PUBLIC ACCOUNTS COMMITTEE (REPORT OF THE) ON PAPER B.-13.—GOVERNMENT ADVANCES TO SETTLERS OFFICE (REPORT BY THE SUPERINTENDENT OF THE) FOR THE YEAR ENDING 31st MARCH, 1902.

Appendix to the Journals of the House of Representatives, 1902 Session I, I-11b

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1902. NEW ZEALAND.

PUBLIC ACCOUNTS COMMITTEE (REPORT OF THE) ON PAPER B.-13.—GOVERNMENT ADVANCES TO SETTLERS OFFICE (REPORT BY THE SUPERINTENDENT OF THE) FOR THE YEAR ENDING 31st MARCH, 1902.

Beport brought up the 30th day of September, 1902, together with Minutes of Evidence, and ordered to be printed.

ORDERS OF REFERENCE. Extracts from, the Journals of the House of Representatives, Tuesday, the Bth Day op July, 1902. Ordered, "That a Committee, consisting of ten members, be appointed to examine into and report upon such questions relating to the Publio Accounts as they may think desirable, or that may be referred to them by the House or by the Government, and also into all matters relating to the finances of the colony which the Government may refer to them ; five to be a quorum : the Committee to consist of Mr. J. Allen, Mr. Colvin, Mr. Fisher, Mr. W. Fraser, Mr. Flatman, Mr. Graham, Mr. Guinness, Mr. Palmer, Sir William Russell, and the mover." —(Hon. Sir J. G. Wabd ) Tuesday, the 19th Day op August, 1902. Ordered, "That Paper No. 151b. (Report of the Superintendent of the Government Advances to Settlers Office) be referred to the Public Accounts Committee."—(Hon. Mr. Mills.)

REPORT.

PAPER 8.-13-GOVERNMENT ADVANCES TO SETTLERS OFFICE (REPORT BY THE SUPERINTENDENT OF THE) FOR THE YEAR ENDING 31st MARCH, 1902. The Public Accounts Committee, to whom was referred the abovementioned Paper, has the honour to report that it has considered the same, and taken evidence thereon, and " has no recommendation to make." Tuesday, 30th September, 1902. G. Fisher, Chairman.

MINUTES OF EVIDENCE.

Be Paper 8.-13. — Report by the Superintendent of the Government Advances to Settlers Office for the Year ending 31st March 1902. J. K. Waebueton, Controller/and Auditor-General, examined. (No. 1.) 1. The Chairman.] Will you explain to the Committee, Mr. Warburton, the objections you raised in regard to this paper ?—The first objection raised was that the whole receipts and expenditure of the Management Account of the Government Advances to Settlers Office were not shown as provided by subsection (2) of section 50 of the Government Advances to Settlers Act. That objection appears to have been a good one, according to an opinion of the Solicitor-General which I See here, but which I did not see before I saw the printed papers. 2. You agree there? —It appears that we agree there, from what is stated here to be the opinion of the Solicitor-General; and I think the Government Advances to Settlers Office also agree on that point.

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3. What is the next point, then ?—The next point, and the main one, I think, is the question whether the Audit Office—but before I go to that I should say that the Advances to Settlers Office submitted a statement of the investments on the 9th July, 1902, as complying with the statutory requirements of section 50 of " The Government Advances to Settlers Act, 1894." Well, the statement which was submitted, and the Audit Office report on which appears on page 7 of the paper, is not given in this correspondence. The statement was as follows : — Investment Account.—Section 53, (3). Receipts. £ s. d. Expenditure. £ s. d. 3-per-cent. loans redeemable Ist April, Advances on mortgages .. .. 3,035,230 0 0 1945 .. .. .. .. 2,646,333 6 8 Temporary investments —Bank of New Repayments .. .. .. 667,953 3 8 Zealand guaranteed stock .. 4,836 17 0 Public Trustee—refunds .. .. 147,154 1 3 Sinking Fund investment (repayments) 172,268 12 3 Assurance Fund investment .. .. 43,872 9 6 Repayment of advances on loans .. 140,000 0 0 Balance .. .. .. .. 65,232 12 10 £3,461,440 11 7 £3,461,440 11 7 It is necessary to give that, I think, in order that the Audit Office report on page 7 of the paper may be understood. 4. Mr. W. Fraser.] I would like to ask whether the table read out by the Auditor-General is really part of the correspondence that passed between the Advances to Settlers Office and the Audit Department, and, if so, why has it not been printed with the other tables ?—I did not prepare this correspondence. It was prepared and submitted to the House without any reference to me. Mr. J. McGowan (Superintendent of the Government Advances to Settlers Office) : I have not seen this memorandum which has been read. Mr. Flatman (to Mr. McGowan) : Is that table not from your office, then ? Mr. McGowan: So far as I know, everything that reached our office is printed here. 5. Mr. J. Allen.'] What balance-sheet was that, Mr. Warburton? —The statement on which the Audit Office report was made. 6. Where did you get it from ?—I got it from the statement signed and submitted by the Superintendent of the Advances to Settlers Office and his accountant. 7. Was it submitted to you from the Advances to Settlers Office ? —Yes. 8. Mr. Flatman.] Where is the original, then ?—lt was returned with the report made upon it. 9. Mr. W. Fraser.] Do I understand that the table which you read just now was referred by you to the Advances to Settlers Department for their comment, or was there any comment of yours on it ? You say that your report was based on it ?—Yes ; and my report was attached to it. It is in the statement furnished as the balance-sheet to which the memorandum refers, which is signed by Mr. Fowler, on page 7 of the correspondence: " Kindly submit for audit a signed balance-sheet which shows the requirements of section 50 and subsections Nos. (1) to (5) of ' The Government Advances to Settlers Act, 1894.' " 10. You do not follow my question; you say that your report was based on the statement of figures that you read out just now ?—Yes. 11. What report do you refer to—a report that you sent to the Advances to Settlers' Office ?— The report that I returned to that office. 12. Did you send that table with it ? —lt was attached to it. My report was attached to the statement. 13. Are you sure of that, in view of what Mr. McGowan has just said—that it never went to his office ?—I am quite sure of that. 14. How do you account for its going astray ?—I cannot account for that. 15. You sent it ?—Yes, I sent the statement back with my report. 16. Mr. Flatman.] Do you know whether it was attached to any other paper?— There were several papers attached to it. I think a portion of this correspondence was with it. Preceding my report is this memorandum : " Will the Controller and Auditor-General be good enough to say in what respects the ' balance-sheet' submitted falls short of statutory requirements.—John McGowan, Superintendent. 8/7/02." My answer is, "An unsigned paper cannot be regarded as the Superintendent's balance-sheet under section 50 of the Act. If the Superintendent will affix his signature to a balance-sheet, and show what the subsections (1) to (5) require, and will then submit such for audit as the balance-sheet and accounts prescribed by the section, the Audit Office will report thereon.—Bth July, 1902." The next memorandum is :"A signed account submitted as the statutory balance-sheet received.—9th July, 1902.— J. H. Fowler." That is the account on which I reported. I have not looked through the whole of the correspondence printed here, but I do not see the statement. It should come in just before my report. Mr. J. Allen: Perhaps Mr. McGowan will tell us where that statement is, if it is here ? Mr. McGowan : I do not see it here. Mr. W. Fraser (to Mr. McGowan) : Did you send any such statement ? Mr. McGowan: I ask here (on page 7), "Will the Controller and Auditor-General be good enough to say in what respects the ' balance-sheet' submitted falls short of statutory requirements? " That is the balance-sheet which was first sent up unsigned but afterwards signed. Mr. W. Fraser : My question was, did you send to the Audit Department a statement of figures similar to what Mr. Warburton has just read out ? Mr. McGowan.] I could not follow him. 17. Mr. W. Fraser.] Have you got it there, Mr. Warburton? —Yes.

