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Home -> E. Hilton Young -> The System Of National Finance -> VIb

The System Of National Finance - VIb

1. Preface

2. I

3. Ia

4. II

5. IIa

6. III

7. IIIa

8. IIIb

9. IV

10. IVa

11. V

12. Va

13. VI

14. VIa

15. VIb

16. VII

17. VIII

18. VIIIa

19. VIIIb

20. IX

21. IXa

22. X

23. Xa

24. Xb

25. XI

26. XIa

27. XII

As in all
other matters of financial control, the chief condition
for efficiency is that the check for economy should
be parallel to the executive work, that the stock-
taking should be done by special officials of the
department wholly unconnected with its store-
keeping branch. Statements are made and certified,
by the special officials appointed for the purpose,
of the stock in hand, and in general these state-
ments are accepted as conclusive by the Auditor
General for the purpose of comparison with the
balances of stock which the stock ledgers show
as remaining on hand. For additional safety in
the matter one further power is conferred upon
the Auditor General ; if he sees reason to be
dissatisfied with the department's own stock-
taking in respect of any particular articles, he may
call upon it to take stock of them in the presence
of himself or his officers. With his hands thus
strengthened his control of stock in hand is greater
than his control of cash balances, into which he
has no recognised power to enquire, and the
interests of economy are thus at least as well
served in the matter of expenditure of stores as in
the matter of expenditure of cash. In both cases
outgoings and incomings are subjected to the
Auditor General's test audit. In both cases,
balances in hand are subjected to a semi-indepen-
dent verification, in the case of cash at the hands
of the Treasury Officers of Account, and in the
case of stores at the hands of independent officials
of the department. And in the latter case, in which
the ordinary verification is of a less independent


nature than in the former, the control is strengthened
by the Auditor General's power to call for a special
examination in his own presence of any questioned


There is one sort of expenditure which escapes
the control of the scheme of appropriation and of
the appropriation audit. When the Government
wants to help some scheme or object which needs
money, but does not want to treat it as if it were a
scheme or object of its own, its plan is to vote a
grant of money for it which is handed over as a
free giit. Grants of the sort are called grants in aid.
There are three chief classes of them : (a) grants
to bodies not controlled by the Government,
such as a grant of 500 a year to the Royal Geo-
graphical Society; (b) purchase grants for the
state's museums and galleries, such as the National
Gallery; (c) grants to help poor colonies, like
Uganda, to make both ends meet.

Of such grants the distinctive feature is that
each is paid over in a lump to its recipient, and
that no detailed account is required of the manner
in which it has been appropriated. He who pays
them over is the Accounting Officer, and he dis-
charges his obligation in the matter of account
by producing a receipt from the recipient. En-
quiries go no further ; the expenditure of the grant
is not in general followed by the Comptroller and
Auditor General, nor is the recipient required to
surrender an unexpended balance. In the case of
grants in aid of Colonial revenues, the Colonial



Office does in fact keep a close watch over the
expenditure, and audits it by an audit-staff of its
own. But that is a matter of domestic administra-
tion at the Colonial Office; it is no part of the
Parliamentary scheme of audit and appropriation.
The only duty of the Comptroller and Auditor
General in respect of the grants is to see that
the Accounting Officer, whose duty it is to pay
them over to the recipients, produces a receipt for
their payment.

Grants in aid serve a useful purpose. They
enable the State to help an object without
becoming responsible for it. But they make a
hole in the defences of the scheme of appropriation,
and so they need, and receive, careful watching
by the Public Accounts Committee. They are
legitimately applicable to those objects only
which are beyond dispute objects for which the
State should not make itself directly responsible.
By extending them to objects for which the
state is or ought to be responsible it would be
easy for a minister or a department to withdraw
an increasing amount of expenditure from the
control of Parliament.


It is convenient to deal here with another
sort of expenditure that escapes the control of
appropriation and audit. Parliament does a part
only of the work of government : another part
is done by local authorities. They have their
own local revenues, the rates, out of which
they meet their expenses. The work which


they do is for the most part local work, and
properly paid for out of local contributions. But
in part also it is not local work but national,
to which it is proper that a contribution should
be made out of the national revenue raised by
taxes. In recognition of that, Parliament helps the
local authorities by paying them certain sums every
year out of the Exchequer. These are called pay-
ments to Local Taxation Accounts. They are a
Consolidated Fund Service, made on the autho-
rity of standing Acts of Parliament and not voted
afresh every year. At present they amount to
the substantial sum of 9,500,000 a year. Their
amount has been fixed in no very scientific way.
From time to time, as Parliament has imposed
fresh taxes, it has set aside a part of them for the
Local Taxation Account, so that the amount now
depends on a number of statutes making special
allocations to the Account out of various sources of
revenue. By the Finance Act of 1909-10 and the
Revenue Act of 1911 the principal amounts to be
allocated, which before were variable, became
fixed, so that now the amount of the payments
changes little from year to year. Formerly the
amounts due to the Local Taxation Accounts were
not paid into the Exchequer Account at all ; they
were paid over directly to the Local Taxation
Account by the Revenue departments out of the
revenue as they collected it. A large part of the
revenue was thus withdrawn altogether from
the control of Parliament, and for that reason
an end was put to the arrangement by the Finance
Act of 1907. Since that time the part of the revenue
due to Local Taxation Accounts has been paid


