Examination of Witnesses (Questions 20-39)
8 SEPTEMBER 2004
MR JOHN
HUNTER, MR
DAVID THOMSON,
MR ALAN
SHANNON, MR
DEREK BAKER
AND MR
JOHN DEERY
Q20 Mr McGrady: Before he answers—just
to clarify in my mind what you have said and put it in my simplistic
lay person's terms—does this bidder that you referred to
and this back office provision going to be in fact the privatisation
of the accounting services within the 11 departments?
Mr Hunter: No. At this point in
time we are looking at this as an in-house back office function.
Q21 Mr McGrady: The in-house has proved
to be incapable of doing the normal function.
Mr Hunter: I would not say that.
What we are talking about here is the re-engineering of the financial
management processes to produce a standardised system across the
11 departments. I believe we have the technical capacity to do
that and the skills to do it but it can only be as we develop
the partnership with the private sector as they help us to develop
the new systems and processes.
Q22 Mr McGrady: Another pack of consultation
fees which have been criticised in the same report without debating.
However, I will leave that unless Mr Thomson wants to add to what
you have said to Mr Hunter?
Mr Thomson: What we are trying
to do is get one common accounting system for the whole of the
Northern Ireland Civil Service which will have one common
system, common processes, common chartered accounts, all the things
you would expect. We would do that. Also we want then to get all
the transactions together so that we will not have people processing
travel claims 11 different times, we need one shared service centre
processing everything. We will use the private sector to provide
the IT, the kit, the software, those sorts of things which we
are not very good at and the processing and the manpower will
remain in the public sector forming a common basis for all 11
departments. It is a very big project, it is not primarily an
IT project, IT is part of it. It is about processes, it about
organisational change, it is about all of those sorts of things.
It is proceeding well; I am very optimistic that by 2006, we will
have a good solution for Northern Ireland.
Q23 Mr McGrady: I do not think through
you, Chairman, that it could endorse your enthusiasm for such
a venture at this stage. In the mean time, can we expect that
the year 2003-04 and 2004-05, that we will have a series of negative
PAC reports or Auditor General reports?
Mr Hunter: I hope not. There are
problems obviously in respect of particular qualifications, which
are difficult to collect and address and you may be coming on
to those later in the session, but, I believe the improvements
we have made to our systems and procedures will help us address
some of the qualifications which have appeared in recent accounts
from the C&AG.
Q24 Mr Luke: In the evidence given to
the PAC in January of this year the Treasury revealed that where
they consider in a department in GB, or indeed in England, there
is evidence of poor financial control and there is reason to expect
an end of year over-spend of reserve claims they put these departments
on—what they call—special measures. I think this means
having read the evidence they are put on monthly financial reporting,
where they report the performance of the department concerned.
Have you considered putting any of your consistently poor performing
departments on these special measures?
Mr Hunter: We have a very close
relationship with each of the 11 departments. The scale and nature
of our operations permits us to liaise closely with colleagues
across the NICS and we therefore have early warning mechanisms
of problems emerging in particular departments. We seek to work
closely with those departments in addressing those problems to
the extent that they are capable of resolution in year and capable
of resolution through concerted action. We do work closely with
departments, we are sensitive to emerging problems and we do our
best collectively to address those problems. It remains, of course,
the responsibility of the department concerned at the end of the
day for the production of the accounts but where we can support
them we do try and do so.
Mr Thomson: One of the things
about the devolved administration is we operate a single budget
for Northern Ireland, the way you would in Scotland or Wales.
We want to make sure that budget is allocated properly into the
best uses, both during the year as well as the forward look, which
means we will get data from departments on a regular basis throughout
the year which gives us the flexibility to move resources around
in year, as well as in forward years. We will be getting a lot
more data from Northern Ireland departments than Treasury will
from Whitehall departments, so that we can manage our budget in
year.
Q25 Mr Luke: Do you do this by moving
money around on a monthly basis or a quarterly basis?
Mr Thomson: We do it on a quarterly
basis to make sure that resources are best used.
Q26 Mr Luke: Obviously when you are looking
at those special measures that it was said the Treasury put in
place in GB and English departments, then you have mechanisms
that you think influence if you think the department is going
to miss targets or over-spend?
Mr Thomson: Yes.
Chairman: Now, we touched earlier on
the Gershon review and sharing back office functions, I know Mr
Pound has a number of questions in relation to that possible move.
Q27 Mr Pound: I have to say you have
been immensely perceptive gentlemen and you have answered most
of my questions before I even asked them. I congratulate you on
that. The idea of sharing particularly back office functions,
is this independent of Gershon, or is this part of the 2.5% savings
which will be opened up in the review? Is there a linkage there?
