fication of all cash on hand and in banks, and when needed, positive establishment of the existence of assets by physical inventory methods or through inquiries addressed to debtors and the determination of actual liabilities through inquiries addressed to creditors;

4. The review and establishment of the accuracy of any operating statements to determine that they clearly indicate the financial progress of the Corporation during the period covered by the audit, including proper reflection of any profits made or losses suffered;

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5. Determination, in light of the actions by the board of directors and any changes in the policies of the Corporation, that proper records are established and necessary safeguards developed correctly to reflect the financial operations of the Corporation and to protect the Corporation from financial loss which can be prevented by proper and adequate records and procedures;

6. The preparation of a report covering the audit, including certified financial statements and comments deemed appropriate by the auditor, such as recommendations for changes in the accounting procedure and records, errors still uncorrected at the completion of the audit, analysis of facts brought out in the financial statements, and the submission of such a report to the officials ordering the audit; and

7. The institution of corrective action by the corporate management.

Aside from the more fundamental differences in approach and purposes apparent between these two systems, it should also be noted that the nature of the capital fund operations of the Corporation is such that it is impractical, if not impossible, to assemble in one place the original vouchers and other original papers supporting the capital fund operations of the Corporation and still permit the Corporation to carry out the business responsibilities imposed upon it by the Congress. For example, papers supporting particular transactions such as warehouse receipts, bills of sale, etc., must, in many cases, be retained by the Corpora- . tion at particular locations for continued use in connection with the original transaction. In other cases, these original documents are required to be recorded and held in public offices or deposited with banks or other institutions. As a further example, notes purchased by the Commodity Credit Corporation, evidencing borrowings by farmers and others, are required to be deposited with the banks at which the notes are to be paid for eventual surrender upon payment.

The regular governmental type of audit deals solely with the receipt and expenditure of funds. In the case of the Commodity Credit Corporation, which has large stocks of commodities on hand, large amounts of receivables and payables and similar items that develop as a result of the commercial nature of its operations, an audit dealing with only the cash receipts and expenditures is totally inadequate. The commercial type audit as outlined above covers the entire financial operation and is the only type which will provide, in the opinion of the War Food Administrator and the Comptroller General, an adequate audit and a comprehensive report for this Corporation.

Although the Corporation has had the benefit of a commercial type of audit of its capital fund operations in the past by the Reconstruction Finance Corporation and also in some instances by the Federal Reserve banks, it recognizes the desirability of having that audit performed by the public auditor, the General Accounting Office. The General Accounting Office also recognizes the desirability of performing this type of audit for the Corporation, but considerable doubt is entertained whether it is authorized to do so under existing legislation. On the other hand, considerable doubt is entertained whether the Commodity Credit Corporation is authorized to permit a regular governmental type of audit of its capital fund operations. Accordingly, the Congress is asked to resolve these doubts by specifically authorizing the General Accounting Office to make an audit of the capital fund operations of the Commodity Credit Corporation in accordance with the principles applicable to commercial corporate operations, as provided in section 3 of the bill.

ANALYSIS OF SECTION 3

The language providing for this type of audit is proposed as an amendment to section 7 of 49 Stat. 1, 4, which is the act recognizing Commodity Credit Corporation as an agency of the United States and providing that its corporate funds shall remain available as such for corporate functions. In view of the fact that the General Accounting Office has the responsibility of applying the legislative restrictions relating to public funds generally, the phrase "without regard to provisions of any other existing law relating to public funds" is in

cluded as declaratory of the present status of the Corporation's capital funds and to furnish a guide in the performance of the special type of auditing functions provided for in the bill. Similarly, the proviso "That the Corporation shall at all times maintain complete and accurate books of account and shall determine the procedures to be followed in the transaction of the corporate business," merely restates the present responsibility of the Corporation to keep accounts and determine procedures.

The subsection proposed as (b) of section 7 of 49 Stat. 1, 4, directs the General Accounting Office to audit the financial transactions of the Commodity Credit Corporation in accordance with the principles applicable to commercial corporate transactions. The principle of the proposed audit is an examination of the accounts of the Corporation as such and not those of any particular person, or the enforcement of any personal responsibility. Pursuant to this and the remaining subsections through (d), the Comptroller General is given power to prescribe rules and regulations which shall govern performance by the General Accounting Office of the duties imposed by this bill, but nothing in the bill disturbs in fact, the bill expressly preserves the existing power of the Corporation incident to its corporate form, (a) to control finally and conclusively the settlement and adjustment of the accounts involving corporate funds, (b) to make final and conclusive settlements of claims by and against the Corporation, (c) to make final and conclusive settlements of any claims by and against fiscal officers of the Corporation, (d) to retain full custody of all corporate records and documents. Any examination of such records and documents during the course of the audit by the General Accounting Office must be made at the place or places where they are normally kept in the transaction of corporate business.

