSEE.

641 ---------------------------- IUKA, MISSISSIPPI.

656 ---------------------------- CHATTANOOGA, TENNESSEE.

123 ---------------------------- TOWN CREEK, ALABAMA.

1475 --------------------------- GUNTERSVILLE, ALABAMA.

ALL OF THESE LETTERS REQUEST THAT SUPPLEMENTAL CONTRACTS BE SUBMITTED ON STANDARD FORM 40, COVERING ALL CHANGES IN SERVICE. IN SOME CASES REQUEST IS ALSO MADE FOR A LIST OF ALL SERVICE IN EFFECT AS OF A GIVEN DATE.

SEVERAL MONTHS AGO WE REPLIED TO SEVERAL OF THESE LETTERS EXPLAINING THAT THE CONTRACTS REFERRED TO WERE BLANKET CONTRACTS AND COVERED ONLY THE RATES AT WHICH TELEPHONE SERVICE SHOULD BE RENDERED. NO PROVISION WAS MADE IN SUCH CONTRACTS FOR THE QUANTITY OF SERVICE TO BE FURNISHED AND NO SUPPLEMENTAL CONTRACTS WERE EXECUTED COVERING CHANGES IN SERVICE. FURTHER EXPLAINED THAT DETAILED INFORMATION REGARDING CHANGES IN SERVICE DURING A GIVEN PERIOD WOULD BE FOUND ATTACHED TO THE VOUCHER COVERING PAYMENT FOR THAT PERIOD.

UNDER DATE OF JUNE 3 AND JUNE 6, 1936, WE RECEIVED LETTERS REGARDING CONTRACTS TV-123 AND TV-202 RESPECTIVELY, IN WHICH WE WERE INFORMED THAT OUR REPLIES WERE UNSATISFACTORY AND THAT IT WOULD BE NECESSARY FOR US TO FURNISH AN EXECUTED STANDARD FORM 40 COVERING EACH CHANGE IN SERVICE UNDER THE CONTRACTS NOTED.

AS IT IS APPARENT THAT A GREAT AMOUNT OF TIME AND EFFORT WOULD BE REQUIRED IN GOING THROUGH OUR OLD FILES AND PREPARING A STANDARD FORM 40 FOR EACH CHANGE IN SERVICE ON ALL THESE COMPLETED CONTRACTS, WE BELIEVE IT ADVISABLE TO FURNISH YOU WITH A MORE DETAILED EXPLANATION REGARDING THE PROCEDURE FOLLOWED BY US ON CERTAIN OF OUR TELEPHONE CONTRACTS IN THE HOPE THAT THE REQUIRED INFORMATION MAY BE FURNISHED IN SOME OTHER FORM ACCEPTABLE TO YOU BUT LESS BURDENSOME TO THE AUTHORITY.

FOR YOUR INFORMATION, AT THE TIME WE WERE INFORMED THAT THESE BLANKET CONTRACTS WERE NOT ACCEPTABLE TO THE GENERAL ACCOUNTING OFFICE, OUR PROCEDURES WERE CHANGED AND ALL ORIGINAL CONTRACTS AND SUPPLEMENTS COVERING CHANGES IN SERVICE ARE NOW HANDLED IN ACCORDANCE WITH THE PROCEDURE OUTLINED ON THE REVERSE SIDE OF STANDARD FORM 40, EXCEPT AT CERTAIN POINTS WHERE TELEPHONE SYSTEMS ARE OWNED AND MAINTAINED BY THE AUTHORITY AND A SPECIAL TYPE OF CONTRACT IS USED.

DURING THE FISCAL YEAR 1935-1936, BLANKET CONTRACTS FOR TELEPHONE SERVICE WERE USED BY US AT POINTS WHERE EXTENSIVE TELEPHONE FACILITIES WERE REQUIRED BY THE AUTHORITY. DUE TO THE FACT THAT WE WERE A NEW ORGANIZATION AND WERE EXPANDING VERY RAPIDLY, CHANGES IN TELEPHONE SERVICE WERE REQUIRED WITH GREAT FREQUENCY. THESE BLANKET TELEPHONE CONTRACTS WERE THEREFORE PREPARED IN AN EFFORT TO AVOID THE NECESSITY FOR PREPARING A SUPPLEMENTAL CONTRACT EACH TIME A CHANGE IN FACILITIES WAS REQUIRED.

