However, certain of the checks made out to I. Spiegel were handled differently and, as I said earlier, they were either cashed, reendorsed and deposited in a savings account or used to make loan payments.

For these checks, the ones that we will call the questionable or unusual Spiegel checks, there is no indication that these checks went through Spiegel's account.

I have a chart, chart H, I think it is

Senator CHILES. What would be the value of the checks that were handled questionably?

Mr. DOYAL. The ones we considered questionable, total $854,000 over a period of 5 years.

Senator CHILES. Eight hundred and some thousand dollars!

Mr. DOYAL. Yes, sir.

This is an example of the checks that we are talking about from Art Metal made out to I. Spiegel. That's 1 day's banking business. They were all written August 17, 1977, and cashed on September 8, 1977. They are $4,000 apiece, totaling $12,000 in cash.

They were, as you can see, or as the banning information shows, they were cashed, not deposited.

A few days later, the next day, as a matter of fact, Art Metal deposited $9,500 in its banking account in cash.

Senator CHILES. How many days later?

Mr. DOYAL. The next day after that check was negotiated, those three checks were negotiated.

Senator PRYOR. Do you consider it to be a little strange that the checks were for an even number, they are rounded off like $4,000? I believe all of these are $4,000 checks; aren't they?

Mr. DOYAL. Yes, sir; all three of those are $4,000 each. In this type of investigation, one of the first things anyone looks for is even amount checks.

If you look at your own checkbook and you will find very few of them written out for two zeros before the decimal place. Most of us have reasons for taxes, other rate applications would make them come out less even.

In this case, we examined all of them and found that Mr. Markowitz and his accounting group are extremely meticulous.

Generally, in the left-hand corner, where it says, on account for most checks, Mr. Markowitz lists each and every invoice that he's paying for. Senator CHILES. Would this be true on the Spiegel checks?

Mr. DOYAL. On the ones made out to Spiegel Trucking, Inc., yes, sir. But the ones made to I. Spiegel, they often appeared like this on

account.

Senator CHILES. But, the ones to Spiegel Trucking don't have an account on them. They have the invoice.

Mr. DOYAL. They have a listing of invoices and the dates and the billings from Spiegel up there that account for the amount, the final total amount of check.

Senator CHILES. What kind of explanation did you get for these checks from Spiegel, the trucking company?

Mr. DOYAL. We subpenaed Mr. Spiegel's record. We had hoped under the subpena, to obtain the records of all of his firms. We only got the records for Spiegel Trucking Co., Inc., and the reason we were told is, that he was asserting his rights under the 5th amendment and that all

the rest of his firms were, in fact, proprietorships and not subject to subpena as were the records of incorporation.

Senator CHILES. So, you only were able to obtain the records of the corporation which was

Mr. DOYAL. Spiegel Trucking, Inc.

Senator CHILES. These particular checks never went into Spiegel Trucking Co.'s records, so they would not reflect what's on the record? Mr. DOYAL. They would not show on the record, no, sir.

Senator CHILES. And in the other proprietorship, the 5th amendment privileges were raised on those?

Mr. DOYAL. Yes, sir.

Senator PRYOR. In other words, these checks were never run through Spiegel's business books?

Mr. DOYAL. Not through the books of Spiegel Trucking Co., Inc., which is the only set of records we were able to obtain.

Senator PRYOR. What about I. Spiegel?

Mr. DOYAL. I. Spiegel was a proprietorship and not subject to our subpena. The records of that company were not subject to our subpena. however, there is nothing on that check that indicates it went through any of the normal practices of entering into the books.

Senator PRYOR. There is one more interesting thing about these checks. They appear to have been folded.

Mr. DOYAL. Yes, sir. They do appear to have been folded, almost as if they had been carried in a wallet and between the period of time they were written and actually cashed, which is about a month meaning that Mr. Spiegel was walking around or someone was walking around with $12,000 in checks in their pocket.

Senator CHILES. What is the amount of the checks now, that went to I. Spiegel and that were cashed that did not go through the company's books, the trucking company's books?

Mr. DOYAL. A little over $800,000, Senator.

Senator CHILES. A little over $800,000.

