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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 363-i House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE THE COMMITTEE OF PUBLIC ACCOUNTS MONDAY 21 February 2005
NORTHERN IRELAND AUDIT OFFICE SUPPLY ESTIMATE 2005-06
NORTHERN IRELAND AUDIT OFFICE MR JOHN DOWDALL CBE and MR CIARAN MOORE
Evidence heard in Public Questions 1-33
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 ________________
Northern Ireland Audit Office Supply Estimate 2005-06
Examination of Witnesses Witnesses: Mr John Dowdall CBE, Comptroller and Auditor General and Mr Ciaran Moore, Assistant Auditor General, Northern Ireland Audit Office (NIAO), further examined. Q1 Chairman: We now pass to the Northern Ireland Audit Office. Thank you very much Mr Dowdall and Mr Moore for waiting. If we look at the NIAO's resource accounts for 2003-04, page 6, there was an underspend of £483,000 on your net resource requirement. Is that right? Mr Dowdall: Yes, it is. Q2 Chairman: This means that you asked parliament for 7% more than you needed in 2003-04, is that right? Mr Dowdall: Yes, Chairman. Q3 Chairman: Is this indicative of poor financial management planning, lack of control? Mr Dowdall: I do not think I am quite going to go with you as far as that. I have always seen these limits, as one of your predecessors used to say, as a limit not a target. If I can bring in the budget and achieve my objectives during the year for less than that, I will always do it. I might say that although that was the situation in the resource account in that year, we found ourselves very much closer up against our budget in this current year and you will not find that degree of overspend repeated in the next resource accounts in front of you. Q4 Chairman: Fair enough. Can we believe your organisation's current provisional figures for 2004-05? Mr Dowdall: Yes, they will be very close to that. Q5 Chairman: Why was your income for 2003-04 above the level sought in the estimate? Why can this level not be maintained in future years? Mr Dowdall: We have had some difficulty in the immediate period following the amalgamation because we did not have previous experience of the income flows predicting it as accurately as we would like. We now have one full year's experience of those new income flows behind us. I am very confident that the higher income flow projections that we have in this year's estimate are accurate and reflect the experience we have of the new organisation. Q6 Mr Field: Your consultancy work comes out as a proportion of your total budget way above the National Audit Office whom we have just been interviewing. Do you think that is a strength or a weakness? Mr Dowdall: I think it is a weakness, to be perfectly honest with you. It is not a situation I have been happy to find myself in. If I might just explain, traditionally I followed behind Sir John on this. When I was purely a central government auditor, as he built up his degree of consultancy work, we were building up ours in Northern Ireland, but four or five points behind. Two years ago, if you had looked at this in my estimate, I would have been putting about 15% and I was comfortable with that. I then took over two new sectors; essentially the Audit Commission functions in the region were amalgamated into my office. They were highly contracted out. In the key area, which was the health sector, every audit was contracted out, not one was done by public sector auditors. That has pushed my total up to over 30%. As I said last year, when I discussed this with the Committee, I really need to pull that back a bit. I need to get some of my staff in doing those health audits so that we can be the intelligent customer, have the on-the-ground experience and we are doing that. I should like to see that proportion fall a fraction, not substantially, perhaps to the upper 20%. It is awkward in this transition period and we have an uncomfortably high proportion of our output contracted out. I was not wholly confident when I took this on about the quality of the work that the contractors were doing. I am improving that and improving my confidence in it as time goes on, but that has some way to go as well. I feel a little exposed on that issue. Q7 Mr Field: Apart from building up your expertise over the wider area, might not one of the reasons why we might look to you to do more work in-house be that you might break up any cosy relationship that there is between one sector and the supplier of audit services? Mr Dowdall: Yes; absolutely. I approach that in a slightly different manner, but it is in my mind because the audits that I look over in the health sector, which accounts for the bulk of that very high percentage, have been contracted out for a very long time; they looked very cosy to me. The first thing we did was to say that we were going to bring in a proportion, but we are going to re-let all of those contracts on our internal office terms and conditions of tendering over a two- or three-year period. We have completed two tranches of that now and we have one more to do. That was very much in our minds as well. Q8 Mr Field: On that contracted out work, can you give us some idea of how many companies control that? Mr Dowdall: Yes, it was uncomfortably spread over probably three companies, but two large ones dominated it. Q9 Mr Field: So it is similar to what it would be in this country. Mr Dowdall: Yes and they are the same companies. Q10 Mr Field: They are indeed and that why I suggested to Sir John that those who have assets in private pension funds might think it useful not to have permanently the ability to draw on his skills, but it could be very useful for breaking up relationships which might have become too close. Mr Dowdall: Yes; you are putting your finger on the one distinguishing point which Sir John and I have in relation to our colleagues in the private sector. They have all of the audit expertise that we have and they might even claim more, but we have independence. One of the things I do notice in dealing with this high proportion of contracted out audits