If it is a quality function, which really refers to the function of the item and quality of the item, then it is referred to the regional quality control division for an investigation.

And some of the complaints, and I would say that this would not be the case in furniture, we have a policy that says that if it is a low cos item and doesn't justify the travel, then you try to handle the com plaint by telephone and possibly have the complaining agency senc that in to you. I think in the specific area that we are talking about that policy probably never happens. It should never happen.

Senator CHILES. Well, does the justified quality complaint list that is compiled by GSA's Central Office, does that indicate the quality of the material received from a supplier?

Mr. DEPROSPERO. I would say not necessarily; no. Let me elaborate a little bit on that. I think the complaints that we receive are probably an indication of quality in our supply system. However, it doesn't necessarily determine the quality of the product being manufactured by the company. As you know, we procure and inspect the products to a quality level of some specified quantity. In other words, we expect to have certain defects. When we get a complaint in from an agency that statistical sampling plan is lost and it is impossible to determine whether that is one complaint or whether that represents the entire quality of the lot.

In addition to that, many customers don't bother to submit a complaint because it takes time and they have to fill out the 368, as the lady said earlier, and it can be a paper mess sometimes.

In addition to that, most customers, I would say, really don't have the expertise to determine whether the product meets the contract or not. They have the expertise to see whether it functions, but many times they don't have the expertise to make the determination whether it is the quality level that we contracted for.

In addition to that, I also have cases where some customers actually bypass the agency and go directly to the manufacturer, at which time I am not aware of it.

In addition to that, we also have papers that drop through the cracks and we never become aware of.

Senator CHILES. What is GSA's Federal Supply Service doing to correct the obvious deficiencies in the quality assurance complaint procedure, the fact that we have thousands of complaints and they are never sort of getting on the list?

Mr. DEPROSPERO. We have taken really two actions.

Senator CHILES. In other words, is the furniture that is presently being repaired in the Middle River facility, as reported by Mr. Boulay, is that on the quality complaints list?

Mr. DEPROSPERO. No, sir, not all of it.

Senator CHILES. So we have 80 some percent of the furniture that has been rejected and being repaired, but that doesn't appear on the list? Mr. DEPROSPERO. That is not necessarily the case. They would not be indicated in that complaint list that you are talking about. They would not show up because they were a result of an audit that my office initiated and that would not be considered a complaint.

Senator CHILES. So a complaint really has to be something that is out there where a user agency made a complaint. If it is found by GSA

themselves, somehow it is not considered to be a complaint on the quality assurance list?

Mr. DEPROSPERO. It is not listed as a complaint in our existing procedures.

Senator CHILES. We have a misnomer in what we are calling this. If someone can cite this, which the president of Art Metal cited the list as the basis of facts that there are no complaints against his company, everybody is happy with his furniture

Mr. DE PROSPERO. I would say that does not necessarily indicate the quality of the furniture coming from his plant.

Senator CHILES. What are you going to do to get an indication of whether a product is good or whether it is reliable, whether we should continue to buy it, whether we are getting our money's worth on the product?

Mr. DE PROSPERO. From the central office we have initiated a fairly substantial comprehensive quality audit program where we plan to monitor manufacturer's products and have tried to get a feel for the type of quality that we are getting from our suppliers.

Senator CHILES. Will there be a place with a report of your findings on the audit so there can be a scoreboard that, in effect, the public can see how

Mr. DE PROSPERO. Absolutely. In my office.

Senator CHILES. I hope the audit procedure is thorough and is going to continue, and that we are going to have a scoreboard like that.

Mr. Granetto, I understand that you are a certified public accountant, and that you were detailed to the subcommittee from the General Accounting Office, and I also understand that you have had about 15 years of expereince in auditing Federal programs and contracts in this country and abroad.

Working with the subpenaed records from Art Metal, especially those dealing with the furniture repair and complaint aspects of the Art Metal operation, I wonder if you would discuss with us today the General Service Administration's qualified complaints list and the manner in which complaints received by Art Metal concerning faulty, damaged, or defective products are handled, and if you would give us an analysis of your inspection of Art Metal's records and provide it to the subcommittee.

