Examination of Witnesses (Questions 40-59)
DEPARTMENT FOR
ENVIRONMENT, FOOD
AND RURAL
AFFAIRS
19 MARCH 2008
Q40 Mr Davidson: So everything was
fine then?
Mrs Ghosh: No, it was absolutely
not fine.
Q41 Mr Davidson: I have some difficulty.
Every time I raise something that causes me concern, you seem
to be able to talk it away. I think that simply an admission that
things were really pretty terrible and you have sorted it out
now would be very helpful, rather than just simply a flat denial
that anything was wrong.
Mrs Ghosh: I am not for a moment
flatly denying that anything was wrong. As I said here and I have
said in other parts of this House, I very much regret that we
had to withdraw £170 million from these delivery bodies.
It had the impact that the Report describes. That was clearly
an example of poor financial management. That is what has incentivised
me to drive through personally, with Stephen and my management
board, this Financial Management Improvement Plan.
Q42 Mr Davidson: Several times you
have touched on the question of cultural issues inside the Department.
Those of us who have had any experience of the way in which you
deal with farmers are aware of a number of cultural issues where
you are frequently taken to the cleaners by farmers. Have those
sorts of cultural issues been resolved as well as the cultural
issues of it being just sloppy on expenditure? Will we expect
to see a high speed, up to date department from now on that does
not give room for these sorts of errors?
Mrs Ghosh: In terms of financial
management, you will see improvement—the programme to deliver
that is set out in the Report. In terms of managing our portfolio
of activity, which is the basis on which we are moving forward
into CSR 07, you will indeed see a much tougher both financial
and outcome monitoring system by the management board—we
would be happy to share with the Committee examples of how we
will be doing that—and also very intensive business case
development for new projects, which means that we will be much
more certain before we approve an activity what it is going to
do for us, how much it will cost, what the risks are, what the
impact on customers is. Across the piece, we will be implementing
a much more rigorous approach to what we do in order to provide
better value for money for taxpayers.
Q43 Mr Davidson: If we have another
outbreak of mad cow disease or something similar, do I take it
then that your financial processes will be sufficiently robust
to avoid us being fleeced by farmers and contractors and so on
in future?
Mrs Ghosh: As you know, we learnt
a great many lessons from the 2001 outbreak. We have done a lot
of things in terms of the rules around compensation to avoid some
of the problems we had in 2001. We are very active, as you know,
with the farming industry on the responsibility and cost-sharing
agenda. We will be taking out of the CSR budget around £120
million by the end of the period in animal health costs that will
be met by the industry rather than government, but it is very
much a question of working in partnership with the industry and
at all times thinking about the risks and incentives that will
be built into the system.
Q44 Mr Davidson: The partnership
we had with the industry before was that they had their hands
in your pockets, which is not necessarily the sort of partnership
that we want to see. Are you quite satisfied that we will not
have that again?
Mrs Ghosh: I am satisfied that
in terms of policy in financial systems that is the case and things,
for example, like tabular compensation rates rather than individual
compensation rates for animals, except in exceptional cases, is
one instance where that is the case.
Q45 Mr Davidson: I remember a long
time ago reading Management and Machiavelli by Anthony
Jay, and I see that you did a degree in mediaeval Italian history—
Mrs Ghosh: As I said to the Chairman
at my last appearance, it was sixth century Italy I did.
Q46 Mr Davidson: I see! That is before
the Machiavellian period?
Mrs Ghosh: No, that was the Ostrogoths.
Q47 Mr Davidson: I am not familiar
with that. Possibly there are some of their descendants in my
constituency but I am not aware of that directly! One of the issues
I remember from my Management and Machiavelli was the extent
to which having so many powerful barons could cause substantial
difficulties. I wondered about the extent to which it is possible
for a department such as yours, with so many as it were powerful
barons, to keep genuine supervision of them while, at the same
time, allowing them a degree of discretion, flexibility and decentralisation.
I wondered if you could give us your view on whether or not the
balance that we have at the moment is right, that tension between
being held accountable for everything we do, while on the other
hand wanting to give them a degree of discretion to manage their
own affairs.
Mrs Ghosh: That is particularly
in relation to the NDPBs, the Environment Agency?
Q48 Mr Davidson: Yes.
