You have found an item located in the Kentuckiana Digital Library.
Report to His Excellency : Augustus E. Willson, governor of Kentucky, upon the financial condition of the State and concerning improved methods of accounting. Chase (Harvey S.) and Company. 400dpi TIFF G4 page images University of Kentucky, Electronic Information Access & Management Center Lexington, Kentucky 2002 b92-244-31440862 Electronic reproduction. 2002. (Beyond the shelf, serving historic Kentuckiana through virtual access (IMLS LG-03-02-0012-02) ; These pages may be freely searched and displayed. Permission must be received for subsequent distribution in print or electronically. Report to His Excellency : Augustus E. Willson, governor of Kentucky, upon the financial condition of the State and concerning improved methods of accounting. Chase (Harvey S.) and Company. s.n., [Frankfort, Ky. : 1909] 12 p. : 3 tables (1 folded) ; 23 cm. Coleman Microfilm. Atlanta, Ga. : SOLINET, 1994. 1 microfilm reel ; 35 mm. (SOLINET/ASERL Cooperative Microfilming Project (NEH PS-20317) ; SOL MN04943.09 KUK) Printing Master B92-244. IMLS This electronic text file was created by Optical Character Recognition (OCR). No corrections have been made to the OCR-ed text and no editing has been done to the content of the original document. Encoding has been done through an automated process using the recommendations for Level 1 of the TEI in Libraries Guidelines. Digital page images are linked to the text file. Kentucky Finance. A REPORT -so HIS EXCELLENCY, AUGUSTUS E. WILLSON GOVERNOR OF KENTUCKY I'P(N I If E FINANCIAL CONDITION OF THE STATE ANI) CONCFlNI(N IMPROVED METHIODS OF ACCOUNTING BY HARVEY S. CHA,SE AND COMPANY Certified Public Accountants 84 STATE STREET. BOSTON. MASS. This page in the original text is blank. HARVEY S. CHASE COMPANY PUBLIC ACCOUNTANTS AND AUDITORS 84 State Street, Boston, Masi. FRANKFORT, KENTUCKY, December 23, 1909. To His EXCELLENCY, AUGUSTUS E. WILLSON, GOVERNOR OF KENTTUCKY, STATE HOUSE, FRANKFORT: Dear Sir,-In accordance with your instructions, we have made an examination of the methods of accounting in the office of the Auditor of Public Accounts and elsewhere, and have prepared a table showling the revenues and ex- penditures in the various funds of the State during the past five fiscal years. In this table we have separated the total revenues and expenditures into four principal tunds, namely, General Expenditure Fund, School Fund, Sinking Fund, and State University Fund. In the books of the Au(litor the latter fund is included in the figures of the General Expenditure Fund, but we have taken these items out fromn the General Expenditure Fund, so that the Uni- versity Funcl may be separately set up. Otherwise, the figures are identical with those on the Auditor's books. We have verified the results on this table by a series of proofs which exhibit the actual increases and decreases in the cash balances from year to year, and thereby verify the totals of all of the figures given. GENERAL EXPENDITURE FUND. We have further separated the General Expenditure Fund into two parts: "Ordinary," which includes only current expenses of the year which have been paid, and "Extraor- dinary," which includes only expenditures for the erection of the New Capitol, for the Normal Schools, and also the exceptional expenditures on account of the employment of military force in aid of civil power, which occurred in 1908-09, and which amounted to over 150,000.00. Referring to the table, you will note that in each year, except the first year (1904-05), there has been a surplus of revenue receipts over ordinary expenses paid. This surplus, however, has been sufficient in none of the years to provide for the extraordinary expenditures (i.e., for the New Capitol, for the Normal Schools, and for the Militia). When the extraordinary expenditures are contrasted with the receipts available to pay for them, we are confronted with a deficiency in each year. TABLE I. Surphts .f Rccdipls aser Ordinary Expenses, together with Deficits caused by Ex.,-aarainawy Expenditures. (Cents havse blen io.nitted to save space.) I Supllc.' l'ezipts. . 4Defieienci,-s of Re- Yea:. Ord 1.eeiptsExtraordinaryecipts caused by lFx,.eises. l;Expenditures. Extraordinary 1904-5 32,613. 