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.

uable services. Such a committee should be provided for and appointments to it should be made from both politicial parties with care with a view to securing men fully equipped to understand the various problems involved in the operations of the State departments and institutions and able to express an intelligent opinion as to the measures for the control of expenditures which should be provided. The members of the Budget Commission (as proposed) should be ex-officio members of this committee.

Conclusions and Recommendations:

The audit machinery of the State has so far failed to accomplish the results which may be reasonably expected as judged by a comparison of Kentucky with other progressive States. The effect of this failure may be measured in dollars and cents lost. In the case of the expenditure audit the losses due to a weak audit cannot be judged separately from those resulting from the deficient budget procedure but they are doubtless larger than any other. The losses due to defective control over receipts are believed to run into the hundreds of thousands of dollars per annum.

The steps recommended to bring about an improvement in the present audit practice may be briefly described as follows:

1. That the transactions of all State departments and institutions clear through the State treasury in such a way that a current audit will be possible. This involves a statutory provision requiring all receipts to be deposited in the treasury and all expenditures to be made on the Treasurer's check or from imprest funds.

2. That the biennial auditing by the State Inspector and Examiner be discontinued and the Auditor of Public Accounts be instructed to make field audits in connection with the current auditing which he handles. This is a matter requiring legislation.

3. That forms of State vouchers and payrolls (a combined

voucher-warrant and payroll-warrant) be drafted, the former to be attached to each claim submitted for payment and including a certificate as described on page five, and the latter to be used for all salary payments and including certified statements as to time worked. These changes do not require legislation.

4. That the office of the Auditor of Public Accounts include a separate audit staff responsible for both the current audit and the field audit and with an auditor in charge who would be required to sign all voucher-warrants and payrollwarrants. This step would not require legislation.

5. That the current audit of expenditures provide means for testing all of the following facts with respect to each voucher to be paid:

1. That the voucher represents an expenditure solely for the benefit of the State and properly authorized by the individual signing it.

2. That all calculations are correct and total the amount shown on the voucher.

3. That the amount of the claim or any part thereof has not been included in any voucher or claim previously certified for payment.

4. That funds are available for the purpose in question. 5. That duly approved certifications recording the receipt of articles or services of the quantity and quality stipulated are attached (or available).

This step would not require legislation, though legislation. would be desirable.

6. That the exact procedure to follow with respect to each of many classes of claims, including ordinary vouchers and payrolls, be worked out with care and defined in written procedure regulations. This step would not require legislation.

7. That the Tax Commission's authority be extended in the directions indicated on an earlier page and as set out in the

report on that agency. This step requires several amendments to the statutes.

8. That the Auditor of Public Accounts require copies of all tax assessments and bills sent out by departments to be filed with him and recorded on his books. Legislation requiring this would be desirable.

9. That the Auditor of Public Accounts assume the responsibility for auditing each class of receipt, the procedure for each being designed with regard to the special problems involved. This step will be practicable only after transferring the field audit function to the Auditor's office since not all of the auditing involved can be done in the Auditor's office.

10. That the system for the control of each source of revenue of the State be made the subject of a special study with a view to devising ways to reduce or eliminate the opportunity for losses (in the ways indicated on page twelve and otherwise) and that recommendations for needed legislation to this end be submitted to the next General Assembly.

11. That the legislation, in 1926, to embody the recommendations for improved control of receipts, include the abolition of the office of Revenue Agent.

12. That legislation be provided for an audit committee with a membership of five including the Governor, the chairmen of the two legislative appropriating committees, and one other member of each house to be selected by the members of the minority party therein.

The tenth recommendation would naturally be adopted, if at all, in connection with other recommendations calling for special studies of the fiscal system and would involve an ap propriation for this purpose.

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