HC Deb 16 June 1876 vol 229 cc2001-12

, who had a Notice on the Paper to move— That, in the opinion of this House, in order to secure the due appropriation of Army and Navy Expenditure to the purposes intended by Parliament, it is expedient that the system of independent audit which, since the passing of the Exchequer and Audit Departments Act, 1866, has been successfully applied to the accounts of the Annual Grants for the Miscellaneous Civil Services, should be extended in its leading principles, to the Grants for Military and Naval Services, said, that at a time when the House of Commons was called upon to vote a sum almost unparalleled for the Army and Navy during peace, it might not be inappropriate to draw attention to the manner in which a sum of £27,000,000 voted for those Services was audited on the part of the House. Fortunately, the principle involved in the Motion he was about to submit was not one upon which there was any controversy. On the contrary, the principle was admitted by financial authorities sitting on both sides of the House as well as by financial authorities outside the House. The duty he had to perform was to show that the House and the country had some reason to complain that the system which had worked so well with regard to the Civil Service expenditure had not been applied to that of the Army and Navy. The Act of 1866, introduced by the right hon. Gentleman the Member for Greenwich, then Chancellor of the Exchequer, was intended to give the Controller and Auditor General substantial authority by making him independent. But in that measure a distinction, was drawn between the accounts of the several Departments, and while the Auditor General was required to guarantee that the Civil Service accounts had been expended in accordance with the wishes of the Legislature, he was merely called upon to audit the Army and Navy accounts in gross, to see that the sums for each vote had not been exceeded. It was clear, however, both from speeches made at the time and from the terms of the Act itself, that such an arrangement was only tentative; that a larger application of the principle was contemplated; and that it was intended to extend the system of examination by the Controller and Auditor General to the Army and Navy accounts. Why, then, had not the provisions of this Act, which had worked so well in relation to the other great spending Departments, been applied to the Army and Navy? There was hardly a year since the Act passed that it was not in the power of the Auditor General to draw the atten- tion of the Select Committee on Public Accounts to some case or cases of misappropriation of public money. As early as 1868 the Select Committee on Public Accounts suggested in their Report that the system for which he contended should be applied to the accounts of the Army and Navy, and in 1869 they again drew the attention of the House and the Treasury to the subject. In 1871, on the examination of the Inland Revenue accounts by the Auditor General, a discovery was made which the Committee characterized as a "grave impropriety," that grave impropriety being that some gentlemen in a public office had divided £2,385—the accumulation of income tax—among themselves. These remonstrances at length had some effect, and it was suggested to the Auditor General that as regarded the Army and Navy accounts, he should put the provision of the Act of 1866 into operation himself; but he did not like to do so without the authority of the Treasury or of the House of Commons. Perhaps he thought it impossible to act unless the Treasury moved first and gave him the means. The Treasury, in a letter to the Auditor General, dated March 6, 1872, yielded the whole of his case. He thought that the suggestion in the Treasury letter that expense should not be allowed to stand in the way of the establishment of a proper system of audit was a very wise and proper one. He must remind those who objected to his proposal that Mr. Scud more had objected to an independent audit of the Post Office accounts, on the ground of the expense of such a system; but five years afterwards that Gentleman had to give evidence with regard to a sum of £830,000, which had been misapplied by the Post Office, which misappropriation had been discovered through the vigilance of the Auditor General to whose appointment he had objected. The Select Committee on Public Accounts had reported favourably on the establishment of an independent audit of the accounts of these great Departments, and their last Report on this subject was made in March, 1875, and in it the statement appeared that a plan had been sketched for the audit of the War Office expenditure, and the same principle was to be applied to the Admiralty accounts. It was similar to that then in process of application to the accounts of the Revenue Department. He could assure hon. Members opposite that he had brought forward this subject in no spirit of antagonism to Her Majesty's Government, but merely in the hope of obtaining from them the fullest and most complete information which they could lay before the House on the subject. He was willing to believe that the Financial Secretary desired to place this question upon a proper footing; but, at the same time, he thought that some explanation should be given with regard to the delay that had occurred in arriving at a determination with regard to it. Doubtless he should be told that the matter was still sub judice, but it was that very fact that he complained of, because a decision should have been arrived at with reference to it long ago. It would be disrespectful to the House were he not to refer to a Memorandum which was appended to the Report of the Select Committee by the Accountant General of the Admiralty, which contained several objections to the proposal which he might as well answer at once. The Memorandum raised the objection, in the first place, that the departmental examination of the accounts was so perfect that it was a mere waste of time and money to do the work again. In his opinion the more perfect the work was done in the Departments the easier would be the task of the Auditor General in auditing their accounts; and, indeed, the same objection might be urged against auditing the accounts of those Departments which were subjected to the supervision of the Auditor General. Besides, it was scarcely correct to speak of an internal examination of accounts as an audit. A person of authority, with an independent judgment, ought to make the audit, and report impartially upon the state of the accounts. The purpose of an independent audit was not so much to control the officer who recorded the expenditure as the head of the Department who ordered it. It had been objected that the heads of the Naval and Military Departments, being responsible for their administration, would not wish to be hampered by external supervision; but in fact they were not more responsible for the expenditure of their Departments than were those who directed the Miscellaneous Expenditure, and could not possibly be hampered in their action, seeing that the audit did not take place for months after the expenditure. If the audit were good for the other Departments, why should it not act well in the case of the Naval and Military Departments, with their vast expenditure of £27,000,000? Either the system of audit was wise or unwise; but if it was good in the one case, why should it not be adopted in the other? He could see no reason why it should not, and he trusted that the Chancellor of the Exchequer would give them some reason for hoping that the Army and Navy Departments would be placed under the Auditor General, and that they would be careful not to incur any expenditure for which they could not account to the House of Commons.


