Examination of Witnesses (Questions 1-19)
NATIONAL AUDIT
OFFICE
27 FEBRUARY 2006
Q1 Chairman: We are now in public session
going to deal with the National Audit Office Estimate and we have
to give our advice to the Public Accounts Commission, which meets
tomorrow, on whether we should support these estimates. Perhaps
we can start with the NAO memorandum which shows that the increase
in gross revenue is aligned to "the review of systems"
from £8.4 million in 2005-06 to £9.8 million in
2006-07, that is 17%, and that this figure for 2006-07 differs
by £0.8 million from the figure provided by the Corporate
Plan for 2006-07 to 2008-09. Why is that, Sir John, or could you
confirm why this gross resource requirement has increased from
the forecast figure?
Sir John Bourn: The reason that
the increase between 2005-06 to 2006-07 for the review of systems
is £1.4 million, which is 16.7%, is that essentially the
review of systems is a work that supports both the value for money
work and the financial audit, so it is by the review of systems
that you get yourself in the position of being able to produce
not only the financial audit but also the value for money audit.
That is why, since—
Q2 Chairman: Why has it increased now?
Sir John Bourn: It has increased
because the demands on the financial audit and the value for money
audit have both increased. Public expenditure next year is due
to rise by 5.8% and the particularly complex areas, like health,
are due to rise by 9.2%, education by 6.5%. There is also considerable
turbulence in the structure of the National Health Service and
there is a range of complicated areas, for example, new accounts
that are coming to us with the new statutory financial audit responsibilities
covering the Olympic Delivery Authority, together with the general
complexity and increased difficulty that arises through so many
of the joint approaches, such as local area agreements, where
you have such a large number of authorities coming together. For
example, just to illustrate the point, Chairman, we are looking
at an organisation called Rye Partnerships, which has inputs from
the ODPM, the local regional development agency, the county council,
the district council, the parish council, the Government office
in the locality, the local National Health Service bodies, various
voluntary organisations and various private sector ones. That
is an example of the complexity of public administration which
lies behind that figure which, of course, is still within the
6% which the Commission approved when they discussed it in October.
Q3 Chairman: Do you recall that you
published in March 2005 a document, Public Sector Service Agreements:
Managing Data Quality? There are some quite worrying findings
in that: 13 systems (20%) where departments were not collecting
data for the measures specified in their technical notes, three
systems where departments had stated that they did not intend
to report data, 20 systems where weaknesses were identified which
departments should address. How much confidence can we have in
the level of performance reported on PSA targets, do you think,
given what departments are doing, or rather not doing?
Sir John Bourn: I think the level
of performance is very worrying. It is worrying for two reasons:
one, for the reason that you have just said. Our reports on the
technical notes—and this will be repeated in the second
iteration of this—shows that in many cases the material
to decide whether you have achieved the public service agreement
is just not there. It is also the case that some of the public
service agreements are set out in terms that defy any rational
calculation at all. For example, if you take the Small Business
Service, its targets include a target to "increase the number
of people considering going into business". Well, whatever
happens you could say you had hit that target. "More enterprise
in disadvantaged communities": how would you say whether
you had achieved that? You would just be able to claim you had.
It is a combination of targets which are set in terms so imprecise
that whatever happens you could say you had achieved them, and
a failure to have sufficient means in departments to assess whether
you had achieved them.
Q4 Chairman: You are doing your second
report now, are you not?
Sir John Bourn: Yes.
Q5 Chairman: Do you think that that
will come to an equally poor conclusion on these targets?
Sir John Bourn: I think there
will be some improvement, but it will be essentially equally poor
for the reasons I have stated. They are still there.
Q6 Chairman: This second report is
obviously a very important one. It was due last autumn, was it
not? Why has it been delayed?
Sir John Bourn: I am not aware,
Chairman, that it has been delayed.
Q7 Chairman: Was it due last autumn
or not?
Mr Whitehouse: Not to my knowledge.
Q8 Chairman: Okay; I have got the
wrong advice. When was it due and when is it going to come out?
Sir John Bourn: It will be in
March.
Q9 Mr Bacon: Sir John, the NAO's
Report on Gershon, effectively on managing resources to deliver
better public services, highlighted the importance of departments
having the necessary financial management skills at board level
to drive the improvement. Allied to that the Treasury has acknowledged
that it is unlikely to meet its target of having a qualified director
of finance at board level in every government department by the
end of this year, December 2006. How significant do you think
this target is for the delivery of improvements in financial and
performance management?
Sir John Bourn: I think it is
a very significant target. I think it makes absolute sense to
have as the finance director of a government department a man
or woman with a financial qualification. I think that means that
there is a more informed assessment and focus on the accounts
and on management accounting, and I think this goes with the Treasury's
financial management initiative which is improving the quality
of financial management in all departments. One aspect of that
is to have a financially qualified person in the top position
and on the departmental board.
