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Chapter XII

Books and Documents > Medical Department of the U.S. Army in the World War, Volume III, Finance & Supply

CHAPTER XII

CONSOLIDATION OF FINANCES

The principle of consolidation as interpreted by the Director of Purchase, Storage, and Traffic did not stop with procurement; its ramifications were many. There were many procedures involved other than centralizing in one supply bureau the purchase, for all supply bureaus, of a given article or group of articles. Modifications of existing methods followed one another in rapid succession throughout the whole fabric of the supply system. The changes in the procedures, in the judgment of the director, were the legitimate progeny of the principle of consolidation carried to its logical conclusion. One of these changes having to do with the financial side of consolidated procurement was unavoidable under any system set up. It is axiomatic that supplies purchased must be paid for within a reasonable time after they have been delivered or production will lag and soon cease. The consolidation of procurement as interpreted by the director devolved upon the procuring bureau the “sole charge of the Army of making all purchases, following production, conducting inspection, and making acceptance of and payment for the articles placed in its charge." 1 The appropriations made by Congress for the support of the Military Establishment stipulated the specific purposes for which they might be used.2 The appropriations in such acts were grouped according to general purposes. Thus, there were appropriations for the Signal Corps, Quartermaster Corps, Medical Department, Engineer Department, and Ordnance Department.2 Under the regulations and customs of the service for nearly a century the particular agency to disburse each such appropriation had become well defined. Officers of the Signal Corps disbursed appropriations for that corps;3 officers of the Quartermaster Corps disbursed Quartermaster appropriations;4 those of the Corps of Engineers disbursed Engineer appropriations;5 and officers of the Medical Department disbursed appropriations made under the title medical and hospital department.6 These agencies had long been recognized by Congress and the accounting officers of the Treasury Department as the proper agencies for the disbursement of the respective appropriations.7 When the consolidation of procurement was determined upon, a change in the system became necessary. The procuring bureau could not purchase out of the funds appropriated for it articles required for use or issue by another supply bureau, nor could it expend appropriations under the jurisdiction of the requiring bureau. Some provision, then, had to be made for extinguishing obligations incurred by the procuring bureau. There was already in common use a fiscal regulation under which appropriations made to one supply bureau could be transferred upon the books of the Treasury Department for disbursement by another bureau. Under this regulation the Secretary of War, at the


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request of the chief of the supply bureau desiring to transfer the funds, made application to the Secretary of the Treasury for the transfer. In these transfers, however, the appropriation did not lose its identity and the funds so transferred could be applied only to the purposes for which they were appropriated. This regulation provided a way for extinguishing the obligations incurred by the procuring bureau on behalf of the bureau making the requisition. Accordingly, the general instructions covering the consolidation of procurement provided that, where the issuing was not the procuring bureau, the former should make procurement requisition on the latter for its requirement, at the same time making transfer to the procuring bureau of the estimated amount of funds required for the purpose.8

The detailed instructions covering interbureau procurement requisitions issued June 8, 1918, amplified these general instructions as fo1lows: 9

The certificate of credit in the lower right-hand corner of the interbureau procurement requisition notifies the procuring bureau that the issuing bureau has set aside, from the proper appropriation, the estimated amount of funds necessary to cover the cost of the material requisitioned, and that proper transfer of funds will follow in due course.

One copy of each interbureau requisition shall be supplied to the finance officer of the issuing bureau, where a record shall be made of the requisition, comprising its date, serial number, the article or material, estimated cost, appropriation, and allotment number chargeable. Immediately upon receipt of an interbureau procurement requisition in a procuring bureau a copy thereof shall be forwarded to the finance office of the procuring bureau, where a similar record shall be made. These entries will form a record of the reservation based upon the estimated cost. Actual transfer of funds will be based on the contract price, which will be obtained by each of the finance offices concerned from the “interbureau purchase report” (Form No. 4). A copy of the interbureau purchase report shall be supplied to the finance offices of the two bureaus as in the case of the interbureau procurement requisition for the purpose of obtaining a record of the actual amounts to be transferred. Transfer of funds covered by these requisitions shall be made periodically--that is, one transfer per bureau per period--provided, however, that in case an interbureau purchase report shows that the article or material called for will be delivered and must be paid for before the customary time for transferring funds to the procuring bureau a special transfer of funds may be made.

The details of the financial systems of the several supply bureaus were not identical, although all followed the same broad general principles. The system followed by each supply bureau was the evolution of years of experience. The variations which had developed in them were such as were most adaptable to the use of the particular supply bureau. These variations had been noted, understood, and found unobjectionable by the accounting officers of the Treasury Department. With the development of the principle of consolidation of procurement it appeared expedient to those in authority to unify these various systems of accounting and develop one applicable to all supply bureaus. To accomplish this end, it became necessary to establish a central financial organization to supervise, coordinate, and direct the financial agencies of the several supply bureaus.    

