to the pay being now graduated by length of service and to the effects. of the deposit system, but is undoubtedly also due to an improvement in the whole tone and condition of the Army.

The increased number of re-enlistments of sergeants and other noncommissioned officers is an encouraging index, and accomplishes a result sought in the recent proposition for the re-organization of the French army.

The increased pay of that worthy class, the ordnance sergeants of posts, and the creation, by the act of March 3, 1873, of commissary sergeants of posts, with like compensation, have been calculated to stimulate in a healthy manner, the entire class of non-commissioned officers. The number of deposits during the last year has increased, being 5,105, and for the previous fiscal year, 4,974.

The average amount of each deposit was $63.71 the past year; for the previous year, $69.72; showing a decrease in each amount, but an increase in the number availing themselves of the system. As in previous years, the average amount deposited, per company of troops, during the past year, has been largest in the Department of Arizona, to wit, $1,665.33 per company.

The total amount deposited during the year was $325,255.80. Donbtless the effect of the system has been, as heretofore, to diminish desertions.

There remained, on the 30th June last, $527,000 in the hands of the Government, received from deposits and not yet repaid, since the pas sage of the act of May 15, 1872.

A colonel of a regiment in the Department of Dakota, in which there had been a great diminution in the number of desertions and an increase in the number of re-enlistments, made a critical investigation of the causes, and, in a letter to me, attributes these satisfactory results to the laws of May 15, 1872, graduating pay according to length of faithful service, and providing for the deposit system. The recruiting serv ice is also enabled to obtain a better class of recruits, as enjoined in General Orders No. 126 of 1874.

The passage of the act of March 2, 1875, and of joint resolution of March 3, 1875, permitting the number of paymasters to be established at fifty, was an important event for the Pay Department, and enabled me with great satisfaction, last spring, to give needed relief to officers long stationed in exposed, remote, and malarious districts, and to provide more efficiently for the payment of the troops.

But the sixth section of the act of March 3, 1869, (vol. 15, Statutes, page 318, or sect. 1194 of Revised Statutes,) says: "Until otherwise directed by law, there shall be no new appointments and no promotions in the Pay Department," and in the other branches of the staff. Under the act of March 2, 1875, above referred to, appointments can be made to the grade of paymaster, but none to fill vacancies in the grades of Paymaster-General, Assistant Paymaster-General, or Deputy Paymas ter-General. The act of July 28, 1866, fixed the Pay Department at one Paymaster General, with the rank of brigadier-general, two Assistant Paymasters General, with the rank of colonel, and two Deputy Paymas ters-General, with the rank of lieutenant-colonel, and (under the act of March 2, 1875) there are fifty paymasters with the rank of major.

The interdict prevents all promotions in this Department, and vacancies now exist in the grade of Deputy Paymaster-General, to which the two senior paymasters should be promoted. They are excellent officers, of long and honorable service in the line, in battle as well as in the staff, and should ere this have received this promotion.

By the act of June 4, 1872; (vol. 17, page 219, Statutes,) the Presi dent was "authorized to appoint a Paymaster-General, with the rank, pay, and emoluments of a colonel, (said appointment to date from the time the appointee assumed the duties of the office,) to fill the vacancy now existing."

At the date of the passage of this act, (as also of the proviso attached to the act of June 10, 1872, restoring promotions and appointments to the Engineer Department,) it was the avowed object of those who framed them in the House of Representatives to reduce the grades of all the chiefs of staff, as fast as vacancies should occur, to the rank of colonel. But this policy has been abandoned, and ought to have been aban doned. The acts of June 23, 1874, and March 3, 1875, restore promotions and appointments in the Subsistence, Medical, Ordnance, Quartermaster's, and Adjutant-General's Departments, and leave the grade of the chiefs of those Departments, that of brigadier-general, as provided by the act of July 28, 1866. Vacancies of chief in the Ordnance and in the Subsistence Departments have occurred, and were filled in June, 1874, by appointments, with the rank of brigadier-general.

The language of the act of June 4, 1872, only provided for filling the then-existing vacancy of Paymaster-General with the rank of colonel, (that of the present incumbent,) leaving, in effect, the proper and permanent rank, that of brigadier-general, as provided in the eighteenth section of the act of July 28, 1866; and it is hoped that the anomaly will now be rectified by the explicit legislation of Congress.

The failure of the last Congress to provide for the permanent organi zation of the Pay Department was mainly due to a scheme, now abandoned, to alter fundamentally the basis of this Department, by paying the troops by checks instead of in money. Said scheme happily failed to become a law, and I trust that now a long-delayed act of justice will be done to the Pay Department by legislation for its permanent organization.

The seeming discrimination against this branch of the staff, we will believe, has been accidental and will be rectified.

