Abstract
While comprehensive auditing of federal government agencies in the United States had its inception in 1945, citizen-led efforts to evaluate and improve state and local government operations began much earlier. One such early pioneer organization was the Tennessee Taxpayers Association (TTA). Using group theory constructs from the political science field, this study documents how the TTA was able to use its power and influence to shape the development of accounting systems and accountability in the local governments of Tennessee as early as 1932. This study extends the body of historical research on public sector accounting by analyzing original publications issued by the TTA and documenting how the entity interacted with state and local governments and other power centers.
Introduction
Since the American nation began, citizens of the United States of America (United States) have been concerned with the efficient and effective operations of government. Following the end of the Civil War in 1865, these concerns sparked organized efforts to evaluate and improve the performance of local governments, including counties, municipalities, townships, and special-purpose governments such as school districts (Gill, 1944; League, 1894, 1895). The organized efforts of these non-business, non-governmental entities influenced the development of accounting and accountability in the mid 1900s. This study examines the role of one such organization, the Tennessee Taxpayers Association (TTA), and explores the social and economic events surrounding the performance audits conducted by the TTA to improve accountability of local governments in Tennessee. These performance audits provided systematic, non-financial evaluation of a government’s operations by conducting organized searches for ways to improve managerial efficiency and effectiveness. 1
While comprehensive auditing (including performance auditing) of federal government corporations had its inception in 1945, citizen-led efforts to evaluate and improve state and local government operations began much earlier (Fairlie, 1933). The Government Corporations Control Act of 1945 (Act) required the audit of federal corporations to determine both legal compliance and the efficacy of financial management and internal controls. That Act was one of the earliest efforts by the United States to measure federal government performance (Flesher and Zarzeski, 2002). 2 In contrast, the TTA promoted efficiency and economy in the state and local governments of Tennessee 13 years prior to the passage of the 1945 Act. This article documents that evaluations of government performance (also known as operational or value-for-money auditing) were conducted by the TTA as early as 1932.
Prior research in accounting history has been criticized for focusing principally on private sector organizations and for paying only peripheral attention to the public sector (Bisman, 2012; Funnell, 2007; Parker, 1993). Over the past 15 years, however, more attention has been devoted to accounting history in the public sector (Black, 2001; Burrows and Cobbin, 2009; Carnegie and West, 2005; Christensen, 2002; Colquhoun, 2011; Funnell 1997, 2004, 2008; Hooper and Kearins, 2003; Jones, 2010; Marriott and Fowler, 2007; Nikitin, 2001; Platonova, 2009; Potter, 1999; Sargiacomo, 2006; Yayla, 2011). To expand the breadth of public sector literature, Accounting History has dedicated special issues to governmental accounting history. The first special issue covered accounting and the military (Bujaki, 2010; Cobbin and Burrows, 2010; Funnell and Chwastiak, 2010; Heier, 2010; Mayer-Sommer, 2010; Talbot, 2010). The second special issue addressed accounting and the State (Baker and Rennie, 2012; Buhr, 2012; Colquhoun and Parker, 2012; Cordery, 2012; Lai et al., 2012; Levant and Nikitin, 2012; Narayan, 2012; Sanchez-Matamoros and Hidalgo, 2012; Sharma et al., 2012; Sargiacomo et al., 2012; Vosslamber, 2012).
Within the public sector literature, however, research spotlighting local government accounting is conspicuously missing, with some exceptions (i.e. Jones, 1985; Sargiacomo, 2006; Tolbert and Zucker, 1983; Wenzel et al., 1992). In their analysis of published studies on accounting and accountability in local governments, Sargiacomo and Gomes (2011) noted that historical research on local governments is underdeveloped and that only a few of the published articles adopted a theoretical framework for interpreting the results (i.e. Bergevärn and Olson, 1989; Carmona and Donoso, 2004; Edwards, 1992; Riccaboni et al., 2006; Walker, 2004).
The purpose of this study is to advance understanding of accountability in local governments by documenting the history and context in which accounting systems were developed. In addition, this research answers the previous calls for further studies on the interrelationship between local governments and non-governmental, non-business entities in the development of accounting using a theoretical perspective (Sargiacomo and Gomes, 2011). This study uses group theory posited by Longley (1967) to document how the TTA, a private, citizen-led reform group, was able to use its power and influence to shape the development of accounting systems and accountability in the local governments of Tennessee.
The data sources for this study included primary archival documents and published secondary sources. Publications issued by the TTA and other related contemporary sources are used to document the interaction between the TTA and other power centers. Between 1932 and 1985, the TTA issued over 200 reports and other publications. A nearly complete collection of the TTA’s publications is housed at the Tennessee State Library and Archives in Nashville. Many other public libraries in the state have one or more reports – presumably from engagements conducted in their local area. Also, the National Agricultural Library in Beltsville, Maryland, and the JD Williams Library at The University of Mississippi in Oxford, Mississippi (the National Library of the Accounting Profession) have a number of these reports. Using these and other documentary sources, it was possible to piece together key aspects of the capabilities and characteristics of the TTA. Clearly observable were the activities of the organization that led to improved accountability in local Tennessee governments, an area that has yet to be researched.
The remainder of the article is organized as follows. The next section presents a brief synopsis of the organizational and social circumstances of local governments in the United States through the early 20th century. “To fully understand management accounting one must examine its social, economic, and political context and recognize the role of power and conflict” (Cooper and Hopper, 2006: 208). Accounting historians have documented that both internal and external factors influence our understanding of management accounting (Antonelli et al., 2008). In keeping with this view, accounting systems can be seen as more than simply exercises of technical practice. These systems document the cultural, social, and institutional context surrounding their development (Gaffikin, 2011: 239; Gomes, 2008: 496; Riccaboni et al., 2006: 44; Sargiacomo and Gomes, 2011: 272; Virtanen, 2009: 368). The local conditions surrounding the creation of the TTA are discussed next, followed by the theoretical frame for interpreting the results. The main body of the study contains a detailed analysis of the TTA. The final section summarizes the key features of the analysis.
