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FOREWORD

This part begins with the presentation of general financial statements including a statement of the condition of the Commonwealth's treasury and statements of its revenues and expenditures for the fiscal year ended June 30, 1923.

Following these, under the main title “Financial Administration” is presented a comprehensive study of the whole system of financial administration of Kentucky including the problems of organization for fiscal management, treasury administration, budget procedure, auditing, accounting, and expenditure control. The functions of the Legislature as well as the administrative officers are dealt with. On the administrative side the fiscal duties of the central officers and of the department heads are emphasized. The text includes an outline of a comprehensive program for much needed improvements, which in all amount to a general reconstruction of the financial control and record-keeping system. The full realization of such a program for more business-like methods in government will be possible only with a widening of interest in the fiscal side of the State's operations.

The remaining six divisions of Part I take up the special problems of each of six principal accounting and financial offices of the State government.

Page

THE REVENUES, EXPENDITURES, AND FINANCIAL CONDITION

OF THE COMMONWEALTH

INTRODUCTORY

25

THE STATEMENTS

27

STATEMENT OF FINANCIAL CONDITION AS OF THE BE-

GINNING AND THE CLOSE OF THE FISCAL YEAR, JULY

1, 1922 to JUNE 30, 1923

29

DISCUSSION OF STATEMENT I-FINANCIAL CONDITION.. 29

STATEMENT OF EXPENDITURES FOR THE FISCAL YEAR,

- JULY 1, 1922 to JUNE 30, 1923.

32

DISCUSSION OF STATEMENT II-EXPENDITURES

32

STATEMENT OF REVENUES AND OTHER RECEIPTS FOR

THE FISCAL YEAR 1922-1923

33

DISCUSSION OF STATEMENT III-REVENUES

38

STATEMENT SHOWING THE DISTRIBUTION OF REVENUES

AND OTHER RECEIPTS TO FUNDS

39

DISCUSSION OF STATEMENT IV--DISTRIBUTION OF REV.