said, that no question could be raised in that House which was of more importance than that which related to the audit or examination of the expenditure of the country. It was, however, a mistake to suppose that the vouchers used for compiling the accounts of the Military and Naval expenditure were not audited or examined with the same care that was bestowed upon the vouchers used in making up the accounts of the different Departments in the Civil Service. His own practical experience with reference to the matter led him to the conclusion that the system of audit in the Military branch which he believed to be formed in assimilation with that at the Naval Department left fewer openings for jobbery in respect to missapplying monies than were to be found in the Civil Service. He submitted that as regarded the auditing of all the accounts of all branches of the Service, there might be, as had been pointed out, great improvements made, as much at the Treasury as at the War Office and Admiralty. The examinations of the vouchers of expenditure at the War Office and Admiralty were conducted by civilian officers formed into a distinct branch in those two Departments of Army and Navy, and this examination being made by one set of Civil servants specially set apart for that duty, he considered that the public had a good right to consider the interests of the country fairly protected, whereas the Civil Service expenditure was examined by the officers of the several individual branches which expended the money, so that for as many branches as there were in the Civil Service there were so many sepa- rate sets of examiners, and all intimately connected with the head of that one branch and with the other officers of that branch. The Exchequer and Audit Act of 1866 appeared to give to the Auditor General the power of auditing the Civil Service expenditure, but it was one merely of vouchers, whether the Civil Service expenditure was supported by vouchers or proofs of payments—that was to say, whether the total charge was vouched for; that was a mere City kind of verification practised by every company, it was no examination as to the propriety of the outlay, and the accounts laid before Parliament only showed totals without any details of separate payments. The mode in which the expenditure of the Army and Navy was recorded in the accounts was well-calculated to indicate misapplication of funds from the special and particular purposes intended by Parliament. But there was no such security in respect to the Civil Service outlay, for the accounts thereof were lumped up in large amounts, aggregating different kinds of expenditure into one item, and so entered in the accounts and laid before Parliament; so that there was no such useful check as that afforded by the accounts stated in detail of the Army and Navy, by which the fact could be ascertained as to misappropriations—that was, using the monies voted by Parliament for a different purpose from that for which granted. There could be no second opinion on this point—that sums of money which had been voted for one purpose of the Civil Service might be expended for another. The best and only check for that was a clause in the Appropriation Act requiring the outlay to be specifically accounted for under the very heads, and in the form in which the funds were stated in the Estimates. The Treasury, however, had full power to direct inquiries as to the public expenditure in the Military and Naval Departments. Every figure of expenditure in the Army—and he had no doubt in the Navy too, though he could not speak with equal certainty on that point—was carefully scrutinized by officers of the Comptroller and Auditor General, who were always in the War Office, and to whom every voucher was submitted, in order to see that the entries had been duly verified by the responsible examiners, and that proofs thereof were given by the initials of the examiners and supervising officers being affixed; these vouchers were then posted into the great ledger of the War Office under the eyes of the officers of the Comptroller and Auditor General, whereby the Army expenditure was thoroughly well-accounted for in the most satisfactory manner, and every voucher and entry was initialed so that falsification was impossible. The 29th clause in the Exchequer Act, which was supposed to be so effectual in protecting the public in regard to the Civil Service expenditure, was, in fact, the course followed for nearly 35 years in respect to the expenditure of the Army and Navy; and, in addition the outlay was initialed in the books so as to ensure the preparation of a correct account. The really best and most effective foundation for a proper examination of the accounts were clear and distinct Estimates, and in order to prevent misappropriation, the more fully and complete the items of expenses were stated, the greater would be the scrutiny of the expenditure entered in vouchers. The Estimates were now presented in great detail by some of the Departments, whilst by others the items were lumped together in a most unsatisfactory manner. The contrast between the Civil Service accounts and those of the Army was great. The real examination by the Comptroller and Auditor General of the Civil Service outlay was a mere test as to whether the total sums which the Heads of each of the many branches of the Civil Service were supported by vouchers. It was no examination as to whether that total was rightly spent for the exact purpose which Parliament intended. It was a mere audit of totals in vouchers, and not of the items entered therein. No doubt the Treasury had the power under the Audit Act to remedy that great defect by ordering more detailed examinations of vouchers, but as yet no such order had been given; and as the Act declared that the Civil Service Expenditure should be made up in the lumping way that was now practised, and that the existence of sufficient vouchers in proof of the total outlay so entered in the appropriation account should be the course to be followed, it was