Organizational environment
The first American states were created through the Declaration of Independence to join autonomous regional governments under a confederation. Later, states entered the union through actions of the Congress of the United States. This federal system provided for two tiers of government: a national centralized (federal) government with limited powers, and regional decentralized (state) governments. In contrast, American local governments (including counties, municipalities, townships, school districts, and other special districts) were established by individual colonies and later by the states. Counties, municipalities, and townships were adapted from English local governments, while school districts and special districts were uniquely American. Counties were subdivisions of the state whose structure and functions were determined entirely by the state constitution and laws. Municipalities and townships were established based on charters granted by the states to operate within a specified area and provide a wide range of public services. School districts and special districts were fiscally separate entities that provided a single or limited number of functions, such as education or fire protection (Engel, 1999; Leach and O’Rourke, 1988; TVA, 1940).
Social and political context
Following the Civil War, the United States experienced extensive material growth that had an exacting cost on human values and natural resources (Hofstadter, 1963). Wealth became even more concentrated in the upper class and the problems of the culture intensified. The disparity between the nation’s thriving productive capacity and the poverty of its citizens expanded drastically as the rich got richer and the poor got poorer (Cochran and Miller, 1942: 250; Previts and Merino, 1998: 175). The deplorable social plights of immigrants (Sinclair, 1988), working women (Van Vorst and Van Vorst, 1903), children (Spargo, 1970), and Negroes worsened and the waste of natural resources intensified (Hofstadter, 1963). Developments in manufacturing led to tremendous increases in city populations and the expansion of the railroad system ushered in a shift of the rural population to urban industrial centers (Cochran and Miller, 1942; Patton, 1940). 3 These expanding urban areas required safe and reliable water supplies, sewerage and refuse removal systems, police and fire protection, schools, and other essential services.
As the need for services increased, local government expenditures spiraled upward (Patton, 1940). Unfortunately, this period (1870s and 1880s) was marred by widespread instances of mismanagement and misappropriation of public resources and steady increases in local government taxes and local debt (Gill, 1944). Political machines run by local “bosses” controlled the administration of many local governments. These “bosses” were businessmen in politics who did not hold office, but dictated local policies through a network of lieutenants and paid workers. These powerful men could deliver large blocks of votes, set the prices for special favors, and influence the award of public utility franchises (Cochran and Miller, 1942; Haskell, 1977; McMillan, 1998; Patton 1940).
Consequently, movements to reform both the social and political components of local government administration gained momentum in the last two decades of the 19th century (Gill, 1944; Gould, 1974; Hofstadter, 1955,1963; Patton, 1940; Skowronek, 1982; Tolbert and Zucker, 1983). Early efforts to reform local governments concentrated on electing competent, honest men to public office (Gill, 1944; League, 1894, 1895). 4 This approach, however, was not successful in creating sustainable improvement for the governments. Any viable reform implemented by an elected official could be undermined by an unscrupulous successor. Rather than focus on individual officials, later efforts to promote sustainable reform focused on improving the core structure and administration of the government itself (Woodruff, 1908). 5
One area of reform focused on was the civil service system (Skowronek, 1982). Civil service reform was seen as a way to weaken the role of the machine politician by eliminating the opportunity for these “bosses” to provide patronage for their supporters (McMillan, 1998: 126). The civil service career system promised stability and proficiency in public administration by insulating municipal personnel from political influence through tenure (Tolbert and Zucker, 1983). Individuals were to be employed based on their special training or competitive examinations and were to be promoted, disciplined, and paid based on uniform rules (Skowronek, 1982). In their study of change in the formal structure of organizations, Tolbert and Zucker (1983) found that when civil service procedures were required by the state, the practice diffused rapidly and directly from the state level to cities. These researchers noted that the first city enacted civil service legislation in 1884, by 1920 civil service procedures were considered to be the proper way to conduct city business, and by 1935 over 450 cities had passed some form of civil service legislation (Tolbert and Zucker, 1983).
By the beginning of the 20th century, a number of privately supported groups had organized to promote sound financial and management practices in local governments, including the National Municipal League founded in 1894 (Fairlie, 1933). The trend of promoting improvements in local government administration increased over the next 30 years with efforts by such groups as the Governmental Research Association, founded in 1915 (White, 1933), the National Federation of Governmental Research Agencies, and the Institute for Government Research, both formed in 1916 (Weber, 1919). A large number of local bureaus of research and taxpayers’ leagues were established to generate specific improvements in their own cities or states (Gill, 1944; White, 1933: 312). These reform efforts were more successful than earlier efforts to elect competent officials, but many of the recommended administrative improvements were not universally applied. When documenting trends in public administration, White (1933: 223) noted the following: The administrative institutions of general management are rapidly spreading among the cities. Centralized purchasing, executive budgets, efficiency bureaus, coordination agencies are found widely today, while in 1910 they were rare or non-existent. These institutions in the last twenty years have become an established part of the governmental structure, and are no longer on the defensive as untried experiments. On the other hand many cities still lack some or all of these modern management devices. The year 1930 finds American cities in a transition period, with a new pattern of administration clearly developed but not everywhere accepted.