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18. Will you hand it to Mr. McGowan ?—Yes. [Statement handed to Mr. McGowan.] Mr. W. Fraser : And will you let us know, Mr. McGowan, whether you prepared and sent to the Audit Office a statement of that kind ? Mr. McGowan: I remember a statement being prepared, which possibly is what is referred to, and which I did not sign. It was afterwards signed and altered to suit the Audit Office requirements, and is the statement which begins on page.4. There the whole thing is set out. The various subsections of clause 50 have each a separate balance-sheet set forth. The first, I fancy, was a sort of tentative statement, which I would not at first sign, and which I never considered as being official at all. I sent it up to Mr. Warburton in order to know whether or not it would meet the requirements of section 50, with a verbal message, the balance-sheet being unsigned. He replied, "An unsigned paper is no balance-sheet." Then we prepared a balance-sheet as nearly as we could, signed it, and sent it to the Audit Office. I think that this memorandum was the first attempt to meet Mr. Warburton's views when he called upon us to construct statutory balancesheets complying exactly with clause 50 of the Act. The Chairman : Did you send the unsigned paper to Mr. Warburton ? Mr. McGowan: It would not be in his possession if I had not sent it. I presume, therefore, that I did ; but it was superseded by a signed balance-sheet, the last of which Mr. Warburton accepted. Mr. J. Allen : Did he send the unsigned paper back to you ? Mr. McGoivan : I should think so, from his own memorandum, where he says, " An unsigned paper cannot be regarded as the Superintendent's balance-sheet under section 50 of the Act." I should say, from that memorandum, that.it came back ; but without reference to the original I cannot be sure. Mr. J. Allen : What is the signed paper referred it in the next memorandum ? Mr. McGowan: It is this, beginning with subsection (4), on page 5. Mr. W. Fraser: Do these differ from the other ? Mr. McGowan : We gave the first under subsections (1), (2), and (3). We did not give No. 4 —that is to say, the statement of arrears of principal and interest. That does not seem to be here. Otherwise I should say that the figures are the same, but that statement apparently was set aside as not forming any part of the official correspondence. Mr. J. Allen : What we want to know is, is the signed account referred to on page 7 this account on pages 4 and 5 ? Mr. Warburton: That signed account on pages 4 and sis not the one on which I report on page 7. 19. Mr. J. Allen.] What is the signed account ? Where is it ? —There were two signed accounts. The account which Mr. McGowan is under the impression was unsigned was signed. It was a signed account submitted as the statutory balance-sheet. That was the signed account. It was the account signed subsequently to being unsigned. 20. Is the signed account that Mr. Fowler refers to on page 7, under date of the 9th July, 1902, amongst the papers here ? —No. 21. Then, where is it?—l do not know where it is. 22. Is that an unsigned account that you were reading from just now ? —Yes; it is unsigned. 23. Where is the signed one ?—The signed one went back to the Advances to Settlers Office with the report on it which appears on page 7. It was a special report, which showed that statement to be open to certain exceptions. On the statement that was subsequently amended and certified there is a separate report : " Examined and found correct, the balances on the 31st March, 1902, being — Ce. £ s. d. Dr. £ s. d. By Investment Account .. .. 33,296 18 1 To Cash .. .. .. .. 36,350 8 6 Suspense Account .. .. 4,044 2 0 Bills receivable .. .. .. 990 11 7 £37,341 0 1 £37,341 0 1 24. Mr. Flatman.] What was the difference between the signed and the unsigned accounts in the balances ; were they both drawn under one form, or what ?—The difference, as far as I can recollect, was as follows : There was no difference in the statement under subsection (1) of section 50, but there was this difference in the statement under subsection (2) of the Management Account; there was a balance of £141,601 12s. lOd. 25. Mr. J. Allen.] What are you reading from ? —I am showing the difference between the signed statement and the unsigned one—between the unsigned statement subsequently signed and the amended statement. lam pointing out that the first statement Hon. Sir J. G. Ward : Allow me to interrupt. Are we to deal with documents that are before the Committee, or documents that are not before us ? The Chairman : With those that we have before us. I take it that the real contention begins with the Audit Office—that is, the signed account which Mr. Fowler refers to on page 7. Mr. J. Allen : The signed account is not here. The Chairman : In the Audit Office report on the statement submitted — page 7 — Mr. Warburton says with reference to that signed account, " The statements submitted for audit do not comprise a balance-sheet required by section 50 of the Act." That is the contentious point. Mr. McGowan: If you will look at page 9 you will see that I say, "I am quite willing to adopt your construction of the Investment Account and the Management Account as set out." That evidently shows that these accounts that are set out on pages 4 and 5 were reconstructed to

