The 1832 Audit Act
Sir James Graham and Economy
Wide recognition of the serious failings of the Board of Audit meant that there were a number of people, in Parliament and outside, prepared to express their views on the need for improvement. Particularly noteworthy was Sir Henry Parnell who was a persistent critic of public accounts, arguing for simple and uniform accounting systems throughout all departments. He wanted 'proper' audits and annual reporting to Parliament. Ultimately, the decisive move to introduce significant improvements in public sector audit was made by Sir James Graham, a staunch advocate of economy in public spending and the newly appointed First Lord of the Admiralty. When presenting the Navy estimates for 1831 he drew attention to how 'For a series of years prior to 1831 systematic misappropriation of the separate grants made for Naval Services had from year to year taken place' and 'moneys voted for specific purposes had been systematically applied to other purposes not sanctioned by Parliament'.
Graham referred to a long list of overspends and misappropriations of funds at such places as Deptford, Chatham, Woolwich, Bombay, and Leith, where 'works of great extent in the department of the naval service had been begun, completed, and paid for, without the knowledge or sanction of Parliament, or without the subject having once been brought under the notice of the House of Commons'.8 The most outrageous example was the construction of buildings at Cremin where Parliament in 1826 had voted expenditure of ?4,000 but the Victualling Board had subsequently managed to spend ?229,441. This massive overspend was met by transferring surpluses from amounts voted by Parliament for other purposes. At Woolwich expenditure of ?326,000 was nearly double the amount originally provided for in the approved estimates. This was again met from surpluses elsewhere. At Bombay, a seventy-four gun warship costing nearly ?90,000 was being built from funds provided for dockyard expansion.
Graham also disclosed that every year since 1820 the Navy had employed 1,500 to 3,000 seamen in excess of the numbers voted for by Parliament. Wages of ?1.25 million for these surplus seamen had been paid from excessive funds regularly voted by Parliament based on inflated figures for purchases of timber, shipbuilding materials, and other supplies. This situation had been made possible because there was only a single estimate for the funding and spending of the Navy Board, the Victualling Board, and other separate naval services that allowed surpluses and overspends to be moved freely between them. Not surprisingly, Graham argued forcibly that in the case of the Navy the existing system of attempting to safeguard appropriation simply by controlling the issues of funds from the Exchequer had clearly failed to provide effective parliamentary control and accountability.
Graham was a close friend and confidant of William Gladstone, with whom he shared a life-long obsession with economy. Graham regarded waste and extravagance as misappropriation of public funds since they were clearly not Parliament's intention when voting supply. As early as 1825 James Butler had remarked upon Graham's passion for economy and the popularity this had created for him, both within and outside the House of Commons. In Parliament, Graham called for economy on many occasions. Towards the end of his parliamentary career Graham reminded Roebuck that 'for two or three years before the formation of Lord Grey's Government... (particularly in 1830) I had taken a line which was considered radical on questions relating
to public expenditure____Reform and Retrenchment were the watchwords
which led me to power.' Lord John Russell's refusal to pledge that his government would implement a policy of stiff retrenchment was sufficient grounds for Graham to refuse the Admiralty in January 1849. Graham's obsessive pursuit of economy in public spending carried over into his private life. When making his will in 1823 he followed his life's rubric by directing that his trustees should deal with his estate with 'strict economy', although he did not 'wish to enforce a niggardly system... I wish only to urge abstinence from all fruitless and unnecessary expense'.14
Before Graham's appointment the Navy was well known to be full of sinecures, useless duplication of offices, and centuries of clogging, accumulated privileges. It was notorious for its extravagance and its invulnerability to financial control. These excesses and abuses were regarded as untouchable because the Admiralty was traditionally headed by a powerful and influential Secretary of State who had ready access to all the important members of the government. Attacking the Navy's spending was seen as attacking the wellbeing of the nation itself, as well as an unacceptable intrusion into the Executive's affairs. For an island state such as England the Navy was popularly regarded as the nation's ultimate security against the 'envious plotting' of Britain's often hostile neighbours. Criticisms of excessive naval spending were countered with predictions of national vulnerability and defeat. This was usually enough to blunt all attacks and helped to perpetuate the Navy's firm place in the country's affections. So confident of their position were the supporters of the Navy that when it was suggested by Landsdowne that Graham be given the Admiralty they felt reassured that in this office 'his dangerous inclinations to economy would not have too abundant scope'. Entrenched custom, however, would not be enough to protect the Navy against Graham's drive and determination.
Graham's interest in economy in the Navy had emerged very early in his crusades for frugality in government spending. In March 1830 he drew considerable attention to himself when he sought the abolition of the Treasurer of the Navy as a sinecure. By the time Graham left the Admiralty in 1835 he had managed to reduce naval spending from ?5,045,827 in 1832 to ?4,658,000 in 1835. This achievement was praised by The Black Book of the
Aristocracy as 'a splendid example to the heads of Departments____The energy
with which Sir James Graham has proceeded to new-model the Department will leave little to desire in that branch of the public service.' Popular newspapers such as The Morning Chronicle and The Morning Herald commended Graham in February 1831 for exposing the Admiralty's 'system of deception and mystification'.
Graham's primary objective of securing stringent economies in naval expenditure was not pursued in isolation. A persistent critic of the virtual absence of useful financial information being provided to Parliament and the opportunities that this created for excessive spending, he considered that the situation across departments was intolerable and could no longer be permitted to continue. When it came to accountability, Graham was an early and determined advocate of improved accounts that would show the appropriation of funds approved by Parliament, with subsequent spending examined by an effective independent audit on behalf of Parliament. He regarded accounts and audit as complementary to the pursuit of economy and efficiency. Lord Welby recognized Graham as the 'first statesman who grasped that... the only real check of expenditure is to be found in a Report to the House of Commons on that expenditure, when it had taken place, by an independent auditor'. Graham was therefore instrumental in passing, as part of pent-up reforms of the new Whig government, the 1832 Audit Act. At the time, and later, the reforms embodied in the Act were seen as a watershed in state audit because they introduced formal appropriation audits on behalf of Parliament. So closely was Graham identified with the 1832 Act that it was usually referred to as 'the Graham Act'.