agement of the Prison, nor do I have the least desire to take issue on the competency, faithfulness and honesty of the present or former administration of the institution; on the contrary I have reason to believe them honest, and anxious to discharge their duties for the best interest of their constituents; but without reflecting in the least on the officers of the institution, the question naturally arises with me, how to reduce the expenditures over the receipts, so that the institution ceases to tax our commonwealth so heavily as during the last two years. While I cheerfully admit that the internal affairs of the prison, under the present administration, are managed economically and judicially, I think that the basis upon which the institution is carried on requires a radical change. The Prison is a heavy burden to the State and a source of large profil to contractors. I am creditably informed that they are deriving enormous profits and making large fortunes from their contracts. The profits of the contractors for the last two years, added to the earnings of the prisoners at the present rate of wages, would not only be sufficient to make the Prison selfsustaining, but would yield a handsome profit. The rates now paid for the labor of convicts are too low, by far too low, being barely sufficient to pay for the frugal daily food of the convicts; and the sooner a change can be made in this direction, the better for the finances of the State and for the tax payers. The authorities of the State of Illinois, I am informed, have let the contract for the entire convict labor of the State Prison at Alton to one contractor, for a large number of years, who carries on the work under rules similar to those of our Prison, and under a similar government, with perfect safety and free of expense to the State. I understand that parties have offered and are ready to hire the labor of our prison under the system of management provided for by law, free of expense to the State, and I think we should avail ourselves of the first possible opportunity to relieve the State Treasury of a burden of fifty or sixty thousand dollars per annum, provided such change can consistently be made. SAULT ST. MARIE CANAL FUND. The net receipts for tolls are a little less this year than in 1865, amounting to $14,184 60. The amount apportioned in January, 1866, to the several counties, where the canal lands are situated, under joint Resolution No. 2, Sess. Laws 1863, is $9,118 61, and the balance due these counties on account of Canal taxes, under said Resolution, amounts to $32,080 47 at present. The next apportionment of the proceeds of tolls for 1866 will be made in January, 1867, and the indebtedness to the counties will thereby be reduced to about $25,000, a sum which can be paid within the following three years, if the receipts for tolls and the running expenses of the Canal shall continue as they have been for the last two years. There is a balance to the credit of the Canal Fund, at the close of the fiscal year, of $47,794 67, and the Canal Loan, of $100,000, will fall due in 1879. By that time the receipts of the fund will, in all probability, have sufficiently accumulated to redeem the bonds. In my capacity as a financial officer of the State, as well as in that of Secretary of the Board of Control of the Canal, it becomes my unpleasant duty to inform you that that Board has been forced into the necessity of prosecuting the official bond of George W. Brown, late Superintendent of the Canal. During the latter part of the year 1864, some discrepancies and irregularities were discovered in the accounts and monthly reports of Mr. Brown, which he corrected at the expiration of his official term by refunding certain sums, in accordance with the demands of the Board. If vouchers for all expenses in behalf of the Canal had been filed regularly, together with the monthly reports of the Superintendent, the Board of Control or the Secretary would thus have been enabled to examine into the management of the ! Canal, and to discover any irregularity or discrepancy which might have taken place; but up to the spring of 1864, no duplicate vouchers were taken, and the original vouchers remained in the office of the Superintendent. In 1865 the Governor and myself went up to Sault Ste. Marie, for an inspection of the Canal, and an examination into its management, and at that time I obtained the original vouchers of expenses during the years 1861, 1862 and 1863, which are now on file in my office. These vouchers and the accounts for the corresponding years were carefully compared and examined by the Secretary and the other members of the Board, and it was found that George W. Brown, late Superintendent, was indebted