CLASS X, VOTE 3: FORESTRY COMMISSION
9. The Committee has considered the Comptroller and
Auditor General's separate report on the Class X, Vote 3 excess.
The Excess of £446,617 arose because of weaknesses in the
Commission's arrangements for managing its cash flows and, in
particular, a failure to take account of the effect of VAT settlement
payments in their monitoring Vote outturn.
10. During 1999-2000, a reduction in timber prices
led to an increase in the net cost of the Forestry Enterprise
Agency compared to estimated provisions. The Commission took action
by seeking additional provision through a Supplementary Estimate
and by offsetting the expected loss in timber revenues with savings
in net expenditure in other departmental and agency activities.
However, in monitoring the Vote outturn, the Forestry Commission
failed to take account of an unusually high VAT settlement in
the first quarter of 1999-2000.
11. The Commission's estimates for 1999-2000 assumed
that VAT transactions would have a broadly neutral affect on cash
flows over the year. However, the Commission's efforts to contain
net expenditure within the Net Estimate in the previous financial
year (1998-99), by maximising timber sales and minimising expenditure
during the final quarter of that year, gave rise to an unusually
high net VAT settlement of £1.4 million in the first quarter
of 1999-2000. As the Commission failed to take account of VAT
payments and receipts in their monitoring of cash flows and in
the management and control of voted funds, this sum was not reflected
in the request for additional provision in the Supplementary Estimate.
12. The excess of expenditure against Estimate could
have been avoided if expenditure under Subhead A2 had been more
tightly managed. Having sought to balance the Forest Enterprise
Agency's overspending on Subhead A3 against a reduction in Woodland
Grants on Subhead A4, the Commission assumed that expenditure
was well within the overall Vote provision. Based on this view,
and having failed to identify the impact of VAT payments described
above, the Commission continued to make payments up to the end
of March, including a £915,000 payment for refurbishment.
This expenditure, together with the identification of the VAT
payments which had been held in a suspense account, contributed
to the overspending on Subhead A2 and, as a consequence, the overall
excess of expenditure against provision.
13. The Forestry Commission proposes to avoid a recurrence
of this problem by ensuring that actual VAT receipts and payments
are included in their cash monitoring and management procedures
in future.
Conclusion
14. It has been the practice to regularise the position
by means of Excess Votes, and the Committee recommend that the
sums set out in paragraph 1 should be provided accordingly. To
regularise the position is not to condone it, however, and the
Committee expect a robust management response by the Departments
concerned to address the weaknesses which have led to these excesses.
15. We expect the Treasury to bring our concerns
to the attention of these departments and, where appropriate,
to Departments more generally. In particular we expect the Treasury
to remind them:
- Departments should have in place adequate procedures
to identify and control urgent payments for which no Parliamentary
approval has been given through their vote, and to ensure that
established mechanisms, such as advances from the Contingencies
Fund, are used to fund such expenditure.
- Departments should monitor cash flows by taking
into account all amounts payable, including VAT, and management
should regularly review variances between forecast and actual
financial data, so early action can be taken to manage and control
voted funds.
