He must also be qualified to represent his depart-
ment before the Committee of Public Accounts."
The conclusion is that the duties of Accounting
Officer should be discharged by the Permanent
Head of the Department, and that is the general
rule. An exception is made in the cases of the
bigger offices presided over by Secretaries of
State and the departments of Boards. In their
case the Accounting Officer is one of the officers
next under the Permanent Head of the Depart-
ment, and, where there is a special financial branch,
the Head of that. Thus for the War Office the
Accounting Officer is the Assistant Financial
Secretary; for the Admiralty, the Accountant
1 Public Accounts Committee First Report, 1905.




APPROPRIATION AND AUDIT 163

General; for the Boards of Inland Revenue, of
Customs and Excise, and the Post Office, their
Accountants and Comptrollers General. At the
Board of Education he is the Secretary.

In enforcing the statutory scheme of appropria-
tion, the organisation which has now been described
works something in the manner of the mediaeval
inquest. The Public Accounts Committee are
the judges who go in eyre through the depart-
mental accounts. The Auditor General presents
to them this official or that for their judgment as
the mediaeval jury presented criminals. It is the
Accounting Officers who are the criminals. To
pass through the inquest unscathed, they must be
vigilant to enforce upon their departments obedi-
ence to the scheme of appropriation, or to get an
indemnity from the head of the department in the
manner described. In the mediaeval village the
law breaker pitted his wits against the detective
abilities of his neighbours who would serve upon
the presenting jury. In the public departments
nowadays similar contests of wit between the
Auditor General and the Accounting Officers may
not perhaps be wholly unknown.

THE APPROPRIATION AUDIT

As between the Accounting Officers and the
Auditor General there is no relation of official
chief and subordinate. Appropriation accounts
are rendered by the Accounting Officers to the
Auditor General, and they are bound to supply
him with information on all matters into which he
is authorised to enquire. But they are not even



164 NATIONAL FINANCE

for any limited purpose his servants ; they are the
servants of the departments in which they work.
The functions of the Auditor General are in no
way administrative or executive even in matters
of account ; his business is only to watch, search,
enquire, and report. It is the verification on
behalf of Parliament of the Appropriation Accounts
which he receives from the Accounting Officers
that is his chief end as an official. For this
purpose he examines them, calls attention to
irregularities, such as grants exceeded or other
receipts improperly applied, and finally certifies
them to be correct. But a mere superficial ex-
amination of the accounts themselves is not
enough for his purpose. For the better detection
of the irregularities and illegalities, he has to
conduct a regular audit, acting in much the same
manner as a commercial auditor would act.

The essence of an audit of accounts is that it
is an investigation into them, made in detail by an
independent person not concerned in drawing them
up, to ascertain whether they tell the truth, the
whole truth, and nothing but the truth about the
transactions which they profess to record. For
this purpose the auditor must ascertain in the first
place whether the accounts presented to him
accurately record and summarise the transactions
of the period which they cover, as entered from
day to day in books of account and other docu-
ments, and in the second place whether all pay-
ments and receipts for which credit is given and
taken in the accounts have actually been made and
received. For the latter purpose he must examine
and verify the vouchers for payments and other




APPROPRIATION AND AUDIT 165

documentary evidence of incomings and outgoings,
seeking in particular to detect cases in which
there is no proof of payment of sums charged, or
in which a payment has been charged out of time.
Such is the character of the audit conducted by
the Auditor General on behalf of Parliament. It
differs from a commercial audit in one important
characteristic. It has a different object. A com-
mercial audit has for its final end to see whether,
in the balance-sheet that states the position of a
business at a given moment, assets and liabilities
are properly and accurately evaluated. It is a
valuation audit. The final end of the audit con-
ducted by the Auditor General is to see whether
the money granted by Parliament has been spent
on the services to which Parliament appropriated
it. It is an appropriation audit. Each arrives at
its end in the same way, by verifying the state*
ments made in the accounts, to see whether they
are truly made. But when they have been verified,
the commercial auditor has to ask himself the
question, "have I found out anything which shows
that assets are put too high in the balance-sheet,
or liabilities too low?" whereas the question
which the Auditor General has to ask himself is,
"have I found out anything which shows that
money has been spent in a manner not authorised
by Parliament ? "

