To - ---· ' 5 Dec 44 • Gen Groves 25 October 1944 Attached is report in final form ready for your file Previous draft was approved by you for final er Works Employees ' ks 1 Pursuant to your verbal orders -an- m estigation has been made of the Hanford Engineer Works Employees ' Association Incorporated during the period 14 to 17 October 1944II - Subject of Investigation 2 The purpose of the investigation was to determine the source of income of the Hanford Engineer Works Employees' Association Inc herein after referred to as the Association its past activities contemplated future activities expenditure of funds and the need for such an organization both past and future The investigation included the examination of documents copies of contracts books ledgers and vouchers of the association inspection of the large recreation building used by the organization and interrogation of the following persons Lt Colonel F T Matthias Area Engineer Mr Hayden Rector Vice President HEW Employees Association Mr W 0 Simon Chief of Operations E I duPont deNemours Co Inc Mr Karl J Payne Business Manager of the Association III - Facts Discussion J Purpose History and Organization The Association was formed on 22 December 1943 with its major objective being the financing independent of government funds of a proj ect newspaper which was needed to bolster employee morale and t o convey essential information from the government and the construction management to the employees A copy of the newspaper is attached hereto See Exhibit A The association was established pursuant to v ritten authorization from the Area Engineer and t he duPont Company the prime contractor • • Board of Directors In order to insure financial regularity in all business transactions of the Association the membership of the Board of Direotors included persons intimately associated with fiscal activities on CONFIDENTIAL REFER TO FILE WAR DEPARTMENT P o Box 2610 No EIDM WL-26 • COffFID11' TIAL 25 October 1944 Subject Report of Investigation Hanford Engineer Works Employees' Association Incorporated To Major- General L R Groves C E From Colonel D E Antes C E I - Authority 1 Pursuant to your verbal orders an investigation has been made of the Hanford Engineer Works Employees' Association Incorporated during the period 14 to 17 October 1944 II - Subject of Investigation 2 The purpose of the investigation was to determine the source of income of the Hanford Engineer Works Employees' Association Inc herein after referred to as the Association its past activities contempl ated future activities expenditure of funds and t he need for such an organization both past and future The investigation included t he examination of documents copies of contracts books ledgers and vouchers of the association inspection of the l ar ge recreation building used by the organization and interrogation of t he following persons Lt Colonel F T Matthias Area Engineer Mr Hay den Rector Vice President HEW Employees Association Mr W 0 Simon Chief of Operations E I duPont deNemours Mr Karl J Payne Business Manager of the Association Co Inc III - Facts Discussion 3 fµrpose History and Organization The Association was formed on 22 December 194 3 with its maj or objective being the financing independent of government funds of a project newspaper which was needed to bolster employee morale and to convey essential information from the government and t he construction management to t he employees A copy of the newspaper is attached hereto See Exhibit A The association was est ablished pursuant to written authorization from the Area Engineer and the duPont Company the prime contractor • • Board of Directors In order to i nsure financial r egularity in all business transactions of the As s ociation the membership of the Board of Directors included persons intimately associ ated with fiscal activities on CONFIDENTIAL DECLASSIFIED Authority DECLASSIFIED Authority N ' tb 9 1 l L 0 CONFIDENTIA Lf Association Inc 25 October 1944 the project among them the project auditor project accountant and the Army Disbursing Officer The original members of this board were Mr J F • Sembower Mr T w Brown Project Auditor Lt M K Barrett Army Disbursing Officer Mr- H F Ma goon Mr H E Warner Mr H A Behling Mr- J E Zachary Lt Arlene Scheidenhelm Th Board members were appointed by the duPont Uompany and the governe e It was not the intention of the Association at the outset to hire me iness manager It was contemplated that all affairs of the Associawere to be conducted by the Board of Directors at their weekly meetBi-weekly meetings were later held with special meetings called n•desired by a majority of the members of the Board t· 10 E · Disbursing Officer and Business Manager At the 6 January l944 meeting Lt M K Barrett was elected Disbursing Officer of t he Association At that time it was reported that the Association had approximately $4500 on deposit It was not until the 18 April 1944 meeting that any mention was made of keeping books and ledgers recording all transactions of the association It had become evident at that time that the transactions of the association had deviat d from the original intent It also became aPparent that the volume of bus iness being conducted by the Association had increased sufficiently to require the full time s ervices of a business manager Mr Karl J Payne was hired for this purpose and h e entered h is duties on 10 May 1944 Up to this time no ledger books had been set up for the Association the only record being a statement of cash r eceipts