Withing the scipe of this new law, it was concluded that the accounts and balances of all these enterprises and public corporations were only official when they had both the signature and the certification by a public certified accountant. The entire idea of this institution is the same as that of a public accountant, because basically the auditor or the public accountant had to see to it that no damage was caused to the economic part of a country and that the interests of the share holders and also those of the State were safeguarded and that an unsound financial development was avoided. That is the reason why that new law was issued in 1931, because a short time prior to that all these various difficulties were occurring in Europe; I am reminding you of the Schroederbank, Amstelbank, Nordwolle, and other enterprises.
DR. HEIM: May it please your Honors, I will introduce these legal regulations in my Document Book Hohberg No. I, as soon as that document book is translated.
Q. Witness, you spoke of public enterprises in Germany.---
JUDGE PHILLIPS: Let me understand this, please. I understand your testimony to mean that you signed & contract with Pohl as an independent contractor for the purpose of doing independent auditing for the DWB and you were not under the supervision of Pohl or any of the Amtsgruppen in the WVHA, but did your work independently as an independent contractor?
THE WITNESS: Yes, that is correct.
Q. Witness, you just spoke of a public enterprise in Germany, didn't you? Would you please explain in a very few brief terms, particularly to the Tribunal, what this term means, as I don't know if that term is also usual in America?
A. Public corporations fall under the regulation that every year auditing work had to be done. In Germany this refers to enter prises, in which the State participates with more than 50% of the entire capital of the enterprises.
By "State" we mean Provinces, cities, or districts, or communities, or any other source of capital.
Q. How many enterprises were there that had to be audited in Germany at that time?
A. There were approximately 8,000 Aktiengesellschaften which had to be audited and approximately 10,000 Public enterprises which had to be audited, and on top of all those public enterprises, there were all the companies of the DWB concerned, which were not Aktiengesellschaften. The Aktiengesellschaft, as such, had to be audited any way, but not as a public institution.
Q. How many auditors did they have to perform all that work?
A. Towards the end of the war there were approximately 1300 of them. Today there are considerably less. I may now give you a figure of 90,000 physicians, as a comparative figure, 19,000 Protestant parsons, I believe, 70,000 lawyers. In other words, it is a restricted field professionally.
Q. Witness, as a certified public accountant, did you have to take an examination and were you sworn in?
A. Yes, we had to pass an examination. Then we were admitted as accountants and then we were sworn in.
Q. The certified public accountant with regard to the person who gives him assignment is he independent, or is he dependent on his client?
A. The certified public accountant, according to law is absolutely independent at all times. He loses his qualifications that particular moment when he becomes dependent.
Q. Under what agency or organization is the public certified accountant?
A. The public certified accountant is first of all subordi nated to the Institution of the Public Certified Accountants in Berlin.
Then, on the other hand he is subordinated to the official ministerial institutions, that is, the so-called Main Office of the Official Certified Public Accountants, which is nothing else but an agency of the Ministry of Economy.
Q. Is the certified public accountant allowed to use additional auditors or additional personnel in order to help him carry out his task, and, if so, how?
A. Yes, the field of task is too large to permit the Certified Public Accountant to carry out his task all by himself. He is permitted to appoint certain employees as auditors. However, they do not have to be employees. They could also be assistants, who have the necessary qualities, that is, who are auditors themselves. For instance, I can give you one of the examples: The German steel concern, Vereinigte Stahlwerke, were audited by two certified public accountants; because the accountants did not have the necessary number of employees, they simply borrowed those employees as auditors, in this particular case here, from the Preiswoderhaus, which is now the Continental Auditing firm. Other agencies did exactly the same thing, particularly when auditing work was done for the I.G. Farben.
Q. Witness, you stated--
JUDGE PHILLIPS: While you were doing this auditing for the DWB from whom did you draw your assistants?
THE WITNESS: May it please Your Honors, in my contract with Pohl I had the following clause according to which Pohl was to see to it that I would receive auxiliary assistant auditors at my disposal and that they would help me in my auditing work. It was done in the following manner. The WVHA on the basis of a private contract used several civilian auditors. That was at the early stage of the WVHA, but as all those auxiliary assistants could not be had, because most of the people who were auditors, were in the Army something else was done, namely soldiers were placed on detached service for that work.
