for the issuance of permanent appointments to certain hospital stewards; (10) providing for a change in the manner of appointing fleet staff officers; (11) disposition of moneys derived from sale of effects, etc., of deceased beneficiaries at the Naval Home; (12) authorizing enlisted men of the Marine Corps to be designated as Navy mail clerks; (13) allowing interest on deposits made by midshipmen at the Naval Academy; and (14) providing for voluntary and compulsory retirement in the case of certain officers carried as additional numbers.

EXAMINING AND RETIRING BOARDS.

Since the enactment of the provision authorizing the retirement of any officer of the Navy with the rank to which his seniority entitles him to be promoted, upon failure in his physical examination for promotion by reason of incapacity for service on account of physical disability contracted in the line of duty, it has become desirable that legislation be enacted providing for the consolidation of naval examining and retiring boards in such cases. Examining boards are provided for in the Army with power to resolve themselves into retiring boards, thus obviating the necessity for convening two separate boards as is now the case in the Navy. It is hoped that legislation may be enacted authorizing similar boards for the Navy.

CONSOLIDATION OF APPROPRIATIONS.

One of the most serious difficulties which is encountered in the introduction of modern efficiency methods in navy yards is the large number of appropriations to which the operating expenses of the yards must be charged, as well as the large number which are appropriated for repair work, manufacturing, and for the capital charges. The appropriations, originally compiled to meet the needs of the service at a time when there were several independent departments in each navy yard, do not fit existing conditions. Following the consolidation of shops and drawing together of several departments, the navy-yard work has assumed a much more logical and practical aspect than was formerly the case; but the system of appropriations under which funds are provided for carrying on the work has not been modified to suit the changed conditions, and consequently hampers the full development of businesslike and efficient methods. No argument should be needed to prove that the simplification of navyyard industrial methods should be followed and assisted by similar changes in the character of the appropriations. What is needed is a consolidation of the general working appropriations into one sum for the ordinary running expenses of the Naval Establishment. Careful study of this subject can lead to no other conclusion.

It is not desired in any way to loosen the restrictions under which money is furnished or to broaden the scope of the present appropriations to include expenditures not now provided for. The present separate appropriations permit of practically every expenditure which is necessary, the great difficulty often being to decide which should bear a given expense, since they frequently contain similar provisions. By providing one large sum to meet ordinary annual expenses, and then requiring that the actual expenditures made be reported to Congress, each item shown in comparison with the amount estimated for, it is believed that the most efficient check possible would be secured. Such a method would undoubtedly tend toward economy, since requests for deficiency appropriations would be largely eliminated, due to the possibility of meeting unusual expenses by the curtailment of others not so necessary. Under present conditions the unusual expenses are likely to fall heavily on one appropriation, while curtailment of ordinary expenses in other appropriations afford no relief. It may readily be seen how a consolidation of the appropriations would meet this difficulty.

The Paymaster General of the Navy in his annual report for this year and the preceding year makes a clear statement of the reasons for such consolidation, and I shall invite the attention of the Naval Committees of Congress to his statement, in the hope that he may be called as an expert on this subject and show the benefits from carrying out this recommendation.

ESTIMATES.

A comparative statement of appropriations and estimates for the fiscal years 1912 and 1913 is contained in the appendix.

In the case of public works, items amounting to $16,403,016 were considered by the department, and items amounting to $4,919,800 were approved and submitted to Congress. The practice adopted last year with respect to public works was continued, and prior to final decision as to the items which should be included in the estimates the needs of the respective yards were personally investigated by the Assistant Secretary, and members of the Board of Inspection for Shore Stations, and finally by the Secretary of the Navy.

COLLIERS AND SUPPLY VESSELS FOR PANAMA CANAL SERVICE.

For the maintenance of the coal and provision supply the Panama Canal will require several colliers and refrigerator ships, the number of which can not be predicted with any certainty since the amount of traffic which will pass through the canal is problematical; but assuming that during the first year only five vessels per day, ap

20986°-NAVY 1911- -5

proximately one-third of the number using the Suez Canal, will traverse the Panama Canal, and that each will require, on an average, only 500 tons of coal, the quantity of coal supplied will average 2,500 tons per day. A collier of the Mars type, 7,200 tons cargo capacity, could continuously supply coal from the present principal source of supply near Hampton Roads at the rate of one cargo every 24 days, or nine such vessels could supply all the coal required. If colliers of 10,000 tons capacity were employed in this service six vessels would be needed.

When the canal traffic shall have increased to 15 vessels per day, or about equal to the present traffic of the Suez Canal, about 25 to 30 colliers of the Mars type, or about 18 of the larger size will be required.

The use of oil fuel is increasing, and provision should be made for the supply of oil as well as coal for the canal stations; therefore some oil tankers would be required in place of some of the colliers estimated as necessary.

