PUBLIC ACCOUNTS COMMITTEE. (FURTHER CORRESPONDENCE FROM THE HON. THE MINISTER OF LANDS, MR. C. O'HARA SMITH, AND THE CONTROLLER AND AUDITOR-GENERAL IN REFERENCE TO PREVIOUS CORRESPONDENCE RELATING TO THE AUDITING OF ACCOUNTS OF THE LANDS AND SURVEY DEPARTMENT.) [In continuation of I.-7d, 1892, and I.-6, 1893.]

Appendix to the Journals of the House of Representatives, 1893 Session I, I-06d

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1893. NEW ZEALAND.

PUBLIC ACCOUNTS COMMITTEE. (FURTHER CORRESPONDENCE FROM THE HON. THE MINISTER OF LANDS, MR. C. O'HARA SMITH, AND THE CONTROLLER AND AUDITOR-GENERAL IN REFERENCE TO PREVIOUS CORRESPONDENCE RELATING TO THE AUDITING OF ACCOUNTS OF THE LANDS AND SURVEY DEPARTMENT.) [In continuation of I.-7d, 1892, and I.-6, 1893.]

Report brought up 29th September, 1893, and ordered to be printed.

EEPOKT. The Public Accounts Committee has the honour to present to this honourable House further correspondence (in continuation of 1.-7-D, 1892, and 1.-6, 1893) from the Hon. the Minister of Lands, Mr. C. O'Hara Smith, and the Controller and Auditor-General, in reference to the removal of the audit of the Lands and Survey Department accounts from the control of the Audit Department. J. M. Shera, 29th September, 1893. Chairman.

. ; COEEESPQ&DENCE. No. 1. The Hon. the Minister of Lands to the Chairman, Public Accounts Committee. Sir, — Department of Lands and Survey, Wellington, 23rd August, 1893. In continuation of the correspondence relative to the transfer of the audit of land revenue accounts from the Audit Department to the Lands and Survey Department, I beg to forward herewith a letter from Mr. O'Hara Smith, Auditor of Land Eevenue, which, in justice to him, I think should be printed with the other correspondence, as that officer has no other opportunity of defending his reputation. I have, &c, John McKenzie, The Chairman, Public Accounts Committee, Wellington. Minister of Lands.

No. 2. The Auditor of Land Eevbnue to the Hon. the Minister of Lands. Sir, — Lands and Survey Department, Audit Branch, Wellington, 21st August, 1893. I have the honour to acknowledge the receipt of your reply to my letter of the 16th instant, and desire to thank you for the opportunity of laying before the Public Accounts Committee a refutation of certain statements reflecting injuriously upon myself in certain memoranda written by the Controller-General to the Committee. A brief statement of the facts will show that these allegations are incorrect. When an Inspector of the Audit Department, and stationed in Auckland, I discovered defalcations in the accounts of the Receiver of Land Bevenue. Further inquiry disclosed the fact that the Eeceiver was illegally substituting cash for scrip belonging to the Hon. J. B. Whyte, and that the ramifications of these scrip transactions extended to other parts of the colony. Before these investigations were concluded in Auckland I was peremptorily ordered to cease further inquiries. After writing a vigorous protest against the issue of such unusual instructions they were countermanded, and I was informed by telegram, " If the Minister wishes it, you must apply to him for instructions, as your salary, &c, is now being paid by him, and not by the Audit." When I arrived in Wellington I was immediately brought into the Minister's room by the Controller, for the express purpose of explaining the ramifications of various frauds which were being perpetrated upon his department, to give any information in my power regarding the state of Becervers' accounts as disclosed by my inspection of them, and to receive from the Minister any instructions he thought it advisable to issue.

