1 Failure to deliver accounts to statutory
reporting timetable
1. With a complex and diverse portfolio covering
immigration, offender management and the police, and an annual
budget of approximately £13.5 billion,[4]
the Home Office needs an effective accounting system and robust
financial controls to ensure proper stewardship and accountability
for public funds. The Home Office only implemented an automated
accruals accounting system, using Oracle software, in 2004 despite
the fact that the Government first committed in 1994 to use resource
accounting and budgeting as the basis of public expenditure planning
and financial reporting to Parliament. Prior to implementation,
the Department had been alerted to the risks inherent in introducing
its new integrated finance, human resource and procurement system
(the Adelphi system). In 2001-02[5]
and 2002-03,[6] the National
Audit Office drew attention to the key risks which could damage
successful implementation of the project. The OGC Gateway Review
process also identified key risks. Many of these risks crystallised,
however, when the accounting module of the new system was implemented
in May 2004, causing severe difficulties (Figure 1). As
a result the Home Office was unable to produce proper accounts
within the statutory timetable.[7]
Figure 1:
Key problems affecting accounts production encountered during
Adelphi implementation
Issue
| Details
|
Delayed implementation8
| Implementation was planned for 1 April 2004. Transferring balances from the old system to Adelphi encountered problems and implementation was delayed until 4 May 2005 as a result.
|
Failure of BACs automated payments[8]
| Refusal of around £380m payments and receipts necessitated manual processing.
|
Cleansing of suppliers' list8
| Deletions were made to the suppliers list which related to bona fide suppliers and were not duplications. As a result, a large number of payments required manual processing as supplier details were no longer on the system.
|
Failure of expenses connection8
| A large backlog of expense claims had to be cleared by manual processing.
|
Staff training[9]
| Training was not on a timely basis.
|
Source: Home Office, National Audit Office
2. The Department implemented standard Oracle software
without major technical customisation, which significantly reduced
the risks generally associated with such adaptations. The Home
Office did not, however, carry out sufficient assessment of the
risks, particularly in respect of audit trails, transaction history
and monitoring of access to the database.[10]
Without these facilities, the system was seriously compromised.[11]
3. The Home Office was unable to reconcile its bank
records with its accounting records throughout the 2004-05 financial
year,[12] due to difficulties
in implementing the new accounting system. Bank reconciliations
are a fundamental and essential control over cash to make sure
that income and payments recorded in an organisation's bank account
match its accounting records. Matching also provides assurance
about debtor and creditor balances (amounts owed to and by the
Department) and can prevent and detect fraud and error.
4. Initial attempts to reconcile the Home Office's
cash at the bank with its accounting records identified a difference
of £3 million which the Home Office then wrote off as administration
costs without further investigation or discussion with the auditors
or the Audit Committee.[13]
The Department had not realised that failure to reconcile cash
fully could ultimately undermine its ability to provide Parliament
with fully audited accounts.[14]
Further work to identify the reasons for the unreconciled amount
was not done until November 2005.[15]
The main cause of the difficulties were failures in the BACS[16]
payments facilities, together with a lack of full implementation
of the daily, weekly and monthly control processes by the team
operating the cash management module.[17]
The Department's inability to maintain good books and records
and Home Office's failure to provide its accounts in sufficient
time to enable completion of audit work resulted in the Comptroller
and Auditor General being unable to reach an opinion on the truth
and fairness of the Home Offices 2004-05 resource accounts, so
he disclaimed an audit opinion. The result is that the Home Office
cannot say with any certainty how much it spent in the year, what
debts it was owed and owed to others and what assets it owns;
there is no assurance that all expenditure incurred in the year
by the Home Office was in line with what Parliament authorised;
and financial information provided by the Home Office is unreliable.
Both the current and former Permanent Secretaries apologised
for this state of affairs.[18]
5. Since the introduction of resource accounting
in 2001-02, the Home Office has received only one clear opinion
on its financial statements, in 2003-04. In his Report on the
2002-03 Accounts, the C&AG questioned the Home Office's commitment
to implement resource accounting successfully.[19]
The day-to-day responsibility for production of the accounts was
devolved to junior staff supported by unqualified staff, with
little senior oversight. The Home Office acknowledged that it
needed to address these issues and consequently commissioned a
review, carried out by Ernst and Young, of the factors that led
to the failure to prepare proper accounts 2004-05.[20]
The Home Office has increased the number of full-time qualified
accountants involved in the preparation of the financial statements
from three to nine, but it also needs to make sure that the organisation
as a whole is generating information of sufficient quality for
them to use effectively. The Department told us that managers
now have sight of all stages of the accounts production process,
although it acknowledges that it has further work to do and is
putting in place arrangements to improve the process for 2005-06.[21]
4 Spring Supplementary Estimates (HC 827, Session
2005-06), p 138 Back
5
C&AG's Report, Home Office Resource Accounts 2001-02 (HC
364, Session 2002-03), para 27 Back
6
C&AG's Report, Home Office Resource Accounts 2002-03 (HC
193, Session 2003-04), pp 66-67 Back
7
Q 3 Back
8
Ev 19-20 Back
9
Home Office Resource Accounts 2004-05 (HC 826, Session
2005-06), p 26, para 14 Back
10
Ev 34-37 Back
11
Home Office Resource Accounts 2004-05 (HC 826, Session
2005-06) paras 21-22 Back
12
Qq 73-74 Back
13
Ev 35, para 6.2 Back
14
Ev 19-20 Back
15
Ev 36, para 6.3 Back
16
Banks Automated Clearing System, an electronic means of making
payment Back
17
Q 129 Back
18
Qq 4, 6 Back
19
Home Office Resource Accounts 2002-03 (HC 193, Session
2003-04), para 31 Back
20
Q 132 Back
21
Q 22 Back
|