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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 362-i House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE THE COMMITTEE OF PUBLIC ACCOUNTS Monday 21 February 2005
NATIONAL AUDIT OFFICE SUPPLY ESTIMATE 2005-06
NATIONAL AUDIT OFFICE SIR JOHN BOURN KCB, MR MICHAEL WHITEHOUSE and MR PHIL WOODWARD
Evidence heard in Public Questions 1-28
USE OF THE TRANSCRIPT
Oral evidence Taken before the Committee of Public Accounts on Monday 21 February 2005 Members present: Mr Edward Leigh, in the Chair Mrs Angela Browning Mr Ian Davidson Mr Frank Field Mr Alan Williams ________________
National Audit Office Supply Estimate 2005-06
Examination of Witnesses Witnesses: Sir John Bourn KCB, Comptroller and Auditor General, Mr Michael Whitehouse, Assistant Auditor General and Mr Phil Woodward, Director of Finance, National Audit Office, further examined. Q1 Chairman: Welcome, Sir John, Mr Whitehouse and Mr Woodward, you are very welcome. May I just clarify some figures, please? You told us last year that the drop in income from Wales in 2005-06 would be balanced by an equivalent drop in expenditure and obviously one would expect that to be the case. The NAO's total net resource requirement for 2004-05 was £60.197 million, of which £2.7 million related to services provided by the Wales Audit Office. In the estimate for 2005-06 you are requesting £65.717 million. If you exclude the superannuation increase of £1.8 million this provides an increase of £6.42 million, that is 11%. What we find difficult to understand is why your costs have gone up and not down. Sir John Bourn: As far as Wales is concerned, that was a self-balancing item. It cost us £2.7 million a year to provide the services to the National Assembly for Wales and we got that back, so that does not come into the equation at all. The essential figuring is that the £60.197 million for 2004-05, in order to put equivalent figures, needs to have the £1.8 million for the pension contribution added to it to get virtually £62 million and indeed the only resource addition is then £3.7 million to take us to £65.717 million. So the increase in resources that is proposed is just £3.7 million, which is a 6% increase in resources, which is the figure that the Public Accounts Commission approved when they took the corporate plan in July, there being no difference in the proposal from what the Commission saw in July to what is in the estimate now. Q2 Chairman: We are often told this target you have of achieving £8 of savings for every £1 spent. We are all very proud of that and we are told that you meet it. Is it audited in a similar way to the way other government departments' targets are audited? Sir John Bourn: Yes, it is. It is now audited by our external auditor and the external auditor gave a report to the Commission last year and it will give a report in relation to the present year. It is not simply the NAO and the government department saying it, it is also the external auditor saying it as well. Q3 Chairman: Presumably you could give us a written note detailing the savings in 2003-04, could you? Sir John Bourn: Certainly. Q4 Mr Field: The corporate plan says you are going to come back with figures about costing office space. Where are you with that and why the delay and how might that link with fitting in with the rest of the government's pre-election urge to expel departments from London and put them in around the country? Sir John Bourn: On the question of space, the position is that the life of the current building was hypothecated on 20 years. That is up in 2006. I have a duty under the relevant Act of Parliament to maintain this building because the central part of it is listed. We commissioned a firm of chartered surveyors to examine it and they drew attention to a number of defects in it, not surprising since it goes back to the late 1930s. We have done some initial work which we discussed recently with Mr Williams, the Chairman of the Public Accounts Commission and with the Chairman. Mr Williams asked us to do some more work on this and bring it back to him for consideration and then for consideration by the Commission. We engaged in that and everything to do with the building is outside the estimates you have before you and we do of course have staff outside London. I had about 15% of my staff outside London, but devolution has caused me to lose most of those. I am looking at the scope for increasing my staff; I have other staff in Blackpool and Newcastle. I am looking at what might be done to increase the number in Newcastle, but this will all come before the Public Accounts Commission. Q5 Mr Field: When you say you are looking at other areas, I should just be interested in the urgency. How much work could you undertake outside London? I have been lucky. I have come to discuss work with some of your staff and it has been very convenient that they have actually been in London; it would be just as easy if they were in Birkenhead. Sir John Bourn: A number of considerations come into this. The essential point is that I have to get people around the UK and I really need to be on a hub to do that. If I may say so, from the delights of Birkenhead it would be more complicated to do that. The point is also that, being in London, to move people out is quite expensive; something like £20,000 for each of them to go when you take all the costs which would be involved. Q6 Mr Field: You could phase it in over time, could you not, because people leave and you could have a policy of building up your staff in the provinces? You could think of other centres as the hub other than the centre of the universe as some members of parliament might view it. Sir John Bourn: You could certainly do that, although the mechanics and logistics of doing it would be complicated if year, by year you had different numbers of people going. The other point which comes into it is that the exercise which Sir Michael Lyons did was very much about moving posts and not about moving people, very much based on the fact that you move the posts and you are able to provide jobs for people who do not have jobs. It would be difficult for me to think that I could recruit another 800 people with the same expertise in public sector