PUBLIC ACCOUNTS COMMITTEE (REPORT OF) ON THE STATE COAL-MINES REPORT AND BALANCE-SHEET FOR THE YEAR ENDED 31st MARCH, 1906 (C.-3b); TOGETHER WITH MINUTES OF EVIDENCE THEREON. (Mr. MILLS, Chairman.)

Appendix to the Journals of the House of Representatives, 1906 Session II, I-11a

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Session 11. 1906. NEW ZEALAND.

PUBLIC ACCOUNTS COMMITTEE (REPORT OF) ON THE STATE COAL-MINES REPORT AND BALANCE-SHEET FOR THE YEAR ENDED 31st MARCH, 1906 (C.-3b); TOGETHER WITH MINUTES OF EVIDENCE THEREON. (Mr. MILLS, Chairman.)

Report brought up on the 25th October, 1906, and ordered to be printed.

ORDERS OP REFERENCE.

Extracts from the Journals of the House of Representatives. Friday, the 24th Day of August, 190 G. Ordered, "That a Committee, consisting of ten members, be appointed to examine into and report upon such questions relating to the Public Aocounts as thoy may think desirable, or that may be referred to them by the House or the Government, and also into all matters relating to the finances of the colony which the Government may refer to them; three to be a quorum: the Committee to consist of Hon. Mr. MoNab, Mr. J. Allen, Mr. E. G. Allen, Mr. Colvin, Mr. Flatman, Mr. W. Fraer, Mr. Graham, Mr. T. Mackonzie, Mr. Mills, and the mover."—(Hon. Sir J. G. Ward.) Thursday, the 20th Day of September, 1906. Ordered, "That Paper No. 136 ("State Coal-mines, Report of the Working of the, for the Year ended 31st March, 1906."— C.-3b) be referred to the Public Accounts Committee."—(Hon. Sir J. G. Ward.)

EEPOET.

I have the honour to report that the Public Accounts to whom was referred Paper C.-3b, the State Coal-mines Report and Balance-sheet, has duly considered the same, and has taken evidence thereon ; and the Committee is of opinion that the accounts of the State Coal-mines have been accurately and correctly kept. The Auditor-General holds that under the existing law a separate balance-sheet for each mine should be submitted for audit. The Committee considers that the keeping of a separate account for each mine meets the requirements, and that, to remove any doubt as regards the submitting of separate balance-sheets for each mine, the law should be made clear to this effect. 25th October, 1906. C. H. Mills, Chairman.

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MINUTES OF EVIDENCE.

Friday, 19th October, 1906. Peter Heyes, Inspecting Accountant to State Coal-mines Department, made a statement. (No. 1.) The Chairman: The Committee will hear you, Mr. Heyes, if you make your statement, and you can then call any witnesses that you wish to call. Witness: The point in dispute here, Mr. Chairman, is whether the balance-sheet which I submitted is in compliance with section 108 of "The Coal-mines Act, 1905." The matter was exhaustively gone into before the Mines Committee last year, and I do not think it is necessary for me to repeat all that I said then. The Chairman: Give the Committee the leading points. Witness: Section 108 of the Coal-mines Act of 1905 says, "With respect to each coal-mine worked by the Minister under this Part of this Act, the following provisions shall apply: (a.) The Minister shall cause full and faithful accounts to be kept of all moneys received and expended, and of all credits and liabilities, (b.) Within twenty-one days after the close of each financial year the Minister shall cause a balance-sheet for the year to be prepared, together with a statement of accounts (including a Capital Account and a Profit and hoss Account), (c.) Such balance-sheet and statement shall be so prepared as to show fully and faithfully the financial position of the mine, and the financial result of its operations for the year, (d.) Within twenty-eight days after the close of each financial year the Minister shall cause the balance-sheet and statement of accounts for the year to be submitted to the Audit Office for audit, and when so audited the same shall be published in the New Zealand, Gazette, (c.) The balance-sheet and statement of accounts, duly audited, together with a report by the Manager on the operations of the mine for the year, shall, within ten days after the audit is completed, be laid by the Minister before Parliament, if sitting, and, if not, then within ten days after the commencement of the next ensuing session thereof." Section 104 reads, " In order to provide funds for the payment of all compensation or purchase-moneys payable in respect of any resumption or contract under the aforesaid sections sixty-four and sixty-five hereof, or for the construction, erection, or acquisition of buildings, plant, machinery, railways, tramways, hulks, ships, or other appliances or works required for the working of any mine under this Part of this Act, or for the supply of coal therefrom, the Colonial Treasurer, upon being authorised by the Governor in Council so to do, may from time to time raise any sum or sums not exceeding in the whole the sum of one hundred'and fifty thousand pounds from any balances in any of the accounts mentioned in Part VIII of 'The Public Revenues Act, 1891,' or from any moneys to the credit of the Public Works Fund, or from any bank, monetary institution, or person." Then, section 109 reads, " All moneys raised under the authority of this Part of this Act shall, as and when raised, and all other moneys received hereunder shall, as and when received, be paid into the Public Account to the credit of a separate account called ' the State Coal - mines Account.' " I think it is clear from sections 104 and 109 that one Capital Account is provided for. How the funds are to be raised is provided for in section 104—that is the capital; and how they are to be dealt with in one account is provided for in section 109—that is one Capital Account. Then, section 108 says that with respect to each coal-mine worked by the Minister certain statements shall be included in the balance-sheet: " The Minister shall cause full and faithful accounts to be kept of all moneys received and expended." Those are clearly stated in the balance-sheet, on page 9of the Coal-mines Report. " Within twenty-one days after the close of each financial year the Minister shall cause a balance-sheet for the year to be prepared, together with a statement of accounts (including a Capital Account and a Profit and hoss Account)." Those are clearly stated with respect to each mine on pages 4, 5, 6, 7, and Bof the report. " Such balance-sheet and statement shall be so prepared as to show fully and faithfully the financial position of the mine, and the financial result of its operations for the year." Those are clearly stated with respect to each mine. On page 4 of the report the balance-sheet shows the Capital Account of the Point Elizabeth Colliery, and at the bottom of page 4 and on page 5 is the Capital Account of the Seddonville Colliery, entirely separate and distinct from the Point Elizabeth Colliery. Then, other properties, authorised by section 104, in addition to the mine property, are stated lower down in the balance-sheet on page 5. They are all clear, distinct, and separate, in the proper form of accountancy. Then, the Profit and hoss Account: there is a general Profit and hoss Account, which, in addition to what is provided under the Act, shows the correct results of the whole of the operations of the mines ; but on page 7 there is a separate Working Account and Profit and hoss Account. The two together make a complete Profit and hoss Account. They are subdivided for convenience and for information in connection with the management. The Profit and hoss Account for the Point Elizabeth Colliery is on page 7. That is separate and distinct. The Profit and hoss Account for the Seddonville Colliery is partly on page 7 and partly on page 8. I submit that the balance-sheet is a full and faithful and complete balance-sheet in compliance with the sections of the Act which I have quoted It shows the financial position of each mine fully, clearly, and completely, and the Profit and hoss Account of each mine fully, clearly, and separately. I propose to call as witnesses some of the leading accountants in various parts of the colony, and I should like to submit a letter which I have received from one of the leading accountants in Dunedin. May I read it? The Chairman: Yes. Witness r It is a letter from Mr. Peter Barr, Fellow of the Institute of Accountants of New Zealand, and late President of the Institute of Accountants of New Zealand. " Dunedin, 15th

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P. HEYES.

