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 STATE BOARD OF ACCOUNTS 
 
 .^ic-^/c^^uuL^ DEPARTMENT OF INSPECTION'' '^' '.'•• ;;^! : 
 •» AND SUPERVISION OF 
 
 PUBLIC OFFICES. 
 
 Special Report of 
 
 GILBERT H. HENDREN, 
 
 State Examiner. 
 
 For the period from 
 July 1, 1914, to June 30, 1916. 
 
 TO THE GOVERNOR. 
 
 Gilbert H. Hendren, State Examiner. 
 Thos. H, Kuhn, Deputy Examiner. 
 Bert Winters, Deputy Examiner. 
 George M. Crane, Law Clerk. 
 

 
/^ 
 
 o 
 
 STATE BOARD OF ACCOUNTS 
 
 INDIANA 
 
 MEMBERS OF THE BOARD 
 
 Hon. Samuel M. Ralston 
 \ Governor 
 
 Hon. Dale J. Crittenberger 
 Auditor of State 
 
 Hon. Gilbert H. Hendren 
 
 State Examiner 
 
 537!*: 1 
 
State Board of Accounts of Indiana, 
 State House, Indianapolis. 
 Hon, Samuel M. Ralston, Governor: 
 
 The success and appreciation of the special report filed for 
 your consideration under date of July 29, 1914, have prompted 
 me to again undertake a statement of the purposes of the public 
 accounting law and the progress made by the State Board of 
 Accounts. 
 
 The former report was given general circulation, and requests 
 for copies were received from other state departments and from 
 students of economics in this and other states. We were favored 
 with many words of commendation of the report. All of which 
 is very gratifying to the officials of the board, and is especially 
 significant as indicating the practibility and effectiveness of our 
 law. 
 
 The public accounting law of Indiana is unanimously endorsed, 
 and we are convinced is the best and most economical accounting 
 law of any state in the Union. Practically all of the opposition 
 that exists to the State Board of Accounts and any adverse criti- 
 cism of the law are traceable to some interference by the board 
 with questionable transactions of officials, or with deals and com- 
 binations of unscrupulous persons to prevent honest and fair 
 competition. 
 
 The public accounting law is the result of a popular demand 
 in corporate business for a greater insight into the details of the 
 company's affairs. In former years the officials, and especially 
 the stockholders, were satisfied with a fair return on their invest- 
 ment and no questions were asked. In this advanced age of 
 combinations and consolidation of capital such is not the case. 
 No matter how big the dividend, the stockholder demands to 
 know why it was not larger, and what constitutes the heretofore 
 ambiguous item of "expense;" or he may feel that the dividend 
 is greater than justified by the volume of the business. It may 
 be that he thinks the officials are fooling themselves, and the 
 large dividend is not justified. He may feel that sooner or later 
 there will be a discovery, when his stock may become impaired 
 or he may be called upon to return in the form of an assessment 
 dividends not earned. He has, or thinks he has, ideas by which 
 the expense can be reduced, and he demands of his officials 
 detailed reports covering every item of cost of the business. 
 
 This is as it should be, and although the stockholder may 
 have every confidence in the honesty and ability of his officers, 
 
6 
 
 ■.♦* «•»♦*'' ♦ 
 
 he is not satisfied with a report compiled by the same agents who 
 have kept the records. Hence the demand for expert examina- 
 tion and analysis of the company's accounts by a third person, 
 disinterested and competent. This demand occasioned the birth 
 of a new profession, that of expert accountant, and experts in 
 accountancy find their services in demand and their work ap- 
 preciated. 
 
 As business men came to realize the importance of unit cost, 
 and found that the absolute and positive condition of their com- 
 mercial and industrial investment could be shown at any time 
 by an analysis of their accounts, and the transactions of any 
 period shown and their profit or loss determined for them, it 
 was but natural that they should demand that similar methods 
 be employed and similar reports made by their public officials, 
 that they might know how and for what they were required to 
 pay into the public treasuries a per cent, of their savings. If 
 expert and disinterested examinations were good business in their 
 private affairs, the same were certainly worth while in their public 
 affairs, especially since their officers were elected for a given 
 period, no matter how they conducted their offices, or for what 
 they expended the funds of the taxpayers intrusted to their care 
 and control. 
 
 The old theory that "everybody's business is nobody's busi- 
 ness" was no longer popular, and the demand for an accounting 
 to someone in authority by their public officials became so insis- 
 tent that the commercial and industrial organizations of the state, 
 the press, and many public officials insisted upon legislation that 
 would provide for expert, impartial, and non-political supervision. 
 
 The heretofore careless citizen who had been too absorbed in 
 his own affairs began to feel a new responsibility in the conduct 
 of the public business in which he, as a taxpayer, was an inter- 
 ested stockholder. It was this new interest that demanded of 
 the legislature of 1909 a supervision of all public offices. The 
 Merchants' Association of Indianapolis, recognizing this demand, 
 appointed a committee to draft and to present to the legislature 
 a suitable law that would give to the taxpayer some guarantee 
 that his taxes would be applied for his benefit. Accordingly their 
 committee of business and professional men submitted the present 
 accounting law to ths legislature of 1909, and requested, through 
 a friendly press, the support of all public-spirited citizens. As a 
 result, the law as drafted by them was passed with practically no 
 opposition. 
 
The actual examinations of public ofl&ces and institutions, and 
 the investigations pertaining to any official transactions had by 
 them are generally made by our field examiners. The efficiency 
 of this department, therefore, depends, in the main, upon the 
 efficiency, integrity, and industry of the field examiners. In the 
 selection of the field force I have exerted every effort to secure 
 efficient and industrious accountants of unquestionable character. 
 
 Our field examiners are required not only to have the knowl- 
 edge and ability of commercial accountants, but must be familiar 
 with the statutes governing all public offices, and be able to cor- 
 rectly canstrue the statutes and decisions. They are kept 
 advised as to the board's construction of statutes, and are encour- 
 aged to submit new questions arising during examinations, with 
 their opinions, to our legal department. In this manner we have 
 the benefit of each other's experiences, and the public official is 
 given the results of the best and most expert thought and deci- 
 sions on the proper method of handling his various problems. 
 
 It is my belief that a successful examination can only be made 
 by a pair of examiners who are informed on the statutes govern- 
 ing the office examined, and who know more about the records 
 and the accounts required to be kept than the officer examined. 
 We find the services of examiners are especially in demand to 
 assist in the transfer of the office and to aid and instruct the in- 
 coming official. Good citizens are elected to office from the 
 farm, the workshop, and other honorable vocations, without any 
 experience as accountants or knowledge of what will be required 
 of them in the administration of their new duties. With compe- 
 tent examiners, we are able to assist the officer at the beginning 
 of his term, and with annual examinations to keep him right dur- 
 ing his tenure of office. 
 
 It is my good pleasure to report that, because of the greater 
 experience and the increased efficiency and industry of our ex- 
 aminers, and the uniformity and simplicity of the records installed, 
 I have, since the beginning of my term, been able to reduce the 
 number of examiners from approximately one hundred to approxi- 
 mately fifty, and, in my judgment, our service value is now 
 greater than ever before. 
 
 By consolidating positions and eliminating duplications, I 
 have reduced our office force from a maximum of twenty-three in 
 1913 to a minimum of twelve, which is the least possible number 
 that can efficiently and promptly handle the business of the office. 
 
PUBLIC ACCOUNTING LAW BI-PARTISAN. 
 
 As before stated, politics and political influence had nothing 
 to do with the sentiment responsible for the public accounting 
 law in Indiana. If the enactment of this statute had depended 
 upon the support of either political party, it is reasonably sure 
 the act would not have been passed in its present effective form. 
 7 am equally sure that the success of the law depends upon the admin- 
 istration of the hoard and the conduct of examinations without 
 regard to political eifect. 
 
 The public accounting law provides for two deputy examiners, 
 who shall be of different political parties. These have aided in 
 the conduct of the office, in shaping the policy of the board, and 
 have had charge of the settlements with public officials. The 
 statute also provides for a bi-partisan field force of examiners, 
 and examinations have all been made by two examiners of different 
 political faith. 
 
 The assignment of a bi-partisan pair of examiners to a con- 
 gressional district was first tried in 1914, and found to be not only 
 practical and economical, but very popular with the examiners. 
 No examiner is given work in his own county, but is assigned to 
 his district outside of his county. By this arrangement he is 
 able to be at home more, and at less expense for transportation, 
 and "the municipalities examined are saved the expense of long 
 trips between assignments. The assignments are now made 
 covering every office in the county examined, and only one round 
 trip railroad fare is collected. This charge is pro-rated among 
 all the offices exaniined. 
 
