Select Committee on Public Accounts Twenty-First Report



7. The Council's first draft of a specification for their new accruals-based accounting system was completed in December 1994, but the final version, which formed part of the Council's invitation to tender, was not finalised and issued to potential contractors until May 1996, some 18 months later. The Council accepted a tender from Coopers and Lybrand which was based on Oracle software and Data General hardware. That tender was accepted despite concerns expressed within the Council, including by their then Chief Executive, about system security and because the contractors had not been able to demonstrate to the Council that the proposed hardware/software combination was capable of operating. The Council sent a letter of intent to Coopers and Lybrand on 6 September 1996, having received confirmation from them that they would have all essential features of the new system operational by 1 April 1997.[2] The letter of intent enabled work to proceed but the final contract was not agreed and signed until 20 January 1997. The agreed contract price of £544,000 covered implementation, configuration of the new system and certain data migration services.[3]

8. The Council ceased to operate their old cash-based accounting system on 31 March 1997 and introduced the new FAMIS system on 1 April 1997. They did not follow the generally accepted practice of running the two systems in parallel for a set period. This would have enabled them to satisfy themselves as to the integrity of the new system and provided a back-up in the event of the new system not operating properly. The Council told the Comptroller and Auditor General that such an arrangement would have incurred very significant additional costs that might have amounted to as much as £2.5 million. However, the Comptroller and Auditor General considered, and the Council have now accepted, that a more reasonable estimate would have lain in the range £0.75 million to £1 million.[4] The Council told us that the £2.5 million estimate had been made retrospectively in November 1998 during the preparation of the Comptroller and Auditor General's report.[5] We asked the Council what estimate they had made initially which led them to rule out parallel running. They told us that before the project began they had expected to have to pay some £500,000 to £750,000 for running the mainframe in addition to internal staffing costs, and that in view of these costs they had not considered it worth pursuing parallel running any further.[6] However, they admitted that with hindsight they should have parallel run as this would have been the only way to have tested the system for real.[7]

9. We asked the Council if they had undertaken a serious appraisal of the effectiveness of FAMIS before it went live. They told us that they had undertaken pilot exercises, in which users had participated, on each module of the system. Some hardware problems had been found during these tests. These pilot tests had not, however, tested the system at full load.[8] The Council therefore had taken the risk of introducing the system on 1 April 1997 without the benefits of full scale acceptance testing or parallel running.[9]

10. The Council went on to tell us that the hardware supplied had been inadequate for the task. It had been too slow, and unable to handle the wealth of financial information required to run their business. In addition, their own PCs had been antiquated and the supplied software had had many bugs which required patches. All of this had caused delays.[10] The specification for the system had required that it should be year-2000 compliant.[11] At the time of signing the contract, however, the Council had been aware that the software being supplied would not satisfy this essential requirement and that they would have to rely on a later upgrade.[12] The negotiations with Coopers and Lybrand had also left unresolved the issues of VAT budgetary control and fixed asset accounting. The Council told us that these issues had not been specified and locked into the contract.[13] They had since concluded that the supplied version of the fixed asset module could not support the production of the Council's accounts in accordance with Treasury requirements (they had to resort to the use of a manually-prepared register for 1997-98), and that the VAT accounting capability could not be fully supported, although there was sufficient information present to enable the Council to compile their VAT returns.[14]


11. 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. Moreover, 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.

12. 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.

2  C&AG's report, paras 11-14 Back

3  ibid, para 15 Back

4  C&AG's report, paras 16-17, and Q66 Back

5  Qs 72-73 Back

6  Qs 75-80 Back

7  Q114 Back

8  Qs 112-114 Back

9  C&AG's report, para 18 Back

10  Q2 Back

11  Q89 Back

12  Qs 32, 91 Back

13  Q103 Back

14  C&AG's report, paras 27-28 and 33 Back

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Prepared 30 June 1999