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operations in detail, but there are, in our opinion, certain general principles which might well be observed in every Colony with little or no modification, and these general principles we now proceed to formulate.
GOVERNMENT LIABILITY.
3. In the first place, we are surprised to discover, on examining the rele- vant Ordinances, that in certain instances there is no reference to the ultimate liability of the Colonial Government in respect of the deposits in the savings bank. It is clear that money deposited in a Government savings bank is money entrusted to the Government, and that (in the absence of any express provision to the contrary) the Government, in accepting such deposits makes itself re- sponsible for the repayment of the money when claimed by the depositors, together with interest on such terms as have been promised. The guarantee of the Government is in fact implied even where it is not given in express terms; and we think, therefore, that the Ordinance establishing a savings bank should contain a clear statement of ultimate Government liability. As will be seen from section 8 of the draft Ordinance appended to this report, we have put this in the form that the guarantee of the Government is given to every depositor, and that, if at any time the assets of the savings bank are insufficient to meet claims, the Governor shall direct payment out of public revenue.
SAVINGS BANK ACCOUNTS.
4. With the objects of securing the maximum of confidence on the part of depositors and of shewing clearly the financial results of savings bank operations, it is the general practice in the Colonies, and we think it essential, to keep savings banks funds and accounts as distinct as possible from the funds and accounts of any Government department. The implications of this principle will appear in the course of our further recommenda- tions. One such implication is that it is incorrect to pay interest to depositors from Colonial revenues and to take into Colonial revenues all interest received from the investment of savings bank funds, as is the present practice in some Colonies.
5. The principle that savings bank funds shall be kept distinct from other funds necessarily affects the method of dealing with appreciation and depreciation of investments held on behalf of savings banks. Colonial Regulation 275 (1935 Edition), which lays down the procedure to be followed in dealing with appreciation and depreciation of investments held in Colonial funds, reads as follows:--
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In accounting for the purchase or sale of securities on account of the Colonial Government, the cost price or price realized will be entered under Investments or Investments Realized 'below the line', that is, following after and distinct from the entries relating to revenue and to expenditure charged against revenue. Any profit on sale as compared with the value at which the securities sold appear in the accounts will be carried to current revenue and any loss charged to expenditure.
"At the close of each financial year, each of the securities held on account of the Colonial Government will be valued at the current middle market price in London on the last working day of the year, and the value assigned to each security in the accounts will be adjusted so as to correspond with that price. The amount by which the new value exceeds or falls short of the old value will be carried to the credit or debit of an Investments Adjustment Account, and the balance of that account will be carried to revenue or charged to expenditure.
"Where securities are held on behalf of a fund so that they belong to the fund and not to the Colonial Government, a similar procedure shall be followed, but the gain or loss will accrue to the fund and not to the Colonial Government.
When securities are transferred from one fund to another fund in the custody of the Government, they shall be so transferred at the current middle market price in London at the date of transfer."
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In many Colonies securities held on savings bank account are considered as falling under the second paragraph of the regulation and any appreciation or depreciation is consequently credited or debited to Colonial revenue. Acceptance of the principle laid down above carries the corollary that such securities should be regarded as falling under the third paragraph of the Regulation. In view, however, of the method of dealing with surpluses and deficits which we suggest later in this report (see paragraphs 25-30) we consider it preferable that any profit or loss on sale of securities, as well as any appreciation or depreciation in the value of the securities at the close of the financial year, should not be carried to the bank's revenue or charged to its expenditure but should be credited or debited to an Investments Adjustment Account, and that the balance of that account at the end of the year should be carried, not to the Revenue and Ex- penditure Account, but to the Capital or Reserve Account as exemplified in the model accounts set out in Appendix B.
EXPENSES OF MANAGEMENT.
6. Unless the accounts of the savings bank are kept separate, it is difficult to ensure that all expenses incurred on savings bank business are charged against savings bank funds, as should, in our opinion, be done. In a large number of Colonies all such expenses are at present charged against Colonial revenues; in other Colonies it is the practice to debit expenses of management to the savings bank account, but even in these cases we are inclined to doubt whether the amount so debited represents the full cost of the bank's operations. It will be appreciated that, in order to arrive at a complete figure, it is necessary, in addition to such clearly chargeable items as the cost of stationery and other materials, and the salaries and wages, pension liability, leave passages, travel- ling expenses, etc., of those officers who are engaged solely on savings bank business, to take into account the all-in cost of any services performed for the savings bank by Government departments, or, in the numerous cases in which the savings bank is operated either by the Post Office or by the Treasury, by officers partly or principally engaged on other duties in these departments.
7. One charge which, in our opinion, should be debited to savings bank funds, but of which we doubt whether account is often taken, is the rent of any premises used either wholly or partly for the bank's business. Such premises are no doubt in the great majority of cases Government-owned buildings, for which the Government pays no rent, but they will have been purchased or con- structed, as they are maintained, from Government funds, and a reasonable return on such expenditure is, we suggest, a proper charge against the savings bank; its omission is in effect a veiled subsidy to the bank by the general taxpayer.
8. We recognize that the correct assessment of many of the indirect charges presents difficulties, and it may often be impossible" without undue labour to arrive at anything closer than a very broad estimate. It would not be prac- ticable for the Committee to make any precise recommendation as to the methods to be adopted, nor, in view of the widely divergent conditions in different Colonies, do we suggest that a uniform method would be appropriate in all cases. We append to this report a statement setting out the heads of expenses charged to the United Kingdom Post Office Savings Bank, which we trust may be of some assistance to Colonial Governments in dealing with this question. (Appendix C). It will be observed from paragraph 2 (b) of the statement that business transacted at post offices on behalf of the savings bank is charged on
a unit cost basis.
PUBLICATION OF ACCOUNTS.
9. If the recommendations set out in the preceding paragraphs are adopted, the accounts of the savings bank will show clearly the financial results of its operations, and these results should, we suggest, be presented to the Legisla ture annually before publication. A few of the existing Ordinances require that accounts should be laid annually before the Legislature; others that they should We consider that both be published annually in the Government Gazette. courses should be prescribed and we have made the necessary provision in section
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