INTERVENTION BOARD EXECUTIVE AGENCY: QUALIFICATION
OF APPROPRIATION ACCOUNT 1996-97
AUDIT
OF
THE
BOARD'S
ACCOUNTS
Appropriation Account
7. The Board was unable to complete essential reconciliations
between certain account balances recorded in its general ledger
and those in subsidiary accounting records in order to support
fully its 1996-97 Class III Vote 1 Appropriation Account.
The Comptroller and Auditor General could not, therefore, obtain
all the information and explanations that he considered necessary
for his audit and qualified his opinion because he was unable
to determine whether the Board had maintained fully reconciled
accounting records.[5]
8. These incomplete reconciliations mainly affected
the orders receivable account, where transactions amounting to
£23·7 million could neither be matched in the accounting
records nor otherwise be satisfactorily explained.[6]
In addition there were unidentified balances of £6·4 million
in a suspense account relating to cash securities and £502,000
in another suspense account relating to unapplied receipts. In
neither case could the Board substantiate or prove that the sums
recorded were proper to the accounts.[7]
9. The Committee asked the Board whether the money
in the 1996-97 Account which could not be substantiated meant
that it could not be sure of having recovered all that was due.
In evidence, the Board said that it had now identified all of
the £23·7 million and had also matched the £502,000
to receipts; but it still had some work to do in the cash security
suspense account area, which was now its main priority.[8]
Cash securities and debtors, which were accounted for together,
continued to cause the Board a certain amount of difficulty[9]
and it had one lingering problem with accounts receivable, which
was the weakest area of the financial package.[10]
10. Although aware of certain deficiencies, the Board
decided that it was appropriate to submit an inaccurate Appropriation
Account by the statutory deadline, 30 November, rather than
not submit an account at all. When sending the account to the
Comptroller and Auditor General the Accounting Officer accompanied
it with a letter of representation pointing out these problem
areas. The letter, however, underestimated the difficulty and
did not accurately report the level of imbalance in the accounting
records, which had been established only by the Comptroller and
Auditor General's audit.[11]
11. Another consequence of the problems in reconciling
the Board's accounts was a delay in recovering some £19 million
in reimbursements from the European Commission. This came about
because of problems in the linking of certain transactions. As
a result, some 300 transactions were not linked for expenditure
reporting purposes for varying periods throughout the year. The
Board's analysis, using a flat rate of interest of 6 per cent,
indicated that the delay cost the Exchequer £758,000.[12]
Agency Account
12. The Board provided the Comptroller and Auditor
General with its 1996-97 Agency Account by the same statutory
date; this was accompanied by a similar letter of representation
setting out the same areas of difficulty as for the Appropriation
Account.[13] The Comptroller
and Auditor General's initial audit indicated that more than half
the figures in the Agency Account and notes were significantly
inaccurate.[14] The Board
had taken advice as to the best way forward and concluded that,
given the extensive nature of the problems, it was quite clear
that the accounts needed correction. The Accounting Officer therefore
decided to withdraw the Agency Account and to replace it.[15]
13. As the Agency Account had not been certified
by the Comptroller and Auditor General, the Board was unable to
lay its annual report and accounts before the House. It therefore
decided to place a copy in the Library. While this stated that
the accounts were unaudited, it gave no indication that there
might be any problem with them. The Board assured us that there
was no question of attempting to mislead anybody or to conceal
the area of difficulty. It admitted, however that it had underestimated
the extent of the problem.
Accounts for the European Commission
14. The Board submits annual accounts to the European
Commission regarding its activities under the European Agricultural
Guidance and Guarantee Fund covering a financial year ending on
15 October.[16]
That for the year ending October 1997 has been reviewed by the
European Commission; the Board was in the process of clearing
it with them but expected some financial correction.[17]
Conclusions
15. We consider it unacceptable that, two years on
from the introduction of a new computer system and in contrast
with the assurances given to our predecessors, the Board was unable
to substantiate its 1996-97 accounting records and its Appropriation
Account was qualified by the Comptroller and Auditor General.
It is also unacceptable that there were fundamental breakdowns
in financial controls in that proper financial reconciliations
were not carried out during the course of the year.
16. It is unsatisfactory that, at the time of our
examination, there was still an unresolved balance of £6·4 million
in the Board's cash securities suspense account. We are concerned
that such persistent difficulties affecting the provision of reliable
accounting information should remain in relation to amounts due
to the Board, debtors and cash securities. Urgent work is needed
to find a resolution to these problems.
17. Complying with statutory deadlines for the production
of accounts is a fundamental aspect of accountability; it is wrong
to avoid complying with this requirement by delaying the submission
of an account until a reliable version can be produced. In this
case the Accounting Officer provided the Comptroller and Auditor
General with an Appropriation Account on time but he knew that
it contained inaccuracies. The letter of representation which
Accounting Officers are required to provide in support of the
signed account should have drawn these matters to attention. We
are disturbed that the letter which the Accounting Officer provided
to the Comptroller and Auditor General did not reflect the level
of inaccuracies in the Board's accounting records.
18. We regard it as completely unacceptable that
the Board's Agency Account for 1996-97 was so materially misstated
that the Accounting Officer subsequently withdrew it; and that
the letter of representation which the Accounting Officer provided
in relation to the Agency Account had been inconsistent with the
true position. This again suggests that the Board has an inadequate
understanding of the imperfections and imbalances in its own accounting
system and of their significance for the accounts which it produces.
19. The Board's unaudited 1996-97 Agency Account
was placed in the House of Commons Library without any indication
that it was inaccurate and misleading. We note the Board's assurance
that it did not intend to mislead and that it was, at the time,
unaware of the true extent of error in the account. The Board
knew about its problems accounting records and with the Appropriation
Account, however, and we are disturbed that it should have given
so little thought to the risk that an unaudited Agency Account
in the Library of the House might mislead Parliament.
20. We are disturbed to learn that problems with
the Board's new accounting system led directly to the Exchequer
having to bear £0·76 million in interest costs
because £19 million was not recovered from the European
Commission on time. This is unsatisfactory. We expect the Board
to ensure that, in future, there are no further delays in recovering
sums due.
5 C&AG's Report paras 2, 13 Back
6 ibid
para 7 Back
7 ibid
paras 11-12 Back
8 Q3 Back
9
Q9 Back
10 Q65 Back
11 Q29,
30 and Evidence, Appendices 1-2, pp 23-25 Back
12 Q68,
77 and Evidence, Appendix 3, p25 Back
13 Q201
and Evidence, Appendix 2, pp 23-25 Back
14 Q200 Back
15 Q27 Back
16 C&AG's
Report, para 16 Back
17 Q58-59 Back
| 
