FURNITURE AND FIXTURES

Considering the increased cost of office equipment, furniture and fixtures, the increase for 1943 appears proper. Heretofore, some of our custodians have rented us some equipment on a part-time basis; but due to unusual demands on the Federal Reserve banks in the past few months, many of them have requested us to buy equipment to replace bank-owned furniture. Normal replacements of Corporation-owned equipment have been considered since this Corporation is now 10 years old.

OFFICE OF THE SECRETARY

The functions of the office of the Secretary involve a vast amount of administrative work and touch upon the activities of almost every other division of the Corporation. Such functions include

Preparation of the minutes of the Corporation, recording every action of the board of directors and executive committee, which minutes constitute the official record of the Corporation's action.

Advising other divisions of the Washington office and loan agencies in the field of the action of the board and executive committee.

Preparation of a large volume of correspondence resulting from board and executive committee action; editorial work in connection with revision of printed matter relating to Reconstruction Finance Corporation and affiliated organizations for inclusion in the Congressional Directory, United States Government Manual, Official Register of the United States, encyclopedias, bankers' directories, etc., and preparation of general correspondence.

Compilation and annotation of pamphlet containing laws relating to Recon struction Finance Corporation and circular of information relating to Corporation's activities.

Maintenance and supervision of the general files of the Corporation.
Telephone and telegraph services.

Printing and duplicating for Washington office.

Purchase of furniture, equipment, and supplies for Washington office and loan agencies in the field.

Supervision, maintenance, and repair of building occupied by Corporation in Washington.

Preparation and certification of pay rolls of Washington office.

Maintenance of personnel record for each employee in Washington; personnel card for each employee in loan agencies; individual leave-of-absence record for each employee in Washington; personnel records of advisory committee members of Reconstruction Finance Corporation loan agencies and local committee members of Disaster Loan Corporation regional offices;

Approval of all applications for leave.

Codification of instructions to loan agencies relating to internal affairs.

Passing upon monthly and quarterly reports of the Corporation required to be made by law.

Affixation and attestation of seal to a large number of documents and some 3,000 proxies issued in connection with annual meetings of banks and insurance companies, the stock of which has been purchased by the Corporation or held by it. All such proxies and documents are checked in the Secretary's office for accuracy and authority for their execution.

The office of the Secretary of the Reconstruction Finance Corporation also prepares and keeps the minutes of The RFC Mortgage Company, the Disaster Loan Corporation, the Federal National Mortgage Association, the Metals Reserve Company, the Rubber Reserve Company, the Defense Plant Corporation, the Defense Supplies Corporation, and the Defense Homes Corporation.

The Secretary of the Reconstruction Finance Corporation is Secretary of Defense Supplies Corporation; the Acting Secretary of the Reconstruction Finance Corporation is Secretary of Defense Plant Corporation; an Assistant Secretary of the Reconstruction Finance Corporation is Assistant Secretary of Defense Plant Corporation; and an Assistant Secretary of the Reconstruction Finance Corporation is Secretary of Disaster Loan Corporation, Metals Reserve Company, and Rubber Reserve Company.

The Acting Secretary of the Reconstruction Finance Corporation is a member of the board of trustees and President of Electric Home and Farm Authority; an Assistant Secretary of the Corporation is Secretary of that Authority; and an Administrative Assistant is Assistant Secretary of that "Authority.

Maintains and supervises the general files of The RFC Mortgage Company, Disaster Loan Corporation, Federal National Mortgage Association, Metals

Reserve Company, Rubber Reserve Company, Defense Plant Corporation, Defense Supplies Corporation, and Defense Homes Corporation.

The increase in personnel in the 1942-43 budget estimates for salaries of the office of the Secretary involves the employment of additional telephone operators, messengers, clerks, stenographers, and typists because of increased volume of business resulting from accelerated national defense and other activities of the Reconstruction Finance Corporation and corporations created to aid in the national-defense program of the United States.

