GOVERNMENT ADVANCES TO SETTLERS OFFICE (REPORT BY THE SUPERINTENDENT OF THE), FOR THE YEAR ENDING 31st MARCH, 1905.

Appendix to the Journals of the House of Representatives, 1905 Session I, B-13

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1905. NEW ZEALAND.

GOVERNMENT ADVANCES TO SETTLERS OFFICE (REPORT BY THE SUPERINTENDENT OF THE), FOR THE YEAR ENDING 31st MARCH, 1905.

Presented to both Houses of the General Assembly by Command of His Excellency.

ELEVENTH ANNUAL EEPOET AND BALANCE-SHEET. The General Board of the office dealt with a large number of applications for loans during the year, and had, up to the 31st March, 1905, authorised 15,349 advances, amounting to £5,042,555. Applicants to the number of 1990 declined the grants offered them, amounting to £868,585, so that the net advances authorised to the 31st March, 1905, numbered 13,359, and amounted to £4,173,970. The securities for the net authorised advances were valued at £9,172,962, and these are in many instances being enhanced by the expenditure in improvements of part of the money borrowed, and the liability reduced by the periodical repayments of principal in the case of instalment loans. Classified according to provincial districts, the advances authorised are as under : — _ ■~ , , , ~ ~ Amount of Advances Provincial Distnot. Number of Applications. authorised. & Auckland 3,219 926,383 Taranaki 2,219 868,449 Hawke'sßay 942 262,575 Wellington 3,891 1,277,543 Marlborough ... ... ... ... 511 184,065 Nelson ... ... ... ... ... 210 59,045 Westland 214 48,640 Canterbury 1,210 328,670 Otago ... 2,933 1,087,185 Totals ... ... ... 15,349 £5,042,555 The total sum raised by the Government for investment on mortgage is £3,200,000. 9,034 mortgagors are indebted to the Department to the extent of £2,754,915 19s. od. in respect of principal moneys. The gross profits for the year ended the 31st March, 1905, were £39,600 4s. lid., and the cost of management £5,145 10s. 4d., being 0 16 per cent, or three shillings and twopence per hundred, pounds on the capital employed. The net profits amounted to £34,454 14s. 7d. Arrangements have recently been made by the office whereby the whole cost of providing cover indemnifying the Department as mortgagee against claims which may arise under " The Workers' Compensation for Accidents Act, 1900," will be borne by the Department. Hitherto the premiums payable in respect of mortgagee's accident indemnity insurance have been a charge against mortgagors. The concession made cannot be considered otherwise than highly satisfactory to the settlers, and it relieves the office of a large amount of clerical work. There have been no losses on advances since the inception of the office, and the office has no securities on its hands. The payments of interest and instalments of principal have been well maintained, and continue very satisfactory. P. Heybs. P.S.A.A., Bng., Superintendent. Advances to Settlers Office, Wellington, 7th June, 1905.

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BALANCE-SHEET. Statement of Liabilities and Assets at 31st March, 1905. Dβ. Liabilities. £ s. d. Oβ. Assets. £ s. d. 3-per-oent. loan, redeemable lsc April, Investment Account— 1945, "A" .. .. .. 1,500,000 0 0 Advances on mort-3-per-oent. loan, redeemable Ist April, gage .. £4,156,105 0 0 1945, "B" .. .. .. 500,000 0 0 Less repayments .. 1,402,923 5 9 Sundry loans .. .. .. 990,000 0 0 2,753,18114 3 Advances on aocount of loans .. 210,000 0 0 Temporary investments, Bank of New Assurance Fund .. .. .. 125,724 15 6 Zealand .. .. .. .. 4,836 17 0 Suspense Account .. .. .. 3,223 11 10 Sinking Fund investment with Public Accrued interest payable .. .. f'f 1 25 14 4 Trustee .. .. .. .. 193,887 10 5 Profit and Loss Account .. .. 6,369 19 4 Assurance Fund investment with Publio Trustee .. .. .. .. 125,724 15 6 Mortgage instalments receivable —overdue .. .. .. .. 1,734 5 2 ' Bills receivable .. .. .. 740 11 7 Interest receivable —overdue .. .. 7,003 1 0 Interest receivable—accrued .. .. 29,392 12 8 Loan-flotation charges .. .. 178,466 3 0 Gash In hand and in bank .. .. 40,376 10 5 £3,335,344 1 0 £3,335,344 1 0

