of the really indispensable attributes of an irrigation manager. His personality is extremely important. "Bulldozing" tactics on his part fail in the long run; experience has shown definitely that those managers who have been most successful and who have held their jobs longest have been both tactful and firm in dealing with the water users.

The policy of employing a competent manager or superintendent and allowing him to use his own methods and to employ his own subordinates has proven beneficial. This is especially the case when a company has perplexing problems to solve. A number of companies allow the superintendent to make expenditures only on claims approved by the board-a policy often locally desirable and preferred by certain superintendents. Other companies have adopted the more businesslike procedure of having an annual budget prepared by the superintendent, revised by the directors in the light of their own responsibilities, and blanket authorization given to the superintendent to incur expenditures in conformity with the budget.

ACCOUNTING PRACTICES

WITHIN any large area there is, as would be expected, a wide

range in accounting practice and efficiency. Some companies keep their records in a very casual manner. For example, some secretaries make all entries in pencil in a paper-bound notebook, which is frequently used for several years' operations and which shows the effects of such hard usage; the annual financial report consists substantially of adding up the company's receipts and disbursements and ascertaining the difference; the amount of the company's indebtedness is carried in the secretary's head and recorded nowhere. This picture is not overdrawn; although not typical of all small outlying companies, there are numerous instances in which it is literally true.

At the other extreme are organizations with assets valued at hundreds of thousands and even several millions of dollars each. These companies maintain detailed files on the various accounts; for example, the capital stock, anticipated life, and operating cost of any pumping plant is readily available from the records. In addition to the ledger account of assessments, a company which employs the toll system for water charges will have a ledger account of water tolls showing for each customer the quantity of water delivered, the charges, and the consumer's payments. Some of the California companies have adopted the system of accounting prescribed by the State Railroad Commission for public utilities as particularly suited to their needs. By following this system, capital and operating accounts are kept altogether separate.

The purpose of all systems of accounting is to inform the management and the stockholders as to the financial condition of the company. An organization with a substantial diversion dam and a short earth canal that requires no attention other than the annual cleaning, and that has no debts and anticipates none, has no need for an elaborate set of books. However, the time may come when that company will be seeking credit, and it is then most desirable to have available a record of the capital cost of the system as well as of its annual operation. For these reasons, a record of current expenses that separates the capital from the operating expenditures, but does not involve too much detail, and a balance sheet that shows the true financial condition of the company, both capital and operating, at the end of the accounting year, may prove to justify the additional time required to prepare them.

DEPRECIATION

The mutual companies may be divided into three classes on the basis of their policies toward depreciation accounting: (1) Those which disregard depreciation entirely; (2) those which carry depreciation accounts, but which do not regularly collect money from the stockholders to cover the annual charges; and (3) those which not only carry depreciation accounts, but which actually collect from the stockholders the amounts of annual accruals except in years of financial stress.

There is considerable difference of opinion, among persons qualified to express an opinion, as to the value of setting up depreciation accounts for mutual irrigation companies. One reason why many of these companies disregard it is that their facilities, for the most part, are in such condition as not to deteriorate, and the officers do not wish to be bothered with accounting for depreciation on personal property. In an industrial concern, depreciation allowances serve the purpose of recovering the effects of deterioration and obsolescence and thereby keep the investment intact through operation costs. In a mutual company this expense is covered by assessments against stockholders. In mutual company accounting the effect of a depreciation policy is to keep the charges at a fairly constant level from year to year, and its further function is to disclose at any time. the present value of the irrigation system and its various parts.

VALUATION OF PROPERTIES

The balance sheets of comparatively few mutual companies disclose the real value of their properties. Some companies, it is true, have had appraisals made in fairly recent times and have subse

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quently adjusted their reserves for accrued depreciation, but these are the exceptions. The others either set up their valuation accounts many years ago and have done nothing to them since, regardless of subsequent additions and changes in value, or have never had a complete record of construction costs.

Similarly, some companies carry separate valuations for water rights, others include this with the value of the physical properties, and still others disregard it entirely when making up their balance sheets or when otherwise reporting their assets.

In the course of the 1935 canvass it was found that valuations for water rights reported in balance sheets were arrived at in many different ways, some of them wholly illogical. For example, some figures were frankly guesswork; and one company which was unable to balance its books some 15 years ago included the amount of the error in the annual statement as the value of its water rights and has carried it at that figure ever since. On the other hand, some valuations were reasonable. Certain figures consisted of the actual sums of money spent in acquiring the water rights and in defending them in court; while others were computed on the basis of the number of miner's inches or acre-feet of water to which the company claimed a right, the value per unit of water supply having been arrived at according to some approved method in use by valuation. engineers.

