I rise to move the motion that stands in my name. It has been tabled for some time. I contemplated bringing it forward several months ago, but delayed, thinking that the matter might be brought up in the Dáil, as being concerned mainly with matters financial, it would fall more within the scope and powers of the other House. Of course, we, in this House, have also a certain status in financial matters — especially the powers of recommendation on Financial Bills. So, it is not entirely inappropriate that this matter, which I hold is of considerable importance, should be brought up here.
Although the motion mainly deals with accountancy, I hope Senators will not necessarily dismiss it as dull and uninspiring. Accounts are something more than figures. In their use and operation they often have an essentially human value: a man managing a department of a business will tell you that accounts almost have an inhuman value. They have a distinct bearing on the springs of human motives. I might best approach this subject by quoting the words of Lord Haldane, when he recently presided at a meeting to deal with a question of army organisation in Great Britain. You will remember, no doubt, that Lord Haldane years ago went as a Chancery Barrister to the War Office, and, by his great intellect and powers of organisation, reformed the then army and fashioned a small army—an army which was generally accepted as the most efficient army for its size that had ever been known. In speaking the other day on this question of organisation, Lord Haldane said:
"The secret of efficiency is the function and assignment of responsibilities."
I hope the Seanad will accept that formula as correct. Its acceptance is essential to my whole argument. If you want to get efficiency you must, according to this formula, leave your Executive Officer unfettered, as far as possible, and you must judge him, as far as possible, by the results of his work. Examine that, especially in regard to what you mean by "devolution." Devolution in practice really means only one thing—devolution of financial responsibility. You cannot say to a person who may be, perhaps, running a motor repair shop and whose business it is to keep a number of cars in running order—"Look here; we will not interfere with you. You can do exactly what you like." That would be obviously absurd. What you must have is a de-centralisation of financial power. You can say—"Here is so much money," or "Here is an account which shows how much our operations cost and we will judge you by the financial results disclosed by that account." If you examine it, you will see that it is totally unreal to devolve any power of responsibility to an executive officer unless you give him also financial control, subject, of course, to general limitations. He should be left as unfettered as possible, subject to that financial control in the exercise of his task. That financial control, as expressed in the account, provides the standard of measurement which is essential and by which you will judge of the results. In some cases the standards of measurement are more easily devised than in others. If a man is charged with the up-keep of a road, you have an easy standard of measurement—the cost per unit, whether it be a perch or a mile. In running a hospital you have a fairly easy standard of measurement—the cost per occupied bed or the cost per patient per day. In an educational establishment the standard of measurement is easy—the cost per student per day. Some classes of business lend themselves to measurement by account more easily than others.
The next question I come to is: As our accounts are at present, is this devolution of financial responsibility possible? The present accounting system is purely on a cash basis. All receipts in the year, whether arising from the previous year or not, are brought into that year's revenue. Similarly with regard to expenditure, there is no distinction between outgoings of a capital and revenue nature. It is purely on a cash basis, and in no way represents what a commercial business calls revenue and expenditure accounts. A Committee in Great Britain dealt with the whole question of national expenditure in 1918, and this matter of accounting was part of the inquiry. The Committee, appointed during the war, and presided over by Mr. Herbert Samuel, with regard to present accounts, says: "They are accounts of actual receipts and payments of the year in respect to the subject to which the sums voted by Parliament are appropriated, and they differ from commercial accounts in this important respect"—I ask the House to note this—"that all sums which mature for payment in the year are, so far as physically practical, actually paid. The basis of all transactions of Government Departments is a cash one, dependent only on maturity of liability. There is no method in the accounts which shows the amount or the nature of the outstanding liability. If anything is outstanding, if debts are due and not paid, they pass on again into the next account, and neither the Minister for Finance, the Legislature, nor the citizens have any knowledge of the fact from the published accounts. Furthermore, the accounting is paid by subjects, and not by objects. I shall try to explain that; it is not very abstruse. The best illustration, speaking for the Free State, is to take the Estimates of public expenditure for the year. I take the illustration of the Civic Guard. Now, the accounts there are under some dozen heads as follows:—Salaries, allowances, travelling expenditure, clothing, accoutrements, rents. So that it is purely an abstract classification. These heads really tell you nothing. You know what the salaries of the Civic Guard are, but that does not throw any light on the method of organisation. It is of no value to any Executive officer or Minister for the purposes of control. A body like the Civic Guard is built up in terms of units. I do not know what the control is, but there must be groups, and county organisations built up from the various stations through the county. If you had