into the Exchequer Account, and the contributions
to the Accounts have been charged upon the Con-
solidated Fund. That circumstance has to be borne
in mind in comparing the total of national revenue
and expenditure before and after the financial year
1907-8. Before that year Exchequer issues and
receipts did not include contributions to the Local
Taxation Account; after it they do, and are the
greater in consequence. In the Statistical Abstract
and in other Returns which show the comparative
total of revenue and expenditure from year to year
a correction is made in respect of the change in
order to show the true comparison. The payments
of the contributions to the Local Taxation Account
out of the Consolidated Fund are audited by the
Auditor General as payment on account of any other
Consolidated Fund service is audited. Further he
is not concerned with them, nor do they enter
further into the national system of accounts. They
pass into the hands of local authorities and out of
the cognizance of the state, as grants in aid do
when they are paid to their recipients. 1

Such is the nature of the appropriation audit
made by the Auditor General under the Exchequer
and Audit Act and his other powers. It is claimed,
and no doubt with truth, that every irregularity
which in former days would have been judged and
buried within the walls of a department is now
examined and reported on, and is thus subjected
to public criticism. 2 Misapplication under the

1 The Local Taxation Account is now (1914) in the melting-pot.
See the Report of the Departmental Committee on Local Taxation,
1914 [Cd. 7315].

2 Treasury minute, 4800/76. 20/3/1876.


existing system is difficult, and overdraft, it is said,
is impossible. It is common indeed to attach an
almost superstitious reverence to the system, and
to speak of it as if it were the grand bulwark of
economy against the inroads of all sorts of waste
and extravagance. Without in any way belittling
its importance, we must face the fact that it is
nothing of the sort. Waste and extravagance the
Appropriation Audit does not even set out to hunt :
its prey is illegality, and there are countless ways
of wasting public funds with every circumstance of
legal sanction. When the Auditor General has
discovered and reported upon every case in which
money has been appropriated by the departments
otherwise than as directed by Parliament, he has
fulfilled his statutory functions. Were we to look
to his Appropriation Audit for defence from
extravagance, for a check upon increasing estimates,
or for assurance that public money is being spent
to the best purpose on the services to which
Parliament has appropriated it, we should be look-
ing to it for something which it cannot do and is
not intended to do. Its purpose is a different one
and one easier to achieve, although not less
necessary. It secures the control of Parliament
over its grants after they have passed out of the
hands of Parliament, that and nothing more ; and
the taxpayer must seek elsewhere for a defence
against legal waste and inefficiency in expenditure.


He will find it in some measure in certain
inquiries made by the Auditor General which arise


out of the work of the Appropriation Audit but are
not necessary to it, and for the making of which he
has no statutory authority. As said, it is with the
regularity of payments that the statutory appro-
priation audit is concerned, and if they are regular
it is irrelevant whether they be prudent or foolish.
But with the approval of the Treasury and of the
Public Accounts Committee, and often at their
instigation, the Auditor General is wont to push
his inquiries further than the letter of the statute
warrants, and to inquire also into any payment
which on the face of the documents submitted to
him appears to be imprudent and wasteful. He
is also accustomed to report to the Treasury on all
changes which he observes in rates of pay, appoint-
ments, and similar matters, which need Treasury
sanction. As distinguished from his Appropriation
Audit, this may be called his Administrative Audit.
If in the course of his examinations he becomes
aware of facts which indicate improper expenditure,
or loss of public money, or waste of it, he is not
debarred from calling to them the attention of the
Treasury and the Committee by the fact that there is
nothing irregular in them according to the scheme
of appropriation ; it is even his duty to do so. It is
a duty that he very often performs, and its per-
formance seldom fails to excite opposition in the
department concerned. This is an administrative
matter, says the department, and hints in the
politest manner in the world that it is no business
of the Auditor General's. But the Public Accounts
Committee are fortunately fully alive to the very
great value of the work which the Auditor General
can do in this way for economy, and are wont


to support him in these contests through thick
and thin. They halloo him on, encouraging him
to scrutinise and criticise all such matters and to
indicate where censure is required. Nor is the
Treasury backward in the chase. It has laid it down
that a department is bound to show what it has
spent, for what purpose, and with what authority.
These are all matters necessary to the Appropriation
Audit ; but further, if the department is questioned
by the Auditor General why money was spent,
with the due authority, in one manner rather than
in another, it may indeed refuse to answer, but the
Auditor General should report upon the matter
to Parliament, and to Parliament then the depart-
ment must justify its refusal. 1