It is the Exchequer and Audit Act of 1866 ( 27)
that imposes these duties upon the Auditor
General, directing him to ascertain whether pay-
ments charged in the Appropriation Accounts are
" supported by vouchers or proofs of payment,"
and " whether the money expended has been applied



166 NATIONAL FINANCE

to the purpose for which the grant was intended
to provide." In order to clear our minds of the
possibility of confusion, we may here recall that
under that Act the Auditor General of the Public
Accounts is also the Comptroller General of
Receipts and Issues of His Majesty's Exchequer.
With his functions as Comptroller General we have
already dealt : they are the ministerial control of
issues from the Exchequer as imprests to the
departments, in order to secure that no issue shall
be made therefrom except under the authority of
Parliament. We are now concerned with his
function as examiner into the expenditure of the
imprests after their issue, in .order to see whether
any part of them has been spent in a manner which
Parliament has not authorised, a function which is
less ministerial than judicial. Its judicial character
is recognised in the incidents of his office. The
Auditor General, like one of His Majesty's judges,
holds office during good behaviour : he is removable
only by an address to the Crown from both Houses
of Parliament. He is appointed by Letters Patent.
His salary and pension, like a judge's, are secured
on the Consolidated Fund : they are not subject
to an annual vote of Parliament. Like a judge he
may hold no other office, and may not be a member
of either House of Parliament.

His functions as Comptroller General take up
little of his time, or of that of his office, which is
the Exchequer and Audit Department ; they are a
iormal affair. It is his work as Auditor General
that keeps him and his staff busy. To help him
he has an Assistant and a hierarchy of principal
clerks, senior clerks, chief examiners, and examiners.




APPROPRIATION AND AUDIT 167

They do not all sit and work in his office on the
Victoria Embankment. For the greater conveni-
ence of its work, part of the staff occupies quarters
at the War Office and at the Admiralty, and a per-
manent staff is also maintained at the big centres of
local naval and military expenditure at Chatham,
Devonport, Portsmouth, and Woolwich.

To the officials of this department come daily,
monthly, and yearly the accounts of the spenders
and the vouchers for the payments which they
have made. There is no annual spasm of activity ;
the processes of audit are continuous. Vouchers
for payments in the form of receipts and so on are
returned from the Pay Office, as we have seen, to
the departments on whose behalf the payments
were made. Other vouchers come in from the local
paymasters of the departments. They all are sent
to the officers of the Exchequer and Audit Depart-
ment, either those on the premises or those at the
offices of the Department on the Embankment,
together with counterfoils, bankers' pass-books,
and any other books and documents which are
essential to the system of checks and relevant as
evidence of payments. A large staff of Examiners
scrutinise the vouchers, bring questionable matters
to light, and enter them in journals. A senior clerk
decides the less important cases ; a principal clerk
decides those of more importance ; and matters of
general principle are reserved for the attention and
decision of the Auditor General and his Assistant.
Queries are sent to the departments concerned
about all matters thus unearthed which are
considered to need explanation, and the department
returns its answer. If the Auditor General is



168 NATIONAL FINANCE

dissatisfied with the answer, and further enquiry
fails to clear the matter up, it is entered on his
report and goes before the Public Accounts
Committee. In these enquiries the Auditor
General's chief channel of communication is through
the Accounting Officers in the departments. He is
entitled to look to them for the information which
he requires, and other officers of the departments
are bound, through them, to give him that infor-
mation.