 Prior to and during the first year of my administration as 
 many as five pairs of examiners were assigned during one year 
 to examine the different offices of a single county. This was 
 almost imperative, for the reason that only part of the examiners 
 were qualified to examine all the offices of a city, county, and 
 township. Necessarily, there was a great deal of duplication of 
 work, and the various municipalities were required to pay more 
 on account of this duplication and additional transportation. 
 
 Our force has reached the degree of efficiency that every team 
 of examiners is now qualified to make the examinations of all the 
 offices in a county, including the offices of the townships, cities, 
 towns, and municipal light and water plants. This arrangement 
 has reduced the time necessary to make the examination fully 
 one-third, and we have found that on account of the relationship 
 
9 
 
 between the offices to be examined, a more nearly uniform and 
 complete check can be made by the same pair finishing the work 
 of the entire county. 
 
 With the increasing efficiency of the field examiners and public 
 officials, and the more nearly uniform system of records and 
 accounts, the saving of time necessary to make the second and 
 succeeding examinations, by the same pair of examiners in the 
 various congressional districts, state offices, and institutions will 
 be such that it will be possible to gradually further reduce the 
 examining force to approximately forty examiners. 
 
 Of the field examiners retired from the service, some of the 
 most efficient have been placed on the eligible list of available 
 examiners, to fill vacancies that may occur from time to time. 
 
 EXAMINER AND HELPER NOT PRACTICAL. 
 
 It has been suggested by friends of the accounting law, with 
 a desire to economize, but who are unfamiliar with the details of 
 making examinations and reports, that one examiner might be 
 in charge of our examinations with a clerk employed at a less 
 wage to assist. ^ 
 
 This change would, of necessity, do away with the bi-partisan 
 feature of the law. The clerk would probably feel no responsi- 
 bility for the success of the examination. The official examined, 
 if of different political belief from that of the examiner, would be 
 suspicious during the examination and might feel, if irregularities 
 were found, that they were prompted by political prejudice. 
 
 The success of our examinations, and the fact that our examiners 
 are able to make adjustments in 85 per cent, of all cases of irregu- 
 larities, is due to the fact that the official examined believes, at all 
 times that he will be impartially and fairly treated. 
 
 The proposed plan has been tried by other states and has 
 proven unsatisfactory. It is our experience that the most suc- 
 cessful examinations of public officials are conducted by bi-partisan 
 examiners of equal ability, efficiency, power, and responsibility, 
 and that less time is required to make the examinations than 
 when conducted by an unevenly balanced team of examiners. 
 In checking accounts one with the other as much depends upon 
 the accuracy of the one checking as the one calling. 
 
 Examination must be thorough and complete, and kept free 
 from politics and political influences. This can only be accom- 
 
10 
 
 plished by employing examiners selected from the different politi- 
 cal parties who are efl&cient and honest. 
 
 CONSOLIDATION NOT FAVORED. 
 
 It has been suggested that the State Board of Accounts might 
 be combined with some State office, board or commission, and 
 the expense of management reduced. We feel that the business 
 of examination and supervision of public offices should not be 
 subjected to other influences. To he successful, the State Board of 
 Accounts must be independent of any interests other than the welfare 
 of the taxpayer. This we feel can only be accomplished by giving 
 all our time and thought to the 6,522 offices under our supervision. 
 We know that the certainty of examination has been the cause 
 of greater economy and accuracy in the public's affairs, and that 
 the restraining effect alone, the State over, has been worth much 
 more than the expense of the supervision. 
 
 SCOPE OF EXAMINATION. 
 
 Our attention has been repeatedly called to the general criti- 
 cism of interested dealers and their friends, who believe that any 
 advantage obtained over the public, whether honestly obtained 
 or secured through trickery, is good business and justifiable; that 
 we exceed the authority of the statute in our examinations; that 
 our activities should be confined to the correctness of the accounts, 
 a mere audit of receipts and disbursements, and a verification of 
 extensions and additions, without investigation of the legal right 
 of the official to make the collection or to incur the expenditure. 
 While we have heard of their objection to the conduct of the board 
 and its examiners, I am pleased to state that no official has ever 
 questioned our authority or interfered in any way with the 
 examiners in the conduct of an examination. Our interpreta- 
 tion of our duty is to check the accounts and verify their correct- 
 ness, and to impartially investigate every official transaction, to 
 the end that we may know that the official has followed the law, 
 and that the taxpayer has had value received in necessities, com- 
 forts, and privileges for which he is annually required to con- 
 tribute his part. 
 
 // is our belief that to accomplish this purpose the public account- 
 ing law contemplates no limit to the scope of our investigations and 
 recommendations. Our official acts have been based on the theory 
 
11 
 
 that it is our duty to do everything that, in our judgment, will aid 
 the official and prevent waste of public funds. 
 
 To this end we have established uniform accounts in every 
 pubHc office in the State, and a uniform system of examinations 
 and reports of examinations. We have instructed officials in the 
 correct methods of transacting the business of their offices; defined 
 their duties, and advised them as to the intent of the statutes. 
 In this we have had the co-operation of the Attorney. General's 
 office. 
 
 LEGAL DEPARTMENT. 
 
 Our legal department has rendered valuable services to the 
 public officials of the State in giving them legal advice as to their 
 official duties. Heretofore officials, other than State officials, have 
 had no common source of information as to the proper methods 
 of conducting their several offices, most of them followed prece- 
 dent or placed their own construction upon the statutes govern- 
 ing their offices. Consequently, the statutes have been construed 
 differently in different parts of the State. 
 
 This department has always held itself in readiness to advise 
 with all the public officials of the different counties, townships, 
 cities, and towns, or with their attorneys, about any question of 
 law regarding the conduct of the office. In this way we have 
 been able to secure a uniform application of the laws throughout 
 the State that could not have been attained in any other way. 
 
 We have prepared a codification of the laws affecting town- 
 ship trustees and county commissioners. We have published the 
 statutes affecting fees and salaries of all public officials. We have 
 issued two price list guides, setting out the market prices of most 
 everything required by the county commissioners and the trustees. 
 We have pubHshed rules and regulations affecting public build- 
 ing contracts. 
 
 We now have in preparation a codification of the statutes 
 affecting cities and towns, which will not go to press until after 
 adjourjiment of the next legislature, in order that any amend- 
 ments of the laws concerning cities and towns may be included 
 therein. 
 
 From time to time officials have been instructed on specific 
 questions. UnbusinessHke methods and practices have been 
 ordered discontinued, and many changes inaugurated to the 
 benefit of the public service. 
 
 It is the custom of the department to give all officials the 
 
12 
 
 benefit of the experience and information acquired during exam- 
 inations, and to call their attention, by circular letter, to rulings 
 and constructions on important questions affecting their offices. 
 
 ITEMIZED CLAIMS. 
 
 One of the greatest sources of annoyance and causes of delay 
 in making an examination of an office is the failure of the disburs- 
 ing officer to require all claims filed with him to be properly item- 
 ized in detail. We find that this is the method most generally 
 resorted to in order to work a fraud upon the municipality. 
 
 There is no reason why a claimant who has a valid claim against 
 a municipality should not itemize it in detail, while the man who is 
 seeking to have an illegal claim -paid out of -public funds most natur- 
 ally endeavors to conceal its identity. 
 
 The statutes expressly require that all claims shall be item- 
 ized in detail, and we are proposing to hold an officer chargeable 
 with all amounts paid out on claims not properly itemized, and 
 an order to this effect was addressed to all public officials on 
 August 26, 1915. Since that time officials generally have been 
 more careful to follow the law, but on account of carelessness, or 
 with the intent to conceal unreasonable or illegal allowances, 
 some officials are still paying claims that are not properly itemized. 
 
 IMPORTANCE OF CASH BOOK. 
 
 Another source of unnecessary delay and inconvenience to 
 our examiners in making their examinations is the failure of 
 treasurers and comptrollers to keep their records in balance. It 
 is not an unusual thing for some such officials to rely entirely 
 upon our examiners to ascertain for them their correct balance, 
 and to make no attempt to keep their records properly posted, 
 when such balance has once been determined. The time spent 
 by our men in reconciling the cash of a public official necessarily 
 increases the cost of the examination, and is due entirely to the 
 failure of the official to perform his duties. The majority of the 
 complaints made as to the cost of examinations by this 'depart- 
 ment are occasioned by such a condition of affairs. 
 
 COST ACCOUNTING SYSTEM. 
 
