Annex C
RESOURCE ACCOUNTS 1999-2000
Expressions of audit opinion
This annex gives details of the expressions
of audit opinion for the 12 bodies which did not receive an unqualified
audit opinion on their 1999-2000 resource accounts. The summary
for each body updates the information given in Parts 1 and 3 of
the appendix to the Treasury's December 2000 memorandum Resource
Accounting: Departmental Action Plans, in that it:
— Describes the nature of the audit
opinion given on the 1999-2000 resource accounts and the main
reasons for that opinion; and
— Sets out when the Treasury and the
body expect the problems to be resolved.
The expressions of audit opinion used by the
Comptroller and Auditor General are as set out in Statement of
Auditing Standards (SAS) 600 Auditors' Reports on Financial
Statements.
| Auditors' opinion | Explanation
|
| Unqualified | Expressed when the auditors' judgement is that the financial statements give a true and fair view and have been prepared in accordance with relevant accounting or other requirements.
|
| Qualified | |
| (i) Scope limitation | Expressed when there has been a limitation on the scope of the auditors' work that prevents them from obtaining sufficient evidence to express an unqualified opinion.
|
| (ii) Disagreement | Expressed when the auditors disagree with the accounting treatment or disclosure of a matter in the financial statements, and in the auditors' opinion the effect of the disagreement is material to the financial statements.
|
| Adverse | Expressed when the effect of a disagreement is so material or pervasive that the auditors conclude that the financial statements are seriously misleading. Financial statements with an adverse opinion do not give a true and fair view.
|
| Disclaimer | Expressed where the possible effect of a limitation on scope is so material or pervasive that the auditors have not been able to obtain sufficient evidence to support, and accordingly are unable to express, an opinion on the financial statements.
|
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In addition, the Comptroller and Auditor General gives a
separate and explicit opinion on regularity, in line with the
good practice set out in Auditing Practices Board Practice Note
10 (revised) Audit of Financial Statements of Public Sector
Entities in the United Kingdom. The Comptroller and Auditor
General qualifies the regularity part of his opinion where he
concludes that material financial transactions are not in compliance
with the appropriate authorities. Where he is not able to obtain
sufficient evidence to reach an opinion on regularity he qualifies
the regularity part of his opinion on the grounds of a limitation
of audit scope.
The 12 bodies covered are as follows:
| Body | Page |
| Department of Health | Ev 105
|
| Department of the Environment, Transport and the Regions
| Ev 105 |
| Home Office | Ev 105 |
| Lord Chancellor's Department | Ev 106
|
| Treasury Solicitor's Department | Ev 107
|
| Ministry of Defence | Ev 107
|
| Ministry of Agriculture, Fisheries and Food
| Ev 108 |
| Forestry Commission | Ev 109
|
| Department of Social Security | Ev 109
|
| HM Treasury | Ev 110 |
| Cabinet Office | Ev 110 |
| Single Intelligence Vote | Ev 111
|
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1. DEPARTMENT OF
HEALTH
Nature of 1999-2000 resource account opinion
Opinion: Qualified—Scope limitation
Reasons for scope limitation qualification:
1. The Comptroller and Auditor General was unable to
gain sufficient assurance as to the accuracy of in-year movements
relating to the retained estate (ie those properties which are
surplus to NHS requirements and are due to be disposed of by the
NHS Estates Agency on behalf of the department), because there
was insufficient evidence to support the valuation of retained
estate properties as at 1 April 1999.
2. The Comptroller and Auditor General was unable to
gain sufficient assurance as to the accuracy of in-year movements
reported in respect of expenditure and provisions for clinical
negligence liabilities, as he was unable to ascertain the true
valuation of the liabilities as at 1 April 1999.
