3. In order that the Governor may exercise an effective control over finances there should be created an office of State comptroller to be directly attached to the office of the Governor and to be under the general direction, supervision, and control of the Governor.

4. The duties of the State comptroller should be: (a) To prescribe and furnish forms to all departments and establishments for their use in submitting biennial estimates of receipts and expenditure requirements; (b) to combine all such estimates into a tentative budget and to submit such tentative budget to the Governor for his information in holding public hearings on the proposed financial program for the ensuing biennium; (c) to assist the Governor in such hearings and furnish any additional information when needed or requested; (d) from the information obtained at such hearings to prepare the Governor's final budget document for transmission to the legislature; (e) to preaudit all demands by or against the State and to issue proper warrants for the settlement of such demands; (f) to prescribe all accounting and business forms and the systems of accounts and reports of all financial transactions by all agencies of the State government; (g) to keep the central budget and proprietary accounts of the State government in accordance with the outlines previously submitted under accounting procedure; (h) to render monthly, quarterly, and annual reports of the financial condition and operation of the State government and of all funds and appropriations, and the status of allotments; and (i) to perform all other duties in respect to the preparation and execution of the budget and the administration of finances or of accounting and reporting therefor now being performed by the director of the budget, the State auditor, the State board of audit, and the board of control.

5. The State auditor should be relieved of all duties other than those of a strictly post-auditing nature. His duties with respect to the preaudit of claims, the issuance of warrants, the keeping of accounts, and the reporting of financial transactions should be transferred to the comptroller. His miscellaneous duties with respect to the regulation and certification of building and loan and other financial institutions should be transferred to the department of banking as recommended in a preceding chapter (p. 418).

15. The duties of the State auditor, with respect to State financial operations, should be confined to annually auditing the books and financial transactions of all departments and establishments of the State government, which duty has heretofore been performed by the director of the budget and various firms of certified public accountants (p. 420).

OKLAHOMA REPORT (1935) 3

STATE FINANCIAL ADMINISTRATION

The State government of Oklahoma is handicapped today because of lack of financial control by its chief executive, the Governor. Until Oklahoma adopts a modern budget system, an effective financial organization, and an up-to-date system of financial administration, and abandons its present spoils system, it will continue to operate under adverse conditions.

Of the several factors entering into the problem of efficient government, possibly none is of greater importance than that of financial administration. * * *

Government may be likened to a private business. To be successful it must have a proper and efficient organization, a well-designed plant, and an effective system of distribution. Oklahoma needs simplified organization, qualified and well-trained personnel, and modern business and accounting methods.

The State has made little progress in improving its financial organization and procedure since statehood. This is due in part to its constitution and in part to its statutory laws. In 1919 the State legislature made some progress in reforming the State's financial administration by the enactment of the budget law; but, unfortunately, his act did not provide for budgeting all of the funds of the State government and neither did it give the Governor authority to execute the budget after enactment of the appropriation measures. Present control over the financial operations of the State government is too diffused to be effective. This is largely due to (1) duplication of accounting and auditing authorities; (2) the existing system of decentralized disbursing,

3 Institute for Government Research of the Brookings Institution, Report on a Survey of Organization and Administration of Oklahoma, 1935.

which does not even permit of post-auditing all of the disbursements of the departments and institutions; and (3) the ineffective system of accounting and reporting of the State auditor's office (p. 219). Conclusions and recommendations.—

*

*

* The accounting functions are now diffused and improperly assigned. For example, the State examiner and inspector is charged with the duty of devising and installing uniform accounting systems in some State departments and in all State institutions; the Governor is charged with the duty of establishing uniform budget classifications; and the State auditor is charged with the duty of keeping the appropriation or other central control accounts. Finally, the examination and approval of claims against the State government is the responsibility of three different State agencies: The State auditor, the State board of affairs, and the State examiner and inspector.

To effect a better coordination of the financial organization and an improved administration of the financial affairs of the State, a comptroller's office should be established in the executive department; this office should be headed by a State comptroller appointed by the Governor without term, and directly responsible to him; and that this office be composed of the following divisions and sections:

Office of State comptroller.

Budget division.

Division of central accounting and reporting.

