1956

VICTORIA

• REPORT

FROM THE

CO M. M ITTE E OF PUBLIC

ACCOUNTS

(FORESTS COMMISSION OF VICTORIA­

STATE SEASONING WORKS, NEWPORT)

TOGETHER WITH

APPENDICES

AND

EXTRACT FROM THE PROCEEDINGS OF THE COMMITTEE

Ordered by the J,egislative Assembly to be printed, 24th October, 1956.

By Authority :

W. M. HOUSTON. GOVERNMENT PRINTER, MELBOURNE.

D.-No. 19.-11923/56.

EXTRACTED FRO}I THE VOTES AND PROCEEDINGS OF THE LEGISLATIVE ASSEMBLY.

1st December, 1955.

4. PuBLIC AccOUNT.'> CoMMITTEE.--Motion made and question-That the following Members form the Public Accounts Committee during the present Session :-Mr. Christie, Mr. Clarey, Sir Albert Lind, Mr. Meagher, Mr. Taylor, Mr. Turnbull (Brunswick West), and Mr. "\\'bite; and that the Committee have power to send for persons, papers, and records, to move from place to place, and to sit on days on which the House does not meet ; three to be the quorum Ollr. Bolte)-put and agreed to.

Contents Subject

Introductory

Death ?f Chairman, Forests Commission

The State Seasoning Works, Newport: Outline of its History and Operations

Investigations by the Auditor-General

Preparation of the F!tock Sheets at State Seasoning Works

Responsibility for the Manipulations

Other Wrongful Methods of Increasing Value of Inventory (a) Myrrhee Timber (b) Flat Stacked (c) Ramps and Bearers

Responsibility for Inventory Pricing Policy

The Stock Sheets at 30th June, 1951

1952 Conferences ..

The State Sawmill, Erica ..

The Carpenters' Shop

The General Background (a) The Audit (b) Stores Inspection Officer (c) Some Items of Method and Management (d) Delay in Presentation of Annual Report to Parliament (e) Class " E " Clerk Incidents

Recommendations (a) Forests Commission and Seasoning Works (b) General Comment (c) Work of the Auditor-General (d) Amendment of the Audit Act (e) Organization and Methods in the Victorian Public Service

(/) System of Victorian Government Accounting (g) Work of the Public Accounts Committee

Summary of Recommendations

Non-participation of Member in Inquiry

Appendices

Extract from the Proceedings of the Committee

Paragraphs

1- 3

4

5- 22

23- 32

33

34- 47

48- 70 49- 61 62- 67 68- 70

71- 79

80- 96

97-104

105-111

112-123

124-179 128-140 141-159 160-174 175-177 178-179

180-219 180-181 182-184 185-198 199-204 205-210 211-217 218-219

220

221

Report The Committee of Public Accounts has the honour to report to your Honorable

House as follows :-

1. Under the provisions of Standing Order No. 169A of the Legislative Assembly, the Public Accounts Committee was appointed on 1st December, 1955, after a lapse allegedly on the grounds of economy, of approximately 25 years.

2. The duties of the Committee are set out in that Standing Order which reads as follows:-

" 169A. At the commencement of every Session of Parliament the Legislative Assembly, according to the practice of Parliament with reference to the appointment of Select Committees, shall appoint a Select Committee of seven Members, to be called the Committee of Public Accounts, with power to send for persons, papers, and records.

The duties of the Committee of Public Accounts shall be as follows :-

(a) To examine the accounts of the receipts and expenditure of the colony, and to bring under the notice of the Legislative Assembly any items in those accounts, or any circumstance connected \v:ith them, to which it may consider the attention of the Legislative Assembly should be directed.

(b) To report to the House any alteration which may appear to the Committee desirable to be introduced in the form of or method of keeping the Public Accounts, or in the mode of receipt, control, issue, or pa,yment of the public money.

(c) To inquire into and report upon any questions which may have arisen in connexion with the Public Accounts.

(d) To inquire into and report to the Legislative Assembly upon the investment of and dealings with the funds of Commissioners of Savings Banks.

(e) To deal with any special references that may be made to them by the Legislative Assembly.

Upon motion in the usual manner made by any Member of the Legislative Assembly any matter of public account or any question of finance may be referred to the Committee. The Committee as soon as conveniently practicable shall deal with the matter so referred to them and report to the Legislative Assembly the result of their inquiries."

3. No special matter having been referred to it, your Conunittee had general discussions on government accounts and accounting procedure with the Director of Finance, the Accountant to the Treasury, the Auditor-General and the Chairman of the Public Service Board. Then followed examination of the Auditor-General's more recent Reports. Comments on Forests Commission Stores Suspense Accounts in the Auditor-General's Reports for the years 1944-45 to 1954-55 decided the Committee to investigate the methods of inventory control and valuations in the Forests Commission. This examination had hardly started when your Committee became aware that there had been irregularities in stock valuations at the Newport Seasoning "Works of the Forests Commission. The Committee therefore narrowed this inquiry into examination of the State Seasoning Works, with particular reference to inventory valuation and controL

DEATH OF CHAIRMAN, :FORESTS CO:MlVIISSION.

4. Your Committee wishes to express its great regret at the death of Mr. F. G. Gerraty, Chairman of the Forests Commission from 1949 to 1956. 1\Ir. Gerraty was an outstanding Forester and gave great and valuable service to the State. The late Mr. Gerraty was not a witness before your Committee, his only contact with it being an inspection visit to the State Seasoning Works at the beginning of the inquiry.

6

THE STATE SEASONING WORKS, NEWPORT: OUTLINE OF ITS HISTORY AND OPERATIONS.

History and Purpose.

5. The Seasoning Works were established by the Forests Commission in 1911 as an "experimental seasoning plant " with the object of encouraging "the use of fine-grained Victorian hardwoods for cabinet purposes by demonstrating their suitability for such purposes". In the 1914-15 Report of the Commission it was stated that the main use of the Works should be in " testing and preparing for market timbers now but little known or used only in the form of rough scantling ''. As stated in the 1947-48 Report the aim had been to overcome " prejudice on the part of the timber-using public against local hard woods".

6. However, when speaking in the House on the Budget in 1932, Sir Stanley Argyle, Premier and Treasurer, said that losses sustained by the Works removed any justification for their retention as a commercial undertaking and that the establishment by the Council of Scientific and Industrial Research of a seasoning and preservation laboratory for experimental purposes had removed its justification as a research organization. He therefore announced the Government's decision to close the Works.

7. This was not in fact done. Subsequent representations as to the experimental value of the Works resulted in their being kept open. A minute of the late Mr. Galbraith, Chairman of the Commission, dated the 25th August, 1933, stated that he, in company with the Minister, had visited the Honorable the Treasurer who had informed him that Cabinet had decided that the Works should remain open provided they were not working at a loss to the State.

8. At the present time the performance of experimental work is not a function of the Seasoning Works. The following statement extracted from the 1947-48 Report indicates that its original purpose has been fulfilled :-" Very largely through the work carried out by this plant, the kiln seasoning and reconditioning of hardwood timbers is now recognized practice, and today kiln-dried Victorian hardwoods are recognized as amongst the world's best timbers for constructional purposes." At present, therefore, the Seasoning Works are solely concerned with the seasoning, processing, and sale of timber.

Location and Area.

9. The State Seasoning Works are located at Market-street, Newport, and are situated on about three acres of land which is held under lease from the Railways Department.

10. This area is occupied by timber-stacking yards, foreman's cottage, mill sheds, miscellaneous stores buildings and stores dump. The main mill shed, which embraces approximately 45,500 square feet of floor space covers the office, drying kilns, reconditioning chambers, boiler-house, machines, and includes an area of about 5,500 square feet occupied by the carpenters' shop and timber racks for the shop.

11. Briefly, the plant comprises a battery of 10 kilns, 2 reconditioning chambers, re-saw benches--one of which is a handsaw mill-2 moulding machines, docking saws, thicknesser, and timber lifting gear. ·

Sources of Supply.

12. Supplies of green timber are dra>vn primarily from­(a) private sawmillers, and (b) State Sawmill, Erica.

13. The former is the main source of supply of seasoning quality timber, but has proved inadeq~ate in. recent years due. to t~e diversion of output to pri:rate seasoning plants. Supplies available from the Erica lll1ll have been of very low quahty as the mill has been recutting areas from which the best timber has long since been taken. At the same time, although of low quality, timber from the mill has tended to be too highlv graded in terms of seasoning quality. This has enabled the mill to show profits iargel~ at the expense of the Seasoning Works.

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14. Supply difficulties have been a pr1mary cause of the heavy losses sustained by the \Vorks over the last few years.

Methods of Production and Processing.

15. Timber is delivered to the \Vorks either in flitch form or in finished sizes, the flitches then being resawn on the handsaw to required dimensions. All timber is strip stacked in the yards for air seasoning for varying periods, depending on whether it is hardwood or softwood, thickness, and season of the year. Limited supplies of air-dried timber are sometimes purchased.

16. After air drying, practically all timber is then kiln-dried and reconditioned, the period of which depends on the degree of air-dryness and class of timber. Very little air-dried timber is sold.

17. After kiln-drying and reconditioning, timber is graded and may be sold as undressed boards or run through the moulders to produce floorings, weatherboards, mouldings or square dressed lines according to market requirements.

18. The following is an analysis of turnover to show

Floorings Weatherboards Mouldings Kiln and air-dried timbers Ordinary building hardwood ~fiscellaneous undressed

Sales Outlets and Procedure.

composition of output 0' /o

38·9 11·5 12·2 29·9 5·0 2·5

100·0

19. There is normally no soliciting of sales, with the exception that if sales are lagging orders are sometimes sought from government bodies.

20. A typical year's sales shows the following classification according to value:-Public Authorities-~ % % %

Government Departments 36 · 4 Government Contractors 34·5 Schools (Technical, &c.) 6 · 5 Others 0·1

Private Buyers 77·5 22·5

lOO 21. Sales to government contractors constitute a large proportion of the total sales

of the Works, but whereas it was once a requirement of such contractors to purchase their timber supplies from the \Vorks, this is no longer the case and the Works now supply only a small proportion of their needs.

Staff. . 22. When the Committee first visited the Works the staff consisted of the Manager,

two clerks, and 21 operatives.

INVESTIGATIONS BY THE AUDITOR-GENERAL.

23. In his Annual Report for 1954-55 the Auditor-General stated that a heavy loss on operations was expected at the State Seasoning Works and that a detailed investigation by Forests Commission officers was under way.

24. In the course of audit of the 1954-55 accounts of the Forests Commission, the Auditor-General determined upon a detailed investigation by his own officers. This was followed by more extensive inquiries early in 1956, at the request of the Honorable the Treasurer.

8

25. In the course of your Committee's inquiry, the Auditor-General gave evidence that during the preparation of the State Seasoning \Vorks provisional accounts for 1954--55 doubts were cast on the accuracy of the physical stocktaking as at 30th June, 1955. !'hes.e doubts led to the examination of the 1954 stock sheets and opened up a wider mqmry.

26. Your Committee has established that there have been large manipulations of quantities in the stock sheets at the State Seasoning "\Vorks. These manipulations have led to gross inflation of the stock sheets, principally by the inclusion of non-existent stock which has been added in three different ways-

(a) The Manager's stock sheets which are prepared by the State Seasoning Works staff have shown certain quantities of timber on hand. Alterations have been made at Head Office during the transcription of these quantities onto the fair certified copy which is submitted for audit. The following are examples

Jll a nag er's Altered Size. Inventory. to---

Select Hardwood (stacked in Yard) .. 5" X f' 111/10 711j10

Select Hardwood (stacked in Yard) 6" X t" 16j9, 7/11 76j9, 17/11

Bearers in Yard 3" X 1" 5032/4' 6" 15032/4' 6"

Bearers in Yard 4" X 3" 5032/4' 6" 15032/4' 6"

The sizes are expressed in inches and the lengths in lineal feet, thus, the first example shows that 111 lengths of timber each 10 feet long had been altered to 711 lengths of 10 feet, and the same principle obtains in the other examples.

(b) Additional fictitious quantities of "flat stacked" were added to increase the inventory valuation. The quantities added in each case have apparently been determined so as to show in the aggregate a profit in the accounts of the State Seasoning Works.

(c) Items such as " Myrrhee timber," "Bearers," and "Ramps" which are the subject of later explanation should not have appeared in the stock sheets at all.

27. The Auditor-General has stated that a thorough stock-take in October, 1955, with a quantity check back, established the accuracy of the 30th June, 1955, stock valuation. The 30th June, 1955, stock was taken after the disclosures of irregularities.

28. Based on these stocks, the year 1954-55 shows a loss of £97,777, which means that the accounts of the State Seasoning \Vorks which wrongly showed an accumulated profit of £10,019 at 30th June, 1954, will show as at 30th June, 1955, an accumulated loss, after some minor adjustments, of £87,524. The audited accounts for the year ended 30th June, 1956, reveal a further loss of £6,742.*

29. Your Committee has established that this loss occurred over many years, mainly from 1950 on. In the absence of adequate original records, it is not possible to establish true stock valuations year by year, and to say what losses should be apportioned to each year.

