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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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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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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.
Representative terms from entire chapter:
spending departments