Mr Hunter: There is a linkage.
We would take credit before Gershon in that our plans are in place
on the accounting services programme on a new programme associated
with human resource management, again back office function covering
all 11 departments, re-engineering some of the business processes
there. Also we are looking at ICT provision to the 11 Northern
Ireland departments and how best that could be provided. Training
and development have been wrapped up in that analysis as well.
We have a comprehensive programme for developing our capacity
to more efficiently manage transactions, to do so in more consistent
and common way across the NICS and to produce efficiency savings
which will then play into the targets associated with Gershon.
Q28 Mr Pound: Anticipating me is no hard
job, but anticipating Gershon is extremely impressive. I will
be happy to put that on the record. Will there be a staff relocation
of any significance?
Mr Hunter: The devolved administration
was anxious to consider staff relocation. The economic drivers
for it in the Northern Ireland context do not exist compared with
Whitehall. There is clearly an efficiency saving to be derived
from decentralising staff from expensive locations in London to
out-of-London locations. The cost benefit analysis in terms of
Northern Ireland does not come up with the same type of analysis
and the cost of housing, office accommodation et cetera is much
more consistent across Northern Ireland as a whole. There are
political issues surrounding the dispersal of Civil Service jobs
so that various parts of Northern Ireland have the benefit of
stable Civil Service jobs. Relocation is not at the moment a driver
associated with Gershon or associated with efficiency. Whenever
new projects are initiated we look to see where they can be best
located. The most recent example is my colleagues in DSD are aware
of where a new pension centre was located in Londonderry in an
effort to encourage a dispersal of some Civil Service jobs.
Q29 Mr Pound: It is a fairly obvious
question, but we are talking about pretty tangible efficiency
gains on a pretty large scale which affects in many ways the entire
delivery of the service you provide. How can you ensure these
will be accurately measured and verified?
Mr Hunter: That is a very good
question. The Treasury have been looking at this particular issue
with a view to developing performance indicators and obviously
we want to draw their analysis when we come up with our own measures
and I expect there to be a degree of commonality at least between
ourselves and Treasury. At the present time, we have just received
from departments their efficiency plans designed to realise the
savings targets set through the Gershon process. We are looking
carefully at those, and we will be aggregating them in terms of
a statement that the Minister for Finance and Personnel is due
to make around the end of September which will look at the priorities
and budget for Northern Ireland over the three years covered by
the 2004 spending review. That will be an opportunity to begin
to harden up on precisely where the savings will be found, how
much they will be and how we can then set in place frameworks
to measure the achievements of those targets.
Mr Pound: I thank you for that. There
is a certain element of wait and see about that. I understand,
I felt the question had to be asked. Can I thank you very much,
you have been very frank, very helpful and I am extremely appreciative.
Q30 Chairman: Could I clear up something
that was said earlier on. When we were talking about the 2006
faster closing timescale, statutory deadlines for production and
main accounts, you said that 31 July could prove difficult. In
a letter previously sent to the Committee you declared your intention
to follow the faster closing timetable as set out by HM Treasury.
Which is the correct one? Do you have an intention to follow and
meet the 31 July 2006 deadline or will you not meet it?
Mr Hunter: It is our aspiration
to achieve that particular goal. As the accounting services programme
unfolds, the deadline looks difficult, particularly across Northern
Ireland departments as a whole.
Q31 Chairman: Are there any departments
for whom it will be more difficult?
Mr Hunter: It is a question of
establishing the new information system and then gathering the
information department by department as it rolls out across the
departments. We do not think we can introduce it in a big bang
across all 11 departments at a single date. We are planning to
introduce it on a phased basis.
Mr Thomson: I think the accounting
services programme will certainly help in the production of faster
accounts, and you need a proper accounting system if you are going
to do that. It is not essential. You can—just by throwing
manpower and doing work arounds—get the accounts out faster.
The question we are going to have to face is, yes, we want to
get the accounts out faster by 2006 but if we are towards the
end of the implementation of a very major accounting system and
I said earlier it is more than an IT system it is whole process
change and everything else where is the best place to put resource?
Is it getting the accounts out by the July 2006 deadline or is
it getting the accounting services programme in? Are those mutually
exclusive, I do not know. Those are the sorts of issues we need
to address as we get nearer the time but certainly it is our aspiration
to meet the fast approaching deadline.
Q32 Chairman: Are some departments more
at risks than others of not meeting the deadline?
