Select Committee on Public Accounts Minutes of Evidence


Examination of Witnesses (Questions 1-19)

PROFESSOR SIR ANDREW LIKIERMAN, MR DAVID LOWETH, MR CHRIS RICHARDS AND MR ADAM SHARPLES

WEDNESDAY 7 NOVEMBER 2001

Chairman

  1.  Order, order. Good afternoon. This is a meeting of the Committee of Public Accounts of the House of Commons. Welcome to everybody. This afternoon we shall be taking evidence on the Treasury memoranda of 19 December 2000 and 20 April 2001, on departments' action plans and progress on their resource accounts. We shall also be taking evidence on the Treasury's 15 December 2000 memorandum on departments' use of management information, and all of these are encompassed by the Comptroller and Auditor General's Note of October 2001. We are very honoured to be joined by Professor Sir Andrew Likierman, the Director of Financial Management, Reporting and Audit at the Treasury. Welcome, Sir Andrew. Would you like to introduce your colleagues to us?
  (Professor Sir Andrew Likierman) On my extreme left is Mr Chris Richards, a member of the Central Accountancy Team at the Treasury; on my left is Mr David Loweth, the Head of the Central Accountancy Team at the Treasury, and on my right is Mr Adam Sharples who is a Director of Public Spending at the Treasury.

  2.  Thank you very much for coming this afternoon. Sir Andrew, I see from your April memorandum and the Comptroller and Auditor General's note that 12 departments' resource accounts for 1999-2000 still did not receive a clear audit opinion, including seven major ones. Is this a satisfactory outcome? How well did the results match the action plan timetables to which departments were working last year?
  (Professor Sir Andrew Likierman) Chairman, I do not think any qualifications to accounts can be regarded as satisfactory, so in that sense, almost by definition, I cannot say that is satisfactory. I would say in context that the previous year, the dry-run year, 30 accounts were qualified, and 12 therefore does represent a substantial improvement on that performance. It is also within the range which I indicated to the Committee I hoped would be the case for that year. I had said, I think, that there were between nine and 15 accounts qualified. In the event, 12 was somewhere in the middle of the range. In terms of progress, therefore, departments did achieve the progress which we had hoped, and indeed we hope they are still on track to achieve the further progress which we are looking for from them.

  3. All right, so you are making progress, but you would accept that if you were a Member of the House of Commons looking at this, with 49 accounts, 12 qualified, 25 per cent of the accounts inadequate, you would think that was a pretty poor record, would you not?
  (Professor Sir Andrew Likierman) We said originally, when the project was going to be implemented, that what we would do is to phase in the resource accounts at the same time as appropriation accounts were being phased out, and therefore we are having three parallel running years to enable departments to achieve the levels of quality in the accounts that we would expect from them. This was the second year, and in the third year we are expecting a further improvement from that position. As I said, I do not think any level of qualification is desirable. I must say, though, that having achieved what we hope will be an improvement this year, we are also looking to improvements in subsequent years, and we are looking to a level of qualification for accounts that are much more complicated and give much more information than appropriation accounts, which was somewhere around the range which appropriation accounts had at the time when we decided to move over to resource accounts from appropriation accounts.

  4. Let us go in a bit more detail into these 12 departments. The Comptroller and Auditor General notes that four of these 12 departments—that is, the Department of Health, the Lord Chancellor's Department, the Forestry Commission and the Security and Intelligence Agencies—have not set out clearly when they expect their problems to be fully resolved. What are your expectations for these departments, and are you satisfied with the situation?
  (Professor Sir Andrew Likierman) Going back to my overall point again, I am not happy with any situation like this.

  5.  Perhaps you might just deal with these particular departments now.
  (Professor Sir Andrew Likierman) Of course. The indications we have from this year—and they are only indications, because we are still awaiting the results of the audit from the National Audit Office—are that we hope, that of the 12 departments which were qualified last year, only six are going to remain qualified. That is to say we are hoping that the Cabinet Office, the Treasury, the Treasury Solicitor's Department, the Forestry Commission and the Department of Health are not going to receive qualifications this year. Still at issue we hope that the DETR, as was, is not going to receive a qualification.