 /- Some years ago the manufacturers of this country saw the 
 necessity for a system of accounting that would reveal to them 
 just what their product cost to manufacture, hence the cost sys- 
 
13 
 
 tern was devised, which was intended to show the cost of the 
 product at each stage in process of manufacture, as well as com- 
 pleted product. The system has been revised from time to time 
 to meet the requirements of the individual manufacturer, so that 
 at the close of the fiscal year he may determine his profits with 
 some degree of accuracy. Prior to the installation of the cost 
 system, it was largely a matter of conjecture with him as to 
 whether he had made profits during the period or had sustained 
 losses. 
 
 Cost keeping accomplishes much if it does nothing more than to 
 put a check on waste and its subsequent occurrence in manufacture. 
 
 Double entry system of account keeping is the only true basis 
 upon which the accounts of a cost system snould be established. 
 A system of accounts by which records of costs are maintained 
 parallel with charges in the financial accounts for the manufac- 
 turing materials, labor, and expense lacks completeness, and its 
 accuracy is open to question when agreement with the financial 
 accounts is not obligatory. 
 
 Realizing the necessity for the introduction of modern com- 
 mercial practices into our public institutions, this department, in 
 its examinations of those institutions wherein certain commodi- 
 ties are manufactured on State account, has gone very carefully 
 into the matter of costs, with the result that the actual cost of 
 the manufactured article is known to a certainty. With the 
 assistance of the examiners of this department, records have been 
 so prepared as to permit of the assembling of all elements of cost 
 such as raw materials, carriage inward on purchases, various 
 manufacturing and selling costs, including direct and indirect 
 labor, hand tools, fixed charges embracing light, power, and heat, 
 depreciation, rents and insurance, expenses of upkeep, travelers' 
 expenses, etc. 
 
 To accomplish this, it was necessary to introduce records to 
 carry out the idea of the continuous or perpetual inventory, so 
 that the stock records would disclose at any time the amount and 
 value of stock on hand and the quantities and value thereof used 
 in the process of manufacture. 
 
 The results thus obtained were made possible only by the very 
 capable services rendered by the assistants of the institution 
 wherein the above-mentioned results have been accomplished. 
 
 The cost systems insta;lled in such manufacturing institutions 
 are the result of much thought and labor. A practical applica- 
 tion was made of ideas gathered from some of the largest and best 
 
14 
 
 manufacturing establishments in Indiana and other states, in 
 which some of our State institution employees and our field exam- 
 iners have had many years' of experience, together with ideas 
 gathered and applied from authorities of national reputation on 
 this subject. 
 
 It has been generally contended by those who have given the 
 matter much study and consideration that a proper "budget 
 system" could not be created for the institutions wherein certain 
 commodities are manufactured until such institutions established 
 departmental cost accounting systems, for the reason that the 
 cost system furnishes the detail of expenditure for the previous 
 years, and thus supplies the only intelligent basis upon which to 
 determine, scientifically, how to make estimates for the ensuing 
 year. 
 
 Therefore, a cost accounting system has been installed in our 
 State institutions that manufacture various commodities, and a 
 "budget system" has been prepared for said institutions for the 
 purpose of determining in the most intelligent manner their 
 actual needs. 
 
 This department would cease to be progressive if it made the 
 claim that the systems referred to above are absolutely perfect, 
 but it is claimed that great advancement has been made in cost 
 accounting in all departments of State and municipalities, and a 
 proper safeguard placed around the expenditure of money and 
 a uniform and systematic method of detailing the expenditure 
 shown. . 
 
 STORE ROOM. 
 
 When it is known that the value of material and supplies 
 passing through the store rooms of our State institutions is more 
 than $1,000,000.00 annually, the necessity for a system that will 
 safeguard the receipt and distribution of same becomes evident. 
 
 The method of conducting "stores" in our various State insti- 
 tutions is similar to that employed by some of our largest and best 
 manufacturing plants. The principle of buying materials upon 
 triplicate purchase orders, numbered consecutively by the printer, 
 is in practice in these institutions. The purpose of the triplicate 
 being to provide a copy to the concern of whom the goods are 
 purchased, one to the purchasing department, and one to the 
 receiving or "stores" department. Upon the latter copy no quan- 
 tities are listed, the quantities and weights being left off in order 
 to compel the receiving clerk to count or weigh the materials 
 
15 
 
 received. If he had the quantities or weights listed before him, 
 he might be content to check in the articles as correct, whereas, 
 in the absence of such quantities or weights he must insert in the 
 space provided therefor the actual count or weight. 
 
 After the receiving clerk records the items received, he charges 
 his stock accounts therewith and sends the receiving order to the 
 accounting department, where it is checked against the invoice, 
 and if found correct is entered for payment; if incorrect it is held, 
 pending adjustment of claim. 
 
 Each department having use for the materials and supplies 
 issues requisitions upon the store-keeper for its needs. These 
 requisitions are also consecutively numbered by the printer, and 
 are O. K.'d by the foreman or superintendent in charge of the 
 department requesting the supplies. 
 
 At the close of the day these requisitions are assembled in 
 such order as to permit of the most convenient manner of posting. 
 
 At the close of the month, or at any stated period after all 
 postings are completed, the condition of the various stock accounts 
 should reflect the actual condition of the stock. This was made 
 possible by placing the responsibility solely upon the store-keeper 
 by allowing him and the superintendent, only, keys to such store- 
 room. 
 
 The superintendents of our institutions were in absolute accord 
 with the idea of perfecting this system to the point of stopping 
 all leaks. A number of them met at the office of the State Board 
 of Accounts with this idea in view, and after a day's session it was 
 the concensus of opinion that the establishment of the system 
 herein outlined would tend to reduce all leakage to a minimum. 
 
 The condition of the stock since the installation of the above- 
 described system is known at all times, and the issues against 
 same are charged to the department for which the purchase was 
 made. 
 
 In the absence of the above-stated continuous inventory sys- 
 tem, the cost of the various articles manufactured in some of our 
 institutions was largely a matter of guess, whereas, with it the 
 first step of the cost system later established was created. 
 
 BUDGET SYSTEM. 
 
 Under the Federal Constitution, the President is made respon- 
 sible to the electorate for the executive departments. It was tne 
 opinion of President Taft, set forth in a special message to Con- 
 
16 
 
 gress, that the President had the power to prepare and submit a 
 budget to Congress, but without constitutional change or legisla- 
 tion his recommendations might receive no consideration. This 
 was the first time that any responsible officer of the national 
 government had advocated the "budget idea." About this time 
 +he late Senator Aldrich stated that if the government were 
 managed on a sound business basis, similar to large private cor- 
 porations, it would effect a saving of 3^300,000,000.00 a year. 
 
 Recently, Mr. Hughes, in his tour of the western states, advo- 
 cated the budget system for national expenditures, and to the 
 pleasure of the friends of the budget idea made this subject inter- 
 esting. 
 
 President Wilson is on record as having always favored the 
 budget idea in public offices. With President Wilson's advocacy 
 of a budget system; with Secretary McAdoo's reported determina- 
 tion to work for the introduction of the budget; with the chairman 
 of the appropriation committee outspoken for the budget idea, it 
 is confidently expected that something will be done by the next 
 Congress to amend the laws of the federal government and change 
 the procedure of Congress, whereby the voting of money will rest 
 on a plane of open-handed square dealing. 
 
 In thirty-eight countries of the old world the budget idea has 
 already been incorporated and made a part of the statutory law. 
 
 At the time the constitution of this State was adopted there 
 was little the people wanted or that the State government needed 
 to do. The needs of the people could largely be attended to by 
 the local communities. But the demand on the government for 
 service grew. Increased service meant increased cost of govern- 
 ment; increased cost of government meant increased revenues; 
 increased revenues meant increased burdens of taxation. These 
 things compelled attention as to the development of means of 
 control for making the government responsible for the manner in 
 which it used this trust estate. It was this conception of trustee- 
 ship and the pressure of economic necessity that brought home to 
 officers their strict accountability and caused the people to de- 
 mand efficiency and economy in the management of their affairs. 
 
 For more than half a century there has been a growing feeling 
 of discontent, not at the impairment' of our liberties, which would 
 cause the people to rise in revolution, but at the waste of our great 
 and incomparable resources; at inability to enfore official respon- 
 sibility; at the irresponsiveness of the government to the will of 
 the people; at the "dark chamber" performances of standing com- 
 
17 
 
 mittees operated by the back door route commonly called "in- 
 visible government". 
 
 The "budget system^' means that there must he estimates of needs, 
 and there must he estimates of resources that may he available to 
 meet such needs. 
 
 The "budget system" is a cure for "invisible" government. 
 It means direct executive supervision; it means a careful expendi- 
 ture of the people's money; it means strict accountability; it 
 means publicity, and it means administrative preparedness. 
 