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suit the requirements of the Audit Office. Whether the original was amended or whether I had the whole thing rewritten, I cannot remember ; but the signed balance-sheets are here, beginning on page 4. The statement referred to was merely a tentative memorandum, drawn up in order to see whether we could meet the Audit Office views or not. When that came back to the Advances to Settlers Office I wrote that I was quite willing to adopt the Auditor-General's construction, and I rewrote or recast the statement, and it is given here in the papers, signed. Mr. J. Allen : What I want to get at is, is that the signed account referred to by Mr. Fowler on the 9th July ? Mr. McGowan : I have no doubt that it is. Mr. Warburton : No, it is not. 26. Mr. J. Allen.] I would like to ask Mr. Warburton, after what Mr. McGowan has said, to look at Mr. Fowler's letter of the 9th July—" A signed account submitted as the statutory balancesheet received." Have you looked through these papers? —Yes. I have now, I think. Ido not see that statement. 27. Is that signed account referred to by Mr. Fowler among the papers ?—I do not find that signed account here. 28. Mr. W. Fraser.] Have you looked through the whole of the papers ?—Yes. That signed account is not here. 29. Mr. J. Allen.] It is upon that signed account that you base your report ?—Yes, because the report on the amended balance-sheet is a different report altogether. 30. You audited the amended balance-sheet ?—Yes ; and made a special report on it. 31. This signed one you say you cannot audit ?—I pointed out the objections it is open to, and explained how the statute required the account to be made up. The Chairman: On page 11, the third paragraph, Mr. McGowan says, " I have no hesitation in saying that the accounts which have on this occasion been refused a certificate are much more in accordance with the requirements of the statute than those which the Audit .Office has drawn up; and I contend, further, that, even if the law does bear the interpretation put upon it by the Audit Office, common-sense and the universal practice of accountancy should prevail, so that the intention of the Legislature may be given effect to." That is Mr. McGowan's whole position. Mr. W. Fraser : Surely Mr. Warburton or Mr. McGowan can be perfectly clear beyond the possibility of doubt as to whether a particular statement was ever signed or not, and yet there seems to be hesitancy on both sides. Mr. McGowan: There is no hesitation on my part. The first statement sent up was not signed. Mr. W. Fraser : Where is the signed statement referred to by Mr. Fowler ? Mr. McGowan: It is given on page 4. 32. Mr. W. Fraser.] I will ask Mr. Warburton whether the statement on page 4 is the one referred to by Mr. Fowler ?—I could not make the two reports on that statement. 33. Is it, or is it not, the statement ?—lt is not; certainly not. lam as confident as I can be of anything that that is not the account, and that the account sent up to me on which I made the report was signed. Mr. McGowan : You referred to the thing as an unsigned paper, Mr. Warburton ? Mr. Warburton : Yes, and that particular paper which was unsigned was afterwards signed, and it is not the statement given on page 4. Mr. McGoivan : I know that I did not sign the first paper. Mr. Warburton : What I was pointing out at first was that the Audit Office report is not intelligible without the statement. Mr. J. Allen : I submit that the document ought to be produced. Mr. McGowan : I can bring up all the originals. They are rather dirty, through going through the printer's hands, but they are presentable. Everything that has passed between us is clear, except the unsigned account. Mr. J. Allen : The Auditor-General says that is not so. Mr. McGowan : That is a mistake; the paper sent up first was not signed. Mr. J. Allen : I submit that the signed report referred to by Mr. Fowler on page 7 ought to be produced. According to the Auditor-General, it is not amongst these accounts, and I have not yet heard Mr. McGowan deny that there is such a document. The Chairman : What is the statement on page 4 ? Mr. McGowan : The signed account which was first of all objected to, and afterwards passed. It was first of all objected to as not being in strict accordance with the statutes, and then we added the last statement there as being under subsection (4). From what I see of the copy that Mr. Warburton has, the statement under subsection (3) seems to have been amended in order to meet his requirements. On the 19th July I sent it up to him, and said that I was quite willing to adopt his construction of the Investment Account and the Management Account as set out. Whether it was recopied or not, I cannot say. There was an unsigned one and a signed one. Mr. J. Allen : I move that the signed account referred to by Mr. Fowler in his memorandum of the 9th July, 1902, as the statutory balance-sheet, be produced. The Chairman : Am I to understand, Mr. McGowan, that if the Committee carries this motion you will, in compliance with that resolution, then produce the statement which appears on page 4 ? Mr. McGowan: Yes. I can get the statement in a few minutes. The Chairman: What we have here is the printed version of the original? Mr. McGoivan : Yes. [Mr. Allen's motion was put and carried, and consideration of the matter was postponed till the document could be produced.]

