CLASS V, VOTE 1.-DIPLOMATIC AND CONSULAR SERVICES.

Instructions regarding Consular Accounts.

35. In August 1920 the Foreign Office, with the approval of the Treasury, issued to Consular Officers a circular formulating a uniform system of book-keeping to be instituted forthwith at all salaried Consular posts. There was, however, considerable delay in the application of the new system, and it appears that in certain cases defalcations or irregularities which have occurred since 1920 were facilitated by the continuance of methods previously in force. Thus it was the practice at some posts for Consular Officers who dealt with questions relating to other Government Departments to render separate accounts to each Department and to draw bills on each Department to finance the respective operations, without showing these transactions in their account with the Foreign Office. This practice has now been abandoned in most cases, but where it continues it is of course difficult for the Foreign Office to satisfy themselves that moneys drawn from one Department are not being used to cover deficiencies on accounts with other Departments. This is illustrated in the case at Rotterdam cited in the Explanation to Subhead T.1, where the Consul-General used Admiralty moneys, of which the Foreign Office had no cognizance, to meet excess expenditure which should have been reported to the Foreign Office.

In connexion with defalcations at a post where the accounts appear to have been in serious confusion for a considerable period, the Treasury inquired in November 1923 whether the Foreign Office did not consider that the submission of periodical trial balances should be made compulsory, in order that they might be examined at Headquarters. The Department replied that new instructions embodying this point and the rendering of bankers' certificates of balances were being drafted, and would be submitted to the Treasury shortly.

I was informed in July last year that these new instructions had not yet been submitted to the Treasury, but that as a result of preliminary directions issued to salaried posts, quarterly accounts since 1 January 1925 are accompanied by trial balances and certificates in support of bank balances. I have recently made further inquiry as to the position of the new instructions.

Subhead LL.-Refund to Indian Revenues.

36. In paragraphs 44 and 45 of my Report for 1922-23 I drew attention to the fact that the accounts received from India for the years 1915-16 to 1919-20 had not been settled. In reply to later inquiries the Foreign Office informed me that in August 1924 a final settlement had. been made in respect of the joint expenditure on services in Persia for the period in question. I subsequently noticed that in March 1925 a sum of 40,000l. (now brought to account under this subhead) was advanced to India with Treasury sanction on account of a claim which, it is understood, included 16,000l. for arrears of war expenditure, and I learn that the final settlement of August 1924 referred only to claims which had actually been presented to the Foreign Office at that date.

CLASS V, VOTE 1-contd.

The India Office has been asked to obtain an explanation from the Indian Government of the delay in bringing these charges to account. Further evidence of the difficulty in arriving at a final settlement of Indian accounts is afforded by the fact that this advance of 40,000l. also included 5,0801. due to an error shown by the India Office to have occurred in their claim for 1921-22.

Subheads NN. and OO.-Inter-Allied Rhineland High Commission.

37. Before the introduction of the Dawes Plan on 1 September 1924, subhead NN., Special Missions and Services, was charged in respect of the expenses of the Rhineland Commission with actual cash expenditure only, the amount of which was subsequently recovered from Germany and credited to subhead OO., Appropriations in Aid. In addition to the cash expenditure, free" deliveries" under Articles 8 to 12 of the Rhineland Agreement in respect of billeting, transport, &c., were made by Germany, and, although the cost of these deliveries was taken into account by the Reparations Commission, no entries concerning them were made in the Vote account.

The agreement regarding the distribution of the Dawes Annuities (Cmd. 2339) laid down that the cost of the Rhineland Commission should be a charge against the fixed annuities payable by Germany and, in order to ensure Parliamentary control over the expenditure, it was decided by the Treasury to assess the value of the free deliveries and record them in the account. For the first year of the scheme it has not been found possible to ascertain their exact value, and accordingly an agreed amount of 10,750l. has been fixed as the cost from 1 September 1924 to 31 March 1925, and entries for this amount appear on both sides of the account under review.

