Examination of witnesses (Questions 60
- 79)
WEDNESDAY 1 APRIL 1998
MR J MORTIMER,
Treasury Officer of Accounts, further examined.
60. But you have not been able to serve
that up, have you?
(Mr Trevelyan) No, we have not.
61. The euphemism you use, the euphemism
that this is in need of financial correction: one person's situation
and need of financial correction is another person's massive great
incompetent managerial mess. That is what we are really looking
at, is it not? Has this confusion with your debtors and creditors,
your receivables and payables, this inability to reconcile accounts
for the year ended a year ago, has this meant delays in payments
to anybody who seeks payment from intervention, for example Britain's
farming industry?
(Mr Trevelyan) No.
62. Can you be sure of that? You have gone
on paying people, even though there are £30 million swirling
around here which you cannot actually reconcile. If there are
no delays and you felt it necessary to go on paying in that fashion,
do you not think you are creating the perfect climate for fraud?
(Mr Trevelyan) I have clearly reflected on that
possibility.
63. What conclusions have you drawn? Clearly
it has not caused you a nightmare. What conclusions have you drawn?
How can you assure this Committee that there is not chaos and
mayhem out there in your Intervention Board and that there are
not people saying this is a jolly state of affairs, they cannot
account for what is in and what is out, they can account for cash
at the bank but who has been paid it and who is due to pay is
something we can manipulate. In the absence of any audited accounts,
and in the face of this report, how on earth can you tell the
European Court or more importantly this Committee that you are
not open to all forms of malpractice?
(Mr Trevelyan) We are open to malpractice at any
stage in our operations and I have appeared before this Committee
on the subject of fraud and irregularity. We take, with NAO, the
issue extremely seriously. The payments are made by the operating
divisions and not by my Finance Division. That process of payment
is subject to internal verification by the paying division and
we have a very substantial anti-fraud unit in the organisation
which is again independent of the Finance Division. We have two
independent checks on probity.
64. There is a double lock. I am pleased
to hear that; I think that is very important. Do you not think
that double lock procedure would be safeguarded to a great extent
if you could reconcile the ins and outs to the tune of £30
million here?
(Mr Trevelyan) Yes, it would be improved. I agree
the debtors' position for example does sound thoroughly unsatisfactory;
we are not in a position to state exactly what our debtors' position
is. Since the audit Mr Bryant has made very extensive efforts
to establish the debtors' position and if it would interest the
Committee he could take you through that.
65. Could you do it briefly? Could you just
give us a headline sentence? Have you resolved the problem? Are
you satisfied with the year which ended yesterday so far as your
opening balances are concerned in the sense that they reflect
the position at the previous year end, that you will provide no
delays or headaches for the National Audit Office?
(Mr Bryant) We have employed a team of independent
accountants who are doing the reconciliations in conjunction with
my staff. The process of that will produce reconciled accounts
for the NAO. We do have one lingering problem with the accounts
receivable package and it is the most weak area of the financial
package.
66. I gather that from this report. What
does that actually mean? Let us dispense with euphemisms. Does
it actually mean that there is no longer a hole, a gaping gap?
(Mr Bryant) It means what I believe to be the
case, that there is not, but I cannot demonstrate it from the
system which is meant to. We have lots of other systems for debt
control in that sense and a debt recovery section and we take
legal action where necessary to recover our debts. It is actually
what is the printout showing in respect of the total accumulated
debt position by individual. A workaround solution is the technical
description.
67. Are you confident that you have the
qualified staff who are actually capable of dealing with the mess
which has been created? Here we see phases 1, 2 and 3; in the
case of phases 1 and 2 an overrun of practically £4 million
which presumably was money spent on consultants, already nearly
£850,000 overrun we are told on phase 3 which is presumably
largely money paid to KPMG. You have a situation here where each
time you start on an implementation exercise, you think it is
going to cost so much and then there is an overrun. Where is the
management grip, where are the staff, the qualified staff, capable
of running your £4.2 billion enterprise in the same way that
shareholders in the private sector would expect a similar sized
commercial enterprise to be run?
(Mr Trevelyan) Clearly it causes me major concern
and that is why I agreed to the report which indicated management
failure. There was a management failure and my own view of the
management failure is the slowness of reaction, which is virtually
the same as the C&AG's view. Faced with a system which was
under-performing or indeed was over- performing in some senses,
it was being too inventive by far, it was inventing a whole series
of postings which we could not keep control of,[3]
we did not react quickly enough to that. That is quite clear.
