responsible for distribution of cost of materials procured by Holmes & Rarver and delivered to the Battalion for construction on Eniwetok Island. As reflected by the Controller's report on his trip to Los Alamos, June 25 to 27, 1950, no record of the end-usage of the construction materials delivered to the Battalion was maintained by them. The AEC Los Alamos Director of Finance recommended distribution of these material costs on a Bill of Material basis at the time of delivery to the Construction Battalion, and the Contracting Officer suggested an alternate method of making the distribution after completion of the Eniwetok Island construction. But the H & N Controller advised that the latter method would result in an interim inflation of inventories by inclusion of materials no longer in H & N custody. The Contracting Officer stated that either method was acceptable to his office. It was then pointed out by the H & N Controller that charging the materials to the Eniwetok Island Jobs in Progress on a pre-use basis would result ina non-factual relation between the material costs reflected by H & N state- ments and the reported percentage of completion, as furnished H & N by the Battalion. This was acknowledged by the Contracting Officer, who atated, however, that because this appeared to be the best solution of the matter, the AEC could not object to the distorted picture. He advised that the Commission was not interested in labor costs of the Battalion as reported by the Military to the Joint Technical Planning Conmmittee, and that he recognized the impossibility of presenting any comparable costs for structures on Eniwetok Island and similar or identical structures erected by H & N on other locations. He also stated that the only costs of interest to ABC were actual expenditures from AEC funds. Subsequently request was made * distribute these material costa on the basis of the original estimate. In addition to these major problems, there were many other conmplexities of General and Cost Accounting reporting peculiar to the Project: e During meetings at Los Alamos from July 26 through July 29, 1950, the H & N Contreller expressed concern over the requested continued delay in closing books as of June 30, 1950, because this delay interfered with processing of internal reports for the month of July. (Gn Angust 2, 1950, telephonic instructions were received to close the books and submit the reports on the basis of H & NM records, despite the fact that the AE re- cords reflected a material difference in the ABC equity accounts.) Also discussed was the method of handling AEC billings te the Departuent of Defense covering the construction services performed by H & N for the Military. This was subsequently resolved by AEC, by rescinding its previous instructions to bill the Commission by processing an Interoffice Transfer. This method would have resulted in understating contract costs; although admittedly the result obtained by this method, insofar as AEC books were concerned, was correct. Specifically, EH & N was authorized to continue to report these costs as currently reflected on the "Cost TAEC letter SC-6h19, December 6, 1950 (HN-108h3). 11-18