In the process of evolution of consolidation there was created in the War Department January 11, 1918, an organization known as the purchasing service and authorized to exercise control over and enforce coordination within the


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procurement activity of the several supply branches of the Army.10 While this service was concerned primarily with procurement, supervision of raw materials, and production, it also exercised, indirectly, control over finances to some extent. On February 9, 1918, the purchasing service became, with some additions, the purchase and supply division of the General Staff.11 The duties prescribed for this division included, among other things, “the supervision and coordination of all appropriations, estimates, and requirements, and other financial matters relating to the purchase of munitions and all other supplies.” 11 In the organization of this division a financial section was formed. On April 16, 1918, the purchase and supply division was merged with the storage and traffic division to form the purchase, storage, and traffic division,12 of which the former became the purchase and supply branch. The finance section continued as a part of the purchase and supply branch of the new division. The duties of the finance section as defined by its chief were to standardize accounting and fiscal methods of the several supply bureaus so that the state of the finances of each bureau could be ascertained at any time, as well as that of the supply bureaus collectively. 13

On June 10, 1918, the Medical Department, among other supply bureaus, was informed that this finance section was charged with the duties of standardizing and coordinating all fiscal accounting and methods in the several supply bureaus. No changes of or modifications in existing accounting methods were to be made until they had been approved by the finance section, and all bureau chiefs, chiefs of sections, and all other officers were directed to provide such assistance, information, and reports as might be required from time to time by the finance section in the discharge of its duties.14

At the end of August, 1918, the finance section became the accounts department, charged with responsibility for and authority over disbursements, fiscal accounting, preparation of estimates, and reports of accounts.15

On October 11, 1918, the accounts department became the finance department, with a director of finance in charge.16 On that date the following directions were promulgated: 16

The director of finance shall have responsibility for and authority over the preparation of estimates, disbursements, money accounts, property accounts, finance reports, and pay and mileage of the Army.

The director of finance shall assume authority over and responsibility for the activities, personnel, and equipment of the several finance and accounts divisions, branches, and offices of the General Staff, and of the supply corps of the Army, and shall assume authority over and responsibility for the finances of the several corps, departments, and other separate activities of the Army, including the accounting for funds and property. The director of finance shall issue directions as to the order of such consolidation, together with such other instructions, regulations, and orders as shall be necessary to carry out the provisions of the circular.

In carrying out the duties assigned to him by these instructions the director of finance published the organization of his office on October 16, 1918. 17 The organization was divided into nine divisions. In six of these divisions a


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medical branch was established as follows: Estimates division, apportionments and requisitions division, credits division, money accounts division, property accounts division, and central disbursing division. The director of finance stated in the finance circular publishing the organization of his office that instructions would be issued concerning the order of consolidation of the existing finance and accounts division of the General Staff and the supply corps of the Army. The organization of his office was framed to provide for such consolidation, and to absorb the finance sections of the supply bureaus whenever directed by the director of finance.

On October 24, 1918, an order was issued directing the transfer of the supply activities of the Medical Department to the office of the director of purchase and storage and the financial and disbursing activities of the Surgeon General’s Office to the director of finance.18 In carrying out the provisions of this order the director of finance issued instructions on November 13, 1918, for the distribution of the various financial activities of the office of the Surgeon General to sections in his office as indicated in the following circular:

NOVEMBER 13, 1918.

Finance Circular No. 14.
Subject: Transfer and assignment of certain branches of finance and supply divisions, Office of the Surgeon General.

1. In accordance with the terms of the Supply Circulars Nos. 98 and 102, transferring to the director of finance the personnel, equipment, and records pertaining to the finance and to the finance and accounting activities of the Office of the Surgeon General of the Army, the finance branch, property branch, and disbursing branch, and so much of the administration branch as relates to the finance and accounting, of the division of finance and supply of the Office of the Surgeon General, with records and equipment complete, will be reported by the senior officer on duty therewith to the director of finance for assignment as follows:
(a) The administrative section of the finance branch to the medical branch of the estimates division. Maj. Joseph C. Scheve, Sanitary Corps, is assigned to duty as acting chief of the medical estimates branch.  
(b)  The property branch to the Medical Corps property brance of the property accounts division.  Mr. C. E. Stoddard is assigned to duty as acting chief of the Medical Corps property accounts branch.
(c) The disbursing branch and the accounts and approval section and record room section of the finance branch to the Medical Corps branch of the central disbursing division. Capt.. J.G. Hurty, Sanitary Corps, is assigned to duty as acting chief of the Medical Corps disbursing branch.
(d) The bookkeeping section and authorization section of the finance branch to the medical branch of the apportionments and requisitions division. Second Lieut. E. B. Farrell, Jr., Sanitary Corps, is assigned to duty as acting chief of the medical apportionments and requisitions branch.
(e) The contract section of the finance branch to the medical credits branch of the credits division.
(f) The recording and auditing section of the finance branch to the medical branch of the money accounts division.
2. Assignments of chiefs of the medical credits branch of the credits division and the medical branch of the money accounts division will be announced later. 
3. The provisions of this order are to take effect November 15, 1918.

