EMERGENCY AID: THE KOSOVO CRISIS
Managing the Department's assets
27. 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. The funds were held
in non-interest bearing accounts for which Crown Agents Financial
Services Limited raised no charges. The average balance in these
accounts over the 13 months to the end of April 2000 was £2.86
million, which the National Audit Office calculated resulted in
an Exchequer interest cost of some £186,000 for the period,
some £14,000 a month. The Crown Agents did not believe it
would have been possible to have had zero balances in these accounts
and they estimated that a minimum balance of around £1 million
would have been required to service the projects funded by these
accounts. The Exchequer interest cost of funds in excess of the
minimum position was some £121,000 over the 13 months to
the end of April 2000.[22]
28. Asked why they had not kept the level of funding
to Crown Agents under review, the Department argued that the substantial
liquidity in the accounts had made it possible for Crown Agents
not to charge them fees.[23]
Treasury guidance on bank charges states that "Departments
should not agree to maintain balances on public bank accounts
to reduce or remove charges, because the government generally
has to pay more in terms of borrowing costs than would be saved
in bank charges."[24]
The Department did not appear to be aware of this guidance and
told us that if the balances had been lower, there would have
come a point at which they would have been charged bank charges.
They told us that they had undertaken a quick calculation that
led them to believe that had the Crown Agents charged fees on
lower balances the public purse might actually have been worse
off.[25]
29. The Crown Agents told us that as they had not
agreed a basis for charging with the Department, they could not
be definitive about the charges they might have made. However,
they thought that if they had charged the Department for managing
the Kosovo accounts, the charges were likely to have been between
£5,000 and £7,000 a month (between £65,000 and
£91,000 for the 13 months to the end of April 2000). The
lower estimate was based on transaction costs. The higher estimate
was based on staff costs and, as the management of these accounts
had been staff intensive, they would have sought to negotiate
a charge on this basis.[26]
The likely level of bank charges would therefore have been considerably
less than the Exchequer interest cost of funds in excess of the
minimum position of some £121,000 over the 13 months to the
end of April 2000. This calculation does not support the Department's
assessment and underlines the importance of adhering to Treasury
guidance. The Department said that they recognised the concerns
that had been raised about these accounts. Crown Agents Financial
Services Limited were developing an on-line system which would
allow them to monitor their accounts more closely and the Department
were considering whether they might be able to reduce the level
of balances by running fewer accounts. The Department subsequently
assured the National Audit Office that they now monitored bank
balances more closely, and had been able to reduce balances held
in their accounts at Crown Agents Financial Services Limited.[27]
30. The Department needed to satisfy themselves that
money spent by the Crown Agents on their behalf through the field
offices had been spent properly. The contract with Crown Agents
therefore required them to provide the Department with monthly
financial statements, but there was a delay of between four and
seven months, from the establishment of the field offices to the
production of monthly financial statements.[28]
We asked the Crown Agents why this had taken so long. They told
us that they had provided the Department with bank statements
and monthly invoices. When it had become clear by mid-May that
the Kosovo operation was not going to be short-term, they had
engaged a project accountant, who was in post by June, to produce
project management accounts to show what was happening to the
money on the ground.[29]
31. The Department provided tents and blankets, food
and medical supplies to a value of approximately £1 million
for distribution in the region by international agencies. They
arranged for these supplies to be airlifted, normally to Macedonia
or Albania where they were unloaded by air cargo handling teams
funded by the Department. The Department could not confirm that
supplies had reached the intended recipient.[30]
They told us that nothing in their experience of the Kosovo crisis
had led them to think that any of the supplies had gone astray.
Nevertheless, they had agreed, in the light of the Comptroller
and Auditor General's report, to ensure that written documentation
would in future be obtained when supplies reached the end user.[31]
Conclusions
32. Over a 13-month period the average balance in
the Department's accounts at the Crown Agents was some £2.86
million compared with a minimum balance of around £1 million
that Crown Agents estimate would have been required to service
the projects funded by these accounts. These balances were held
in non-interest bearing accounts on which bank charges were not
levied. The interest cost to the Exchequer of holding funds in
excess of need was considerably greater than the likely level
of bank charges that would otherwise have been levied. A better
planned approach to cash management will be needed if the Department
are to fulfil the assurances they gave us that in future balances
in these accounts will be monitored more closely and will reduce
as a result.
33. The Department had called for monthly financial
statements to satisfy themselves that money disbursed by the Crown
Agents on their behalf through field offices has been spent properly.
But there was a delay, ranging between four and seven months,
between the establishment of the field offices and the production
of project management accounts to show what was happening to the
money on the ground. The Department should take steps to ensure
that field offices are prepared and equipped to produce accounts
and other management information on a timely basis.
34. The National Audit Office could not confirm that
humanitarian supplies sent to the region during the refugee crisis
had been received by the intended recipient. The Department should
obtain documentary evidence of delivery of the supplies they send
to relieve emergencies and have assured us that they propose to
do so.
22 Evidence, Appendix 2, p19, paras 2, 4-5 Back
23 Evidence,
Q6 Back
24 Government
Accounting, 28.5.28 Back
25 Evidence,
Qs 6, 14 Back
26 Evidence,
Q20 and Evidence, Appendix 2, p19, paras 7-8 Back
27 Evidence,
Q111 and Evidence, Appendix 2, p19, para 6 Back
28 C&AG's
Report, paras 18 and 4.5 Back
29 Evidence,
Q19 Back
30 C&AG's
Report, paras 4.14-4.15 Back
31 Evidence,
Q63 Back
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