Anticipated Progress
2000-01 accounts
1. The Comptroller and Auditor General reported that
the valuation of the retained estate and clinical negligence provisions
recorded in the balance sheet as at 31 March 2000 does give a
true and fair view. The Department expects to provide evidence
of increased accuracy in accounting for retained estate assets
and clinical negligence liabilities in the 2000-01 accounts.
2. There will be improvements in the accuracy of the
Department's Consolidated Account arising from greater familiarity
with the requirements of resource accounting and budgeting, and
resolution of issues previously arising.
2001-02 accounts
1. The Department expects to see further improvements
in the accuracy of the Department's Consolidated Account, principally
arising from resolution of issues arising in previous audits.
2. DEPARTMENT OF
THE ENVIRONMENT,
TRANSPORT AND
THE REGIONS
Nature of 1999-2000 resource account opinion
Opinion: Qualified—Disagreement
Reasons for disagreement qualification:
1. DETR's balance sheet does not include £980 million
of new lanes or road extensions built under seven Design, Build,
Finance and Operate (DBFO) schemes. Instead, these additions have
been accounted for assets of the DBFO operators, with the department
recognising a reversionary interest. In the time available for
the completion of the 1999-2000 financial statements, DETR has
been unable to undertake sufficient analysis of each of the schemes
in order to determine the appropriate accounting treatment.
Anticipated progress
Issues resolved by:
2000-01 accounts
1. The problems identified above will be resolved in
time for the 2000-01 accounts.
3. HOME OFFICE
Nature of 1999-2000 resource account opinion
Opinion: Disclaimer
Reasons for disclaimer of opinion:
1. Tangible fixed assets—a lack of evidence to
support the figure of £4,470 million included in the accounts
in respect of the Prison Service Agency's land and buildings,
and a further £95 million of land and buildings held by the
core departments, so as to be satisfied that the accounts comply
with FRS 15.
2. Debtors and creditors—there were inadequate
transaction trails to provide sufficient assurance regarding the
reported balances.
3. Cash—the movement in cash-flow statement (Schedule
4) does not tie up with the movement in cash in Note 4 (which
relates to the balance sheet, Schedule 3).
4. Schedule 5 (Resources by Departmental Aims)—material
errors in the apportionment of operating costs between departmental
objectives.
5. Accounting treatment for grants—the Home Office
was unable to comply with the requirement to mirror the spending
profile of grants to reflect that of the recipient bodies.
6. Disclosure issues—the department was unable
to perform a satisfactory reconciliation between its resource
and appropriation accounts. A number of disclosures required by
the Resource Accounting Manual (RAM) have been omitted.
Anticipated Progress
Issues resolved by:
2000-01 accounts
1. Any outstanding matters on fixed assets and current
assets and liabilities will be cleared up. Work is underway on
how the department can comply with the requirements of FRS 15.
2. Improvements in financial management systems and procedures
are being implemented.
2001-02 accounts
1. It is possible that agreement on the application of
FRS 15 might not be reached satisfactorily until the 2001-02 accounts.
4. THE LORD
CHANCELLOR'S
DEPARTMENT
Nature of 1999-2000 resource account opinion
Opinion: Qualified—scope limitations and irregularity
Reasons for qualification:
1. Limitations in the evidence available to support LCD's
estimate of its liability for expenditure on legal aid in the
higher criminal courts.
2. Irregularity—insufficient evidence to confirm
that magistrates' courts have properly applied the statutory regulations
relating to criminal legal aid.
Anticipated Progress
Issues resolved by:
2000-01 accounts
1. Work is already underway to improve the quality of
data available to support the estimate of liability for expenditure
on legal aid in the 2000-01 accounts.
2001-02 accounts
1. It will take time for the changes to legal aid regulations
to affect payments. Consequently, a considerable amount of legal
aid paid during 2001-02 will be paid on the basis of the old regulations,
but the Department expects, in time, to avoid a further qualification
on this issue.