34,885. 67,498. 1905-6 . 25,954. 130,116. 104,162. 1906-7 363,508. 573,551. 210,043. 1907-8 . 198,439. 451,107. 252,668. 1908-9 . . 120,545. 619,834. 499,289. 675,833. 1,809,493. 1,133,660. 5De fieit. On August 31, 1907, 500,000. was transferred from the Sinking Fund to the General Expenditure Fund. This transfer was made for the reason, apparently, that the sinking fund did not need this money, as its annual revenue from taxation is more than enough to pay the interest charges (all outstanding bonds of the State having been 3 paid, except the irredeemable debt), while the General Expenditure Fund was badly in arrears. If this transfer is included, the apparent deficiency of the General Expenditure Fund is reduced to 633,660 for the five years. The Auditor's report shows that at the beginning of the five years above summarized, there was a deficit in the Gen- eral Expenditure Fund of 98,103.97, to which we must add 1,115.58 due to the University Fund, which is separately stated in the Auditor's report, making the deficit carried over at the beginning of the five-year period the sum of 99,219.55, so that the total excess of expenditure over the total receipts of the General Expenditure Fund, beginning with the deficit carried over in 1904-5, is as follows:-- Deficit carried over 1904-5 Excess of General Fund Expenditure over receil)ts during the five-years (Table 1). Other transfers and corrections Total Deficit in general fund June 30, 1909 .. Transfer from sinking fund, August 31, 1907. Net Deficit in general fund June 30, 1909.. .S99,2219. ], 13.3,660. 9,827. 91, 242,706. 500,000. n8742,706. Comparing this net deficit with the Akuditor's statement as of June 30, 1909, the figures are the same, as follows:- Auditor's statement of deficiency, page 252 his report. Add: Balance due University Fund Total as above. 739,726. 2,980. .S742,706. 4 SCHOOL FUND, SINKING FUND AND STATE UNIVERSITY FUND. The School Fund has had a surplus of revenue each year, except 1905-6, when there was a deficiency of revenue of 18,790. The Sinking Fund has had a surplus of revenue each year, except the first year (1904-5), when there was a deficiency of revenue of 3,997. If the transfer of the 500,000. be taken into consideration in 1907-8, the surplus revenue in the Sinking Fund of that year, which amounted to 844., is transformed into a deficiency of revenue for that year of 8499,956. In the State University Funid there has been a surplus every year, except the last two years, when the expend- itures exceeded the revenues. SCHOOL FUND. On June 30, 1904, there was a deficiency in the School Fund of .98,324. During the five years to June 30, 1909, there should have been a net surplus of receipts over expenditures of .534,074. Leaving a net surplus on June 30, 1909, of 435,750. SINKING FUND. On June 30. 1904, there was a surplus of. .546,444. During the five years there should have been a sur- plus of .62,726. Total surplus. .609,170. Less transfer of August 31, 1907. 500,000. Leaving a net surplus June 30, 1909 . . . 109,170. 5 UNIVERSITY FUND. On June 30, 1904, there was a surplus of. . . . . . . During the five years there should have been a sur- 1,116. plus of . . . . . . . . 1,864. leaving a net surplus on June 30, 1909 . TOTAL DUE TO THESE FUNDS. Total surplus which should have existed in these funds June 30, 1909. S2,980. 8547,900. The facts, however, were these: that if all outstall(Iinlg warrants had been presented for payment on June 30, 1909, it would have required all of the money in the treas- urv and nearly two hundred thousand dol- lars more to have paid themn. That is to say, all of the money supposed to exist in the above funds, rightfully, had been mort- gaged by excessive expenditures in the General Fund and 8194,806. of warrants were outstanding without revenues having been provided to pay for them. Adding the outstanding, unprovided-for warrants Leaves the deficiency the same as stated above, due the special funds and for out- standing warrants in excess of avail- able cash. 194,806. 742,706. As has been explained above, this deficiency has been caused in great part by the erection of the New Capitol, 6 the amounts expended thereon (luring the five years having been as follows:- 1904-5. 