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Some time afterwards the Minister offered me charge of the audit of the Land accounts, on account of what he was pleased to term the zeal, intelligence, and ability displayed in discovering and unravelling various frauds in his own and other departments. When I was cross-examined before the Public Accounts Committee the facts mentioned in the Minister's letter of the 4th October, 1892, were elicited, the Minister being present at the time. It is therefore abundantly manifest that any information I gave was by the express orders of the Controller, at a time my salary, &c, was being paid by the Lands Department, or was elicited in cross-examination before the Public Accounts Committee at a time when the Minister was present. Under these circumstances I would respectfully ask if it can be truthfully said that my information was given without the knowledge of the Controller, and that my exceptional promotion was obtained for so doing. In conclusion, I would respectfully request the Committee to be so good as to grant me a full and searching inquiry into the whole matter, and the more thorough and exhaustive it is the more it will please Yours, &c, C. O'Hara Smith, Auditor of Land Revenue. The Hon. the Minister of Lands, Wellington (For presentation to the Chairman of the Public Accounts Committee).

No. 3. The Controller and Auditor-General to the Chairman, Public Accounts Committee. Sir, — Audit Office, 19th September, 1893. I have the honour to acknowledge the receipt of a copy of a letter addressed to yourself by the Hon. the Minister of Lands, enclosing a copy of a letter from Mr. Smith, requesting that further inquiry might be made as to the circumstances which attended the removal of the audit of the land revenues from che Audit to the Land Department. As this letter persists in mixing up two events which have no relation to one another, and otherwise gives an incorrect impression of what occurred, I must respectfully ask the Committee to allow me to state briefly the actual circumstances. The Committee are no doubt aware that Mr. Smith, in the course of his examination of the accounts of the Auckland Land Office, ascertained that the Receiver had been in the habit of substituting land-scrip for cash already received, and had been paid commission for doing so. The Receiver had been previously prosecuted for peculation of the Crown revenue, and was undergoing the penalties for that offence. Lawyers to whom the matter was referred advised that there were sufficient grounds for prosecuting the Receiver, and the holder of the scrip, for conspiracy to defraud the Crown of its revenue. The previous prosecution had been instituted by myself under the provisions of " The Public Revenues Act, 1891," sections 89 and 91; and I had considerable doubt whether it was my duty, or whether I had the power, to prosecute any person who was not a public servant. I pointed out at the same time that my objection in no way impeded the course of justice, as the power of prosecution vested in the Audit Office was supplementary to, not superseding, that of the Government. The Ministers, however, urged that it was clearly my duty to prosecute the Receiver ; and, as the holder of the scrip was involved in the conspiracy, it was not possible to separate them. In submission to that view I directed proceedings to be taken. I had frequent communications from Mr. Smith as the case went on, from which I came to the conclusion that whatever criminality might attach to the Receiver, and however improper and indiscreet the action of the scrip-holder, there was no evidence laid before me of such criminal intent on the part of the latter as would induce any Grand Jury to find a true bill on such an indictment. Mr. Smith was for many weeks taken off his proper work of auditing the accounts of the Government offices and of the local bodies in his district, which, therefore, fell greatly into arrears, and that for an object which it was clear to me was not likely to be achieved. And the Committee are aware that my judgment proved to be correct, and that all the time and money spent on these prosecutions was simply wasted. In addition to other expenses, it cost the country the expense of an additional Inspector for a whole year to overtake the airears of work left in Mr. Smith's district. It was clearly 7ny duty to provide that the whole work of the Audit in a large district should not be left undone, especially for an object which was not likely to be attained; and the Committee will now perceive the object of those " unusual instructions" referred to by Mr. Smith, that further investigations on the part of the Audit must cease. As one example of the waste of time occasioned by these investigations, when Mr. Smith inspected the Christchurch Land Office, subsequently, I received from him a report of several pages on a matter which had not only been fully investigated, but in which the Receiver had actually been surcharged several weeks previously. When the Minister of Lands came to Wellington I had an interview with him, and, so far as I can recollect, it was at his request, and upon my representation that Mr. Smith could no longer be spared from his proper work, which was greatly in arrear, that I consented that his services should be placed at the disposal of the Minister to get up another case of conspiracy at Wellington; but that meanwhile his salary should be paid by the Minister, as it would be necessary that another Inspector should be employed to do his work. I may, however, say that the arrangement as to the payment of his salary was not carried out. The Committee is now in a position to understand the facts which led to Mr. Smith's connection with the Land Department, and that they have nothing whatever to do with the subsequent action taken by the Minister—the removal of the audit from the Audit to the Land Department.

