REPORT OF THE AUDITOR-GENERAL ON THE PUBLIC ACCOUNTS 1869-70.

Appendix to the Journals of the House of Representatives, 1871 Session I, B-01a

B.—No. la.

REPORT OF THE AUDITOR-GENERAL ON THE PUBLIC ACCOUNTS 1869-70.

PRESENTED IN TEEMS OF "THE PUBLIC REVENUES ACT, 1867."

WELLINGTON.

1871.

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REPORT OF THE AUDITOR-GENERAL ON THE PUBLIC ACCOUNTS, 1869-70.

Sir, — Audit Office, Wellington, 15th September, 1871. I have the houor to forward herewith my Report on the Public Accounts of the Colony for the financial year 1869-70, in order that it may be laid before the General Assembly, in. torms of " The Public Revenues Act, 1867." I have, &c, Charles Knight, The Hon. the Colonial Treasurer. Auditor-General. _♦ In compliance with the provisions of the 60th section of "The Public Revenues Act, 1867," I have the honor to transmit, for the purpose of being laid before the General Assembly, my Report on the Colonial Treasurer's Abstract of Receipts and Expenditure for the year 1869-70. Warrants. The warrant given by His Excellency the Governor on the 25th June, 1870 (the only one affecting expenditure of the year 1869-70 that has reached the Audit Office), amounts to £1,318,505 13s. 7d. The expenditure charged in the accounts for the year is .£1,593,182 18s., exclusive of the unauthorized expenditure provided for by the Appropriation Act of 1870, amounting to .£74,634 13s. 3d., and shown in the accounts of the year under consideration, but not carried into the total. The very large amount of unauthorized expenditure in each year, the great discrepancy between the extent of the Governor's warrant and the amount of the expenditure, and the fact that the warrant was not issued until after all the payments of tho year were made, render it incumbent on the Auditor-General to call the attention of the Legislature to the very imperfect check that the law seems to impose on the issue of public moneys. It is scarcely necessary to «dd that the whole of the expenditure without the Governor's warrant was illegal, and a direct encroachment on the prerogatives of the Crown. By an unalterable provision of the Constitution Act, no part of Her Majesty's revenue within New Zealand shall be issued except in pursuance of warrants under the hand of the Governor directed to the Public Treasurer thereof. It may be a serious question whether the Governor is not absolutely required by the Constitution Act, and as the legal custodian of the public purse, to prevent the unauthorized issue of the Queen's revenues. Whenever this power shall be exercised, no issue from the Consolidated Fund in excess of the votes of the Legislature could be made without the concurrence of Her Majesty's representative. The scheme of the existing control and audit in New Zealand is, that there shall be three officers concerned in the receipt and issue of the public revenues, viz., — The Comptroller, The Colonial Treasurer, The Auditor-General. This seems to be taken from the late Exchequer system in England. The weak feature iu it is, that it separates the control and audit. And it is noticeable that the Imperial Government had long been impressed with the inconvenience and weakness arising out of this separation in Great Britain; and at the time the New Zealand Legislature was passing the Public Revenues Act, intelligence reached the Colony that the Imperial Legislature had at length abolished the office of Comptroller, and placed the control of the public revenues and the audit of public accounts under one officer, the Auditor-General. If the experience iu England and the practice in Victoria may be taken for guidance, it. ■would seeem that the New Zealand Legislature took a retrograde step in adopting for its model the Exchequer system of control, without introducing into the scheme the vital alteration which had so frequently been insisted on by the late Comptroller of the Exchequer, Lord Monteaglc, whose objections to the Exchequer plan were taken on the ground that although it controlled the issues it gave the Comptroller no means of knowing how the Treasury spent the money. In England the Queen is virtually the custodian of the Public Exchequer, as no moneys can be issued out of it, except in pursuance of Her Majesty's warrant. In Victoria the Governor is the custodian, and the issues from the " Public Account " are made on his warrant only. It is in New Zealand alone, of all the Colonies of Great Britain, that the direct control of the public purse has been taken from the Governor and given to a subordinate officer; and

