Printer Friendly

Regulatory, accounting and business practices concerning the sutler at Fort Abercrombie, Dakota Territory.

Abstract: This study explores the accounting and business practices of a fort sutler on the western frontier in the mid-19th century and how these practices were regulated by the U.S. Army. The fort sutler operated a store on the Army post with the permission of the fort commander. The sutler had sole authority to sell certain items to soldiers on the post. He sold items that soldiers desired but were not provided by the Army. Although the sutlers store was a civilian operation, he played an important role in supporting soldiers stationed on the frontier and enhanced the effectiveness of frontier military operations. This research reviews and summarizes relevant military regulations of the period in addition to documentary evidence emanating from Fort Abercrombie (North Dakota) to learn more about the accounting and business operations of this important figure of the American frontier.

**********

"A cruel or exacting commander could be tolerated; hard service was accepted as an inevitable part of life; but an unaccommodating or inefficient sutler was a real calamity." [Edgar Wesley, The Diary of James Kennerly]

INTRODUCTION

In 1821, Secretary of War John C. Calhoun created a new set of U.S. Army-wide regulations that covered the status and functions of the Army sutler [Delo, 1998], A sutler was a civilian merchant officially appointed by the Army to operate a general store in or near a fort with the exclusive privilege of trading with the garrison [Davis, 1971]. (1) The forts quartermaster and commissary officer supplied soldiers with only bare necessities such as beef, flour, shirt, and blanket--anything beyond this that the soldier desired was often available for purchase only from the sutler [Davis, 1971]. In addition to various sundry items such as soap, lamp oil, and hair combs, sutlers typically sold commodities including sugar, coffee, and tobacco. Despite having to comply with strict Army regulations, the monopolistic nature of the sutler's enterprise often allowed for handsome profits and some sutlers were instrumental in the economic development of the western frontier [Davis, 1971].

This study explores a sutler's accounting and business practices at frontier forts using evidence from Fort Abercrombie. Fort Abercrombie was a frontier fort in the Dakota Territory (now North Dakota) from 1858-1878. Frontier forts such as Fort Abercrombie were located in remote and isolated areas with few or no civilian settlements nearby. Supply lines and other communication lines were limited and long. Troop morale was difficult to maintain. Using primary source documents from the U.S. National Archives and the David McCauley Family Papers (DMFP), this research provides insight into how the U.S. Army adapted to the frontier environment, and its efforts to maintain troop morale by controlling various aspects of sutler operations.

In this study, the agency relationship between the Army and the sutler is examined through a franchising lens, with the Army functioning much like a contemporary franchisor and the fort sutler as a franchisee. The Army appointed the sutler, controlled the sutler's operating hours, approved the items and selling prices for sales to soldiers, and determined the store's location, among other things. This paper finds that this franchise-like arrangement was beneficial to both the sutler and the Army. The business procedures implemented and followed by the Army and a fort's sutler were necessary and in the best interest of both parties. The sutler was able to provide a much needed service --one that was essential to troop morale and effective military operations. The Army was able to protect soldiers from price gouging and from straying too far from the fort.

This paper is organized as follows. This study begins with a review of the literature on accounting and the military. Then, background information on Fort Abercrombie, a discussion of the franchise-like relationship between the Army and sutler, and an analysis of several accounting and business matters concerning the sutler are presented. The final section summarizes the study's findings and concludes.

PRIOR RESEARCH ON ACCOUNTING AND THE MILITARY

There are relatively few historical studies on accounting and the military [Funnell and Chwastiak, 2010]. Most related existing literature has focused on formal, political concerns of accounting for military expenditures on a macro level. This body of literature primarily involves the British military during the 18th, 19th and 20th centuries or North American militaries during the 19th century.

British military studies: Funnell [1997] reviews 19th century audit and accounting reforms that came about in response to the British parliaments concern over the Navy's indifference in accounting for its spending. Funnell [2005] discussed the evolution of cost accounting in the 19th and 20th centuries and demonstrated how the advantages of cost accounting were clearly established and accepted by many senior civilian military administrators and politicians as a result of Britain's experience in the South African War. Funnell [2008] found that the fear caused by the Crown's growing arrogance during the 18th century reinforced the close dependency between a parliamentary-controlled expenditure accounting program and the preservation of liberty fundamental to the English Constitution. Additionally, Funnell [2010] examined the tensions between the "peculiar and required" mode of secret services operations and the need to ensure accountability for the funds these services require (1782-1806, England). Cobbin and Burrows [2010] demonstrated that a concern for efficiency in the British Navy in the late 1880s spurred the introduction of a new system of appropriation accounting. Finally, Talbot [2010] reviewed historical statistical accounting analyses of the British and French armies of 1864 and explained how these techniques were later used in the financial management of the Bass Rifle Volunteers (England).

Military studies of other countries: Bujaki [2010] examined how a cost-benefit analysis convinced the Canadian government to build a canal principally for defense purposes rather than for commercial purposes (1826-1831). Mayer-Sommer [2010] demonstrated how the federal expenditure control system (1861-1864, U.S.) may have legitimized wartime spending to Congress and the American people. Heier [2010] showed how accounting provided a means to ensure that the management of a railroad was able to overcome operational complications caused by severe Civil War destruction that threatened the railroads ability to continue as a going concern (1861-1865, U.S.). Finally, Miley and Read [2012], in their study of Australian Army supply and equipment accountability procedures during World War II, concluded that the procedures created critical limitations that lead to inadequate and inappropriate supplies being provided to the troops in the field and damaged troop morale.

Although these studies are quite interesting, they do not directly relate to the primary purpose of the present paper. This research examines how the American frontier fort environment influenced U.S. Army regulatory practices for controlling sutler operations at a frontier fort and shaped the sutlers position and the way in which the sutler's store operated.