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As the Minister has more than once, in the course of this correspondence, appealed to the fact of the removal of the audit of the accounts of the Customs and Eailways from the Audit Office to those departments, I desire to point out that their case differs widely from that now under consideration. No complaint or charge was ever made as to the inefficiency of the existing audit; but it was alleged by each of those departments that, as it had a large staff' of accounting officers, there was every facility for auditing the accounts more cheaply and expeditiously than could be done by ■an office outside. The present case is widely different. The Land revenue has been taken from the Audit on the ground of inefficiency and neglect of duty, and a staff has had to be created of at least double the cost which was required to do the same work in the Audit Office. I come now to the circumstances which led to the removal of the audit of the Land revenue from the Audit. I stated in my letter of the 3rd of October, 1892, that the action of the Minister was based on information given him by my subordinate officer, without my knowledge or consent. I now respectfully request the attention of the Committee tc the language used by the Minister of Lands in his letter of the 7th August. He says, in reply to my charge that he had obtained from my subordinate officer information as to my department, unknown to me : " I do not consider, therefore," —the " therefore" referring to the fact that Mr. Smith's services had been placed at his disposal for the purpose of getting up cases for prosecution—" Jdo not consider, therefore, that there was any impropriety in getting all the information I could from, the officer practically placed at my disposal by the Controller. It was only when I had the opportunity of hearing his explanations that I came to the conclusion that the Audit Department, so far as the Land revenue was concerned, had been inefficient; and the determination to take the audit of the Land revenue into my own hands was taken after full investigation of how it had been conducted in the past." I desire distinctly to state that the "full investigation" above mentioned did not extend to asking a single question of myself or of any other of the gentlemen in my department, or the examination of any record or paper in the office ; and I am entitled to ask whether it was honourable or dishonourable conduct on the part of the Minister to state publicly to your Committee matters of which he admits he was informed by my subordinate officer ; matters implying grave charges of neglect of duty on the part of myself and Mr. Smith's late colleagues in the Audit Office, without having taken one single step to ascertain whether the information he had received was true or false, or whether the facts on which they were based were capable of explanation. And lam entitled to ask whether such is the course which ought to be pursued towards an officer to whom Parliament has delegated its high function of the control of the public purse during its recess. In conclusion, for I have no desire to prolong this correspondence, whatever inquiry the Committee may think it right to make, nothing can alter the fact that one of the officers of my department was not ashamed to take advantage of his introduction to the Minister, to convey to him information of a character disparaging to myself and to his own colleagues in the Audit Office; and that the Minister was not ashamed to make use of such information in a public communication to your Committee, whilst he concealed from me the fact that he had stooped to listen to it. As the period of my long connection with the public service of the colony will shortly terminate, I can only add that the regret I should naturally feel at leaving office will be somewhat mitigated by the sense of never being again exposed to insult as the reward of long service. I am, &c, James Edward FitzGerald. The Hon. the Chairman of the Public Accounts Committee.

No. 4. The Hon. the Ministee of Lands to the Chaihman, Public Accounts Committee. Sic, — Department of Lands and Survey, Wellington, 26th September, 1893. I have the honour to acknowledge the receipt of the Controller and Auditor's letter of 19th instant in reply to Mr. O'Hara Smith's of 21st August, and desire to state for the information of the Committee that I should be pleased if the question of these allegations was thoroughly investigated. Notwithstanding the opinion of the Controller and Auditor-General, I do not deem it inconsistent with my duty as a Minister of the Crown, duly sworn to protect the interests of the colony, to see that the revenue of my department is duly collected and properly accounted for, and that the system of audit and account keeping is simplified and improved; or that offenders against public justice are fearlessly and properly dealt with irrespective of their position. I have, &c, John McKbnzie, The Chairman, Public Accounts Committee, Wellington. Minister of Lands. [Approximate Cost of Paper.— Preparation, not given ; printing (1,500 copies), £3, ss. '}

Authority : Samuel Costall, Government Printer, Wellington.—lB93.

Price 3d.]