Examination of Witnesses (Questions 40
- 59)
WEDNESDAY 11 MARCH 1998
Mr Jamie Mortimer, Treasury Officer of Accounts,
further examined.
40. You are not saying the traveller should
have to pay the tenner and then go and claim some penalty points
because the train was running late anyway?
(Mr O'Brien) I would hope that would
not happen.
Mr Wardle: That is interesting, Chairman.
Chairman: I hope Mr Wardle is satisfied.
Mr Leslie?
Mr Leslie
41. TRUST, the Train Running System, this
is the Railtrack database that they run to talk about the numbers
and punctuality of the trains. Who invented the acronym TRUST?
(Mr O'Brien) This is a system that
Railtrack and before then British Rail had been using for 25/30
years [3]
which has managed their train running system, so I think it was
British Rail.
42. But do you think the persons who invented
the acronym TRUST were "taking the mickey" out of you?
(Mr O'Brien) Train Running System,
no.
43. What would you understand by the definition
of "trust" as a word? What does "trust" mean
to you?
(Mr O'Brien) "Trust" to
me, if you are asking me do I trust someone, means can I rely
upon it.
44. I looked it up before I came here in
the Oxford English Dictionary: "A firm belief in the reliability
or truth or strength etc. of a person or thing." It actually
went on to talk about: "reliance on the trust of a statement
etc. without examination," which is actually what you do,
is it not, Mr O'Brien? You rely on the truth of their statement
without examination?
(Mr O'Brien) That is untrue. I would
refer you to the answer I gave a few minutes ago, which is that
we looked at the system and tried to identify where we, in conjunction
with other people who were using the system, thought there was
the greatest risk to all concerned.
45. But the auditors who did this independent
review, as is repeated by the NAO, said it was incomplete. They
said that if you wanted to look at the verification of the data
as a whole, the reliability of the TRUST data as a whole, you
would need to take a different approach. Have you taken that different
approach?
(Mr O'Brien) First of all, we looked
at the areas where we believed there was the greatest potential
risk and addressed those first. As I said, this was happening
in the year of transition between British Rail and the TRUST operators.
We believed that the areas where there is the greatest potential
risk, which was the risk of fraud and the risk of error, were
the areas that we addressed and, as the C&AG says in his report,
we can derive comfort from the work that was done in those areas.
I quite understand if you want to do a total systems review that
is a different piece of work and that is the piece of work we
are currently engaged on.
46. So you are going to be completing that?
(Mr O'Brien) Yes.
47. And you will get verification and validation
of the data?
(Mr O'Brien) We are looking at the
system overall rather than just the particular aspects we looked
at last time, yes.
48. When you said earlier to Mr Wardle that
you imagine that TRUST and the GEMINI system will have been independently
or reliably validated by their own companies, you have been relying
on that fact, have you actually ever checked whether these systems
have been audited by their own companies? You imagine that they
should. Does that mean you found that out?
(Mr O'Brien) No, I am saying that
as a professional accountant by training, if I were signing off
on someone's accounts as representing a true and fair view-take
the case of Railtrack. If there is one area which is contributing
almost 10 per cent of my total profits, I personally, if I were
the auditor, no matter how they did it, would expect them as part
of their work to assure themselves that that flow of income is
reliable and, therefore, as part of the overall independent evidence
that the C&AG was saying we ought to take into account, I
do believe that, given that we have done our own multi-party review
looking at specific areas, that Railtrack, which is responsible
for running the systems, have had their accounts audited with
a clean bill of health, that each of the 25 train companies have
had their own auditors looking at their results, where these will
be important amounts, all of them have, to the best of my knowledge,
signed off on them.
49. That is to the best of your knowledge.
Have you ever actually looked at any of these?
(Mr O'Brien) Of course we have.
Only today I was checking, just to make sure I had the information
completely right, the Railtrack audited accounts for last year.
