(3) The cessation of the payment of all "extra legal" allowances (i.e., allowances inadmissible under the Pensions Law) gave rise to some hard cases. It was resolved, therefore, to apply the Turkish law governing the grant of allowances to destitute persons (Turkish Muhtajin Law). This law enabled the Ministry to continue allowances in certain deserving cases. In accordance with a decision of the Council of Ministers, certain "Dhatiyah" allowances were admitted as from 13th October, 1924. These payments are in the nature of personal allowances and the claim to such does not rest on law, but on the fact that the recipients enjoyed the allowances under the Turkish Government. The examination of such claims is a difficult and invidious task, while in many cases the reasons governing the original grant of the allowances do not appear sufficient to justify their continuance. The whole question needs careful consideration. The expenditure on pensions for the years 1921-24 was as follows: The 1924 charge represents 3.24 per cent. of the gross revenue, railways and port excluded. An attempt has been made to compare this with the percentages of the pension charges which fall on the Egyptian, Turkish and Palestinian Treasuries. The comparison, taking as a basis the 1925 estimates of gross revenues of those countries, is as follows: Egypt.. Per cent 7.23 0.72 7.84 As has already been mentioned, the Finance Ministry stoutly resisted all attempts to amplify the Pensions Law, though not always with success. There is a very real danger that new obligations may be entered into lightly. The financial effect of what may appear to be very trifling concessions is difficult to calculate and at the same time may be very considerable. It is, therefore, necessary to watch very jealously any attempts to extend the scope of the law. 7. Accounts Department. The only important change in the organisation and functions of this Department during the year under review was the transfer of the inspectorate work and staff to the Ministry. The Department was prompt in the submission of its monthly statements of receipts and expenditure, a factor which is of the greatest value to good administration. The Accountant-General had not, up to the close of the financial year under review, been able to complete his review of outstanding balances (assets and liabilities). The non-completion of this work rendered it difficult for the Ministry to form an accurate judgment of the cash requirements of the Treasury, with the result that the tendency was to keep larger cash balances in the Treasury than were actually necessary. 8. Comptroller and Auditor-General. The Auditor-General's Department was constituted in April, 1924, as a Department independent of the Ministry of Finance, for the purpose of verifying expenditure and reporting to the legislative authority whether expenditure has been in accordance with the appropriations approved by Parliament and the moneys paid in accordance with the rules prescribed by law. Since trained auditors could not be spared from the Accountant-General's or other Departments, the early portion of the year was taken up with the recruitment and training of new staff. A systematic test-audit of the accounts for 1924-25 was begun in September, 1924, and continued until the end of November, 1925. Numerous technical irregularities came to notice, and in one case overpayments to a contractor to the extent of over Rs. 1,00,000 were detected and recovered. On grounds of economy and administrative convenience, the appointment of Auditor-General was combined with that of Inspector-General of Accounts throughout the year 1924-25. This combination of the dual functions, however, had the disadvantage of tending to obscure and weaken the Auditor-General's independence of the Ministry of Finance, and it was discontinued in March, 1925, when the post of Chief Finance Inspector was created. 9. The Budget and its Administration. Appendices are attached shewing the budget estimates for the year 1924 and the actuals. It will be observed that against a total sum voted of 575.59 lakhs the actual expenditure was only 464.86 lakhs. That is to say, there was underspending to the extent of 110.73 lakhs. Thus, as in the previous year, there was a relatively enormous saving in expenditure. The casual critic must inevitably be led to the conclusion that the preparation of the budget is not undertaken by the Finance Ministry with reasonable care and appreciation. It is, therefore, very desirable to analyse closely the reasons for the saving. For the second year in which a grant was made for the service of the Ottoman Public Debt, the provision lapsed. This afforded a saving of 30 lakhs. The second item for debt services also lapsed; this was the sum of 5 lakhs provided to meet the annuity in respect of debt for the Capital Assets taken over from His Britannic Majesty's Government. Further sums provided in the budget against which no expenditure was incurred were (a) the 4.50 lakhs provided to meet payments due by the 'Iraq Treasury to the British Officials' Provident Fund, and (b) the sum of 5 lakhs allotted to cover the expenses of the Senate and Chamber of Deputies. No expenditure was incurred in the case of the first of these items, as the contracts providing for the creation of the Provident Fund were not given during the course of the year, and in the case of the second item, Parliament did not, in fact, assemble during the year, owing to delay in the elections. These total lapses of provision amount in the aggregate to 44.50 lakhs. They represented mainly, though not entirely, postponement of expenditure rather than a real saving, and the Finance Ministry was not in a position to forecast this at the time when the estimates were prepared. Deducting this figure of 44.50 lakhs from the total saving, a sum of 66.23 lakhs is left to be accounted for. Classified under main heads this underspending occurred as follows: Pensions Salaries Stores .. 