Mr. Scott. And if--I mean if somebody objectively thinks that's a bad decision, whose decision should that be?

Mr. Theodus. Well, it was a good decision.

Mr. Scott. It was a good decision.

Mr. Theodus. It was a good decision. However, when Carey took office he knew that that would create a deficit in spending, and he did absolutely nothing to address that problem.

Mr. DeRusha. Could I address that a little bit?

Mr. Scott. Sure.

Mr. DeRusha. Very early on Carey recognized the fact that the strike benefit was going to be drained because of that increase, yet he did nothing. Though he said, “We need a convention." He said, "We've got to do something," but he did nothing. The problem at the convention, though Weldon--as the fellow down there has said--Weldon Mathis told everyone there publicly from the podium, "We're going to go bankrupt if you don't do something because you can't afford this." There had been a lot of research into how much it should be increased.

Mr. Scott. Well, one of the problems we've got up here is who ought to be making that decision, because a lot of unions borrow money to get through strikes. I mean, it's a policy decision that the union makes, that they've decided it's in the best interest of the union to pay strike benefits, and shouldn't that be left to the union to make? Shouldn't that decision be left to the union?

Mr. Theodus. It was left to the Union.

Mr. Scott. Well-

Mr. Theodus. However, what you're trying to imply is that the raise in the strike benefits was the sole cause of this administration spending almost $700 million of Teamster's dues money, when in fact, in reality, only $120-some million of that money was for strike benefits. Where did the other $600 million go?

Mr. Scott. Thank you, Mr. Chairman.

Mr. Theodus. On organizing? I doubt it.

Chairman Hoekstra. The real question, I think, is, Should rank and file members have to file lawsuits to get financial data? Or should, perhaps, we consider some freedom of information-type legislation so that, you know, if you're a rank and file union member you can get access to financial data. I don't know if any of you have a thought on that.

Mr. Theodus. In local unions, the majority of local unions have specific duties of trustees, and it is spelled out in local union bylaws that they have access to all books, documents, and supporting evidence or supporting documents. At the International, they allowed the trustees to see the books but not the total supporting documents, and therein lies the key to finding out where your money went. When you're looking at audited books, they only state so much is spent on administration, but you need to look at the supporting documents to find out actually where it went.

Chairman Hoekstra. Don't feel bad; they're not giving us that data either. Did you have another question?

Mrs. Mink. No, I'd just like to make a closing statement, as we are about done. I thank the chairman for giving me this time to make a few closing comments.

I wish that the minority had had the opportunity to know something about the witnesses for today and copies in advance of your testimony so that we could be better prepared to understand what the issues were and what your concerns are. I think you have raised some very, very important questions, and matters relating to accusations of fraud are very serious. Accusations of mismanagement of the funds of the Union are serious, and so in that connection I've asked the Chair--since a lot of the points made go to the IRB--that we have a prompt opportunity to call the IRB here to answer specifically the charges and the points and the complaints that have been raised today. I think that that's important for this record to have.

I don't know how else to assure the four of you who are here that the minority is very much interested in finding out what the facts are, where the money went to, and to help assure the members of this Union that what the law is, is being adhered to.

Mr. Chairman, in that connection I have a copy here of the United States Court of Appeals for the Second District's decision in the Simpson matter, since that has been discussed today. I would ask that that be put in the record at this point.

Chairman Hoekstra. Without objection, so ordered.

SDNY DECISION ON THE SIMPSON MATTER - SEE APPENDIX I

Mrs. Mink. I think it's important for everyone here in the room here to know that the minority members of this subcommittee are very much interested in the hearings and in the discussions that are to take place. We are handicapped very seriously because we are not part of the team in deciding who, when, and why witnesses are being called, and so we are somewhat at a disadvantage.

But our disadvantage should not be misinterpreted as a lack of interest or any desire to in any way impede the legitimate progress of this subcommittee in investigating what happened at the elections of 1996, and if there is any misconduct on the part of the election officers or the IRB or any of the Federal officials who have responsibility for monitoring of the elections. And I want to assure the Chair of our interest and our willingness to participate in that regard.

Since you alluded to the fact that your consultants and other members of your staff have come up with a tentative outline of what further discussions we might have in this subcommittee on the Teamsters, I would like to respectfully request that this information at least, if only tentatively, be shared with us so that we can be part of the hearings and part of the deliberation and make a more demonstrative contribution to these hearings.

Today we are handicapped. We didn't have the testimony. We didn't really know who was coming until yesterday at noon, and I find that this makes it very, very difficult for us to prepare, to call other witnesses. Had I known that the principal individuals, or entity, that was going to be charged with misconduct and abuse of power was the IRB, I would have made every effort to add them to the panel today.

And so, again, Mr. Chairman, I ask that prompt attention be given to our request and the IRB be called promptly so that we may, while this matter is fresh at hand, that they be given an opportunity to answer the charges that have been made today and to respond to further questions and inquiry that we might have. Thank you, Mr. Chairman.

Chairman Hoekstra. Let me do it right now, all right? We welcome your participation in this process and moving beyond the procedural issues that have been focused on for the last couple of months, and so we welcome your participation.

