Examination of Witnesses (Questions 160
- 179)
MONDAY 4 DECEMBER 2006
MS HELEN
GOSH AND
MR IAN
GRATTIDGE
Q160 Mrs Moon: If you think it was
other Government departments, why do you think, then, that Defra
has had the publicity it has? Why would Defra be singled out in
that way?
Ms Ghosh: I think we have a vocal
and lively set of delivery bodies and there has been substantial
media coverage of it. I think the link, although it is a false
link, given, as you know, the level of contribution from the RPA,
through to problems of the RPA that has been made, has fuelled
the interest in Defra's budget adjustments. I come back to the
point that a £200 million budget adjustment signalled relatively
early on in the year, clarified in July of the year, to our delivery
bodies is by no means disastrous financial management.
Q161 Chairman: How come you yourself
said in your 2005-06 resource accounts there were, "clear
warning signs of a more general deterioration in the internal
controls in some areas of Defra's management systems during a
challenging time of major change in the Department"? What
did you mean by that sentence?
Ms Ghosh: That is a quite different
set of issues raised in the statement on internal controls. It
is not relating to the overall budget management because, as I
say, I think 05-06 and the work we are doing so far on 06-07 demonstrates
that it is excellent. The kinds of issues that we were discussing
there are the kinds of issues raised by our audit committee around
things like some novel and contentious payments, making sure that
we are getting consistent information back from all parts of the
Department on spend and where we are not—Ian and his team
are pursuing this very vigorously.—and a number of small,
but I think significant items that just need to be kept an eye
on to make sure that we are being absolutely regular in the way
we spend money. As you know, however, our accounts got no level
of qualification for anything, so clearly overall NAO was perfectly
happy with them.
Q162 Sir Peter Soulsby: Just before
we lose sight of what you were telling us about the situation
last year and what you knew then, you are telling us that by this
time last year you knew what the rules were; you knew that, as
you have described it, Defra was no longer an under-spending department;
and you knew that you were moving into a deficit.
Ms Ghosh: No, we did not know
that we were moving into a deficit. Sorry, could you clarify what
you meant by that? We knew that we had to adjust our budget for
05-06 and we did that. We were conscious that we were pushing
forward spending into 06-07. As I said earlier, the question is
the judgment about whether or not in 06-07 we would be able to
bear that level of carry-forward.
Q163 Sir Peter Soulsby: You have
told us several times that it was a matter of judgment not to
take action beyond the action that you actually took at that stage.
Ms Ghosh: Yes.
Q164 Sir Peter Soulsby: That was
of course ministerial judgment. You also were indicating to us
that in relation to one of the first issues that was dealt with
by the new ministerial team they made a different judgment. Is
that fair?
Ms Ghosh: I should say that with
both sets of ministers, with whom we have a regular business meeting
every week and discuss things like budgets, there was pretty good
transparency on what was going on in the budget both in 05-06
and 06-07. As I say, I think by the time we got to March/April
and just before the re-shuffle, the impact that the particular
pressures, in particular RPA, AI, were likely to have on the budget
became clear from our monitoring as a management board. It was
clear that we needed to take action. It was coincidental I think
that we happened to have a re-shuffle and a new team of ministers
came in. There was no lack of interest on the part of our previous
ministerial team on how the budget was going, and obviously, given
that they were a very stable group of ministers, they had a pretty
profound understanding of the way our budget worked.
Q165 David Lepper: Defra spent £170
million over the last four years on management consultants, and
in 2004-2005 the Department spent 7% of its goods, works and services
expenditure on external consultants. Did those management consultants
help the staff of the Department, the office of the Department,
and indeed Ministers, to foresee the problems that were ahead;
or were they advising you on other things entirely?
Ms Ghosh: They will have been
advising on a range of things. You quote the 04-05 figure, but
by 05-06 the figure had been reduced; and the figures are the
quota for what we call professional services, which is a range
of things other than management consultancy specifically. Like
many departments, we use management consultancy to help us with
the skills we do not have in-house, on the basis that at any given
time we do not necessarily have the skills we need in-house; and
to be in a position where we had absolutely up-to-date cutting-edge
skills on particular issues in-house would be a poor use of taxpayers'
money. We therefore consciously use management consultancy and
business consultancy where we can buy in a skill that we do not
have. What I am absolutely committed to—and I know that
my management board colleagues are too—is only to use management
consultancy (a) where we do not have the skills in-house; and
(b) on a basis where we can transfer those skills to other people
in-house. For example, if you take the extensive use we now make
in the Department of project and programme management skills,
we did not have those skills two or three years ago; we are now
absolutely at the forefront of departments that use project and
programme management. Increasingly, from a situation I guess where
a lot of that support was given by external management consultants,
now we have staff across the Department with the relevant skills
who have learnt them in partnership with management consultants,
and who move on. In 05-06 we spent less on management consultancy.