1905-6. 1906-7 . 1907-8 1908-9. Total to June 30, 1909. Adding Militia expenses on active servict And outlays for Normal School buildings, etc. in 1908-.. Makes a grand total of extraordinary outlays during the five years. 34,885. 130,116. 573,551. 451,107. 260,986. 1,450,645. 151,400. 207,448. 81,809,493. The above tables make evident the fact that, on account, of these extraordinary expenditures for New Capitol, Normal School, Militia, etc., during these five years, what under ordinary conditions would have been a surplus of revenue over current expenses amounting to 675,833, has been converted into a deficiencv of revenue (luring the five years of 1,133,660, as shown above. Viz.: Loss during five year. .1, 133, 660. Deficit at beginning .99,219. Other transfers and corrections 9,827. 1,242,706. Less transfer froni sinking fund .. . 500,000. Deficit June 30, 1909 ..742,706. It is plainly evident, of course, that the deficiencies in the special funds-School, Sinking, and University-have been caused by the use of these funds for General Expen- diture purposes. These amounts must, therefore, be paid back to the special funds out of general revenue hereafter, and the question arises:-" From what source may addi- tional revenue be obtained to repay these special funds" 7 This question might be answered satisfactorily if the current expenses of the next few years could be curtailed so that there may be a considerable surplus of ordinary revenue each year, which should then be used to rehabili- tate the special funds. It will be difficult, if not impossible, to provide sufficient revenue in this manner from present sources and therefore new sources of revenue must be found, sufficient to provide for the losses in these funds, or else bonds must be issued and the proceeds used to pay off outstanding warrants and to provide for the deficiencies. It is evident also that in great part the monies which should now exist in the special funds have been used to build the newe Capitol, owing to lack of revenue in the gen- eral fund from which to pay such heavy expenditures. Such lack of revenue should have been foreseen years ago, and if the Capitol was to be built, an issue of bonds of a million dollars or more should have been authorized and duly provided with sinking funds whose re(luirenlents should be met bv additional taxation anmmuallv. (GENERAL BALANCE SHEET.S. It is evident from our examination that the books of the "Auditors of Public Accounts," past and present, have never attempted to exhibit balance sheets containing all of the assets and all of the liabilities of the State of Ken- tucky as a whole. Such balance sheets properly designed and accurately drawn off each month would lprovide true statements whereby the Governor, the State officials and the members of the legislature could understand the actual financial condition of the State, and could then exercise real administrative control over the finances. Nothing is more important, in our estimation, thai the immediate installation in the Auditor's office of a comnplete controlling ledger ill which all of the assets, the liabilities, the revenues and expenditures should be set up in comnpre- hensive form, easily understood, from which; at the close 8 of each month, trial balances should be drawn off which will display automatically the true financial condition of the State, as a whole. Without such monthly statements, your officials must necessarily be in the dark as to the actual conditions of the funds. The deficiencies which may be accumulating in them each month cannot be foreseen by the financial officers, or, if known to these officers, will be unknown to all others. In this connection we quote from a recent report of ours to the Governor and Auditor of another State, where the conditions are much the same as in Kentucky:- Our experience has taught us that in very few States in this country is there a system of controlling accounts, so segregated and classified and brought into one general ledger that balance sheets may be drawnl off therefrom monthly or oftener, wd hich will provi(le a complete