5. TREASURY SOLICITOR'S
DEPARTMENT
Nature of 1999-2000 resource account opinion
Opinion: Qualified—scope limitation
Reasons for qualification:
1. Lack of evidence to support the figures in respect
of adverse costs liabilities (where the court has ordered TSD
clients to meet the other side's legal costs).
Anticipated Progress
Issues resolved by:
2000-01 accounts
1. Work is continuing to improve the reliability of the
measure of adverse cost provisions.
2001-02 accounts
1. From 1 April 2001, changes in the way adverse costs
payments are handled (see Annex B) should remedy the above weaknesses.
6. MINISTRY OF
DEFENCE
Nature of 1999-2000 resource account opinion
Opinion: Disclaimer.
Reasons for disclaimer:
1. Army fighting equipment valuations—errors and
uncertainties remained about the existence of certain assets and
the completeness of asset records, although the value of those
errors and uncertainties was reduced from over £500 million
brought forward at the start of 1999-2000 to some £90 million
in the balances recorded as at 31 March 2000. This was due to
a second and more structured census exercise of assets carried
out during the year.
2. Creditors and accruals—in most areas of the
department there was in 1999-2000 no computerised system to enable
creditors and accruals to be automatically identified. This revealed
many areas of uncertainty, with the result that the Comptroller
and Auditor General's staff could not verify some £118 million
of the creditors and accruals figures for Equipment Support (Air)
as at 31 March 2000.
3. Management review and audit trails—while largely
resolved, two areas of particular concern remained as regards
the availability of audit evidence: validation of the department's
housing stock for service personnel; and valuations of Defence
Estates property identified for disposal.
4. Supply systems—while considerable work in these
areas has continued, and improvements made, the Comptroller and
Auditor General again expressed concerns with uncertain and incomplete
accounting data in the Department's supply systems (eg pricing,
stocktaking, capital spares and associated reconciliations).
5. Non-compliance with the Treasury's Resource Accounting
Manual (RAM) and Financial Reporting Standard (FRS) 15. In 1999-2000,
the department did not comply with the requirement in the FRS
that where a tangible fixed asset comprises two or more major
components with substantially different economic lives, those
components should be accounted for separately for depreciation
purposes. The department has prepared detailed guidance to ensure
compliance in 2000-01.
Anticipated Progress
Issues resolved by:
2000-01 accounts
1. Army fighting equipment valuations—census arrangements
will be further enhanced during 2000-01, in order to further improve
the accuracy of the accounting records for these items.
2. Creditors and accruals, and supply systems (in the
Defence Logistics Organisation, DLO) are both expected to be significantly
improved by the 2000-01 closing balance. A number of DLO stock
accounting workstreams (including pricing, stock taking and capital
spares) will be completed by 31 March 2001. If progress is maintained,
the Comptroller and Auditor General has noted that it is "likely"
that he will be able to form an audit opinion on the 2000-01 accounts,
although the accounts will still be qualified.
3. Management reviews and audit trails—an exercise
has been undertaken by the Defence Housing Executive to ensure
the validity of its fixed asset register. Future valuations of
properties earmarked for disposal will be in accordance with professional
best practice, and sound audit trails established, although uncertainties
will remain with respect to the opening balance of unsold surplus
defence property.
2001-02 accounts
1. All the remaining DLO stock accounting workstreams
are planned to be complete by 31 March 2002, with improvements
likely to be fully effective for the 2002-03 resource account.
7. MINISTRY OF
AGRICULTURE, FISHERIES
AND FOOD
Nature of 1999-2000 resource account opinion
Opinion: Disclaimer.
Reasons for disclaimer of opinion:
1. Accounting for European Union grants and subsidies—in
1998-99 the Ministry failed to follow its declared accounting
policy to recognise income and expenditure on EU grants and subsidies
schemes as soon as claimants have met all the conditions required
for the scheme. As a result, insufficient evidence was available
to support the opening balances as at 1 April 2000. That said,
the Comptroller and Auditor General acknowledges in his report
that the closing balances as at 31 March 2000 are fairly stated.