Mrs Ghosh: Yes, I do think at
all times it is a balance. The decision by ministers, by Parliament,
to set up non-departmental public bodies (NDPBs) is precisely
because you want them to have a level of independence. If you
did not want them to have a level of independence, even though
sometimes it is politically uncomfortable, you would not set them
up as NDPBs. I think what you have to have is a management reporting
system that is consistent with the organisation, clearly understood,
and a very clear understanding about what their freedom of manoeuvre
is—when can they stand up and criticise the government,
when would we expect them not to, when are they our statutory
advisers—and then build extremely good relationships. I
have come from the Department where Sir Martin Doughty and Helen
Phillips, the Chairman and Chief Executive of Natural England
respectively, were having one of their regular series of meetings
with Hilary Benn, ministers and the management board just to talk
in a very informal way about our joint challenges where Natural
England can help across our broader agenda and have that very
open discussion. I think it is a combination of those three things.
Q49 Chairman: Mr Davidson has a point.
I think that you do have a tradition of being a rather bureaucratic
and top heavy department. Do you really need in the Rural Payments
Agency the best part of 5,000 civil servants to manage payments,
subsidies, given to just over 100,000 farmers? I know we have
had this conversation before but I just cannot resist asking you
again.
Mrs Ghosh: As we have discussed
it in front of the Committee before, over time, the plan is that
we will significantly reduce that number of people. One of the
reasons we have exceeded our headcount reduction target for the
SR04 period is that Tony Cooper has been able to identify I think
more than 200 additional staff that he can now lose because of
the improvement programme there. Again, the NAO Report made clear
that by the end of the CSR 07 period, it is expecting to have
lost at least another 1,000 staff, operating on SPS (Single Payments
Scheme).
Q50 Nigel Griffiths: In 2005 the
Treasury highlighted the financial problems within the Department
that led to persistent under-spending. We had the MoD in here
on Monday over their several billion pounds over-spending on things.
Can you give them any tips?
Mrs Ghosh: In some senses, I would
be very loath to give my colleagues in the MoD tips. Both under-spend
and over-spend are best tackled through very good project management,
by being able (again as this Report and the Treasury guidance
on good financial management always makes clear) to set a clear
budget, having clear milestones, understanding what your outcomes
are to be and sticking to them and monitoring them extremely carefully.
I think it would be true to say that although we were I think
across government pretty innovative in how we applied project
management techniques to what were very often policy related projects,
we were not as smart, in the technical sense of the word, about
it as we should have been and that is what we are doing in the
renew programme. I know the MoD are also excellent project managers,
so I will not answer for them.
Q51 Nigel Griffiths: In Appendix
1 there is list of all the bodies, six of which have under 30
employees and 27 advisory tribunals have an average of two. Do
they have harmonised HR systems for payroll, sickness and things
like that? Are they using all the same systems via your colleagues
centrally, and if not, why not?
Mrs Ghosh: As you may be aware,
we have set up—we set up several years ago—a shared
services organisation, which in the long term we are aiming should
serve most of the Defra network. For example, it serves Defra;
it will serve most of our agencies by the end of this year; it
serves Natural England. On the question of whether one would bring
into a single HR service centre all these smaller organisations,
which are in many cases very independent, no doubt it would be
quite difficult. There would be real issues about whether that
was value for money.
Q52 Nigel Griffiths: How does the
payroll for two people in the National Fallen Stock Company work?
Mrs Ghosh: I do not know. I can
certainly cover that in the letter I send you2[2].
Q53 Nigel Griffiths: And the National
Food Crop Centre? What about the risks of delivery analysis, which
is highlighted on page 17? "Each Agency maintains a register
of its key risks to delivery, but we found that the sponsor teams
have not routinely drawn on this information to assess whether
delivery bodies are likely to achieve the levels of performance..."
Has that been tackled?
Mrs Ghosh: Yes. That goes back
to the discussion we had earlier about having a more standardised
basic set of information that we get and now the corporate owners,
meaning in the case of our big agencies the relevant Director
General, will be having exactly those sorts of discussions with
our key delivery bodies. Many of the risks that are high risks
on their delivery registers will of course also be high risks
for the Department and therefore will appear on our own systems
of risk register against projects.
Q54 Nigel Griffiths: What is the
blueprint? Is it quarterly or half-yearly checks?