1. Preaudit section.

2. Warrant section.

3. Bookkeeping section.

4. Reporting section.

At the head of the division of central accounting and reporting should be an assistant State comptroller, whose functions would be that of a chief accountant. This division should take over the accounting and auditing duties now performed by the claim audit and bookkeeping sections of the State board of public affairs; the preaudit of claims and bookkeeping work now performed by the preaudit division, the warrant division, and the bookkeeping division of the present State auditor's office.

The preaudit and accounting and reporting duties of the State auditor, as enumerated in the Oklahoma Statutes and Session Laws, should be transferred to the proposed State comptroller's office.

The positions now listed under the preaudit division, the warrant division, and the bookkeeping division should be transferred to the proposed State comptroller's office.

The duties of the State auditor should be restricted to postauditing and examination of the financial operations of all State departments, boards, commissions, agencies, and institutions of the State government including the proposed State comptroller's office, and he should report his findings annually to the Governor and biennially to the legislature (pp. 230-232).

DISBURSEMENT OF PUBLIC FUNDS

It is recommended that:

The State comptroller should settle all claims and draw all State warrants on the State treasurer, and the State auditor should be relieved of this function.

The State auditor should be required to make a postaudit of all transactions of the State comptroller's office (p. 272).

Mr. MERIAM. In accordance with the committee's authorization, I wish to submit this statement for the record, to follow the quotations from our various State surveys which were submitted by Senator Byrnes.

The Institute for Government Research of the Brookings Institution has followed the financial administration of the National Government closely since the founding of the institute in 1916. Throughout this entire period it has always advocated for the National Government final settlement of accounts after an audit by an independent auditor.

Mr. William F. Willoughby, who was director of the institute from 1916 to 1932, was adviser to both the Senate and House committees which drafted the Budget and Accounting Act of 1921. In the preparation of the section of that act which provides for an independent audit prior to final settlement, the congressional committees were assisted by Judge Warwick, who at that time was Comptroller of the Treasury. Although the law then in force provided, as it had from the beginning, that the decisions of the Comptroller of the Treasury could not be reversed by any officer in the administrative branch of the Government, Judge Warwick believed that the situation required a higher degree of independence for the Comptroller General and the Congress so provided in the Budget and Accounting Act of 1921. The functions of audit and final settlement were taken out of the Treasury Department, which had become a great operating spending agency, and these functions were placed in the General Accounting Office under the Comptroller General, who although appointed by the President for a 15-year term could only be removed by a joint resolution of Congress.

With respect to the National Government, the Institute for Government Research has not changed its views that final settlement of accounts should only be made after an audit by an independent auditor who has full power to disallow an illegal or irregular payment.

When in 1925 requests began to come to the institute from the States for assistance in the reorganization of the State governments, the institute did some work in that field.

The members of the staff of the institute who did the State work were impressed by the marked practical differences that existed between State governments and the National Government. No State approached the National Government in size, area, diversity of activities, or amount expended. None of them had the Federal practice of making conditional payments, promptly, through bonded disbursing officers whose accounts were subsequently independently audited prior to final settlement. Since in the States all the financial and budgetary officers, with their small number of employees, were located in the same city and generally in the same building, and since the control books were similarly centrally located, the institute never found the necessity for recommending the more elaborate Federal system in any of the States which were studied. To the staff members a proposal to install the decentralized Federal system of disbursing and accounting in the States would be as impracticable as a proposal to use the centralized State systems in the Federal Government. From the standpoint of practical operation the two systems are not comparable, for the Federal Government with its great area, its numerous field establishments, its foreign service, and its ships at sea, cannot operate with a highly centralized system. It must have a decentralized system with mechanisms for prompt, though conditional, payments subject to an audit prior to final settlement of accounts of the administrative and disbursing officers. In the States a postaudit after final settlement can be made immediately following the payment and the auditor and his few assistants can check the books of the other fiscal officers. In the Federal Government a postaudit after final settlement cannot in many instances be made until months after the transaction has taken place

and often it can be completed only at Washington where the central control books are kept.

