APPENDIX 2
DEPARTMENT FOR INTERNATIONAL DEVELOPMENT—EMERGENCY
AID: THE KOSOVO CRISIS (PAC/2000-01/4)
SUPPLEMENTARY MEMORANDUM SUBMITTED BY
THE NATIONAL AUDIT OFFICE
Q126—BANK CHARGES
AND COSTS
1. At the Committee's hearing on 28 June
the Chairman asked the National Audit Office to supply further
information on the costs of the Department's banking arrangements
with the Crown Agents banking subsidiary, Crown Agents Financial
Services Limited, for the Kosovo crisis. This note, based on information
supplied by the Crown Agents and the Department, provides further
details of:
— the balances held by the Department
in their accounts at Crown Agents Financial Services Limited for
the Kosovo operation and Exchequer interest costs; and
— the amounts Crown Agents Financial
Services Limited might have charged the Department for these banking
services had they raised charges.
Bank balances and Exchequer interest costs
2. Between 1 April and 30 September 1999
the Department transferred some £14 million to accounts in
the Department's name with Crown Agents Financial Services Limited
to fund local projects, the procurement of goods and services
in support of projects, and field office operating costs. All
these funds were held in non-interest bearing accounts for which
Crown Agents Financial Services Limited made no charges. Over
the six months to the end of September 1999 the month-end balances
on these accounts did not fall below £2.7 million in total.
For each £1 million transferred in advance of need, the Exchequer
interest cost was £5,000 a month.[8]
3. Crown Agents Financial Services Limited
have provided further details of the balances in the "Kosovo"
accounts for the months April 1999 to April 2000 in the attached
table. The figures shown are combined totals of the individual
accounts concerned.
4. The average balance in the accounts over
the six months to the end of September 1999 was some £2.99
million (£2.86 million over the 13 months to the end of April
2000). The Treasury rate for calculating the cost of capital (the
Exchequer interest cost) in central government is 6 per cent.[9]
Applying this rate to the average balance over the period, the
Exchequer interest cost for the six months to the end of September
1999 was some £90,000 (and some £186,000 for the 13
months to the end of April 2000).
5. Crown Agents Financial Services Limited
told the National Audit Office that they were not in a position
to comment on whether the average balances in the Kosovo accounts
were in excess of operational need. This was a matter for the
Department. However, they did not believe it would have been possible
to have had zero balances in these accounts and they estimate
that a minimum balance of around £1million would have been
required to service the projects funded by these accounts. The
Exchequer interest cost of funds in excess of that minimum position
for the six months to the end of September was some £60,000
(and some £121,000 for the 13 months to the end of April
2000).
6. The Department assured us that they now
have mechanisms in place which enable them to monitor bank balances
more closely. This has enabled them to reduce balances held in
their accounts at Crown Agents Financial Services Limited.
Bank charges
7. The Crown Agents told the Committee that
if Crown Agents Financial Service Limited had charged the Department
for managing the Kosovo accounts, the charges were likely to have
been between £5,000 and £7,000 a months.[10]
Crown Agents Financial Services Limited told us that if they had
charged the Department for the banking services they would have
first submitted a proposal which would have formed the basis for
negotiations. Without an agreed basis for charging with the Department
it was not possible for them to be definitive about the charges
they might have made. The information Crown Agents had provided
to the Committee had been a retrospective estimate of what Crown
Agents Financial Services Limited's bank charges might have been
which had been based on two possible approaches to charging:
— the lower estimate of £5,000
a month was based on transaction costs and had been calculated
by multiplying the average number of transactions per month by
Crown Agents Financial Services Limited's transactions charges
for similar types of transactions, such as the electronic transfer
of funds overseas. We have confirmed that the average transaction
cost used in this calculation was in line with transaction costs
charged by other banks. On this basis, bank charges for the six
months to the end of September 1999 would have been £30,000
(and £65,000 for the 13 months to the end of April 2000);
— the higher estimate of £7,000
a month was based on staff costs and had been calculated by multiplying
the estimated number of days spent by their staff on these accounts
by an average daily staff charge out rate. We have confirmed that
the charge out rate used in this calculation was in line with
those used by Crown Agents Financial Services Limited in a contract
they have with the Department for bi-lateral aid banking services.
On this basis, bank charges for the six months to the end of September
1999 would have been £42,000 (and £91,000 for the 13
months to the end of April 2000).
8. Crown Agents Financial Service Limited
told the National Audit Office that, as the management of the
Kosovo bank accounts was staff intensive, they would have sought
to negotiate a charge based on staff time.
CONCLUSION
9. The Exchequer interest of funds in excess
of Crown Agents Financial Services Limited's estimate of the minimum
balance required was some £60,000 for the six months to the
end of September 1999 (and some £121,000 for the 13 months
to the end of April 2000). The retrospective estimates of the
charges the Department might have faced for the banking services
are lower, at between £30,000 and £42,000 for the same
six-month period (and between £65,000 and £91,000 for
the 13 months to the end of April 2000).
20 December 2000
8 C&AG's report, paragraphs 4.3 and 4.4. Back
9
Government Accounting: Amendment 8: 3/1998: chapter 29-Appraisal
and Evaluations 29.2.5. Back
10
Q20. Back
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