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Chicago, July 1, 1911.

My Dear Boy:—One of the easiest things to measure, because definite in terms and limited in quantity, is money. The things which money may represent are hard to measure because often intangible and indefinite. The money account may or may not reflect efficiency in performance. Have we not been grasping at the shadow of money at the expense of the substance, effect? Consider, if you please, the working of a bank, perhaps the corporate institution in whose efficiency the public has the greatest confidence. In a small country bank one man does all the work. Later he requires a clerk or a bookkeeper. As the bank grows there are self-suggesting divisions of labor along such well defined positions as teller, paying or receiving, cashier, vice-president, president, etc. In the first place, the same man handles the money and its written representations, the accounts. When we reach the stage of having both a teller and a bookkeeper, the one is a check on the other, because of a difference in point of view. I do not understand that a bank considers its bookkeepers more honest than its tellers or vice versa. The bookkeeper came along to check the teller, not because of such marked variations in humanity, but because of the volume of business. There was more than one man could do.

The large corporations, including the railways, seem to have followed governments into a fundamental fallacy in the matter of money and accounting. Because, now and then, in spite of safeguards, a trust is violated and money embezzled, a remedy is sought by segregating in administration all activities having to do directly with fiscal affairs. The ultimate effect is dwarfing to administration and fatal to maximum composite efficiency. In a compact establishment like a department store or a large manufacturing plant, the closer contact of the departments concerned minimizes the evils of this segregation. The operations of a government or of a railway extend over so much territory that such close contact is impossible. The result is that our bookkeeper is too far away from the paying teller. The bookkeeper then arrogates to himself fancied qualities of a superior being blessed with a rectitude born of the guardianship of money. Yes, we must have the transactions of one man checked by another more or less disinterested. This is not alone a question of integrity, but concerns the failings of the human mind. The more conscientious and careful the engineer the more does he desire a check on his own calculations by competent persons. We accept the estimates of the engineer, swallow them whole sometimes. We tell him to go ahead and blow in the company’s money or credit to accomplish a desired result. This is because we have confidence in his professional ability. When it comes to one of the components of his constructing work, the disbursement of real money, a lay function, we balk. We say to him, this is so different that your vouchers and checks are worthless until mulled over by a distant circumlocution office. This office, it is true, has no first hand, practical knowledge of what you are doing, but because this is money we feel safer by imposing such a check. When the bookkeeper sat in the same room, like a bank, and checked the engineer, this was a good working hypothesis. Did we not outgrow it long ago? We trust the engineer to hire a thousand men, to incur a legal obligation for us to pay them. Why send the pay-rolls several hundred miles to be checked by a lot of boys? Why not let the engineer disburse, subject to a real check, after the fact, by a competent disinterested inspection of his work?

The same general line of reasoning applies to all the activities of a railroad. We endeavor to insure integrity by disbursing only through the central offices of the auditor and the treasurer. By the same reasoning a large bank would keep its customers waiting at one window because only one teller would be allowed to pay out money. A bank can count its cash at the end of a day, but it can never tell exactly what remittances its correspondents have in the mail. A railway’s money is even more in a state of unstable equilibrium. All night long some of its ticket offices and lunch counters are open. All night long cash fares are being collected on trains. The exact amount of money on hand at a given moment is only an approximation. This is natural from the characteristics of a railway. It would be a hard matter to stop every train and determine the exact location of every freight car, at home or earning per diem, at any particular moment of time. We can, however, approximate sufficiently closely to the conditions to serve all practical purposes.

Tremble not at my coming, Clarice; I would not push the auditor off the pier. Rather would I put him on the band wagon and let him blow a bigger horn. Is not accounting one of several components of operation of which collection and disbursment are yet others? Why not frankly admit that a railway is too unlike a department store to put all the cashiers and bookkeepers on a single floor? Why not interweave accounting with operation? Why not make such operating units self-contained, as experience may prove wise and practicable? Some of the best roads in the country now have division accounting bureaus in order that the superintendent may keep his operating expenses in hand. The next step must be a division disbursing officer. A pay-roll and certain kinds of vouchers, including some for claims, must become cash without the worthless certification of the general office.

Returning once more to the bank for inspiration and for light, do the bookkeepers of a chain of associated banks report to a head bookkeeper in a central office in a distant city? No, each bank is a self-contained unit under the president or a manager. The policy is dictated, the methods are prescribed by a central authority. Efficiency, integrity, and uniformity are insured by inspections and audits by competent experts free from local affiliations.

What is going to become of the accounting department? Why, the accounting department is going to be absorbed by the operating department. From the ashes of the ruins there will arise a department of inspection or efficiency which will do the things that the so called auditors are now helpless to accomplish. Some of the men in this new department will be recruited from the earnest officials and clerks of the accounting department of today. These men fail to attain the result they so loyally desire, not from their own limitations, but from the fallacy of the system under which they work. They deal with accounts—mere symbols; with money, a representative. Their work, to be effective, must deal with things, and above all with men. Audit is extremely important, but not all-important. Audit is a component part of a larger activity, inspection. The word inspection on railways is unfortunately and improperly associated with the thought of secret service and underhanded spotting. True inspection is as open as the day and as welcome as the evening. The earlier station agents resented the creation of the traveling auditor as a reflection upon their integrity. The station agent of today—and as a class what splendid, honest men they are!—welcomes the traveling auditor, because his visit means a clearance. The public accountant had a long fight for recognition of his legitimate function, first in England and later in this country. Today he is established and is desired by the general accounting officers of railway corporations.

Following the public accountant comes the efficiency engineer. While one inspects conditions, the other audits accounts. By an easy process of evolution the two positions sooner or later merge into one. The volume of business may warrant segregation, however, into component activities. Sooner or later the final certificate must include inspection of men and things as well as audit of accounts.

We, the railways, are big enough to have our own efficiency engineers. This is a distinct function for the staff as contra-distinguished from the line. Efforts, more or less crude, to introduce special staff work have signally failed on a number of railways. The underlying cause has been a violation of the principle that the staff can never as such directly command the line. The temptation of the special staff men, call them inspectors or efficiency engineers, if you please, is to become meddlers. They are so enthusiastic for the cause that they desire to save the country and reform the road all on the same day. The men who succeed at special staff work are those who stick to the principle enunciated. An inspector, because he is a staff officer, should never give an order.

The coming new department of inspection or efficiency, like all innovations, will have its troubles. One of the temptations will be to build up an office full of clerks to check a lot of unnecessary reports. The head of the department, whether he be called general inspector or vice-president, will have to remember that untrained persons do not necessarily become endowed with superior intelligence and professional acumen by the privilege of personal contact with him and assignment to his department. To be successful his department will consist of a corps of highly trained inspectors of official rank and experience, capable of first hand dealing with things and men. The tendency of both inspection and audit is to become perfunctory. One remedy, found efficacious by the Army, is definite and periodic rotation from the line positions. The law of the survival of the fittest will bring out those all-around men who can succeed in both line and staff. The superintendent who has been detailed as an inspector for a year or two will return to a division with a broader view and will be a better superintendent. He will not resent the inspection of his division by the other department, because conscious of the fact that the inspectors are at least his equals, and perhaps his superiors, in experience and rank. These inspectors will certify not only that the money has been honestly and legally expended, but wisely and efficiently as well. While an absolute essential, honesty is not the only component requirement of good administration. The one road on which good intentions are standard ballast is not as yet telegraphing its accidents and its density of traffic to the Interstate Commerce Commission.

Affectionately, your own,

D. A. D.