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3
THE ACCOUÑtmü^'''M^rdSliy;íSTICAL
REQUIREMENTS OF THE INTERSTATE
COMMERCE COMMISSION
By
WM. J. CUNNINGHAM
Professor of Transportation
Harvard University
ADDRESS
Before the Thirty-fifth Annual Meeting
of the Railway Accounting Officers
Association, Richmond, Virginia,
June 13-15, 1923
Published by
Railway Accounting Officers Association
1116 Woodward Building
Washington, D. C.
THE ACCOUNTING AND STATISTICAL REQUIREMENTS
OF THE
INTERSTATE COMMERCE COMMISSION
Wm. J. Cunningham
Professor of Transportation
Harvard University
President L. G. Scott; It is the policy of our Association to
invite two men of national reputation ; men with ideas and broad vi¬
sion, to deliver addresses at each of our annual meetings. The Asso¬
ciation does not select the subjects of such addresses and we do not
make any suggestions whatever regarding the points to be discussed.
This is observing the practice of the Association in welcoming sug¬
gestions and ideas from every authoritative source. Today, it is our
good fortune to have an address from a man whose experience,
ability and other qualifications command respect ; a man whose words
and ideas carry weight and receive consideration throughout the
length and breadth of this country—Professor William J. Cunning¬
ham, Professor of Transportation at Harvard University.
Professor Cunningham : When your President invited me to
address your Association at its thirty-fifth annual meeting he gave
me wide latitude in subject. I accepted the invitation with the
thought that I might be able to say something of interest in connec¬
tion with a recent statement by a prominent railroad publicist that
the Interstate Commerce Commission could save the railroads more
than $100,000,000 per year by limiting its calls to reasonable statis¬
tics. That statement was given wide püblicity and was used by a
few railroad executives to support a request that the Commission
should substantially reduce its requirements.
On receipt of the Agenda for this meeting I find there is no need
for me to assume the self-appointed task of pointing out the errors
in fact and in the interpretation of the figures which were made
the basis of that criticism, nor to show that the Commission's
requirements are not unreasonable. Your Committee on General
Accounts has accomplished that task better than I could have accom¬
plished it. It has clearly set forth both the inaccuracies in the
basic data and the errors in deduction, and has concluded that no
substantial curtailment in requirements is justified. There are, how¬
ever, certain related factors which are not mentioned specifically
in the report, and I shall embrace this opportunity to present three
supplementary suggestions.
The first suggestion is that the Interstate Commerce Commission
requires no information which any well supervised railroad would
not have for its^ own managerial guidance. Except in unimportant
particulars, the information now reported to the Commission would
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be continued by the progressive roads even were the Commission's
requirements waived.
The second suggestion is that many railroads, while recognizing
the value of the information required by the Commission and by
their own officers, do not make fully effective use of that data
and other local reports in keeping close check on their operating
efficiency.
The third suggestion is that the railroads as a whole do not take
sufficient pains to educate their operating and traffic officials in
matters of accounting, nor their accounting officials in the technique
of operation and traffic.
INTERSTATE COMMERCE COMMISSION STATISTICS AS AIDS
TO MANAGERIAL CONTROL
The present accounting and statistical requirements of the Inter¬
state Commerce Commission are the results of evolution. From
the beginning of its control over accounting and its work in estab¬
lishing uniformity, the Commission has been guided largely by the
advice and assistance of a committee of your Association. In very
few cases indeed has the Commission disregarded the final recom¬
mendations of your Association. It has always shown a willing¬
ness to accept the judgment of railroad accounting experts as to
what would be reasonable and practicable for the Commission to
prescribe in discharging its responsibilities under Section 20 of
the Act to Regulate Commerce. On the other hand there has
been an equal spirit of cooperation on the part of the railroad
accountants in meeting the spirit of the Act. The result is that
the present structure of accounting classifications, reports, and sta¬
tistics is virtually railroad-made, and the credit for the accomplish¬
ment should be accorded to your Association as much as to the
Commission.
While the accounting requirements may in the aggregate appear
to be burdensome, it is a fact that all of the information called for
is of interest and the greater part of it is vital to the intelligent
administration of a railroad. No progressive and well-organized
railroad could afford to be without the information contained in
the annual and monthly reports to the Commission. To discontinue
any substantial part would be a step backward. In fact, nearly
all railroads require for their own use statistics which are much
more elaborate than those called for by the Commission.
