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CHAPTER I INTRODUCTION The operation of the newly devised systems of centralized control in state government has naturally raised many questions of the rela- tive duties and responsibilities of department and bureau officials on the one hand and of the supervising and controlling authorities on the other. The process of change from an established method of ~ . · ~ ~ · ~ · ~ 1 ~ 1 1 _1 ~ 1 1 conducting pUblIC business to anorner, nasea on adherent prep and requiring new obligations on the part of officers expending money, is bound to be a period of readjustment accompanied by a certain amount of friction. This will be the more certain as the new system differs more widely from the old and restricts more completely the freedom of action formerly reserved to heads of the various state services. The establishment of the State Board of Public Affairs in Wisconsin in 1911, the enactment of the Civil Code in Illinois in 1917, the enact- ment of the Ohio Civil Code in 1921, and the legislation of Massachu- setts culminating in the creation of the Board of Administration and Finance, all produced wide departures from the system of administra- tion hitherto in operation. The essential characteristic introduced in each case was the imposition of an agency of review, of supervision, and in many respects of control over officers and commissions who had hitherto conducted the work of their respective offices for the most part subject only to the necessity of securing approval of their expenditures by the auditor or controller. So far as these expendi- tures were legally authorized, and could be met by funds on hand, the auditor accepted without question the decisions of the respective officials as to the use of money appropriated to them. Although there were some intimations of the extension of a system of control prior to the enactment of the legislation cited, on the whole the change was substantial and called for a reconsideration of administrative practice on a thoroughgoing scale. Recent years have furnished the occasion for the testing of the new regime under varying conditions. As a result of experience to date, widely diverse opinions are held as to the wisdom and expediency of present methods. On the one hand, it is asserted that the necessity for economy and for the elimination of waste requires that expendi- tures of public money be scrutinized with the greatest care and by some authority independent of the expending official; that the neces- sity for balancing income and expenditure requires centralized control 9
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lo FINANCIAL CONTROL OF RESEARCH of the whole financial process; that the desirability of comparing the expediency of various proposed expenditures each with the other in order to insure the wisest possible use of the limited funds available requires a single agency for the authoritative review of estimates, the preparation of a budget, and the supervision of all phases of state finance. On the other hand, it is asserted that the accounting forms imposed are in some cases too detailed and too complicated for research agen- cies, which are usually small and frequently deal with a type of expenditure somewhat different from that of a typical government bureau; that the "red tape" involved is vexatious and expensive; that the specialized purchasing which is required for their work is not properly handled by central purchasing agents; that their work is delayed by the necessity of securing approval of other authorities; that those authorities possess neither the specialized knowledge nor the sympathetic understanding requisite to a proper decision on mat- ters of expenditure for research purposes; and that the ultimate responsibility for the work of the department is being transferred to the department of finance. These conflicting points of view gave rise to the present investiga- tion, the purpose of which is to study the characteristics, and to determine the effects of different systems of financial supervision and control vested in state officials on the prosecution of the work of scientific departments, especially with reference to the research phases of such work; and to evaluate the different systems of control both from the point of view of the scientific departments and of the admin- istration as a whole' paying special attention to the more highly centralized systems. Consideration of the various phases of the problem indicates that the topics which must be considered include the methods of accounting and the process of making the budget; the control of expenditures subsequent to the appropriation, both by the auditor and by such finance officers as the Illinois Director of Finance; central control of purchases; central control of printing; central control of contingent funds; central supervision over traveling; and central control of personnel administration. Each of these topics is to be examined in detail and the processes involved analyzed in order to lay bare the precise degree of restriction or control which is imposed on the scien- tific bureau in the various incidents of its work. In order to have a standard of comparison, the same topics will be studied in a University devoted to the prosecution of research and in the research laboratories of great industries. For the former the University of Chicago has