Local conditions
Tennessee is one of seven states situated along the Tennessee River Valley. The other states are Alabama, Georgia, Kentucky, Mississippi, North Carolina, and Virginia. In comparison to the rest of the United States in 1930, Tennessee Valley States had greater proportions of their populations (71%) living in rural areas (TVA, 1940), collected a smaller percentage of their revenues from property taxes, and experienced widespread property tax delinquencies (Macon, 1957). 6 By 1932, Tennessee had 95 counties, 219 cities, towns and villages, 89 special school districts and 70 other civil divisions (drainage districts) for a total of 473 local political units that had the power to levy taxes or incur debt. Total receipts for these local governments amounted to US$65,645,232 or 67 percent of the US$98,397,984 in combined receipts for the state and local governments. For that year, receipts by local governments in Tennessee were double that of the state government. Local government costs were US$69,888,683, almost twice the state government costs of US$36,794,502. That year, the state had a population of 2,645,000 with 39 percent of the state’s population living in municipal areas. The total expenditures for the State of Tennessee went from US$3.6 million in 1910 to US$36 million by 1932 (TTA, 1934a; US Department of Commerce, 1935).
In 1929, the State of Tennessee was in turmoil. The Great Depression had begun. The state lost almost US$7,000,000 in public funds when state banks failed (West, 1998: 438). The newly elected governor, Henry Horton, was nearly impeached in the scandal involving influence peddling and his connections with owners of the largest failed banks (Corlew, 1981: 466). In addition to economic woes, state and local governments faced many financial difficulties due to weak administrative and fiscal procedures (Prescott, 1931). The public was anxious for reform in government.
In response to growing concerns about public finances, interested taxpayers of the State of Tennessee formed citizen groups, beginning in 1929, to address this issue. The purpose of those groups was to collect, analyze, and disseminate facts regarding the expenditures, income, indebtedness, and management of federal, state, and local governments. The Tennessee Tax Committee was one of the first such citizen groups. This Committee performed an extensive study on taxation in the State and proposed changes to the state’s tax system and changes to county government; however, the Committee was not successful in gaining legislative approval for its recommendations (TTA, 1934a). George Fort Milton, president and editor of the Chattanooga News, chaired the Committee that also included Frank Prescott of the University of Chattanooga and staff of the State Tax Commission of Wisconsin (Prescott, 1931).
Following unsuccessful efforts of the Tennessee Tax Committee to improve accountability in the state and local governments, a series of meetings involving over twenty state-wide taxpayer groups and several concerned citizens was held in the spring of 1932. As a result of these meetings, the Tennessee Taxpayers Association (TTA) was created on 24 June 1932, as a non-political and non-partisan organization to promote more efficient government at the lowest possible cost (Tennessee, 1933; TTA, 1934a). 7 One of the first activities of the TTA was to have field representatives organize and affiliate taxpayer groups in 63 counties. This organizational structure created a broad base of support for the Association’s work. Affiliates provided regular financial support to the TTA to conduct its research, education, and reform efforts (TTA, 1934a).
Theoretical framework
Generally, group theory encompasses the concepts of power and influence. Although power is difficult to describe (Zeigler, 1964), in a broad sense power is defined as the ability to get things done and make a difference in the world (Macintosh and Scapens, 1990: 461). Longley (1967) extended the application of group theory beyond the concepts of power and influence to study the interaction of interest groups in the legislative system. Building on the works of Bentley (1949), Truman (1951), and Latham (1952), Longley identified five factors that have an influence on the effectiveness of interest groups. The first factor involved how these groups dealt with conflict, an inherent attribute of their existence. When faced with opposition, the group should become active and efficient in using its potential within the social structure and culture. He describes the potentialities of the group in terms of the group’s internal characteristics, the group’s place in society, and the nature of a legislative (governmental) institution (Truman, 1951). Second, the group should be able and willing to find common ground (interests) with other power centers, including government officials and other interest groups. This factor encompasses the notion that groups should form coalitions with other groups in order to become more effective. Third, the group should set realistic goals in view of its own capabilities and in terms of the current social and political climate. Zeigler (1964) concluded that interest groups were most successful when they promoted goals that did not conflict with the values of society. Notwithstanding, some goals are more difficult to achieve than others. For instance, enacting new legislation or changing current policies is less feasible than continuing a present policy. Fourth, the group should actively use its resources to maximize effectiveness. Finally, the group should develop effective tactics for achieving its goals. Zeigler (1964) suggested one such tactic was for the interest group to gain legitimacy from those in a position to make authoritative decisions. While Riccaboni et al. (2006) used the framework of power relations to explore the role that accounting systems played in influencing power structures, this study uses the group theory framework to explore the interrelations between the privately-run TTA interest group and the development of accounting in local Tennessee governments.
Many of the earliest efforts to reform local government in Tennessee generated lackluster results at best, but that was to change when the TTA was created. From the formation of the organization in 1932 to its merger with the National Association of Manufacturers in 1985, the TTA was instrumental in influencing the development of systems of accounting and accountability within the state. This study uses the theoretical constructs of group theory to explain how the TTA successfully interacted with other organizations, agencies, and institutions to reach its goals.
Organizational structure and administration of the Tennessee Taxpayers Association
Soon after its inception in 1932, the TTA quickly gained influence in shaping the accounting practices and the accountability of Tennessee governments. How could this outcome be explained? According to the first factor of Longley’s (1967) group theory on interest group effectiveness, the group must become active and efficient in using its organizational characteristics and its place in society to become effective. Similarly, Zeigler (1964) concluded that interest groups have a good potential for success if the group draws its membership from a high-ranking social strata. The TTA did just that through its leadership and structure.
The TTA enjoyed long periods of stable management led by distinguished community leaders. The founding officers and subsequent boards of directors included individuals from a wide variety of industries located throughout the state. The first president, CW Bailey, served 15 years in that capacity. Mr Bailey was a renowned banker from Clarksville, Tennessee. In addition to his work with the TTA, he served the banking industry for 55 years, rising from assistant cashier to bank president. Mr Bailey gained national recognition when he was elected president of the American Bankers Association (Clarksville Leaf-Chronicle, 1959).
