B.—l [Pt. ll].

Owing to this method of treating exchange, the departmental accounts and balance-sheets will also fail to disclose the true position. The Audit Office does not suggest that the full cost of interest, including exchange, should actually be recovered from the accounts mentioned in cash unless or until there are revenues available to meet such cost, but is firmly of the opinion that the full cost should in all cases be brought to charge in the departmental accounts and balance-sheets, which are intended to show the position and result of the undertakings from a commercial point of view. The departmental accounts of commercial activities are also intended to give information which will enable a comparison to be made with other undertakings of a similar nature, and unless the full cost of the relative services is brought to charge such accounts will fail to fulfil one of the chief purposes for which they are drawn up, and will create a wrong impression as to the cost of such undertakings. Discrepancies between the Public Accounts as published and the Treasury Books. The Controller and Auditor-General is required by the Public Revenues Act to bring under the notice of Parliament any discrepancies which may exist between the Treasury books and the published accounts, and, although I have on previous occasions called attention to this matter, I propose again to submit in greater detail my reasons for urging a$ alteration in the method of placing the accounts before Parliament and the public. I would like to make it clear that in making these comments the Audit Office in no way raises, nor has it ever raised, any objections to the actual transactions themselves, which are quite legitimate and in accordance with iaw, and have been subjected to Audit investigation and duly passed as in order ; it objects only to the method of recording these transactions in the published accounts, which it considers is inaccurate and misleading to Parliament and the public : — 1. In this paragraph I refer to cases where an amount has been advanced or invested from one subaccount to another sub-account within the Public Account. In these cases the amount is correctly entered in the Treasury books as a payment in the sub-account from which the moneys are paid, and as a receipt in the sub-account by which the moneys are received, but in the published accounts the amount is not shown as a payment in the sub-account from which the moneys are paid, though the amount is shown as a receipt in the other sub-account,. The result is to inflate the total balances as shown in the published accounts, for the reason that the total balance of the investing sub-account, is not shown as reduced while the total balance of the borrowing sub-account is shown as increased. Such transactions are entirely within the Public Account, and it is clear that a simple transfer from one sub-account within the Public Account to another sub-account within the Public Account cannot increase the total balance of the Public Account. The method of showing such transactions in the published accounts, however, makes it appear that the total balances of the Public Account have been so increased, though, in fact, they have not been increased. This system is followed in. the case of temporary advances of cash from one sub-account to another when no securities are issued, as well as in the case of long-term loans where securities for the repayment of the cash invested are issued by the borrowing sub-account. The existence or otherwise of a security makes no difference in the result. In order to exemplify my meaning I will take an actual transaction from the accounts. A and B are two sub-accounts within the Public Account. A has £217 -cash in hand; B has £1,960,540 cash: total of both sub-accounts is £1,960,757. B transferred to A £10,000 which obviously reduced B's balance by that sum and increased A's balance correspondingly. In the accounts as published, however, B's balance still remains at £1,960,540, whilst A's is increased to £10,217, and the corresponding total of the two sub-accounts is shown as having been increased to £1,970,757, whereas in reality no increase took place in the total. Hitherto it has been the practice to incorporate in the published accounts an " Explanatory Statement of Investments," showing the corresponding liabilities of the borrowing sub-accounts with a view to mitigating to a certain extent the misleading effects of the system followed, but owing to the changed method of recording loan transactions which has been introduced in the Treasury the information necessary to compile such explanatory statement is no longer available, and the statement has accordingly been omitted. 2. I refer in this paragraph to cases where moneys have been lent by the Public Account to borrowers not within the Public Account. These loans, although correctly recorded as payments out of the Public Account in the Treasury books, are not shown as payments in the published statement of Receipts and Payments of the Public Account. There is therefore a discrepancy between the Treasury books and the published accounts. 3. Further cases in which the position as stated in the published accounts is misleading, arise from the method of treating investments made under the authority of section 39 (2) of the Public Revenues Act, 1926. Under this method moneys issued and paid from the Public Account by way of investment are charged or debited to a suspense account known as the " Public Account Cash Balance Investment Account," and are not debited to the particular sub-accounts to which the invested moneys belong. The result is that the individual sub-accounts show a much larger cash balance than is actually held, the cash having, in fact, been paid from the Public Account, but not so shown. ' For example, in 8.-l [Pt. I], 1934, page 9, under the Ordinary Revenue Account, it is shown that at the end of the year this account had a cash balance of £14,740,102. Actually the total cash in the whole of the Public Account (of which the Ordinary Revenue Account is merely a part) is shown as £503,893 only. The entry in the account, as set out above therefore gives an erroneous impression. In actual fact, nearly the whole of the £14,740,102 cash had been paid away by way of investment, and was held by the institutions with which the investments had been made, and therefore was not available cash in the hands of the New Zealand Government. It could become available cash from the point of view of the Government accounts only when the investments had been realized. 4. Audit has suggested that if the Treasury specially desires to show the investments of the various accounts they should be shown in a very simple subsidiary statement or footnote to each account, but this suggestion has not been adopted.

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