Examination of Witnesses (Questions 1-19)
PROFESSOR SIR
ANDREW LIKIERMAN,
MR DAVID
LOWETH, MR
CHRIS RICHARDS
AND MR
ADAM SHARPLES
WEDNESDAY 7 NOVEMBER
2001
Chairman
1. Order, order. Good afternoon. This is
a meeting of the Committee of Public Accounts of the House of
Commons. Welcome to everybody. This afternoon we shall be taking
evidence on the Treasury memoranda of 19 December 2000 and 20
April 2001, on departments' action plans and progress on their
resource accounts. We shall also be taking evidence on the Treasury's
15 December 2000 memorandum on departments' use of management
information, and all of these are encompassed by the Comptroller
and Auditor General's Note of October 2001. We are very honoured
to be joined by Professor Sir Andrew Likierman, the Director of
Financial Management, Reporting and Audit at the Treasury. Welcome,
Sir Andrew. Would you like to introduce your colleagues to us?
(Professor Sir Andrew Likierman) On my extreme left
is Mr Chris Richards, a member of the Central Accountancy Team
at the Treasury; on my left is Mr David Loweth, the Head of the
Central Accountancy Team at the Treasury, and on my right is Mr
Adam Sharples who is a Director of Public Spending at the Treasury.
2. Thank you very much for coming this afternoon.
Sir Andrew, I see from your April memorandum and the Comptroller
and Auditor General's note that 12 departments' resource accounts
for 1999-2000 still did not receive a clear audit opinion, including
seven major ones. Is this a satisfactory outcome? How well did
the results match the action plan timetables to which departments
were working last year?
(Professor Sir Andrew Likierman) Chairman, I do not
think any qualifications to accounts can be regarded as satisfactory,
so in that sense, almost by definition, I cannot say that is satisfactory.
I would say in context that the previous year, the dry-run year,
30 accounts were qualified, and 12 therefore does represent a
substantial improvement on that performance. It is also within
the range which I indicated to the Committee I hoped would be
the case for that year. I had said, I think, that there were between
nine and 15 accounts qualified. In the event, 12 was somewhere
in the middle of the range. In terms of progress, therefore, departments
did achieve the progress which we had hoped, and indeed we hope
they are still on track to achieve the further progress which
we are looking for from them.
3. All right, so you are making progress, but
you would accept that if you were a Member of the House of Commons
looking at this, with 49 accounts, 12 qualified, 25 per cent of
the accounts inadequate, you would think that was a pretty poor
record, would you not?
(Professor Sir Andrew Likierman) We said originally,
when the project was going to be implemented, that what we would
do is to phase in the resource accounts at the same time as appropriation
accounts were being phased out, and therefore we are having three
parallel running years to enable departments to achieve the levels
of quality in the accounts that we would expect from them. This
was the second year, and in the third year we are expecting a
further improvement from that position. As I said, I do not think
any level of qualification is desirable. I must say, though, that
having achieved what we hope will be an improvement this year,
we are also looking to improvements in subsequent years, and we
are looking to a level of qualification for accounts that are
much more complicated and give much more information than appropriation
accounts, which was somewhere around the range which appropriation
accounts had at the time when we decided to move over to resource
accounts from appropriation accounts.
4. Let us go in a bit more detail into these
12 departments. The Comptroller and Auditor General notes that
four of these 12 departments—that is, the Department of
Health, the Lord Chancellor's Department, the Forestry Commission
and the Security and Intelligence Agencies—have not set
out clearly when they expect their problems to be fully resolved.
What are your expectations for these departments, and are you
satisfied with the situation?
(Professor Sir Andrew Likierman) Going back to my
overall point again, I am not happy with any situation like this.
5. Perhaps you might just deal with these
particular departments now.
(Professor Sir Andrew Likierman) Of course. The indications
we have from this year—and they are only indications, because
we are still awaiting the results of the audit from the National
Audit Office—are that we hope, that of the 12 departments
which were qualified last year, only six are going to remain qualified.
That is to say we are hoping that the Cabinet Office, the Treasury,
the Treasury Solicitor's Department, the Forestry Commission and
the Department of Health are not going to receive qualifications
this year. Still at issue we hope that the DETR, as was, is not
going to receive a qualification.
