and onwards to reduce all the exemptions and the hard cases to some kind of statutory exemption, and that process has been going on; but there are certain cases which it has never been possible to define for legislative purposes, and this Committee recognised the difficulty of drawing a Statute which would cover every type of legitimate exemption. Therefore the compromise was adopted that the Comptroller and Auditor General should be furnished with lists of all the cases which were not covered by statutory authority and yet had a dispensing element in them, in order that the Comptroller and Auditor General might examine them and see that the Inland Revenue were abiding by the undertakings which they had given to this Committee, and if not, report the matter to the Committee.

151. We had the statutory authority. Now we have the practice that every case of dispensing power exercised to any extent can really come before the Committee for review if you think it necessary? That is so. My object in bringing it up in paragraph 7 was that though and the cases, as Sir Ernest contends, I think the Treasury agreed, do not come within the technical category of exercising dispensing power, yet I thought ultimately at the back of my mind, whether they did or not, they were at any rate the sort of cases the Committee would like to have examined specially on their behalf.

152. Do they come within the spirit, I will not say of the rule we laid down, but of the discussion we had in this Committee on that very subject on more than one occasion?-In these cases there arose the particular difficulty that you cannot get a gallon out of a pint pot. In very many cases, and particularly in the times through which we have gone, if you exact your pound of flesh you will not get anything at all. So that there has been a business element of compromise about these cases.

153. I was not thinking of that. All I am concerned with is that you have now a means by which, where this dispensing power is exercised to any extent, it comes to you for review, and if necessary, can be passed on to us? That is

So.

Sir Assheton Pownall.

154. With regard to this £95,000,000 could you tell us to what extent that has

[Continued.

been whittled down since the 31st March, 1927, in order to give us an idea of what is likely to happen in the future? -(Sir Ernest Gowers.) No, I am afraid not. (Sir Malcolm Ramsay.) Our latest figures they are not agreed by the Inland Revenue-show that according to our calculation up to January, 1928, the amount has been reduced to about £80,000,000.

155. Is it possible to get any idea with regard to the difference of £15,000,000 as to the extent to which the dispensing power has been exercised, and to what extent cash has been forthcoming?-(Sir Ernest Gowers.) Much the greater part of the £15,000,000 represents paper writing off. (Sir Molcolm Ramsay.) Assessments discharged without any cash. (Sir Ernest Gowers.) Our net collection of Excise Profits Duty this year will be a minus quantity.

Chairman.

156. If Members will look at the receipts of the National Accounts they will see that very little, if anything, has been collected. It is actually a minus quantity.

Sir Assheton Pownall.

157. It might be that a considerable sum had been collected, but there might have been repayments. It would be interesting to know with regard to the £15,000,000, because if we can see nothing on that it does not look well for the remaining £80,000,000.-Speaking from memory, I think we have collected £5,000,000 this year, and have paid out rather more than £5,000,000.

158. With regard to the dispensing power, in many cases which you write off the question of dispensing power hardly arises; but there must be doubtful cases where statutory authority ought to be exercised and where this Committee ought to be told by the Comptroller and Auditor General if dispensing power has been exercised with regard to them?Where dispensing power is exercised the case is reported to the Comptroller and Auditor General.

159. Are we going to have an appreciable amount of this £95,000,000 reported to us? No. The reduction of the £95,000,000 will not be a remission of duty assessed, it will be a reduction of the assessments, which is quite a different thing.

160. Will there be writes-off as well?— I expect there will. I have no doubt there will. But the amount will be insignificant compared with the writing down of the assessments.

161. Therefore the extent to which the Comptroller and Auditor General will be reporting to us will be with reference to a very small proportion of this total sum of £95,000,000?-Undoubtedly.

Mr. Ellis.

162. One is a basis, and the other is a levy when you have got your basis?— Quite so.

Chairman.

163. Now we will take paragraph 8. This paragraph refers to the Collectors, Sir Malcolm.-(Sir Malcolm Ramsay.) I think the Committee will remember that last year, or the year before, they drew attention to the recommendations which had been made by the Royal Commission with regard to the appointment of Collectors of taxes. You have been assured by the representative who gave evidence before you that it was very difficult to keep the Collectors of taxes in certain cases under proper supervision. As the outcome of the Committee's recommendation last year there was a section, viz., Section 30 of the Finance Act of last year, which was a step towards giving the appointment of Collectors over to the Inland Revenue. Under the old system if the District Commissioners did not appoint a Collector within a stated period the right of appointment lapsed to the Inland Revenue, but in certain cases it might revert to the District Commissioners. think I am right in saying that Section 30 provides that once the District Commissioners allow the appointment to lapse for any area and it goes to the Inland Revenue the appointment thereafter becomes permanently vested in them. The result has been, taking the case of Southampton which I will deal with, that the Inland Revenue have been able to concentrate and reorganise the collection in that particular area at a great economy of staff, and the conditions under which the work is discharged are greatly improved. I understand, as I say in this paragraph, that that procedure will be applied to cther districts as circumstances permit.