BACKGROUND ON FORT ABERCROMBIE

In 1858, an act of Congress led to Lt Col John J. Abercrombie establishing a fort on the Red River of the North's western shore in Dakota Territory (present-day North Dakota). (2) Near a ferry crossing, it was built "upon the most advantageous ground for the comfort and convenience of the Officer and men" [Adams, 1865]. (3) Its mission was to protect settlers and trade routes in the region. Fort Abercrombie became the "gateway to the Dakotas" [Barnes, 2008], The fort was the starting point for navigation down the Red River to present-day Winnipeg, Manitoba and a supply post for expeditions from Minnesota to points west [Barnes, 2008]. (4) The fort was located approximately 30 miles south of present-day Fargo, North Dakota. A contemporary map of the fort's location within North Dakota is presented in Figure 1.

In 1862, a Sioux Indian attack on Fort Ridgley in Minnesota encouraged Fort Abercrombie to make plans for its own defense with all soldiers ordered to remain near the post and settlers advised to come in for protection. The fort was ill-equipped for a successful defense, however, as all regular troops had left to fight in the Civil War, and the fort was manned by a unit of Minnesota Volunteers. In addition, there was no stockade wall for protection. The Sioux attacked Fort Abercrombie late in 1862. They were repelled but initiated a siege. After a siege of about a month, a battalion of Minnesota Volunteers reinforced the fort. The siege was lifted, and the Indians dispersed after one final assault in which three mountain howitzers were to prove decisive in repelling the Sioux [Adams, 1865; Johnson, 1957]. Blockhouses and stockade walls were then added and the fort continued to play a part in the Dakota War of 1862 (also known as the Sioux Uprising) during the following year.

While the fort's original mission was to protect military supply lines and stagecoach routes in addition to steamboat traffic, in later years, the fort protected railroad workers, tried to keep the peace among the local Indian tribes, and served as a military mail hub. The fort became less relevant as the frontier moved west and the Army abandoned the post in 1878 [Terry, 1878], Fort Abercrombie became a state park in 1903 and is now known as Fort Abercrombie State Historic Site located in Abercrombie, North Dakota.

A sutler at Fort Abercrombie: David McCauley was born in 1825 in Merrimac, New Hampshire. In 1858, McCauley went to St. Paul, Minnesota to work in a post office. He came to Fort Abercrombie in July 1861 to assume the position of post sutler and postmaster and as an agent for the Northwest Express Company [DMFP]. He remained as the fort's sutler until 1864 when he crossed the Red River to Minnesota to farm and operate a trading post. He constructed a sawmill in 1867 and supplied the Army with hay as the village of McCauleyville grew up around his operations [DMFP]. He married a school teacher in 1879 (Carrie Whitman--a direct descendent of John Adams and Oliver Wolcott). (5) Mr. and Mrs. McCauley died in 1900 and 1919, respectively, and are buried in St. Paul.

A FRANCHISE ARRANGEMENT

A franchising perspective is a useful lens in investigating the agency relationship between the U.S. Army and the sutler and in explaining their behavior. (6) From a public policy perspective, it often makes sense for governments to contract with private-sector entities in an effort to conserve governmental resources [Jensen and Stonecash, 2005], The relationship between the Army and the sutler was similar in nature to a contemporary franchise arrangement--the Army operated similar to a franchisor and the sutler like a franchisee.

Several studies on franchising refer to agency theory when discussing the relationship and interactions between the franchisor (principal) and franchisee (agent). Agency theory contends that organizations franchise in order to minimize agency costs through the optimal alignment between franchisees' incentives and franchisors' objectives [Rubin, 1978; Harmon and Griffiths, 2008]. The Army recognized that an agency relationship with this civilian trader played a significant role in the comfort and well-being of troops stationed at remote outposts. The sutler facilitated the provision of items to soldiers that enhanced their quality of life on the frontier without using Army resources --both personnel and financial resources. This arrangement allowed the Army to focus on its core military operations while taking advantage of a civilian trader's business expertise and desire for profit to control costs, manage inventory, and improve quality of service.

However, with this type of structure came the danger that a sutler's interest to maximize profits may not coincide with the Army's interest in providing for its soldiers. Agency problems such as the possibility of sutlers charging troops unreasonably high prices for items had to be considered. (7) The Army recognized this potential conflict of interest and instituted regulations that would give the Army the authority to control prices, product mix selection, and other operational areas. At the same time, the regulations provided significant advantages to the sutler such as a steady clientele, assistance in collecting accounts receivable, and a certain profit [Delo, 1998]. This franchise-like arrangement was beneficial for both the Army and the sutler if the regulations were properly followed.

ACCOUNTING AND BUSINESS ISSUES CONCERNING THE FORT SUTLER

The research methodology used in this study is as follows. Primary source materials including Army regulations, orders issued by the Fort Abercrombie commander, military correspondence, and various sutler documents from Fort Abercrombie were reviewed. Based on this review, a series of accounting and business issues concerning the sutler were identified. The Army regulations relating to these business matters that were in place during Fort Abercrombie's existence are then linked to original and reproduced documentary evidence emanating from the fort. In the following paragraphs, a franchising perspective (discussed above) is used to explain the behavior of the sutler and the Army. Integrated into this analysis are references to secondary sources that provide additional insight and context.

Governance: Fort sutlers were subject to military regulations and control. Articles 23 and 25 of the "Revised United States Army Regulations of 1861" [War Department, 1861] provided the regulations that controlled sutler store operations on a military reservation. (8) These regulations will be referenced in the paragraphs below in highlighting the requirements imposed on the sutler by the Army.

