Appendix 1: Letter from the Chair of the
Public Accounts Committee
This is the last time I shall have the pleasure of
making a formal contribution to the Liaison Committee's Sessional
Report for 2008-09 as Chairman of the Committee of Public Accounts.
Whatever else the forthcoming general election may bring, it will
call time on my chairmanship, after eight years, to make way for
whoever is fortunate enough to become the 46th chairman of this
Committee.
These eight years have been fascinating and frustrating
in equal measure: fascinating because of the enormous range of
government programmes and initiatives that been subjected to the
Committee for scrutiny; frustrating because of the seemingly never-ending
parade of projects exhibiting the same old failures. Prominent
among these are over-optimism at the outset over what can be achieved
and underestimation of technical challenges; inadequate procurement
and testing of systems; over-hasty implementation; poor project
management capabilities including inadequate systems for monitoring
progress; delayed delivery; and massively overspent budgets.
If this suggests that no progress is ever made, that
no one ever learns from the experience of past mistakes, then
it is not meant to. In the course of 2008-09, the work of my Committee
has continued to identify financial savings and improved outcomes
that could be made across the public sector. Indeed, our recommendations
have led to estimated savings in excess of £4 billion over
the course of the last two Parliaments but, as I have often pointed
out, our recommendations to individual departments are too often
ignored more widely across Whitehall. Wider take up of our recommendations
could reap far greater rewards.
Because of the nature of its work, the Committee
of Public Accounts does not agree an Annual Report on the lines
of those agreed by Departmental Select Committees, highlighting
their work on the Core Tasks. Members of the Committee—together
with other Members of the House—have instead been able to
consider the work of the Committee in biannual debates in the
Chamber, the last of which took place on 22 October 2009.
In keeping with previous years, I am writing to outline
some main themes of the work of the Committee of Public Accounts
in 2008-09 and I attach my Committee's Sessional return for 2008-09.
The Committee's reports highlight good practice where it is found
across the public sector and also draws sobering conclusions on
the many failures of public service delivery that we have examined
throughout the year.
Four themes with a wider resonance are suggested
by the Committee's work in the last Session. The need for better
programme and project management is central to public services.
Good implementation begins with realistic, reliable and comprehensive
analysis including good risk management and risk control.
In the current economic climate, it is essential that departments
have sound financial management. And, perhaps most pertinent
of all, ensuring the public sector has the appropriate skills
to deliver proper value for money is essential if public sector
programmes are to inspire more trust in the proper use of public
money.
Many of our reports this session have made recommendations
on how government departments should improve project management
in order to deliver better organisational performance. The importance
of good programme management was certainly highlighted in our
first report of the session, on the implementation of the Defence
Information Infrastructure which had suffered from major delays.[226]
No proper pilot for this highly complex £7 billion IT system
was carried out and entirely inadequate research led to a major
miscalculation of the condition of the buildings in which the
new system would be installed. This contributed to serious delays
in the roll-out of terminals. Whereas nearly 63,000 terminals
should have been installed by the end of July 2007, only some
45,500 were in place at the end of September 2008.
Poor project management was also highlighted in our
progress report on the biggest IT project in NHS history, the
National Programme for IT in the NHS. [227]
At the outset of the Programme, the aim was for implementation
of the systems to be complete by 2010. While some aspects were
complete or well advanced, we were disappointed that the original
timescales for introducing the Care Records Service were not met.
The Department of Health admitted to us that it was likely to
take some four years longer than planned—until 2014-15—before
every Trust had fully deployed the new care records systems. The
introduction of the Summary Care Record was also behind schedule,
though deployment in five early 'adopter' areas began in March
2007. We concluded that the risks to the successful delivery of
this biggest of projects were as serious as ever.
The Ministry of Defence's procurement projects have
a history of long delays and cost increases. Our report on the
Chinook Mk3 showed that, even by these standards, the project
had been a catalogue of errors from the start. [228]
The original contract was ill-defined, preventing easy access
to software source code that was crucial to gaining airworthiness
certification. Further operational requirements and difficult
commercial negotiations led to a five year period of protracted
negotiation and slow decision making under a project known as
Fix to Field. Eight years after they were first delivered, the
aircraft were still sitting in hangers. The cost of the eight
Chinook Mk3 helicopters is expected to be more than £422
million, or £52.5 million each. Worse, the delays have potentially
put the lives of British service personnel at greater risk, with
our troops in Afghanistan having to make do with fewer helicopters
and make an increased number of dangerous journeys by road. We
previously described this procurement of equipment to be one of
the worst examples we had ever seen.