 The lack of a budget system means a lack of administrative 
 planning, and necessarily means a big waste of public resources. 
 
 Under the "budget system" the estimates of needs must be 
 made by persons who are familiar with the requirements of each 
 kind of work to be done, or each service to be rendered, including 
 capital requirements as well as maintenance and operating 
 requirements. The estimates of financial resources must be made 
 by persons who are familiar with present financial conditions; 
 who must be able to forecast probable revenues derivable under 
 existing laws, having in mind present and proposed financial 
 policies. They must have the ability to forecast probable sur- 
 pluses and deficits at the beginning of the period to be financed, 
 and of the probable surpluses and deficits at the end. 
 
 In many states of our Union the executive branch has been 
 so far carved into independent jurisdictions that the governor 
 cannot obtain the information or co-operation required to make 
 an executive budget effective. Under the liberal provisions of 
 the public accounting law of Indiana, providing for the adoption 
 and installation of complete forms, records, and accounts for the 
 proper conservation of all public expenditures, the State Board 
 of Accounts is intrusted with the necessary authority, and ha^ 
 prepared a complete "budget system" for state offices, institu- 
 tions, boards, bureaus, and commissions, county, city, town, and 
 township offices, all of which have been distributed to the proper 
 officials. 
 
 Although but a short time has passed since the budget analysis 
 pamphlet and the budget ordinance forms were sent out from 
 this office, we have already received a number of letters from 
 public officials, commending the board for its efforts and endorsing 
 the forms furnished. The county council of one of the largest 
 counties in the State was especially impressed with the com- 
 pleteness of the information furnished by these forms which had 
 been carefully filled out and submitted to them. The chairman 
 
18 
 
 made the statement in the presence of the other members that, 
 by reason of the accurate itemized statements of the expenditures 
 and estimates of the needs, the council would be able to cut the 
 appropriation for the ensuing year as much as $75,000.00. 
 
 The adoption of the "budget system," as prescribed and in- 
 stalled by this department in the various offices throughout the 
 State, should mean a total saving to the taxpayers of a large sum 
 annually, and it will materially reduce the expense of examination 
 of such offices by the State Board of Accounts. 
 
 The budget as prepared will furnish accurate information for 
 executive recommendations, and a basis for legislative review, criticism, 
 and final action, and it will not in any way infringe upon the consti- 
 tutional prerogatives of the members of the General Assembly. 
 
 PRICE LIST GUIDE. 
 
 One of the most frequently practiced frauds upon the town- 
 ship and county has been in the sale of supplies at exorbitant 
 prices. The methods employed to corrupt public officials have 
 been varied and interesting. 
 
 / regret to say that the practice of bribery in some form or other 
 had become so common in this class of business that fair competition 
 had been destroyed, and some reputable firms had felt compelled to 
 resort to illegal methods or discontinue business. 
 
 It was our judgment that the greater part of the officials who 
 were parties to such frauds became such at the solicitation of the 
 corrupt agent who prpmised that the bills would be so made ou+; 
 that detection of the fraud would be made impossible. It is 
 gratifying to report that when we have been able to establish such 
 fraud we have had but little trouble in recovering the amount of 
 the graft from the agent or dealer who profited most from the 
 unreasonable prices. 
 
 After carefully considering this condition of affairs, we con- 
 cluded that it would best be remedied by the preparation and dis- 
 tribution of a schedule of prices of articles and commodities 
 generally required in the conduct of county and township business. 
 
 Accordingly, the first price list guide was distributed in the 
 spring of 1915. It was my purpose to properly inform the trus^ 
 tees and the county commissioners of legitimate market prices, 
 so that they would not be deceived into buying inferior supplies 
 at exorbitant prices from unreliable supply agents. 
 
19 
 
 With this end in view, and to estabhsh the' genuineness of the 
 prices quoted, a number of responsible firms were mentioned in 
 the guide. I regret that my motives were not understood, and 
 that there was some criticism of the fact that any firm's name 
 was mentioned. There was no intention to discriminate against 
 the local merchant. 
 
 / have always thought, other things being equal, that the home 
 merchant was entitled to the public business of his locality. 
 
 On account of the change in prices and the requirements of 
 the vocational educational statute, another price list guide was 
 published and distributed in the spring of this year. No firm 
 name was mentioned, and we feel no claim of favoritism can be 
 made. I am pleased to state no complaint of this guide nas 
 reached this office. Neither has the selfish and dishonest supply 
 agent, who resented our interference with his unreasonable prices 
 and his unlawful methods, complained. He has accepted the 
 price list guide as an additional restraint to his corrupt methods. 
 
 Naturally, from year to year more and more school supplies 
 are needed for our schools, for the reason that the number of 
 school children is constantly increasing. On account of voca- 
 tional education, the State Board of Education has required the 
 trustees to furnish more and different books and apparatus. The 
 increase in the gravel road mileage, and the increase to the road 
 fund from automobile licenses, as well as the popular demand for 
 better roads, has increased the requirements and demands for 
 road machinery and appliances. 
 
 Yet, by reason of the repressive effect of the price list guide 
 and the voluntary reduction in purchases by a number of trustees, 
 the following table will show that the purchase of school supplies 
 and road supplies during 1915 was very much less than during 
 1914. 
 
 STATEMENT OF SCHOOL AND ROAD SUPPLIES PURCHASED 
 BY TOWNSHIP TRUSTEES IN 1914 AND 1915. 
 
 Road supplies purchased in 1914 $358,926.02 
 
 Road supplies purchased in 1915 260,077.03 
 
 Decrease in 1915 $98,848.99 
 
 School supplies purchased in 1914 $515, 188. 19 
 
 School supplies purchased in 1915 344,889.94 
 
 Decrease in 1915 170,298.25 
 
 Total decrease $269,147.24 
 
20 
 
 More than $40,000.00 of this decrease was in fifteen townships. 
 In these townships our examiners had located all sorts and kinds 
 of graft, and there were several recoveries and prosecutions as a 
 result of their examinations. 
 
 There were $62,755.69 of charges against ex-trustees in our 
 examinations made in 1915 of the township business of 1914. 
 A large per cent, of these charges have been settled and the cash 
 recovered for the benefit of the taxpayers of the townships. The 
 remainder uncollected is still pending and in process of collection. 
 
 EXTRAVAGANCE IN PURCHASE OF TEXT AND 
 REFERENCE BOOKS. 
 
 Our field examiners have found in the course of their investi- 
 gations that there has been a surprising amount of extravagance 
 in the purchase of supplementary text books and reference books ; 
 that thousands of dollars have been paid out for text and reference 
 books that were not needed by the corporations, and that have 
 but little merit. The same is also true with reference to maps 
 and charts. 
 
 A popular method among supply dealers was to appoint 
 township trustees their agents and allow such trustees a commis- 
 sion on all goods purchased for their township from such dealers. 
 The result of such illegal transactions was that thousands of dol- 
 lars were expended for useless supplies, and in many instances 
 books, blanks, ink, pens, pencils, chalk, erasers, maps, charts, 
 and other school supplies were purchased in such enormous quan- 
 tities that it would be impossible to use the supply in years. 
 
 One trustee, after having purchased for one dollar each sev- 
 eral hundred copies of a small civil government that should have 
 cost not more than twenty-five cents per copy, with a large num- 
 ber of these on hand in his office, bought more than one hundred 
 more "because the old ones did not contain the Governor's pic- 
 ture and the new ones did." 
 
 One supply dealer or agent secured without cost a large num- 
 ber of agricultural and other government reports and sold them 
 to township trustees of the State, 
 
 Another agent secured a large number of old charts of various 
 kinds that were out of date years ago. These were absolutely 
 without value for any purpose, yet this supply man found trus- 
 tees who bought them at a price in excess of the price originally 
 placed upon them by the publishers. 
 
21 
 
 In order to stop this crookedness, for it was nothing less, the 
 State Board of Education, after a conference with the State Board 
 of Accounts, adopted rules governing the purchase of the above- 
 mentioned articles by school officials. It will now be necessary 
 under that ruling for the official to have the written consent of 
 the county superintendent of schools of his county before material 
 or supplies of this kind can be bought, and these supplies must 
 be had at prices not in excess of prices named in lists furnished 
 by the State Board of Education. We propose to hold a trustee 
 chargeable with any amount paid out contrary to these rules. 
 
 PUBLIC BUILDING CONTRACTS. 
 