It is obvious to anyone who reads the extracts from our State reports that, in being practical rather than theoretical, we followed one principle in the States and another in the Federal Government. That inconsistency was never discussed by the staff until recently, when the argument was made to us that the Brookings Institution should become consistent by reversing its 20-year stand with respect to the Federal Government, which its staff members have been studying intimately for those 20 years, both from within and outside the Government service.

Discussion within the staff naturally turned on the question of principle. After full discussion the staff agreed unanimously that the governing principle for proper financial control in American governments with divided powers is that final settlement should be made only after an audit by an independent auditor, responsible either directly to the people or to the representative legislature; and that this independent auditor should have power to disallow an illegal or irregular payment and hold the administrative officer responsible for the illegal or irregular expenditure on his bond.

Attention should again be called to the fact that the movement in the States for what has been called the strong executive is a development of the past 25 or 30 years. From colonial times to the beginning of the present century the customary pattern in State government was the strong legislature and the weak executive. As the importance of administration grew it became apparent that the States needed a general manager and the logical person for general manager appeared to students of public administration to be the governor. All surveyors of State governments made recommendations in that direction. It must be admitted by them all that these movements were in the nature of experiments and that the results of the experiments could not be determined for some years.

Students of public administration generally agree that the time has come for the evaluation of these experiments. Representative Gifford, of Massachusetts, at the hearings expressed himself with some force regarding his views on the results in Massachusetts and many persons in other States which have reorganized share his doubts as to the unqualified success of the various theories when applied in practice.

At the Institute for Government Research we have been slow to accept the existence of fixed principles of public administration that have not been proved and demonstrated beyond doubt or argument. We do not regard public administration as something which can be set up on the basis of the theory. Insofar as theory is concerned we believe it must be gradually developed through experience. All we can hope to do is to get the facts of the existing situation as completely as possible and to use our best judgment in the presentation of recommendations based on those facts.

In this developing field it seems to us essential to maintain a thoroughly objective attitude; otherwise we should not be able to realize the benefits of judgment ripened by experience.

In conclusion we repeat that in the light of all the facts we recommend for the Federal Government a system which provides for an

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audit prior to final settlement by an independent auditor with power to disallow illegal or irregular payments and collect on the bond of the official responsible.

The CHAIRMAN. Are there any further questions to be asked of Mr. Meriam?

Representative TABER. I have some, Mr. Chairman, if no one else cares to ask any questions at this moment.

Mr. Meriam, I want to ask you this, in connection with the audit of Government accounts. There are, as I view your statement that you made to us this morning and the other day, two outstanding features: The first is that the audit should be made by an officer or an office which is absolutely independent of the executive departments and the spending agencies?

Mr. MERIAM. Yes, sir.

Representative TABER. And the second is that that auditor should make the audit in such a thorough way that no other audit, other than the ordinary accounting in the departments, would be neces sary, and that the auditing officer would have the power to settle

Representative TABER. As to whether or not the power to settle accounts and to make this audit was a legislative or executive function would depend upon the conclusions-as to how that officer might be set up would depend upon the conclusions that the Congress might arrive at after it had studied that situation.

Mr. MERIAM. Precisely, sir.

Representative TABER. But the independence of the audit, that is to keep it out of the control of the spending agencies, is a matter of extreme importance.

Mr. MERIAM. Yes, sir; that is our position.

Senator BYRD. Mr. Meriam, the President's Committee testified that the existing system of financial supervision had proven a failWhat is your opinion about that? I am speaking about the basic principle, not of some details.

ure.

Mr. MERIAM. We see no great body of facts that warrant any such conclusion. We are perfectly willing to admit that the present organization and procedure is not perfect, it is subject to material improvements in detail. We have attempted to make recommendations toward the development and perfection of those details. we have been operating under that system since 1921. It is not so radical a departure from the earlier system as many people think, and we see no evidence to indicate that the system has in any sense failed.

But

We appreciate that in any system of control, whether it is control by the Budget or whether it is control by the auditor on final settlement, conflicts are going to arise. If there was no opportunity of conflict I do not suppose there would be any necessity for control. Control means a certain number of conflicts. There is always bound to be a certain amount of friction. There is always bound to be a certain amount of personalities involved, but that is inherent in any human system.

As I tried to point out in my opening statement on this first day, the last 5 years have been an extremely difficult period in public administration because of the necessity of enormous expansion in