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"While the existing procedure is designed to avoid erroneous payments, and in that sense may be considered necessary to protect the interests of the United States, it is a matter of fact that after all the steps described have been taken and settlements effected, subsequent adustments are required in a substantial percentage of cases. With respect to commercial shipments settlement of bills as rendered, whether correct or incorrect, is required due to the time limitations for payment imposed by the Interstate Commerce Act, subsequent adjustments being insured under the penalty provisions of the act relating to the charging or accepting of any rate higher or lower than the lowest published rate for the service rendered. The same provisions would also insure the Government against loss in this respect.
"It is proposed in regard to transportation bills that audit prior to payment be limited to those factors contained in paragraph 4 of General Regulations No. 13, such audit to be performed by the administrative offices concerned and immediate payment made by the proper disbursing officers. Accounts would then be submitted to the General Accounting Office, giving reference to disbursing officers' vouchers, for post-audit as to correctness of charges and for such subsequent adjustments as might be necessary. The proposed method may be limited to the accounts of a selected group of carriers, such as the class I railroads and the Railway Express Agency, if considered advisable, and could be made contingent upon the carriers agreeing to immediate refund of all overpayments claimed, the Government in turn conceding to the carriers the right to reclaim refunds if justified. Further qualifications may be to the effect that the accounts of any or all carriers that are debtors to the United States and those in receivership be excepted from the operation of the proposed plan.
"It is believed that this plan, if properly safeguarded, would render it practically impossible for the Government to sustain a loss for the reason that, aside from the obligation to charge no more than the lowest published rates and the penalties provided for violation imposed by the Interstate Commerce Act, there would always be unpaid carriers' bills in an amount sufficient to permit deductions to cover any overpayments that might be made.
"For your information there is enclosed copy of letter dated October 5, 1937, received from Mr. J. J. Pelley, president, Association of American Railroads, giving in some detail the position and views of the railroads.
"The proposed procedure is therefore submitted for your consideration with the recommendation that you authorize payment of transportation bills by disbursing officers without preaudit by the General Accounting Office."
It is to be understood, of course, that the figures referred to in the second paragraph of the above-quoted letter do not relate solely to bills which, under the existing procedure, are for auditing by this office before payment, but include, also, the bills which are for payment by the War Department and the Navy Department before audit by this office, those which are for consideration as claims for direct settlement, and all other outstanding bills; and that, even with respect to the bills which under the existing procedure are for auditing by this office before payment, the periods of delay mentioned in said paragraph include not only the time consumed in the preaudit here but, also, the periods of delay in the administrative offices before the bills are received in this office and the periods of delay in effecting payment after the bills are audited in this office and returned to the administrative offices for payment.
It is reported to me that an analysis of a substantial segment of vouchers, almost entirely consecutive, including several hundred bills, of the preaudit account of G. F. Allen for September 1937 shows an average total elapse of time from "date bill was received by the administrative department" to the "date payment was actually made" of 85 days, and that this average delay of 85 days in making payment of these bills through the preaudit procedure comprised 33 days average elapsed time between "receipt of bill by the administrative department" and "receipt thereof by the General Accounting Office," 36 days average elapsed time between "receipt of bill for preaudit by the General Accounting Office" and "return to the administrative department for payment" and 16 days average elapsed time between "date returned to the administrative department for payment" and "date paid."
The segment of vouchers thus considered covers transportation bills examined in this office, for the most part, during July and August of this year. The total average elapsed time in this office of 36 days accruing through the period involved has been gradually lessened through subsequent periods, which improved condition is reflected in the following:
For November 15, the day's return of certified bills to the administrative departments for payment included a total of 1,200. Of these, 800 bills had been in this Office less than 3 weeks, many of them for a few days only. It is hoped that within another 2 or 3 months the average elapsed time consumed in this Office for pre-audit will be reduced to 25 days, possibly less.