6. Others may want to come back in more
detail on those departments. I am sure we have time. The Comptroller
and Auditor General notes that he had to disclaim giving an opinion
for two departments—the former Ministry of Agriculture Fisheries
and Food and the Home Office. These departments appear to have
slipped rather than progressed. Do you accept that? When do you
expect them to be in a position to receive clear audit opinions?
Please confine your answer to these two departments.
(Professor Sir Andrew Likierman) Perhaps I may make
a general comment about both departments. Both departments, I
think, had problems in the last year which made their progress
negative rather than positive. The Home Office have indicated
to us that they are hoping to achieve a clean audit opinion for
2001-2002. MAFF, now DEFRA, have said to us that they are hoping
to achieve a clean audit opinion for 2002-2003.
7. More generally, the Comptroller and Auditor
General has noted that 27 departments failed to meet the statutory
timetable, including the Treasury. He stresses the need for sufficient
skilled staff, robust procedures for preparing accounts, and effective
senior management review. How will you ensure that this happens?
(Professor Sir Andrew Likierman) Chairman, if I were
able to prepare all the accounts myself, I am confident that I
would meet all the deadlines. Unfortunately—or fortunately—that
task is delegated to departments, so in that sense I cannot ensure
that departments deliver according to the timetable. To go to
the question of how we are dealing with this, it is a long-standing
problem which has given us no satisfaction, I must tell you. If
there are accounts which are late, we do not regard that as satisfactory
either. We have done a number of things since the last hearing
to try to ensure that the timeliness of accounts will be improved.
We have sent out instructions from the Treasury. We have tried
to do whatever we can to help departments to prepare their accounts
in a timely manner. We have tried to help them with staffing,
training and so on. The indications are that as far as appropriation
accounts are concerned—and this is the last year for appropriation
accounts—we are not improving on last year. Part of the
problem here is that we are double-running with both resource
and appropriation accounts being prepared, and that is putting
quite a strain on departments. That is one reason why we asked
the department not to prolong the period of double-running. Nevertheless,
in terms of resource accounts, the indications are that these
are coming forward rather faster than last year. Perhaps I can
go to your general point about what we are doing and what we would
seek to do. First of all, we believe that departments will get
better at doing this as they get more experience with their resource
accounts, there is no question about it, and they have indicated
to us that they are confident that they are going to be able to
accelerate the timetables. We are also considering, both with
the National Audit Office and with departments, a rather more
radical proposal to bring down the required timetable for the
presentation of accounts from the present ten months to—I
will give you a personal ambition—three months. That is
to say, I would like accounts to be presented by the end of June
following the financial year and not by the end of January. That
is something which everybody acknowledges is pretty ambitious,
and it is something which we will no doubt have to do in stages.
The question here is what is feasible as well as what is desirable,
but, as I say, we are discussing that with the National Audit
Office to see whether we can work with them to bring forward the
date at which accounts have got to be presented. The indications
are from past experience that if it is left entirely to departments
as a matter of discretion, unfortunately that discretion is taken
to be a licence. So we do not regard this position as being satisfactory.
We would like to bring central government up to the best practice
in the rest of the economy.
8. I thought you might say that, and that slightly
worries me. You do not think you are asking departments to run
before they can walk, do you? After all, they have got a pretty
sorry record here. Are you convinced that they are ready for this
change?
(Professor Sir Andrew Likierman) I am quite sure that
they are not ready for it yet, Chairman. As I say, we will not
do anything rash. We will of course consult with the National
Audit Office who are key partners in this endeavour, to try to
bring down the timescale for the presentation of accounts, as
well as with departments. They have been struggling to make sure
they can deliver the new information which has been required of
them. This will be the next stage. If I can put it this way, I
think it will be a question of how long, rather than if. I have
no doubt that it is going to be possible to get down to this date.
The question is, how long will it take to do it, and running before
one is walking is therefore a matter of judgement about how the
balance might be struck.
9. What worries me is, for instance, if you
look at the Ministry of Agriculture Fisheries and Food, I have
a list here of where there is a lack of audit evidence. It makes
pretty poor reading. These are not just minor areas. This included
the value of information technology assets, the amounts reported
as Supply drawn from the Consolidated Fund, the balances on certain
property-related suspense accounts, the completeness of amounts
capitalised as fixed assets. These are serious matters, and this
is where apparently the Ministry of Agriculture Fisheries and
Food is falling down. You must be worried about this, are you
not?