Major Salmon.

[Continued.

164. Do I understand by what you have said, that none of the persons referred to in this Report would have come into the recomendations that have been carried out say at Southampton? Let me put it in another way. The Committee recommended last year that a certain system should be adopted to prevent these defalcations. Your point is that certain recommendations were made that would have met the difficulties that we are discussing?-Sir Ernest Gowers will speak with greater confidence than I do about it.

165. Am I correct in supposing that that is what you said?-That was one of the objects. The witness for the Inland Revenue stated to this Committee, and I agreed, that if those changes were carried out they hoped it would be an additional safeguard, and I am informed by my own officers, and I think Sir Ernest Gowers would agree, that since that change has been made there have not been defalcations in the particular areas in question. The system has not been working very long, so that I do not think I can put it more definitely than that.

166. If those alterations had been in existence in this particular area those defalcations would never have taken place that have taken place?—I believe that consequence would have ensued, but it is speculation. The change has only been working for a short time, and therefore one cannot dogmatise by saying that the results anticipated have been achieved; but so far as the evidence has reached me, the collections are working better, and I am very confident as the system goes on they will have much better control and there will be fewer defalcations.

168. Sir Ernest, have you anything to say? (Sir Ernest Gowers.) I have just one or two comments to make about it. The first is as regards actual monetary economy. You cannot expect very much at the outset, because we thought it right to take over the Collectors who have vested rights at their existing pay, and consequently we shall have some people who are being paid too much in the centralised collection for the jobs that they are doing; but that will gradually remedy itself, and the ultimate saving ought to be very substantial, although one cannot put it into figures. The second point is that though this is a new experiment as you have been told, and we only started this centralised collection in collecting the revenue of the present year, and therefore we cannot speak from experience, yet it stands to reason that if you collect revenue in a centralised office with a proper system of supervision and check you are much less likely to get defalcations than if you have it collected in isolated units by people doing something else for the rest of the year and occupying themselves and their families collecting for three months at the beginning of the year. Perhaps I might add this third thing. Of course the Act passed last year does not by any means give us the power to reform the whole of the collection; it only means that where we do appoint Collectors we can go on appointing them for ever. We hope next year that we shall be able to make about 10 or 12 more centralised collections absorbing perhaps 180 or so of the Collectors, and ultimately under the powers of our Act of last year we might perhaps be able to get 20 or 30 centralised collections. The Act of last year, although of course not complete, gives us something to go on with. Malcolm Ramsay.) Might I add word on a point which I overlooked.

in

(Sir

one

Sir Ernest has indicated it but he has not said it. Where you get your collection centralised as at Southampton in a big office you can set up the proper internal check at which we aim all through the country, namely, that one branch of the office demands and the other receives the money, and you get the cross check between them. Under the old system it was quite impossible. The same man might have an office in one room in his house, collect the money, issue the receipts, and send them up,

[Continued.

and if he was evilly minded the opportunities of fraud were much greater because the cross check was impossible.

Mr. Ellis.

169. The speed of collection is also greater of course under the centralised system, quite apart from any question of defalcation?-(Sir Ernest Gowers.) Yes.

Sir Robert Hamilton.

170. We have to recognise the vested rights that some of these old Collectors have. I suppose that is why the arrangement was made in this way. Would it be an advantage to speed up that scheme of reorganisation?-You mean by getting rid of the old Collectors?

171. Yes. I do not think it would give any special advantage

172. You are quite content with the slow process by which you have to work now to get your various districts organised under collecting centres?-It only means not having quite a suitable staff. You take in existing Collectors, and all it means is that they may not he quite suitable for the job they are doing.

173. But I gather that some of them were paid a great deal too much?--It may be so. If you make a centralised office, and if you staff that centralised office with people who have up to now been independent Collectors acting their own you have to put some of them in the office in subordinate clerical positions, and therefore it follows that if you give them their previous remuneration you may be paying some of them too much for their new jobs. That is what I meant.

Mr. Gillett.

174. Under your scheme, when you have to deal with these cases of actual fraud, I should like to know whether they finally all come up for review before one or two of the heads of the Department, or whether it means that the question of whether a man should be prosecuted in one case is decided by one person, and in another case is decided by quite a different person with no knowledge of the procedure?-No, they all come up to the Board.

175. Would it be possible in some way to give rather more information than appears in this statement, because if you compare one or two cases together one

gathers the impression that it is quite impossible to see why action is taken in one case and not in another. For instance, if I compare case No. 29 with case No. 38 those are two cases of Collectors of Income Tax, and in both cases no loss was incurred, but in one case the man gets six months' imprisonment, and in the other no proceedings were instituted?-The explanation is that case No. 29 was a mere muddler, and No. 38 had falsified his accounts.