S· Formation of a corporation As t he activities of the association expanded it was considered advisable t o secure the limited liability of a corporation and t he association was duly incorporated under the laws of t he State of Washington as a non-profit organization The charter was dated 20 September 19 44 at 2 27 o'clock p m A more detailed statement on t he origin and operation of the Association is incorporat ed in the attached booklet marked Exhibit B Section A 4 Recreational and Welfare Activities of the Ass ociation A• Conducted by the contractor Lt Colonel Matthias stated that prior to the formation of the Association no organized steps had been taken to improve the morale of the pnoject employees Employees working on the project were leaving their jobs simpl y because t here was no welfare or athletic program to provide ent ertainment in their leisure hours Prior to the formation of the Association the prime contractor had provided recreation through means of a recreation building in which such facilities as pool t ables billiard tables bowling alleys games of skill wei ghing and amusement chines m9r ecifically known as Weighing Machines coin-operated Victrola machines pin machines Race Horse Line Up 11 Baseball etc were available ' CONFII J 1 _NTIAT-' COl FIDENTIAL 25 October 1944- Association Inc J2 Conducted by the Association The Association sponsored dances for all employees at which nationally known dance bands were feat ed· baseball games between leading professional teams of the country bur bill leagues composed of players from various units of the project as baseball leagues in Hanford and Richland football games between Junior ding professional teams of the Northwest cancert and 1 ec t ure series 1 I awas considered a mi st that such an association exist during the construction phase of the proJect c ContemRlated Future Activities Regarding future operations Matthias stated that he considered it advisable for such an as• t • 0 n to exist during the operation phase of the project but that it is socia J • now p ac t·ice d Up to 1 in dvisable to continue i t on as 1 arge a scale as is Oc ober 1944 the Association had spent $105 300 00 Mr_- W O Simon Chief f O rations for the duPont Company stated that the problems presented dur pthee construction and operation phases of a project are not similar Dur g the construction phase building craftsmen are in predominance These in ple are accustomed to short employment high wages e c Operations perpennel as a rule are much older usually married and possibly with a family t wo or three children Their primary interests are a horn d ts maintenance The fact that they do not own the house they are living i n does not deter them from ta king enough pride in it to keep it looking as nice as possible- The procedure recommended by Lt Colonel Matthias would be contrary to the duPont procedure and not in keeping with standard practice at other duPont plants Lt c0 1 0 nel The village of Richland had a population of 9 096 on 6 October 1944 This will be increas ed to approximately 14 000 it having been estimated that oper ating requirements will necessitate this figure It is the duPont policy to l end encouragement to and foster t he formation of civic groups wit hin the village and the formation of r ecreation groups by the inhabitants themselves It is considered sufficient when the village is furnished a building f or group meeting and such sports as bowling and basketball without lending financial assistance in t he form of a subsidy Furthermore under the terms of the contract it is doubtful whether funds spent for r ecreation and welfare are reimbursable The duPont Uompany does not favor an organization such as the H E W Employees Association Inc as Jn'esently operated or in its contempl ated reduced form 5 Funds f • Business Manager Mr Karl J Payne the busi ness manager o f the Association was hired and entered employment on 10 May 19 44 Interrogation disclosed the fact t hat Mr Payne had no previous government experience He seemed capable of managing the affairs of the Association provided he bad• been given some assistance so that the usual government procedure could be r lowed When he entered employment no ledger books other t han a cash recei 1book were being maintained by the Association The Association set forth t e policy under which the business manager was to operate which policy is stated in detail in Exhibit B Section 11 B11 page 22 CONFI NTIAL I DECLASSIFIED Authorit y • CONFIDENTIAL Association Inc • 25 October 1944 £• Source of Funds The Association's sole asset at its inception was a contract bet ween duPont and t he f acility operator of coin machines and bowling alleys on the project This contract was assigned to the Association which received as income under its terms one-half of the profits of t he f a cility This turned out to be considerable See Exhibit 11 B11 Sections UF and G for copies of contracts between duPont and the Association and the As sociation and Mr L c Foisy respectively c Status of Funds By 1 October 19 44 the income of the Association fr the abov source plus other incidental income from a few employee activities totalled i l59 688 49 The 31 August 19 44 balance sheet of the A sociation showed as sets of $84 364 58 against actual liabilities of only $6 00l 53 l eaving a capi al and surplus of $78 363 05 Inasmuch as ther e is no capital stock t he $78 363 05 represents solely a surplus The operat·ng expenses for t he same month only totalled $887 45 The most consistent osses