As compared with the foregoing it is further reported to me that a similar analysis of consecutive segments of War Department vouchers--accounts of Maj. E. C. Morton for January and February 1937-and Navy Department vouchers— accounts of Capt. H. B. Ramsdell for June, July, August, and September, 1937— comprising nearly 500 vouchers of each department, paid without pre-audit by this Office, indicates as to the bills paid by the Navy Department a probable average elapse of approximately 80 days between "date of carrier's bill" and "date payment was made" and an average of not less than 90 days for such period with respect to those bills paid by the War Department. The date information with respect to the War Department and Navy Department vouchers so examined is not sufficiently definite to permit a more exact determination due to the fact that frequently the bills involved show only the month and year, presumably as indicating the month in which the bill was stated by the carrier, but in arriving at the above "average" the elapse of time has been counted as beginning on the first of the month following the month and year shown on the bill. It is believed, therefore, from such study as has been possible since receipt of the submission here under consideration, that no greater delay-and possibly not as great a delay is involved in the payment of bills pre-audited by this Office than occurs with respect to bills paid by the War Department and the Navy Department involving possibly one-fourth of all transportation bills, without pre-audit by this Office. Certainly, for such a class of expenditures, the time consumed by this Office in effecting examination and certification, presently an average of 36 days, is not unreasonable.
I am informed, also, that as of November 19, 1937, bills on hand in this Office for pre-audit included 5,587 bills, amounting to $944,262.83, received in this Office prior to September 15, 1937, and 11,970 bills, amounting to $1,686,001.67, received here prior to October 15. As of November 5, bills on hand for pre-audit included 1,551 bills, amounting to $294,543.25, received here prior to July 1, 1937, and 4.256 bills, amounting to $753,044.34, received prior to August 15, 1937. In addition to the foregoing there was indicated as being on hand in this Office November 24, 1937, the following number of bills received for direct settlement with the carriers involving the approximate amounts indicated:
Bills submited to this Office for direct settlement are generally considerably more involved from the standpoint of transportation technicalities than the vast majority of bills for pre-audit. Considerable delay in the proper disposition of such bills is frequently an absolute necessity. Certain items require reference to original papers which are not always available at the time the claim is received; others involve lapsed or exhausted appropriations, etc. However, claims for direct settlement are being received in this Office at present at the rate of about 1,000 per month and are being disposed of at approximately the same rate. It would seem clear, therefore, that there is no considerable delay of an unreasonable nature even in this phase of transportation-settlement work.
With reference to the fourth paragraph of the above-quoted letter, attention is invited to the fact that under the practice which prevailed prior to the issuance of General Regulations No. 13, the administrative departments and establishments generally, with exception of the Navy Department and the War Department, submitted transportation claims, billed against them, to the accounting officers for direct settlement with the carriers, leaving to the accounting officers the work of determining the correctness of the rates and charges claimed. The procedure prescribed by General Regulations No. 13, therefore, involved, as to such departments and establishments, no essential change in the procedure theretofore employed.
I assume it would not seriously be questioned that if these bills are to be audited as to rates and classifications before payment, such audit can be made in this Office more expeditiously and much more economically than in the various administrative departments and establishments. However, the proposition here submitted is "that audit prior to payment be limited to those factors contained in paragraph 4 of General Regulations No. 13, such audit to be performed by the administrative offices concerned and immediate payment made by the proper disbursing officers. Accounts would then be submitted to the General Accounting Office, giving reference to disbursing officers' vouchers, for post-audit as to correctness of charges and for such subsequent adjustments as might be necessary.
With a view to a more definite indication of the extent of the administrative audit thus contemplated prior to payment it is proper to quote here paragraph 4 of General Regulations No. 13, which is as follows:
"Upon receipt of the bills on proper forms the administrative office will examine into the correctness thereof (except as to classification and tariff), make the proper certificate accordingly, and promptly forward same with such report as may be deemed advisable to the General Accounting Office, Transportation Division, for settlement. Administrative action should be limited tocertification as to the services performed; that the services were properly authorized, and necessary in the public service; and that the amount thereof has not been paid and is payable from the appropriation designated. The full and exact title of the appropriation, with fiscal year, if any, must be stated.
"Bills must be stamped with the date of receipt by the particular administrative office, and the administrative examination shall be completed and the bills with supporting papers forwarded not later than ten days after their actual receipt, the intent being that there shall be no accumulation of carriers' bills in the administrative office but that they shall be forwarded immediately upon completion of the administrative examination, so that wherever possible there shall be daily forwardings to the General Accounting Office."
