Select Committee on Public Accounts Minutes of Evidence


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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