Our 2009 report on the MOD's major defence projects
as usual identified mounting delays and forecast costs but, at
our most recent hearing on the Department's major defence projects,
on 27 January 2010, the Committee unearthed for the first time
a serious black hole in the defence budget. Depending on the rate
of growth in defence spending over the next ten years, the defence
equipment programme will cost the taxpayer at least £6 billion
more than MOD can afford, and, on less optimistic assumptions,
easily ten times more than that figure. This situation has
come about as a result of weak governance and hopelessly unrealistic
budgeting by the Ministry, made worse by a failure on the part
of the Treasury to tackle the issue.
In 2008-09 we saw yet another example of a struggling
project, the National Offender Management Information System.[229]
C-NOMIS was a singular example of comprehensively poor project
management, and roll out of the rescoped programme has only just
begun. The project, initially envisaged by the Home Office for
delivery in January 2008 for £234 million, was stopped in
August 2007 because costs had trebled. The NOMIS programme was
revised and scaled back to three offender databases for £513
million, for delivery by 2011. The original concept was ambitious
but still technically feasible. Problems at every level, however,
led to an out of control programme which eventually the National
Offender Management Service (NOMS) could no longer afford. NOMS
had significantly underestimated the technical complexity of the
project and the need to standardise ways of working to avoid excessive
customisation. There had also been poor planning, poor financial
monitoring, inadequate supplier management and too little control
over changes.
But Whitehall can deliver well. In 2003, we published
a critical report on shortcomings in the Prison Service's procurement
system, with a wide-ranging set of recommendations. The Prison
Service is to be congratulated for responding so decisively to
what we said. In 2009 we examined the Prison Service's progress
and we were pleased to find that, five years on, the Prison Service
had put in place a new strategy for procurement and introduced
a centralized professional procurement team.[230]
It had even successfully phased in a new computer system. The
quality of the goods and services procured had improved and, as
a direct result of implementing our recommendations, the Prison
Service had generated cash savings of £120 million over five
years. It was a tribute to the Service that its procurement model
was to be used throughout the Ministry of Justice. We thought
that the success of the model should be promoted still further
and brought to the attention of senior management in other government
organizations.
As Government borrowing climbs to stratospheric levels,
it hardly needs saying that the public sector must ensure that
risks are well-managed. This has long been a subject of scrutiny
for the Committee; indeed the very first report published under
my chairmanship in 2002 focused on Managing Risk in Government
Departments. Since then, there have been important improvements
in how civil servants identify, evaluate and manage risks but
there remain too many examples for comfort of inadequate risk
management in public sector projects.
This session we reported on our concerns about the
assessment of risks surrounding the work of the Parole
Board. [231]
The consequences for public safety of a wrong decision by the
Board about when it was safe to release an offender could be catastrophic.
A full assessment of the risks was essential and Board members
could not do that without access to all the relevant facts. However,
we were told that for the most serious offenders the Board often
did not receive the key information required to make their assessment.
The Prison and probation services had been unable to provide the
timely and complete information necessary for the efficient and
effective running of the parole process.
We also examined the multitude of risks faced by
the Department for International Development (DFID) as it increased
its operations in insecure countries. DFID has doubled (to £1bn
a year) aid to poor people in such countries.[232]
But the Department's development projects in the most insecure
countries have been notably less successful than similar projects
elsewhere.
We concluded that DFID should review its own experiences
and those of others, paying special attention to known risk factors,
including weak government capacity and legitimacy, poor communications,
insufficient oversight by development partners and threats to
sustainability. It should reflect the review findings in its allocation
to countries of aid resources, as well as aid choices and practices
within insecure countries. DFID should look to make full use of
the capacity that is available in insecure environments, including
that in civil society and non-governmental organisations. It should
also spell out the significance of insecurity for aid choices
and delivery practices in its guidance to its staff, and in the
relative level of ambition it sets for particular projects and
programmes.
We reported on the Nationalisation of Northern
Rock in June 2009 following the run on deposits at Northern
Rock in September 2007 and the company's subsequent search for
a solution, culminating in public ownership in February 2008.
[233] The Treasury
stabilised the situation by providing a series of guarantees to
retail depositors and wholesale lenders. This action avoided the
immediate risk of problems spreading to other banks. At its peak,
the taxpayer underwrote up to £51 billion of the company's
liabilities.
We recognised that the Treasury's decision to nationalise
Northern Rock in February 2008 was based on a comprehensive assessment
of the options available to it. This analysis suggested that public
ownership represented the best alternative in terms of value for
money. However, we considered that the Treasury was stretched
to deal with a crisis of this nature. We were also extremely concerned
to find out that that, even as the Treasury was pouring in billions
to stabilize the bank, Northern Rock was allowed to continue awarding
high risk loans of up to 125% of the value of the property, to
the value of £750 million. This type of loan was a significant
source of arrears and write-offs. We recommended that, in future
when the Treasury steps in to provide support to a company, it
should evaluate systematically the risks to the taxpayer, decide
what information it will need to monitor these risks and use its
influence as owner, or major creditor, to manage these risks robustly.