  6.  Others may want to come back in more detail on those departments. I am sure we have time. The Comptroller and Auditor General notes that he had to disclaim giving an opinion for two departments—the former Ministry of Agriculture Fisheries and Food and the Home Office. These departments appear to have slipped rather than progressed. Do you accept that? When do you expect them to be in a position to receive clear audit opinions? Please confine your answer to these two departments.
  (Professor Sir Andrew Likierman) Perhaps I may make a general comment about both departments. Both departments, I think, had problems in the last year which made their progress negative rather than positive. The Home Office have indicated to us that they are hoping to achieve a clean audit opinion for 2001-2002. MAFF, now DEFRA, have said to us that they are hoping to achieve a clean audit opinion for 2002-2003.

  7. More generally, the Comptroller and Auditor General has noted that 27 departments failed to meet the statutory timetable, including the Treasury. He stresses the need for sufficient skilled staff, robust procedures for preparing accounts, and effective senior management review. How will you ensure that this happens?
  (Professor Sir Andrew Likierman) Chairman, if I were able to prepare all the accounts myself, I am confident that I would meet all the deadlines. Unfortunately—or fortunately—that task is delegated to departments, so in that sense I cannot ensure that departments deliver according to the timetable. To go to the question of how we are dealing with this, it is a long-standing problem which has given us no satisfaction, I must tell you. If there are accounts which are late, we do not regard that as satisfactory either. We have done a number of things since the last hearing to try to ensure that the timeliness of accounts will be improved. We have sent out instructions from the Treasury. We have tried to do whatever we can to help departments to prepare their accounts in a timely manner. We have tried to help them with staffing, training and so on. The indications are that as far as appropriation accounts are concerned—and this is the last year for appropriation accounts—we are not improving on last year. Part of the problem here is that we are double-running with both resource and appropriation accounts being prepared, and that is putting quite a strain on departments. That is one reason why we asked the department not to prolong the period of double-running. Nevertheless, in terms of resource accounts, the indications are that these are coming forward rather faster than last year. Perhaps I can go to your general point about what we are doing and what we would seek to do. First of all, we believe that departments will get better at doing this as they get more experience with their resource accounts, there is no question about it, and they have indicated to us that they are confident that they are going to be able to accelerate the timetables. We are also considering, both with the National Audit Office and with departments, a rather more radical proposal to bring down the required timetable for the presentation of accounts from the present ten months to—I will give you a personal ambition—three months. That is to say, I would like accounts to be presented by the end of June following the financial year and not by the end of January. That is something which everybody acknowledges is pretty ambitious, and it is something which we will no doubt have to do in stages. The question here is what is feasible as well as what is desirable, but, as I say, we are discussing that with the National Audit Office to see whether we can work with them to bring forward the date at which accounts have got to be presented. The indications are from past experience that if it is left entirely to departments as a matter of discretion, unfortunately that discretion is taken to be a licence. So we do not regard this position as being satisfactory. We would like to bring central government up to the best practice in the rest of the economy.

  8. I thought you might say that, and that slightly worries me. You do not think you are asking departments to run before they can walk, do you? After all, they have got a pretty sorry record here. Are you convinced that they are ready for this change?
  (Professor Sir Andrew Likierman) I am quite sure that they are not ready for it yet, Chairman. As I say, we will not do anything rash. We will of course consult with the National Audit Office who are key partners in this endeavour, to try to bring down the timescale for the presentation of accounts, as well as with departments. They have been struggling to make sure they can deliver the new information which has been required of them. This will be the next stage. If I can put it this way, I think it will be a question of how long, rather than if. I have no doubt that it is going to be possible to get down to this date. The question is, how long will it take to do it, and running before one is walking is therefore a matter of judgement about how the balance might be struck.