Q10 Mr Bacon: Would you say there
is clear evidence that the failure to have a director of finance
who is financially qualified has hindered the ability of departments
to get resource accounts delivered pre-recess?
Sir John Bourn: I think it has,
because what it has meant is that the people at the top of the
department understand intellectually why this is important but
have no background, no experience, no real feel for how to get
it to happen, so I think it has been a handicap.
Mr Bacon: We had a session with Sir Michael
Jay on resource accounts from the Foreign Office, which I found
very interesting, and it struck me that perhaps we should look
at resource accounts more often. There are a lot of interesting
things there. They look interesting to get into on the face of
them. One of the things Sir Michael Jay said in his expansive
comments at the end, since it was his swansong, was that he had
been surprised by how difficult the job of running the Foreign
Office was when he took it on. Plainly there was one set of skills
to being an ambassador in Paris, which he was immediately prior
to the present job he had, and we all know what they are: they
are very difficult skills to have at high level, but the skill
of running an organisation with 16,000 employees in a hundred
countries with 240 posts is like running a multinational company;
it is a completely different set of skills. I notice that the
Finance Director of the Foreign Office was a chap who had in his
CV that he had been Ambassador to Slovakia. What competence that
gave him to run a £1.7 billion budget is not at all obvious,
is it? I am not casting any aspersions on any individual; I do
not know.
Chairman: Or on Slovakia.
Q11 Mr Bacon: Indeed; I am sure it
is one of the finest places on earth, but is it not the case that
there is something odd about the way that the senior, chief executive-equivalent
management positions are filled?
Sir John Bourn: Yes, absolutely,
and, as I think the officer himself said, he was going to be the
last person in that job who did not have a financial qualification.
I think traditionally in Whitehall the principal finance officer
was seen as the man or woman who could most successfully engage
with the Treasury in the annual spending round. Preparation of
the accounts/financial management in the department was seen as
a second order activity which tended to be done by people who
were not seen as top-flight people in the department. This is
now changing and it is not before time.
Q12 Mr Bacon: It is still true that
there are quite a few resource accounts upon which you have placed
a qualified opinion, is it not?
Sir John Bourn: I had to place
a qualified opinion in terms of real accounting failure on two.
Some were ones where there had been an excess vote and where the
legislation requires me to do it, yes.
Q13 Mr Bacon: How are you, the NAO,
supporting the Treasury's achievement of the target of getting
financially qualified personnel running the finance director post?
Sir John Bourn: We are supporting
it in that we have staff working with the Treasury in the development
of this activity. One of the things which I hope in the future
we might see is that some of the finance directors might be people
who have spent some time in the National Audit Office. We have
one example of that so far. There is the Finance Director of the
National Health Service who had worked in the National Audit Office
and was a qualified accountant. I would see the NAO and also the
other audit offices in the United Kingdom being in a position
to put forward candidates for those positions in the future.
Q14 Mr Bacon: Last time we discussed
this I remember you saying that 23% of principal finance officers
had a financial qualification compared with about 85% in the private
sector. This may result in your writing to the Committee afterwards
but do you know how that has shifted in the last two or three
years?
Ms Diggle: Maybe I can help you,
Mr Bacon. It was about 60% the last I heard. I can get you a precise
figure if you want me to.[1]
Q15 Mr Bacon: No. It is going in the
right direction.
Ms Diggle: It is certainly getting
a lot better.
Q16 Mr Bacon: When do you expect
that it is going to be 100%?
Ms Diggle: I do not have a figure
for that, I am afraid.
Q17 Mr Bacon: You do not have a date
for that?
Ms Diggle: I do not have a date
for that, although we are certainly aiming for the end of the
year if possible.
Q18 Mr Bacon: But would you expect
that, if you do not achieve it by the end of this year, which
you may not, by December 2007 you would have achieved it?
Ms Diggle: I would be very surprised
if we had not.
Q19 Greg Clark: We have a hearing
next week on the Government's efficiency programme, the Gershon
savings, and I notice that your memorandum makes some limited
reference to increased activity aligned with this programme in
the year ahead. It surprised me in some ways that the NAO was
not more deeply involved from the outset in the Gershon programme,
because obviously you have a store of expertise in each of the
departments under scrutiny. You have an excellent track record
in suggesting savings. Do you have any comments to make on the
way that it was chosen to structure that programme?
Sir John Bourn: Right from the
start of Sir Peter Gershon's appointment we did work quite closely
with him and seconded staff to him, and some of the subjects that
we looked at, like purchase of professional services, had been
the result of the conversations between us. With regard to this
particular set of recommendations that he made, we had made a
contribution to them but they were his recommendations and ministers
picked them up. So we were consulted and did discuss with him
and his staff the exercise that he had engaged in.
1 Note by witness: Since this hearing, the
Treasury has established that the proportion of qualified finance
directors was 60% at the end of January 2006. Back
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