50. Have you looked at them before today?
(Mr O'Brien) Of course, but in preparation
for this Committee I wanted to be absolutely sure that the total
amount of money in the Railtrack accounts, which is £29 million
attributable to performance regime payments in the year, was there
and it does actually represent almost 10 per cent of their profit.
It is my attempt to answer that I am not just hoping everything
is okay. We have addressed through a multi-party audit the areas
where we thought we might be most at risk. There are teams of
auditors engaged in 25 of the train companies and Railtrack who
are themselves signing off on these accounts. As I say, the systems
themselves have been in operation for 25 to 30 years. I have not
heard any suggestion that they cannot be relied upon for train
running information. And if I may go on to expand that a bit,
as I said before, the amount of money that we paid out in the
year in question was £1.809 billion. Of that, £1.5 million
relates to payments under the performance regime to private sector
franchise operators. I do accept the point that this train running
information is providing data to enable us to see whether capacity
is being provided and punctuality, etc., but those systems have
been in place for 25 to 30 [4]
years and I think it is a reasonable expectation, against that
background, that they are operating effectively, that for the
£1.5 million which is paid to private companies under the
performance regime we have done the amount of work which we believed
was adequate to satisfy ourselves-to satisfy myself, frankly-that
the accounts were properly stated, but as the C&AG says in
his report, over time the amounts that we will be paying to private
operators under the performance regimes will increase and it is
for that reason I now want to ensure that we have a more thorough-going
review of the system.
51. I am glad to hear that things are picking
up because it is quite fundamental, this whole business. You talked
about having service contracts rather than just giving out a grant
and, of course, that is to be welcomed, but how can you know if
these service contracts are being adhered to? This is the whole
point. You need independent and impartial monitoring of the data
that you are checking. How do you determine the extent to which
train operators have fulfilled these contractual obligations when
you are making these franchise payments?
(Mr O'Brien) As I say, when we make
the franchise payments they are a matter of contract, so they
are laid down in the franchise agreements and it is easy to make
sure we are paying out the right amount.
52. You take their word but they are providing
it? You do not double-check it yourself?
(Mr O'Brien) No, not at all. I am
saying that the amount of money, the quantum, is actually laid
down in the franchise agreement, so that is easily verified. Making
sure that we get what we pay for is achieved by having our own
compliance teams check that the operators are doing what they
are supposed to do under the franchise agreement. We ensure that
every month the operators give us information which we review.
We review train running information on a monthly basis under the
Passenger's Charter, which is a slightly different, but not totally
different, scenario, which looks at the reliability of the trains
and their punctuality. That is itself independently verified by
the University of Sheffield. So throughout the system there are
lots of different people. I do not believe, frankly, that it is
necessary for me to check all these things myself. What I do think
is necessary is, in the same way as the C&AG relies on other
independent people to enable him to form a view, we do the same
thing. In the year in question I believe we had done whatever
work was necessary to enable us to rely on the systems and for
me to sign, as an accountant, that I think these are properly
stated.
53. May I ask the Treasury, given that this
is taxpayers' money being used and given out in this way, do you
feel that the way in which the data, the validity of the actual
contract specifications, are looked at is adequate, or would you
suggest that there needs to be much greater scrutiny that what
is being paid for is actually being delivered?
(Mr Mortimer) I think the NAO have
a duty to check that OPRAF are carrying out their affairs properly,
and to do that they need to be satisfied with the way OPRAF are
operating. The C&AG has produced a report. He has produced
an unqualified account for last year but he has said that he has
some misgivings about the assurances necessary for the future.
I think this means that OPRAF have to improve for the future the
arrangements for independent assurance, and I believe I heard
Mr O'Brien saying earlier that not only do they intend to improve
those assurances but they are happy and willing to talk to the
NAO about what is required to satisfy the NAO that the assurances
that OPRAF are seeking are reasonable.
