EXCHANGE COSTS

Evening Post, Volume CXVIII, Issue 58, 6 September 1934, Page 5

EXCHANGE COSTS

KEEPING ACCOUNTS

AUDITOR'S COMMENTS

CURRENCIES VARY

LOSS IN INTEREST

Further pointed criticism of the Government's method of dealing with exchange in the Public Accounts was contained in the annual report of the Controller and AuditorGeneral (Col. G. F. C. Campbell), presented to Parliament yesterday. Col. Campbell drew attention to the fact that the practice of failing to discriminate between New Zealand currency and sterling in the accounts, and also of failing to bring the cost of exchange to charge in the proper and appropriate account, still obtained. In a table attached to the report Col. Campbell gives the total expenditure incurred under the Act (in New Zealand currency.) at £45,744,483" 14s 6d. He further pointed out that there, had been a loss of 4 per cent, in transactions in Treasury bills.

"In my last year's report," said Colonel Campbell, "I found it necessary to comment adversely on the method of treating exchange in the Public Accounts, and I then explained that in some transactions between New Zealand and London the figures were shown in New Zealand currency, whereas in others they were shown in sterling. It was also pointed out that in certain instances- the amount of the exchange was charged against the ordinary revenue account instead of against the account for which the charge was incurred.

"From recent statements by the

Nature of Trahaction.

Amount raised by the issue of. Treasury bills under Section 7 of the Act, for the purchase of surplus exchange on London, and including the payment of exchange thereon 2 Amount provided' for purchase of surplus exchange from funds not raised by the issue ■ of Treasury bills under the Act Total amount provided for the purchase of surplus exchange and the payment of exchange thereon (in- New. Zealand currency) .-....■ 2 Amount paid to the banks for purchase of surplus exchange under Section 4 of the Act- ;' ■•••'•• 1 Exchange paid to the banks on above surplus exchange under Section 6 of the Act Total amount paid for the purchase of surplus exchange and the payment of exchange thereon • 2 Amount of discount on Treasury bills issued under the Act Total expenditure incurred under the Act (in New Zealand currency) 2 Amount of surplus exchange 'paid Into the New Zealand Government Indemnity Exchange Account, Condon (in sterling) .... ] Deduct — , , Amount of surplus cxchanKe transferred from the New Zealand Government Indemnity Exchange Account, London, to the New Zealand Public Account, London (in sterling) •■ Amount of surplus exchange retained in the New Zealand Government Indemnity Exchange Account, London (in sterling) .. : Shillings and pence omitted.

Governor of the Reserve Bank of New Zealand, I gather that the present high rate of exchange between New Zealand and London, is.likely to be maintained for a considerable period, and it follows, therefore, that the matter of .correct treatment of exchange in the accounts of the Dominion is of even greater importance now than it was formerly. I therefore desire again to call attention to the fact that the practice of failing to discriminate between New Zealand currency and sterling in our accounts, and also of failing to bring the cost of exchange to charge in the proper appropriate account, still obtains.

"The present method of treating exchange leads to anomalies in some cases —for instance, London balances amounting to some £19,700,000 sterling were shown in the Public Accounts of New Zealand at that figure, the sterling amounts being incorporated in the New Zealand accounts without distinguishing them from amounts stated in New Zealand currency, to or from which they were added or subtracted as if they were the same thing. In the caso of the Reserve Bank, however, the same balances when taken' over by the bank are shown not in sterling, but in New Zealand currency.. The same asset which was shown in the Public Accounts as £19,700.000 (approximately) was shown in the first published, statement of the assets and liabilities of.the Reserve/Bank .as £24,400,000 (approximately), a difference of, roiighly, £4,700,000 due to the erroneous method of treating exchange in the Public Accounts. SOME INSTANCES. "As instances in -which exchange has been charged against the ordinary revenue account instead of against the ap-1

propriate account, I would quote the following:— "In the case of the electric supply account, interest on loans was paid in London during the year to the amount of approximately £473,000 sterling. The cost of exchange on this amount, some £110,476, was, however, charged against, ordinary revenue account, aud was not brought to charge in any way in the accounts of the electric supply undertakings, and such accounts arc thus not a true record of the cost and results of the undertakings. Similarly, in the case of the State Advances Office, the amount of interest paid in London during the yesir was approximately £504,000 sterling. Owing to exchange the actual cost of the payment of this interest was approximately £628,110 (N.Z.) but only £504,000 was charged in the State Advances account. The State Advances undertakings were therefore undercharged to the amount of some £124,110 and the ordinary revenue account overcharged to the same extent during the year" in respect of this transaction. A WRONG IMPRESSION. "Owing to . this, method of treating exchange, the departmental accounts and balance-sheets will also fail to disclose the true position. ."The Audit Office does not suggest that the full cost of interest, including exchange, should actually be recovered from the accounts mentioned in cash unless or until there are revenues available to meet such cost, but is firmly of the opinion that the full cost should in all cases be brought to charge in the departmental accounts and balancesheets, which are intended to show the position and result of the undertakings from a commercial point of view. The departmental accounts of commercial activities are also intended to give information which will enable a comparison to be made with other undertakings of a similar nature, and unless the full cost of the relative'services is brought to charge such accounts will fail to' fulfil one of the chief purposes for which they are drawn up, and will create a wrong impression as to the cost of such undertakings. COST TO DOMINION. The Auditor-General submitted the following statement showing the result of. the transactions under the Banks Indemnity (Exchange) Act, 1932----3, from the date of operation of the Act to June 3, 1934:—

Transac- TransacTransactions for tions for Total Transtions to Year ended 3 months actions to March 31, March 31, ended J""e. 3o' 1033. 1934. June 30. 1934. 1934. . £ £ £ fi. 2,330,337 29,354,732 7,007,750 38,832,819 10s 3,870,203 2,166,962 6,037,166 2,380,337 33,254,935 9,234,712 44,869,985 1,910,000 26,684,000 7,410,000 36,004,000 470,337 6,570,935 1,824,712 8,865,985 2,350,337 33,254,935 9,234,712 44,569,955 18,112* 620,201 236,096 874,499 2,398,449 33,875,226 9,470,809 45,744,484 1,910,000 26,684,000 7,410,000 36,004,000 380,000 27,214,000 7,410,000 35,004,000 1,530,000 —530,000 1.000.000