Part 3

"The facts which have been brought to light in the course of this investigation have constrained us already to recommend rigorous proceedings to be taken against the following parties:

"First.--Against Denison, Belden & Co. for the recovery of large sums of money which they appear to have received unlawfully under their contracts for work between Port Schuyler and the lower Mohawk aqueduct, and for work east of the city of Utica, both on the Erie Canal. The claims of the State against these parties are fully set forth in the first and second reports of this commission to the Governor, and suits are in progress.

"Second.--George D. Lord has been indicted by a grand jury of Erie County, upon the facts disclosed by this commission, for bribery in procuring an act of the Legislature for the relief of one John Hand. The history of this case will be found in the fifth report of this commission to the Governor.

"Third.--Thaddeus C. Davis, late member of the Board of Canal Appraisers, has also been indicted for a conspiracy to cheat the State. The circumstances which made him amenable to the criminal courts are set forth in the fifth, seventh, and eighth reports of this commission to the Governor.

"A civil suit has also been instituted against Davis to recover moneys fraudulently obtained from the State by himself in conjunction with George D. Lord.

"Fourth.--Indictments have also been found upon the testimony furnished by the commission against the following other high officials: Alexander Barkley, ex-canal commissioner; John Kelly, late superintendent of section No. 12 of the Erie Canal; J. Frederick Behn, division engineer of the western section; and D. Clinton Welch, ex-superintendent of section No. 12.

"Fifth.--Upon testimony furnished by this commission, the commissioners of the canal fund made a requisition upon the Governor for the removal of Francis S. Thayer, late Auditor of the Canal Department, and on the twenty-eighth day of December last Mr. Thayer was suspended upon charges of unlawfully trafficking in canal certificates and violating his duty as auditor 'in respect to the public moneys in his charge and subject to his draft.' The charges preferred by the commission upon which the commissioners of the canal fund and the Governor acted, together with their proceedings thereon, respectively, are hereunto annexed.[7] The testimony by which these charges were established will be found in volume three of the accompanying testimony, at pages 1140, 2070, 2156, 2162, 2180, 2215, 2226, 2239, 2256, 2305, 2347, 2379, 2381, 2382, 2383, 2385, 2389, 2407, 2414, 2417, 2420, 2422, 2426, 2445, 2460, 2461, 2534, 2560, 2585, 2587.

[7] See Exhibits D, E, F.

"The following sums in cash, or evidences of indebtedness, obtained from the State through fraud, have already been reclaimed by and restored through the commission to the treasury:

Canal Commissioner's certificates of indebtedness, issued on account of the second John Hand award:

No. 179, dated Feb. 10, 1875 $2,500 00 No. 181, " " " 9,355 00 No. 182, " " " 4,000 00 No. 183, " " " 1,000 00 No. 185, " " " 2,000 00

[Nos. 179, 181, 182, and 185 were returned by Lewis J. Bennett; No. 183 was returned by Wm. H. Bowman, Esq.]

Returned in cash by Lewis J. Bennett, on account of the first John Hand award 3,199 50

Cash returned by Ellis Webster and Son, on account of money received on false vouchers 582 68 ----------- ---------- _Forward_ $22,637 18

_Carried forward_ $22,637 18

Plenary authority conferred upon the Commission by the parties interested, to cancel the Canal Commissioner's certificates of Feb. 10th, 1875, issued on account of the second John Hand award, delivered as a gift by Lewis H. Bennett to Thad. C. Davis, then Canal Appraiser; by Davis given to ex-Canal Commissioner Alexander Barkley, who claims to have mailed it to Lewis H. Bennett, though it appears from the evidence before us that, if mailed, it never reached him 2,000 00

2,000 00

Canal Commissioner's certificate, No. 184, issued Feb. 10th, 1875, under the second John Hand award, to Lewis J. Bennett, for $16,000, by him delivered under an agreement to the agent of Geo. D. Lord, and rendered void through testimony elicited by the Commission 16,000 00

16,000 00 $40,637 18

Accrued interest to February 14, 1876 2,259 21 __________

Total $42,896 39

"The following sums are shown by the reports of this commission to the Executive to have been estimated to the contractors for work that was never performed, or was improperly paid for through erroneous classification, and for which the receivers should be required to make restitution:

Denison, Belden & Co.: Port Schuyler to lower Mohawk aqueduct $157,337 02 Denison, Belden & Co.: East of the city of Utica 16,121 35 Willard Johnson: Lower side-cut lock, West Troy 30,595 65 Denison, Belden & Co.: Bullard's Bend contract 85,547 62 E. W. Williams: Building vertical walls at Rome 3,041 08 Flagler & Reilley: Fort Plain contract 5,845 35 S. D. Keller: Jordan Level contract 36,568 39 N. S. Gere: Jordan Level contract 8,801 90 Thomas Gale: Jordan Level contract 6,667 94 Hiram Candee: Jordan Level contract 17,567 33 ___________ $368,093 63 Add to this the balance yet due for money paid under the first John Hand award 30,782 36 ___________ Total $398,875 99

"Large as these sums appear, we are fully impressed with the belief that they form but a fraction of the amount that is due to the State from similar sources.