That was the reason why later on I worked with members of the Waffen SS who were on a TDY status, who all had an experience of several years as auditors.
JUDGE PHILLIPS: They were under your supervision for that work?
THE WITNESS: Yes, they were.
JUDGE PHILLIPS: And were paid by whatever organization they belonged to?
THE WITNESS: Yes, quite so, If they were soldiers, they received their soldiers pay by-
JUDGE PHILLIPS: But they were under your supervision as far as that work was concerned and you directed their activities?
THE WITNESS: Yes, quite so, Your Honor.
Q. Witness, in this connection, I would like to ask you: Were you in charge of these auxiliary assistant auditors placed at your disposal by Pohl disciplinarily or professionally?
A. Those auditors were under my supervision only professionally. I had no influence whatsoever whether they remained with us or left us. All I could do was ask that somebody else be placed at my disposal. Later on it happened that on one occasion when I was absent all auditors were transferred suddenly. I had no influence whatsoever on that.
Q. Witness, you stated that you had made a clause in the contract with Pohl that a certain office be placed at your disposal. I ask you now is it usual that the certified public accountant without being paid on a special basis was to have an office in that enterprise where he was to do some auditing work?
A. Practically speaking, there was hardly any other agreement or arrangement. Since 1932 I have been in this profession and I have done a lot of auditing work in Germany. I also learned the method used by other auditing companies, for instance, of the Preiswoderhaus Company with which I did auditing work on several occasions. It is one of the prerequisite when doing auditing work that auxiliary assistants be placed at one's disposal and also typewriters and an office. In my case it worked out that the contract had a special clause according to which the office where I did the auditing work was put at my disposal for an indefinite period.
Q. Doctor Hohberg, in this professional organization of which you were a member as a certified public accountant, were any restrictions imposed on you with reference to your profession and the auditing work you did in that connection?
A. These restrictions were laid down officially by the Ministry of Economy. I was not permitted to act as a certified public accountant if at the same time I was employed by any other enterprise. Secondly, I was not permitted to act as a certified public accountant if I was employed by any concern--for instance, if I was an employee of the Mattoni, A.G. Let us assume that I was an employee of the Mattoni, A. G. I would never had the legal foundation nor the legal right to audit for another affiliated company: the Sudetenquell, for instance, which was another company.
Q. Are you not allowed to carry out certain prescribed professions?
A. The legal regulations in our profession are rather strict. I could not hold any position where I was a merchant and personally liable. I was not permitted to work in a commercial enterprise, nor could I be a member of a Kommanditgesellschaft. Furthermore, generally speaking, I was not permitted to be an employee at all.
I could not be a presiding member or a business manager of any enterprise with the exception of the so-called auditing companies; and I could not be an official of any kind in a business which was particularly profitable for me. That is to say that over there, on the operational char, it is stated that I am Chief of Staff W. A chief of a staff in Germany had an official position at all times, which for me was not applicable. At that particular moment, if I had become a chief of an office I would have lost my qualifications as a certified public accountant.
THE PRESIDENT: We will take a recess.
THE MARSHAL: The Tribunal will recess for fifteen minutes.
(A recess was taken).
THE MARSHAL: The Tribunal is again in session.
BY DR. HEIM:
Q. Before the recess we stopped when you were explaining the fact that, on the basis of legal regulations, it was forbidden for you to take any employment while you were an auditor. Therefore, you would not have been able to be an office chief. For an auditor are there many sidelines you could take which were authorized?
A. There are several consultant professions which are legal for an auditor to take up, such as the profession of consulting expert, taxation expert, consultant for foreign advisor or commercial organizer or technical organizer. The combination of consulting profession with the auditing profession is a matter of course in many cases. It is explained by the fact that all the regulations concerning balance sheets in Germany are highly complicated and vary from one another. But I do not wish to talk about this to any detail here.
Q. As an auditor did you have the duty to keep secrets?
A. I was under that obligation concerning all matters which I heard about within the scope of my auditing work or which came to my knowledge. Any offense against that would be punished by a prison term.