to the State in a sum of at least $3,000, partly for fictitious charges and partly for such items as are not at all chargeable against the Canal Fund, being utterly unnecessary, and not having the least connection with the management of the Canal. Mr. Brown had a full hearing before the Board at their meeting in the city of Detroit, Oct. 24tb, where his explanation as to all the details in the case was solicited and the same fully discussed. Mr. Guy H. Carleton, the former assistant of Mr. Brown, and since May, 1865, Superintendent of the canal, was also present at that meeting, and his testimony, which is highly important on some points, was taken. The Board then met I again at the Auditor General's Office, in the city of Lansing, on the 9th of November, and, although the members were satisfied that Mr. Brown's indebtedness to the State amounted to at least $3,000, yet, with a view of again manifesting that spirit of lenity by which they had always been guided in this investigation, adopted a resolution to the effect that Mr. Brown should have his receipt in full, if he would pay over to the State Treasurer, on or before the 1st of December next, the sum of $2,000. The Board, under the circumstances, had strong reason to expect that Mr. Brown would avail himself of this last opportunity for an amicable final settlement, but they were disappointed. No reply was received from Mr. Brown as to the proposition made him by the Board. The last meeting of the Board was held at this office, Dec., 5th inst., and it was unanimously resolved that the bond of Mr. Brown be prosecuted. In compliance with this resolution I have since forwarded to the Attorney General a certified copy of the bond of Mr. Brown, as Superintendent of the Sault St. Marie Canal, with the request to commence legal proceedings against the principal and his sureties. WAR FUND. During the fiscal year the transactions of the War Fund have been as follows: Balance to credit of Fund, Nov. 30, 1865, ... Received accrued interest on Bonds at date of sale, due, ...... $13,727 69 370,000 00 1,398 13 110,582 50 $495,708 32 Warrants drawn by me on estimates of the Quar termaster Gen'l, approved by the Governor, $370,000 00 Interest paid on War Loan and War Bounty Loan Bonds,.... Warrants drawn for expenses for National Cemetery, on certificates of the Governor,. Balances to credit of Fund, Nov. 30, 1866,..... 110,174 75 1,269 28 14,264 29 $495,708 32 With the balance on hand with the Quartermaster General on Nov. 30th, amounting to $10,180 83, there will be a total amount left, applicable to the payment of bounties, of $25,000, which will, in all probability, be sufficient to meet the wants of the Quartermaster General's office in that direction. If this however should not be the case, the simplest method of supplying the wants of the Quartermaster's Department, which, at any rate, can be but very small, would be an appropriation from the General Fund. The State Treasurer could have sold some more War Bounty Loan Bonds, but neither he nor myself thought that further negotiation would be necessary, and we consequently destroyed all the remaining blank sheets. Of the above mentioned sum of $370,000, received from sale of War Bounty Loan Bonds, only $118,000 were actually sold, or rather exchanged, by the State Treasurer, for Bounty Certificates. The balance of $252,000 was purchased for the Educational and Sinking Funds; that is to say, all the receipts of the Primary School, Normal School, and University Fund, together with the proceeds from the one-eighth mill tax and the surplus of interest, were applied to purchase said amount of bonds. STATE MILITARY FUND. This Fund, which derives its income from the tax of fifteen cents for each voter in the State, (Act 16, Sess. Laws of 1862,) stands at the end of the fiscal year credited with $40,384 42, as you will observe by reference to Schedule L, of this Report. Whether that money will hereafter be needed in aiding, arming and equipping military organizations within the State, will depend upon the further action of the Legislature. If no provision should be made to expend that sum for such purpose, I would respectfully recommend to have it at once transferred to the War Loan Sinking Fund. SOLDIERS' RELIEF FUND. Under Act 228, Session Laws 1865, a transfer was made to this Fund from the Military Fund, amounting to $25,000 which sum was placed at the disposal of the Governor for the purposes set forth in the original act creating that Fund. The Governor has drawn during the last two years the amount of 18,000, and there remains, consequently, at the close of the fiscal year, a sum of $7,000 unexpended. If there should be no further necessity for expenditures under the |