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John McGowan, Superintendent of the Government Advances to Settlers Office, examined. (No. 2.) . Mr. McGowan : This is the statement. [Produced.] In order to meet Mr. Warburton, we struck out some items here, and rewrote the last sheet, containing an addition. This, of course, compares exactly with the printed copy. It was amended in a few particulars. 34. Mr. J. Allen.] Is this Mr. Warburton's copy? —No ; it is with the others. 35. It is signed by you?— Yes. 36. Is not this the one referred to ?—I believe it is. 37. Is it the same as this other one ?—lt is the same to this point [indicated]. 38. Mr. W. Fraser.] Which is the one referred to by Mr. Fowler ?—This one [indicated], no doubt, is what Mr. Fowler refers to, and what Mr. Warburton also refers to. One sheet of it was altered and one was rewittten. We, apparently, did not think it was necessary to print it, as it was superseded by the other. [At this stage Mr. Graham took the chair, Mr. Fisher having to leave.] 39. Mr. J. Allen.] It is now quite plain that the balance-sheet referred to by Mr. Fowler is not the balance-sheet referred to on page 4. These papers have been altered by rewriting the last sheet and detaching this sheet which I hold in my hand, and which, as you will see, is signed by Mr. McGowan. This sheet and the other sheets were, before they were amended, I presume, the balance-sheets referred to by Mr. Fowler ?—Yes. Mr. J. Allen : And the report of the Audit Office is not based upon these amended sheets, but on others, which differ from the amended ones in that this sheet was taken off and this one attached. [Sheets indicated]. Now, those papers are not before us, and the Audit Office report, that we have, is based upon accounts which we have not got. I submit that that is not a correct way of putting the papers before us. Ido not say that it has-any meaning in it, but it might have a meaning, and a serious meaning. I think that we ought now to get the balance-sheet as Mr. Fowler received it, and as the Audit Office reported on it, put before us as evidence, without these alterations. Witness : All these statements were examined by Mr. Fowler and passed, but his initials were scratched out. Would you like them restored ? Mr. J. Allen: I am not particular about it. I want the sheets that were reported on by the Audit Office placed before the Committee. The two accounts should be placed before us— the amended one and the unamended one. 40. The Chairman.] The account on page 4 shows the statements as amended ?—Yes. 41. Hon. Sir J. G. Ward.] I would like to ask Mr. McGowan a question. I understand that the sheet attached there, signed by Mr. Fowler, is the balance-sheet first submitted to the Audit Department, to which they took exception ? —No ; the first statements that were sent up were the balance-sheets in the form in which they had been passed for five years. That was on the 31st May. After a lot of correspondence they were finally rejected, and we were asked to prepare a balance-sheet in accordance with the statute. The first set sent up was unsigned; the second was signed. Then the third set was made up from the second, the last sheet of which was rewritten. As I say, on the 19th July we adopted Mr. Warburton's views, and included them in the final sheet sent up. There were actually four lots. There were those that he rejected, although they were in the same form as the accounts which had been passed for five years previously. Then there were the unsigned set. I said I did not care about signing them. Then when we altered the statements as required by the Audit Office I said that I would sign them, and I did so. The fourth set were those where one sheet was altered and another rewritten. 42. Were the balance-sheets that were submitted, originally made up on the same basis as in previous years ? —Yes. 43. Have you got all those statements in the printed correspondence?— The only one that is not in the correspondence is the rejected sheet of the third set. 44. Mr. J. Allen.] And the alterations made in the second sheet ?—Yes; they were not printed. I did not think they were necessary. 45. I cannot tell without looking over the statements whether the alterations mean anything, but I see that in the Statutory Investment Account there is a difference between the statements in the total of the receipts of over a million pounds. I have no doubt there is an explanation of that ? —We altered the figures to meet Mr. Warburton. 46. Hon. Sir J. G. Ward.] I understand, Mr. McGowan, that the accounts made up by the Advances to Settlers Office for the previous five years were in a different form to those now required by the Controller and Auditor-General?—Yes; but the accounts are here in both forms this time. We printed those that he passed, and we also printed those that he said he was unable to pass. 47. Was any exception taken to the form of the accounts during the previous five or six years by the Audit Office ?—None whatever. 48. What gave rise to exception being taken to the system this year ?—lt arose first of all from an objection by Mr. Fowler that in the clause of the Act which deals with the balance-sheet the words " whole receipts and expenditure " are used. The Audit Office said that the whole receipts should be put in. The reply of our Department to that was that in the statement of the receipts and expenditure the whole receipts were shown, but that in the statement of the Management Account, which was essentially a statement of balances, the balances only were shown. 49. What do I understand by the ivhole receipts; does that mean the receipts payable into the Public Account at every banking centre in the colony, or concentrated into the main banking account in Wellington ?—Well, perhaps I might explain it by taking one single account—the Consent Fees Account. Mr. Warburton's contention was that the whole £20 10s. on the receipts side should

