Report Of The Legislative Investigating Committee

The joint committee of the Seuate and House of Representatives, appointed to investígate the treasury department and the official acts of John McKinney, and also the previouB management of that department, and the contract for letting the work for the repairs to the St. Mary's Falla Ship Canal, respeetfully report that they have proseeuted their iuvestigations as diligently and effectually as it has been in their power to do, aud herewith respectfully submit the result of their labors. That the public migbt be made fully aware of the diligence of the comuiittee, and, also, of their neglect of duty if any means of arriving at correct results huve been omitted, they have been caroful to record the whole testimony as well as the questions, in answer to which, it bas been elicited. If any effort bas been omitted to arrive at the whole truth the eommittee is not aware of it, and whcther therc has becn.au earnest and determined investigation all who read the testimony will be fully able to judge. It is believed that no ono of the committeo bas had any object except to discharge faithfully the unpleasant duty witu whieh it bas been the pleaaure of the House to charge them. CANAL CONTRACT. In the iuvestigation of the letting of the canal contract the eommittee have called before them everybody eonnected therewith - both all the ffieera who constituted the Board of Control, which had the letting of the contract, as well as the oontractor.i themselves, and have been enabled to investígate them very fully The contract was not let to the lowest bidders therefor There were several par ties who proposed for the work, aud their names and the bids made by e-'ch appear in connection with the testimouy of the lato Goveruor. The testimony of that gentleman, also, as well as that of the late Auditor General, detail the reasoning and the motives which led them to reject the lowest bids and accept oue of the highest. ín the first place place Mr. Clark, one of the contractors, seems to have been considered a man well acquainted with the business he was proposing to enter upon : was known to some of the Board of Control as a man of energy, enterprise and reliability. The sureties which Mr. Clark and his associate, Holmes, offered for the duo fulfillmeut of their contract, if it should be awarded to them - Eber B Ward, Philo Parsons, Z. Chandler, and John Owen - were all citizens of this State, and meu of known wealth and responsibility. The Board of Control, therefore, seem to have considered that, in awarding the contract to Clark and Holmes, with such sureties for its performance as the gentlemen above named, they wer better consulting the interests of the State than they would have been had they let the work for a few thousands of dollars less, but to contractors ol less ability and offering less satisfactory sureties for its performance, aud j who mighi. possibly fail in completing it as the terms ot the contract miglit require. In this the eommittee cannot say that they aeted unwisely. The eommittee have endeavored to ascertain, both from direct testimony and from circumstances, whether any parties eonnected with the Board of Control or with the State Government had in any way, directly or otherwise, any interest with the contractora in the profits of the work. All the direct testiiuony, however repels this idea and directly contradicts it. The engiueers who estimatcd the expense of the work, on the supponition that it was to be done by the State directly, estimated its oost to be something more than the contractors undertook to do it tor, aud though Mr. Holmes, when asked what the work cost and the profits of the work, refused to answer, Clark statea the cost to have been between $55,000 and $70,000 The contract has undoubtedly been a profitable one, but noo to such au i extent as to créate an impression, much I less belief, in the minds of the commit' tee that there was any collusion at the ■ letting, aud especially as all positive testimony contradicts and refutes such an idea. On this subject the eommittee feel themselves eompelled to expreesj tha convictiou that the contnict was fairly let i and that, if there has beeu any error or i mistake in the transactiou, it has been ; only in judgment, aud that there is uoth! ing conuected with it indicating in any way official misoonduet or want of integ : rity on the part of auy public officer nected with ít CANAL LOAN. Tlie committee has also given somo atatteution to thü sale of cuual bouds so culled, aud the transactious with Hazletou & Company, whicb resultad in the deposit with them by the late Treasurer of &5U,0Ü0 This sale oí bouds seems to have been couducted with but little regard to the principies vvhieh gúveru such trausactions in the mouey market. Tho bonds were advertiged aud bids therefor received iu April and