2. Lack of evidence to support amounts in respect of:
(i) Tangible fixed assets—a lack of assurance that
all Information Technology (IT) assets were recorded in the fixed
asset register.
(ii) Consolidated Fund Supply—errors in the amounts
disclosed as financing from the Consolidated Fund.
(iii) Balances related to the management of property costs.
(iv) Expenditure on capital assets—the Ministry's
stated accounting policies provide a fixed assets capitalisation
threshold of £2,000, but not all expenditure has been capitalised
in accordance with this policy.
3. Errors relating to amounts included in the financial
statements:
(i) Overstatement of debtors and creditors balances due
to a fail to eliminate balances owed between the Ministry and
its agencies at 31 March 2000 which should have been eliminated
on consolidation.
(ii) Accounting for fixed assets, in particular the overstatement
of the value freehold land and buildings.
(iii) Cash flow statement—incorrect recoding of
cash flows with the Consolidated Fund and duplication of the accounting
for the decrease in stocks.
(iv) Subsequent events—the financial statements
include a provision for anticipated payments to settle claims
for damages by Spanish fishermen, but do not reflect actual payments
made to settle most of the claims made after the accounts had
been signed by the Accounting Officer.
4. Regularity—the Summary of Resource Outturn includes
expenditure of £308,778, which was not covered by Parliamentary
authority.
Anticipated Progress
Issues resolved by:
2000-01 accounts
1. It is anticipated that the steps taken to ensure more
effective implementation of Resource Accounting and Budgeting
(RAB) will enable substantial progress to be made on all the outstanding
issues. These improvements are expected to be reflected in the
preparation of the 2000-01 accounts.
2001-02 accounts
1. It is aimed to continue the progress in RAB implementation
to support management of the resource budget and the production
of fully compliant resource accounts.
8. FORESTRY COMMISSION
Nature of 1990-2000 resource account opinion
Opinion: Scope limitation.
Reasons for scope limitation qualification:
1. The Forestry Commission was unable to reconcile net
cash flows in its resource accounts with the cash expenditure
shown in the Appropriation Accounts presented to the UK and Scottish
Parliaments, with an overall imbalance of £2 million.
Anticipated Progress
Issues resolved by:
2000-01 accounts
1. The Forestry Commission is working to resolve the
outstanding problem. More of the figures in the financial statements
will be drawn from the general ledger directly rather than having
to be processed through spreadsheets. The general ledger trial
balance reports will be grouped by balance type—income,
expenditure, assets, liabilities—so that they can be transferred
directly to the appropriate financial statement.
9. DEPARTMENT OF
SOCIAL SECURITY
Nature of 1999-2000 resource account opinion
Opinion: Scope limitation and irregularity.
1. Limitations in the evidence available in support of
the material debtor and creditor balances within the balance sheet,
in particular:
(i) A benefit overpayment debtor of £1,056 million.
(ii) Benefit prepayments and accruals totalling £1,370
million.
(iii) The encashment control creditor of £432 million.
(iv) Those arising from compensation recoveries.
The Comptroller and Auditor did not consider that these weaknesses
were so great as to render the balance sheet misleading and accordingly
qualified his opinion solely on the grounds that the scope of
his audit was limited.
2. Irregular expenditure arising from erroneous benefit
awards made by the Department and from claimant fraud and fraudulent
encashment of instruments of payment. In particular:
(i) the level of monetary error in benefit awards, principally
on Income Support and Jobseekers Allowance; and
(ii) the level of claimant fraud and fraudulent encashment
of instruments of payment, particularly order books and girocheques.
Note: This qualification is not new, as the cash accounts
have been similarly qualified for a number of years. Qualification
on these grounds is unrelated to the application of resource accounting
methodology.