176. Those two cases finally came up for decision before the same person?— Yes.

177. I want to get the general principle elucidated, because in reading these accounts it seems very difficult to understand how the decisions were come to. If they were come to by the same people, it would seem desirable, if possible, to get a little more information?-I will certainly look into that and see whether it is possible, without unduly prolonging the summaries of these cases, to give more information as to why in some cases they were prosecuted and in others not. (Sir Malcolm Ramsay.) I might, perhaps, intimate that all these cases come before us and we review them. If I notice anything which seems to indicate to me that a wholly inadequate penalty had been inflicted, or where there had been no penalty at all, I would naturally bring the case before the notice of this Committee. I conceive it my duty to look through these things and call attention to anything abnormal in order that the Committee may pursue it. 178. The cases are first reviewed by the Board and then by you?-The cases are first of all reviewed by the Treasury, and then we see whether Treasury authority has been given, and if there was anything abnormal we should pursue it.

179. I do not know whether it would be possible to print the reasons for the decision a little more fully.

Chairman.] Sir Ernest Gowers has undertaken to keep that in view.

Mr. Roy Wilson.

180. Is it not a fact, Sir Ernest, that independent collectors from time to time are authorised to receive payments in respect of Income Tax by cheque in their own favour? The point I want to make is this. Would it not be a safeguard against irregularities, or theft, or misappropriation, if in every case in these outlying districts when the independent

[Continued.

Chairman.] I was bound by the Report of the Royal Commission in 1919. After all, the present Government introduced this clause which relieved me of responsibility.

Major Salmon.

an

189. I should like to ask Sir Ernest if he could kindly explain to us cases 49 and 52, taking those as examples. Is the new system that you have put into force such as to prevent such occurrence as in those two cases?-Case No. 49 has nothing to do with collection. (Sir. Malcolm Ramsay.) Case No. 49 is repayment claims. (Sir Ernest Gowers.) It does not really arise on paragraph 9; it is not a fraud by a collector.

190. What about Case No. 52?

Chairman.

191. I think, Sir Ernest, the strict position is that you have grouped the frauds by collectors under the first nine or 10 cases on page 20 of the Account?-Yes. The individual collectors go up to No. 39.

Major Salmon.

192. Taking those cases up to No. 39, is it fair to say that under the new system that you are going to introduce, or have introduced, reasonable precautions have been taken to prevent such things happening again, or if they do happen, to find them out more quickly? The circumstances will be entirely different. Under the circumstances in which frauds occurred isolated collector

you

these

an

had working by himself, perhaps in his own house with no assistance, except his wife and family, issuing the demands himself and receiving the money himself, absolutely unsupervised. Under the new system you have an office divided into two parts, one of which issues the demands and receives the other the amounts of money. You have constant supervision, you have modern machinery, and the circumstances are entirely different. It is obvious that opportunities for fraud exist in the one case which do not exist in the other.

193. But is it a practical proposition so far as meeting such a case as No. 35, taking that as an example? Would your new system prevent that occurring ?-Yes, I think it is pretty clear. My note on case No. 35 is this: "In this case

[Continued

there was a falsification of accounts on a large scale. There were omissions of receipt counterfoils from the cash books, and the amounts shown on many other receipt counterfoils were smaller than the amounts on the corresponding receipts issued to the taxpayers. Thus, in one case a payment of £2,374 was shown on the receipt as £2,074.”

194. Was that an isolated office ?-It was Upper Holloway.

195. Under your new system, how will you prevent that occurring in the future? -The way to prevent fraud occurring in broad outline is to make fraud IDpossible without collusion. Therefore you divide the process of collection into two parts: the issuing of the demand, and the accounting for the money. You have responsible people on each side, and the greater the number of people amongst whom you make collusion necessary before fraud can occur the greater your safeguard.

196. Yes, that is quite right; we all recognise that is the A, B, C of arranging a thing of that kind. That is merely elementary. The point I am trying to arrive at is this. I have heard so much of what this system is going to do; it has been put on a high plane; therefore, speaking for myself, I rather want to be familiarised with it and to have it demonstrated that it is going to carry out in effect what is hoped of it?-I am afraid I cannot tell you the details of the system of demanding and accounting. I can get them for you if you like, but I cannot tell you them out of my head. I do not know them. I am not an expert in these matters.

197. I should like to know from an administrative point of view, is it suggested that in Holloway, in the centre of London, you can so reorganise your arrangements as to hope to prevent any recurrence of such a thing as this?No, I do not think I have the power. I expect Holloway has a Commissioners' collector.

198. I thought in this case he was a permanent official?-(Sir Malcolm Ram say.) No.

Chairman.

199. There is nothing on the note to indicate that ?-(Sir Ernest Gowers.) J cannot say off-hand, but I think it is most unlikely we should be able to put Holloway under a permanent collector.