No regulations specifically addressed the manner in which the sutler was to maintain his accounting books. Sutlers were independent contractors and each sutler maintained accounting records according to their specific needs. There was no standard accounting system required of the sutler. Sutler ledgers from Fort Abercrombie indicated that a simple, cash basis, single entry accounting system was used. The Fort Abercrombie sutler ledgers consisted of single entry customer lists with sales amounts to the individual appearing in the debit column and payment amounts from the individual appearing in the credit column. (9)

A key administrative body in implementing the regulations at the post level was the Council of Administration. This council consisted of three senior officers next in rank to the post commander and was to convene at least once every two months [War Department, 1861, para. 193]. Duties of the council included determining "the quantity and kind of clothing, small equipments, and soldiers' necessaries, groceries, and all articles which the sutlers may be required to keep on hand; examine the sutler's books and papers, and fix the tariff prices of the said goods or commodities; inspect the sutler's weights and measures ..." [War Department, 1861, para. 196]. Commanding officers were responsible for convening the Council of Administration and reviewing the council's proceedings. This specifically included checking the prices approved by the council and ensuring that the products and services provided by the sutler met quality standards [War Department, 1861, para. 197], As noted in the paragraphs below, Fort Abercrombie commanding officers, such as Lt Col Abercrombie and others, and the post Council of Administration carried out their responsibilities in accordance with the Army's regulations.

Appointing the sutler: The importance of the sutler store to the military community in general and Fort Abercrombie specifically is reflected in how quickly a sutler was appointed after establishing a military presence in an area. The first troops arrived at Fort Abercrombie in late August 1858 with the first order being published on August 28, 1858 [Order No. 1, 1858]. The next day, an order was published calling for the Council of Administration to select a sutler for the fort [Special Order No. 4, 1858]. Although sutler appointments were often made by the Secretary of War upon whatever recommendations he found valid, appointments were sometimes made at the fort level and later validated by the secretary [Delo, 1998, p. 50]. This appears to be the case at Fort Abercrombie. Army regulations allowed every fort to have one sutler [War Department, 1861, para. 211].

The sutler's appointment was for three years unless removed by the commanding officer for cause [War Department, 1861, para. 211-212]. Some sutlers were removed from the post due to performance issues [Delo, 1998, p. 51], and there is evidence from the DMFP of a sutler at Fort Abercrombie being relieved of his appointment because he did not personally operate the store as required by Army regulations. Regulations required the sutler to actually manage the store and not "farm out" or assign the business privileges granted by his appointment to someone else [War Department, 1861, para. 219], Mr. Jesse Stone was dismissed as Fort Abercrombie's sutler "due to absenting himself from the Post and having his business through agents for more than a year" [Special Order No. 24, February 6, 1864, DMFP No. 3].

A franchising perspective is useful in explaining why a civilian would accept a sutler appointment on the remote frontier. Rubin [1978] discusses why a franchisee would seek a franchise rather than operating an independent business and concludes that some franchisees may lack the requisite human capital to open businesses without the substantial assistance of franchisors. Withane [1991] surveyed Canadian franchisees and found that many respondents choose to join franchises over starting independent businesses in order to take advantage of an established business format and the start-up and on-going support systems provided by the franchisor. Similar to a franchisor, the Army assisted and supported the frontier sutler by providing land for his store (if not a building), physical protection from hostile Indian tribes, financial protections, a steady clientele of soldiers, and a certain profit. The franchise-like operation of the sutler was a relatively low risk enterprise compared to other businesses of the period. For example, the risk of doing business in the more lucrative fur trade with local Indian tribes was considerably greater. These traders could lose their goods (and lives) in addition to having to deal with serious competition from other traders and the U.S. government [Delo, 1998, p. 24].

Controlling the sutler's selling prices: Franchising is a coordinating mechanism and contemporary franchisors often impose guidelines to control franchisee pricing [Withane, 1991; Campbell et al., 2009]. Similar to a contemporary franchisor, the Army imposed price controls on the sutler. It is evident from reading the regulations that controlling selling prices at the sutler store was important to the Army. Controlling prices served two purposes. First, it protected soldiers from being price gouged by the sutler. The soldiers were serving in an isolated area, and the sutler had no competition to force him to keep his prices at fair and affordable levels. At the same time, the approved prices had to provide the sutler with sufficient profit to make it worth his while to continue operating the sutler store. Both purposes would require that the sutler provide the Council of Administration and post commanding officer with costs to support the prices.

The post Council of Administration and commanding officer were required to approve selling prices. Army regulations placed two additional conditions on sales prices. It was required that the price list be posted in a conspicuous place in the sutlers store and there could be no difference in prices for cash or credit sales [War Department, 1861, para. 216], Evidence from the Fort Abercrombie Archives indicates that these regulations were followed. The fort commander convened a Council of Administration on December 30, 1858 to "affix a tariff on such goods as the Sutler may have on hand" [Order No. 20, 1858]. After the prices were approved by the Council of Administration and the Commissary Officer, they were published for "the information of the Garrison" [Order No. 1, 1859].

The approved price list at Fort Abercrombie included prices for dry goods (15 items), groceries (54 items), and hardware (13 items) [Order No. 1, 1859]. A comparison of Fort Abercrombie sutler prices from Order No. 1 [1859] and average U.S. prices for a sample of items is presented in Table 1. (10) Monthly pay for a private was $6.66 [Delo, 1998, p. 105], Soldiers at Fort Abercrombie had to spend their money carefully as these items could quickly consume an entire months pay.

The prices at Fort Abercrombie were considerably higher than prices charged for comparable items in the eastern part of the United States. This might raise the question of how fair the prices were for soldiers and how well the Council of Administration controlled prices. However, one must remember the unique environment in which the sutler operated, and the extra costs that he would incur because of this environment. His inventory transportation costs would be considerably higher because of the distance to the frontier post, poor road conditions and other transportation lines, and the inability to order in large quantities. He carried a limited inventory due to his small customer base which would require higher prices if he were to make a profit sufficient to stay in business.

