Examination of witnesses (Questions 60
- 79)
MONDAY 30 MARCH 1998
SIR
RICHARD
MOTTRAM,
KCB
and SIR
ROBERT
WALMSLEY
and MR
FRANK
MARTIN
60. They must have failed. You cannot make
this number of mistakes without somebody failing. I simply cannot
accept that. If that is the case you are putting before us I think
you are going to have to go back and look at it again. There is
a huge amount of money here. All we are getting here is you will
look at it and get more procedures. People are obviously making
either mistakes through incompetence or through fraud. To come
back to this Committee next year and say "this is the write-off
but nobody to point to for doing this", I shall be astounded
if you do that.
(Sir Richard Mottram) If we can establish fraud
we can deal with people on the basis of fraud.
61. Yes. If there is incompetence?
(Sir Richard Mottram) The record of the Ministry
of Defence in relation to dealing with people for fraud is well
known to be really rather tough and rightly so. If we can establish
fraud we will deal with people in accordance with our procedures
for fraud. If we can establish incompetence and the incompetence
is sufficiently serious to be dealt with in that way we will deal
with it in that way. I have a suspicion, for example, that part
of the problem on the account that has run from 1996-98 is actually,
as I touched on earlier, that we were reorganising the way in
which the Army was organised for this purpose and people were
inadequately trained or inadequately competent and mistakes were
made. If you can identify people who are deliberately making lots
of mistakes you deal with that in the normal way. If people are
making one or two mistakes you deal with that in the normal way.
If there is a system problem, which is what precisely we are trying
to find, then that obviously relates to the people who put the
system together. Until we know what is causing it, I find it rather
difficult to apportion blame. All I was trying to say was much
more fundamentally important to me than apportioning the blame
is the point that you have been making to me which is the compelling
need to get this sorted out so it does not happen again. That
is what we are trying to do.
Maria Eagle
62. Sir Richard, you are the man to blame
at the end of the day, are you not, because you are the Accounting
Officer?
(Sir Richard Mottram) I am, yes.
63. I just want to deal with this question
of suspense accounts. You said in an earlier reply that the RAF
had 44 suspense accounts all of which were reconciled?
(Sir Richard Mottram) Yes.
64. That the Royal Navy had 44, five of
which had debit or credit balances.
(Sir Richard Mottram) Yes.
65. Yet I understand from the report that
there are 2,500 suspense accounts. Where on earth are all the
others?
(Sir Richard Mottram) We use suspense accounts
right across the Department. These are just about pay that we
are talking about. These are some aspects of the pay of the Armed
Forces. We have a large number of suspense accounts.
66. How much money goes into these 2,500
suspense accounts?
(Sir Richard Mottram) A year? I do not know. It
could be billions.
67. It could be billions.
(Sir Richard Mottram) Yes.
68. You will have to humour me, Sir Richard,
because I am not an accountant but can you tell me whether or
not it is normal to run an organisation by operating suspense
accounts? What do you understand by a "suspense account"?
Why does one have a suspense account?
(Sir Richard Mottram) It is normal to run an organisation
using suspense accounts because it is provided for in Government
Accounting for the reasons given in the report, that is where
you cannot simply charge things to the Vote, where you are supplying
a service to someone else or where you do not know the appropriate
amount to charge to the Vote. What is interesting about the Army
pay suspense account is that it was introduced as a result of
a recommendation from our internal auditors who said the way in
which we were then doing it, in which we were charging things
to the Vote, was not a satisfactory basis on which to run our
accounting systems because essentially what we are required to
do is to charge the pay to the Vote when the requirement to pay
is incurred. People are then being paid, sometimes in arrears,
sometimes in advance, and the purpose of a suspense account is
to enable all these transactions to be reconciled off the Vote.
There is nothing wrong with the use of suspense accounts according
to Government Accounting and that is how we are supposed to——
69. I am not trying to suggest that there
is, it just seems to me that 2,500 is an awful lot.
(Sir Richard Mottram) It is and that is why we
keep looking at whether we need them or we do not need them. It
is not straight forward. For example, one of the reasons why we
have a problem over the pay account is actually because we made
a mistake and we put too many things into one suspense account.
We are busily now prising them apart but that actually means you
create more suspense accounts. We had a problem previously which
was dealt with last year, speaking from memory, where we had lumped
together lots of payments that were going through suspense accounts
at Army unit level into one global suspense account.
70. That is very interesting but I have
a short amount of time. Can you tell me who has the authority
to establish a suspense account? Are there departmental guidelines
on the basis of which they can be established?
