Examination of Witnesses (Questions 1-19)
DEPARTMENT FOR
ENVIRONMENT, FOOD
AND RURAL
AFFAIRS
19 MARCH 2008
Q1 Chairman: Good afternoon and welcome
to the Public Accounts Committee. I apologise for the late start.
Today we are considering a very important subject, the Comptroller
and Auditor General's Report on the Department for Environment,
Food and Rural Affairs and its management of expenditure, or rather
non-management of expenditure. We welcome Helen Ghosh, who is
the Accounting Officer of the Department for the Environment and
Stephen Park, who is the Department's Interim Finance Director
General. We know, Mrs Ghosh, that you were not entirely responsible
for this but we have to question you anyway because you are in
situ as it were. We know that you are making sterling efforts
to set things right. I have to ask you about what went wrong.
I suppose the story is set out briefly in paragraph 10 of the
executive summary. I am going to ask you why your Department was
unable to set budgets within the funds available to you from the
Treasury for the financial year 2006-07 and 2007-08.
Mrs Ghosh: To deal with 2006-07
first, I think the Report gives an excellent, though as you say,
quite brief account of the issues around setting the budget. They
were, I would say, the failure of the Department to realise the
impact of a progressive disappearance of under-spend in our budgets
over a number of years and an assumption, as we went into 2006-07,
that similar under-spends would occur and that therefore over-programming
was a safe thing to do. We had managed our expenditure in 2005-06
I think to within £1 million but we had deferred some expenditure
into 2006-7 on the basis that, as it were, something would come
up and people would not spend the budgets that they were set.
Having done that, we were then hit by a number of spending pressures
that we had not anticipated and one with which this Committee
is very familiar: more funding required for the RPA (Rural Payments
Agency) recovery programme. We had an outbreak of bird flu, which
was about £10 million, and a number of other pressures.
Q2 Chairman: Presumably it would
be wise in a busy department like yours, which is hit by events
all the time, to have contingency arrangements for this kind of
problem.
Mrs Ghosh: Indeed, and that is
why, as we look forward to the CSR 07 period and the budget for
2008-09 and beyond, we have set aside a £50 million departmental
unallocated provision, precisely for this kind of event. That
was I think the problem going into 2006-07. As I have said to
my own departmental select committee, obviously we very much regret
the fact that we had to withdraw around £170 million of funding
from bodies in-year. As I have said to the EFRA Select Committee,
the alternative would have been, and it would have given them
more time to plan, to set lower budgets earlier before the financial
year had begun. In the end, the outcome would have been the same
for them, but the point is that they embarked on the year expecting
to have money and then did not, and again I think the Report gives
an excellent account of the kind of impact that had. In the present
year, on the provision for programme, we were not over-programmed
in terms of our programme spend; we had some over-provision, which
we then worked to and have indeed succeeded in bringing down,
on the administration spend side. So, by the end of the year we
will have recovered the over-provision on administration spend.
This year of course we have also had to absorb around £60
million of spend, again from the unexpected—though as you
say, Chairman, in some senses that is what our Department is about—on
a combination of floods, foot and mouth and bird flu. Again, we
will have absorbed that within the programme spend.
Q3 Chairman: Do you think it should
have taken so long to remedy these problems?
Mrs Ghosh: We effectively began
to remedy these problems at the beginning of 2006-07. I think
there was a cultural issue, as I said, in terms of being a Department
that historically had under-spent, not more than other government
departments as the Report says, but that had relatively speaking
under-spent, and moving the mindset of the management board into
a world where money was tight. I would say over the two years
of my time we have got ourselves to a much better place where
the culture of the Department's financial systems, thanks to the
Financial Management Improvement Programme that Stephen has led,
for CSR 07 are better, our skills throughout the Department are
better, and the budgets that we have set are realistic.
Q4 Chairman: So we are not going
to have these problems in 2008-09 then?
Mrs Ghosh: We are not going to
have these problems in 2008-09.
Q5 Chairman: That is a straight answer.
Appendix 1 lists the 31 delivery bodies that you are responsible
for. It is really a very long, mixed list. Do you think this adds
to your difficulties? Perhaps some rationalisation might help?