There was concern at this time that sutlers were exploiting soldiers by charging exorbitantly high prices [New York Times, 1861; Delo, 1998, pp. 124, 128-129, 141]. However, in light of the significant costs incurred by the sutler, it would be inappropriate to conclude that the soldiers at Fort Abercrombie were being exploited and that the Council of Administration and commanding officer were negligent in controlling prices.

There is no evidence that sutlers at Fort Abercrombie sold items to soldiers at unapproved prices. The sutler would likely comply with the Army's pricing guidelines because he was still making a profit on these sales and risked disciplinary action including termination if he did not follow the approved price list.

Credit sales: Credit sales were an important aspect of a sutler's business since military payrolls were irregular on the frontier and depended on when the paymaster could get to the fort. (11) Thus, at times, there was a shortage of cash among soldiers to purchase items and if the sutler were to continue in business he would have to extend credit to the soldiers. In order to protect the soldier and the sutler, several Army regulations were put in place.

There were two specific protections for the soldier relating to credit sales at the sutlers store. First, to ensure that soldiers did not get too far into debt, there were limits on the amount of credit the sutler could extend to the soldier. The sutler could not extend credit to a soldier that exceeded one-third of his monthly pay without permission from the soldiers commander. Even with the approval of the commander, the sutler could not extend credit for more than one-half of the soldier's monthly pay [War Department, 1861, para. 217]. The regulations did not limit the amount of credit extended to officers, only to enlisted personnel. Second, a sutler could not profit from extending credit by charging higher prices for credit sales than for cash sales [War Department, 1861, para. 216]. There is no evidence that the sutler charged soldiers interest on credit sales.

Although the regulations appear to be clear about how much credit could be extended to enlisted soldiers, there seems to have been some confusion over how much credit was allowed. Jesse Stone, a Fort Abercrombie sutler, requested guidance from the Army's Adjutant General's Office on the amount of credit a post sutler could provide enlisted men each month. The response he received was that the Army Regulations and Articles of War apply [DMFP No. 2; January 12, 1863].

The Army regulations also offered some protections to the sutler in collecting on his accounts receivable for credit sales to soldiers. The fort commander was required to provide all assistance to the sutler in the collection of debts due him. This included allowing the sutler to process claims against the soldier's pay which the paymaster would have to honor before paying the soldier. In addition, the sutler was third in line to be paid, with claims from the federal government and the laundress being paid first [War Department, 1861, para. 218 and 1028].

In order to file a claim with the paymaster, the sutler's claim had to be verified by the company commander. The sutler had to provide the commander with a written account of credit sales provided to each soldier from whom he wished to collect. The company commander would provide the claim to the soldier for a signed acknowledgement of the debt. This had to be done three days prior to pay day. Debts so acknowledged must then be posted to the muster rolls [War Department, 1861, para. 218]. (12) If a soldier disputed the charge, the sutler was required to have the account verified and endorsed by an officer before it was presented to the paymaster. Deductions from a soldier's pay could not be made without clear proof and an investigation if the soldier demanded it [War Department, 1861, para. 1028].

After the acknowledgement or verification of the debt had been obtained and entered into the muster rolls, the sutler would present to the paymaster a paymaster order for the debt owed and to be deducted from the soldier's pay. The paymaster order is similar to a check payable to the sutler, signed by the soldier, and witnessed. Figure 2 is a sampling of paymaster orders used at Fort Abercrombie. As can be noted, some of the orders used out-of-date forms and not all orders were witnessed. The paymaster would check the sutler's claim against the muster roll and make the deduction and payment if the claim had been properly recorded in the muster roll.

Without protections, extending credit to soldiers on the frontier could be risky because of the high rate of desertion and deaths. The Army recognized this risk and offered related protections to the sutler. If a soldier died or deserted and had an unpaid account with the sutler, the sutler could request payment from the paymaster immediately. The sutler would be required to validate the account via endorsement by an officer before submitting the claim to the paymaster [War Department, 1861, para. 218], An example of a sutler obtaining the required proof is in Order No. 22 [1857], In this order, the post commander at Fort Lookout, Dakota Territory, convened, at the request of the sutler, a Council of Administration to audit the accounts of a deceased soldier. In another case, Jesse Stone (a sutler at Fort Abercrombie) was uncertain as to how to collect on accounts of deceased soldiers and deserters and requested guidance from the Army's Adjutant General's Office [DMFP No. 1, December 1862].

Figure 3 is a sample of an accounts receivable pertaining to Fort Abercrombie from the DMFP. Although difficult to read, this document depicts a subsidiary accounts receivable for an individual (presumably a soldier) by the name of Gates. It reflects purchases of tobacco, butter, socks, and beer made between May 1, 1865 and August 23, 1865. Normally, when payment is collected against the account, the payment is noted directly on the account. Since there is no payment noted and the record is dated May 26, 1866, it is possible that Gates never paid the sutler on this account. (13)

According to Mumdziev and Windsperger [2013, p. 169], franchisors govern their contractual relations by seeking an efficient allocation of decision rights between headquarters and the franchisees. As discussed above, decisions on credit terms extended to frontier soldiers were made by the War Department in Washington D.C., rather than at the fort level. (14) The sutler probably recognized that the Army was in a better position to estimate how much debt a soldier could withstand without causing financial ruin and appreciated the protections that the Army provided against bad debt write-offs. Consequently, the Army's policies on credit sales were most likely acceptable to the sutler in his franchise-like arrangement with the Army.

Auditing of the sutler's accounts: A post's Council of Administration was required to "examine the sutler's books and papers" and "inspect the sutler's weights and measures" [War Department, 1861, para. 196]. Although the regulation does not explicitly specify what all was involved in the examination of the sutler's books, we posit that the examination included the verification of the sutler's accounts for price setting, records associated with credit sales made to Army personnel, and the mix and quality of inventory. An audit of the sutler's books seems to have taken place at Fort Abercrombie. The post commander convened a Council of Administration on December 30, 1858 for the purpose of assessing the sutler [Order No. 20, 1858]. Since this assessment took place at the end of the year, it appears to be an audit of the sutler's year-end accounts.

