44. In the course of negotiations for the sale of the ultimate surplus of explosives, the Commission found that it would be necessary to retain some of their magazines in order to store the explosives for the purchasers, the magazine accommodation in private hands being quite inadequate for such quantities. It appears that the War Office and the Air Ministry were aware of this necessity, and made arrangements for the Commission to hold stocks for them in the retained magazines. The Commission suggest that their officers were in constant touch with Admiralty officers over these matters, but it is not disputed that no further official communication was made to the Admiralty as to the possible retention of stocks for the Navy after June 30th, 1923.

45. So far as picric acid is concerned, the subsequent repurchase by the Admiralty is stated to be principally due to further demands consequent on unexpected delays in the adoption of a new type of filling. But the re-purchases of T.N.T. at prices 50 to 60 per cent. above the cost to the contractor could apparently have been avoided if the position had been adequately explained to the Admiralty, and Your Committee regret that this was not done officially by the Commission, and that co-ordination between the Departments should consequently have failed at this stage.

ARMY.

46. Annual Valuation of Stocks. In their Report of last year, the Public Accounts Committee recommended, amongst other things (paragraph 68), that a complete annual valuation should be taken of the stocks held by the Army. Such a valuation, as it seems to Your Committee, would be of importance with a view to the control over and economical use of stocks, and, particularly, would afford a ready means of ascertaining whether the stocks were or were not excessive in regard to consumption. The value assigned to Army Stocks in the Accounts of recent years is admittedly conjectural, and on the evidence laid before Your Committee (Q. 7908-7921) altogether excessive.

47. Your Committee have been informed that this matter has been under the careful consideration of the Army Council, and the Accounting Officer handed in a memorandum on the subject, which forms an Appendix to this Report. The Treasury, on learning the views expressed in this memorandum, suggested that the whole question should be further considered by a Committee containing representatives of the War Office, Admiralty and Air Ministry, together with a member who had experience of commercial methods of storekeeping. Your Committee learn with satisfaction that this body has now been appointed, and they will defer further consideration of the questions involved until the Report of this body is before them.

48. Recreation Facilities for Officers.-The attention of Your Committee has been called to certain cases in which public property has been leased to Officers' Clubs, &c., at rentals which appear to be considerably below the fair rental value of the property.

They are informed that the whole question of the granting to officers of facilities for recreation is being considered by a joint Committee of the three Fighting Services. They will be glad to learn in due course the conclusions arrived at.

49. Write-off Losses.-A question has arisen, which is at present under discussion between the Fighting Services and the Treasury, concerning the write-off of losses which have occurred as the result of frauds, &c., involving negligence on the part of Commissioned Officers, especially Superior Officers.

50. It rests with the Service Department to decide upon and take the disciplinary action appropriate to the case. On the other hand, it is the function of the Treasury to sanction the write-off of losses of public money, and the Treasury cannot adequately exercise this function without

being satisfied that due consideration has been given to the financial aspects of the case. It appears as regards one such case, at any rate, that was brought to the notice of Your Committee that the Treasury was not even informed what disciplinary steps had in fact been taken. In two other cases mentioned in paragraph 36 of the Comptroller and Auditor General's Report on the Army Account, the Treasury, which was informed of the relative facts, held that some pecuniary penalty should have been imposed by the Army Council upon the officer concerned and refused on this ground to sanction the write-off. In these two particular cases there were compassionate grounds for waiving the pecuniary penalty and without prejudice to the general principle, Your Committee suggest that no further action need be taken vis-à-vis these officers.

51. As regards the general question, Your Committee hope to learn next year that a satisfactory arrangement has been arrived at between the Departments concerned, and they cannot but think that on discussion the difficulties of the situation will be found in practice less serious than in theory they appear. They feel, however, that the Treasury cannot adequately discharge its duties to this Committee and the House unless it is fully informed on all occasions of the disciplinary action taken by the Executive Authorities, and can thus satisfy itself that the measures taken are sufficient to emphasise the pecuniary responsibility of officers in control of public funds.

