during the year from $2,100,000, noted in my last annual report, to more than $3,400,000. These recoveries were on account of false weights. Investigations have been made and are being made as to sugar importations at other ports, and this branch of the customs frauds has now been practically fathomed. Investigation of sampling, tares and polariscopic testing, as processes in the assessment of sugar duties, may produce further recoveries and are certain to lead to improved methods and increased revenues in the future, while the fraudulent abuse of drawbacks in exported products of sugar refineries will unquestionably be shown to have been practiced on a very large scale. The existence of such extraordinary frauds at the port of New York, involving corporations of the largest and most responsible kind and spreading over a considerable series of years, has been such a revelation as to throw doubts and suspicions over the entire customs field and to oblige us to investigate and overhaul in all directions. Following the developments in the sugar frauds came the discovery of the large, constant frauds in the importations from many of the Mediterranean ports. The sugar cases and these Mediterranean cases reported to the Department of Justice led to many important prosecutions with great success; and there has been complete cooperation between the two departments throughout.

Passengers' baggage.

It became necessary from the outset to correct the palpable vices of the system controlling importations by steamship passengers. Unless the importations by passengers could be made honest, and unless the customs service could be made to prevent this conspicuous class of smuggling, it would be hopeless to attempt to set the rest of the business of the port upon a proper plane. If the Government should show indifference to a notorious instance like this and to the notorious demoralization of its service here where everyone saw it, it would be idle to go further. It was not simply that actual tourists were violating the law, but the irregularities of the service on the passenger docks and the example set by those tourists had made the Atlantic steamships open runways for professional smuggling. This whole situation had become demoralized and was deteriorating the entire customs service in New York and more or less everywhere else. Genuine passengers and professional smugglers under the guise of genuine passengers were not only smuggling by means of false declarations, but they were bribing the officers. The situation was as bad, both morally and as a business proposition, as it could possibly be. Cheating the Government, making false statements and bribing officials was regarded as a joke. Meanwhile, the notoriety of this corruption and its association with people holding

good positions in the community, did as much as any cause to produce the widespread dishonesty in dealing with the Government and the widespread corruption of the men upon whom the Government had to rely. So entirely oblivious were large numbers of our tourists to the moral considerations involved in these crimes that the attempt of the Government to reform the service and make it honorable and useful met with criticism and resentment exactly as if the Government and not the smugglers were committing the crimes. Of all the persons found out in smuggling or undervaluing, tourists are the only ones who have sought to excuse themselves. The inevitable, however, is coming to pass. American travelers are more and more realizing the indefensibleness of smuggling-its rank dishonesty and its extremely bad example and influence-and they are conforming in increasing numbers both to the law and to their obligations as citizens.

Great improvements have been made in this branch of the service; and the least of the advantages of the better administration is that we are annually collecting from passengers at the port of New York alone about four times as much duties as before. The percentage of increase is equally large at the port of Boston. Previously these collections were $470,000 for the year and are now running at the rate of $1,800,000 per year. A much larger advantage of this better administration is in the restraint that has been placed upon professional and nonprofessional smuggling through passengers' baggage, including the breaking up of the sleeper-trunk frauds. And greater than all other of these advantages is the increased morale throughout the service due to the introduction of improved methods, standards and organization in this influential and conspicuous branch of it. The personnel, standards and methods not only of the inspectors' service but equally those of the weighers and gaugers' service, where so much fraud had centered, have been greatly improved. And generally important advances have been made in the rehabilitation of the entire service in the offices of the collectors and surveyors of the port. Advances have been made, too, in the appraising departmen}, especially in the work on the passenger docks. But much remoins to be done in this extremely important branch of the work. Various, I may even say numerous, import lines have been and are under investigation; and the amount of laxity and dishonesty that has crept into the import business through undervaluations is astonishing, not to say appalling; and is keeping the department greatly occupied and is requiring much assistance from the Department of Justice. The results and the outlook are nevertheless encouraging; and there is every prospect not only of clearing up and punishing the smuggling and undervaluation but of completing such a rehabilitation of the customs service, both in New York and throughout the country,

as will reestablish the honorable and efficient character of the service itself and increase the very large sums-the many millions of dollars-which are already coming into the Treasury from improved operation.

Appropriations for rewards.

We are being greatly aided by success and by the increasing public impression that the Government is in earnest and means to complete its work. Persons are more and more disposed to offer help in the discovery of frauds; and in this connection I should like to call the attention of Congress to the handicap of the very small appropriation of $25,000 for the payment of those within or without the department who render voluntary assistance. I should very much like to have this appropriation increased to at least $100,000. And it would be of great assistance if the Secretary of the Treasury were permitted a larger discretion than the law at present allows with respect to payments to persons furnishing information from outside the department.

Politics reduced.

