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GOVERNMENT OF BRITISH COLUMBIA AUDITOR'S REPORT ON Investigation into the Financial Relations of the… British Columbia. Legislative Assembly 1917

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 GOVERNMENT  OF   BRITISH   COLUMBIA
S
AUDITORS' REPORT
ON
Investigation into the Financial Relations of
the Government with the Canadian
Northern Pacific Railway Company
up to December Slst, 1916, and as
regards the Construction of Terminals, up to May 31st, 1917
BY
PRICE, WATERHOUSE & COMPANY
THE GOVERNMENT  OF
THE PROVINCE. OF BRnSH COLUMBIA.
PRINTED BY
AUTHORITY OF THE LEGISLATIVE ASSEMBLY
VICTORIA, B.C.
Printed by WILLIAM H. CULLIN, Printer to the King's Most Excellent Majesty
1917  FINANCIAL RELATIONS
OF THE
Government with the Canadian Northern Pacific Railway
Company up to December 31st, 1916
Vancouver, B.C., May 12th, 1917.
To the President of the Executive Council
of the Provincial Government of British Columbia.
Sib,—In accordance with instructions received from the Honourable John Oliver, Minister
of Railways and Agriculture, which were embodied in an Order in Council dated January SOth,
1917, we have conducted, in conjunction with our examination into the Provincial accounts, an
investigation into the financial relations of the Government with the Canadian Northern Pacific
Railway Company up to December 31st, 1916. Our examination, pending the receipt of further
instructions, has been confined to the books kept in the Vancouver office of this Company, and
has not included an examination of what may be termed the financial records, which we understand are kept in Toronto.    We annex hereto statements as follows:—
Exhibit 1.—Statement of moneys deposited to the credit of the Minister of Finance
in connection with the British Columbia Government's guarantee of the Canadian
Northern Pacific Railway Company's main line securities sold and pledged up to
December Slst, 1916;   prepared from data obtained in the Government Treasury
Department aud from correspondence received by that Department from the Canadian
Northern Pacific Railway Company.
Exhibit 2.—Statement of moneys deposited to the credit of the Minister of Finance
in connection with the British Columbia Government's guarantee of the Canadian
Northern Pacific Railway Company's branch lines securities pledged up to December
31st, 1916;   prepared from data obtained in the Government Treasury Department
and from correspondence received by that Department from the Canadian Northern
Pacific Railway Company.
Exhibit 3.—Statement of moneys deposited to the credit of the Minister of Finance
in connection with the British Columbia Government's guarantee of the Canadian
Northern Pacific Railway Company's terminals securities sold up to December 31st,
1916;   prepared from data obtained in the Government Treasury Department and
from correspondence  received  by   that Department  from  the  Canadian  Northern
Pacific Railway Company.
Exhibit 4.—Statement showing summary of total construction cost to December 31st,
1916, of the Canadian Northern Pacific Railway Company's main line, branch lines,
and terminals; prepared from those records of the Company produced for inspection
at Vancouver.
Exhibit 5.—Statement showing divisional construction cost to December 31st, 1916, of
the Company's main line;   prepared from those records of the Company produced
for inspection at Vancouver.
Exhibit 6.—Statement showing cost to December 31st, 1916, of each of the Company's
branch lines;  prepared from those records of the Company produced for inspection
at Vancouver.
Exhibit 7.—Statement showing cost to December 31st, 1916, of each of the Company's
terminals;   prepared from those records of the Company produced for inspection
at Vancouver.
Exhibit 8.—Statement of cost to December 31st, 1916, showing names of contractors
and amounts earned by them for construction on the Company's main line, branch
lines, and terminals;   prepared from those records of the Company produced for
inspection at Vancouver. E 4 Auditors' Report. 1917
Exhibit 9.—Statement showing amounts that were payable to the Canadian Northern
Pacific Railway Company in respect of work done on the main line to December
31st, 1916, according to subparagraph (d) of paragraph 9 of the agreement set
forth in the Schedule to chapter 3, Statutes of 1910, our reading of which has been
confirmed by the Attorney-General's Department.
Exhibit 10.—Statement showing amounts that were payable to the Canadian Northern
Pacific Railway Company in respect of work done on the branch lines to December
31st, 1916, according to section 8 of chapter 57, Statutes of 1913, our reading of
which has been confirmed by the Attorney-General's Department.
Exhibit 11.—Statement showing amounts that were payable to the Canadian Northern
Pacific Railway Company in respect of work done on terminals to December 31st,
1916, according to section 7 of chapter 59, Statutes of 1913, our reading of which
has been confirmed by the Attorney-General's Department.
With regard to the annexed statements and our investigation generally, we desire to report
as follows:—
Bbief General History.
The Canadian Northern Pacific Railway Company was incorporated by chapter 4 of the
Statutes of 1910, with a share capital of $25,000,000, divided into 250.000 shares of $100 each.
The provisional directors were William  Mackenzie, President  of the  Canadian Northern
Railway Company ;   Donald D. Mann, Vice-President of the Canadian Northern Railway Company ;   Roderick J. Mackenzie, Contractor;   David Blythe Hanna, Third Vice-President of the
Canadian Northern Railway Company;   and Andrew D. Davidson, Financier.
The Act incorporating the Company provided, inter alia:—
(1.) That the head office of the Company was to be in the City of Victoria, in the
Province of British Columbia, or in such other place, as fixed by by-law of the
Company, within British Columbia :
(2.) That the Company had authority to construct and operate railway-lines with a
gauge of 4 feet 8% inches within the Province of British Columbia, as follows:—
(a.) A line connecting with the main line of the Canadian Northern Railway
Company at some point at or within the eastern boundary of the Province of
British Columbia; thence through the Province, through the City of New Westminster, to a point in the City of Vancouver and also to a point at or near English
Bluff, south of the Fraser River, a distance of approximately 500 miles:
(b.)  From a point in the City of Victoria to a point on or near Barclay Sound,
on the Island of Vancouver, a distance of approximately 100 miles:
(c.)   Such  other lines  within  the  Province  as  may  be  from  time  to  time
authorized by order of the Lieutenant-Governor in Council:
(3.)  That the money raised upon the capital stock of the Company was to be applied to
the making, equipping, and maintaining of the railways which the Company was
authorized to construct:
(4.)  That the Company was to commence business as soon as $100,000 of capital stock
was subscribed for and allotted, and as soon as 10 per cent, of this amount was
paid into some chartered bank of Canada:
(5.)  That the Company was empowered to issue and sell or pledge bonds, debentures,
debenture stock, or other securities  (not including preferred or common stock) to
an amount not exceeding $60,000 a mile:
In addition to the above, the Company was authorized to issue securities for
the purpose of acquiring, constructing, or obtaining any necessary or convenient
terminal properties, etc.:
(6.) That the directors may pay  or agree to pay  in paid-up  stock or in  bonds  or
debentures of the Company such sums as they may deem expedient to engineers
or contractors or for right-of-way or materials, plant, or rolling-stock:
(7.)  That the Company may amalgamate, with the consent of the Lieutenant-Governor
in Council, with the Canadian Northern Railway Company or such other company
as may be approved as aforesaid.
The incorporation of the Canadian Northern Pacific Railway Company was effected pursuant
to a previous agreement entered into by the Canadian Northern Railway Company  with the 7 Geo. 5 Canadian Northern Pacific Railway Co. R
Hon. (now Sir) Richard McBride, as Minister of Mines for the Province of British Columbia,
on January 17th, 1910. This agreement was given the effect of a Statute as Schedule (A) to
chapter 3 of Statutes of 1910, and under it the Canadian Northern Railway Company covenanted,
inter alia:—
(1.)  That the Canadian Northern Pacific Railway Company "shall and will well, truly,
and  faithfully  lay  out.   make,  build,  construct,  complete,   equip,   maintain,   and
operate,   or  cause  to   be   operated,   continuously"   the   lines   of  railway   before
described in this report:
(2.)  That the Canadian Northern Pacific Railway Company will commence or cause
to be commenced the works provided for In the agreement within three months
after the execution by the Government of the trust deeds securing the securities
to  be guaranteed  by the  Government,  and that  the  said works  shall  be fully
completed on the 1st day of July, 1914:
(3.)  That the Canadian Northern Pacific Railway Company will erect and maintain
within three miles of the City of Victoria all the workshops, repair-shops,  aud
roundhouses w-hich it may require in connection with the line to be constructed
on Vancouver Island:
(4.)  That the Canadian Northern Pacific Railway Company will provide and maintain
adequate terminal facilities in connection with its business at the City of Vancouver
and at the City of Victoria:
(5.) That the Canadian Northern Railway Company agrees to indemnify the Government against all payments which it may make under the terms of the agreement,
and against all loss which it may be put to so far as the same shall be repayable
by the Canadian Northern Pacific Railway Company, and against all interest which
the agreement provides  the  Canadian Northern  Pacific  Railway  Company  will
repay, and against all losses to which the Government may be put in enforcing
its guaranteed securities as and when the same are payable, repayable, or incurred:
(6.)  That the Canadian Northern Pacific Railway Company will furnish to the Government security for the construction and equipment of the aided lines, in accordance
with the terms of the agreement, in the sum of $500,000, in a manner satisfactory
to the Government:
(7.) That the Canadian Northern Pacific Railway Company shall cause to be legally
issued bonds, debentures, debenture stock, or other securities for a total amount
equal to $35,000 per mile for each of the two lines of railway to be aided under
the terms of the agreement, payable in not less than thirty years, with interest at
4 per cent, per annum.    The total number of miles of railway to be covered by
such securities shall not exceed 600 miles in all:
(S.) That the Canadian Northern Pacific Railway Company will agree that it shall not
apply at any time to be declared a work for the general advantage of Canada.
