Examination of Witnesses (Questions 1
- 19)
WEDNESDAY 31 JANUARY 2001
SIR JOHN
BOURN, KCB, MR
TIM BURR
AND MS
CAROLINE MAWHOOD
Chairman
1. Sir John, this is the first time you have
presented your estimates in resource estimate form.
(Sir John Bourn) Yes.
2. Could you just tell the Committee what differences
that has made, whether it is easier, harder? How have you found
it?
(Sir John Bourn) This presentation, which
is the presentation which the Treasury are going to require Departments
to follow in future, is based on the fundamental principle of
resource accounts that the estimate and the accounts should show
not only the cash, which has been the basis up to now on which
estimates and accounts have been done, but on the use of resources.
Resources come under two headings: those resources which you would
recognise in the accounts of PLCs like changes in the amount of
working capital, depreciation, matters of that kind, but also
allowances which come out of the economists' approach, like the
concept of capital charges on the assets. The resource estimate
includes the computation of the resource implications as well
as the cash we would spend, but the cash at £47.6 million
is exactly the same figure that the Public Accounts Commission
saw in July and represents simply an increase of 6.5 per cent
in the amount of cash compared with what I have in this financial
year. The main reason for the increase is the coming of resource
accounts, the much larger and more developed system which is being
introduced.
3. Are you comfortable? Last year you had 52
major reports, 660 audits, all for a bit less than you provided
for last year, about £300,000 less if my understanding of
the figures is right. Can you take us through how you achieved
that?
(Sir John Bourn) Yes. In the year coming up I shall
audit 649 accounts; that compares with 660 which I am doing in
the current financial year. The main reason for the fall in the
number is that a lot of our international accounts are biennial
accounts so they only come up every two years. That accounts for
the major part of the reduction. The actual quantity of work we
are doing is larger, not only because the accounts are more complicated,
but we are, with the Committee's support, winning more work and
getting more accounts to audit. As the Committee know, we have
obtained the audit of all the executive non-departmental bodies
established under the present Government and we are glad to say
that the portfolio increases. For the amount of money I am asking
I shall audit all the accounts, do 50 value-for-money studies,
answer all the letters from Members of Parliament and from members
of the public, currently running at 260 to 300 a year, some of
them quite extensive in the amount of work required, and carry
out a programme of inspection visits, as we do, to a whole range
of the auditees. I shall produce the performance savings which
we have done. With your help and the agreement of our recommendations
and their acceptance on the part of the Government we are able
to show that the savings coming from our work and the support
you give us is eight times the cost of running the Office. If
I am asking for more money, I shall give you more savings.
4. The Treasury will agree. You are here as
a schizophrenic practically because you are also C&AG for
Wales. Tell me a little bit about the relationship in resource
terms between what you do for them and how it is paid for.
(Sir John Bourn) As far as Wales is concerned, I am
the Auditor General for Wales and I shall be bringing in to the
C&AG in the upcoming year £2,059,000. The arrangement
is that as Auditor General for Wales I have a contract with myself
under which the money is supplied by the National Assembly of
Wales, I meet your Welsh equivalent, discuss the estimate with
them in the way that I am discussing it with you. I am glad to
say that the work which the National Audit Office do under contract
to the Auditor General for Wales has been successful. The Audit
Committee have asked us to do more work. The work is done for
the Audit Committee of the National Assembly of Wales but they
pay for it all. There is no element of subsidy on the part of
the Westminster Parliament for the work done for the National
Assembly of Wales.
5. Every year the same perennial question comes
up about staffing, quality of staff and so on. I forget the exact
words, but you are required to keep broadly in line with public
sector indicators on salaries. How is that working? What is the
state of play there? That is probably the single most important
question we ask you.
(Sir John Bourn) The words in the statute are, "Having
regard to salaries in the Civil Service", which of course
are not what they used to be. There was a time when you could
look them all up and find what all the civil servants were paid.
That is long gone. Nonetheless of course we bear that in mind,
but we also have to bear in mind that the great majority of my
people are people with professional qualifications, most of them
as professional accountants. I am too small to be a price setter
in that market and I therefore have to have regard to what my
people could earn if they were not with me. As I said to the Committee
last year, and it remains the case, I have no problem about attracting
bright, clever, young graduates to come to work at the NAO. Last
year we took 36, six firsts, six lower seconds and all the rest
were upper seconds from a wide range of universities. We had something
like 600 applications from university graduates for those jobs.
I take the people and we give them a training. The real question
for us is the man or woman of 29, 30, 31, 32, a qualified professional
person, wide public sector experience by then, enormously attractive
to accountancy firms and consultancies. I have had a look at the
latest earnings figures of the firms, now that at least some of
them show what you can earn there. The 484 partners in Ernst &
Young have average remuneration of over £400,000 each. The
senior partner in Ernst & Young is earning £1 million
a year.