Q. That's enough. Thank you.
Is the salary of an auditor decided upon by legal arrangements?
A. Yes. There is as a matter of principle a salary according to the time served.
Q. How much would, therefore, have been your actual salary with the DWB?
A. Supposing that I worked with ten auditors as an average, and supposing that sick leave and holidays will be deducted, in that case I will have worked for about 250 days per year. And I would like to emphasize that days spent on trips will be paid. Then, if you get 60 or 80 marks a day you get at least 15,000 marks per auditor and that will amount to 150,000 marks. In that case I as Senior would receive 165,000 marks from which all salaries would have to be deducted. It has to be taken into consideration that all the salaries will be deducted according to normal usage and 60 to 70 thousand marks per year would have been held over.
When the same audits came in repeatedly, then the auditor is allowed to reduce his fees which applied in my case. If I had carried out the auditing of the DWB only once a year, I would have not been allowed to reduce the salary.
Q. Your actual salary was below 70,000 marks, wasn't it?
A. Yes, it was considerably less than that.
Q. For an auditor is there any liability on the basis of his activity and is that liability also concerned with the auditing of the economic enterprises of Pohl?
A. The liability of an auditor is prescribed by law. It cannot be excluded by a contract but it is limited to about 100,000 Reichsmarks for each company. In the case of 40 companies of the DWB concern the total sum on which I could have had a liability on the basis of deficiency would roughly be four million Reichsmarks. I had taken out insurance against this by some special insurance policy.
Q. Since the question of the certificate is important in this examination, I would like you to tell us briefly what the certificate issued by authorities amounts to?
A. The balance sheet of a limited company or of an enterprise which is subject to orders, such as the DWB, is only regarded as complete when it has the so-called confirmation certificate of the auditor who is a public official. Before that no decision must be made, for instance, about the dismissal of the managers or about the amount of the shares and dividends and things like that.
Q. Is there a difference between the certificate of an auditor concerning a limited company and concerning an economic enterprise of the public nature inasmuch as the latter are not limited companies?
A. As this matter is somewhat dull, I shall be brief. The two certificates for the limited company and for the public enterprises had to have a certain form, including the remark that the bookkeeping, the annual balance sheets, were in accordance with the legal requirements.
In the case of limited companies it says also that what is known as the annual report is also in accordance with the requirements of law whereas in the cases of public enterprises the annual report is not audited. No legal requirements exist in this respect but the certificate contains this important sentence: "For the rest the economic conditions of the enterprise have not show cause for anxiety or otherwise they have given cause for anxiety."
Q. What is the result from that for the handling of the auditing by you?
A. The result of these various definitions of the certificate is that the conditions inside the enterprise of the public enterprises must be audited which is the reason why when public enterprises are being audited in Germany in many cases technical experts are called in and it is also the reason why I as an auditor had to visit certain enterprises such as in my case the German Engine Works in Lublin, Auschwitz, and Lemberg, which are part of the indictment. These inspections I carried out as part of my regular obligation to audit these enterprises.
Q. To whom did you auditors have to submit this report?
A. Always to the one who ordered him to do it. For instance, in the case of a limited company to the Board of Directors or in case of public enterprises to the man who had given the order. In my case of the DWB it was Pohl, under whose supervision the enterprises were.
Q. The auditor therefore did not submit the reports to the Reich Ministry of Economics, did he?
A. No, indeed, he did not. He was not allowed to do that. The Reich Minister of Economic Affairs - there was a department which was then directed by Winkelmann, and he carried out the supervision of the auditing of all public enterprises in Germany.
Q. As an auditor were you obliged or entitled to report the bankruptcy of an enterprise?
A. In the regulations for auditors it is layed down expressly that it is not the task of an auditor either to apply for a report of bankruptcy or use his influence to that effect.
That would have meant interfering with independent management of the Board of Directors but that does not prevent an auditor from drawing the attention of the Board of Directors to the fact that bankruptcy looks ahead. For instance, when I began my work one of the subsidiary companies was deep in debt without any auditing being carried out and I had as a matter of course to tell the management that the time was ripe to report the eminent bankruptcy.
