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Admiral POTTER. No, sir; it would not be known until November; we could not know until then, because these bills come in very slowly.

Mr. SISSON. Then you do not know anything about what you are spending for freight from July to November?

Admiral POTTER. That is about it, yes, sir; until the first batch of bills come in from the railroads and get assembled.

Mr. SISSON. What account do you keep of obligations incurred? Do you never know what obligations you have incurred until after the bills have come in?

Mr. REED. We get a copy of every bill of lading that is issued in the field weekly.

Mr. SISSON. You do have that information weekly?

Mr. REED. They come in either weekly or monthly, depending on the number of shipments made.

The CHAIRMAN. The bill of lading shows what the freight rate is, does it not?

Mr. REED. No; it has to be estimated.

Mr. SISSON. Well, at the end of this period you did know that your freight shipments were costing you $500.000?

Admiral POTTER. No, sir; at that time they were running higher; during the first five months they were running at the rate of $700,000. Mr. SISSON. That certainly should have been a red flag to you and warned you that you were going to exceed the amount appropriated. Admiral POTTER. Yes, sir.

Mr. SISSON. That being true, some effort should have been made to prevent a deficiency.

Admiral POTTER. We are obliged to ship freight if the policy of the department

Mr. SISSON (interposing). I am not blaming you, but I am blaming the whole department. I want to begin with the Secretary of the Navy, and I do not care where the responsibility is. Of course, there are certain shipments of material and other things which can wait, and if there was an earnest desire on the part of the department not to create a deficiency such shipments could wait and a deficiency be avoided. It is just a question of the mental attitude of the department. That is not true, of course. as to food, because a man can not wait on food; he can not wait on clothing or heat, but there are many things that can wait, and although such action might result in inconvenience it should have been your policy to hold up the shipment of the things that could wait when you found your freight bills running at a rate of $700,000 a month. That is at the rate of $8,400,000, which is twice the amount of money you had. Admiral POTTER. Twice the amount, yes, sir.

Mr. SISSON. Then there should have been some effort made to curtail the shipments you really did not have to make.

Admiral POTTER. Of course the whole operating plan of the department would have to be changed to accord, and it has been changed to accord more or less now.

Mr. SISSON. That may be, and it should be done. Nobody has any respect for Congress, not even Congress itself. If it had any respect for itself the law about which the chairman has just spoken would have been enforced a good many years ago, but anybody can kick

the old dog around, so it is Congress. You are now asking for a deficiency of $2,000,000, which is 50 per cent of what you had. Admiral POTTER. Yes, sir.

Mr. SISSON. And your original estimate in 1922 was $5,000,000. Mr. REED. That was one of the estimates that was revised by the then Secretary downward.

Mr. SISSON. But it was submitted to us as $5,000,000?

Admiral POTTER. Yes, sir.

Mr. SISSON. There is only one place in the world where I find we have the poorest Navy and the poorest Army, and that is around these tables. We have about the poorest Navy in the world when talking around these tables, but just as soon as you leave the Capitol and get outside it is a great institution. We are never up with any Navy on earth and are never comparable with the other navies of the world until we get in a war with them or until we visit around and brag about our Navy back home.

Mr. KELLEY. Just one question as to policy. Is it at all possible for bureau chiefs to know how much freight expenditure they will be permitted to incur-that is, what proportion of the $4,000,000 would be allocated to the different bureau chiefs so they would know from time to time whether or not they were likely to incur an expense which would run beyond the appropriation?

Admiral PoTTER. There is no allocation of this to the different bureau chiefs. The way that is done now, since the 1st of December, is that everything, except medical stores and urgent provision shipments, must be referred to the Bureau of Supplies and Accounts before a shipment is made.

Mr. KELLEY. So you know what the aggregate is?

Admiral POTTER. Yes; we know now.

Mr. KELLEY. But you did not know that before?

Admiral POTTER. That was not the custom prior to Mr. Denby's coming in.

Mr. KELLEY. Had you done that before perhaps this $2.0000,000 might have been reduced.

Admiral POTTER. There is no question but what it would have been very much reduced.

Mr. SISSON. Is this fund one which you can apportion under the law?