Let me tell you who we want to have and who we believe are essential to testify as we get information from some or all of these groups: the Justice Department, the Labor Department, the IRB, the Election Officer, the Teamsters--that's five. And, you know, especially with the Teamsters, it would help if they did for us what they have not done for Mr. DeRusha or Mr. Simpson, to provide us with the information that we have requested for the subpoenas. But, remember where we're going. We're going to file the taxpayers money on the--for the--that we paid for the election. We're going to file the $600 million to $700 million in members' dues that were paid and that, in this period of time, resulted in the net worth going down to $700,000. We want to find out about the money swaps, the illegal campaign activities.

And I think with Mr. LeFevre's testimony today, it is obvious--and Ms. Mink, you mentioned it as well--that we have to take a look at the pension funds, which is where probably more money than anything else that we're talking about--and this gets to rank and file Teamsters because this is their future, their future retirements, and we want to

take a look at pensions.

So, those are the areas specifically that we are working on gathering information, some of whom--some people who are complying and working with us effectively and efficiently, and others who are trying to do everything they can to obstruct and make sure that we don't get the numbers or the information that we need to be successful.

I'd like to thank this panel for your compelling testimony today, for being here, and helping us as a collective subcommittee perhaps now be focused on what we have been trying to get done for the last three months. This is a very difficult issue. I think you have laid out how difficult it is to work through this morass of people trying to obstruct, by people trying to change the subject and to destroy you personally.

And so it is indicative of the characteristics that the people who have been fighting against you have used in every effort, whether it's a congressional inquiry or whether it's the efforts that you have participated in. Thank you very much.

Mr. LeFevre. Thank you, sir.

Mr. DeRusha. Thank you.

Chairman Hoekstra. We are going to move directly to the second panel, so we'll take just one break, a minute to get Fred up here, and we will start.

We will begin our second panel today. The second panel is a presentation from Mr. Fred Smolen, who is a consultant to the subcommittee for the purposes of the Teamsters investigation. Mr. Smolen is a distinguished forensic auditor who is working with us to identify the current status of the Teamster's finances and the causes for their deterioration.

Mr. Smolen today will testify as a witness to give us a report on initial questions identified by him and findings based solely on his review of the--and let me stress--the very limited--very limited financial information that is available from public disclosure forms filed with the Federal Government. The Chair will recognize Mr. Smolen for an adequate period of time to report thoroughly on his work, to be followed by questioning by the members. Mr. Smolen.

TESTIMONY OF FREDERICK W. SMOLEN, CHIEF FORENSIC AUDITOR, FINANCIAL INVESTIGATIONS & SERVICES, INC.

Mr. Smolen. Mr. Chairman, distinguished members of this House subcommittee, and guests at this hearing, thank you for-

Chairman Hoekstra. Excuse me, Mr. Smolen. Before we do that, we need to swear you in, and you should also be aware that making a false statement to Congress while under oath may be prosecuted under law. Would you please rise?

[Witness sworn.]

Chairman Hoekstra. Let the record reflect that the witness has answered in the affirmative. Mr. Smolen.

Mr. Smolen. Mr. Chairman, distinguished members of this House subcommittee, and guests at this hearing, thank you for this opportunity. To discuss the financial affairs of the International Brotherhood of Teamsters, I must cover not only the Union's finances, but also three key areas: accountability, reporting, and oversight, and whether the organization was effective or ineffective in each of these areas.

The Teamster's Union is in crisis. It is both a financial and managerial crisis, financial crisis because the Teamster's most recent internal accounting statements show it is nearly insolvent. Its net worth, which was more than $156 million on January 1, 1992, dropped to a mere $700,000 on September 30, 1997; managerial crisis because the general president was re-elected in 1996 under a Government-supervised election at a cost to the taxpayers of approximately $20 million. Ron Carey is now removed amid allegations of fraud and misuse of treasury funds related to his re-election. This has brought the Union into a leadership crisis, requiring a new election.

Between 1992 and 1997, the Teamster's net worth declined by an average of $26 million per year, an estimated $100,000 every working day. This is more than rank and file workers receive in a year. Think of it as a loss of $12,500 for every working hour.

This horrendous loss begs answers for three questions. First, where did the money go? Second, where was the oversight by the Department of Justice, the Independent Review Board, and the regulators at the Department of Labor? And, third, are current Teamster officials covering up a systemic and wide-ranging series of fraudulent and illegal financial activities?

I am Frederick W. Smolen, chief forensic auditor of the subcommittee. I'm a certified public accountant and serve the business, financial, and legal community as an advisor, consultant, and expert witness. Based on my profession's standards, in addition to what has been already learned, there appears to be fraudulent financial activities at the Teamsters between 1992 and 1997.

This conclusion is because of domination without controls, of Teamster's management by a small group of individuals, missing documents, refusal by the IBT to provide information, including financial books and records, and, finally, financial analyses reflecting unexpected and significant differences.

For the last 20 years I've investigated business and financial affairs of numerous publicly-held and privately-held entities, including not-for-profit organizations. Many were involved in fraudulent financial activities, faced bankruptcy, or went bankrupt. Since my hiring six weeks ago, I've worked to ensure that you, Mr. Chairman, and the