B.—l. [Pt. ll].

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I may add by way of comment that as soon as the process of instituting the new system has been concluded, and as soon as the departmental rules consequent thereon are in full working-order, the Audit functions will be chiefly confined to the making of test audits so as to ensure that those rules are being fully complied with, and tho necessity for raising questions relating to administrative acts of the departmental officers should not then be as great as at present. Some Departments appear to underestimate the advantages to be derived from adopting a proper system of stores accounting, and I subjoin the following extract from the same authority I have already quoted from, and which has a very distinct bearing on the subject: — " The functions of the Controller and Auditor-General in relation to store and expense accounts are analogous to, but on a somewhat different plane from, those which he exercises over the cash accounts. So far as tho latter are concerned, the method of using, or date of use of stores, is immaterial. The original cost of the stores appears under date of purchase in the cash account as a final charge. Store expense accounts are therefore not an integral part of the cash account, nor, from the cash-accounting point of view alone, are they in any way essential. But though a cash account may be perfectly in order as such, it does not necessarily furnish any guarantee that the stores purchased with the money provided by Parliament have been utilized in the manner intended by Parliament. Irregularity in the disposal of public stores is equivalent to an illegal appropriation of public moneys, and an audit of tho expenditure of money granted by Parliament for the purchase of stores does not satisfy Parliament as to the final application of such money— that is, as to the proper disposal of the stores. The cash account shows the purchase, the store account shows the existence, and the expense account shows the use. Stores may be misappropriated as well as money, and the resulting loss to the public is the same whether the money granted to purchase the stores is misappropriated, or whether the stores themselves, after purchase, are misappropriated. Audit of the cash accounts guards against the former contingency, and audit of the expense and store accounts is equally necessary to guard the public against loss from the latter contingency. It may even be more necessary, since tho possibilities of loss to the public arc; frequently greater when stores are dealt with, owing to the fact that laxity, negligence, and fraud can more readily creep in than in dealing with cash. It is only one of the functions of the Controller and Auditor-General to see that public money is spent correctly. The audit of the store accounts is, in the interests of the public, of equal importance." Writing off Losses of Government Property. It is laid down in the Public Revenues Act that no public property can be finally written off as a charge against the Public Account without the authority of Parliament. This provision has been greatly honoured in the breach, and losses have in the past been disposed of in a most perfunctory manner, often by subordinate departmental officers. It is impossible to estimate the amount of misappropriations and losses of Government property which has occurred in past years before the present Government took the matter in hand. The Audit system now provides that no article can be even provisionally written off charge by Departments except in accordance with departmental regulations which shall have received the concurrence of both the Treasury and Audit Offices. These provisional writings-off, after being passed by Treasury and Audit, receive the approval of the Minister in Charge of the Department, and are then submitted for final discharge from the Public Account by Parliament when the; Appropriation Act is drafted. It is obvious that, under a loose system of writing off, losses due to carelessness, or incompetence, or worse, on the part of public officers could be readily covered up, but under the system now being put into operation, delinquencies can bo ascertained and a surcharge inflicted if necessary. It is necessary for me to explain that the schedule of amounts irrecoverable which is attached to this report does not contain, in so far as loss of Government stores is concerned, the full measure of loss which has occurred during the year, for the reason that some Departments have not yet adopted the audit system or complied with the provisions of the Public Revenues Act. In other Departments the new system has only recently boon introduced, and the applications for provisional writing-off have not yet come forward for Audit scrutiny. In some Departments again, such as Navy, Health, Defence, Mines, and others, the system is in full operation and all losses are being duly recorded. G. F. C. Campbell, Audit Office, 21st July, 1924. Controller and Auditor-General.