AIR.

52. Air Estimates; Statistical Information. In the course of their examination of the Appropriation Account for Air Services Your Committee found themselves handicapped by the absence from the Air Estimates of interleaved sheets of statistical and other information such as are printed with the Estimates for the Navy and Army. They hope that in future the Air Ministry will publish such information, which will be of considerable value not only to Your Committee, but to Parliament as a whole.

53. Special Advances to Contractors.-The War Office, the Admiralty, and the Air Force are in certain cases allowed to make special advances to contractors at the end of the financial year, which are not claimable under the specific conditions of their contracts, in virtue of arrangements, which have been approved by the Public Accounts Committee and were summarised in paragraph 24 of the Third Report, 1922:

54. Your Committee wish to remind Departments of the rule that express Treasury sanction must be invariably sought for making such advances whenever an advance will cause excess either on a sub-head or on a vote (see Public Accounts Committee, 1889, Third Report, paragraphs 14 and 19, and Treasury Letter thereon of 25th September, 1889). Your Committee regret that these rules should have been overlooked by the Air Ministry in connection with certain advances made towards the end of the year 1924-25.

55: Irregular Procedure in Placing a Contract.-The attention of Your Committee has been called to the circumstances in which a contract for a supply of Ferro-silicon was placed in November, 1924. Considerable quantities of Ferro-silicon, which is used for the manufacture of hydrogen for Air-ships, were produced during the war and large stocks were thrown up at or shortly after the Armistice. The final sale of 2,500 tons was made by the Disposal and Liquidation Commission in July, 1922, and at that time the Air-ship service was completely shut down. When the demand for Ferro-silicon was revived in 1924 in connection with the resumption of the Air-ship service, the market was, as Your Committee understand, somewhat abnormal. A firm, Messrs. X, then informed the Air Ministry that they had an option on 100 tons of Ferro-silicon, and offered it to the Ministry at a price of £A per ton. The Air Ministry

ascertained by telephone that the largest known producers of this material, Messrs. Z, were asking a price of £18 per ton in excess of this quotation, and thereupon, although the arrangement was somewhat abnormal, decided to accept the offer of Messrs. X. It was part of the bargain that payment should be made before the goods were delivered, and payment was so made while the goods were lying in the Medway. When the Ferro-silicon was delivered by the contractor in the Thames under the terms of the contract, the containers were found to be faulty and leaking. By that time freight had been chartered and the ship was about to sail, so delivery of the faulty containers was accepted and the Ferro-silicon was shipped to Egypt. After the contract had been concluded with Messrs. X, the Air Ministry were approached with an offer of 50 tons by another firm, Messrs. Y (from whom it subsequently transpired Messrs. X had acquired the option on the Ferro-silicon which the latter had sold to the Air Ministry). The price quoted by Messrs. Y was 26s. a ton below the price agreed with Messrs. X for the other consignment. After obtaining less favourable quotations for this further supply from Messrs. X and from Messrs. Z, a producing firm, the Air Ministry accepted the offer of Messrs. Y.

56. In view of the procedure followed in dealing with the second supply, Your Committee find some difficulty in appreciating the reasons for placing the first order without exploring more closely the possibilities of competition in the first case. The Accounting Officer endorsed completely the action of the Departmental officers responsible for these transactions, and assured Your Committee that, in his judgment, the contracts were the best that could be made in the public interest in the circumstances then prevailing. Your Committee entirely accept his assurance that those concerned in the matter were endeavouring to supply the public service in the most economical manner possible, but they cannot avoid the conclusion that in this particular case they fell into an error of judgment, and that it would have been well had they made further inquiries before accepting the goods tendered by Messrs. X held under short option. There is reason to believe that the whole of the 150 tons of Ferro-silicon formed part of the surplus stocks sold, at a price of £4 per ton, by the Disposals and Liquidation Commission in 1922, of which the purchasers had taken delivery in the Medway shortly before these contracts were placed by the Air Ministry. The Air Ministry could not have become aware of these circumstances without minute examination of the books of the Commission, but Your Committee are of opinion that it would have been well had the Air Ministry, when considering Messrs. X's offer, consulted the Disposals and Liquidation Commission. Your Committee are glad to learn that no loss will accrue to public funds owing to the fact that delivery was accepted in leaking containers, the contractors having made good the value.