AT THE TIME CHANGES IN SERVICE WERE REQUIRED, A FORM LETTER WAS PREPARED BY THE CHIEF CLERK AT THE POINT COVERED BY THE BLANKET CONTRACT, ADDRESSED TO THE TELEPHONE COMPANY, REQUESTING THAT THE FACILITIES IN QUESTION BE INSTALLED, DISCONTINUED, OR MOVED AS REQUIRED. THE ORIGINAL OF THIS LETTER WAS SENT TO THE TELEPHONE COMPANY, A DUPLICATE FORWARDED TO THE GENERAL OFFICE IN KNOXVILLE, AND A TRIPLICATE RETAINED IN THE FILES OF THE CHIEF CLERK ISSUING IT.

THE COPY OF THIS LETTER WHICH WAS RECEIVED IN THE GENERAL OFFICE AT KNOXVILLE WAS USED TO CHECK THE BILL SUBSEQUENTLY SUBMITTED BY THE TELEPHONE COMPANY.

IT WILL THEREFORE BE SEEN THAT THIS FORM LETTER SERVES ESSENTIALLY THE SAME PURPOSES AS STANDARD FORM 40. SUCH LETTERS SHOW ESSENTIALLY THE SAME INFORMATION AS THAT CONTAINED ON A STANDARD FORM 40, AND IT IS POSSIBLE THAT COPIES OF SUCH LETTERS MAY BE ACCEPTABLE TO YOU IN LIEU OF THE MATERIAL REQUESTED. A SPECIMEN COPY OF THE LETTER UNDER DISCUSSION IS ENCLOSED.

ALL OF OUR DISBURSEMENTS FOR TELEPHONE SERVICE FOR A PART OF THE FISCAL YEAR 1934-1935 WERE AUDITED BY FIELD INVESTIGATORS FROM THE GENERAL ACCOUNTING OFFICE WHO EXAMINED THESE PROCEDURES IN DETAIL. IT IS OUR UNDERSTANDING THAT OUR METHOD OF HANDLING THESE CONTRACTS WAS ACCEPTED AS SATISFACTORY BY THESE INVESTIGATIONS.

IT IS THEREFORE REQUESTED THAT YOU ADVISE US WHETHER OR NOT IT WILL BE SATISFACTORY FOR US TO SUBMIT A STATEMENT OF ALL SERVICE IN EFFECT UNDER EACH OF OUR BLANKET CONTRACTS AS OF THE INITIAL DATE APPEARING ON EACH VOUCHER UNDER SUCH CONTRACTS SUBMITTED BY US FOR AUDIT, TOGETHER WITH COPIES OF ALL LETTERS AUTHORIZING CHANGES IN SERVICE. THIS INFORMATION, WE BELIEVE, WILL BE SUFFICIENT TO ENABLE YOU TO CHECK THE QUANTITY OF SERVICE PAID FOR ON EACH VOUCHER SUBMITTED FOR AUDIT UNDER SUCH CONTRACTS.

FURTHER REFERENCE IS MADE TO YOUR LETTER OF DECEMBER 3, 1936, REGARDING CONTRACTS TV-1475 COVERING TELEPHONE SERVICE AT GUNTERSVILLE DAMSITE, ALABAMA. FROM THIS LETTER WE QUOTE THE FOLLOWING:

"THE FOLLOWING QUOTATION APPEARS IN THE CONTRACT: "A CHECK WILL BE MADE BY THE TELEPHONE COMPANY OF THE STATIONS AND HAND SETS IN USE ON THE TWENTY-EIGHTH DAY OF EACH MONTH, AND RENTAL FOR THE NUMBER IN USE AT THAT DATE WILL BE CHARGED FOR THE ENTIRE MONTH.'

"YOU ARE ADVISED THAT SERVICE INSTALLED AT THE COMMENCEMENT OF THE CONTRACT PERIOD AND ANY SUBSEQUENT CHANGES IN SERVICE ARE TO BE REPORTED ON STANDARD FORM 40, SHOWING DATE OF COMMENCEMENT OR DISCONTINUANCE OF SUCH SERVICE OR ANY CHANGE IN CIRCUITS. FORMS 40 ON WHICH THE INSTALLATION AND CHANGES ARE NOTED ARE TO BE FORWARDED FOR FILING WITH THE CONTRACT.'

AS EXPLAINED ABOVE, FORM LETTERS ARE AVAILABLE IN OUR FILES SHOWING ALL NECESSARY DETAILED INFORMATION REGARDING CHANGES IN SERVICE AND EFFECTIVE DATES UNDER THIS CONTRACT. AS PROVIDED IN THIS CONTRACT, HOWEVER, PAYMENTS MADE BY US FOR TELEPHONE STATIONS AND HANDSETS ARE NOT BASED ON THE ACTUAL DATE OF SUCH CHANGES IN SERVICE, BUT ARE BASED ON AN ACTUAL INVENTORY OF SERVICE IN EFFECT ON THE TWENTY-EIGHTH DAY OF EACH MONTH. THEREFORE, CHARGES FIGURED ON THE BASIS OF ACTUAL DATES OF CHANGES IN SERVICE WILL NOT AGREE WITH AMOUNTS ACTUALLY PAID BY US.