the loan was tüeii awarded to Hazletou & Co. as the highebt bidders. Ít dues not soem ti Lave buen : coutemplated that the trausautiou shouid be then elosed. ïhe bouds were yot to be prepared, aud they were not, 'iu fact, to be delivered until the July íollowiug. The variablencts of the money markat is such that it is rare that a responsable party will bid tbr &uch a loan to-day, when the transaction is not to be closed íbr two or three months. In the meautime the valué in the market of such seeurities changes with all the changes which affect the price of inonjy. To make such a trausaction, therefore, bo long before Land, and leave it uuclosed uutil J uly, when the money seems tohave buen wanted, to pay the coupons upon the State bonds, was to ruu imminent risk that the transactiou would fall through and the S;ate suífer dishonor, unless, what is hardly supposable, a party of uuquestioned respousibility could be fouud to enter iuto so hazardous a contract as to agree upon a present price for bonds to be tlei livered so long in the future. What was ! to have been apprehendea carne actually I to pass. A change in the marliet vaiue of money - a pretended change in tha value of the bonds, on accouut of ques ' tions as to the right of the State to issue the same to Hazleton & Go., au excuse to I decline fulüliing the contract. The late : Treasurer seems to have bceu utterly uufit to manage such a trausaction, aud to have been gurrounded by frieuds who were as uufit as himself - is incompetent I certainly, if uot much moro to blame than himself. The lato State Treasurer Holmes, Mc! Kinney's predecessor, had sold to this 1 same Hazleton & Co., f266,000 of State bonds during the time of his treasurership. The transaction was sotne months before Holmea rotired frora oiBoe. The price agreed to be paid for these bonds by Hazleton & Co., had not been fully paid when both Mr. Holmes and Wliitney Jones, the Auditor General at the time, weut out of office. The whole amountof the premium, being between $3,000 and j $4,000, agreed to be paid, had never been j realized. Wliitney Jones had had his ! attention oalled to this fact soon after his I term of office had expired, had examined J the Auditor's books, and had ascertained that the money had never been reported by the Treasurer as paid. He accompanied McKinney to New York, as kis adyiser aud friend. Mr. Holmes was there, also. Both consulted together, and it was by theiradvice that McKinney seeins to have been guided. Holmes had been one of the original bidders for the loan, as a competitor of Hazleton & Co.; had been in New Yorkwlien the loan was awarded to theui He hud nevor then mentioncd to the (roveruor or Treasurer that Hazleton "& Co. had failed to pay the full price of the first loan sold to them Neither he nor Jones, in July, wheu Hazleton & Co. decliued to t:iku the bouds unless McKinney would credit thcin, or leud tliem $50,000 of the amount, and while they were acting as his advisors and friends, informe'! him that ■ Hazleton & Co. had defaulted in the first transaction to the amount of. probably, upwards of $3,000, but on tíie contrary advised him that Hazleton & (Jo. were were perftctl respousible aud honorable men, who always livud up to, and fulfiiled '. their contract, and that the $00,000 ] would be perfeotly safe with theru. Had Mr. lIolmjH beea frank with the Governor aud statod this defaull of Hizlstou & Co. upon the first contract, they would uot have been allowed to become bidders for the loau. Had either of them subsequently stated the fact to Mc-Kiuuey he would not, supposiug him to be sane, have parted with the bonds to Hazleton & Co., until he shonld have received every dollar of the price to have been paid therefor, Whether Mr. Holmes' conduet is to be explained by a fact mentioued by Mr. Dewey in his testimony, and hereafter alladed to, that Hazleton & Co. had leut him inouey tho public must judge. The impression of the committee is that in that transaction the late Treasurer was more sinned against than sinning. He was utterly incompetent doubtless, but nev ertheless he seems to have dono vrrong under the advice ot friends who knew enough to advise him better. There are several circumstances connected with the conduct of Mr. Holmes both when ip office and after he had retired trom it, whioh socm very" difficult of justitication. Though the custom did not origínate with him - but prevailurt before his time - yet it seems to have been continued by him as well as by his successor, of keeping the accouuts with the various banks where the fuuds were deposited, not upon the regular books, but upou books, callod sometimes, "side books." The deposita for some years have been made with depositories upon interest of five per cent. aud during the admiuistration of Mr. Holmes this item of interest was a large one. And yet there is nothing in the