Opinion Number. 329

Subject

FINANCE WHETHER COST OF DRAFT TO TRANSMIT FUNDS IS CHARGEABLE TO VOTE : WHETHER PROFIT ARISING OUT OF PURCHASE OF DRAFT IS REVENUE

Date
Client
The Treasurer

The following case has been submitted to me by the Treasury for opinion:

The question of charging the vote with premiums on remittances and of crediting the vote with discounts on remittances, is resubmitted by direction for the opinion of the Attorney-General.

It may be further explained that it is desired to charge the vote in every instance with the cost of the draft.

The full expense of payment in London is charged to the vote if the premium is demanded by the bank on the remittance.

It is desired that if discount is given by the bank, similarly, the full amount of the cost of remittance should be charged,and no more. If the discount were credited to the revenue, the vote would be charged with more than the cost of payment.

The argument adduced by the Auditor-General against this course is that a profit has been made in the one case by the Treasury, and that Parliament has not appropriated the profit.

It is considered that no profit has been made.The vote has been charged with the cost of paying the account. No payment is made by the bank to the Treasury, which has, for example, paid an account for £100 by means of a draft costing only £99 10s., the amount payable to the contractor if payment were made in Melbourne.This would not appear to be in any different position from a discount allowed by a contractor for early settlement of account or for any other reason.

With regard to the appropriation aspect of the question,Parliament has appropriated a certain sum of money for the use of the Department for a particular service; as long as that appropriation is not exceeded it is submitted that the law has been observed.

Since the case was submitted, the following letter in relation to the matter, dated 25 February 1909, has been received by me from the Auditor-General:

The accompanying Query, No. 227, of the 16th instant, together with the reply to the Acting Secretary of the Treasury, of the 19th idem is forwarded in connection with the application by the Treasury for your opinion, referred to in the Acting Secretary's reply.The matter dealt with is similar to that upon which an opinion was given by the Honourable the Attorney-General, on the 4th May last.(1)

In order that the facts may be more fully under your notice,the several Receivers' statements, in which the amounts questioned are included, are forwarded for perusal. I have marked with blue pencil these statements, together with the supporting documents bearing on the question.

It appears to me that the term 'Discount' is improperly used by the Treasury, and the amounts obtained, in purchasing drafts in excess of the amount actually disbursed, in my opinion, should be treated as Premium and not Discount; and it is clear to me that these are profits earned, and, properly, must be credited to the Consolidated Revenue for subsequent appropriation by Parliament. By crediting the amounts to expenditure, the full disbursements are not disclosed, and additional amounts are set free by this method for expenditure without Parliamentary Appropriation.

The opinion of the Attorney-General of 4 May 1908, referred to by the Auditor-General, is as follows:

[Matter omitted, being the text of Opinion No. 305.]

I agree with the opinion of 4 May 1908, and with the view expressed by the Auditor-General in his letter of 25 February 1909, except that I desire to express no opinion as to the use of the word 'Discount' as used by the Treasury.

It is, I think, perfectly clear that the obtaining of a draft and the payment of a creditor are two separate and distinct transactions.

Bearing that in mind, it is only necessary to state an assumed case in which a draft is obtained at a discount, and follow it out from start to finish, to make the matter perfectly plain.

The assumed case may be stated as follows:

£
There is a Vote for Special Defence Material of ..................................................... 500
Special Defence Material has been obtained from J. Smith and Co.,
London, to value of.................................................................................. 500
The Department has in Melbourne actual cash for expenditure in
connection with the above Vote...................................................................... 500

The Department obtains from a bank in Melbourne a draft on London for £500. The price paid for the draft is £497 10s., or i per cent below par. At this stage, the Department's £500 in cash has now been changed into-

£ s. d.
Draft (Value in London).......................................... 500 0 0
Cash in hand.......................................................... 2 10 0
£502 10 0

The Department sends the draft to London, where it is cashed by the Department's representative, who receives £500 in cash for it. The Department then has in actual cash-

£ s. d.
Proceeds of draft .................................................... 500 0 0
Cash in hand, Melbourne.................................................. 2 10 0
£502 10 0

The Department then pays John Smith and Co. £500 in cash, and gets their receipt for the money. The transaction has now come to an end, and the result is the vote is exhausted, the account is paid and discharged, and the ledger balanced, leaving the sum of £2 10s. in cash in hand. This sum is a profit made by buying the draft for £497 10s., and selling or changing it for £500, and should, in my opinion, be treated as if it were an item of revenue. I can see no distinction between it and a similar amount earned as interest.

Only the true expenditure under a vote should be charged to that vote. In the assumed case, the vote is £500, and the true expenditure is £500, that is, the sum actually paid by the Commonwealth to the creditor. Consequently, that £500 is the proper amount to be charged to the vote.

Now, if the vote had been charged with the cost of obtaining the draft instead of the true expenditure, the result would be that the books would show an expenditure of £497 10s. instead of £500, thus leaving it open to exceed the appropriation by £2 10s.

The obtaining of a draft for the purpose of remitting money chargeable to any particular vote is an incidental transaction, and is not expenditure under the vote. Of course, obtaining a draft may involve some expenditure, but that expenditure is, in its nature, incidental expenditure.

The transaction is analogous to the changing of money from one form to another, and the expenditure is analogous to commission or exchange.

There is a clear distinction between discount allowed by a creditor, and the profit made by purchasing a draft, because the amount of the charge, less the discount, is the true expenditure, whereas in the case of profit made on a bank draft the true expenditure is the sum paid by the Commonwealth to the creditor-the profit being made by a separate and distinct transaction.

I am of opinion, therefore, that in strictness, the cost of obtaining a draft for a remittance ought not to be charged to the vote to which the remittance is charged. The true expenditure should, be so charged-that is the amount actually paid by the Commonwealth to the creditor.(2)

[Vol. 7, p. 87]

(1) Opinion No. 305.

(2) This opinion was published in Commonwealth o f Australia, Pari. Papers 1909, Vol. II, p. 1288.