to t he as s ociati on have been due t o shows and athletic contes ts which b a s sponsored however during August the As sociation sponsored dances at iv et los s of $486 32 The budget of t he Association for the per iod l Janu 1944 to 31 January 1945 shows an estimated monthly loss for the mont hs of October Novem er December and J anuary which is estimated to r educe the resent surplus $78 363 05 as of 31 August 19 44 to a net balance of $2 436 47 t he fiscal s t atements of t he As sociation ar e s et forth in det ail in Exhibit B Section 11 C11 and t he Budget statement in Section 11 H of the same exhibit ' An itemized list of expenditures by ma jor classes for the mont h of August 1944 i s inclos ed in Exhibit 11 B11 Section 11 D11 • A statment of payments ade by t he Association to the duPont Company f or various s ervices t o dat e r s inclosed in Exhibit 11 B Section 11 E11 • • k ill 51 Records The books of t he Associat i on wer e set up by the Busi n ess Manager of t he Associ ation and in such manner as t o conform with a ccept abl e government procedure si milar to requirements for company funds The books and ledgers wer e not s et up until 10 May 1 9 44 At t hat time an ef for t was made to back trace over all past purchases and expenditures Th 8 books in their present conditions would not be accept able under government pr ocedures T e main defici ·ency i lac of compl ete supporting vouchers there is no eVJ dence of a complete det ail ed audit by anyone The book ent ri show an unusually l arge number of erasures Thi s in i t s elf i s contrary to es government practice as c rrect ions are normally made by crossing out the incorrect f i gure and l Ilsert mg t he correct amount There were numerous small di s crepanci es not ed in the ledger s s et up • To go into det ail would consume too much space and t he discrepancies ar e such t hat t hey could be corrected without much effort Budget The budget f the Associ tion shows for the month of December 19 44 a r evenue of $300 against an anticipated expense of $31 9 5 7 The ant i cipat ed r evenue for t he month preceding and t he month f ollov fug D camber shows $5500 and $1300 respectivel y wit h anticipated expens e of $1f 538 and $7 647 respectively Why t he l arge drop in revenue during t he month of December and pi ck up in the month i mmedi at ely f ollowing i s not understood CONFIDENTIAL - 4 - I DECLASSIFIED Authority 7 CONFIDEI TIAL r 25 October 1944 Employees Ass ociation Inc Th b d t r·gures as presented were evidently not presented to the Associa1 e uf ge va l until some time in September or October 1944 This is evit ion or appr 0 fact that the revenue for the month of August and September are by tb e d enced to · i· s possi· bl e 1· t is h ig hly impro ' ba ble that stated an exact penny W hile it such a close estimate could have been madedof Tbhothbur ventu anhd exp nses ext l t the actual book figures were use• e age is sown m compl ete cept 1a S t· uH detail in Exhibit B ec ion • • Toe L c Foisy Contract The contr ct between L c Foisy and t he 6 t· n was entered into on the 23rd day ox December 1943 The c ompl ete Associa ti s atta ched hereto see Exhibit B Section G The pertinent contrac 1of the contract e thadt th f · h es all · · · features e l etssorthurn is f th fumef ci ities to 1 certain coin machines an in re urn e es see or isbing a f ew t opera e · 11 us s _ nfcetshnecessar y · coin operated machines and atf e¥t1hmisce to keep them in ·operation will pay o _ e associa ion 5v o e gross i ncome for hand all coin oper ated machines The lessee under t he t erms of the con ct i s required to submit to t he busint· ess manager of the Association a profit and loss statement for each quar er the quarters t o end March 30 June 30 September 30 and December 31 of each year it is further agreed t bat a statement or statement swill be rendered July 30 19 44 covering all previous quarters and that all future statements will be rendered within 30 days after the end of the sai d quarter A reques t for t he Profit and Loss statement as of 30 July 1944 disclosed tha t no such statement has as yet been submitted The total gross receipts t hat have been paid by t he Associa tion to L C Foisy under t he contract is $148 892 74 as of JO September l 944 It is believed t hat a detailed audit will disclose excessive pr ofit s have accrued Mr L C Foisy IV - Findings 7 I t has been determined t hat · The operation of a r ecreational an welfare program was essential during the construction phase of t he H E W for the following reason• to improve the morale of t he cons t ruction workers and thereby reduce turnov • cutting t he time and cost of t he job er 12 The books of t be Association have not been p roperl y kept £ Excessive profits have accrued to L C Foisy under his contract for t he furnishing of cer tain coin operated games of skill S • It may have been unwise to secure nationally known name band and athletic games between outstanding professional teams but t his practic s was deemed desirable by the Area Engineer e CONFIDENTIAL - 5 - I DECLASSIFIEb i AuthorityJylitL_9 j oNFIDENTIAL 25 October 19 44 Association Inc V Recommendations It is reconnnended that - A detailed audit of funds and fiscal procedure be completed without delay b Effort be made to recover excessive profits accrued to L Foisy unde bis contract c The H E W Employees Association as now organized be terminated when construction is completed 0 • l1C 4 --of Engineers CONFIDENTIAL - 6 - r - - -DECLASSIFIED Authority NNb 9 2 40 I