2 Letter from the Cabinet Office to the
Clerk of the Committee
Thank you for your letter of 7 March 2005. I
would like to deal with each of your questions in turn.
There was no change in the accounting policy
but simply a change in the way the PPP deal is reflected in the
Estimates. As part of the PPP deal CMPS transferred its fixed
asset, Sunningdale Park, to Initial Style Conference (ISC) on
a long-term lease for no payment and no rent. In return, CMPS
can use the asset at a nominal rate and at the end of the contract
receive the asset back in an improved state. To record this in
the accounts CMPS created a Deferred Asset in Fixed Assets to
reflect the value of the property given to ISC and a Reversionary
Interest to match the estimated value of the asset when returned.
CMPS were writing down the Deferred Asset over the contract period,
which resulted in a charge to the Operating Cost Statement and
reduced their capital requirement. Following consultation with
National Audit Office, it was decided that the Deferred Asset
will be treated as a prepayment and reclassified as a Current
Asset rather than a Fixed Asset. Changes were made to CMPS' element
of the Departmental Expenditure Limit (DEL) in the Spring Supplementary
Estimate to reflect this change and also bring the Estimates in
line with CMPS' latest Net Resource Requirement (NRR). These adjustments
were cost neutral within Cabinet Office DEL. Further changes to
take account of treatment described above are expected in 2005-06
Supplementary Estimates when CMPS' element of the DEL will be
revisited as part of the in year review to reflect CMPS' latest
NRR. The fixed assets will be re-valued annually under normal
Resource Accounting rules. Any changes in value due to changes
in the market will be taken into the revaluation reserve. Only
increases that are due to development work will be capitalised.
There are currently no plans for any such development.
The Cabinet Office Internal Audit Service was
a small unit and the transfer to the ODPM provides the opportunity
for the Cabinet Office to benefit from a more comprehensive audit
team. There is no reduction in the number of man-days. Economies
of scale were achieved by eliminating the duplication of support
functions, which are now carried out entirely by administrative
staff, freeing up professional audit staff time. No other department
is involved in the arrangement and no redundancies will occur
as a result of the transfer. Steps have been taken to ensure the
staff responsible for auditing the Cabinet Office continue to
have full access to Cabinet Office information systems enabling
them to keep their knowledge up to date. This need is recognised
in the internal audit unit's 2005-06 training and development
plan. There is no negative impact on the quality and timing of
internal audit reports. The Audit and Risk Committee, recently
strengthened by three additional non-executives, will continue
to monitor the quality of internal audit in the Cabinet Office.
The EYF figures published in the Public Expenditure
2003-04 Provisional Outturn were based on an end year forecast
in June 2004. Our 2003-04 Annual Report and Resource Accounts
(HC 1190 2003-04) published in October show that our actual underspend
against resource DEL was £26.2 million. The inaccuracy of
the forecast was a result of shortcomings in our financial management
systems at that time. These are being addressed by a current project
to make significant changes to the accounting system and facilitate
production of monthly management accounts. Comparing the position
between our 2002-03 accounts and our 2003-04 accounts does, I
hope, show that those changes have already borne fruit. We have
been able to bring forward production of our 2003-04 accounts
by three months, with an unqualified opinion by the NAO, and have
avoided any Excess vote. We will be making adjustments in this
year's Provisional Outturn exercise to ensure that our remaining
EYF for 2003-04 is correctly shown—a balance of £7.9
million which we propose to draw down in the 2005-06 Winter Supplementary
Estimate to address general budgetary pressures. The EYF draw
down of £5 million administration costs in the Spring Supplementary
was primarily to cover some of the ongoing cost pressures arising
on the termination of the ITNET contract. For further information,
please refer to page 10 (paragraphs 35-37) of the 2003-04 Cabinet
Office Annual Report and Resource Accounts (HC 1190). The draw
down was authorised by the Chief Secretary.
Although we acknowledge that some sections within
the Estimate Memorandum may be perceived to be too brief, we were
led to believe that PASC were content with the format adopted
in the Winter Supplementary Estimate 2004-05 and we therefore
continued with the same approach. We were also not aware of any
guidance issued to PASC by the Scrutiny Unit at the House of Commons
for apparent dissemination to Departments. Now that we are aware
of it we will seek to apply in the preparation of future Estimate
Memorandums.
Copies of this letter go to Amin Rahman, Colleen
Guest, Jerry Page, Jane Marriot and Sally Pugh.
8 April 2005
| 
