B-129462, OCT. 17, 1956

B-129462, OCT. 17, 1956

TO PENN CRAFTSMEN SCHOOL:

REFERENCE IS MADE TO LETTER OF SEPTEMBER 14, 1956, AND ENCLOSURES, WRITTEN IN YOUR BEHALF BY SHELDON ROSENBERG, ATTORNEY, PROTESTING THE ACTION TAKEN BY THE VETERANS ADMINISTRATION IN WITHHOLDING THE SUM OF $5,041.45, IN PARTIAL LIQUIDATION OF THE OVERPAYMENTS TOTALING $11,599.59, MADE TO YOU UNDER CONTRACT NO. V3056V-600, COVERING VOCATIONAL TRAINING FURNISHED VETERAN TRAINEES BY YOU.

AN EXAMINATION OF THE ACCOUNTS AND RECORDS OF YOUR INSTITUTION WAS CONDUCTED BY REPRESENTATIVES OF THE ADMINISTRATIVE OFFICE WHICH DISCLOSED AN AFFILIATION BETWEEN YOUR ORGANIZATION AND THE CENTRAL SALES COMPANY, FROM WHOM CERTAIN TOOLS AND SUPPLIES WERE PURCHASED FOR USE BY THE TRAINEES IN THE COURSE OF THEIR INSTRUCTION. SINCE IT WAS ESTABLISHED THAT THE GOVERNMENT HAD REIMBURSED YOU FOR THE TOOLS AND SUPPLIES ON A MARKUP PRICE BASIS IT WAS CONCLUDED THAT THE DIFFERENCE BETWEEN ACQUISITION COST AND YOUR BILLING PRICE CONSTITUTED AN OVERPAYMENT UNDER APPLICABLE LAW AND REGULATIONS ISSUED PURSUANT THERETO.

YOUR ATTORNEY STATES THAT THE SCHOOL'S OWNER OF RECORD WAS MEYER SLAVITS, AND THAT IT WAS A SOLE PROPRIETORSHIP; THAT JOSEPH HAFETZ, LISTED AS OWNER OF CENTRAL SALES COMPANY, HAD NO INTEREST IN, OR RELATIONSHIP WITH, THE MANAGEMENT AND OPERATION OF THE SCHOOL; AND, THAT HE, HAFETZ, WAS UNRELATED BY EITHER BLOOD OR MARRIAGE TO MR. SLAVITS. IT IS FURTHER STATED THAT CONTRARY TO THE ALLEGATIONS OF THE VETERANS ADMINISTRATION MR. SLAVITZ HAD MADE CERTAIN CAPITAL INVESTMENTS IN THE INSTITUTION DURING THE YEAR 1949; THAT MR. LOUIS ISAACS DID NOT INVEST ANY MONEYS IN THE PENN CRAFTSMEN SCHOOL BUT DID LEND THE SCHOOL FUNDS WHICH HAVE BEEN REPAID; AND, THAT ALL THE PROFITS OF THE SCHOOL WERE RETAINED BY MR. SLAVITZ. THE BASIS OF THE FOREGOING IT IS CONTENDED THAT THE SCHOOL AND THE CENTRAL SALES COMPANY WERE NOT AFFILIATED. MOREOVER, IT IS POINTED OUT THAT CERTAIN ITEMS PURCHASED BOTH FROM CENTRAL SALES COMPANY AND FROM ANOTHER SOURCE COMPARED FAVORABLY IN PRICE. FOR THOSE REASONS IT IS URGED THAT THE AMOUNTS BILLED THE GOVERNMENT AS REIMBURSEMENT FOR THE TOOLS AND SUPPLIES PURCHASED FROM THE CENTRAL SALES COMPANY WERE PROPER AND THEREFORE THE CHARGES RAISED AS OVERPAYMENTS SHOULD BE CANCELLED.