We are aiming to bring that figure down by 10 or 15% and to be
much more savvy about when we use management consultants, and
actually managing the contracts and the selection process much
better so that we can make sure we keep costs down as far as possible.
The key to me is to use them when you really do not have the skills
in-house, but to make sure your own staff learn the lessons; and
then you can use your own staff to apply the lessons in the future.
Q166 David Lepper: You have talked
about the work that they did on project and programme management;
has any of that expenditure on that kind of consultancy work helped
the Department to a better understanding of its financial situation
and how to deal with that?
Ms Ghosh: I will hand over to
Ian, but we have used some management consultancy techniques to
get a better handle on where we spend our money, for example against
outcomes, so that we get a better handle on that kind of thing,
which will be taken forward.
Mr Grattidge: One very good example
is that we underspent very heavily in 2003-04, and we totally
failed to signal to the Treasury that that was happening. In fact,
we worked with a firm of management consultants very closely on
improving our in-year control forecasting, and one of the outputs
from that review was the management board work that we showed
you earlier, which helped us focus on how expenditure trends are
moving. In particular it gave us much greater focus on our top
25 programmes, and we used these graphical presentations to show
the trend analysis. We have had very good value from them in certain
areas in the past.
Q167 David Lepper: Therefore the
form of reporting to the board that you described earlier is partly
a result—partly at least a result of advice received from
management consultants?
Mr Grattidge: Yes.
Q168 Chairman: Do you have any non-executive
directors on your board who are accountants?
Ms Ghosh: We do. One of our two
current non-executive directors, Bill Griffiths, is an ex-finance
director from Unilever, and he chairs our audit and risk committee,
which only has on it non-executives with financial experience
in the private sector.
Q169 David Taylor: Is he a full-time
non-executive?
Ms Ghosh: With us, no.
Q170 Chairman: When did he join the
board?
Ms Ghosh: Before my time.
Mr Grattidge: Probably three years
ago.
Q171 Chairman: Has his expertise
been consulted about management information and control systems?
Ms Ghosh: Absolutely, very much
so.
Q172 Chairman: Did he give it a clean
bill of health then?
Mr Grattidge: I think Bill generally
has been of invaluable help, particularly on areas of financial
control and financial reporting, in as much as he is able to reflect
on that at the management board. From his perspective the changes
to the management board report which were introduced early in
2005 were worthwhile and did help the management board do its
job better; but we do not stand still, we—
Q173 Chairman: When he came along
and had a look—because any non-executive worth his salt
will have a look at the systems where they are bringing their
expertise to bear—was he critical at the time, when he initially
joined the board?
Mr Grattidge: It is fair to say
that Bill is always a critical friend to the Department, and he
is a critical friend to the finance function within the Department
because of his expertise. He offers a number of insights not only
on management board reporting but on financial management and
financial control generally.
Q174 David Taylor: Does that mean
he was not happy, in normal English?
Mr Grattidge: Well—
Q175 Chairman: Say "yes"—it
is much easier.
Mr Grattidge: Any department that
says it is perfect is probably in need of a reality check. We
have always got room to improve. I do not think he said it was
a basket case, but I do think he would have felt there was room
to improve.
Ms Ghosh: Can I just put these
two contexts? These questions imply that the Department is not
managing its budget in the sense of year-on-year living within
its means—
Q176 David Taylor: Are you talking
about that one million figure?
Ms Ghosh: I am actually because—
Q177 David Taylor: I am going to
knock you on that—
Ms Ghosh: The discussions that
go on in the board are all about whether we are going to achieve
our delivery outcomes within our budget. There is no question
that Defra has failed to live within the budget that it has got.
To come back to the earlier discussion, the issue in front of
us now is: as the nature of the financial challenge shifted and
became much tighter as the pressures mounted for 06-07, should
we have said in January as opposed to in March/April, "we
now need to adjust our budgets for next year", rather than
reaching that view in April and May and getting agreement with
Ministers for budgets that were changed in July? That does not
suggest to me a department that in any way is out of control in
terms of managing its finances.
Q178 David Lepper: In the parliamentary
written answer from Chris Hune, 5% or £10 million of the
£200 million deficit was committed to the impact of avian
influenza, in particular I think around the small outbreak in
East Anglia. What was in the expenditure of £10 million?
Ms Ghosh: We can send you the
details of that. There are lots of additional expenditures. We
have to use contractors to catch birds, to kill birds and all
those sorts of things, and we can certainly send you what the
bill for the £10 million was.
Q179 David Lepper: That was a fairly
small outbreak. Can you estimate what the impact on the budget
would have been had the outbreak been more serious; or is that
a total imponderable?
Mr Grattidge: It is a bit of an
imponderable because the scale of a particular outbreak, the number
of affected birds and the geographical dispersion would all have
an impact on the final cost.
David Lepper: Is there a sum in Defra's
budget at the beginning of the year set aside for dealing with
avian influenza or does it come from a different budget?
Chairman: I think Mr Lepper is getting
to the point about contingencies.
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