Examination of witnesses (Questions 180
- 199)
WEDNESDAY 1 APRIL 1998
MR J MORTIMER,
Treasury Officer of Accounts, further examined.
180. Yes, all right. So this will be a matter
which the European Commission will want to investigate. May I
therefore ask you when they investigate whether there are any
other sums which are still unrecovered from the European Commission?
(Mr Bryant) The European Commission does not investigate
these accounts, it investigates accounts which we submit separately
to their rules and to their timescale.
181. That was not the question. When they
investigate this matter, are there any other sums of money which
are outstanding from the European Commission?
(Mr Bryant) I am sorry, I am just trying to clarify
the point.
182. Are there at today's date still any
sums of money which are outstanding to any length of time from
the European Commission to your Board?
(Mr Bryant) Monthly there is always money outstanding
for two months from the European Commission. We claim two months
in arrears for expenditure so there is always money outstanding
at any one time.
183. Is there anything over and above the
normal pattern of payments which are outstanding from the European
Commission at this time?
(Mr Bryant) Not to my knowledge.
184. In these accounts the ratio of agency
disallowance to EAGGF funds handled is put at greater than 0.4
per cent. How much greater was it? The line in your accounts for
your targets for 1997-98 says that the ratio of agency disallowance
to EAGGF funds handled is to be no greater than 0.4 per cent.
Are you likely to meet that target?
(Mr Trevelyan) My Finance Director handles relations
with Europe.
185. This is one of your targets as announced
in your 1997-98 accounts on page 13. In view of the fact that
you have already admitted to us that there was a sum of £19
million outstanding, are you likely to meet that target?
(Mr Jenkins) I do not have a copy of the agency
accounts.
186. I have read it to you. I will read
it to you for the third time. The ratio of agency disallowance
to EAGGF funds handled is supposed to be no greater than 0.4 per
cent. Are you likely to meet that target, yes or no?
(Mr Jenkins) If I could take the range of responses
on targets, each year the exchequer year in which they were cleared—excuse
me I am just checking the records ... For the exchequer year 1996-97
in fact the performance exceptionally will be 0.51 per cent, so
we have not achieved the target.
187. So the answer is no, you will not meet
that target.
(Mr Jenkins) That is subject to a couple of conciliation
cases. May I explain? In the question of disallowance with Brussels
if the member state disputes the level of disallowance proposed
by the Commission we can take the matter to an independent body,
the conciliation body. We have in fact at the present time got
a case under dispute which has gone to the European Court of Justice.
If we succeed in that, we will actually come in below the target.
(Mr Trevelyan) I have to say I do not think that
the late recovery from the Commission of monies owing to us is
relevant for the disallowance target. The disallowance target
is financial corrections, using the terminology in the regulations,
which are imposed on us either for errors in the accounting system
or they are made on us for compliance errors. The compliance errors
normally are the big ones and those cases often run three or four
years after the year in question. It is extremely difficult to
judge where we stand on disallowance on the compliance side and
1994 is the current year under debate with the Commission.
(Mr Jenkins) That is correct.
(Mr Trevelyan) That is the one where we are anticipating,
subject to these final appeals against disallowance, that we either
will be or will not be within the target. It does not relate to
the sums mentioned in the report here.
188. To return to the implementation of
phases 1, 2 and 3, you had reports from the Comptroller and Auditor
General's staff in December 1996 and June 1997. You had reports
from your own auditors' unit in March, June and October of 1997,
so you had a pretty good idea that you were running into serious
difficulties. Why did you proceed with phase 3 of the system before
you had fully implemented phases 1 and 2?
(Mr Trevelyan) I think there is a misunderstanding
there. We did not implement phase 3 before we had implemented
phases 1 and 2. The reports you refer to from our Internal Audit
in 1997 were after the implementation of phase 3. I am not claiming
that everything was in order but phase 3 did follow on the implementation
of phases 1 and 2.
189. I think from the hearing this afternoon
this is a pretty good disaster. In view of the quote I have made
from you, are you—and I repeat the question for the third
time—going to be considering your future with the Board?
(Mr Trevelyan) No.
190. You are not going to be considering
your future with the Board.
(Mr Trevelyan) No.
Mr Love
191. The word "nightmare" has
been bandied around since the beginning of our hearing this afternoon.
I hope that today's nightmare for you may be coming to an end
fairly soon. I want to go back to the question of really trying
to get a view about how you took the decision relating to phase
3 of the project, in effect to replace phases 1 and 2. Let me
just set the scene for that because it has already been shown
that the previous PAC report was very critical and you have admitted
that. You ran the project phases 1 and 2 for seven years from
1988. You had only introduced the general ledger. You had to do
very substantial additional programming to link that into your
system and you had a substantial overspend. How were you thinking
in relation to phase 3? Why did you take the decisions you did?
