Examination of Witnesses (Questions 60-79)|
WEDNESDAY 7 NOVEMBER
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
63. I did not ask you that question. What I
asked you was how many do you anticipate are going to be late,
(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
(Sir John Bourn) I think that most probably six will
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
(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,
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