“Tag” On Power Board Accounts : Ruling Challenged

Gisborne Herald, Volume LXXV, Issue 22728, 28 August 1948, Page 3

“Tag” On Power Board Accounts : Ruling Challenged

Arising from the arrangements made by the Poverty Bay Electric-Power Board last year to raise £60,000 in loan moneys, the Audit Department attached a “tag’’ to the balance sheet of the board, which at yesterday's meeting heard from its managing-secretary, Mr. R. P. Baigent, a statement that the ruling of the department was unjustified and unfair in view of the absolute protection which had covered the transaction from end to end.

It was decided to submit a request that the Auditor-General remove his “tag’’ from the board’s account. The certificate of the Audit Department included the comment that the action of the board in parting with debentures for an amount in excess of the amount of loan moneys was received, contravened the Local Bodies' Loans Act.

In a covering letter the AuditorGeneral indicated that in certain circumstances members of tire board might be held liable under the Act for any loss on the transaction. The officer responsible for the accounts of the board, Mr. R, P. Baigent. stated that the Auditor-General had taken his stand on a technicality, relying on two unrelated sections of the Act, from which he implied the possibility of a liability on board members. Bank’s Irrevocable Guarantee

The facts were that the board had entered into an arrangement with its broker and the Bank of Australasia to raise £60,000 of loan moneys, and had been fully secured by that arrangement against any possible loss. Before entering into tire negotiation, however, the board had submitted its terms to the Audit Department through its local officer, and had been advised that there was no objection to the transaction and yet, when the board entered into it, the AuditorGeneral tagged the board’s balance sheet.

Details of the arrangement with the Bank of Australasia were submitted by Mr. Baigent, who stated that the bank had entered into an irrevocable guarantee to safeguard the board from any loss. Before the debentures were delivered, moreover, the Gisborne manager of the bank forwarded a notice that the £60,000 loan money was available at the Gisborne branch. Subsequently the debentures were delivered and £45,000 out of the authorised £60,000 was lifted by the board by March 31 last. The remaining £15,000 was then held by the bank for the board, was the subject of the AuditorGeneral's “tag” on the balance-sheet. One Remote Risk Involved

The outstanding debentures were held by the bank on behalf of the board, and he had obtained a certificate from the bank to that effect when he heard that the department was raising the question, continued Mr. Baigent. The board faced one remote risk only. That risk was that the Australasian Commonwealth Government might have won the right to take over the banks, and having taken them over, might have repudiated outright all or^any obligations entered into by the trading bank prior to the take-over. This danger had not arisen and could not have arisen except in circumstances which no borrower could foresee and guard against. In the circumstances Mr. Baigent stated that the Auditor-General’s tag and his comments were unjustified and unfair, and he proposed to recommend to the board that it ask the Auditor-General to remove the "tag". The practical side of the transaction had been entirely overlooked and a legal technicality, which might or might not be sound, had been used as a basis for an expression of disapproval. Board Asks For “Tag’s” Removal

He had been informed, said Mr. Baigent, that recently the Audit Department had passed the accounts of the Auckland Harbour Board, and no attempt was made to “tag” its balancesheet notwithstanding the fact that the Board had parted with debentures and still had to uplift approximately £150,000. If this statement was correct, here was a case in which another local body following an identical plan had had its balance sheet certified without a “tag”, although the amount involved was 10 times greater than in the Povery Bay Board’s case. The chairman of the board. Mr. F. R. Ball, stated that the transaction had been carefully considered from all angles by the board, before entering upon it. He moved that the AuditorGeneral be asked to remove the “tag” from the board's balance sheet. Mr. A. B. C. Steele seconded the motion, which was carried unanimously.