30. From evidence submitted your Committee believes that from back in the 1930's it has been standard practice to draw up draft accounts for the State Seasoning Works, and in most years to make adjustments in the stock sheets subsequent to the first draft valuation. As far as can be found out your Committee believes that the adjustments made, by taking a second look at the stock sheets, were not great up to and including 1949. Prior to 1949, there were small quantity alterations and some small price adjustments. Although these alterations were not great, and, in some odd instances, adjustments were made downwards, this practice must be condemned, as the general tendency was to improperly inflate the value of the stock sheets.

* See Appendices for financial statBments for 19.~4-55 and 1955-56.

9

31. Since 1949 alterations have been made in a very grave fashion as borne out by the evidence submitted by the Auditor-General.

32. Your Committee has been hampered in its inquiry by the lack of complete records, but it has had available to it the portion of the original stock sheets submitted by the Works on the 30th June, 1951, which give some indication of what took place in that year. The Committee has aiso examined the original stock sheets for some years subsequent to 1951 sufficiently to satisfy it on the nature of the alterations made in transcription to the final fair certified copy.

PREPARATION OF STOCK SHEETS AT STATE SEASONIXG WORKS.

33. For clarity your Committee gives an outline of procedure followed at the State Seasoning Works in the preparation of stock sheets~

(a) There is a physical stocktake by employees at the Newport Works. As this extends over two or three weeks, the sequence of tallies is governed by convenience in relation to works operations.

(b) The tallies of the employees are transcribed at Newport, under the supervision of the Manager, to stock sheets under classification, sizes and numbers of lengths, but the form of pre~entation is still affected by yard location.

(c) The Manager's stock sheets are taken or sent to Head Office, where they are re-arranged to accord ,with the Head Office classification ; superage is calculated ; the items are priced and valuations extended. Until the stocktake at 30th June, 1952, itemized vaiues also were included in the Manager's stock sheets but the Head Office assumed control of the valuation from the 30th June, 1951 stocktake.

(d) After they have been re-arranged, priced and valued as above, typed copies are made and the aggregate value as disclosed by the typed sheet, is the figure used in the Trading Account and Balance-sheet of the Seasoning Works.

RESPONSIBILITY FOR THE MANIPULATIONS.

34. About September, 1955, )Ir. J. Rawady, Officer in Charge, Revenue Section, Accounts Branch, Forests Commission, informed the Accountant of the Forests Conunission, Mr. H. G. Murphy that there were discrepancies in the stocks at the State Seasoning 'Works and that a substantial loss of about £60,000 was in prospect for the year ended 30th June, 1955.

35. This led to a fresh stocktaking during October, 1955, but in the meantime, Mr. Rawady admitted to the Accountant that at the 1954 stockt!lking he had falsified quantities in the stock sheets to inflate the inventory valuation. From that time, accounting investigations by the Auditor-General have uncovered the position referred to in paragraphs 23 to 32.

36. JVIr. Rawady, an officer of the :Forests Commission for 31 years, first helped with the acc01mts of the State Seasoning Works almost 25 years ago. His duties have included some checking functions of an internal audit n~t'!re and the preparation of final accounts. It is plain that the management of the Comnusswn has been at fault in mixing executive and audit functions, even more so if the case be, as stated by both Mr. Commissioner Ewart and Mr. Murphy, that Mr. Rawady was given a completely free hand in matters of State Seasoning Works accounts.

37. It has not been easy to establish the motives for these stock falsifications. Mr. Rawady has claimed that when he first prepared the stock sheets of the State Seasoning Works in the 1930's and up to about 1949 he always prepared a draft balance-sheet and gave it to Mr. Murphy. He stated that Mr. Murphy would put the accounts before the Forests C?mmission for a~ceptance. He further stated that if they were accepted, he would finalize them ; but If not, and there was a loss, he would be asked to alter some prices slightly to show a small profit. lVIr. Rawady assumed from this that it was the Commission's policy "always to show a profit at the State Seasoning 'Vorks ".

10

38. That there ever was such a policy laid down by the Forests Commission is strongly denied by Commissioners Lawrence and Ewart and by Mr. Murphy.

39. Evidence given by various officers conflicts greatly on many points, but it can be established that the years 1951 and 1952 were most important in the chain of progressive falsification. The basis of pricing stocks changed at Mr. Murphy's direction at 30th June, 1951, from which date pricing of stock sheets was done by the Head Office staff instead of the Manager. Mr. Murphy made a substantial re-write of the stock sheets, and it was the last year in which the manager was asked to certify the stock sheets. These matters are enlarged upon later in this report.

40. Mr. Rawady gave evidence that in 1949 the draft accounts showed a loss and that at Mr. Murphy's direction he contacted the Manager, lVIr. Haig, and asked if the stock had been taken correctly or if he had missed anything. The Manager later

·forwarded a statement of "flat stacked" containing timber valued at about £2,600, and this was added to the stock sheets thereby reducing the loss shown in the accounts. lVIr. Haig, Manager at that time, confirmed the incident and said that the timber in question was definitely missed in stocktaking.

41. In subsequent years, one of the methods of stock overvaluation was to bring in an entirely fictitious quantity under the heading " flat stacked ", added to the original stock sheets by lVIr. Rawady. It could well be that this practice suggested itself to Mr. Rawady following the 1949 incident. Other methods of stock overvaluation appear in paragraph 26.

42. In 1950, Mr. Rawady certified the stock sheets as Acting Manager, although Mr. Commissioner Ewart denies that he had that title. Mr. Rawady admitted that there were quantity alterations designed to increase the value of the stock sheets, progressively from 1950 t~!o~gh to 1954. ~he At~ditor~General's inyestigations confirm this. The " flat stacked ~ timber 'vas put m agam, without querymg the Works staff at all as in 1949, and other items detailed later were used to inflate values, e.g., " Ramps," "Myrrhee timber," "Bearers". The 1951 stock sheets are the subject of a special section. (See paragraphs 80 to 96.)

43. In 1952, Mr. Rawady claimed, he told Mr. Murphy that the draft accounts showed a loss of about £11,000. Mr. Murphy denies this. lVIr. Rawady added additional fictitious items and altered quantities to give such a stock valuation as would show a profit. When asked why he did it, he replied " To bring the stocks into the Balance-sheet so that we could show a profit," and that "It seemed to be the policy I I had been carrying out for years ".

44. When asked about 1953, Mr. Rawady said that the draft accounts showed "something like £40,000 down". Mr. Rawady stated that he asked the Manager if he had taken his stocks .correctly. The Manager said he had. Mr. Rawady then gave evidence as follows

"I was pressed for the final balance-sheet by the Auditor so I thought there must have been a mistake which would probably resolve itself in the subsequent stocktaking and in anticipation of that I made out the stock sheets to cover the amount required and submitted them. I took that on my own responsibility."

When asked what happened in 1H54, Mr. Rawady stated-" When the stock sheets came along my hopes that the error made in

1953 might resolve itself did not materialize and having done it in the previous year the least I could have done was to keep doing it in 1954."

45. This gives the confessions of Mr. Rav.rady of his actions and attitude in the closing years of this sorry affair.

46. Despite the unsatisfactory nature of some of Mr. Murphy's evidence your Committee is prepared to accept that Mr. Murphy was not aware of the manipulations in quantity by Mr. Rawady from 1952 on. The ConunitteP does say that Mr. Murphy with his well-shown knowledge of the detail of the 8tate Seasoning Works, was well a~are of the inflationary effect of the price policy adopted and the incorrect stock listing of

11

" Myrrhee timber," " Bearers," and " Ramps " which in themselves wrongfully inflated the stocks. As stated elsewhere in this report, we find it hard to believe that no Commissioner or any executive of the accounting staff read the story which successive Balance-sheets told-a story which should have led to the discovery in 1952 at the latest of the practice of gr~ss inflation of stocks.

47. Early in its inquiry, the Committee questioned the Auditor-General on whether, by investigation, it could be established that these extraordinary happenings had related cash or material diversions as is usually the case. The Auditor-General has given later evidence that in the absence of anY cost control or inventory control of finished mouldings, he has invBstigated as well"as his staff can on two mai~ aspects-

(a) In his view, the calculated wastage of timber during processing is reasonable. This is a very rough quantity check but is thought by the Auditor-General to be alright. He does not consider that there has been serious mal-diversion of timber from the State Seasoning Works.

(b) From a check of staff purchases, certain transactions between Mr. Rawady and the State Seasoning Works have been set aside for further investigation. The value of these dealings is relatively small.

OTHER WRONGFUL 'VIETHODS OF INCREASING VALUE OF INVENTORY.

48. No\'i' follows a brief outline of some methods by which quantity and value increases were wrongfully made to the State Seasoning Works stock sheets.

lllyrrhee Timber. 49. In keeping with an established Commission practice, certain advances were

made following an agreement on 20th September, 1940, to Miss J. Hale, of the Myrrhee Sawmill, West Tanjil. Miss Hale agreed to cut and stack fire-killed timber at the sawmill and deliv6r it to the State Seasoning Works, Newport. The Commission agreed to advance to the miller the sum of £500 subject to the following provisions for repayment:-

(a) "With respect to timber cut and stacked, the Commission to deduct from moneys payable to the miller the sum of ls. 9d. per 100 super. ft. until the sum of £94 is reached (107,428 super. ft.) thence 4s. until a further sum of £218 is deducted (109,000 super. ft.).

(b) ·with respect to timber delivered to Newport Seasoning Works the Commission to deduct from moneys payable to the miller the sum of Is. 3d. per 100 super. ft. to a total sum not exceeding £208 (332,800 super. ft.).

Of the sum of £208, an amount of £20 was to be regarded as the interest payable by the miller on the loan of £500. It was provided that if the sum of £520 was not paid before 31st l\'Iay, 1941, the miller agreed to pay the remaining balances on that day.

50. The miller agreed to submit to the Commission every four weeks a statement showing the quantities of timber-

(a) cut and stacked but not delivered to Newport, (b) delivered to Newport.

51. The agreement was executed under seal by .Messrs. A. V. Galbraith and W. \V. Gay for the Commission and by Miss J. Hale, and was witnessed by Mr. G. G. Saunde!s, Assistant Accountant. Treasury. Ar~prov~l was endorsed by Mr. B. H. Strong. Accordmg to a memorandum by Mr. J. M. Hmg (File No. 43/354 : 1st March, 1943) the timber " was to be paid for at 80 per cent. of the market rate plus Is. 6d. per 100 super. ft. stacking charges, the balance being payable on delivery of timber to Ne,:port ".

52. According to a memorandum by :Mr. J. Rawady (File No. 48/2270: 27th February, 1945) the timber "was to be paid for at the rate of 75 per cent. per 100 super. ft. of the price \-vhen stacked at the mill site and the balance of 25 per cent. of the price when deliveries were made to the Seasoning Works ".

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53. It was apparently the practice in respect of this contract to bring in as stock on hand quantities of timber stacked at Myrrhee awaiting delivery to Newport. For instance, on 13th August, 1942, Mr. Murphy, who at the time was Comptroller of Revenue, in a report on the financial accounts and balance-sheet of the Seasoning Works for the year ended 30th June, 1942, stated under the heading "Stocks on Hand"-

"A total of 1,709,772 super. feet of timber awaiting preparation at Newport, and 217,963 super. feet stacked at the Myrrhee Sawmill was on hand at the 30th June last."

Attached to Mr. }'lurphy's report is a summary of stock valuations showing Myrrhee timber. This report was seen by Mr. Commissioner Ewart, who forwarded it to the Chairman of the Forests Commission with a covering minute.

54. Your Committee declares that it was wrong in principle for timber stacked at :J.Iyrrhee to have been brought into the accounts of the Seasoning Works as stocks on hand. In view of the terms of the agreement title to the goods did not pass to the Forests Commission until delivery to Newport.

55. There is another question of accounting principle involved. It follows from paragraph 54 that any payments to the miller made under the agreement should have been treated as advances or loans and shown separately in the accounts. Yet for many years, at least from 1943 onwards, an item has appeared in the State Seasoning Works stock sheets-

"Myrrhee timber-55,700 super. feet-£557."

56. The events leading to the inclusion of this item are as follows. At 30th June, 1943, there wa:;; a discrepancy in deliveries to the State Seasoning Works under this agreement amounting to 55,700 super. feet of 3" x 3" timber. The Chairman of the Commission at that time instructed that the matter be examined with Miss Hale at the Myrrhee SawmilL Miss Hale claimed that this timber, against which advances had been made, had been delivered. On investigation, it was established that the timber had not been delivered to the State Seasoning Works nor was it stacked at Myrrhee. It did not exist.

57. Despite this the item "Myrrhee timber-£557" was brought into the stock sheets and has been included every year to 1954. Mr. J. M. Haig, Manager in 1943, stated that the item was not on the original stock sheets after 1943, but was added to the fair copy by the accounts staff at Head Office.

58. Apparently no attempts were made to obtain settlement until efforts were renewed in February, 1956. One of the files on this subject was discovered during the course of investigation at the Seasoning Works where it had lain untouched for about twelve years.

59. Apart from the fact that this amount of £557 outstanding was an advance, and it was not proper for it to be brought into the stock sheets, it is a grave reflection on the accounting management of the Commission that the matter has remained unsettled for so long. Mr. Commissioner Ewart agrees that it is an administrative fault within the Forests Commission that this dispute with Miss J. Hale was allowed to lapse for so long.