(Professor Sir Andrew Likierman) Indeed we are, and,
even more important, the department itself is worried about it.
Even more important than that, they are taking action to address
it. This is one department, and you picked out two in your earlier
question, where there are a very large number of elements still
to be resolved in the production of their accounts. They would,
I think, count as one of the backmarkers in the pack.
10. I should think so too. It is not just that.
There were also significant errors—for example, the failure
to deal properly with transactions and balances between the department's
agencies, the valuation of certain land and buildings, the omission
of certain property assets and errors in the cashflow statement.
This is not some small business, it is a government department.
(Professor Sir Andrew Likierman) Indeed, Chairman,
but, perhaps I may take one example which is the Ministry of Defence.
In its earlier accounts—I do not think I have ever seen
a qualification as long as that for the Ministry of Defence—it
basically said, "This is an account with huge numbers of
problems attached to it." To the great credit of that department,
this tome has been reduced to a thin booklet, and indeed we are
on track for getting it down to something which looks like a conventional
audit opinion. So whereas one might have despaired two or three
years ago about the Ministry of Defence, they have made very significant
progress. Your point about this particular department, I think,
is that it also has to show it is making progress. But this is
not rocket science, it is quite capable of doing it, and I am
sure it will. The only question is how fast it can do so.
11. I asked you a moment ago about the 27 departments
failing to meet the statutory timetable. Included in those 27
were ten departments whose accounts for 1999-2000 were prepared
under a Treasury dispensation which gave them an additional two
months. Quite apart from the fact that—your great idea for
speeding things up—they were actually given more time for
delaying things, these accounts were not laid before Parliament
before March. How confident are you that good audit accounts will
be delivered by the 31 January deadline?
(Professor Sir Andrew Likierman) This is the present
system. Before we actually start to move on to anything better,
let us try to get the present system right. This year we are not
going to give departments dispensations. Last year there was a
very clear understanding that in order to improve the quality
of accounts before presentation, departments would be given more
time. This year we are not giving them more time. In terms, therefore,
of saying how confident am I, I come back to my earlier point
that I personally cannot deliver these accounts before 31 January.
Departments know what they have got to do; they know that is the
deadline they have to meet, and I know all of them are desperate
so to do. I cannot personally guarantee that they are going to
do it, because I do not have the responsibility for preparing
the accounts, but I know they are determined to meet that deadline.
12. When you say that they are determined to
meet that deadline, this would be a determination that comes down
from the highest level in the department, would it?
(Professor Sir Andrew Likierman) Absolutely.
13. The Comptroller and Auditor General's note
suggests that departments still have some way to go before they
gain maximum benefit from the additional financial management
information now available to them. What are you doing to assist
these departments in exploiting this information? After all, this
is what this is all about. This is trying to make departments
understand what is the real nature of their assets. How are you
instilling a culture in Whitehall that, as it has been put to
me, these accounts can come alive and be a real tool for management
action, as opposed to just something for the experts?
(Professor Sir Andrew Likierman) Chairman, we see
the introduction of resource accounting and budgeting as being
very much in its first stage. We are dealing here first with systems,
then with the improvement of systems, and then with the improvement
of information which is being made available. I am completely
clear that this is still only the start of the process. What we
are doing now is to try to make sure that departments use this
information and that the information, as you say, comes alive
in terms of their planning, their decision-taking, as well as
their reporting. We are taking a number of steps here. First of
all, what we are doing is that we are disseminating best practice
around Whitehall. You have received, I think, a copy of the blue-coloured
booklet called "Managing Resources". In the same series
we have this booklet (indicating).
14. Even more exciting.
(Professor Sir Andrew Likierman) It is indeed, even
more exciting than the last. I am very happy to distribute this
green booklet round the Committee, should you wish, as I have
a number of copies.
15. Yes, please do. (Copies were handed in)
(Professor Sir Andrew Likierman) This gives examples
of where decisions or the way departments do their business have
changed as a result of this new information being made available.
It deals with a number of things—with asset management and
costing, with management of working capital, and budgeting. You
will see them described under a number of different headings.