The Government agreed that it would guarantee as to principal and interest the securities
above mentioned, and the agreement provided that, when they are so guaranteed, the securities
should be delivered to the Canadian Bank of Commerce, or such other bank or banks as the
Canadian Northern Pacific Railway Company and the Government may approve, to be delivered
by the bank on the order of the Canadian Northern Pacific Company from time to time to the
purchasers or pledgees thereof;   and, upon the moneys realized by sale, pledge, or otherwise
of such securities being paid directly by the purchaser, subscriber, pledgee, or lender into the
bank, the Bank of Scotland, or Lloyds Bank, or such other bank or banks, as the case may be
and as the Government may approve, to the credit of a special account or accounts in the name
of the Minister of Finance for the Province of British Columbia, the balance at the credit of
the said special account or accounts should be credited with interest at such rate as may be
agreed upon between the Canadian Northern Pacific Railway Company and the bank holding
same.
The agreement also provides that the balances standing to the credit of the Minister of
Finance shall from time to time be transferred to the Canadian Northern Pacific Railway
Company, in monthly payments, as far as practicable, as the construction of the aided lines
of railway is proceeded with to the satisfaction of the Government; and from time to time, as
the work of construction proceeds, the Government shall, out of the said balances, certify to the R (3 Auditors' Report. 1917
bank the amount to be transferred to the credit of the Canadian Northern Pacific Railway
Company, in monthly payments, as far as practicable, such sums as are justifiable, having regard
to the proportions of work done, and material and supplies purchased for the railway, as compared with the whole work done and to be done thereon, pending completion of the aided lines.
The interest earned on the balances standing to the credit of the Minister of Finance shall be
transferred by the Government to the Canadian Northern Pacific Railway Company, to assist
such Company in paying the interest accruing on any outstanding securities guaranteed by the
Government.
The Government covenanted, inter alia:—
(1.)  To convey to the Canadian Northern Pacific Railway Company by a free grant
a right-of-way not exceeding 100 feet in width for the aided lines of railway, in
so far as the same extends or shall extend through vacant Crown lands of the
Province of British Columbia :
(2.)  To convey to the Canadian Northern Pacific Railway Company by a free grant
such vacant Crown lands of the Province of British Columbia as may be necessary
for sidings, stations,  embankments,  cuts,  bridges, culverts,  drains, etc.,  in  such
locality and area as the Lieutenant-Government in Council may deem reasonable
and necessary :
(3.) To license the Canadian Northern Pacific Railway Company free of charge to take
from any vacant Crown lands of the Province of British  Columbia,  with the
approval of the Chief Commissioner of Lands, all standing timber, gravel, and
other material which may be necessary for the construction of the aided railway:
(4.)  To convey to the Canadiau Northern Pacific Railway Company by a free grant any
vacant Crown lands which the Company may desire for the purpose of establishing
divisional points or townsites along the aided lines.    So far as the acreage belonging to the Government permits, these grants shall consist of 1,280 acres at each
divisional point and 640 acres at each townsite.    The land so to be granted shall
be administered under the terms of an appropriate agreement between the Government aud the Canadian Northern Pacific Railway Company, and shall provide that
such of the granted lands as are not required for the railway purposes of the
Company shall be administered by the Company as townsites for the joint benefit
of the Government and the Company, in the proportion of two-thirds to the Company and one-third to the Government:
(5.)  That   the   Canadian  Northern   Pacific   Railway   Company   and   its   capital   stock,
franchises, income,  tolls,  and all properties and assets which form part of or
are used in connection with the operations of its railway shall, until the 1st day
of July, 1924, be exempt from all taxation whatsoever levied by, with, or under
the authority of the Legislature of the Province of British Columbia:
(6.)  To permit the Canadian Northern Pacific Railway Company the use of the Government bridge at Westminster for the purposes of the operation of the aided railway;
the length of such bridge shall not be considered as guaranteed mileage:
(7.)  That the time as fixed in the agreement for the completion of the aided lines may,
for any reasonable cause, be extended by the Lieutenant-Governor in Council.
In the Statute ratifying the agreement it is provided that the Government may guarantee
additional securities, not exceeding $35,000 per mile, for such additional lines of railway in the
Province as may be agreed upon.
In addition to the securities guaranteed as before mentioned—viz., $21,000,000 (being 600
miles at $35,000 per mile)—the Province has under further enactments guaranteed as to principal,
and interest at 4% per cent., securities as follows:—
(1.)  For the purpose of aiding the Company in the construction
of its branch lines, 339 miles at $35,000 per mile   $11,865,000 00
(2.)  For the purpose of further aiding the Company in the construction of its branch line from New Westminster Bridge
to Vancouver, 11 miles at $10,000 per mile    110,000 00
(3.)  For the purpose of further aiding the Company in the construction of its main line, 500 miles at $10,000 a mile       5,000,000 00
(4.)  For the purpose of aiding the Company in the construction
of its terminals       10,000,000 00 Exhibit 1.
It  will  be  noted  that  the  total  main  line  securities  guaranteed  by  the  Government  is
$26,000,000.    This amount is constituted as follows :—
500 miles at $35,000 per mile     $17,500,000 00
500 miles at $10,000 per mile  (additional)         5.000,000 00
100 miles at $35,000 per mile         3,500.000 00
Total     $26,000,000 00
We are informed by F. C. Gamble, Esq., the Government's Chief Railway Engineer, that the
actual length of the main line, other than that portion on Vancouver Island, is 498.6 miles, and
there may, therefore, as between the Government and the Company, be an overguarantee in
respect of 1.4 miles amounting to $63,000.
It will be noticed that the cost of disposing of the First Mortgage Guaranteed 4-per-cent.
Debenture Stock amounted to £171,600 18s. 10d., or approximately 4.57 per cent. We have been
unable to obtain an analysis of this amount, and whether or not it is excessive would depend
on the rate of discount (if any) at which the securities were sold.
We have been advised by the Company's Toronto office that the deduction of £19,056 12s. 9d.
represents accrued interest on the securities sold, and that this sum was held in London and
applied towards paying interest on the Company's securities. The advice states that the accrued
interest on securities at the date of sale was included in the purchase price.
It was stipulated by Order in Council that the Company's main line securities were not to
be pledged below 80 per cent. It will be observed that securities amounting to £4,000 have been
pledged at approximately 50 per cent.
We have, through the Deputy Minister of Finance, requested the Company to ask the
registrar of its securities to confirm direct to us the total amount of main line securities sold
and pledged up to December 31st, 1916.    We have not as yet received this confirmation.
We have been informed that the Company's main line is not yet completed, and in this
connection it will be observed that all the proceeds of the main line securities guaranteed by
the Government have been released.
Exhibit 2.
It will he observed that the total securities guaranteed by the Government in respect of
the Company's branch lines is $11,975,000, and that securities amounting to $5,543,527.50 have
been pledged up to December 31st, 1916, leaving securities with a par value of $6,431,472.50
available for issue. The Government's guarantee is on the basis of $35,000 per mile for 339
miles and an additional $10,000 per mile for eleven miles, made up as follows:—
Westminster Bridge to Vancouver ..    11 miles.
Westminster Bridge to Steveston ...    15      „
Victoria to Union Bay (now Patricia
Bay)        18     .,
Extension, Barclay Sound North ... 150     „
Kamloops-Vernon Branch   145      „
Total    339 miles at $35,000 per mile, $11,S65,C00
Additional guarantee, AVestminster Bridge to Vancouver, 11 miles
at $10,000 per mile    110,000
Total   $11,975,000
It is stated on page 4 of the report dated December 1st, 1916, made by the Government's
Chief Railway Engineer, that the line from Victoria to Patricia Bay is completed, and that the
length of the line is 15.2 miles, and not IS miles as mentioned in the Statute. There may, therefore, as between the Government and the Company, be an overguarantee in respect of 2.8 miles
amounting to $98,000.
We have been unable to obtain information as to the exact nature of the deduction for
interest and commission, amounting to £30,745, which makes the net amount realized approximately 66.65 per cent., which is 3.35 per cent, below the minimum as fixed by Order in Council R 8 Auditors' Report. 1917
dated October 20th. 1915. As far as we could ascertain, this deduction was not authorized by
an Order in Council. From the information available, it is not clear why an amount should be
deducted for interest from the proceeds of securities pledged.
We have, through the Deputy Minister of Finance, requested the Company to ask the
registrar of its securities to confirm direct to us the total amount of branch lines securities sold
aud pledged up to December 31st, 1916.    We have not as yet received this confirmation.
It will be observed that $2,978,455.36 have been released from the proceeds of guaranteed
branch lines securities up to December 31st, 1916. The balance of cash in bank at December Slst,
1916—viz., $860,652.31—has been reconciled with a certificate received by us from the depositary.
Exhibit 3.
It will be observed that the total amount of the Government's guarantee in respect of the
Company's terminals is $10,000,000 (which is $671,175 less than the total prospective cost as
shown on Exhibit 11), and that securities amounting to $8,614,000 have 'been sold up to
December 31st, 1916, leaving securities still available for issue amounting to $1,386,000.
The cost of issue of the terminal securities sold amounts to £124.425, of 7.03 per cent. We
have been unable to obtain an analysis of this amount, and whether or not it is excessive would
depend on the rate of discount at which the securities were sold. The amount of £8,245 12s. lOd.
represents accrued Interest on securities to date of sale. We are advised that this amount was
included in the purchase price and was retained in London to apply towards payment of interest
on the Company's securities.
It will be noted that up to December 31st, 1916, the amount of $3,614,977.31 had been released
to the Company out of the proceeds of terminal securities. The balance of cash in bank at
December 31st, 1916—viz., $4,339,837.12—has been reconciled with a certificate received by us
from the depositary.
Exhibits 4, 5, 6. 7, and 8.
It will be observed from Exhibit 4 that the total cost to December 31st, 1916, of the
Company's main line, branch lines, and terminals, as shown by those books of the Company
which were produced to us at Vancouver, is $46,794,611.90, and that towards this total cost the
Government had, up to December 31st, 1916, released out of the proceeds of guaranteed securities
the sum of $30,104,970.31. We have been unable to ascertain from what source the Company
obtained the additional monej-s expended—viz.. $16,689,641.59—as represented by the difference
between the total moneys released and the total cost as shown on Exhibit 4.