  9. What worries me is, for instance, if you look at the Ministry of Agriculture Fisheries and Food, I have a list here of where there is a lack of audit evidence. It makes pretty poor reading. These are not just minor areas. This included the value of information technology assets, the amounts reported as Supply drawn from the Consolidated Fund, the balances on certain property-related suspense accounts, the completeness of amounts capitalised as fixed assets. These are serious matters, and this is where apparently the Ministry of Agriculture Fisheries and Food is falling down. You must be worried about this, are you not?
  (Professor Sir Andrew Likierman) Indeed we are, and, even more important, the department itself is worried about it. Even more important than that, they are taking action to address it. This is one department, and you picked out two in your earlier question, where there are a very large number of elements still to be resolved in the production of their accounts. They would, I think, count as one of the backmarkers in the pack.

  10. I should think so too. It is not just that. There were also significant errors—for example, the failure to deal properly with transactions and balances between the department's agencies, the valuation of certain land and buildings, the omission of certain property assets and errors in the cashflow statement. This is not some small business, it is a government department.
  (Professor Sir Andrew Likierman) Indeed, Chairman, but, perhaps I may take one example which is the Ministry of Defence. In its earlier accounts—I do not think I have ever seen a qualification as long as that for the Ministry of Defence—it basically said, "This is an account with huge numbers of problems attached to it." To the great credit of that department, this tome has been reduced to a thin booklet, and indeed we are on track for getting it down to something which looks like a conventional audit opinion. So whereas one might have despaired two or three years ago about the Ministry of Defence, they have made very significant progress. Your point about this particular department, I think, is that it also has to show it is making progress. But this is not rocket science, it is quite capable of doing it, and I am sure it will. The only question is how fast it can do so.

  11. I asked you a moment ago about the 27 departments failing to meet the statutory timetable. Included in those 27 were ten departments whose accounts for 1999-2000 were prepared under a Treasury dispensation which gave them an additional two months. Quite apart from the fact that—your great idea for speeding things up—they were actually given more time for delaying things, these accounts were not laid before Parliament before March. How confident are you that good audit accounts will be delivered by the 31 January deadline?
  (Professor Sir Andrew Likierman) This is the present system. Before we actually start to move on to anything better, let us try to get the present system right. This year we are not going to give departments dispensations. Last year there was a very clear understanding that in order to improve the quality of accounts before presentation, departments would be given more time. This year we are not giving them more time. In terms, therefore, of saying how confident am I, I come back to my earlier point that I personally cannot deliver these accounts before 31 January. Departments know what they have got to do; they know that is the deadline they have to meet, and I know all of them are desperate so to do. I cannot personally guarantee that they are going to do it, because I do not have the responsibility for preparing the accounts, but I know they are determined to meet that deadline.

  12. When you say that they are determined to meet that deadline, this would be a determination that comes down from the highest level in the department, would it?
  (Professor Sir Andrew Likierman) Absolutely.

  13. The Comptroller and Auditor General's note suggests that departments still have some way to go before they gain maximum benefit from the additional financial management information now available to them. What are you doing to assist these departments in exploiting this information? After all, this is what this is all about. This is trying to make departments understand what is the real nature of their assets. How are you instilling a culture in Whitehall that, as it has been put to me, these accounts can come alive and be a real tool for management action, as opposed to just something for the experts?
  (Professor Sir Andrew Likierman) Chairman, we see the introduction of resource accounting and budgeting as being very much in its first stage. We are dealing here first with systems, then with the improvement of systems, and then with the improvement of information which is being made available. I am completely clear that this is still only the start of the process. What we are doing now is to try to make sure that departments use this information and that the information, as you say, comes alive in terms of their planning, their decision-taking, as well as their reporting. We are taking a number of steps here. First of all, what we are doing is that we are disseminating best practice around Whitehall. You have received, I think, a copy of the blue-coloured booklet called "Managing Resources". In the same series we have this booklet (indicating).

  14. Even more exciting.
  (Professor Sir Andrew Likierman) It is indeed, even more exciting than the last. I am very happy to distribute this green booklet round the Committee, should you wish, as I have a number of copies.

