Select Committee on Public Accounts Twenty-First Report


TWENTY-FIRST REPORT

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 [1] 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 Council:

  • 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 as follows:

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 (paragraph 11).

      (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 (paragraph 24).

      (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 and Industry

      (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 (paragraph 29).

      (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


 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries

© Parliamentary copyright 1999
Prepared 30 June 1999