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IN STATE GOVERNMENTS been chosen, for the latter the laboratories of several important manu- facturing enterprises. ~ The states to which special attention will be directed are Illinois, which operates under a highly integrated system; Ohio, which resem- bles the Illinois plan but which has been operating under somewhat different circumstances; Wisconsin, where less control tis exerted through the Board of Public Administration; and Massachusetts, which has developed essentially the same plan of control as that found in Illinois and in which a sharp difference of opinion exists concerning the proper division of authority. Certain general considerations may properly preface consideration of the facts and the evidence on which the conclusions of this study are based. It must be borne in mind always that the prime concern of the American commonwealth is not scientific research, but either routine administration of its business, or the application of the results of science to the solution of its problems. The administrative system consequently must be organized in view of the primary task to which it addresses itself. State administration also still works in the shadow of the spoils system to a degree varying from state to state, but absent in few of them. The protection of the administration from favoritism, from spoils, and from diversion of public funds necessarily is one of the considerations on which the general administrative structure must be reared. Hence, many formal requirements as to reporting and accounting, and many incidents of supervision which in specific cases appear vexatious and irritating, are properly justified in view of the situation as a whole. Exceptions to a general system are dangerous; when the bars are let down in one case, the pressure for similar treat- ment in other cases may become irresistible. Viewing state adminis- tration as a whole, and mindful of its history and the influences to which it is subjected, the writer accepts the general plan of central control as a desirable, although by no means as a final, step toward the solution of the problem of efficiency in a democracy. On the other hand, the state is interested in securing the maximum possible results in any activity which it undertakes; and the far- reaching results of scientific investigation are of the greatest impor- tance, if not to the current administration of its business, at least to the ultimate welfare of its citizens. If the state desires to support scientific research, either in the state University or in its administra- tive bureaus, it should so far as possible provide the best working conditions. It is by no means settled doctrine that a system of control which is desirable for the supervision of routine administration is equally necessary or desirable for the conduct of bureaus engaged in research. Indeed, there are obvious points of difference in the two
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12 FINANCIAL CONTROL OF RESEARCH cases. A bureau or institution engaged in scientific activity is guided by certain professional standards which may properly be relied upon to replace in part the administrative supervision which seems neces- sary to prevent waste and extravagance in other bureaus. Individual competence is more likely to be secured in a scientific agency, although the prevalent low salaries cause a regrettably high rate of turnover among well-trained men. The methods and objects of scientific investigation are such as to unfit an administrative official for exer- cising a type of control which is proper in other cases. Furthermore, owing to the professional character of -the work and the inability of the ordinary political appointee to perform it, there is less likelihood of political interference. These points of difference, therefore, make it at least debatable whether state bureaus and institutions engaged in research may not properly claim special treatment within the structure of central financial control. On the other hand, scientists themselves, with the objective point of view which is characteristic of the profession, should be the first to recognize that the wasteful and inefficient methods of state govern- ment which have prevailed almost universally until recent years hairs little claim for consideration and no claim for their perpetuation. A more closely articulated, more highly organized system of administra- tion, with a greater degree of supervision over administrative methods and policies by bureaus specially designed for the purpose, is not only inevitable but desirable. So far as scientists can do so without a sacrifice of scientific achievement, they should be the first to welcome and support methods of government which give assurance of the elimination of waste. If so minded they can do much toward shaping the forms of administrative control which are proposed; if, however, they interpose a non possumus, they not only will fad! to block admin- istrative reform, they will also be caught the more closely in its meshes. The problem now being raised in state governments is not peculiar to them. The same issues are also forging to the front in the Federal Government with the installation of the Bureau of the Budget, the reclassification of the service, and the employment of the powers of the comptroller-general. It is interesting to observe that the British government has had long experience with a similar type of control and is not yet able to report entire lack of friction, although observers are agreed on the outstanding value of the service rendered by the Treasury Department. ~ See Lowell, A. L., Government of England, ch. 5, and Willoughby, Wil- loughby, and Lindsay, The System of Financial Administration of Great Britain, ch. 8.