You have said that one of the people that you questioned had said that the company obtained money when they needed it from Spiegel, cash when they needed it.

Mr. DOYAL. Yes, sir.

Senator CHILES. Would there be any explanation of why there would be $800,000 worth of money that would be flowing out to I. Spiegel, not going through the company books and we are looking at $400,000 or some $450,000 cash generated during this same period of time by Art Metal?

Mr. DOYAL. Senator, I can only speculate, but we have encountered this type of situation before. I can assume that anyone with that level of business activity, their tax rate would be 50 percent.

If someone is, in fact, working a scheme to generate cash through a vendor, he's going to have to pay that vendor twice the amount he hopes to recover or the vendor will be taxed on the money coming to him and making the kickback more expensive or the arrangement more expensive than it had intended to be.

What I'm saying is, that this money, the checks going to Spiegel, if this is, in fact the case, would have to be twice as much as Art Metal hoped to recover. Spiegel would be required to pay additional taxes on its income.

Senator CHILES. Gentlemen, I think we can excuse you all now. I thank you very much.

What else did your examination of the petty cash vouchers reveal? Mr. DOYAL. All right. We were examining the smaller petty cash fund as well as the larger one that we talked about earlier. We took two randomly selected

Senator CHILES. Now, differentiate between the smaller petty cash. Mr. DOYAL. They had an imprest fund or petty cash fund of only $1,000 versus the checks that were styled auction expenses and this was as additional money was needed to replace this $1,000 a check would be made out to cash, cash and replenish the $1,000.

Senator CHILES. That would be the normal petty cash that most companies would have that we think of as being petty cash and that you keep in amounts up to $1,000?

Mr. DOYAL. Yes, sir, that's correct.

We looked through the vouchers that were associated with that fund and in the 2 months we selected, we found 300 to 350 vouchers each month, each for $5. Each was reported to be a tip for a truckdriver. This amounts to $1,500 or $1,700 a month or $20,000 a year.

None of the vouchers had the name of the truckdriver who was paid and the vouchers more often than not, were not signed.

We asked the officials of Art Metal why they were paying $5 tips to truckdrivers. And, one of their employees, Mr. Nagel said, that payments were made to induce the truckdriver to wait around to either load or unload and he also told us he had discontinued this practice in February of 1977, when he found out that it might be considered illegal under ICC regulations.

Mr. Kurens also confirmed that this activity had taken place. Senator CHILES. Why would you question that $5 amount?

Mr. DOYAL. Well, it didn't seem like $5 was very much to pay a truckdriver to get him to wait around very long. The story they had given us was that often trucks backed up three and four blocks waiting to load or unload at the Art Metal facility. Any sort of a wait for a driver, $5 doesn't seem to be very much inducement to make them wait longer. Further, there was no assurance that the money was actually paid the drivers. The drivers were not named and most of the vouchers were not signed.

We did look at them too, because they are a means of generating cash. In fact, if that practice continued each month as it did from January 1974 to February of 1977, they could be generating just through that method, $20,000 in cash per year.

Senator CHILES. Were there any other petty cash transactions which you questioned?

Mr. DOYAL. Yes, sir, there was another set. These months that have been randomly selected, again, we found a number for any one month 50 to 52 vouchers that were reportedly for meals for guests visiting the plant.

One month, 26 of them totaling $380. And another 26 that same month, totaling $470 some. They were distinguishable. One set of these Vouchers would have attached to it a counter check from a nearby restaurant or diner and the other had absolutely nothing attached to

it. We inquired into who were the guests visiting the plant in each of these cases and the person who had signed the petty cash vouchers for the set with a counter check attached was a Beverly Alexander.

We asked her who was there, who had enjoyed the meals and she said that the fact that they were not guests but rather they were the senior corporate officials, they ate lunch in each day and this was the bill for that lunch that they had each day.

She pointed out the coding on the counter checks and we were able to identify each time who the senior corporate officials were that were eating in. She did not tell us why she had been told to indicate it as being a charge for guests visiting the cash rather than a corporate official.