and comprehensive view of the resources and liabilities of the State as a whole. Such a statement should give the assets of the State properly (elassified, and the contrasting liabilities, the funds and the appropriation balances separated in such a nanler as to clearly show the actual financial condition of the State at the date of the schedule." A'As alreadv explained to you, we found no provi- sions for such a balance sheet in your office or else- where at your State Capitol. In our opinion, su;ch a monthly statenient is fundamentally necessary in order to provide the administrative officials of the State government, from the C;overnor down, with the neces- sary information which will enable them to keep in constant touch with the progress of the expenditures and the corresponding revenues, and with the condi- tion of the available assets as against the corresponding liabilities. Without such a comprehensive and ac- curate statement, it is practically impossible to prop- erlv administer and control the finances of any State. 9 In our opinion, the means for providing such a state- ment should be immediately installed in your office." "The Auditor should be the general accounting officer for the State. He should have on his books controlling accounts covering all of the transactions of the State and should be able to draw off at any tinie, from such a general ledger as we plropose, an accurate statement of the financial condition of the State as a wvhole.'" BALANCE SHEET OF NOVE.MBER 30, 1909. (TABLE II.) NWe have attached a schedule exhibiting a balance sheet as of November 30, 1909, which contains the liabilities of the ( Celeral Expenditure Fund (inicludino the balances due to the special funds); the assets available for payilng these liabilities; and the deficiencies of these assets The total assets as shown by thi. balance sheet aamount to. . . . . . . . . . . 3,033 ,523.37 The total liabilities as shown by the balance. sheet aimioumit to. . . . . . . . . . 4,237,478.00 The deficiency of assets aniouiits to . . . . .1,203,954.37 I)EFICIENCY OF JNE .30, 1910. This deficiency of assets represents the financial condi- tion of the General Expenditure Fund as it will be at the en(d of the present fiscal year (June 30, 1910) provided the appropriations already miade by the General Assemnbly shall have been expended, including the special appropria- tions of 1908, and provided also that the revenues collected (luring the balance of the fiscal year shall prove to be about the same in amount as the actual collections of the previous fiscal year (1908-09). This deficiency, as of June 30, 1910, will be augmented by whatever additional appropriations are passed by the (Genieral Assembly of 1910 and expended prior to the end of 10 the fiscal year, unless new revenues are provided by the ( General Assembly. This deficiency, 1,204,000, which these figures exhibit as probable on June 30, 1910, is just about the amount which a common sense view of the condition of the finances would establish. For instance, the dleficiency at the be- ginning of the present fiscal year, June 30, 1909, as stated by the Auditor's books was. .. . . . . .739,726. Adding amount due to University Fun(l . . . 2,980. Total deficit in general fund . . . . 8742706. The loss during the year 1908-09, as showni by the Auditor's report page 252, was ';.500,206. The corresponding loss in 1907-08 was albout .257,000. If the loss in the current year he tak-n at a reasonable e-atimnate, say . 4500)00. The tot.l deficit ., ti Jai'e 30, 1910, would be .1 1,192,706. lh.'s result is jlu;t aI)out 'the saiiie as the figures giveil in the balance shee., namnely, 1,2'00,000, in rotlmnl nullmbers, as the probable deficiency on June 30, 1910, excludiiig ad(l- ditional appropriations by the General Assembly and ex- clh(ling any new revenue whieh umay be provided siinilarly. This amount of deficit is practically the sani as the first two appropriatiots niade for the building of thle lnew Capitol, viz.: First appropriationis. , ......000000. se(ond appropriatioins . . 