Examination of Witnesses (Questions 60-79)|
WEDNESDAY 30 OCTOBER 2002
60. Your argument as I understand it is that
the Comptroller and Auditor General has a different role and therefore
he is compiling the data in a way that suits his role and you
have got to compile the data in a way that suits your role, which
I understand. Can you just for clarification say what is the difference
between the two roles that you perceive?
(Mr Lynch) The difference in the two roles is that
it is our duty to present the picture of the economy with the
units in that economy classified according to the rules of national
accounts according to a picture of the whole economy that makes
sense to the economists and the policy makers and that is articulated
in a coherent manner. That is the game that we are in. Therefore,
we have to show, for example, that for every transaction there
is a party and a counter party. You may record things, for example,
once in our set of accounts. I am now jumping over the fence to
try and explain what business accountants do. They present the
accounts to show a true and fair value of the financial accounts
of units. The reason they do this is to let people make a judgment
as to whether they are financially solvent and how they are likely
to be in the future. They can therefore come to a different conclusion
on the same facts. For example, in Network Rail there is one director
that belongs to the SRA. He is appointed by the SRA; he cannot
be dismissed. The SRA has one director that is always there. They
see that as symptomatic of a parent/subsidiary relationship. In
the financial sense they believe that he will have an influence
on the financial affairs of that company. According to our rules
he is one member out of 12 and he can be overruled by the majority
of private sector memberssame facts; different view for
a different purpose.
61. So that explains why, Mr Cook, you and the
Comptroller and Auditor General can come together and say, "We
are both consistent but we are doing different jobs"? That
is essentially what your note is saying?
(Mr Cook) Yes, very much so.
62. But what I still do not quite get is that
you seem to regard your job as ensuring that the rules were followed.
You ring up the head of accountancy at the Department of Transport,
who have a huge interest in keeping this thing off the Government
balance sheet, and say, "Did you follow the rules?",
and he rings you back and says, "Yes, I followed the rules",
and you say, "That is okay". Surely the issue for us
is whether the rules make sense? Why are you not satisfying yourself
that these rules actually make sense as to where the contingent
(Mr Lynch) The head of the accountancy profession
at the Department of Transport is a professional accountant whose
actions are audited by the National Audit Office.
63. But he is working for the Government. You
are supposed to be representing the public interest here, are
(Mr Lynch) I am telling you I cannot say how he acted.
I am saying he is a professional accountant and we asked him in
his capacity as a professional accountant. I am a professional
64. He is working for the department which has
an interest in the outcome, in the classification.
(Mr Lynch) Yes.
65. This is an enormously important question,
not just for the Department of Transport but for the Treasury
and the Government.
(Mr Lynch) That is why it is important that the National
Audit Office, whose job is to stand outside all of this and to
see whether people are drawing true and fair accounts, have observed
66. They have taken a different view from you.
(Mr Lynch) No, sorry. The National Audit Office have
also said that it is a contingent liability. It is in the joint
67. But surely the National Audit Office has
said, "If I were in your shoes doing your job I would do
it your way"?
(Mr Lynch) In so far as they are competent to make
that statement, yes, that is correct.
68. If I understand the difficulty, if you like,
it is that it is not that there is a row going on between you
and the National Audit Office over whether it is a contingent
liability. You agree that it is a contingent liability. The question
is (which the Chairman has raised) should contingent liabilities
be treated as they up to now have been in the national accounts,
and you are saying, if I understand you correctly, that this follows
the international accounting practice. Is that right?
(Mr Lynch) Yes.
69. You do see our difficulty, that if the Government
had a 99 per cent probability of incurring some enormous cost,
that would still be a contingent liability but we would be reasonably
concerned. If it has a one per cent probability we would probably
say, "Oh, well, . . .". You are saying that the national
accounts would treat them both in the same way?
(Mr Cook) I think a huge part of the confidence that
people expect to have in the work of my Office is based on its
conformance to standards and practices, either standards that
we have developed locally or international standards. In this
case one of the really difficult issues that we have is the capacity
to explain intuitively what we have done and why that differs
from commercial accounting practice, and I think the sheer hugeness
of the decision and the intuitive difficulty in that in explaining
why something which government ultimately has accepted a residual
contingent interest in is not in the public sector is something
that has been difficult to present and explain.
70. I am trying to follow the logic of this.
Who appointed the other 11 members of the board of Network Rail?
(Mr Lynch) They were appointed by a selection panel
which was chosen by when you establish these things you
create a circle. First of all, the Government started all this
off and they created a selection panel which then selected directors
71. The Government appointed a selection panel?
(Mr Lynch) That is correct.
72. The selection panel then appointed the other
(Mr Lynch) The directors of the board.
73. If the other 11 members they had appointedthe
selection panel, that is,had happened to be, I do not know,
consultants in St Thomas's Hospital over the road, would Network
Rail have been in the public sector or the private sector?
(Mr Lynch) I think the choice was made of people from
the private sector.
74. No; that was not the question I asked you.
The question I asked you was, if the selection panel had happened
to appoint 11 consultants from St Thomas's Hospital, who are employees
of the NHS, would that have transferred Network Rail from the
private sector to the public sector?
(Mr Lynch) In the sense that they are member of the
public sector, yes, it would.
75. So what made Network Rail private sector?
Was it the employment of the people who had been appointed to
(Mr Lynch) What makes them private is the membership,
and the membership are responsible for appointing the directors.
76. Do forgive me. This is quite intricate and
I am having difficulty with this. You have told me quite clearly
that the reason Network Rail is in the private sector is that
the people whom the selection panel appointed happen to be employed
by the private sector, but if they had happened to pick 11 consultants
from St Thomas's Hospital instead of 11 whoever they might have
been, then it would have been in the public sector because the
people would have been employed by the public sector?
(Mr Lynch) That is correct.
77. Could I take up the case of the Department
of Transport accountant whom you put this issue to, where the
Chairman's observation was that he is an employee of the Government
and so he is not an independent party? There are many cases where
professionals within government are held responsible for their
professional judgment rather than their accountability to the
political head. Have you ever in your experience come across an
instance where you referred to an official in a professional capacity
and you had suspicions that he was not giving you information
in a professional capacity but giving you tainted information
with a political bias?
(Mr Lynch) All I can say is that I have no reason
to believe that the Department of Transport official did anything
except act in his professional capacity as verified by the National
Audit Office whose job it is to check out that they are acting
to the highest standards of their profession.
78. But is it your experience in the National
Statistics office, because you must have to contact people all
the time to get opinions, that you are happy with this as a means
of getting professional advice, or do you have a feeling on many
occasions that you are not?
(Mr Lynch) In my experience I get good professional
advice from professionals that act to the highest standards of
their profession. That is my personal experience.
79. Is that your experience too, Mr Cook?
(Mr Cook) I believe so, yes. Can I say that in the
case of the transport accountant's advice I decided that it would
be necessary to have the Comptroller and Auditor General's opinion
before we moved on that as part of the protection for that person