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October, 1906.—Peter Heyes, Esq., Wellington.—Dear Sir, —In accordance with your request, 1 have examined the balance-sheet and accounts attached to the report of the State Coal-mines for the year ended 31st March, 1906, with a view to expressing an opinion as to the objection raised by the Controller and Auditor-General in his note attached thereto. 1 have no hesitation in saying, without professing to give a legal opinion on the subject, that, in my judgment as an accountant, the balance-sheet and accounts do fully comply with the provisions of the Act, and also with the generally accepted requirements of accountancy. The requirements of section 108, as regards moneys received and expended, Profit and Loss Account, and balance-sheet, are clearly fulfilled, and in just such form as I would have adopted under the circumstances. It seems to me that any attempt to comply with the Controller's contention that there should be two balance-sheets would only result in a division liability under loan between the mines, which would be purely arbitrary and certainly unsatisfactory, as the loans were not raised in separate amounts for the two mines. They might have been so allocated, but there would have been no advantage, and evident disadvantages, in so doing, and the method adopted would commend itself to any business proprietary owning two or more mining properties. The assets are separated in the balance-sheet, and the results of working are shown in the respective Profit and Loss Accounts ' with respect to each mine,' and I do not think that anything more than this can reasonably be required.—Yours faithfully, Peter Barr, F.1.A.N.Z." Mr. Barr is an authority on such matters. When the matter was before the Coal-mines Committee previously I got the opinion of Mr. W. J. Napier, who is a solicitor as well as an old practising accountant. From my own knowledge I know that he is an expert accountant, and has had large experience in legal matters and in dealing with Acts. I should like to read that opinion : "Memo, for P. Heyes, Esq., Commissioner of Taxes, Wellington.—Dear Sir, —I have perused carefully the accounts prepared by you in connection with the State Coal-mines contained in the report for the year ending 31st March, 1905. I have also perused ' The State Coal-mines Act, 1901,' and ' The State Coal-mines Amendment Act, 1902,' with regard to the accounts to be kept. lam of opinion that the manner in which you have prepared the accounts fully carries out the provisions of the statutes in that behalf; and, moreover, the results of the operations of the mines are clearly and succinctly shown by the accounts. Any one conversant with book-keeping according to the principles of commercial accountancy can see at a glance by your accounts exactly how the mines stand. I may say that for many years I have advocated that all the accounts of State Departments should be kept according to the principles of commercial accountancy, and I rejoice to see that you have introduced those principles in dealing with accounts in the public service. Your allocation of the general expenditure, such as cost of management, &c, is made upon a correct basis, and completely carries out the intention of the Acts. I may say that I have had considerable experience in accounts both prior to my entering the legal profession and since. I have studied accountancy under the late Mr. John Waymouth, who had an Australasian reputation as an accountant.—Yours faithfully, W. J. Napier." I should like to call evidence first, Mr. A. S. Biss, who is a Fellow of the New Zealand Association of Accountants and Auditors, and a member of the firm of Badham and Biss, public accountants and auditors, of Wellington. From my knowledge I think they do a large portion of the auditing and accountancy for companies and others in Wellington. The Chairman: On page 10 of these papers I notice two letters —one sent by Mr. Warburton and the other by yourself. Do these letters contain the only point in dispute—is it just the question of whether there should be two balance-sheets or one ? Witness: Yes, whether there should be one balance - sheet or two, or, rather, whether the balance-sheet submitted complies with the Act. That is the point—whether the balance-sheet I have submitted complies with section 108 of the Act. The Controller and Auditor - General sa y S; " .... There should accordingly be submitted the two balance-sheets, one for the Point Elizabeth Mine and one for the Seddonville Mine. The balance-sheet submitted, being one balance-sheet for the two mines, does not comply with the statutory requirement, and cannot be audited or certificated as doing so." As to that I said, " .... In accordance with subsection (d) of section 108, the balance-sheet has been submitted to the Audit Office for audit, but the Controller and Auditor-General objects to certify on a question as to the form, which cannot be overcome. There is no alternative, therefore, but that the balance-sheet as submitted be presented to Parliament." Also, " The balance-sheet fully complies with all the requirements of ' The State Coal-mines Act, 1905,' section 108, with respect to each coal-mine." A. S. Biss examined. (No. 2.) 1. Mr. Heyes.] Are you conversant with the matter of this dispute between the Controller and Auditor-General and the Inspecting Accountant of the State Coal-mines Department .—Yes. 2. You are a public accountant, of Wellington? —Yes. 3. You are an accountant of large experience, dealing with the accounts of manufacturing concerns and trading concerns? —Yes. ,»_._« i *_ a. 4 You have seen the tag which was placed by the Controller and Auditor-General on the State Coal-mines balance-sheet, in which he says, " There should accordingly be submitted two balancesheets, one for the Point Elizabeth Mine and one for the Seddonville Mine. The balance-sheet submitted, being one balance-sheet for the two mines, does not comply with the statutory requirement " ?—Yes. 5 You have seen section 108 of the Act? —Yes. 6 And you have read what I said in my statement: " The balance-sheet fully complies with all the requirements of 'The State Coal-mines Act, 1905,' section 108, with respect to each coalmine"? —Yes.

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7. Do you consider that the balance-sheet submitted by me, as you see it in the papers, complies with section 108 of the Coal-mines Act?— Yes, I take it that it is a reasonable interpretation of the requirement of the division of the assets under two headings, as far as is possible in a concern of the sort. 8. I refer to the balance-sheet on page 4. There is a clear statement of the Capital Account of the Point Elizabeth Colliery separately, is there not?— Yes. 9. That is a balance-sheet of the Point Elizabeth Colliery, is it not?— That is, referring to the assets. 10. It is a balance-sheet of the Point Elizabeth Colliery? —Yes. 11. There is so-much of the capital invested in that mine, as stated there—£3B,o26 6s. lid.? —Yes. 12. That is the liability to Capital on account of the capital invested in that mine? —Yes. 13. It shows the liabilities and assets of that mine. It is a balance-sheet. I have here a statement illustrating what I mean. [Statement produced.] These are the exact particulars that you have there for the Point Elizabeth Colliery ?—That is the capital expenditure in connection with that mine. 14. Yes; it shows the assets on one side and the liability to Capital on the other?— Yes. Of course, that is not quite the same as this. 15. It is exactly, except that the liability to Capital is not shown here; still, it is implied. That is the liability to Capital on account of that mine?— Yes. 16. And that would be a separate balance-sheet if you had a separate balance-sheet for that mine, would it not?— Yes; that is the way in which I should draw it up. 17. Then, there is the Seddonville one, in just the same way. Those are two separate assets, but exactly the same figures are contained in the balance-sheet? —The same result. I assume you are going on now to a third sheet. *18. No; this is really the whole matter? —I have not seen the typewritten copy that you are referring to. 19. The assets stated in this statement which I am submitting now show a total of £38,026 6s. lid. for the Point Elizabeth Colliery. That is the amount of capital invested in that particular mine, and it is the liability to Capital Account for that mine. The other statement shows a total for Seddonville of £31,672 9s. 10d., as the capital invested in that mine. It is also the liability on account of Capital Account for the same mine? —Are you dealing with the Point Elizabeth Colliery property separately? 20. All the other properties are taken separately, as I was going to point out. Section 104 provides for various other properties, such as ships, or hulks, or anything else that is required for the supplying of coal from the mines—for instance, there is a depot at Christchurch worth £2,250? —Those are assets common to both mines. 21. They do not belong to either mine; there are other properties, the acquirement of which is provided for under section 104. Then, section 109 provides for one Capital Account—one Bank Account. There are not two provided for there, are there?—No; that is correct. 22. It says " a separate account called ' the State Coal-mines Account,' " into which all moneys shall be paid. There is no authority there for keeping two accounts?— No. 23. And it is not necessary to keep two accounts?— No. 24. There is a separate Profit and Loss Account on page 7 for the Point Elizabeth Colliery? —Yes. 25. So that, as required by section 108, there is a balance-sheet for each mine, a Capital Account for each mine, and a Profit and Loss Account for each mine? —The balance-sheet is the Capital Account. I want to make it clear that lam referring to this printed document. You show me something that I have not seen before—that typewritten copy. 26. It is just the same: the Capital Account of the mine shown here is the balance-sheet for. the mine ?—This is the balance-sheet, which is the Capital Account. ' 27. The balance-sheet is the Capital Account, or the Capital Account is the balance-sheet?— Yes. Mr. Heyes: For each mine. 28. Mr. J. Allen.] Is it for each mine?- —In my opinion, it is a reasonable compliance with the Act. I do not see how you could get anything different. The reason why, in my opinion, you could not have it different is that there are so many assets here which are common to the two properties. Ido not see how they could be dissected except by a good deal of book-keeping, and even then probably the result would not be correct. 29. Mr. Heyes.] You consider that that balance-sheet fully and faithfully complies with the provisions of section 108?— Yes. 30. Hon. Sir J. G. Ward.] Do you consider it necessary to have two independent balancesheets, as suggested in the tag of the Controller and Auditor-General 1- —No, I do not think it is necessary. The same result would be attained. The result would come out-exactly as it comes out here. 31. Have you looked at the law bearing on the auditing of the accounts at all?—I have not looked at anything except this Coal-mines Act. 32. Do you think from that that it is necessary, in order to comply with the law, to have two separate balance-sheets? —No. I think that when this clause was worded the fact was lost sight of that there would be assets common to the two properties, and that, that having been overlooked, the only solution of the difficulty is to draw it up in this form. 33. Then, in your judgment the accounts, as they are drawn up, fairly and rightly state the position ?—They comply as closely with the Act as you can get them to. • 34. Mr. J. Allen.] You have read section 108 of the Act. In the first line of that clause are the words, "With respect to each coal-mine": how do you interpret that? —It means, of course, that the capital expenditure for each coal-mine must be shown distinctly and separately.