Monitoring franchisees can be a challenging task and franchisors' monitoring costs are generally higher if franchisee locations are geographically isolated [Brickley and Dark, 1987; Campbell et al., 2009]. Although sutler stores on the frontier were geographically isolated, they were not isolated from the Army. In this unique franchise-like arrangement, the franchisor (Army) and the franchisee (sutler) shared the same premises. This allowed for relatively low-cost monitoring. The sutler submitted to an audit to demonstrate his compliance with Army policies and regulations or risked disciplinary action including the termination of his appointment.

Taxing the sutler: The fort commander was not permitted to tax the sutler in any way--with one exception [War Department, 1861, para. 215]. The exception pertained to the post fund. Authorized expenditures from the post fund were for the operations of a bake house, band, children's school, and library. To support these operations, the fort commander was authorized to collect a tax from the sutler of $0.10 per month per officer and enlisted man in the command [War Department, 1861, para. 198, 200]. (15) Although there is an order appointing a post fund treasurer at Fort Abercrombie [Order No. 7, 1858], there are no known records that indicate this tax was levied or collected at Fort Abercrombie. (16)

The sutler tax is comparable to a franchise fee. Many contemporary franchisees agree to pay out a portion of profits in the form of franchise fees and royalties to the franchisor [Harmon and Griffiths, 2008], However, the sutler tax was unlike contemporary franchise royalties and fees which are typically paid in exchange for the use of business models, brands and trademarks. The Fort Abercrombie sutler lived within the fort and likely enjoyed any available fort amenities and protection. The sutler, as a civilian, may have considered this tax to be a fair fee for the fort's amenities and protection.

Inventory management: Inventory management was a sutler's responsibility. A post commander was not allowed to provide enlisted personnel to help in managing a sutler's store inventory nor provide wagons or other capability for transporting a sutler's inventory [War Department, 1861, para. 1017],

However, the post commander had control over what items a sutler could sell to soldiers. Since the post's Council of Administration had to approve selling prices, the range of inventory items available to soldiers could be controlled by simply not approving a selling price for an item. Order No. 1 [1859] listed the approved selling prices for 82 inventory items. If an item was not on this list, it could not be legally sold by the sutler to Army personnel.

One of the inventory items that could be most troublesome for a post commander was alcohol. (17) Drunkenness and alcoholism could be a major problem on a frontier post due to the isolation of the fort. There was little to do at a frontier post in off-duty hours, and soldiers frequently turned to drinking in their inactivity and loneliness. It seems that Fort Abercrombie was not immune to alcohol-related problems. Thus, at times, the sale of whiskey, beer, cider, and other alcoholic beverages was prohibited at Fort Abercrombie--and the sutler was held responsible for complying with this prohibition [Order No. 15, 1858; Order No. 18, 1858]. Whiskey and other alcoholic beverages were not included in the price list published in Order No. 1 [1859], probably because their sale was prohibited by an earlier order.

A sutler was not restricted to selling only to post soldiers, and therefore, his inventory could include items prohibited for soldiers but sold to civilian settlers in the area and to the Army itself. Even though the sutler was allowed to sell items to the civilian settlers in the area, there was an insufficient population of settlers in the Fort Abercrombie area to sustain a profitable store based on the civilian market alone.

In a franchise structure, franchisors often control the product mix that franchisees are allowed to sell [Campbell et al., 2009], Although the range of items available for sale to soldiers was strictly controlled by the Army, the frontier sutler was "limited in the exploitation of his position only by his native talent and luck" [Davis, 1971, p. 38]. Sutler stores could have separate trades with military personnel, civilian settlers, Indians, and travelers. Some sutlers performed a variety of banking services and bid on military supply contracts [Davis, 1971], (18) There is no evidence that sutlers at Fort Abercrombie sold unauthorized items to soldiers. Sutlers likely followed Army guidelines concerning the range of items available for sale to soldiers so as not to threaten their appointment.

Facility management: Army regulations allowed the sutler to use as his store a building originally erected at the expense of the government if there was no other use for it. The sutler was responsible for the maintenance and repair of the building. If a government-erected building was not available, the sutler was permitted to build a store on the post at his own expense. In either case, the sutler was responsible for building his own residence which was also allowed to be on post [War Department, 1861, para. 215 and 1017].

Lt Col Abercrombie [1858] in a letter to his headquarters and the Army's Quartermaster General describing the buildings that were to be erected at Fort Abercrombie stated that the sutler's store and quarters were to be constructed at the sutler's expense. The sutler's store was located in the northeast corner of the fort and the sutlers house was in the southwest corner. Figure 4 is an illustration of Fort Abercrombie in 1863. The sutler's store location is circled and the Red River of the North is depicted behind the sutler's store. (19)

Army regulations did not restrict store operating hours. However, the commander at Fort Abercrombie did set the hours in which the sutler could sell to soldiers. Order No. 14 [1858] established the hours from reveille to fatigue call at 7:30 am, 12:30 pm (a half hour after fatigue recall) to 1:30 pm, and from 20 minutes before sunset until 6:00 pm and at no other time. (20) These hours were later modified to be from breakfast call until 9:00 am, 11:30 am to 1:30 pm, and 3:00 pm to retreat [Order No. 18, 1858].

Many contemporary franchisors require that franchisees pay for store construction and franchisors often dictate the hours of franchise operation [Withane, 1991]. The franchise-like organizational structure between the Army and sutler at Fort Abercrombie provided a similar arrangement in that the sutler was responsible for building the store. However, the sutler franchise was unique in light of the flexibility granted the sutler for sales to civilians. There is no evidence that sutlers at Fort Abercrombie sold items to soldiers outside of the approved operating hours and sutlers probably followed the fort commanders orders regarding operating hours so as not to threaten their position.