OFFICE OF THE TREASURER

The Treasurer's office is responsible for the supervision and maintenance of all financial records of the Corporation. It has direct responsibility for the formulation of all disbursements, collection, safekeeping, and accounting procedure, the issuance of instructions to its fiscal agents (the Federal Reserve banks and their branches), and the supervision of the functioning of transactions thereunder.

There are approximately 9,000 loans and investments aggregating over $2,300,000,000, as well as on approximately 250,000 individual collateral items on which accounting records must be maintained. As interest and/or principal payments are received on these collateral items, they are applied on the borrowers' indebtedness. In addition, in connection with such loans and collateral items, appropriate safekeeping records must be maintained. All transactions must be properly verified to determine that they are consummated in accordance with duly approved instructions.

The Corporation holds over 1,000 issues of securities purchased from the Federal Emergency Administration of Public Works, aggregating over $116,000,000, which it markets from time to time as conditions warrant. Defaults in connection with such issues necessitate close supervision requiring special statistical and accounting reports.

In addition, the Corporation owns and operates the Metals Reserve Company, Rubber Reserve Company, and Defense Supplies Corporation, each of which is engaged in acquiring and carrying strategic and critical materials, as defined by the President, and making advances for other purposes desirable in the interests of the national-defense program. The Defense Plant Corporation acquires plant sites, constructs buildings and acquires machinery and equipment for the manufacture of airplanes and parts, aluminum and products, ordnance items, machines, tools, magnesium, tanks and tank engines, steel and pig iron, etc., and for the construction of docks and shipyards. Commitments of these companies aggregate in excess of $3,500,000,000.

The accounting records must be maintained in such detail and accounts classified in such a manner as to permit the Corporation to prepare reports of a statistical nature which are required to be submitted to the President and the Congress and for numerous other accounting and statistical reports required for the proper conduct of the Corporation's affairs.

There probably will be 2,000,000 cotton, corn, wheat, and other commodity loans handled for account of Commodity Credit Corporation during the remainder of the current fiscal year and the early part of the fiscal year 1943.

There are approximately 11,556 loans and mortagages on the books of The RFC Mortgage Company; 14,392 loans on the books of the Disaster Loan Corporation; and 53,900 loans and mortgages on the books of the Federal National Mortgage Association. Practically all of such loans and mortgages are payable principal and interest on a monthly basis. In addition, monthly desposit for payment of taxes, insurance, etc., are required making approximately 3,000,000 entries per year.

The Corporation has on hand some 16,684 individual items of property. The nature of these items requires close accounting supervision in order to preserve the Corporation's equity in the properties and to properly account for all income and maintenance expenses.

The interest accounts are maintained on an accrual basis. The interest rates on loans and investments have been reduced from time to time subject to certain conditions. Each interest payment is reviewed to determine its mathematical accuracy as well as to ascertain that all conditions have been met. Approximately $69,000,000 is collected annually in interest and dividends.

AGENCY DIVISION, WASHINGTON OFFICE

The estimates of salaries are submitted for the fiscal year 1943 on the basis of annual salaries of Agency Division employees on the pay roll of the Washington office, including the special representative at Memphis, Tenn., as at the close of

July 15, 1941, and give effect to the contemplated addition of two examiners and two stenographers. Provision is also made for increases resulting from Executive Order No. 8842 of the President, dated August 1, 1941. Activities of the several affiliated defense organizations, as well as contiuned expansion in the activities of the Federal National Mortgage Association and Commodity Credit Corporation, result in a continued increase in the work of this Division.

With provision of adequate personnel to make desired calls on loan agencies in the maintenance of proper supervision, there will be an increase in travel, and provision, therefore, should be made for some additional travel expense.

AUDITING DIVISION

The estimates of the personnel requirements of the Auditing Division for the fiscal year ending June 30, 1943, reflect a total of 354 employees with annual salaries aggregating $1,120,560.

Per diem, railroad, and other traveling expenses for this same period are estimated at $550,904.50.

The increase in the number of employees and estimated salaries for the Auditing Division for the fiscal year 1943 is due to the work of this Division in connection with the national-defense program. The foregoing estimates include provisions for 153 employees in addition to those on the pay roll at July 15, 1941, to take care of the auditing of new projects presently contemplated by the Defense Plant Corporation and the Defense Homes Corporation.

