state road fund, and the auditor of public accounts will make distribution of said tax in accordance with the said apportionment at the end of each month.

"Section 4070-What constitute; dividend on bank stock; annual tax; fines and forfeitures.-The school fund shall consist of the fund dedicated by the constitution and laws of this commonwealth for the purpose of sustaining a system of common schools therein: ....(5) The annual tax of twenty-six cents (26c) on each one hundred dollars ($100) of value of all real and personal estate and corporate franchises directed to be assessed for taxation. (6) Such portions of fines, forfeitures, and licenses which may be realized by the state as the amount of taxes for common school purposes bear to the whole state tax other than for the benefit of the agricultural and mechanical college."

The last clause in itself offers an opportunity for very radical differences of opinion. The present interpretation given it seems to be one of the least obvious or certain. The complete revision (or repeal) of statutes governing special funds, is much needed.

CHAPTER I. INTRODUCTION

Certain requirements must be met by the State's system of financial administration if the State Government is to be run on a businesslike basis. In this report an attempt is made. to indicate what these requirements are, how well they are now being met, and particularly wherein they are not being met, and what appears to be necessary to bring the system into line with the requirements and to insure the soundness of the State's financial management.

The report is not limited to a consideration of the work done in the few State offices which carry some of the principal responsibilities for fiscal administration. It has been the aim to regard the work of the central fiscal offices as only a part, although a very important part, of the whole machinery of financial administration and to consider all aspects of that machinery as a whole. An attempt has been made also to emphasize the parts which the Legislature and Chief Executive play, and should play, in the plan of financial control.

The terms "financial administration" and "financial control" have been interpreted broadly to include matters of revenue collection, budget making, appropriation, expenditure procedure, auditing both of receipts and expenditures, accounting and the handling of cash and borrowing. (Taxation and the questions of providing additional revenues to meet the needs of the State are treated in another report.)

The importance of the budget procedure and procedure for the control of expenditures under the budget or appropriation act, has been emphasized. It is safe to say that the problems falling within the general field of expenditure control (including the budget) are so important that the subject of financial administration becomes one which has more to do with the efficiency and economy with which State undertakings are carried on than has any other subject before the people of Kentucky, ex

cept perhaps, the subject of securing a competent personnel. It is not only a budget procedure that is needed, but also a fiscal system that will make the budget procedure effective.

It is no exaggeration to say that much of the system of financial administration which the State of Kentucky now employs belongs to another age, when the problems of the Commonwealth were very much simpler and in part at least essentially different from the problems of today. It is fair to say also that the attempts which have been made to add to and accommodate the old system to the needs of the present have in some cases resulted in complicating the difficulties rather than solving them. The facts upon which these conclusions are based are brought out in the chapters to follow.

The time is ripe for a broadening of interest in fiscal problems and a comprehensive examination of all aspects of the accepted machinery and methods of financial administration. It is impossible to avoid the belief that the underlying difficulty and mistake in policy which accounts for other faults and inadequacy of methods is a lack of public interest in the State's fiscal affairs. Among the public men of the State this is observed even more than among average successful business men or citizens. The State has not developed traditions that protect it from ignorance or indifference in the field of public financial administration.

These statements will not be given their full significance unless it is conceded that there is a need for practical men in politics who are serious students of applied public finance. If the average member of the Legislature or other State official will not admit that there is a science to be mastered in this field, his ignorance will be a continuous menace. If, on the other hand, the State develops traditions which assure it the assistance of a group of legislators and officers who make fiscal affairs their special interest and devote years to work in this field, most of the problems considered in this report will be solved without difficulty.

Financial control must "head up" in the representatives

of the people in the Legislature. Arrangements are often advocated to protect favored activities against possible legislative interference, but attempts made in this direction have been very costly. A better scheme is to place reliance where it belongs, to admit the tremendous powers of the legislative body, and take steps accordingly. If the Legislature does not control the purse strings, nobody will. If the Legislature makes arbitrary cuts in worthwhile appropriations, there is a remedy which is demonstrated in other states, viz., the production and dissemination of the facts. It is believed that the experience of other States will substantiate the assertion that where the budget procedure is strongest, the arbitrary actions of legislative bodies are fewest.

In the chapters immediately following six major groups of problems of fiscal administration are dealt with in turn. These are as follows:

Organization for Financial Administration
Treasury Administration

The Budget and Appropriation Procedure
Auditing

Accounting

Expenditure Control

A brief concluding chapter is devoted to a general discussion of the problem of bringing about improvements.

The order in which the subjects are taken up is not intended to indicate their relative importance, if that were possible. The last chapters are as important as any others. The discussion of one subject, budget procedure for example, is incomplete without the data presented before and after. As suggested above, the present need is for a comprehensive consideration of all problems of financial administration and for action based upon a mature judgment concerning each subject in the light of a knowledge of all.