AUDITS

Many companies have their accounts audited. In a number of cases this is simply a review of the records by an auditing committee of stockholders or directors who devote enough time to assure themselves that the account appears straightforward. This method is suitable only if the company is in the simplest circumstances. As the company's accounts become complicated, only the work of a technician-preferably a certified public accountant-is adequate to accomplish a thorough check. Frauds that would have been disclosed promptly by competent audits have been perpetrated in some mutual companies from time to time. In addition to disclosing errors and discrepancies, an audit by a certified public accountant serves the purpose of commenting constructively upon the company's accounting system and of suggesting improvements.

FINANCIAL POLICIES

ORIGINAL FINANCING

THE ORIGINAL finances of the mutual companies have been provided in some cases by the interested water users or prospective users and in other cases by persons engaged in development work. This financing is accomplished through the sale or exchange of

capital stock, seldom through the sale of bonds. Only after the company has become a going concern is it in a position to issue bonds. Consideration for the stock is cash, labor on construction work, or materials used in construction, and sometimes intangible water rights and constructed works.

Some of the mutual companies have been organized in connection with land-development schemes. For example, interests engaged in opening up irrigable land for the purpose of subdivision have organized mutual corporations and have conveyed to them the title to the irrigation works and water rights, the land-promotion agency taking the entire capital stock of the mutual company in exchange. The plan thereupon has been for the promoters to convey shares of the mutual company stock to each purchaser of land, generally at the rate of one share to the acre. When the majority of the land, and consequently a majority of the outstanding stock of the mutual company, has thus passed into the hands of the colonists, control over the irrigation system automatically passes to them.

The mutual company has been the agency through which the Carey Act projects have eventually passed to the control of the settlers. It was also originally intended to use this form of organization in connection with the Federal reclamation projects, but in most such instances the irrigation district has been used instead.

CREDIT

A number of mutual companies have issued bonds for refinancing outstanding indebtedness, for financing improvements and extensions to already constructed irrigation systems, and for the acquisition of supplemental water supplies. It is believed that the largest share of mutual company bonds in the West has been issued by the southern California companies. However, a number of companies in Colorado, Utah, and Idaho, as well as in other western States, have likewise sold bonds. The Salt River Valley Water Users' Association of Arizona, one of the larger mutual companies, has an exceptionally large amount of bonds outstanding.

It was found in 1935 that 18 of the southern California companies included in the mutual company study had outstanding bond issues ranging from $25,500 to $1,246,500. Usually the rate of interest was 6 percent per annum, although the range was from 5 to 7 percent. The outstanding bonds ranged from about $5 to $133 per acre covered by the company stock. In the case of the company with $133 worth of bonds per acre, the approximate book value of the outstanding stock was $367 per acre covered by stock. The latest date of maturity of bonds among these companies was 1969.

Various mutual companies have funded indebtedness in the form of notes payable at different dates more than a year from issue. These notes are often held by local banks. The interest rates on such notes in 1935 were found to range from 5 to 7 percent in California and from 51⁄2 to 8 percent in Utah.

The program of the Reconstruction Finance Corporation has included refinancing the indebtedness of mutual companies. Several commitments and loans have been made through this organization. The Farm Credit Act authorizes loans to mutual irrigation companies through the facilities of the regional banks for cooperatives. In conformity with this authority, loans have been made by the Berkeley, Wichita, and St. Paul banks for cooperatives. Most of these loans have been made through the Berkeley bank, inasmuch as the largest investments in mutual companies are in the Eleventh District. The Reconstruction Finance Corporation loans and facility loans of the banks for cooperatives have been made with interest at 4 percent per annum.

The mutual companies commonly borrow money for current expenditures in advance of the assessment collections and repay it when collections are made. These current loans are often secured from local banks, although at least part of the current operating funds of numerous companies is borrowed from individuals, including stockholders and directors. During the past 5 years the interest rate on current borrowings by mutual companies in Utah has ranged from 5 to 7 percent and that of California companies from 6 to 8 percent. During 1935 these current rates were generally lower than the prevailing rates had been during the preceding 4 or 5 years. Some of the companies, since the passage of the Farm Credit Act of 1935, have secured operating loans at 3 percent through the facilities of the banks for cooperatives.

SOURCES OF INCOME

Funds required to do business are derived from assessments levied against the capital stock, from tolls or charges for the use of water, from sales of surplus water to members, and from various miscellaneous sources such as rentals of land, oil royalties, temporary use of equipment, and rental of the use of capital facilities. Necessarily, the major part of the revenue comes from assessments and tolls, for the principal function of the mutual company is to provide water at cost for its stockholders. During the 5-year period ending with 1934, the average mutual company in Utah derived about 90 percent of its income from assessments and only 1 or 2 percent from sales of water. About one-third of the income of the average north