office to show where the money was deposited ; the amount of interest which was justly due the State upon them, or anything by which the amount of interest which really accrued to the State can be estimated Money is entered as having been received on account of interest in gross sums; without any thiug to desígnate from whom received or on wliat account. Whether the interest so eutered as paid be all the interest was due the State, or whether it was all that was received, there is no means of knowing. That this mode of stating accounts in keeping books, leaves the door wide open to any fraud which a public officer may see fit to comniit, is appareut to all. That any have been committed duriug Mr. Holmes' administration may not be true ; but if not, it is certainly not for the want of the most ampie opportuuity to do it, without fear of detection. He seems to have been in the habit of depositing with, or lendiug money, to one C. L. Anthony, of New York, and when he retired from office there was an account of $15,000 and upwards against said Anthony, which was turned over by Mr. Holmes to Mr. McKiouey, as cash. About half this amouut remained uupaid uutil the present Treasurer came into office. It has beeu since settled, but without interest for 1860, by being deducted froui the amuuut duo the coutractors tbr the repuirs upon the canal, of whom Mr. Holmes was one. At the close of bis term, also, there was a draft trom the Detroit Advertiser office, in his favor, ou Hosuier & Kerr, for $826, which they had refiised to pay, haviug, as they state, previously paid the samo. This was let't iu the office as so much cash, and so re eeipted by McKinuey. Iu adjusting a running account with these gen leinen, the Deputy Xreasuror, Mr Huuter, seewa to have had addiess euough to duduct the auiouut of this draft Crom nioueys due them, aud the auiount reinaiusuow a subject of coutroveisy betweeu them aud the Treasury office There Las already been allusions to the conduct of Mr Holmes iu couueetiou with the uegotiations with Hazeltou & Co. He did nut rehuiré them to pay the full price oí the ñrst bonds sold them, and yet he dehvered to ihem all the bonds. About the same time he received aa accomodation from them in a loan or loans of mouey, to tho amount of 3,800, and it seems to have bcea tho understaadiug that he was not to be callad upon to repay it, it having been also understood, as it would appear, that the amouut of the premium on the loans was to remain uncalled for, or that the amouut leut Holmes should apply as a payment tkereof. When asked himself, if hc had iuformed the partios negotiating with Hazletod & Co. for the canal loan, of the failure of that firm to comply with their previous contract, and that they had i'ailed to pay the premium agreed to be paid, his reply was that he had not, aud the reason was that he still thought, at that time, that he might yet get the mouey, ami this though he had beeii out of office some inonths. It eeems clear to ! the committce, that in this transaction iteelf with Hazleton & Co., and in all his i subsequent conduct, in not informing eitlier the Governor when the information ! would have preventcd the giviug of the loan to Hazleton & Co , and afterwards, when the same information must havepre vented the trausaction with regai'd.to the $50,000, are altogether at varianco with tho duty incumbent upon bim. The first ■ - thnt i:--, letting Uazlcton & Co., have the $216,000 of bonds before the price i was fully paid - was official malfeasauce, by which the State lost, less, to be sure, than by the same kind of conduot on the part of McKinney aftorwards, but the act was of the same character as the subsequent onc by which $100,000 of bonds were delivered, and only $50,000 paid. If the fact that Hazleton & Co. let i Holmes have money to about a little more than ths premium on $216,000 of bonds sold thein by hiin, furnish the explanation of his conduct, than the tran saction assumes a still darker complexion, if it dos not become positive corruption or erabezzlement. The secoud, to-wit.: that he did not make known the fact, either to the Gofernor, or to MeKinney, at any time during the nogotiation of the canal loan, while utterly at variance with hig duty as a man of integrity and honor, takeu in connection with the reasons aseigned by hiinself for not doing it oan hardly fail to strengthen the unpleasant suspicion which arises frum the other circumstances connected with the original transaotion. The comtnittee have no desiro to givc a character to any of these transactions which they should not bear. To be eompelled to bestow censure instead of praiso is no agreeable offiee. They would, however, deern themselves not acting up to the duty imposed upon thein were they to allow a series of events liko these to pass without the most markedexpressions with regard to thein There is some