b92-244-31440862

xt702v2c875r https://exploreuk.uky.edu/dips/xt702v2c875r/data/mets.xml Chase (Harvey S.) and Company. 1909 books b92-244-31440862 English s.n., : [Frankfort, Ky. : Contact the Special Collections Research Center for information regarding rights and use of this collection. Kentucky Finance. Report to His Excellency : Augustus E. Willson, governor of Kentucky, upon the financial condition of the State and concerning improved methods of accounting. text Report to His Excellency : Augustus E. Willson, governor of Kentucky, upon the financial condition of the State and concerning improved methods of accounting. 1909 2002 true xt702v2c875r section xt702v2c875r

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

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

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.

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.

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,

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"

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

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.

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

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.

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.

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.

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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)
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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

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.

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.

.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.

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