William R Pouder served from 1932 to 1958 as the first of only two executive secretaries (TTA, 1958b). Prior to joining the TTA, he worked in private industry as well as in local government. He was an auditor and assistant to the general manager of a mining and smelting company. He also worked as an employee in the offices of city managers of Dayton and Springfield, Ohio. While serving as city recorder for Johnson City, Tennessee, Pouder was asked by the neighboring city of Kingsport to collaborate with attorneys in drafting a new charter for the city that called for a city-manager form of government (Stone et al., 1940; Wolfe, 1987). He later became Kingsport’s first city manager in 1917. In that position he drafted a code of ordinances, implemented fiscal procedures, installed the accounting system, and assembled his office staff. This was particularly challenging because the United States had entered World War I. He resigned that position in 1919 and became the manager of the Chamber of Commerce of Knoxville, Tennessee, before joining the TTA (Stone et al., 1940). His long career in industry and government allowed him to develop many relationships throughout Tennessee and surrounding states. He had acquired invaluable experience in both formulating and implementing efficient governmental policies. The second executive secretary, Donald W Jackson, had served as assistant secretary from 1947 until 1958, when he was elected to the new position. He filled the position for 27 years until his retirement in 1985. He held a Masters degree in government management from the University of Denver (TTA, 1958b).
Representatives of the Association were given immediate access to top government officials and garnered respect and confidence, due in large part to the social standing of the TTA’s management and the widespread support base of the organization. This was observable from the very beginning of the organization and the reception of its first work. The initial major project of the Association was to compile a comprehensive report of all the state’s receipts, disbursements, and indebtedness. The Honorable Governor Hill McAlister in his inaugural address, delivered on 17 January 1933, expressed these sentiments about the leadership of the TTA.
Aiding us in the solution of all these difficulties, I am glad to say, are some very capable and efficient agents of the Tennessee Taxpayers Association. The activities of this association are being directed by some of the foremost citizens of the State, and all of us are under very great obligations to them for the disinterested thoroughness with which they are delving into all these troublesome matters which you (the members of the 1933 Legislature) must solve. (TTA, 1933a: foreword)
The TTA actively engaged its officers, directors, and staff to achieve its mission of: bringing about … the greatest possible economies consistent with efficiency in the collection and expenditure of the public funds, to the end that taxes in the State of Tennessee, and in the counties, cities, towns and other political sub-divisions thereof, shall be reduced. (TTA, 1933a: foreword)
Officers and directors of the TTA gave their time and financial support to the organization. The administrative committee of the board met monthly; the executive committee met quarterly; and the entire board of directors and membership met annually. The organization also employed a number of full-time, paid staff members, although the number of employees varied from year to year. Four years after the TTA was formed, there were 12 regular employees, including William Pouder, executive secretary; WH Kiser, field representative; JF Draper and Charles B Carter, field accountants; and William P Brooks, research accountant. At the end of 10 years, general staff salaries represented approximately 25 percent of the organization’s expenses (TTA, 1942). By 31 December 1945, general staff salaries had grown to US$11,428 or 32 percent of total expenditures of US$36,007 (TTA, 1946: 17). In keeping with its advice to governments, the TTA had annual audits of its own financial records performed by certified public accountants.
Finding common ground and setting realistic goals
The TTA was able and willing to find common ground (interests) with other power centers, including government officials and other interest groups, and to develop strong alliances throughout the years. Longley (1967: 647) suggested that the TTA was able to form alliances with other interest groups by two means: through the TTA staff’s “skill in bargaining” and through the “absence of conflict of interests”. As a case in point, the TTA gained the support of the Tennessee Education Association, the Tennessee Municipal League, and the Tennessee County Services Association (Longley, 1967), and many members of the board of directors of the TTA were also board members for the Tennessee Manufacturers Association. While the TTA held many common interests with the education, manufacturing, municipal, and county associations, the TTA’s goals often conflicted with those of the Tennessee State Labor Council. Consequently, the alliances formed by the TTA, through its bargaining skills and common interests, often prevailed over the Labor Council when promoting legislation. 8
From its inception, the TTA developed close ties with the governor and his staff, especially through contact with the governor’s experts (Longley, 1967: 653; TTA, 1932, 1935, 1942). During these early years prior to having a state director of budgets, the Governor requested the TTA staff to assist the state in preparing biennial budgets for spending by the 200 state agencies of Tennessee. As a result of that project, legislative appropriations committees were able to reduce spending in the general fund by over US$5,000,000 a year. This figure represented savings to the state of more than US$20,000,000 for the four fiscal years 1934–1937 (TTA, 1942). In 1935, the State of Tennessee installed a modern governmental accounting system in its central fiscal offices. This was accomplished through legislation drafted by the TTA. The same year, the Governor requested that the TTA select, employ, and supervise a nationally-known firm of consultants to survey the administrative and fiscal procedures of the various state functions. A sum of US$10,000 was appropriated for this purpose and the TTA contracted with the certified public accounting firm of George G Scott and Company. This major project produced a total estimated savings of US$7,000,000 to the state from 1935 to 1941 (TTA, 1942). That report highlighted several weaknesses, including thousands of dollars of undeposited tax payment checks, irregularities in the revenue collections, favoritism in purchasing, and injustices from the sale of the labor of state prisoners. 9 The following year, the TTA assisted consultants with the complete reorganization of the state’s department of finance and taxation. The reorganization was completed in 1937. In the eight years following, revenue collections are estimated to have increased by US$8,000,000. The TTA was also instrumental in facilitating the hiring of a state budget officer and establishing a debt retirement plan. The state debt retirement plan was estimated to have saved the government US$16,751,750 in interest payments alone for 1937–1945 (TTA, 1946).