It might be supposed that the final stage of
the audit would be to check and test the cash
balances in the hands of the sub-accountants of the
departments at the close of the financial year.
That certainly seems a necessary step in order to
complete the verification of the accounts. But the
Treasury has persuaded the Public Accounts
Committee to agree that that is an administrative
duty, and not part of the functions of the Auditor
General. The examination of balances which have
not been appropriated is certainly not strictly
necessary to an appropriation audit. Although
not theoretically necessary, practically the veri-
fication of cash balances from time to time by the
Auditor General would be a very useful measure
of precaution in the interests of the public, and it
would be work that his office could very easily do.
Primarily no doubt the responsibility must be that
of the department which holds the balance, and as
already mentioned of its sub-accountants and of
its Accounting Officer in particular. But an
external check upon the department would be a
very valuable additional safeguard, and need not
qualify its responsibility. This is tacitly admitted




APPROPRIATION AND AUDIT 169

by the Treasury in its existing arrangements. It
does not leave the verification of such balances
wholly to the departments themselves ; it verifies
them itself, independently and at uncertain inter-
vals, through the Treasury Officers of Accounts.
An independent verification is thus admitted to be
desirable, and if that is so, it is difficult to see why
it should not be made by an authority even more
independent than the Treasury by the most
independent authority to be had, which is the
Auditor General. In practice however it seems
that the Auditor General does call attention to
anything which seems to him questionable in the
state of the departments' cash balances, and that
reduces the matter to one of small importance.
The sheep is not lost for the lack of this par-
ticular ha'porth of tar, but it would be the better
for it.

In the case of those departments which have no
special financial branch of their own, a class which
includes nearly all the Civil departments and
excludes the great spending departments, the
Admiralty, War Office, and Revenue departments,
the audit carried out by the Auditor General is full
and complete, covering the whole of the accounts
of each. Every month they submit the whole of
their accounts and vouchers to him and his officers,
and they are examined from beginning to end.
For very good reasons the audit of the accounts of
the Admiralty and War Office is made on a
different plan. In the first place they are so bulky
that to examine them from beginning to end would
be impossible without a much bigger staff at the
Audit Office, a great increase in the expense of the



i/o NATIONAL FINANCE

work, and a great loss of time to the departments
concerned. In the second place the expense and
loss of time would not be worth while, because
the departments' own financial branches insure a
higher standard of financial regularity than is
possible in a department which has no such staff,
so high that a less stringent supervision is needed
by the Auditor General. In the case therefore of
a department with a special financial branch, the
audit carried out by the Auditor General is not
complete, it is confined to a test audit. Instead of
auditing the whole accounts of those departments
every year, the Auditor General takes a portion of
them as a sample of the rest, and tests that. About
a sixth of the whole Naval and Military accounts
is thus tested every year, so that the whole is
audited about once every six years. Pains are
taken to dodge about in order that the department
may not know for certain what parts of its accounts
will have to face the scrutiny at any given time.
Of the staff of the Auditor General at the War
Office, for instance, two thirds of those engaged
on the Test Audit make an examination of the
schedules of the Votes in rotation, but one third
carries on a roving test over the whole range of
the Votes.

In the case of the great revenue collectors
also, the Board of Customs and Excise, the Board
of Inland Revenue, and the Post Office, which all
have their special financial branches, the appro-
priation audit is a Test Audit only. But having
thus tested their accounts of expenditure, the
Auditor General has not finished with them. He
has also to audit their accounts of receipts. This



APPROPRIATION AND AUDIT 171

also he does by a test audit. His officers visit
every year some of the principal local centres of
receipt, at the offices of the Board of Inland
Revenue in certain large towns and at the offices
of the Board of Customs and Excise at big
distilleries and so on, and make a test examination
of the local revenue accounts, to see that the
revenue received has been duly brought to account.
Nor are the minor receipts of other departments
neglected. They are audited in the course of the
general and inclusive audit which is applied to
their Appropriation Accounts, in which the bulk of
them are entered as Appropriations in Aid.

It is generally recognised that the business of
auditing revenue receipts is one of special difficulty.
An accounting officer must always be eager to
account for all the expenditure of his department ;
but he may be more inclined to stretch a point in
accounting for receipts. No obliquity is suggested :
there are many ways of making receipts appear
less than they might be made to appear, and an
obvious reason for doing so, without anything
remotely approaching dishonesty, in the desire to
give a favourable complexion to the accounts of a
department. It is fairly sure that all payments
will be brought to the notice of the auditors on
the face of the accounts and subjected to their
examination ; but they have no means of knowing
whether the records exhibit all the receipts, or
whether, which is another aspect of the same
matter, all proper claims have been enforced. In
testing the revenue side of accounts the auditors
must look and see whether the administrative
regulations and procedure effectively check the



NATIONAL FINANCE

assessment and collection of revenue, and they
must satisfy themselves by their examination that
the regulations are enforced by the department.
Having done that, they have done all that auditors
can.

