Select Committee on Public Accounts Minutes of Evidence


Examination of Witnesses (Questions 60-79)

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

WEDNESDAY 7 NOVEMBER 2001

Jon Trickett

  60. Good afternoon. So that I understand this precisely, what is your guess as to what proportion of accounts will be either qualified or late this year?
  (Professor Sir Andrew Likierman) It will be very hazardous for me, because I can only guess since, this is very much in the hands of the auditors. As I have said, the indication is that we hope that half of the 12 accounts which were qualified last year will not be qualified this year. In terms of how many are late, it is complete guesswork at this stage. Nobody has notified us that they are going to be late yet.

  61. Is not the statutory timetable expiring in three weeks, on 30 November?
  (Professor Sir Andrew Likierman) That is correct.

  62. You have no idea within three weeks at all, not a clue, whether everybody is going to be on time or late?
  (Professor Sir Andrew Likierman) What I have said is that we have not been notified that anybody is going to be late.

  63. I did not ask you that question. What I asked you was how many do you anticipate are going to be late, what proportion?
  (Professor Sir Andrew Likierman) I really do not know.

  64. You could not guess?
  (Professor Sir Andrew Likierman) It would be a complete guess on my part, because this is very much in the relationship between the auditors and the department. That is the key relationship here. We are not part of that key relationship.

  65. Then can I ask the Comptroller and Auditor General what he anticipates in terms of the question which I originally posed?
  (Sir John Bourn) I think that most probably six will be late.

  66. And six will be qualified, or will it be the same six?
  (Sir John Bourn) I think it is likely that six will be qualified, but they will not be the same six.

  67. So do I assume that I add the six and six together?
  (Sir John Bourn) There may be a sort of ebullient diagram here, some overlap between them, so I think that you cannot really add them together.

  68. So there will be some overlap, and it will be more than six, but less than 12?
  (Sir John Bourn) Yes.

  69. I also understand that this is the last year in which we are running two sets of accounts. Do you anticipate that there will be further non-compliance next year?
  (Professor Sir Andrew Likierman) We anticipate there will be some accounts qualified next year, yes.

  70. Is that different from being non-compliant?
  (Professor Sir Andrew Likierman) I am not familiar with the term `non-compliant' in this context.

  71. That presumably means you are anticipating between the two groups that you have represented here that there will be some departments for which there will not be unqualified accounts and maybe some which will be late next year?
  (Professor Sir Andrew Likierman) I hope that the question of lateness will be better next year, because there are not two sets of accounts to prepare. I do hope that that will change next year. In terms of qualification, I have already indicated, I think, the sort of timescale in which I hope qualifications will drop.

  72. When you were answering Mr Davies, from your facial expression I came to the view that the idea of sanctions was something which vaguely horrified you.
  (Professor Sir Andrew Likierman) No.

  73. It never occurred to you maybe that sanctions might be required at some stage?
  (Professor Sir Andrew Likierman) Forgive me if my face betrayed something which may have been misleading. I am certainly not horrified at the question of sanctions, it is just the question of what powers does the Treasury have to do certain kinds of things. In this domain the relationship between preparing the accounts and the accounts being audited has the Treasury as a side player, if I may put it this way.

  74. The reason why I have asked that series of questions is that when I read the papers today I felt slightly disappointed that we were meeting the policemen rather than the villains who I take to be the heads of service who are responsible for complying with Parliament's requirements. I have come to the view, which I would like you to comment on, that you are complicitous to some extent or relaxed about the failure to comply. I use the term `non-compliance' in the sense of failing to comply with Parliament's requirements of the departments. Therefore, I have changed my view. My disappointment perhaps has been allayed somewhat, since I am now beginning to think you are an accomplice of the villains.

  Chairman: You have not done very well in your answers, have you?

  75. Not yet.
  (Professor Sir Andrew Likierman) I think there was someone who said that power without responsibility was the prerogative of the harlot.

  Mr Bacon: Stanley Baldwin.
  (Professor Sir Andrew Likierman) Thank you very much. If I can turn it round, if I have responsibility and no power, that may be the prerogative of somebody who is rather unfortunate. So in response to your question, I may have responsibility, but I have no direct power.