250,000. Total of these. . . . .1,230,0(()(0. If proper prov-isions hadl been niade by the Genieral Assenmbly-new revenues, or issues of bonds, or otherwise--- for the new C(apitol, there would now be no (leficit ini the funds. It is evident, therefore, that the whole trouble has arisen froni the attempt to build the new Capitol out of ordinary revenues which were wholly inadequate for that l)urpose. 11 Even before the first money was expended upon the Capitol the general fund was behindhand. There was a deficit on -June 30, 1904, as we have shown, amounting to about 100,000, and the total expenditures since that date-for the five years--have amounted to over 1,100,000 more than the revenues for that period. There would appear to be no escape-in our opinion- from the necessity of a bond issue, which should be author- ized by the General Assembly of 1910. These bonds should run, say, twenty years or more, and have sinking fund provisions; or, better, they should be serial bonds, payable one-twentieth annually from the taxes of each year. With this amount of money in the treasury, the out- standing warrants could then be paid and brought downi to a reasonable limit; the credit of the State would be re- established in the minds of its small creditors; the special funds would be rehabilitated and the deficit in the general expenditure fund would be sufficiently provided for. Then, with due economy in new appropriations and with reasonable increase of the state revenues, there should be no recurrence of the present unfortunate condition of the finances. It should be remembered that an issue of bonds of one million dollars will only provide for immediate necessities: will merely put the ship of state on an even keel, so to speak. There will be no portion of this issue available for new ap- propriations. All such new appropriations must be pro- vided for from new revenues---increased tax rates or other- wise-by the General Assembly. Moreover, some increase of revenue will be absolutely necessary in order to provide for the sinking funds and the interest requirements for the mew issue of bonds. Very respectfully, HARVEY S. CHASE COMPANY, Certified Public Accountants. 12 Assets. ACCOuINTS RECEIVABLE: Taxes 1909 uncollected, Other Receipts (esti- mated same as last year) uncollected . . TABLE II. STATE OF KENTUCKY. GENERAL EXPENDITURE FUND. Balance Shect. Novtember 30, 1909. Liabilities. APPROPRIATIONS for 1909- 2,319,457.85 2,584,000.00 4,903,457.85 Deduelt 4 7c payablhe so - the special ,Rinds (stnme as last year) 2,206,8Y07.85 Availal)ic for General I..,1 cr) Il n. r - 1 UjIIt..- - - . CASH IN TREASURY . . TOTAL ASSETS available against liabilities, contra 3 10. . . . . . . . .83,712,466.66 Less Expenditures to November 30 . . To b)e expended SCHOOL FUND. SINKING F'UND ..... UNIVERSITY FUND APPROPRIATIONS, SPECIAL, 1908. unexpenle(ld . . . ;")''y""";NJAn COMMISSIONS AND SAL- ARIES to Sheriffs of 119 336,873.37 counties. OUTSTANDING \AVARTANT-TS Unpai(l November-30. ,033,523:.37 ToTAL LIABILITIES . 1,525,616.87 82,186,849.79 341,647.88 167,670.86 7,862.80 381 ,666.87 213,647.92 938,131.88 .S4,237,478.00 DEFICIENCY OF ASSETS - 1,203,954.63 Total . To.ta . 424,777,47S.. Total .. . . . . .4,237,478.00 This page in the original text is blank. 'v 2 00 lx:C . i: C2 - t' ll.El, 2 f- V m C, cl t C 2, " r- te te k ; on . R 8 .s 8 " t6. I e 9 co: C: 42 S 1t t QI Ci t- kfs N oo 0+ 0 1.0 e 4 ' N 10 o'-.4'O - lc 11 06 ; C XI :m W. 4 H 1 E 7.1 :4 ;4 t, C ;;N 0 T- 4 ;4 L.) E-4 C 11 4 C. 2 .11, I W W 9 t,jtD eo llOllo C It 10 t1 I eq Y.I! Cl e1 ,4 . - i Cl V. i to 0's q=1 :a to' : , gS:: cC". ciao t- vC4 , V t-. 0 t- S t- m oo i C, 00 a, N o(- cq ! cq llll It '- q Z6 CV I 0 C., . 10 t-" t. z ; to 't'.1 1-4- p p '4' C'cf.,10 1 1 I 5A I E j 4 C-) '.'4 i- ;4 W 9 4 A 44 [-0 E- T v ; x1 OQ W 0 m 1, 06 1-.4 . t - :'.N ti C2 C : It I Q _ C" 7 V, T Iq 1.iI tQ. . C 1i '- C: l -q , t-1 O If de " 0 " = I: 1 . 't11 1- C I " 003 1: t1 kd 1V p1 b:I 00 it C1, 0 1 C I t6 C 'C1 m 8 ,1 Ot'sI CD to k W: I a .t R 9. ' O . 1 C; ci CD ki 2 to Iz xIt 00 CM X CC C ., . ._, z.6 Al ' N -M lp I o . i , , . ., r X, - a P . E A, . .W S X Ci 2 .U o w . g b! .S o X o r t tz + : g M.; Q 'm A ! A C g 0 w2, 0) It. 0 ;6 O Q W 1: 4) 0 4 1 I .4 eq 10 i 0 go 0 a I- A . q tl- 06 GO j . i , eq 'lo, 9 i q I 11 W C6 IN cf, li1.4 . 8 N f t- Clb 0 la1