Q. 6405. Qns. 65026551. Q. 6581. Q. 6599. express our surprise that a work of this magnitude should have been undertaken without, apparently, any reference to the Home Government. The War Office have asked the local military authorities under what authority such services as a race course and certain works for civilians were undertaken. 70. Field Allowance.-In the autumn of 1919 it was directed that the conditions regulating field allowance should revert to those laid down in the regulations. Owing, however, to a general misreading of these conditions, it continued to be irregularly drawn until September, 1921. The over-issues are compensated to a certain extent by the fact that furniture allowance, which would have been applicable in many instances, was not drawn. We are informed that the issue of field allowance under irregular conditions has now been stopped, and that the War Office have in contemplation a revision of the whole question of this allowance. We find some difficulty in understanding the delay in discovering the misreading of regulations which resulted in these overissues. In this and other instances we are led to the opinion that over-issues have been caused by a want of clearness in the regulations. It is of the greatest importance that all such regulations should be issued in a form easily understood. 71. Loss on Exchange.-In connection with the heavy charge of over £3,000,000 under Head VI, Subhead R.12, on account of loss by exchange, the Comptroller and Auditor General referred to the fact that British troops in Bulgaria had been able, by use of the official machinery of exchange and unauthorised traffic in canteen stores, to make large profits for themselves, the official rate of exchange departing widely from the market rate. Similar conditions were brought to our notice last year. We understand that the fixing of an official rate of exchange was adopted mainly for accounting convenience, and we consider that steps should be taken to prevent such abuses as the above, by revising the official rates at shorter intervals, by limiting the right of the individual to transmit money home through official channels, or by some other means. In future it should not be possible for the official rate of exchange to be used as a source of profit at the cost of the State. 72. Prolonged delay occurred in the War Office in dealing with a question raised by the Comptroller and Auditor General, prompt settlement of which might have resulted in a decreased charge for a particular group of pensions. We consider it essential that audit inquiries should be speedily dealt with, and we are glad to know that the Comptroller and Auditor General will get into personal touch with Accounting Officers on points of importance which do not appear to be receiving prompt attention in the ordinary course. 73. The list of losses, by fraud and otherwise, appended to the account is again a heavy one, and to a large extent is the aftermath of War. We are informed that with the gradual Q. 6242, return to the normal peace standard of Army accountancy a great improvement in this matter may be expected in the now current Q. 6244. financial year. 74. Store Accounts and Stocktaking.-We are informed that Qns. 6661 et the past year has seen a gradual reversion at home to the normal seq. standard of store accounting. We need only emphasise the desirability of pressing on with the work of stocktaking and the disposal of surplus stores. 75. We are informed that the difficulty of reverting to the complete pre-war programme of stocktaking has been increased by a reduction in the number of qualified officers available for Q. 6688. the work as compared with pre-war staff. This reduction appears to be partly due to transfer of trained officers to newly formed Departments and partly to general reductions of Government staff. The transfer of staff may be of advantage to other Departments, and through them to the country, but we Q. 6704. feel that incomplete stocktaking involves serious risk of loss and waste. ORDNANCE FACTORIES. 76. The account shows a net deficit of £1,040,172 6s. 4d., which in accordance with our Second Report has been made good by an Q. 191. Excess Vote. The deficit is attributable to the decision arrived at, when the demand for munitions suddenly stopped at the Armistice, that alternative work should be provided at the factories in order to avoid the throwing of excessive numbers of workmen out of employment. This work was of two kinds: (a) 100 locomotive engines, for which no definite purchaser was, or is yet, in view, and (b) other work for Government Departments and outside customers taken at firm (competitive) prices, which, as events have proved, were insufficient to cover the full cost of manufacture. In the normal course, no manufacture is undertaken in the Ordnance Factories without a definite order, and to provide funds