Detailed vouchers supporting these "deliveries" have not been furnished to me in the past, but in view of the changed circumstances I have asked that the accounts from 1 April 1925 may be rendered for audit in the normal course. I have also inquired whether any of the staff in receipt of foreign allowances were provided with the benefits of the free deliveries, as it would not appear that the Treasury contemplated the grant of free issues where foreign allowances were being drawn.

Dizful Bridge, Persia.

38. In 1916 the Chief Political Officer of the Indian Expeditionary Force D, in conjunction with local residents, decided to construct a bridge at Dizful on the ruins of an old structure. In view of the military and political importance of the bridge the military authorities made advances which were debited by India, in the ordinary course of routine adjustment of war services, to the Imperial Account.

With a view to placing the financial arrangements of the bridge on a proper basis a Company was floated, of which the Vice-Consul acted as secretary, and the sums advanced by the Government were converted

CLASS V, VOTE 1-contd.

into 9 per cent. preference shares to the nominal value of krans 329.000 (between 7,000l. and 8,000l.). Ordinary shares amounting to krans 359.500 were issued to subscribers amongst the local residents. In 1923 the facts became known for the first time to the Foreign Office and, as the bridge was no longer of importance to British interests and might have involved further expenditure, it was decided, with Treasury sanction, to hand over the British interest in the company to the Persian Government in return for a document relieving His Majesty's Government from all further responsibilities or liabilities.

Interest amounting to 7471. 2s. 2d. which had accrued on the Government holding has been paid to the Exchequer as a special receipt.

CLASS V, VOTE 2.-COLONIAL SERVICES.

Subheads A.2 to A.8.--Grants in Aid of Local Revenues.

39. In addition to the account of Somaliland for 1922-23, referred to as outstanding in paragraph 35 of my last Report, I have been furnished with copies of the accounts for 1923-24 of all Colonies and Protectorates which have received Grants in Aid at any time since 31 March 1921 and the annual Estimates of which are still subject to Treasury control The accounts have been examined in detail by the Director of Colonial Audit. A supplementary examination has been applied by my officers to ensure that the conditions of the Grants imposed by the Treasury have been observed.

Subhead A.3.-Grant in Aid to Somaliland.

40. In 1921-22 and 1922-23 sums of 100,000l. and 75,000l. respectively were voted and advanced to Somaliland as loans to be repaid with interest as the circumstances of the Protectorate permitted.

In considering the grant for 1923-24 the Treasury expressed the view that, as the occupation of Somaliland was principally for strategic purposes, provision for military expenditure should be made as a free grant and only the balance of assistance required for administrative expenses should be regarded as a loan. On this basis provision was made in the Estimate for a total payment of 95,000l., of which 66,000l. was a free grant for excess military expenditure, the balance of 29,0001. being a loan.

The grants paid in the two preceding years were then reviewed in the light of this decision, and it was found that out of the total advances of 175,000l., 112,000l. was in respect of military expenditure, and it became necessary to obtain Parliamentary sanction for treating this sum as a free grant instead of as a loan under the terms of the Vote of the House. This was effected by including in the Estimates for 1924-25 a special free grant of 112,000l. (being part of 182,000l. taken under subhead A.3), to enable the territory to repay so much of the loans issued out of the Votes for the years 1921-22 and 1922-23 as was in respect of military expenditure, and by providing for a corresponding credit in repayment of that portion of the loan under subhead X., Appropriations in Aid.

CLASS V, VOTE 2-contd.

Subhead B.2.-Grant in Aid of the Imperial Institute and Imperial Mineral Resources Bureau.

41. The original estimate provided for a maximum contribution of 12,500l., subject to the passing of legislation necessary to amalgamate the Imperial Institute and the Imperial Mineral Resources Bureau, and stated that, if the scheme did not mature, no contribution would be given to the Institute, but, instead, 5,750l. would be contributed to the Bureau. Later these proposals were modified by the Supplementary Estimate for Colonial Services presented on 19 December 1924, which stated that, if the legislation in question is not obtained before 31 March 1925, it is proposed to pay to the Imperial Institute and to the Imperial Mineral Resources Bureau, within a total of 12,500l., such sums as will suffice. to keep the two institutions in funds to 31 March 1925."

