Since my last annual report several irregularities have been detected among subordinate customs officials, who have collected moneys belonging to the government and neglected to carry the proper credits in their accounts. Such delinquencies seem to indicate the necessity of some improvement upon the old methods of accounting which will effectually prevent the recurrence of like offenses. With this view, I addressed you the following letter, suggesting a system of checks and receipts, which, it is confidently expected, will accomplish the desired purpose, unless there should be collusion between the person paying and the officer receiving the money:

TREASURY DEPARTMENT,

OFFICE OF COMMISSIONER OF CUSTOMS,
Washington City, D. C., September 7, 1877.

SIR: In view of the result of the recent investigations at Norfolk and Richmond, Va., and Pensacola, Fla., it is evident that customs-officers, intrusted with the collection of moneys belonging to the United States, have at times made collections which they have omitted to mention in any manner, either in their accounts or in the records they are required to keep in their offices.

This manner of defrauding the United States of its just dues is probably the one most practiced and the one most difficult of detection, especially at the smaller ports, as instanced in the cases mentioned above.

Oa full consideration of the matter, I deem it my duty to call your attention to the fact, and to submit the following suggestions as indicative of a plan by which this manner of defrauding the government can be to a great extent, if not entirely, stopped, and if attempted, the guilty parties immediately detected.

All persons receiving money on government account should be instructed to give receipts therefor, stating specifically the kind and amount of the money received and on what account.

Notice to be posted in all public places where money is received, requesting persons paying to demand receipts.

These receipts are to be printed in books with stubs, numbered and issued by the department to the collecting-officers, who are to be held to a strict accountability for each of the receipts issued.

This system would require some months to perfect, and a considerable increase in the clerical force of this office; but I am fully convinced that much more than the sum expended in clerk-hire would be saved to the United States in the increase of collections, both by detection and prevention, and that it would add greatly to the general efficiency of the service.

Very respectfully, your obedient servant,

Hon. JOHN SHERMAN,

Secretary of the Treasury.

H. C. JOHNSON, Commissioner of Customs.

In pursuance of the recommendations of this letter and the authority of the department, the following blank has been prepared for use throughout the customs-service:

No.

Cat. No. 399.

DEPARTMENT CIRCULAR NO. 126, SERIES OF 1877.

No.

Gold certificates

The formulas and suggestions of this receipt make the holder a detective on the official, which will not be objected to by honest men when it is remembered that they are made necessary by fraudulent practices, and are only intended to restrain the dishonest.

The adoption of this receipt will so increase the business of this office as to require the services of three clerks of the second class in addition to those now employed.

I therefore recommend this clerical increase, and that an appropriation be made accordingly.

In this connection, it may be suggested whether it is practicable and expedient to put in operation the system of paying all customs-dues by means of stamps. It is the teaching of observation that, in proportion as the number of persons who handle the money of others in business processes is limited, the amount of loss to the principal is diminished, and that the responsibility of the agents is more certain and direct. This fact is abundantly recognized by most private corporations, and the government should profit by the teachings of their examples and the safeguards they have successfully employed.

A railroad company, a steamship line, or a great exhibition deposits with its agents a given number of tickets of various values representing a certain amount of money. These tickets form the basis of an account, and they must be returned or balanced in cash. The payment of duties by means of stamps is about as direct as this. It is proposed that stamps of suitable denominations, convertible only in the payment of customs-dues, shall be issued by the Treasury Department for sale, through its authorized representatives, under such regulations as may be prescribed. As the sequent to this, officials making collections should be prohibited from receiving payments otherwise than by these stamps, which should be canceled and sent to this office in connection with the accounts to which they belong, thus forming in their issue, sale, cancellation, and return to the department the circuit of a complete transaction. A system like this, compelling the use of stamps, which are easily understood and direct in effect and can be used for but one purpose, will allay suspicion, protect the public from improper exaction, and the government from the fraudulent practices of unfaithful agents. By section 305, Revised Statues, it is necessary, before any credit can be given in accounts for money paid into the Treasury, that a proper paper, technically called a covering-warrant, shall be issued. By this warrant credit is given to the person paying the money into the Treas ury, and a corresponding charge is made against the Treasurer.