an organic account that would tell you everything, it would be arranged in such a form that the cost of the whole of the organisation in a county will be shown as separate head of the account, and even the component parts of the organisation would appear in the account, so that you could say to an officer in the county: "You have the same number of men as another county alongside of you, and yet you are costing us so much more." You have, in fact, the accounts built up by units of the organisation, instead of accounts shown by abstract classification, which are quite useless for the purposes of control. Now, that being so, you are thrown back upon one form of control, and one form of control only, and that is the form of central control. You are unable to devolve, as the accounts are now, but if you accept my argument the control is centralised, and the Minister for Finance in his office, will be able to hold his hand on all the strings, even down to the smallest detail in the matter of expenditure. I think that is borne out by a speech by the Minister for Finance. I am not finding fault with the Government. They are following the methods that always existed—methods they inherited from Great Britain, but if there is to be control the Minister for Finance himself must control everything, and so he said the other day that every new appointment made and every change has to be referred to him. He is not able to say to the Departments: "You are allowed so much, and as long as you do not exceed that, and as long as you observe the general rules, I do not want the matter referred to me." That is not the method adopted at present. Furthermore, the account, as I said, as it appears at present is not a complete account. I may quote again from the same report upon that question:—"Apart from such inconsistencies as those noted in the preceding paragraph, the Committee find that no Vote on Account includes the total cost of the service to which it relates. Appended to the Navy and Army estimates, and to each Vote of the Civil Service and Revenue Departments Estimates, are notes showing that provision is made as follows in other Estimates for expenditure in connection with this Service.... In the two Votes (for the expenses of the Foreign Office and the Colonial Office), whilst the sums estimated in the current year are £65,547 and £58,626, respectively, the notes referred to show that in the case of the first mentioned a further £40,982, and in the second a further £20,925 are provided under other Votes for expenses of buildings, furniture, fuel and light, rates, stationery and printing, pensions, Postal telegraph and telephone services, etc." It is only when all these are added that you will get the true cost. You are never able to allot the expenditure of the Executive Officer and judge him by results. Now, the effect of this central control is really very important. It has a very deep psychological meaning. If by virtue of the system of accounts the Minister for Finance has to control everything in detail, it necessarily raises a spirit of hostility between the Finance branch and the Executive branches. Anyone in the public service would admit that. You have an attempt on the part of the Executive branches to squeeze what they can out of the Financial branches and not to be candid and straightforward. Whenever they have a margin that they might release they say: "No, if we give this up or if we surrender some people in our Department we will not get anybody else, and when we want an increased expenditure we do not know whether it will be given us, so we will keep quiet and will not tell exactly how we stand and we will try and get more if we can."
Anyone who knows anything about the inner working of the Civil Service in England knows that there is a spirit of hostility going on all the time between these Departments, which has a very prejudicial effect on efficiency, and creates a large amount of internal friction. I think if the accounts have to be highly centralised and every detail as regards increased expenditure has to be referred to the Finance Branch, especially when you bear in mind that the Finance branch has not the technical knowledge of the requirements of all the departments, the result will be that in the end the departments generally will hoodwink the financial authorities. There is another aspect of the accounts that is most important, and that is their value for Parliamentary work. I think everyone who studies the accounts that I have just referred to, the estimates of the Free State, find them peculiarly uninstructive. Of course, you find them in the broad groups giving so much on the Revenue Department, so much on finance, so much for law charges and so on, but when you come to look into the details you find very little information. You may find that information in the case of big subjects which are grouped, but my point is that the accounts in no way reflect the structure of the organization. Take the Civic Guard for instance. It would be much more interesting, I suggest, to show how the Civic Guard is composed, whether in units or in counties or in what way. At present there is no means of finding out how much the organization costs per unit, or how much it costs in each county. What I suggest is that a system should be adopted showing the cost per county organization, the cost so much on the Central Depot, the cost of instruction, and so on. If you had details of this kind you would probably be able to analyse the cost, say, of the Central Depot, what it costs to pass a recruit through it in the year, and so on. You would be able to ascertain all the knowledge if, as I suggest, you had the accounts built up in an organic form, and this would also give you an idea of your outstanding liabilities. It probably may be said that outstanding liabilities are much the same all the time, taking one year with another, but my point is that it is not good business to carry on with a system which does not show these outstanding liabilities, even if they are much the same one year with another.