(Sir Richard Mottram) There are indeed. There
is a departmental guideline and you have to have an individual
who is the owner of a suspense account. That individual is known
to be the owner of the suspense account. Because of the problems
that are described in the report we have introduced procedures
where in each budgetary area a Senior Finance Officer is required
also to keep an eye on the performance of these suspense accounts.
You have to be authorised to do it by the people who are in charge,
you are held to account for it and there is someone checking on
whether you are doing well on it. As the report brings out, we
still have not yet got a satisfactory position on all these accounts
which is why we are still working at it.
71. I find it extraordinary that in respect,
for example, of the Army pay suspense account you could have an
unreconciled balance of over £16 million that you have to
write-off and you then open another account and run into what
are probably the same problems immediately. Was the second account
operated on the same basis as the first?
(Sir Richard Mottram) It was operated on a slightly
different basis. I think it has run into problems for a slightly
different reason. What we do not know is the reason why the first
account ran into deficit. That ran into deficit really between
March 1995, speaking from memory, and 1996, having run in credit
for a long time. I do not know the reason why that happened. We
decided that because the Army organisation who were the owners
of that account, or were operating it, were being closed down,
that account must be closed at that point when they were wound
up. A new account was then created and the successor organisation
put in charge of it. The purpose of that was to draw a clear line
between one lot of people in charge and the next lot of people
in charge. That account then ran into difficulty for reasons which
I have already brought out. I am terribly sorry I cannot explain,
but I suspect that second account has run into some difficulties
that were not applying in the case of the first account and they
are partly to do with the fact there were a number of reorganisations
in the Army pay organisation. I have an uneasy feeling that some
of the people who were handling the account were not competent
to deal with it.
72. That may well be the case. I find it
extraordinary that you now have to spend 7,500 man hours, or person
hours, to find out what is wrong with the new suspense account
and you really still do not know. Should you be operating accounts
that are so complex that in 7,500 person hours you cannot find
out what on earth is wrong with it? Does that not suggest that
you have got a fundamental problem with operating an account in
this manner?
(Sir Richard Mottram) I think the real problem
with it, just to get the scale in one's mind, is we have got a
third of a million people being paid out of this account of different
sorts. There are a huge number of transactions going through it.
73. Perhaps you will never ever be able
to get control of it. Does this not prove what has been said elsewhere
in the report, that the Department is unable financially to control
its budget?
(Sir Richard Mottram) We are talking about one
little bit of the way in which the Department handles itself.
74. It is symptomatic, is it not, Sir Richard,
I am afraid?
(Sir Richard Mottram) I do not think it is symptomatic.
As I have already explained, we are trying through a project in
which we have also invested a lot of effort to put this process
of accounting on to a satisfactory basis. The essence of the problem
in relation to the Army is that you have got a number of small
units and you have got people who wish to be paid in cash for
various reasons, you have got some people on operations who are
receiving cash payments, you have then got flows of finance going
round the system and the problem is to reconcile the way in which
individuals are being paid at unit level with the flow of these
transactions. The transactions are very large. To economise on
the administrative costs of handling them they are being batched
up, handled by computers, etc. What we have got to do is to find
a foolproof system to handle this process. As the Chairman said
this should not be beyond us but it is not easy is all I am saying.
75. I just want to move back to an answer
that you gave to Ms Griffiths in respect of your budget holders,
that five out of nine have overspent in Vote 1.
(Sir Richard Mottram) Yes.
76. The fact that four of them managed to
spend within their budget suggests that financial control is possible,
does it not?
(Sir Richard Mottram) Yes.
77. But the other five were unable to meet
it. Do you think it is important, and if so how do you achieve
this, to make it extremely clear to those budget holders that
Parliament and the Treasury, but Parliament first and foremost,
expect them to meet their obligations?
(Sir Richard Mottram) I do. The way in which we
do this is by a combination of the process through which they
are appointed, where I have to satisfy myself that they understand
these considerations, the process through which they are supported,
where they have very senior advisers who absolutely understand
these obligations and the framework in which they operate which
is by delegations from me which describe in absolutely clear terms
the fundamental nature of our obligations to Parliament, both
to this Committee and to Parliament more widely.
78. What steps have you taken in respect
of the five who overspent in Vote 1? Have you had them in and
given them a dressing down?
(Sir Richard Mottram) I have not given them a
dressing down but I have drawn to the attention of all the Top
Level Budget holders in the Department on more than one occasion
since this happened the fundamental importance of living within
our budget.
79. Do you think it is important for you
to praise the ones who have managed to do so and have a go at
the ones who have not managed to do so? Do you think that might
encourage a little bit of closer attention by some people to meet
their obligations?
(Sir Richard Mottram) I think that they have got
the message would be my guess.
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