 From special examinations of this department, collusion be- 
 tween the architect and contractor and dealer in material and 
 officials have been so common that we are forced to believe that 
 in the past it has been the rule rather than the exception. In a 
 great many public undertakings requiring the services of an 
 architect and contractor there has been some sort of a combina- 
 tion to favor some particular material or process. Large sums 
 have been recovered on account of these combinations between 
 the architects and public officials and contractors. The largest 
 single amount recovered on one job from the contractor and the 
 agent furnishing material was more than $16,000.00. This sum 
 and many other recoveries, ranging from $1,000.00 to $8,000.00, 
 from officials and contractors, were made as a result of special 
 examinations based on information not disclosed by the records, 
 which was not and could not have been discovered in a mere 
 audit of the accounts. 
 
 We believe it is the duty of the State Board of Accounts to deter- 
 mine whether the laws of. the State are complied with in the letting 
 and carrying out of each public contract, as well as to prescribe the 
 methods of accounting, and to determine the accuracy of the accounts 
 in connection therewith. 
 
 Specifications for any school building should be so worded as 
 to make plain to the bidders that the successful bidder will be 
 required to guarantee in his written contract that any material, 
 supplies or sanitary apparatus or systems which are furnished, 
 constructed, remodeled or installed in and for a school building 
 shall be practically noiseless, free from friction, and will, in all 
 respects, comply with the provisions of the Sanitary School House 
 Law of Indiana. 
 
22 
 
 If bidders do not wish to make this guarantee in the contract, 
 they should refrain from bidding on the work to be let. 
 
 The purchasing of furniture and supplies and the erection of 
 public buildings are matters which concern, in a more or less 
 degree, every taxpayer in the municipality. These matters are 
 strictly public undertakings, and as such taxpayers are entitled 
 to have the law strictly complied with before the burden is placed" 
 upon them. 
 
 In one instance we found that the firm of architects employed 
 to draw the plans for the heating and ventilating system in a 
 public building specified in their plans that a certain kind of 
 equipment should be installed. It developed in the course of the 
 examination that this firm, acting under another name; was the 
 sole agent for the kind of equipment specified, and that it was 
 awarded the contract for the work. In this case we have the 
 firm acting in a triple capacity — as architects or heating engineers, 
 for which they received 5 per cent, commission; as agents for the 
 manufacturers of the equipment specified, and as contractors. 
 In the latter capacity they agreed to do the work to the satisfac- 
 tion of the heating engineers, and to use material approved by 
 the engineer. Needless to say, the plant cost far too much, and 
 was never satisfactory. 
 
 Under section 3869, Burns R. S., 1914, it is provided that if 
 there shall be any collusion of fraud of any kind or character 
 among the bidders at the letting of any contract, that such con- 
 tractor shall not be entitled to payment for any work done thereon 
 if he were a party, either directly or indirectly, to the fraud. 
 
 In order to more effectively guard against such collusions and 
 frauds, we have, after many conferences with the leading archi- 
 tects of the State, prepared rules and regulations relating to con- 
 tracts governing public work that will conserve the welfare of the 
 various municipalities of Indiana. Such rules are intended to 
 prescribe the method of awarding of contracts, the preparation of 
 plans and specifications for such work, and the supervision of the 
 work, to the end that there shall be unrestricted competition. 
 These rules were submitted to and approved by the Attorney 
 General. They were made with the hope of assisting officers of 
 the counties, townships, towns and cities of the State in getting 
 greater competition in the letting of contracts for the erection of 
 buildings, furnishing heating apparatus, ventilation, plumbing,* 
 electrical fixtures, supplies of all kinds, and in any undertaking 
 where competitive bids are to be received. We require that a 
 
23 
 
 copy of all plans and specifications for public buildings shall be 
 filed with this department for inspection. 
 
 We believe that every honest contractor should be made to 
 realize that the opportunity to all bidders will be free and unre- 
 stricted, and that there will be no attempt in any way to prevent 
 legitimate competitive bidding. This department will use its 
 best efforts to prevent any payment to a contractor for work or 
 services performed by him if it should be able to establish that 
 such contractor was a party to any fraud. 
 
 Architects and engineers are employed in an advisory capacity, 
 and the public official whose duty it is to contract for and have a 
 building constructed or other work performed cannot delegate the 
 power vested in his office by law to an architect or engineer. 
 
 An individual may select a particular kind or make of material 
 or fixtures to be used in a building which he may desire to erect 
 regardless of the fact that such material or fixtures may be under 
 the exclusive control of some one person, firm or corporation, 
 while a public official must follow the rules laid down by the law 
 and prepare his plans and specifications so as to secure competi- 
 tive bids at the letting of the contracts. 
 
 A public official is acting for the taxpayers of a prescribed 
 district which he has been chosen to represent, and he has no 
 authority except thac which is vested in his office by law. 
 
 One of the main objects to be accomplished from our point of 
 view is to have the specifications so worded that manufacturers 
 of several different materials or manufactured articles will figure 
 with the bidders on furnishing their particular make of material 
 or supplies, and being placed in competition with other manu- 
 facturers of similar articles, will, of necessity, make their lowest 
 price, thus giving the municipality the advantage of any reduc- 
 tion in price caused by such competition. 
 
 With this end in view, architects and engineers in making their 
 plans and specifications should so treat each individual case as to 
 reduce any possible favoritism to the minimum, thus complying 
 with the spirit of the law. 
 
 GRAFT IN FURNACES. 
 
 Our department has made extensive investigations, and a 
 great deal of time has been spent in locating, and, we beheve to a 
 a large degree preventing, imposition on public officials whose 
 duty it is to purchase furnaces for school buildings. 
 
24 
 
 Specifications for these furnaces usually call for furnaces 
 weighing either 5,000 or 5,500 pounds. We suspected from evi- 
 dence of combinations that but few furnaces weighed the number 
 of pounds required by the specifications. We have never heard of 
 a furnace being weighed by any one before it was installed. 
 Accordingly, I sent examiners to a factory in Illinois that seemed 
 to control the sale of a large part of the furnaces for school build- 
 ing business in Indiana, for the purpose of finding the actual 
 weight of the various furnaces manufactured by them. The 
 manager of this company positively refused to give our examiners 
 the weight of their furnaces ; the reason assigned was that he must 
 protect his Indiana agents. Our next step was to have a furnace 
 removed and weighed in the presence of a number of witnesses. 
 The specifications under which this furnace had been installed 
 called for a furnace weighing 5,000 pounds. This furnace when 
 weighed by an expert engineer for our department was found to 
 weigh but 4,600 pounds. In that township building there were 
 four furnaces of that make and number, making a total shortage 
 of 1,600 pounds. 
 
 The same make of furnace bearing the same number under 
 specifications calling for a furnace weighing 5,500 pounds had 
 been installed in another county. There were three of these. 
 A total shortage of 2,700 pounds. The agent who sold these fur- 
 naces is now doing business in another State. 
 
 HEATING AND VENTILATION OF PUBLIC SCHOOL 
 
 BUILDINGS. 
 
 In the matter of heating and ventilation of public school 
 buildings a diversity of opinion has existed for several yeara 
 regarding the relative merits of the various systems and their 
 compliance with the Sanitary School House Law. The system 
 of heating and ventilation that will meet the requirements of the 
 law, best conserve the public funds, and encourage legitimate 
 competition is the object sought by this department in the inter- 
 est of the taxpayers. 
 
 The controversy between competitive manufacturers of heat- 
 ing and ventilating systems and between contractors is renewed 
 practically every time bids are received by township trustees and 
 school boards, and frequently results in the elimination of meri- 
 torious systems of heating and ventilation, on the theory that 
 such systems do not comply with the Sanitary School House Law. 
 
25 
 
 This practice restricts competition, fosters monopoly, and 
 results in contracts being awarded on bids that are not the lowest 
 submitted. 
 
 It would be difficult to estimate the loss sustained by the tax- 
 payers of the State through this corrupt practice which, in many 
 instances, embraced collusion, conspiracy, bribery, and extortion. 
 
 Arguments made by manufacturers and contractors were such 
 as to confuse officials who were not experienced in heating and 
 ventilating, and contracts were secured at exorbitant prices 
 through gross misrepresentation. 
 
 We are informed that State Examiners of other states claim 
 that the heating and ventilating of schools and other public 
 buildings present the most difficult problem with which they 
 have had to deal in trying to eliminate graft. 
 
 Public officials, before contracting for the construction of 
 any heating and ventilating system to be let upon competitive 
 bids, should employ a competent heating and ventilating engineer 
 to prepare plans and specifications for the same. 
 