The details of which Exhibit 4 is a summary will be found on Exhibits 5, 6, 7, and 8. It will
be noted on reference to Exhibit S that the total value of construction-work done by contractors
to December 31st, 1916, amounts to $30,306,145.05, and that the greater portion of this work was
done by the Northern Construction Company. Limited, either as separate contractors or jointly
with other contractors. We have been unable to ascertain whether the contracts and subcontracts were let by tender or otherwise.
The resident engineers' estimates supporting the amount of work done by contractors, as
shown on Exhibit 8, were verified as to quantities and classifications with the estimates furnished
to the Company's auditor by its chief engineer. The arithmetical accuracy of the estimates was
tested by us, and the prices used in the chief engineer's estimate were verified by comparison
with those mentioned on the schedules attached to copies of the contracts produced. We were
informed that the original contracts duly signed and executed are on file in the Company's office
at Toronto. Mr. T. H. White, the Company's chief engineer, has certified that the contracts
produced were true and correct copies of the originals. The contracts in all instances were made
with Mackenzie, Mann & Company, Limited.
We were informed that neither Mackenzie, Mann & Company, Limited, nor Sir William
Mackenzie, nor Sir Donald Mann were connected or interested in any way with the Northern
Construction Company, Limited, nor with any of the other contractors mentioned on Exhibit 8.
Information was furnished to us to the effect that Mackenzie, Mann & Company, Limited, were
to receive from the Canadian Northern Pacific Railway Company certain commissions, etc., as
consideration for acting as its fiscal agents and for supervising the construction of its lines,
terminals, etc. We have not been able to ascertain what amount (if any) was paid to Mackenzie,
Mann & Company. Limited, in this connection. 7 Geo. 5 Canadian Northern Pacific Railway Co. R 9
All of the items constituting the total cost shown on Exhibit 4 have been paid, according to
those records of the Company which were produced to us at Vancouver, with the exception of
$792,198.27, which amount represents contractors' retentions amounting to $203,360.77 and sundry
items outstanding amounting to $5SS,837.50.
A comprehensive test was made by us of the vouchers substantiating the payments made
up to December 31st, 1915. The vouchers for payments made for the year 1916 were not available
for our inspection. We were informed by Mr. J. E. Haight, the Company's auditor at Vancouver,
that the vouchers covering these payments were in Toronto.
It will be observed on reference to Exhibit S that the Company has executed work to the
value of $6,550,757.78, and that this amount chiefly represents pay-rolls and cost of materials in
connection with bridge-work, etc., carried out hy the Company itself on the Yellowhead Pass
Division of the main line. No engineer's estimates covering this work were produced for our
inspection.
Main line—
Engineering location     $   431,790 IS
Engineering construction       1,886,584 52
Overhead charges          344,274 12
Victoria and Patricia Bay—
Engineering location     14,870 39
Engineering construction     58,428 83
Overhead charges    1L4S7 55
We are assured by the Government's Chief Railway Engineer that the above items of cost
(as shown on Exhibits 5 and 6) are not excessive when compared to similar charges entering
into the construction of other railways.
Right-of-way    $3,172,026 66
Real-estate terminals      3,154,979 68
A comprehensive test was made by us of the title deeds for the property comprising the
above, as shown on Exhibit 4, with the result that those examined were all found to be in the
name of the Company. Mr. J. E. Haight has certified to us that the title to all right-of-way and
real estate purchased by the Canadian Northern Pacific Railway Company in connection with
its main line, branch lines, and terminals is vested in the Canadian Northern Pacific Railway
Company. We ascertained, however, that this certification did not include all the right-of-way
and real estate used by the Canadian Northern Pacific Railway Company in connection with its
lines and terminals, and we were informed that this is occasioned by the fact that in many
instances agreements to purchase right-of-way and real estate have not as yet been completed.
It will be observed on reference to Exhibit 6 that the Company has acquired right-of-way in
connection with the line from Westminster Bridge to Vancouver, between which points, we
understand, the Company has running rights over the tracks of the Great Northern Railway
Company. The Government's Chief Railway Engineer has informed us that he has eliminated
the cost of this right-of-way from the estimate submitted by the Company.
We were informed that the real estate amounting to $572,415.06 acquired by the Company
for terminal purposes at Port Mann, as shown on Exhibit 7, was purchased from Mr. A. D. McRae,
who was acting for the Port Mann Townsite Company, and that the purchase price was fixed by
Mr. McLeod, General Manager of the Canadian Northern Pacific Railway Company.
As far as we have been able to ascertain, none of the lands granted to the Company,
pursuant to subparagraph (d) of paragraph 12 of the agreement set forth in the Schedule to
chapter 3, Statutes of 1910, for townsite purposes have as yet been subdivided, and that, therefore, up to December Slst, 1916, nothing was due to the Government in respect of its third
interest in these lands.
Maintenance  $333,010 19
We were informed that this amount represents the cost of keeping the road in good order
until it was finally completed.
V. & B.S. charter     $27,601 S2
Vancouver Island & Eastern Railway      25.000 00
We have been unable to ascertain what these two items represent. It is the impression,,
however, of the officials at the Company's office at Vancouver that they represent the purchase
price of certain franchise rights acquired by the Canadian Northern Pacific Railway Company. R 10 Auditors' Report. 1917
Purchase of New Westminster Southern Railway    $256,500 00
This represents the cost of nine miles of line purchased from the above Company on Division
No. 1 of the Canadian Northern Pacific Railway Company's main line. We were informed that
the amount of the purchase w-as paid in Toronto. No receipt for the amount paid was produced
to us.
Overhead    $426,504 10
The individual items comprising the above will be seen on the detailed Exhibits 5, 6, and 7.
The overhead charges have not been allocated to the various lines and terminals on the Company's
books at Vancouver. We have apportioned the charges under this heading to the various lines
and terminals of the Company on a basis of cost to December 31st, 1916. We have not included
in this charge interest on bank overdrafts during construction amounting to $3,S72,450.31, nor
interest on the guaranteed securities during construction, as it would appear that the inclusion
of these items would not be in conformity with the clauses (in the Statutes pertaining to the
Government's railway guarantees) dealing with the transfer by the Government to the Company
of the interest earned on the proceeds of the guaranteed securities standing to the credit of the
Minister of Finance.
Exhibit 9.
According to our interpretation of the Statutes governing the payment to the Company for
the proportionate value of work clone to December 31st, 1916 (which has been confirmed by
the Attorney-General's Department), there have been amounts paid in excess as follows:—
Exhibit   9—Main line    $2,426,927 81
Exhibit 10—Branch lines     2,127,519 29
Exhibit 11—Terminals        1,117,117 52
Total      $5,671,564 62
_ We have not calculated the amounts paid in excess in respect of each branch line or terminal
or of each of the two sections of the main line, as it is evident from the mortgages securing the
guaranteed debenture stock that the security for the stock sold and pledged is the completed
lines and terminals.
We have assumed that the final length of the main line and the adjusted length of the total
branch lines, as determined by the Government's Chief Railway Engineer, was ascertained and
known to the Minister of Railways on or before the date on which the last moneys were released
in the case of the main line, and on or before December 31st, 1916, in the case of the branch lines.
We are assured by the Government's Chief Railway Engineer that the final length of the main
line and the adjusted length of the branch lines do not include the length of the Government's
bridge at New Westminster, nor the length of the line over which the Company has running
rights from this bridge to the City of Vancouver.
The total prospective cost of the Company's main line, branch lines, and terminals as at
December 31st, 1916, was obtained by us from the Government's Chief Railway Engineer. As no
estimates for work done were submitted by the Company after the dates on which the proceeds
of guaranteed securities were exhausted, we have had to assume, in ascertaining the amounts
paid in excess, that all items entering into the value of work done and not covered by the
estimates furnished to the Government would be passed by the Government's Chief Railway
Engineer. The amounts eliminated by the Government Railway Department from the estimates
submitted consist principally of real estate.
It will be observed that we have taken the net amount credited to the Minister of Finance
in respect of guaranteed securities sold and pledged as being the amount of the Government's
guarantee for the purpose of ascertaining the amount payable to the Company for the proportionate value of work done. The fact that there are guaranteed securities still available for
issue does not. in our opinion (which has been confirmed by the Attorney-General's Department),
render any adjustment necessary. As the securities guaranteed by the Province in respect of
the main line, branch lines, and terminals are secured hy both sections of the main line, all of
the branch lines, and all of the terminals, respectively, there can, therefore, only be released
such proportion of the proceeds of guaranteed debenture stock as the value of work done bears
to the total prospective cost in each case. 7 Geo. 5 Canadian Northern Pacific Railway Co. R 11
We have noticed that the Government's Chief Railway Engineer, in his letters addressed to
the Minister of Finance from time to time, has, in effect, recommended that the total value of
work done on the Company's main line, as shown on the estimates submitted, be transferred
out of the proceeds of guaranteed securities to the credit of the Company. In the case of work
done on the branch lines and terminals, the amounts of the estimates (with the exception of
the first ones submitted) have not been recommended for payment, but commended to the
consideration of the Government.
It is mentioned in the various Statutes relating to the Government's guarantees that the
proceeds of guaranteed securities credited to the Minister of Finance shall not be construed
as being public moneys received by the Province. This has the effect, we understand, of placing
these funds outside the jurisdiction of the Auditor-General's Department. We are of the opinion
that authority should be given (by Statute or otherwise) to the Auditor-General to audit all
payments proposed to be made from moneys standing to the credit of the Government in
connection with the securities which have been guaranteed by the Province.
General. >
In the Statutes pertaining to the Government's guarantee of railway securities there appears
to be no provision for the creation at any time of a sinking fund, either out of earnings or
otherwise, for the redemption at maturity of securities guaranteed by the Province.