It should be remembered that a further expansion of the national-defense program would require corresponding additions to the staff of the Auditing Division but that no intelligent estimate of such potential additional requirements can be made at this time.

Your attention is directed to the fact that of the 354 employees required by the present estimate, approximately 257 will be directly engaged on the work of the national-defense program and that the salaries and traveling expenses of these employees will be chargeable to the cost of the respective projects on which they are engaged. In addition thereto the estimate includes provision for 15 employees engaged in the Washington office on the administration of the auditing in connection with the national-defense program, all of whose salaries will be chargeable to projects of the respective defense corporations.

DIVISION OF INFORMATION

The estimated salaries for the fiscal year 1943 are necessary to provide for the carrying on of the information service conducted by the Corporation.

The purpose of this Division is to furnish information to the press and public in general concerning the cperations and activities of the Reconstruction Finance Corporation and its subsidiaries and affiliates.

EXAMINING DIVISION

The Examining Division is presently servicing 86,262 items in the amount of $1,456,612,148, with 3,696 undisbursed loans or investments outstanding in the total amount of $155,446,378, and with 105 conditional agreements for loans or investments outstanding in the total amount of $377,473,318. In addition there are pending in the various agencies at the present time 230 business loan applications totaling $11,893,819.29, with 49 applications totaling $9,543,796.25 pending in the Washington office.

This Corporation has at this time investments in 3,773 banks totaling $451,429,199, which includes 260 problem banks and 210 closed banks. Included in this amount are 76 loans on preferred stock in the amount of $26,259,493.01. Our examiners review and analyze the condition of the banks as shown by the reports of examinations, which examinations are made as often as twice a year. In addition thereto, reports are prepared relative to bank administration and amendatory action in connection therewith. Earnings reports, which are received twice a year, are reviewed and checked. Retirements, predicated on earnings and condition of banks, are functioned and involve preparation of letters and reports. Problem banks, of course, require special attention, including conferences and correspondence, and we find from experience that increased travel is necessary in order to give proper attention to these institutions. The closed institutions require special and frequent reports in connection with procedure and progress of liquidation.

Although the administration of The RFC Mortgage Company and the Federal National Mortgage Association involves a substantial number of items handled

by the Examining Division, which number is constantly increasing, it requires a relatively small personnel in view of the number of items handled.

The Disaster Loan Corporation, while necessitating the handling of many items, does not require a large amount of personnel in view of the nature of the loans, excepting in cases where it is necessary to set up field offices in order to adequately take care of the applications resulting from catastrophes.

The largest amount of activity, however, continues to be concentrated in the making and administering of business loans. Of the 3,747 presently outstanding, there are 753 totaling $20,544,842 which are definite problems and require special and unusual attention. Experience continues to show that practically all of the business loans require more attention than any other loans made by this Corporation, not only in the making but especially in the servicing. It is necessary to maintain adequate personnel to properly administer these loans in order to keep losses at a minimum. Proper administration requires inspections and visits to the industries, with an increasing amount of travel.

In addition to the regular business loans, loans are being made in connection with the national defense program which entail an extra amount of travel from the Washington office, inspections and conferences and communications with the agencies administering the defense program. Personnel also is being supplied for the different defense corporations. The administrative staff of the Defense Homes Corporation is supplied by this Division. This Corporation is engaged in the construction, operation, and ownership of residences located in designated defense areas in need of housing. Personnel is also furnished to the Defense Supplies Corporation, which is engaged in the accumulation of strategic and critical materials in the defense program. Personnel is also supplied to the Defense Plant Corporation, which is engaged in the construction of new and additional defense plants, and to the Rubber Reserve Corporation and the Metals Reserve Corporation.

