B.—l [Pt. ll].

A matter which has been particularly marked during the past year is the tendency of local authorities to refrain from contributing the annual instalments to the sinking funds created in respect of loans raised by them. During the past year there were no less than twenty-three instances where local authorities had failed either to establish the sinking fund or to make the annual contribution thereto, notwithstanding that the terms upon which the loans were raised provided for the creation of and the payment of an annual instalment to such fund. The failure of local authorities in this regard represents the adoption of a policy of economy at the expense of the debenture-holder. Disqualifications . Six members of local authorities automatically forfeited their seats during the year on account of being concerned or interested in contracts with the local authorities of which they were members to an extent in excess of the statutory contractual limits, or on account of their holding an office or place of profit under or in the gift of such local authorities. In all instances but one the members concerned appear to have acted in ignorance of the law. In one instance an Audit Inspector reported that it had been discovered that a member of two local authorities, of one of which he was also Chairman, had been supplying goods to the two bodies and rendering invoices for such goods on the invoice forms of other firms. The cheques drawn by the local authorities concerned in payment of the goods supplied were traced into either the bank account of the member or into the bank account of one of the firms whose invoices he had used. In some cases the signatures to the vouchers, which purported to have been signed by the firms, were forged by the member, and in other cases, where the vouchers had been signed by an employee of the firm concerned, the cheques had been credited in the firm's books to the member's personal account. The Audit Office took proceedings against the member under the provisions of the Public Contracts and Local Bodies' Contracts Act, 1908, for recovery of four amounts received by him together with a penalty of £10 in respect of each transaction, and action was also taken against him for forgery in respect of all the invoices and vouchers forged by him. Prior to the commencement of the Court proceedings under the above-mentioned Act, the member paid to the Crown Solicitor the sum of the four amounts received by him—viz., £62 6s. 3d . and £40 for penalties, together with £3 3s. costs. On the charge of forgery, the member was convicted and fined £150 and £50 costs in respect of his dealings with one local authority, and he was convicted and ordered to come up for sentence if called upon within twelve months, in respect of his dealings with the other local authority. In all the member was fined £305 9s. 3d. Defalcations. In the past year the Audit Office dealt with thirteen cases of misappropriation of funds by local-body officials, particulars of which were in every instance placed in the hands of the police. The defaulters were dealt with by Criminal Court action, and a sentence was imposed by the Court in each instance. The total sum involved in the defalcations amounted to £1,915 65., and the largest sum misappropriated by any one official was £971. Stores. A satisfactory feature is the fact that the Audit Inspectors' reports indicate that local authorities appear to be gradually realizing that in order to eliminate wastage and prevent misappropriation of materials, the keeping of an adequate system of stores control is essential. There are still many local authorities, however, which regard such work as unnecessary. Such local authorities fail to realize that stores represent moneys and should be accounted for with almost as high a standard of accuracy as cash itself, nor do they appear to recognize the many advantages to be gained by keeping accurate records of the expenditure of stores. As stated by me in a previous report, it is desirable that the keeping of stores records by the responsible officials of local authorities should be made compulsory by statute. At present there is no statutory obligation on local bodies to keep accurate store accounts. Local Government Law. The Audit Office found it necessary to take action in respect of numerous breaches of the law relating to the accounts of local authorities, as detailed below (Schedule A). Where a satisfactory explanation concerning the breaches was not made by the local authority an adjustment in the accounts or a recovery of the moneys was required by the Audit Office. Where, however, special circumstances existed the adjustment was waived on an undertaking being given that legislation would be sought for the purpose of validating the irregularity. A list of the special cases where this conditional waiver was granted is set out in Schedule B. Schedule A. Depreciation in trading accounts, absence or inadequacy of charge for .. 1 Disqualification of local-body members on account of breaches of law .. .. 6 Expenditure without legal authority . . .. .. .. ■ • .. 47 Failure to provide for expenditure for year out of revenue .. .. .. 39 Fidelity securities for staff (absence of) .. .. .. .. • • ..11 Imprest accounts without authority of law .. .. .. .. .. 2 Investments contrary to law .. .. .. .. . • • • .. 6

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