CONTRACTS OF THIS TYPE ARE IN EFFECT AT VARIOUS POINTS WHERE THE LOCAL TELEPHONE SYSTEM IS OWNED AND MAINTAINED BY THE AUTHORITY. UNDER THE TERMS OF SUCH CONTRACTS, ALL LOCAL TELEPHONE LINES ARE ERECTED AND MAINTAINED BY THE AUTHORITY AND ALL CHANGES OF SERVICE ARE MADE BY THE AUTHORITY. THE TELEPHONE COMPANY IS REIMBURSED FOR THE USE OF SUCH EQUIPMENT AS IS REQUIRED BY THE AUTHORITY, INCLUDING TELEPHONE INSTRUMENTS, SWITCHBOARDS, RINGING MACHINES, ETC. THE TELEPHONE COMPANY IS ALSO REIMBURSED FOR RENTAL ON TRUNK LINES EXTENDING FROM THE AUTHORITY'S LOCAL EXCHANGE TO THE TELEPHONE COMPANY'S EXCHANGE.

UNDER THE TERMS OF SUCH CONTRACTS, THE CHARGE FOR EACH TELEPHONE STATION IS ONLY 25 CENTS AS COMPARED WITH $1.50 AS IN THE CASE OF CONTRACT TV-202, FOR INSTANCE, WHICH APPLIES TO SERVICE FURNISHED AT KNOXVILLE, TENNESSEE. UNDER THIS TYPE OF CONTRACT, PRACTICALLY THE ONLY CHANGES IN SERVICE WHICH OCCUR ARE IN THE NUMBER OF TELEPHONE STATIONS CONNECTED. THE NUMBER OF SWITCHBOARDS, RINGING MACHINES, AND TRUNK LINES REQUIRED WILL REMAIN CONSTANT, EXCEPT IN THE CASE OF A VERY GREAT INCREASE OR DECREASE IN THE NUMBER OF TELEPHONE STATIONS. CHARGES FOR ALL EQUIPMENT OTHER THAN STATIONS AND HANDSETS ARE BASED ON THE ACTUAL PERIOD SUCH EQUIPMENT IS IN SERVICE.

AS THE CHARGE FOR EACH INDIVIDUAL TELEPHONE STATION WAS SMALL, IT WAS CONSIDERED ADVISABLE TO BASE CHARGES UNDER THESE CONTRACTS ON A MONTHLY INVENTORY RATHER THAN ON THE ACTUAL PERIOD OF TIME THESE FACILITIES WERE USED. IT IS TRUE THAT AS A RESULT OF THE INVENTORY METHOD, AN INDIVIDUAL PAYMENT MAY NOT AGREE WITH THE AMOUNT DUE BASED UPON CALCULATION OF THE ACTUAL PERIOD OF SERVICE. A TELEPHONE INSTRUMENT INSTALLED PRIOR TO THE TWENTY-EIGHTH OF THE MONTH WILL BE PAID FOR ON THE BASIS OF A WHOLE MONTH, EVEN THOUGH IT MAY HAVE BEEN IN USE ONLY FOR A FEW DAYS. ON THE OTHER HAND, HOWEVER, NO PAYMENT AT ALL WILL BE MADE FOR INSTRUMENTS REMOVED PRIOR TO THE TWENTY-EIGHTH OF THE MONTH, EVEN THOUGH SUCH INSTRUMENTS MAY HAVE ACTUALLY BEEN IN SERVICE AS LATE AS THE TWENTY-SEVENTH. IT IS APPARENT THAT OVER A PERIOD OF TIME THESE DISCREPANCIES WILL TEND TO COUNTERBALANCE EACH OTHER, AND IT IS OUR BELIEF THAT IN VIEW OF THE SMALL AMOUNT INVOLVED IN EACH INDIVIDUAL CHARGE THAT THIS BASIS OF COMPENSATION IS MORE ECONOMICAL THAN A BASIS OF REIMBURSEMENT WHICH WOULD INVOLVE THE CALCULATION OF A NUMBER OF FRACTIONAL CHARGES BASED ON 25 CENT ITEMS.