It must also maintain at the highest level its ability to respond
effectively to future financial crises.
Strong financial management is at the core of good
management in government. It is integral to good decision making,
the effective running of departments and value for money for the
taxpayer. Departments need to develop and display strong financial
management now more than ever if they are to deliver robust public
services in the current bleak economic climate. They need the
requisite finance skills and commercial acumen, they need the
right information, and they need leaders who recognize that every
pound of taxpayers' money counts.[234]
An excellent example of a front-line department making
great strides in its financial management is the Home Office,
as we recognized in our report Financial management in the
Home Office[235].
In 2006 its basic financial systems and processes were in disarray.
In response to constructive criticism by this Committee, major
improvements were instituted in financial management capacity
processes and procedures over the next three years. Indeed, such
has been its progress in improving its financial management that
the Home Office is now being extolled by the Cabinet Office as
a model of good progress in the Civil Service.
What is important and encouraging is that the Department
recognizes that it must do more if it is to build on the momentum
and establish sound financial management at all levels throughout
the organization.
Poor financial controls can open the way to fraud.
When we reviewed the Fire and Rescue Services' capacity to
respond to terrorist and other large scale incidents[236],
we learned that weak financial controls enabled a fraud of nearly
£900,000 to be perpetrated in the early years of the programme
and, even after controls were tightened, financial information
available to inform and support programme managers was not adequate.
We concluded that the Department should support future major procurement
programmes with staff who have appropriate experience in financial
control, accurate financial reporting and the use of timely and
relevant financial analysis in programme and project decision-making.
Detailed whole life cost budgets should be prepared at the outset
to enable value for money to be achieved in individual projects.
Improvements in the programme's management were made
by bringing in consultants and training finance staff. The consultants
cost more than envisaged, however, and programme and project decision
making would have been improved if supported by more reliable
financial information.
Our report, Tax credits and Income Tax, focused
on the "breathtaking" overpayment of tax credits
of £7.3 billion in first four years of the scheme. We were
told that, at the end of March 2008, HM Revenue and Customs was
seeking to recover £4.3 billion of tax credit overpayments.
[237] Claimants
had disputed £900 million of these overpayments, while the
recovery of a further £1.8 billion was considered doubtful
by the Department. This inability to recover enormous amounts
of overpaid tax credits was a consequence of poor administration
and, ultimately, of poor financial management. We concluded that
the Department needed to understand better the circumstances of
people who were overpaid, many of whom were vulnerable, if it
was to improve customer support and clear the backlog of debt.
The Department should have provided more training to its staff
to ensure that all repayment cases were handled correctly and
sensitively, based on accurate information.
In looking at the Financial Management in NHS:
report on the NHS Summarised Accounts 2007-08, we noted
that the surplus generated by the NHS in 2007-08 was nearly £1.7
billion, almost twice the amount planned and over one billion
pounds more than the surplus generated in the previous year.
[238] Furthermore,
all sectors of the NHS were in surplus, the quality of financial
management at individual bodies improved during the year and,
most important of all, the reported quality of the services provided
to patients also got better.
Some contingency surplus can be sensible but if the
surplus was too large there was an increased risk that patients
could lose out because less healthcare would be provided than
might have been. Managing this risk requires NHS bodies to be
more adept at forecasting demand for healthcare, budgeting in
a way that best matches resources to activity levels, while having
the flexibility to shift resources quickly as new priorities arise.
The Department of Health said that the surplus and the planned
one for 2008-09 would be available to the NHS for spending in
2009-10 and 2010-11. This kind of financial planning over the
longer term is good but we warned that the needs here and now
of patients in parts of the country for drugs and better quality
care must not be forgotten.
Government has long been aware of the need to improve
its commercial skills. Pressure to reduce public spending can
conflict with the need to invest in staff with the commercial
skills to deliver complex projects. In our forty-third report
of the session, Learning and Innovation in Government, we
made the point that projects too often suffer from a lack of available
project management skills and a failure to nurture those they
do have, for example in the National Offender Management Information
System project or the Bowman project.[239]
Ways of capturing lessons have been introduced, such as the Office
of Government Commerce's Gateway Reviews, but some of the projects
subject to them have still experienced problems. We noted that
the Government had also paid insufficient attention to analysing
the lessons from the reviews. A lack of good management information
is still a hindrance in some cases, and inhibits understanding
the impact of innovation.
Bringing people with private sector experience into
government can promote innovation and improve performance. An
increasing number of officials have come from the private sector,
bringing with them necessary skills and experience; however some
have struggled to adapt. To counter this, departments and the
centre should enhance the induction and support for new people,
making use for example, of the professional networks which are
in place across government.
Our study of the Nationalisation of Northern Rock,
highlighted that the Treasury did not have enough staff working
on financial stability at the time of the crisis.[240]
Since the Northern Rock intervention, the Treasury has significantly
increased the number of staff working on financial stability issues.
