Examination of Witnesses (Questions 1-19)
Monday 23 February 2004
Mr John Dowdall CB, and Mr John Savage
Q1 Chairman: I am afraid as Stormont
is not with us we have to go through the same process with our
excellent Northern Ireland Office. I know that the hour is late
but we have to ask some questions.
Mr Dowdall: Chairman, you need
more stamina to be on this Committee than to appear before it,
it seems.
Q2 Chairman: The question I am going
to ask is a bit complicated but I have to ask it. Your memorandum
to the Commission states at paragraph five that the increase in
net resources over 2003-04 is 2.9% which is a figure which is
based on a comparison of the £7,206,000 sought in 2003-04
with £7,416,000 sought for 2004-05. Are you with me so far?
Mr Dowdall: Yes, Chairman.
Q3 Chairman: However, the estimate for
2003-04, which we considered last year, was £6,690,000. This
was confirmed as the forecast outturn in the Corporate Plan published
in June. If we use this figure it increases to 10.8%. Can you
explain the change?
Mr Dowdall: Yes, Chairman. Past
figures for the Office do not give a continuous comparison because,
as you know, last year we had a lot of new functions lumped into
us when we took over the whole of local government audit and the
whole of the health audit in the region. For the purposes of preparing
an estimate the Treasury asked us to follow this format which
is designed to show you on a proper like for like basis if you
took the functions last year that were in other areas and compared
them as if they were in our budget with this year's spending,
what is the increase between them. That gives you some idea of
the amount of extra money that is genuinely going towards audit,
and that is the 2.9%. This presentation, although I agree with
you that it is a little artificial, is at the Treasury's request
so that it gives the most accurate picture to you of what the
increase is.
Q4 Chairman: It might be more helpful
if it was explained in the memorandum because if you read this
memorandum you think that your Office only needs 2.9% extra in
2004-05 but, in fact, you need four times as much. I think it
would be better if it was explained earlier.
Mr Dowdall: I agree with you.
Our excuse for that is that these figures all come fully out of
the Corporate Plan and the Corporate Plan, if you read them together,
does set out all of these elements in separate detail. What I
had not realised was that this Committee does not normally look
at the Corporate Plan whereas the TPAC, which this was mainly
prepared for, which is taking us tomorrow, does usually read the
two documents together.
Q5 Chairman: We now know what we are
talking about. We are talking about an increase in your budget
of 10.8%.
Mr Dowdall: Yes.
Q6 Chairman: How much of this is just
paying for you to stand still and to pay your staff more and how
much is for the extra work that you have received?
Mr Dowdall: Very little is extra
work. If you look at the 2.9%, which is the overall increase in
those audit activities within my ambit, that will entirely go
towards the increase in the pay bill next year, so we are not
really budgeting to do any more audit work in the coming year.
I should explain that we are in a period of consolidation, we
had those enormous increases in the past when these new areas
of work from local government and health came into us, we are
not looking to expand our audit frontiers, we are trying to cope
with what is in front of us. Unlike the NAO, who are moving and
have the resources to move into new areas of activity, we are
not at that stage.
Q7 Jon Trickett: You heard the descriptions
earlier about contracting out to sub-contractors and consultants
and so on. Where are you in relation to that yourselves?
Mr Dowdall: We have always been
lagging behind the NAO a bit on that. Whereas Sir John said he
was getting up into the 20s, our figure is about 15%. The changes
that I was just talking about have completely changed that, Mr
Trickett. The health audits that I have had to take in in the
health sector are all contracted out. I have suddenly jumped from
15% to nearly a third of all that is contracted out. Frankly,
I am not very comfortable with that, it gives me big problems
with controlling consultants and I would rather like to pull back
a little bit from what I feel is a rather exposed position.
Q8 Jon Trickett: That answers some of
the questions I was going to ask. In what sense do you feel that
potentially there could be a problem in terms of managing the
consultants then?
Mr Dowdall: For one thing, it
is unacceptable to have all of the health audit done by private
sector consultants, I have got to get some of my own auditors
in there just so I can get intelligent purchasing. Secondly, I
have not really had experience of it yet but I have concerns about
the quality of the work that is being done in that area, whether
it is genuinely up to the standards that we have traditionally
done in Parliament and I want it looked at very carefully. There
are differences here perhaps between my position and Sir John's.
If Sir John puts out work he is putting it out to bid to around
four or five accountancy firms in London and their supporting
companies who have a big enough critical mass to run specialist
public sector audit units within them. I will be putting it out
to the equivalent of their regional offices who are a bit like
jacks-of-all-trade and I will not be getting the same quality
of specialist public sector staff to work on that.
Q9 Jon Trickett: It sounds as if it is
focusing particularly on this new enterprise of health for yourselves
and the fact that health had been almost already divested out
of the public sector. In terms of value for money you have already
said that you have question marks about the quality of the work.
In terms of the cost, have you made an appraisal of what consultants
cost relative to doing the work in-house?
Mr Dowdall: It looks significantly
cheaper.
Q10 Jon Trickett: To sub-contract or
to do it in-house?