coufliet cf testimony betwoen Mr. Holmes and Mr. Hunter relative to the disposal of the "side books" upon which accounts with the dep sitories of public raoneys were kopt duriug his term of office, and we pass that topic by, merely reuiarkiug that they are not to be found in the Treasurers office. mu jickinsey's official conduct. Tho official conduct ot the late Treuaurer, McKinney, has been subject to as rigid an investigation as it has been within the power of' the commntae to give it. The reiuaal of McKinney bimself to answer uny q'iestions, ol eoursó, bas deprived thein of one direct means of kuowledge. The manifest complicity ot his Deputy Treasury, llunter, with himself in ,,ïl the rnalpractices, whijh have taken place in eonnection with the funds of tbe office, the duplicity and insincerity of his tesümony, doterminedly and sigoedly shaped so as to ooDoeal every tranaaction possible to be concealed, and to assign a íalse reason for evory trausaction whieh could not be concealed, wbich wiil be apparent 10 every reader of his testimony ; the destructiou by him of all the books and papers of the officu upon which all the accounts were kept with banks and other depoeitories of public momys - all bava cou tributad to embaí rass the cornmitlee n its eftort to arrive at the f uil ex. ent of tbe peculatious which have been committed by McKiuney, Hunter and otuers, if auy others havo been connected with them. Still, However, euough bas been di&covered to show the character of the men and of the transactioos which have taken place, while the manner in which the accounts have been kept, has been such that it is clear that a considerable amount of public money has been at tbeir mercy, and if they have not used it when opportuniiy oöerod to do fo without detection, i would be conduct so entirely inconsistent with transactions impossible to be eoncealed as ts challenge the credulity even of the most incredulous. Mr. Hunter was a deputy of the predecessor of MuKinney. He seems to have been a ready accomplice, and vvilling, and ze lous to aid hun in destroying everything which could by any means enable the cotnmitteo to trace those accounts where most easily money might be abstrao;ed without discpvery. When he went out of office with his principal he deliberately and carefully burned. and that since this Legislature has been in seseion, all the books upon which the accounts of tho Treasurer were kept with banks and other depositories, and many papers of the office, also. So thoroughly was this done that there reFHained notfiing in the office to show any account with any bank or individual depository. The difficulty, therefore, which the comrnitteo nave met with from these causes have bet'ü so great as doubtless to prevent the discovery of many practices which would otherwise havo appeared. What can be tbe object in this ful destruction f books and papera boionging to the treasury depart.nent, aod upon which important official accounts wera kept, unlessit be to prevent ïnventigation and cover up fraud ? Hoiitísty fears no exumination ; dreads uot the elosestscrutiny, butever iovites it VVhy keep important accounts, auch as thoso with banks of deposits, upOQ what is called, " side books" at all V W hy kep all these transactions of the Treasury wuere there is an opportunity to purloiu money upoo books whioh may be to easily taken away and destroyed ? Why are accounts 80 loosely kept as to utterly bufflu investigatiou in m&ny respecta, and evon then not perruitted to survive , the term of office of the party during vvhosu term the transaciiotis then recordad took place. The committee feel coinpelled to say, frankly and plaiiiy, that thero cao be but oue raolive tor,such conduct. Parties thus acting cannot be innocent. They have been pilfering the public mouey8,and these are the ways resoited to to cover up and conceal the amount oí frauds commi tod from the public attention. There is no degree oí public censure too great 10 be visited upon all parties, whether principáis or accomilices vvho have been engaged in traosactions of this nature. The conimittee, however, after all, are coiupelled to say that, withiu the last two yerra, no vury great amount of tli public rnonies eau have boon lost. Thore are cortain accounts, üuch as the interest aceruing to the State upon the public moriies or deposit ia various places, commissions paid or purporting to havo been paid to brokers or bankers for paying the ioterest oí the State debt, items of exchangtí, and ottier transactions of a similar nature, vvhiuh involvs perhaps the payment o'" considerable sums of moncy. In all such cases there seems to huve been no cueck or ineans of jfuarding against fraud, and considerable amounts of money ior such items scum to have beec allowed to be taken by ftlcKinney upon no other voucher tlian Ijís own stutetneut. Theoo amounts, in vvhole