To finish the story of the Appropriation Audit,
it may be said that the accounts of the Exchequer
and Audit Department are themselves audited ; and
since no man should be judge in his own cause,
they are audited not by the Auditor General but
by a Treasury official, to whom the accounts of the
department are rendered monthly. It is the same
Treasury official who fulfils another special function
as auditor, that of the Auditor of the King's Civil
List. To secure the privacy and maintain the
dignity of the King's affairs, that audit is committed
to this single individual and not to the comparative
publicity of the Audit Department.



STORES AND STOCK-TAKING

Stores and Store Accounts, stock and stock-
taking, are matters that lie heavy upon the minds of
those responsible for economy and for the preven-
tion of waste and leakage in the expenditure of public
money. To abandon the watch over expenditure
as soon as money has been converted into stores
would be to close the eyes and turn them away
just when control becomes most difficult and most .
necessary. Balances at banks and payments out
of them are far easier to guard than articles lying
about in store-houses, and it is far easier to tell
whether a cash payment has been properly made




APPROPRIATION AND AUDIT 173

than whether a bunkerful of coal, for instance,
which yet represents cash, has been properly
distributed. It is therefore eminently necessary
that the expenditure of stores should be sub-
jected to a control at least as stringent as that
to which the expenditure of money is subjected
To this necessity Parliament is now awake,
although it did not awaken to it until long
after the institution of the audit of money pay-
ments. That was finally regularised, as we have
seen, by the Exchequer and Audit Act in 1866. It
was not until over twenty years later that the
Admiralty and the War Office, the two great con-
sumers of stores, were directed by Act of Par-
liament 1 to prepare annual accounts of the value
of the stores expended in the Government dock-
yards, ordnance factories, and manufacturing
establishments. The accounts are to include also
particulars of the distribution and cost of labour
employed. It is directed by the Act that the store
accounts for the preparation of which it provides
are to be examined by the Auditor General, who
is to report upon them to Parliament just as if
they were cash accounts. These accounts for
stores are analogous to the Appropriation Accounts
for cash. Like the Appropriation Accounts, they
are based on a forecast included in the Estimates.
In the Navy estimates, for instance, appears a
statement of Estimated Receipts and issues of
Naval stores, etc., during the coming year, showing
the value of stock in hand at the beginning and end
of the year. When the year is over and the store
accounts are made out, they show how far the
1 52 & 53 Viet. c. 31, I.



174 NATIONAL FINANCE

estimate has been realised, and what departures
have been made from it.

In his audit of the store accounts the Auditor
General follows the same method as in his audit
of the cash accounts of the departments with
financial branches ; he audits part of them only by
way of test. Under directions from the Treasury,
store accounts of the Civil departments are
included in his examination. The course of the
test audit of stores is similar to that of receipts of
cash. The Auditor General ascertains and reports
whether the existing regulations of the departments
appear calculated to secure an efficient control over
the receipt and disposal of stores, and whether the
regulations laid down are duly enforced.

Verification of stores in hand, which is called
stock-taking, is a process analogous to that of the
verification of cash balances in hand, and it is
accordingly managed in the same way. The
Treasury has decided, and the Public Accounts
Committee not without doubts has assented to the
decision, that the one like the other is an adminis-
trative process, and that it is the business of the
department concerned, and not of the Exchequer
and Audit department. But it is recognised that
it is a process in which exceptional vigilance is
necessary. Public stores, as the Treasury has
eloquently said, are lying scattered about over
" yards, wharves and shops, in railway trucks or
barges, in barracks, forts or camps, by the ship's
side or at sea." 1 So, while reserving the business
of stock-taking to the departments themselves it

1 T.M. 19/8/1894; to 4th report of Public Accounts Com-
mittee, 1894.

has been careful to lay down the conditions for
efficiency under which it must be done.