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35. Each coal-mine's accounts must be shown separately?— That is, the expenditure on the coal-mine. When you come to assets like depots, office furniture, and sundry debtors, I do not see how you can possibly distinguish them and place them under the two separate headings. 36. You have seen the Profit and Loss Account and balance-sheet as submitted. Have you seen the books?— No. 37. Then, can you say whether a separate account is kept in the books for each mine?—l could not refer to the books at all, not having seen them; but in order to bring out the Profit and Loss Account as it is brought out here they would have to have separate accounts, I should think. I hardly think it possible to bring out separate accounts like these unless there were separate accounts in the books. 38. Are you aware that there are not separate accounts in the books, but that they are arbitrarily divided afterwards? —No. 39. Would that be proper accountancy?—No, I should not think so. The proper entries should be made in the books showing the separate expenses. 40. Now, if hulks were bought for one mine, should they be debited to that mine?—lf they were exclusively for the coal from one mine, that should be done. 41. Would it be right to keep a General Hulks Account and to charge them for one year to one mine and use them for the other ?—No; the charge should be in proportion to the use they were gut to for each mine. 42. Have you seen the evidence that was given before the Mines Committee last year on this matter ?—No. 43. Some hulks were bought, and the Department had in the books a Hulk Account —a general one. This is evidence given by Mr. Heyes himself: "Q. How does it appear in the statement of the general Profit and Loss as a charge against the Seddonville Colliery ?—A. Because the hulks were used entirely for the coal from that mine for this year." Then the question was asked, "If they are charged against the Seddonville Colliery, must they not appear as a credit in the balancesheet? " and he answered, " But suppose they are used also for Point Elizabeth next year? " Then there was this question: " There is no charge for them in the Point Elizabeth balance-sheet? " and he answered, " The reason for that is that they are in the nature of a store, and if you engaged a store for Seddonville coal, and paid rent for it, it would be a charge to the Seddonville Colliery. As it has been used solely for the Seddonville coal it is charged to the Seddonville Mine Profit and Loss Account." Then the question was put, " Has not the Seddonville Mine a right to get this asset put against it ? " and the answer was, " No; it is not a part of the mine. It is just in the nature of a store. It is a general property available for each mine as occasion requires." Do you think that is correct?—lf a hulk is used one year for one mine and another year for the other mine, you can hardly chop and change your Capital Account from year to year, but you can keep your working-expenses distinct. 44. But the whole cost of the hulk was paid for out of the one mine?— They are paid for out of the general fund. Mr. Heyes: They are paid for out of the State Coal-mines Account. 45. Mr. J. Allen.] Suppose they are kept as a store, and they are used for both mines, how are you going to decide the fair amount to charge to Profit and Loss Account on each mine unless you keep separate accounts?—l should expect a record to be kept of the coal passed in and out of the hulk during the year, and should take out the total working-expenses of the hulk and charge them in proportion to the use each mine had made of the hulk. 46. You do not know whether such a separate account was kept? —No, I cannot say. 47. You see the Profit and Loss Account: there are quite a number of items there—separate accounts for each mine ?—Yes. 48. Do you know whether separate accounts of those were kept in the books of the Department? ---No, I cannot say. 49. Would you think it right to make an arbitrary division of those at the end of the year, having no separate account in the books? —In every case where separate profit and loss accounts are required for different departments of a business, that is the only way in which it can be done. 50. Do you think it is a satisfactory way of doing things % —Records, of course, are kept from month to month of the time taken, or the material used, or whatever it might be, and then the calculation is made at the end of a year or six months in proportion to the use that the plant has been put to by the different departments. 51. If you were directed by Parliament to keep a separate account for each coal-mine, would not you think it right that a separate account should be kept of, for instance, furniture bought for one mine?— Yes, I should keep everything as distinct as possible from day to day. I should keep the accounts distinct, but with regard to the general items, such as salary for manager, or postages, or anything like that, which would entail bare clerical work to divide, I should apportion those at the end of the year. 52. Do you not think you could keep telegrams and postages separate?—l think I should divide them monthly. 53. How about repairs and maintenance?— They ought to be kept distinct at the time. 54. Marine freights: are those kept separate?—l should think they would be. 55. Hulks Working Account? —That I should divide perhaps monthly, for I should get the records monthly and base the charge to each mine on the tonnage that passed through. 56. Now, about the unexpended capital. You are aware, of course, that certain capital was raised, a portion of which litis been expended, a part on each mine, and there is another portion that is unallocated? —Yes. 57. Well, now, some one has to pay the interest on that unallotted balance. If you were directed by law to keep a separate account for each mine, how would you allocate the interest on

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the unallotted balance, or would you allot that balance? —I do not know whether the balance is earning interest equal to what it is costing ; but if there is a difference, I drculd apportion that between the mines in the proportion of the capital expenditure. 58. The expenditure that has already taken place?— Yes, I think that would be as near as you could possibly get it. 59. You would not send down a memo, at the end of the financial year to your accountant saying, "Allocate this as I direct? " —lf I were the officer who had to decide it, that is what I should do—send my decision to the book-keeper. But Ido not understand your question. 60. We had evidence last year that the Minister sent down at the end of the year a memo, allocating this unexpended capital. Mr. Heyes: That is incorrect. The Minister did not do so. Such a thing was never done. There was no evidence to that effect. 61. Mr. J. Allen,.] If you adopted the principle that the interest on the unexpended capital was to be charged to each mine in proportion to the expenditure that had already taken place, would it be right to depart from that at any time I —lt would not be departed from till the unexpended capital was spent. 62. Assuming that it remained —that there was still an unexpended capital—would it be right to depart from the principle once it was adopted I —l do not think so. 63. Do you see any difficulty in complying with this clause 108, and keeping a separate account for each mine in the books?—l can only say what I have said before, that what you have here in these papers is, in my opinion, as nearly in compliance with the Act as possible. I cannot suggest any way by which you could get nearer to it. 64. We want to know exactly'what each of these mines is costing us, separately—what the profit or loss is. Would it be wise, in your opinion, to alter the law so that we could get the accounts in any way clearer, iif order that we might know that?— Even if the wording of the Act were altered, I cannot suggest any alteration in the form of the accounts which would give you a result more accurate than this. The only difference would possibly be a splitting-up of those liabilities. I cannot see how you would get them absolutely correct; and it would not make the slightest difference in the result. You have here, without doubt, the exact result, subject, of course, to the books being kept so. The profit from each mine is clearly set out, also the capital expenditure on each mine. I cannot suggest any different form which would give you the results in a better way. 65. You can make no suggestion as to the unallotted capital?— No. These matters that you have referred to —assets common to both mines—need very close watching. I mean that cases might occur where the proportion of coal passing through the depots varied considerably, and it would be necessary for the clerks in charge to be very careful to see that the expenditure was arrived at in the right proportions. 66. If the right proportions were arrived at, one mine might show a greater loss or a greater profit than it ought to?— Yes. Of course, that applies to every business where the accounts have to be kept separate. 67. You have not read the evidence given last year. That is exactly what took place—that is, owing to the division of this expenditure one mine showed a greater loss than it ought to have shown. Can you suggest any way of getting over that difficulty?— The only way is to get men to keep the records correctly. The form of the accountancy need not be altered. It is a matter of judgment on the part of the officers in charge. 68. Hon. Sir J. G. Ward.] That does not affect the question of whether there should lie two balance-sheets or one?—No, I do not think it has any bearing on that at all. Very often there is a difference of opinion as to what proportion should be charged to different departments, but that does not affect the form of the book-keeping. With such a matter as general management, for instance, some manager might say the division should follow the proportions of the output, while another might say it should follow the time the general manager put in in connection with each department. -69. Mr. J. Allen.] Under the head of "Creditors" last year there was the sum of £9,979. An attempt was made to allocate that between the two mines, and £2,213 of this amount was put to the Seddonville Mine. The question was asked Mr. Heyes, "Is that a correct allocation? " He said in answer, " Some of it is correct and some is not correct." Is that a satisfactory way of keeping the account?—l thought out the question of the sundry creditors and debtors to see whether they could be divided, but I can see possible difficulties. For instance, sundry creditors might represent purchases of goods and stores owed for at the 31st March, but at that time the officers might not know to what mine the goods were going. At the time the balance-sheet was made up you might not be able to tell which mine to charge with the stores. The same might apply to anything that was purchased. Ido not quite see how you could allocate the sundry creditors between the two mines. The same thing applies to the sundry debtors. You would have to go through everybody's account and find out which mine each one got his coal from. The thing is possible, if you go to a tremendous amount of expense. 70. What about the cash in hand? Is it possible to allocate that? —No, Ido not think so. I cannot tell what mine it belongs to. You would have to take all the receipts and disbursements for the year for each mine and separate them, and also divide up the percentage of profit for each mine. If one mine showed a profit and the other a loss, you would have to work out the percentage on each customer's account. 71. Mr. W. Fraser.] I understood you to say, in answer to Mr. Heyes, that you considered the balance-sheet was in accordance with the Coal-mines Act of 1905, section 108?— The words I used were " a reasonable compliance with the Act." It is as near as I think it is possible to comply with the Act. 72. Mr. Allen drew my attention to section 108, in which it is distinctly stated that with respect to each coal-mine a separate account is to be kept and a separate balance-sheet issued. Will you read the section for yourself, please?—Do you think that those words "each coal-mine " refer to all the subclauses ?