60. In his evidence before the Committee, Mr. Murphy, Accountant, Forests Commission, said "I had never at any time handled the details of Myrrhee ". -while your .Committee accepts Mr. 1\~urph~'s statement as to his la_ck of knowledge of '~detail" it pomts to the fact that the Item Stacked at Myrrhee-5n,700 super. feet--£5n7 " was on page 7 of the stock sheets at 30th June, 1951, which he himself entirely rewTote. Mr. Murphy claims that he was not aware of what he was writing. It has been demonstrated that both Mr. Ewart and Mr. Murphy knew of the Myrrhee arrangements in 1942.

61. Your Committee cannot understand why the incorrect regular inclusion of this item and indeed other items such as " Bearers" and "Ramps" in the certified typed stock sheets, when in fact they did not appear in the originals was not detected by the inspecting auditor, who reported each year that he compared the typed copy with the original. Your Committee assumes ~hat the " original " mentioned was in fact the original prepared by the State Seasonmg Works staff.

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Flat Stacked.

62. As mentioned previously, your Committee has established that the Accountant, l\'Ir. l\'Iurphy, and the Industrial Accounts Clerk, lVIr. Hawady, informed the Manager of the State Seasoning Works, Mr. Haig, when the draft accounts of 30th June, 1949, were drawn up that a loss was shown and that there must surely be some more stock unaccounted for. Mr. Haig in his evidence has stated that he did in fact find that an item of "flat stacked" to the value of £2,600 had not been taken in and so informed Mr. Rawady.

63. :llr. Haig has given sworn evidence that this " flat stacked " in fact at that time existed. " Flat stacked " is described as being planks, the first cut from flitches, stacked on the flat in the yard. It might also include flitches themselves.

64. Mr. Rawady has given evidence that the inclusion of the item under "flat stJ:~.cked " to a fictitious quantity and value was used as a method of stock inflation to show a profit.

65. The Committee believes there is no doubt that in 1949 a quantity of " flat stacked " actually existed. In the following year, 1950, it was put in again and he, being responsible for the preparation of the final draft sheets, did not in fact know whether or not it existed. In subsequent years one of the major quantity inflations was through medium of "flat stacked" timber.

. 66. l\'Ir. Murphy, Accountant, who rewrote 6S per cent. in value of the 1951 stock sheets, included in his re~"Tite the item-

" Flat stacked-Flitches 24S,300 super. ft., 96s.-£11,91S Ss. Od.

Sawn (mixed)

4toSx1

37,500 super. ft., S1s.- £1,51S 15s. Od.

2S4,900 super. ft., S1s.-£11,53S 9s. Od."

These items alone represented over one-third of the tota1 value of the stock.

67. When, during the course of the inquiry, the Committee found how significant the item "flat stacked" has been in this affair, Mr. Murphy was asked "what is flat stacked ". He replied, " Quite candidly, I do not know ".

Ramps an(l Bearers.

6S. On page 7 of the audited stock sheets for the year ended 30th June, 1951-one of the pages rewritten by the Accountant, Mr. Murphy-appeared an item under the heading-" Ramp-4 x 3, 4 x 1, 3 x 1---46,773 super. feet, 95s. 6d.-£2,233 Ss. 3d." In later years this item did not appear on the Manager's original stock sheets, but was added at Head Office and included in the typed copy presented for audit either under the heading " Ramps " or " Bearers ". Certain ramps were made on which timber was stored. The value of timber used was not, as far as can be found out, charged to a capital item such as plant, but was brought into the stock sheets as a stock item.

69. The Auditor-General has given evidence as follows :-

" An inconsistent treatment of timber on hand at balancing dates was the inclusion of timber used in building of ramps in the stock inventories presented to Audit for the years ended 30th June, 1944, 1945, 1947, 194S, 1949, and 1951. It was not included on the Manager's stock sheets available as at 30th June, 194S, and 1949. There may have been some justification for the inclusion, as apparently this expenditure had not been capitalized, but the value should have been original cost, whereas it was increased as prices rose."

70. Your Committee does not agree \'lith the view that "there may have been 80me justification for the inclusion" and feels that despite his denial that he had any knowledge of the items he rewrote on page 7 of the 1951 stock sheets, Mr. Murphy knew of the circumstances in this matter. It is contended that this further shows an unsatisfactory management accounting approach to the accounts of the State Seasoning Works.

14

RESPONSIBILITY FOR INVENTORY PRICING POLICY.

71. Your Committee tried to establish who laid down the policy and mtthod of arriving at prices for stock on hand at the State Seasoning Works. '

72. Mr. Commissioner Ewart, who was Accountant from 1938 to 1949, states he knew of no pricing policy being laid down when he was Accountant. He only certified the typed copy of the stock sheets, did not see the originals and did not query the basis of valuation, but assumed it would be at cost or market whichever was the lower.

73. Mr. Ewart states that when he himself was Accountant, Mr. Murphy would generally discuss the State Seasoning Works accounts and stock valuations with the Chairman of the Commission and that finally the typed stock sheets and the accounts would be presented to him, generally by Mr. Rawady, who was Mr. Murphy's assistant in those days. Mr. Commissioner Ewart also stated that to his knowledge the Forests Commission had never declared any policy on inventory pricing. Mr. Murphy said in evidence that it was his practice from year to year to discuss the general methods of stock sheet valuations with Mr. Ewart when Accountant. Mr. Ewart denies this.

7 4. Following investigation into methods of valuation at the State Seasoning Works during the course of the Auditor-General's inquiry, Mr. R. J. Evans, of the Auditor-General's Department, has giver.. evidence that-

" For the period 30th June, 1933, to 30th June, 1942, there is no indication on the inventories or the balance-sheets attached to Audit Office papers of the basis of valuation adopted at the close of any of these financial years. The general indications are however that the valuations continued to . be related to sale or list price less a margin or percentage to cover handling costs and profit although these may have been subject to discretionary variations upward or downward. In adopting the above basis for valuation stock may have been valued above actual cost."

And that for the period 30th June, 1943, to 30th June, 1950-" In reporting on the result of the trading activities at the Works, the

auditor indicated in his reports that for the purposes of the balance-sheet inventories had been valued at cost. No precise definition of the word ' cost ' was given.

During this period there does not appear to have been any written direction from the Commissioners as to the basis of valuation of inventories.

However, according to the then Manager the valuations were arrived at as a result of his discussions with Head Office accounting staff on the basis of purchase price of timber plus freight-handling charges a proportion of overhead expenses and a percentage for profit. He appears vague however as to the meaning of certain of the terms used."

75. To the best of the information available the inventory price practice of the State Seasoning Works might be summarized as follows:-

1924--32 Wholesale selling price less 2! per cent. 1933-42 Wholesale selling price less margin to cover handling costs and

profit. 1943-46 " Cost " (not defined). 1947-50 Cost price (wholesale green) plus margin. 1951-53 Retail selling price less margin. 1954 No apparently consistent policy applied.

76. Whereas green timber was bought at wholesale, sales Government Departments were at wholesale prices up to 1947. policy was changed. Retail prices were adopted for all sales.

of finished timber to In 1948, selling price

77. In 1948 ~tocktake, margins for processing over and above buying prices were increased. The Auditor-General considers that " This change of policy may have been to combat rising costs and had its· effect on the inventory valuation for that year ".

78. The method of valuation adopted in 1951, which was followed more or less in later years, is dealt with elsewhere in this report.

15

79. It is clear that from Commission level down there has been right through a very casual approach to the vital matter of inventory price policy at the State Seasoning Works.

THE STOCK SHEETS AT 30TH JUNE, 1951. 80. Your Committee was not able to obtain all the original stock sheets of the

State Seasoning Works. The missing originals which were prepared by the Works staff were said to have been mislaid during some office re-arrangement at the Head Office of the Forests Commission. The 1951 stock sheets were available, part original and part rewrite by Mr. 1\Iurphy. These 1951 records were brought to light by Mr. Rawady at the earlier special inquiry set up by the Public Service Board. Subsequent to 1951 the newly-appointed Manager, Mr. Shrubsole, kept copies of the original Works stock sheets. Your Committee has seen these copies for the years 1952, 1954; and 1955, which are the only ones available, and from them was able to verify the quantity alterations made in transcription to the certified audited copies for those years.

81. 1951 was the first year of Y[r. Shrubsole as Manager. It was also the first year of Mr. Murphy as Accountant though he had for years past been conversant with the State Seasoning Works accounts during which time he reported to Mr. Ewart, who was Accountant from 1938 up to 1949.

82. In 1951, in keeping with established procedure, the prices of all items in the original stock sheets were included by the Manager. The Manager, Mr. Shrubsole, has stated that he was not aware of the previous pricing policy, but after consultation with · outside timber firms he valued the stocks at purchase prices on an averaging basis with differentials for estimated cost of processing for the work in progress. He stated that in his view stocks had always been overvalued. Mr. Shrubsole, further said that after submitting these priced stock sheets, he was instructed, he believes by the Accountant Mr. Murphy, through Mr. Hawady, that the figures {prices) would not be accepted. )'Ir. Shrubsole said that he was instructed to alter the prices but that he refused to do so.

83. lVlr. Shrubsole stated that he was asked in 1951, and in every subsequent year, whether he had any more stocks on hand as the value of stocks appeared to be too low. He made no alteration to his original figures.

84. 1\lr. Murphy stated in evidence that the draft accounts prepared from the valuation given by the Manager in 1951 showed a very substantial loss. Mr. Murphy then instructed Mr. Rawady to revalue the stocks and actually rewrote and revised the prices, many of them being altered in his own handwriting. Mr. Murphy claimed that the Manager's prices were not in accordance 'vith established practice and claimed that the revised prices were on the correct basis. This evidence indicates that he was apparently not aware that there had been a change in inventory pricing policy subsequent to 1942, and that from 1947 through to 1950 the basis had been cost plus estimated processmg expense.

85. Your Committee considers that the prices adopted in the 1951 inventory by Mr. Murphy were a return to the policy prior to 1943, and being based on retail prices (not wholesale as in 1942) gave considerable inflation of stock value. Evidence arising out of a special investigation by officers of the Auditor-General's Department confirms the Committee's view.

86. The audited accounts for the year ended 30th June, 1951, showed a profit of £224. Apparently there was no attempt at averaging, the final stocks being taken into account at the ruling retail prices at 30th June, 1951, less margins as follows:-

" The valuation of hardwood in the inventory at the 30th June, 1951, as suggested by the Manager was not adopted for the purpose of the final accounts. The basis of valuation can be seen from the analysis set out hereunder .

Stock Sizes.

Select H.W. in kilns-Margin below retail K.D. selling price

K.D. Select on ramp in mill--Margin below retail K .D. selling price

Select in yard--Margin below K.D. retail selling price

Stock Sizes

8. d.

10 0

s. d.

4 0

4 0

10 0 4".

Margin below air-dried retail selling price 5 0 5 0

1!". 2#

8. d. s. d.

3 6

3 6 1 6

9 6 9 6 5". 6#,

5 0 5 0

16

The approach then to valuation for kiln-dried and air-dried hardwood seems to have been that a margin of up to 10s. for 1 inch stock and under, was to be deducted from the retail kiln-dried selling price on the basis that the components of the 10s. margin were 5s. for kiln-drying, 1s. for air-drying, and 4s. for handling. No separate consideration was given to the incidence of waste in conversion.

It should be pointed out that the margins allowed for kiln-drying and air-drying by the Timber Merchants' Association for selling purposes on 1 inch stocks and under were 5s. and 1s. respectively during this period."

87. Careful study of pages 6 to 10 inclusive of the original copy of the 30th June, 1951, stock sheets shows that not only did Mr. Murphy re\vrite the items and quantities but included the prices and extensions too. Prices of three items on page 7 have been altered by l\:h. Murphy, with consequent alterations of the extensions. The original figures and the alterations are in l\:h. Murphy's handwriting.

88 . .1\:lr. Murphy also made several price alterations on other pages of the original stock sheets. In total the stock rewritten by Mr. Murphy represents at least 68 per cent. of the total value of 30th June, 1951, stock sheets.

89. 1\:Ir. Murphy contends that he rewrote these items at the dictation of the Industrial Accounts Clerk, l\::lr. J. Rawady. He later said that he had rewritten them for the purpose of regrouping for typing. He says he did not know what he was writing. The fact that he made alterations from his original rewrite, altered prices, extension and totals surely proves that he was well aware of what he was doing in rewriting these sheets and making these alterations.

90. Your Committee makes this statement based on the fact that various reports of l\::lr. Murphy from time to time showed a detailed and full knowledge of the accounts of the State Seasoning Works. As early as 13th August, 1942, when Comptroller of Revenue, l\::lr. Murphy wrote in a report to the Accountant, .1\:lr. Ewart, "although above actual cost, the stocks have been conservatively valued and have been written below opening valuations in a number of instances ".

91. J\tlr. Murphy took such a detailed interest previously that he could hardly have been so ignorant of what he was doing in 1951 on the State Seasoning "'Works accounts. Again his report of 15th February, 1952, shows a most detailed and intimate knowledge of the State Seasoning Works accounts, buying and selling prices, costs, overheads, processes, trade terms, sources of supply, and inventory movements.

92. As reported elsewhere, the portion of. the 1951 stock sheets rewritten by J\tlr. Murphy included "Flat Stacked," "Bearers," "Ramp," and "Stacked at Mynhee ". If Mr. Murphy did not know what he was writing, how did he declare the prices of these items and actually in the case of " Bearers " and " Ramp " alter the prices and cross out and revise the extensions in his own handwriting ?