Statement of Peofit and Loss Account for the Year ended 31st March, 1905. Dr. £ s. d. ; Cβ. £ s. d. To Management Expenses Account .. 5,145 10 4 By Balance at 31st March, 1904 .. 6,221 10 0 Balance, net profits to Interest, Account, gross profits .. 39,600 4 11 31st March, 1904 ..£6,22110 0 Net profits for the year ended 31st March, 1905 34,454 14 7 40,676 4 7 £45,821 14 11 £45,821 14 11 Transfer to Assurance Fund Account 34,306 5 3 Balance down, net profits .. .. 40,676 4 7 Balance, net profits carried forward .. 6,369 19 4 £40,676 4 7 £40,676 4 7

Statemknt of Management Expenses Account for the Year ended 31st March, 1905. Dβ. £ s. d. Cβ. £ s. d. To Audit, Department .. .. .. 200 0 0 By Consent fees .. .. .. 17 14 0 Insurance premiums paid by Department 26 3 0 Mortgage forms .. .. .. 120 17 6 Poet Office services .. .. .. 800 0 0 Production feee .. .. .. 170 12 6 Printing and stationery .. .. 101 1 3 Release fees .. .. .. 185 18 0 Salaries .. .. .. .. 3,437 5 9 Valuation fees .. .. .. 1,193 0 9 Sundries .. .. .. .. 269 3 1 Balance of management expenses transValuation Department services .. 2,000 0 0 ferred to Profit and Loss Account .. 5,145 10 4 £6,833 13 1 £6,833 13 1

Statement of Interest Account for the Year ended 31st March, 1905. Dβ. £ s. d. £ s. d. I Cβ. £ ~ d. To Interest paid on loans .. 96,754 10 2j By Interest received on mortgages .. 126,303 7 8 Interest paid on deposits .. 81 6 8 I Interest received on temporary investLess acorued interest at ments, &c. .. y 984 4 9 31st March, 1904 .. 32 12 6 " ! 48 14 2 I 136,287 12 5 Interest on deposits accrued at 31et Less interest overdue and accrued at March, 1905 .. .. .. 25 14 4 j 31st March, 1904 .. .. 36,254 2 6 Balance of interest transferred to Profit and Loss Account .. .. 39,600 411 100,033 911 Interest receivable — overdue at 31sc March, 1904 .. £7,003 1 0 Interest receivable, accrued at 31st March, 1905 .. .. 29,392 12 8 36,395 13 8 £136,429 3 7 £136,429 3~~7