There is another point I wish to touch on, and it is that in these estimates there is no figure given for capital values. A State which is being built up develops as it goes on, and naturally accumulates very big sums. These sums, in fixed property, represent a very considerable value, but no indication is given in these estimates as to what that value is. Then, in the estimates there is no distinction drawn between recurrent and non-recurrent revenue. You could, I suppose, ferret it out if you spent a considerable amount of time going through the accounts, but the point is that it does not appear specifically in the public accounts as such. I desire to refer briefly to the system of accounts as an instrument of control, and would like to reinforce my opinion on the matter by one or two quotations by high authorities from evidence given before the Committee on National expenditure. Sir Charles Harris, the Assistant Financial Secretary of the War Office, says:—"In criticising the existing scheme of appropriation of Parliamentary grants, it must be borne in mind that the control of expenditure, in the sense of securing that the various public services are efficiently administered at a reasonable cost, was no part of the object which the framers of the system had in view. You cannot get any real control of expenditure by cash issues or cash payments excluding such factors as liabilities, consumption of stores from stock and things of that sort. You cannot control administration by controlling expenses on subjects. If you want to control administration by appropriation you must appropriate to objects."
Mr. S. Dannreuther, the Accounting Officer of the Ministry of Munitions, stated:—"I do not think estimates as furnished in the past to Parliament are worth the paper they are written on from the point of view of Parliamentary control."
I come now to the point of drawing a parallel with the methods adopted by commercial people, and these, I suggest, form an extremely good headline for public accounts. I do not for a moment say that it is possible to take the commercial account and transpose it absolutely, as it appears, without modification into the public service. The objects for which the two systems are working are quite different. The commercial man, of course, aims at two things, first to show the profits earned, but the object of keeping accounts with him does not end there. I am sure my business friends here will say that they use their accounts for a great deal more than to ascertain the profits they have earned. In any well-accounted business, the accounts will also be used as an instrument for control. When anything goes wrong, the first indication that the directors of a business get of that fact is something that is unusual in the accounts themselves, and that is a view that I think is generally accepted. To reinforce that point, I wish to give a quotation from so high an authority as Sir Gilbert Garnsey, who is a member of the firm of accountants of Price and Waterhouse. He says:—"In ordinary commercial practice the accounts are considered as of vital importance to the business as an index of commercial administration and sound management, and a very great deal of attention is given to the system of accounts in use, and to the periodical statements submitted to the directors and to those in charge of various departments of the business affected by the results shown. It is doubtful whether there is any instrument of administration which receives greater consideration in a well-organised business."
I ask you to come to the conclusion that the accounts of the State should receive the same attention that is set on them in any well-organised business, and that they should also receive considerable regard throughout the whole of the Government service. Yet, the fact is that they are in the same straggling framework, apart from certain revisions, as they were in in the year 1688, when the cash system of accounting was adopted. Since then the system has remained practically unaltered. The only change that was made in the system was to add an Appropriation Account, showing the sums that were expended before the year 1866. Since then that system has not been altered, and we still have got the old cash system which was laid down after the Revolution in the seventeenth century.
Undoubtedly, even if profits are not the object, the fact that you could bring out a true account and show the unit of cost, which is the normal commercial method, that system, I suggest, could be applied with benefit in the public service. I would like to take one or two examples as to the use of the organic method of accounts. The scope of such a method of account-keeping for control purposes is much greater in the big spending Departments than, say, in a Department like that for Foreign Affairs, which does different sorts of work, in no way productive work, but as regards diplomacy and so on. In a Department such as that it would be hard of course to bring anything in the accounts down to a unit of cost, because the sums spent by that Department are comparatively small, but in the big spending Departments such as the Army, Civic Guard, etc., the organic method of account-keeping will prove to be of extraordinary value. If you had such a method of dealing with the accounts of a store depot, it would show the cost per ton of the stuff handled, and in the matter of transport it would show the cost of repairs in the case of a number of cars; in the case of local authorities it would show the cost of clerical services per rateable area, for roads, the cost per perch, and for hospitals the cost per patient.