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IN STATE GOVERNMENTS 13 A recent report of the British government presents such an admira- ble analysis of the problem that excerpts are presented in the following paragraphs 2 Throughout a long period of years the conviction appears to have grown that it is essential to a sound system of finance that the Minister responsible for raising the revenue should also have a predominant voice in deciding on the amount, and in some degree on the character of the expenditure. It has been held that it is only in this way that he can secure the necessary check on the demands that are made upon him, and a proper appreciation of the liabilities to which he is being committed by the policy of his colleagues. If he is to be held responsible for filling the reservoir and maintaining a certain depth of water in it, he must also be in a position to regulate the outflow. Much argument has been devoted to a criticism of these dual functions, and it has not infrequently been contended-especially by persons interested in projects which involve increased demands upon the public purse-that the Chan- cellor of the Exchequer should confine himself to raising the money required by his colleagues, and leave them to deal at their discretion with the other side of the account; or that, at most, he should restrict his power of control to matters involving expenditure on a large scale or to items exceeding some fixed limit. On this question it may be sufficient to point out that single items, in them- selves insignificant, may in the aggregate make up large totals, and that even a small expenditure on a particular service may directly or indirectly involve larger demands elsewhere, which can only be appreciated on a broad view of all the relative conditions. On the whole, experience seems to show that the interests of the tax-payer cannot be left to the spending Departments; that those interests require the careful consideration of each item of public expenditure in its relation to other items and to the available resources of the State, as well as the vigilant super- vision of some authority not directly concerned in the expenditure itself; and that such supervision can be most naturally and effectively exercised by the Department which is responsible for raising the revenue required. But it is obvious that the success of a system of control which is, in theory at least, so comprehensive, so rigid, and so minute, must depend on the manner in which it is applied. When once a particular policy has been adopted by the Government or by Parliament it is clearly the duty of the Chancellor of the Exchequer to provide the funds necessary for its execution. He may properly require to be satisfied that the expenditure proposed is not more than sufficient for the purpose in view, and that adequate arrangements are made to secure the fullest return for the outlay involved; but his control is in the main financial, and should not be allowed to encroach on the responsibilities of his colleagues. It must also be exercised in a sympathetic spirit and with an adequate knowledge of the circum- stances and difficulties of the other Departments. It is obvious that the two sides of financial control-the restriction of expendi- ture to no greater sum than is required for the purpose in view, and the ensuring that- the fullest return is obtained for the money expended will present different aspects to the spending Departments and the Department of Finance. With regard to proposals for expenditure, the initiative will come from the spending S Report of the Machinery of Government Committee, 1918, Cd. 9230.
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14 FINANCIAL CONTROL OF RESEARCH Departments, and the attitude of the Department of Finance must necessarily be one of enquiry and criticism. With regard to the arrangements for ensuring that the fullest return is obtained for the outlay involved, the responsibility should, we suggest, be shared between the spending Department and that of Finance. In neither case is it in practice possible for the Chancellor of the Exchequer, with any useful result, to force measures on an unwilling Depart- ment. The superiority of the spending Departments in knowing what is required for the execution of their several services, in accordance with the policy with regard to them which has been determined by Parliament or the Government, must necessarily limit the scope of any useful exercise of the restrictive authority of the Chancellor of the Exchequer. On the other hand, the wider experience and expert knowledge which his Department should possess, not of all the detail of each particular service, but of all its financial incidents and implications, and of the methods by which administrative efficiency can be ensured and increased, -will enable the Department of Finance usefully to criticize the methods of other Departments, to make suggestions for amending their proposals, not less in the direction of getting a greater return for outlay than in that of reducing the outlay itself; and to initiate improvements of this nature even when no new proposals are being made. It is none the less true that the execution of any scheme will necessarily depend on the goodwill and cooperation of the spending Departments concerned. We think that the traditional attitude of antagonism between the Treasury and other Departments which so often manifests itself might be substantially modified if the officers of the Treasury could establish closer personal relations with the several Departments with which they deal, and acquire a fuller knowl- edge of their work and their difficulties. It is clearly desirable to dissipate the tradition that all Departments have a natural disposition to extravagance, and that the Treasury is irreconcilably opposed to all increases of expenditure. The plan of the following study is to present first the evidence by means of a detailed analysis of the statutory basis of central control in the states under observation, and a survey of the practical operation of these laws; then to present the characteristics of control found in a university and in industrial research laboratories; and on the basis of these facts present certain observations and attempt to delimit the proper sphere of central financial control in relation to work of a scientific character performed by state governments.
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