Maximizing potential
The TTA was able to maximize its potential to effectively address its mission by first being a financially sound organization. Through a state-wide network of affiliated taxpayer groups and field representatives, the TTA received a broad base of consistent support from interested citizens and taxpayers through voluntary annual contributions (TTA, 1934a). This primary funding technique was contrary to the one used earlier by the New York Bureau of Municipal Research. When that group’s major sponsor threatened to cut his donations, the organization was forced to change its research agenda in order to maintain financial support (Schacter, 1995). Local governments that received surveys were asked to contribute a small amount (around US$100) to defray the costs of publishing the reports (TTA, 1933f: 2, 1934a: D); however, the conduct of the survey was not dependent upon the local government’s contribution. The TTA’s financial strength was especially noteworthy, considering the organization was not an endowed institution (TTA, 1936a: 7). A milestone in TTA history occurred on 20 September 1937, when the US Commissioner of Internal Revenue ruled contributions to the organization were deductible as business expenses for US income tax returns (TTA, 1957: 2). This ruling boosted the TTA’s credibility and acted as a catalyst for improving the group’s fund-raising capacity.
The TTA also maximized its potential by working collaboratively with other established institutions on special projects. For example, investment bankers that specialized in governmental securities were interested in having comprehensive information concerning local governments in Tennessee; however, this information was also of interest to state and local government officials and citizens. Twenty-five of the largest investment houses gathered together to form the Tennessee Municipal (Security Dealers) Association and sponsored this research. Detailed survey results were given only to the sponsoring security dealers, but summary reports including per capita data were made available to the Governor, General Assembly, and public (TTA 1937b, 1937c, 1938).
Another example of collaboration involved working with the Tennessee Valley Authority (TVA). As a part of President Franklin D Roosevelt’s New Deal program to combat the effects of the Great Depression, the TVA was formed in May 1933 to develop the valley of the Tennessee River by strengthening the agriculture sector, providing electricity to outlying areas, and creating jobs. The TVA engaged in a number of large-scale construction projects that required a considerable amount of research data (Corlew, 1981). To facilitate the task, the TVA collaborated with researchers in five states to collect data on the economics, education, government, and sociology of the respective states. The Authority contracted with the TTA to conduct some of these studies and supplied the TTA with 14 research workers from the Civil Works Administration (CWA) program, a separate New Deal program that provided jobs for the unemployed. The TTA supervised these workers from January to April 1934, during which time they prepared complete analyses of the revenues, expenditures, debt, and administration of 12 Tennessee counties. After funding for the CWA workers expired in April, the TTA added several of these individuals to its field staff and office management and continued to perform studies of local governments (Review, 1934, 1935).
The TTA further maximized its potential by promoting recognized, but not commonly accepted, administrative practices. The TTA relied on recommendations from the National Committee on Municipal Accounting (NCMA) and other best practices of the time (TTA, 1942: 13) in conducting its work. The NCMA was formed in 1934 by a number of prominent professional groups, public officials, and citizen groups to engage in a nationwide effort to formulate standard accounting procedures for municipal governments and to develop standardized principles for municipal audits (GASB, 2006; Morey, 1934). 10 While the TTA survey reports did not specifically identify the NCMA standards, the reports did address the principles contained in the standards. For example, Principle No 1 proposed by the NCMA was that all accounting functions should be centralized and placed under the direction of a single officer (Morey, 1934). In its survey of the City of Chattanooga (and many other surveys), the first recommendation made by the TTA was to centralize and modernize the activities of the Department of Finance under the supervision of the Comptroller (TTA, 1948).
Developing effective tactics
The TTA used several specific tactics that proved to be highly effective in influencing sound accounting and accountability in local Tennessee governments. To gain acceptance for its work and approval of its recommendations, the association established a framework for conducting studies. First, staff of the TTA would hold planning conferences with local officials and with representatives of the sponsoring taxpayer associations before beginning a survey. In this meeting, the TTA discussed the type of work to be performed and enlisted the cooperation of the governing officials and staff. After field work was completed, post-survey conferences were conducted before the reports were ready for release. The next steps involved an in-person presentation of the reports to the local governing body by an executive of the TTA and the dissemination of the documents to the sponsoring entity. The final step was to publicize the results throughout the county (Review, 1935).
The TTA issued over 200 reports and other publications throughout its 53-year history. These reports included detailed surveys of specific local governments, annual surveys of the state government, and reports on special topics as a part of the TTA’s process to inform the public and gain support for its goal of reducing the taxpayers’ burden. Surveys of specific local governments were made periodically as the need was recognized. The comprehensive survey of the state government was made annually. In addition, the TTA maintained a governmental reference library that was available to the public. A wide range of bulletins and other educational materials, containing best practices in the governmental accounting field, were prepared and distributed to governmental executives, educators, the press, and legislators (TTA, 1936a). The annual survey reports of state government (TTA, 1932) provided an analysis of state expenditures and income. Long before comprehensive annual financial reports were considered generally accepted in government reporting, the TTA provided informative, businesslike statements that disclosed fiscal results as well as administrative procedures. These were not financial audits, but rather “fact-finding” reports that consolidated the financial information about all of the state’s operations into a single document. When financial audits were requested, the TTA used trained accountants and expert consultants to achieve the objective. The TTA’s successor continued to issue the annual surveys of the state and local governments until 2000. 11
Additionally, the TTA effectively engaged educators, the media, other professional groups, and elected officials in its mission. One of the organization’s initiatives involved working closely with Tennessee colleges and universities. The TTA developed training courses for governmental administrators and finance officers through this initiative. The organization also established a cooperative learning program. Interested college students were allowed to continue their studies and work on a part-time basis with the staff of the TTA in order to gain first-hand experience in the field of government (TTA, 1936a). The TTA also offered to supply public and private high schools and colleges with copies of its survey reports as classroom aids in the study of government. One-third of the 415 educational institutions accepted the offer and used the reports in the classroom. The TTA engaged in promotional activities, such as providing a one-year subscription of the National Municipal Review to selected editors of Tennessee daily and weekly newspapers and to metropolitan daily newspapers in other southern states (Review, 1935). Other promotional tactics included providing copies of reports to the State Association of Business and Professional Women’s Clubs and the Tennessee Federation of Women’s Clubs. In addition, the TTA held institutes of government in various locations throughout Tennessee, including Knoxville, Chattanooga, Jackson, and Nashville. These institutes presented nationally recognized leaders and were open to state legislators, representatives from county, municipal and town governments, interested citizens, and taxpayers (Review, 1935).
