propriating definite amounts each year, or definite amounts for particular undertakings, or indefinite amounts for one or more years for certain expenditures generally of a more or less mandatory character. Others are represented by the ordinary annual appropriations and by the underlying budget so far as the budget system applies. Whatever may be the character of the authorization it is necessary that the individual departments and offices shall have exact information as to moneys available for their use and that general administrative officers have classified and summarized data relating to these authorizations in order to know and meet the financial requirements of the government as a whole. This demand for definite information as to expenditure authorization cannot be met unless the laws which create these authorizations are made definite, unambiguous, and consistent. 3. The amounts of outstanding authorization for expenditures cannot be known unless the expenditures under these authorizations are also known, and hence it is necessary that definite and complete information be supplied with reference to expenditures under authorizations. It is necessary to go even deeper than this and show what obligations for expenditures have been incurred under authorizations, since without this information it is impossible to prevent over-expenditure of appropriations. 4. The accounts of a government should show expenditures also classified according to purposes and nature to the extent needed for any administrative uses and cost statistics. 5. In addition to these requirements the accounting system of a government should produce, in whatever form and detail is required for administrative and legislative purposes, information as to the source and character of revenues. The following requirements are correlaries of the above, for without them the information required cannot be produced. 1. There must be a single unified system of accounts for the entire State government into which the accounts and records of all departments are integrated and for which summary and controlling accounts are maintained in a central accounting office. This requirement involves almost necessarily a central treasury, a single complete audit system, and a properly prepared budget. 2. Accounting forms and procedures must be designed and installed which will produce all the information required, not only with accuracy but also with the greatest economy and efficiency. There are certain fundamental principles with reference to governmental accounting forms and procedure which must be adhered to, but which need not be enumerated here. In taking up the consideration of the accounting system of the State as it actually exists we may dispose of the last two requirements named above at the outset. The State does not have a single unified system of accounts. The only approach to a general accounting system for the State is a set of records pertaining to receipts, disbursements, and balances of the State Treasury. These records do not comply with the requirements specified however because, first, they are not co-extensive with the financial transactions and relations of the State, and second, because the accounts of departments and offices are not coordinated with them in such a way as to produce a single, consistent, and integrated system of accounts. Also the forms and procedure now in use are but ill adapted to their purposes and, what is of still greater importance, are so incomplete and of so accidental a character that it is hardly worth while to discuss them in detail. The effect of an incomplete and fragmentary system of accounts and of inferior forms and procedure will necessarily be realized in the information produced, and these defects will be plainly apparent in connection with the following detailed consideration of the information produced by the present accounting records of the State as compared with these standards and requirements already stated. Information as to Assets and Liabilities: The subject of accounts for permanent investments in public improvements and in plant and equipment for use of departments, offices, and institutions is of too remote interest for discussion in this report. Even the matter of accounts for stores of supplies and materials, and for accruals of income and expense may be passed over, not because they are unimportant, nor because there is any difference of opinion as to their desirability, but solely for the which the State is not now prepared, and which it would be useless to discuss until the more rudimentary accounting requirements have been met. Excluding these items there remain only cash and indebtedness to be considered under this title. The amount of money belonging to the State and in its possession at any given time has probably never been known in recent years. In the first place, the accounts of the Auditor's Office show only cash in the Treasury, and take no account of cash in the possession of State agencies maintaining their own treasuries, viz: The Department of Health The School for the Blind The Western Kentucky Industrial College The Kentucky Normal and Industrial Institute Various boards and commissions In the second place the Auditor's books are synchronized with the Treasury only and do not take into account cash actually received but not yet deposited, and expenditures actually incurred and vouchered but for which warrants and checks have not been drawn. Even at the close of the fiscal year no adjustment is made to bring the books in the Auditor's Office into agreement with the facts. This would not be so serious if there were accounts of accruals and liabilities to represent the unentered items, but as it is, the actual financial con dition of the State may be misrepresented by as much as a million dollars. With the exception of the amounts of unpaid warrants the liabilities of the State are not shown in any accounts or reports. According to the accounts of the Auditor's Office the State has no liabilities except such as have been recognized by the issuing of interest-bearing warrants. That the absence of information as to other indebtedness is of importance will be evident from a consideration of the items omitted, as follows: 1. Institutions which are an integral part of the State government frequently borrow money for their own purpose. This is done without authority, and apparently illegally. It is also done without the fact being reported to those in authority except in connection with requests for appropriations from the State. 2. The unpaid obligations incurred in the usual course of business are not currently compiled and are never taken into account in the preparation of financial statements. The total amount represented by these unrecognized liabilities at any given time may be considerable. At the beginning of the fiscal year 1922-23 the difference between the amounts shown by the Auditor's books and the Road Department's books for the unexpended balance of the road fund was nearly half a million dollars, this difference being due to failure of the Auditor's Office to close the accounts at the end of the year in such a manner as to include all the transactions of that year. Information as to Expenditure Authorizations: In planning an accounting system for a government there is nothing more important than providing the machinery by which expenditures of the executive departments may be kept within the limits of appropriations, or in other words, the establishing of an accounting procedure which will insure that the will of the people as expressed by acts of the Legislature as to the expenditure of resources of the State shall be carried out. This cannot be done except through a special system of accounting, devised necessary to dispose of the incidental duties of tax and license collection. The three Corporation Clerks have duties connected with the collection of the Corporation License Tax and the Franchise Tax. To explain these duties in full, it would be necessary to state the entire procedure for the collection of these two taxes, and this is obviously unnecessary especially because it belongs more properly to the discussion of the Tax Commission. The work done by this section of the Auditor's office is strictly tax collection work involving the sending out of tax forms and the making of records and keeping of files in connection therewith. It is clearly work which should be done by the Tax Commission and its presence in the Auditor's office is due to a defect in the law which should be corrected. The same statement may be made with respect to minor tax collection duties attached to the Sheriff's desk. Recording and Auditing: Desks listed under the general title "Recording and Auditing", except the claim desks to be considered below, perform duties of a dual character. By far the larger part of their work is the recording and auditing of transactions with county officials and clerks of the Circuit Courts. A small part relates to the distribution of school moneys to the counties and to the sub-division of receipts and expenditures of the Road Department by counties. For all these receipts and expenditures separate county accounts are kept as required by law. Because of frequent errors by county and court officials in reporting receipts and deducting commissions, a verification is necessary before receipts are entered and it is considered economical to have the verification and the recording done at the same time by the same persons. Vouchers for expenditures relating to counties are not prepared by these desks, but come to the reaudit desk for entry in the county records and before being entered are examined and verified. When a field audit is required the assistance of the State Inspector and Examiner must be obtained. All of these records, excepting possibly those relating to the |