93. Based on these revisions, a typed copy of the stock sheets at 30th June, 1951, was prepared, a summary added and certified to by Mr. Murphy, Accountant. Subsequently, Mr. Shrubsole was asked to certify, his title Manager being added by someone else later. The inspecting auditor's report states-

" Stocks have been valued at cost or market price whichever was the lower and have been certified to by the Accountant of the Commission."

94. It is significant that no reference is made to the Manager's signature. The stock sheets must have been audited before the Manager signed. The Manager stated that he certified the typed copy without comparing it with the original although he knew his stock valuation had been altered after he had refused to change the prices valuation himself.

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95. The Committee's contention about the reversion in prwmg practice is further strengthened by the fact that up to and including 1950 inspecting auditor's notation reads-

" Stocks have been valued at cost " in 1951 and subsequent years it was-

" Stocks have been valued at cost or market pnce whichever was the lower".

96. Mter 1951 the Manager of the State Seasoning Works was not asked to certify the stock sheets.

· 1952 CONFERENCES.

97. The audited accounts of the State Seasoning Works for the year ended 30th June, 1949, showed a loss of £1,772. Mr. Rawady, who was then Industrial Accounts Clerk in the Revenue Section, reported to Mr. Murphy, Acting Accountant at the time, on the reasons for the loss and summarized the views of several officers of the Commission. He mentioned the lack of labour, the poor quality of the timber from the State Sawmill at Erica, obsolete machinery, and the increase in overhead costs.

98. The report of }fr. Rawady was passed on to the Forests Commission by Mr. :.VIurphy, on 14th December, 1949. In a brief covering memo. Mr. Murphy stated­" It would appear that a thorough overhaul of the management and operation of the Newport Seasoning Works is urgently needed if the deterioration of accounts is to be arrested." Mr. Haig, Manager, also reported on 31st January, 1950, on the reasons for the recent loss blaming condition of plant, quality of timber, and labour shortage.

99. Misgivings about the management and results of the State Seasoning Works came to the fore almost two years later. On 15th February, 1952, Mr. Murphy, forwarded a report and memorandum to the Commission pointing out an alarming financial drift at the State Seasoning Works, Newport. He said that, based on the achievement for the year to date, " Failing a11y variation from the foregoing rate of costs and earnings the financial loss for the current financial year will be in the vicinity of £21,000 ". .

100. This report led to the formation of a special Committee of which Mr. Commissioner Ewart was Chairman. Members were Mr. Murphy, Accountant, Mr. Benallack, Sales and Marketing Officer, Mr. Shrubsole, Manager of the Works, and 1\fr. Rawady. Other officers were eo-opted. This Committee was formed for the purpose of boosting throughput. No minutes were kept of these vitally important meetings. Additional intake of timber came from greater purchase activity, though in many instances, movement was more in the nature of merchandising, being the purchase and resale of scantlings, some consignments of which were rerouted without being handled at the Seasoning Works at all.

101. Out of these conferences one important request arose. Mr. Commissioner Ewart instructed the Sales and Marketing Officer who was held responsible for the overall operation of the State Seasoning Works that he should confer with the Accountant with the idea of putting the Seasoning Works under " budgetary control ". In examining Mr. Commissioner Ewart on this matter, your Committee could not quite recognize as "budgetary control" what Mr. Ewart intended to have .done. The Committee thinks that he must have had a general idea that some form of cost control was needed at the State Seasoning \Vorks.

102. This desire to satisfy what was obviously a very urgent need at the Works led to the appointment over 2l years later of an officer transferred from the Department of Agriculture in order to do this work at the State Seasoning Works. At the time of your Committee's inquiry, the fact is that this officer has not gone on. with this work. He has been Hbsorbed in the general accounting duties of the Commission. There is still no costing system at the State Seasoning Works. There is no stock control of mouldings and finished timber. The only form of stock control at all is a stock book which records in an elementary, though reasonably satisfactory way, the movement of green timber through the yards and into the kilns.

103. It is a very grave reflection on general management within the Forests Commission that the State· Seasoning \Vorks has lacked adequate controls for years and that, awakening to the need for some remedial· executive action even as late as 1952, nothing came of it. 11923/56.-2

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104. It is the view of this Committee that adequate costing and managerial controls should have been worked out for this undertaking by one of the existing executives of the Commission, either one of the Commissioners or the Accountant. It was the plain duty of management to see that this was urgently done.

THE STATE SAWMILL, ERICA.

105. The State Sawmill was destroyed by fire in September, 1953. It was rebuilt in June, 1954. It appears from evidence submitted to your Committee that prior to this date the bulk of the output of the Mill was consigned to the State Seasoning Works, although in at least one year the proportion of the Mill's output reserved for the Works was only about 60 per cent. Whilst private sawmillers have always constituted the main source of supply for the Works, reliance upon supplies from Erica was considerable, as is indicated by the Auditor-General's view that "substantial losses in 1953-54 and 1954-55 were due to failure to obtain sufficient supplies for operations at the Works following the destruction of the Commission's Mill at Erica in September, 1953 ".

106. Reference has been made to the quality of the timber received from Erica, both in evidence and in official files, and to its effects upon the operatiQns of the Works. Up until 1950 the Mill was concentrating upon· the salvage of fire-killed timber, and toWards the end of these operations the standard of the timber cut was very low. Even after this, however, the output of the Mill tended to be of low quality. For instance, the 1951-52 output from 'Erica was, according to the Annual Report of the Commission for tliat yea1 " mainly in scantling quality timber ".

107. Nevertheless, despite the poor quality of its output, the Mill consistently overgraded its consignments to the Seasoning Works, sending considerable quantities of timber entirely unsuitable for seasoning, and which the Works was forced to down-grade and retail as scantling. In 1950, when reporting on the loss made by the Works in 1948-49, Mr. J. M. Haig, Manager of the Works during that financial year, regarded the overgrading of supplies from Erica as a "definite factor" causing the loss. Timber which should have been graded Select 60 per cent., Merchantable 25 per cent., Case quality 6 per cent., Scant]ing 9 per cent., was in fact graded Select 90 per cent., .Merchantable 1 per cent., Scantling 9 per cent. It was his opinion that " no mill in Victoria can maintain an average output of more than 65 per cent. select quality at the present time". Other evidence corroborates this view. The whole of the Seasoning \Vorks' supplies of scantling were drawn from the Erica Mill, none being purchased from private sources, which supplied only seasoning quality timber. This suggests that under the guise of a high grading the Mill was unloading low quality timber onto the ·works. Moreover, not all of the Mill's supplies of seasoning quality timber were reserved for the Works. In 1949-50 and 1950-51 only 73 per cent. and 58 per cent. respectively of the Mill's output of seasoning quality timber were consigned to the Works. In contrast, the Works received 90 per cent. and 60 per cent. of the Mill's output of scantling in those years. Most of the 1951-52 output from Erica which was mainly scantling was sent to the Works.

108. Developments at Erica Sawmill since its re-establishment in 1954 had led up to the following output for 1955-56 :~

Seasoning quality-Select Scantling Case

Super. Feet.

82,704 1,349,049

4,839

1,436,592

All the seasoning quality select was sent to Newport, but it can be seen that Erica still produces mainly scantling.

109. It is apparent that in the past overgrading has been a contributory factor in the losses sustained by the State Seasoning Works, Newport, since 1948-49. Higher prices for low-grade timber have materially contributed to the profits shown by the Erica MilL These profits have been taken at the expense of the State Seasoning ·works, Newport.

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110. Since the Sales and Marketing Officer was asked to ''take over" the State Sawmill in the early months of 1956 there has been closer control of the Mill's consignments to the Seasoning ~Works, resulting in a more limited intake of only the better quality timber from this source.

111. Nevertheless your Committee feels that there is sufficient evidence to raise doubts as to the profitability and real worth to the State of the Erica Sawmill and proposes to make it the subj.ect of an early investigation.

THE CARPENTERS' SHOP.

112. · This shop adjoins and occupies part of the State Seasoning Works. The average number of employees is fifteen, including the Supervisor who is responsible, for the operations of the shop, to an officer of the Architect's Branch of the Commission from whom all orders for joinery work originate.

113. The shop is concerned with the prefabrication of hutting, the manufacture of joinery and furniture for the Forests Commission, and the preparation of articles and timber for exhibition and publicity purposes.

114. In its general inquiry on the State Seasoning Works, your Committee asked some brief questions on this separate undertaking.

115. It asked Mr. Commissioner Ewart whether he was aware ·that there was a large accumulated uncleared expense in the accounts of this enterprise. He said he was aware of an uncleared amount but did not know how much it was. vvnen Mr. Commissioner Ewart was asked why work had been done in the carpenters' shop and not charged out over the years and why it mounted up without the Commission taking any action to clear it, he stated " It was not brought formally to the notice of the Commission that it was mounting up that way". Somewhat the same questions were asked of l\fr. Murphy, the Accountant. He was asked what the total of the uncleared amount was at 30th June, 1956. He replied "I could not tell you. The carpenters' shop is again a matter of detail that is left in the hands of one of our officers, Mr. Treyvaud . . . . . I have no idea what it is, whether it is £10,000, £20,000 or £50,000 ".

116. Your Committee asked Mr". Murphy was he aware that there was a large suspense account of many jobs that had not been charged out. He said that he was aware of this, but that " This matter of the carpenters' shop has only recently come to my notice. It is a legacy that has come from many years back". Mr. Murphy claimed that the uncleared amounts at the carpenters' shop were " part and parcel of the unauthorized suspense account totalling some hundreds of thousands of pounds," and that talks had taken place with the Accountant to the Treasury on this matter about three years previously but in respect of the carpenters' shop nothing had been done until recent months.

117. Here, as your Committee found on many occasions during this inquiry, questions asked on the matter of operating principles and policy were hedged with the reply that these questions were a matter of detail and were the:refore a concern of some other junior officer down the line. In this case, your Committee endeavoured to establish with Mr. Murphy whose responsibility it would be to see that these amounts were cleared. Mr. Murphy said that it was not his responsibility as Accountant. He declared that in his view it was the Commissioners' responsibility.

118. Mr. Treyvaud, Officer in Charge, Expenditure Section, Accounts Branch, Forests Commission, tabled evidence to show that the total uncleared balance in the carpenters' shop accounts, 30th June, 1956, was as follows :--

Total amounts uncleared Less-

Stock of materials taken over by Stores Control-

£

1st July, 1952 10,757 Stock of timber taken over by the Stores Control-

27th June 1956 . . 1,606

Balance

£ 87,677

12,363

75,314

20

ll~. Thi;; outstanding amount of £75,314 has been charged to several Loan Acts which, as pointed out by the Auditor-General as far back as 1946, have been incorrectly used as suspense accounts.

120. This uncleared amount of expenditure has not been cleared primarily beca~se of lack of job costing and for years, even from as far back as 1945, the expenditure on various jobs had not been charged out because of lack of documentation within the carpenters' shop. This almost incomprehensible state of affairs has apparently been going on for years. Mr. Treyvaud gave evidence that in July, 1956, under instruction he introduced a form of cost control in the carpenters' shop using the punched card accounting system installed in the Forests Commission accounting office. Your Committee considers that the punched card system is quite unsatisfactory for this purpose, and that a simple costing system could have been devised for the carpenters' shop by the Commission when the shop was first established.

121. Your Committee believes that the operation of this shop which over the years has been used as a store and as a sub-contracting operation should be closely investigated to the best of the information and records available. Your Committee hopes that it may be able to . carry out this as one of its many urgent tasks.

122. Despite the evidence of .Mr. Commissioner Ewart and Mr. Murphy, your Committee has established that in 1945 the inspecting auditor and the Auditor-General drew the attention of the Honorable the Treasurer to the use of Forestry Fund and Loan Acts as suspense accounts for the recording of the expenditure at the Head Office workshop, and the carpenters' shop. Mr. Treyvaud gave evidence that a statement of uncleared expenditure at the Carpenters' Shop, Newport, has been presented yearly to the Commissioners and to the Accountant of the Commission. The Commissioners and the Accountant must have known the full details of this matter and of the growth of the uncleared balance as it grew from year to year for the past eleven years.

123. It is noted that this question of the use of Forestry Fund and Loan Acts as suspense accounts was brought up every year by the Auditor-General until remedial action was taken as from 1st .July, 1952, under the" Forests (Accounts and Funds) Act 1950, (No. 5475). Your C0mmittee deals with the general treatment by the Auditor-General of unauthorized suspense accounts later in this Report.

THE GENERAL BACKGROUND.

124. Your Committee has given an outline of this affair as it emerged from evidence given ori oath, from reports submitted and from files seen. There is more to it than this. The Committee is now concerned with a greater issue of the management, executive. and audit climate in which these matters took root and developed.

125. Most witnesses from the Forests Commission went to great pains to try and establish that .Mr. Rawady was the only person who knew of the stock falsifications. He had apparently been responsible for the State Seasoning Works accounts when Mr. Commissioner Ewart was Accountant of the Commission from 19:18 through to 1949. Since Mr. Murphy became Accountant, not only has :\h. Rawady been responsible for the presentation of the final accounts but he has also had an audit responsibility in some form as Internal Revenue Officer.

126. Mr. Murphy contends very strongly that he relied on Mr. Rawady and left everything to him, and that, after all, the State Seasoning Works '"'as only a very small part of the Forests Commission activity, beip.g responsible for only some 3 per cent. of its total expenditure. Mr. Murphy himself stated that he has only visited the State Seasoning Works once since he has been Accountant, and then . only for a very short period with the Chairmanto look at a new piece of equipment and not on any accounting or finance mission. · ·

127. Your Committee believes that the Commissioners have been at fault in combining in Mr. Rawady the responsibility for final accounts with an internal audit responsibility.