naturally to be expected that the Civil Servants would follow the course which freed them from that kind of check which arose from having every penny expended subjected to an inquiry as to whether it was applied for the very use for which Parliament granted it. The great defect in the Civil Service outlay was the large amount given over to each branch to spend in a way that could not properly be checked, under the form of "Incidental Expenses," "Miscellaneous Expenses," "Allowances" of various kinds, "Gratuities" of various kinds. No doubt, those all looked to be small, because they were small by being so greatly divided into separate parts; but if these were aggregated from the 146 Votes over which they were scattered, then, indeed, the whole of those uncontrollable charges would swell up to a very considerable sum, and all of it at the disposal in the main of the several heads of each of the many Votes, in a way which could not be found in the expenditure of the Army and Navy, while expenses could not be incurred so likely to lead to jobbery in a small way as in the Civil Service. The real remedy was the abolition of the present defective mode of making an officer of each Department the accountant for the voted funds, and to have a paymaster to pay on voucher the various payments of the Civil Service, and for that paymaster to render his vouchers for his several payments direct to an examining office of competent Civil servants, to verify the several sums in each voucher, and to draw out the accounts of outlay as now practised in the War Office, and then for the Comptroller and Auditor General to test their accuracy in any way he might see fit. That was now nearly the course followed in respect to the Army, and it could be perfected with great ease.


said, that nobody could doubt the importance of the subject which the hon. Member for Hackney (Mr. Holms) had brought before the House. It was most important not only that the accounts of the very large expenditure incurred in this country should be properly audited and controlled, but that the public should be satisfied that they were so. The hon. Member was therefore perfectly justified in bringing forward his Motion. Since the year 1866, in which the Exchequer and Audit Act was passed a more perfect system of audit had been carried out for the Civil Service than for the Military Departments. The origin of that system might be, however, attributed rather to the Military than the Civil Departments, because up to that period the former had a more stringent and efficient system of audit than the Civil Service. The Act of 1866 was therefore brought in and made to apply to the weak part of the Civil Service system, and was not brought to bear on the Military Departments. He had the honour of serving upon the Public Accounts Committee when the late Sir James Graham, Sir Francis Baring, and other authorities examined into this subject, and they thought the audit of Military accounts was a model to be followed in the Civil Service accounts. A clause was afterwards introduced into the Bill giving an optional power to the Treasury to apply the new system of audit to the military service also. Now that the very great advantages of the kind of control and audit exercised by the Controller and Auditor General had been ascertained, he agreed that within certain limits and upon certain conditions the same test should be applied as far as possible to the Military Departments. That had been the opinion not only of the Treasury, but of the Committee of Public Accounts which had given much time and attention to this subject. He believed that it would be found when the next Report upon this matter was laid before the House that considerable progress had been made. He would rather not then go into details, but he would say generally that they appreciated the importance of having a control and audit that would have the advantage not only of being efficient, but they also thought that the audit that took place in the War Office and Admiralty was a very efficient and valuable audit, and ought on no account to be superseded or weakened, because it would be absurd and extravagant to do all the work over again. But they also saw that there was advantage in bringing the eye of some one who was independent of the Departments to bear upon the accounts; some one who was in the habit of examining the accounts of different Departments; and who could bring his experience in testing the accounts of one Department to bear upon another Department. It was not in checking computation and addition that they were to look to find out anything that was irregular, but they were to look to find out irregularities—which though perfectly honest might exist in opening new accounts and in appointing sums to one account that should be placed to another. It must not be supposed that in these irregularities there was anything in the nature of a fraud upon the public. In talking of irregularities it was not meant that there was anything like embezzlement, but rather that money had been paid in a way that Parliament did not intend, or that there had been given a wrong impression of the accounts of one service or another. Such things a departmental auditor would not perhaps see, because he would have been always accustomed to them, whilst they would be detected by a person who was accustomed to audit the accounts of different Departments. He thought that it was of the greatest importance that they should, considering our enormous expenditure, bring as many cross lights to bear upon it as they conveniently could; and that the bringing in the assistance of the Controller and Auditor General was very desirable. It was a subject to which they were directing their attention. They all desired to have a searching audit, and the only question was as to the mode in which the work should be done. The Government hoped in the course of the present Session to arrive at a conclusion that would go to a certain extent in the direction to which the hon. Member (Mr. Holms) had adverted.