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73. I am asking you. You see they are subsections under the heading, which governs the whole of them?' —That is a point on which I cannot be quite certain. I can only say that, if it does mean that, it is asking for something to be done which is most difficult —almost impossible. 74. Would not that be the meaning of the statute ?—I should say it would not be going out of the way to be a little more liberal in the interpretation of those words. 75. Read section 109?— Yes, I have done so. 76. Would you consider that by keeping one State Coal-mines Account for these two mines you were complying with section 108, which refers to each mine?— The fact that there is one bank account Ido not think has anything to do with the keeping of the accounts. It is possible to have one bank account and yet keep accounts quite distinct. You could have several bank accounts in a concern and yet bring out one Profit and Loss Account. Ido not think the facts of having one bank account and two Profit and Loss Accounts are in any waj- connected. One is possible without the other. 77. \Vhat l wanted to ascertain was whether the keeping of one account under section 109— the State Coal-mines Account—in which every transaction in connection with both mines should be entered, would be a compliance with section 108, which prescribes that in the books an account shall be kept for each mine ?—lt does not say that books are to be kept for each mine. 78. Well, accounts?— Section 108 refers to the accounts being kept for each mine, and section 109 simply refers to moneys being paid into one bank account. 79. Then, section 109 does not override section 108?— I do not think so. I do not think it affects it. 80. Hon. Sir J. G. Ward.] -If the complete separation of the records in order to ascertain the balance of cash in hand, for instance, or the proportion of the amount of expenditure for each mine, was strictly essential in accordance with the law, would that not necessitate all the centres where coal was sold having separate depots for each kind of coal, and having to make separate freight arrangements', in order to keep the different coals completely apart ?—lt would require a separate account for each customer —that is, if the coal were mixed. 81. Would that not mean that for the purpose of enabling an auditor to ascertain the position equitably the coal when shipped from the ports of shipment should be kept completely separate, and at its destination kept completely separate?— Everything would need to be kept separate from the time the coal was brought out of the mines till the time the money was paid into the bank account. 82. That would be possible, but it would be looked upon in ordinary life as next door to suicide? —You would want a large staff of well-trained men to do it. 83. Mr. W. Fraser.] If the statute has to be complied with, and the statute provides something that it is almost impossible to comply with properly, would not the proper course be to alter the statute?I—l1 —I think the alteration of a few words would meet the difficulty. I think that would be better than attempting to split up the accounts more than they are split up in these papers. I quite approve of separate Profit and Loss Accounts being kept, and that section should go as far as it possibly can go into the smallest detail; but when it comes to splitting up liabilities and assets more than they are split up here, I think it is an impossibility. 84. Mr. J. Allen.] Yes, here, but that is not the books?—Of course, as I said before, I have not seen the books. lam only taking the balance-sheet as I find it. Ido not even know how these figures are arrived at. 85. Mr. W. Fraser.] I knew you had not that knowledge, and I put the question to you on the assumption that only one General Account is kept for both mines, and that at the end of the year the balance-sheet for each mine is made up from that account. Would that be compliance with section 108 of the Act?— No. As I said before, in the books the accounts should be kept as distinct as possible, and all disbursements and receipts should be dissected at the time, as far as possible, and only small things should be left for division till the end of the year. 86. What I wanted to ask you was whether, if weight were given to the words "the State Coal-mines Account," in section 109, that would, in your opinion as an accountant, be overriding section 108, if you had to make up books according to the Act? —I think they refer to two different things. 87. Mr. Heyes.] With regard to accounts where there are several branches under one proprietary, you know that there are general expenses, such as the head-office expenses, which are connected with the whole of the operations: would you keep separate accounts for those general expenses?—l should dissect every item at the time if I could. 88. You would keep separate accounts for all the definite and actual expenditure that occurred in connection with each branch?— Yes. 89. But there would be general accounts that you could not keep so separate?— Just so; but I should try to reduce them to a minimum. 90. That is exactly what is done here. I have a list of the accounts that are general, and the proportions in which they are divided. All the actual expenditure for each mine is kept separate in accounts. The definite expenditure that can be ascertained for each mine at the time the expenditure is made is kept distinct and separate. I will take the items as they appear in the balance-sheet. There is general management, office expenses, and office salaries. Would you keep a separate account for those for each mine? Is it possible?—ls that the Wellington office or the offices at the mines ? 91. There is an Inspector, who lives in Auckland, and who has to visit both mines generally and advise upon the operations of both mines; and there was a General Manager at this time overseeing both mines; and there was an office at Greymouth, where practically all the head-office work in connection with the whole of the operations was done; then, there was stationery and travellingexpenses for the Inspecting Engineer and the General Mine-manager. How would you deal with those general travelling-expenses and stationery and head-office expenses?—ls the Inspector paid for each trip separately, or a lump sum per annum ?

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92. He is paid his expenses each trip, but he visits both mines. He niay only visit Wellington and not go near either mine, but talk over matters in connection with both mines ?—Of course, if the General Manager is general manager of the two mines, you would have to allocate that expenditure at the end of the year. If you have casual visits from an inspector, I should try to dissect that expenditure at the time. 93. He may be giving advice in Wellington and not go near either mine? —I am referring to his visits to the mines. 94. Do you not think it better that those expenses should be allocated at the end of the year, because those who had a knowledge of what had occurred during the year would be in a better position to allocate at the end of the year than at particular dates?—l always allocate as soon as possible, because at the time you remember the circumstances under which the expenditure occurred. I always make that a rule, though the tendency on the part of book-keepers is to postpone the allocation and do it at the end of the year. 95. How would you do with the expenditure on the General Manager?— You could allocate that at the end of the year. 96. How would you do with rents of offices—rents that are incurred in connection with the operations generally —rents for offices here and at Greymouth ?—lf they are general, I should allocate at the end of the year. 97. Take travelling-expenses —general travelling-expenses incurred by various officers, not particularly in connection with one mine or the other. How would you deal with those? —I should do those monthly, I think. You then know what work these officers are engaged on. 98. And printing and stationery? —If common to both properties, I should allocate that, I think, monthly, if possible. 99. And insurances, fire and accident? —That would not be a difficult matter to allocate, because you would know exactly what properties you were insuring, and you could charge it up direct at the time on the buildings at the mine, or whatever it was. 100. Well, there is the insurance on the offices?— That is general, but anything at the mines I should charge direct at the time. 101. Then there are general expenses, such as cleaning Head Office and small sundry small expenses in connection with the Head Office?— That you would have to allocate at the end of the year. 102. Stamps and telegrams?—At the end of the year, too. 103. Do you think these results would be materially different if the items were analysed monthly or yearly?—l think you would be more likely to secure accuracy by doing the analysis at short periods. . 104. Is it usual, in connection with these general accounts, to keep a separate account for each branch at the time?— Yes, in the books. Take such a concern as the Gear Company, where, 1 suppose, the best system in New Zealand is adopted. Every department is charged at the time with every item of expenditure. The allocation at the end of the year is very little. The idea is that at a minute's notice you ought to be able to take out a profit and loss account for four months or five months, or whatever the period might be. 105. Reverting to section 108, do you think that the balance-sheet as submitted is an exact compliance with that section as it stands?—l think so; it is as near as you can get it. Mr. J. Allen: I should like to ask Sir Joseph Ward whether he would have any objection to Mr. Biss having a look at the books, and giving us a short memo, stating whether he thinks there is satisfactory compliance with clause 108. Hon. Sir J. G. Ward: I have not the slightest objection. Mr. J. Allen: Mr. Biss may say that this statement that we have here is all right; but he has not seen the books. ~ Mr. Biss: The form in which it is drawn up is what I say is all right. • 106. Hon. Sir J. G. Ward.] Do you consider that the balance-sheet complies with the Act, Mr. Biss? —Yes —the form in which it is drawn up. Hon. Sir J. G. Ward: I should like to ask Mr. Heyes a question or two, as the outcome of a statement made by Mr. Allen. Has any Minister of the Crown at any time suggested to you, or directed you, or instructed you to prepare the accounts in any particular way? Mr Heyes: No, most definitely, No. I stated before that I never had the slightest indication as to how the accounts were to be kept. I was simply given my instructions at the start to open the accounts and prepare the balance-sheet in accordance with my judgment. No Minister or any other person interfered. The first time the accounts came before the Minister was when I submitted the balance-sheet for his signature. Hon. Sir J. G. Ward: No alteration was made or suggested by him? Mr. Heyes: No alteration was made or suggested by him. Hon Sir J. G. Ward: Or by any other Minister? Mr Heyes: Or by any person in authority. It was left entirely to my judgment and experience and what I have'done lias been entirely from my own judgment and experience. 'Mr. J. Allen: Has the Minister never at the 31st March in any way intimated how he thought the unexpended capital should be allotted? Mr Heyes: No suggestion in even the slightest degree has been made. The Chairman (to Mr. Warburton): You may ask the witness any question that you may desire to ask, Mr. Warburton. ~._'«_, •-, • • _. v__, Mr Warburton: The only question that the Audit Office considers in the matter is the legal question—the question of what section 108 means. Ido not think I need ask Mr. Biss that question. I am prepared to explain to the Committee that there can be very little doubt as to the interpretation which the Audit Office has placed upon the section. The Chairman: You can do that later on, Mr. Warburton.