Admiral POTTER. This is placed under the administration of the Bureau of Supplies and Accounts.

Mr. SISSON. I understand that, but is it one of those funds which, when appropriated, must be apportioned by months or by quarters ? Admiral POTTER. Every appropriation is laid out roughly upon a 12-months' basis.

Mr. SISSON. You know what I mean. The deficiency law requires that you must apportion your appropriation in order to avoid a deficiency.

Admiral PoTTER. Yes, sir.

Mr. SISSON. Now, if you waive that apportionment it must be done in writing by the proper officer of the department?

Admiral POTTER. By the Secretary.

Mr. SISSON. And the reasons therefor must be set forth for the waiver of the apportionment. Was that done in this case?

Admiral POTTER. The labor charges are apportioned throughout the year, but it is impossible to apportion the railroad bills month by month, because they depend upon the shipments.

Mr. SISSON. I believe you stated that they were apportioned.

Mr. REED. As soon as we saw how the expenditures were running in excess the matter was taken up with the Secretary as to whether it would be possible to curtail the movement of supplies and change the policy, and we received directions that under section 3732 of the Revised Statutes we were to continue the movement of freight. That is one of the matters we were just discussing with Mr. Madden, and it was stated that under the rulings of the accounting officer in the past an appropriation for the transportation of supplies can be exceeded under section 3732 of the Revised Statutes.

Mr. SISSON. That may be true, but because an item must be apportioned does not mean you can exceed it, and when you do it must be done in writing and the reasons assigned by the Secretary of the Navy.

The CHAIRMAN. You think that $400,000 a month for the next four months is all you need?

Admiral POTTER. I was suggesting $500,000. If they put those 100 destroyers out of commission that might seem at first blush to help us, and the other ships that Admiral Coontz mentioned this morning, but all of those stores have to be turned in, some have to be shipped, and it is problematical how soon it will be possible to put out some of those ships. Perhaps Admiral Robison has something to say about that.

Admiral ROBISON. I will say that even if you give them a little too much money in freight you will save yourselves many dollars. It is costing me 2 cents extra apiece for fire brick because I have got to pay for the delivery by the makers in Kentucky out to the Pacific coast; I have to buy them f. o. b. Pacific coast, because I have no money for the freight, and the orders are general and because of lack of money in freight we have to buy everything delivered at the point of use. Well, that is costing you and the Nation money; that is all; simply because the freight appropriation is not big enough.

The CHAIRMAN. To what extent does the condition exist that you have just described?

Admiral ROBISON. I think that is the general order.

Admiral POTTER. Yes; it is a general order; there are certain exceptions that are made but in general that is what we have to do. Admiral ROBISON. That means that the freight in every case has to be paid by the commercial agents and there is no case where the commercial freight can be less than the Government can arrange. The Paymaster General has just described to you the system by which all Government transportation is now being routed and which results in less expensive methods, but we are barred from taking advantage of that simply because of the lack of sufficient funds in the appropriation for freight.

Mr. KELLEY. If the appropriation for freight were made large enough to do what you have said, Admiral, it would mean an immense sum of money for freight, and then, of course, a much smaller sum would have been included for manufacturing costs somewhere else in the bill.

Admiral ROBISON. It would have amounted to the same thing.

Mr. KELLEY. So it amounts to the same thing. My complaint about this the last time, and will be again, was that there is apparently no system in the Navy as to what is included in the item for freight. Admiral ROBISON. There was a method in vogue a good many years ago by which each bureau had to pay freight out of its operating appropriations; at that time it was directly to the interest of each person charged with any appropriation, the administration of it, to get his freight paid in the cheapest way and to buy his material in such a way that the freight would cost him the least; that condition no longer obtains, but the contrary exists. It is due, perhaps. to a system that we did not know enough to tell you about, and perhaps it is due to too great a subdivision of the naval appropriations. I do not know.

Mr. SISSON. In other words, you want a lump-sum appropriation!
Admiral ROBISON. I did not say that.

Mr. SISSON. You virtually said that.
Admiral ROBINSON. No; I did not.

Mr. SISSON. Well, you want it, do you not?

Admiral ROBISON. No. sir.

