B.—l [Pt. ll].

There appears to have been a considerable growth of public opinion in recent years in favour of reducing the number of local authorities with the object of lessening the cost of local government. The Audit Office is of opinion that there are cases where, by a judicious readjustment of boundaries or amalgamation, the system could be rendered less complex and more economical than at present. A distinct step towards enabling County Councils to administer county finances more simply and more economically was taken in 1931, when legislation was passed empowering a Council to abolish riding accounts and levy uniform general rates over the county as a whole in place of, as in the past, levying the general rates differentially and separately in each riding, and keeping separate accounts of the transactions in respect of each riding. Up to the present date forty-two County Councils, representing one-third of the total number of such bodies, have availed themselves of this power. Notwithstanding that the legislation of recent years affecting the finances of local authorities has created additional work for the Audit inspecting staff the position of the work of auditing these accounts is most satisfactory. During the year visits of inspection to the District Audit Inspectors were made by myself in the North Island and by my Deputy in the South Island. Twenty districts in all were visited with satisfactory results, and the opportunity was taken whilst in the districts to visit the offices of many of the local authorities and discuss Audit matters with them. The services of the Audit Office have been freely availed of during the year to determine the many accountancy and legal problems arising from the legislation governing the administration and finances of local authorities. As stated in my previous report some clearly expressed statutory rule should be laid down denning what constitutes the reasonable additional costs of holding Electric-power Board or Harbour Board elections, when the elections are conducted simultaneously with the elections of Borough or County Councils. The governing statutes provide that the reasonable additional costs incurred by Borough or County Councils in holding simultaneously with their own elections, the elections of members of Electric-power Boards and Harbour Boards, shall be paid by such Boards. During the year the Audit Office has been called upon to determine many matters in dispute regarding these " reasonable additional costs," and it is clear from the submissions made by the local authorities concerned that a considerable diversity of opinion exists amongst them as to what expenses can reasonably be treated as " additional costs." It is obviously unsatisfactory that the position should bo in doubt, and in order to remove the cause of dispute, it is suggested that when opportunity offers the law should be amended to enable regulations to be made prescribing a clear definition of what constitutes the reasonable additional costs of an election for members of Electric-power Boards and Harbour Boards when held simultaneously with the election for members of Borough or County Councils. The Audit Office was also called upon during the year to determine many disputes arising out of the provisions of section 16 of the Municipal Corporations Act, 1933, and to decide what proportions of the cost of preparing and printing the district electors' rolls of Borough Councils were to be borne by certain local authorities. This is also a matter where there appears to be need for an amendment of the law to indicate more precisely which local authorities are liable and the extent of their liabilities under the section. There appears to be a general desire among County Councils that the power to establish depreciation and renewal funds which has been given to Borough Councils and Electric-power Boards should be extended to County Councils to enable them to set aside moneys for the purpose of providing for renewal and replacement of plant and other depreciable assets. The Audit Office is of the opinion that the desire should be given effect to by appropriate legislation. During the year the Audit Office dealt with thirteen cases of misappropriation of funds by localbody officials, particulars of which were in every instance placed in the hands of the police, and the defaulters were all dealt with by Criminal Court action. The largest sum misappropriated by any one official in the thirteen cases mentioned was £236 19s. 3d., and the total aggregate sum of all the misappropriations during the year was £699 7s. 10d. Four members of local authorities automatically forfeited their seats during the year on account of having been concerned or interested in contracts with the local authorities of which they were members. In three cases the amount involved was in excess of the statutory contractual limits, and in the fourth case the member was disqualified for holding a place of profit under or in the gift of the local authority. In one instance proceedings were taken by the Audit Office against a member for recovery of penalties under section 5 of the Local Authorities (Members' Contracts) Act, 1934, and the defendant was fined £2 with costs amounting to £4 16s. 6d. Since the 31st March nine further cases of disqualification have been ascertained by Audit. In connection with the disqualification of members of local bodies, I would like to make the position of Audit perfectly clear. The law regarding disqualification is necessarily very strict, and no discretionary powers are given to the Audit Office in cases where breaches of the law have been committed. I am satisfied that in some of the cases of disqualification members have acted without full knowledge of the provisions of the Act and have not been actuated by a desire to act fraudulently. As a breach of the law automatically results in disqualification, it is obvious that the Audit Office is unable to remove or modify the disqualification when once it has been incurred. The Audit Office was, during the year, called upon to deal with numerous breaches of the law relating to the accounts of local authorities, as detailed below (Schedule " A "). ■ In each case, where the Audit Office was required to take action, an adjustment of accounts or a recovery of the moneys was obtained, excepting where a satisfactory explanation was made or where in view of the special circumstances of the case an adjustment or recovery was waived conditionally on legislation being obtained to validate the irregularities. A list of special cases where the conditional waiver was granted is set out below (Schedule " B ").

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