FINDING AGAINST CROWN

Ashburton Guardian, Volume 69, Issue 266, 23 August 1949, Page 2

FINDING AGAINST CROWN

Borough Audit Case at New Plymouth AWARD OF £BIO4 DAMAGES (P.A.) NEW PLYMOUTH, Aug. 22. A finding against the Crown in favour of the New Plymouth Borough Council for £BIO4 11s Bd, with costs, was given by Mr Justice Stanton ?n his reserved judgment on a petition of right against the King delivered this afternoon. The original claim was for £17,395 14s as damages for alleged jiegligence of certain officers of the Audit Department auditing the corporation’s accounts. Defalcations by the council’s cashier, Bruce Guilford, amounting to £17,751 were detected in May, 1945. His Honour said the djities of the Audit Department were to make an annual inspection and examination of the books and accounts of the council if possible and, on receipt of the bal-ance-sheet and statements from the council, it must examine and certify it as soon after April 30 in each year as possible.

“The question is what construction is to be placed on the words relating to possibility,” his Honour continued. He deduced from authorities that the duty by the Audit Department to make an annual inspection and to complete each annual audit as soon as possible after April 30 was to be considered and determined in the light of all circumstances then existing, including the facilities available to it in the form of trained staff. Reasonable Steps Taken The test must be whether the Audit Department did take all reasonably practicable and available means to have all these audits completed as soon as possible. “Such an inquiry is naturally a matter of considerable difficulty, but in the result I have come to the conclusion that it did so,” said his Honour.

His Honour said he concluded that no breach of duty on the part of the Audit Department had been established by reason of delay in either the commencement or completion of the audits of the council’s accounts for the years ended on March 31, 11)47, and. 1848. This conclusion was important, because it was in those years that defalcations took place and at an increasing rate, so that if they had been discovered, even six monllis earlier, than they were the saving to the council would have been very considerable.

Another conclusion of his Honour was that there was' no absolute duty on the Audit Department to make periodical inspections of the council’s accounts during the year. Tire fact that the Public’Revenues Act only required an annual inspection to be made “if possible” was in his opinion a strong argument 'against any inference that half-yearly, > quarterly, _ or oilier interim inspections were impliedly required.

Unusual Case Dealing with the claim that the Audit Department failed in its duty when, in December, 11)17, it began to work on the audit of 11)47 and 1948 years, his Honour said the law relating to the liability of auditors in relation to the discovery of frauds and theft by employees had been laid down in many cases. This case, however, differed from' all other cases he had read, in that the audit was only in progress when the frauds were discovered and the question therefore was not, as in other cases, whether the auditor had been guilty of negligence in a completed audit but whether he had been so guilty at any, and if so what particular, date in the course of the audit. Mr Clulee, who was then district audit inspector at New Plymoutr, did not in the period up to May 14, 1948, count the cash. He had admitted that to count cash at the beginning of an audit was a proper procedure. While his Honour found it- difficult to fix the date when it became an imperative duty, especially in view of tbe long delay in beginning the audit to make a proper cash check, he thought the date could not be put later than March 31, 1948, when another accounting period bad concluded and it was necessary to zero the casli register. “I think it .clear that if this had been done the frauds must have been discovered7’ his Honour commented.

Danger Signals Alterations and erasures in the main cash receipts book and spread banking were agreed to be danger signals that should arouse suspicion in the minds of auditors. His Honour thought that somebody should certainly have seen these signals by March 31, 1948. “My conclusion is therefore that the Audit Office should have discovered Guilford’s frauds and put an end to them by March 31, 1948, and this creates prima facie a liability for the losses that occurred after that date,” said his Honour. “These are shown to amount to £8270 11s Bd. It seems to be accepted that the measure of damages in such a case as this is the amount of loss that has occurred during the period after the auditor is found to be at fault.” .