SUMMARY AND CONCLUSION

The needs of the community can impact organizations' accounting and business practices [Burchell, 1980; Hopwood, 1983; Hopwood and Miller, 1994; Puxty, 1998], For a small community operating in a remote environment such as Fort Abercrombie on the edge of the western frontier during the mid-19th century, the isolation of the post and the Army's concern for the comfort and well-being of the troops prompted the military to create a set of regulations that covered the status and functions of the Army sutler. The community (i.e., soldiers) desired goods that the Army itself did not provide. The soldiers did not have the option of obtaining these items from nearby stores due to a lack of civilian settlement in the area. Thus, the needs of the soldiers caused the Army to create the sutler position, and a series of regulatory accounting and business policies were necessary in order to control sutler operations.

A franchise-like arrangement with the Army drove the sutler's accounting and business practices. The sutler would follow strict rules concerning selling prices and credit extension. To justify and support his proposed selling prices, he would need a full-cost system. He would need to recover not only his inventory costs, but also inventory transportation costs, any taxes paid to the post fund, the cost of building, maintaining and operating his facility, and profit. The sutler would also need to keep accurate accounting records or risk losing his post upon an audit. To collect on his accounts receivable through the paymaster, he would need to maintain an accounting record of what was sold to each soldier on credit and at what price.

This study examined how a monopolistic commercial operation, the fort sutler store, was regulated and controlled for the benefit of the U.S. Army in the mid-19th century. Sutler operations (for sales to soldiers) such as store hours, credit sales, and inventory product mix were controlled locally by the fort's Council of Administration and fort commander which allowed for more effective military operations. (21) This paper finds that the franchise-like arrangement and related business procedures were beneficial to, and in the best interest of, both the sutler and the Army. The sutler was able to provide a much needed service - one that was essential to the Army's objectives of maintaining troop morale and facilitating effective military operations while earning a sufficient profit.

Acknowledgments: The authors thank Gloria Vollmers (editor) and the two anonymous reviewers for their helpful comments and suggestions. The authors are also grateful for assistance provided by Paul Nelson, Fort Abercrombie State Historic Site Narrator, and the Institute for Regional Studies Archives at North Dakota State University.

REFERENCES (22)

Primary Sources:

Abercrombie, J.J. Lt Col (December 23, 1858), Military correspondence (Images 4569-4571), Fort Abercrombie Archives, Fort Abercrombie, North Dakota.

Adams, C.P. Lt Col (December 5, 1865), Military correspondence (Images 46554662), Fort Abercrombie Archives, Fort Abercrombie, North Dakota.

David McCauley Family Papers (DMFP), MS 329, Institute for Regional Studies, North Dakota State University, Fargo, North Dakota.

Lieber, G.N., Judge Advocate General (1898), Remarks on The Army Regulations, Washington: Government Printing Office.

Order No. 1 (August 28, 1858), Fort Abercrombie Archives (Image 4906), Fort Abercrombie, North Dakota.

Order No. 1 (January 31, 1859), Fort Abercrombie Archives (Images 4938-4941), Fort Abercrombie, North Dakota.

Order No. 7 (September 30, 1858), Fort Abercrombie Archives (Image 4917), Fort Abercrombie, North Dakota.

Order No. 14 (November 11, 1858), Fort Abercrombie Archives (Image 4926), Fort Abercrombie, North Dakota.

Order No. 15 (November 23, 1858), Fort Abercrombie Archives (Image 4929), Fort Abercrombie, North Dakota.

Order No. 18 (December 1, 1858), Fort Abercrombie Archives (Images 4930-4931), Fort Abercrombie, North Dakota.

Order No. 20 (December 30, 1858), Fort Abercrombie Archives (Image 4935), Fort Abercrombie, North Dakota.

Order No. 22 (February 27, 1857), Fort Abercrombie Archives (Image 4886), Fort Abercrombie, North Dakota.

Report of the Special Commissioner of the Revenue (1868), Washington: Government Printing Office.

Special Order No. 4 (August 29, 1858), Fort Abercrombie Archives (Image 4908), Fort Abercrombie, North Dakota.

Terry, A.H. Brig Gen (June 15, 1878), Military correspondence, Fort Abercrombie Archives (Images 4527-4528), Fort Abercrombie, North Dakota.

War Department (August 10, 1861), Revised United States Army Regulations of 1861, Washington: Government Printing Office.

Other References:

Barnes, J. (2008). Forts of the Northern Plains (Mechanicsburg: Stackpole Books).

Brickley, J.A. and Dark, F.H. (1987), "The Choice of Organizational Form: The Case of Franchising," Journal of Financial Economics, Vol. 18: 401-420.

Bujaki, M.L. (2010). "Cost-Benefit Analysis in Correspondence related to Building the Rideau Canal," Accounting History, Vol. 15, No. 2: 229-251.

Burchell, S., Clubb, C., Hopwood, A., and Hughes, J. (1980). "The Roles of Accounting in Organizations and Society," Accounting, Organizations and Society, Vol. 5, No. 1, pp. 5-27.

Campbell, D., Datar, S.M., and Sandino, T. (2009), "Organizational Design and Control across Multiple Markets: The Case of Franchising in the Convenience Store Industry," The Accounting Review, Vol. 84, No. 6: 1749-1779.

Cobbin, P.E. and Burrows, G.H. (2010), "The British Navy's 1888 Budgetary Reforms," Accounting History, Vol. 15, No. 2: 153-172.

Davis, W.N. Jr. (1971), "The Sutler at Fort Bridger," Western Historical Quarterly, Vol. 2, No. 1: 37-54.

Delo, D.M. (1998), Peddlers and Post Traders: The Army Sutler on the Frontier (Helena: Kingfisher Books).

Eisenhardt, K.M. (1985), "Control: Organizational and Economic Approaches," Management Sciences, Vol. 31, No. 2: 134-149.