(Mr Trevelyan) We felt that we were operating
appropriate project management techniques. The CCTA has a standard
for major projects of this sort and we had it under the appropriate
project management routines. We had our project management team,
we had our change manager, we had our professional advisers. The
problem was with the equipment, the engineering of the software
which we put in place and that is extremely difficult to test
in advance. I am not an expert on systems testing but as I understand
it, it would have been very difficult to simulate the real world
situation which we were faced with once we went live in 1996.
In terms of management training, expertise, resource generally
we felt we had done the right thing. Events proved otherwise and
I make no pretence that it was a success.
192. In that case may I ask you the rationale
for choosing an off-the-shelf system? We have already been told
that you have a very large volume of transactions, it is a complex
area, there are great difficulties. Can you just explain to me—I
am not an expert in this area so I hope you will keep it very
simple—why it was that you decided on an off-the-shelf system
in this regard?
(Mr Bryant) Although it is described as off the
shelf it is off the shelf from Oracle in that they have re-engineered
it to deal with both cash and accrual accounting. It would meet
both the needs of the agency or cash accounting to the appropriation
account before the Commission——
193. May I stop you there? Paragraph 21
says that the bespoke part of the software development was to
be kept to the absolute minimum. Can you tell me the rationale
behind that decision?
(Mr Bryant) Generally speaking, if you start to
tinker with proprietary software the manufacturer or supplier
will not maintain it thereafter. What we were then faced with
was expensive maintenance costs of software which would no longer
be maintained by the supplier and when you come to upgrades and
new releases you have even more expensive problems because you
tinkered with a piece of kit which they no longer recognise.
194. To what extent was the concern about
finance in relation to your decisions both to take an off-the-shelf
system and to try to keep the tailoring of it down to an absolute
minimum? I ask you to answer that question in the light of the
failures of the past and the significant overspends that created.
To what extent was the decision you took in relation to having
an off-the-shelf system based on financial considerations? In
relation to that, if it was an important consideration, had you
fully taken into account the fact that you were meant to spend
£2.65 million in phases 1 and 2 and ended up spending £6.6
million on phases 1 and 2? What significant additional bespoke
tailoring.
(Mr Bryant) When the agency took its decision
to go for proprietary software it did do the necessary appraisals
at the time which concluded that proprietary software, as opposed
to bespeaking your own arrangements and maintaining them thereafter,
would meet the bill. The first decision was yes, but subsequently
there have been changes, alterations and problems which occurred
which caused the expenditure to increase.
195. Looking back, and I understand it is
always easy to look back with hindsight, do you think that the
decision to take an off-the-shelf system here, and indeed we could
look back to phases 1 and 2 and say the same thing, was that a
correct decision and in the end would it not have been more sensible
to tailor a system specifically for your needs and indeed to test
that in the seven and half years you had from the introduction
of phase 1 before you went live in 1996?
(Mr Jenkins) Generally speaking people always
advise against going for bespoke systems. It has the danger of
the company that helps build software not coming in to upgrade
later on. We were conscious when we went forward to take it off
the shelf that we were looking to the future. The decision was
taken to go out to tender for a company who would give us a good
deal for at least ten years and all the potential changes which
were necessary since then. Obviously we were aware of the sort
of changes round the corner; we have mentioned the Euro, we mentioned
the year 2000. I believe if we had bespoke software none of that
would have been easily obtainable. Previous experience in the
agency, going back before I was in the agency, proved that bespeaking
was highly costly, more costly than taking off the shelf.
196. Indeed I understand that it is more
expensive. What I was trying to get at was to what extent that
had been the major consideration in this regard, especially since
you have ended up overspending considerably. Indeed in terms of
phases 1 and 2, you had virtually to bespeak the software you
received subsequent to taking it on. I wondered whether the experts
you had employed or the consultants you had employed or indeed
whether the Treasury or other Government departments provided
you with advice in relation to the choice between off the shelf
and bespoke? Did you seek any advice and what was that advice
at the time?
(Mr Jenkins) At the time we took advice from our
own internal computer experts within the agency, who I am sure
took advice from the central computer advisers, CCTA. The accounting
professionals have also advised that was the right decision to
go for an off-the-shelf rather than a bespoke system.
197. There was the accounting side which
advised you in that regard.
(Mr Jenkins) The IT and the accounting professional
side as well.
198. May I take you on to the agency accounts
which you submitted which were then returned as being fundamentally
misleading? Can you tell me your interpretation of what "fundamentally
misleading" means?
(Mr Trevelyan) I do not recognise the phrase "fundamentally
misleading" in recent correspondence between myself and the
NAO but perhaps I should. Perhaps you can bring me up to date
on that.
199. I cannot find the place where it appeared
in the report. Perhaps it does not appear in the report. Perhaps
the C&AG could help?
(Mr Le Marechal) I am not sure that phrase does
appear in the report but it may have arisen in discussions with
the Committee.
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