Examination of Witnesses (Questions 1-13)
NATIONAL AUDIT
OFFICE
3 MARCH 2008
Q1 Chairman: Good afternoon. Welcome
to the Public Accounts Committee. It is our job to look at the
Main Estimate submitted by the National Audit Office which sets
out a provision for a net resource requirement of £107 million.
I should say that this is not the committee, which decides on
whether or not Parliament should give the National Audit Office
the money; the Public Accounts Commission will be meeting tomorrow
and will have a specific session on this. We only make a recommendation
but colleagues may have one or two questions; this is their opportunity
to ask you any questions in public. I think I have one question.
You have been very scathing about the use of central government
use of consultants and you helped draft me a speech yesterday
in which in terms of government efficiency I made some adverse
comment about the fact that central government is now spending
£80 billion on external consultants and we have had some
fairly hard hitting reports on this. How are you taking this forward
with your management of the NAO, Mr Burr? Are you avoiding the
trap of falling into over-reliance on consultants?
Mr Burr: I hope so. We are not
using consultants to any great extent, for example management
consultants helping us to run our business or something of that
kind. I would prefer to use the term that we have used in our
memorandum which is "outsourcing", that is to say that
we do make use, both for our financial audit work and our value
for money work, of the considerable body of expertise that there
is in the private sector to provide those kinds of services. It
is a question simply of not trying to do everything ourselves
but to share some of the work that we have with the well-qualified
external resources that exist out there.
Q2 Mr Dunne: There is a note at page
seven which touches on the additional superannuation rates required
in the two previous years and then no additional money required
in the current year or next year. Is it clear what proportion
of your baseline requirement is set aside for pension liabilities
and has this changed following recent personnel changes within
the NAO?
Mr Woodward: In the years 2005-06
and 2006-07 there were significant changes right across the Principal
Civil Service Pension Scheme to contribution rates and the Treasury
automatically adjusted all departments' baselines to take account
of the higher superannuation contributions. In 2007-08 and 2008-09
there are only very minor adjustments to contributions mainly
on the salary bands on which they are calculated. In terms of
the amount that the National Audit Office pay in superannuation
I think it is of the order of £8 million a year but if I
am wrong I can correct that in the transcript.
Q3 Mr Bacon: Can I turn to consultants
and outsourcing generally? You mentioned that you used them both
on the value for money side and on the financial audit side. Do
you work to a proportion of your total work that you expect to
outsource? Is it done on a percentage basis, that 20% of your
work will be outsourced?
Mr Burr: This has its origin in
Lord Sharman's Report of some years ago where it was recommended
that we should outsource 25% of our financial audit work. That
was significantly more than was at that time the case; we have
since increased to rather more than that, to around 30% of our
financial work. That has been our guideline.
Q4 Mr Bacon: Are you saying that
30% has been your guideline?
Mr Burr: Yes. Personally I think
that this is not something that one needs to set in stone. I certainly
do not regard this as something which we have to stick to. It
happens to be in line with, I believe, the Audit Commission's
proportion which is about the same in terms of the balance between
outsourcing and in-house work. However, I think it should be a
value for money judgment. I certainly do think that the level
of expertise and resource available in the United Kingdom accounting
industry is one that we would be quite wrong to ignore and of
which we should make significant use. We do get a lot of benefits
from that in terms of the cross-fertilisation with the rest of
the profession.
Q5 Mr Bacon: Is it mostly joint teams
when you outsource work with NAO staff?
Mr Burr: It is a variety of things.
It is always my opinion, of course; it is a question of how I
get the work done. We may—and we typically do in such cases—ask
the contractor to provide the complete service, but we do also
have arrangements, for example in the Ministry of Defence, where
we work with a contractor and we jointly plan the work, we decide
who is best placed to do which bits of it and we bring the results
together. Either model has advantages.
Q6 Mr Bacon: As far as value for
money is concerned, is there also a percentage of X that is outsourced?
Mr Burr: There is not a target
percentage in the same sense.
Q7 Mr Bacon: What is it in fact?
Mr Burr: It is about 20% I think
at the moment. We do have a framework agreement with a number
of firms to be able to call down those services as and when we
judge it appropriate.