Finally, I come to this deduction that such a system of accounts would enable you to establish the formula that I have laid down in the words of Lord Haldane, who said that a formula can never be effectively operated unless the accounts are in an organic form. Furthermore, unless the accounts are in the form I have suggested, you can never adopt the principle of rationing expenditure. I do not know what views Senators may hold on this, but it appears to me that the rational way of dealing with public expenditure is for the Government to decide on policy, and then say that there is so much money available. Departments may ask how the money is going to be spent, but the Government should be in a position to say: "There it is; we have got no more money." The Executive Council then could go through the various items, and taking the charges on the Central Fund and on other services such as pensions, would say that these must be paid. Then you come to the subjects on which there can and must be give and take, such as Education, Defence, and so on. The Government, having decided their policy, would allow so much on each of these services. The function of the Government would then be finished, but the Minister in charge of each Department, having a proper organic account, would take charge of the sum allowed to him, and would proceed to allot the amount until he had got the allotment down to a mere unit. Then he would get the people functioning under him and more or less unrestricted in their own spheres, not referring every item to the Treasury, and in that way you would get a higher standard of zeal and efficiency in the Departments. Certain scales of salary would be laid down, and if increases were to be given or salaries were to be modified, these would go before the Treasury. Similarly, if supplementary estimates were required the Department concerned could go to the Treasury, but if the system which I suggest is adopted, the Treasury position will be altered completely from what it is at present, and the position of the accountant who keeps the accounts will become intimately associated with the spending officer. The latter will then come into close touch with the financial adviser of the Government with whom he is operating. I hope the Seanad will not think that this is all a fad of mine. There is very considerable authority for these proposals. This Committee on National Expenditure was composed of very eminent gentlemen, with Mr. Herbert Samuel as Chairman. The terms of reference of the Committee were briefly to make recommendations in regard to the form of public accounts.
They recommended that the estimate of expenditure of the year as shown in the Estimates, and the actual expenditure as disclosed in the accounts, should be on the basis of the income and expenditure and the actual cost of the services rendered. They also recommended that the accounts of all Departments should comprise their total expenditure, including services rendered by every Department, and that the Estimates and the accounts should be grouped in their general scope and that there should be one comprehensive series of accounts for each service. In fact, they recommended in broad outline what I am asking the Seanad now to accept.
What has been done to carry these recommendations into actual practice? A good deal has been done, but in a limited sphere. It is a very difficult thing suddenly to take an old-established account and alter it and modernise it, because while you are altering an account there must be very considerable dislocation, or a tendency to dislocate, in the working of the administration. It is a very expert matter to decide as to the best methods and the smoothest methods by which such a change could be effected. In Great Britain the Army was taken as the corpus vili for the experiment, and I was associated with the introduction of the method into the Army. So difficult and highly technical did it appear, we tried the method out in isolated units.
We took a Battalion Depot and Hospital, and we simply tried the method of this form of organic accounting that I have spoken of. Having proved it there, it was gradually extended until the whole Army came within its scope. There was very considerable opposition, mainly from the Finance branches. Naturally they did not like the changes. They did not like their power of control lessened, and greater authority put into the hands of the Executive branches. There have been a number of Commissions on the matter, and, finally, the last Secretary for State decided that it would have to be settled once for all, and added that he was going to appoint an influential Committee to decide it. An influential Committee was appointed, of which Sir Herbert Lawrence, who was Chief of Staff in France to Sir Douglas Haig, and who was a man not only thoroughly qualified in business, but in military matters, was Chairman. The Committee consisted of several accountants and military men. The report of that Committee is not yet published, but as far as we can hear, the method of accounting I have mentioned is going to be fully vindicated. Until the report is published we cannot speak with any authority.
The practical proposal that I put before the Seanad is the formation of a Committee of experts to examine and explore what has to be done, and how, if a change is decided upon, it should operate. The references to that Committee would be that the accounting should be organic and that it should show true costs of the services; that there should be an intimate association between the accounting offices and spending offices, and the Treasury's function should be that of general controller, and, finally, there should be an internal audit. On the report of that Committee, definite practical steps should be taken. My own view is that it is wiser to begin in the sphere of Local Government, because it is rather easier to handle. The Local Government accounts are singularly obscure and unwieldy; there is a great deal of figuring and a very small amount of information. If the Local Government accounts were started with, there would not be any great upset in the machinery of Government. There will be considerable experience gained there and the men you train could introduce the method gradually into other branches of the public service.
This is not merely a question of accounting; it is a question of true economy. You can cut down expenditure quite easily, but that is not sufficient. You want to get value for the expenditure, and you cannot get that unless you can control and know how the money is going, and judge the responsible officers by the result. There is a Bill which is going through the Dáil, the Ministries Bill, which is attempting to define and allocate, more or less on a scientific basis, the functions of the various Departments of State. The reform of accountancy is an absolutely necessary corollary to that Bill. The only way you can really implement the clauses contained in that Bill is by a reformed accountancy. It is not easy to say to one Department: "You have this function," and for the head of this Department to say to other people: "You have these functions," unless these functions are really operative, and that cannot be a reality under the present system of public accountancy.