Q. What was the influence an auditor had on the enterprise which he audited as regards production?
A. None whatsoever. The auditor can within the frame of his auditing report make retrospective critical remarks but to exercise any influence on the actual management is quite impossible.
Q. Has he any responsibilities in that effect at all?
A. Yes, he is responsible if and when he makes what is known as an unconditional certificate where actual economic conditions in that enterprise are doubtful.
Q. Dr. Hohberg, you not only have a contract as an auditor, but within your contract you also have a duty to advise the management in economic matters. What do you mean by this?
A. It is an organizational arrangement with Pohl that it was my order to find ways and means in order to revise this financially highly unstable enterprise, and it was my duty by contract to make propositions how the management could work in accordance with the regulations, and to revive the enterprise eventually.
Q. You were active not only as an auditor but also as a taxation expert. Were you classified as an auditor and as a taxation expert?
A. Yes. In Germany we have the taxation law which is known as the Reich Taxation Law. It states in paragraph 107-A that we are admitted as an auditor quite automatically, and we are really assistants in taxation matters.
Q. Was there any connection between your activity as an auditor, and as a taxation expert?
A. I said before that taxation regulations are different in Germany from the commercial laws. In the case of taxation law we must make two distinct definitions between static and dynamic laws. We must make a difference between taxation on the spot check then the taxation in a long run. On the basis of taxation jurisprudence in Germany, the fact is that nobody must know better his taxation than the chief of what he can know, because on the commercial balance sheet, if he is not in a position to put on a large company on the taxation sheet, then he does on the commercial balance sheet, for taxation of the two things are so closely connected that the taxation balance sheet and the commercial balance sheet can be drawn up only by the same man.
DR. HEIM: If the Tribunal please, I am extremely sorry that I must tarry along with this very difficult matter but in order that you will know and probably want to understand what the defendant did for the DWB, knowledge of these things, of these legal regulations is essential in order to understand his action, and his activity from a legal point of view.
BY DR. HEIM:
Q. Witness, were there any special professional risks connected with advising people in taxation matters?
JUDGE PHILLIPS: I just want to be certain I got the date correct. What date did you state that you entered into a contract with Pohl? I have it, you entered into this contract in the summer of 1940, is that correct?
THE WITNESS: I worked first not under Pohl but for Moeckl and Weidenbach.
Q. I understand that. I understand that, but I am now talking about when you made your contract with Pohl?
A. On 10 May, 1940.
Q. You resigned or finished your contract on 30 July 1943?
A. Yes, that is correct, 30 July 1943.
Q. Now did you resign, or did you just complete your contract at that time?
A. No, Your Honor, I did not complete the contract. The contract had gone on, but I was transferred to the Wehrmacht by request.
Q. You went to the Army?
A. Yes.
Q. Did you go to the Army as a soldier, or did you go as an auditor?
A. As a soldier.
Q. As a soldier. You served the remainder of the war as a soldier of the Wehrmacht?
A. Yes, I remained with the Army for the rest of the war, but in the end of August 1944 Dr. May, who had by that time been imprisoned by the Gestapo, for a year and who had been dismissed from the SS took me back into the Air Ministry at Berlin. I was working on retire ment, as we all it, in the aviation program.
Q. You were not in the service in any capacity when you resigned and went into the Army in July 1943?
A. No, only certain financial claims went on before.
BY DR. HEIM:
Q. Witness, were there any special professional risks connected with the activity as a consultant in taxation matters. I would like you to answer that question as briefly as possible, as the matter was up previously.
A. According to the Reich Taxation Laws, especially under paragraph 109, the taxation consultant is personally responsible and liable for all taxations in which he advises people, and according to the Reich Law he would be the sole debtor. Of course I had to watch these taxation experts all the time carefully.
Q. On the basis of these legal liability regulations, was there any special method that you could follow in the taxation matters?
A. This matter, of course, did have a special method, and because of the amount of risk and because of the laws you could lose your whole fortune yourself. In this capacity these taxation consultants in their activity must be extremely careful. You know that in order to accept plenty of debtors, and to supervise most precisely the various officials, that is necessary in order to insure myself against the risk.
