Examination of witnesses (Questions 40
- 59)
MONDAY 30 MARCH 1998
SIR
RICHARD
MOTTRAM,
KCB
and SIR
ROBERT
WALMSLEY
and MR
FRANK
MARTIN
40. So you are going to be spreading this
good news about the new technique around more often, more frequently,
more in-depth and it is going to help you have an early warning
system for any overspend. Is that right?
(Sir Robert Walmsley) If the technique is validated
we will. At a more mundane level, in October 1997 I issued new
instructions for preparing forecasts of outturn which spread across
Vote 2 and Vote 3, very terse stuff that tells people what they
have got to do but it was a reaction to a position which we know
was unsatisfactory in the outturn of 1996-97.
Mr Hope
41. If I have read the report right, on
page 16 it tells us that you are not sufficiently robust in the
financial control of making forecasts. Page 35 tells us that the
management of the project fell well below the standard of the
Government department and indeed a breach of financial procedures.
Paragraph 45 describes that you have a fundamental breakdown in
financial management and control. That kind of stereotypes the
public's view of the Department, does it not, that defence is
out of control when it comes to spending and always overspends?
I have heard that it is basically intrinsic, it is inevitable,
it is the way you are having to operate. Is that right? Is this
something that we cannot actually deal with?
(Sir Richard Mottram) Certainly not. What I foolishly
tried to suggest earlier, and I will stop doing this, was that
this is intrinsically quite a difficult and complicated thing
to do. Far from it being the case that the Ministry of Defence
continually overspends, in the last ten years the Ministry of
Defence has underspent on five financial years and has overspent
on five financial years. Why do we think this is the case? It
is not because we are profligate, because that would imply we
were overspending all the time, it is because we are struggling
all the time to get a better handle on how we can forecast the
rate at which the cash goes out the door. We have tried to explain
to you why that might be difficult. Another reason, for example,
why it is actually quite difficult is because our expenditure
is also related statistically to the state of the economy. If
the economy is booming our expenditure can tend to fall away.
If the economy is not booming our expenditure tends to pick up.
We have models that are trying to capture all of these considerations.
What Rob Walmsley was talking about earlier was another way of
looking at this. It was not the first time we had thought about
modelling the rate at which we spend in relation to our forecast
and outturn, we had already been doing that, we are now looking
at different ways of doing it. The fundamental problem we have
is to get our forecasting and our outturn within very narrow limits.
42. It seems to me that fundamentally the
problem is that it is not being managed properly. Given the sheer
volume of cash that appears to be being misspent in some way,
who has been disciplined for the failures that are catalogued
here?
(Sir Richard Mottram) We can come on to the detail
of one or two cases. We are not talking here about cash being
misspent, we are talking about forecasts which turned out to be
incorrect.
43. If we take the pay suspense accounts,
substantial sums have simply been lost, disappeared, you cannot
account for them, they are unreconcilable balances.
(Sir Richard Mottram) Correct.
44. Who has been disciplined for the failure
to manage those accounts?
(Sir Richard Mottram) No-one has been disciplined
for the failure to manage those accounts.
45. Are you just not bothering? Is this
never mind, there we are, it is £30-odd million of taxpayer's
money, what a shame? Are we as complacent as that?
(Sir Richard Mottram) Does that sound plausible?
46. It does not sound plausible to me but
you just told me that nobody has been disciplined for the substantial
problem.
(Sir Richard Mottram) If we take the example of
the suspense accounts, what we quite clearly have is a very serious
problem in two directions. One is to devise an effective system
for the future and the other is to establish the way in which
these accounts have operated over the last few years and what
the lessons to be drawn are. In both those cases we are investing
very considerable amounts of staff effort both on a project to
reconstitute the suspense accounts with a new suspense account
beginning in April and on the huge audit of everything that has
gone on in the past to establish where these sums of money have
been mis-booked and the extent to which, if at all, actual cash
has disappeared. That is precisely what we are trying to do.
47. It is a bit worrying though, is it not,
because the last time you did a review an error which was £16.3
million unreconciled produced an error rate of £9.8 million
this year. Is it the case that every time you get a review you
are going to get more error?
(Sir Richard Mottram) That is precisely why we
are doing these two pieces of work. One of them is designed to
put the systems on a new basis but the other one is designed to
try and find out precisely what has caused this second lot of
error because unless we can do that we are not entirely confident
that we know we have cracked the problem. We are putting a huge
effort into scrutinising line after line of individual entries
to try and find out what has created these errors. It certainly
is not the case that we simply accept them, quite the reverse.
48. Paragraph 45 uses a statement that is
quite interesting. It says: "Whilst I acknowledge the Department's
view that there is no evidence to suggest that the operation of
the accounts has been fraudulent...." You cannot provide
assurances in that respect.
(Sir Richard Mottram) That is the Comptroller
& Auditor General's view but I agree with it.
49. We can acknowledge that there is no
evidence but my difficulty is we cannot see here a statement that
there is evidence.
(Sir Richard Mottram) That is precisely because
we are still working on the causes of certainly the second account
to see whether there is a possibility of fraud. That is why I
think the Comptroller & Auditor General could not say he was
confident because if he asked me "are you 100 per cent confident
that there is no fraud" I would not have been able to give
him that assurance. That is why we are doing all this work.
50. So we still do not know whether we are
talking incompetence, for which people are not going to be disciplined,
or fraud, for which I hope people would be disciplined?
