CLAIM PARTLY SUCCEEDS

Chronicle (Levin), 23 August 1949, Page 6

CLAIM PARTLY SUCCEEDS

4 Press Association)

Borough Council And Audit Department

(Per

'NEW PLYMOtJTH, August 22. Finding against the Crown in favour. of the New Piymouth Borough. Council for £8104 11s 8d with costs, Mr, Justice Stanton's reserved judgment on a petition of right against the King, was delivered this* afternoon. The originai claim was for £17,895 14s as damages for alleged negligence of certain offieers of the Audit Department auditing the corporation's aecounts. Defalcations by the council 's cashier, Bruce Guilfora, amounting to £17,751, were detected in May 1948. His Honour said the duties of the Audit Department were to make an annual inspection and examination of .the books and accounts of the council. If possibie, and on reeeipt of the baiance sheet and statements from the council, it must examine and certify it as soon after April 80 in each year as possibie. "The question is what eonstruction is to be piaeed on the words relating' to possibility, ' ' his Honour continued. He deduced from authonties that the duty by the Audit Department to make an annual inspection ana to complete each annual audit as soon as possibie after April 80, was to be considered and deterinined in the light of all the circumstances then existing, ineluding faeilities available to it in the forni of trained stalf. The test musi be whether the Audit Department' dio take all reasonably, practicable ano available means to have all these audits • completed as soon as possibie. ' ' Such an inquiry is naturally a matter of considerable difficuity but in resull I have come to the eonclusion that it did so," the Judge said'. He concluded that no breach of dutv on the part of the Audit Department had been estaolished by reason of dela> in either -the commencement or comple tion of the audit of the council 's accounts for the yeurs ended on March 8i, 1947 and 1948. This eonclusion wa» important because it was in thost years that the defalcations took plaet and at an increasing rate, so that u tliey had been discovered even six "months earlier than they were, the sav ing to the council would have been ver> considerable. Another eonclusion of the judgmeni is that there was no absolute duty on the Audit Department to make periou ical inspeetions of the council 's ac counts during the year. The fact thai the Public Revenues Act only requireu an annual inspection to be niade "ii possibie," was, in his opinion, a strong argument against any inference that half-yearlv, quarterly or other interin. inspeetions were impliedlv requirea. Dealing with the claim that the Audit , Department failed in its duty when in 1947 it began work on the audit of the 1947 and 1948 years, his Honour san. the law relating to liability of auditor.in relation to diseovery of frauds anc. thefts by employees, had been laio down in many cases. This case, ho»v ever, differed from all other cases lie had read in that the audit was only m progress when the frauds were discov 'ered and the question therefore was no as in other cases, whether the audito had been guilty of negligence in a rom pleted audit, but whether he had been so guilty at all and if so at what particular date. In the course of the audit, Clulee, who was then district audit inspector at New Piymouth, did not in the period up to May 14, 1948; count the cash. He had admitted that to count the cash at the beginning of the audit was the proper procedure. While his Honour found it difficult to fix the date when it beeame an imperative duty, especially in view of the long delay in beginning the audit, to make a proper cash checlc, he thought the date could not be put later than March 31, 1948, when another accounting period had concluded and it was necessarv to zero the cash register. "I think it clear that if this had been done the frauds must have been discovered." His Honour eommented that the alterations and erasures in the main cash receipts books and spread banking, were agreed to be danger signals that should arouse suspicion in the minds of audit-

ors. His Honour thought that somebody should certaihjy have seen these signals by March 3lj 1948. " My eonclusion," his Honour continued, "is therefoje that the Audit Ofiice should ha ve|. discovered Guiiford's frauds and put an end to them by March 31, 1948 and this creates a prima faeie liability for the losses which oecurred after that date. Theso are shown to amount to £8270 11s 8d. It seems to be accepted that the measure of damages in such n case as this is the amount of the loss that has oecurred during the period after the auditor is found to be at fault."