"For the purpose of ascertaining more precisely the extent of this class of liabilities, and to protect the State in future from the irregularities and improvidence out of which they have arisen, we recommend that the Canal Board be clothed with ample powers and authority for taking testimony.

"A perusal of the testimony and the reports to the Executive herewith submitted clearly establish the fact that our canals are a burden to the States less, perhaps, through the imperfection of our laws, than the mode in which they have been administered.

"Every appropriation for new work and extraordinary repairs on the canals for the six years from 1867 to 1873 contained a provision that no part or portion of the money therein appropriated 'for new work or work on change of plan' should be expended or paid, nor any contract involving such expenditure and payment be made on behalf of the States, until the maps, plans, and estimates of such new work had been submitted to and approved by the Canal Board.

"There has been a law on the statute-books since 1850, yet more stringent, which provides that 'before any work shall be contracted for on any canals of the State the division engineer shall cause to be ascertained, with all practical accuracy, the quantity of embankment, excavation, and masonry, and the quality and quantity of all materials to be used, and all other items of work to be placed under contract, a statement of which, together with maps, plans, and specifications corresponding with those adopted by the Canal Board, and on file in the office of the State Engineer and Surveyor, shall be publicly exhibited to persons proposing for work to be let.'

"These most explicit provisions of law have been very rarely observed. Contracts have not only been let without the preliminary surveys, maps, plans, and estimates, but one of the most familiar abuses on the canals of late years has been to change the plan of work after the contract is signed, by which the contractor gets relieved from the unprofitable portions of his work, and is furnished a pretext for establishing a new scale of prices, in connivance with the auditing officers. Illustrations of this method of defrauding the State may be found in several of the reports submitted to the Executive. The most costly one to the State is described in our first report. The contract for substituting slope and vertical wall for the bench wall between the Port Schuyler and the lower Mohawk aqueduct provided originally for 14,000 cubic yards of slope wall and only 9000 of vertical wall. As if distrustful of the influence of the contractor over its own agents, the Legislature, within six months after the time this work could have begun, in appropriating money to carry it on, absolutely prohibited the expenditure of more than five per cent. of the appropriation for vertical wall. Regardless, however, of this restriction, and regardless of the terms of the contract which provided for twice as much slope as vertical wall, nearly ninety-five per cent. of the cost of the work on that contract was incurred upon vertical wall and work incident to such construction, while not a single yard of slope wall was built; and as a consequence, an improvement which could have been readily and well done for the original appropriation of $84,645 has already cost the State about half a million for wretched work, and is still far from completion. No attention was ever paid to the provision of the act requiring the change of plan from slope to vertical wall, with the maps, plans, and estimates for such new work to be submitted to and approved by the Canal Board, and advertised and let to the lowest bidder.

"Nor does the infidelity of the State's agents appear to have stopped here. While the records of the canal commissioners and of the Canal Board certify that the preliminary surveys, maps, plans, specifications, estimates, etc., required by law were actually produced before them and approved by them and by the State Engineer; in point of fact, no such precautions for the protection of the State, so far as we have been able to ascertain, were actually taken.[8]

[8] See first report to the Executive, pages 15, 16, and 17.

"It is obvious that the abuses to which we have invited your attention cannot be remedied except:

"_First_, by concentrating responsibility for the administration of the canals in fewer hands;

"_Second_, by lodging somewhere a more efficient power for the suspension or removal of offenders;

"_Third_, by providing more specific, complete, and efficient laws for preventing and punishing abuses when disclosed; and,

"_Fourth_, by providing for the vigorous prosecution and punishment of unfaithful servants.

"Under the present organization the responsibility for a non-compliance with the provisions of the laws for the repair and maintenance of the canals is so distributed between nine State officers, composing the Canal Board, and the auditor, the superintendents, the division, resident and assistant Engineers, that it is nearly impossible to bring any one of them to justice, unless all, or at least a large majority, are of accord in that purpose. Could one person be held responsible for the acts of all of his subordinates, the remedy would be simple and probably adequate. Should the people ratify the proposed amendment of the Constitution, which is designed to clothe a new officer, to be called Superintendent of Public Works, with the powers now vested in the canal commissioners, together with other powers necessary to his functions, this evil of divided responsibility will be greatly diminished. At present the powers of removal and suspension of unfaithful officers are altogether inadequate.