audit. Those are some of the considerations which come into this. However, I am looking at it and I will be bringing this before the Commission. I may say that the Commission did look at this some years ago and asked us to produce a plan which we did do, which was to move a large proportion of the office to Leeds. When the Public Accounts Commission looked at the upfront costs involved in doing that, they decided not to pursue it. However, I am looking at it again and will bring it to the Commission. Q7 Mr Field: On the first part of your answer, am I right that you talked about the cost of being in a listed building? Sir John Bourn: It is a listed building. Q8 Mr Field: Are you saying that puts restraints on how you can use the inside of it? Sir John Bourn: No, what I am saying is that I have a duty, as it were, not to let it fall down. Q9 Mr Field: Sure. You do take on outside work and the report talks about how much you earn. I do not know whether you still do but, for example, you used to look at the Church Commissioners' accounts. We have a running battle with your access to one or two accounts such as the BBC. Are there other areas of accounts where you think the public interest would be served if you could actually audit them? Sir John Bourn: There are several areas where I think that would be the case. There have been areas I have discussed and on which I have had the support of the Committee and Commission. One of them, as you rightly say, is the BBC, where we are engaged in a programme of six VFM studies. Being the external auditor of the BBC, or at least having rights of access to its books and records would be a useful thing. A second area is the question of the audit of the Civil List, which I do not have now and is something which I think would be reasonable to do. Another area is the Bank of England. Unlike many auditors general in other countries who are the auditors of the central bank, I am not in the UK and I think that would be a reasonable area to receive the benefit of the NAO's audit. There are other areas as well if you think about it like the Financial Services Authority. Those are four areas where we could make a case and some of them already have the approval of the Committee and the Commission, although the government has not yet accepted that. Q10 Mr Field: The building you are in used to have British Airways in, did it not? Sir John Bourn: Yes, it did. Q11 Mr Field: British Airways now has a huge pension fund and occasionally flies planes. Actuaries look at the calculations of pension funds, but they also have their funds audited. For most of our constituents, although the Civil List is politically interesting for us, they are much more interested in the governance of their pension schemes and their foregone wages. Is that an area you think you could usefully be involved in? Sir John Bourn: Certainly the pension scheme for civil servants, the pension scheme for the military and the pension scheme for the teachers are ones which are already in my purview. Pension schemes which are in the private sector are not within my purview, although Opra, which is the body which is concerned with the regulation, is within my purview and we have done work on that and brought it to the Committee. It would be a big step to give me the audit responsibilities for private sector schemes. Q12 Mr Field: It is just that many members of schemes think that the actuaries and the auditors have been too friendly in private schemes in patting one another on the back and saying the calculations are actually fine, when it turns out that a more critical and independent mind would have served the members' interests better. It is in those uncharted territories that I was thinking it would have been useful to have somebody with the reputation of the National Audit Office to come in. Sir John Bourn: It would be a big step, but if parliament were to legislate for me to do that, then I would make arrangements to carry it out. Q13 Mr Davidson: May I start off by congratulating you on arranging this hearing on your birthday when presumably the world will be better disposed towards you than otherwise might have been the case? Full marks for that. May I ask why a declining percentage of costs are met from income and in particular, given that across so much of the Third World there is an emphasis on good governance where it would seem to me that the skills and abilities you have are eminently marketable, why there is a whole area there which appears to have been missed? Sir John Bourn: In terms of work outside the United Kingdom, we do have quite a lot of contracts, in particular from the United Nations and from the European Commission. I have an order book of £7 million of work, which we are carrying out. It includes the audit, which we have to win competitively, of a number of United Nations agencies such as the World Food Programme, International Labour Organisation, World Meteorological Organisation, Pan-American Health Organisation. We also have a range of contracts which we have won to assist European countries. Many of those were the countries which recently joined the Union, like Hungary, but we currently have won contracts to work in Albania, Croatia and Turkey. In relation to all these contracts, we get paid for everything we do, so all the money comes back to the UK and it is not at the taxpayers' expense. I certainly agree with you that this is something we can do and do well and we are always looking for new scope to do this work. The Committee suspended from 5.59pm to 6.05pm Q14 Mr Davidson: You mentioned a £7 million order book. How does that compare with your competitors? Sir John Bourn: We have more. We have more of this work than any other audit office. Q15 Mr Davidson: Are other audit offices your competitors for good governance sorts of things? Sir John Bourn: Yes. For the United Nations work the competitors are the audit offices of United Nations members. We have to beat them to get the work. For the European Commission it can be other audit offices or it can be the private sector. Q16 Mr Williams: Does that mean that Northern Ireland is not pulling its weight in the international market? Sir John Bourn: On some of them of course we have done it with colleagues on the team