Are you setting about a rationalisation?
Mrs Ghosh: As the Report said,
just to take a couple of examples, on the question of the industry
levy boards, the agricultural levy boards, the Meat and Livestock
Commission and so on, we have already done some rationalisation.
Obviously that is not an area on which we have to spend, but it
does take, as it were, administrative and managerial time and
therefore resource, and the new body will be set up in April.
We have recently launched on the back of thinking about our budget
for 2008-09 a review, to use the rather dreadful term, of the
landscape on delivery bodies on climate change. I was in front
of the Committee recently with Tom Delaney of the Carbon Trust.
We are looking at that whole range of bodies—WRAP, Carbon
Trust, Energy Savings Trust—to see if there is not some
possible rationalisation there. Otherwise, we would say that our
delivery bodies, particularly our NDPBs, are there with a clearly
defined purpose and rationalisation beyond the Hampton rationalisation
we are already doing in some areas would not necessarily produce
more effective outcomes for customers.
Q6 Chairman: So the British Potato
Council is going to go on, is it, and things like that?
Mrs Ghosh: Within the new future
structure around levy boards.
Q7 Chairman: Do you think it would
be helpful if you had more non-executive directors on your management
board, more people who can question what you are doing rather
than just barons from one side of the Department, people perhaps
with outside private sector experience?
Mrs Ghosh: We have three non-executives.
My board, as again the Report says, has eight executive members,
chaired by me, and currently three non-executive members, with
a fourth vacancy. Two of the three non-executives have private
sector experience. The chair of our audit committee, who has a
Unilever finance background and Poul Christensen, who is a businessman,
a farmer and Deputy Chair of Natural England, are both non-executives
and perform an extremely useful and challenging challenge function.
The third is Alexis Cleveland, who is from within government;
she works in the Cabinet Office on service transformation, and
brings change experience from The Pensions Service. We have a
fourth vacancy which we are in the process of filling, again where
we will be looking for private sector experience.
Q8 Chairman: Mr Park, you are getting
a grip on this now and you are going to stay within your expenditure
limits for 2007-08 are you?
Mr Park: I am getting to grips
with the issues and, yes, we will stay within the expenditure
limit.
Q9 Chairman: If you are so good at
your job, why are you leaving?
Mr Park: I was appointed into
this role in an interim capacity to address the issues within
the Department. It was always the intention that a permanent successor
would be appointed.
Q10 Chairman: How long have you been
in this job?
Mr Park: I arrived here 10 months
ago.
Q11 Chairman: When are you leaving?
Mr Park: The date of my departure
is not yet agreed but my successor has accepted the offer.
Q12 Chairman: Is it a good moment
to leave at a key moment in this implementation programme? Mrs
Ghosh?
Mrs Ghosh: I think it is a very
good time. It is not that it is a very good time for Stephen to
leave because he has done a wonderful job, but the permanent successor
we have recruited, again from the private sector, will be joining
us in mid-May. Stephen is committed to staying with us long enough
for us to close our accounts early, which we are committed to
do, and is, in true professional spirit, committed to staying
with us until we know that is happening. By the hand-over period,
we will already have had almost one quarter's experience of managing
our budget for 2008-09 and we should have time for a good hand-over
between Stephen and the permanent replacement. We think that is
the best time that we could have picked.
Q13 Chairman: Mr Park, why should
we have any faith in your improvement programme when we had a
Treasury review in 2005, all sorts of lessons were apparently
instilled into your Department, and yet this mismanagement happened
after this Treasury review. Why should we hope to expect anything
better from your present review?
Mr Park: The Report very fairly
sets out not only the issues in the previous year but also the
actions that we have taken in 2007-08. A number of those actions
are intermediate steps to proving that the outcome will be good
by the end of the year, and so we now have a much more robust
month-end process. We are seeing the benefits from that in the
way that the information goes to the management board and the
way that the board uses the information. We have completed the
interim resource accounts based on the December quarter end; the
NAO has been reviewing those accounts and is satisfied with the
progress that we are making to resolve those outstanding issues.