The TTA aggressively engaged in activities to promote accounting and accountability in both state and local government. Staff members, officers, and directors participated in conferences throughout the state, seeking solutions to governance problems and advancing the goals of the TTA. After presenting findings and recommendations, the TTA would often assist both the state and local governments in drafting legislation to implement suggested changes. Other common tasks included: prescribing forms and accounting records for use by local administrators; providing citizens, corporate officers, and other associations with frequently requested taxation information for the State of Tennessee and its local governments; and providing speakers to a variety of social and civic meetings. In addition, the TTA provided summaries of Tennessee laws regulating payments of court costs to county officials in criminal cases. These summary schedules aided in auditing bills and in reducing the excessive payments that were being made in most counties.
The case of the Tennessee Taxpayers Association
Complete surveys (performance evaluations) and detailed examinations of the accounts and administrative procedures of municipalities and counties were the hallmark of the TTA’s activities. Often these surveys were made at the request of the local government, with the finished reports being presented to the party requesting the service and distributed to other concerned parties throughout the state. Each report on local governments included a table of contents and detailed accounts of the history of the government, administrative procedures currently in place, weaknesses noted, and recommendations for improvement. Financial statements and schedules were usually included in the appendices. Many of the reports referred to actions taken by the government to correct the problems, including legislation that the TTA helped the government draft.
Beginning in 1935, the association prepared annual statewide surveys of county, city, and town governments in the State of Tennessee (TTA, 1937b). These surveys critiqued the financial condition of the local governments of Tennessee. Included in the reports were an analysis of debt, an analysis of revenues, summaries of taxable property (value, assessments, and rates), and summaries of receipts and disbursements. The annual surveys also included a section that reviewed the current financial administration of these governments, outlined state controls of local finances, and offered suggestions for sound financial administrative practices.
In addition to efficiency and economy, the TTA addressed social issues that directly affected Tennessee taxpayers. These issues included evaluating the impact of a federal social security program (TTA, 1936b), of unemployment compensation taxes (TTA, 1958a), and of the use of prison labor in the state (TTA, 1937a). The following analyses are presented as examples of the types of surveys performed by the TTA. Using the theoretical constructs of group theory, these analyses explain how the TTA successfully interacted with other organizations, agencies, and institutions to improve accountability in the State of Tennessee.
While preparing the comprehensive surveys of local governments for the Security Dealers and the unique surveys of individual counties and cities, the TTA identified several common concerns. Many of the local governments lacked proper budgeting, accounting, reporting, and auditing procedures. These shortcomings resulted in many instances of embezzlement losses, increased administrative costs, and loss of confidence by the citizens. In 1941, the TTA staff estimated these losses could be as high as 2 million dollars a year (TTA, 1942). After identifying these systemic weaknesses that occurred throughout the state, the TTA prepared two manuals that were intended to improve accountability in county governments. The first included a standardized form for preparing county financial statements, along with proposed instructions for conducting the audit of the statements. The second manual included forms and procedures for preparing, adopting, and executing county budgets; both documents were also shared with the state’s auditing department. The TTA was able to gain acceptance for its work based on its reputation (leadership and structure), previous relationships with government officials (potential for maximizing strengths), and ability to promote its work (effective tactics) (Longley, 1967).
Survey of counties
County background
Hamilton County is located on the southeastern border of the state. 12 By 1930, the population was around 160,000 and most of the people lived in the city of Chattanooga, the county seat. That city was a significant commercial and manufacturing hub, while the rural county areas produced ores from the mountains and agricultural crops from the farm lands. The county was governed by the Quarterly County Court, including 10 magistrates elected by the people. The County Judge, also elected by the people, presided over the court and served as the financial agent and chief executive officer; however, the judge had very limited administrative powers. Specific administrative duties were performed by eight other elected officials, including the tax assessor, trustee (treasurer), county court clerk, circuit court clerk, criminal court clerk, clerk and master, county registrar, and county sheriff. County roads were overseen by a three-member elected commission (TTA, 1934b).
Survey request and purpose
In its first annual survey of the state government in 1932, the TTA highlighted the magnitude of state funding to the counties and the glaring inefficiencies in the operations of the counties under the present constitution. The report presented comprehensive documentation of the financial status and operating environment of all the counties. This type of comprehensive information had not been available heretofore, and subsequently, brought a lot of attention to the need for reform (Nashville Tennessean, 1934). After issuing that survey, the TTA turned its attention to reviewing various county governments. By the time the second annual survey of state government was published in January 1934, the TTA was in Hamilton County conducting its ninth survey of individual counties.
The survey of Hamilton County was sponsored by the Hamilton County Taxpayers’ League and received supplementary financial support from the county’s governing board. 13 It was a common practice for each county receiving a survey to contribute around US$100 to defray some of the costs of issuing reports (TTA, 1933f: 2; TTA 1934a: D). The survey was conducted by staff of the TTA who reported the results to the county’s Taxpayers’ League, which in turn reported the results to the county officials, citizens, and local league members. Although the report covered the fiscal year ended 30 June 1933, it also included annual expenditures for the previous 15 years for the General Fund and the Highway Department operations. At that time, county governments were not required to, and did not, account for various offices that were financed through fees and commissions. Consequently, the actual costs of those offices and related fee/commission collections were not reflected in the county’s financial records. In its effort to improve accountability in local governments, the TTA included in its survey a compilation of the fees and commissions collected and expended by the elected officials, along with an analysis of the salaries paid from these fees (TTA, 1934b).