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G. W. Hulme examined. (No. 3.) 107. Mr. Heyes.] You are an accountant of considerable experience — a public accountant practising in Christchurch?—Yes. 108. You are Secretary of the Institute of Accountants there?—Yes. 109. You have seen the balance-sheet of the State coal-mines for the year ended the 31st March, 1906—you are familiar with that balance-sheet?—I have seen it. 110. You have seen the Coal-mines Act of 1905, section 108, and the other sections dealing with the accounts and properties ?—I have. 111. Do you consider that the balance-sheet as submitted is a reasonable compliance with those sections of the Act ?—I do. 112. Do you think the statement of accounts can be put in any other shape, such as the AuditorGeneral has suggested, and give proper results?—I do not. 113. You saw the evidence that was given before the Mines Committee last year?-—Yes. 114. You saw the criticism there of the accounts?— Yes. 115. That evidence and the balance-sheet of last year were before the Institute of Accountants in Christchurch, were they not?— Yes. I brought the balance-sheet before the Institute, as being the first case which had come to my knowledge of the accounts of a public body being submitted in a recognised commercial form, and the meeting passed a resolution expressive of approval of the new departure. Of course, when that was done there was no thought of my being here now. 116. They agreed that the accounts complied with the Act and ?—The matter of whether the accounts complied with the Act or not was not before them. It was a matter of the accounts as submitted being in proper accounting form. 117. The meeting approved of the form in which they were presented?— Yes. 118. The meeting had in that evidence the full text of the sections of the Act under which the accounts were prepared?—Yes. 119. And they indorsed my contention that the accounts complied with those requirements?— I do not like to put it in that way. Whether they complied with the terms of the Act was not definitely before the meeting. The point was that it was a balance-sheet submitted in proper form. The matter of the contentions of the Controller and Auditor-General came up after the accounts had been considered, and members thought they were altogether wide of the mark—that the form in which the Auditor-General would have the accounts submitted was a form not recognised by the commercial world and not understood by them. 120. In regard to accounts where there are several different branches or establishments under one proprietary, is it usual that, where definite and actual expenditure is incurred, it is charged to separate accounts, and where there is general expenditure over the whole of the operations it is placed in one account and allocated proportionately at the end of the year ?—lt is all focussed into one balance-sheet at the end of the time. 121. But where there are general accounts, such as general expenses, that cover the operations altogether and can scarcely be distinguished at the time, is it not usual to keep general accounts and then allocate those proportionately at the end of the year?— That is so. 122. Mr. J. Allen.] Supposing you have two coal-mines, and the law directs you to have separate accounts kept for them, and you have expenditure on furniture, or interest, or even travellingexpenses, which has to be allocated at some time or another to the separate profit and loss accounts, would you make that allocation at the time the expenditure was made, when the matter was fresh in your mind, or would you leave the allocation till twelve months afterwards and then do it arbitrarily?—I should do it at the end of the term. I cannot understand how you would allocate furniture as between two mining properties—furniture like that at the Greymouth and Christchurch offices. 123. I am talking of furniture at the Seddonville Mine, if there is any, and at Point Elizabeth: lam not talking about general furniture, which should go to the General Account. I will put a general question : Would you allocate and keep in your books a separate account for each mine as far as possible, or would you leave the whole thing till the end of the year?—As far as possible, I should keep an account for each mine. 124. Have you seen the books?— No. 125. Do you know, then, whether you could go and get from the books this balance-sheet and Profit and Loss Account now?—l do not think I should have any difficulty at all about that. 126. Without those papers in your hand could you do it?— Yes. 127. Well, I should like you to go and do it?—If the books of the mines were here, and I had the ledger balances, I could fix up the balance-sheet, no doubt. 128. How would you allot the unexpended capital that had to be in a General Account, and charge interest on each mine—upon what basis would you do it?—l should first of all set out the interest that was payable on the £140,000. The interest on the £140,000 would be debited to Interest Account, and then the two mining properties would be charged in proportion to the outlay on the two properties. 129. Mr. W. Fraser.] The opinion expressed with regard to the accounts at the meeting in Christchurch was that they were kept in the proper form of accountancy?— That is so. 130. You expressed no opinion as to whether they were set out in compliance with the Act? — Not at that time. The subject was not introduced for any purpose of that sort; but in the afterdiscussion it was thought that to comply with the Auditor-General's contentions as to the way in which the balance-sheet should be submitted would not be good accounting, and would not be understood by the general public. 131. But would it be in compliance with the Act?—l could not give you the meeting's opinion about that. I can give you my own.

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132. By what is the Auditor-General guided in his work—by a desire to do that which would be generally understood by the public, or a desire to do that which is required by the statute?— It ought to be something which is generally understood by the public. 133. In contravention of the statute? —It is difficult to conceive that the statute could be contravened by rendering accounts in proper form. 134. If the statute interferes, then, would it not be the right thing to alter the statute?— Undoubtedly. 135. You do not affirm that the Controller and Auditor-General's decision was contrary to the statute? —I said that the balance-sheet as submitted is a balance-sheet as mentioned in the sections of the Act. 136. That is not the point at issue. The point is whether it is in compliance with the statute? —I will say Yes to that. 137. You have read section 108 of the Act? —Yes. 138. How do you interpret it? Take the first part, please: "With respect to each coalmine " — each coal-mine? —Under subsection (b) it says, " The Minister shall cause a balance-sheet for the year to be prepared." That balance-sheet must contain certain things. It must contain the capital fund out of which the. different ventures are worked. 139. You are accustomed to read statutes, I presume?— Yes. 140. (a), (b), (c), (d), and (c) tire subsections of section 108, and are governed by the first section, which says "each coal-mine." Therefore it is the balance-sheet of each coal-mine that is required, not the general balance-sheet? —I do not read it in that way. Robert Wilberfoss examined. (No. 4.) 141. Mr. Heyes.] You are a Fellow of the New Zealand Accountants and Auditors Association I —Yes. 142. You are a public accountant practising in Wellington?— Yes. 143. You have had considerable experience in dealing with manufacturing accounts and extensive trading accounts ?—Yes. 144. You are Vice-President of the Council of the New Zealand Accountants and Auditors Association ?—Yes. 145. You have seen the balance-sheet of the State Coal-mines of the 31st March, 1906? —Yes. 146. And the Coal-mines Act of 1905 ?—Yes. 147. Do you consider that the balance-sheet as submitted reasonably complies with the Coalmines Act, section 108?— Yes, I do. 148. You have seen the tag that the Auditor-General has placed on the accounts : do you think it is possible to comply with the requirements as he has set them out?—l really think that this balance-sheet practically does. Of course, lam not a lawyer to give the exact legal meaning of tin' phraseology of the Act. I take it that there are two balance-sheets submitted. 149. Submitted in these papers?— Yes. 150. And that this balance-sheet complies fully and faithfully with the provisions of the sections of the Act of 1905? —Yes, that is my opinion. 1 51. The question has been raised as to the keeping of accounts where there are several branches under one proprietary. Where there are general accounts, general expenses and other general items of expenditure that cannot Ix 3 definitely allocated at the time of the expenditure, are usually kept in one account and allocated at the close of the year: is that so?—I know what )rou mean. There are certain expenses that would go into a general Profit and Loss Account as distinguished from a Profit and Loss Account of each department. 152. In dealing with the Profit and Loss Account for the branches the definite and actual expenditure in connection witli the profit and loss would be charged to separate accounts; but there are general expenses incurred generally over the whole of the operations, such as travelling-expenses, and printing and stationery, and rent of offices for the head office—there are head-office expenses that are usually allocated out of one general account. Is that so?— Unquestionably. 153. .They are usually allocated at the close of the year?— Yes. 154. They are kept in one general account, and at the close of the year they are usually allocated to the branches in whatever proportions it is considered they should be charged?— Unquestionably. 155. Hon. Sir J. G. Ward.] Have you made a close study of the Coal-mines balance-sheet? — Not a very close study. I have only had this and gone through it, and it seems to me to be a perfectly plain and simple balance-sheet. I have found no intricacies in the matter at all. The balance-sheet gave me every information that I wanted. I could trace the Capital Account and the capital expenditure upon each mine, and the Profit and Loss Account of each mine is shown properly, distinctly, and clearly. Anything that I wanted to trace I was able to trace quite easily. 156. In practice would it be possible for the accountancy branch of that Department to issue an independent balance-sheet, giving all the details necessary for a balance-sheet, unless the two businesses were run separately? —I take it you require two balance-sheets. You have got a Capital .Account of each separate mine. Certainly, they are not on two separate pieces of paper, but you have got here the total capital expenditure of each mine ; then you have your Profit and Loss Account of each mine. 157. Then you consider that is a fair balance-sheet for both mines?— Undoubtedly so, and I really do not see how you could put it in any other form. I assume that what you mean is this : to make a separate balance-sheet you would have to allocate a certain proportion of the amount of the debentures to one mine 158. And a proportion of the expenditure and receipts?— Certainly. I do not see how you could do it more simply or better than you have got it here.

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B. WILBEBI'OSS.