Thus the above section of General Regulations No. 13 contemplated that the administrative action should be limited to a determination and certification that the services covered by the bill had been performed, were duly authorized, and were necessary in the public service, and that the amount thereof had not been paid and was payable from a designated appropriation. There was to be no administrative examination into the classification or tariff application involved, the correctness of that feature of the claim being left, in the contemplation of the regulation, for determination prior to payment by this Office which is fully equipped with tariffs, trained rate clerks, etc., to perform the work expeditiously as shown by the above-stated record. In other words, the procedure now suggested would seem to contemplate that-with respect to all such bills, including those now being paid by the War Department and the Navy Department-payment of amounts claimed be made without any prior determination as to the correctness of the rates or the application of the classification provisions on the basis of which the bills or claims have been presented.
In view of the fact that there is urged as possibly affording some justification for the proposed procedure the fact that commercial shippers are required to make payment of transportation charges within 48 to 96 hours after delivery of shipments, it is proper to invite attention to the fact that there are certain material differences which justify a distinction between the Government and commercial shippers in this respect.
Section 3, paragraph (2), of the Interstate Commerce Act, as amended, by the Transportation Act, 1920 (41 Stat. 456, 479), provides:
"From and after July 1, 1920, no carrier by railroad subject to the provisions of this Act shall deliver or relinquish possession at destination of any freight transported by it until all tariff rates and charges thereon have been paid, except under such rules and regulations as the Commission may from time to time prescribe to assure prompt payment of all such rates and charges and to
prevent unjust discrimination: Provided, That the provisions of this paragraph shall not be construed to prohibit any carrier from extending credit in connection with rates and charges on freight transported for the United States, for any department, bureau, or agency thereof, or for any State or Territory or political subdivision thereof, or for the District of Columbia."
Insofar as charges to the public are concerned, the Interstate Commerce Act contemplates a fixed charge, from which neither the carrier nor the shipper may vary in any degree, and which in theory at least is readily ascertainable from published tariffs required by the statute to be made available to the shipping public. The Interstate Commerce Act, however, expressly provides in section 22 that nothing in said act is to prevent the carriage of property for the United States free or at reduced rates and certain statutes relating to roads constructed with the aid of grants of land require transportation of property and troops of the United States over said roads at reduced rates. See in this connection the following provision in the War Department appropriation act for the fiscal year 1925 (43 Stat. 486):
“*** Provided, That hereafter payment shall be made at such rates as the Secretary of War shall deem just and reasonable and shall not exceed 50 per centum of the full amount of compensation, computed on the basis of the tariff or lower special rates for like transportation performed for the public at large, for the transportation of property or troops of the United States over any railroad which under land-grant Acts was aided in its construction by a grant of land on condition that said railroad shall be and remain a public highway for the use of the United States, and for which adjustment of compensation is required in accordance with decisions of the Supreme Court construing such land-grant Acts, or over any railroad which was aided in its construction by a grant of land on condition that such railroad should be a post route and military road, subject to such regulations as Congress may impose restricting the charge for such Government transportation, and such payment shall be accepted as in full for all demands for such service."
It is readily apparent, therefore, that as to a very large portion of the transportation service rendered the Government, only a small beginning has been made in determining the proper charges, when there has been ascertained the amount that would be collectible by the carrier from the commercial public for similar services.