Mr Hunter: I think the old departments,
while they have their own accounting systems at moment are based
on a common platform. I think the problems are uniform across
Northern Ireland departments are not particularly more prevalent
than any other.
Q33 Chairman: Some departments are at
risk of not meeting the deadline?
Mr Hunter: Yes.
Q34 Reverend Smyth: You are aware of
course that the Northern Ireland Audit Office is supporting the
issue of use of consultants by Northern Ireland departments and
some £8.4 million was spent without a clearly defined business
need. I think you will also be aware there are people in Northern
Ireland who are wondering why we need so many consultants when
we have the departments with the staff to do some of these assessments.
Why did you allow this to happen or was this not in your remit
to check what was going on?
Mr Hunter: We certainly did not
allow it to happen. If I could say by way of general introduction,
that the employment of consultants covers a wide spectrum of activities.
It is not just the financial appraisals associated with business
decisions, although that is an important part. It would cover
the provision of expert legal advice in particularly complex areas
of law, which we would not have the resources in-house to provide.
It would cover construction advice, engineering advice, designer
buildings et cetera, where we do not have the in-house team and
where we believe it would not be cost effective to employ an in-house
team because of the peaks and troughs of work associated with
that and indeed with other areas. It is not just financial appraisals
that we have been engaging consultants on. We have systems dating
back to 1995 in terms of procedures and processes which we expect
departments to adhere to. The Audit Office found those systems
and procedures were not being fully adhered to by departments
and they identified weaknesses in respect of the business cases
and other areas as well. We recognise the need to improve performance
across the piece in respect of the engagement of consultants.
We are developing new guidelines which are well advanced which
will strengthen the current policies. The old policies will be
updated to take into account developments in procurement, practice
and policy. Clearly, we are anxious to encourage departments to
use framework agreements where they are appropriate another weakness
identified by the C&AG in his report. We will then want to
monitor closely the department's implementation on those new updated
strengthened guidelines.
Q35 Reverend Smyth: I understand what
you said and we understand that there are times where you do need
consultants for specific issues, but the allegation and clear
decision was that there was no clear business need for them. I
must confess a personal illustration recently with on of the subsidiaries
of Invest Northern Ireland, a body that I am a Director of. We
have gone through a consultancy process. I wondered what it was
all about, the Directors also wanted to know what it was all about.
I wonder what sort of check is being taken because you said you
did not allow it to happen. How have you been policing the framework
agreement that you have for consulting and for dealing with consultants?
Mr Hunter: May I just respond
to an earlier point before I come on to that question. I think
I am right in saying that the C&AG identified that business
cases had not been made. The departments in question would argue
that there was a business need and it was not properly documented.
We, as a department, had not been monitoring closely department
practices in respect of the engagement of consultants and with
hindsight that was something we should have been looking more
closely at. Indeed we should have been encouraging the corporate
services of departments to look more closely at it because I suspect
what was happening was that staff down the line were commissioning
consultancy exercises but without reference to those at the centre
of the department who could give them advice on the processes
and procedures to be followed.
Mr Thomson: If I could add three
specifics. I think following the Northern Ireland audit office
report, the Minister for Finances wrote to his ministerial colleagues
to draw attention to it and some of the issues that were arising.
The head of civil service has also written to Permanent Secretary
colleagues flagging up some of issues. DFP is revising the guidance
on consultancy, so we are addressing the issues that were flagged
up in the report.
Reverend Smyth: Indeed we look forward
to seeing it implemented in the coming days.
Chairman: We started directing our questions
more towards the DSD. I wonder if I could ask Adrian Bailey to
start those.
Q36 Mr Bailey: The Northern Ireland Audit
Office qualified the department's accounts for both 2001-02 and
2002-03 on the basis of a number of serious significant failings.
No other department received such a severe qualification in 2002-03.
Why has there been so little progress in the preceding financial
year? What went wrong in 2002-03?
Mr Shannon: Can I say that being
in the position of disclaimer is not a comfortable position to
be in. We do not wish to be in this position any longer than we
can possibly be. I can assure you that we are spending a great
deal of time and effort at the moment to try and get out of that
particular situation. In order to explain what has been going
on, I need to divide the question up into three parts and I know
you will want me to be brief, so I promise I will not go on for
too long on each of them. The department essentially has got three
key areas here: social security and child support, housing and
urban regeneration and community development. The problems are
different in each of those, which is why I need to take them separately.
First of all, social security and it is important, I think, to
put some context on this. We are paying out two billion pounds
a year or so in benefits and as a matter of policy, we have a
body of legislation which is very complicated and very difficult
to administer. We are doing all of this with computer systems
which were largely designed and introduced in the late 1980's
and early 1990's and which are tied into a UK wide computer system.