159. Then, if the Controller and Auditor-General, under section 108 of the Act, considers that separate balance-sheets should be shown, are 3-ou of opinion that they could Sot be made out unless the two businesses were run separately? —I do not think they could, unless you had two absolutely separate sets of books for each mine, and you allocated to each mine at the commencement of the business, or as you went on, a certain proportion of the amount of the debentures. I think it would be possible, but it would create an enormous amount of detail-work and answer no purpose. The Minister of Mines is running these mines as a whole. 160. Mr. J. Allen.] 1 understand you to say that the Minister has got here a statement showing the accounts as a whole? —Yes. 161. Do you know the law on the matter —clause 108—which says that he is to keep a separate account for each mine? —So, I take it, he has, because he has got here his capital expenditure on, say, the Point Elizabeth Mine. Here is his Capital Account for the Point Elizabeth Mine shown tpiite clearly and distinctly, and he has got his Profit and Loss Account. 162. Have you seen the books? —No. 163. You do not know whether in the books they keep separate accounts for each mine? —I presume they do, or else I do not know how Mr. Heyes has got his particulars. 164. You have never seen the books?— No. 165. You do not know how lie has got the particulars. Do you think that he has arbitrarily divided these accounts up tit the end of the year —some of them?— Some of the Profit and Loss entries he may have, but I should be very much surprised to find that he has allocated anything in his Capital Account. 166. Do you think the books would show any allocation of Capital Account at all?— No. It would be in this way, I presume*: He would have an account in his book called, to take the Point Elizabeth Mine, the " Point Elizabeth Colliery and Development Property Account." Then another called the " Machinery, Plant, Ropes, and Rolling-stock Account." 167. With regard to the unallotted capital, do you think he has got any account showing the allocation of that unallotted capital—because he has to charge interest on it to somebody? —He will have a Debenture Loan Account. 168. A general account? —Unquestionably. 169. But how is he going to charge interest on that to each mine?—He has only got the two mines to charge it to. 170. How is he going to charge it?— Upon the proportion of the capital embarked in each mine. 171. But there is some capital that is not embarked in the mines? —The Minister has got to pay the interest on it, and he has to charge it 172. I want to know how he is going to charge it to the separate mines. Does he not need to allocate the unexpended capital to be able to charge it?—l do not follow you. 173. There is a general account with some unexpended debenture money? Somebody has to pay the interest. The two mines have to. When he is making up his Profit and Loss Account, should he not allocate this unexpended capital to either mine in order to get at the interest that he must charge to each? —No, I do not see that. 174. How can he keep a separate account for each mine if he does not?—l presume that in the first instance he debits his Interest Account with the interest on the debentures. 175. The General Account?— His Interest Account. Then he credits his Interest Account, and he debits each of these mines with the proportionate amount of that interest. 176. On what principle?—On the principle of the amount of capital invested in each mine. T76a. The capital already expended on the mine?— Yes. 177. Should not that be shown in the books? —I presume it would be. Mr. Heyes: It is shown in the books. Henry Kember examined. (No. 5.) 178. Mr. //ryes.] You are a Fellow of the Institute of Accountants of New Zealand?—l am. 179. You are a public accountant, and have been practising in Wellington for many years? — For many years. 180. You have had a large experience in dealing with manufacturing concerns' accounts and the accounts of proprietaries which have a number of branches ?—Yes. 181. You have seen the balance-sheet of the State Coal-mines of the 31st March, 1906?— Yes. 182. You have gone through it carefully?— Yes. 183. You have seen the Coal-mines Act of 1905?— Yes. 184. The sections applying to the accounts? —Yes. 185. Do you consider that the balance-sheet as submitted by the Department complies reasonably with the" sections of the Act which provide for the accounts being kept?—l think so — thoroughly. . 186. You have seen the " tag " of the Auditor-General and my memo, with respect to it ! —Yes. 187. I contend there that the balance-sheet as submitted complies with the provisions of the Act. Do you think that, a reasonable interpretation of it?— That is my interpretation of it, for this reason : There you have a balance-sheet that is presented by the Department which actually shows three distinct balance-sheets—that is, the balance-sheet of the Department and the balancesheet of each mine. Therefore, that balance-sheet includes the whole of the accounts in the ledger. There is no account in the ledger but what is included in the balance-sheet, and as the Capital Account and the Profit and Loss Account are shown there I do not see how it is possible to show any more, because it shows everything. The only contention, as far as I can see, that could be raised about the matter is that that balance-sheet, which is three distinct balance-sheets, may be, according to the interpretation of the Auditor-General, cut into three separate sheets. That is all there is, it seems to me, about it —that, instead of producing one balance-sheet showing three

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balance-sheets, you have got to cut that balance-sheet up into three distinct sheets. In my opinion, the weakness of the "tag" is this: It says that two balance-sheets are wanted. Now, it is an impossibility to put the accounts into two balance-sheets. If you produce one balance-sheet for each of the mines, what becomes of the balance-sheet of the Department? What becomes of the Capital Account ? What becomes of items that do not pertain at all to either one mine or the other ? Therefore two balance-sheets are out of the question altogether. Two balance-sheets cannot possibly show the accounts. I think, consequently, that it is exceedingly weak of the Audit Office to simply say that according to their reading two balance-sheets are wanted. I say the accounts cannot be shown in two balance-sheets. If you cut the balance-sheet up you must have three. 188. You consider that all the details as to the financial position and the financial results of the working of each mine are shown clearly and separately and distinctly here in this balance-sheet? —Most decidedly. lam familiar with coal-mine accounts; therefore I can see that that comprises the whole of the accounts in the ledger. And 1 think they are properly shown and simply shown— in the same way as I should show them myself. 189. You know that where there are branches of a concern there are definite accounts for the definite expenditure that applies to the different branches, but there are some accounts that are general accounts—general over the whole of the operations 1- —Yes. 190. Is it usual, where there are those general-expenses accounts, to keep them in one account until the end of the year, and then allocate them proportionately to the different branches in the proportions in which, in the judgment of those in charge of the accounts, they should be allocated? —That is the actual business mode in which accounts are conducted, as far as I know. I see a very large number of accounts —perhaps as many as anjr accountant in the City of Wellington— and that is the usual business-mode of dealing with them. Take Expenses Account. It is one account at the end of the year, amounting to, say, £5,000. Well, it has to be cut up between the various departments of the business. There are things that you cannot possibly allocate exactly. You must take a percentage according to the turnover and according to the expense that the thing is run at. 191. And that is better done at the end of the year?—lt can only be done at the end of the year. You find out by a reasonaole mode what these percentages are and charge accordingly. That is the only way in which it can be done, as far as I can see. Mr. Heyes re-examined. (No. 6.) Mr. Heyes: Those are all the witnesses I shall call, sir. I should like to make a few remarks on what has come out. They are these: The accounts have been audited by the Audit Inspector. All the accounts in the ledger have been carefully gone through and every figure has been checked, and they have all been ticked off. I can show the original manuscript balance-sheet with the Audit Inspector's ticks on it for every item in separate accounts that is in this balance-sheet. He has found every item correct, and they are all ticked off as being correct. The only question at issue is the certificate, and the only ground on which the certificate is refused is that the form of the balance-sheet does not comply with the Act. I called the witnesses with a view to supporting me in my contention that the balance-sheet does fully and faithfully and in the most complete manner comply with the provisions of the Act. As far as the details of the accounts are concerned, those have been all audited and found correct in every figure and every item, and there is an account for every one of those items in the balance-sheet, distinct and separate, for each mine, except the general-expenses accounts which have been referred to. I have the particulars of those general-ex-penses accounts. They are, management and office salaries account, rents account, interest account, travelling-expenses account, printing and stationery account, the insurance accounts (not at the mine), and stamps and telegrams account. Those are the only accounts —and they are small— which are kept in one account and then allocated at the close of the year in the proportions that I and the accountant consider fair and reasonable. Such accounts as repairs and maintenance of.buildings and machinery, railway haulage, compensation for accidents, marine freights, railway freights, and marine insurance — all those accounts are definite accounts. For these there are separate accounts for each mine. There are separate accounts for each mine for all the definite and actual expenditure incurred in connection with that mine which can be definitely ascertained at the time the expenditure is made. There are only a few general accounts where the expenditure for the mines is kept together and allocated at the close of the year, and I think the evidence supports that practice as being the proper commercial practice, universally followed. 192. Mr. J. Allen.] Is that list of general accounts the same as it was last year?— Yes. They are just the same general accounts as they were last year, but they are not in the same proportion as they were last year, because the circumstances have changed. For instance, there is a separate manager now for each mine. It was pointed out in one of the questions that the furniture, for instance, connected with the Seddonville Mine is charged to that mine account separately. 193. Was that so last year?— Yes. Any expenditure that can be said to belong to a particular mine is charged to an account, distinct and separate in the ledger, for that mine. There is a distinct account for each mine for all the expenditure that can be definitely ascertained. 194. As I understood Mr. Biss on the question of general accounts, he said that he would, as far as he could, allocate to each mine at the time the expenditure took place, and if there was any balance that he could not allocate he would put that to general account. Do you see any difficulty in doing that? —That is what is done. All the other witnesses confirm what has been done in the ledger. Mr. Biss would allocate this general expenditure at the end of each month, instead of at the end of each year. That is the only difference between him and the other witnesses. I have had thirty years' experience in dealing with this class of accounts in connection with concerns where they have had a large number of branches, and I am satisfied these accounts can be better adjusted at the end of the year than at the end of each month.