"We recommend, in addition, that the division and resident engineers, and such others engineers as it may be necessary, in the opinion of the State Engineer and Surveyor, to employ temporarily upon any particular work, should be appointed by the State Engineer and Surveyor, with the approval of the Canal Board, subject to removal by the State Engineer and Surveyor alone. In case of every such temporary employment, we would recommend that the rate of compensation be fixed by the Canal Board before such person employed enters upon duty; that he be required to file the usual oath of office, and that he be only paid by the auditor of the Canal Department upon his oath to the correctness of the items charged for expenses and time, and a certificate of the approval of the State Engineer and Surveyor attached.

"No modification of the Constitution or of the law, however, will ever work any substantial reform unless adequate provision is made in some way for a more vigorous prosecution of unfaithful servants. The law is no protection unless its penalties are enforced against those who violate it; the justice that sleeps might as well be dead. Had the laws been enforced promptly when they had been notoriously violated, our canals would not only now be out of debt, but a fruitful source of revenue to the State. It is our conviction that the Legislature will do well to see if this arm of the government ought not to be strengthened. The evidence here submitted will show that very large sums of money have been taken annually from the State by the fraudulent connivance of the State agents with contractors, which should be reclaimed and restored to the treasury and an example made of all the parties participating in the robberies. The preparation of the testimony in these prosecutions, covering, as it must in most cases, a series of years, the actions of a large number of public officers, and servants, and involving a scientific examination of great varieties of work and a familiarity with the principles of engineering and the field work of the engineers, and with the accounts preserved in our public archives, will involve an amount of labor and expense for which at present there is no adequate provision.

"The commission was occupied in the taking of testimony until after the present session of the Legislature had commenced. The testimony could not be written out by the stenographer and put into the hands of the printer until the latter part of the month of January. This will explain any apparent delay in the transmission of this report, there being obvious inconveniences in sending part in print and part in manuscript. There has been no delay in its preparation, except what was the natural and inevitable result of efforts of the commission to render its contents readily accessible to your Excellency and to the legislative bodies.

"For the expenses of the commission the sum of $30,000 was appropriated by the last Legislature. The expenses will exceed this sum about $5000, for which we respectfully ask an appropriation. For greater convenience in presenting the testimony taken, we had it printed at a cost of over $4000. This, together with the legal expenses growing out of the proceedings to establish the authority of the commission to compel the production of books and papers and the witnesses to testify, occasioned this deficiency.

"JOHN BIGELOW, "D. MAGONE, JR., "A. E. ORR, "JOHN D. VAN BUREN, JR.

"ALBANY, _February 14, 1876_."

"EXHIBIT D.

"The commission to investigate the affairs of the canals of the State present to the honorable commissioners of the canal fund:

"That Hon. Francis S. Thayer, Auditor of the Canal Department, has violated his duty as such auditor 'in respect to the public moneys in his charge and subject to his draft':

"_First._--In that, on the 21st day of July, 1874, he procured the passage of a resolution by the commissioners of the canal fund whereby $200,000 of the sinking fund was directed to be invested in the taxes to be levied pursuant to chapter 462 of the laws of 1874; and after procuring the passage of such resolution did set apart said sum in violation of the Constitution. That the auditor's motive was to benefit George D. Lord. That in carrying out such intent the auditor paid $120,497.02 of said sum of $200,000, so set apart, within two days thereafter to Thad. C. Davis, as the agent of George D. Lord. That this was a violation of the Constitution, see article seven, sections two and thirteen. That the auditor is responsible for this misapplication of money, see his testimony, pages 2544, 2546.

"_Second._--In that, on or about the 1st day of December, 1874, there being money subject to the warrant of the auditor for that purpose, the said auditor refused payment to S. R. Wells, administrator, of an award in his favor for $5207.50 on the false pretence that he had no funds, and immediately after such refusal negotiated the purchase, and did purchase, the said award at about $200 less than it called for of principal and interest, and on the 9th day of February, 1875, audited the said claim at the sum of $5454.92, and drew his warrant therefor in favor of George A. Stone, as assignee.

"George A. Stone had no interest in the transaction, and the auditor testifies that it was purchased for his brother-in-law, E. J. McKie. As to the evidence of this charge, see testimony of S. R. Wells, page 37 (folio 513 to folio 517); testimony of D. Willers, Jr., page 42 (folios 571 and 572); testimony of the auditor, pages 2507-2511; that the profit went to the benefit of the auditor, see pages 2595.