This matter has been the subject also of comment and consideration by the courts. Thus, while it was said in St. Louis, Brownsville & Mexico Railway v. United States (268 U. S. 173) that in respect of furnishing transportation a railroad ordinarily bears to the Government the same relation that it does to a private person using its facilities and that it may exact payment either in advance or upon the completion of the service, or may as a matter of accommodation or convenience give a reasonable credit, it was also said in Louisville & Nashville Railroad Company v. The United States (59 Ct. Cls. 886, 891), that—
"*** The Government from the very nature of things cannot be required to deal with the railroads on a cash basis for transportation. The ticket agents are unable to figure out land-grant deductions, and it would take time and delay to have the rates figured out by experts. The law contemplates that payments by the Government shall be made only after the bills have received the approval of certain designated officials. The bills must go through a regular routine inspection * * *" and in connection with consideration of the same case upon appellate proceedings it was said in 273 U. S. 321, 323–
"Nor is there any merit in the contention that the Government may avail itself of the rate only by paying cash in advance * * * Moreover, as the court below pointed out, the Government from the very nature of things cannot be required to deal for transportation on a cash basis. It is not to be supposed that station agents generally are familiar with the land-grant legislation or the limits of the various land-grant lines so as to be able readily to make the necessary computations. But, in any event, the well settled practice of the Government is to issue requisitions for transportation, and to require the rendition of bills therefor to be examined and audited by its accounting officers. * * *”
Again in Southern Pacific Company v. United States (62 Ct. Cls. 301, 303) it was said, with respect to the necessity for rules of accounting for Government transportation in some respects sui generis and inapplicable to the ordinary commercial transactions between the carriers and private shippers, that:
"While in the vast majority of instances the charges are promptly paid upon presentation, nevertheless a large number of litigated cases, just as the facts herein disclose, arise from subsequent deductions made by the accounting officers
from undisputed transportation bills some months and frequently years after the initial payment was made. Disputes arise over the application of land-grant deductions, thereby placing Government transportation in a somewhat different situation from that which obtains in the ordinary commercial shipment. addition to what has been said, the interstate commerce act has continuously made exceptions as to the application of the law to Government transportation. The Government may by special contract obtain a special rate (Missouri Pacific v. United States, 56 C. Cls. 341; St. Louis, Brownsville and Mexico Ry. Co. v. United States, 268 U. S. 169, 173). Likewise it is entitled to an extension of credit in the payment of freight charges, direct recognition of the somewhat exceptional relationship of the Government to interstate carriers.
66 * * * In the case of Interstate Commerce Commission v. Baltimore & Ohio Railroad Co. (145 U. S. 263, 276), the Supreme Court said:
""The principal objects of the interstate commerce act were to secure just and reasonable charges for transportation; to prohibit unjust discriminations in the rendition of like services under similar circumstances and conditions; to prevent undue or unreasonable preferences to persons, corporations, or localities; to inhibit greater compensation for a shorter than for a longer distance on the same line; and to abolish combinations for the pooling of freigths.'
"Manifestly the intention here is to regulate and control the relationship between the interstate carriers and private individuals, natural and corporate. Congress was dealing with the ordinary commercial transportation. All doubt with respect to the fact is put at rest by section 22 of the original interstate commerce act, wherein it is provided: "That nothing in this act shall prevent the carriage, storage, or handling of property free or at reduced rates for the United States, State or municipal Government.' This same exception in favor of the Government was carried forward in the transportation act of 1920. This statute in amending paragraph 3 of section 16 of the Interstate Commerce Act, by paragraph (2) thereof, restrained the railroads from relinquishing possession to freight transported until all tariff rates and charges thereon have been paid at the point of destination, except under such rules and regulations as the Interstate Commerce Commission may prescribe; but a proviso thereto in precise and express terms excepted the United States as well as all other political subdivisions of the Nation from its operation.
"The extension of credit to the United States, together with the right to secure and profit by rates other than the published tariffs, seems to clearly indicate that Congress was legislating in the adoption of this amendment, with reference to commercial transportation, to transportation furnished to private shippers and not the Government. The act of June 7, 1924, again amends paragraph 3 of section 16 of the Interstate Commerce Act (43 Stat. 633), with the exception of paragraph (a), the three-year statute of limitation; the remaining sections prescribing limitations for the prosecution of claims for damages and overcharges are inapplicable to Government transportation. The means available to the Government for reimbursement of all overcharges, damages, etc., dealt with in the section of the transportation act in issue, is by deducting from unpaid and undisputed bills for subsequent transportation-a proceeding in the nature of a counterclaim-leaving the carrier the right and burden to sue in this court for the recovery of the amount deducted. * * * 99
While this Office cannot, under existing law, authorize the payment of these bills without a prior determination as to the correctness of the amounts chargedso as to relieve the administrative and disbursing officers of their liability for any overpayments resulting from the use by the carriers of erroneous or unauthorized rates in the presentation of the bills-this Office does not and will not require that such bills be audited here before payment. And if the administrative and disbursing officers on whom the responsibility therefor rests under the law see fit to adopt the procedure here proposed of making such payments on the basis of only the administrative examination prescribed in section 4 of General Regulations No. 13, supra, leaving the adjustments necessary as a result of any overpayments to be effected by them after post audit by this Office of the payments so made, this Office, while not approving such procedure, could interpose no legal objection thereto and would cooperate to the fullest extent possible, consistent with requirements of law, in expediting the effecting of the necessary adjustments in connection with the settlement of the disbursing officers' accounts. Respectfully,