  76. You have the power to speak and to write reports of various colours, and that is quite a strong power. So far your language and your choice of words has been extremely restrained, if not to say conciliatory to departments. As a private citizen, with the changes which the Government introduced in relation to PAYE, and also as the leader of a council for seven years, with the abolition of the rates, the introduction of the poll tax, the abolition of the poll tax, the introduction of the council tax, with all the punishments which were associated with non-compliance, just as there are punishments associated with non-compliance if I do not get self-assessment right, and also as a person who has been in business, with the changes which the Government has introduced, which again could be punished by sanctions, I take the view that again we are taking an extremely relaxed view, not to say one which is hypocritical in relation to government departments. Has it not really occurred to anybody that sanctions might be applied to individual office holders for failure to comply with what Parliament requires? If it were the private sector, the voluntary sector or local government, it might be said that flouting Parliament's requirements would lead to criminal action, might it not?
  (Professor Sir Andrew Likierman) Forgive me, if I cannot agree that somehow the Treasury is complicitous in this. I think I said at the beginning that I could not possibly approve of any qualified accounts or late accounts, but that there was a limit to what the Treasury could do. If the message has come across that I am somehow complicitous with departments, it is because I believe that departments in general have done an extremely good job in the way they have developed their financial systems and I think they ought to be given great credit for it, if I may say so, particularly a department like the Ministry of Defence which started from an unbelievably low base and has done a huge amount of excellent work.

  77. You have made it clear that you disagree with the whole approach I have taken to this and so does your colleague Mr Sharples who is agreeing with my words,[1] and yet if you look at Appendix B it is staggering the levels of incompetence which have been displayed by some of the departments, is it not? They have produced accounts which show a lack of knowledge of basic accounting procedures.

  (Professor Sir Andrew Likierman) We put in a procedure to have, first of all, a dry run of accounts and then parallel accounts in order to iron out the problems. That is what we have done and we started out from a poor position. As we had hoped, we have moved to a much better position. In that sense therefore I do not think that illustrates an outstanding level of incompetence; I think it indicates weaknesses in some areas that departments are striving to overcome and we are striving to help them overcome and, within the limits of what they can do, the National Audit Office is striving to help them overcome. "Incompetence" is a very loaded word. They are learning very fast but some have not learnt fast enough, but I think in total the story is a good one.

  78. If we take the Forestry Commission showing negative balances in its revaluation reserve, which is contrary to accounting standards, if we take again the Forestry Commission which is incapable of identifying the amount of money it received from the UK and Scottish Parliaments as another example, if we take the Lord Chancellor who seems to have omitted to value his antique furniture, or even to have an inventory of his antique furniture, or if we take the lack of audit evidence for valuation of stocks of retail assets and land liability from the DETR, these are not amazing and outstanding positive achievements, these are a failure to understand the basics of accounting which one learns at O-level, or GCSE as it now is (you and I probably did O-levels).
  (Professor Sir Andrew Likierman) If you look at these departments and you look at what has been achieved, it is certainly true, as you pointed out, that a number of things remain to be done, but the context of those examples against the context of what they have done indicates on the whole that this is a good job with flaws rather than an incompetent job. Could I ask my colleague, Mr Loweth, to comment on the individual points.
  (Mr Loweth) It is a learning process. Private sector accounts are not without their failings as the Financial Reporting Review Panel continually reports every year. Departments are very much on a learning curve.

  79. I accept that they are learning and I accept that this is a huge undertaking and I do not under-estimate the complexity of it having been through some changes which were similar myself but not of this scale. To learn is one thing, to make fundamental mistakes of accounting practice is entirely another. The Cabinet Office, to use another example, did not have adequate systems to identify its debtors, its pre-payment creditors or its accruals. These are not a learning curve; these are fundamental errors in accounting practice. I do not regard these as great achievements. I accept that perhaps you do not have any power but you do have the power of speech, as I have just indicated, and the words you have chosen to use to describe this wonderful achievement are more than you describing the pint as half full and me describing it as half empty. What there is here is a fundamental disagreement about what has been achieved in this process and what has been revealed, is it not?
  (Professor Sir Andrew Likierman) I came to this Committee last June and said at that time that we were on a path to improve accounts and what I am reporting, and what the Comptroller and Auditor General has reported to you, is that we are on that path. That is something which we set out and that is where we continue to go. I regret all these things, of course I do, but on the other hand we did have a plan, we have a plan, and we are on track to complete that plan.


1   Note by witness: Mr Sharples was agreeing with the witness rather than the questioner. Back


 
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