We have also put in place a number of qualified accountants within
the Department to make sure that we embed financial management
across the decision-making process. Finally, as part of the renew
programme, we are improving the financial management training
and development across the Department. This is not a superficial
fix. This is working within the Department to ensure that the
processes remain in place and are built on in 2008-09 and beyond.
Q14 Chairman: That is wonderful.
May I ask the Treasury, please, to look at paragraph 1.5? Does
it not worry you that it tells us there that in 2005: "the
Treasury undertook a review which identified the need to embed
financial awareness across the Department with fully trained and
accountable budget holders". Do you not feel frustrated from
the point of view of the Treasury that apparently all this work
was wasted on this Department?
Ms Diggle : It is certainly worrying
that we did not spot everything, but then it is very hard to spot
every problem that might crop up, but I am satisfied that Defra
is now putting in hand a programme to put things right.
Q15 Mr Williams: When will you have
a set framework in place to monitor all your delivery bodies in
a consistent way?
Mrs Ghosh: We are well down the
track of having that framework in place. As the Report I think
makes clear, and particularly with our largest and biggest spending
delivery partners, whether it is RPA, Animal Health within the
Department or Environment Agency and Natural England outside the
Department, actually the dialogue between the departmental owner
of the body and the body is a very active one. There is active
engagement on budget setting and targets for coming years. We
adopt what we call an earned autonomy model so that when have
a well-established, long established and obviously well run organisation,
of which the Environment Agency is obviously one, then we do not
breathe down their necks all the time but we do maintain a framework
of financial information and reporting. We now have regular performance
discussions not only between officials but also now between the
Secretary of State and these bodies. In some other cases, given
the youth of some of our bodies, we do more hand-holding. I think
that the developments and improvements we have seen, for example
in the Marine and Fisheries Agency is a good example of that.
It is horses for courses and the sponsorship team within the Department
and in the organisation will have a slightly different relationship,
depending on the maturity and the risks, frankly.
Q16 Mr Williams: How far is your
fundamental problem a lack of financial specialists? You seem
to be rather deficient in qualified accountants. When do you hope
to remedy that?
Mrs Ghosh: In the core Department,
i.e. in as it were the 3000 bit of us who are the policy delivery
team effectively, we have 27 fully qualified accountants and 29
members of staff, and we are very committed to this, in training
for full accountancy qualification. We have some interims, including
Stephen Park; and then out in the Agencies we have about 48 qualified
accountants. What we are trying to do is not only as it were have
the numbers but also embed those people in the right places. As
Stephen has said, one of the things we have done as part of our
improvement programme is to put qualified accountants alongside
the business parts of the organisation. So each of my directors
general has a qualified accountant and a small team, which I imagine
will include some qualified accountants, looking at the spend
of that bit of the organisation. I think we are fairly normal
across government in terms of the proportion of qualified accountants
we have.
Q17 Mr Williams: When will all the
finance directors across the Department be qualified?
Mrs Ghosh: All of the finance
directors across the Department are qualified, and indeed as part
of the renewal programme the new Director General Finance will
be running a very well focused continuous professional development
scheme for anybody with financial responsibilities.
Q18 Mr Williams: What about training
of support staff? Is that adequate, do you think?
Mrs Ghosh: Perhaps the answer
to that is that you can never do enough. One of the things that
I am certainly going to encourage myself and my management board
colleagues to do is some very good on-line training which the
Treasury has put out called Love Learning, which is a very
good financial management package that you can do at your desk.
What we would like to encourage anyone who has financial management
responsibility, even though they may not be formally in a FD (Financial
Director) role, is to do that kind of training. We need to improve
our skills across the Department.
Mr Park: We already have in place
and will continue for future years financial training for SROs
(senior responsible officers) on the projects to make sure that
they understand precisely how financial management should work.
We provide refresher courses on that work.
Q19 Mr Williams: Is there much identified
scope for rationalising the number of delivery bodies you have?
There are so many of them.
Mrs Ghosh: As I was saying to
the Chairman, we have done some rationalisation and we are looking
at the possibilities of doing some more, particularly where both
in the eyes of the customer and in terms of the Department it
is not necessarily entirely clear what the distinction between
them is. The climate change area is one such instance, but we
are always looking for opportunities because of the administrative
overhead.
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