Mrs Ghosh: At management board
level across the department, simply because with monthly checks
you would not necessarily get enough interesting or changing data
or be able to see patterns, we certainly focus on quarterly performance
monitoring, although we get monthly performance monitoring on
financial maters, which is also true of our delivery network.
If you are trying to look at how the outcomes are being delivered
against those financial and staff inputs, we look at that quarterly.
I imagine that that is pretty standard across our delivery agencies.
Q55 Nigel Griffiths: What exactly
is the sponsor team?
Mrs Ghosh: Let us take an example
of the Environment Agency, and I will explain the structure of
that. I have a Director General who is responsible for the Natural
Environment Group, Peter Unwin, and within his group comes sponsorship
of the Environment Agency. He is the corporate owner and maintains
very regular dialogue with Barbara Young, John Harman and senior
managers there. Then he has an SCS-led team (Senior Civil Service)
who are responsible for the day-to-day relationship with the Environment
Agency, which actually works across so many ranges in the Department
that there will be a number of other people who are talking to
the Environment Agency. The Senior Civil Service sponsor and her
team make sure they know what all the dialogue is, so that you
could not get the waste people asking the Environment Agency to
do bits of one thing and the flooding people asking them to do
another without somebody understanding what the totality of demand
is. That is how it operates within the system. Every body has
a structure broadly like that.
Q56 Nigel Griffiths: In this agreed
Report with the NAO it states that sponsor teams could better
review each month whether the forecast spending for the remainder
of the year is likely to be achieved. Are you saying that is being
done or that you are working on it?
Mrs Ghosh: That has been done.
As the Report says, and I think we have even better information
now, the regularity of financial reporting from our delivery bodies
is now massively improved.
Mr Park: They are now delivering
their Reports on time each month.
Q57 Nigel Griffiths: Can we go through
the recommendations on page 7, paragraph 15, which sets out the
six recommendations. Can you tell the Committee what is being
done to achieve those?
Mrs Ghosh: Certainly. We have
done the first one for 2008-09, which we did on 21 February. We
are talking to the various delivery bodies on how they would best
like us to give them guidance for their budget for 2009-10 and
indeed 2010-11 but we will be likely to be giving them an indication
of that towards the beginning of the coming financial year and
then confirm it later in the year. They and directors in the Department
already have their budgets for 2008-09. They fit with our strategic
objectives because that is how we planned the budget and we can
track them against each of our departmental strategic outcomes.
We have developed, as I said, through our portfolio prioritisation
system the third item, and that supports just the basic financial
Reports we will get every month through Stephen's team. I had
already set last year my number one objective and that of my management
board, which is to live within our means. The letter I will be
sending to senior responsible officers for the budgets shortly
will say that that is their number one objective, to manage and
finance effectively, and it will be one of the objectives, the
most important objective probably, against which they will be
judged. We talked about skills. I have talked about (v).
Q58 Nigel Griffiths: I will let you
do (vi) in a moment. If we go back to my initial question, how
is this being managed for all the organisations with two, nine
and 14 members of staff?
Mrs Ghosh: To go back to the table
you were showing, and I was not on the ball enough to make the
point at the time, we are really only interested in the bodies
to whom we give money, and we are most interested in the organisations
to whom we give most money. So as Stephen said, the main way that
we have driven this financial management improvement is through
the network of financial directors, which Stephen has led, supported
by those sponsorship teams that I described. The National Fallen
Stock Company and the British Wool Marketing Board are essentially
private sector companies and so rather in the way we do with the
Carbon Trust, we will give them any support that they need in
terms of finance, we will be buying services from them in some
way; we will agree on the outcomes we want; and they will be on
a looser rein than the bodies that are actually direct deliverers.
Q59 Nigel Griffiths: Are you saying
that the National Fallen Stock Company is more likely almost to
have those two employees working with private sector support?
Mrs Ghosh: Exactly. These are
all private sector companies. Clearly we pay a lot of attention
to the Carbon Trust, of which the gross expenditure is £100
million and it is one of our key delivery organisations, and indeed
we have a member of staff who is on the board. Going back to the
point about proportionality, it will be different across those
organisations.
2 2 Note by witness: As of 1 April 2008, the
Company's administration has been outsourced, after proper competition,
to the private sector-prior to this it received administration
support from the Rural Payments Agency. This means the private
sector company uses their own payroll software, and can then recharge
payroll costs to NFSCo together with other administration costs. Back
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