Mr Griffiths
6. How is it skewed?
(Sir John Bourn) It is skewed in the sense that unlike
the public sector you have your basic partner and the top guy
is earning more than twice as much. I am not earning twice as
much as the DC&AG, put it that way. Of course we could never
expect and our people do not expect, to be able to earn with us
what they might have earned if they made partner, as many of them
would of course in the firms. We do have to pay effectively basically
good salaries and it is something we have to look at with your
support each year. It is that crucial age, 29, 30, 31, because
people then say to themselves that this is the time to go if they
are going. Get on to 40, 45, 50, then the market opportunity is
gone. I have to keep as many of these young people with me—
Chairman
7. I am looking round the table at the 45 to
50-year olds.
(Sir John Bourn) Not for members of the Committee
but it is the case in a field of that kind. Essentially we are
keeping enough good people, so I have no crisis. Many people want
to do the work. One of the big things we do have is that it is
more interesting on the whole than working for Ernst & Young
and auditing PLCs year after year to see that the accounts are
in line with the Companies Act. We have more interesting work
and there are still a lot of people who want to work for the public
sector.
8. Is that true across the board? Let me offer
an alternative and more difficult example. Take something like
VFM studies in the privatisation area. Surely in that area somebody
who is really good would be in line for very large salaries in
the City, would they not?
(Sir John Bourn) Yes. In fact we do have some people.
Jeremy Colman, who sat here earlier, was a man who started with
the Treasury, then went to a merchant bank and then went to PriceWaterhouse
working on exactly these matters. I was able to recruit him. He
took a big drop in salary, but he was somebody who was prepared
to do that. In ordinary Civil Service terms, of course he is not
doing too badly, but nothing like he could have got. What I do
have is a number of people with that experience, who I have been
able to interest in the work of the Office. I do have a core of
those people and when we do a VFM study or a PFI or a privatisation,
of course we do bring people in the City to work on the team.
I am not dependent simply on those whom I employ. I am very glad
that I have been able to get a handful of people. There is also
scope for secondments, bringing people in from accountancy firms,
from banks and so on, which also adds to my staff resources. It
is a matter of pursuing the possibilities and getting enough good
people. My basic answer is that I do have enough good people to
do a financial audit, to do the VFM audit, supplemented by bringing
people in, some of the financial audits contracted out, some of
the VFM contracted out in the sense that I have people from outside
the Office working with me. We do not of course only have to use
people from the City. We can often get very good people from universities
who work in these sorts of areas whose price tag is not the City
price tag. I have to say that people like working for us. If they
come from the City, from a consultancy, they are not charging
me a bomb. There is an interest in working for us, working for
you and we are able to profit by that. You cannot take it for
granted of course. You have to think about your salary scales
every year.
Mr Williams
9. I have given up hope of catching you out
on any great scandal over the years. I notice that you have several
strategic projects in information technology. I would assume that
yours follow nothing like the pattern of problem development we
encounter in the Civil Service.
(Sir John Bourn) I am certainly trying to avoid that.
10. Trying?
(Sir John Bourn) I am succeeding. The success we have
had is around two principles. First of all, do not be on the edge
of technology. In the kind of IT I want, there is a lot of experience.
What we looked at and what we buy are software, hardware, in which
there are several years of experience in which bugs have been
taken out. Secondly, keep the people who are in charge of the
projects there for a long time so that they cannot say, "Of
course, if I'd been there at the beginning, it would all have
been great", or, "If I hadn't moved, none of this would
have happened". The people working on it know they are going
to be there for several years and they know that they have to
deliver what they told us and pledged to me they will deliver.
There can be no excuses for that. It is by not being too ambitious,
working on a relatively small scale, training the people of course
and keeping the man or woman who is responsible there for a good
long time.
11. I suspect the summation of all that is that
you have bought six new PCs and they are all working all right.
(Sir John Bourn) Rather more than six.
Mr Williams: Yesterday I spoke to a group of
your youngsters at lunch hour in one of their courses. They had
just done their exams and they were surprisingly perceptive. They
laughed at all my jokes. I have given up on this lot here.
Chairman: We sent them a list.
Mr Williams
12. I taxed the representative of the Civil
Service College who chairs the proceedings with ticking them off
as we were going along. In relation to Wales, how does it look
as though it is developing down there? They have about 80 quangos,
most of which are minuscule and then they have a great giant,
the WDA, which is a merger of three. How is the new regime down
there shaping up? Is our sister committee developing satisfactorily?