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195. You differ from Mr. Biss on that point?— Yes. I have had a very much larger experience than Mr. Biss in regard to them. He has not had the practical experience of extensive manufacturing accounts that 1 have had. 196. If we interpret clause 108 to mean that separate accounts are to be kept in the books for each mine, should it be done?—l say that, according to the usual commercial practice and interpretation of that question, it has been done. An account is kept under each one of these heads for each mine, and the other general accounts are divided at the end of the year. 197. After the division is made are they debited to the separate accounts?— Yes. 198. If I interpret the law to mean that separate accounts are to be kept for each mine, is it possible to do that?— Yes, and it has been done. 199. You have got three sets of accounts, have you not? —There are separate accounts for each of the two mines right through. 200. Do you show, for instance, the allocation of the unexpended capital to each mine in your books ?—No. ' 201. Then there are not separate accounts for each mine as far as that is concerned? —Those are funds in hand, and you cannot allocate them to either mine. 202. That is exactly what I want to get at. Is it possible to do this?— Not in respect to that particular item. That is not deemed to be an account. It is not treated as an account in dealing with the working of the mines 203. But somebody has to rind the interest on it?— Yes, the two mines have. 204. Is it not possible to allocate that to each mine, and get rid of your general Debenture Account? —So it is. The interest is charged to each mine. 205. Would you comply with the law, then, by balancing up your Debenture Account and allocating the money to each mine ?—What advantage would that be ? 206. You would comply with the law?—l do not think it would be complying with the law any more than it is now. There is provision for a dozen mines, and there is one fund to carry on all the mines together. There might be two mines, or there might be a dozen. If you locked up all the capital in those two mines, what about the third ? 207. Whilst there are two mines only, those two mines have to find the interest on the unexpended balance? —Exactly, and that is what I have done here. 208. How could you get at that interest unless, either in your mind or in the books, you allocated the unexpended capital?— The capital expenditure on each mine is definitely shown in the balance-sheet. The unexpended capital is the cash in hand, and you cannot say to which mine it belongs. 209. The interest to be paid by each mine belongs to that mine?— Certainly. 210. How do you get at the'amount of that interest.' —The total interest paid must be in proportion to the total capital invested in the two mines, and the proportion of the interest charged to each mine according to the capital invested in each mine. 211. Then, in your mind's eye, you have the capital according to the expenditure that has already taken place, and you charge interest on that?— Yes. You cannot divide up the debentures against each asset, because there are other assets besides the mines. 212. I made a remark that we had some evidence last year that the capital had been allocated, on the 31st March, in the way suggested by the Minister. You were present at the meetings of the Mines Committee during the whole of the time ? —Yes. 213. You heard the Auditor-General give evidence? —I heard only a portion of his evidence. 214. He gave evidence, and I asked him among other things about this allocation, " Had you good grounds for certifying a balance-sheet which showed a reduction of liability of the Point Elizabeth Mine from £80,000 to £59,000? Had you good grounds for certifying the alteration? " He replied, " I had." I then asked, " What were the grounds? " And he answered, " That the Minister had chosen to allocate"? —The Minister only signed the balance-sheet. 1 did it, and the Minister signed. - Mr. J. Allen: I was justified, then, in saying that evidence was given to that effect . Hon. Sir J. G. Ward: Further on, Mr. Allen, in referring to this, asked, " That was an arbitrary thing to do, was it not? " And Mr. Warburton replied, " I cannot say. It was an allocation by the Department " Mr. Heyes: He spoke of the Minister as representing the Department, I take it. Hon. Sir J. G. Ward: Furthermore, the words used by the Auditor-General originally were " by the Administration." Mr. Warburton: I should explain that I always regard the official acting for the Minister as the hand of the Minister. . 215. Hon. Sir J. G. Ward.] Did the Minister in charge of the Department at any time direct you to alter an allocation that was made by your Department, Mr. Heyes?—No. There was no suggestion of any interference. The balance-sheet was drawn up, and the Minister had nothing to do with it until he signed it. 216. Has the Minister attempted to get you to alter the accounts in any way?—No, he has never made such a suggestion. J. K. Warburton, Controller and Auditor-General, examined. (No. 7.) 217. The Chairman.] Having heard Mr. Heyes, the Committee would like to hear what you have to say in reference to the dispute between the two offices, Mr. Warburton ?—I shall first read mv minute, which has been called a " tag," to the accounts: " The Hon. the Minister of Mines.— ' The Coal-mines Act, 1905,' in section 108 of the provisions for State coal-mines, requires that, with respect to each coal-mine worked by the Minister, he shall cause a balance-sheet to be prepared, together"with a statement of accounts, and such balance-sheet and statement of accounts to be submitted to the Audit Office for audit. There should accordingly be submitted two balance-sheets, one for the Point Elizabeth Mine and one for the Seddonville Mine. The balance-sheet submitted,

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being one balance-sheet for the two mines, does not comply with the statutory requirement, and cannot be audited or certificated as doing so." Had the Minister, on receipt of that memorandum, asked me to certify the balance-sheet, 1 should have certified it in accordance with that minute— that it could not be audited or certificated as complying with the statutory requirement. The questions which have been asked of the accountants as to what has been called the dispute between the Administration and the Audit Office with respect to the law seem to me to be questions which should have been asked of a legal adviser rather than an accountant. But before Igo to the question of the law, which I think is the only point of dispute, if there is any dispute, I should like to read what 1 wrote about three or four years ago on the subject. Ido not know to whom I addressed this minute, but I said, " The accounts which are required to be prepared and laid before Parliament are only the accounts to which section 14 of the Act of 1901 applies. With respect to each mine there should be—(l) statement of liabilities and assets, (2) Capital Account, (3) Working Account, (4) Profit and Loss Account. Sections 2 and 3of the Act of 1902, besides providing that moneys of the State Coal-mines Account shall be paid into the Public Account to credit of a separate account, appropriates moneys to give effect to the purposes of the Act; but these sections relate to the accounts under section 14 of the Act of 1901 only to the extent of providing for charging costs and, expenses incurred in raising capital, and all interest and sinking fund. The State Coal-mine receipts and expenditure, being included in the Public Account, are examined and certified by the Controller and Auditor-General in ordinary course, and form no part of the accounts required to be prepared by the Mines Department. No general account, either of liabilities and assets, capital, working, management, or profit and loss, is required by the Act. It requires only the four accounts in, respect of each mine. Of course, general accounts should be kept—such as for capital and management — to be closed periodically b~y transfer to the mines accounts; but, like the statement of the cash receipts and payments, such general accounts are not required to be published." All that, concerns the Audit Office, therefore, is the law, and the Audit Office has found no fault with any form of accounts furnished by any administration or accountant which complies with the law. So long as a balance-sheet which is required by the statute complies with the statute, the Audit Office does not do more than occasionally suggest what would be better. In the case of the State Coalmines the Audit Office has suggested nothing. We were satisfied with the two separate accounts rendered last year. They were rendered according to the judgment of the accountant, in the form —that is, as the two separate balance-sheets —required by the Audit Office. Section 108 of the Act has as its governing clause, "'With respect to each coal-mine worked by the Minister under this Part of this Act, the following provisions shall apply." Then, subsection (c), subject to that Governing clause, provides, " Such, balance-sheet and statement shall be so prepared as to show fully and faithfully the financial position of the mine" —it does not say the position of the two mines—" and the financial result of its operations for the year." Subsection (c) then states, " The balance-sheet and statement of accounts, duly audited, together with a report by the manager on the operations of the mine for the year, shall, within ten days after the audit is completed, be laid by the Minister before Parliament, if sitting, and if not, then within ten days after the commencement of the next ensuing session thereof." Ido not think there can be any question whatever as to the meaning of that section, and the other questions seem to me to be matters for the Administration and for Parliament to deal with. The Audit Office saw last year that a balance-sheet for each mine had been prepared in accordance with the Act, and that the revenue and the expenditure had been accounted for according to law, so far as the Audit Office could ascertain. This year there is one balance-sheet for the two mines. The principal contention raised against a separate balancesheet for each mine is that the money raised by loan cannot be wholly allocated; but there is no authority to raise the money by loan except to provide funds to be spent for the purposes of the purchase of each mine. The provision is, "In order to provide funds for the payment of all compensation or purchase-moneys payable in respect of any resumption or contract under the aforesaid sections sixty-four and sixty-five hereof, or for the construction, erection, or acquisition of buildings," &c. There is no authority but to provide money for one or the other mine or both. The" question of the difficulty of allocation is not one for the Audit Office to consider, and that, I think, is a matter of opinion. This is the objection of the Audit Office: that the general balancesheet is not the balance-sheet required by the Act to be audited and laid before Parliament. 218. Hon. Sir J. G. Ward.] If, as was stated by Mr. Heyes, there is a separate account kept for each coal-mine in the books of the Department, with the exception of accounts for three or four —or whatever the number was—items that go into a general account for allocation at the end of the year, and if your Audit Department has certified to the accuracy of the accounts by ticking them all off in the books, would you not regard that as keeping a separate account for the purposes of audit? —I confine myself to the balance-sheet to be audited —the balance-sheet and the"four statements in connection with it mentioned in the memo, which I read ; and those are submitted. I have stated here that there should be kept by the office a general account —that is, not an account required by law, but that from that account there should be made to the separate accounts what transfers are necessary to make up a separate account for each mine—a complete separate account for each mine, just as if each mine were the property of, and were managed by, two separate individuals. 219. That is not an answer to my question. If your Audit Inspector examined and ticked off the separate account for each mine in the books of the Department, and he reported that to you as being correct, you would not regard that as sufficient to warrant the correct statements in the books being focussed into one balance-sheet for your certificate?—l do not quite follow the question. 220. In other words, if in the books of the Department there is a separate account kept for each mine, and that is ticked off by your Audit Inspector, who reports it to you, and both accounts tire focussed into a balance-sheet, you would not regard that as sufficient warrant for your certificate to be attached? —No; I should want a separate balance-sheet according to the Act. What I have to deal with under the Act is the balance-sheet.

