CHAPTER II

ORGANIZATION FOR FINANCIAL ADMINISTRATION

Present Organization:

There are five principal officers and two commissions which have important duties in connection with the financial administration of the State:

(1) The office of the Auditor of Public Accounts, which keeps one set of books of account of the State, issues warrants for the payment of claims, prepares receipts for money paid into the treasury, audits accounts of county officers sent in to Frankfort, and performs other related duties.

(2) The office of the State Treasurer, which has custody of the funds of the State, keeps another set of books of the State, has sole and unlimited control of the actual drawings. of cash from the State depositories, and performs other related work.

(3) The office of the State Tax Commission, which has general supervision over the assessment and collection of many of the important revenues of the State, including supervision over the local assessment of property taxes.

(4) The office of the State Inspector and Examiner, which is responsible for auditing and examining the books and records of account kept by State departments and institutions and by county officers who collect moneys for the State, except sheriffs and for general examinations of State offices and institutions.

(5) The office of the Governor, which has general responsibility for seeing that the work to be done by the other State officers is properly performed and has duties connected with the preparation of the budget.

(6) The Budget Appropriation Commission which is required to draft the budget.

(7) The Sinking Fund Commission which is responsible for handling the transactions necessitated by the bonds of the Commonwealth, for taking care of public properties at Frankfort, and for accounting installations.

The heads of three of the five offices (excluding the commissions) are elected by the people as provided in the State Constitution. The Inspector and Examiner and the members of the State Tax Commission are appointed by the Governor. The duties of the first two officers, that is, of the Auditor of Public Accounts and Treasurer, are described almost solely in the older statutes of the State, and conform to the ideas which were developed in Virginia and elsewhere partially during colonial days and during the early years of the republic. The office of Inspector and Examiner is of less early origin and the existence of this office can be clearly traced to a recognition of the inadequacy of the early fiscal system to cope with the expansion of functions of State government and the growth of large State departments and institutions. The State Tax Commission is the most recently established office of all; its creation indicates the recognition of the need for a specialized staff to handle the intricate problems connected with revenue assessment and control.

It is to be noted that there is no administrative office charged with responsibilities of budget preparation. There is no budget secretary attached to any office enumerated. Such duties as have been recognized as forming a necessary part of the scheme for preparing a budget are now performed by the Assistant Auditor of Public Accounts. The general direction of the State budget activities is provided for, as indicated, by the Budget Appropriation Commission, consisting of the Governor, the Auditor of Public Accounts, and the Chairman of the Tax Commission. The law creating this Commission specifically forbids the employment of a staff, but included the wise provision that the State Inspector and Ex

aminer should assist the Commission. Had the Inspector and Examiner's services been utilized to a sufficient extent the law might have been more successful.

The Sinking Fund Commission consists of the Governor, the Attorney General, the Auditor of Public Accounts, the Treasurer, and the Secretary of State. It also has no staff and has no need for one. Its duties as actually exercised are of minor importance.

Criticism of the Present Organization:

There are five principal objections to the present State or ganization for fiscal administration:

(1) That the officers who should be experts in fiscal administration are selected by popular vote.

(2) That the offices responsible for financial control and auditing are wholly independent of the Legislature and Chief Executive to whom their work is essential.

(3) That the auditing work is not centralized but is divided between two offices so that the work of neither office is as effective as it should be.

(4) That there is no budget office.

(5) That the personnel of the Budget Commission is not such as to result in the development of an executive budget that will be of greatest assistance to the Legislature or of an adequate system of control of expenditures under the budget.

The first three of the preceding objections will be considered in turn in the following pages. The last two bear solely on the budget problem and will be left for a later chapter in which all budget questions are dealt with.

The powers and duties of the Sinking Fund Commission may be criticized on several grounds but primarily as regards matters which do not need to be taken up in discussing gen

eral problems of financial administration. The ineffectiveness of the Commission as an agency for obtaining better accounting methods, however, is one weakness that should be mentioned here. This and other subjects of special importance in their relation to the work of a single branch of the State government are dealt with in full in the reports on the branches concerned.

Objections to the Selection of Fiscal Officers by Popular Vote: One of the original safeguards which those who are responsible for the organization of our State governments considered to be necessary, though alarmingly expensive, was the creation of two offices for handling public funds. The idea was that one office should check the other. The original idea was that the Treasurer should keep the money and the books of account and the Auditor or Comptroller should check the Treasurer. When this system was first devised there were practically no State departments or institutions and almost the only money spent by States was in the nature of grants. Public officers were paid by fee for part-time service. There were no "administrative problems" of consequence either for the Governor or for any other State officer to deal with.

In the early days the important problem in selecting the fiscal officers was to obtain men of unquestioned integrity who personally attended to practically all the matters of their offices. They were selected by vote of a restricted electorate.

Today the problem is a much more difficult one. Particularly, the office of Auditor of Public Accounts has developed to the point of being one of the most important and essential offices in the machinery of a State government which spends many millions of dollars annually and it has become one which demands the services of an individual who is qualified in the highest degree to deal with many technical problems of government accounting and fiscal administration. It is believed that such an office as that of the Auditor of Public Accounts is one of the most difficult ones to fill satisfactorily even when those who seek the persons qualified to fill it are well able to understand all of the difficulties in

volved, and it is believed that selection by popular vote is particularly unsuitable. In the case of the State Treasurer, the qualifications for the office are less exacting so it is relatively less undesirable for this officer to be selected by popular vote.

Objection to the Theory That Fiscal Officers Should be Responsible to the People: The idea of an entirely independent check on the financial administration of the State, as secured by having elected financial officers, is believed to be erroneous. Certainly this idea could not justify two elected officers. The days when absolute fraud is to be regarded as the most serious danger of loss to the public treasury are gone. We are now living in an age when the great opportunities for waste are in the manner in which collections of taxes and miscellaneous receipts are safeguarded and the vast sums appropriated by the legislature are expended. The greater problems of eliminating losses can be solved only by giving adequate attention to the control of revenues and by assisting the Legislature properly to interpret the needs of the State, to make its appropriations in such terms that unauthorized expenditures can be recognized as illegal, and to enforce its intentions as expressed by the appropriation act upon the numerous and large expending departments. On both the revenue and expenditure sides the problems of eliminating the present and possible heavy losses are equally technical and equally deserving of detailed and expert attention. There is every reason why the Legislature might reasonably demand that the chief auditing officer be directly responsible to it, so that the Legislature will have a means of checking the administrative officers, and it is obvious that the public at large cannot be familiar with the thousand and one problems of State administration, and under these conditions responsibility to the public means little or nothing.

The usual and, it is believed, correct substitute for having an elected Auditor of Public Accounts is that now found in Virginia, New Jersey, and some other States. In these States, the principal accounting and auditing officer is selected by the legislative body and so is independent of the State