In the making of the audit the General Accounting Office is given full access to the papers, books, files, accounts, financial records, warehouses, and all other things, property, and places belonging to or under the control, of or used or employed by the Corporation, and is afforded full facilities for verifying transactions with and balances in depositaries and with fiscal agents. If satisfied that unnecessary duplication will thereby be avoided and that the public interest is sufficiently protected, the General Accounting Office is given authority to accept, without further audit verification, certified financial reports and schedules of the fiscal agents of the Corporation based on commercial audits in the usual course of business. The expenses of the audit under the proposed legislation until June 30, 1945, will be paid by the Corporation from corporate funds. It is provided that the audit shall begin with financial transactions from July 1, 1943, and that a report of the audit covering each fiscal year shall be submitted to Congress after the Corporation and the Secretary of Agriculture have been afforded a reasonable opportunity to examine the report, point out errors therein, explain or answer the same, and file a statement which shall be submitted by the Comptroller General with his report. It is not intended that this report should include a detailed recital of all items questioned and minute steps taken in the progress of the audit, but that it should cover, in the discretion of the Comptroller General, a narrative or summary statement of the financial status of the Corporation, its financial progress, the methods by which the results reported were ascertained, and significant factors disclosed by the audit, together with recommendations with regard thereto. It is further provided that a copy of the audit shall be transmitted to the Secretary of the Treasury for his information and consideration in appraising the assets and liabilities and in the determination of the net worth of the Corporation under sections 1 and 2 of the act of March 8, 1938 (52 Stat. 107), as amended.

CONTINUANCE OF COMMODITY CREDIT CORPORATION

THURSDAY, MAY 27, 1943

HOUSE OF REPRESENTATIVES,

COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C.

(The committee met at 10:30 a. m., Hon. Henry B. Steagall (chairman) presiding.)

The CHAIRMAN. Let the committee come to order.

We have with us this morning Mr. Edward A. O'Neal, president of the American Farm Bureau Federation, who, I am sure, is well known to every member of this committee and who is one of the outstanding farm leaders of the United States, a citizen of Alabama.

We are glad to have you wish us and to have you discuss this bill, Mr. O'Neal. If you desire to make your statement without interruption it is perfectly agreeable to the committee for you to do so. The members of the committee may interrogate you after you have concluded your prepared statement.

You may proceed.

STATEMENT OF EDWARD A. O'NEAL, PRESIDENT, AMERICAN FARM BUREAU FEDERATION

Mr. O'NEAL. The commodity-loan program administered through the Commodity Credit Corporation has been one of the keystones in the national-farm program since 1933.

The American Farm Bureau Federation has consistently advocated and supported such legislation for commodity loans from the very beginning of this program, beginning with the Agricultural Adjustment Act of 1933 and subsequent legislation down to the present time. The use of commodity loans proved so effective in connection with the Agricultural Adjustment program during the period 1933 to 1940 in helping to restore and safeguard farm prices, that we advocated and Congress enacted in 1941 the extension of this principle to provide a mandatory loan of 85 percent for the basic commodities which had programs of surplus control. This legislation proved very effective in helping to safeguard the parity position of the basic commodities.

In order to provide comparable protection to nonbasic commodities and to assure adequate production for national defense, we appeared before this committee later in 1941 during the consideration of a bill to continue the Commodity Credit Corporation and we recommended additional legislation which resulted in the enactment of the Steagall Act. This act required the Secretary of Agriculture to support the

prices of any nonbasic commodity at not less than 85 percent of parity either by loans, purchases, or other operations whenever an increased production is needed for defense purposes. It also places a mandate upon the Secretary to so utilize the funds made available for the purchase and sale of other agricultural commodities so as to support prices as nearly as possible at parity levels.

The Steagall Act also contained, for the first time, a provision authorizing the Secretary to establish comparable prices for nonbasic agricultural commodities whenever the parity is found to be out of line with the goal for basic commodities due to changes in production and consumption. Unfortunately, this authority has not been utilized effectively. It has only been used on a few commodities and in practically every instance the comparable prices that have been determine and published have proved unsatisfactory to the producers and ineffective to secure the maximum production required for the war effort.

The Steagall Act and the mandatory 85 percent loan program both proved so effective that when Congress enacted the Stabilization Act of October 2, 1942, it included amendments which were heartily supported by us, increasing the mandatory loan rate and the minimum price support provisions of the Steagall Act from 85 percent to 90 percent of parity, except in the case of corn and wheat the loan rate was left discretionary with the Secretary between 85 percent and 90 percent of parity.

At this time, the operations of the Commodity Credit Corporation are vitally affected, not only by price support policies under the Steagall Act and other existing laws, but also by price control policies.

The policies of the American Farm Bureau Federation with respect to inflation, price control, and subsidies are set forth in the following resolution, adopted by the voting delegates at the last annual meeting of the Federation in Chicago last December.

The position of the American Farm Bureau Federation on inflation has been clear and consistent from the beginning of the emergency. At all times we have insisted that, to be effective, any plan to control inflationary forces must be applied to all industrial prices, all farm prices, and all wages.

The national administration early this year set out to control inflation by fixing price ceiling on industrial and agricultural products, but without placing ceilings on wages. We warned that this approach could end only in failure because the biggest factor in production costs is wages; and if wages were left uncontrolled, costs would be certain to rise, We were assured that if the proposed law were passed, the administration would find other ways to control wages. The proposed law was passed, leaving out wage control. Continued increases in wages resulted in increased cost of production, and soon producers, manufacturers, and processors were squeezed between rising costs and fixed selling prices, creating an impossible situation which could be remedied only by puncturing ceiling levels, by the payment of subsidies or by additional legislation to correct the errors inherent in the original law.

When new legislation was demanded by the President, it was enacted on October 2, 1942, and was supplemented by an Executive order creating the Office of Economic Stabilization, outlining policies for control of prices, and assigning to various agencies responsibility for wage control.

The statute enacted on October 2 provided that no ceiling should be fixed on any agricultural commodities or products thereof at levels which would reflect to farmers prices below parity prices or the highest market price during the period January 1-September 15, 1942, whichever is higher; and also required that allowance should be made for all increased costs of farmers since January 1, 1941, including all increased farm labor costs in calculating and establishing ceiling levels.