By 30 June 1933, the county had US$2,400,000 in fiscal year expenditures, US$500,000 in unfunded debt, and US$435,000 in an accumulated deficit, due largely to the fact that the county’s expenditures exceeded its revenues for the previous five years. The county expenditures continued to remain constant even as the revenues dropped sharply during that period. The TTA noted that 29 percent of the county’s property owners had not paid their 1932 property taxes by the end of the fiscal year 1933 and that those who did pay were not able to endure the larger tax levy that would be needed if the county continued to spend at the current level (TTA, 1934b).
Recommendations
The TTA offered several proposals to improve both the accounting and accountability of the county’s operations. The survey report recommended the county conduct an “energetic” campaign to collect past due taxes by “reselling the taxpayers on the value of the constructive services rendered by the County” (TTA, 1934b: 1c). The report further advised the county to allow taxpayers to make monthly installment payments for taxes owed. Foremost, the TTA staff recommended a drastic reduction in spending by reducing or eliminating some positions, reducing practically all the salaries, eliminating some miscellaneous expenditures, reducing the number of elementary and high school teaching positions, and suspending capital outlays for school buildings for one year. General recommendations were more geared toward accountability. The report recommended that the county auditor hire an additional clerk or bookkeeper to do accounting work so that the auditor could spend most of his time examining the revenue collection offices. TTA staff also suggested that the county study whether combining the county functions with the city of Chattanooga would be of advantage to the citizens (TTA, 1934b). Indeed, the recommendations were typical of what a modern performance auditor might suggest.
Comparisons with other counties
The TTA had conducted surveys of eight other counties prior to reviewing the operations of Hamilton County. Depending on the size of the county and the date the survey was needed, the field work for each study took about a month. Most of the reports were sponsored by the local county taxpayers’ leagues and transmitted from the leagues to the Quarterly County Courts. In these early years, many county leagues were eager to have evaluations of their county operations, especially after receiving reports from other counties indicating that substantial savings in taxpayer dollars could be achieved (TTA, 1933b, 1933c, 1933d, 1933e, 1933f). Although the leagues sponsored the surveys, the leagues did not necessarily influence the outcome of the reports. The Haywood County Taxpayers’ Association, in its transmittal letter to county officials, noted that all the recommendations in the survey were unanimously approved with one exception. TTA staff had suggested that the county place a two-year moratorium on highway construction. The county taxpayers’ group transmitted the report without accepting or rejecting this particular recommendation and asked the county officials to give it their thoughtful consideration (TTA, 1933b).
In the case of Trousdale County, located in north central Tennessee, county officials had already taken major steps to improve the accounting and accountability of the government. TTA staff characterized the county as being “fairly well governed” with an efficient bookkeeping system, as having a below average amount of bonded debt, and as having set a reasonable tax rate. The survey offered recommendations to improve the county’s floating debt (TTA, 1933e). Concerning the neighboring Sumner County, the survey report highlighted the waste in having a large number of highly paid elected officials: One active man or woman fitted to do the work for which he or she is elected could alone do all the work of any one office in the courthouse and in most cases would not be kept busy all the time, except during short rush periods. Most of the county offices call for purely clerical duties: these duties could be performed by the assistant in most cases, and in the case of three or four of your county offices, one-half to two-thirds of the money now going into officials’ personal earnings could be saved. (TTA, 1933c: 5)
In the case of Crockett County, a group of taxpayers from three cities (Alamo, Gadsden, and Maury City) requested the survey. The county did not have an affiliated taxpayers’ league, and so individuals from these three cities formed a taxpayers’ committee that included 138 members representing all the county’s civil districts. The committee urged the county government to contribute to the cost of preparing the report, but acknowledged that if the county did not contribute, the taxpayers would raise the money themselves. Committee members were aware of the large savings that other counties had identified and they were anxious to have a survey completed before the Quarterly County Court met on 2 October 1933. After receiving the request on 11 September, the TTA field staff worked day and night to complete the report by 28 September. The committee transmitted the report to county officials, committee members, and the newspapers that same day and proposed that the members form an official taxpayers’ association. In its survey, the TTA offered the following recommendations to improve the financial condition of Crockett County’s: (1) reduce salaries of all county officials by 10 percent for the first US$1000 and 15 percent for amounts above US$1000 of annual salary, (2) reduce fees paid to the sheriff to feed prisoners from 75 cents to 50 cents, (3) reduce the all ex-officio fees by 25 percent, (4) limit compensation of the Clerk and Master and the Circuit Court Clerk to actual fees earned and discontinue the practice of making minimum guaranteed compensation payments, (5) limit the expenditures for highway maintenance to the actual amounts received from the state’s gasoline tax fund, and (6) set the 1933 tax rates as low as possible, but include provisions to retire the county’s floating and bonded debt. To address accountability, the TTA recommended the county adopt a manager form of government that hired lower-salaried executives and clerks to perform the mostly clerical functions now performed by a large number of high-salary officials. The TTA further recommended the county consolidate various functions within the county and within the county’s geographic area (TTA, 1933f).