"_Third._--In that, on the 11th day of March, 1875, there being money subject to the warrant of the auditor for that purpose, the said auditor refused payment to George M. Case of an award in his favor for $9768.71, on the false pretence that he had no funds, and, immediately after such refusal, negotiated the purchase, and did purchase, the said award, including accrued interest, at $10,510.73, and did on the twentieth day of May thereafter audit said claim for the full amount thereof, including interest, to wit, $10,730.60, and drew his warrant therefor in favor of George A. Stone, assignee.

"George A. Stone had no interest in the purchase, as appeared by his testimony, pages 2160-2229, and the auditor testified that he made the purchase for his brother-in-law, E. J. McKie.

"As to the evidence, see testimony of Auditor Thayer, pages 2507, 2586, 2595.

"_Fourth._--In that, on the 15th day of March, 1875, the auditor purchased a certificate in favor of E. H. French for $1184.26 at a discount of $24.64. It was paid May twentieth thereafter at its full face. As to evidence of this transaction, see testimony of Auditor Thayer, same pages and folios referred to above as to George M. Case's certificate.

"_Fifth._--In that, on the 12th day of April, 1875, the auditor purchased sixteen canal commissioners' certificates, amounting in the aggregate to $29,962, from Nehemiah L. Osborne at a discount of seven per cent. per annum from the face thereof, but for what length of time the discount was made we are unable to ascertain, further than that the time was in excess of the time between the purchase and payment by the auditor.

"These certificates were paid May 20, 1875, to George A. Stone. That the auditor derived a personal advantage from this transaction, see testimony of George A. Stone and of Auditor Thayer, pages 2229, 2595.

"_Sixth._--In that, on the 28th day of April, 1875, the auditor purchased from H. D. Denison five canal commissioners' certificates, of the aggregate amount of $49,610, at a discount of seven per cent. per annum, but for what time he discounted them we have not been able to ascertain, further than that it was in excess of the time between the purchase and payment. On the twentieth day of May thereafter the auditor audited said certificates and drew his warrant for the payment thereof in favor of George A. Stone, assignee, at $50,542.06, and the amount gained went to the personal advantage of the auditor. As to evidence of this transaction, see testimony of George A. Stone, page 2229; Francis S. Thayer, page 2476.

"_Seventh._--In that, on the 29th day of April, 1875, the auditor purchased from H. D. Denison six canal commissioners' certificates, of the aggregate amount of $30,687, at a discount of seven per cent. per annum, but for what length of time he discounted them we have not been able to ascertain, further than that it was greater than the time between the purchase and payment; that on the twentieth day of May thereafter the auditor audited these certificates and drew his warrant therefor in favor of George A. Stone at $31,153.03. That the personal gain from this transaction went to the personal advantage of Francis S. Thayer, see his testimony, page 2595.

"_Eighth._--That the auditor drew his warrant in payment for a canal commissioners' certificate, in favor of John D. Hamilton, for $38,000, on the 28th day of June, 1875, in violation of law in this: that he paid it without the sworn certificate of an engineer, as required by statute.

"_Ninth._--In this, that the auditor, in June, 1875, purchased a canal commissioners' certificate, subject to his own audit, from James P. Buck, for $6496.28, at a discount of ten per cent. For the evidence of specification, see testimony of James P. Buck, page 2216.

"The auditor claims he made this purchase for his brother-in-law, E. J. McKie.

"_Tenth._-In this, that on the 2d day of July, 1875, the auditor purchased canal commissioners' certificates, subject to his own audit, to the amount of $49,953.91, at a discount of eight per cent. and accrued interest, in favor of the purchaser. For evidence of this purchase, see testimony of Willard Johnson, page 2386; testimony of F. S. Thayer, page 2514.

"_Eleventh._--In that, in addition to those above enumerated, the auditor purchased, between the 9th day of March and the 14th day of July, 1875, canal commissioners' drafts and certificates, subject to his own audit, to the amount of $64,959.81, all of which he afterward audited and drew his warrants in payment thereof. As to the evidence of these several transactions, see testimony of George A. Stone, page 2241; that the auditor derived a direct personal advantage from these transactions, see testimony of Francis S. Thayer, page 2595.

"JOHN BIGELOW, "A. E. ORR, "JOHN D. VAN BUREN, JR., "D. MAGONE, JR., "_Commissioners_."

"EXHIBIT E

"COPY OF THE REQUISITION OF THE COMMISSIONERS OF THE CANAL FUND

"The undersigned hereby certify that, at a meeting of the commissioners of the canal fund, held at the Canal Department, in the city of Albany, on the 28th day of December, 1875, at 10 o'clock A. M.,

"Present--William Dorsheimer, Lieutenant-Governor; Diedrich Willers, Jr., Secretary of State; Nelson K. Hopkins, Comptroller; Thomas Raines, Treasurer; Daniel Pratt, Attorney-General,

"The following proceedings were had:

"On motion of the Attorney-General, it was