TESTIMONY OF PAUL GRANETTO, CPA, DETAILED TO THE SUBCOMMITTEE ON FEDERAL SPENDING PRACTICES AND OPEN GOVERNMENT, FROM THE GENERAL ACCOUNTING OFFICE Mr. GRANETTO. As you know, I analyzed the Art Metal records as provided the subcommittee under subpena. They showed the following: The GSA justified complaint list did not include a significant number of complaints for several thousand items. Their company policy for any complaint of any significance was to delay action and deny any and all responsibility.

A fair tactic of the company concerning a complaint was to blame all defective merchandise on damage in transit. Other ploys used by the company was to pick obvious errors in the complaint, such as faulty contract numbers, purchase order numbers, and even though they knew

it was their product deny all knowledge of it, or to state that the never shipped to that location even though they ship to the GSA depc in that region. All else failing, the company simply delayed action o the complaint as long as possible.

If repair was inevitable, the company attempted to get the agenc to repair the item by shipping the needed parts. Only after all els failed did the company repair an item.

They rarely replaced an item.

It usually took months to resolve any complaint, and I know of on that took 21 months, concering Art Metal furniture. The contractin officer had to be persistent and aggressive to be successful.

Senator CHILES. You stated that the justified complaint list of the General Services Administration did not include a significant numbe of complaints for thousands of items. How did you determine thi from your inspection?

Mr. GRANETTO. Senator, I determined this by comparing Art Metal's files of complaints with complaints listed on the justified complaints list justs published by the General Services Administration. A great number of the complaints held in Art Metal's files were not shown in the GSA list.

As an example, Art Metal's files contained a complaint from GSA Chicago, Ill., dated April 1975, concerning 500 flattop desks.

Another example, an August 1978 complaint from GSA concerning 710 defective cabinets, Stockton, Calif.

These two complaints, and a significant number of others, were omitted from the GSA qualified complaints list.

From my review of Art Metal files I would say that the larger the number of items involved in the complaint, the less probability of it appearing in the justified complaints list.

Senator CHILES. Mr. de Prospero kind of told us why that would happen in regard to a qualified complaints list.

You stated that Art Metal's policy was one of denying all responsibility for damaged or defective merchandise received by the Federal Government. What is the basis for this kind of statement?

Mr. GRANETTO. Senator, to get the basis, I need to explain a little bit of their office procedure. On many of their memos they use a device called "a blind footnote," a footnote attached only to internal copies of outgoing correspondence. It is used to pass on memos between divisions, and as a reference to other key correspondence or related activities. It is an internal memorandum attached to internal copies of external correspondence. The blind footnotes on correspondence back and forth from and to GSA are the basis for that statement.

Senator CHILES. You would find many instances of a complaint coming in, a letter from Art Metal going back, and at the bottom of their copy a blind footnote, and you made copies of those and furnished those to the members of the subcommittee?

Mr. GRANETTO. Yes.

I want to refer to correspondence from GSA Quality Control Division, dated December 4, 1975, in which GSA states that a complaint concerning five office tables received by the U.S. Department of Labor in Chicago. This GSA letter refers to the five office tables being supplied under Contract GSOOS-30617, and I note the third digit, "6," of that contract number.

On December 11, Art Metal responded:

Gentlemen, with reference to the subject matter, we have checked our records on the above-mentioned contract and find we never enjoyed contract No. GSOOS30617. If we can be of assistance in this matter, don't hesitate to call on us.

At the bottom of that, a blind footnote attached to the letter states: The contract we enjoyed on tables was 30517, so that would not be 30617, 30517.

When this letter from GSA, QCD, is returned, we can either state DIT or never shipped to consigned or shipment made to Bengies, Md., and not to Chicago, Ill., over 1 year ago.

Senator CHILES. What does "DIT" mean?

Mr. GRANETTO. Damaged in transit.

Senator CHILES. So you are saying that the footnote already disposed what they were going to say when they found out that they had used the wrong contract? The next letter was to say "damaged in transit" or-we have three reasons here-never shipped to consignee, or shipment made to Bengies, Md.

Mr. GRANETTO. Yes.

Senator CHILES. In another instance, Art Metal received a complaint from Lewis Air Force Base in Arizona, concerning six wardrobe lockers. The complaint stated that the matching mechanisms were inoperative. Art Metal responded:

With reference to the subject matter, from the contents of your letter it appears that the wardrobes were damaged in transit. These cabinets were dropped on their corners, causing the bent corners and distorting of the cabinet, et cetera. Please request them to send a copy showing exceptions taken to the merchandise at the time of delivery or an inspection report made by the delivering carrier after the damage in transit was discovered on the premises.