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221. You do not question, upon your Audit Inspector's report to you, the accuracy of the accounts in any way?—He examines and reports to me the facts of the receipts and expenditure. I have not audited these accounts yet. He has examined them, and 1 believe he finds a correct statement of transactions according to the books. 222. What do you usually do? Do you accept the report of the Audit Inspector, whose examination of the books ?—No. He is merely authorised to inspect and report to me as to the facts. 1 audit. 223. Would you audit upon the Audit Inspector's report to you, without personally going through the books? —Yes, 1 would. I could not go through the books personally. 224. As a matter of practice, you must accept the report of the Inspector as your guide for your auditing? —Yes; I do that as to the facts that the expenditure has taken place and is properly vouched, and that there are proper certificates for everything. 225. Then, upon the report of the Audit Inspector regarding the accounts in question, was there anything to suggest any impropriety in connection with any of them? —No impropriety, I should say. The only objection I am raising is that the balance-sheet is not a balance-sheet for each mine—that is to say, a complete balance-sheet for each mine. 226. You accept the examination of the Audit Inspector, who goes through the accounts to enable you to make your examination as Controller and Auditor-General and give your certificate. You say there has been nothing whatever to suggest any impropriety or inaccuracy in connection with the accounts in that report of the Inspector?—Oh, yes, I had some conversation with him liefore I wrote that minute. 227. That is, upon the point of the balance-sheet. I am talking about any impropriety or inaccuracy in the accounts. I-want to know whether there was anything reported to you by the .\udit Inspector to suggest that there was anything inaccurate or improper in the accounts as examined by him in the books of the Department?— There was no impropriety exactly, but the balancesheet submitted to me was on the face of it not the balance-sheet which was required. 228. Could you, as Auditor-General, certify to a balance-sheet unless an Audit Inspector went through the books in the first instance to give you the necessary information?—l do not think it would be physically possible. 229. You are not expected to —you do not personally examine? —No. 230. In this case was anything reported to you by the Audit Inspector to show that there was any inaccuracy or impropriety in any way whatever in connection with the coal-mines? —The first question I asked him when he brought this to me, after examining the items and informing me that they were properly vouched, was, " Where are the two balance-sheets which T am required to audit? " 231. That is a different point. Did the Audit Inspector who examined the accounts of the State Coal-mines Department report any inaccuracy or any impropriety to you in connection with the accounts?—l do not know whether he did or did not. He would report any inaccuracy if there were any. . 232. Did he report?—He did not report any inaccuracy. Ido not think it is his business to re] tort any inaccuracy, except so far as there may be want of vouchers or certificates. He reported no inaccuracy in the expenditure shown in that balance-sheet or in the revenue shown in the balancesheet. 233. But we have it in evidence that as the result of his inspection he ticked off every item of these accounts in the books?—He may have. I have no doubt he did. That is what I understood him to have done. 234. If there was anything wrong would it not be his duty to report it? —What do you mean by " wrong " ? 235. I want to find out whether there was anything reported to you as inaccurate in connection with any of the separate coal-mine accounts as kept by the Department. I shall ask you about the balance-sheet presently? —Take, first of all, the Capital Account. He reported to me that the Capital Account had not been allocated to each mine. That was not accurate; that was not a compliance with the law. 236. That was the unexpended amount of the Capital Account?— Well, the whole of it. It was money raised, £140,000, and it could only be raised for one or the other of the mines, or both. 237. There can be no flexibility in your own actions as Controller and Auditor-General: if a section of an Act provided for the impossible, you could not recognise that fact in any way? — 1 think I should if it provided for the impossible. I should probably report to Parliament that I did not see how it was possible to carry out the law. 238. In the meantime you could not give a certificate if the law were not complied with?—lf an account were placed before me as near as it could possibly go to the law, I should add to my certifying remarks a statement that the account did not comply with the law, but that it was impracticable to comply with the law, and that the account went as near as possible to compliance. 239. In this case, excepting the non-production of two independent balance-sheets as required according to your reading of clause 108, you have no reason to suppose there was anything wrong in connection with these accounts? You must be guided by the report of your Inspector as far as details go?—I do not think there is anything wrong. 1 think the transactions are all right. I do not think any wrong transaction has taken place. 240. Mr. J. Allen.] Do you think it is impossible in this case to comply with the law as you interpret it?—l do not. 241. You think it is easy to keep a separate account for each coal-mine and to produce a separate balance-sheet? —I think so. 242. Mr. W. Fraser.] Who is the person to decide whether a balance-sheet is in accordance with law—you or the official head of any Department ?—lt lies with me, and Ido not think there is any appeal against my judgment in the matter.

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243. Should it not be the duty of any head of a Department to endeavour as far as possible, so long as you hold that opinion, to comply with your request?— No. I regard every official as the hand of the Minister. I assume that he does nothing except by the authority of the Minister. 244. Mr. E. G. Allen.] What is the difference between the balance-sheets presented last year and those of this year I —One is the balance-sheet, as 1 understand it, for the two mines. 245. There are two balance-sheets? —Last year there was a balance-sheet for each mine separately. The liabilities as well as the assets were separated. This year the liabilities for loanmoney are not separated. There is one balance-sheet for the two mines. 246. Would it be possible to satisfy the Audit Department without keeping two sets of books? - -No, not as the law stands at present. 247. If you had a separate balance-sheet for each mine you would want a separate set of books for each mine?— You could not very well prepare the balance-sheet without. 248. Do you think it is necessary or advisable to alter section 108 of the Act? —I have no opinion on that point at all. 249. Mr. Flatman.] You say that, in your opinion, it is possible to present balance-sheets in accordance with your interpretation of the Act?— Yes. 250. Would it be much more expensive to do that than to follow the present system —would it involve extra time and expense?—lt might. The difference would be so trifling that I could hardly calculate it. There would certainly be a little more book-keeping involved. 251. Take a case of this kind: A depot is established, we will say, in some town in the South Island, and there are 10 tons of coal from one mine and 8 tons from the other. How would you apportion the charges for the sale of that coal?— The depot would be purchased for both mines. Say each mine were represented "by an independent proprietor: the two proprietors working together would agree to bear so-much of the expense each. They would agree among themselves how much of their capital should be applied to the purchase of the depot, and there would be an end of it. 252. Hon. Mr. McNab.] Do I understand you to mean that all the items in connection with all the transactions should be entered up so as to show how much of each is charged to each of the two different mines?—l think so; but I stated in the memo. I wrote some years ago that a general account should be kept by the Department and periodical transfers made—that is to say, where the general expenditure cannot well be divided at the moment it should be kept in a general account, anil transfers be periodically made to the separate accounts necessary for the presentation of separate balance-sheets. 253. What should be the length of the period?— That would lie with the Administration. 254. If the Administration determined that some of the accounts could not be transferred till the end of the year, would that be exceeding their powers?— The Audit Office would not object. 255. In the case before us, have they not at the end of the year apportioned those charges that, in their opinion, could not well be apportioned as they were incurred? —They have apportioned the charges in this general balance-sheet, but they have not prepared a separate balance-sheet for each mine showing them separately. 256. Then, in spite of that apportionment, you want to go back to a separate account for each mine, showing each thing charged against it ? —Yes : but you must take the two sides of the accounts. On one side it is not so. 257. You also want that account?— Yes. 258. Very well. We will suppose that the Head Office telegraphs to Auckland asking what quantities of coal they will want from each mine, and they reply. Those two telegrams cost Is. Do you expect the Department to show in an account 9d. entered for one mine and 3d. for the other ?—We are not requiring that. 259. I am starting with that. I want to know exactly where your point ends and where it commences. You do not object to that? —I do not say that I object or consent to it. I would not divide Is. for a telegram into 9d. and 3d. 260. Would you divide it into 6d. and 6d. ?—This is not a matter for the Audit Office, surely. 261. But this is your very point: you are objecting to the Department carrying these items forward to the end of the year for apportionment? —It is the very opposite. I say that is all right. 262. I understood that you wanted an account kept where each charge against the mine was to be shown, and what I wanted to get at was whether in that account — that second account — you wanted this Is. for a telegram divided into 9d. and 3d.? —You misunderstood me. I meant that, with regard to things like postages and telegrams, there would be, according to my memo, of instructions some years ago, a general account kept of the postages and telegrams for the two mines 263. humped? —Yes; and the total of these would be transferred periodically —perhaps once a year—in a reasonable proportion for each mine. 264. Do you say that that has not been done? —It has been done. 265. Then, what is your objection to that?—We have not got a balance-sheet for each mine. 266. On the balance-sheet for each mine would you not have to show the proportion of that charge that went to each mine? —No; the balance-sheet shows the total for the year. 267. But for each mine it would show the proportion of the assessment at the end of the year, would it not?— Yes; it would be shown in a balance-sheet for each mine, as it has been shown in this balance-sheet for the two mines. The postages and telegrams have been divided here as they ought to be divided in a separate balance-sheet. Here is the item: "Telegrams and postages, £174 os. 7d." That is for Point Elizabeth. For the Seddonville Colliery, "Telegrams and postages, £116 os. 5d." 268. The postages and telegrams are shown for each mine?— Yes. 269. Then, what further do you want than that?—T want a separate balance-sheet for each mine.

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270. Yes, but with regard to the £174 Os. 7d., what further do you want than is contained in that?— That is an item in a general balance-sheet. It is not an item in a separate balance-sheet. It would be all right if the balance-sheet were separate. What I want is a balance-sheet for all the transactions, liabilities and assets, of the Point Elizabeth Mine in one balance-sheet; and I want everything else —liabilities and assets —of the other mine shown in another balance-sheet. 271. Hon. Sir J. G. Ward.] You say that you want a separate balance-sheet for each mine regarding everything? —Yes. 272. How, in practice, could any officers of the Coal-mines Department prepare, in connection with the Point Elizabeth Mine, the accounts of debtors to the depots for coal ? How could they say to which mine each one belonged unless they had separate depots and separate staffs?— Suppose there were two proprietors? 273. But if there were two proprietors each man would be running his own business to make a profit for himself. This is a case of the State running two mines to bring about the best results? —Say two managers agree that one depot is better than two separate depots; they say, "We will agree to supply so-much of the money of each mine towards the purchase of that depot." 274. I am not talking about that; I am talking about the sale of the coal after it gets to the depot. If there is £750 due to the depot in accounts at the end of the year, who is to say to which mine those accounts pertain ?--Surely they would keep accounts of the receipt and issue at the depot of the coal from each mine. 275. But do you not see the difficulty? According to the view you take, that they must have the actual results as to both mines, a separate depot would be necessitated, because a cargo of 300 tons, we will say, of Point Elizabeth coal arrives to-day, and next week 500 tons of Seddonville coal comes to hand, 200 tons of -the Point Elizabeth coal being meanwhile sold; and the next week another load of Point Elizabeth coal comes, when a portion of the 500-ton shipment has been sold. Who is to say to which mine the remaining coal belongs—who is to apportion it?—l imagine that I could give an account of it if I were there. The coal coming in and going out for each mine would be accounted for.

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