 It is not our purpose to encroach upon any official's duty, but 
 to help officials to comply with the law, to keep their accounts 
 accurate, and to assist them and the taxpayers of the different 
 municipalities in obtaining value received for the money expended. 
 We believe the laws are ample to protect the public, and if com- 
 plied with in all contracts for public work will give everybody a 
 square deal. 
 
 HIGHWAYS. 
 
 During the last decade millions of dollars have been spent for 
 highways in Indiana. 
 
 The statute requires the board of county commissioners, if it 
 be their judgment that the county surveyor is competent, to 
 direct him to have charge of all surveying and civil engineering 
 work in the county, including plans and specifications for bridges, 
 turnpikes, roads, ditches, drains, levees, and all other surveying 
 and engineering work in the county. The right of the county 
 commissioners to question the competency and to impeach the 
 qualifications of the county surveyor becomes a matter of keen 
 personality, and is only exercised in rare cases. 
 
 It is known, without a question, that some counties of the 
 State have elected men to the office of surveyor that are deficient 
 in their training as civil engineers, and who are without the 
 technical knowledge necessary for the preparation of proper plans 
 
26 
 
 and specifications for public improvements. As a consequence 
 of the inferiority of such county surveyors, the counties suffer in 
 a ratio to their lack of competency. 
 
 There is one certain cure for such a condition, and it is that only 
 competent as well as honest men be elected to the office of county sur- 
 veyor. How the standard of competency should be fixed is a 
 problem yet to be solved by the legislature, but it should be fixed 
 and such surveyor should be properly compensated for efficient 
 work. 
 
 Incompetency and its resultant effects alone are not respon- 
 sible for all the objectionable conditions that the State Board of 
 Accounts has located and exposed in its examinations of county 
 surveyors. I regret to say that graft and dishonesty abound in 
 a number of counties to an alarming extent. In several counties 
 we found the surveyor had claimed and was allowed a number of 
 per diems in one day. In another county it developed that the 
 surveyor had paid $1,500.00 for an automobile, and was paying 
 for it through his expense account. His board of commissioners 
 had allowed him $3,000.00 automobile hire for his machine in a 
 single year. 
 
 The opinion seems to prevail in some parts of the State that 
 the board of county commissioners has power to make substan- 
 tial and material changes in the plans and specifications for the 
 construction of improved highways under the gravel road law 
 after the bids have been received and the contract let therefor. 
 It is our opinion that the board does not have such power. The 
 board of commissioners has broad powers when dealing with 
 county property and in attending to county affairs, but the board 
 in performing duties under the gravel road law is not dealing with 
 county property, and does not act for the county, but acts as 
 agent only for the taxing district which is co-extensive with the 
 township. 
 
 Its powers and duties as such agent are prescribed by the 
 statute. In carrying the law into effect, the board cannot exceed 
 the powers with which it has been invested. The statute gives 
 the board no power to make material changes in the plans. On 
 the other hand, section 7733 Burns' requires the road to be "com- 
 pleted according to the plans, plats, profiles, and contract under 
 which such improvement was let," and requires that the quantity 
 and quality of material used in making the improvement shall be 
 the quantity and quality named in the specifications, and section 
 7730 Burns' makes the superintendent and the engineer liable to 
 
27 
 
 the township on their bonds "for failure to cause said road or 
 roads to be built and constructed according to the plans, profile, 
 and specifications under which the contract to construct the same 
 was let". 
 
 The several sections of the statute in each case requires the 
 work to be done in accordance with the plans and specifications 
 upon which the bids were received, and in no case does the law 
 mention plans and specifications as modified by the board. 
 
 The law requires that profile, plans, and specifications for the 
 construction of an improved county highway shall be full and 
 complete in every detail, showing the exact grade, including all 
 bridges and culverts, size and kind of same, the width, depth, and 
 exact description of material to be used for paving before bids are 
 received or contract awarded. 
 
 After the letting of the contract there is neither excuse nor law for 
 a change in the plans and specifications as originally adopted and 
 upon which the contract is based. 
 
 While the records of this office show that in most counties of 
 the State the commissioners observe the statutes, we regret to 
 say that in many counties changes have been made in plans and 
 specifications for improved county highways, and in every such 
 instance the cost was in excess of the contract price, while the 
 value of the improvement was less than originally provided for. 
 A competent authority estimates that in one county of the State 
 contractors on rock roads within the last ten years have used at 
 least 300,000 cubic yards of crushed stone less than that required 
 by the specifications, and for which the taxpayers paid. The 
 character of such work renders it practically impossible for this 
 department to discover such frauds after the improvement has 
 been completed and accepted by the county. If the engineer and 
 superintendent upon such projects are competent and are diligent 
 in the discharge of their duties, they can require the work to be 
 performed according to plans and specifications. We are pro- 
 posing to charge the engineer and superintendent with any loss 
 occasioned by the failure of the contractor to perform the work 
 in accordance with the plans and specifications when we are able 
 to estabhsh that the improvement falls short of the standard 
 set by such plans and specifications. 
 
28 
 
 COUNTY INFIRMARIES. 
 
 Our examinations have disclosed the fact that in some counties 
 of the State the superintendents of county poor asylums have 
 kept no record of the farm products raised and used or sold by 
 their institutions. We found in many counties that, while the 
 poor farm was large enough to raise sufficient produce for the 
 inmates, thousands of dollars' worth of farm products had been 
 purchased, and that the superintendent had sold large quantities 
 of the products of the farm for which no account was given and 
 no payment made into the county treasury. 
 
 There were other instances where the superintendent gave 
 away products of the poor farm to members of the board of 
 county commissioners, who are vested with the authority to 
 appoint and remove the county infirmary superintendent. 
 
 This department has prescribed a complete system of account- 
 ing for county infirmaries, including forms upon which to regu- 
 larly report all transactions. This, with annual examinations, is 
 resulting in the establishment of business methods in these insti- 
 tutions and a large saving to the taxpayers. 
 
 COMMON SCHOOL FUND PRINCIPAL. 
 
 In an examination covering a period of eighty-eight years, in 
 which it was necessary to examine many old files and records in 
 the basement of the State House, it was found that there was 
 due to the common school fund of the State on the thirtieth day 
 of April, 1916, the sum of $35,101.68. We have ordered that a 
 transfer of that amount be made to the common school fund 
 principal from the funds, and in the amounts as follows : 
 
 Sale of State lands $25,170. 74 
 
 Sale of swamp lands 3,499 . 01 
 
 Escheated estates 6,431 . 93 
 
 Total $35,101.68 
 
 This sum will be included in the next apportionment of com- 
 mon school fund principal to the several counties of the State, 
 to be loaned for the benefit of the State tuition fund. 
 
 This investigation also shows a balance of $104,864.65 in the 
 unclaimed estates fund, of which amount the sum of $63,058.54 
 was paid into the State treasury prior to April 30, 1911, and 
 when the necessary statutory action has been had the balance 
 
29 
 
 remaining unclaimed will also be transferred to the common 
 school fund principal of the State. 
 
 SCHOOL FUND LOANS. 
 School funds loaned throughout the State are as follows: 
 
 Common School Fund $ 9,304,592.04 
 
 Permanent Endowment Fund 607,235.47 
 
 Congressional School Fund 2,480,620.75 
 
 Total $12,392,448.26 
 
 Our examinations disclosed that the School Funds of the 
 State were in a serious condition. The records in many counties 
 showed incorrect balances. An examiner from this department 
 visited such counties and aided in correcting the records by re- 
 quiring appropriations by the county councils. One county 
 appropriated $12,36L47 to effect a proper balance. Last year 
 was the first time in fifty years that all the counties had correct 
 balances. Hundreds of loans had been made where descriptions 
 of the land mortgaged were defective; for these new mortgages 
 were secured. We found in many counties the interest delin- 
 quent from a few months to several years, and in some instances 
 the delinquent interest amounted to more than the principal. 
 To meet the semi-annual settlement of school fund interest with 
 the Auditor of State, many counties had been compelled to 
 advance considerable sums out of the general fund. We found 
 loans made to imaginary borrowers on imaginary lands. In one 
 county the auditor and treasurer both seemed to be ignorant of 
 the condition of their school funds balances, and overloaned the 
 school funds available more than $75,000. In another county it 
 was necessary to file more than one hundred suits of foreclosure 
 on school fund mortgages, which resulted in a net loss of more 
 than $25,000.00 to the taxpayers. In several other counties the 
 conditions were bad, but the loss not nearly so great. 
 
 All is now changed. Reports received January first show that 
 all loans were solvent in 73 counties. According to estimates 
 received, the probable total loss in the remaining 19 counties will 
 not exceed $23,000.00. The dehnquent interest has been reduced 
 one-half in twelve months, and will be further greatly reduced 
 within another year. 
 
