Senator CHILES. I think also it is a very good digest of the work that you did. I would like now to refer you to the General Accounting Office report entitled "Poor Management of GSA Self-Service Stores Leads to Needless Duplication and Potential for Fraud." 1 Have you had an opportunity to review that report and hear the GAO testimony here this morning?

Mr. CLEMENTS. Yes; I have.

Senator CHILES. Tell me what your general reaction to that is, if you would, please, sir.

Mr. CLEMENTS. I am sorry to say it is difficult to express a general reaction, Senator. I was advised before I came to the Senate that obscenity was not appropriate on the record. It is very frustrating to spend 2 years doing work with the expectation that perhaps someone will be listening and that things might change and then to see that things continue the way they were.

On the other hand, as a prosecutor, a position I held in various offices for about 7 years, I would be naive if I thought that any particular prosecution would cure the problem. I didn't believe that what we were doing at the time would cure the problem, and over the course of time I have never noticed anyone has been able to cure crime or corruption and fraud; and it is still frustrating.

Might I, Senator, make a quick correction just so that the record is accurate? I was not the U.S. attorney. I was an assistant U.S. attorney. Also, after I left, the prosecutions continued and I think the total number of individuals who were convicted were 50 with 1 still awaiting a retrial in Alexandria, Va. That includes both Baltimore and Alexandria, where we did several prosecutions.

Senator CHILES. I share your dismay that we don't seem to be getting things cleaned up very fast. I wanted to ask you this question: Given the huge amounts of money that were involved, do you have any concern that the corruption, that it hasn't spread further up the senior ranks of the organization? My understanding was that, correct me on any of this, that you started off with sort of the classic way of trying to first start with the smallest fish and your report discloses that and you first sort of investigated them, made charges against them, and then they began to in turn seek to make deals and they started telling on the people that were above them. You pyramided your investigation up the ladder in that regard.

My question, and I think it is a question that a lot of the public has, is given this amount of money that we are talking about here, given the time that part of this went on, we know we are dealing with different areas, leasing, contracting, self-service stores, but why is it that we haven't turned up more senior officials?

Mr. CLEMENTS. I think there are two parts to that answer. One is that the approach that we took is the standard prosecutorial approach, it is the one that has been tried and proven over the years and it seems to work. It worked in this case, as conducted in this case. We had sufficient numbers of people talking, so many people were willing to talk once we were able to prosecute them and had all the evidence against them; that had there been substantial

1See p. 186.

information about people higher up I feel very confident that we would have heard of if from these people.

We got innumerable leads from these individuals. We got all kinds of rumors, all kinds of scuttlebutt around GSA as to what people were doing, what they were getting at the higher up levels and we followed each of the trails to determine whether or not they were true. We couldn't determine above a certain management level that there was the type of corruption that we found at the middle management level of the store managers.

The store managers were the individuals who had the power to grant these contracts and it only makes sense that the people who were interested in getting the contract bribed those people who had the power to give them the contract. Because that power was in the hands of the store managers there was no reason for them to bribe or attempt to bribe the Administrator of GSA. It wouldn't have helped. He couldn't have done anything for them. It wouldn't have helped.

Senator CHILES. I was going to say normally you would say if the store manager is involving himself in that kind of activity that is going to be discovered pretty quickly by someone higher up.

Mr. CLEMENTS. That is correct. There were several managers over the managers, three supervisors over the managers and we prosecuted I think one, maybe two of them, and I forget. We prosecuted them. They had been receiving clothing and other items from the managers. They were not receiving directly other than one individual who had established a relationship, when he was a manager, with one of the bribing companies. He was not receiving anything through the companies directly. The reason for that in part was that they really didn't owe him anything and he couldn't help them to put through their false invoices. So that there was no great value for them to do it and the bribes that he got and that someone above him got as well in the dollar amounts was substantially less than the dollars being raked off by the managers.

