Select Committee on Public Accounts Minutes of Evidence

Letter to the Clerk of the Committee from the Permanent Secretary, Lord Chancellor's Department

  I am writing to bring you up to date on the progress we have made to address the concerns raised by the National Audit Office (NAO) in their report on "Funds in Court: Unclaimed Balances". This is to be the subject of a hearing before the PAC on 17 April 2000.

  One of the major criticisms in the report is an accounting issue which relates to the method of recording information on the unclaimed balances account, particularly since the introduction of computerised records in 1976. The NAO recommended that the Court Funds Office (CFO) establish a proper ledger to record individual balances which have arisen since then, and reconcile this on a regular basis to the total liability shown in the CFO accounting system.

  It may help in what follows if I set out the different categories of balances which we have now analysed. They can be divided by dates and by amounts, as follows:

    (i)  sums paid in and out between 1726 (when the Office of Accountant General was created) and 1923, when all balances (over £50) were published in The London Gazette;

    (ii)  sums paid in and out between 1923 and 1976 (when records were computerised). For this period, records were kept on a series of ledgers; and

    (iii)  sums paid in and out since 1976.

  It will also help to bear in mind a distinction between amounts of less than £400, and those of £400 and above.

  Taking each of categories (i)-(iii) above, I now summarise the position on the balances, reflecting the substantial progress made since the publication of the NAO Report on the Unclaimed Balances Account.

(i)  1726-1923

  We have been able to confirm that the overall amount of unclaimed balances quoted in The London Gazette in 1923 is correct, and that the publication thus constitutes an authenticated list of all balances (both for cash and securities) for this early period. (The financial limit used by the Gazette was for amounts over £50, rather than the £400 limit to which I refer for the later listings).

(ii)  1923-1976

  Since the NAO Report was published, we have located a continuous series of ledgers which has enabled us to list cash and securities balances for this period. We have selected £400 as the cut-off point, and we have not attempted to list smaller amounts.

(iii)  Since 1976

  We had already, at the time of the NAO Report, listed all cash balances of over £1,000 on a separate database. Further work since the Report has enabled us to list all sums of over £400 as well and add these to the database. But we have gone further in respect of these more recent records, and analysed all the remaining smaller sums. We have not, however, produced a separate list of every balance for these (approximately 12,000) balances, which average about £100 each. We have, though, matched every single payment out against the corresponding payment in, thus providing an audit trail for all these cash balances. All the security holdings brought into the account since 1976 (and ultimately sold in 1987) have been listed.

  The net result, then, is as follows:

    —  we now have a list of unclaimed balances from 1726 to the present day, for sums over £50 (up to 1923) and for sums over £400 (from 1923 to the present);

    —  in addition, we have verified all payments out against the respective payment in, in a way which is auditable, for all remaining items (ie less than £400) since 1976.

  This means that, of the current total balance in the Unclaimed Balances Fund of £32.3 million, only £2.1 million remains unlisted. This represents many thousands of small items which have accumulated between 1726 and 1976.

  A further exercise to create a separate list of the small balances accumulated since 1976 would be, at best, of historical interest, rather than something which addresses current accounting problems. The real accounting problems, as identified by the NAO, related to the inability to reconcile the sum of the individual balances since 1976 with the total liability. I now believe that we are in a position to satisfy the NAO accounting requirements, enabling them to issue the CFO with unqualified accounts in the future.

  There are some further points from the NAO Report, on which I will now report progress.

  The inappropriate sums transferred to the Unclaimed Balances Account by the Public Trust Office which were highlighted by the NAO, have now been surrendered to the Consolidated Fund as suggested. A sum of £87,372 constituting interest erroneously credited to the Unclaimed Balances Fund has also been surrendered to the Consolidated Fund. The CFO is now rigidly adhering to procedures for determining whether or not to accept lodgements of forfeited suitor's cash from county courts. Deposits are accepted only where the court provides sufficient information to enable the CFO to identify a claimant.

  The NAO suggested that procedures for identifying persons entitled to funds held in Court, particularly for amounts over £1,000, be reviewed and revised to reduce the extent to which such balances are transferred to the Unclaimed Balances Account only to be subsequently paid out. The current Standard Operating Procedure, which applies different criteria for tracing those entitled to funds depending on the size of the sum, is being enhanced so that larger amounts are now being more actively pursued.

  The CFO is statutorily obliged to maintain an index of cases where money is held on the Unclaimed Balances Fund for public inspection. Currently, a paper index is available for inspection and the NAO raised concerns over the number and nature of secondary search keys contained in the index. To address this, the index will shortly be transferred onto a modern database and members of the public will be able to use a computerised search facility. Furthermore, consideration will be given to putting the index on the Internet now that this has become technically feasible. In an attempt to increase the profile of the Unclaimed Balances Index, an explanatory leaflet has been put onto the Public Trust Office's Website.

  We have sought Counsel's opinion on the surrender of de minimis balances to the Treasury, and on whether there is a need for revisions to the legislation underlying the Account, better to reflect the likelihood that amounts will be reclaimed. Existing legislation prevents the Accountant General from surrendering any balances to the Treasury, but proposals for dealing with this are to be put to Ministers shortly.

  The 1987 Rules require the CFO to consider the carry-over of money to the Unclaimed Balances Account, after an account has been dormant for five years. Before 1987, the dormancy period was fifteen years. The nature of the unclaimed balances account changed following the introducton of the 1987 Rules. There was an increase both of carry-overs into the account and of payments out from the account. It became more of a suspense account, rather than an unclaimed balance account it its truest sense. To address this, we will be discussing with Ministers whether to change the Court Funds Rules to lengthen the time limit for transferring dormant sums to the unclaimed balances account from five years to 10 years, which we feel is a more appropriate period of dormancy for this account.

  I hope that this information is helpful to the Committee and that the Chairman can be made aware of the substantial progress which has been made to address and resolve the accounting issues highlighted by the NAO.

  I am copying this letter to the Comptroller & Auditor General.

Lord Chancellor's Department

17 March 2000

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