for doing the work the various "customers customers" (Government Departments, India and the Colonies) make advances as required. In the case of the transactions now in question it was impracticable to call upon the customers for an advance before the goods. were delivered or even (in the case of the locomotives) sold. Consequently, the cash required to finance the work was provided from general balances, first, of Ministry of Munitions funds and, later, of Army funds. Thus moneys provided by Parliament were irregularly used to finance a commercial undertaking for which no Vote had been taken. We concur in the opinion now expressed by the Treasury that an Estimate should have been presented to Parliament at the outset by the Ministry of Muni- Q. 278. tions, who were then responsible for the conduct of the factories. We think also that the Treasury themselves should have called the Ministry's attention to this course at the time. 36106 b Q. 226. Q. 6817 Appendix 2. Q. 76. Q. 87. Qns. 88 et seq. Q. 5918. The expenditure incurred in the manufacure of the locomotives up to March last amounts to £1,300,000, and so far, in spite of every effort, it has not been found possible to dispose of any of them. Fifty of the locomotives have been, or will shortly be, completed, and it has now been decided to suspend all further work on the remainder. The loss will undoubtedly be very heavy, but cannot yet be estimated. On the other group of alternative work, a loss of £129,995 had already been incurred at 31st March, 1921, on work completed at a total cost of £870,326. NAVY ACCOUNTS. 77. The actual gross expenditure recorded in the account has exceeded the estimate by £7,510,527 19s. 9d., whilst the sums realised on account of Appropriations-in-Aid have exceeded the estimate by £5,877,537 11s. 3d., leaving a net excess on the account of £1,632,990 8s. 6d. In our First Report we stated that we saw no objection to these sums being provided by an Excess Vote, and this Vote has now been submitted to and approved by the House. 78. We feel bound, however, to comment on the fact that for the second year in succession naval expenditure has been under-estimated by very substantial sums, and we learned with some concern that even as late as May, 1921, two months after the close of the financial year, the Lords Commissioners of the Admiralty clearly remained under the impression that, so far from an excess, there was a saving of over £1,200,000 on Admiralty Votes for 1920-21. The excess expenditure does not represent over-spending in the year under review; it is due. entirely to the progress made in clearing and charging the suspense accounts of war expenditure, combined with the fact that the Admiralty had no sufficient knowledge of what their outstanding war liabilities were, many of the claims against them not having been received. The effect of this is seen in the wide variations between estimate and expenditure which occur on almost every page throughout the account. While we recognise that the Admiralty have made special efforts to meet the wishes of this Committee in regard to the clearing of suspense accounts. it is clear, as indeed it was admitted, that the Admiralty had lost touch with their liabilities. The Committee have been assured by the Admiralty that various precautions have been taken to ensure for the future that the relation between estimate and expenditure shall be kept in constant review, and that they are now in touch with their liabilities and able to keep account of their obligations, except only as regards certain clearances of war liabilities which still remain, though on a very reduced scale. The expenditure Appendix 24. remaining in suspense at the closing of the accounts for 1920-21 has been brought down to £2,000,000, 79. Closing of Admiralty books.-We had occasion to comment last year on the late date at which the Admiralty books were closed, and the consequent inconvenience and delay in carrying out the audit. We note with satisfaction that the books for 1920-21 were closed on 31st October, 1921, and that the Appro- Q. 5277. priation Account was rendered to the Comptroller and Auditor Appendix 23. General within the statutory period. The Admiralty have issued instructions that the Admiralty ledgers shall be definitely closed on 30th September in the present and future years, and we shall look forward to hearing that date is adhered to. 80. Accounting Officer.-In accordance with the decision, con- Q. 5282. curred in by this Committee, that in the Service Departments the permanent head of the Department should be made Accounting Officer, the Permanent Secretary of the Admiralty has been appointed by the Treasury to be Accounting Officer of Navy Votes and Funds as from 1st January, 1922. 