is that they do not seem to have the same attitude that we have to conflicts of interest. In managing them, we are finding quite a significant part of the management process is educating them in the degree to which we will not tolerate conflicts of interest. Q11 Mr Field: If you are increasing your staff so you can have more work in-house, you are presumably going to have to draw on those already working in these cosy arrangements to join your staff, are you not? Mr Dowdall: Could you repeat the question? Q12 Mr Field: If you want to increase the amount of work done in-house you will need presumably to increase the number of people you employ. Mr Dowdall: Yes. Q13 Mr Field: To increase the number of people you employ in the short run you will actually have to draw on the very companies --- Mr Dowdall: No. Q14 Mr Field: You do not. Mr Dowdall: Fortunately it does not work that way. You have to adjust to the scale of things in Northern Ireland. I am a small operation, I can augment my staff by quite a significant percentage, but the numbers are very small. The unit I staffed up to head health audit was headed by one of our own internal staff on promotion, a person who had enormous experience in the health sector on the value for money report side. We put him in charge of the financial audit work there and we were able to promote and appoint other staff internally inside the office to staff the unit. Then there is a trickle-up effect; we bring in staff at the bottom and we begin to train them up, so we could cope with it in that way. This is not a big thing. Q15 Mr Field: So you try to impose your culture by internal promotions and then bringing people in at a lower level. Mr Dowdall: Yes. It is not imposing our culture; it is just extending our culture. Q16 Mr Field: I am in favour of you imposing your culture. Mr Dowdall: "Imposing" is the wrong word because it is an organic approach. Q17 Mr Davidson: May I pick up a point first of all about this culture? Generally when we have departments from Northern Ireland in front of us we are all usually pretty shocked by the way in which the report has been drawn up and the response of the people involved. There just seems to be a culture to some extent, a complacency about practices which we would not tolerate here. Can you clarify for me why that might be the case? Mr Dowdall: I honestly do not see it in quite the same terms as you do. I am not as easily shocked perhaps. I do not really believe you are that easily shocked either. I have worked in the Northern Ireland civil service for much of my career before becoming C&AG ten years ago and for much of it I was on the accountability side, so my experience of the Westminster Committee of Public Accounts cases goes back to the early 1980s. I have seen some horrendous cases in that period, far worse in Great Britain than any I have ever produced in Northern Ireland. I do believe core civil service standards in Northern Ireland are broadly parallel to what you will find elsewhere in the UK. Yes, I have brought some serious cases before you but I think you have seen a slightly unrepresentative sample. If I might just adjust the balance a bit, remember that I produce ten value for money reports a year and you are going to see the worst of them. Anything that I feel is serious enough will get PAC attention; quite a few of the others are much more routine, often praising best practice and there is not a lot of point me taking up precious PAC time in bringing those kinds of cases before you. Q18 Mr Davidson: No, I understand that; I do understand that. It is not just the identification of difficulties in your reports which causes me and quite a number of my colleagues concern, it is the response that we get from the officials when they come in front of us, almost as though they are thinking "What do you expect?". That does genuinely concern me. Mr Dowdall: I am sorry if you get that impression and that is undesirable. I would just put in a word for senior civil service colleagues in Northern Ireland. They are not as used to dealing with PAC as your Whitehall witnesses. It is a relatively rare occurrence for a Northern Ireland accounting officer to come here and they do not have the experience of appearing before other parliamentary committees which generally a Whitehall permanent secretary would have. They might not handle your issues with quite the same aplomb. Q19 Mr Davidson: Yes, there is a pleasant absence of flannel. What we then get from them causes us a fair amount of concern. Okay, I have heard what you have to say. There was a discussion with Sir John about the ratio of 8:1. You do not have such a ratio, do you? Mr Dowdall: No, we do not. Q20 Mr Davidson: Why do you not? What would it be if you did have one? Mr Dowdall: We have looked at this carefully over the years and we have watched Sir John's achievements with real admiration. We looked very carefully at the audit report which was produced last year to try to see the lessons we could learn from it. We have never been able to manage 8:1. We do try to quantify our ratio and it has usually been between 2:1 and 3:1 and last year it was around 3:1. I am not too apologetic about that because I think I am in much the same position as my other regional equivalents, if you talk to the C&AG in Scotland or perhaps to Sir John about what he can achieve in Wales. I talk to my equivalent in the Republic of Ireland and none of us in the regional context is able to achieve anything like those ratios. Q21 Mr Davidson: Are you saying to me then that there are enormously greater inefficiencies in the UK system which Sir John is able to root out than you are able to identify in Northern Ireland? Mr Dowdall: Not at all. Q22 Mr Davidson: What you seem to be saying to me then is that Northern Ireland is such a taut drum that there is nothing else. Mr Dowdall: No, not at all. What I am saying to you is that there are two reasons for it. It is scope and scale. If you look at the scope of Sir John's audit work, by studying that audit report we were able to see very clearly some of the key differences, and