, having paid much attention to the subject of the Estimates, was desirous to say a few words in relation to them. The right hon. Gentleman the Chancellor of the Exchequer said there should be a concurrent audit. If the accounts were audited at Somerset House, that would bean independent audit; but in the War Office, where the accounts were audited, that was not an independent audit. This was also the case at the Admiralty. The question had been brought before the House year after year, and he himself had brought it before the House three years running; but great tetchiness existed on the part of the Departments in question. If there was a sum which was not used, say, for bridge building or otherwise, that sum should be surrendered to the Treasury. It was a great blot on our system of audit that in the War Office and at the Admiralty the excess of one Vote might be applied to the deficiency of another, and all attempts to alter this had failed, because Ministers liked to handle the surpluses they created and devote them to the deficiencies they produced. The Chancellor of the Exchequer, like a man skating over bad ice, passed lightly over the difference between auditing for the Treasury and auditing for the House of Commons. There were two kinds of audit. One was the audit presented to the Treasury, the other to the House of Commons. The audit for the Treasury merely consisted in the examination of the vouchers for money spent, and if that was correct there the matter ended. The audit for the House of Commons meant proof that the money had been expended for the purposes for which the House had voted the money, which was a very different thing. In the first case, the House had no guarantee that the money had been spent as it was intended to be spent. In the second, there was a direct check upon misappropriation—he did not mean dishonest misappropriation, but merely application to different purposes from those for which the money was granted. The wisdom of the House of Commons had devised these two checks on expenditure—that of the Treasury before it and that of the appropriation audit afterwards; but the two things were now mixed up. ["No, no!"] They used to be. When was a change made? ["Four years ago."] The Auditor General had to report to the Treasury, and in one instance an objection he took was resisted by the Treasury and did not appear in the published Report. The Auditor General could not be an independent officer when he was appointed by the Treasury. If we desired to have correct accounts we must make the office independent of the Treasury, and the Auditor General, instead of being a petty clerk at £2,500 a-year, ought to have a position equal to that of a Secretary of State. Until this was done the House of Commons would never attain to the economy it desired.


said, he had for so many years taken an interest in this question that he intended to have made some remarks in support of the Motion of his hon. Friend the Member for Hackney (Mr. Holms). The remarks of the Chancellor of the Exchequer, to which he had listened with great satisfaction, showed that he was fully aware of the importance of an independent audit, and that he sympathized with the object for which the Motion had been brought forward. He hoped that in a short time they would have the accounts of all the Departments placed before the House in a proper manner. Accepting the assurance he had given, he thought it unnecessary to prolong the discussion.


said, the noble Lord the Member for Westmeath (Lord Robert Montagu) was mistaken in supposing that the Controller and Auditor General Reported to the Treasury. He did not send his Reports to the Treasury; he was in no sense an officer of the Treasury; he reported directly to the House of Commons; and although it was true the Treasury had the power of appointing officers in the department, the Controller had full power under the 9th clause of the Act, constituting the department, to make orders and rules for its internal regulation, and to promote, suspend, or remove any officers, clerks, or others employed therein. The Treasury had no power whatever over any clerk or officer after he was once appointed. The internal regulation of the department in every respect depended upon the Controller, who had as high a salary and an official rank as any permanent official of his class in the public service. He was fully conscious of the great responsibility of his office; he communicated with the Treasury only when it was necessary to obtain information, and he fully maintained the dignity and independence of his position.