81. The certificate of superior authority given by the Account- Q. 5321. ing Officer is qualified in respect of an item of £41 19s. 6d., representing an overpayment of separation allowance and allotment for which Treasury sanction has been withheld. The mistake is largely attributable to pressure on the Department and the inexperience of the temporary staff engaged in the branch concerned, and in all the circumstances we recommend that the charge be allowed against the Vote. 82. Gross Accounting.-In several cases which have come to our notice net entries have been made in the accounts in contravention of the principle of gross accounting for which this Committee and the Treasury have expressed their preference. Thus Q. 5360. the expenses incurred by the Admiralty in connection with certain trading services (steel, timber, asbestos), amounting to approximately £88,000, were not charged against any Admiralty Vote, but were deducted from the total receipts, the net receipt. being credited to Appropriations-in-Aid. Under Votes 8 and 9 Q. 5403. certain recoveries of over-payments, made to contractors in previous years, have beer credited to debit sub-heads of the Votes, with the consequence that the actual gross expenditure in 1920-21 is in excess of that shown in the account. Again, certain receipts. in respect of the reconditioning of trawlers were credited to Vote 8, Section III E., and not carried to Appropriations-in-Aid. Such transactions tend, by relieving the gross expenditure, to Q. 5509. increase the spending power of the Department. cumulative effect is considerable. Their We were glad to receive an assurance from the Admiralty Q. 5542. that they entirely accept the views of the Committee as respects gross accounting and that they will give effect to them in future. 83. The charge against Vote I, Sub-head I.I. includes certain payment in respect of separation allowances made by the Admiralty on account of Dominion Governments, and repayable by the latter The inclusion of these charges in the account Q. 5700 contravenes a long-established principle that amounts not finally 36106 b2 Q. 5727, etc Qns. 5480 et seq. Q. 5501. Q. 5515. chargeable against a Vote should not be included in the Appropriation Account. We are informed that this charge was made in consequence of an erroneous decision of the Department. Fresh arrangements have been made which will obviate any similar charge in future, and in the circumstances we recommend that the amount in question, namely, £120,000, need not be removed from the account. 84. Expenditure on work for a private firm.-Under Vote 8, Section I, two special subheads have been opened by Treasury direction to record the direct expenditure and the receipts, respectively, in connection with the construction of certain vessels in H.M. Dockyards for a private firm. The use of Navy balances to finance an enterprise of this nature without an express Vote of Parliament was admittedly an irregularity, and we are assured that but for an oversight on their part the Treasury would have required provision for this item to have been made in the Estimates. 85. Surplus Trawlers and Drifters.-After the Armistice, various schemes were approved for disposing of surplus trawlers and drifters. Under one of these schemes, which was administered by the Ministry of Agriculture and Fisheries (as regards England) and by the Fishery Board for Scotland, the vessels were sold to ex-service fishermen, the purchase price to be paid by instalments with interest spread over not more than 12 years. The cost of reconditioning and repairing the vessels was borne by Navy Votes, and amounted in all to £60,084 for Scotland and £68,252 for England. In addition, a sum of £15,046 was charged to the Vote for the Fishery Board, Scotland, 1920-21 (Class II, Vote 30), for gear, repairs, &c. In consequence of the unprecedented depression in the fishing industry during 1920-21, the purchasers in most cases were unable to pay their instalments, and the Treasury have agreed to the reduction of the purchase price by 25 per cent., with retrospective effect from the date of sale. During the year the Scottish Fishery Board received from the purchasers £45,486 (being cash payments made by certain of the fishermen on delivery of the vessels), which has been handed over to the Admiralty in repayment of the cost of reconditioning; while the Ministry of Agriculture received £1,193, which will be dealt with similarly. 86. While negotiations were proceeding in connection with these schemes a number of the boats were placed temporarily at the disposal of the Ministry of Agriculture to be employed in fishing operations on a profit-sharing" basis, with the object of providing employment to ex-service fishermen. These operations resulted in a loss, and towards the close of 1920-21 the Admiralty advanced £68,000 out of Navy Funds to the Ministry of Agriculture, for the purpose of liquidating the outstanding liabilities. It is admitted that this use of Navy Funds |