Local Authority Accounting Methods Volume 1 (RLE Accounting)

The Early Debate 1884-1908

Hugh Coombs, J. R. Edwards, Hugh Coombs, J. R. Edwards

• Publisher: Routledge
• Year: 2014
• ISBN:
  9781134657674
• Edition: 1
• Topic: Business
• Subtopic: Contabilità statale
• Index: Business

This book contains a collection of papers dealing with a range of controversial issues which exercised the minds of local authority officials from 1884-1908. The 28 items reproduced cover a wide range of matters. They are presented chronologically because many of the papers deal with more than one topic but also because it provides a clearer guide to the development of views on numerous inter-related issues. These issues are still of interest and relevant today: most of the papers deal with the need to improve the level of accountability to local electors – something which has been the main thrust of UK government policy since 1979. Other papers focus on the need to address internal accounting problems, such as the need for improved costing procedures to measure the performance of different activities.

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The Accountant.

SEPTEMBER 20, 1884.

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MUNICIPAL ACCOUNTS.

THE accounts of Municipal Corporations and other local authorities have been, during the past few years and still are, receiving an amount of attention such as perhaps has never before been bestowed on them, both in regard to the clearness and suitability of the form in which they are presented; the material accuracy of the figures, and their compliance, or otherwise, with the terms and conditions imposed on the corporation, or other authority, by Act of Parliament. We have noted with satisfaction that gradually, but surely, old prejudices and notions regarding the examination and publication of these accounts are being removed, and that with infinite public advantage the accounts, have, in many instances, been brought under review for audit, and, where needed, re-construction by members of the Institute of Chartered Accountants. The time is ripe, and public events auspicious, for such a change. For untold years local authorities have levied, collected, and disbursed millions of pounds, and the only scrutiny to which the accounts have, in the great majority of cases, been subjected has been that of servants in the employ, and necessarily under the influence and control, of the persons liable to account. Accounts have been made up, printed, and circulated, but the defective and often erroneous manner in which they were constructed, their incompleteness, and the meagreness and often entire absence of proper explanations, prevented any but an extremely small section of the ratepayers from obtaining even a tolerable notion of the financial position of the body corporate. In truth, so utterly unreliable are many of the accounts as published, that—it has been stated on good authority— eminent financiers holding high place in the Imperial Government have been seriously misled in official reports based on such material and data as these accounts afforded; and statists of no mean repute have in the same manner been deceived. But the state of things which allows of such grave misconception is being rapidly changed; many causes contributing to effect this end. The bad state of trade, and the keenness of competition, have forced ratepayers to grasp the financial position and resources of the Corporation in order to see where adjustment, or re-arrangement, of the rates levied for public purposes, or of the method of repayment, or redemption of the public loans could in any way, consistent with sound economy and finance, be effected with advantage, and the obvious advantages which could be derived from reliable and complete accounts are universally acknowledged by the leaders of public thought and opinion. If these reasons be not deemed sufficient, it may be mentioned, last in order, but not least in importance, that recently there have been brought to light a great number of frauds and irregularities by high corporate officials; one result of which has been to promote amongst the large class, not perhaps so directly influenced by the preceding considerations, the same feeling in common with these of higher social position, and to give great impetus to a change already impending. The outcome in many cases has been the bringing of the public accounts under the examination of professional accountants; and we believe that no instance can be adduced where this has not proved beneficial to these most largely interested in the prosperity and good government of the community.

Opposition to independent audit, however, has been, and still is, active and powerful; and to a great extent this feeling is found strongest in members of the local governing bodies. But it is fast being recognised as absurd—if not worse—that men, whose knowledge of accounts is notoriously limited; who have themselves many times been implicated in transactions not at all creditable to there as public trustees; and whose ignorance, or indifference, has made easy the perpetration of frauds resulting in loss of public honour, credit, and money, should for a moment presume to object to have the accounts of their trust audited and investigated with all the tests which can be devised to ensure the strictest accuracy. And, if we correctly read the signs of the times, the current of public opinion is steadily and strongly setting in favour of an audit which shall, in addition to the work usually involved, examine securities and cash balances, and, perhaps, more than anything else, take cognisance of the terms of the Acts of Parliament conferring powers—especially borrowing powers—on the corporation, with the view of seeing that all conditions prescribed by the legislature are being complied with. In the foremost rank of the great matters demanding especial attention, is the question of Sinking Funds, and other methods for liquidation of the public debt. We have already alluded to the inadequate conceptions of many members of the local authorities on matters of account; but their ideas on economical and financial questions are, in many cases, even more circumscribed. The whole subject is of such interest to accountants as a body that in a few short articles we propose to deal briefly with some of the mutton referred to, selecting these which arc of the most direct and practical value to the profession.

