INVESTING LOAN MONEYS.

New Zealand Herald, Volume LXI, Issue 18838, 13 October 1924, Page 6

INVESTING LOAN MONEYS.

Many local authorities .will be interested by an experiment in economy made by the Christchurch Tramways Board and in the official rebuke from the Auditor-General which was its sequel. The board apparently had raised loan moneys ahead of requirements, and, instead of placing them on fixed deposit with its bankers, which is the statutory practice, purchased municipal debentures. An arrangement was made with the sinking fund commissioners that these debentures would subsequently be accepted as part of the sinking fund payment, the loan account, of course, being balanced from cash revenue. The transaction was completed satisfactorily, and the board profited by extra interest to the extent of £289. The Auditor-General's decision that this procedure was irregular is no doubt correct. It suggests that the statutory provisions are unreasonable. Since local authorities cannot be constantly selling debentures, they must raise loans for expenditure over lengthy periods, and it seems

that necessary safeguards are carried to the point of irksome restriction if they cannot invest temporarily idle funds in trustee securities. Many of v the limitations on local authorities would be superfluous if a general reform in municipal accountancy Were enforced. It is notorious that while the larger bodies set an example in efficient application of commercial principles,, the general practice is in many respects open to criticism. The consequence is that statutory regulation and Audit supervision rely largely upon a rigid system of independent banking accounts to prevent confusion between revenue and capital. One of the results is that a local authority successfully managing a great tramway service is not regarded as legally competent to discriminate between a bank's fixed deposit receipt and a municipal debenture. Useful service in the cause of local government and public economy might be rendered by a committee of representatives from local authorities, the Department of Internal Affairs and the Audit Office charged with the task of formulating principles and practice in keeping with modern requirements for the administration of local government finances.