Funnell, W. (1997), "Military Influences on the Evolution of Public Sector Audit and Accounting 1830-1880," Accounting History, Vol. 2, No. 2: 9-29.

Funnell, W. (2005), "Accounting on the Frontline: Cost Accounting, Military Efficiency and the South African War," Accounting and Business Research, Vol. 35, No. 4: 307- 326.

Funnell, W. (2008), "The Proper Trust of Liberty: The American War of Independence, Economical Reform and the Constitutional Protections of Accounting," Accounting History, Vol. 13, No. 1: 7-32.

Funnell, W. (2010), "On His Majesty's Secret Service: Accounting for the Secret Service in a Time of National Peril," Accounting Historians Journal, Vol. 37, No. 1: 29-52.

Funnell, W. and Chwastiak, M. (2010), "Editorial: Accounting and the Military," Accounting History, Vol. 15, No. 2: 147-152.

Harmon, T.R. and Griffiths, M.A. (2008), "Franchisee Perceived Relationship Value," Journal of Business & Industrial Marketing, Vol. 23, No. 4: 256-263.

Heier, J. R. (2010), "Accounting for the Ravages of War: Corporate Reporting at a Troubled American Railroad during the Civil War," Accounting History, Vol. 15, No. 2: 199-228.

Hopwood, A. (1983), "On Trying to Study Accounting in the Contexts in which it Operates," Accounting, Organizations and Society, Vol. 8, No. 2-3: 287-305.

Hopwood, A. and Miller, P. (1994), Accounting as Social and Institutional Practice (Cambridge: Cambridge University Press).

Jambulingam, T. and Nevin, J.R. (1999), "Influence of Franchisee Selection Criteria on Outcomes Desired by the Franchisor," Journal of Business Venturing, Vol. 14: 363-395.

Jensen, P.H. and Stonecash, R.E. (2005), "Incentives and the Efficiency of Public Sector-Outsourcing Contracts," Journal of Economic Surveys, Vol. 19, No. 5: 767-787.

Johnson, R.P. (January 1957), "The Siege at Fort Abercrombie," North Dakota History, Vol. 24.

Mayer-Sommer, A. P. (2010), "So Many Controls; So Little Control: The Case of Isaac Henderson, Navy Agent at New York, 1861-4," Accounting History, Vol. 15, No. 2: 173-198.

Miley, F. and Read, A. (2012), "The Implications of Supply Accounting Deficiencies in the Australian Army during the Second World War," Accounting History Review, Vol. 22, No. 1:73-91.

Mumdziev, N. and Windsperger, J. (2013), "An Extended Transaction Cost Model of Decision Rights Allocation in Franchising: The Moderating Role of Trust," Managerial and Decision Economics, Vo. 34: 170-182.

New York Times (1861), "ARMY SUTLERS.; Senator Wilson's Bill to Abolish Army Sutlers Abuses, Extortions and Profits of Sutlers; Reforms Needed Regulations and Articles of War on Sutlers; Soldiers Cannot Do Without Sutlers; Could Not Get Tobacco," The New York Times, December 4, http:// www.nytimes.com/1861/12/04/news/armv-sutlers-senator-wilson-s-bill-abolish-armv-sutlers-abuses-extortions.html

Puxty, A. (1998), The Social and Organizational Context of Management Accounting (London: International Thompson Business Press).

Rubin, P.H. (1978), "The Theory of the Firm and the Structure of the Franchise Contract," The Journal of Law & Economics, Vol. 21, No. 1: 223-233.

Sutler (n.d.), In Merriam-Webster's online dictionary, Retrieved August 28, 2014, from http://www.merriam-wehster.com/dictionarv/sutler

Talbot, P.A. (2010), "Colonel William Henry Sykes: His Contribution to Statistical Accounting," Accounting History, Vol. 15, No. 2: 253-276.

Williamson, O.E. (1985), The Economic Institutions of Capitalism (New York: Free Press).

Withane, S. (1991), "Franchising and Franchisee Behavior: An Examination of Opinions, Personal Characteristics, and Motives of Canadian Franchisee Entrepreneurs," Journal of Small Business Management, January: 22-29

William F. Bowlin

NORTH DAKOTA STATE UNIVERSITY

and

David N. Herda

NORTH DAKOTA STATE UNIVERSITY

(1) The origin of the word sutler is obsolete Dutch soeteler, from Low German suteler meaning sloppy worker, camp cook. The word's first known use was in 1599 [Meriam-Webster's online dictionary, n.d.].

(2) Fort Abercrombie was named after Lt Col John J. Abercrombie, the first commander of the fort.

(3) The original fort was not occupied for long. In March 1859, it was ordered that Fort Abercrombie be abandoned. The abandonment was completed by July 1859 and all supplies, tools, and other items were repositioned to Forts Ripley and Ridgley in Minnesota. In August 1860, the fort was reestablished at a site close to the original location that was not subject to flooding as was the first site [Adams, 1865].

(4) This refers to the Red River of the North. The river presently serves as the border between North Dakota and Minnesota and flows north.

(5) John Adams (1735-1826) was the second president of the United States and Oliver Wolcott (1726-1797) was a signer of the Declaration of Independence and Governor of Connecticut.

(6) We thank an anonymous reviewer for comments and suggestions that enriched this section.

(7) Franchisors confront an agency problem if franchisees' actions do not reflect the best interests of the franchisor as a whole [Campbell et al. 2009]. Franchisors must carefully screen and monitor franchisees in order to limit their opportunistic behavior [Jambulingam and Nevin, 1999]. Opportunism is defined as "self-interest seeking with guile" [Williamson, 1985, p. 47] and is one of the key assumptions of agency theory [Eisenhardt, 1985]. Franchisors can increase their control over franchisee behavior and limit opportunism through centralized decision making and by retaining the right to terminate the franchise agreement if the franchisee violates operational conditions [Campbell et al. 2009; Mumdziev and Windsperger, 2013].