Section 28 of chapter 4, Statutes of 1910, states, inter alia, that the Canadian Northern
Pacific Railway Company shall have power to issue and sell or pledge bonds, debenture stock,
or other securities (not including preferred or common stock or securities issued for terminal
purposes) to an amount not exceeding $60,000 per mile. We have been unable to ascertain
what securities (other than those mentioned herein), if any, have been issued in conformity
with the above, or what aid the Company obtained other than the Provincial guarantees.
In this connection it will be observed that the total prospective cost of the Company's main
line and branch lines, as mentioned in Exhibits 9 and 10, Is $61,738,843.90, or $66,044.97 per mile,
or a total excess of $5,650,843.90 over the borrowing powers of the Company as fixed by the
Statute of Incorporation. This is important when it is remembered that, according to the Statute
of Incorporation, the Company's capital stock is not to exceed $25,000,000, and, according to
information furnished to us, $24,960,000 of this capital stock has been issued for consideration
other than cash.
We have observed that the Dominion Trust Company is one of the trustees mentioned in
the mortgage dated June 23rd, 1914, securing 4%-per-cent. Second Charge Guaranteed Debenture
Stock to the extent of $10,000 per mile on the Mainland section of the Canadian Northern Pacific
Railway Company's main line. We understand that the Trust Compan5' above mentioned is in
liquidation, and it would therefore appear necessary that another trustee be substituted.
The security for the guaranteed bonds as mentioned in the various mortgages is stated to
be upon the specific lines and terminals to be aided, and upon the tolls, incomes, rents, and
revenues thereof, and upon the rolling-stock, equipment, and property of the Canadian Northern
Pacific Railway Company acquired for the purpose of and used in connection with the aided
lines, etc. Information as to who owns the equipment and rolling-stock, etc., used on the aided
lines was not available, but the general understanding is that it is vested in a corporation other
than the Canadian Northern Pacific Railway Company.
The dates fixed by Orders in Council on or before which the aided lines of the Canadian
Northern Pacific Railway Company are to be completed are as follows:—
Date on or before
Miles.      which Lines are
to be completed.
Vancouver Island, extension Barclay Sound North     150 )
'  Tnlv 1st 1917
Kamloops to Vernon, thence to Lumby, etc   145 \       '       '
Westminster Bridge to Vancouver      11 1
Westminster Bridge to Steveston      15 (       "'       '
Victoria to Union Bay  (now Patricia Bay)       18    May 1st, 1917.
Main Line Section on Vancouver Island to Barclay Sound, 100    July 1st, 1917.
We have examined share certificates,  agreements,  etc.   (as shown  below),  deposited  as
securities for the construction and equipment of the aided lines. R 12 Auditors' Report. 1917
Main Line.—Securities deposited pursuant to sub-paragraph (n) of paragraph 7 of the
agreement set forth in the Schedule to chapter 3, Statutes of 1910:—
Stock Certificates Nos. 22 to 26, inclusive, each for 1,000 shares
of $100 each, fully paid up, in the capital stock of the Canadian
Northern Railway Company, dated Toronto, July 16th, 1902.
in the name of Mackenzie, Mann & Company, Limited, endorsed
in blank     $500,000 00
Branch Lines.—Vancouver Island (extension, Barclay Sound North) ; Kamloops to Vernon,
thence to Lumby, etc. Securities deposited pursuant to subsection (2) of section 6. chapter 32,
Statutes of 1912:—
Stock Certificate No. 90 for 1,000 shares of $100 each, fully paid up,
in the capital stock of the Canadian Northern Railway Company,   dated Toronto,  February  26th,   1914,   in  the  name  of
Mackenzie, Mann & Company, Limited, endorsed in blank ....  $100,000 00
Westminster Bridge to Vancouver.
Westminster Bridge to Steveston.
Victoria to Union Bay (now Patricia Bay).
There appears to be no provision in the Statute for the deposit of securities in connection
with the above lines.
Additional Guarantee.—In respect of the Mainland section of the main line and the branch
line from Westminster Bridge to Vancouver. Securities deposited pursuant to subsection (2)
of section 5, chapter 61, Statutes of 1914:—
Stock Certificate No. 91 for 10,000 shares of $100 each, fully paid
up, in the capital stock of the Canadian Northern Railway
Company, dated Toronto, May 22nd. 1914, in the name of
Mackenzie, Mann & Company, Limited, endorsed to His
Majesty the King, represented by the Hon. the Minister of
Railways of the Province of British Columbia     $1,000,000 00
The above security is deposited subject to certain conditions as set out in the agreement
dated May 22nd, 1914, between the Canadian Northern Railway Company of the first part, and
the Canadian Northern Pacific Railway Company of the second part, Mackenzie, Mann & Company, Limited, of the third part, and His Majesty the King, representing the Province of British
Columbia by the Hon. the Minister of Railways of the said Province, of the fourth part.
Section 6 of chapter 61, Statutes of 1914, requires that security be deposited amounting to
$100,000. As far as we could ascertain, no securities were deposited pursuant to the above.
A letter, however, attached to Stock Certificate No. 90 for 1,000 shares of $100 each, fully paid
up, in the capital stock of the Canadian Northern Railway Company, deposited as before
mentioned, pursuant to subsection (2) of section 6. chapter 32, Statutes of 1912, would appeal-
to show that it was agreed between the Canadian Northern Pacific Railway Company and the
then Attorney-General (the Hon. W. J. Bowser) that the capital stock deposited under subsection
(2) of section 6, chapter 32, Statutes of 1912, should also be taken as the security required under
section 6, chapter 61, Statutes of 1914.
Terminals.—There appears to be no time fixed in the Statute on or before which the
Company's terminals are to be completed, nor any provision for the deposit of securities in
connection therewith.
The foregoing report and the attached exhibits may be, and probably are, incomplete by
reason of our not having had access to all the records of the Company, and they are submitted
subject in every way to the information which may be contained in those records of the Company
which were not produced for our inspection.
In conclusion, we desire to acknowledge our appreciation of the facilities afforded us in
conducting our investigation by the auditor and office staff of the Company at Vancouver.
We have the honour to be.
Sir.
Your obedient servants,
PRICE, WATERHOUSE & Co. 7 Geo. 5
Canadian Northern Pacific Railway Co.
R 13
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Auditors' Report.
1917
Exhibit 4.—Statement showing summary of Total Construction Cost to December 31st,
1916, or the Canadian Northern Pacific Railway Company's Main Line, Branch Lines,
and Terminals ; prepared from those Records of the Company produced for Inspection
at Vancouver.
Engineering- location	
Right-of-way	
Real estate (terminals) . ..
Engineering construction .
Clearing	
Orubbing	
Grading	
Bridges and culverts	
Rails and fastenings	
Ties.
Switches and frogs	
Track-laying	
Ballasting	
Station and freight-sheds	
Water-stations	
Crossings and cattle-guards	
Telegraph-lines	
Fencing	
Ballast-pits	
Maintenance	
Tunnels and subways	
Shops and engine-houses	
Draining and sewers	
Coal docks and stations	
Snow-sheds....       	
Kamloops spur	
Ice-house    	
Track-scales	
Ferry-slips	
Filling	
Bunk-houses	
Sea-wall	
Piling for temporary tracks	
Wharves	
Piling for wharf	
Warehouses   	
Board	
V. & B. S. charter	
Vancouver Island & Eastern Railway	
New Westminster and Southern Railway .
Overhead charges	
Total construction cost..
Details shown on       (Exhibit 5.)
Main Line.
Mainland.
360,367
553,453
,631,507
494,135
119,530
S,810,045
1,562,338
i,350,949
478,836
33,237
327,473
685,955
163,412
139,388
34,233
127,328
118,403
33,443
324,537
C,948,709
191,497
618
10,489
18,776
53,627
266,500
319,878
$35,148,680 28
Vancouver Is.
*    71,422 73
573,631 25
255,077 52
198,668 87
56,432 33
1,139,176 46
320,191 22
1,685 97
250 20
243 50
425 92
716 98
324 92
19 50
*2,(iS2,066 81
(Exhibit 5.)
Branch Lines.
Z   277,630 49
2,044,942 18
190,134 65
123,247 39
14,667 77
1,403,914 88
237,827 37
178,965 05
30,546 70
10,495 43
48,063 77
43,937 98
2,227 62
6,402 13
3,550 59
21,426 21
3,150 70
8,452 98
2,083 64
27,601 82
25,000 00
$4,746,194 70
(Exhibit 6.)
Terminals.
* 614 07
3,154,979 68
50,423 75
8,537 75
29,724 75
£,319 08
1,829 67
16,311 36
3,953 30
1,451 76
989 23
971 26
63,842 32
9,196 59
224,243 66
58,313 99
4,178 58
7,512 71
65,386 44
329,476 70
18,449 89
34,928 19
6,210 79
50,249 72
19,103 98
8,167 26
40,304 63
S,217,670 11
(Exhibit 7.)
Together.
* 710,
3,172,
3,154,
2,127,
824,
220,
21,361,
5,122,
3,547,
613,
45,
376,
730,
227,
150,
41,
130,
178,
37,
333,
1,948,
415,
58,
10.
18.
53.
4,
7.
65.
329.
18.
34,
6.
50.
19.
8,
2,
27,
25,
256,
426,
034 74
026 66
979 68
142 92
589 91
364 94
456 19
186 46
912 36
586 67
428 27
952 61
865 14
255 25
812 23
043 69
878 59
546 79
919 17
010 19
709 79
740 94
932 37
489 63
776 19
627 80
178 58
512 71
385 44
476 70
,449 89
928 19
,210 79
249 72
103 98
167 26
083 64
601 82
000 00
500 00
504 10
$46,794,611 90*
* Towards the total cost the British Columbia Government has released (under authority of Orders in Council) to the Canadian
Northern Pacific Railway Company, on certified estimates submitted up to December 31st, 1916, the sum of 830,104,970.31 out of
proceeds of guaranteed securities. E 17
Exhibit 5.—Statement showing Divisional Construction Cost to Decembeb 31st, 1916, op the Company's Main Line; prepared fbom those Records of the Company pbodtjced fob Inspection at Vancotjveb.
Engineering location	
Right-of-way	
Engineering construction	
Clearing .'	