or in part, may not have been paid by him. All the interterest upon the public monies rnay not have been credited by hirn, and it ia probable they wei e not, but have beun to some extent, appropriated by hitn and his deputy, Hunter. It is gratifyng, however, to know, that though sums which could thus be appropriated rnight amount to some few thousand dollars, they eould amount to no very larga sum. The amount of public moneys in deposit the past two years have been too small, and tha other items where these opportunities existed are not altogether suffioiently large to admit of any eonsiderubl e fraud by tbeir ineans. In addition to theso, which are minor tmatters, there is no doubt or question but that the late Treasurer has used money which carne intohis hands as Treasurer, and belonging to the State, to some amount above twenty tbree thousand dollara. He has received,ai;d receipted ior as Treasurer, from the Detroit and Milwaukoo Railroad Gompany the tax of that company for the lat t year, which haa never been credited upon the Treasury books, aniouiiting, including interest paid thereon, to be $3,000, also 8500 un paid balance of Hunter's drait on McKinney when the present Treasurer came into place. In addition to. these, alu, there is a discrepancy of $2,100 in the cash accounts of the office, the money being short that amount. Oí these items there seems to be no doubt. There appears also to be afloat some checks drawn by the late Treasnrer,upon the Insurance Bank, which may increase his defauit to sotno extent. - There are other itetas for which McKinney is legally and justly chargeable, though they caunot be considerad as ernbezzled by him. Of these items is the large one of $50,000 lent Hazeleton & Co., under the circumstanoes above stated. Also, an item of $1,280 30 being the amount of Lacsing City orders found in the Treasury, and for wbich, the dep'.'ty of the Treasurer, had given inoney in order, either to se cure hirnself from loss, or to aid a brother engaged in grading one of the streets of the city, - all evidence at loast, of weakness and utter unfitness and incompetency of both officers for their places, - though not in themselves criminal, except ia so far as they were violations oí duty and law. And, indeed, regard for law, seems to have baen a virtue held but in little repute by those gentlemen, as all the practice of the office show. The lavy requires that no money shall be paid from the Treasury except upon the warrant of the Auditor-lxeneral, and y et it seems to havo been a general practice to advance money from the Trea8ury to any parties doing business with, or for the State, as if upon an account current, and in anticipation of a warrant thereafier to be obtained. At the close of thdast year, Iherewere varjous items of thid sort in the Treasury, and amounting to considerable sums, among which were, one item of upwarde of $20,000 advanced to the concontractors upon the St. Alary's Canal, - Clark fc Holmes, - and various other items. And it was upon this practice, that the ingenioua deputy, Hunter, based his just.fication in giving hia brother $1,500 of the pablic money for Lansing City orders, because at some future time the Treasury might proba bly huve funds, derived Irom taxes upon non-resident lands in the city, which would be to the credit of the city. A statement of these items found in the Treaury, will be found io the testirno ny of Mr Owen. Tho Committee has not much to say of the value of the lands held by mortgage from Dewey and Hazle on. as security ior the üfty thousand dollars lent Hazelton & Co. The notes enumerated in the testimony of the late Attorney-General, are probably utterly worthless, all of tbem. The value of tho land it has been impossible to asoertain. On this subject, the Comrnittoe can only express the hope, a precarious one, perhaps, that the property may be sufficieutly valuable, to enuble the State in tho end, to realizo the monjy for which it stands as security. For all inforrnation upon this subject, tbc Committetj refers to thu tfislimony of the late Attcrney-Generul, and Mr Dewey. In conclusión, the Committee rnay venture to express the hope that with an act already passed this session, to bring the accounts of the Treasurer and tho condition o{ the f'unds belonging to the Saté in his hands, monthly to a close soniüny of other oflfieers of the átate, and another bilí now pona ing to regúlate more certainly the manner in which accounts shall be kept in tho Treasurer'a Office, no such state of things can again probably occur - and having said this, they respectfully submit the njsult of iheir most disagreeable duty to the Legialature, having, eo far aa they were able, sought to dis. charge it, at least faithfully aud without lcar. II. P. BALDWIN, Chairman Menate Committee. JAMES F. JOY, Chairman House Comroitteo. G. C. J0NE8, F. O. G-I1.BERT,