In contrast with the appropriation part of the
Auditor General's work, necessary no doubt but
technical, this administrative part is of the highest
practical value as a remedy for the epidemic com-
plaint of financial administration in these days of
vast expenditure, neglect of rigid economy in de-
tails. To illustrate its value two examples may be
quoted, one great and one small. It was an enquiry
and report by the Auditor General on improprieties
obvious on the face of the accounts submitted to
him that brought to light the irregular transactions
in connection with the disposal of army stores
after the South African war. He found simul-
taneous contracts made by the military authorities
with the same parties for the sale of hay and so on
at a lower price and for its purchase at a higher
price, a process which, as common sense could tell,
needed some apology. His report to Parliament

1 T. M. to 2d Rpt., of Public Accounts Committee, 1888.


upon these irregularities led to the appointment of
a Royal commission and to the reorganisation
of the system of military administration. In
another case the Auditor General found that a
department had ordered some ribbon from a con-
tractor at fourteen shillings, had cancelled the
contract, and had then given a fresh order for the
same ribbon at twenty shillings. There might be
an explanation, but an explanation was certainly
needed. He asked for it and was refused, and
reported to the Committee. The Committee
supported his action, the Treasury told the depart-
ment that he was more than justified, and this now
stands as the leading case in support of the Auditor
General's right and duty to make enquiries into
administrative matters of the sort, even outside the
sphere of his strict statutory powers. 1

Great as is the value of the administrative part of
the Auditor General's audit, it is clear that it must
be very limited in its scope. Such loss and wastage
only can come to his notice as are patent on the face
of the accounts and documents submitted to him,
and it is an incautious department that allows its
accounts to go forward with patent defects of the
sort clamouring for enquiry, when by any means it
can eliminate them. Lack of intimate knowledge of
the methods of the departments, and especially of
all those technical affairs with which the Admiralty
and War Office are concerned, must greatly impede
him in his researches. It can only be a few of the
most obvious and not always the most grave cases

1 Second Report, Public Accounts Committee, 1888, and T. M.


of waste that an officer in his position can hope to
discover. His enquiries moreover come after the
event, and although it is better that they should
come then than not at all, it is better still when the
check on waste comes before the waste has been
made. If the public is to have the protection of a
full and prompt administrative audit, made with
intimate knowledge of the work of the depart-
ments and with better means of information than
accounts and documents carefully prepared for the
inspection of an external examiner, it must get it in
another quarter and that is in the financial branches
of the great spending departments themselves. An
internal administrative audit is in fact being contin-
uously conducted by those branches in the better
organised departments, and where it is not it ought
to be. In this matter as in the matter of the
preparation of Estimates the more closely the
financial officers of the department are in touch with
the executive, the more they are dovetailed together
in their daily labours, the financial officers working
within the executive departments as helpers and
advisers, the more effective the work for economy
will be. And here again the second essential to
the efficiency of their work is that they should be
responsible to their financial chief and to him only,
and that he should be responsible only to the
supreme head of the department. With the grow-
ing volume, elaboration, and technicality of the
work of government, it is to the expert and semi-
independent financial branches of the great depart-
ments that the public must look for its substantial
protection against waste and loss. External and
therefore comparatively inexpert guardians, such


as the Auditor General, the Public Accounts Com-
mittee, and the Treasury, high as the value of their
work undoubtedly is and essential in the legal
scheme of Appropriation, in the practical matter of
enforcing economy in administration can only sup-
plement the work done within the departments
themselves. So vital have the services of the
financial branches of the great departments become
to the cause of economy that it is to be wondered
at that their organisation and conditions of labour
are left to the uncontrolled discretion of the minis-
ters and the Executive. A minister can make what
he likes of his financial branch ; he can make it an
efficient and active body under the conditions
described, or by segregating it, by subordinating it
to the executive officers, and by confining it to the
mere routine of accountancy, he can reduce it to
impotence. Parliament has hedged about the
powers and independence of the Comptroller and
Auditor General with all the protection that Acts
of Parliament can give. Now that the cause of
economy must depend even more on the financial
work done inside the departments, if there is to be
any advance in the direction of strengthening
financial control it must be by extending something
of the same protection and security to the financial
branches, as much of it as is consistent with main-
taining unimpaired the ultimate responsibility of
the supreme head of the department.

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