We shall then in our next issue deal with the Accounts of the Borough of Wigan, the chief centre of the coal mining industry in Lancashire, in respect of which, at a magisterial enquiry held in that town a few days ago, evidence was adduced which tended to show that for many years a series of frauds had been carried on ; and the result of the enquiry was that William Holt, late Borough Treasurer, John Caldwell, late Borough Auditor, and John Reynolds, formally managing clerk to Caldwell, were formally committed for trial at the next Liverpool Assizes on the charge of conspiring to defraud the Corporation of Wigan.

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The Accountant.

SEPTEMBER 27, 1884.

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THE evidence given in the matter of the alleged frauds on the Corporation of Wigan would seem to show that the frauds were in themselves transparent; the molus operandi very simple for such matters ; and that it was by collusion of the two officials named that the alleged frauds were so long and so successfully carried on. Inasmuch, however, as the matter is still sub judice it is not permitted us to discuss the guilt or innocence of the accused, or to comment in any way which would in the least prejudice the case. Our readers, however, or many of them, may not have had the time, or opportunity, to wade through the whole of the evidence in order to see clearly the mode in which the transactions were dealt with in the Books of Account; and accordingly we give, in a form best suited for our readers, a summary of the parts of the evidence of professional interest. We wish to repeat that in doing this we strictly limit ourselves to the reported evidence, and that what follows is, in fact, a partial report thereof.

It was alleged, that as regards matters of account, the following irregularities wore committed:—

(a) Payments relating to the same matter were entered in the Cash Book more than once.

(b) Payments were entered in the Cash Book at larger sums than were actually disbursed.

(c) Entries were made for entirely fictitious payments.

(d) Additions of the credit side of the Cash Book and corresponding debit additions in Ledger Accounts were thoroughly over-added, thereby reducing, apparently, the cash balance.

(e) Public moneys were received and were not at any time entered in the cash or other usual books of account.

(f) Public moneys were received and entered long after the date of receipt.

In support of these allegations the following representative instances are taken from the evidence of witnesses, the illustrations being given seriatim:—

(a) (1) In the Cash Book under date 18th January, 1883, payment was entered as having been made to Messrs. Sharpe & Co., of Lancaster, £103 2s. 4d. In the same book there was under date 24th March, 1883, another payment to the same firm, £103 2s. 4d.; and on the debit side of the Cash Book, as a contra to the last entry, there was entry for banker's cheque, £103 2s. 4d.; but no similar debit appeared in respect of the first entry. The January entry mode reference to a voucher, but this was not to be found. Voucher for the second payment was in order. Messrs. Sharpe & Co.'s manager stated in evidence that his firm received on the 29th March, 1883, letter from the Treasurer with cheque £103 2s. 4d., the letter being dated 24th March, and containing a request that the receipt might be dated 24th March, also. His firm did not receive £103 2s. 4d. in January, 1883, no such sum being then due to them.

(2) Under date 27th March, 1880, there were payments entered, £43 0s. 7d., and til 10s. 10d. to Mr. E. Prescott. Under date 30th April, 1S80, payment was entered to the same payee, £64 11s. 5d., and on 2nd April, 1830, as a contra to the last entry, there was a debit for bank cheques, £64 11s. 5d.. The vouchers given for the first two payments were put together, and used as a voucher for the second supposed payment, the old voucher numbers being actually to be seen on the backs of the same as used for the false entry. Mr. Prescott in evidence said that on 29th March, 1880, he received £64 11s. 5., the amount due to him, but he did not receive payment more than once, nor in fact did he receive any money whatever from the Corporation on 30th April, 1880.

(3) Payment entered 28th February, 1883, Ryde and Co., £21 1s. 6d. Another payment 31st March, 1883, to the same payee for the same amount. Messrs. Ryde and Co.'s representative stated in evidence that on the 30th March, 1883, his firm received £21 1s. 6d., but were not paid that sum or any part of it on 28th February, 1883.

[It does not appear from the facts so reported that there was a debit for cheque from bank, in respect of either of these credits ; presumably there would be one such debit.]

(b) (1) In the General District Rate Cash Book there was entry for payment under date 30th August, 1876, Richard Ord, £113 4s. 6d. There was on the debit side an entry for bank cheque, £13 4s. 6d. The voucher was found amongst a bundle of loose papers in the treasurer's office. On the face of the voucher the amount written over the stamp was £13 4s. 6d. The invoice according to the evidence would road something like the following:—

THE CORPORATION OF WIGAN.
Dr. to Richard Ord.

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To 37 Yards of Flags, @ 3/10 per yard,	£7	1s.	10d.
” 32 ” ” ”	106	5s.	8d.
	£113	7s.	6d.

The figures which are here given in italiosihad apparently not been made by the same person who had written the invoice. It would appear from the report that the receipt, had been given on the invoice itself. It was, of course assumed that the quantities and price wore correct, and that the invoice had been tampered with.