Grubbing	
Grading	
Bridges and culverts ..   >	
Rails and fastenings	
Tics	
Switches and frogs	
Track-laying	
Ballasting	
Stations and freight-sheds	
Water-stations	
Crossings and cattle-guards	
Telegraph-lines	
Fencing 	
Ballast-pits	
Maintenance	
Tunnels and subways	
Shops and engine-houses	
Coal docks and stations	
Snow-sheds	
Kamloops Spur	
Draining	
New Westminster & Southern Railway
Add: .Overhead charges—
Engineering equipment	
Plant and tools	
Team account	
Office furniture	
General expense	
Office expense -...  	
Executive and accountancy	
Official ear maintenance	
Totals	
Mainland.
Division
No. 1.
8,
258,
104,
-59,
27.
740,
141
800,
60.
4,
32
61,
24
14,
25.
12.
29,
32.
16,
550 51
959 74
011 83
718 73
071 00
373 95
681 00
136 31
077 32
400 38
960 36
476 63
163 08
761 57
066 61
649 48
392 06
978 30
539 70
256,500 00
$2,211,468 56
Division
No. 2.
$ 6,907 07
40,173 90
55,287 65
25,561 16
12,920 32
465,995 43
107,945 10
106,723 41
16,370 40
2,712 71
9,426 17
19,360 98
9,396 90
8,586 28
1,265 49
3,767 21
9,568 71
,624 93
$910,593 82
Division
No. 2a.
$ 4,607 56
4,944 09
27,594 01
13,226 21
4,033 07
569,295 93
22,015 21
78,526 37
12,631 60
666 20
11,319 15
14,949 78
1,182 23
28 80
2,863 93
2,636 70
14,3i9 20
35,808 50
320,648 54
Division
No. 3.
$    20,695 97
9,815 89
126,283 92
21,838 53
638 92
2,293,130 00
238,602 35
150,754 06
26,111 90
1,536 60
20,744 50
30,783 18
4,138 27
3,056 97
5,943 04
331 00
82 00
56,006 12
650,922 34
3,661 410 56
Division
No. 4.
$    37.
20,
188,
36,
2,
2,221.
1,123,
200,
27,
2.
29,
33,
13.
578 14
618 92
378 27
550 75
526 32
060 48
924 80
347 91
011 40
907 40
894 00
271 03
876 78
043 65
7,596 39
2,320 43
55,954 54
71,723 89
35,943 81
112 35
$4,119,641 26
Division
No. 5.
$ 19,937 68
5,159 76
117,970 72
16,005 60
17 50
1,467,954 05
247,832 30
138,511 53
17,707 60
1,044 96
15,667 93
19,781 27
5,967 67
5,483 83
9 00
4,084 52
1,461 76
16,i47 32
97,449 12
9,182 65
$2,207,376 77
Division
No. 6.
$ 20,275 71
21,712 01
111,849 46
10,719 80
108 50
1,280,357 35
347,402 81
156,434 98
29,753 63
1,746 71
26,835 00
30,576 30
5,613 81
6,205 02
48 00
6,609 42
73 25
11,269 15
262,241 15
$2,329,832 06
Division
No. 7.
22,984 63
37,154 40
99,775 67
4,889 71
775 25
968,977 91
597,404 80
197,407 83
23,922 70
2,298 80
21,741 87
25,719 20
6,270 76
5,936 50
217 08
5,098 42
9,814 93
18,754 39
94,602 92
$2,143,747 77
Division
No. 8.
6,208 62
23,371 08
103,689 55
3,401 45
1,569 75
797,805 88
281,884 79
200,129 39
29,143 85
2,947 82
18,492 42
32,964 00
7,328 34
3,519 74
416 08
7,073 84
13,239 00
10,545 96
885,732 33
$1,929,463 89
Division
No. 9.
14,
58,
97.
19.
5,
601.
279.
262.
85.
1,
21,
64,
18.
20.
4,
8,
25,
16,
141 28
917 27
144 02
142 91
604 91
486 72
498 13
057 71
439 55
533 21
020 97
376 61
303 24
317 85
227 45
752 00
335 49
383 25
421 87
63,221 59
9,983 88
53,627 80
$1,670,937 71
Division
No. 10.
13,543 20
26,547 00
93,927 96
31,404 31
12,922 37
653,537 92
52,939 34
305,834 14
39,997 95
2,223 77
19,642 87
51,942 90
11,114 81
11,321 38
331 05
8,975 99
23,329 04
16,298 13
$1,375,834 13
Division
No. 11.
$ 44,438 97
16,691 87
177,552 71
81,943 74
16,180 13
2,139,536 24
434,811 93
477,741 99
52,884 59
6,143 22
34,626 13
95,831 46
21,794 08
12,019 06
271 72
14,038 06
901 23
44,702 85
59,172 98
38,062 71
393 40
618 38
$3,770,357 45
Division
No. 12.
$
61,244 04
15,131 73
166,684 15
73 721 33
13,099 80
1,470,357 37
222,805 89
251,230 79
17,769 75
1,999 82
13,477 95
48,268 86
7,818 78
.7,828 55
1,494 36
9,223 23
22,153 09
191,905 68
$2,596,215 17
Yellowhead
Pass Division.
$    79,
14,
161,
96,
22
3,140,
463.
525,
90.
1,
51,
166,
26.
32,
30,
254 07
255 57
357 08
011 67
062 25
176 54
589 75
113 56
014 23
075 98
624 37
653 70
449 18
307 62
862 42
652 47
16,800 46
99,150 88
54,269 17
9,593 54
$5,081,274 51
Total
Construction
Cost of the
Mainland
Section.
I     360,367 45
553,453 23
1,631,507 00
494,135 90
119,530 09
18,810,045 77
4,562,338 20
3,350,949 98
478,836 47
33.237 58
327,478 69
685,955 90
163,412 93
139,388 02
34.238 06
127,328 00
118,403 60
33,443 55
324,537 71
1,948,709 79
191,497 28
10,489 63
18,776 19
53,627 80
618 38
256,500 00
$34,828,802 20
7,552 56
18,989 16
10,192 84
6,177 63
139,979 75
32,484 21
110,397 12
4,104 81
$35,148,680 28
Vancouver Island.
Division A.
25,100 16
488,373 84
113,994 82
58,078 23
12,069 81
612,822 81
180,155 88
1,685 97
250 20
243 50
425 92
403 40
505 73
19 50
$1,521
129 77
Division B.
I 19,999 08
27,060 65
41,538 20
43,834 34
12,253 96
176,797 64
32,978 42
406 25
$360,868 54
Division C.
I 26
58,
99,
96,
32
349
107
J775
323 49
196 76
544 50
756 30
108 56
556 01
056 92
805 00
324 92
672 46
Total
Construction
Cost of the
Vancouver
Island Section.
$   71,422 73
573,631 25
255,077 52
198,668 87
56,432 33
1,139,176 46
320,191 22
1,685 97
250 20
243 50
425 92
403 40
38,716 98
1,324 92
19 50
$2,657,670 77
576 01
1,448 24
777 88
471 15
9,913 12
2,477 46
8,419 62
313 06
$2,682,066 81
Total
Construction
Cost of Main
Line.
$    431,
1,127,
1,886.
692,
175,
19,949,
4,882,
3,352.
479,
38,
827,
685,
163.
139
34.
127,
157,
34.
324,
1,948,
191.
10,
18,
53,
256,
790 18
084 48
584 52
804 77
962 42
222 23
529 42
635 95
086 67
481 08
899 61
955 90
412 93
388 02
641 46
328 00
120 58
768 47
557 21
709 79
497 28
489 63
776 19
627 80
618 38
500 00
$37,486,472 97
8,128 57
20,437 40
10,970 22
6,648 78
189,892 87
34,961 67
118,816 74
4,417 87
$37,830,747 09*
* Towards this total cost the British Columbia Government had released (under authority of Orders in Council) to the Canadian Northern Pacific Railway Company, on certified estimates submitted up to December 31st, 1916, the sum of $23,511,537.64 out of proceeds of guaranteed main line securities sold and pledged as noted on Exhibit 1. 7 Geo. 5
Canadian Northern Pacific Railway Co.
R 19
Exhibit 6.—Statement showing Cost to December 31st. 1916, of each of the Company's
Branch Lines ; prepared from those Records of the Company produced for Inspection
at Vancouver.
Engineering location	
Right-of-way	
Engineering construction	
Clearing	
Grubbing	
Grading	
Bridges and culverts 	
Ties 	
Rails 	
Other    track    material   (frogs    and
switches) 	
Ballast	
Track-laying	
Surfacing	
Fencing	
Crossings	
Water-stations	
Telegraph-lines	
Board	
Maintenance	
Ballast-pits	
V. & B.S. charter	
Vancouver Island & Eastern Railway .
Add: Overhead charges—
Engineering equipment	
Plant and tools	
Team account	
Office furniture	
General expenses	
Office expenses	
Executive and accountancy 	
Official car maintenance	
Totals	
Westminster
Bridge to
Vancouver.
$405,673 52
85 33
214 54
115 16
69 80
1,468 50
367 01
1,247 26
46 37
$409,287 49
Westminster
Bridge to
Steveston.
$   4,664 54
42,777 63
13,622 13
4,038 75
2,267 50
24,885 67
106,465 37
11,402 53
66,639 63
453 54
10,356 31
24,959 96
'7,254 17
349 59
56 50
208 21
7,160 57
68 90
173 22
92 98
56 35
1,185 71
296 33
1,007 07
37 45
Kamloops
to
Vernon.
$ 84,938 81
714,131 59
16,036 42
21 00
13,157 46
11,789
2,689
20,861 30
448 90
6,417 05
313 61
3 75
476 59
1,000 00
183 62
461 68
247 81
150 20
3,160 18
789 78-
2,684 07
99 SO
5880,146 97
Victoria to
Union Bay
(now
Patricia Bay).