We have made management changes as a result of that.
Mr Wardle: But not
at the top. Thank you for that. I do not want to pray on other
people's time. May I echo what has been said by Ms Eagle and Mr
Page? May I echo the same concern? May I say that in my experience
systems are only ever as good as the management which runs them?
Mr Leslie
68. As well as the potential for fraud which
Mr Wardle highlighted, there have been other consequences too,
have there not, to this delay in reconciling your accounts? I
understand that there have been delays in recovering about £90[4]
million in reimbursements from the European Commission. Can you
tell me how that has disadvantaged this country?
(Mr Bryant) It came about because of what is technically
described as linking in the chart of accounts; that is the basis
on which we set up our accounting framework. Expenditure at lower
subordinate levels can be aggregated up through and reported at
higher levels to the European Commission. During that process
the linkage became disconnected and as a result the money was
not reported at the higher level within the period of this account.
69. It was a delay.
(Mr Bryant) It has been reported to the Commission
and we have had the money back. There was a delay, it was not
failure to recover the money.
70. There was a consequence to that delay.
(Mr Bryant) Yes, there was.
71. What was that consequence?
(Mr Bryant) The consequence in extremis
is that for a short period of time the taxpayer bore the expense
of that money for a month of the delay.
72. What would the cost of that have been?
(Mr Bryant) It would not be borne in my accounts
because it was Treasury funded.
73. It all gets passed around. There have
been several different consequences to this whole situation. I
just want to confirm something you said to Mr Page. It was KPMG
who developed this integrated accounts system for phases 1, 2
and 3, is that right?
(Mr Bryant) No.
74. Who did develop those?
(Mr Bryant) Phases 1 and 2 were conducted within
the agency with support from Oracle and other consultants.
75. Phase 3 was KPMG.
(Mr Bryant) KPMG went out to commercial tender
for the implementation of the package.
76. I am not a computer expert but this
sounds like a heck of a lot of money to be spending on a computer
system, particularly a computer system that only worked five days.
Phase 1 and 2 £6.6 million when it was initially estimated
to cost £2.65 million and then this phase 3 cost overrunning
by hundreds and hundreds of thousands of pounds. It is not much
of a performance for a system which only works for five days,
is it?
(Mr Trevelyan) No. I have not tried to conceal
my concern at the under-performance. We have said that the cost
overrun on phases 1 and 2 is exaggerated by the counting in of
the Intervention Board's own staff costs. Our estimate was £2.6
million before it was implemented and the outcome at £6.6
million includes £1.3 million of our own expenditure. There
is still an increase in the total cost of £5.3 million so
it is roughly a doubling. I am afraid to say it is a result of
the strategy which the Board has followed which is that the main
burden of work in computer development and in computer operation
is outsourced. That has advantages.
Chairman: We are going
to have to go and vote. It will take seven or eight minutes and
I apologise for the delay. Whilst we are doing that, perhaps you
would care between you to deliberate on the actual answer to Mr
Leslie's question: what was the cost of delay in receipt of what
I thought was £19 million. On my calculations that is about
£300,000 plus but I should like to know when we get back.
The Committee suspended from 5.30 p.m. to 5.40
p.m. for a division in the House.
Mr Leslie
77. I was asking
about the cost of delay in recovering £19 million. Is £300,000
about right?
(Mr Bryant) We do not have the immediate information
today because of the complexity, because it involved a number
of transactions over differing periods. What I can say to you
is that you also have to take into consideration that in any event
there is always a two-month delay between our spending money and
our getting it back from the European Commission. It is not an
answer I have available to you today because of the two-month
factor.
78. Can we have a note on that then?[5]
(Mr Trevelyan) Yes.
79. I was re-establishing the points Mr
Wardle was making about the system not particularly being up to
scratch and also the fact that it only worked for five days, in
particular phase 3, which I think I am right in thinking was KPMG?
(Mr Bryant) That is right.
3 Note by witness: In fact, large numbers of
unlinked items were being created which were difficult to control
and correct. Back
4
Note: The figure is actually £19 million, not £90
million. Back
5
Note: See Evidence, Appendix 3, p. 25 (PAC 268). Back
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