IN THE CASE OF CONTRACTS OF THIS NATURE, WE RESPECTFULLY REQUEST THAT THE BASIS OF REIMBURSEMENT DESCRIBED ABOVE BE ACCEPTED BY THE GENERAL ACCOUNTING OFFICE. IF CONSIDERED ADVISABLE BY YOU, WE CAN FURNISH A STATEMENT OF ALL FACILITIES IN SERVICE AS OF THE INITIAL DATE COVERED BY VOUCHERS SUBMITTED FOR AUDIT, TOGETHER WITH COPIES OF LETTERS TO THE TELEPHONE COMPANY AUTHORIZING ALL CHANGES IN SERVICE. THIS MATERIAL CAN BE USED BY THE GENERAL ACCOUNTING OFFICE TO CHECK THE NUMBER OF STATIONS AND HANDSETS IN SERVICE ON THE TWENTY-EIGHTH OF EACH MONTH.

IF THE GENERAL ACCOUNTING OFFICE IS WILLING TO ACCEPT THE MATERIAL DESCRIBED ABOVE IN LIEU OF SUPPLEMENTS TO OUR VARIOUS TELEPHONE CONTRACTS EXECUTED ON FORM 40, THIS OFFICE WILL BE RELIEVED OF THE CONSIDERABLE AMOUNT OF WORK INVOLVED IN TRANSFERRING THE INFORMATION FROM THE LETTERS ON WHICH IT NOW APPEARS TO STANDARD FORM 40'S AS REQUESTED BY YOU.

SINCE THE SERVICES UNDER THE BLANKET CONTRACTS IN QUESTION HAVE BEEN COMPLETED, THE USE OF SUCH CONTRACTS DISCONTINUED, AND ALL ORIGINAL CONTRACTS AND SUPPLEMENTS COVERING CHANGES IN SERVICE ARE NOW BEING HANDLED IN ACCORDANCE WITH THE PROCEDURE OUTLINED ON THE REVERSE SIDE OF STANDARD FORM NO. 40, EXCEPT AT CERTAIN POINTS WHERE TELEPHONE SYSTEMS ARE OWNED AND MAINTAINED BY THE AUTHORITY, THE EXECUTION OF FORMS 40 FOR ALL CHANGES UNDER THESE COMPLETED CONTRACTS WILL NOT NOW BE REQUIRED PROVIDED THE STATEMENT TO BE SUBMITTED IN LIEU THEREOF IS COMPLETE WITH REFERENCE TO ALL CHARGES FOR SERVICE SHOWING INITIAL AND DISCONTINUANCE DATES AND RATES APPLICABLE, EACH CHANGE TO BE SUPPORTED BY COPY OF FORM LETTER AUTHORIZING THE CHANGE, CERTIFIED BY THE PROPER ADMINISTRATIVE OFFICER. CF. 15 COMP. GEN. 920.

REFERRING TO THE "INVENTORY METHOD" USED AS A BASIS FOR PAYMENT OF RENTAL FOR STATIONS AND HAND-SETS UNDER CONTRACTS WHERE THE LOCAL TELEPHONE SYSTEM IS OWNED AND MAINTAINED BY THE AUTHORITY, THE PRACTICE ADOPTED IS NOT IN ACCORDANCE WITH GOOD ACCOUNTING PROCEDURE AND WILL NOT PROVIDE AN ACCURATE BASIS UPON WHICH TO MAKE AN EFFICIENT AUDIT OF THE ACCOUNT. THE GOVERNMENT SHOULD NOT BE CALLED UPON TO PAY FOR SERVICES NEVER RENDERED NOR BE RELIEVED FROM PAYING FOR SERVICES THAT HAVE BEEN RENDERED, AS IS THE CASE WHEN PAYMENTS ARE MADE ON THE "INVENTORY" BASIS. ACCORDINGLY, THIS TYPE OF CONTRACT SHOULD BE DISCONTINUED ON AND AFTER JULY 1, 1937, AND ON AND AFTER JULY 1, 1937, ALL ORIGINAL CONTRACTS AND SUPPLEMENTS SHOULD BE HANDLED IN ACCORDANCE WITH THE PROCEDURE OUTLINED ON THE REVERSE SIDE OF STANDARD FORM 40. PAYMENTS FOR SERVICE PRIOR TO JULY 1, 1937, ON THE PRESENT BASIS, WILL NOT BE FURTHER OBJECTED TO, IF OTHERWISE CORRECT, PROVIDED, OF COURSE, THERE BE FURNISHED THIS OFFICE A STATEMENT OF ALL FACILITIES IN SERVICE AS OF THE INITIAL DATE COVERED BY VOUCHERS SUBMITTED FOR AUDIT, TOGETHER WITH COPIES OF LETTERS TO THE TELEPHONE COMPANY AUTHORIZING ALL CHANGES IN SERVICE.