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REPORT OF THE AUDITOR-GENERAL

thus we find, as stated above, that, as a mere form, and to satisfy technically the requirements of the Constitution Act, the Governor, five days before the termination of the year, issues his warrant for no less a sum than £1,318,505 13s. 7d., to cover the past expenditure. In my report on the system of Finance and Audit in Victoria, it was shown that no liability can be incurred in Victoria without the specific authority of the Governor; that no public moneys can be issued by the Colonial Treasurer without a credit on the " Public Account " at the Bank being previously obtained under JTis Excellcncy''s warrant; that the Governor's warrant is obtainable only on the certificate of the Commissioners of Audit, to the effect that the credit asked for by the Treasury is for sums legally available for, and applicable to, the services mentioned in the warrant. If the Victorian Legislature had gone no further than this, there would be little essential difference between its regulations and those at present in force in New Zealand. In this Cblony, the Controller, like the Governor in Victoria, may issue in each month to the Colonial Treasurer to the extent of one-twelfth of the whole sum voted by Parliament for the year. So far we follow the Victorian practice; but the effectual check on the misapplication of the moneys when they get into the charge of the Treasury has been wholly ignored. In Victoria, it is absolutely required that the moneys placed at the credit of the T'reaspry sna ]l lj C spent in strict accordance withthe sums mentioned in the Governor's warrant. This result is obtained by the Banks being forbidden to honor or pay any order of the Treasury unless it is countersigned by a Commissioner of Audit, who must certify to the effect that the several amounts included in the order are for the purposes, and not iu excess of the sums, mentioned in the Governor's warrant. The Victorian control appears to be complete, as far as it is possible to control a Ministry' having a strong Parliamentary majority. It is clear that no mere Departmental control can prevent a strong Government going outside the Public Account, and obtaining advances from the Banks. The extent to which this assistance could be obtained would depend on the confidence the Banks may entertain of the stability and power of the Ministry, and whether the exigencies of the public service might justify their interference. But in order, however, not to restrict the Treasury too closely, the Legislature of Victoria, in its annual Appropriation Act, grants £50,000 to the Colonial Treasurer, as a credit to be used under the authority of the Governor for the unforeseen emergencies of the public service. If it is considered expedient to devise some plan by which the Legislature may be assured thfit the moneys issued from the Public Account to the credit of the Paymaster-General, are actually spent on the services for which they were obtained, it is only necessary to make the office-of Paynlastor-General a patent office, and to make the following regulations : — 1. That all payments shall be made direct from the central office. 2. That every order issued by the Paymaster-General shall be for the purpose of discharging Government debts; and every order shall come within the limits and for the purposes mentioned in the Colonial Treasurer's requisition on the Controller, and no order shall be issued in anticipation of any such requisition. 3. The Paymaster-General shall keep a day cash-book, in which shall be shown all moneys placed to his credit by the Colonial Treasurer, and shall enter therein day by day all cash transactions of the Colonial Treasury, and every entry therein shall be final as a cash transaction. Any subsequent transfer that may be required in adjustment of the accounts shall be made by the Accountant of the Treasury in proper hooks to be kept for the purpose ; and a note of such transfer shall be sent on a "slip" to the Auditor-General at the time the transfer is made. A'n'd the! Paymaster-General shall on every day, send to the Auditor-General a copy of so much of the day cash-book as shall then not have been sent by him. 4. The Colonial Treasurer shall cause the Accountant of the Treasury to render within seven days after the termination of every quarter, a statement of the receipts and expenditure, for publication in the Government Gazette. 5. That the Legislature should grant annually a certain sum as a credit for the Colonial Treasurer, to meet the exigencies of the public service: It will be observed that in the foregoing the object aimed at is not to devise subtle arrange-, ments by which misapplication of the funds may be discovered by an Auditor, but to prevent misapplication at all, at least as far as the Consolidated Revenues are concerned;' and by requiring the Paymaster-General to furnish daily accounts, in order to gain the great advantage of an immediate audit. My long experience iu the public service has shown me how little use there is in objections raised after the money is spent. Neither at home nor in New Zealand has the Treasurer been mulct in damages for unauthorized expenditure, or been exposed to much danger in seeking supplementary votes. It will be observed, also, that it is an essential part of these proposals, that here, as in Victoria, all payments shall be made at a single office and by orders drawn on the Bank. This would obviate the necessity of keeping large balances to the credit of Paymasters, aud would bring every transaction at once into the hooks of the central office, in which one cash account only would appear, and enable the Treasury at any moment to state the public balance and the condition of the Public Funds. These are advantages which anyone can see, but which can only he fully appreciated by those who have long been acquaiutcd with the complexity and delays of the present accounts.