The present practice is to file the warrant with the account of the person who makes the deposit when credit is given, thus separating it from the accounts of the Treasurer. Six weeks are allowed after the termination of each quarter within which to close its transactions on the books of the Secretary of the Treasury, and to issue warrants for deposits made during that period.

After this, it is necessary that the warrants be countersigned by the Comptroller and registered by the Register, and the receipt of the Treasurer placed thereon. As the Treasurer is also obliged to make his account include these warrants before they can be delivered for use in the settlement made with the depositors, it frequently happens that a long time elapses between the deposit of the money and the production of the legal evidences of the deposit to the proper accounting. officer.

The result of this is either the accounts of the depositing-officers are settled without giving them credit for deposits made, of which they

justly complain, or that these adjustments are greatly delayed, and the business of the accounting-officer, instead of progressing regularly, is at times extremely heavy and at other times correspondingly light.

With the view of remedying these troubles, the following suggestions are offered:

While section 305, Revised Statutes, compels the issue of a warrant, I do not understand that it is necessary that the warrant itself be filed with the account in which credit is given. Would it not be proper for the Register of the Treasury, when warrants pass through his office, to post them on his ledger to the individual accounts of the depositors in the same manner as repay-warrants are now treated, and let the collection accounts be settled on the certificate of the Register, as is now the case with disbursement accounts? The warrants themselves could then be retained by the Treasurer of the United States, and filed with his accounts.

Should this course be adopted, I think it would expedite the settlement of collectors' accounts that pass through this office; and, as the Register posts these warrants in the manner suggested after the settlement, I do not see that there would be any material increase of clerical labor required by this change.

There are now many miscellaneous warrants issued covering money into the Treasury for which there are no corresponding accounts. The true theory of warrants appears to require an account to be stated by the accounting-officer on each, giving a history of the money, from what source derived, from whom collected, and by whom paid into the Treasury, with the circumstances of the collection.

The change proposed would, I think, meet this requirement and cause every covering-warrant to appear in an account.

The duties due on goods remaining in a bonded warehouse being the check to prove the correctness of the warehouse bond account, it is necessary that the fact of the goods as represented being actually in the warehouse should be ascertained from time to time by inspection. This is occasionally done in the smaller ports; but in the larger, I am not aware of any such examinations having been made. I would, therefore, suggest that measures be at once instituted to take inventories of all goods in warehouses at the larger ports, that the result be compared with the bonds and entries, and that, should any discrepancies exist, a rigid explanation be required. As the bond-accounts are settled in this office, and their correctness has not been ascertained for many years by the tests of an examination of the goods themselves, I have felt it to be an exacting duty to call the attention of the department to the existing condition of affairs.

In my letters to the Secretary of the Treasury of May 15, 1876, and March 20, 1877, I invoked the assistance of the department; but as yet this office has not received any report whatever of examinations in the great ports, nor has it been furnished the desired means of verifying for itself the correctness of these accounts, involving many millions of dollars annually. If there is no other way of performing this most important work, I would ask for such legislation as will authorize the appointment of at least four experts, to be placed under the direction of the Commissioner of Customs for its accomplishment.

It is a serious defect in our customs system which permits the importation of wines and spirits for consumption without preserving their identity in such a way that the packages may not be used time and again, to the predjudice of the internal revenue, after they have been emptied of their imported contents. Under existing regulations the

customs brand on a package protects the contents, but there is no adequate protection against abuse in its use after it performs the offices for which it was legally intended; and there is every reason to believe that packages of this description are in daily requisition for marketing illicit spirits without the payment of internal-revenue taxes. This evil has risen to such magnitude as to demand repressive action, and stringent legislation may be required for its complete correction.

One remedy which presents itself is in the use of a stamp with suitable penalties for its non-destruction when the package has been emptied, or for reusing in case the package is refilled.

Should additional legislation be advisable in this behalf, I suggest that the Commissioner of Internal Revenue and the Commissioner of Customs be consulted and joined in the preparation of the bill.

A statement of the bonded-warehouse transactions for the last fiscal year will be prepared and transmitted as soon as all the necessary returns shall have been received.

I have the honor to be, very respectfully,

Hon. JOHN SHERMAN,

HENRY C. JOHNSON,
Commissioner of Customs.

Secretary of the Treasury.