B.—l [PtJII].

£55,912. This loss accrued during the time that the Department was engaged extensively in building operations. At the 31st March, 1920, the accrued loss was £1,847, so that in the space of two years and a half the Department lost as a result of the venture the sum of £54,065. This loss is, in the opinion of Audit, due to a variety of causes, amongst which may be mentioned the following :■ — (1.) The fixing by statute of the prices at which the houses when erected were to be sold, the cost of erection generally greatly exceeding the prices fixed by statute : (2.) The buying of large stocks of material at " peak " prices : (3.) Inexperience of the Department in handling this class of business : (4.) The loose system in vogue in connection with the receipt, issue, and guarding of the timber and other stores : (5.) Faulty const-ruction of some of the houses, the receipts from which are being largely absorbed by repairs. The Audit Office had considerable trouble in examining these accounts, and the final preparation of the balance-sheet, which was required for the purpose of ascertaining the true position, was delayed by the adjustments required as the result of the investigation. In the opinion of Audit, a considerable portion of these losses could (as in the case of soldier settlement) have been avoided if the expert machinery already in existence in the State Advances and Valuation Departments for granting loans and supervising operations and collecting instalments had been utilized from the inception of the scheme. Audit of Local Authokities. The past year has been comparatively uneventful so far as serious infractions of local-body law are concerned, although the number of cases in which Audit has been called upon to enforce adjustments in respect of loans, and refunds of excess " Unauthorized," has been considerable, as will be seen from reference to the schedule given hereunder. One most pleasing feature of the year's operations has been that only in two instances have criminal proceedings been called for —namely, in respect of Eastbourne Borough, where three employees conspired, by fraudulent issues of ferry-tickets, to deprive the borough of a considerable sum of money, for which they were ultimately sentenced by the Supreme Court to various terms of punishment. The second case related to the South Wairarapa River Board, the Clerk of which committed peculations by the process, common in such cases, of making good his cash misappropriations by means of manipulations of cheques, for which he was sentenced to a term of two years' probation. Cases of breaches of law dealt with during the year were as follows :— Loan-moneys unlawfully transferred, debited or applied .. .. 34 Investments contrary to Tustee Act .. • .. .. .. .. 5 Illegal borrowing .. .. .. .. .. .. 9 Illegal payments (that is, contrary to or in excess of law) .. .. 29 Illegal bailment .. .. .. .. .. .. 1 Illegal sale .. .. .. .. .. .. .. 1 Excess charges against " Unauthorized " .. .. .. .. 19 Contract provisions contravention .. .. .. .. 1 Improper applications of loans interest .. .. .. .. 4 Unlawful remissions harbour dues .. .. .. .. 2 Excess subsidies .. .. .. .. .. .. 3 Rates unlawfully remitted .. .. .. .. .. 2 Disqualifications of members for breaches of the law .. .. 10 Excessive and/or illegal travelling-expenses .. .. .. ..16 Defalcations .. .. .. .. .. .. 2 Much has been achieved towards bringing audits up to date, but Audit regrets that complaint must again be made that many local bodies still remain apparently so indifferent to the necessity for preparing their accounts for Audit that a large proportion of the work of preparing the balancesheets has perforce to be performed by Audit Inspectors. This naturally impedes prompt, performance of Audit inspections. There are sundry legislative alterations required, to which attention has previously deen directed, in order to establish a clearer basis than now exists on which Audit can with certainty enforce conditions of observance. These are as follows : — Municipal Trading Accounts.- —The existing provisions applicable to these accounts are in some respects contradictory in their effect, and in others so vague as to result in conditions altogether unsatisfactory. Some better-defined direction is essential. Riding Accounts.—These are now declared to be separate statutory accounts, and are required to be separately audited and certified by the Audit Office, and they are thus brought within the provisions of section 3 (c), Local Bodies Finance Act, 1921-22. The purpose of making such accounts separate was so as to enable each riding to show that it, in effect, supported itself, —i.e., that it received its now revenue and discharged its own liabilities. In practice this is found to work out very unsatisfactorily, many counties showing some ridings regularly in debit with others regularly in credit, the outcome being that the latter partially finance the former. The causes of this are various. The debits may result from low valuations, excessive responsibilities, and the like, while the credits may result from higher valuations, fewer drawbacks, or special revenue, or all of these combined. The Audit view is that it is only in a very limited number of cases that a county can be so divided in financial matters as to make the incidence of revenue and expenditure fall equitably on each separate riding.

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