GOST OF EXCHANGE

Waikato Times, Volume 114, Issue 19123, 7 December 1933, Page 7

GOST OF EXCHANGE

STATE TRANSACTIONS.

INDEMNIFICATION OF BANKS. METHOD OF ACCOUNTING. AUDITOR- GENERAL’S CRITICISM WELLINGTON, WednesdayThe annual report on the Publio Accounts by the Controller and Auditor-General, Mr G. F. C. Campbell, contains a statement showing the result of the Government’s transactions with the banks under the Banks Indemnity (Exchange) Act from the operation of the Act until September 80, 1933. Complaint is made against the lack of uniformity in the Government’s treatment of exchange in the Public Accounts. The figures are set out as follows : For 6 mtns. Total to ended Sep. 30 Sep. 30 Amount raised by Issue or Treasury Bills lor purchase of s u r p 1 u s exc h a n g e on London and payment or exchange thereon £15,500,919 £17,881,356 Amount other- _ _ wise provided 1,130,287 1,130,287 Total £16,631,206 £19,011,543. Amount paid to banks Tor purchase or sur- _ plus exchange £13,345,000 15,255,000 Exchange paid to hanks on surplus exchange 3,286,206 3,/56,543 Discount on Treasury Bills 278,772 296,884 Total expend!ture under Act £16,909,987 £19,308,427 S u r p 1 u s exchange paid Into Government exchange account, London £13,345,000 £15,205,000 Transferred to Public Account 13,875,000 14,25a,000 Balance retained In Government Exchange ac- , „„„ ... count 530,000* 1,000,000 •Debit. The banks were indemnified by the Government as from January 20, 1933. 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.

Loss In Interest. The abstract of the Publio Account for six months ended September 30, 1933, shows that, although the amount of £14,255,000, surplus exohange moneys, had beeflt credited to,the or 7 dlnary revenue account of the Consolidated Fund, the balance of £8,354,000 only, including imprests "and investments, then remained m this account. It will be seen, therefore, that at least £5,900,000 of the credit so provided had been utilised to meet the 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 over 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 iof these transactions, j under the Publio Revenues Act, ’ 1926, it is the duty of the Audit Office, •before passing vouchers for any payjinent of public moneys, to satisfy itself that payment is due- In the case of payments under the Banks Indemnity (Exchange) Act it would be impossible for the Audit Office to directly 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 AuditorGeneral. Such a course was not possible and Mr Campbell said h e had passed vouchers for payments to various banks on the certificate of the chief auditor of the Bank of New Zealand. Method Lacks Uniformity. The Auditor-General says the method of treating exchange in the Publio Accounts lacks uniformity and, in the opinion of the Audit Office, is unsatlsfactory, causing accounts In many cases to be misleading and inaccurate. The increase of the rate, New Zealand to London, from £llO to £125, the 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 tlio Government acted as agent for private individuals or for bodies, or accounts outside the Public Account, the correct principle lias been gradually adopted of allowing or charging 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 in connection with the particular transaction. With this principle the Audit Office is in full agreement, hut. these transactions comprise only a comparatively small portion of the London transactions.

Methods Criticised. The majority of the London transactions relate to services of the Public account. In the ease of these transactions, where there has been an actual remittance, the exchange in uian y eases, 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 lias 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. As a result the true cost of the various services and the true value of receipts and payments is not shown 'n the separate accounts comprising the Public Account, nor in the various votes, and further balance-sheets and revenue accounts of the various undertakings which arc published annually are in many eases rendered misleading. With Urn ruling rate of £125 the (Continued in next column,].

understatement of the cost of London payments amt the corresponding un-der-statement of the amount of London receipts is, in the opinion of the Audit ill'llce, a serious matter from the accountancy point of view. The following example is quoted as indicating tile undesirable effects aris- • jug from the methods followed:— 1 During the year 11> 112-33 expenditure j was made in London to the amount of about £(12,000 for the services of the electric supply account, and a I further £4G0.000 was expended as inI tcrest on loans raised for Die purposes of this account. Allowing exchange at Die rate of £llO New Zealand to v 1 00 United Kingdom, and ignoring j for the purposes of this example i.u. ‘increase to £125 which took place ! during the year, the cost of exchange 1 o'n these payments was £O2OO and '£lo,ooo respectively. The whole ol this exchange was paid from ami ! charged to the ordiu ry revenue ar- ! count of the Consolidated Fund, and 1 no portion was charged to or recovered from the electric supply account j for the purposes for which the payI ments were made-