The progress made in the rehabilitation of the customs service at New York has been marked by a very decided elimination of the political and spoils influences to which I attributed, in my last report, much of the demoralization that was found there. It would not be true by any means to say that these injurious influences have been entirely removed, but the situation has been greatly improved. The seriousness of the case has been recognized on all hands; and the chief political authorities have recognized the impossibility of putting this service where it belongs without the elimination of political influences from its management and operation. This decided progress at the port of New York has influenced, more or less, the customs service at large-leading to the impression that the standards being established there would sooner or later have to prevail at all the other ports. There has been this quite general recognition of a new epoch; and it has resulted in a closer and more exclusive interest on the part of the customs officials in the administration of their offices and a diminished interest in practical politics.

THE CLASSIFIED SERVICE.

Anyone, however, who comes close to the practical administration of the Federal Government-or of any other government-soon becomes aware that everything ultimate or final in the excellence of administration must wait upon the complete inclusion of all nonpolitical offices within the classified service, and that progress in the administration meanwhile will materially depend upon the broadening of that service. The frequent presidential extensions

of the classified service to include more and more of the positions within the control of the Executive—including the important extensions by President Taft-have practically exhausted the exclusive opportunities of the President, and enlargement will hereafter be a matter for the cooperation of Congress with the President. But there is no reason why the purely administrative offices which require confirmation should be differentiated in respect to the classified service from like offices that do not require confirmation. The Auditors of the Treasury Department, for example, as I said in my last report, ought on every account to be included in the classified

service.

Deputy auditorships do not need to be classified. They ought to be abolished. They are unnecessary and a mere fifth wheel. The department does not include them this year in its estimates. Of course, it is the right of Congress to make these appropriations if it sees fit, and to continue these positions. But the money would be wasted.

And among the presidential offices which should be put first and at once in the classified service are those of assistant appraisers in the customs service. And until these assistant appraisers are so included and taken out of politics, it will be necessary to the introduction of absolutely necessary reforms in the appraising service to detach, by administrative act, every assistant appraiser from all touch and association with practical politics. Some authorities highly experienced in the work of appraising as now carried on are of the opinion that the assistant appraisers should be abolished-pulled up root and branch. These people are hopeless of any good coming out of them. I do not agree with this, however. I think the assistant appraisers are a very necessary part of the organization and that the remedy is to make them what they should be. And while they can be and will be temporarily made what they should be by administrative act there will be no permanent reform, where they are concerned, until Congress arranges to put them in the classified service.

IMPROVED CLASSIFIED SYSTEM.

It is not alone necessary, however, to include these purely administrative officials in the classified service; but the workings of the classified service system itself should be restudied and advanced, both as to the way in which people enter the service and as to the way in which they are promoted or demoted and generally managed after they are in. The system has been so honestly administered, and with such faithful and loyal intention, that it has met with general acceptance and favor. It can, however, be advanced; and the classified service can, in my judgment, be made still more useful.

CIVIL-SERVICE RETIREMENT.

I now beg to refer, as I did last year, to another requisite-another absolute requisite of a satisfactory service. There is no practical way to put the government service properly on its feet without a fair and just method of civil-service retirement. This is not only a requisite; it is a prerequisite; and unless Congress shall give the Executive this necessary method of improving the service the country must accept a service that is not fully satisfactory and which can not be made fully satisfactory

Fortunately this retiring provision can be made and this is mathematically demonstrable-without the expense of one dollar to the Government. The contributory system of retiring allowances is not only the only system that has any chance whatever of being adopted but it fortunately is the best system by far for the men and women of the service; and it is, therefore, the part of wisdom for all the friends of this movement to concentrate upon this method. Of course, there must be paid by the Government the retiring allowances until the contributions by the members of the service have become sufficient to take care of the payments; but these preliminary payments by the Government need not cost the Government anything whatever. All of the executive departments which have so far been consulted stand ready to carry out such a law without asking any addition whatever to their ordinary appropriations. The objection, therefore, that we might be introducing another pension roll, has no justification. It had complete justification as long as the straight pension was in contemplation. The contributory allowance, however, is an entirely different matter and eliminates this objection altogether. The Government, therefore, can without any expense to itself, and by the mere passing of a law, set this whole matter right. It is only necessary to mention two things about the contributory plan, as contrasted with the pension plan, to make clear its advantages to the people in the service. It could never be taken as an answer to a claim for increased pay. It is a contribution of their own and not a contribution of the Government, and it is in no sense an estoppel of any argument in favor of increased pay at any time during its operation. On the other hand, a straight pension paid by the Government would always be taken as an additional salary and would perpetually have a tendency to estop any argument for increased compensation. The other consideration is that under a pension system a man must not only live beyond the retiring age but he must continue always in the service until that period in order to receive any pension at all; whereas, under the contributory system, under all the accidents of life, he gets what belongs to him of the savings of the system. It is impossible not to regard a straight pension as a