Mr. SISSON. I am glad to find one man who admits he does not want it.

CLOTHING AND SMALL STORES FUND.

The CHAIRMAN. The next item is clothing and small stores fund. $40,328,740.42.

Admiral POTTER. I have here a statement of about two pages. Shall I read it?

The CHAIRMAN. Yes.

Admiral POTTER. You referred to a little matter this morning which showed that you had an understanding of what this is. The additional appropriation requested under the clothing and small stores fund, for the purpose of reimbursing the Treasury for the amount advanced in excess of the authorized capital of the clothing and small stores fund for war purchases of articles of uniform and equipment, is made necessary because of reductions in the value of the capital assets of the fund due to unavoidable conditions and circumstances. The deficiencies and the assets of the fund since the 30th of June, 1919, are: Clothing issued as outfits on first enlistment without reimbursement, $5,413,948.46; losses by survey, $429,791.18. The CHAIRMAN. You mean that that is the reduction in the inventory value?

Admiral POTTER. Yes; the reduction in the inventory value.
The CHAIRMAN. Over the purchase cost?

Admiral POTTER. That first item is the cost of issues authorized to persons on first enlistment.

The CHAIRMAN. But the second item is the reduction in value. is it not?

Mr. REED. Deterioration, losses, and things like that.

Admiral POTTER. The last item is the reduction in values. Losses by inventory and incident to contract cancellations, $3,631,816.38. The CHAIRMAN. Explain that item.

Admiral POTTER. Of course, during the war, affairs were in full blast. They were buying for 700,000 men, roughly, for a five-year

For

war, and that meant that many contracts were in full blast. example, the ordinary textile mill must have two or three weeksaccording to the nature of the material-of its work in process, on their looms and on their mules, in order to make it worth while for them to take contracts. The New England mills must allow for at least three weeks work in order to make a contract worth while, and that is the least calculation. I cite that just as an illustration. Now, when a contract was canceled, the war being over, arrangements had to be made so that we could pay them for the losses involved, and that is how that comes about. Losses from sales of surplus stocks, $747,949.74. That is the difference between the price at which they were purchased and the amount obtained for them. Amount realized from sales, $18,024,207.44.

So you see there was a pretty considerable recovery. Now, losses from reduced prices-on account of that act which allowed us to write off the war price to the current market price-$30,105,234.66, which makes a total of $40,328,740.42. The first item of the loss was due to the action of Congress beginning with the appropriation bill for 1921, in providing that clothing issued as outfits on first enlistment should be without reimbursement to the fund. There used to be a separate appropriation for that called "outfits on first enlistment," but Congress does not grant that any more. This resulted in decreasing the total of the appropriation bill for that year by approximately $5,000,000. And the same procedure was followed in the appropriation for 1922 and in the estimates for 1923.

The CHAIRMAN. For a similar amount?

Admiral POTTER. No, sir; not so much; it is about $3,000,000. Mr. REED. It was estimated that it would be about $3,400,000, but the cessation of first enlistments will probably result in reducing that so that the issue will not be so great.

Admiral POTTER. The losses by survey and by inventory and contract cancellations were incident to the closing up of contracts following the cessation of hostilities and the bringing of stocks and records into agreement after the demobilization. The losses from reduced prices were the result of legislation embodied in the act of March 1, 1921, which authorized and directed the reduction in price of all articles purchased during the war so that the issue price would be in substantial agreement with current market prices. This legislation was mandatory, although it was suggested by and met with the approval of the Navy Department, as it was unreasonable to require enlisted men to pay prices sometimes as high as 50 per cent in excess of current market prices for articles of clothing.

The average loss incurred on stocks on hand was about 35 per cent. Legislation was recommended during the Sixty-Sixth Congress, third session, for the purpose of making good the over obligation under the clothing and small stores fund, but at that time, when it was proposed to increase the fund to the value of the stores on hand March 31, 1921, the requirement that all prices be reduced had not been enacted but was, in fact, a part of the proposed legislative program. Because of the deduction in assets approximating $10,000,000, which had been incurred in addition to the loss in assets incident to the reduction in prices, the enactment at this time of the legisla

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