Anticipated Progress
Issues resolved by:
2000-01 accounts
1. Balance Sheet audit trail functionality—more
extensive testing of the procedure that has been developed in
respect of accruals and prepayments should resolve this issue.
On compensation recoveries—the department is in the process
of implementing a new IT system to support compensation recovery
unit. The 2000-01 financial statements should reflect these balances.
2. Irregular expenditure—it is not anticipated
this issue will be resolved this year.
2001-02 accounts
1. Balance Sheet audit trail functionality—it is
anticipated that a number of issues will not adequately be resolved
until after the production of the 2001-02 accounts. These are:
(i) encashment liabilities—the earliest year for
resolution will be 2005-06, when the Payment Modernisation Programme
will deliver 85 per cent of benefit payments by ACT;
(ii) overpayment debtors—the provisional timetable
for the implementation of the Debt Programme initiative commences
in 2001-02; and
(iii) third party creditors—the roll out of other
benefit systems is due to commence in 2001-02.
2. Irregular expenditure—again it is not anticipated
that the problems in relation to irregular expenditure will have
satisfactorily been resolved by 2001-02.
10. HM TREASURY
Nature of 1999-2000 resource account opinion
Opinion: Scope limitation
Reasons for scope limitation qualification:
1. The Comptroller and Auditor General was unable to
obtain sufficient audit evidence regarding the amounts included
in the balance sheet for furniture, fittings and equipment fixed
assets.
Anticipated Progress
Issues resolved by:
2000-01 accounts
1. The Treasury is undertaking a comprehensive inventory
of fixed assets and is planning to introduce improved systems
of asset recording by August 2001. Following the detailed inventory
it is expected that fixed assets will be able to be reconciled
reliably to the department's financial records. It had not been
possible to complete the inventory and reconciliation in time
for the 1999-2000 accounts because of extensive internal relocations
which took place around the end of the financial year.
11. CABINET OFFICE
Nature of 1999-2000 resource account opinion
Opinion: Qualification—scope limitation
Reasons for qualification:
1. At 31 March 1999, the Cabinet Office core department
did not have in place appropriate systems to identify all relevant
prepayments and accruals, which meant that opening balances for
1 April 1999 could not be accurately determined.
2. An absence of supporting information in relation to
assets and liabilities taken on by the Security Facilities Division
(SFD) meant that opening balances for 1 April 1999 could not be
accurately determined.
Anticipated Progress
Issues resolved by:
2000-01 accounts
1. The new procedure introduced from 1 April 2000 to
collect accruals information should ensure that there will be
no material error in the opening and closing balances for accruals
in the 2000-01 resource accounts. The accounts are not expected
to have a qualified audit opinion.
2001-02 accounts
1. As for 2000-01.
12. SINGLE INTELLIGENCE
VOTE
Part 1: Nature of 1999-2000 resource account opinion.
Opinion:
Unqualified (SIV summary financial statement)
Qualified—scope limitation (GCHQ)
Reasons for scope limitation opinion on GCHQ accounts:
1. A consequence of the weak opening balance position
flowing from the deficiencies in the 1998-99 resource account.
2. Work not yet completed on fully resolving problem
areas in both data quality and processes, notably fully substantiating
the asset register.
Anticipated Progress
Issues resolved by:
2000-01 accounts
1. Further improvements in both data quality and processes
on assets are expected in respect of the 2000-01 accounts. Extra
accountancy resources have been brought in to assist on the asset
and processing sides of the Account since the start of 2001. The
GCHQ's Board accepts the priority and is committed to achieving
an unqualified set of accounts.
2001-02 accounts
1. Further improvements are expected as a result of the
implementation of the new integrated accounting system in April
2001. Alongside the new system there are new integrated processes,
which support the production of the Account, and these processes
will be supported by the extra accountancy resource, which is
a permanent addition. The GCHQ's Board accepts the priority and
is committed to achieving an unqualified set of accounts.
HM Treasury
April 2001
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