(2) Payment entered 30th August, 1876, Doulton and Co., £131 16s. 1d. No voucher for this payment could be found. Under date 2nd September, 1876, there was a debit entry for bank cheque, £31 16s. 1d. Messrs. Doulton's representative stated in evidence that at the end of August 1876, the Corporation owed his firm £31 16s. 1d., not £131 16s. 1d., and that on the 30th of that month his firm received letter from the treasurer enclosing cheque, both of which were produced, (the latter probably being obtained from the bank, and being presumably for £31 16s. 1d., less it might be, any discount or other abatement.)

(c) (1) The wages it would scorn were entered in detail in a Wages Book, the amount thereof being certified by the “Borough Engineer; such certificate in fact being as it were the authorisation for the payment, and a kind of voucher for the payment when made. In the ordinary course of the audit the amounts in the Wages Book were compared with the amounts paid. In the Cash Book payments were entered.

1883, June (20), wages, £24 2s. 2d., and,
1883, August (9), wages £31 10s. 10d.

The evidence as reported is not full and perfectly clear on this matter, but we think we are safe in saying that it amounted to this, that all sums certified in the Wages Book had corresponding payments in the Cash Book, and that in addition to the payments so borne out, the Cash Book contained the two items above, for which no entries whatever could be discovered in the Wages Book.

(2) One of the Burgess Auditors gave it as his opinion that signatures to some supposed vouchers had been forged, One for £141 was referred to, and, in the opinion of this witness, the signature and date were not in the handwriting of the supposed payee. In another case the opinion was given that the initials of the Chairman of the Streets Committee had been forged, and this opinion was confirmed by the Deputy Town Clerk.

(3) The late Borough Treasurer confessed at the enquiry that large sums of money had been entered as paid on various dates which had not been paid.

(d) (1) In the General District Rate Cash Book the addition the credit side of the book in January 1884, is written therein at £18,175 11s. 9d. The items in this book were entered by the Borough Treasurer, and were ticked as correct by the Borough Auditor. The true addition of the items amounts to £18,058 16s. 9d. The evidence is silent as to any chance of there having been at one time an item subsequently erased, or otherwise cancelled, which might have made the difference of £116 15s. 0d. between the stated and the true addition, but there can scarcely be a possibility of this as it would be so apparent as to be instantly detected. The effect of this over-addition would, of course, be to apparently reduce the amount in the treasurer's hands to be accounted for by him, but the error would, of course, at once appear in any subsequent trial balance of the books. To get over this difficulty the debit side of one of the Lodger Accounts was simply over added to the amount of £116 15s.

(2) It transpired in the course of the enquiry that the additions of the Cash Book were carried on without break to the end of the financial year, no intermediate rest being made so as to show on the face of the book the balance in hand.

The continuation of this subject we must reserve for our next issue.

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WE resume our article of last week on the Wigan Accounts.

(e) Wigan appears to have suffered from dishonest officials, at least since the year 1870. In that year the borough treasurer having been proved dishonest, was discharged, and the accessed Caldwell appointed to hold the office pro tem. In 1871 the temporary arrangements were superseded, Holt being appointed borough treasurer, and Caldwell professional auditor to the Corporation. During the short period that Caldwell acted as treasurer it would seem, from extracts of the minutes of the council, that his duties were specially to clear up all doubtful matters of account which the (then) late borough treasurer had left in confusion and apparently in default. For our purposes it is necessary to refer to only one of these matters, which was as to the amounts actually owing at that time by property owners for private improvements effected by the Corporation, but chargeable in the usual way to the owners of the respective properties. Circulars were sent out to all likely or possible debtors ostensibly with this object, but really to see whether all cash paid on account during the tenure of office of the (then) late borough treasurer, had been accounted for by him, but the results in this respect are no part of present matters. As to moneys found to be owing, it was arranged (presumably with the authority of the council), that they were to be paid to a separate banking account. A large amount thus received during Caldwell's treasurership was entered by him in a separate cash book (afterwards found at his own private office), and also entered by a clerk (since deceased) in the town clerk's office in a kind of pass book and then paid into the credit of an account with Parr's Banking Co., called “ Corporation Private Improvements Account.” The money so standing to the credit of the Corporation never appeared in any of the published accounts, and its existence would appear to have been absolutely unknown to any member or official of the Corporation (save the accused) until recent events brought it to light. The account was used up by Holt drawing upon it to make up deficiencies in his current cash, the particulars being as follows:—

	1876.
April	21. Cheque, transfer to the General District Hale Fund	£430	0	0
”	26. Do. transfer to the Water Rents 1877.	250	0	0
	1877.
Oct.	27. Do. transfer to the General District Rate Fund	1,058	6	0
	Making a total of	£1,758	6	0

the amount standing to the credit. By these cheques no money actually passed to Holt, the operation was to transfer at the dates and in the amounts given the various sums from the credit of the special account to the credit of other accounts at the bank. The cheques were signed by three members of the Finance Commit toe and countersigned by Holt. (1) We cannot help making the remark that it appears almost in...