One of the more unique requests for county surveys came after the Battle of Athens. In the spring of 1946, a large number of World War II veterans had returned to McMinn County determined to defeat the corrupt local government officials by running several candidates on a GI ticket. Violence erupted on Election Day after the current county sheriff and his deputies seized the ballot boxes and took them to the jailhouse for counting. A small group of veterans armed themselves and demanded the sheriff release the ballots. When he refused, a gun battle ensued. After several hours and hundreds of other veterans had joined, the battle ended with the front of the jail being blown open with dynamite. The deputies were run out of town and police cars were burned. A few days later, the election commission declared the GI-ticket candidates had won the election. One of the first actions of the newly elected administration was to have a financial audit of its records and request the TTA to perform a survey of the government in August 1946 (Byrum, 1984; Time, 1946; TTA, 1948; West, 1998: 35). Near the beginning of its work, the TTA was asked to help the county’s attorneys draft legislation to change the county’s administration to a council-manager form. The legislation was drafted and later passed by the General Assembly in February 1947, but was challenged in court and upheld in 1948. The survey of McMinn County was extremely long (197 pages in the body plus 42 pages in the appendix) and offered detailed descriptions and recommendations for administering the county’s affairs.
Survey of Johnson City
The TTA was able to apply the knowledge it gained from performing specific engagements to improving accountability in local governments throughout the state. By 1938, the TTA had completed three statewide surveys of local governments, including all 95 counties, 150 incorporated cities and towns large enough to have bonded debt, and 24 special districts. These surveys presented detailed information pertinent to making bond issuance decisions and were requested by the investment houses that were members of the Tennessee Municipal Security Dealers Association (TTA, 1937b, 1937c, 1938). 14 Distribution of these reports was limited to the investment houses that financed the survey; however, summaries presenting aggregated information were made available to the public. The summaries pointed out the systematic lack of accounting and budgeting records, the lack of accurate and timely audits, and the lack of standardized accounting procedures (TTA, 1938). These reports further heightened the awareness for governmental reform.
In the fall of 1938, Johnson City, the fifth largest city in Tennessee, requested a survey. The TTA had previously (in 1934) surveyed Washington County, the county in which Johnson City was located. Exposure to the statewide surveys of local governments and improvements experienced by Washington County prompted the city’s taxpayers and newly elected city commissioners to seek an appraisal of their municipal operations (TTA, 1934c, 1939a, 1939b).
A considerable portion of the report was spent describing Johnson City’s accounting system, internal controls, and asset management system. Other major areas included tax assessments, annual external audits, and the collection of delinquent taxes. The report noted several strengths of the government, including an accurate accounting system, qualified personnel in certain departments, good schools, good administrators, and a good location. Areas that needed improvement included tax assessments (too low, causing tax rates to be too high), tax collections (ineffective procedures for collecting past due amounts), and deficits (spending in excess of current receipts) (TTA, 1939a).
The TTA addressed accountability in Johnson City by suggesting the government adopt standardized and centralized procedures for budgeting, accounting, reporting, and auditing. A central recommendation by the TTA staff was for the city to change its form of governance from a (strong) mayor and nine commissioners to a council and city-manager system. After the report was completed, local taxpayers hired legal counsel and drafted legislation to change the city’s charter and governing structure. The TTA was asked to offer specific suggestions for this legislation that was enacted the following year (TTA, 1939a, 1939b).
On a theoretical plane, it can be said that the TTA maximized its potential to improve accounting and accountability in local governments by building a reputation for providing detailed analyses of local operations that offered tangible and substantial improvements. As a consequence, local governments often requested the aid of the TTA in combating waste and excesses in government administration through the use of surveys (performance evaluations), detailed examinations of accounts, and drafting of legislation.
Conclusions
Improving accountability in state and local governments of the United States has been a common concern to citizens, legislators, and creditors for many years. Reporting on the performance of government operations was the first step in understanding the conditions that existed and in addressing the problems of accountability. This research documented evidence of reporting on government performance, also known as operational (or value-for-money) auditing, conducted by the TTA. The TTA, a private taxpayer-sponsored entity, began activities to promote efficiency and economy in the local and state governments of Tennessee in 1932, 13 years prior to the passage of federal performance auditing legislation. The efforts of the TTA provided insights into citizen-led initiatives to improve accounting and accountability in local governments. This unique organization represented one of the earliest efforts of a statewide citizens’ group to aggressively participate in activities that promoted operational efficiency and economy through a series of survey reports on the state and local governments. With the passage of legislation in 1953, the Tennessee comptroller of the treasury was authorized to prescribe accounting systems for all county officials disbursing state funds (Tenn Code Ann §5-8-501). The Fiscal Control Acts of 1957 established uniform procedures for the management of county budgeting, accounting, and purchasing (Tenn Code Ann §5-12-101 through 5-14-116). Both of these laws included concepts that the TTA had advocated, such as requiring counties to have annual financial audits and establish modern systems for accounting, budgeting, and bookkeeping systems. As governments have grown larger over the years, the emphasis on accountability is still relevant today. A thorough examination of efforts made by other non-governmental entities could reveal information needed to further improve accountability.
This research fills a void in historical accounting literature that has heretofore focused largely on the private sector. The study examined the impact of the TTA on the development of accounting and accountability in the state and local governments of Tennessee. Developments of the accounting interactions between non-governmental, non-business entities and local governments have received little attention in historical research. Using the group theory constructs from the political science field of study, this article presented an historical investigation of the development, activities, and influences of the TTA through empirical observations. Very few of the prior studies analyzing accounting in local governments have been supported by theoretical perspectives. Finally, this article introduced original material for understanding the development of local government accounting in the State of Tennessee that had previously been dormant.
Historical research in the public sector is still developing. Future studies could investigate the influence of other non-governmental entities on accountability in local governments. These entities would include municipal research bureaus, other taxpayers’ associations, civic leagues, city clubs, and research associations. A separate stream of study could also focus on government-sponsored research efforts like those of the TVA or the more recent County Technical Assistance Service in Tennessee.
Footnotes
Acknowledgements
The authors thank Jayda Lee and Wylma R King for their assistance with this project. Additionally, we gratefully acknowledge the insightful comments of two anonymous reviewers and the encouragement of the guest editors, Delfina Gomes and Massimo Sargiacomo.
Funding
This research received no specific grant from any funding agency in the public, commercial, or not-for-profit sectors.