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in the same way that money dealings have superseded barter in trade, so the modern mind visualises values in terms of currency, not in terms of kind. This power to reduce the operations and phases of trade and manufacture down to a common denominator affords a notation or means to measure work and enterprise. Stocks, profits, credits and debts can all be expressed in the same terms, and their relative bearing and reactions one upon the other appreciated. In this connection it is essential to note that a correct account must have regard to all forms of property concerned to land, buildings, stocks in trade, and not merely to actual currency or money owed and owing. This is a platitude to any business man but not to our public accountants who, in recording the expenditure of the nation, take notice only of cash transactions, and place no value on property or goods possessed.

An account may be described as serving three purposes. The earliest and simplest one is to ensure honesty in the handling of money. For this purpose it is not necessary to place any money value on goods or stores. So long as all money spent is supported by some receipt the account serves its purpose. It is, of course, necessary to see that stores are not stolen or improperly used: this is secured by a control in kind, by direct supervision, by a police service or other methods of vigilance.

The second purpose of an account is to ascertain the amount of profit or loss within the enterprise under account. To do this a value must be placed on land, building, goods and all forms of property, and everything must be set out in the terms of the common denominator known as money. This statement of profit or loss which every business must have, if required by itself and without regard to the first purpose, can be secured with very little book-keeping. All that is necessary is to know the values of all the properties at a given moment; these, added to the amount of money in hand or due, make up what are known as the assets of the concern. The excess or deficiency of these assets over the amount of money owing is the profit or loss as the case may be. This is the form of account kept by many farmers. It might more properly be called a method of ascertaining profit.

The third and complete purpose of an account takes matters much further. Its object is to secure not only the first purpose, that of fidelity, and the second, that of profit ascertainment; but in addition to give detailed information of how those profits (or

losses) are made up. It is in this last that the true value of accounting is to be found; it is here that its human and scientific purpose lies, a purpose which is often, even by accountants themselves, little understood and exploited.

It is generally agreed that the organization and management of men is an art, and that a good manager gets much more out of his subordinates and takes less out of himself than an indifferent manager. He does this in no small measure by imposing trust and responsibility; by giving help and advice when asked, but interfering as little as possible. This may be called, in popular language, allowing a man to run his own show. It is found that quite a timid and diffident individual, when he finds himself in a position of self dependence, develops surprising qualities of reliance and initiative. It is as if function created organism, as if some hidden powers of nature were asserting themselves in the struggle for existence. This attitude of independence also develops a spirit of pride, a will to make good, and a determination not to be defeated, which have a stimulating effect on character. If however a subordinate is to be placed in a position of such freedom there must be a precise means to measure and judge results; some grounds on which praise or blame can be justly apportioned. Success or failure cannot be judged by mere general impression, and in any money-earning or money-spending activity it is accountancy that affords this standard of measurement. A good manager or organizer, having determined and defined the orbits of personal responsibility, attaches to each of those spheres an account which will afford a means to measure how the duties entrusted are being discharged. This in ordinary business language is known as departmentalization, and it is an axiom of accountancy that any accounts worthy of the name must be departmentalized, or in other words must conform to the orbits of personal responsibility. Here is to be found the relation of accountancy to the human factor, and as will be seen later it is in this basic aspect that national and private accounts differ. A true account in effect affords a means by which to judge in clear and indisputable terms the success or failure of personal responsible effort. It is a perpetual stimulus to progress and enterprise; it is a help to those who try; a ready means of exposure for those who fail; an index of failure and success. Its effect reaches to the roots of human nature, and for this reason the art of accounting when correctly applied has a human and psychological value.

The stage has now arrived to examine to what extent the higher and human aims are served and assisted by our methods of public accountancy. It would be a long and wearisome task to trace in any detail the history of the subject. Happily it is not necessary for our present purpose. It will suffice to say that our system adequately serves purpose one, that of fidelity; it is not called upon to serve purpose two, that of profit ascertainment; it fails radically and completely to serve the third purpose, which is to allow a free hand and judge by results. This can be best illustrated by passing from the abstract to the concrete and examining the army accounts.

The army accounts as they existed up to 1919 were typical of the national system. In 1920 they were re-cast on modern lines. It is now proposed to revert to the original form, and it is this proposal which has given rise to the present controversy and revival of interest in the subject. The preliminary to any or every public account is the Parliamentary estimate; and the form of the estimate regulates the form of the account. The estimate sets out under various votes particulars of expenditure for the forthcoming year, and thus gives Parliament a statement of the cash required to carry out the services comprised in the estimate. It is the recognised practice to take cognizance of cash requirements only. If there are stocks in hand, intended to be used and not replaced during the year of account, Parliament has no knowledge of the fact. It is, therefore, quite possible that the actual cost of the services may be appreciably higher than the cash estimate, by reason of the fact that there were at the opening date stocks in hand which it was proposed to consume during the year of account.