(Sir John Bourn) Yes, I think it is. The Chair is
Janet Davies, a Plaid Cymru Member, a woman whose essential experience
is in local government, but a person who has had an understanding
of the work in the public sector. One of the points which all
the members of the Audit Committee have made to me is their determination
to root out fraud and corruption and impropriety. They have urged
me essentially to do two things in the work I bring them: to bring
them cases of improprieties and fraud and corruption which we
find, to write them up, publicise them and bring them to the Committee;
also to look for areas where money can be saved. Looking at those,
we have been able to have a synergy between the work we have done
for Westminster, for example we have recently done a report on
procurement in further education, where we were able to use the
techniques and the methodology we had used in a wider study and
focus on the smaller number of further education institutes in
Wales and come up with savings possibilities of something like
£1.5 million a year, which in the context of Wales is money
worth having. It is going well. There is great enthusiasm on the
part of members of the Audit Committee that they should be able
to show their fellow members and should be able to show the people
of Wales that they are making a difference. I am delighted to
have the chance of making a contribution to that.
13. They have their equivalent of our Treasury
Minute, do they?
(Sir John Bourn) Yes, they do. I am of course anxious
that they should understand, without in any sense thinking that
I come with a model in my mind which I think should be imposed
on Wales. All the devices which have worked so well here, like
the Treasury Minute, the examination of the Treasury Minute, the
idea then of holding the Department to pledges which have been
made, have all been taken on board.
Mr Steinberg
14. No great financial question, it is very
mundane. The report we get now has changed. You mentioned age.
I am getting to the stage now where I can hardly read it the print
is so small. Why did you change it from what we used to get last
year? Is there any chance of going back to it?
(Sir John Bourn) I changed it because you ought always
to move on, you ought always try to make the reports better, certainly
make the graphics better, certainly make the use of language better.
If the type is too small, I shall certainly look at that.
Mr Steinberg: Please. When you get to my age
you certainly have problems.
Mr Williams: May I suggest you do a cost comparison
between the cost of producing it in larger print and the cost
of buying Mr Steinberg a new pair of glasses?
Mr Steinberg: I actually have to take my glasses
off to read.
Chairman: I thought that was to intimidate.
Mr Love
15. I was sorely pressed to ask whether you
had thought about going into consultancy on the basis of the last
report, but perhaps I shall miss that one out. I know that you
present your accounts to the House of Commons Public Accounts
Commission. Who audits your accounts and, perhaps more importantly,
is any independent value for money study ever carried out on the
National Audit Office and who would do that?
(Sir John Bourn) Yes, we are audited by a firm of
accountants appointed by the Public Accounts Commission. They
do a financial audit and each year they do a value for money study.
In discussion with the Commission and ourselves they pick a particular
subject on which they then report to the Commission.
16. Is it an agreed report?
(Sir John Bourn) It is agreed as to the facts but
it is their recommendations. Ever since I have been the C&AG,
I have had good recommendations from the external auditor and
they have looked at things like the recruitment of graduates,
their employment, the quality of the financial audit, all important
matters like that. The results we have had from them have been
valuable and I have been glad to adopt, with the agreement of
the Commission, the auditors' proposals.
17. Going back to staffing, I caught the hint
that in an effort to try to maintain the staff you have, clearly
a lot of people come to you because of the interesting work you
are involved in and you get a lot of graduates from the indications
you have made, but I did get the hint that it is maybe pushing
your salary bill up a little faster than perhaps the rest of the
public sector. Is that the case and has that been the case in
recent years?
(Sir John Bourn) It has not been pushing it up at
a greater rate, in fact the rate of increase has been something
of the order of four to five per cent. The way in which it works
is that each year people's salary depends on their performance.
There is no automatic increase. If you are very good you could
get maybe eight or nine per cent increase and if you are not so
good and you need some more training and it is our business to
look after that, you could be down to one or two per cent.
18. How do you evaluate good in that regard?
Is there some sort of performance related element?
(Sir John Bourn) Yes, it is performance related.
19. How do you measure that performance?
(Sir John Bourn) As far as the financial audit is
concerned, you measure it by the same quality standards as the
profession does, by peer review, by our external auditor looking
at the quality of the work. In terms of the value for money, we
have an arrangement, a contract which the London School of Economics
won and they look at all our reports; some of them while they
are being done, all of them when they have been done. We have
a group of very bright people from across the social sciences
and they look at the reports and press things like "Why did
you do the study at all?", "Are you sure that the recommendations
follow logically from your analysis?", they raise questions
about the statistical methodology. In that way they are a constant
push, as well as in a way you are our quality control.
Chairman: Any other important questions? Order,
order.
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