Bibliography Notes: Audit of the Metals Reserve Company (1948)

This document, itself a volume of a broader audit of MRCs parent company the Reconstruction Finance Corporation, was submitted to the U.S. House of Representatives on November 26, 1948 by the office of the U.S. Comptroller General. While this seems like a routine audit document, I’ve struggled to find any other audits of the MRC–the final report” of the RFC published in 1957 only cites statistics from this 1948 audit.

This is maybe a little unusual given the final sentence of the audit summary: Because of the qualifications presented in the summary beginning on the first page of this volume, we are unable to express the opinion that the financial statements accompanying this report present fairly the financial position of Metals Reserve Company at June 30, 1945, or the results of its operations for the period ended on that date.” The 72 preceding pages detail MRCs activities through World War II–or more accurately, the gaps and uncertainties in MRCs own disarrayed records of its activities.

Working backward from that extraordinarily restrained concluding sentence: what did our auditor glean from the documents available? What are the aforementioned qualifications? Maybe let’s start by just explaining what MRC was actually chartered to do.

  • Procurement and disposal/stockpiling of strategic and critical minerals
  • Payment of subsidies to mineral producers
  • Salvage and scrap metal recovery programs
  • Redistribution of surplus aircraft materials and parts

For the purposes of my research interests, I’m mostly interested in the audit’s assessment of the first two activities. Much of the audit summary covers MRCs subsidy function and what the auditor describes as indirect subsidies.” In 1942, MRC was authorized by Congress to pay subsidies to producers of critical minerals to spur production–basically, if the rate that the government was authorized to pay for materials (as dictated by the Office of Price Administration) was deemed too low to compensate for production costs, MRC could cover whatever difference would make production profitable. While MRC provided totals for their various premium payments” and subsidizing of certain mining developments, our intrepid auditor has some misgivings about the official tabulation because of other activities that, while not counted as subsidies, provided the same benefits as subsidies. This would include selling metals at a loss to manufacturers (the difference being effectively a subsidy” to the original seller to MRC, who would have been paid less selling directly to the manufacturer), keeping refinieries open at a financial loss for seemingly non-crucial materials, and buying vanadium ore from companies only to process it in government-operated plants and then resell it to the same companies at a loss.

Mostly, some of these actions seem to be a problem because these actions were often taken at the behest of government agencies who would have otherwise had to receive Congressional approval for making various purchases who could then avoid oversight by running it through RFC/MRC, which basically had a direct line to the U.S. Treasury. Then again, Congress received reports on MRCs activities and didn’t really make a stink about it. The audit concludes with an acknowledgment that none of this bad accounting was technically illegal so much as untoward.

Technically legal but untoward” is honestly the vibe of most of the audit’s findings–there’s a lot of subtext to be found in some of the more oblique shade thrown in the audit. Among my favorites:

  • In some cases, as a direct result [of MRCs purely administrative role receiving instruction from other agencies], the Corporation became involved in arrangements which appeared to us to be at best unbusinesslike.”  (There is no further elaboration on what this means.)
  • It is apparent from our review of [board] minutes that no considered deliberation could have been given to many of the matters, and, in many cases, the actions taken were perfunctory.” TLDR: the MRC board rubber-stamped most decisions.
  • A limited review of the records of claims receivable maintained in the treasurer’s office indicated to us that the total of claims, as recorded…was not a reliable figure.” We didn’t even look at all of your records, but those were bad enough that we don’t trust your numbers.
  • We encountered difficulty in our review of accounts receivable records because of the Corporations failure to keep complete, consistently arranged files of supporting data, properly indexed and cross-referenced, and in readily accessible order; and because the Corporation made extensive use of complex entries and extraordinary adjusting entries, we found the tracing of individual sales invoices and collections through the records to ultimate disposition to be a costly and time-consuming procedure. These difficulties must have been a serious handicap in day-to-day bookkeeping activity, and they must also have added heavily to administrative expenses and to the hazards of loss attributable to faulty control over assets and operations.”
  • The auditors did not attempt to audit the Colonial Mica Corporation [a subsidiary agent of MRC which uh, was investigated by the Department of Justice?], primarily, it is believed, because of the confusion, the discrepancies, and the incompleteness which characterized the records of such transactions.”
  • On the overpayment of a contractor by some $80,000: So far as we know, no steps had been taken by the Corporation to investigate this possibility, despite the fact that certain refunds received from the agent indicate his awareness of some overpayments.”

With those last two, it seems pretty likely to me that having really messy books for international minerals trade and mine development is a pretty convenient way to hide the bribes and/or kickbacks that might have been involved in getting certain mining projects to even happen or various contractor agents” skimming off the top–but, of course, the audit doesn’t really say that.

This was extremely helpful to read in preparation for reviewing the MRC archives: while the receipts may still be interesting to go through, at least I know to expect that those receipts may not entirely add up. It also helps me think about which questions I can meaningfully answer through these archives–probably not a complete accounting of operations or a comprehensive supply chain analysis!

November 23, 2022