Mr Dowdall: Sub-contract. We just
do not have a feel for the quality of comparison, it is one of
the things which worries me. We do find with the core work of
our own there is not all that much difference, particularly as
we have to still put considerable management content into it.
When you add those extra management costs on it comes out much
the same.
Q11 Jon Trickett: Have you already made
an appraisal and made a policy decision to begin to bring some
of it back in-house?
Mr Dowdall: We have made a decision
to bring some of the accounts back in, a small number. The coming
financial year is the first year we will fully control these accounts,
it will be done over the coming financial year.
Jon Trickett: Okay.
Q12 Jon Cruddas: You listened to the
discussion earlier on, the long discussion with the Ministry of
Defence, and there was a lot of inference about accruals accounting
and different accounting practice which has taken place since
1999. In your Corporate Plan on page 10, paragraph 125, you say:
"accruals accounts involve considerably more judgment than
cash accounts". Further on you say: "thus there is considerable
scope for exercising judgment and arriving at different interpretations".
That implies quite considerable disadvantages as well as advantages
in the movements.
Mr Dowdall: I think they are a
lot more sophisticated. Departments are putting a lot more sophisticated
resources into preparing them. We have not seen a problem yet.
There is a potential, I know Sir John has recognised, down the
line for dressing accounts just as any private sector company
will try to do, that is something that we, as auditors, will have
to be very alert to.
Q13 Jon Cruddas: Conversely the promised
benefits of resource accounting have not materialised yet.
Mr Dowdall: We are in very much
the same position as GB. I know you have had a lot of discussions
with Sir John and with the Treasury about the failure of the real
benefits of resource accounts to develop in departmental decision-making.
If anything, we are slightly behind GB in that process. Our departments
are struggling to produce accounts, they have not yet incorporated
them fully into their decision-making process.
Q14 Jon Cruddas: It is a pretty mixed
picture here as well. In terms of general risk management the
statement on annual accounts, page 12, sets out the procedures
that the NIAO has in place to manage risk. What sort of risks
does the NIAO face?
Mr Dowdall: We ourselves as distinct
from in our accounts. We have recently done a risk assessment
and it has been very revealing for me internally with my responsibilities
for management. The key one is that we felt we face substantial
risk on our IT systems as we move more and more into IT dependence.
As a small office we are very dependent on a small core of IT
key staff and if we lost one or two of them it could create a
significant problem for us. You identify the risk, you then start
to think about ways you can manage it
Q15 Mr Bacon: Mr Dowdall, I would like
to ask you a question relating to what Mr Cruddas said. You said
that you are slightly behind GB and you are struggling to get
the accounts right. Never mind the management, when we had Professor
Likierman in front of us—
Mr Dowdall: I read the transcript.
Q16 Mr Bacon: —he said that accruals
accounting was somewhere between 100 and 500 years old. Can you
say what it is about the way that Government departments are run
that makes the first part of your task simply getting accounts
that are not qualified so difficult because there a few GB departments
that have not?
Mr Dowdall: I do understand that
because before becoming C&AG I had been through the departmental
finance function myself in Northern Ireland and under the old
cash system of accounts you did not have to be an accountant to
understand it and run it, you could be a public finance specialist
and you could prepare the cash system of accounts to turn over
to the C&AG, and they were usually of very good quality as
simple cash accounts went. Accrual accounts are really so much
more sophisticated and the traditional staff who prepare them
were not capable of making the transition, they needed accountancy
expertise brought in and departments were slow to recognise that.
Fortunately we recognised it as auditors. We have been developing
a professional accountancy corps since resource accounts were
on the horizon in the early 1990s, as Professor Likierman also
told you, and departments have been running this for about ten
years now. We saw it coming and, like the NAO, we were building
up our professional expertise. Now that the penny has dropped
they are moving towards it quite rapidly, as Sir John said.
Q17 Mr Bacon: I would like to ask you
about the health bodies in Northern Ireland which you assumed
responsibility for auditing. Can you see any difference that has
made to the way in which the bodies are audited, including the
quality of the audit?
Mr Dowdall: None as yet but it
is going to make a difference. One of the things which puzzles
me about the health financial situation is that in the decades
I have been watching it from a distance the auditors have turned
up very little of significance. I produced reports on health topics
through the value for money route because I have always had access
to the health sector and the financial auditors have turned up
very little. I want more penetrating audits. The key advantage
now is that at least part of them will be done by my staff, or
consultants on my behalf, so I will know everything that is going
on there and that will help direct my value for money reports
so that I will have a much better base for informing the major
studies that I bring to the PAC. Hopefully they will be better
directed because we are doing the audit.
Q18 Mr Bacon: You said when you appeared
before us a year ago that extending parliamentary audit standards
to the Health Service in Northern Ireland: "I am sure it
is going to produce significant results".
Mr Dowdall: Yes.
Q19 Mr Bacon: Can you tell us about any
of those yet?
Mr Dowdall: No, it has not started
yet. The accounts we take over begin in the next financial year.
What we done in the past year is bring staff into the office and
start to prepare for the re-letting of all of the contracts and
taking over some of them ourselves.
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