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ADVANCES TO SETTLERS OFFICE ACCOUNT. Statement of Receipts and Expenditube for the Year ended 31st March, 1905. Dr Receipts. &b d. Cβ. Expenditure. £ c. d S5-™ refunded :: Pald * * '"EI? Assurauoe Fund, Pub, . lo ».** „ 6 £X S SSSnr :: :: -c.™ * » Egysss «. p.- M 4418 4 *™ -— . : M 3; s Interest on temporary investments 449 15 8 Sinking F.md investment ,uh Public g 4 Temporary advance on account of TemDOrarv investment refunded .. 'J ,393 15 7 Valuation fees 1,487-19 9 ___ 10 0 5589,463J0_0 Government Advances to Settlers Office, ' P. Heyes, F.S.A.A., Bng., Superintendent. 3rd May, 1905. W. N. Hinchliffe, Accountant. The SuPEBiNTBKDBNT.-Where is the balance-sheet itself under section 50 of •■ The Advances to Settlers Act, 1894? "-J. K. Wabburton, Controller and Auditor-General, 17/6/05. The Contbolleb amd AuDiTOE-GENERAL,-This is the balance-sheet under section 501 of •< The Government Advances to Settlers Act, 1894," submitted for audit certificate.-P. Heyes, Superintendent, 21/6/5. , , The Superintendent-Do you really regard these statements or any of them as a balance-sheet ? —J X Warburton, Controller and Auditor-General, 21/6/5. The Controller and AuDiTOR-GsNERAL.-Yes, I do regard this as a correct balance-sheet.-P. Heyes, Superintendent, 21/6/05. J. K. Warbubton, Controller and Auditor-General. Eepobt of the Audit Office on the Statements submitted for its Certificate as the Balancesheet under Section 50 of "The Government Advances to Settlers Act, 1894. Certified in accordance with the provisions of the Public Revenues Act, subject to the follow ing *g^ B ;- submitted d 0 n ot fulfil the requirements of section 50. They do not exhibit a balance-sheet showing the whole receipts and expenditure of the Advances to Settlers Ofhce Account of the Management Account, and of the Investment Account. The statement submitted of the receipts and expenditure for the year is correct in showing the whole receipts and expenditure which subsection (1) of sect.on 50 requires the balance-sheet to show of the Advances to Settlers Office Account dnnng the year. thpwrl nlp Instead of showing in the Management Account, kept as directed by the Act the whole receipts and expenditure which subsection (2) requires the balance-sheet to show of that account, such whole receipts and expenditure, less £1,056 9s. 3d. in both the receipts and expenditure, are shown in statements submitted of three accounts not required by the section-namely, a Management Exoenees Account, an Interest Account, and a Profit and Loss Account; and the aggregate Sedit to?hese accounts exceeds the amount credited to them of the actual receipts o the Management Account by £36,369 19s. 4d., as the result of entries made in respect of all overdue and accrued interest except the amount accrued of interest payable m respect of he loans raised by the Government for the purpose of the Debenture Fund. Of this amount of £36,369 19s 4d £6 369 19s 4d. appears in the Statement of Liabilities and Assets as a liaoil.ty to Profit and Loss Account, and £30,000 is the amount which was unlawfully applied in 1902 in writing down the loan-flotation charges entered as an asset. loa The Thole receipts and expenditure which subsection (3) requires the balance-sheet to show of the Investment Account are not shown, nor is there any entry of the balance available for investment of £37,893 10s. 2d., which stood at credit of such account at the close of the year, In the Statement of Liabilities and Assets, the amount of the liabilities entered m respect of loans exceeds the amount received from the Government or the Colonial Treasurer as the proceeds of such loans by £208,466 3s. ; and this deficiency, less £30,000 written off in the Profit and Loss Account as already explained, is entered under the head of " Assets. . The whole receipt! and expenditure of the Advances to Settlers Office Account during the year having been-receipts, £574,485 os. Id. ; expenditure, £549,086 19s. 7d., to be brcugnt to .account in— . Receipts. Expenditure £ 8. d. £ a- d. The Management Account 139,032 4 5 139,032 4 5 The Investment Account ... ... 421,081 2 7 394,532 6 4 The Bills Receivable Account ... o0 0 0 „- „.,„ The Suspense Account 14,321 18 1 __!____l £574,486 5 1 £549,086 19 7

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A balance-sheet showing the whole receipts and expenditure of such accounts would simply be as follows :—

Cash in hand and in bank, £40,376 10s. sd. Such a balance-sheet, followed by statements similar to those certified by the Audit Office for the year ended the 31st March, 1904, would fulfil all the requirements of section 50. If the liabilities and assets of the colony are shown, they should be shown, not in the balance-sheet required of the Superintendent by section 50, but in a separate statement. J. K. Waebueton, Controller and Auditor-General.