? 14,870 39
856,916 83
58,428 83
14,963 64
8,584 87
93,904 31
46,338 57
16,454 52
91,464 12
9,592 99
22,569 69
16,086 76
11,011 98
13,858 43
6,048 79
2,227 62
152 95
1,875 43
815 82
2,150 70
271 23
681 95
366 05
221 85
4,667 87
1,166 58
3,964 61
147 41
31,300,404 79
Extension,
Barclay Sound
North.
$   173,156 75
25,442 61
102,047 27
104,224 00
3,815 40
1,271,967 44
73,233 77
257 10
27,601 82
25,000 00
380 81
957 46
513 94
311 48
6,553 75
1,637 90
5,566 37
206 97
31,825,874 84
Together.
$   277,630 49
2,044,942 18
190,134 65
123,247 39
14,667 77
1,403,914 88
237,827 37
30,546 70
178,965 05
10,495 43
32,926 00
48,063 77
11,011 98
21,426 21
6,402 13
2,227 62
3,550 59
2,083 64
8,452 98
3,150 70
27,601 82
25,000 00
989 89
2,488 85
1,335 94
809 68
17,036 01
4,257 60
14,469 38
538 00
34,746,194 70«
* Towards this total cost the British Columbia Government has released (under authority of Orders in Council) to the Canadian
Northern Pacific Railway Company, on certified estimates submitted up to December 31st, 1916, the sum of 32,978,455.36 out of
proceeds of guaranteed branch lines securities pledged as noted on Exhibit 2. R 20
Auditors' Report.
1917
Exhibit 7.—Statement showing Cost to December 31st, 1916, of each of the Company's
Terminals ; prepared from those Records of the Company produced for Inspection at
Vancouver.
Engineering location	
Real estate	
Engineering construction. . ..
Bridges, etc	
Stations and office buildings .
Water-stations	
Shops and engine-houses	
Ice-house	
Storehouse	
Track-scales	
Ferry-slips	
Ballast	
Drainage and sewers	
Ties	
Frogs and switches, etc	
Filling	
Bunk-houses	
Sea-wall	
Piling for temporary tracks.,
Wharves ,,	
Clearing	
Grubbing	
Grading	
Rails and fastenings	
Track-laying	
Piling w-harf	
Warehouses	
Add,: Overhead charges—
Engineering equipment
Plant and tools	
Team account	
Office furniture	
General expenses	
Office expenses	
Executive andaccountancy
Official car maintenance ...
Totals	
Port Mann.
3   572,415 06
17,083 28
1,829 67
5,577 82
9,196 59
224,243 66
4,154 08
24 50
7,512 71
29,740 36
971 26
3,419 07
2,866 90
1,451 76
9 75
18,449
16,351 51
8,537 75
29,724 75
8,319 08
16,311 36
989 23
19,103 98
8,167 26
229 25
576 38
309 39
187 51
3,945 33
986 00
3,350 93
124
31,016,160 67
New
Westminster.
31,720,764 08
1,948 06
392 45
986 72
529 64
321 00
6,754 06
1,687
5,736 50
213 30
$1,739,333 77
Vancouver.
%       614 07
355,298 67
322
34
649 38
264 50
894 92
086 40
928 19
210 70
196 51
494 08
265 21
160 74
3,381 94
845 20
2,872 42
106 80
3870,725 75
89 64
225 39
120 98
73 32
1,542 76
385 56
1,310 33
48 72
$397,302 39
Union Bay
(now
Patricia Bay).
3112,996 18
2,743 03
898 21
43 77
110 06
59 08
35 81
753 36
188 28
639 86
23 S9
$194,147 53
QJ
H
Together.
5 614 07
3,154,979 68
50,423 75
1,829 67
63,842 32
9,196 59
224,243 66
4,154 08
24 50
7,512 71
65,385 44
971 26
58,313 99
3,953 30
1,451 76
329,476 70
18,449 89
34,928 19
6,210 79
50,249 72
8,537 75
29,724 75
8,319 08
16,311 36
989 23
19,103 98
8,167 26'
951 62
2,392 63
1,284 30
778 38
16,377 45
4,093 00
13,910 04
517 21
$4,217,670 11*
* Towards this total cost the British Columbia Government has released (under authority of Orders in Council) to the Canadian
Northern Pacific Railway Company, on estimates submitted to December 31st, 1916, the sum of $3,614,977.31 out of proceeds of the
guaranteed terminals securities sold as noted on Exhibit 3. 7 Geo. 5
Canadian Northern Pacific Railway Co.
R 23
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a u      — R 26 Auditors' Report. 1917
Financial Relations of the Government with the Canadian Northern
Pacific Railway Company, as regards the Construction of
Terminals up to May 31st, 1917
Vancouver, B.C., July 17th, 1917.
Hon. John Oliver,
Minister of Railways, Victoria. B.C.
Sib,-—Pursuant to the instructions contained in your letter of .Tune 20th, 1917, we have
inquired into the position of the Provincial Government's relations with the Canadian Northern
Pacific Railway Company, as regards the construction of terminals, as at May 31st, 1917. We
have prepared and annex hereto the following statements:—
Exhihit 1.—Statement showing amounts payable to the Canadian Northern Pacific Railway Company in respect of work done on terminals to May 31st, 1917, segregated
to show the proportions applicable to the several terminals;   also the proportionate
application of the valuation placed upon securities unsold.
Exhibit 2.—Statement showing cost at May 31st, 1917, of each of the Canadian Northern
Pacific Railway Company's terminals;  prepared from those records of the Company
produced for inspection at Vancouver.
Exhibit  3.—Statement  showing  amounts  payable  to  the  Canadian  Northern   Pacific
Railway Company in respect of work done on terminals to December 31st, 1916.
segregated to show the proportions applicable to the several terminals;   also the
proportionate application of the valuation placed upon securities unsold.
Our present investigation has been carried out as supplementing our report dated May 12th,
1917, which covered our investigation of the Government's relations with the Canadian Northern
Pacific Railway Company as at December 31st, 1916 (with regard to the main line, branch lines,
and terminals), but in this case we are, as requested, reporting upon the terminals only.
The instructions embraced in your letter of June 29th directed that a valuation should be
given to the unsold securities guaranteed by the Province in respect of terminals, and we have
taken the unsold securities at 78.55 per cent, of par value, that rate being the valuation we
understand to have been advanced, for purposes of calculation, by the Department of Finance.
The conclusions presented by the attached statements as regards all terminals as at May
31st, 1917, may lie summarized in brief as follows:—
Overpayments in cash to May 31st, 1917, on the basis of work done
by the Company to and including Estimate No. 33, less funds
released by the Government to and including Estimate No. 31.. $139,864 78
Add:  Amounts since released on Estimates Nos. 32 and 33   (after
deducting $127,500 included on Estimate No. 33 in respect of
real estate not acquired hy Company at May 31st, 1917)    253,910 33
Total overpayments in cash after deducting funds released in respect	
of Estimates Nos. 32 and 33 -¥393,775 11
Deduct: Proportionate credit allowable to Company upon valuation
of unsold securities at 78.55 per cent    567,453 50
Balance representing amount available for further releases to Company (from cash and credit for unsold securities) on the basis 	
of work done to May 31st, 1917, as per Exhibit 2 $173,678 39
The above balance of $173,67S.39 is substantially represented by:—
Retentions   $ 7S.779 35
Deductions from Estimate No. 33 for May, 1917, temporarily withheld  by  Government ,      53,577 41
Proportion of overhead charges to December 31st, 1916, included in
Exhibit 2 (52.1220 per cent, of $40,304.03)      21,009 58
Total $153,366 34 7 Geo. 5 Canadian Northern Pacific Railway Co. R 27
We have also submitted in Exhibit 3 a statement of the terminal accounts as at December
31st, 1916, on the same basis as the position at May 31st, 1917, as per Exhibit 1, and the
conclusions presented therebj' may be summarized in brief as follows:—
Overpayments in cash to December 31st, 1916, on the basis of work
done by Company to and including Estimate No. 27, less funds
released by Government to and including Estimate No. 25 $148,811 42
Add: Amounts released in January and February, 1917, on Estimates
Nos. 26 and 27 for work done in November and December, 1916. .   213,425 16
Total overpayments in cash after adding funds released in respect	
of Estimates Nos. 26 and 27 $362,236 58
Deduct: Proportionate credit allowable to Company upon valuation of unsold securities at 78.55 per cent    474,382 62
Balance representing amount available for further releases to Company (from cash and credit for unsold securities) on the basis	
of work done to December 31st,. 1916, as per Exhibit 3 $112,146 04
The above balance of $112,146.04 is partially represented by:—
Retentions $ 29,362 29
Proportion  of overhead charges  to  December 31st,  1916   (43.5732
per cent, of $40,304.63)      17.562 02
Total $ 46.924 31
Our figures as now presented as at December 31st, 1916 (Exhibit 3), show an overpayment
in cash of $14S,811.42, whereas the overpayment to December 31st, 1916, on a cash basis, as set
forth in Exhibit 11 of our report dated May 12th, 1917, was stated as $1,117,117.52, or a difference
of $968,306.10. We have found that all of the deductions previously stated by us as eliminated
by the Government's Chief Railway Engineer from estimates of work done submitted by the
Company up to December Slst, 1916—viz., $1,288,362.70—should not have been applied as deductions as at December 31st. 1916, but that the sum of $152,802.19 (see Exhibit 3) should have been
deducted as of that date. The elimination of the difference of $1,135,560.51 in the deductions
accounts for the difference between the previously reported overpayment as at.December 31st,
1916, on a cash basis and the overpayment on a cash basis as at that date now indicated by
Exhibit 3. Our error in this connection was occasioned by the fact that the deductions stated
to us by the Government's Chief Railway Engineer—viz., $1,288,362.70—were later found to have
been temporary disallowances only from time to time and not permanently deducted from the
Company's estimates, while the items amounting to $152,802.10 now deducted on Exhibit 3,
although carried on the Company's books, have by agreement between the Company and the
Government's Chief Railway Engineer been kept out of both the estimates of the Company and
the certificates of the Government. The sum of $152,802.19 has been deducted by us from the
book figures as at May Slst, 1917, in preparing Exhibit 1.