 With the good spirit of law enforcement generally prevailing 
 among the county auditors of the State, overdue school fund 
 
30 
 
 mortgage loans will soon all be reappraised and renewed, and fire 
 policies where necessary to protect the security will have been 
 furnished by the borrowers for the full loan period of five years. 
 School fund loans should be and will be as safe and sound as 
 are farm mortgage loans made under the conservative methods 
 of life insurance companies. 
 
 LAND DEPARTMENT. 
 
 A thorough examination of the land department resulted in 
 the location of thousands of acres of State lands which are 
 claimed by individuals. The title to some 6,000 acres lying along 
 the Kankakee River is now the subject of litigation in the State 
 courts, with the latest judgments in favor of the State. This 
 examination also aided in perfecting the record title to hundreds 
 of tracts of lands owned by individuals. 
 
 BOND SALES. 
 
 It is a part of the settled public policy of this State since the 
 passage of the county and township reform laws, and under the 
 present trend of judicial decisions with respect to the limitation 
 of public officers, to require all bonds of municipal corporations 
 and political subdivisions of the State to be disposed of to the 
 highest bidder, which must not be less than par and accrued inter- 
 est to date of sale. If there be no bids, there may be successive 
 advertising in such places as will command the attention of those 
 who desire to purchase such securities. 
 
 The 'power of a public official cannot he delegated to a third person. 
 A commission cannot he charged under some other name. To do so 
 would only be a subterfuge, and would be void. Therefore, where 
 a commission or brokerage is found to have been paid in the sale 
 of bonds field examiners have been instructed to make a charge 
 against the proper official for such commission or brokerage. 
 
 FEES AND SALARIES. 
 
 There is a conflict in our statutes governing fees for certain 
 services. There is also a difference of opinion among good lawyers 
 as to the intent of these statutes. 
 
 The inequality of salaries paid the various officers, their 
 deputies, clerks, and stenographers is surprising. Some officials 
 In Indiana are making out of their offices from all sources, after 
 paying all expenses, as much as two or three times the salary paid 
 
31 
 
 the highest salaried State official, while many important officials 
 are underpaid. The public officers of Indiana are operating under 
 a fee and salary law enacted by the 1895 legislature. This law 
 was based on the then existing conditions as to population and 
 necessary service. The salaries then established, excepting in 
 cases affected by special legislation, have remained the same. 
 
 For example, the salaries of the clerks of the circuit court are 
 based upon the fees collected in 1895. The official is required to 
 pay the salaries of his deputies and other assistants. In one 
 county the fees collected in 1895 amounted to approximately 
 $2,400.00, and the clerk's salary was fixed at $2,400.00. This 
 has been the salary of such officer since that time, but the business 
 of the office has decreased until the fees last year amounted to 
 approximately $1,800.00. In one of the largest counties in the 
 State the salary of the clerk last year amounted to only 37 per 
 cent, of the fees collected. In that county six deputies are now 
 required to keep up the work of the office which was formerly 
 done by three. By doing the work of one deputy, the clerk was 
 able to save but $1,400.00 for his own use from the salary provided. 
 
 In one of our large counties the auditor, after paying for the 
 necessary help to properly conduct the business of the office, and 
 devoting his time to his official duties, had remaining only $750.00 
 as a net salary for himself. Similar conditions exist as to many 
 county and municipal officers throughout the State. 
 
 . The remuneration of the township trustee was fixed at $2.00 
 per day when the farmer could employ farm labor at $12.00 to 
 $15.00 per month. The same class of farm labor now cannot be 
 had for less than $25,00 per month. The duties of the trustee 
 have greatly increased, but his per diem remains the same, except 
 where special legislation has been had. The following illustrates 
 the inequality of the remuneration of the trustees: 
 
 In one county the trustee in a township having a population 
 of 14,104, sixteen school buildings, and many miles of roads and 
 ditches, received payment for the full number of 313 working 
 days of the year. In another township in the same county, hav- 
 ing a population of only 2,727, seven schools, and less than one- 
 third of the amount of business of the larger township, the trustee 
 received the same pay as the trustee of the larger township. The 
 same inequality exists to a greater or less degree in all parts of the 
 State 
 
32 
 
 It is the judgment of the State Board of Accounts and the field 
 
 examiners that the per diem in Indiana should be abolished, and that 
 
 he salaries of all officials, the number of clerks and stenographers, 
 
 and the salary of each should be provided for by .statute and no 
 
 piiblic officer should be allowed to retain any fee collected. 
 
 All fees should be paid into the treasury. A bill can be so 
 framed that when enacted into law it will equahze all salaries and 
 provide for reasonable increases and decreases in the same, based 
 upon the increase or decrease in the responsibilities and demands 
 upon the official. 
 
 As a basis for the salary and assistants to be allowed public 
 officials in such a law, all offices of the same kind should be 
 divided into ten classes, to be determined by the population of 
 the county, township, city or town, the valuation of the property 
 as shown on the tax duplicate, and all other affairs of the munici- 
 pality which affect the service demanded of the official in the con- 
 duct of his office. 
 
 Under such a fee and salary law, if the regular business of an 
 office increases 10 per cent., automatically such office would come 
 under the next higher class, with a corresponding increase of 
 salary and assistants. Likewise, if the business of the office 
 decreased 10 per cent., automatically the office would come 
 under the next lower class, with a corresponding decrease of 
 salary and assistants. 
 
 The method of automatic increase and decrease in salaries 
 through classification of offices should be based on the scientific 
 principles of cost and office accounting, and fully embodied in 
 the proposed statute. 
 
 In the preparation of the proposed fee and salary law men 
 should be consulted who hold official positions that would be 
 affected by such legislation, and conferences should also be held 
 with taxpayers and commercial organizations throughout the 
 State. At these conferences all political parties should be repre- 
 sented. 
 
 The preparation of the bill should be free from political bias, the 
 sole object being to give the people of Indiana a fee and salary law 
 that will be fair and equitable to the taxpayers and officials, and so 
 graduated with automatic regulation that there will be no occasion 
 or demand for special legislation affecting salaries. 
 
 A Concurrent Resolution was passed by the General As- 
 sembly at the sixty-seventh regular session (see Acts 1911, p. 701), 
 directing the State Board of Accounts to submit to the regular 
 
33 
 
 session of the General Assembly, 1913, facts and data that would 
 be of value in determining and fixing just and reasonable compen- 
 sation for public officials. This department complied with said 
 resolution, and submitted a comprehensive report of 352 pages 
 covering the year 1911. The data for this report was secured and 
 compiled by our field examiners. 
 
 While no action was taken, this report, together with informa- 
 tion since secured by our field examiners, will be available. This 
 data will also be available for the use of all the members of the 
 legislature, and I believe it will confirm the equity of every 
 feature of a new fee and salary law along the lines herein suggested. 
 
 The enactment of such a new fee and salary law would reduce 
 the expense of examination by the State Board of Accounts very 
 materially. 
 
34 
 
 EXPENSE OF STATE BOARD OF ACCOUNTS FROM JULY 1, 1914, 
 TO JUNE 30, 1916. 
 
 ON ACCOUNT. 
 
 Year Ending 
 June 30, 1915. 
 
 Year Ending 
 June 30, 1916. 
 
 Chief Examiner's salary 
 
 $ 4,000,00 
 
 6,000.00 
 
 2,800.00 
 
 16,793.85 
 
 3,783.99 
 
 145,748.00 
 
 2,038.71 
 
 56.75 
 
 2,799.82 
 
 $ 4 000 00 
 
 Deputy Examiner's salaries (2) 
 
 6 000 00 
 
 Legal Clerk's salary 
 
 2 800 00 
 
 Clerical assistant's salaries 
 
 15 687 00 
 
 Office and traveling expense 
 
 4 587 57 
 
 Per diem Field Examiners 
 
 132 434 00 
 
 Railroad fare Field Examiners 
 
 1 539 24 
 
 Special expense 
 
 40 90 
 
 Printing and supplies 
 
 4 076 40 
 
 
 
 Total 
 
 $184,021.12 
 
 $171 165 11 
 
 
 
 CHARGES RESULTING FROM EXAMINATIONS OF PUBLIC 
 
 OFFICIALS MADE DURING TWO YEARS ENDING 
 
 JUNE 30, 1916. 
 
 Year Ending 
 June 30, 1915. 
 
 Year Ending 
 June 30, 1916. 
 
 State officials and institutions. . 
 