21

The Attd1:t.

128. The inspecting auditor, Mr. Whelan, who had been responsible for many years for all audit of the Forests Commission, unfortunately died in January, 1956, and an important link in this inquiry has therefore been missing. ·

129. The inspecting auditor conducted a " Head Office audit '" in the main office of the Forests Commission and visited the State Seasoning \Yorks at the most once in the year. It is doubtful that he visited the Works every year. The Auditor-General reports that Mr. Whelan was a very painstaking and careful audit officer. His duties under the Audit Act were mainly concerned with the checking of revenue and expenditme, and his main check of the State Seasoning Works final accounts was in an extract of charges from the expenditure statement and information from the revenue statements. He apparently took the stock valuation on the certificate. He checked the typed copy with the original stock sheets and checked the extensions and totals which had been calculated by machine operator in the first place. There was apparently no attempt at spot checking the inventory as to quantities and prices.

130. Yom Committee has examined the reports of the inspecting auditor of the Auditor-General's Department on the books and accounts of the Newport Seasoning Works for the financial years from 1943 through to 1954. These reports follow a more or less standard form and make a great number of detailed observations and some suggestions for improv<>ment in the handling of various account items.

131. The inspecting auditor in his report for the year ended 30th June, 1951, made special comment about the inventory and the profitability of the undertaking. An extract from this report reads-

" The trading results of the Works cannot be regarded as satisfactory and explanations are desired as to the reasons why profits cannot be made annually. the necessity for carrying such huge stocks and why such stocks are not turned

. " over once m a year.

132. This report was sent to the Honorable the Treasmer on 4th December, 1951, went through the usual routine, and was referred by the Director of Finance to the Chairman, Forests Commission.

133. The reply from the Secretary, Forests Commission, was eight months later­in August, 1952. The reply mainly said-

" To enable them to return a gross profit margin over and above overhead costs, including the annual charge for interest on capital, the Newport Seasoning Works require a substantially greater yearly intake of seasoning quality timber. Efforts are being continued to procure increased supplies of this timber from private sources. Prior to kiln-seasoning, it is necessary also to yard longer, stocks of timber for air-drying pmposes, preferably for a minimum of from three to six mouths. Increased timbf'r stocks at considerably higher market priet'S have had the effect of increasing stock valuations at the balancing date."

134. 'l'his answer was sent back to the Auditor-General and the inspecting auditor and \Vas noted. This interchange of audit report and comment surely shows that through tlw inspecting auditor there was, on at least one occasion, telling comment which might have started a line of investigation leading to the discovery of stock over-valuation, if adequate interest and skill had been shown at top management level.

135. The 1951, 1952, and 1953 certificates of the inspecting auditor stated~-

" I have examined the stock sheets and have compared the originals compiled at the time of the physical stocktaking with the typed copies. All computations and additions have been checked by me."

136. Yom Committee cannot establish how the originals of the Works stock sheets were so presented to the inspecting auditor that he did not detect quantity manipulations in his detailed checking of the typed copies with the originals.

22

137. Your Committee sought the advice of the Solicitor-General on the following question:-

"Does any Act or Regulation lay down what officers of the Public Service shall certify stock sheets of stores on hand submitted for audit purposes."

The Solicitor-Genera] has advised as follows:-

"I am not aware of any such provision which specifically relates to ' audit purposes '.

Section 101, Public Service (Governor in Council) Regulations, however, requires each officer in charge of stores or material to take stock at lP..ast once a year or whenever called on by the Auditor-General to do so and to forward a certified statement showing a concise description of the stores, the value of the stores at the time of the last stocktaking and the date of the stocktaking.

I assume that these statements would be used for audit purposes."

138 .. From 1941 through to 1948 stock certificates were given by the Manager of the State Seasoning \Vorks and the Accountant. In 1949, Mr. Ewart signed alone as Accountant. In 1950, Mr. Murphy, Accountant and Mr. J. Rawady, as Acting Manager certified. From 1951 on, the inspecting auditor reports that the stock was taken on the certificate of the Accountant, :Mr. Murphy.

139. Your Committee can only assume that the inspecting auditor in accepting the lone certificate of the Accountant of the Forests Commission overlooked the responsibility for stock certification under the Public Service Regulations. \Ve must regard as significant the fact that the Internal Revenue Officer, Mr. Rawady, who reported to tho Accountant of the Forests Commission should, presunmbly with the authority of the Accountant, submit for audit stock sheets certified only by the Accountant of the Commission and not by the officer in charge of the stores or materia], which your Committee takes to be the Manager, State Seasoning Works.

140. The Auditor-General has given evidence that the inspecting auditor relied a good deal on the internal or pre-audit checking carried out by the Forests Commission's own staff. One great weakness in this internal check, as stated earlier, is that in the case of Mr. J. Rawady, internal audit responsibility was combined with responsibility for preparation of final accounts.

Stores Inspection Qfficer.

141. The Public Service Act 1946, Section 69 is concerned with the inspection of stores and the officers who control stores.

142. This Section reads-" 69. (1) The Board shall select some fit and proper person who is

already in the Public Service to be an inspector of officers in charge of stores and material.

(2) Such inspector shall from time to time and at least once in every year inspect the books and accounts of every officer whose duty it is to receive stores and material and also all stores and material in stock and under the control of such officer, and for this purpose is empowered to take stock thereof and to investigate and examine any contracts accounts invoices requisitions books bills of parcels and vouchers in any wise relating to or concerning the same and shall as far as reasonably practicable ascertain whether the stores and material received by such officer have been duly accounted for and also whether the stores and materia] in stock are in quality and description in accordance with the contract for the supply of the department.

(3) Such inspector shall forthwith after such investigation and examination in regard to each officer in charge report the result thereof .and as to the manner in which the books and accounts have been kept and shall transmit such report to the Auditor-General who after examination shall forward the same with his report thereon to the Treasurer of Victoria, and a copy of the inspector's report shall be forwarded by the Treasurer to the Board."

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143. This provision (more or less in these words) appeared in the original Public Service Act of 1883. Your Committee, considering the general aspect of the audit and inspection of stores in relation to what happened at the State Seasoning Works, took evidence on the working of this requirement under Section 69 of the Public Service Act 1946.

144. Mr. W. L. Davis is the present inspector appointed under this Section. He was in fact selected by the Public Service Board and appointed at the request of the Auditor-General. The usage has grown up that the inspector is on the staff of the Auditor-General, although his appointment is required by the Pu,blic Service Act 1946.

145. The inspector, Mr. Davis, did in 1946 prepare a report on the stores as distinct from stocks of timber of the State Seasoning Works. This report is mainly concerned with system, contains a few minor recommendations and the last action which can be traced upon it is that after reference to the Forests Commission, the Chairman of the Commission at the time, the late Mr. Gerraty, stated that the matter raised would be looked into. The matter of stores control generally in the Forests Commission is mentioned in a number of reports, but particularly in the Auditor-General's Report of 1949, which asked for more rapid progress in the "preparation for the necessary statutory authority to provide for the control of stores and materials". A follow-up letter from the Auditor-General to the Chairman, Forests Commission, on 7th March, 1950, restated the steps taken since Mr. Davis' report of 17th July, 1946. Though much of this urging related to the creation of a Forests Stores Suspense Account, the need for more efficient physical control of stores was stressed. There was no lack of minutes and memos from the Auditor-General on the need for better control.

146 . .Mr. Stores Inspector Davis gave evidence that he has instructions from the Auditor-General to visit about 50 stores for the purpose of inspection as laid down in Section 69 of the Public Service Act 1946. These stores were picked out piecemeal, from a list of the major Government stores, by the Auditor-General. He also has instructions to do about 22 financial audits connected with the departments where he is inspecting the stores.

147. No reliable estimate is available, but the Auditor-General stated that there may be upward of 500 Government stores in Victoria which would possibly be large enough to warrant regular audit inspection. There are also quite a large number of audits where there are stores outside the ambit of the public accounts, such as the marketing boards and the Housing Commission. These stores are not included in this estimate. This figure also excludes about 500 Police Department stores and 2,000 to 3,000 Education Department stores at schools, which are considered minor, and of which audit inspection is not essential.

148. The Auditor-General stated that there might be only about 80 to 100 appointed officers in charge of stores, but your Committee contends that some officer must surely be responsible for receipt and issue of stores at each store whether " appointed " as such or not and that he and his records should be inspected if the Public Service Act, Section 69 were carried out.

149. The Auditor-General gave evidence before your Committee that apart from the list of stores for the audit of which Mr. Davis is responsible, various departments and commissions have their own internal stores inspection staff. It is not known whether audit inspections of all stores are regularly carried out. It is quite definite that the inspector appointed under the Public Service Act, Section 69 is covering the audit inspection of only a fraction of the Government stores in Victoria. Of about 50 which he has been instructed to audit and inspect, Mr. Davis and his staff have made the following number of inspections of individual stores during the last five years .

1951-52 13 1952-53 10 1953-54 13 1954-55 21 1955-56 27

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150. Mr. Stores Inspector Davis stated that he is so busy that he has not been able to inspect regularly the 50 selected stores on his list.

151. The Committee established that a good deal of the inspector's time is taken up in financial audit and that inspections of the small portion of Government stores on his inspection list have not in fact been examined at least once per year as laid down in the Act.

152. To take a case, evidence was given by the inspector that there had been no stores inspection or financial audit for the Ararat Mental Hospital stores for four years. The stores inventory there would total roughly £20,000. The inspector said that a lot of inspection work is country work, and that he usually informs the store of the impending visit to see that they have a chance to get their records up to date as they are often &truggling \\ri.th lack of staff and lagging behind. When asked if he dropped into stores at odd intervals unannounced, the inspector stated that he did this only very occasionally.

153. Up to the start of this inquiry, the State Seasoning Works store was not on .Mr. Store Inspector Davis' list nor has any other Forests Commission store, though ·of recent months the State Seasoning Works store and the main store of the Commission at Brookwood have been added. Mr. Davis has given evidence that he will not be able to carry out his responsibilities to inspect al1 the 50 stores on his list regularly despite an additional assistant whose appointment was approved two months ago.

154. During the last two years the Forests Commission has had a Stores Technical Officer, whose duties have been to check the stock balances in the various Forests Commission district stores against the tabulated stock control statements prepared at the Head Office. He has two assistants. The Stores Technical Officer has stated that up to date there has been a lapse of eighteen months between inspections of individual stores. It is hoped to get to the stage of inspecting once per year. The main store at Brookwood with an inventory valuation at 30th .Tune, 1956, of £427,791 has not yet been inspected or checked over by the Stores Technical Officer.

155. Under Section 69 (3) of the Act, the inspector must report the result of each inspection. Your Committee has seen copies of the inspector's reports which have been sent by the Auditor-General from time to time to the Director of Finance (the Act laying down in Section 69 (3) that it should be sent to the Treasurer of Victoria). It is assumed that these reports have covered all the inspections made. These reports have been redirected to the Public Service Board as laid down in the Act and have apparently been read and minuted by at least four officers of the Public Service Board. It is incredible to your Committee that so many people should have read and initialed copies of the Store Inspector's reports which in no year since 1952 exceeded 27, without being concerned with the broad and general issue as to whether the whole of the many hundreds of Government stores in the State were receiving adequate audit and inspection as laid down in the Public Service Act 1946.

156. As far as your Committee can make out, neither the Treasurer of Victoria, the Department of the Treasurer, nor the Public Service Board has been at all concerned over the years as to whether in fact these inspection .reports covered inspections of "every officer whose duty it is to receive stores and material" in respect of all Government stores in Victoria and whether Section 69 (2) that "such inspector shall from time to time and at least once in every year inspect the books and accounts " was carried out.

157. The Auditor-General, Mr. E. A. Peverill, tried to bring about an improvement in the audit and inspection of stores in a most creditable recommendation which he addressed to the Director of Finance, 2nd May. 195'2. In this report, the Auditor-General puts a case for amendments to the Audit Act. Among other matters, the Auditor-General states that " the Audit Act at present contains no specific provisions relating to the audit and ~pection of stores ". He recommends that Section 69 be deleted from the Public Service Act 1946 and that the Audit Act be amended to make it "mandatory for the Auditor-General to examine the stores accounts" and leave "the nature of the check to his discretion ". The fate of these recommendations is dealt with later in this Report.

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158. It is quite plain that Section 69 is out of place in the Public Service Act. In spite of this contention, there is no excuse for the Auditor-General, the Honorable the Treasurer and the Public Setvice Board ignoring its implications and failing to see that the provisions of the Act were carried out.

159. Your Committee has given the general background of this matter because it believes that if regular audit and inspection of stores at the State Seasoning Works had been carried out as demanded by the Pttblic Service Act 1946, Section 69, it is most likely that the quantity manipulations which occurred would have been detected before the affair had gone too far.

Some Items of Method and 1.Uanagement.

160. In the course of taking evidence, certain conditions of method and managem'-3nt in the Forests Commission so obtruded themselves as to warrant brief examination. These small digressions are inevitable in an inquiry of this kind, but they do help in understanding how this affair could have developed.

