The rail and trucking industries spend about $1.5 billion a year to entertain and provide gifts for employes of shippers and federal agencies, and most of that cost is passed on illegally to consumers, a Senate subcommittee was told yesterday.
Five current and former auditors for the Interstate Commerce Commission told the Senate antitrust and monopoly subcommittee that such things as large-scale entertainment expense accounts, paid trips to Las Vegas and the Caribbean and gifts are "common practice" in the trucking and rail industries, which do not complete on prices because of federal regulation.
Subcommittee Chairman Edward M. Kennedy (D-Mass.) said he hoped such practices would be eliminated under deregulation, which he supports. "We should be seeing carriers compete on the cost of carrying goods rather than who can buy the fanciest vacation or the biggest steak," he said.
Spokesmen said the ICC could not confirm the $1.5 billion figure, but at a late-afternoon press briefing, ICC enforcement chief Peter Shannon revealed that at least four major cases of "excess entertainment expenses" had been referred to the justice Department for possible crimminal action. He also said that two ICC employes are the subject of a grand jury probe of payoffs from regulated carriers.
And, ICC Chairman A. Daniel O'Neal told the subcommittee that new regulations adopted by the commission would tighten restrictions on gifts and entertainment for commission employes.
The auditors also said they and their families were harassed when they tried to report many of the gifts and entertainment that had apparently been lavished on fellow employes.
Subcommittee staff members introduced an October 1975 memorandum from the ICC that outlines entertainment and gifts to more than 70 federal employes by Southern Railway.
The names of the recipients of meals and trips to a company-owned hunting preserve were deleted, but the memo showed that these gifts wer provided to FBI agents, officials of such agencies as the Social Security Administration, General Services Administration, Department of the Interior, Postal Service, Maritime Administration, and Department of Transportation, and other civillian and military personnel.
According to ICC Philadelphia auditor George Deller, who set the overall entertainment figure at $1.5 billion, almost $400,000 was spent by Southern for hunting paraphernalia and birds that would eventually be shot by the guests.
"They did everything but train the birds to fly in the way of the gunshot," Deller said.
Subcommittee sources said it appeared that, except for the FBI agents involved, no other federal employes named in the Southern Railway investigation document were referred to their respective agencies for action.
But the ICC's Shannon said the entire case was referred to Justice in April 1977.
All five witnesses told of discovering that government workers and employes of the various shipping firms were given all-expense-paid trips to Las Vegas and the Caribean for themselves and their families.
The witnesses said the $1.5 billion figure was probably "conservative." The major rail and motor carriers do about $7 billion a year in business.
While entertainment expenses per se are not illegal, large gifts and entertainment are considered a way around the regulated prices set by the government.
The ICC forbids "excessive" entertainment expenses from being included in the carriers' operating expenses because those expenses are used to determine what price a carrier can charge the shipper.
ICC officials Dick Burnam of the Bureau of Accounts disputed the auditors' testimony after the hearings. The auditors said most of thse expenses were included as operating expenses, but Burnam said they were not.
Burnam admitted that many firms try to include the expenses, but said that his knowledge they are usually prohibited from doing so. "That's why we audit them," he said. But, he added, "there are no clear guidelines on what is excessive."