Mr. PENN. This is the first one that has come to my attention where the auditor had that in mind-there were some errors in auditing, but not with the intention of defrauding the contractor.

Mr. ANDREWS. In preparing this reaudit, how long did you spend on it in this Marx case?

Mr. PENN. Well, let us see. You were down here about four weeks,

Mr. Marx?

Mr. MARX. Yes, sir.

Mr. PENN. I think we started the 19th of December and finished about the 19th of January. This report of the Judge Advocate General is dated January 19-just about four weeks.

Mr. ANDREWS. During that time you were working on it fairly continuously?

Mr. PENN. Yes, sir.

Mr. ANDREWS. And for how many hours on the average during the day?

Mr. PENN. We put in the full day, seven hours. We did very little other work during that time.

Mr. ANDREWS. The documents that you checked consisted of a set of what might be called analysis sheets, such as those I show you here, giving the history in detail of each of the parts going into the make-up of the wire carts?

Mr. PENN. That sheet was made up by Mr. Marx to be used for our convenience in checking the report. Those were verified with the original invoices submitted to Marx by the contractor for raw materials.

Mr. ANDREWS. And these sheets were verified not by any papers of the Marx company, but against Government documents themselves?

Mr. PENN. Well, to the extent of checking the item numbers with the reports that the War Department furnished Mr. Marx.

Mr. HOOPER. Did you have any of Mr. Marx's documents to check against?

Mr. PENN. We have his invoices submitted to him by the vendors of the raw materials.

Mr. HOOPER. Did you find any appreciable errors in any of the documents that you had of Marx's before you?

Mr. PENN. No; we accepted the original papers in checking the cost of materials; that is, the invoices submitted by the subcontractors. Mr. HOOPER. There was no question raised as to those, I take it? Mr. PENN. No.

Mr. HOOPER. I do not see why there should be, so far as that is concerned. You have been an accountant for the 22 years of your Government service?

Mr. PENN. No, sir; just during the last eight years, since I have been in the contract audit work. I had charge of the contract audit branch in the War Department.

Mr. HOOPER. What was your previous governmental work?

Mr. PENN. I have been in the office of the Chief of Finance ever since I have been in the service.

Mr. HOOPER. You have had to do with accounting beyond this?

Mr. PENN. Yes, sir.

Mr. HOOPER. I think your witness is qualified as an expert, so far as that is concerned.

1

Mr. HARE. Do you think it would be well, in justice to Mr. Penn, to take his conclusion based upon details without having to go into all the reasons?

Mr. HOOPER. I am satisfied to do that if the rest of the committee is. We have here an affidavit of an expert accountant who has checked up the figures of a former accountant of the Government, and who finds those accounts to be full of gross errors, as I take it. If that is true, I do not know that there is any reason for cross-examining a Government witness on the matter or going into the intimate details of why this Government witness testifies so. I am willing to take his word for it as far as I stand on the matter.

Mr. ANDREWS. Particularly because the former Government accountant was discharged because of unreliability.

Mr. PENN. I have one instance, if you want to get an idea about it. Mr. HOOPER. All right. Just make your statement about it. Mr. PENN. We had one item where he charged 1,654 pounds of castings at 45 cents a pound. These are bronze castings. He applied the rate of 45 cents. They usually purchased steel castings by the pound and not bronze; they were purchased by the unit. So he gives Mr. Marx credit for $734.30; and those castings also require a machine operation, finishing process, and Mr. Leyhe gives Mr. Marx credit for $8.45 each for the 198 machine castings, for those two operations, that is, for the purchase of the castings, and the machining he gave a credit of $2,424.30.

Mr. HOOPER. What did your audit show?

Mr. PENN. The termination of the vendor's invoice to Mr. Marx, showing price, showed 200 castings at $4.80. That amounts to $960, and the machining 198 of these castings would cost Mr. Marx $9.85; that is, about $1.40 more than Mr. Leyhe gave him credit for. For the 198 castings Mr. Marx is entitled to $2,930 for that one item alone. That is a difference in favor of Mr. Marx of $505.70. That is just one item, and we found that true all the way through Mr. Leyhe's report, where he gave incorrect prices for the material purchased by Marx.

Mr. ANDREWS. You can group these errors into a limited number of general types of errors? As to particular types they would vary greatly, of course?

Mr. PENN. To cover the entire details would require a long score. Mr. ANDREWS. There are a number, five or six, general types of errors that you have ascertained in here?

Mr. PENN. Yes, sir.

Mr. ANDREWS. And then they are subdivided into numerous groups of lesser errors; is that true?

Mr. PENN. Yes, sir.

Mr. HOOPER. Do you want to make that statement as to the Judge Advocate General's letter?

