Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 1 - 19)




  1. Sir John, this is the first time you have presented your estimates in resource estimate form.
  (Sir John Bourn) Yes.

  2. Could you just tell the Committee what differences that has made, whether it is easier, harder? How have you found it?

  (Sir John Bourn) This presentation, which is the presentation which the Treasury are going to require Departments to follow in future, is based on the fundamental principle of resource accounts that the estimate and the accounts should show not only the cash, which has been the basis up to now on which estimates and accounts have been done, but on the use of resources. Resources come under two headings: those resources which you would recognise in the accounts of PLCs like changes in the amount of working capital, depreciation, matters of that kind, but also allowances which come out of the economists' approach, like the concept of capital charges on the assets. The resource estimate includes the computation of the resource implications as well as the cash we would spend, but the cash at £47.6 million is exactly the same figure that the Public Accounts Commission saw in July and represents simply an increase of 6.5 per cent in the amount of cash compared with what I have in this financial year. The main reason for the increase is the coming of resource accounts, the much larger and more developed system which is being introduced.

  3. Are you comfortable? Last year you had 52 major reports, 660 audits, all for a bit less than you provided for last year, about £300,000 less if my understanding of the figures is right. Can you take us through how you achieved that?
  (Sir John Bourn) Yes. In the year coming up I shall audit 649 accounts; that compares with 660 which I am doing in the current financial year. The main reason for the fall in the number is that a lot of our international accounts are biennial accounts so they only come up every two years. That accounts for the major part of the reduction. The actual quantity of work we are doing is larger, not only because the accounts are more complicated, but we are, with the Committee's support, winning more work and getting more accounts to audit. As the Committee know, we have obtained the audit of all the executive non-departmental bodies established under the present Government and we are glad to say that the portfolio increases. For the amount of money I am asking I shall audit all the accounts, do 50 value-for-money studies, answer all the letters from Members of Parliament and from members of the public, currently running at 260 to 300 a year, some of them quite extensive in the amount of work required, and carry out a programme of inspection visits, as we do, to a whole range of the auditees. I shall produce the performance savings which we have done. With your help and the agreement of our recommendations and their acceptance on the part of the Government we are able to show that the savings coming from our work and the support you give us is eight times the cost of running the Office. If I am asking for more money, I shall give you more savings.

  4. The Treasury will agree. You are here as a schizophrenic practically because you are also C&AG for Wales. Tell me a little bit about the relationship in resource terms between what you do for them and how it is paid for.
  (Sir John Bourn) As far as Wales is concerned, I am the Auditor General for Wales and I shall be bringing in to the C&AG in the upcoming year £2,059,000. The arrangement is that as Auditor General for Wales I have a contract with myself under which the money is supplied by the National Assembly of Wales, I meet your Welsh equivalent, discuss the estimate with them in the way that I am discussing it with you. I am glad to say that the work which the National Audit Office do under contract to the Auditor General for Wales has been successful. The Audit Committee have asked us to do more work. The work is done for the Audit Committee of the National Assembly of Wales but they pay for it all. There is no element of subsidy on the part of the Westminster Parliament for the work done for the National Assembly of Wales.

  5. Every year the same perennial question comes up about staffing, quality of staff and so on. I forget the exact words, but you are required to keep broadly in line with public sector indicators on salaries. How is that working? What is the state of play there? That is probably the single most important question we ask you.
  (Sir John Bourn) The words in the statute are, "Having regard to salaries in the Civil Service", which of course are not what they used to be. There was a time when you could look them all up and find what all the civil servants were paid. That is long gone. Nonetheless of course we bear that in mind, but we also have to bear in mind that the great majority of my people are people with professional qualifications, most of them as professional accountants. I am too small to be a price setter in that market and I therefore have to have regard to what my people could earn if they were not with me. As I said to the Committee last year, and it remains the case, I have no problem about attracting bright, clever, young graduates to come to work at the NAO. Last year we took 36, six firsts, six lower seconds and all the rest were upper seconds from a wide range of universities. We had something like 600 applications from university graduates for those jobs. I take the people and we give them a training. The real question for us is the man or woman of 29, 30, 31, 32, a qualified professional person, wide public sector experience by then, enormously attractive to accountancy firms and consultancies. I have had a look at the latest earnings figures of the firms, now that at least some of them show what you can earn there. The 484 partners in Ernst & Young have average remuneration of over £400,000 each. The senior partner in Ernst & Young is earning £1 million a year.