161. Your Committee finds that the Secretary of the Forests Commission has not attended Commission meetings since 1952, although in the view of Commissioner Ewart he is responsible as Secretary for the administration of the Forests Commission. Both the Secretary and Mr. Commissioner Ewart have the view that the attendance of the Secretary is a waste of time. Each Commissioner keeps a rough minute book and each writes up the action note decided in any matter before the Commission. These rough notes., each. covering the same ground, are then apparently compared and trans.cribed by a typist into the official minutes of the Commission meeting.

162. Mr. Commissioner Ewart declares that the Secretary of the Commission attends to the normal Secretarial duties of the Forests. Commission and that the decisions made at Commis.s.ion meetings are endorsed on files. which go to the Secretary for s.ignature. Mr. Commis.sioner Ewart declares that the Secretary, if he cannot understand any minute, refers back to a Commissioner or the Commissioners and asks for interpretation, which indicates that he looks at what he is s.igning. Mr. Ewart further declares that anybody who received a Commission minute on a file from the Secretary would be subject to the Secretary's direction, and that if any senior officer has any doubt about the decision, the Secretary tells. such officer to ask the Chairman or one of the Commis.s.ioners. about it.

163. Your Committee considers that the Secretary should be instructed to attend all Commis.sion meetings so that he may be familiar with the development of policy and the reasons for Commission decisions, and that on-the-spot minutes should be kept under the direction of the Secretary.

164. Mr. Commissioner Ewart explained that s.taff shortage hampers the work of the Commission and agreed that there had not been at any time an executive training because of inadequate staff. This, of course, is even greater reas.on why there should be training.

165. Both Mr. Commissioner Lawrence and Mr. Commissioner Ewart explained to the Committee how the Commission operates. No Commiss.ioner has any clear cut operating responsibility. He has a joint responsibility for policy and takes on operating responsibility only in respect of individual · decisions which may be made by the Commission and delegated to him for execution. Mr. Commissioner Ewart considers that there should not be any division of operating responsibility between Co.m.missioners because if there were, various matters would tend to come under the control of one man. :Mr. Commis.sioner Lawrence stated that :Mr. Commissioner Ewart could be considered the finance member of the Forests Commission. :Mr. Commis.sioner Ewart did not agree with this view and stated that " the Accountant would som'-3times bring matters to me relating to financial affairs and sometimes reports that he may want to pass on to the Commission ". He stated that the heads of branches \Vi thin the Commission do not necessarily report to one Commissioner continuously, but any Commissioner from time to time may give them instructions.

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166. When asked for the organization chart Mr. Commissioner Ewart said that the Commission had had one, but that he did not know of any on file. The only one he could recall was the one at the time of the transfer of Forests Commission staff to Public Service Board control in 1939.

167. Under this set up Mr. Ewart declared that it was "normal for the Chairman of the day to have recourse to l\:Tr. Murphy on stock valuation, knowing that he was the one who had the detail of it and was a very competent and experienced officer capable of giving him the information that he sought". Mr. Ewart stated that he did not know of an alleged practice in the Forests Commission of taking a second look at the values shown on the stock sheets of the State Seasoning Works. He declared that he did not at any time discuss stock sheets or inventory values with Mr. Murphy, Accountant. On the contrary, Mr. Murphy has given evidence, which he restated at a subsequent interview that he always discussed the State Seasoning Works stock sheets and inventory values with Mr. Ewart when Mr. Ewart was Accountant and also while he has been a Commissioner.

168. Mr. Commissioner Ewart stated that he had only once seen the original Works copy of the State Seasoning Works stock sheets. That was the first year he was made Accountant, and he examined the original stock sheets then for the purpose of seeing their form, but he had never analyzed them. Over the years in which Mr. Ewart certified the office copy of the stock sheets as Accountant he did not at any time call for the originals or check the certified copy.

169. In discussion on operating responsibility with Mr. Commissioner Lawrence and Mr. Commissioner Ewart your Committee established the correctness of the statement by Mr. Shrubsole, the Manager of the State Seasoning Works, that there are five executives in the Forests Commission who could give him instructions-the three Commissioners, the Sales and Marketing Officer and the Accountant.

170. Your Committee is prepared to accept the statement of the Sales and J>Iarketing Officer that selling and marketing form a minor part of his duties. The Manager of the Seasoning Works attempts by telephone to sell processed timber which mainly goes to the Public Works Department or contractors thereto.

171. The Committee accepts the statement of the Sales and Marketing Officer that during the course of the inquiry he was asked by the late Chairman of the Commission to " take over " the Erica Sawmill and that when he asked for instructions in writing he was promised them by Mr. Commissioner Ewart but has never in fact received them. The Sales and Marketing Officer gave evidence that he did not know clearly what he was supposed to do in respect of the Erica mill.

172. Although an examination of the accounts of the State Seasoning Works from year to year and, particularly at 30th June, 1952, showed trends in the purchases, sales, and inventory movement which would contain their own warning, Mr. Commissioner Ewart admitted in evidence that to his knowledge the Commissioners had never heeded the warning that the figures showed.

173. During the course of the 1952 conferences mentioned elsewhere in this Report, the Manager, Mr. Shrubsole requested monthly statements of purchases and sales as some sort of executive guide to the profit and inventory trend. Mr. Commissioner Ewart .apparently agreed to this and gave instructions to the Accountant that Mr. Shrubsole should be furnished with the information. This was not done and l\:Tr. Ewart agrees that he did not follow up the instruction. Mr. Shrubsole stated that he, therefore, prepared his own figures from what information he had available to him at the Works.

17 4. Some idea of the trend in purchases, sales and stock valuation which in themselves, in the absence of any form of management reports, might have warned that inventory over valuation was taking place can be seen from the following table, which is based on figures taken from the published accounts.

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STATE SEASONING WORKS, NEWPORT.

Accretion of Stocks of Timber.

The table shows, for each consecutive year ended from 30th June, 1948, to 30th June, 1954, the net amounts for the purchases of timber, sales of timber, and the actual increase, each year, of the book value of the stocks of timber, over and above the value at the ~nd of each preceding year.

-----··~-

! Increase in Book Value of

I Year Ended Total Stock Inventory at Each Balance Date. 30th June- Purchases. Sales. Value. Trading Profit.

Actual. . Cumulative.

I i

£ £ £ £ £ £

1.7.47 . . . . . . 33,005 . . .. . . 1948 . . 35,341 41,606 49,250 16,245 .. 205 1949 .. 38,290 43,981 64,810 15,560 31,805 1,772 1950 .. 27,667 62,718 65,241 431 32,236 682 1951 .. 29,495 58,419 65,,177 236 32,472 224 1952 .. 48,587 72,404 72,957 7,480 39,952 675 1953 .. 92,039 75,095 134,029 61,072 101,024 1,573 1954 .. 57,532 88,779 140,879 6,850 107,874 563

328,951 443,002 . . .. . . 2,150

'

Delay in Presentation of Annual Report to Parliament.

175. The Committee's investigations have revealed that at least in respect of the years subsequent to 1946-47 the provisions of the Forests Acts regarding the presentation of the Commission's Annual Report to Parliament have not been observed. These provisions require the Report to be laid before Parliament in October of each year or within fourteen days of the next meeting if Parliament is not then sitting ; but in none of the years examined has the Report been received by the Clerk of your Honorable House before the following March. In some cases, the Report has not been received until June in the following year. If Parliament is not sitting at the time the Report is received, there is further delay, and as a result in one instance the Report was laid before Parliament eleven months after the statutory date.

176. Delays of this nature are certainly not peculiar to the Forests Commission. Your Committee feels that they are inexcusable. These reports are an important means whereby Parliamentary control can be exercised. This purpose is defeated by excessive delay.

177. Your Committee feels that no effort should be spared to see that in future the provisions of the Acts are observed.

Class "E " Clerk Incidents.

178. During the course of this inquiry, a Class " E " Clerk of the Forests Commission was apparently noticed leaving the office-building of the Commission in the company of a witness proceeding to Parliament House to appear before this Committee. The fact that he was so engaged is alleged to have been reported by the Chairman of the Public Service Board to the Chairman of the Forests Commission. This report led to severe questioning of this Class " E " Clerk by the Chairman and the Commissioners of the Forests Commission on the matter. Your Committee was alert to the possibility of breach of privilege of your Honorable House in this occurrence, but is not sure that the questioning related to matters before the Committee.

179. Your Committee is prepared to accept Mr. Commissioner Lawrence's evidence that the clerk denied being absent from his place of business, and that this denial was the cause of his interrogation at Commission level rather than at section leader level. Your Committee prefers no action in this matter, rather is it amazed at the happening from a managerial point of view, and startled at the fact that the Commissioners shou]d have seen nothing odd in their action.

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RECOMMENDATIONS.

180. Your Committee recommends to your Honorable House that the Executive Government strengthen the top management of the Forests Commission so that there will be improvements in administration and accounting.

181. Your Committee further recommends that the Executive Government may consider the disposal of the State Seasoning \Vorks, Newport, on the score that it has outlived its original purpose and it is no longer in the interest of the State to retil,in it.

General Cornment.

182. The Public Accounts Committee of your Honorable House regrets the nature of its First Report here presented: It is a misfortune that this Committee, taking up its task after a quarter century lapse, faced an inquiry into irregularities. It is necessary in such an investigation to guard against the inquiry developing into .a witch hunt. The line of questioning and search which it demands and the conclusions reported upon give a distorted impression of the work and value of the Committee of Public Accounts. The Committee's work should not be inquisitorial for the purpose of pointing the bone but searchingly constructive towards cure and prevention.

183. With this in mind, your Committee hopes that it may .presume with this First Report to make certain broad recommendations which "'1.11 help to lock the stable door before the horse gets out. It is far better that the emphasis might be on improvements in management, organization, staff quality, and efficiency. Too much inquisition after the event could lead to inordinate and costly protective memo writing within the Public Service-a form of paper defence in depth. The objective surely is to see that officers of the Public Service are encouraged to take more responsibility and to seek more efficiency and cost reduction in the services under their charge. Your Committee of Public Accounts is a post-execution inquiry Committee. It may recommend, but unless the Executive Government acts on the recommendations, its work has only been an exermse.

184. There is great need for improvements in management methods and organization in the Victorian Public Service and the problem must be tackled at the pro-execution beginning. Your Committee offers a few recommendations towards helping with this problem.

Work of the Auditor-General.

185. The Auditor-General, Mr. E. A. Peverill, has long been in favour of the reappointment of the Public Accounts Committee. He states that he has from time to time mentioned the need of a Public Accounts Committee to the Honorable the Treasurer of Victoria and to the Director of Finance. The Auditor-General recommended the reappointment of a Public Accounts Committee in his Annual Report for the years 1949, 1950, 1952, 1953. He develops his pleading and arguments in most detail in the year 1952. These appeals brought no response from your Honorable House until 1955.

186. Your Committee is indebted and grateful to the Auditor-General for the very important and willing help he and his staff have given during the course of this inquiry.

187. For the last fifteen years the Auditor-General has found it difficult to obtain enough staff to carry out the work of his Department. He has lost many of his best men by transfer to other departments of the Public Service. This drift is understandable in view of the good effect of training in audit work. The loss should, however, be kept as low as possible and its effect lessened by. active recruitment and training. The Auditor-General reports that he now has practiCally a full staff, though your Committee feels that additional auditors are needed for stores audits and inspections.

188. It does seem to your Committee that although over the .. years the Auditor-General has reported officially to the Honorable the Treasurer he has in fact tended to report to the Director of Finance. This statement may be too general but nevertheless your Committee gets this impression from an examination of the many reports and files handled during this inquiry.

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189. Your Committee wishes to quote one example-

The Forests Commission Audit Heport for the year ended 30th June, 1951-

Sent by the Auditor-General to the Honorable the Treasurer on 11th August, 1952

This Report was forwarded to the Forests Commission by the Director of Finance on 20th August, 1952

There being no reply, the Director of Finance asked that queries raised be answered in a follow-up letter on 28th October, 1952

No reply received from the Forests Commission so follow-up letter again sent on 1st December, 1952

No reply received from the Forests Commission so follow-up letter again sent on 8th ApriL 1953

No reply received from the Forests Commission so follow-up letter again sent on 6th May, 1953

190. The Chairman, Forests Commission, replied to some of the queries raised, by letter dated 30th June, 1953, addressed to the Director of Finance-two years after the close of the accounts on 30th June, 1951. This reply was forwarded by the Director of Finance to the Auditor-General on 6th July, 1953.

191. An endorsement appears dated 18th May, 1954, that the letter is " noted ", signed " \V. H. Cove for Auditor-General for Victoria ". It had no doubt been read previously to this date.

192. This is not the last on this dilatory affair. On 17th May, 1954, the Auditor-General, apparently a little frustrated and exasperated, wrote the Honorable the Treasurer again. The letter tells its own ta]e. It opens thus-

" Since my memo dated 11th August, 1952, under cover of which I forwarded the Audit Report on the 1950-51 accounts, the Treasury had at intervals sought a reply from the Commission. Letters were sent by the Director of Finance on 28th October, 1952, 1st December, 1952, 8th April, 1953, and 6th May, 1953, and it was not until July, '53 that I received information as to action taken or proposed to be taken to remedy the defects brought under notice in the Report. However, no reply has been forthcoming with respect to the major points mentioned in my memo and, as these are fundamental, attention required to reach finality should be devoted to the several problems.