Q8 Mr Bacon: Have you ever sat down
and, having looked at your 30/70 split of financial audits and
your 20/80 split of value for money work, then analysed the costs
of one benefit versus the other and decided which represents better
value for money?
Mr Burr: This is an issue in which
our Audit Committee have taken quite an understandable interest,
that we are not artificially distorting the mix. I think we do
believe that at those sorts of levels we are not over doing the
one or the other. This is why I would be reluctant to get impaled
on a particular percentage; you are absolutely right that you
do have to keep on asking yourself whether that balance is right
and whether you are using the external firms in areas in which
they have a comparative advantage and maybe specialist expertise
or something of the kind, and you are not using them where you
have in-house resources that could do the job better.
Q9 Mr Bacon: I have one more question
which I think is probably for Mr Rickleton because it is about
the building. This is paragraph 23 where it says that forecast
expenditure for 2007-08 is some £7 million lower than the
provision included in the estimate for that year which was prepared
on the assumption that repair and refurbishment expenditure would
be incurred at a faster rate. Latest projections show that more
expenditure is likely to be incurred in the later years of the
project. Elsewhere it says the thing is still on track. One might
ask that if it is still on track why is the expenditure running
rate not the one you expected?
Mr Rickleton: Unfortunately the
project, whilst it remains on track, remains out of sync of the
expenditure approvals process in Parliament slightly which is
most unfortunate. At the time we came to the Committee and the
Commission last year with our estimate we had only just brought
on board the project management team from Turner and Townsend
to run the project on our behalf. We were still using the cost
profiles of the previous set of advisors who, if you remember,
did the concept design costs on which the Commission made the
original approval. Once we had got the estimate agreed across
last summer our project management team advised us very strongly
that in order to better risk manage the project as a whole we
should defer bringing on board the main contractors until we had
done a further stage of design, which is what we have done. What
that means in effect is that we are concertinaing some of the
expenditure in terms of some of the strip out and refurbishment
into a period slightly later in the project, but only by about
three months. This heavy duty strip out would have occurred from
October; we only actually started in January, but that was a planned
move in the programme.
Q10 Mr Bacon: As a result of that
you have a closer, more accurate understanding of what it is that
will be done in design terms.
Mr Rickleton: Yes.
Q11 Keith Hill: The NAO obviously
goes from strength to strength. I doubt that its influence, your
reach, the publicity attendant on your reports has ever been greater,
but I want to put to you a philosophical question. A great deal
of the NAO's work necessarily deals with new programmes and initiatives
which cannot be guaranteed to succeed. Do you accept that any
new innovation is bound to carry an element of risk and do you
have any concern that the public opprobrium associated with a
negative NAO report may encourage risk aversion and is that a
matter of worry as far as you or indeed government in general
is concerned?
Mr Burr: I think it must always
be a concern that we do not, as it were, disincentivise the calculated
acceptance of risk. We have sought to put quite a lot of emphasis
on risk management rather than risk avoidance in the work that
we have done and if, for example, we are doing work as we are,
a number of reports on the run up to the Olympic Games, we are
looking at the way in which the risks inevitably associated with
a major innovative programme of that kind are being managed. I
think I would generally say that where we are looking at relatively
new initiatives that would be the focus, not on saying, "Why
are you taking these risks at all?" but "Are you managing
them as well as you could do?"
Q12 Geraldine Smith: I note in this
document that you are going to be allocated additional resources
for a second round of independent performance assessment of regional
development agencies; I welcome that, I think it is very important.
However, I also notice also for extending support to regional
select committees. I have been asking about regional select committees
for some time in business questions and I have never got a definite
answer, so do you know something that I do not?
Mr Burr: I was discussing this
question only the other day and I do not know of any more definite
answers. In drawing up our plan we have inevitably made some assumptions
about what will need to be done or of course we would not have
the resources to respond if this agenda was taken forward. I am
aware of where the situation lies at the moment and no further
steps have yet been taken.
Q13 Chairman: Thank you very much,
Mr Burr. Certainly some of us will see you back tomorrow morning
at the Commission where we will actually take the decision, but
these hearings are very useful to give people the chance to ask
you questions about what you do for us, for which we are very
grateful. We realise that we would achieve absolutely nothing
without you.
Mr Burr: I am not sure we would
achieve much without the Committee of Public Accounts.
Chairman: Thank you very much.
| 