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be shown. Ours was that we were only entitled to show the £20, because 10s. had been refunded — two items of ss. each. That was a statement of the balances. The same thing applies to any other account which you like to take—Production Fees, Valuation Fees, &c. We refund during the year a certain small sum. We pointed out that, as we had done in the previous five years, we were entitled to show the balances only. I acted entirely upon the advice of my accountant, who still declares that his system is correct. 50. In other words, Mr. McGowan, that means that in the Management Account you were showing the net receipts—in the Consent Fees, for instance ? —Yes, I think that would be correct, because we had received £20 10s. and refunded 10s. We showed the £20. 51. In one of the ledger accounts of your Department, upon the credit side would appear the £20 10s., and upon the debit side there would be the refund of 10s., and the balance appearing to the Management Account would appear as £20 ?—Yes. 52. From the Management Account you transfer the balances to your statement of accounts? —The statement of receipts and expenditure shows £20 10s. on the one side and 10s. on the other. The Management Account shows £20. If you take the Production Fees, or the Valuation Fees, the refunds are shown on the one side and the receipts on the other—that is, in the Cash Account; in the other accounts it is the net amount only that is set down. 53. That system is the one that has been carried out previous to this year, and has not been taken exception to by the Audit Office ?—No exception was taken. We simply followed our own rules as to account-keeping, which had been passed for five years previously. 54. That was the only point in dispute between the Audit Office and your Department? —At the beginning; afterwards they rejected the whole accounts. 55. On what grounds?— Because they were not in accordance with the statute. Then, in order to meet them, we constructed balance-sheets to meet the requirements of the statute. 56. Has there been any alteration of the statute as between the year for which these accounts are made up and the six years previously ?—None whatever. We work under the Act of 1894, and it was these attempts to meet the Audit Office, first by an unsigned sheet, then by a signed sheet which has been altered and amended, that we arrived at a solution of the difficulty to a certain extent. We printed the statutory balance-sheets as required and passed by Mr. Warburton, showing our view of the case, with his note that he was unable to pass them, having passed others. 57. Is it usual for the Audit Department to set out the system of accounts that they have done in this case ?—I do not think so. I never heard of it before. We have not altered our system of book-keeping. 58. Will compliance with the request of the Audit Department upon the question of the receipt of £20 10s. and the expenditure of 10s. in the ordinary ledger account necessitate an alteration in your system of book-keeping ?—We did not alter our books, but we constructed our balancesheets on these lines. In these balance-sheets constructed at the request of the Audit Office we show, as the statute says, the whole receipts. 59. You have not altered your books ? —'No. 60. So that you have got a balance-sheet from the Department different upon that point, at all events, from what actually exists in the books ?—We have got two—one to satisfy the Audit, and our own. 61. Mr. W. Fraser.] You, of course, are acquainted with the Act ?—Yes. 62. What does the Act say in regard to this word, the " whole " receipts and expenditure ?— That is the term used, " whole " receipts and expenditure. 63. Therefore the Auditor-General, in asking you to put in the whole receipts and expenditure, was only complying with the law ?—That is so, and the Solicitor-General agreed. 64. What is your opinion with regard to the law as laid down in the statute ; is it a businesslike, common-sense way of keeping or presenting the accounts?—l am compelled to say, " No." 65. That is the only inference I can come to from what you say?— The accounts constructed in exact terms of the statute are not intelligible. 66. Then, do you suggest that the statute should be altered, so that the balance-sheets might be presented in a more business-like form; is that what you mean ?—I do not think there is any necessity for amending the statute. Let us go on as we have been going. 67. Do you not know that the Auditor-General is bound by the law? —Why has he not been bound before ? 68. He may have overlooked that point before. He has got to comply with the law?—We met him by constructing our balance-sheets in exact accordance with the statute. I said in one of my memoranda that I wanted to do anything I could to meet him. Having altered our balancesheets, I said, " Will you now certify my figures as correct in the other form ? " That he first of all promised to do, but afterwards declined. 69. What reason did he give for declining ? —There was no reason given at all. He said that he found himself unable to certify my figures as correct in the other form. These are his words : "The Audit Office, having certified the statutory accounts submitted as those required by section 50 of the Government Advances to Settlers' Act, appears to be precluded from certifying any other accounts." I never asked him why he was precluded. 70. The reason he gave was that he deemed he was precluded by the statute ? —He did not say so. 71. Surely "precluded" means precluded by the statute? — But the statute, in section 48 72. I am not saying that he is precluded, but that is the reason he gives in his memorandum ? —He says that he is precluded. Possibly he means precluded by the statute, but I would ask you

