TREASURY’S CASE

Dominion, Volume 27, Issue 70, 15 December 1933, Page 12

TREASURY’S CASE

Treatment of Exchange REPLY TO CRITICISM Control of Expenditure Criticism by the Controller and Au-ditor-General of the Governments treatment of exchange in the public accounts is answered by the Treasury in a statement placed before the Public Accounts Committee of the House of Representatives. By way of reply, the Treasury quoted a letter written to the Audit Office on August 21 last. “The problem,” states this letter, is admittedly a difficult one, but two distinct questions are . involved, (a) the basis of accounting for external transactions, and (b) the recovery of exchange costs paid by the Consolidated Fund from other accounts. At the outset it is pointed out that there is still no justification for regarding the present exchange position between the three countries (New Zealand, Australia, the United Kingdom) as being anything more than a temporary phase. “Basically, our pound is identical with the pound sterling, and. as yet there is no reason to suppose that we will not return to exchange parity with sterling as soon as the present economic strain is eased. This being so, there Is no reason to depart from the longestalblished practice of accounting for London payments at face value and dealing with any exchange costs on remittances as separate and distinct transactions. While the whole monetary system in all countries is m a state of flux, it is surely not advisable t<? make any permanent fundamental changes in New Zealand.

Under One Heading.

“Under the existing system,” the Treasury letter proceeds, “exchange costs to the Consolidated Fund are segregated under one heading and there is nothing to be gained by undertaking all the additional work involved in apportioning it over the other items of expenditure out of the Consolidated Fund. This, however, does not prevent exchange costs being recovered from other accounts if such recovery is equitable and desirable and above all practicable. In a time of extreme financial pressure like the present expediency must of necessity to some extent over-ride the niceties of equity and all available resources be drawn on for the support of the Budget. “Insofar as the equities of the case are concerned it is pointed out that the exchange rate on London has been deliberately pegged at its present level as a matter of economic adjustment to relieve the snancial pressure on the primary industries. This being so, it is a debatable point how far it is equitable to load the self-contained activities with any portion of the State’s share, of the additional exchange costs. From the practical point of view, however, it is evident that the electric supply account referred to in your memorandum is not in a position to carry additional burdens as it has already accumulated losses exceeding £400,000. Furthermore, to increase the charges for the sale of electricity would partly offset the benefit it is intended to give through the pegged exchange, and as the latter Is only likely to be temporary there Is also the question whether it Is advisable to disturb trade by raising and lowering charges for electricity. State Advances Office. “As for the position of the State Advances Office it is sufficient to say that it has already, been found necessary to reimburse that office out of the Consolidated Fund for the losses incurred through the statutory reduction In mortgage rates under the National Expenditure Act. Furthermore, it is evident that the heavy fall in land values which has taken place must mean serious losses to the office. In these circumstances It is clear that there is nothing to be gained by attempting to load the. State Advances Office with exchange costs on their payments of interest abroad.” The Treasury also said that the Audi-tor-General’s table of transactions under the Banks Indemnity Exchange Act had been built up from the Public Accounts. “As stated in the Budget,” the Treasury Continued, “the London exchange required to meet normal requirements is being taken from the amounts purchased under the indemnity arrangements. The statement that £5,900,000 had been so used up to September 30 last is not correct, as the balance of the Consolidated Fund is affected by New Zealand as well as London transactions. Concerning the investment of "the funds it is pointed out that a fundamental principle in public accountancy is the pooling of cash resources in one bank account, in this case the public account. As far as possible the idle balance is kept down to the net amount required to meet the net total requirements of all accounts. . “Any cash not immediately required either in London or New Zealand is invested in liquid asset? and the interest earned apportioned as equitably as possible to the vaHous accounts on the bases of their average balances. As during the period referred to the greater part of the cash balance stood to the credit of the Consolidated Fund, that account would receive the major portion of the interest earned. If the cash had to be kept in separate compartments and a working balance maintained in cash, the aggregate balance of idle cash would be much greater than it is at present. Consequently less interest would be earned.” Control of the Purse.

A denial of the Auditor-General’s claim that Parliamentary control of expenditure i» weakening was made by the Treasury in its statement. The AuditorGeneral in his report mentioned two specific cases where legislation had recently been enacted giving powers of expenditure to Ministers of the Crown. Ttiese cases were examined by the Treasury, which claimed that one did not involve expenditure, but merely equitable adjustment between accounts, while the other was only a matter of the internal management of a debt. "Balance-sheets are required by Statute, and steady progress is . oeing made in eliminating duplication and coordinating these accounts with the cash, accounts,” stated the Treasury. The balance-sheets are subject to audit. All expenditure, however, must be authorised by Parliament in one form or another and passes through the cash accounts subject to check at every step by audit, Far from weakening Parliamentary control ot expenditure, the balance-sheets and accompanying profit and loss accounts must strengthen it, for the real position m each activity is thereby disclosed and the House is able to judge the administration The vote expenditure in itself, even in comparison with the previous year, gives no indication as to the financial position of any department. . “Every voucher passes through the Audit Office and is checked against its correct appropriation, but Parliamentary control of expenditure does not require a mass of detail that can be better dealt with in the balance-sheets and revenue accounts to be duplicated in the abstract of the cash accounts, where a more intelligent picture of the financial position as a whole can he presented by summarising expenditure.’’ Uniformity and Continuity. The Treasury agreed that in principle, uniformity and continuity in the form of

the public accounts was desirable, but the principle should not be carried to such lengths as to prevent desirable reforms. As a matter of fact in recent years a great deal had been done in the matter of suitably grouping revenue and expenditure and generally rendering the accounts simpler and more' easily understood by the public. The abolition of a great many permanent appropriations was a reform that was strongly advocated by the Audi-tor-General himself. The Auditor-General’s complaint that old-age, widows’, miners’, and South African war pensions had been reduced sooner than the legislation allowed was described by the Treasury as a technicality. The matter had been referred to the Prime Minister, who had decided that legislation was not necessary and-conse-quently no further action had been taken. Referring to the statement of irregularities occurring in the High Commissioner’s office, Treasury said it would. appear from the entry that the defalcations were made by members of the Commissioner’s staff. This was not altogether correct, for one of the two men concerned was the audit officer, who was on the staff of the Controller and Auditor-Gen-eral. The frauds were only possible owing to the false certificates signed by this officer. Furthermore, it had been established that the second audit officer in London was kware of the irregularities, but did not report them until after they had been discovered by the secretary to the New. Zealand Treasury. It is stated also that certain, unsatisfactory features in connection with the London audit officer had been brought under the Audi-tor-General’s notice by the Prime Minister 12 months before the defalcations had been discovered. -