  15. Yes, please do. (Copies were handed in)
  (Professor Sir Andrew Likierman) This gives examples of where decisions or the way departments do their business have changed as a result of this new information being made available. It deals with a number of things—with asset management and costing, with management of working capital, and budgeting. You will see them described under a number of different headings. This booklet was produced in June, before the full impact of resource budgeting hit departments, and before a number of ways in which departments will come to grips with this new information for the first time. So far it has been largely a question of changes to reporting. This is one way in which we are seeking to make sure that departments know what is best practice elsewhere in Whitehall, so that they can understand what more they can do than they are doing now. That is one example. The second is that we are deeply involved in trying to improve the whole level of financial management understanding in Whitehall. There is a major programme now in place where departments are training at all levels on the use of this new information to give a greater understanding of the ways in which this can benefit the department. We are helping that process along. I am not going to distribute further booklets, but there is a pink booklet which outlines, for example, exactly what skills we would expect people at different levels in departments to have in relation to this new information, so that those who do not know much about this can see where the benchmark is for their own personal level of understanding. So the training is another key element to that. I emphasise that this is not just about resource accounting and budgeting, it is also about overall understanding of financial matters in departments.

  16. So you are confident that you can get this culture throughout Whitehall, of integrated financial management? It has been put to me that the culture hitherto in Whitehall is that accounts really are an area for experts, and many of the most senior civil servants historically have taken too little interest in them, even in the Treasury. Is that a fair criticism?
  (Professor Sir Andrew Likierman) I would say, looking at the incentives, Chairman, there have been far fewer in the past to integrate the information coming through the appropriation accounts into the departmental business than there will be now. A great deal of this information is directly useful to departments. If I may go back to your earlier point, this is another reason why we are seeking to bring forward the date of the presentation of the accounts, because we are keen that departments should use this accounting information throughout the financial year and not just wait for it to be prepared at the end of the financial year.

  Chairman: Thank you very much.

Mr Bacon

  17. Sir Andrew, we are changing the whole basis of supply here. As the Comptroller and Auditor General says in his note to the Committee, the reliability of resource accounts is the key to parliamentary control. Can you say by when all the problems associated with the introduction and implementation of resource accounting and budgeting will be resolved?
  (Professor Sir Andrew Likierman) If I go back to the question I answered earlier, the relevant departments have indicated to us that they hope to have unqualified accounts for 2002-2003. Two departments, I should say—the Department for Work and Pensions and the Lord Chancellor's Department—were qualified under appropriation accounts and will continue to be qualified under resource accounts for matters not associated with the change, but we are hoping that for them too the problems associated with the introduction of resource accounting will be resolved You mentioned the question of problems. It is difficult to know since this is a continuing process. In any one year a new problem could arise with a department. I would say that by 2002-2003 we would hope that the problems associated with introduction would have been resolved.

  18. Thank you. In the debate on the Bill which became the Government Resources and Accounts Act, the former Chairman of this Committee, David Davis, said that the Bill should not be implemented until not only had this Committee signified its satisfaction, but also that the Government had provided it with assurances that all departments are fully prepared for the change. You have just told us, "I am quite sure that they are not ready for it yet." None the less, I want to be clear about this: one, that you are clear they are not ready for it yet, and two, that we are going ahead with it now. That is correct, is it?
  (Professor Sir Andrew Likierman) Indeed. However, if I may go back to an earlier hearing, I appeared before this Committee in June 2000, and at that time I asked whether we could discontinue appropriation accounts after the third parallel running year, in order to enable departments to concentrate fully on the resource accounts which they had to prepare. My concern was that if they could not do that, they would be stretching themselves too thinly. This Committee agreed that we could go ahead with that, and at that time I indicated that there would continue to be accounts qualified for subsequent years. In that sense, therefore, I did come to this Committee, and the Treasury got this Committee's authority to proceed on that basis.

  19. Could I ask you a further question about parliamentary control. I remember talking to a tax accountant some years ago, when the Green Paper first came out, and you are as informed on this subject as anybody in the kingdom. He said, "If I had to present such a set of accounts and I had to fudge things, I'd much prefer to fudge a set of accounts on budgets and resources than just have to account for cash." The purpose of this change is supposedly to increase the amount of management information available and supposedly to increase the scrutiny by Parliament. Would you like to comment on that?
  (Professor Sir Andrew Likierman) May I have permission to ask a question before I answer, which is, was the gentleman an accountant?


 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2002
Prepared 19 June 2002