In the meantime, finalization of subsequent audit reports had been deferred in order to avoid repetition in relation to unsettled matters. This state of affairs could not continue indefinitely and I am now enclosing the auditor's reports on the books and accounts for 1951-52 and 1952-53."

193. This letter from the Auditor-General was passed on to the Chairman, Forests Commission, by the Director of Finance. Reply was received dated 13th August, 1954. It was referred by the Director of Finance to the Auditor-General on 19th August, 1954, noted and returned by "K. H. lVIcGuinness for Auditor-General" on 3rd May, 1955-three years and ten months after 30th June, 1951, during which year most of the matters queried took place.

194. The point your Committee wishes to establish is that this important Audit Report contained queries which demanded attention from top management in the Forests Commission. There is no indication on the files examined that these significant queries came to the notice of the Honorable the Treasurer, the Honorable the Minister of Forests or the Cabinet. The Director of Finance acted as a "go between" between the Auditor-General and the Forests Commission. The Auditor-General could take no executive action vi.~-d-vis the Forests Commission, In this case alone, with the impression it created, there was a clear-cut need for a searching. look into the management of the Forests Commission at Cabinet level. There are many other instances, some of which appear elsewhere in this report of the Auditor-General's comments, and suggestiona not receiving the high-level attention for which they call.

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195. The usual procedure in the handling of the Auditor-General's reports on departmental matters is outlined by the Director of Finance in evidence as follows

Question-" Is it the procedure of the Auditor-General to submit his reports to you Mr. Smithers ~-The normal reports of the Auditor-General in regard to what you might call departmental transactions, all have to be addressed to the Treasurer, then we forward then on to the department concerned for their comments, then when they come back, we refer them back to the Auditor-General. If he is not satisfied, he may come again and ask further questions, but his reports are all addressed under the Act to the Treasurer.

Axe they examined by your departmental officers 1-In the first instance,­if it directly affects the Treasury we naturally handle it-but if it is an Education Department matter, we refer that to the Department for its comments, and if its comments are reasonable, we forward them back to the Auditor-General.

Have you had reason to discuss any of the reports with the Treasurer himself cannot recall any, exc,ept perhaps an odd Treasury matter which I have discussed, but normally we do not worry the Treasurer with the ordinary departmental queries.

For instance, take the case of a letter addressed to the Honorable the Treasurer, in respect of the 1950-51 accounts of the Forests Commission-do you recall that ~-I do not remember it.

It was addressed to the Honorable the Treasurer, and there is no indication on the files that the Treasurer ever saw that.-I would not think he would.

And there were some matters of very great moment on that.-You can imagine if the Treasurer had to deal with all the reports we get, he would be doing nothing else more or less, because they are always coming and going, and unless we see something which we regard seriously, we handle them ourselves.

The fact that it was addressed to the Honorable the Treasurer would not necessarily mean it would go to him ~-That is so.

And he would not necessarily see it ?-I do not think he would see it."

196. Your Committee declares that many important matters mentioned in the Auditor-General's reports on departmental transactions should best be handled at Cabinet level by and through the Honorable the Treasurer. The Committee believes that many of the management matters involved, which in very many instances also concern Treasury procedure and responsibility should be lifted above departmental level into the hands of the Executive Government itself.

197. Your Committee knows that it is established practice, and one very dear to the heart of all Premiers, to combine with the high office of the Honorable the Premier, the portfolio of the Treasury. These responsibilities no doubt could be easily carried by one man in the Victoria of fifty years ago. Your Committee assumes that despite the present great demands upon the time of Honorable Premiers qua Premier of the vibrant Victoria of the 1950's, few Premiers would be prepared to give up the reins of the Treasury.

Recommendation.

198. Your Conunittee therefore recommends that the Executive Government consider the appointment of one of the Assistant Ministers as an Assistant to the Honorable the Treasurer or alternatively, the creation of the office of Parliamentary Under-Secretary to the Treasury. Subject to the direction of the Honorable the Treasurer, the Auditor-General could report through the Assistant Minister or through this office, thus giving him easy and continuous access. It could also take care of other matters recommended in this report such as organization and methods, economies in departmental spending and last but not least, the study and carrying out of some of the · recommendations of your Conunittee . of Public Accounts.

31

Amendment of the Audit Act.

199. As a by-product of its present inquiry your Conunittee has found that there IS a real need for amendment and improvement in the Audit Act.

. 200. Upon inquiry, your Committee finds that the Auditor-General himself has realistic and pertinent views in this matter. He had recommended in his Annual Report for 1951~52 as follows

"Audit Act.-This Act had its origin at a time when the State's financial transactions were relatively small. Although amendments have been made at irregular intervals no comprehensive attempt has so far been made to effect a revision which would bring the Act into line with conditions as they have since developed.

In my report on the accounts of 1937~38, reference was made to the need for some reconsideration of the provisions of the Audit Act. Since then the need for revision has become more apparent.

The Public Account Act 1951 replaced the Public Account Advances Act of 1924 and facilitated Treasury accounting procedures in many ways. A slightly different conception of the Public Account was incorporated in the new legislation thus making early amendment of the Audit Act essential.

The powers under the Audit Act form the basis of audit for many other activities which I am required to audit and a more explicit statement of these powers would assist me in these assignments.

The need for amendment has been recognized by the Treasurer and at the present time preliminary discussions with Treasury officers as to the form of the rev1s1on are m course.

Such discussions require a dose study of the position before any joint recommendation can be made. The proposal is to retain the framework of the Act which has stood the test of time and make such adaptations as are now required to bring the Act up to date. In the presentation to Parliament of a Bill to amend the Audi~ Act the assistance of a Public Accounts Committee would be invaluable."

201. The " preliminary discussions with Treasury officers " did not, alas, get very far. The Auditor-General had no Committee of Public Accounts to help him.

202. The Auditor-General developed his ideas very carefully and fully with the aid of his senior officers. On 2nd May, 1952, he wrote the Director of Finance enclosing his plans for "amendments which I think are needed (a) to bring the Audit Act up to date, and (b) to restore consistency with the Public Accounts Act ".

203. There is no further correspondence on this subject. The Director of Finance appointed one of his offi.cers to look into the matter but did not press it forward as he did not see any urgency for it. Apart from the reference in the Auditor-General's Report for 1951~52, there was no further action. The question of amending the Audit

. Act was not apparently taken up direct with the Honorable the Treasurer by the Auditor-General.

Recommendation. 204. Your Conunittee recommends that the Honorable the Treasurer request the

Auditor~General to bring forward his proposals for amendments to the Audit Act and that, after examination anP, with due regard to the question of stores audits and inspection, a Bill be drafted for the consideration of Parliament.

82

Organizat,ion and Methods in the Victorian Public Service.

205. Your Committee has established that the Public Service Board does not deliberately carry out the policy of methods improvement within the Public Service as called for under the Pubb:c Ser1Jice Act 1946, Section 5 (2) (a) and (b) which reads :

· "5. {2) Subject to and in accordance with this Act and regulations made thereunder and subject to the Mental Hygiene Authority Act 1950 the functions of the Board shall be- -

(a) to devise means for promoting efficiency in the working of departments by--:-

{i) ·improved organization and procedure ; (ii) closer supervision :

(iii) simplification of work ; {iv) co-ordination of the work of the various departments ; {v) limitation of staffs of departments to actual requirements; (vi) the improvement of the training of officers; and

{vii) the avoidance of unnecessary expenditure.

(b) to e;x:ercise a critical oversight over the methods of conducting business in departments."

206. The Chairman of the Public Service Board stated in evidence that action under Section 5 (2) {a) and {b) only takes place when requests for staff are made and the Board can see improvements which will reduce the staff need or modify the class of officer required.

207. Your Committee asked the following question of the Solicitor-General :-" Should Section 5 (2) {a) and {b) be interpreted to mean that the

Public Service Board has a continuous responsibility to actively devise such m.eans of promoting efficiency on its own initiative and not only as arising out of a staff request ? "

The Solicitor-General answered '' Yes ".

208. For some time there has been established a Mechanization Committee comprising the Assistant Accountant to the Treasury, the Chief Clerk of the Audit Office or the Deputy. Auditor-General, and the Chief Inspector of the Public Service Board, which investigates the need for mechanized accounting within the Public Service. Your Committee feels however, that while the Mechanization Committee undoubtedly does much good and necessary work it is not intended nor would the scope of its operations permit it to concern itself with the broader aspects of efficiency as contemplated by the relevant provisions of the Public Service Act.

209. The Committee believes that government administration in Victoria should be subject to a constant and painstaking review in management and methods. Your Committee is sure from evidence submitted in this inquiry that the widely used excuse of staff shortage which has been put forward as a reason for ignoring matters of managerial significance is not good enough. Your Committee is sure that there are great opportunities for doing more and better work with the same or even less people with the prospect of greater opportunity and happiness for the staff of the Public Service and the possibility of important savings in administrative costs. Yolll' Committee declares that the size and the responsibility of the Public Service demands constant methods and management improvement. The Committee is certain that this betterment can only come from a positive policy of improvement carried out as a de~iberate function of Government. The great industrial and rural development ahead of thiS State must put great demands upon the Victorian Public Service and it can only discharge its full responsibility if it be . streamlined, modernized, mechanized, and well-managed.

Recommendation. 210. Your Committee therefore recommends that the Honorable the Treaslll'er

consider the early formation of an Organization and Methods Division of the Treasury, for which there are ample precedents, notably in the British Treaslll'y. This Division should, in the first place, be headed by a management consultant, and he and his top personnel should be directly appointed by the Governor in Council.

t:Jystern of Victorian Government Accounting.

211. It is no new thing to say that the Government accounting system of this State needs overhaul. Many will put up the usual objection that the form of accounts with some slight alterations has served the needs of the State for 100 years and there is no need for change. .Most Members of your Honorable House know that the accounts of the State are not plain to read, difficult to understand, and that within them there are too many opportunities for dissembling. Your Committee has confirmed during this inquiry that the form of accounting adopted has been inadequate as an " aid to management " at least in the case of some industrial undertakings.

212. The accounting records of a State must principally serve the Executive Government with the type of data and report which it must have to direct the complex needs of the modern State. The accounts should appear in such a form that they are intelligible to the legislature and can be an aid to legislation. It cannot be said that the Budgets, Estimates, and accounts at present prepared in Victoria qualify fully in these respects. .

213. There is no "standard" system. of government accounting suitable for all countries. The form of government accounts should be varied to suit the individual State. The constitutional pattern of Victoria as a sovereign State in the Commonwealth of Australia and the resulting usages will call for forms of accounting adapted to suit.

214. It might well be, however, that the time has come to break from some of the traditional forms of government accounting adopted in Victoria for so long. Many foreign states have developed special procedures and techniques more in keeping with modern accounting trends. The Swedish system is famed for the greater executive responsibility it gives to its administrators, and for the large amount of work done by few staff. The United States of America is at present reorganizing its accounting system.

215. There is a body of well-informed opinion in Australia on the matter of goven1m.ent accounting and budgetary procedure and execution. It is no quick and simple task to leaven the established Treasury thinking with advanced knowledge from outside the Public Service. It would be wrong dogmatically to declare what improvements should be made. Your Committee does not want to make a great stir on this matter now, but believes that some solid hard work is called for.

Recommendation. 216. This leads your Conunittee to reconunend that the Executive Government

ask the University of .Jfelbourne to undertake research with the object of reporting to the Executive Government and your Honora.ble House upon the form of government accounting and Budget execution in keeping with modern practice and most suited peculiarly to the State of Victoria. Such a commission should lead to a mingling of knowledge and experience both from. within and without the Public Service. It should be backed by full-time researchers. The work should be finished within two years.

217. Your Committee declares that it is urgent that this task be started and prays that action may be soon taken on this recommendation.

lV ork of the Public Accounts Committee.

218. Your Public Accounts Committee, aware of the heavy task before it, must tell your Honorable House the handicaps under which it labours and its recommendations for smoother and more effective working. Your Committee has in its command the power of taking evidence, investigation and the examination of papers. By the very nature of its set up it is not able to conduct detailed on-site investigations, which are so necessary for a proper understanding of the problems involved and for the speeding up of the work. Indeed at this inquiry, the Committee has been helped a great deal by the Auditor-General and his staff hut its investigations may, from time to time, include the Auditor-General's Department itself. Also, there is such a great amount of work ahead of the Auditor-General's Department that it would be more correct and proper to seek staff assistance elsewhere. 11923/56.-3

Recommenda.tion. 219. Accordingly, your Committee recommends that a high-ranking invcLtigation

officer trained in audit and investigation work and modern management methods be appointed to the staff of the proposed Organization and 1\iethods Division for attachm· nt to this Committee when called upon. This Committee considers that this officer's taRks should be so arranged that when he is not working on investigation for this Committee he should be working within the proposed Organization and Methods Division and he should report for discipline to the permanent head of his department. Likewise, your Committee asks that skilled stenographic assistance should be furnished to the Public Accounts Committee, ·when required, by the proposed Organization and Method:o Division.

SUMMARY OF RECOMMENDATIONS. 220. Your Committee makes the following recommendations :-

(a) That the Executive Government strengthen the top management of the Commission so that there 'vill be improvements in administration and accounting.

(b) That the Executive Government may consider the disposal of the State Seasoning Works, Newport, on the score that it has outlived its original purpose and it is no longer in the interest of the State to retain it.