 County officials 
 
 Township officials 
 
 Officiils, civil cities and towns. . 
 Officials, school cities and towns 
 
 Total 
 
 2,699.89 
 55,881.29 
 62,755.69 
 71,438.37 
 
 1,339.55 
 
 $194,114.79 
 
 2,119.14 
 86,511.01 
 59,276.25 
 51,527.88 
 10,258.17 
 
 $209,692.45 
 
35 
 
 COLLECTIONS, RECOVERIES, CASES CERTIFIED TO THE 
 GOVERNOR, AND CASES PENDING SETTLEMENT, ON 
 ACCOUNT OF EXAMINATIONS MADE DURING THE TWO 
 YEARS ENDING JUNE 30, 1916. 
 
 Year Ending 
 June 30, 1915. 
 
 Year Ending 
 June 30, 1916. 
 
 By payment during examination 
 
 By payment to municipality 
 
 By payment to department 
 
 By court collections 
 
 By cases certified to the Governor (pend- 
 ing) 
 
 By eases pending settlement by this de- 
 partment 
 
 By charges not sustained by the courts. 
 
 Total charges 
 
 From which should be deducted charges 
 not sustained by the courts 
 
 Total current cases 
 
 To which should be added collections 
 made during the period covered by 
 this report on cases pending settle- 
 ment June 30, 1914— 
 
 By payment to municipality 
 
 By payment to department 
 
 By court collections 
 
 Total collections, all cases, and 
 claims pending settlement on 
 account of examinations made 
 during two years ending June 30, 
 1916 
 
 $54,069.91 
 
 12,228.71 
 
 30,897.25 
 
 2,000.00 
 
 11,291.01 
 
 77,737.99 
 5,889.92 
 
 $194,114.79 
 5,889.92 
 
 $188,224.87 
 
 57,613.49 
 3,977.57 
 3,118.76 
 
 $202,934.69 
 
 $78,719.37 
 
 7,313.76 
 
 11,922.85 
 
 2,729.68 
 
 18,006.24 
 
 85,251.06 
 5,749.49 
 
 $209,692.45 
 5,749.49 
 
 $203,942.96 
 
 J2,346.83 
 6,359.68 
 
 $212,649.47 
 
36 
 
 The following comparative table is inserted for the purpose of 
 showing the reduction of $78,874.45 in the annual expense of the 
 State Board of Accounts between the years 1914 and 1916: 
 
 EXPENSE OF DEPARTMENT. 
 
 Chief Examiner 
 
 Deputy Examiners 
 
 Legal Clerk . 
 
 Clerical Assistants 
 
 Office and traveling expense. 
 Per diem, Field Examiners. . 
 
 Railroad fare examiners 
 
 Special expense 
 
 Printing and supplies 
 
 Total $250,039.56 
 
 June 7, 1913, 
 
 to 
 June 30, 1914. 
 
 $4,266.67 
 
 6,400.00 
 
 2,829.88 
 
 18,194.38 
 
 4,407.31 
 
 205,420.00 
 
 3,802.10 
 
 34,75 
 
 4,684.47 
 
 July 1, 1914, 
 
 to 
 June 30, 1915. 
 
 $4,000.00 
 
 6,000.00 
 
 2,800.00 
 
 16,793.85 
 
 3,783.99 
 
 145,748.00 
 
 2,038.71 
 
 56,75 
 
 2,799.82 
 
 July 1, 1915, 
 
 to 
 June 30, 1916. 
 
 $4,000.00 
 
 6,000.00 
 
 2,800.00 
 
 15,687.00 
 
 4,587.57 
 
 132,434.00 
 
 1,539.24 
 
 40,90 
 
 4,076.40 
 
 021.12 $171,165.11 
 
 RECOVERIES, COLLECTIONS, AND IRREGULARITIES PENDING 
 AND IN PROCESS OF SETTLEMENT, DISCLOSED BY THE 
 STATE BOARD OF ACCOUNTS. 
 
 By payment during examination, 
 By payment to municipality. . . . 
 
 By payment to department 
 
 By court collections 
 
 By cases certified to Governor 
 
 (Pending) 
 
 By cases pending in process of 
 
 settlement by the department. 
 Total 
 
 Year. 
 
 June 7, 1913, 
 
 to 
 June 30, 1914. 
 
 $65,706.19 
 59,964.66 
 20,980.93 
 27.729.23 
 
 96,111.45 
 
 $270,492.46 
 
 Year. 
 
 July 1, 1914, 
 
 to 
 June 30, 1915. 
 
 $54,069.91 
 19,842.20 
 
 34,874.82 
 5,118.76 
 
 11,291.01 
 
 77,737.99 
 
 $202,934.69 
 
 Year. 
 
 July 1, 1915, 
 
 to 
 June 30, 1916. 
 
 178,719.37 
 
 7,313.76 
 
 14.269.68 
 
 9.089.36 
 
 18.006.24 
 
 85,251.06 
 
 $212 649.47 
 
 Note: 
 
 The tabulation for the period ending June 30, 1914, was taken from the 
 special report published that year, and the $96,111.45 cases pending settle- 
 ment by the department contained the unsettled cases at that time, as the 
 result of all examinations made since the organization of the department, 
 while the cases pending for the years ending June 30, 1915, and June 30, 
 1916, as shown above, are the cases pending on June 30, 1916, as the result 
 of examinations, only, made during the years ending June 30, 1915, and 
 June 30, 1916. 
 
37 
 
 Sixty per cent, of all offices were examined during the first 
 six montlis of the calendar year of 1916. The expenses of the 
 department for the last six months of 1916, and the cost of the 
 examinations of the remaining 40 per cent, of the offices will be 
 less than $65,000.00. 
 
 The exact total of these expenses and the recoveries made and 
 charges pending, as a result of these examinations, will be deter- 
 mined directly after January 1, 1917, and the foregoing statements 
 made complete to December 31, 1916, for the information of the 
 legislature and the general public. 
 
38 
 
 CONCLUSION. 
 
 A study of the foregoing report we believe will result in the 
 conviction that the State needs a department of inspection and 
 supervision of public offices, and that such a department should 
 not be limited in its scope to a mere audit of the accounts of the 
 office examined. We have construed the law creating this depart- 
 ment as being broad enough to authorize us to make a direct 
 or collateral examination and investigation into all the transac- 
 tions of a public official. We have every reason to believe that 
 the refusal of this department to confine its activities to a mere 
 checking of the financial accounts of public offices and its insis- 
 tence upon the strict observance by public officers of the duties 
 imposed upon them by law, will meet with your approval and with 
 the approval of the people and their representatives. Certainly 
 such a course adds largely to the sphere of usefulness of the 
 department to the public, and is abundantly justified by the letter 
 and the spirit of the law. 
 
 We are confident, also, that the suggestions and help given to 
 public officials in the purchase of supplied and materials and in 
 the construction and repair of public buildings are within the 
 letter as well as the spirit of the law, and that they have saved 
 the public much money, and will be a source of saving in the 
 future. We confidently state that, from a conservative estimate, 
 this department, as a result of its examinations and investiga- 
 tions of public offices and public building contracts, aside from 
 the actual recoveries in dollars and cents, is saving to the tax- 
 payers of the State more than one million dollars annually. The 
 one feature of the law operating to the greatest benefit in a 
 financial way, and the one that is the least apparent to those who 
 have not studied it, is its repressive effect. 
 
 The certainty of examination and detection is a greater preventive 
 of fraud than a law providing a penalty for such a fraud, which does 
 not provide a method for its detection. 
 
 It is our opinion that the integrity of the officials and the 
 character of the service rendered by them are not surpassed in 
 any other state in the Union. 
 
 Above all, we desire, in conclusion, to point to a lesson taught 
 by conditions found in public offices throughout the State as 
 revealed by the work of the accounting board, and that is, that 
 the fundamental need of the times is that the voters in selecting 
 their candidates at primary elections, should be influenced by the 
 
39 
 
 competency as well as the honesty of the candidate. We are 
 constrained to the belief that too many voters look upon the public 
 job as something to be bestowed as a favor upon a friend or good 
 fellow, rather than a position to be filled for public benefit. We 
 live under a system of party government, and it ought to be 
 possible to convince voters that in the primaries the controlling 
 considerations should be competency as well as honesty. Not 
 until voters at the primaries become actively alive to the truth 
 that they should act on this criterion in the selection of public 
 servants the same as they do in selecting help in their private 
 enterprises, will the public secure that standard of efficiency and 
 honesty in public life that they insist upon in their private affairs; 
 and it is confidently hoped that those who peruse this report will 
 find something in it to impress this truth upon them. 
 Respectfully submitted, 
 
 Gilbert H. Hendren, 
 October 2, 1916. State Examiner. 
 
537 it". . 
 
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