Government ownership and operation of all canal facilities would be of great benefit economically as well as from the point of view of naval preparedness. If the canal colliers, oil tankers, and supply vessels are provided as parts of the canal establishment, these vessels will be available for use as fleet auxiliaries in time of war, and thus the necessity for adding just that many expensive vessels to the regular naval establishment would be obviated. Or, should the Navy be given the required number of such vessels, of which it stands in great need, these vessels could be detailed to supply all fuel and provisions required at the canal stations.

Assuming that 15 colliers, 3 oil tankers, and 4 refrigerator ships will be needed in a few years for canal service, there would be no necessity, if the proposed plan were adopted, to build any more such vessels for the Navy, or, if these auxiliaries were added to the Navy, they could be used in the canal service. A very important point in this connection is that the Navy requires comparatively few of these auxiliaries in time of peace, and when the fleet has been adequately supplied with the number to place it on a war footing most of them must be laid up in reserve and kept in good condition at considerable expense for maintenance. If, on the other hand, these vessels were employed in the canal service, they will at least earn their maintainence expenses if not pay dividends.

I strongly recommend that the vessels required for the canal service be provided and operated by the Government, and that these vessels be designed and built in accordance with naval specifications in order that they may be available for fleet auxiliaries in time of

war.

COUNCIL OF NATIONAL DEFENSE.

Last winter there was presented to Congress a bill to establish a council of national defense, to be composed of the Secretaries of War and Navy, the chairmen of the financial committees of the Senate and House, the chairmen of the Military and Naval Committees of the Senate and House, the Chief of Staff of the Army, a naval officer designated by the Navy Department, and the presidents of the Army and Navy War Colleges.

The purpose of this council was to determine a general policy of national defense and to recommend to Congress and to the President such measures relating to the national defense as it deemed necessary and expedient.

The effects intended to be accomplished by this council for which no machinery exists at the present time are, generally speaking, as follows:

The Army and Navy members of the council would lay before it information showing the readiness or unreadiness of the Army and Navy for carrying out the general policies determined on, and they would submit programs of military and naval requirements for this purpose, with estimates of the cost and time involved.

The council having definite plans and programs before it, would consider the ways and means of carrying them out and submit recommendations to the President and to Congress.

The proposed bill is very desirable as an adjunct to the national defense in that it would thus be possible to formulate and carry out a consistent and continuing policy. It would help to coordinate the plans of the Army and Navy and would, by having the cooperation of the committees in Congress intrusted with the scrutiny of expenditures, reconcile the different interests involved before submitting to the President and Congress recommendations for national defense involving expenditures.

The council would be able to formulate plans covering a term of years, with definite objects in view, with a reasonable expectation of favorable legislation throughout such period, and through its knowledge the President and Congress would at all times find a ready means of ascertaining the real condition of the Nation for defense.

I would strongly urge the passage of the bill creating the council of national defense, and believe that the establishment of this council would have far-reaching and beneficial effects.

OFFICE OF ACCOUNTS.

The department is considering the separation of purchasing and accounting.

Originally the system of accounting of the Department of the Navy was based entirely on cash transactions. As the business and manufac

turing operations of the department became more extensive and involved, and the central administrative office became further removed from details assets and liability accounts, expense accounts, and cost accounts were installed for the purpose of giving information which the old system of receipts and disbursements could not provide. In grafting one process after another on the old system the accounting procedure based on cash paper (vouchers approved and vouchers paid) was largely retained, naturally resulting in a system unnecessarily cumbersome and dilatory.

Attention is invited to two facts:

(1) That the Paymaster General of the Navy is responsible for discharging duties that are conflicting, namely, purchasing, disbursements, storekeeping, and accounting.

(2) That the dominant interest and responsibility of the Paymaster General have not to do with matters of accounting.

When it is understood that the value of stores in the custody of the Paymaster General or subject to his jurisdiction is about one hundred and fifty millions, that the purchases amount to over sixty millions per year, that the moneys received from the Treasury amount to over one hundred and twenty millions per year, and the collections from sales and other sources amount to about two millions per year; when it is further understood that every purchase made, every contract entered into, which do not receive the direct approval of the Secretary, every dollar's worth of stores received and issued, are matters of responsibility to the Paymaster General, there would seem to be no room for doubt that the accounting supervision and control should be placed in separate hands.

The unbusinesslike character of this part of the organization has already been the subject of comment and constructive recommendation by men of undoubted ability and administrative judgment. In 1908 a special commission on naval reorganization was appointed, composed of former Secretaries of the Navy W. H. Moody and Paul Morton, A. G. Dayton (for many years on the House Naval Committee), and four admirals of the Navy. This commission unanimously recommended that the Bureau of Supplies and Accounts should be divided, stating "it is bad business practice to have the purchasing and care of supplies under the management of those charged with the duty of keeping the accounts and paying the bills. Inventories of supplies on hand should be made to and checked by the accounting department, but it is a poor system where the same bureau is charged with doing both." The recommendation was made "that there should be a purchasing and supply department as well as an accounting department."

In substance the same recommendation was made by a special board convened by the Navy Department, which reported in the fall