(c) That the Executive Government consider the appointment of one of the Assistant Ministers as an Assistant to the Honorable the Treasurer or alternatively the creation of the office of Parliamentary Under-Secretary to the Treasury. Subject to the direction of the Honorable the Treasurer, the Auditor-General could report through the Assistant Minister or through this office, thus giving him easy and continuous access. It could also take care of other matters recommended in this Report such as organization and methods, economies in departmental spending and last but not least, the study and carrying out of some of the recommendations of your Committee of Public Accounts.

(d) That the Honorable the Treasurer request the Auditor-General to bring forward his proposals for amendments to the Audit Act and that, after examination and with due regard to the question of stores audits and inspection, a Bill be drafted for the consideration of Parliament.

(e) That the Honorable the Treasurer consider the early formation of an Organization and Methods Division of the Treasury, for which there are ample precedents, notably in the British Treasury. This Division should, in the first place, be headed by a management consultant and he and his top personnel should be directly appointed by the Governor in Council.

(f) That the Executive Government ask the University of Melbourne to undertake research with the object of reporting to the Executive Government and your Honorable House upon the form of government accounting and Budget execution in keeping with modern practice and most suited peculiarly to the State of Victoria. Such a commission should lead to a mingling of knowledge and experience both from within and without the Public Service. It should be backed by full-tim•l researchers. The work should be finished within two years. Your Committee declares that it is urgent that this task be started and prav:-; that action m.ay be soon taken on this recommendation. ,,

(g) That a high-ranking investigation officer trained in audit and investigation work and modern management methods be appointed to the staff· of the proposed Organization and lVIethods Division for attachment to this Cornmibtee when called upon. This Committee considers that this offic.er's tasks should be so arranged that when he is not working on investigation for this Committee he should be working within the proposed Organization and Methods Division, and he should report for discipline to the permanent head of his department. Likewise, your Committee asks that skilled stenographic assistance should be furnished to the Public Accounts Committee, when required, by the proposed Organization and Methods Division.

35

NON-PARTICIPATION OF MEMBER IN INQUIRY.

221. .Mr. Campbell Turnbull, a member of this Committee did not take part in this investigation on the irregularities at the State Seasoning Works, Newport, at his own request, as he had appeared before the Public Service Board Committee of Inquiry as Counsel for 1\tlr. J. Rawady. Your Committee commends him for his very proper attitude in this matter.

Committee of Public Accounts Room,

Parliament House,

:\Ielbourne, 24th October, 1956.

11923;56.-4

VERNON CHRISTIE,

Chairman.

1954. July 1

1955. .Tune 30

Hl5ii. June 30

To Stock on Hand : Timber .. Less--

On account of adjustments of previous year&­Transferred to Profit and Loss Summary Transferred to Sundry Debtors

Less-On account of revi~ed basis of valuation­

Transferred to Profit and Loss Summa.ry

To ::ltock on Hand : StoreR T.,e,'I.~-

On account of adjustments of pnlvious years­Tran~ferred to Profit and Loss Summary

To Wages Purchases .Freight Inwards

To

Stores, Tools, and M.aterials Oil, Fuel, and Power

Trading Account-Gross Loss brought down Superintendence Travelling and Incidentals Maintenance and Repairs Ground Rent Gartage Outwards Insurance Pay-roll Tax Discounts Depreciation Interest on Capital H.O. Supervision and Audit Fee

Provision for Bad and Doubtful Debts

APPENDIX A.

FORESTS COMMISSION OF VICTORIA.

STATE SEASONING WORKS -NEWPORT. TRADING AccouN1' FOR YEAR ENDED 30TH JuNE, 1955.

£ 8. d.

71,431 17 2 557 0 0 ------

71,988 17 2

3,250 2 6

6,114 12 4

2,641> 0 0

16,536 2 37,009 8 0

1)79 13 10 473 4 4

3,057 15 6

PR(W1T AXD Loss

£ ·'· d.

2,841 17 ;j

442 12 6 892 12 10 232 18 0 i'\24 13 5

1,006 Ill 8 528 2 0 401 8 4

1,507 2 5 2,206 010

205 5 0

£ a. d. 140,879 2 10

7i),238 19 8

6.'),640 3 2

3,469 12 4

69, lO<J 15 6

58,056 3 11

127,165 19 3

l<J55. .June 30 By Sales­

Timber Sundries Cartage

Less Heturns and Allowances

By Service Charges Stock on Hand­

Timber Stacking Sticks, &c. Stores

Balance~- Gross Loss earried down

AccouNT FoR YEAR ENDED 30TH .Tul'\J.:, 19G5. £ s. d. 1 1955.

9,236 2 ll I' J unc 30 By Cottage Rentals .. Realization of Assets

10,879 12 5 602 2 ll

20,717 18 3

Profit a.nd Loss Rummary--"'ct J,oss carried down

c s. d.

66,124 3 4 14 10 0

858 7 3

66,9!)7 0 7 ,1,169 16 4 '~

43,678 5 ~ 4,778 5 3 2,822 12 lO

£ s. d. 72 17 6

194 13 {I

£ !!. d.

65,827 4 3 823 8 lO

.'11,279 3 3 <J,236 2 I L

127,165 l9 3

£ 8. d.

267 ll 0 20,450 7 3

20,717 18 3

C;:l m

Hl54. July

19iil).

To Trading Account-Adjustments of Previous Yeat~-­Timber Stores Revised Basis of Valuation, Timber

June 30 To Profit and J..oss Aceount- -N'et Loss brought down

l'1wFrr AND Loss SuMMARY AS AT 30TH JuNE, 1955. ;; 8. d.

71,431 17 :l 2,64.'} 0 0 :1.250 2 I)

£ -9. d. 11)54. ,July

77,32t> HI 8

20,4110 7 I 1955.

3 ,June 30

!l7,777 till

By Balance Sundry Debtors, net adjustments on account of previous years

By Balance---Accumulatd Loss

£ 8. d. 10,018 15 2

234 8 0

87,524 3 ()

97,777 6 ll

I:;:) -.1

Capital Additions-

On account of RampR at Valuation During Year

Reserve Account Sundry Creditors Treasurer of Victoria Account-­

Balance as at lst ,July, 1954 Working Expenses ex Vote .. Interest on Capital .. H.O. Supervision and Audit Fee Replacement of Assets

Less-paid to ConsolidatE'd Revenue of Sale of Asset.'>

£ 8, d. 73,735 9 lO

526 0 0

APPENDIX A-continued.

STATE SEASONING WoRKS-NEWPORT-continue.d.

BALANCE-SHEET AS AT 30TH 1955.

£ 8. d. 51,701 0 10

840 0 0 4,462 9 5

125,336 2 11 63,490 4 8

2,206 0 lO 205 5 0 785 0 0

192,022 13 5

74,261 9 10

£ s. d. I Buildings

Less Depreciation

Plant and Machinery 57,003 10 3 j Additions during year

8,347 f) 10 ' 3,689 6 4 I

Less-Disposals Depreciation

Siding .. Depreciation

Ramps, at Valuation Permanent Improvements

Additions during Year

ll7,701 3 7 Less Depreciation

Sundry Debtors Add-Undercharges . Less-Overcharges ..

Less Provision for Bttd and Doubtful Debts

Stock on Hand-Timber .. Stacking Sticks, &c. .. Stores

Profit and Loss Summary-

£ 8. d.

331 6 6 852 f) 7

754 4 5 fill 12 10

Inventory and Valuation Adjustments as at 1st ,July, 1954 Loss, }'inancial Year I 954-55 ..

Less-Balance as at 1st July, 1954 .. 10,018 15 2 Sundry Debtors net Adjustments on account

of previous years 234 8 0

I 186,801 6 o I

£ 8, d. I!), 182 18 9

479 ll 6

6,640 19 0 5,220 14 3

11,861 13 3

1,183 12

165 0 2 4 2 (i

6,8:H 14 lO 26 15 2

6,848 10 0 171 2 10

11,597 3 6

242 11 7

11,839 15 I fiOI 9 4

43,678 5 :l 4,778 5 3 2,822 12 10

77,326 19 8 20,450 7 3

!17,777 611

10,253 3 2

£ 8, d.

18,703 7 3

10,678 2

lOO 17 8 840 0 0

(i,677 7 2

10,938 5 9

51,279 3 3

99,277 2 3

87,524 3 9

186,801 6 0

~ 00

1955. July 1

1956.

To Stock on Hand­Timber· Stacking Sticks, &c. Stores

June 30 To Wages Purchases Freight Inwards

]956.

Stores, 'fools, and Materials Oil, Fuel, and Power

To Profit and Loss Account-Gross Profit can·ied down ..

,Tunc 30 To Superintendence ..

1955.

Travelling and Incidentals Maintenance and Repairs Ground Rent Insurance Cartage Outwards Pay-roll Tax Discount.~ Depreciation Interest on Capital H.O. Supervision and Audit Fee

July 1 To Balance ..

1956. June 30 To Profit and Loss Account-Net Loss brought down

APPENDIX B.

FORESTS COMMISSION OF VICTORIA.

STATE SEASONING WORKS, NEWPORT.

TRADING AccouNT FOR YEAR ENDED 30TH JuNE, 1956.

£ 8. d.

43,678 5 2 4,778 5 3 2,822 12 10

17,240 2 9 43,464 6 0

1,138 4 10 148 10 4

4,203 11 0

£ s. d. I 1956.

51,279 3 3

66,1!14 14 11

4,567 16

122,041 14 3

June 30 By Sales­Timber Sundries Cartage

Less Returns and Allowances

Service Charges Stock on Hand­

Timber Stacking Sticks, &c. Stores

PROFI1' AND Loss AccouNT FOR YEAR ENDED 30TH 1956.

£ 8. d. 2,979 4 lO

435 19 9 1,315 5 3

291 4 6 947 5 3 876 8 8 509 16 0 163 13 7

1,445 0 6 2,212 2 3

·205 5 0

£ 8, d.

11,381 5 7

11,381 5 7

1956. June 30 By Trading Account-·Gross Profit brought down

Cottage Rentals . . . , Profit and Loss Summary-Net Loss carried down

PROFIT AND Loss SuMMARY AS AT 30TH JuNE, 1956.

£ 8. d. 1956. 87,524 3 9 I June 30 By Balance-Accumulated Loss

6,741 19 6

94,266 3 3

£ s. d. £ 8. d.

63,572 15 2 20 11 6

905 17 8

64,499 4 4 341 1 9

64,158 2 7 382 12 7

49,593 4 10 5,486 7 8 2,421 6 7

57,500 19

122,041 14 3

V:> ~

£ s. d. 4,567 16 1

71 10 0 6,741 19 6

11,381 5 7

£ 8. d. 94,266 3 3

94,266 3 3

Capital AdditionR during Ye1tr

Sundry Creditors Reserve Account Treasurer of Victoria Account-­

Balance as at lst ,July, 1955 Working Expenses ex T nterest on Capital .. H.O. Supervision and Audit Fee

L€88 Receipts Paid to Consolidated Revenue

APPENDIX B-continue4.

STATE SJ.:ASONING WoRKS, NEWI'ORT---r,ontimred.

BALANCE-SHEET AS AT 30TH JrNE, 1956.

• £ 8. d.

57,003 lO 3 169 16 1

ll7,761 3 7 63,294 0 6

2,212 2 3 205 5 0

183,472 ll 4 64,722 fill

£ 8. d .

.'>7,173 6 4 14-,008 12 2 8,347 .') 10

1Hl,750 ;) 5

198,279 !} 9

Buildings Les.s Depreciation

Plant and Machinery Additions during Year

Less Depreciation

Railway Siding Le88 Depreciation

Permanent Improvements Additions during Year

l-e88 Depreciation

Ramps at Valuation Sundry Debtors

LeBS Provision for Bad and Doubtful Debts

St{)ck on Hand­'l'imber Stacking Sticks, &c. Stores

Profit and Loss Summary-­Balance at 1st ,July, ,IH55 I.oss, Financia.! Year 191}!1-56

£ ,q, d.

18.703 7 3 467 11 8

10,678 1 2 138 14 10

10,816 16 0 805 7 ll

160 17 8 4 0 fi

li,677 7 ~

!!4 8 fi

6,771 15 7 168 0 6

11,566 0 9 901 9 4

4-9,593 4 lO 5,486 7 8 2,421 li 7

87,524 a n 6,741 19 6

£ 8, d

18,235 15 7

10,011 8

156 17 3

6,603 Hi I 840 0 0

10,664 11 5

ii7,500 1!)

104,013 6 6

94,266 3 3

198,279 9 9

~ 0

41

EXTRACT FROM THE PROCEEDINGS OF THE COMMITTEE.

The following extract from the lVIinvtes of the Proceedings of the Committee shows a. Division which took place during the consideration of the draft Report :--

THURSDAY, 18TH OCTOBER, Hl56. Paragraph ] 81.

Your Committee further recommends that the Executive Government may consider the disposal of the State Seasoning Works, Newport, on the score that it has outlived its original purpose and it is no longer in the interest of the State to retain it.

Sir Albert Lind moved-That paragraph 181 stand p<trt of the Report.

Question~-put.

The Committee rlivided.

Ayes, 3.

Bir Albert Lind,

Mr. ::\Ieagher,

Mr. Taylor.

(Chairman-Mr. Christie.)

And so it was resolvea in the affirmative.

Noes, 1.

l\lr. Clarey.

By Authority: W. M. HousTON, Government Printer, Melbo11rne