ENUES

41

FINANCIAL ADMINISTRATION

CHAPTER 1-INTRODUCTION

45

CHAPTER II-ORGANIZATION FOR FINANCIAL ADMINISTRA-

TION

48

PRESENT ORGANIZATION

48

CRITICISM OF THE PRESENT ORGANIZATION

50

Objections to the Selection of Fiscal Officers by Popular Vote 51

Objections to Theory that they should be Responsible to the

People

The Objection to Divided Responsibility for Auditing

53

FINANCIAL ORGANIZATION IN OTHER COUNTRIES

CONCLUSIONS AND RECOMMENDATIONS

54

CHAPTER III-TREASURY ADMINISTRATION

57

INTRODUCTORY

57

PARTIAL DECENTRALIZATION OF THE TREASURY 57

The Treasury Problem in its Relation to Accounting and

Auditing Problems

58

The Treasury Problem in its Relation to the Budget Procedure 60

Central Disbursements

Conclusions and Recommendations

61

FINANCIAL CONDITION OF THE STATE AND BORROWING

POLICY

62

The Treasury Policy as to Funded Debt

The Treasury Condition and Policy as Regards Temporary

Loans

63

The Interest Bearing Warrant Method of Borrowing

64

State Depositories and Handling Cash Balances

Proposed Methods of Reducing the Floating Debt

65

Conclusions and Recommendations

67

CHAPTER IV--THE BUDGET AND APPROPRIATION PROCEDURE 68

THE OLD SYSTEM CONTRASTED WITH THE BUDGET SYS-

TEM

CRITICISM OF THE PRESENT SO-CALLED BUDGET PRO-

CEDURE

70

The Limited Field of the Present Budget

70

The Failure of the Present Budget Within its Limited Field 73

Absence of Useful Summary Statements

73

Complete Lack of Intermediate Statements

74

Numerous Unestimated Revenues and Expenditures

75

Limited Informational Value of the Detailed Schedules

76

Lack of a Budget Staff

76

Divided Responsibility for the Budget

77

ESSENTIAL BUDGET PRINCIPLES

78

Four Fundamental Ideas

78

The Departmental Budget

80

The Governor's Budget

80

The Legislative Budget

81

The Appropriation Act

82

Enforcement of the Legislative Intent

83

Consolidated Contingent Funds

84

CONCLUSIONS AND RECOMMENDATIONS

84

CHAPTER V-AUDITING

86

THE AUDIT OF EXPENDITURES

86

The Failure of the Periodic Audit

86

Pre-Audit or Current Audit

87

A Combination of Methods

87

The Need for More Complete Expenditure Documents

88

The Need for a Distinct Current Audit Procedure

89

The Need for Explicit Appropriation Heads

91

CHECKING AND CONTROLLING COLLECTIONS

92

Assessing and Collecting Agencies

92

Collections by Administrative Agencies

93

Various Devices for Control

94

Auditing Collections

95

The Work of the Revenue Agents

96

HIGHER AUTHORITY FOR THE AUDIT

97

The British System

97

The Proper Solution for Kentucky

98

CONCLUSIONS AND RECOMMENDATIONS

99

CHAPTER VI-ACCOUNTING

102

THE GENERAL ACCOUNTS OF THE STATE

102

Information as to Assets and Liabilities

105

Information as to Expenditure Authorizations

106

Information as to Receipts

109

Information as to Expenditures

111

RELATION OF THE AUDITOR'S AND TREASURER'S AC-

COUNTS

112

ACCOUNTING FORMS AND PROCEDURE

112

CONCLUSIONS AND RECOMMENDATIONS REGARDING GEN-

ERAL ACCOUNTS

114

DEPARTMENT AND INSTITUTION ACCOUNTS

116

Essential Records

117

Essential Documents

118

Classification of Expenditures by Function

119

Classification of Expenditures by Nature; Budget Classes 120

Special Fund Problems

121

Stores and Property Records

122

CONCLUSIONS AND RECOMMENDATIONS REGARDING DE-

PARTMENT ACCOUNTS

123

CHAPTER VII-EXPENDITURE CONTROL

124

THE ORGANIZATION FOR EXPENDITURE CONTROL.. 124

THE INSTRUMENTS OF EXPENDITURE CONTROL

125

TIMEKEEPING AND ATTENDANCE CONTROL

126

Timekeeping

127

Attendance Control

127

RECOMMENDATIONS

128

CHAPTER VIII-CONCLUSIONS AND RECOMMENDATIONS 130

GENERAL APPRAISAL OF FINANCIAL ADMINISTRATION : 130

SUMMARY OF CONSTRUCTIVE RECOMMENDATIONS

131

Proposed Improvements in Organization

131

Other Proposed Improvements Requiring Legislation

133

Improvements Which Cannot be Secured Through Legislation

Alone

135

STATE PURCHASING PROCEDURE

THE PRESENT PURCHASING SITUATION

139

The Advantages of Central Purchasing

141

METHODS OF CENTRAL PURCHASING

143

POSSIBLE PLANS OF ORGANIZATION FOR CENTRAL PUR-

CHASING

145

COMMENTS ON THE LEGAL REQUIREMENTS

146

PROPERTY CONTROL

147

SUMMARY OF RECOMMENDATIONS

148

AUDITOR OF PUBLIC ACCOUNTS

INTRODUCTORY

153

FUNCTIONS

153

ORGANIZATION

155

EXPENDITURES

156

PROCEDURE

156

Tax Collection

156

Recording and Auditing

157

Accounting

160

General and Specific Funds

162

COMMENTS AND SUGGESTIONS

165

CONCLUSIONS AND RECOMMENDATIONS

167

General Appraisal ...

167

Summary of Recommendations

167

STATE INSPECTOR AND EXAMINER

INTRODUCTORY

171

FUNCTIONS

171

ORGANIZATION

173

EXPENDITURES

173

COMMENTS AND SUGGESTIONS

174

Causes of the Failure to comply with the Law

174

Importance of the Investigational Function

177

CONCLUSIONS AND RECOMMENDATIONS

179

General Appraisal

179

Summary of Recommendations

180

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