B.—l [Pt. ll].

V

The question arose as to whether stamp duty on transfers of consolidated stock inscribed in London was covered by this section. As such stamp duty will be payable during the whole period of a loan up to the date of its maturity, it was held by the Audit Office that it could not properly be treated as an expense incurred in raising the loan, and therefore was not covered by the section referred to. Two points were involved, for if such expenditure is not an expense of raising the loan the amount could not be added to the loan authority and covered by a further loan under section 8 to cover charges and expenses, and, secondly, parliamentary appropriation would be needed to cover the amount of such expenditure. The matter was brought under the notice of the Treasury, which pointed out in reply that the charges for stamp duty were very heavy during the first twelve months after the issue of a loan, and suggested that the stamp duty paid during that period might properly be deemed to be part of the cost of raising the loan. This view appeared to the Audit Office to be a reasonable one, and it was accordingly agreed that the stamp duty paid during the first twelve months after the raising of a loan should be capitalized as provided in the New Zealand Loans Act, but that subsequent expenditure of this nature should be treated as a charge against revenue. The expenditure subsequent to the first twelve months has therefore been allowed as a revenue charge in the appropriate account where such account received revenues, and has been charged against the Consolidated Fund as " unauthorized expenditure" in other cases. It is understood that the Treasury will propose legislation to provide the necessary parliamentary authority for charging such expenditure in future. It may be mentioned that in most cases the stamp duty is compounded when the loan is raised and paid in one sum for the full period of the loan. In these circumstances the Audit Office has always allowed the amount to be treated as an expense of raising the loan, and the points mentioned above arise only when the payments for stamp duty are spread over the whole period of the loan. 7. Section 2 (1) (c) of the Kauri-gum Industry Amendment Act, 1914, provides authority for the purchase and sale of kauri-gum. Section 4 (4) provides that the Minister of Finance may from time to time, without further appropriation than this Act, pay out of the Kauri-gum Industry Account all moneys that are required for the purpose of giving effect to the provisions of this Act, and section 4 (5) states that there shall be paid into the Kauri-gum Industry Account all moneys received by the Crown in connection with the carrying-out of the provisions of this Act. In addition to the above provision, an item was taken under Subdivision No. II of the vote for the Department of Lands and Survey for £10,000 for the purchase of kauri-gum during the year 1925-26, and estimated recoveries in respect of this item were shown to the amount of £5,000. The Audit Office submitted the question as to the possible conflict between these two provisions for the purchase and sale of kauri-gum to the Crown Law Office, and the Solicitor-General was of the opinion that the two authorities could be used concurrently, the receipts from the sale of gum purchased from the Kauri-gum Industry Account being credited to that account, and the receipts from sale of gum purchased from the Lands and Survey vote being credited as credits-in-aid to that vote. This opinion was accepted, but could not be acted upon, as the stocks of gum purchased from the different accounts had not been kept separate, and therefore the proceeds could not be allocated to the relative accounts. As it was impossible to comply with the law, the Treasury stated that the payment of £10,000 from the Consolidated Fund would be treated as an advance to the Kauri-gum Industry Account, and all proceeds of the sale of gum would be credited to that account, and that amending legislation would be obtained to authorize this course of action. As this method of treatment appeared to comply as nearly as possible with the existing law, and at the same time considerably simplified the accounting necessary, the Audit Office agreed to the course suggested by the Treasury, on the understanding that an amendment of the law to provide the necessary authority would be asked for. 8. During the year a doubt arose as to the validity of certain conversions which had been made under section 3 of the New Zealand Inscribed Stock Act, 1917, which conversions involved a change in the terms of the loan, and seemed likely to affect the value of the security. An opinion was obtained from the Crown Law Office which showed that not only the conversions in question, but also other conversions previously effected, were contrary to the provisions of the Act. The matter was brought under the notice of the Treasury, which agreed to discontinue the conversions which were not authorized, and to provide legislation validating such conversions as had been effected under a misapprehension as to the true meaning and interpretation of the Act. The Audit Office agreed, however, to pass certain conversions to which the Treasury was already committed, and which will be covered by the validating legislation which it is understood will be sought during the present session. 9. Section 5 of the State Supply of Electrical Energy Act, 1917, provides that the Minister shall cause full and faithful accounts to be kept in connection with each scheme established under this Act, and that every such account shall be so kept as to show (inter alia) the capital expenditure in connection with the scheme. In some cases it was found that the value of the capital assets had been written down in the books by charging the amount to the Depreciation Fund. There is no authority of law to charge against the Depreciation Fund any amounts other than the cost of repairing, replacing, or renewing the machinery, plant, buildings, and appliances used in connection with the scheme for which the fund is established, which charges against the fund are authorized by section 11 (4) of the Act. The charging of depreciation other than for repairs, renewals, and replacements against the Depreciation Fund has involved a departure from the law in two respects : firstly, it has prevented the accounts from disclosing the true capital expenditure in connection with each scheme, as required by section 5 (2) (a) ; secondly, it has involved a departure from the provisions of section 11 (4), which authorize the charging against the Depreciation Fund of the cost of repairs, replacements, and renewals only. I may say that there appears to be nothing in the law to prevent provision being made for