However, the blind footnote states:

Spiegel delivered the goods and according to the notation we made in our Region Book no exceptions were taken to the delivery bill of lading on 4–9–75. So they already knew that the goods were not damaged in transit, that there was no exception taken, and yet they send a letter saying it had to be damaged in transit, so do this.

Mr. GRANETTO. Yes.

Senator CHILES. I see that on January 7 GSA complained of 74 filing cabinets being received with defective locking mechanisms and drawers hard to open and close. GSA specifically stated the filing cabinets were received on order form FW20576-2. I note the last digits are 6-2. On January 13, 1975, Art Metal responded and said:

With reference to the subject matter, please be advised we checked all of our purchase orders against filing cabinet annual contract and do not find any record of shipping against a purchase order FW20576-1 or 7110-551-5489 file cabinets. Will you therefore kindly cancel this complaint and confirm this cancellation in writing.

A blind footnote states, "We actually shipped 85-5489's against FOPOFW20570 on June 11, 1974 and June 12, 1974."

GSA then responded to the letter citing the correct number, and Art Metal's response to this on March 3, 1975, was as follows:

With reference to the subject matter, from the contents of your letter it appears that the file cabinets were damaged in transit. These files were dropped on their corners causing the case of the file to twist and distort out of shape. This distorted case would prevent the locking mechanism from opening properly. Please request a damage-in-transit claim be filed promptly by the consignee.

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I refer also to the 542 desks which we discussed a few minutes ago as never appearing on the GSA justified complaints list. A blind footnote in the files, attached to a memo, the memo to GSA is dated June 17, 1975, and in response to its complaint of April 1975 it states: "Gentlemen, with reference to the subject matter we are still investigating the facts contained therein and will advise you shortly of our findings."

The blind footnote attached to the memo states, "PJK," what does that stand for?

Mr. GRANETTO. Philip J. Kurens, president of Art Metal.

Senator CHILES [continuing]. "I am putting this matter in suspense for another 3 weeks. I don't think I can get away with taking more time than that.'

Senator PRYOR. Mr. Chairman, I have two or three of these letters. I think they should be in the record, also. They demonstrate what was left, I am sure, inadvertently in the footnotes and not properly destroyed. In one of the letters, June 24, 1975, Art Metal advised GSA that they would repair 27 defective tables in El Segundo, Calif., on June 30, 1975. On November 13 GSA complained the tables had not been repaired. On December 21, 1975, Art Metal responded with the following:

With reference to the subject matter, we are at a loss to understand why this repair was not completed by our repair team on their last visit to California.

Mr. Chairman, it sounds like whenever Art Metal sold a filing cabinet they sent their repair team along with it because they knew full well that their product was an inferior product.

The blind footnote at the bottom of this page states: "PJK, I am putting this letter in suspense for 30 days awaiting your advice."

There is another letter that I think also indicates a great deal. On April 27, 1978, GSA complained of a desk with a bubbled top in Raleigh, N.C. Art Metal responded May 4, 1978 with the following:

We are in receipt of your letter dated April 27, 1978, on May 4, 1978, as regards the subject matter. Please be advised that we never enjoyed a contract Number GS-00S-41221 for this type of desk.

The blind footnote, however, Mr. Chairman, states:

Blind carbon copy: PJK, Quality Control, 2 copies assembly and JN file. This desk is located in Raleigh, North Carolina. I am sure they supplied the wrong contract and will come back with the correct one. The desk has a bubble top and an inoperable locking mechanism. It is going to cost plenty to replace this one desk.

One final letter, Mr. Chairman.

On February 17, 1977, Art Metal responded to a February 2, 1977, complaint concerning a desk that had a warped bubble macarta top. His response stated:

Gentlemen, we are in receipt of your letter dated February 1, 1977, received on February 7, 1977, with regard to the above matter. We advise that one NSN-0840 desk at the Rock Island Arsenal Depot has a warped section across the surface. This appears to be caused by damage in transit. We cannot be held responsible for this deficiency since we never made shipment of this type of desk to the Rock Island Arsenal. The desk was manufactured in August 1975, over 12 years ago.

However, once again, the blind footnote states, "This appears to be a latent defect, namely that the micarta top has bubbled due to im