Q. What was the results of these canceled checks on taxation declarations?
A. The results were that all taxation reports addressed to finance offices before they were signed by an official of the DWB were checked up by me, and, anything more difficult I dictated myself, but I did not sign them. They were mostly signed by Dr. Wenner, or some other employee of the DWB; also it was logical that these taxation matters whenever possible were discussed daily in Berlin. This is the reason for the strange practice that I attended the conferences in these matters, where I took part every day, and it took place in Berlin.
Q. In these taxation matters in the DWB, were there any particular difficulties which you came across?
A. I am afraid that I can give the Tribunal an explanation of these only in a complicated manner, but I shall be as brief as I possible can. At my suggestion Pohl ordered that the various individual companies should be regulated by what was known as a contract regulating profits and loss. We called them normal corporation contracts.
Q. Dr. Hohberg, what special difficulties arose in a technical respect?
A. The special difficulties only consisted of the fact that the whole amount of work accumulated on Mondays, when the DWB was suddenly founded. In order to deal with this problem, there was only one man there. He was Dr. Wenner, and the assistant whom he called in, and I was there as a consultant. Then there was that corporation law in Germany which was relatively unknown, and that these two things had to be worked in. Only in the course of many years it became possible to have these taxation matters adjusted under legal regulations. For all practical intent and purposes, these corporation laws amounted to nothing else but that the whole of the taxation regulations were centralized in a company and the DWB.
Q. Will you please tell us in one sentence what the corporation law is?
A. You have a corporation law in the concept of German Commercial Law if and when an enterprise becomes dependent in financial organizational matters, and becomes dependent in such an extent that it includes economic matters, and that it requires the character of a sub-department. Therefore, the subsidiary company no longer has a will of its own, as it were.
Q. In order to obtain a fair knowledge of your activities in the DWB I think it is necessary for me to ask you this: The question of the corporation law, is that the same thing as according to taxation matters, or are they different?
A. No, the corporation law is extremely difficult in Germany. It must result in the fact that of about forty companies of a concern, the legal basis was established, and that some of these companies have formed a taxation unit of their own in order to hand over the turnover tax. A smaller number of companies form another corporation for taxation purposes, and a smaller part of a concern forms a corporation for a corporation taxation, and for other taxation there was no possibility of that sort at all with such income, for instance, coming from the enterprises it had to pay its tax independently. I explained this one to show how highly complicated this matter is.
Q: Now, what is the result of these many differences within the taxation practices for the DWB?
A: The result is that apart from the concerns based on commercial law, we had special concerns which are based on different taxation laws which were entirely different, depending on their taxation practices, and the smallest complex therein is in the taxation theory complex.
Q: If I have followed you, the DWB was, so to speak, the internal financial office for some of the subsidiary companies, is that right?
A: Yes. The DWB at that time when I was the auditor had practically no other task at all. With the help of these contracts, it only created the possibility to adjust the losses of the companies, of one company by the profits of another company. What happened within the framework of what was known as the DWB in my time really no longer had anything to do with normal business management.
Q: To how many subsidiary companies did this apply to?
A: The closest taxation relationship, namely, the corporation taxation applied to 20 of about 40 companies. These 20 companies had about 80 enterprises and roughly 90 percent of the total profits were comprised therein.
Q: That is enough. Did you have time, in view of all these activities, to bother about anything else which were not part of your tasks as an auditor and economic consultant?
A: I worked in the sense that I visited the auditors who did auditing work and saw them for two or three days a week, and so I was in Berlin as often as possible in order to assist the taxation expert, Dr. Wenner, as much as possible.
Q: Why did you not wait when you concluded these con tracts concerning loss and profit until the taxation matters of the DWB were regulated.
Why were you in a hurry?