THE SERVICEMEN'S READJUSTMENT ACT OF 1944, 58 STAT. 284, AS AMENDED, PROVIDES THAT THE ADMINISTRATOR MAY PAY FOR BOOKS, SUPPLIES, ETC., FURNISHED THE TRAINEES, AND THAT THE ADMINISTRATOR SHALL ISSUE NECESSARY REGULATIONS RELATING TO SUCH EXPENDITURES. PURSUANT THERETO APPROPRIATE REGULATIONS WERE PROMULGATED (R AND PR 10539) WHICH STIPULATE THAT IF AN INSTITUTION FURNISHES ITEMS OF SUPPLIES SPECIFICALLY PURCHASED FOR TRAINEES ONLY SUCH ITEMS WILL BE BILLED (THE VETERANS ADMINISTRATION) AT COST TO THE INSTITUTION. THE REGULATION FURTHER PROVIDES THAT THE VETERANS ADMINISTRATION WILL NOT PAY A MARKUP PRICE TO THE SCHOOL WHERE THE SUPPLIES HAVE BEEN PROCURED FROM OR THROUGH A DUMMY CORPORATION OR OTHER AFFILIATE OF THE INSTITUTION BUT WILL PAY FOR SUCH SUPPLIES AT AN AMOUNT NOT IN EXCESS OF THE COST THEREOF TO SUCH DUMMY CORPORATION OR AFFILIATE.

IT APPEARS FROM THE INVESTIGATION REPORT THAT ONE LOUIS ISAACS, AND HIS BROTHER JACOB ISAACS, HAVE CONTROLLING INTEREST IN THE BARRE SUPPLY COMPANY; THAT THE LISTED OWNER OF YOUR SCHOOL, A COUSIN OF MR. ISAACS, AND THE PROPRIETOR OF RECORD OF THE CENTRAL SALES COMPANY BOTH ARE, OR WERE, EMPLOYEES OF LOUIS ISAACS; AND, THAT BOTH THE INSTITUTION AND THE ABOVE- NAMED COMPANY WERE ORGANIZED THROUGH THE FINANCIAL ASSISTANCE OF MR. ISAACS IF NOT DIRECTLY BY HIM. MOREOVER, THE RECORD DISCLOSES THAT THE COMPANY WAS ORGANIZED ON JUNE 20, 1949, CONCURRENTLY WITH THE FOUNDING OF THE SCHOOL; THAT IT MADE SALES ONLY TO YOUR INSTITUTION AND TO THREE OTHER SCHOOLS OWNED BY MR. ISAACS; AND, THAT BY THE END OF 1950 IT CEASED OPERATIONS.

IN THE LIGHT OF THE CLOSE BUSINESS AFFILIATIONS OF THE OWNERS OF YOUR INSTITUTION AND THE CENTRAL SALES COMPANY WITH MR. LOUIS ISAACS; THE RELATIONSHIP BETWEEN MEYER SLAVITS AND MR. SAACS; AND, THE LIMITED OPERATION OF THE COMPANY, INDICATING THAT IT WAS MERELY A BILLING AGENCY WITHOUT ANY PHYSICAL PROPERTY AND WAS NOT ENGAGED IN A GENERAL TRADE OR BUSINESS, IT MUST BE CONCLUDED THAT SUCH FACTS APPEAR SUFFICIENT TO JUSTIFY THE DETERMINATION REACHED BY THE VETERANS ADMINISTRATION THAT THE COMPANY WAS BOTH AN AFFILIATE OF THE SCHOOL AND A DUMMY CONCERN WITHIN THE MEANING OF THESE TERMS AS USED IN THE PERTINENT REGULATIONS PREVIOUSLY CITED.

ACCORDINGLY, THE FINDINGS AND CONCLUSION OF THE VETERANS ADMINISTRATION APPEAR PROPER, NOTWITHSTANDING THE ALLEGATIONS AND CONTENTIONS OF YOUR ATTORNEY, AND THEREFORE WILL NOT BE DISTURBED.

THE EXHIBITS H, I, AND J, FORWARDED WITH MR. ROSENBERG'S LETTER OF SEPTEMBER 14, 1956, ARE RETURNED, AS REQUESTED.