Let me, if I might, Senator, approach the-there is a second part to my answer as relates to the higher-ups. It is very easy, and I recall when Vinnie Alto said it, to say that this is the greatest money scandal in the history of the United States. He was not personally out there counting the dollars and most of the other people at GSA who made those type of statements weren't either. I wouldn't make such a statement personally, because such a statement, I am just not a historian of scandals within the United States. I have not added together the dollars to determine whether scandals 50 years ago by real dollars or inflationary dollars are the same as today.

Second of all, it is kind of an easy thing to say when all of the interest is there. It puts great pressure on those who were doing the investigation to put up or shut up but unfortunately the people who were doing the talking aren't the ones who have to put up by proving the cases.

So I would not have ever said that, nor did I ever, nor would I now. Part of that as well is that once you have scandal within an agency-

Senator CHILES. What you are saying is maybe somebody overloaded your boat a little bit.

Mr. CLEMENTS. A little bit. Not that the numbers, we certainly came within sort of the range of numbers, but an example would be that I read still today in the newspapers that there were 27 of the 30 store managers in the region who were involved. That number appeared in the Washington Post before our first indictment ever appeared. I know how many stores were involved out of the 30 within the region and it was 23 or 24. It was not 27. There was more than just 3 managers who were honest of them, not to say 23 wasn't enough. Certainly it kept us busy.

But the boat was overloaded and part of why it was easy to overload it is with the scandal within the agency, and you add to that all of the incompetence and ineptness by the management, you look at the whole picture and you say that must be corruption because nobody could be that inept. Well, I think-

Senator CHILES. They would have to be working at it deliberately.

Mr. CLEMENTS. That is correct. The fact is that it is not necessarily true that they are corrupt. It is easy to sit back and look at a situation and see someone who has awarded a contract that doesn't look like it should have been awarded, and clearly is a case of ineptness, and to say there must be corruption; and it is quite another thing to be able to prove it beyond a reasonable doubt. So our standards are quite different than the standards of the people who were calling this the biggest money scandal in the history of the United States.

Senator CHILES. I note that you have carefully detailed in your report how the managers would sort of even when inventory was supposed to be taken somewhere, they would have 1 week's notice and they would even shift inventories from one store to another, play that kind of game, but you seem to come down very hard that there was no way that you could really detect this on the basis that there was no item inventory in the process.

It just wasn't required. Everything was done on the basis of dollar volume of sales and it was so easy to manipulate the dollar volume of sales that you never could catch up really as to whether the shortage was there and without some item inventory that you would be able to see that you purchased 20 lawnmowers and you sold 15, so you ought to have 5 on the shelf, that there was never anyway of catching that as I understand, as one of the bases of your report.

Mr. CLEMENTS. That is correct. The inventories themselves were virtually nonexistent. The method of keeping records was purely counting dollars in, dollars out so that if a manager bought $20,000 worth of pens it didn't matter if his records showed that he sold $20,000 worth of Xerox paper. No one was checking. And there was no way for them to check an item inventory. The stores themselves, the managers did become quite a group and they all noticed, in fact, they could tell by their clothing which of them was getting bribes and which weren't because they were all shopping at the same store, paid for courtesy of one company. So they had visible sign of who among them was corrupt.

Senator CHILES. You could tell by the material.

Mr. CLEMENTS. Yes; they used to tell by the buttons. They were very fond of Pierre Cardin suits and he has a little P on the

buttons. It was fairly obvious to them because on their salaries perhaps they shouldn't have been able to afford those types of suits but they had them. So they knew what was going on.

The inventories became just to the managers, they were of no effect, they were of no purpose, and there was no effective control. Undermining it all was that when they would have inventory they would get advance notice of it and they would take out a car, or stationwagon, or van and move goods around.

Senator CHILES. I understand that part of that you called the Beltway inventory.

Mr. CLEMENTS. I didn't name it that, sir.

Senator CHILES. So you are not particularly comforted to find out 3 years later we still don't have an inventory. Mr. CLEMENTS. No; not at all. Not at all. Senator CHILES. Senator Danforth?

Senator DANFORTH. What sorts of items were taken? Let me go back to square 1. What are these stores?