It seems unnecessary to enter into the details of the claims of this Bureau to an organization equal, at least in its higher grades, to that of 1866-the number of which grades is relatively small.

The ever-increasing importance, responsibility, and difficulty of its duties, and the labor and hazard attending the performance of the same, ae among its titles to an organization which shall afford a reasonable prospect of advancement in rank and compensation.

Legislation having now fixed the limit of the reduction in the lower gride, there remains nothing to be done but to open the higher grades, anl I beg you will urge upon Congress the entire repeal of the interdict upon appointments and promotions.

Iwas gratified to observe that Congress, at the last session, passed the actof March 3, 1875, which provides for the punishment of any person who shall in any way aid or abet in the embezzlement of public funds. In etters to you of the 27th December, 1873, and 8th April, 1874, I caled your attention to the necessity of such a law, and you made it thesubject of a communication to the House of Representatives, which wasprinted among its documents. It re-enforced the recommendations of the Hon. G. S. Boutwell, who, in a letter to the Speaker of the House datd December 7, 1872, had called attention to the defects of the act of ine 14, 1866. In the third section of said act, the final clause, defining he offense and the punishment, omitted the words, "banker, broker, This omission had been regarded by the Supreme

or cher person."

Court as a fatal defect, and precluding jurisdiction in the indictment in the case of the United States vs. Hartwell. (See opinion of Judge Swayne, Wallace Reports, vol. 6, p. 396.)

The special interest of this Office in this question grew out of the fact that I was informed by the Department of Justice that said omission had prevented the prosecution of the criminal indictment in the case of the United States s. Polhemus and Jackson, charged with complicity with J. L. Hodge in his embezzlement.

The tables accompanying this report contain a new statement (not heretofore accompanying my annual reports) "of approved and sus pended disbursements in paymasters' accounts rendered during the fiscal year ending 30th June, 1875."

Prior to the orders of the War Department of the 1st October, 1870, (reiterated in the year following,) the suspensions against paymasters for disallowances and overpayments were not fully presented and pushed until the close of the four years under a bond, but were left to settlement by the Second Auditor.

Under the system established by Circular No. 76, of 5th April, 1871, from this Office, issued in conformity to instructions of 1st October, 1870, from the War Department, the suspensions are made to appear monthly upon the accounts-current. This system has been now long enough in operation to test its merits. It is proper to record my conviction that it is a great improvement on the old method, for the paymaster is now compelled to keep himself constantly posted as to the state of his suspensions, and he is led to make collections of overpayments before parties die, are discharged, or resign from the service. The paymaster has additional stimulus to obtain the necessary evidence-is compelled to study the questions at issue, and becomes thus better posted in his duties.

The method of accounts now adopted enables this Office to state the accounts, keep the record of receipts, disbursements, and suspensions under each appropriation, with more exactness and promptitude, and t is thus able more speedily and satisfactorily to answer calls from the Executive or from Congress, and thus the better meet the responsibilities imposed on the Paymaster-General.

I will again call attention to the scheme favorably alluded to by you in your last annual report, for the enactment of a system of annuities for the families of deceased officers, by voluntary deductions from tir monthly pay of officers. Certainly if private companies can make money by an annuity system, it is in the power of the Government at least to render itself secure in extending similar beneficent aid. It is pp posed that it shall be done without eventual expense to the Governme.t. The money to be deducted is worth to the Government a certain pr centum of interest. This interest and the expectancy of life (arrivedat by careful statistics) are the elements from which annuity-tables wold be prepared by the most careful and critical calculations. The scie ce of probabilities has reached great precision in its computations. Jut after certain tables had been used twenty years, more or less, ther if found defective, corrections could be made which would more perfetly accomplish the object sought.

Some officers have expressed a preference for a voluntary establised assessment (made upon the death of the officer) upon each membc of an association; a scheme so entirely different from the annuity Jan that it probably would not at all conflict with it.

There is one precaution that I would emphasize, that neither myselnor any other officer be made (as in the case of the late Freedmen's Buran)

the custodian of any fund, but that it be deposited in the Treasury, to De withdrawn according to law.

Attention is respectfully invited to the subject of re-imbursement to officers of cost of travel under orders.

Prior to July 1, 1874, a system of mileages prevailed, for which legislation has since substituted the system of "actual expenses." (See act of June 16, 1874.)

For short journeys "actual expenses" are found, in the majority of cases, to exceed "mileage," for the reason that the allowances for expenses of delays incident to the duty ordered are large in proportion to the distance traveled.

For long journeys the reverse is the case, for the reason that the distance traveled is much greater in proportion to the restricted time for which, under War Department rules, expenses of delays incident to duty may be charged, so that the item of charges for delays is not an important one in accounts for long journeys.

In the aggregate, payments on account of actual expenses fall short, in amount, of what would be the sum of mileage allowances for the same journeys.