By authority of director of purchase, storage, and traffic.


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Carrying the consolidation to its ultimate conclusion, the director of finance on December 2, 1918, gave instructions for the transfer of the disbursing office, at the New York medical supply depot, to the director of finance, and its consolidation with the disbursing offices of other supply branches in New York City and vicinity into a single office. A zone finance officer was appointed to assume responsibility for and authority over all financial activities in that area and the work pertaining thereto. He was instructed to effect a physical consolidation of them at the earliest practicable date.19 On December 11, 1918, similar instructions were given concerning the financial activities of the several supply branches in Philadelphia, the disbursing officer at the medical supply depot in that city being included in the consolidation.20 Later the consolidation was extended to the depots at Atlanta, St. Louis, San Antonio, and San Francisco; the financial activities of all supply bureaus at those places being consolidated under one zone finance officer. As rapidly as the change could be made the consolidation was extended to include the Hawaiian Islands, the Philippine Islands, and the Canal Zone. By the end of 1918, the Surgeon General had been divested of all financial activities. All disbursements and accounting for funds appropriated for the Medical Department were made by or under the immediate direction of the director of finance.

REFERENCES

(1) Par. 1 (e), Supply Circular No. 2, Purchase, Storage, and Traffic Division, General Staff, War Department, May 8, 1918.
(2) Acts of May 12, 1917, July 9, 1918, etc.
(3) G. O. No. 104, Headquarters of the Army, A. G. O., Washington, August 6, 1901.
(4) Par. 990, General Regulations for the Army, 1825; par. 1027, Army Regulations, 1841, etc.
(5) Par. 893, General Regulations for the Army, 1825, and succeeding edition Army Regulations.
(6) Military Laws, Rules, and Regulations for the Army of the United States, 1820, p. 105; par. 1107, Army Regulations 1857; par. 1240, Army Regulations 1861; etc.
(7) Report of Committee on Accounts and Expenditures of the War Department, House of Representatives, May 1, 1822, American State Papers, Class V, Military Affairs, Lowrie and
Clarke, Washington, D. C., Gales & Seaton, 1832, Vol. II, 419.
(8) Supply Circular No. 2, Purchase, Storage, and Traffic Division, General Staff, War Department, May 8, 1918.
(9) Supply Circular No. 18, Purchase, Storage, and Traffic Division, General Staff, War Department, June 8, 1918.
(10) G. O. No. 5, War Department, January 11, 1918.
(11) G.O. No. 14, War Department, February 9, 1918.
(12) G. O. No. 36, War Department, April 16, 1918.
(13) Letter from chief of finance section, Office Director of Purchases and Supplies, to Col. H. M. Lord, Q. M. C., chairman of committee representing the finance sections of the
supply bureaus, War Department, May 29, 1918. Subject: Report and recommendations dated May 27, 1918, of committee representing finance sections, supply bureaus,
War Department. On file, Finance and Supply Division, S. G. O.,   750-198 D. of P./24.


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(14) Supply Circular No. 19, Purchase, Storage, and Traffic Division, General Staff, War Department, June 10, 1918.
(15) Supply Circular No. 80, Purchase, Storage, and Traffic Division, General Staff, War Department, August 27, 1918.
(16) Pars. 1-2, Supply Circular No. 98, Purchase, Storage, and Traffic Division, General Staff, War Department, October 11, 1918.
(17) Finance Circular No. 1, Office Director of Finance, Purchase, Storage, and Traffic Division, General Staff, War Department, October 16, 1917.
(18) Par. 3, Supply Circular No. 102, Purchase, Storage, and Traffic Division, General Staff, War Department, October 24, 1918.
(19) Finance Circular No. 36, Office Director of Finance, Purchase, Storage, and Traffic Division, General Staff, War Department, December 2, 1918.
(20) Finance Circular No. 43, Office Director of Finance, Purchase, Storage, and Traffic Division, General Staff, War Department, December 11, 1918.