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to look at section 48 of the Act, which provides that, in addition to such other accounts as the Superintendent shall consider necessary, he shall cause to be kept, &c. Why am I not entitled to have the accounts considered necessary audited ? 73. So that there may be no misunderstanding, I will repeat the question I asked just now : Do you not think that the Auditor-General is bound to see that the law is maintained ? Do you not think that it would be advisable that the law should be altered so as to enable him to certify to a proper statement of accounts ?—Theoretically, yes ; but, practically, I see the greatest difficulty in getting any amending statute passed through Parliament. 74. That is outside of the question ?—-That is what influences me. 75. I was not asking that. I was asking whether you wanted the law to be altered so as to enable an intelligible balance-sheet, as you call it, to be produced ?—That was suggested by Mr. Gavin, the Assistant Auditor-General, in a conversation I had with him. 76. Mr. J. Allen.] I want to ask you whether you yourself, putting aside the difficulty of getting an amending Act passed by Parliament, agree with what Mr. Gavin said?—Of course, it would be infinitely better to have the law amended if we can thereby get on smoothly. Hon. Sir J. G. Ward : I would now like to ask Mr. Warburton a question or two. J. K. Warburton, Controller and Auditor-General re-examined. (No. 3.) 77. Hon. Sir J. G. Ward.] You were formerly Superintendent of the Advances to Settlers Department ?—Yes. 78. The accounts were then under the control and audit of the late Controller and AuditorGeneral, Mr. FitzGerald ?—Yes. 79. I happened to be the Minister in charge of the Department at the time, and have a very distinct recollection of your having some fights with the late Mr. FitzGerald as to the system of accounts that you should submit for this very Department T- —No, not for this very Department; that was before this Department was set up. In this Department I complied with everything that the Audit Office required. I myself was not satisfied, but I complied. 80. What Department was it that you were in charge of when you had the disputes with the late Controller and Auditor-General—the Public Trust Office?— Yes. 81. You will admit that you had some performances with him about the system of accounts, and different things ?—Yes; I had a discussion with him as to the objections he raised to, and the faults he found with, the Public Trust Office accounts. 82. I think you generally disagreed with the Controller and Auditor-General ? —On some points I did. I thought he was carrying his objections too far. 83. Well, now, for the first two years that you, as Superintendent of this Department, made up the accounts of the Department, did you, under the laws governing the accounts now, set out the accounts in the shape'in which you have insisted that the present head of the Department should set them out? —These accounts are not in the form in which I, as Superintendent, rendered them. But this balance-sheet is in no different form from the balance-sheet which has been passed by the Audit Office for the last few years. I refer to the balance-sheet which I objected to. 84. Why has the difference arisen?—As an accountant's account, without regard to the statute, there is no very great objection to the balance-sheet which I objected to, for it comprises approximately what the statute requires. I, as Controller and Auditor-General, do not always go into the details. I trust to my officers. Take, for example, the statutory account passed by the Audit Office. Take this entry, " Repayments by mortgagors, £666,912 17s. 6d. " Those are the actual cash transactions. Now take the book-keepers' account on page 9, " Less repayments of advances" —which are the same transactions—"£66B,s3o 6s. Id. " The difference between those two amounts is accounted for by adjustments —by book-keepers' entries on the other side of what are assets, and what will come in to make the one total agree with the other. lam precluded even by that discrepancy from certifying that accounts so shown are in compliance with the statute. 85. I understand, at all events, that you admit this, as showing the difficulty in your present position, that when you were the head of this Department your accounts, passed by the late Controller and-Auditor-General, were not in accordance with the statute? —I could not recollect that. I could not say without reference to the accounts. I recollect generally I was quite prepared to adopt, so far as the form of balance-sheet went, any form that the Audit Office required. 86. But they were not in the form that you now insist upon as requisite to comply with the law ; is that so —because I have the accounts in my hand ?—They were not in that form. I have no doubt they were not. But I would like to look at them, and look into what were my own accounts. It is very difficult for me now to recollect distinctly what the form was, but a form of balance-sheet does not affect your book-keeping. 87. No. Personally, I quite recognise that where the individual account shows the total receipts and expenditure, the balances being transferred to the Management Account, the Audit Department could not possibly be expected to report upon the individual account itself. I clearly understand that. But the point that strikes one is the fact that for six years previously the accounts of the Department, under your own administration, as well as under Mr. McGowan's since he has been in charge, have been passed by the Audit Department in the form to which you have now taken exception ?—I do not know that that affects the question of whether these are statutory accounts or whether they are not. Though that book-keeper's account was approximately near to the truth, according to the requirements of section 50 of the Act, the danger of not strictly complying with the statute becomes apparent in another way. I understand the Advances . to Settlers Act strictly to require statements only of cash transactions. This balance-sheet brings into account the accrued interest, which is interest not received. It brings into account, under the