The following remarks may be added in reply to the strictures made by the Audit Office on the balance-sheet submitted for audit:— Section 50 referred to provides that " The Superintendent shall, within sixty days after the close of each financial year as aforesaid, prepare and lay before Parliament, if sitting, and if not, within fourteen days after the commencement of the next session, a balance-sheet showing " certain particulars specified in subsections (1) to (5). I contend that the balance-sheet submitted fully complies with these requirements in the most approved form, and is in accordance with the correct practice of accountancy, Now the question arises, What is a baiance-sheet ? What is a balance-sheet for ? What is it intended to set forth to those to whom it is to be presented? It is evident from the comments made by the Audit Office that they have no true conception of what a balance-sheet is, or what it is intended to set forth. The only idea which the Audit Office has of a balance-sheet is that it is a mass of figures brought together so as to form a complete balance of figures, and there it ends. It is quite immaterial that there is no information for any one, except the bare fact that there has been a balance arrived at. Every accountant and auditor knows that this is merely preliminary to the preparation of a balance-sheet in which it has no more place than the whole mass of figures comprising all the transactions for the year, and which the auditor certifies to be correct. It is what is known to all accountants, if not to the Audit Office, as the trial balance. The final point reached by the Audit Office in its conception of a balance-sheet is where an accountant's work proper begins in the preparation of a balance-sheet. All authorities agree that a balance-sheet must set out in a concrete form clearly the results of all the transactions —viz., the true financial position, and the results of the operations for the year. The balance-sheet demanded and insisted upon by the Audit Office affords no information whatever as to the true financial position of this office, nor any information as to the results of the operations for the year, nor any indication of what the profits are, cost of management, or profits on interest, and a balance-sheet prepared on the lines required by the Audit Office would be incorrect and misleading. The balance-sheet submitted sets forth clearly, in a concrete form, all the liabilities and all theassets, and is a complete as well as a true and faithful balance-sheet, setting forth the financial position of the office. It also shows the profits made on interest, the cost of management, and thenet profits, which are the results of the year's operations. The last balance-sheet presented by Mr. Warburton as Superintendent (in the form now demanded) was incorrect and misleading in many items, and such as no auditor would be justified in certifying to as correct. It was not a true statement of the financial position nor of the results, and could not be in the form insisted upon. For the past three years, owing to the attitude of the Audit Office, the true and faithful balance-sheet of this office, from which alone any information as to the operations of the office has been gleaned by the Press and others, has been presented to Parliament without an audit certificate, which is a most undesirable state of things. The Controller and Auditor-General further states that £30,000 was written off loan-flotation charges unlawfully. The question of writing off these was submitted to the Solicitor-General, whose opinion was as follows : "As regards the loan-flotation charges, the question seems to me to be a matter more of book-keeping than of law. They are, I think, chargeable to the Management Account, under subsection (1), (a), of section 48, and must be written off or otherwise provided for out of profits, as it cannot be suggested that the Consolidated Fund is to meet them.— Fbbd. Fitchbtt, Solicitor-General.". There can be no doubt, therefore, that the writing-off was lawfully made and essential for the accuracy of the accounts and balance-sheet, notwithstanding the opinion of the Audit Office. P. Heybs, F.S.A.A., Eng., Superintendent. 3rd July, 1905,

Approximate Oostof Paper. —Preparation, not given; printing (1,675 copies), £4 Is,

Authority : John Mackay, Government Printer, Wellington. —l9os.

Price 3d.]

Balances, 31st March, 1904. Transactions during Year. Balances, 31st March, 1905. Accounts. Dr. Cr. Dr. Or. Dr. Cr. £ s. d. £ 8. d. £ s. d. £ s. d. £ s. d. £ a. d. Advances to Settlers Office Management Investment .. Bills receivable Suspense 14,978 4 11 11,344 13 11 j 574,485 5 1 139,032 4 5 394,532 6 4 549,086 19 7 139,032 4 5 421,081 2 7 50 0 0 14,321 18 1 40,376 10 5 37,893 10 2 740 11 7 3,223 11 10 41,117 2 0 41,117 2 0 790 11 7 4,424 2 7 15,522 8 10 15,768 16 6 15,768 16 6 1,123,572 4 8 1,123,572 4 8