(Sir Richard Mottram) If it was fraud obviously
it would be dealt with in accordance with our rules in relation
to fraud and they would be disciplined. On the question of competence,
we certainly are concerned about this, it is not a satisfactory
position. It goes back a very long way. The really important point
from my perspective is to make sure the people who are dealing
with this problem now are quite clear about its importance and
are tackling it and I am satisfied that they are.
51. I am not satisfied that they are because
you do not appear to be taking, in my view, firm enough action.
Have we got the same problems with the suspense accounts for the
Navy and the Air Force pay?
(Sir Richard Mottram) What would be the action
that I am not taking?
52. Simply that you told us previously with
regard to the Waltham Abbey Gunpowder Mill that it was an administrative
oversight, you opened the file and you found it and you did not
go back to the Treasury to seek their approval on it. That was
it. No action. Whose oversight? What did you do about that? Which
officers were responsible in your Department? What happened to
them? We do not see any evidence of active management of these
problems, what we see is the problem happening and then a review
taking place and new procedures put in place. I do not see any
control of the individuals in the Ministry who are responsible
for this.
(Sir Richard Mottram) We can come to the other
suspense accounts in a second. On the pay disbursement suspense
account, since June 1997 we have invested 7,500 man hours in seeking
to establish the problems that we have over the present account
precisely because of the points you make about the importance
of establishing the nature of the problem and whether there is
any possibility of fraud. If we discover that there is evidence
or possible evidence of fraud that fraud will be investigated
in the normal way. It is not the case that we do not take this
seriously. We are investing huge resources in trying to sort it
out. Similarly we are investing huge resources in trying to get
right the system that will run from April of this year. I absolutely
assure you we are not being complacent about this problem. In
the case of the other suspense accounts, in the case of the Royal
Air Force there are 44 such suspense accounts and they are all
reconcilable. In the case of the Royal Navy there are also 44
and there are five which we are still working which contain debit
or credit balances, debit balances of £6.3 million I think
it is and credit balances of £2 million. All of those accounts
are also being worked on as part of our effort to try and clear
all these accounts before the introduction of resource accounting
and budgeting.
53. In the case of the individuals responsible
for the administrative oversight which meant that Treasury approval
was not sought for the extra £10 million on the Mill, the
Waltham Abbey Gunpowder Mill site, what was the reason for taking
no action against the individuals responsible?
(Sir Richard Mottram) Because I cannot establish
how precisely it happened. What I have established is that an
individual asked the question "what was required in relation
to the Treasury", that was put down into the Department—this
was a number of years ago—the answer did not come back.
As I said, that was an oversight, it is a great pity.
54. So we do not know who was responsible
for this oversight?
(Sir Richard Mottram) I can check and find out
who the individual was who this piece of paper was sent to. I
do not actually believe that a great deal would be achieved by
a disciplinary process in relation to that oversight.
55. I am worried a great deal has not been
achieved over the years. What we have seen is the problems are
not dealt with for a number of years on the suspense accounts
and on the Waltham Abbey site. There does appear to me to be frankly
a complacency in your answers. You are talking about doing reviews
to establish new procedures in the future, I do not see evidence
of a firm handling in a proactive way of the problems of the past.
I want to ask the question, for example, are we going to be assured
that there will not be unreconcilable accounts next year? We are
coming to the end of this financial year. Can you tell me now
that we do not have a problem, that you have sorted the problem
out?
(Sir Richard Mottram) No, I cannot.
56. If so, are you going to do something
active about it rather than reviewing the procedures? If we can
point the finger at people——
(Sir Richard Mottram) It seems to me the only
two things I can do in relation to the Army pay suspense accounts
are firstly to seek to establish what is going wrong with the
present account. Far from being complacent about the present account
and saying "we do not mind the fact that it is building up
this debit balance" we have got people crawling all over
it. I am very sorry to have to report to you that this process
of them crawling all over it has certainly identified where there
are mis-bookings going on and possible cases where people were
given money and it was not necessarily docked against their pay
and so on, and all of that is being worked through, but we cannot
find a fundamental problem with the way in which the account is
operating which explains the problem we have. That is why we keep
on looking. In the case of the system beyond this year what we
are trying to do is to reconstitute it so that these various weaknesses
are eliminated. I would love to be able to give you an absolute
assurance that I can come back in a year's time and say "this
account now works perfectly" but I am not yet in a position
to do that. It is not due to the people in charge, all of whom
I have spoken to, misunderstanding or failing to appreciate the
importance of putting it right.
57. The analysis will be there will be a
large number of write-offs from this financial year to try and
get the thing in balance, that is the truth. That is what will
happen. When you come before us next year you will be telling
us "these are the write-offs we have had to put in place
for 1997-98".
(Sir Richard Mottram) There is obviously the original
write-off for the account to the end of 1996 which will be £19.5
million.
58. That is right.
(Sir Richard Mottram) There is likely to be another
write-off for the account from 1996 to this March, yes. I would
love to be able to say there would not be, but, as we cannot establish
precisely why the account has built up a debit balance, probably
it will have to be written off.
59. When you come to us with that figure
will you be able to say "we have written this off",
another apology to the Committee, "and we have dealt with
the following people for their failure in the following ways"?
(Sir Richard Mottram) If we can find people who
have failed in particular ways.
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