It will be noted by reference to Exhibit 1 that the cost of the Union Bay (now Patricia Bay)
terminal to May 31st, 1917, is greater than the amount heretofore taken as the prospective cost
by the sum of $5,577.30. In making an application of the funds earned to date in respect of the
various terminals, we have, for the purpose of balancing the results for the separate terminals
with the figures for all of the terminals, necessarily had to state the value of work done on the
Patricia Bay terminal as 102.7382 per cent, of the prospective cost. The result on this basis
shows that there would be a cash overdraft of $10,774.22 in the funds arbitrarily assigned to
Patricia Bay on a proportional basis.
Our examination of the records of the Company at Vancouver for the five months to May
31st, 1017, has been conducted along lines similar to our previous examination as at December
Slst, 1016, and we have examined a considerable portion of the disbursement vouchers for the
five months to May 31st.
We trust that the foregoing remarks and the accompanying statements may afford you all
information desired, but will be glad to furnish any further details required, upon request.
We -have the honour to be.
Sir,
Your obedient servants,
PRICE, WATERHOUSE & CO. R 28
Auditors' Report.
1917
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Canadian Northern Pacific Railway Co.
R 29
Exhibit 2.—Statement showing Cost to May 31st, 1017, of each of the Canadian Northern
Pacific Railway Company's Terminals ; prepared from those Records of the Company
produced for Inspection at Vancouver.
Engineering location	
Real estate	
Engineering construction	
Bridges, etc	
Stations and office buildings..
Water-stations	
Shops and engine-houses	
Ice-h:mses	
Storehouse	
Track-scales	
Ferry-slips	
Ballast.  	
Drainage and sewers	
Ties...'.	
Frogs, switches, etc	
Filling	
Bunk-houses	
Sea-wall	
Piling for temporary tracks...
Wharves	
Bulk-heads 	
Clearing ,	
Grubbing	
Grading 	
Rails and fastenings 	
Track-laying	
Piling wharf	
Warehouses	
Total construction cost to
May 31st, 1017 	
Add:   Overhead   charges   to
December 31st, 1916—
Engineering equipment ....
Plant and tools	
Team account	
Office furniture	
General expenses	
Office expenses	
Executive and accountancy.
Official car maintenance.  ...
Totals	
572,432 06
19,803 40
2,060 45
7,367 17
19,277 99
224,355 96
4,154 08
24 50
9,733 71
80,860 70
33,729 01
3,426 27
6,068 97
4,310 00
41,666 46
18,449 89
16,351 31
8,537 75
29,724 75
8,319 08
30,607 47
989 23
19,103 98
8,175 63
81,119,530 02
229 25
576 38
300 39
187 51
3,945 33
986 00
3,350 93
124 60
SI,129,239 41
New
Westminster.
f 1,781,206 69
2,343 64
93 01
$1,785,843 34
392
986
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6,754
1,687
5,736
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2,464 97
$       614 07
407,490 43
33,007 12
90,248 68
1,116 85
7,530 13
63,314 85
6,210 79
81,419,086 87
196 51
494 08
265 21
160 74
3,381 94
845 20
2,872 42
106 80
$1,427,409 77
$290,193 89
89 64
225 39
120 98
73 32
1,542 76
385 66
1,310 33
48 72
$293,990 59
Union Bay
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Patricia Bay).
$117,837 10
3,840 94
$207,408 29
43 77
110 06
59 08
35 81
753 36
188 28
639 86
23 79
Victoria.
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995 10
060 45
921 12
277 99
365 96
154 08
24 50
733 71
888 12
729 01
674 95
185 82
310 00
207 61
449 89
314 85
210 79
043 32
293 01
537 76
724 75
319 08
607 47
989 23
103 98
175 63
$4,822,062 41
951 62
2,392 63
1,284 30
778 38
16,377 45
4,093 00
13,910 04
517 21
$4,862,367 04 R 30
Auditors' Report.
1917
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EH GOVERNMENT  OF  BRITISH  COLUMBIA
£
AUDITORS' REPORT
ON
Investigation into the Financial Relations of
the Government with the Pacific
Great Eastern Railway Company
up to the date when the proceeds
of the  Company's Debenture Stock were exhausted
BY
PRICE,   WATERHOUSE   &   COMPANY
THE GOVERNMENT OF
THE PROVINCE OF BRITISH COLUBBIA.
PRINTED BY
AUTHORITY OF THE LEGISLATIVE ASSEMBLY
VICTORIA, B.C.
Printed by WILLIAM H. CULLIN, Printer to the King's Most Excellent Majesty
1917  FINANCIAL RELATIONS
OF THE
Government with the Pacific Great Eastern Railway Company, up to
the Date when the Proceeds of the Company's
Debenture Stock were exhausted.
A^ancouvek, January 22, 1917.
To the President of the Executive Council of the Provincial Government of British Columbia.
Pacific Gheat Eastern Railway Company.
Sm,—In accordance with instructions received from the Hon. John Oliver, Minister of
Railways and Agriculture, we have conducted, in conjunction with our examination of the
Provincial accounts, an investigation into the financial relations of the Government with the
Pacific Great Eastern Railway Company, up to the date on which the proceeds of the Company's
debenture stock were exhausted, and annex hereto the following statements:—
Exhibit I.—Statement of moneys deposited to the credit of the Minister of Finance in
connection with the British Columbia Government's guarantee of the Pacific Great
Eastern Railway Company's securities.
Exhibit II.—Statement showing analysis of estimates as furnished the British Columbia
Government by  the  Pacific Great  Eastern  Railway  Company  under  chapter  34,
Statutes 1912, and upon which moneys were released by Orders in Council.
Exhibit HI.—Statement showing the disposition of moneys received by the Pacific Great
Eastern Railway Company from the British Columbia Government on Estimates
Nos. 1 to 41.
Exhibit IV.—Statement showing amounts that were payable to the Pacific Great Eastern
Railway Company in respect of estimates submitted to November 30, 1915, according
to subsection  (d) of section 9, chapter 34, 1912, and amendments, our reading of
which has been confirmed by the Attorney-General's Department.
With regard to the annexed statements we desire to report as follows :—
Exhibit I.
It will be noted that the total of securities guaranteed by the Government amounts to
$20,1GO,000, which is on the basis of if42,000 per mile for 480 miles, as mentioned in the Statutes,
and not for 476.1 miles, the final length of the road, as determined by the Company. You will
notice that the cost of the issue of the First Mortgage Guaranteed 4% per cent. Debenture Stock,
excluding discount, amounts to $440,439.22, being approximately 3.09 per cent., which is not
excessive as compared with the cost of the British Columbia Government loan made in England
at about the same date.
It will be observed that there was an amount of $231,644.83 deducted in London to pay
interest on the Pacific Great Eastern Railway Company's securities, and that the Company
subsequently refunded $339,207.38 of this amount (out of moneys received from the Provincial
Government on estimates), leaving $92,437.47 as a payment which was not, as far as we could
ascertain, authorized by an Order in Council.
The securities were sold in London through Messrs. Brown, Shipley and Company, the fiscal
agents of the Pacific Great Eastern Railway Company. We have requested the Pacific Great
Eastern Railway Company to ask Messrs. Brown, Shipley and Company to confirm, direct to us,
the total amount of securities issued by them, and until we receive this confirmation we have
no complete verification as to whether the total amount of securities as shown by the records
of the Company as issued, are all that have been issued. We may state, however, that the
periodical payments of interest exactly equal the amount of interest payable on the securities
shown as outstanding. R 34 Auditors' Report. 1917
Exhibit II.
We are advised by Mr. Gamble, the Government's Chief Railway Engineer, that the amount
of estimates for location engineering, construction engineering and overhead charges, representing
charges outside the Welch contract, are not excessive when compared to similar charges entering
into the construction of other railroads. We might mention that the item executive and accountancy includes $1,000 per month paid to Mr. D'Arcy Tate, Vice-President of the Company, for
salary and legal services, and that the item of general expenses includes legal services amounting
to $14,822 paid to outside solicitors.
Howe Sound and Northern Raihoay, $193,068.62.—The purchase price of this line of railroad
is the amount passed by Mr. Gamble after he had revised the figure claimed by the Company on
its estimate which was, we understand, with the exception of the charges for right-of-way, based
on the Welch contract prices. The purchase price of $193,068.62 was allocated as follows,
according to receipts examined by us:—
Trustee of the Howe Sound and Northern Railway Company $    5,000 00
Foley, Welch & Stewart     188,068 62
Total    $193,068 62
We were informed that the amount paid Foley, Welch & Stewart was to reimburse them for
the amount they had already paid to the trustee. In the revised figures furnished by Mr. Gamble
in connection with this purchase, there is an arithmetical error amounting to $5,765.76. the
extension of 29,120 feet of culvert timber at $22 per thousand being shown as $6,406.40 instead
of $640.64. This amount should be recovered by the Pacific Great Eastern Railway Company
from Foley, Welch & Stewart and refunded to the Government, or deducted by the Government
from the next estimate furnished by the Pacific Great Eastern Railway Company.
The title to the right-of-way included in this purchase, amounting to $S3,690, still stands in
the name of the vendors, who we understand are now amalgamated with the Pacific Great
Eastern Railway Company.
We might mention that the contractor, P. Welch, is operating the line purchased from the
Howe Sound and Northern in conjunction with that portion of the road which he has constructed
and is operating under the terms of his contract with the Pacific Great Eastern Railway Company, but so far as we can ascertain he is not paying anything to the Company for the privilege
of operating the 7.06 miles of road which he did not construct, nor anything for the benefit of
certain contracts which we understand were included in the purchase of the Howe Sound and
Northern.