My own opinion is that the Commission might quite properly go
much further in requiring additional data to enable it to meet its
responsibility, under the Transportation Act of 1920, to pass upon
the efficiency of operation. That the Commission has not imposed
further tasks is evidence of its conservatism and unwillingness to
add to accounting burdens until the need is definitely recognized and
the practicable method determined after mature consideration and
joint conference. I believe that it would be a step in the right
direction if the proposal to subdivide the primary expense accounts
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so as to show the labor element separately should be adopted when
the classification of operating expenses is revised. I should go
further and enlarge rather than reduce the number of primary
accounts so that they would lend themselves more readily to the
needs of statistics of cost and performance. As the classification
now stands, the primary accounts in many cases do not fit in well
with the demands of cost accounting. On the side of revenue and
service accounting I believe that the railroads should be obliged
currently to know more about the relative remunerativeness of the
several classes of traffic and of the several groups of commodities.
To that end an additional requirement that freight revenue and
ton-miles be reported separately by groups of commodities would
be justified. Likewise it would be worth more than the additional
cost to know currently the revenue, tons, and ton-miles of local
freight separately from interline freight. This subdivision is of
importance in determining the reasonableness of divisions and will
be of increasing importance as the proposed consolidations take
place. A few roads compile such data for their own information
and find that its value justifies the cost.
It is not my purpose here to advocate that the volume of required
reports be increased. I am referring to the possibilities of advanta¬
geously expanding the requirements merely to emphasize the previous
statement that the Commission has not been unreasonable in its
orders. Conceivably it may properly ask for much more and
thereby force the backward roads to know more about their own
affairs. All that the Commission requires is of as much value to
railroad officers in the administration of their individual properties
as it is of value to the Commission in exercising its public super¬
visory functions under the law. Unfortunately it is too often true
that the value of the information reported to the Commission is not
appreciated by the officers of the reporting carriers and it is too
often carelessly and unintelligently compiled.
RESPONSIBILITY FOR ANALYSIS OF REPORTS
The foregoing comment leads naturally to the second suggestion
that steps should be taken by the executive officers to insure the
effective utilization of all required accounts and statistics, not only
of those required by public regulating authorities, but as well those
required locally for the information of heads of departments and
their subordinate officers. If, as is often the case, the statistical
information compiled in response to the Commission's requirements
is not utilized and therefore would not be missed if discontinued,
that is not an argument for the discontinuance of the reports. It
is rather a reflection upon the intelligence of the management of the
road. ^ Unfortunately there are too many instances in which data
conscientiously compiled by the accounting department are not
analyzed nor used as aids to judgment in managerial control. How
many reports, compiled at substantial effort and expense, are re¬
ceived in the general or divisional offices and are checked off for
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the file with but perfunctory or even with no attention by chief
clerks who too often have the conception that it is their duty to keep
papers ofif the chief's desk? I fear that there are too many cases
of the kind. Nearly every road has the tradition that such and
such reports, compiled for years, were experimentally omitted with¬
out authority and as no question was raised, were discontinued
and were not missed.
Not long ago an accounting officer, who had had transportation
experience, confided to me that he felt very much discouraged
because the operating officers, both general and divisional, took little
or no interest in current reports of operating performance, compiled
by the accounting department. He had taken pride in developing
certain forms which reflected the comparative efficiency of the im¬
portant elements in maintenance and operation and transportation
service, and had the figures shown separately by operating divisions.
In addition, he personally had appended a memorandum each month
in which the results were analyzed and attention called to important
features. Although the general manager approved the form of the
exhibit when it was being prepared, so far as the accounting officer
could ascertain, these statements were never studied nor acted upon
by the responsible operating officials and were never passed on to
the division superintendents for comment. In that case the general
manager and tbe general superintendents were content to rely upon
their powers of personal observation and upon incomplete and
inadequate reports inherited from a former generation. Obviously,
the comprehensive summary of operating results should have been
used as a check on the effectiveness of supervision and as the text
for discussion with superintendents and others. Instead they were
passed to the file clerk. As a result, in this case and in many other
similar cases, information of a character vital to intelligent manage¬
ment lies dormant in the files, and both the effort of compiling it
and its potential value as an aid to managerial control are lost.
There is a need of a definite policy supported by the chief execu¬
tive of each railroad which (1) will insure complete and current
statistical information for officers of all ranks, and (2) will hold
these officers both of high and of low rank responsible for studying
and acting upon the significant figures.