This booklet was produced in June, before the full impact of resource
budgeting hit departments, and before a number of ways in which
departments will come to grips with this new information for the
first time. So far it has been largely a question of changes to
reporting. This is one way in which we are seeking to make sure
that departments know what is best practice elsewhere in Whitehall,
so that they can understand what more they can do than they are
doing now. That is one example. The second is that we are deeply
involved in trying to improve the whole level of financial management
understanding in Whitehall. There is a major programme now in
place where departments are training at all levels on the use
of this new information to give a greater understanding of the
ways in which this can benefit the department. We are helping
that process along. I am not going to distribute further booklets,
but there is a pink booklet which outlines, for example, exactly
what skills we would expect people at different levels in departments
to have in relation to this new information, so that those who
do not know much about this can see where the benchmark is for
their own personal level of understanding. So the training is
another key element to that. I emphasise that this is not just
about resource accounting and budgeting, it is also about overall
understanding of financial matters in departments.
16. So you are confident that you can get this
culture throughout Whitehall, of integrated financial management?
It has been put to me that the culture hitherto in Whitehall is
that accounts really are an area for experts, and many of the
most senior civil servants historically have taken too little
interest in them, even in the Treasury. Is that a fair criticism?
(Professor Sir Andrew Likierman) I would say, looking
at the incentives, Chairman, there have been far fewer in the
past to integrate the information coming through the appropriation
accounts into the departmental business than there will be now.
A great deal of this information is directly useful to departments.
If I may go back to your earlier point, this is another reason
why we are seeking to bring forward the date of the presentation
of the accounts, because we are keen that departments should use
this accounting information throughout the financial year and
not just wait for it to be prepared at the end of the financial
year.
Chairman: Thank you very much.
Mr Bacon
17. Sir Andrew, we are changing the whole basis
of supply here. As the Comptroller and Auditor General says in
his note to the Committee, the reliability of resource accounts
is the key to parliamentary control. Can you say by when all the
problems associated with the introduction and implementation of
resource accounting and budgeting will be resolved?
(Professor Sir Andrew Likierman) If I go back to the
question I answered earlier, the relevant departments have indicated
to us that they hope to have unqualified accounts for 2002-2003.
Two departments, I should say—the Department for Work and
Pensions and the Lord Chancellor's Department—were qualified
under appropriation accounts and will continue to be qualified
under resource accounts for matters not associated with the change,
but we are hoping that for them too the problems associated with
the introduction of resource accounting will be resolved You mentioned
the question of problems. It is difficult to know since this is
a continuing process. In any one year a new problem could arise
with a department. I would say that by 2002-2003 we would hope
that the problems associated with introduction would have been
resolved.
18. Thank you. In the debate on the Bill which
became the Government Resources and Accounts Act, the former Chairman
of this Committee, David Davis, said that the Bill should not
be implemented until not only had this Committee signified its
satisfaction, but also that the Government had provided it with
assurances that all departments are fully prepared for the change.
You have just told us, "I am quite sure that they are not
ready for it yet." None the less, I want to be clear about
this: one, that you are clear they are not ready for it yet, and
two, that we are going ahead with it now. That is correct, is
it?
(Professor Sir Andrew Likierman) Indeed. However,
if I may go back to an earlier hearing, I appeared before this
Committee in June 2000, and at that time I asked whether we could
discontinue appropriation accounts after the third parallel running
year, in order to enable departments to concentrate fully on the
resource accounts which they had to prepare. My concern was that
if they could not do that, they would be stretching themselves
too thinly. This Committee agreed that we could go ahead with
that, and at that time I indicated that there would continue to
be accounts qualified for subsequent years. In that sense, therefore,
I did come to this Committee, and the Treasury got this Committee's
authority to proceed on that basis.
19. Could I ask you a further question about
parliamentary control. I remember talking to a tax accountant
some years ago, when the Green Paper first came out, and you are
as informed on this subject as anybody in the kingdom. He said,
"If I had to present such a set of accounts and I had to
fudge things, I'd much prefer to fudge a set of accounts on budgets
and resources than just have to account for cash." The purpose
of this change is supposedly to increase the amount of management
information available and supposedly to increase the scrutiny
by Parliament. Would you like to comment on that?
(Professor Sir Andrew Likierman) May I have permission
to ask a question before I answer, which is, was the gentleman
an accountant?
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