from the Northern Ireland Audit Office, as it will be from the Wales Audit Office and we have had Scots as well and also members and staff of the Audit Commission. It has been a collaborative UK enterprise. Q17 Mr Davidson: Since the work you are doing in this area could be seen as a cultural export, as it were, do you think you are spending enough trying to get this work in, in terms of the government policy in relation to good governance in general? Ought we not to be more vigorous in approaching this and not regard it simply as an earner but also as a means of taking the techniques across to some of the Third World states, even if they are not great profit earners? Sir John Bourn: I agree with that. We have just concluded discussions with the Caribbean countries for a programme of work which will be funded by the Inter-American Development Bank. We are talking as well to India, Bangladesh and Sri Lanka about work we might do there. I am not saying we could not do even more, but we are very active in talking to the audit offices of a wide range of countries in Europe, Asia, Africa, Latin America and in some cases the work we are doing is funded by the Department for International Development; currently Gambia, for example, where we are doing some work, is funded by the Department for International Development. Q18 Mr Davidson: We have a stream of people coming through here as part of CPA visits. Given that access to the market, do you think you are achieving as much as you ought? Sir John Bourn: I think I am achieving a great deal; of course one could never say you could not achieve more. It is something we are working hard at. I should be very glad to give the Committee a report on where we stand now, what the prospects are and when I see you next year how many extra ones we have. Q19 Mr Davidson: Given the attention which is being paid to efficiency in government, I see that the percentage of your activities on value for money is estimated to go down. Why is that? I am working off paragraph 11 of the executive summary where the value for money percentage of your gross resources goes down from 26% to 24% and then up again to 25%. Sir John Bourn: The percentage has gone down but the total amount of work being done is increasing and it is basically directed to producing the 60 value for money studies that the Committee has asked me to do. Q20 Chairman: Why are you asking the taxpayer to finance a 26% increase in your consultancy budget for 2005-06? Sir John Bourn: Because I will produce eight times that amount of money as a return. The consultancy budget covers the consultants we use for the financial audit. You will remember that we were asked to increase the amount of financial audit done to 25% of the total. So it is for the financial audit, it is for the value for money audit and some for things like our own IT arrangements. Q21 Chairman: Does the increase in this budget denote a lack of skills perhaps in your organisation? Sir John Bourn: I do not think so, because an organisation like ours cannot really expect to provide fulltime jobs for every level of expertise you might want. We would always want to do the value for money studies by mixtures of insiders and outsiders. If we are looking in the health service at things like hip replacements, treatment of heart disease, you need medical people to be on the team. That is essentially why. On the financial audit, we have been asked to have 25% contracted out. If you had told us to do it all ourselves, we would have done that. Q22 Chairman: Perhaps you could give a breakdown in a note on how it comes in and you got this increase. Sir John Bourn: Yes. Q23 Chairman: You told us last year that NAO travel costs would only grow by 6% in 2004-05. In fact, according to paragraph 7 of the memorandum it grew by 13%. Why was your estimate wrong? Sir John Bourn: The estimates were not wrong; this 13% covers two years. Most of the increase in the last year was for international travel which was funded by the international work. It just leaves a 3% increase in 2005-06, which is more or less in line with the increase in travel costs, rail fares, petrol and so on. Q24 Mr Field: Twice when you have been asked a question, you have actually knocked the ball to the boundary with great confidence saying that for each £1 spent you gain £8 back for the taxpayer. Your body language was totally different in answering those questions to answering other questions. I just wondered whether the 1:8 was the right ratio, that you find it rather easy to meet that criterion and whether we should not actually up it a bit. Sir John Bourn: It is not met easily and it is something which has to be fought for every year, because it is a substantial amount to find. While I do not rule out the fact that in the future I might be asked to do 1:9, it used to be 1:7 and I went to 1:8. Q25 Mr Field: It has already worked once then. Sir John Bourn: Yes. Of course, since I am asking for an extra 6% in terms of resources, in fact the eight times will produce an actual increase in savings, so there will be more each year. Q26 Mr Field: None of us doubts the effective way you go about that. In your report you agreed with the Commission, did you not, that you would cut infrastructure costs by 2.5%. Sir John Bourn: Yes. Q27 Mr Field: In fact you are coming in higher than that, are you not? Sir John Bourn: No, I am not, I am glad to say. The infrastructure costs were £14.4 million, coming down to £13.5 million, so £450,000 of that relates to adjustments in Wales, because I do not have to have a building there and things like that. The other £450,000 is for the economies I said I would do; in fact it comes out at more than 2.5%, but it is done by improvements in human relations management and better procurement, so I am meeting what I said I would do. Q28 Mr Field: So the change in the setup with Wales is not affecting your unit cost because you are being able to get rid of the fixed costs in Wales. Sir John Bourn: That is right, the building and of course the staff who are now employed by the National Audit Office will, from 1 April, be employed by the Wales Audit Office. Chairman: My colleagues have no further questions, Sir John, thank you very much for assisting us this afternoon. |