The proper administration of the loans and investments made by this Corporation requires close and careful attention. The making of defense loans as well as supplying personnel to the defense corporations makes it necessary to add to our servicing and administrative personnel, and it is expected that the need for travel will continue in order to give proper attention to the servicing of loans and investments as well as to defense matters, including the various defense corporations. As of July 31, 1941, the Examining Division of the Reconstruction Finance Corporation is servicing loans and investments as indicated below, and will be required to service undisbursed loans or investments as shown, when and if they are disbursed:

NOTE. In addition to servicing the above items, this Division is furnishing the following personnel to the different defense corporations: Defense Homes Corporation, 9; Defense Plant Corporation, 7; Defense Supplies Corporation, 8; Rubber Reserve Company, 4: and Metals Reserve Company, 4.

LEGAL DIVISION

This Division performs all of the legal work necessary in connection with the activities of the Corporation.

Such legal work pertains not only to the consummation of loan transactions but also to questions arising in connection with administration. Thus, the work has for years been representative of a cumulative problem and as time goes on the liquidation of investments previously made requires increased activity and attention on the part of the legal staff. An example of this factor is the loans made to railroads which require competent representation of the Corporation's interests in connection with many railroad reorganizations which are now reaching the courts throughout the country. In addition, it is also necessary to maintain adequate supervision of the more than 8,000 cases in which the Corporation is interested and which are being litigated in courts throughout the Nation.

The legislation enacted on June 25, 1940, and supplemented on June 10, 1941, conferred upon Reconstruction Finance Corporation's broad authority to perform functions related to the national-defense program, including the authority to create or organize corporations with power to acquire strategic and critical materials, to build and lease manufacturing plants, and to engage in manufacturing. Pursuant to this authority Reconstruction Finance Corporation has created Rubber Reserve Co., Metals Reserve Co., Defense Plant Corporation, and Defense Supplies Corporation, all of which have been carrying on activities to aid in the national-defense program. The Reconstruction Finance Corporation Legal Division has been charged with the responsibility of furnishing the legal staff for all of these corporations. Each such staff has had the task of formulating general legal procedure, preparing documents, and rendering advice with respect to transactions taking place not only in the United States, but also in widely scattered locations throughout the world.

In addition, the Federal Loan Administrator organized Defense Homes Corporation for the purpose of financing housing_construction in defense work areas and the Reconstruction Finance Corporation Legal Division has had to furnish a staff for this work as well. Thus, the activities of the Reconstruction Finance Corporation have greatly increased, due principally to its participation in the national defense program. The extension of the Reconstruction Finance Corporation's lending life to January 22, 1947, by the act of June 25, 1940, is evidence that the Congress expects that such activity will continue.

Also, the Federal Loan Agency has no legal staff of its own, and its legal work is almost entirely performed by attorneys on the Reconstruction Finance Corporation staff whose services are loaned on a reimbursable basis.

In addition to the regular employees of the Corporation performing legal services, there are about 900 field counsel, almost all of whom are paid on a fee instead of fixed salary basis. It is to the interest of the Corporation to superintend the work carried on by these field counsel because of the questions of policy involved and because it is contemplated that, whenever possible, such work will, in the interest of economy, be transferred to attorneys on a salary. To the extent that such work is assumed by salaried attorneys, however, sufficient funds must be provided in the Budget estimate.

In view of the foregoing, it is estimated that the expense incident to the work to be performed by the Legal Division of the Reconstruction Finance Corporation will be $892,620.

DIVISION OF PERSONNEL

The estimated salaries for the fiscal year 1943 are necessary for the maintenance of the personnel program. This includes selection and placement of new employees, transfer and promotion of employees within the organization, salary administration, supervision of employee organizations and employee relations, position classification, and efficiency ratings.

Attention is called to the fact that, since July 1, 1941, it has been necessary to This has increased the work of select employees through civil-service channels. the Placement Section to a considerable extent. It is also necessary, under Executive Order 8842, to establish and administer an efficiency-rating plan. This is an activity not previously engaged in by the Corporation.

Effective January 1, 1942, positions in the Corporation will be covered into the civil service, with certain exceptions. The procedure incident to covering in may be extended over a period of considerable time, and it will be necessary to arrange for certifications, examinations, fingerprinting, and the incidental record work in connection with this process.