57. The Ferro-silicon purchased by the Air Ministry was shipped to Egypt. Your Committee are informed that so far the consumption of it has been quite small and that the large unused balance is held in store for future airship requirements.

58. Iraq: Rents for Encroachments.-The Comptroller and Auditor General has called the attention of Your Committee to the fact, reported by his officers in Iraq, that the Air Ministry account has been credited with a small portion only of certain sums paid by tradesmen in Iraq for permission to establish themselves for trading purposes on encroachments within the Air Force's cantonment areas, the greater portion having been carried to the credit of non-public funds, i.e., Regimental funds and other funds of the Air Force Units in Iraq. It appears that the payments made by these native shopkeepers were divided into two portions, a smaller portion definitely labelled as rent, which was paid over to the credit of the Air Force vote, and a larger part called rebate. Your Committee were informed that this arrangement had been made without the knowledge of the Air Ministry and is being revised,

but they were somewhat surprised to hear from the Accounting Officer that in his view any amounts paid by the contractors in excess of a full economic rent for the accommodation should accrue to the benefit of the Unit funds on the analogy of the arrangement under which a rebate is allowed to members of the service trading with Navy, Army and Air Force Institutes. As the Accounting Officer has undertaken to bring the matter to the notice of the Treasury, Your Committee refrain from further comment at this stage beyond indicating that in their view profits from the use of public property should enure to public funds.

59. Cost of Training Cadets and Apprentices for the Air Force.-Your Committee have examined in some detail the cost of educating and training Air Force Cadets at Cranwell and Air Force apprentices at Halton. The expenditure incurred on these establishments is considerably heavier per head than, e.g., the cost of the Army establishments at Woolwich and Sandhurst or at the Boys' Training School at Beachley. In any comparison between the Air Force and the Army establishments, allowance must be made for the wide differences in condition and in the nature of the education given which were pointed out by the Accounting Officer of the Air Ministry, but Your Committee are not satisfied that the expense of these establishments could not be reduced, and in particular they are struck by the large numbers of educational and teaching staff in relation to the number of cadets and apprentices.

60. Your Committee were informed that the Treasury has in view a special inquiry as to the number of staff at Halton. They suggest that an inquiry of this nature might be extended to the Cadet College at Cranwell, and they will be anxious to learn the result.

61. Owing to the absence of detail in the Estimates and the Appropriation Accounts it is not easy to arrive at a considered view of the general cost of either Cranwell or Halton. It would be very helpful to this Committee if in future years they could be furnished with a return of the cost of training in the principal educational Establishments under the control of the Air Council, showing the cost per head of training (under suitable sub-divisions of expenditure), the length of courses and so forth. It appears to them that it should be possible for the Air Council to prepare a statement on these lines which would be approximately accurate without going to the expense of establishing a complete and continuous costing system, and they are glad to have received an assurance from the Accounting Officer that he would submit a proposal on these lines to the Air Council.

Question, that the Draft Second Report be read a Second time, paragraph by paragraph, put and agreed to.

Paragraphs 1-6 agreed to.

Paragraph 7 amended and agreed to.

Paragraphs 8-12 agreed to.

Paragraphs 13 and 14 amended and agreed to.

Paragraphs 15-24 agreed to.

Paragraph 25 amended and agreed to.

Paragraphs 26-55 agreed to.

Paragraph 56 amended and agreed to.

Paragraphs 57 and 58 agreed to.

Paragraph 59 amended and agreed to.

Paragraphs 60 and 61 agreed to.

New paragraphs brought up, read the first and second times and added to the Report.

Question, That this Report, as amended, be the Report of the Committee to the House, put and agreed to.

Ordered to Report, together with Minutes of Evidence and Appendices.