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head of " Assets," that proportion of the interest payable by the mortgagors which is not paid, but which belongs to the period up to which the accounts are rendered. Now, in this account there is a large sum —I think it is upwards of £30,000 —brought in as an asset for accrued or unpaid interest. 88. Mr. Guinness.] Interest not collected?— Not collected, but accrued interest not due. I think the amount is stated somewhere in the account. At any rate, it is over £30,000. Now, in this year's balance-sheet there is a transfer (see page 9, under the head of "Liabilities"). You will notice this entry, "Profit and Loss Account, £76,172 lis. 7d., less amount written off loanflotation charges, £30,000." Well, the writing-off of that £30,000 was a writing-off which would be impossible but for the accrued interest which was not received. That is an indication of what may happen if you do not keep strictly to the statutory requirements. As a book-keeper's Profit and Loss Account, I raise no objection whatever to its form ; but if you use what is not actual cash, you should do so by express authority. I have pointed out in my certificate to the statutory balancesheet that there was cash to the amount of £36,350 and bills receivable of £990, and that the amount was applicable to the balance of Investment Account, £33,296, and of Suspense Account, £4,044. There was nothing to meet the £30,000 except the accrued interest which was not received. 89. Hon. Sir J. G. Ward.] Then, do I understand you to say that to conform strictly to the statutes as they are now framed does not admit of that being done—it would be an improper thing to have them altered ? —I do not say that. lam keeping to the law as it is. I say that there is no objection to the book-keeper's account, as an accountant's statement of the financial position of the office; but it is not the statutory balance-sheet. 90. Do you consider that the statute law which we have now enables the Department to present an intelligible balance-sheet to the public ?—Yes. But the book-keeper's account would not be certified by the Audit Office. The Audit Office must, I think, keep strictly to the statutory balance-sheet and the statutory statements, and not certify to accounts which may be fair accounts, but which do not agree with the statutory balance-sheet except by adjustments necessary to bring the cash into agreement with the books. 91. With regard to this question of the accrued interest of £30,000: do you suggest that it is an improper thing for the Department to do ? —I do not say it is an improper thing to do. I say that the cash is not there for the transfer. 92. Mr. W. Fraser.] I want to clear up the point involved in the last question but one asked by Sir Joseph Ward. Do you consider, Mr. Warburton, that a balance-sheet prepared in strict conformity with the statute would be an intelligent and intelligible one ?—As I understand the statute, it would be an intelligible one. 93. Then, you do not think there is any necessity for altering the statute?—l think not, except, perhaps, to make clearer the meaning that I take it to have. I understand that it requires a balance-sheet, and that with that balance-sheet certain statements shall be furnished. 94. Can you suggest any alteration in the statute which would enable the Department to issue a more intelligent and intelligible balance-sheet ?—I think not. I would not alter the statute in that respect. I would allow the Department to publish its own statements—its bookkeepers' accounts—as at present, showing what it considered to be the financial position of the office, and to bring that, if necessary, into agreement with the statutory balance-sheet and statements which the Audit Office would certify—that is to say, the balance-sheet and statements of cash transactions. 95. Do you mean that the report of the Advances to Settlers Department should contain two sets of balance-sheets —one certified to by you as being in strict conformity with the statute, and the other prepared more from an accountant's point of view?—l see no objection to it. The other would be in the shape of a report. The cash transactions account would be clearly shown. A large investment of money may bring in a large income in the shape of interest perhaps only a week after the end of the year for which the account was rendered. Now, that income would belong almost entirely to the preceding year. 96. As accrued? —As accrued. It may come in the day after the close of the year. 97. But by the form of balance-sheet required by the statute that should not be so shown ?— No, because it is not a cash receipt. 98. Would there be any harm in altering the statute so as to enable the balance-sheet that it has been the practice to issue during the last six years to be the one balance-sheet signed by you ?—I do not think there would be any harm in that. 99. Would that not obviate the necessity of having two sets of balance-sheets in the report ? —I think it would. 100. Then, would it not be an advantage to alter the statute in that direction ?—lt might be considered so. It might be considered an advantage to have a real Profit and Loss Account for a Department like the Advances to Settlers Office—to have authority to furnish an accountant's statement of the profit and loss of the Department, taking in everything that is received in the year as belonging to the year and what properly belongs to the year. 101. In view of that, you modify the statement which you made to me just now that you do not see any necessity for altering the statute ?—I still do not see any necessity. 102. Mr. J. Allen.] Which is the £30,000 of interest which you were referring to:, is it shown on page 9 ?—I think it is shown on page 10, in the Statement of Interest Account for the year ending the 31st March, 1902. You will see this item there: " Interest receivable—accrued at the 31st March, 1902, £25,176 14s. Id." 103. But that is not £30,000 ?—Then, there is another item just above that one : " Interest receivable —overdue, £7,207 13s. 5d." That money was not received. I said the amount was over £30,000 : by adding those two amounts together you will get the exact total. 104. What does "accrued" mean?— Take a sum of interest of, say, £1,000 which is payable a month after the 31st March. Much of that interest has accrued at the 31st March.

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105. It is not payable then, is it? —No, it is not payable, but the proportion of it up to the 31st March has accrued. 106. Is that what this interest shown in this statement is? —Yes. 107. It is a calculation of what would have been due if the Department could have demanded it : is that so ?—Out of the next instalment of interest payable. 108. Which was becoming due later on? —Yes. 109. What I want to get at is, was the interest- due on that date ?—No. The interest due, but which was not paid, is shown in a separate item—£7,2o7 13s. sd. 110. The Chairman.] That interest was overdue ; the other had not arrived at its due date ?— That is so. 111. Mr. Flatman.] That is simply a day-by-day liability, I suppose?— The amount would alter day by day. 112. I understood you to say that you could not certify to a balance-sheet prepared according to the Act: did I understand you correctly? —No. I said I could not certify to any but the balance sheet according to section 50 of the Act. 113. Was the balance-sheet which you refused to certify drawn up strictly in accordance with the law ? —No. 114. And yet I understood you to say that there is no need to alter the law so that a balancesheet which you could certify could be drawn up strictly in accordance with the law ? —No. I said that I did not see any actual necessity for altering the law to provide that the balance-sheet required by section 50 should be so modified as to be the balance-sheet which I refused to certify. 115. Hon. Sir J. G. Ward.] Is it not usual, Mr. Warburton, to include accrued interest in the balance-sheet, so as to provide a proper statement of the affairs of the Department?— Yes, I think it is—not of all Departments, but, I think, as a rule, it is with a business. 116. Would it not be an improper exhibit of the alleged position of the Department if they did not show the accrued interest at the date to which the balance-sheet was made up?—l could not speak on that point when the statute does not require it. That is a question for the Administration to consider. 117. That is not what I want to get at. Would it not be showing a right position of the accounts of the Department on the date to which they were made up unless the amount of accrued interest was shown? —There is no actual prohibition of it, and 118. The Gha%rman.] Would it not be the proper thing to show the accrued interest in the statement of the accounts, in order to show the actual position?—l think that is a question for the Administration to answer. lam the Auditor, and I am required to audit a balance-sheet which the statute prescribes. 119. Hon. Sir J. G. Ward.] I will repeat my question in another form : Could the Advances to Settlers Department show its true position at the date of making up its accounts unless the accrued interest was taken into account ?—I do not think it could state the true financial position without showing the accrued interest. 120. Well, if the law is altered, ought not the alteration to be in the direction of enabling the Department to show its true position at the date of the making-up of its accounts ? —Yes; but there is nothing at present to forbid it, if the Department makes a report in which it shows the true financial position. 121. To which you, as Auditor, cannot certify ? —lf the Administration or Legislature regards it as desirable that I should certify to a business statement of that kind, that is another matter. 122. Yes ; but I take it from your answer that it is beyond all question that to enable the true position of the Advances to Settlers Department to be shown at the date of the making-up of the accounts so that the Auditor could certify to it, the statute requires altering ?—I think it would require altering to enable the Auditor to certify to a balance-sheet such as the one to which I have objected. 123. Do you think it would be desirable with an important State Department, such as the Advances to Settlers Office is, to have a law allowing two systems of accounts to be shown—the one necessary for the Department to show its true financial position, and the other to enable it to comply with the requirements of the Audit Department ?—I would say that it is very important that the Audit Office should certify to the cash transactions. It is very easy for the Administration to bring its financial account, or its book-keepers' account, or its business account, into accordance with the certified statement of the cash transactions. The other items are largely estimates — computations. 124. Take this accrued interest. I want to put the matter so that others may understand it as well as we ourselves. Supposing there was thirty thousand pounds' worth of interest due on the 30th April —that is, at the rate of £2,500 a month—as a matter of fact, on the 31st March there would be £27,500 of the interest which was payable on the 30th April accrued on that date (31st March) ?—Yes. 125. Could the Advances to Settlers Department exhibit that £27,500 of accrued interest on the 31 st March of the amount of £30,000 payable on the 30th April if you were only able to certify to the cash transactions ?—They do now. 126. If the cash transactions alone could be certified to, could the Department show the £27,500 of accrued interest on the 31st March?— Yes, but that statement would not be audited by me. 127. That is the point. Then, Mr. Warburton, it is quite evident, I think, that if the statements were all audited by you the public would say that the statement of accounts of the Advances to Settlers Department was not the statement that ought to be taken by them as showing the position of the Department ?—That is for the Legislature to consider. If the statement of accrued 2—l. 118.