So against that background we are struggling to make inroads.
We will never achieve perfection, but I think there is room for
significant improvement and I am glad to be able to report that
we do see signs of improvement in this area. The figures for 2003-04
for Income Support, Jobseekers Allowance, Disability Living Allowance
and Housing Benefits are all showing improvements in payment accuracy.
Much of this is a result of a range of measures which have been
taking place which I can go into more detail later on. Further
improvements may be contingent on improving computer systems and
again, there are plans nationally to do that and we are currently
negotiating the necessary budget support to enable us to buy into
those schemes in the next two or three years. That is the story
on social security in brief. Regarding housing, several years
ago, housing associations were given the role of building the
new build social housing and the department at the time set up
a series of controls and I think it would be fair to describe
them as light touch control. The system ran on that basis for
two or three years until the first year that we are talking about
here, 2001-02—when the Northern Ireland Audit Office assumed
statutory responsibility for that audit. The Audit Office took
a different view than we did at the time, of the nature of control
which was appropriate. The criticisms which you have seen in the
report are effectively saying; "we think the department needs
to exercise a greater degree of control than it chose to do".
That criticism was brought to our attention halfway through 2002-03
year. By the time we took a series of measures, we were into the
second set of accounts as well. I am glad to be able to report
that my understanding is that the auditors are greatly encouraged
by their current work and I am optimistic that if we are not out
of the woods on this particular issue this year, certainly we
will be next year. Thirdly, urban regeneration and community development.
This is a much more difficult area for me to get to grips with.
We have had problems in this area for many years and the fundamental
problem, I think, is that there is a tension between providing
funding to a sector which consists of community and voluntary
groups which are very often small, unsophisticated financially
and unaccustomed to the sort of bureaucratic process that government
departments tend to impose on them. I think for our part we have
been deficient in defining what is proportionate and ensuring
that where we applied strict controls, we did so effectively.
There is a history of criticism in this area, corrective action
which has not produced the desired result, further criticism and
further corrective action and we have taken some quite stringent
measures in the last couple of years. We were hoping to see the
fruits of that coming through this year. We are a little disappointed
that it has not been coming through as obviously as we had hoped
and we have taken some further measures. I am afraid I have to
report that I do not think we will be out of woods this year on
that particular front, but I can assure you that we are working
vigorously. Personally, I am committed to ensuring that it will
improve in the next few years. Sorry, that was a rather long answer.
Q37 Mr Bailey: Can I just take from it
one or two points. I do not want to put words into your mouth.
If I have summarised it incorrectly, please say so. You are saying,
in effect, the problems in the 2001-02 account were not evident
until halfway through the following financial year.
Mr Shannon: On housing, yes.
Q38 Mr Bailey: What sort of proportion
of the total problem, if you like, did housing comprise?
Mr Baker: To put it in financial
terms, the qualification in relation to housing is related to
the new build programme. We are talking about a relatively small
proportion of the department's overall spend, £50 million
in that kind of ball park. Urban regeneration spends a slightly
smaller amount, £40-45 million, but obviously that is dwarfed
by spending on social security, which is over two billion pounds
in total. The housing association spend is £50 million, out
of over two billion.
Q39 Mr Bailey: Equally, were you aware
of problems in the other sectors prior to that?
Mr Shannon: As far as social security
is concerned, there was a sort of implication in the wording of
some of the documentation, that this was a problem of the last
two years and a problem associated with resource accounting. The
Social security accounts have been the subject of qualification
for a very long time, not just in Northern Ireland but in Great
Britain as well. It is a measure of the complexities and the difficulty
of getting accurate decision making there to a level which is
acceptable. Yes we were aware of the problems in that area and
that is a continuous process of improving. In the other area,
urban redevelopment, again yes, we were aware of longstanding
problems in this area and, of course, we are not actually reliant
on the external auditors to bring these issues to our attention,
we have a well developed internal audit programme and we have
regular management reports which are drawing our attention to
problems in the normal course of problem management activity.
Mr Baker: As Mr Shannon says,
the problems associated with fraud and error in social security
go back over a long time and had nothing to do with resource accounting.
There were particular issues, problems identified by the Comptroller
and Auditor General, which did occur probably as a direct consequence
of the introduction of resource accounting. For the first time
as a department, like others, we have to produce a balance sheet
and some of our systems were based an cash accounting and they
did not read across easily to the new accruals form of accounting,
so debtor and creditor balances created particular difficulties
for us in the context of resource accounting.
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