18.50 1.00 2.00 15.00 Conveyance of mails Customs duty refunds and draw-backs Irrigation, building and telegraph construction works Surveys Other items The amount provided for pensions proved to be considerably over-estimated, but it was difficult to foresee the effect of the decision given towards the close of the financial year 1923, extending the period of time in which 'Iraqis, who were officers in the Turkish Army or who had been civil servants in the Turkish administration, could return to 'Iraq and become entitled to the benefit of the 'Iraq Pension Law. In fact, the number of such applicants for pensions under this decision was considerably less than anticipated. The considerable underspending on the estimates for salaries Iwas due, to the extent of 7 lakhs, to failure to recruit the new battalions of the Army as rapidly as expected. The balance of the saving was due mainly to two causes. In the first place, the budget provided for a considerable deficit and at the time of accepting it the Council issued strict orders for every possible economy to be effected and for establishment cadres wherever possible to be kept below full strength. Secondly, the estimates were prepared on the assumption that the ban on the grant of annual increments, imposed in the previous year, would be withdrawn in the course of the new year. This anticipation was not realized, and the considerable/provision made for increments lapsed. A further cause was that the estimates provided for administrative and revenue services in certain areas of the Kirkuk and Arbil Liwas which were not set up during the year. The failure to spend the full sums allotted for purchasing stores was due almost wholly to delay in the delivery of military stores and materials ordered by the Army. This lapse of provision represented a mere postponement of expenditure. In the case of the spending Departments of Public Works and Irrigation, the saving was almost entirely due to the late date at which the estimates for the year were passed, and consequently the short time available for progress on new works provided for. It was also due to a decision not to proceed with certain of the irrigation projects which the estimates assumed would be undertaken. The two Survey Departments, one for topographical and cadastral surveys and the other for contour surveys, were also handicapped in completing their programme by the late date of sanction to the estimates. Their underspending represented a saving of 25 per cent. on their estimates. Underspending also arose on numerous other items of the estimates, but was counteracted to a certain extent by overspending on others. It is not considered necessary to refer specifically to these, particularly as no supplementary votes were passed during the year. The causes which gave rise to general underspending are various. Some have already been indicated; of these, possibly, the most effective was the delay in the issue of final sanction to the budget until after seven months of the financial year had passed, during which period the Finance Ministry refused to agree to any expenditure on new projects other than those of the greatest urgency. Delay in the sanctioning of the budget has in fact been a constant feature of the financial administration since the inception of the 'Iraq Government. This has been, no doubt due partly to the financial machinery not being quite adequate for its task, but the main reason has been the failure of the successive Cabinets to determine their policy in sufficient time to enable the Ministry to prepare and submit the budget. Though one result of this has been a perhaps unexpected saving, the delay is a very unsatisfactory feature, and it is hoped that in future years there will be an improvement in this respect. The Organic Law, in fact, makes definite provision for the submission of the annual budget to Parliament before the beginning of the financial year to which it relates. Even, however, if allowance be made for all these disturbing causes, the fact remains that there is a great tendency on the part of Departments to over-estimate and that the Ministry of Finance has not been entirely successful in combating it. 10. Financial results of the year. The receipts and expenditure for the four years 1921, 1922, 1923 and 1924 were as follows (in lakhs of rupees) : It will thus be seen that at 31st March, 1925, there was an aggregate surplus of revenue over expenditure amounting to 92-59 lakhs. Of this sum, cash was held by the Treasuries and 'Iraq agents to the amount of 41.28 lakhs, while a sum of 15 lakhs was deposited with the banks. A precise statement as to how the difference (36.31 lakhs) is made up cannot be made with accuracy until the Accountant-General has completed his review of balances, to which a reference has already been made above, but it may be mentioned here that sums amounting to approximately 34 lakhs were furnished by the 'Iraq Treasury for railway projectssuch as the extensions to Kirkuk and Karbala-and approximately 15 lakhs were locked up in the stores held by the Irrigation and Public Works Departments. On the other hand, approximately 50 lakhs were outstanding under deposits with the Treasury, of which the main item was 15 lakhs due in respect of customs transit duties. 11. The Port of Basra. The year 1925 closed with the Port in a very satisfactory position despite the fact that trade conditions during the year were depressed, and that the grain harvest, from which good results had been expected, did not reach expectations owing to the practical failure of the crop in the Mosul area. Fortunately, |