Select Committee on Public Accounts Twenty-First Report


COUNCIL FOR THE CENTRAL LABORATORY OF THE RESEARCH COUNCILS: ACCOUNTS 1997-98

THE IMPLEMENTATION OF FAMIS

13. The FAMIS accounts payable function did not process its first system cheque and Bank Automated Clearing Service payments until 23 April 1997 and 3 August 1997 respectively. This late start, combined with input errors and teething troubles, led to a significant and increasing backlog in the payment of supplier invoices and expense claims. The situation was exacerbated by a system crash on 4 July 1997 that led to several weeks' delay while the system was rebuilt. These problems contributed to the Council significantly delaying the payment of many outstanding supplier invoices and employee/visitor expense claims. Following the considerable and inevitable pressure from creditors, the Council made some 2,600 manual payments totalling £5.9 million in the first five months of 1997-98.[15]

14. It soon became apparent to the Council that they had made a significant number of duplicate and erroneous manual payments. This was confirmed when certain suppliers and staff informed the Council and reimbursed them for amounts overpaid. The Council identified 243 supplier overpayments totalling some £178,000 and 246 travel and subsistence overpayments to staff and visitors totalling some £80,000. The National Audit Office found significant flaws in the procedures adopted by the Council to identify travel and subsistence payments and, as a result of a further exercise, the Council found an additional 49 erroneous payments totalling £11,000 making a total of £269,000.[16] In their evidence to us the Council accepted that they had not had adequate controls in place to prevent the erroneous payments, and told us that in April 1997 they had been overcome by events. The computer system had been working too slowly and bills and claims had been coming in faster than they could pay them. Given the nature of these creditors, the Council had judged that they should be paid as a matter of priority. The Council told us that they had now recovered all but £15,000 of the overpayments, but that some of this remaining amount may prove irrecoverable - particularly payments made to foreign academics who had moved on and were difficult to trace.[17]

15. The FAMIS general ledger provides summary information from which the annual accounts and internal management information reports can be produced. The regular reconciliation of the general ledger to its subsidiary ledgers (accounts payable, accounts receivable, fixed assets etc) and external sources (such as bank statements) is a fundamental control, providing assurance as to the overall integrity of the accounting system.[18]

16. The problems with implementing the accounts payable and fixed asset modules delayed the transfer of information from the old accounting system to FAMIS and the successful implementation of the general ledger. As a result, the Council could not undertake any meaningful reconciliations until well after the year end. Following the posting of opening balances and subsidiary ledger information, the Council were unable to reconcile the general ledger to the bank statements. The initial discrepancy exceeded £1 million and, despite extensive efforts, an imbalance of £48,000 remained which was charged to the Income and Expenditure account for 1997-98.[19] We therefore asked the Council what progress they had made in reconciling their accounts. They told us that they had now reconciled up to the end of February 1999 and that there was no reason why their 1998-99 accounts should not be submitted promptly.[20]

17. The Council have incurred additional direct project costs of £458,000. These costs relate to hardware upgrades, employment of external agency staff, fees and expenses and additional audit costs. They exclude internal resources such as staff time diverted from other activities to assist in resolving FAMIS problems.[21] The Council estimated that the costs of staff overtime and internal assistance from their Computing and Information Group totalled some £100,000 and told us that their additional project costs included £223,000 of additional hardware which should have been in the original tender.[22] PricewaterhouseCoopers (successors to Coopers and Lybrand) and Oracle, the software supplier, have also incurred costs in working with the Council to resolve the continuing difficulties with the implementation of FAMIS.[23] The Council told us that they had not ruled out litigation in order to gain recompense for the taxpayer.[24]

Conclusions

18. 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.

19. 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.

20. 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.


15  C&AG's report, paras 19-20 Back

16  ibid, paras 21-24 Back

17  Qs 6, 53-56 Back

18  C&AG's report, para 29 Back

19  ibid, paras 30-32 Back

20  Q11 Back

21  C&AG's report, paras 34-35 Back

22  Qs 62-64 Back

23  C&AG's report, para 34 Back

24  Q29 Back


 
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