EXCHANGE RATE

Evening Post, Volume CXVI, Issue 144, 15 December 1933, Page 9

EXCHANGE RATE

KEEPING OF ACCOUNTS

AUDITOR'S CRITICISM

REPLY BY TREASURY

A reply to the Controller and Audi-tor-General's criticism of the Government's method of treating of the exchange rate account was furnished to the Public Accounts Committee during its deliberations on the AuditorGeneral's report. "The problem," states this letter, "is admittedly ajdifftcult 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 long-established 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 in a state of flux, it is surely not advisable to make any permanent fundamental changes in New Zealand. "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 wor,k 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 b» drawn on for the support of the Budget. "DEBATABLE POINT." "In so far 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 financial 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. "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 crtit 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 Soptember 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. INVESTMENT OF SURPLUSES. "Any cash not immediately required either in London or New Zealand is invested in liquid assets and the interest earned apportioned as equitably as possible to the various 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 tho 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 bo much greater than it is at present. Consequently less interest would be earned." A denial of the Auditor-General's claim that Parliamentary control of expenditure is weakening was made by tho Treasury in its, statement. The Auditor-General in his report mentioned two specific cases where legislation had recently been enacted giving powers of expenditure to Ministers of the Crown. These 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. "Bnlnnee-sheets are required by Statute, and steady progress is being made in eliminating duplication and coordinating these accounts with the cash accounts," states the Treasury. "The balance-sheets are subject to audit. All expenditure, however, must bo authorised by Parliament in one form or another, and passes through the cash accounts subject (o check at every stop by audit. Far from weakening Parliamentary control of expenditure, the balance-sheets and accompanying profit and loss accounts must strengthen it, for the real position of each activity is thereby disclosed and tho 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. "INTELLIGENT PICTURE." "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 bo duplicated in the abstract of the cash accounts, where a more intelligent picture of the'financial position as a whole can be presented by summarising expenditure." 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 tho public. The abolition of a great many permanent appropriations was a .reform that was strongly advocated by the AuditorGeneral 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 j described by tho Treasury as a technicality. The matter had been referred to tlio Prime Minister, who had decided that legislation was not necessary and consequently no further action had been taken. Referring to the statement of irregularities occurring in the High Commissioner 's office, the 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-General. 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 aware of the irregularities, but did not report them until after they had been discovered by the secretary to the Now Zealand Treasury. It is stated also that certain unsatisfactory features in connection with the London audit officer (iad been brought under the AuditorGeneral's notice by the Prime Minister twelve months before the defalcations had been discovered.