66

The Imperial Institute Act, 1925 did not become law until 28 May 1925, and issues were therefore subject to the conditions laid down in the Supplementary Estimate to meet that contingency. The sums actually issued were 5,8781. to the Bureau and 6,6221. to the Institute, making a total of 12,500l. On 31 March 1925 the Bureau, taking into account the full issue of 5,8781., held a balance of 3421., and the grant in this case thus appears to have been consistent with the terms of the Supplementary Estimate. The Account of the Institute, however, at 31 March 1925 showed cash in hand 3,4811. Os. 4d., and, after allowing for sundry debtors and creditors, there remained a net balance of 3021. 6s. 11d. This net balance was obtained after taking into account. a receipt of 3,000l. on account of the Imperial Grant in Aid, but did not include the further instalment of the Grant in Aid, viz., 3,6221., which had been issued by the Colonial Office on 31 March 1925 and not brought to account by the Institute until 1 April 1925.

In these circumstances it appeared to me that the amount issued from the Grant in Aid was more than sufficient to keep the Institute in funds up to 31 March 1925 within the meaning of the Vote of Parliament, and I have inquired as to the reasons for the issue of the second instalment of the Grant on 31 March.

Imperial Institute Account.

42. The accounts of the Imperial Institute, which I audit under section 3 of the Exchequer and Audit Departments Act, 1921, have been examined under my directions, but I am unable to certify to their correctness as I am not yet satisfied that all receipts due to the Institute have been brought to account.

Subhead K.7.-Provision of Holdings under Section 1 of the Irish Land (Provision for Sailors and Soldiers) Act, 1919.

43. The Irish Land Commission was empowered by the Act of 1919 to provide holdings for approved ex-service men, and the expenditure of 33,8061. charged to this subhead represents repayments to the Irish Free

CLASS V, VOTE 2-contd.

State of administrative expenses, and the proportion of the cost of improvements to such holdings which is not recoverable from the purchasers.

The claim in respect of this expenditure was forwarded by the Governor General of the Free State and was accepted by the Treasury and the Colonial Office, but it was not supported by vouchers, nor by a certificate from the Auditor General of the Free State. I am informed that the Government of the Free State has been asked to furnish a certificate that the outlay had been properly incurred for the purposes of Section 1 of the Act.

CLASS V, VOTE 3.-OVERSEA SETTLEMENT.

44. The gross expenditure in connexion with Oversea Settlement amounted to 445,2181., as compared with the gross estimate of 936,000l., and details of the saving of 490,7821. are given in the explanations of the Accounting Officer attached to the account. The expenditure does not include cost of administration, which is borne on the Vote for the Colonial Office, Class II, Vote 6, and amounts to approximately 22,000l. for salaries, wages, and travelling, being nearly 5 per cent. of the gross expenditure.

CLASS V, VOTE 4.-MIDDLE EASTERN SERVICES.

Iraq Railways.

45. The liquidation of the accounts covering the period from 1 April 1920 to 31 March 1923 (referred to in paragraph 37 of my last Report) has not yet been concluded.

The largest item outstanding is a balance of unpaid wages amounting to Rs. 10 lakhs which had been charged as expenditure in the Railway Accounts. I am informed that the Railway authorities admit that approximately 6 lakhs will never be claimed, but credit to Imperial funds is being deferred in view of the existence of claims which it is considered could properly be set against this amount.

The liquidation of the Imperial interest in the Railway was one of the questions dealt with in the report of the Financial Mission to inquire into the financial position and prospects of the Government of Iraq (Cmd. 2438). Pending the Treasury decision on the proposals in that report I am confining my examination to the accounts of transactions relating to the period ended 31 March 1923.

Subhead D.-Maintenance of Native Levies: Store Accounts.

46. A local test of these accounts has been carried out by my representatives who visited Mosul and Bagdad, but it has not yet been found possible to institute the independent departmental audit which, as stated in my last Report, the Treasury have advocated. Progress has been made in remedying weaknesses in the general system of accounting.