Mr. ANDREWS. The letter of the Judge Advocate General points out that Captains Wiley and Rowley had not legal authority to bind the Government by the agreement they did that this release should be conditional; that is the position I have taken with the War Department from the very beginning. One thing which might tend, if it was based on facts, to cast doubt on Mr. Penn's conclusions-he says that the principal claim of error in Mr. Leyhe's audit is in the classification of raw and partly finished materials; that practically

the entire difference in figures between what we claim is now due. and what Mr. Leyhe allowed results from one auditor calling certain items raw material, whereas the second auditor, Mr. Penn, calls the same items partly finished. He further says that the first auditor spent two months at the factory-that is Leyhe; that his classification was based on personal inspection, and this inspection was for the sole purpose of determining whether allowance should be made, while the second auditor, Mr. Penn, used for classification purposes simply some tally sheets, which sheets were made for record purposes only when the Government took over the material from Mr. Marx, and which material was later sold as war surplus, and that the two reports are based on entirely different sources of information, neither of which can be verified at this time.

Colonel Stallings is strongly of the opinion that the settlement agreement should be adhered to at the present time.

Mr. HOOPER. That is, the Judge Advocate General?

Mr. ANDREWS. The Judge Advocate General signed by Colonel Stallings.

Mr. HOOPER. You took the extract from this same paper we have been unable to locate or obtain a copy of?

Mr. ANDREWS. From a letter now on file in the Senate Claims Committee. Now, Colonel Stallings has completely missed one significant and controlling fact: The tally sheet on which Mr. Penn based his audit

Mr. HOOPER. The one we have examined samples of?

Mr. ANDREWS. The one of which he has been talking to you-the one prepared as the Judge Advocate General says. But there are six separate and complete inventories of the Marx property, the property which Mr. Marx purchased for the purpose of this contract, No. 4241, all of which are now in existence; we have them all in our possession. They are either original Government documents or photostats of original Government documents. Five of them check. Leyhe's does not check. The five of them were made on physical inventory just as much as Leyhe's were. We have even the purchase orders, when the Government disposed and sold this property as surplus to various people throughout the country, after it had taken it over from the Marx plant and stored it for a time. It is simply inconceivable that five inventories should check and all be wrongall made at separate times, and that Leyhe's alone should be right. How Colonel Stallings missed that fact, I do not know, but that fact, to my mind, simply renders his conclusion utterly worthless.

Mr. PENN. I think you must depend on the Government records, because if the Government records are not to be relied on, nothing

can.

Mr. HOOPER. Does that complete your statement?

Mr. ANDREWS. That completes my statement.

Mr. HOOPER. Then the committee will adjourn to meet to-morrow at 4.30 o'clock in the afternoon.

(Thereupon, at 11.45 o'clock a. m., the subcommittee adjourned to meet to-morrow, Thursday, May 8, 1930, at 4.30 o'clock p. m.)

115301-30- -3

RELIEF OF GEORGE B. MARX

THURSDAY, MAY 8, 1930

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE OF THE COMMITTEE ON WAR CLAIMS,

Washington, D. C.

The subcommittee met at 4.30 o'clock p. m., Hon. Joseph L. Hooper presiding.

Mr. HOOPER. The subcommittee will be in order. This is the continuation of a hearing on H. R. 1611.

Also present: Mr. Eslick and Mr. Hare.

STATEMENT OF PAUL SHIPMAN ANDREWS, SYRACUSE, N. Y., ATTORNEY FOR GEORGE B. MARX

Mr. ANDREWS. I will call General Salzman as a witness. General, give your name and address.

STATEMENT OF GEN. CHARLES MCKINLEY SALZMAN,
WASHINGTON, D. C.

General SALZMAN. My address is Washington, D. C.

Mr. ANDREWS. In connection with the claim of Mr. George B. Marx, I am anxious that the committee should have a picture of the kind of men that Mr. Marx is, since he can not be here on account of his illness, and on that point I have got a doctor's affidavit so that we would have everything covered.

Mr. HARE. I do not mean that it will affect me in any way, but as far as I am personally concerned, it does not make any difference to me how Mr. Marx looks or acts. I will be governed solely by the facts presented, showing the merits in the case.

Mr. ANDREWS. Some of the facts depend, though corroborated by other affidavits, on Mr. Marx's affidavit. I am anxious, therefore, that you should understand very briefly from General Salzman the type of man Mr. Marx is when he can not be heard himself.

Mr. HARE. I think your statement of yesterday or the day before as to Mr. Marx's character and reputation is sufficient to concede verity to everything that you say about him.

Mr. ANDREWS. Thank you, sir.

Mr. HARE. But so far as I am personally concerned, I do not think that if you had a thousand pictures presented of him, that that alone would influence or affect me in any way, shape, or form.

Mr. HOOPER. It will not take much space in the record, and as we have General Salzman here, you have no objection for him to state the kind of man Mr. Marx is.