(8) The 1861 Army regulations were a repetition of the 1857 regulations with only minor modifications (Lieber, 1898, p. 67). It does not appear that the modifications affected the regulations governing sutler store operations. Thus, we are comfortable in using the 1861 regulations as the source of regulatory governance for the time period in our study.

(9) No evidence was found to indicate that frontier sutlers were using a double entry accounting system. Sutler ledgers from Fort Abercrombie appear to be consistent with the format of sutler ledgers emanating from other forts and regiments during similar time periods. For example, sutler ledgers from Fort Scott (Kansas, 1844-1845) and from the 14th Colored Infantry Regiment (North Carolina, 1864-1866) were reviewed. These ledgers were also single entry customer lists with sales amounts appearing in the debit column and payment amounts appearing in the credit column.

(10) The Report of the Special Commissioner of Revenue [1868] provides the average U.S. retail prices for a variety of items for the 1860-1861 governmental year. The average prices were computed based on retail prices in manufacturing towns in the states of New York, Pennsylvania, New Jersey, Delaware, Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, and Connecticut. Although there is a slight temporal difference in the years covered by the comparison (see Table 1), the Minneapolis Federal Reserve reports that the Consumer Price Index increased only 3.8% in 1859 and not at all in 1860, so the impact of the time difference on prices is negligible (Source: http://www.minneapolisfed. org/community_education/teacher/calc/hist1800.cfm). Retail prices for other items at the sutler store include: wool socks, $0.65; wool mittens, $1.00; blanket, $5.00; tobacco, $0.10 per pound; almonds, $0.40 per pound; French mustard, $0.65 per jar; peaches, $1.25 per can; Bowie knife, $3.00; padlock, $0.75; and scissors $0.35, Comparative prices for these items were not available.

(11) The Army recognized this limitation in their regulations: "When practicable, persons hired in military service shall be paid at the end of the calendar month." [War Department, 1861, para. 1011]. Emphasis added.

(12) A muster roll is a registry of the officers and enlisted men assigned to a military unit.

(13) Figure 2 includes a paymaster order signed by Gates in 1864 indicating that the sutler was probably able to collect on debt incurred by Gates prior to May 1, 1865.

(14) The War Department was part of the U.S. Presidents Cabinet and is now known as the Department of Defense.

(15) The other source of income for the post fund was savings from operating a post bakery instead of purchasing bread [War Department, 1861, para. 198].

(16) No bakery, school or library was depicted in an 1871 map of Fort Abercrombie and no such facility is represented at the present-day historic site.

(17) Delo [1998] points out that alcohol was often the sutler's most important commodity and greatest source of profit. Alcohol-related problems posed a considerable concern for post commanders, as most of the discipline cases they dealt with on the frontier stemmed from liquor. As such, local rules concerning liquor sales varied and frequently changed. Several sutlers were excused from their post because they overlooked or disregarded liquor regulations.

(18) After his term as sutler at Fort Abercrombie had ended, David McCauley continued to supply the Army with hay [DMFP]. Although McCauley played an important role in the economic development of the Fort Abercrombie area, significant economic development did not occur in the Dakota Territory until late 19th century. The railroad and grants of land for agricultural use were instrumental to the region's development.

(19) A military guardhouse is the only original structure remaining at the present-day site. The site features reconstructed blockhouses and stockade walls, and an interpretive center. Placards and "ghosted" outlines are used to designate where other original buildings once stood, including the sutler's store and house.

(20) Reveille is a bugle call at sunrise used to wake soldiers. Fatigue call is a bugle call signaling soldiers to report for fatigue duty. Fatigue duty included work that is not directly related to military operations such as kitchen duty, latrine duty, area clean up, and other domestic-like work. Fatigue recall is fatigue call after lunch. Sunset in November at Fort Abercrombie would have been between 4:40 and 5:00 pm.

(21) This is consistent with previous studies that find military effectiveness to be adversely affected by centralized civilian control of business and accounting processes [e.g., Funnell, 2005; Funnell and Chwastiak, 2010; Miley and Read, 2012].

(22) The image numbers included in certain references correspond to numbers assigned to digital images of documents that were provided to us by personnel at the Fort Abercrombie Historic Site. The original documents are in the National Archives in Washington, D.C. We refer to these digital images of historical documents as the Fort Abercrombie Archives in this paper.

TABLE 1
Price Comparisons between the Fort Abercrombie Sutler's Store
and Average U.S. Prices

                             Fort
                          Abercrombie       Average       Percent
Item                      1859 price    1860-1861 price   mark-up

Boots (per pair)          $5.50-$6.50        $3.30        67-97%
Syrup (per gallon)           $1.90          $0.4974        282%
Soap(per pound)              $0.35          $0.0786        345%
Starch (per pound)           $0.25          $0.0991        152%
Butter (per pound)           $0.35          $0,197          78%
Brown Sugar (per pound)      $0.25          $0.0834        200%
Coffee (per pound)           $0.35          $0.1826         92%
Black tea (per pound)        $1.00          $0.6772         48%

Sources: Fort Abercrombie sutler prices are from Order No. 1 [1859].
Average prices are from the Report of the Special Commissioner of
the Revenue [1868].
COPYRIGHT 2015 Academy of Accounting Historians
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2015 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Author:Bowlin, William F.; Herda, David N.
Publication:Accounting Historians Journal
Article Type:Report
Date:Jun 1, 2015
Words:8530
Previous Article:A historiographical review of research concerning accounting changes in post-communist economies.
Next Article:Changing perceptions of U.S. standard setters concerning the basic objectives of corporate financial reporting.
Topics:

Terms of use | Privacy policy | Copyright © 2019 Farlex, Inc. | Feedback | For webmasters