Select Committee on Public Accounts Twenty-Fifth Report


The Committee of Public Accounts has agreed to the following Report:



1. During the year ended 31 March 2001, expenditure in excess of the grants voted by Parliament was incurred as follows:

Class and Vote

Excess of Expenditure and/or deficiency of Appropriations in Aid


Excess as a % of Net Vote

Amounts to be applied to meet excess


Amounts to be voted as supply grants



Vote 3

National Health Service (Superannuation, etc), England & Wales


1.02 (% of gross vote)




Vote 1

Foreign and Commonwealth Office






Vote 4

British Trade International






Vote 6

Inland Revenue: Valuation Office (Executive Agency)


0.25 (% of gross Vote)



2. The Committee regards every Excess Vote as a serious matter, as they always indicate a failure in financial control. There were four excesses in 2000-2001, three of which were caused by weaknesses in the control of expenditure levels during the year, and the other because of a failure to charge items of expenditure to the appropriation account. Departments are expected to control and monitor all payments throughout the year to ensure that grants voted by Parliament are not exceeded. They are also responsible for ensuring that all amounts chargeable to the Vote are brought to account accurately and at the proper time.


3. The Committee has considered the Comptroller and Auditor General's separate report on the Class II Vote 3 excess. The overspending of £30,355,157.15 incurred by the NHS Pensions Agency was caused by a change in the method used to account for early retirement costs, together with higher than forecast expenditure in the final month of the financial year.

4. The cost of early retirements of NHS staff are met jointly by the NHS Pensions Agency and the retiree's employer. In practice, the Agency meets the total cost of the early retirement and then seeks reimbursement for the employer's share. Prior to 2000-01, the Agency only charged its share of the early retirement cost, that is net of the employer's reimbursement, to the appropriation account.

5. In 2000-01, to coincide with the introduction of resource accounting, the Agency changed its accounting for early retirement costs so that the full amount paid to the retiree and the recovery of the employer's share of these costs are shown in the appropriation account. The impact of this change in accounting treatment was to increase recorded expenditure and receipts for the year by some £86 million.

6. The Agency's Estimate did not take account of this change and was prepared on the basis of charging the appropriation account with net cost of early retirements. The Agency chose not to seek additional provision through a Supplementary Estimate as its monitoring of expenditure during the year indicated that the increase in expenditure on early retirements as a result of the change in accounting would be offset by underspending in other areas. This underspending was due to lower than expected increases in the value of pension payments and associated lump sums.

7. During the year, the Agency monitored expenditure and compiled both detailed and summary information to help assess its financial position. However, in March 2001 the Agency made higher than forecast payments associated with people transferring out of the NHS pension scheme into other schemes, and to clear residual liabilities. The effect of this late increase in spending, when combined with the impact of the change in accounting for early retirement costs, caused the Agency to breach the expenditure level authorised by Parliament.

8. The Agency has taken steps to prevent a recurrence of these problems. Early retirement costs are now included within the Agency's Estimates on a gross basis. The Agency has also improved its monthly financial monitoring reports to ensure that potential overspending is identified and assessed at an early stage.


9. The Committee has considered the Comptroller and Auditor General's separate report on the Class VII, Vote 1 excess. The overspending of £1,574,270.69 occurred because the Department's Overseas Accounts Section failed to charge certain expenditure items to the appropriation account during the year. The subsequent inclusion of these items in the appropriation account led to the overall excess against provision.

10. In March 2001, the Department made a payment of £1.1 million to the UN Mission for Ethiopia and Eritrea. The payment was recorded initially in a suspense account pending creation of a new account code to enable the transaction to be properly recorded in the appropriation account. Subsequently, the Department's Overseas Accounts Section failed to transfer this amount from the suspense account into the appropriation account. This meant that the Department's expenditure for the year under Subhead B4: Peacekeeping, was understated by £1.1 million.

11. Following discovery of the error, the Department undertook a review of all suspense accounts to identify other items that should have been cleared to the appropriation account. As a consequence of this review, further adjustments from suspense were identified, bringing the total overspending to £1.6 million.

12. The Department has informed the Comptroller and Auditor General that, in the future, it will examine closely all such items to ensure they are brought properly to account.


13. The Committee has considered the Comptroller and Auditor General's separate report on the Class IX, Vote 4 excess. The overspending of £2,985,284 arose because British Trade International failed to monitor expenditure properly during the year.

14. In 2000-01 British Trade International used the Department of Trade and Industry's accounting system as the basis for its accounting and financial monitoring. Financial reports drawn from the Department's system, based on transactions processed, indicated a shortfall against the 2000-01 Estimate. However, in preparing its forecast of outturn, British Trade International failed to allow for a large number of transactions that were not processed and recorded in the financial accounts until the end of the financial year. These transactions included payments made by regional offices, which were authorised and managed outside the main accounting system. Only when these payments were brought to account did British Trade International appreciate that expenditure was in excess of Vote provision.

15. The Board of British Trade International has taken a number of actions to address these weaknesses. These include the recruitment of additional staff to strengthen the finance function, improved delineation of transactions relating to British Trade International within the accounting systems of the Department of Trade and Industry, the establishment of a separate Departmental Expenditure Limit for British Trade International, and the production of accounts on a monthly basis to facilitate effective monitoring of British Trade International's financial position.


16. The Committee has considered the Comptroller and Auditor General's separate report on the Class XVI, Vote 6 excess. The overspending of £408,717.71 arose because of weaknesses in the Valuation Office's forecasting model which resulted in some £3 million of expenditure not being taken into account in the Agency's forecast outturn. Thus, while the forecasting model continued to project underspending against the Estimate, the Agency discovered that it had in fact overspent against the Estimate when it came to prepare the appropriation account.

17. An investigation by the Agency found that the difference between the forecast and the Vote outturn was caused by an error introduced into the forecasting model in February 2001 which led to an under-reporting of accommodation costs on buildings jointly occupied with other bodies. This error did not come to light at the time because accommodation costs continued to conform with earlier trends.

18. Following this incident, the Valuation Office has improved the controls over the operation of its forecasting model. The improvements include: enhanced security over access to the model, the review of all changes to the model and peer review of forecast figures, and the development of more sophisticated profiling information. These enhancements have been supplemented by meetings of the Valuation Office Management Board being rescheduled to tie-in with the financial monitoring and reporting cycle, and the development of closer working links with Inland Revenue Central Finance.


19. It has been the practice to regularise the overspending against provision by means of Excess Votes, and the Committee recommends that the sums set out in paragraph 1 should be provided accordingly. To regularise the position is not to condone it and, as in previous years, the Committee expects a robust management response by the bodies concerned to address the weaknesses that have led to these excesses. Departments should not assume that in future the Committee will regularise the position in this way. If the sums are large or the mismanagement great the Committee reserves the right to refer these matters to Parliament and will take a stricter view next year.

20. We expect the Treasury to bring our concerns to the prompt attention of these bodies and, where appropriate, to Departments more generally. In particular we expect the Treasury to emphasise that:

  • departments must review regularly and thoroughly all amounts held in suspense accounts so that outstanding balances can be verified and properly recorded in the correct year of account.

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