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interest made by the Department is to be certified, or if the Legislature think there will be any doubt about the correctness of the statement by the Department of the accrued interest . 128. But you said that the true position of the Department could not be shown in its balancesheet unless, to take the typical case that I have given, the £27,000 of accrued interest were shown. Now, that being so, if you, as Auditor, are unable to certify to it—if that requires to really come out of the accounts—there ought to be a second statement published showing the real financial position. It is quite evident that two systems of accounts would require to be kept ?—No ; I think that if you required that I should certify to the book-keepers' account you should require that I should certify to the cash transactions as well. This account is not a statement of cash transactions. I refer to the statement on page 9 of the correspondence. The very first item on the assets side shows the repayments as £668,530. The cash repayments were actually £666,000-odd. Of course, the adjusting entries are put down on the other side. 129. Yes ; but that has nothing to do with the point that I have been dealing with. The point is that to enable the true position of the Advances to Settlers Department to be shown on the 31st March the accrued interest must be shown. As a matter of fact, it will be admitted by anybody who understands anything at all about accounts that it must be shown, because it is accrued at that date, and if the Department did not show it they would be disclosing a wrong position of their affairs. The effect of their showing it is that the Controllor and Auditor-General is not able to certify to their accounts, because he says it is necessary for him to certify to cash transactions; consequently, to comply with the Auditor's requirements, one of two things is necessary—either two independent statements of accounts should be shown, or else the Department should be called upon to show an untrue position in order to enable the Auditor to certify to the accounts ? —Yes ; but a statement of the true cash position is not a statement of an untrue position. 130. That is not the point. It would be showing the accounts of the Advances to Settlers Department incorrectly if the Department did not show the accrued interest upon the date to which the accounts were made up? —I would not say that both the statements as made were statements of the true position. That transaction of £30,000 Ido not think is authorised by the statute. Besides, at the 31st March there was no money available for it. 131. No, but it was accrued? —There was no cash, and I do not think the balance in the Management Account is authorised by the statute to be applied to writing down loan-flotation charges. 132. You do not mean to say that the only thing to be certified to by the Auditor in the matter of accounts, in order to give the true position of a concern, is the cash ?—I must keep to the statute. 133. That is a different thing. What I say is that you do not mean to tell us that to enable you to certify to the correctness of an account you must certify to only what is called " cash " ? — If it is a statutory account I must keep to the statute. Mr. McGowan : Might Ibe allowed to interpose for a moment. Mr. Warburton said that these figures were largely estimates. He surely could not refer to the accrued interest, because every single mortgagor's account is gone through, and the amount is got out to a penny. There is no imagination or estimation at all about it. It is exact to a penny. Witness : I did not say that the statement was to be distrusted, but when you put down as an asset a sum of money that is not paid but is payable on a certain date you estimate that you will receive it. 134. Hon. Sir J. G. Ward.] The point is this, with regard to the accrued interest: It is not a question of whether the money can be got, because it is a dead certainty that it will be got. The security is behind it. At the date of the making-up of the accounts the amount of the accrued interest is distinctly not an estimate by the Department, because it is only a matter of a date, perhaps a month ahead, being fixed for the collection of it? —You cannot be sure of that, because you might have to sell your security, and the security might not realise your capital. 135. But that does not alter the fact that on the 31st March £27,000 of the interest would have accrued, and the whole amount of £30,000 would be payable a month afterwards?—l am not objecting. lam answering the objection to my use of the term " estimate "as applicable to accrued interest. 136. The Chairman.] With reference to this £30,000 that reference has been made to :it means the interest receivable that is overdue and the interest receivable that has accrued ?—lt refers to the two items. 137. I ask that question because any one reading the statements here would wonder where this £30,000 is that you have referred to. You really mean the £32,000 odd included in those two items ?—Yes—that is, £30,000 of it. 138. Hon. Sir J. G. Ward.] There is a very material difference between overdue interest and accrued interest? —Yes ; but they are both taken into the account of assets here.

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