COOPERATION BETWEEN ACCOUNTING AND OTHER DEPARTMENTS
The effectiveness of accounting and statistics as aids to control of
expenditures and performance is greatest when there is a sympa¬
thetic understanding and mutual cooperation between the accounting
and the operating departments. Unfortunately such cooperation is
often lacking because of the failure of each to understand the
other's viewpoint. Too many superintendents and others of higher
rank have little confidence in figures compiled by the accounting
department. They do not understand how they are compiled and
they are suspicious of all delayed charges or accounting adjustments
which distort the accounts for a particular period. When a super-
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intendent is criticised for an apparently unwarranted increase in his
expenses for the month and he finds that a delayed bill for joint
facilities, an inventory adjustment, or a charge for back-pay, has
burdened the accounts for that month, he often thinks that the
accounting department is in a conspiracy to discredit him. On the
other hand, the accounting department frequently has cause for
complaint because its instructions are not observed. Ordinarily
the grievances are trivial and could be smoothed out if sympathetic,
mutual understanding prevailed, but where cooperation is lacking
these differences lead to friction and react unfavorably upon both
departments.
I believe that beneficial results would flow from a more general
adoption of the policy inaugurated many years ago by James J.
Hill. A few months before his death in 1916, it was my privilege
to spend nearly three months on the Great Northern as Mr. Hill's
guest and I conversed with him frequently. His advice to me, then,
when we discussed the teaching of transportation, was to emphasize
the importance of accounting and statistics. His often repeated
statements were : "Intelligent management of railroads must be based
upon a complete knowledge of facts. There are too few who know ;
there are too many who guess. When anyone on the Great Northern
begins to guess, he guesses himself out of a job."
Mr. Hill's conception of knowing the facts was to have a high-
grade accounting department, concentrate within that department all
statistics as well as accounts, support it by executive backing, insure
effective cooperation between the accounting and other departments,
furnish all concerned with adequate cost and performance statistics,
and hold each superintendent and higher officer responsible for
results. He set the example himself by always having a complete
and uncanny knowledge of detail. The officer who could not keep
up with Mr. Hill in his knowledge of facts, and who could not con¬
trol his ton-mile cost, was unfortunate indeed.
This is not the place to dwell upon the ramifications of Mr. Hill's
policies of controlling expenditures so as to insure steadily decreas¬
ing unit costs. Suffice it to say that he regarded accounting as the
chief aid to administration. It is of interest, however, to note how
he brought about a mutual understanding and cooperation so that
the accounting department was considered by superintendents as a
friend at court rather than a prosecuting attorney.
It had then been the practice for many years (and I understand
the practice has been continued) that the understudies for positions
as superintendent should spend at least six months as student-
workers in the accounting department in St. Paul. These men were
taken in squads of six and were put through a .systematic course
of training which included the actual performance of work at each
of the many desks in the disbursement, capital expenditures, equip¬
ment service, and other branches of the accounting department.
Besides, they were called upon to study the classifications and to
attend evening lectures and examinations by Mr. Martin, then
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comptroller, now executive vice-president. I remember observing
one big-fisted trainmaster hard at work during the day making the
distribution of charges on vouchers covermg additions and better¬
ments, and the same evening reciting his understanding of the ac^
count ''Stock discount extinguished through income." It was hard
work for one accustomed only to outdoor work and acquainted
only with the language of the transportation department, but he
gained a knowledge which was extremely valuable to him later
when he became superintendent and as such had local jurisdiction
over the division accountant in his office. He had a clearer concep¬
tion of the whole field of accounting and could orient the detail
figures in his own divisional statement with those of other divisions
and with the road as a whole. There was then no mystery about
the technique of the operating statements and therefore no alibis.
Under the Great Northern plan the divisional accounting was decen¬
tralized and the divisional accountant, although under control of the
accounting department as to accounting procedure, was a member
of the superintendent's staff. The experience in the accounting
department made it very much easier for the superintendent to
supervise the accounting work of his division. His own results,
with certain minor exceptions, were compiled in his own office and
were known to him before he received the final statement for the
road as a whole. There was no evasion of responsibility since the
superintendent had primary jurisdiction over the compilation of
the data.
As already stated, it is my opinion that much good would come
from the general adoption of the Great Northern plan. It would
break down prejudices, prevent misunderstandings, and give the
accounts and statistics, both for the divisions and districts, and for
the road as a whole, a more vital and compelling force.
In conclusion, then, may I repeat:
(1) Fault should not be found with the accounting requirements
of the Interstate Commerce Commission. The Commission requires
nothing that the railroads should not have for their own information.
In view of its large powers, particularly those recently vested in
it by the Transportation Act, the Commission has been moderate
and reasonable in its demands. It might properly go further than
it has gone and aid the backward railroads by forcing them to
know more about their own affairs.
(2) The chief executives of the railroads should adopt and
enforce a policy under which all necessary statistical data should
be furnished by the accounting department and all concerned should
be held responsible for noting and acting upon significant items.
(3) To insure a better understanding between the operating and
the accounting departments it would be well to bring about a more
general adoption of the Great Northern plan of having prospective
superintendents undergo a course of training in the central offices
of the accounting department.
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