Mr Griffiths

  6. How is it skewed?
  (Sir John Bourn) It is skewed in the sense that unlike the public sector you have your basic partner and the top guy is earning more than twice as much. I am not earning twice as much as the DC&AG, put it that way. Of course we could never expect and our people do not expect, to be able to earn with us what they might have earned if they made partner, as many of them would of course in the firms. We do have to pay effectively basically good salaries and it is something we have to look at with your support each year. It is that crucial age, 29, 30, 31, because people then say to themselves that this is the time to go if they are going. Get on to 40, 45, 50, then the market opportunity is gone. I have to keep as many of these young people with me—


  7. I am looking round the table at the 45 to 50-year olds.
  (Sir John Bourn) Not for members of the Committee but it is the case in a field of that kind. Essentially we are keeping enough good people, so I have no crisis. Many people want to do the work. One of the big things we do have is that it is more interesting on the whole than working for Ernst & Young and auditing PLCs year after year to see that the accounts are in line with the Companies Act. We have more interesting work and there are still a lot of people who want to work for the public sector.

  8. Is that true across the board? Let me offer an alternative and more difficult example. Take something like VFM studies in the privatisation area. Surely in that area somebody who is really good would be in line for very large salaries in the City, would they not?
  (Sir John Bourn) Yes. In fact we do have some people. Jeremy Colman, who sat here earlier, was a man who started with the Treasury, then went to a merchant bank and then went to PriceWaterhouse working on exactly these matters. I was able to recruit him. He took a big drop in salary, but he was somebody who was prepared to do that. In ordinary Civil Service terms, of course he is not doing too badly, but nothing like he could have got. What I do have is a number of people with that experience, who I have been able to interest in the work of the Office. I do have a core of those people and when we do a VFM study or a PFI or a privatisation, of course we do bring people in the City to work on the team. I am not dependent simply on those whom I employ. I am very glad that I have been able to get a handful of people. There is also scope for secondments, bringing people in from accountancy firms, from banks and so on, which also adds to my staff resources. It is a matter of pursuing the possibilities and getting enough good people. My basic answer is that I do have enough good people to do a financial audit, to do the VFM audit, supplemented by bringing people in, some of the financial audits contracted out, some of the VFM contracted out in the sense that I have people from outside the Office working with me. We do not of course only have to use people from the City. We can often get very good people from universities who work in these sorts of areas whose price tag is not the City price tag. I have to say that people like working for us. If they come from the City, from a consultancy, they are not charging me a bomb. There is an interest in working for us, working for you and we are able to profit by that. You cannot take it for granted of course. You have to think about your salary scales every year.

Mr Williams

  9. I have given up hope of catching you out on any great scandal over the years. I notice that you have several strategic projects in information technology. I would assume that yours follow nothing like the pattern of problem development we encounter in the Civil Service.
  (Sir John Bourn) I am certainly trying to avoid that.

  10. Trying?
  (Sir John Bourn) I am succeeding. The success we have had is around two principles. First of all, do not be on the edge of technology. In the kind of IT I want, there is a lot of experience. What we looked at and what we buy are software, hardware, in which there are several years of experience in which bugs have been taken out. Secondly, keep the people who are in charge of the projects there for a long time so that they cannot say, "Of course, if I'd been there at the beginning, it would all have been great", or, "If I hadn't moved, none of this would have happened". The people working on it know they are going to be there for several years and they know that they have to deliver what they told us and pledged to me they will deliver. There can be no excuses for that. It is by not being too ambitious, working on a relatively small scale, training the people of course and keeping the man or woman who is responsible there for a good long time.

  11. I suspect the summation of all that is that you have bought six new PCs and they are all working all right.
  (Sir John Bourn) Rather more than six.

  Mr Williams: Yesterday I spoke to a group of your youngsters at lunch hour in one of their courses. They had just done their exams and they were surprisingly perceptive. They laughed at all my jokes. I have given up on this lot here.

  Chairman: We sent them a list.

