The Committee of Public Accounts has agreed to
the following Report:
COUNCIL FOR THE CENTRAL LABORATORY OF
THE RESEARCH COUNCILS: ACCOUNTS 1997-98
INTRODUCTION AND SUMMARY OF CONCLUSIONS AND RECOMMENDATIONS
1. The Council for the Central Laboratory of the
Research Councils (the Council) were created by Royal Charter
and came into existence on 1 April 1995. They operate the Rutherford
Appleton Laboratory in Oxfordshire and the Daresbury Laboratory
in Cheshire. They promote high quality scientific and engineering
research by providing facilities and technical expertise in support
of research programmes meeting the needs of other research councils
and their user communities and of industrial and academic customers.
2. While they were still part of their predecessor
body, the Engineering and Physical Sciences Research Council,
the Council concluded that the cash-based accounting system then
in operation was unsuited to their long term business management
and financial reporting requirements. Accordingly, they decided
to procure a new Financial Accounting and Management Information
System (FAMIS). This was to be introduced on 1 April 1997 and
would be an integrated accruals-based accounting system capable
of recording all the Council's financial transactions and producing
their annual accounts and meaningful internal financial information.
3. However, there have been serious delays in the
implementation of FAMIS which have led to considerable difficulties
in the control and oversight of the Council's business activities,
so that the Council were unable to produce reliable management
information for budget holders for over eighteen months; they
have incurred additional direct project costs of some £458,000;
and important elements of the system are still not operational
two years after they were due.
4. On the basis of the Comptroller and Auditor General's
report on the Council's 1997-98 Accounts 
we examined the Council and their sponsor department, the Department
of Trade and Industry, on the procurement and installation of
FAMIS, the reasons for the difficulties in implementing FAMIS,
the project management procedures adopted by the Council and the
role of the sponsor Department.
5. Three main general points emerged from our examination,
all of them indicating a lack of management grip on the part of
- The FAMIS project was poorly scoped, and the
Council underestimated its complexity from the outset and sought
to implement it against an over-ambitious timetable. They should
have known better: there have been enough mismanaged computer
projects in the public sector for the Council to have learned
from the experiences of others.
- The Council's approach was to take rather than
manage risks. Their decision not to parallel-run their new system
with the old one was based on a wholly inadequate assessment of
the costs of parallel running, and as a consequence they have
incurred additional direct project costs of £458,000 and
still do not have the benefits of a fully working accounting and
management information system.
- There was an unacceptable lack of communication
between the Council and the Department of Trade and Industry,
who provide their funds. The Department were not made aware of
the problems on FAMIS until eight months after these became evident.
It is essential that the Council and the Department
take steps to resolve the outstanding issues as soon as possible
and learn lessons from the project.
6. Our specific conclusions and recommendations are
On the procurement and installation of FAMIS
(i) In view of the
compressed timetable for procuring, installing and implementing
the system and the significant problems that became apparent during
the contract negotiations and pilot testing, we are astonished
at the Council's decision not to parallel run the new system with
its predecessor system. We consider that they gave insufficient
consideration to the risks associated with this decision and that
their analysis of the case for parallel running was seriously
inadequate (paragraph 11).
(ii) We note with concern the Council's
admission that their recent and retrospective £2.5 million
estimate of the cost of parallel running was two and half times
in excess of the likely actual cost. We find it unacceptable that
the Council did not assess fully and accurately the likely costs
of parallel running at the time the decision was made, thus preventing
management from taking that decision on a properly informed basis
(iii) We are surprised that the Council
took the risk of placing a procurement contract for a computer
system knowing that it was not demonstrably Year 2000 compliant,
that the fixed asset module did not meet the Treasury's requirements
for fixed asset accounting, and that VAT budgetary control would
not operate as required. We note that the uprated version of the
software is expected to meet these requirements and look to the
Council to verify that this is the case well before 31 December
1999 (paragraph 12).
On the implementation of FAMIS
(iv) We note with
regret the fundamental breakdown in the Council's controls over
the processing of payments. It is particularly important for such
controls to be in place and reinforced at times when accounting
system failures necessitate high levels of manual payments. This
breakdown resulted in overpayments to suppliers of £178,000
and to travel and subsistence claimants of £91,000, of which
£15,000 has not yet been recovered. We recognise that the
Council took action to pursue recovery of these overpayments as
soon as the problem was identified but we are concerned that part
of the £15,000 will never be recovered, resulting in a loss
to the taxpayer (paragraph 18).
(v) We are concerned at the Council's failure
to reconcile their General Ledger to the bank statements which
represents a breakdown of what should be a fundamental control
in any financial system. The delays in posting information to
the General Ledger and reconciling it successfully prevented the
Council from having the benefit of key information needed by management
effectively to control their budgets for well over 18 months.
We note the Council's assurance that these monthly reconciliations
have now been brought up to date and look to the Council to undertake
them promptly in future (paragraph 19).
(vi) We consider it unsatisfactory that
FAMIS is still not fully operational some two years after the
planned implementation date and that costs have overrun by 84
per cent. We look to the Council to install and implement the
outstanding accounting functions as a matter of urgency. We also
look to the Council to achieve a fair and equitable settlement
with the suppliers, taking account of all additional costs incurred
by the Council to make the system operationally compliant with
the original tender specification (paragraph 20).
On project management procedures
(vii) Whilst recognising
the remedial actions introduced by the Chief Executive following
his appointment on 1 April 1998, we find it unacceptable that
the Council did not effectively grip the management of this project
until over a year after the project implementation date and that
they relied to such an extent on the contractor to manage the
project (paragraph 24).
(viii) We are surprised at the view taken
by the Council at the outset that FAMIS could be treated as an
off-the-shelf purchase rather than as a project. We consider that
such a bespoke financial and management accounting system, being
implemented to a demanding timescale, should have been regarded
as a business-critical operation requiring good project management
and we are astonished by the Council's failure to recognise this
(ix) We acknowledge the Council's undertaking
to follow accepted project management procedures in future and
to draw, where appropriate, on the expertise of the Central Computer
and Telecommunications Agency (paragraph 24).
On the sponsorship role of the Department of Trade
(x) We find it unsatisfactory
that the Council failed to notify their sponsor department directly
of the problems that they were experiencing with FAMIS as soon
as these became evident in April 1997. We consider unacceptable
the over-optimistic management reporting within the Council over
a sustained period to both their Audit Committee and full Council,
thereby failing to trigger more timely action by their sponsor
department (paragraph 28).
(xi) We are surprised at the Department's
statement that they were unaware of the Council's difficulties
with the FAMIS system until December 1997, and note that the system's
supplier payment problems received press coverage in September
1997 (paragraph 28).
(xii) We are concerned that the Department
failed to review the operation of FAMIS as a matter of course
in April 1997 - the month in which the system was due to go live.
Given the difficulties being experienced by the Council, the Department
could and should have intervened sooner in the management of the
project, particularly as they have responsibility generally for
ensuring that organisations are made aware of the Year 2000 problem
(xiii) We note the Department's policy of
close involvement in projects costing in excess of £15 million
and acknowledge their recent actions to ensure that they are made
more aware of developments on all business-critical systems. We
note also the Department's intention to undertake a 'dipstick'
test at the Council four months after their new Finance Director
takes up post, in order to assess the effectiveness of the Council's
financial management arrangements (paragraph 29).
1 HC 155 of Session 1998-99 Back