compare his scope with mine. Let me just give you a few indicators: I do not have the MoD; I do not have any of the really big revenue departments like Inland Revenue or Customs and Excise; I do not even have prisons and police in Northern Ireland because they are audited by Sir John. So the scope of my audits is much diminished compared with some of the areas where he can achieve very large scale. Q23 Mr Davidson: You could presumably give us a like for like comparison then. If you are saying to us that Sir John is able to get 20:1 or 16:1 in some areas and therefore that balances out to give him an overall average, then presumably you would be able to give us a note drawing to our attention how you compare in the areas you have with what Sir John achieves in those areas? Mr Dowdall: I have not done that like for like comparison. Q24 Mr Davidson: That would be good if we could have that then, because that would enable us to --- Mr Dowdall: Not quite, no, it would not, because you have not taken my second point yet, which is scale. There are enormous diseconomies of small scale in audit and I am the smallest scale. You will appreciate that it would not take ten times the resources to audit a £100 billion account as it would to audit a £10 million account, yet if you find a saving, your savings are likely to be ten times. Q25 Mr Davidson: Honestly, you are a much better performer than most of the Northern Ireland civil servants we get in front of us. You are basically saying to us that we live in the best of all possible worlds, that everything is fine and that we should just give you more money and get on with it. Is there no criticism that you would accept? Mr Dowdall: That is a slight paraphrase of what I said. What I tried to say was that Northern Ireland is not quite as bad as the impression you might have got from the five or six cases you have seen since we came back into direct rule and I am happy to support that. You could look at some of the other cases. On targeting savings, I am as keen as anybody on targeting savings. I think we do relatively well for a small office. I am determined that we will keep on a rising trend. Q26 Mr Davidson: Who is your appropriate benchmark? Scotland and Wales? Mr Dowdall: As far as I am aware, Scotland does not benchmark in this sense; I am not aware of them having a target in this area. My equivalent in Dublin certainly does not. I am not aware of one in Wales. To be honest with you, I should be surprised if Sir John does not do it, though I would have to check that. Mr Davidson: Maybe we could have something in order that we could have a degree of comparison, otherwise we are just flying blind. I am never sure whether or not these sorts of explanations are genuine explanations or simply alibis. If we were doing some sort of comparison, that would be immensely helpful for us. Q27 Mr Field: Earlier you said that you only bring forward your worst cases for us to look at. Mr Dowdall: Yes. Q28 Mr Field: We are also interested as a committee in trying to improve the entrepreneurship within the public sector. Even though we might not spend a lot of time on it, we should be quite interested in looking at the very best cases, so we could say "Well done" to people as well as catching them out. Mr Dowdall: I am conscious of that and I do try to reflect that in my programme. We are trying to be constructive in relation to the government reform initiative. We are placing ourselves as constructively as we can in relation to the large burgeoning of PFI work in Northern Ireland to try to help with it rather than just stand on the sidelines and criticise it. I have a report coming out next week on modern construction procurement methods, which is an attempt to look at this practice and see how it has been applied in Northern Ireland. We could certainly consider putting some of those into the future programme and of course I should like to leaven the programme a little bit so that Mr Davidson could see some of the other side of the work. Q29 Mr Field: For the governance this side of the Irish Sea the Treasury has set a figure of £20 billion for efficiency savings by 2007-08. Is there an equivalent programme in Northern Ireland? Mr Dowdall: Yes. Q30 Mr Field: What part are you playing in monitoring that this is real and on track? Mr Dowdall: Because we are in a period of direct rule at the moment and it is your own Westminster ministers who are actually running the department, of course they did insist on full read-across of the efficiency programme and what are called the Gershon savings, the 2.5%, 5%, 7.5% which make up the figure you have just quoted, are fully read across by Northern Ireland departments. They have been going through a similar process of producing efficiency technical notes to explain how those savings are going to be measured and achieved and we have been doing essentially parallel work to Sir John's on those, advising our equivalent of Treasury on those efficiency technical notes to see whether they can be improved. I would expect, as the initiative goes on, our involvement in Northern Ireland will parallel Sir John's in Whitehall, that if he is asked to play a further role and as he is asked to do so, in measuring or verifying those savings, we will have to do the equivalent. Q31 Mr Field: Will you be publishing your findings on that work? Mr Dowdall: That is for determination in the future. It has not even been discussed with the Treasury yet. The principle will be what is agreed in Whitehall; we will follow the same in Northern Ireland. Q32 Chairman: Why did your travel costs increase by 98% in 2003? Mr Dowdall: It sounds improbable, Chairman. I have no idea. Q33 Chairman: I am told that it is not separately identified in the estimate, but the resource accounts for 2003-04 indicate an increase of 98%, that is £52,000 to £103,000. Mr Dowdall: You had better let me have a look at that and either let you have a note or answer you tomorrow. I am shocked. Too many trips over here I should think is the trouble. Chairman: Thank you very much. Thank you Mr Dowdall, thank you Mr Moore. |