K—l [PT. ll].

Contracts. —In my last report I referred to the examination of accounts in connection with the erection of emergency defence buildings under " cost-plus " contracts. Modifications of this form of contract have been introduced with the object of providing contractors with an incentive to urgency or economy. One useful modification lies in the direction of reviewing a completed contract and fixing the final price in accordance with an investigation of the contractor's books by Government costing officers. This procedure permits the Government to ascertain more closely the cost of the contractor's operations, and gives a more accurate result than is yielded when indirect costs are fixed by estimate, as in the simpler type of " cost-plus " contract. This form has been adopted in respect of numerous contracts for the manufacture of warlike stores in New Zealand. The construction of several vessels has been entrusted to shipbuilding firms under a variation of the " cost-plus " contract whereby a "* target " or estimated price is fixed plus an agreed-upon fee. If the contractor is able to introduce economies so that he undercuts the target price lie shares in the savings. If, on the contrary, the target price is exceeded no fee in excess of the fee originally agreed upon accrues to the contractor. The Government is advancing large sums from War Expenses Account by way of interest-bearing loans to finance the erection by freezing companies of emergency cool-storage accommodation. The Audit Office has made arrangements to check the accounts relating to the work qualifying for Government assistance before passing claims for advances. General. —In his standard work on Parliamentary Grants, Durell writes as follows on the subject of war expenditure : — " The mere availability of vast sums of money, which is a necessary accompaniment of war, is no excuse for greater expenditure than is necessary for the fulfilment of military requirements. But war inculcates what Gladstone calls ' the spirit of expenditure,' and the availability increases the temptation to spend, and such temptation increases in proportion as the possibility of a reckoning appears to be distant or unlikely to be strict. The requirements of the military authorities have to be supplied, but they should be supplied in the cheapest manner compatible with efficiency. Those responsible should be particularly on their guard to protect the public purse whenever possible, to be on the watch for extravagance, to resist unscrupulous or even well-meaning but wasteful demands, and to prevent abuses arising under cover of the situation." The Audit Office has its part to play in assisting the Administration to combat the tendencies noted by Durell, but how effectively it can play that part must depend very largely upon the staff available after the calls for men made by the fighting forces have been met. This question of staff is more fully dealt with under an appropriate heading at the close of this report. Audit of Public Stores. Accounts numbering 339 in the offices of the following Government Departments were examined during the year : Agriculture, Air, Army, Education, Housing, Health, Internal Affairs, Internal Marketing (Canteens), Industries and Commerce, Tourist and Publicity, Justice and Prisons, Lands and Survey, Marine, Mines, Mental Hospitals, Navy, Native, Police, Public Works Department, State Forest, Transport. Apart from work under the War Expenses Account, all audits are reasonably up to date and no serious irregularities occurred during the year. Patriotic Funds. The accounts of the National Patriotic Fund Board and of the Provincial Patriotic Funds established in terms of the Patriotic Purposes Emergency Regulations 1939 are subject to audit by the Audit Office or, in the case of the Provincial Funds, by an auditor appointed by the Audit Office, which has, however,

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