We asked Mr. Kurens about it and he confirmed that the senior corporate fact did, in fact, eat their noon meals at the plant and the company paid for these meals. He said he believed the practice fostered a better team spirit by the officials not being able to exchange views.

He confirmed that the company paid for the meals but he didn't tell us why he had had them reported to be meals for guests visiting the plant.

We asked Mr. Nagel about the other checks since he signed most of them. None of them had any support attached to them. Additionally, Mr. Nagel told us he bought meals for nongovernment officials who visited the plant.

He specifically stated during that initial interview that he had never bought any meals for GSA inspectors or GSA employees.

However, we conducted interviews with these people later on. All of them acknowledged the fact that Mr. Nagel had bought their lunch and meals for them and later in a formal interview, Mr. Nagel changed the story to say that he had occasionally bought lunch for the inspectors.

We also reviewed the retired Art Metal employees who told us that each and every day, Joel Nagel took three or four people out to lunch. The frequency of petty cash vouchers signed by Mr. Nagel and their amounts indicates that he did entertain someone nearly every day for lunch, GSA being the biggest customer, it's only logical, I think to conclude that the people entertained were GSA employees.

Senator CHILES. While we are buying meals, are we buying meals for these people?

Mr. DOYAL. It's significant to me because, although small, there were acceptance of gifts and gratuities by government inspectors.

A pattern of acceptance such as this could intend to include the objectivity of inspectors as they go about their duties.

Senator CHILES. In connection with this and from your findings of the examination into petty cash records, what else then, would you look to in your paperchase kind of examination to try to determine whether there were improper activities going on here?

Mr. DOYAL. Well, we tried to find some relationship between the amount of cash that was going on and other events or activities and we did several tests. We have nothing conclusive. We do have some things that fit patterns that we have seen in prior investigations and that type of thing.

For example, Art Metal received contracts from GSA during fiscal year 1977, their fiscal year which ends August 30, 1977, of some $32

million. During this same period, auction expense checks total $121,000, that is, they generated $121,000 worth of checks during this same period.

The relationship between the total contract award and the amount of cash generated doesn't appear to be very meaningful on the top. However, the amount of cash generated is equal to about 22 percent of the direct labor cost.

Literature of this type of activity, that is not an uncommon scheme. We tested this this relationship a little further and found that on September 30, the specific date, they received from GSA contracts valued at $9.4 million.

During the 3 workdays that followed that, they generated $32,000 in cash as auction expenses.

Again, the $32,000 is equal to about 212 percent of the direct labor costs on those 9.4 million dollars' worth of contracts they received on September 30. However, this type of relationship couldn't be established for each and every instance of cash generation or each and every instance of contract award.

Senator DANFORTH. You said it's not uncommon for this kind of scheme, were those your words?

Mr. DOYAL. Pretty close to it. I don't remember exactly.

Senator DANFORTH. I'm not familiar with that. What do you mean. You said "in literature" and so on.

Mr. DOYAL. In other investigations that we have read about, I'll have to speak about a specific one, in a kickback scheme of a New England company, the buyer was being paid 22 percent of direct labor on the contracts he awarded to subcontractors.

He did that because that number ddi not bear any relationship to the total value of the contract, but it was a number that he could compute for himself. And, he could assure he got the amount he wanted to have from each of the subcontractors.

Senator CHILES. We have got a vote in progress, now.

I understand that you also found some provisions there as to whether there were violations of the Buy American Act.

Could you briefly explain that?

Mr. DOYAL. Yes, sir. Each and every contract that Art Metal has entered into with the General Services Administration has been subject to the Buy American Act.

The Government prefers in buying for its own use to give preference to American-made items. To this end, it requires all contractors to certify that the items they are going to supply the Government are domestic-made products. However, during our examination of Art Metal's books and records, we found that they had purchased steel from the Michiman Co. in New York. The invoices from the steel company are clearly marked and show that the steel delivered under those invoices had been manufactured by the Nippon Steel Corp. in Japan.

During the period September 1973 to August 1974, they bought something like a million dollars' worth of steel from Michiman or, I think, this represents about 4,000 tons.

Not only did they purchase steel from Japan, they also purchased drawer pulls and other items; this, they needed to manufacture equip