Right-of-ivay, $316,309.19.—The estimates under this head are constituted as follows:—
Cost of land purchased   $139,416 16
Land surveyors  (approximately)          25,000 00
Partial payment on land at Vancouver terminal        52,000 00
Fees and expenses of counsel, salary of right-of-way agent,
appraisal expenses, cost of removal of obstructions, recording
deeds, etc.  (approximately)          99,893 03
Total    316,309 19
We examined a duplicate-signed deed in favour of the Company for each parcel of laud
purchased. In most cases a certificate or other evidence of title was attached. None of the
land as evidenced by the deeds was purchased from the Pacific Great Eastern Development
Company.
Constructing Railroad, $17,365,572.65.—The estimates furnished by the contractor and
submitted to the Government by the Company were certified to by Mr. John Callaghan, the
chief engineer of the Pacific Great Eastern Railway Company, and again certified by Mr. R. D.
Thomas, auditor of the Pacific Great Eastern Railway Company. The arithmetical accuracy
of estimates was tested by us, and it was ascertained that the prices stated thereon were the
contract prices.
It will be observed that retentions amounting to $1,583,030.21 were owing to P. Welch on
Estimates Nos. 1 to 40. It was the policy of the Government, up to May, 1915, to withhold
retentions on estimates furnished under the Welch  contract,  but estimates  submitted after 7 Geo. 5 Pacific Great Eastern Railway Co. R 35
May, 1915, were paid in full. In July, 1915, the Government paid to the Company the amount
of $766,319.69, being half the retentions they had withheld. In this connection it will be noticed,
on reference to Exhibit III., that the amounts retained have not been kept separate and available
for eventual payment, but have been used by the Company towards the payment of sundry items
and interest on its securities and bank loan, notwithstanding that the same had been specifically
struck out of the estimates by the Government.
Exhibit III.
The amounts paid by the Company for work performed under the Welch contracts have been
verified by receipts from the contractor. Receipted vouchers and other evidences of payment
were produced to us in verification of the interest paid. Of the expenditure outside the Welch
contract, receipts aggregating $332,484.78 were examined by us, and the remaining disbursements,
which consist principally of payments for salaries and sundry supplies, were verified by the
Company's records. We have already referred in our remarks under Exhibit II. to the fact
that these charges are not considered excessive by Mr. Gamble.
Exhibit IV.
We have assumed that the final length of the road as determined by the Company—viz.,
476.1 miles—was ascertained and known to the Minister of Finance on or before the date on
which the last moneys were released to the Company. We have based the estimated cost of 476.1
miles, on the total estimated cost of 480 miles, as agreed to by Mr. Gamble and Mr. Callaghan,
chief engineer of the Company. In ascertaining the amount payable to the Company for the
proportionate value of work done to November 30th, 1915, we have assumed the following as
being in accordance with the Statutes:—
(1.)  That the total cost of construction and materials is the total of Estimates Nos. 1
to  41   as   furnished  by   the   Company  after   excluding  items   which  have   been
eliminated from the estimates by the Government:
(2.)  That the net amount credited to the Minister of Finance in respect of guaranteed
securities sold and pledged, is the amount of the Government's guarantee for the
purpose of ascertaining the amounts payable to the Company.
According to our interpretation of the Statutes governing the payment to the Company for
the proportionate value of work done to November 30th, 1915  (which has been confirmed by the
Attorney-General's Department in a memorandum dated January 20th, 1917, addressed to the
Honourable the Minister of Railways), there has been an amount of $5,704,316.50 paid in excess,
as shown in Exhibit IV.    We have noticed that Mr. Gamble has, up to Estimate No. 19, recommended to the Executive Council that the amounts of the estimates be transferred to the credit
of the Company, but from Estimates Nos. 20 to 41 he does not recommend the amounts for
payment, but commends them to the consideration of the Council.
We shall be glad to furnish any further information you may desire in connection with our
investigation.
We have the honour to be,
Sir,
Your obedient servants,
PRICE, WATERHOUSE & CO. R 36 Auditors' Report. 1917
Exhibit I.—Statement of Moneys deposited to the Cbedit of the Minister of Finance in
connection with the British Columbia Government's Guarantee of the Pacific Great
Eastern Railway Company's Securities.
Securities issued—
First Mortgage Guaranteed 4%% Debenture Stock  $14,234,805 00
Deduct—
Discount     $470,687.29 or 3.31%
Underwriters' commission and brokerage  $428,564.07
Expenses          4,474.94
Exchange          7,399.31    440,430.22 or 3.09%
Total cost of issue  $911,126.51 or 6.40%
Interest on Pacific Great Eastern Company's securities paid in London. . $231,644.83
Less—Refunded by Company out of
moneys released to them by the
Government on estimates     139,207.36     92,437.47 1,003,563 98
Amount credited to Minister of Finance in respect of securities
sold     $13,231,241 02
Securities pledged—
Amount credited to Minister of Finance in respect of securities pledged, being
a loan paid in monthly instalments by the Union Bank of Canada, secured
by the undermentioned debenture stock        4,SOO,000 00
First Mortgage Guaranteed 4y2% Debenture Stock  $2,565,195.00
Second Mortgage Guaranteed 4%% Debenture Stock     3,360,000.00
$5,925,195.00
Interest earned on bank balances (total securities guaranteed by British Columbia
Government, $20,160,000)     215,738 42
Total deposited to credit of Minister of Finance     $18,246,979 44 7 Geo. 5 Pacific Great Eastern Railway Co. R 31
Exhibit II.—Statement showing the Analysis of Estimates as furnished the British
Columbia Govebnment by the Pacific Great Eastern Railway Company under Chapter
34, Statxttes 1912, and upon which Moneys weee released by* Orders in Council.
Location engineering (salaries and expenses of engineers)     $    206,295 68
Construction engineering, Divisions 1 to 6 (salaries and expenses of engineers) .. 524,711 42
Overhead charges—
Engineering equipment (pack horses, transits, levels, and engineers'
instruments)      $32,035.62
Office furniture       5,539.00
Office  expenses        44,060.67
General  expenses        44,696.42
Executive and accountancy       63,788.04
Insurance   140.00        190,259 75
Howe Sound and Northern Railway (purchase price)    193,068 62
Right-of-way, Divisions 1 to 6  316,309 19
Total  estimates furnished by the  Company,  being expenditure
outside the Welch contract    $ 1,430,644 66
Constructing railroad—
Cost per Estimates Nos. 1 to 40 furnished by P. Welch aud submitted by the Company   $17,365,572.65
Less—Retentions          1,583,030.21    15,782,542 44
Retentions on P. Welch contract, $766,319.69 of which was previously withheld
by Government    816,710 52
Interest earned on bank balances   211,780 91
Partial payment on Estimate No. 41   5,300 91
Total    $18,246,979 44
Exhibit III.—Statement showing the Disposition of Moneys received by the Pacific Great
Eastern Railway Company from the British Columbia Government on Estimates Nos.
1 to 41.
Total amount released by Government as shown on Exhibit II   $18,246,979 44
Expended by the rac-ific Great Eastern Company
according to its records, as follows:
P. Welch for work performed under contract.. $15,610,150.00
Expenditures outside the Welch contract     1,427,848.92
Interest on securities issued and bank loan ..    1,021,647.60
On Estimate No. 41   (only part payment of
which was received from Government)... 8,334.S2
Payment of sundry items included in estimate,
but disallowed by Government  9,600.16
Expenses of organization, $500, and advertising, $2,500, not included in estimates by
Company    3,000.00
Portion of interest deducted from proceeds of
securities sold refunded by Company out
of moneys received on estimates        139,207.30        $18,219,788.86
Balance being cash in bank and advances   27,190.58
Total released by Government   $18,246,979 44 R 38
Auditors' Report.
1917
Exhibit IV.—Statement showing Amounts that were payable to the Pacific Great Eastern
Railway Company in respect of Estimates submitted to November 30, 1915, according
to Subsec. (d) of Sec 9, Chap. 34, 1912, and the "Pacific Great Eastern Aid Act, 1914,"
our Reading of which has been confirmed by the Attorney-General's Department.
The part of subsection (d) of section 9 which governs the method of payment reads as
follows:—■
" And from time to time as the work of construction proceeds, the Government by the
Minister of Finance, or other duly appointed representative of the Government, shall, out of
the said balances, certify to the bank the amount to be transferred from the said account
to the credit of the Company, or its nominees, in monthly payments as far as practicable such
sums as are justifiable, having regard to the proportion of work done and materials and supplies
purchased for the said railway as compared with the whole work done and to be done thereon
pending completion of the said line."
The interpretation of which is represented by the following fraction:—
Amount of work done the total amount credited       Proportionate    value    of
 of     to   the   Minister   of =     work done   (as  passed
Estimated total cost (as fixed Finance   in   respect   of by  the  Government  on
by the Government's Chief           guaranteed securities Estimates Nos. 1 to 41)
Railway  Engineer and the           sold and pledged                        payable to the Company.
Chief Engineer of the Company)
Which, when applied, is shown as follows:—
Total of work done as passed
■by the Government on Estimates Nos. 1 to 41 $18,888,599 7S
Multiplied by the net amount
credited to the Minister of
Finance in respect of securities sold and pledged    18,031,241 02
Divided by the estimated
total cost of 476.1* miles
of road (this being the final
length of the line as determined by the Pacific Great
Eastern Railway Company)  27,620,481 19 = proportionate   value   of   work
  done (as" passed by the Gov-
* Based on the estimated total cost of 48-0- miles as
agreed to by the Government's Chief Railway Engineer
and the Engineer of the Pacific Great Eastern Railway Company.
ernment on Estimates Nos.
1 to 41) payable to the Company ..-   $12,330,882 03
Total amount paid on Estimates Nos. 1 to 41 by the
Government to the Pacific
Great Eastern Railway
Company out of the net
amount credited to the Minister of Finance in respect of
securities sold and pledged..    18,035,198 53
Total payments made in excess
of the proportion of the estimates payable, according to
our interpretation of subsection (d) of section 9,
chapter 34, 1912, and the
" Pacific Great Eastern Aid
Act, 1914," which has been
confirmed by the Attorney	
General's Department  $ 5,704,316 50

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