A: As far as I am told, as far as turnover tax and purchase tax was concerned, this centralization applied at once. In other words, when the DWB was founded, the taxations had to be worked out in a central office, and the DWB was therefore faced with an enormous amount of work. In the case of corporation taxation, it was quite different. The adjustment between loss and profit as far as corporation taxes was concerned depended on the former contract of profit regulations. In Germany -- and I don't know whether that is so in America -- we have the institution that you must report your losses every two years. Therefore, if you suffer a loss in 1938, the last moment you had to make a report was 1940 in order to have the taxation aspect adjusted. Had I not asked Pohl to draw up these contracts for 1940 we would have quite unnecessarily lost many hundreds of thousands of Marks before 1939.
Q: When these contracts were concluded, was it the purpose to revive the subsidiary companies of the DWB which were heavily in debt?
A: Yes, but only as long as losses still existed. At the same moment, when there were no more losses, a spirited and active business management could have concluded quite easily this or that contract concerning profits. That is to say, before the end of the year, the management if it does not want the enterprise to suffer any taxation damage has to think over whether this or that contract could not be terminated in order to avoid high taxation losses, which in Germany amounted to nearly 95 percent on the top level.
Q: When you terminated your activities as auditor of the DWB were the contracts changed in any way?
A: I am not quite sure because I don't know what happened after I left. I heard only very little. All I know is that the taxation expert, for some reason or other, was dismissed and sent to the front. This was Dr. Wenner who was my friend.
Q: When you were in the DWB, did you come across any tax evasion?
A: No, not in my time. When we discuss the so-called "balance cash", I shall talk about this again. Here we have the case of a fairly considerable tax evasion, but that was after my time. When I compiled the list of the duties which the management had to fulfill, I pointed out that fact and drew their attention to it.
Q: Was there any other field for which you had the responsibility in the DWB other than concerned as an auditor?
A: Yes, that was to supervise price regulations on the basis of another law, but only in as far as I audited the annual reports. For instance, in the so-called Office W-II, another auditor ordered it. Therefore I had no responsibility at all as far as the prices were concerned.
JUDGE PHILLIPS: While you were talking about the W offices, the Witness Cruse, C-r-u-s-e, I think it is, testified for the prosecution that he worked in Office W-1 under Mummenthey for some time, and that during the time that he worked in this office, under Memmenthey, that he wrote a number of communications to you. What were those communications about, if he did write to you?
A: Your Honor, what I understood the witness to say is that he received letters from me which I had written to Office W-I. The German earth and stone works.
JUDGE PHILLIPS: I was referring to my notes and I may have gotten his testimony wrong or it may have been translated wrong, but I had that he wrote communications to you, but you say that you wrote them to him.
A: The correspondence with which we are concerned there is probably a very extensive one. The problem there was, Your Honor, I audited with five people the German earth and stone works, and I found out that enterprise which was based on a capital of 20,000 marks had a loss of 500,000 marks already; and the auditing showed that the actual loss was bigger still. I believe it amounted to eight or nine millions, which, of course, on the basis of 20,000 marks of capital is a bit much. And on that basis, we corresponded quite a lot between the management of DEST AND W-I.
JUDGE PHILLIPS: So, the communication then was in regard to your audit of enterprises under W-I, and you were writing to that Amt in regard to that audit?
A: Probably, and also if I may add this: The office group W-1 was the central authority for all enterprises of the Earth and Stone Industry. That is to say, the correspondence about my auditing in matters Bohemia, Allach went automatically to the management of the groups firm in W-I; therefore the correspondence was probably very large.
BY DR. HEIM:
Q: Witness, all questions concerned with price regulations, will you please tell us what regulations apply to you and were important to you as an auditor?
A: In Germany there was a so-called War Economy Regulation, and under that Regulation there was paragraph 22, which said that prices had to be adjusted to the requirement of war conditioned industry.
The result of that was that apart from tax reports by the enterprises, there was a new, additional declaration necessary which was what was called a declaration of profits. But the money was not received by the finance offices of the first instance, but the economic organization such as group industry, group commercial and so forth which were Reich organizations. It said that all excess profits based on excess prices since the first of September 1939, when war broke out, had to be deducted and that was my responsibility. I would like to point out here that meant considerable difficulties for the work of an auditor because to work out and figure out an excess profit is an extremely difficult thing to do, if you don't have sufficient evidence from the books available.