During the past four years, stocks remaining after the war have been used by the army to the amount of £52,000,000. The normal method of public accounting does not reveal this fact, and the estimates as a statement of cost are misleading to this considerable amount. When the estimate has been passed the expenditure naturally follows the details of the estimate, and the resulting account would similarly contain no item for the value of stocks consumed. Our public accounts thus fail to discharge a basic rule of proper accountancy, which is that the value of goods used must be set out in the terms of the common denominator of money. In other words an account which has

regard only to cash receipts and cash payments is not a complete account, and an incomplete account is of no value for the purpose we have already postulated.

The next matter to notice is that our army accounts were up to 1920 and are in future to be grouped into twelve votes of which the chief are: Vote I, Pay; Vote VII, Supplies; Vote IX, Warlike Stores, etc. This method of classification by votes violates that principle of accounting by departments, or spheres of responsibility, which we have already shown to be an essential purpose of any account. The army is not organized in terms of pay, clothing, food, munitions, etc. It is organized in terms of battalions, batteries, hospitals, schools, depôts and the like. These are the orbits of executive responsibility, and these should be the entities of account. Unless the true and complete cost of these groups of responsibility is known it is impossible to judge administrative competence, to test the economic effect of good or bad management, to ascertain the financial effect of any reform or to judge whether a responsible official is getting good value for the money he spends. It is, in fact, not possible within an accounting structure of this kind to give a free hand and judge by results.

But failing any control by an account there must be some other form of control, and the method employed is that of control by regulation. Numerous and voluminous books of rules and codes of procedure are drawn up, the main object of which is to prevent waste and secure economy. This is the simple explanation of all the forms and rigidity of our government methods. Control by regulation takes the place of control by account. The effect of this method is to produce a type of person who, instead of thinking and acting as circumstances require, seeks sanction for his action in some book of regulations. So long as some regulation can be found to meet the case in point, he applies it without regard to whether the results are sound or silly, wasteful or frugal. This is the mental atmosphere of the average official. He is perpetually seeking shelter behind some rule instead of exercising his intelligence, and he develops a legalistic instead of a creative type of mind. He becomes like the system in which he is brought up-rigid and crystalline. And remarkable as it may at first sight seem, this is because he is all his life riveted to a method of financial control which fails to recognize and use accounting in its proper and human aspect.

Apart from its devitalising effect, this method of control by regulation probably would not, under normal settled conditions, be more costly than one which, by means of decentralisation, recognised and exploited those qualities of initiative and enterprise that every natural healthy person may be said to possess. But unfortunately each one of our three large spending departments, the Army, the Navy and the Air Force, exists not to serve the normal occasions of peace, but the abnormal crises of war. It is then that the test is applied and the whirlwind is reaped. In war millions are spent, where thousands were spent in peace. Organizations have to expand tenfold, decisions must be taken at once; there is no time while the enemy is at the gate to ask the Treasury or some remote superior whether this or that may be done. Sanction cannot be sought and regulations no longer apply, and it is with those men who all their official lives have been cramped and confined within the narrow limits of regulations that decisions then rest. The result, as everybody knows, is unbridled waste and extravagance. It is futile to expect anybody, who all his life has thought in terms of rules and authority and precedent, suddenly, at a moment of emergency, to think in terms of value and cost. A sense of value cannot be suddenly developed; it must be acquired by trial and experience. It must be developed from early years, and in this development accountancy control, with the freedom of action which it connotes, plays an essential part.

This view was forcibly stated by a witness before the Lawrence Committee in these words :

At present, financial control is highly centralised. The public service in general and the army in particular is governed by rigid regulations. Allowances, the replacement of losses, establishments, are all the subject of fixed rules. The tendency of all rules is to outlive their original purpose and to create anomalies and fictions which militate against real efficiency. Undue regulation must of necessity cramp initiative and kill individual enterprise and resource. Hitherto, and even still, the object of a responsible executive officer is to keep straight with the regulation, irrespective of whether the results are in the best interest of the service. Certainly, the regulation must be obeyed, but it should not be allowed to dominate or to militate against the best methods in any individual case. Under the old unscientific form of cash account, which still lingers, it was impossible to avoid excessive centralisation. There was no standard to which the action of subordinates could be resolved, and by which it could be tested. Under

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