Mr Williams

  12. I taxed the representative of the Civil Service College who chairs the proceedings with ticking them off as we were going along. In relation to Wales, how does it look as though it is developing down there? They have about 80 quangos, most of which are minuscule and then they have a great giant, the WDA, which is a merger of three. How is the new regime down there shaping up? Is our sister committee developing satisfactorily?
  (Sir John Bourn) Yes, I think it is. The Chair is Janet Davies, a Plaid Cymru Member, a woman whose essential experience is in local government, but a person who has had an understanding of the work in the public sector. One of the points which all the members of the Audit Committee have made to me is their determination to root out fraud and corruption and impropriety. They have urged me essentially to do two things in the work I bring them: to bring them cases of improprieties and fraud and corruption which we find, to write them up, publicise them and bring them to the Committee; also to look for areas where money can be saved. Looking at those, we have been able to have a synergy between the work we have done for Westminster, for example we have recently done a report on procurement in further education, where we were able to use the techniques and the methodology we had used in a wider study and focus on the smaller number of further education institutes in Wales and come up with savings possibilities of something like £1.5 million a year, which in the context of Wales is money worth having. It is going well. There is great enthusiasm on the part of members of the Audit Committee that they should be able to show their fellow members and should be able to show the people of Wales that they are making a difference. I am delighted to have the chance of making a contribution to that.

  13. They have their equivalent of our Treasury Minute, do they?
  (Sir John Bourn) Yes, they do. I am of course anxious that they should understand, without in any sense thinking that I come with a model in my mind which I think should be imposed on Wales. All the devices which have worked so well here, like the Treasury Minute, the examination of the Treasury Minute, the idea then of holding the Department to pledges which have been made, have all been taken on board.

Mr Steinberg

  14. No great financial question, it is very mundane. The report we get now has changed. You mentioned age. I am getting to the stage now where I can hardly read it the print is so small. Why did you change it from what we used to get last year? Is there any chance of going back to it?
  (Sir John Bourn) I changed it because you ought always to move on, you ought always try to make the reports better, certainly make the graphics better, certainly make the use of language better. If the type is too small, I shall certainly look at that.

  Mr Steinberg: Please. When you get to my age you certainly have problems.

  Mr Williams: May I suggest you do a cost comparison between the cost of producing it in larger print and the cost of buying Mr Steinberg a new pair of glasses?

  Mr Steinberg: I actually have to take my glasses off to read.

  Chairman: I thought that was to intimidate.

Mr Love

  15. I was sorely pressed to ask whether you had thought about going into consultancy on the basis of the last report, but perhaps I shall miss that one out. I know that you present your accounts to the House of Commons Public Accounts Commission. Who audits your accounts and, perhaps more importantly, is any independent value for money study ever carried out on the National Audit Office and who would do that?
  (Sir John Bourn) Yes, we are audited by a firm of accountants appointed by the Public Accounts Commission. They do a financial audit and each year they do a value for money study. In discussion with the Commission and ourselves they pick a particular subject on which they then report to the Commission.

  16. Is it an agreed report?
  (Sir John Bourn) It is agreed as to the facts but it is their recommendations. Ever since I have been the C&AG, I have had good recommendations from the external auditor and they have looked at things like the recruitment of graduates, their employment, the quality of the financial audit, all important matters like that. The results we have had from them have been valuable and I have been glad to adopt, with the agreement of the Commission, the auditors' proposals.

  17. Going back to staffing, I caught the hint that in an effort to try to maintain the staff you have, clearly a lot of people come to you because of the interesting work you are involved in and you get a lot of graduates from the indications you have made, but I did get the hint that it is maybe pushing your salary bill up a little faster than perhaps the rest of the public sector. Is that the case and has that been the case in recent years?
  (Sir John Bourn) It has not been pushing it up at a greater rate, in fact the rate of increase has been something of the order of four to five per cent. The way in which it works is that each year people's salary depends on their performance. There is no automatic increase. If you are very good you could get maybe eight or nine per cent increase and if you are not so good and you need some more training and it is our business to look after that, you could be down to one or two per cent.

  18. How do you evaluate good in that regard? Is there some sort of performance related element?
  (Sir John Bourn) Yes, it is performance related.

  19. How do you measure that performance?
  (Sir John Bourn) As far as the financial audit is concerned, you measure it by the same quality standards as the profession does, by peer review, by our external auditor looking at the quality of the work. In terms of the value for money, we have an arrangement, a contract which the London School of Economics won and they look at all our reports; some of them while they are being done, all of them when they have been done. We have a group of very bright people from across the social sciences and they look at the reports and press things like "Why did you do the study at all?", "Are you sure that the recommendations follow logically from your analysis?", they raise questions about the statistical methodology. In that way they are a constant push, as well as in a way you are our quality control.

  Chairman: Any other important questions? Order, order.

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