B.—l [Ft. ll].

Statement showing the Result of the Transactions under the Banks Indemnity (Exchange) Act, 1932-33, from the Date of Operation of the Act to the 30th June, 1934 —continued.

At the 30th June, 1934, the amount of Treasury bills outstanding under the Banks Indemnity (Exchange) Act, 1932-33, had been reduced from £38,832,818 15s. (N.Z.) to £23,708,836 (N.Z.), bills to the amount of £15,123,982 15s. (N.Z.) haVing been redeemed. £13,943,982 15s. (N.Z.) of this amount was redeemed from the Ordinary Revenue Account partly from the proceeds of other Treasury bills issued under section 41 of the Public Revenues Act, 1926, and partly from revenue, and the remaining £1,180,000 (N.Z.) was redeemed from the Public Debt Repayment Account. Though £35,004,000 of surplus exchange-moneys purchased was credited to the Ordinary Revenue Account of the Consolidated Fund, the Abstract of the Public Account for the three months ended 30th June, 1934, shows that at that date a balance of £20,485,101 10s. lOd. only remained in that account. It will be seen, therefore, that some £14,519,000 of the credit so provided had been utilized to meet Ordinary Revenue Account charges in London and New Zealand. These figures are as extracted from the accounts, which include transactions in both sterling and New Zealand currency. The rate of interest paid in New Zealand on the Treasury bills averaged over 5 per cent., while the rate received on the funds in London averaged about 1 per cent., so that there was a loss to the Government of about 4 per cent, in,respect of these transactions. The interest paid was charged against the Ordinary Revenue Account of the Consolidated Fund, but the interest received on the London funds (which were placed on fixed deposit) was allocated between various accounts forming part of the Public Account, instead of to the Ordinary Revenue Account to which the moneys belonged. The charge against the Budget was thus unnecessarily increased. Treatment of Exchange in the Public Accounts. In my last year's report I found it necessary to comment adversely on the method of treating exchange *in the Public Accounts, and I then explained that in some transactions between New Zealand and London the figures were shown in New Zealand currency, whereas in others they were shown in sterling. It was also pointed out that in certain instances the amount of the exchange was charged against the Ordinary Revenue Account instead of against the account for which the charge was incurred. From recent statements by the Governor of the Reserve Bank of New Zealand, I gather that the present high rate of exchange between New Zealand and London is likely to be maintained for a considerable period, and it follows, therefore, that the matter of correct treatment of exchange in the accounts of the Dominion is of even greater importance now than it was formerly. I therefore desire again to call attention to the fact that the practice of failing to discriminate between New Zealand currency and sterling in our accounts, and also of failing to bring the cost of exchange to charge in the proper appropriate account, still obtains. The present method of treating exchange leads to anomalies in some cases—for instance, London balances amounting to some £19,700,000 sterling were shown in the Public Accounts of New Zealand at that figure, the sterling amounts being incorporated in the New Zealand accounts without distinguishing them from amounts stated in New Zealand currency, to or from which they were added or subtracted as if they were the same thing. In the case of the Reserve Bank, however, the same balances when taken over by the Bank are shown not in sterling, but in New Zealand currency. The same asset which was shown in the Public Accounts as £19,700,000 (approximately) was shown in the first published statement of the assets and liabilities of the Reserve Bank as £24,400,000 (approximately), a difference of, roughly, £4,700,000 due to the erroneous method of treating exchange in the Public Accounts. As instances in which exchange has been charged against the Ordinary Revenue Account instead of against the appropriate account I would quote the following: — In the case of the Electric Supply Account, interest on loans was paid in London during the year to the amount of approximately £473,000 sterling. The cost of exchange on this amount, some £116,476, was, however, charged against Ordinary Revenue Account, and was not brought to charge in any way in the accounts of the electric supply undertakings, and such accounts are thus not a true record of the cost and results of the undertakings. Similarly, in the case of the State Advances Office, the amount of interest paid in London during the year was approximately £504,000 sterling. Owing to exchange the actual cost of the payment of this interest was approximately £628,110 (N.Z.) but only £504,000 was charged in the State Advances Account. The State Advances undertakings were therefore undercharged to the amount of some £124,110 and the Ordinary Revenue Account overcharged to the same extent during the year in respect of this transaction.

ii—B. 1 [Pt. ll].

IX

rr ♦„ Transactions for Transactions for Tntnl Tmnanctinm Kature of Transaction. 31st March, 1933. T mh JunflDM. 6 * 1 to 30th June, 1934. £ s. d. £ s. d. £ s. d. £ a. d. Amount of surplus exchange paid into 1,910,000 0 0 26,684,000 0 0 7,410,000 0 0 36,004,000 0 0 the New Zealand Government Indemnity Exchange Account, London (in sterling) Deduct— Amount of surplus exchange trans- 380,000 0 0 27,214,000 0 0 7,410,000 0 0 35,004,000 0 0 ferred from the New Zealand Government Indemnity Exchange Account, London, to the New Zealand Public Account, London (in sterling) j " Amount of surplus exchange re- 1,530,000 0 0 —530,000 0 0 .. 1,000,000 0 0 tained in the New Zealand Government Indemnity Exchange Account, London (in sterling)