ON THE PUBLIC ACCOUNTS, 1869-70.

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Balance Sheet, page 7. Sections 14 and 15 of " The Public Revenues Act, 1867," authorize the Colonial Treasurer, under the authority of an Order in Council, to borrow from the Bank, or elsewhere, during the recess of Parliament, any sum not exceeding £60,000, the money to he borrowed by way of overdraft on the Public Account at the Bank, or upon the security of a Deficiency Bill. Acting on this authority, the Bank, at the request of the Colonial Treasurer, on the 7th (or Bth) of May, 1869, placed the sum of £60,000 to the credit of the Consolidated Fund in the Public Account, and this amount appeared in the Balance Sheet of the year 1868—69, as if it had really been revenue, but no corresponding entry was made to show the liability to the Bank. The effect of this has been to make the revenue of that year apparently £60,000 more than it was in fact; and as that sum again appears in the Balance Sheet as moneys lying to the credit of the Treasury at the Bank, the same sum does service twice, without a " cross" entry showing the indebtedness to the Bank. As the overdraft was not repaid or in any way disturbed during the year 1869-70, the Revenue Account still shows £60,000 more at credit than it should do; or, reduced to the most concise expresssion, the balance shown at credit in the Bank (p. 9), instead of £175,599 os. od., should he £115,599 os. 5d., because £60,000 was due to the Bank, and is nowhere shown in the Public Accounts as a debt. It is also to be observed that, as the Revenues Act does not allow the money to be borrowed when the Parliament is sitting, the Legislature could not intend such overdrafts to be left outstanding from year to year. Page 26 — Fines on Jurors under Coroners Act. It would be convenient if all fines levied under this Act were shown in one place in the Accounts, instead of some under the Act and some as Incidental Receipts. Collected, they would be as follows :—Nelson, £4 10s. ; Canterbury, 10s.; Westland, £3. Total, £8. Page 28 — Accrued Interest on Treasury Bills sold, £1,179 3s. 7d. Of this sum, £214 15s. lid. was interest allowed by the Bank on deposit of money with Oriental Bank, and should be treated as incidental revenue, not as a credit of any expenditure. Page 30— Interest on Debentures hypothecated refunded on release of Bonds, £977 Is. Bd. It appears that bonds to the value of £100,000 (see page 90, Accounts, 1868-69) were hypothecated for an advance of £80,000. The lender was paid interest on the loan, and had no claim to the interest accruing on the coupons. £40,000 of bonds were first released, and the overdue coupons cut off. The Treasury in the Public Accounts took no notice of the coupons having been cut off on this occasion; but when the remaining bonds (£60,000) were released, the coupons cut off (amounting to £1,000) were treated in the Public Accounts as if they had been actually paid, and are charged against " Permanent Charges" as interest on Consolidated Loan, and the sum of £977 Is. Bd. brought to receipt as a credit of " Miscellaneous Expenses." By the fictitious payment of £1,000, the Treasury is enabled to place the sum of £977 Is. Bd. to the credit of an annual vote, and thus manifestly gains the advantage of having at its disposal the sum of £977 Is. Bd. for Miscellaneous Expenses in excess of the vote, as under the 15th section of "The Public Revenues Act, 1868," the effect of crediting the vote is to increase the amount for expenditure. It is further observed that interest allowed by the Bank on credit balances of the Public Account is credited to the Miscellaneous vote. It is considered that this accrued interest belongs to no particular vote, and should be shown as Incidental Receipts. If this course had been adopted, the sum of £868 12s. 3d., and that of £977 Is. Bd., should be taken from the vote for Miscellaneous, which would leave an unauthorized expenditure of £536 12s. 2d., instead of a saving of £1,308 15s. 9d., as shown at page 147 of the printed account. In reference to the discrepancy between £1,000 debited and £977 Is. Bd. credited, it is found that the Crown Agents, when they cut off from the bonds coupons to the value of £ 1,000, paid £22 18s. 4d. to the Inland Office as income-tax, as if, in fact, they had paid off, not cut off, the coupons; so that only £977 Is. Bd. was left for the credit of the vote for Miscellaneous. It is contended that the sum of £22 18s. 4d. was not due to the English Exchequer, and ought to be recovered from the Crown Agents. This completes the Auditor's report on the Receipt side of the Treasurer's Statement. Charles Knight, 15th September, 1871. Auditor-General.