“PUBLIC ACCOUNTS MISLEADING.”

Star (Christchurch), Volume LXIV, Issue 938, 7 December 1933, Page 15

“PUBLIC ACCOUNTS MISLEADING.”

Auditor-General’s Strictures on Method of Treating Exchange.

SYSTEM LACKS UNIFORMITY

(“ Star ’’ Parliamentary Reporter.) WELLINGTON, December 7. SEVERE STRICTURES on the method of treating exchange in tlie public accounts are passed by the Controller and Auditor-General in his annual report to Parliament. He describes the method employed as lacking uniformity and being unsatisfactory, causing the accounts in many cases to be misleading and inaccurate. The report discloses lliat the exchange transactions of the Government, involving £lll,O-11,511 between the date of the institution of the policy and September .'SO, have resulted in a loss in interest on this amount of about I per cent. The figures are set out as follows:

Ailioutl t IdliCU U\ JSMJC Ul 1 Itltieui > bills for the purchase of surplus exchange on London, and payment of exchange thereof! Amount otherwise provided .. Totals Amount paid to the banks tor purchase of surplus exchange Exchange paid to banks on surplus exchange Discount on Treasury Bills Total expenditure under the Act . . Surplus exchange paid into the Government exchange account, London Transferred to public account Balance retained in the Government exchange account The banks were Indemnified by the Government as from January 20, 1033 At September 30 the amount of Treasury bills outstanding under the Act had been reduced from £17,881,256 to £11,014,597, bills to the amount of £6,866.659 having been redeemed, partly from the proceeds of other Treasury bills and partly from revenue. Losses on Interest. The report continues: “ An abstract of the public account for the six months ended September 30, 1933, shows that although an amount of £14.265,000 surplus exchange moneys had been credited to the ordinary revenue account of the Consolidated Fund, a balance of £8.354,000 only, including imprests and investments, then remained in this account. It will be seen, therefore, that at least £5,900,000 of the credit so provided had been utilised to meet ordinary revenue account charges in London and New Zealand. The rate of interest paid on Treasury bills issued to provide for the purchase of exchange on London has averaged more than 5 per cent, while the rate of interest received on deposits of exchange moneys in London has averaged considerably less than 1 per cent. There has, therefore, been a loss to the Government in respect of interest of about 4 per cent in respect of these transactions. “ Under the Public Revenues Act, 1926, it is the duty of the Audit Office, before passing vouchers for any payment of public moneys, to satisfy itself that the payment is due. In the case of payments under the Banks Indemnity (Exchange) Act it would be impossible for the Audit Office directly to satisfy itself that any bank held an excess of exchange on London coming within the provisions of the Act without an examination of the records of the bank by some officer appointed by the Controller and Auditor-General. Such a course was not possible, and I have passed vouchers for payments to the various banks on the certificate of the chief auditor of the Bank of New Zealand.” Methods Unsatisfactory. The Controller-General goes on to say that the method of treating exchange in the public accounts lacks uniformity, and in the opinion of the Audit Office is unsatisfactory, causing the accounts in many cases to be misleading and inaccurate. The increase of the rate New Zealand to London from £llO to £12 5, his report states, had made the proper treatment of exchange in the accounts of even greater importance than before. In the case of transactions in which the Government acted as agent for private individuals, or for

bodies or accounts outside the public account, the correct principle has been gradually adopted of allowing or charging the exchange in favour of or against such individuals, bodies, or accounts at the ruling rate, even though it was not necessary to make an actual remittance of moneys concerning the particular transaction. With this principle the Audit Office is in full agreement, but these transactions comprise only a comparatively small portion of the London transactions. The majority of London trans* actions relate to the services of the public account. In the case of these transactions, where there has been an actual remittance, the exchange in many cases, although taken into account, has not been allocated to the particular account or service in respect of which it was incurred, while in cases where there has been no actual remittance usually no allowance whatever has been made for exchange, but receipts and payments have been entered in the New Zealand accounts at their sterling amount without conversion into New Zealand currency. Accounts Misleading. As a result, the true cost of the various services and the true value of the receipts and payments is not shown in the separate accounts comprising the public account, nor in the various votes; and further, the balance-sheets and revenue accounts of the various undertaking which are published annually are in many cases rendered misleading. With the ruling rate of £125 an understatement of the cost of London payments, and a corresponding understatement of the amount of London receipts, is, in the opinion of the Audit Office, a serious matter from an accountancy point of view. The following example is quoted as indicating the undesirable effects arising from the methods followed during the year 1932-33. Expenditure was made in London to the amount of about £62,000 for the services of the electric supply account, and a further £460,000 was expended as interest on loans raised for the purposes of this account. Allowing exchange at the rate of £llO New Zealand to £IOO United Kingdom, and ignoring for the purposes of this example the increase to £125 which took place during the year, the cost of exchange on these payments was £6200 and £46,000 respectively. The whole of this exchange was paid from and charged to the ordinary revenue account of the Consolidated Fund, and no portion was charged to or recovered from the electric supply account, for the purposes of which payments were made.

ended September 30. September 30. .. 15.500.919 .. 1.130,287 17.8S1.350 1,130,287 .. 16,031.208 19,011,543 .. 13,345,000 15,255.000 .. 3,2*0.200 .. 10.909,987 3.756.543 296,884 19,308,427 .. 13.345.000 .. 13,875,000 15.255.000 11,255,000 530,000 debit 1 1,000.000