The pecuniary advantage to the Government, so far as concerns the Army, of a system of actual expenses, is believed, however, to fall short of the objections to the system, which may be briefly stated as follows: First. The labor to the officer, to the paymaster, to this Office, and to the Treasury Department, in the preparation, payment, and scrutiny of the vouchers, is a hundred fold more than in the case of mileage vouchers, for the reason that each item has to be specially set forth, and separately scrutinized. The statement of items sometimes covers two, and even three, pages of foolscap, whereas a mileage voucher for the same journey would have involved the consideration and treatment of but a single item of charge.

Second. Experience of systems of actual expenses has shown that the authorities have invariably been obliged, sooner or later, to dispense with itemized accounts, and arbitrarily fix a measure of actual expenses, on a basis of time or distance, which is practically a mileage system. This is owing to the fact that different men take diverse views of what constitutes actual necessary expenses, and of the moral obligation to conform to an order which assumes to prescribe what shall be alone regarded as items of such expenses. Hence, persistent effort on the part of many to obtain re-imbursement of expenses not authorized in orders, and to remove certain restrictions, and in some cases to include unauthorized items in charges for others authorized, and which may have exceeded, in amount, the actual outlay thereunder. Contingent allowances become subject of common charge, without reference to the existence of the conditions to which they were specially attached. Gradually the system becomes one of such abuses that refuge is taken, as above stated, in mileage, or a like system of a uniform measure of allowances.

Third. The foregoing suggests plainly enough how unequally a system of actual expenses " operates upon different men, and to what extent it tends to demoralization.

Fourth. Mileage charges are easily computed, quickly paid, and readily scrutinized. A mileage allowance, therefore, forms the most convenient system of re-imbursement of travel expenses. The experience of officers will sustain the statement that on the average of the whole period of service, it is no more than a re-imbursement of actual expenses, and is uniform in its operations upon all.

Fifth. The debate upon the provision of "actual expenses" in the act making appropriations for the support of the Army for the fiscal year ending June 30, 1875, clearly shows that it was based on the understanding that the charge made in the House of Representatives, to the effect that constructive mileage was paid to Government officials, applied equally to officers of the Army. I challenge the proof of a single case in which mileage has been paid to an officer of the Army for other than actual travel under competent orders.

The allowance and payment of mileage to officers of the Army is so hedged about that there can be and were no abuses of it which are not inseparable from any allowance based upon orders issued at the discre tion of men. Therefore I earnestly recommend a return to the system of mileage as better fitted to do justice to the officer and to the Govern ment.

I desire to call attention to the proviso attached to the first section of the act of April 20, 1874, (vol. 18, page 33, Statutes,) providing for a system of inspection of disbursements made by disbursing officers of the Army, which says "that no officer so detailed shall be in any way connected with the department or corps making the disbursement."

I do not suppose that it was really the intention of this law to prevent chiefs of staff in this city, or any chiefs of disbursing branches of the staff in the field, from looking at will into the transactions of the Department. The object was doubtless to secure certain regular inspections by officers detailed for the purpose. Otherwise, the effect of this law would be to destroy vigilance and proper supervision on the part of those placed immediately in charge of such branches of the staff. Therefore, I recommend a modification of said law, tins calenlated, if literally construed, to do injury to the service. Chiefs of the staff corps, and chiefs in any branch of the staff in the field, or in the varions military departments, should always be, ex-officio, inspectors of those officers under their supervision. My predecessor very properly enjoined upon chief paymasters the exercise "of careful vigilance and scrutiny in reference to the public funds," which was reiterated in my first circular, No. 82, of January 25, 1872, on taking charge of this office; and inspections are a necessary adjunct of such scrutiny. But my circular provided that "inspections requiring travel will only be made under the orders and in the discretion of the department commander." It is true that inspections should also be made by those not belonging to the corps making the disbursement. Both kinds of inspections are essential to the public service.

It is probably my duty to refer to the onerous working of the act of February 2, 1872, (sections 3646 and 3647, Revised Statutes,) providing for the payment of duplicate checks of disbursing-officers. I recom mend that it be changed so as to conform to commercial usages in reference to giving such duplicates. It is a hardship for an officer or a discharged soldier to wait six months for payment, as often the loss is from an accident, such as a fire or a shipwreck, " seen and known of all men." The limit to checks under $1,000 is calculated to deter the cashing of checks of large amounts, whereas at many remote posts we have been forced, for the sake of economy and promptitude, to resort to raising funds in that mode. If a check for many thousands is lost in remittance, how can the bank or the commercial house be expected to wait patiently six months, without interest, before it can get a duplicate? This would force a paymaster to assume to issue the check on his own private indemnity, outside the terms of the law, which is a risk and respon sibility that the very passage of the get of February 2, 1872, acknowl.