Mr. CLEMENTS. The stores are designed to be retail outlets providing office supplies to the various agencies around the city and around the country, so that if someone in social security wants pens they don't have their own store to go to. They have a GSA store from whom they are supposed to buy goods.

Senator DANFORTH. What sorts of things are these supposed to sell to agencies?

Mr. CLEMENTS. What types of items?

Senator DANFORTH. Yes.

Office supplies?

Mr. CLEMENTS. Standard office supplies. It has ranged from office supplies to $100 briefcases, to artwork at one point because one individual decided that some GS-15's were entitled to have artwork in their offices paid for by the Government.

Senator DANFORTH. This is supposed to be purely for governmental use, it is not a shopping center for the convenience of employees, so they don't have to go somewhere else on their lunch hour. This is purely for governmental use. Is that right?

Mr. CLEMENTS. Yes; that is the design.

Senator DANFORTH. So, for example, the idea is that if an agency were short of pencils it can go to this store and get its pencils. Is that right?

Mr. CLEMENTS. That is correct.

Senator DANFORTH. What sorts of items, and then the type of abuse is what?

Mr. CLEMENTS. The type of abuse was simply that the providers of those pencils and the providers of folders and other things as is in fact kind of their normal course of business in the office supply business has as a practice almost the giving of televisions, and cameras, and other things to individuals who they do business with. I found when I left the Government that my law firm which buys a lot of yellow pads and folders, was in fact each year receiving within our law firm a color TV, a couple of cameras, whatever. One of the effects of our investigation of those was that they used to go home with the more senior partners. They are now raffled off every year at the office picnic. [Laughter.]

The giving of those items however, has been kind of traditional within the office supply industry. As incentives for greater purchases, and the managers were taking those items but more than that they began to request them, and they began to have deals with the companies who were providers whereby the companies who were providers would send them invoices and never send them any goods they would send the invoices through for payment and the manager would get gifts, he would get the opportunity to go out, buy clothing, he would get a color television. They literally were allowed to go to Sears and buy whatever they wanted out of the Sears catalog. If they bought a $1,000 tractor, we had someone who got a $1,000 tractor, the company would then send GSA an invoice for $1,300 worth of pens. The company made their markup all the time. So they would send in for $1,300 worth of pens or hanging folders and the managers would put that through.

There was no inventory, there was no way to ever determine what was in the store. The manager had to balance his book as to what was sold and that was simple enough. Some of them asked others to sign blank invoices that they purchased things in the various agencies and that worked fairly well, then the managers would redistribute some of their bribes.

The other part would be simply to raise prices. The stores are supposed to charge their customer at cost plus a penny operating cost.

Senator DANFORTH. That is the nature of the problem?

Mr. CLEMENTS. It was the nature of what we found.

Senator CHILES. Senator Nunn?

Senator NUNN. I have no questions.

Senator CHILES. We thank you very much for your testimony, Mr. Clements, and the work that you did in this regard.

Mr. CLEMENTS. Thank you.

Senator CHILES. Our next witness will be Mr. Tom Morris, the Commissioner and Mr. Herbert McCarthy, the Deputy Commissioner of the Federal Supply Service. Mr. Tom Morris has made a credible start toward reforming the Federal Supply System. Regretfully he is leaving the General Services Administration less than 1 year after his appointment, I might say parenthetically, as has almost every Commissioner of Federal Supply over the last 10 years.

It is not surprising that the General Accounting Office has detailed a history of a 10-year failure of General Services Administration officials to pay more than lip service to any reform effort. Beyond an occasional show of interest and response to the General Accounting Office and congressional criticism, the supply service in the past has failed to clean up the multiple-award mess.

I hope to hear today that that history is not about to repeat itself and that the reform started by Mr. Morris would be continued by Mr. McCarthy.

Would you raise your right hand and be sworn?

Do you swear the testimony you are about to give before the subcommittee will be the truth, the whole truth, and nothing but the truth, so help you God?

Mr. MORRIS. I do.

Mr. MCCARTHY. I do.