54. And when the NAO have said and confirmed
that they do not have access and rights of access to the books
and accounts of these third parties where public funds are going,
do you think that is also something that needs looking at? Do
you think that we need to start looking at whether the NAO can
have access to these things?
(Mr Mortimer) I do not think the
NAO said that in their report. They expressed misgivings for the
future about the adequacy of independent assurance. I am not sure
they have said that they themselves actually require access to
third parties. I think that is to play for, in a sense, and I
think it is for Mr O'Brien to come up with appropriate assurances.
He said he is prepared to discuss that with the NAO and I believe
that that is the sensible way forward.
55. One final question, Mr O'Brien, about
when you exercise your discretion in response to failures to deliver
contractual obligations: sometimes those are minor failures, sometimes
they are significant failures. How do you define the difference
between a minor and significant failure?
(Mr O'Brien) I think the assurance
that the operators have, and I think that this Committee should
also take, is that my discretion is very limited. What I believe
I said before was that what is laid down in the franchise agreement
is that if an operator does X, Y will follow; in other words,
if they cancel too many trains we will call them in. If they cancel
even more trains they will be in breach.
56. I am not a technician in these things.
Can you give me a hypothetical example, a Charing Cross example?
If there was a minor failure, what does that mean? If it is a
significant failure, what does that mean? What is the difference?
(Mr O'Brien) Whether something is
a breach or not is not an act of discretion, it is a fact, they
either need to deliver it and if they do not deliver it it is
a breach. I think the point you are making is can you differentiate
between a big breach and a minor breach. The best example I think
I can give you, because it was well known at the time, is that
when South West Trains were cancelling trains last year thousands
and thousands of people were being put out. We regarded that as
very serious. It led us to propose an enforcement order which
said fix it quickly or we will levy a big penalty and if you do
not do it then it gets even worse. For me that was a serious breach.
At the same time, by February last year the operator also had
a number of commitments that it needed to fulfil within its franchise
plan commitments. For example, it needed, within the area of the
South West Trains [5]
operation, to include within its train timetable the bus timetable
for the local buses which they ran and vice versa, in the local
bus timetable they were supposed to include their train timetable.
They did not do it.
57. And that is a minor failure?
(Mr O'Brien) It was minor in that
thousands of people were not disadvantaged at the time. However,
it is not minor in terms of how we respond to it.
58. I am just trying to get at this grey
area between minor and significant. Do you have any plans to define
these things so that people can judge whether these are serious
or minor?
(Mr O'Brien) My approach is geared
towards getting things fixed. So in the case of the major breach,
the trains being cancelled, at the time we proposed the order
the trains were still being cancelled and I needed to make it
clear to the operator that if this was not fixed then consequences
would follow. In the case of the bus and train timetable, what
we negotiated with them was that they can put them in place three
months or so later than they said but in return for that we secured
from them a package of additional benefits totalling about £1
million over and above what they had committed to in the franchise
plan, but they put those in as contractual commitments. So although
it was a minor breach in terms of the inconvenience caused, we
do take all of these breaches very seriously.
59. If somebody like me, an ordinary member
of the public, wants to have a look and see whether my train company
is in minor breach or significant or serious breach, how can I
take your objective data and apply that to that situation and
say "That is a minor breach, that is a significant breach
and there are penalties that occur in this way and that way"?
Are you going to codify these?
(Mr O'Brien) Every time there is
a breach we have to respond to that.
3 Note by Witness: TRUST was introduced onto the West
Coast Mainline in the late 1970's and was gradually rolled out
across the network over the subsequent years. Back
4
Note by Witness: TRUST was introduced onto the West Coast Mainline
in the late 1970's and was gradually rolled out across the network
over the subsequent years. Back
5
Note by Witness: South West Trains were meant to provide bus information
in its derivative timetable. On Stagecoach bus services that run
in the vicinity of stations served by South West Trains there
should be confirmation of the national railway enquiry number. Back
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