Around 60 staff worked on financial stability in 2007. This number
had increased to 120 at the time of our report and the Treasury
had planned to increase the number to over 160 by the end of 2009.
The Treasury believed it now had a better knowledge of what was
going on in the Bank of England and the Financial Services Authority
than previously.
During the nationalisation process the Treasury was
forced to bring in outside assistance from Goldman Sachs. We
were disappointed that Goldman Sachs refused the National Audit
Office access to the financial modelling underpinning its analyses
for the Treasury, even though this work had been paid for by the
taxpayer. It is wholly unacceptable that the Treasury signed a
contract with an adviser denying it access to the financial models
developed to inform its decision on Northern Rock. We concluded
that departments should retain the power to examine the financial
models developed by their advisers and use this access to gain
a thorough understanding of how these models work, their underlying
assumptions and the impact on the resulting financial analyses.
The National Audit Office, now under its new Comptroller
and Auditor General, Amyas Morse, has continued to provide the
Committee with the excellent evidence on which our own work depends.
Mr Morse has taken the reins at the NAO with relish, in succession
to Tim Burr whose appointment ended on 31 May 2009. We thank Tim
for his excellent work with the Committee and we wish him well
in the future.
Amyas Morse, took up the role of Comptroller and
Auditor General on 1 June 2009. Although as a Committee, we have
no formal role in the statutory process of selection and appointment
of the Comptroller and Auditor General, nonetheless we believed
that our views should carry weight in the debate on the Prime
Minister's motion praying the Queen to appoint Amyas Morse. Members
on my Committee had collectively some 65 years of experience on
the Committee and thus of working with the Comptroller and Auditor
General and the National Audit Office. We therefore, for the first
time in the history of the Committee, made a report to the House
on the appointment, expressing our satisfaction that Amyas Morse
was highly suitable for the post of Comptroller and Auditor General.[241]
Having worked with him since June 2009, I remain convinced that
the organisation will go from strength to strength under his leadership.
We welcome the publication of those parts of the
Constitutional Reform Bill which will place recent important changes
to the NAO's governance on a permanent footing, following the
Public Accounts Commission's proposals to enhance the NAO's governance
last year. On the governance reforms, the Public Accounts Commission
proposed, and the Government agreed, that the National Audit Office
should be constituted as a nine-strong statutory Board. The Board
now has non-executive majority comprising the Chairman, appointed
from 1 January 2009, and four of the members.
We also welcome the NAO's continued efforts to expand
the range of support it can provide to other Select Committees
enabling Parliament better to hold the Government to account by
making use of the excellent work that the NAO produces.
My Committee's work continues to draw visitors from
parliaments and audit institutions across the world looking to
learn from one of the oldest committees in Parliament and our
model of holding the Government to account. In the last session
we welcomed visitors from Bosnia, China, Denmark, Iraq, Kosovo,
Nigeria, Northern Ireland and Sierra Leone as well as groups on
study programmes organised by DFID, the NAO, Public Administration
International, and others. In addition Members and staff of the
Committee have met other visitors, including officials and parliamentarians
from, for example, Australia, Hong Kong, Kenya, and Tanzania.
In April 2009, I attended the Tenth Biennial Conference
of the Australasian Council of Public Accounts Committees in New
Zealand. The visit stemmed from the Committee's continuing interest
in methods of financial management and control across the world,
and provided opportunities for detailed discussion with Commonwealth
counterparts.
In March 2009, Members of the Committee of Public
Accounts undertook a visit to the main bodies within the European
Union with responsibility for financial management and audit.
The visit followed the publication on 27 March of the Comptroller
and Auditor General's report on Financial Management of the European
Union. The Committee also visited Prague in July 2009, for meetings
with the Czech Supreme Audit Office and the Committee's counterparts
in the Czech Parliament. The visit allowed us to make a comparative
study of systems of financial audit and scrutiny in the Czech
Republic.
I should like to conclude by saying how proud I am
to hand over to my successor, whoever that might be, the chairmanship
of this most influential of select committees. This is in the
hope that the frustrating elements of the job might diminish in
favour of the fascinating.
Edward Leigh MP
Chair of the Committee
226 First Report of Session 2008-09, Defence Information
Infrastructure, 15 January 2009, HC 100 Back
227
Second Report of Session 2008-09, The National Programme for
IT in the NHS: Progress since 2006, 27 January 2009, HC 153 Back
228
Eighth Report of Session 2008-09, Ministry of Defence Chinook
Mk 3, 5 March 2009, HC 247 Back
229
Fortieth Report of Session 2008-09, The National Offender Management
Information System, 3 November 2009, HC 510 Back
230
Sixth Report of Session 2008-09,The procurement of
goods and services by HM Prison Service,10 March 2009, HC
71 Back
231
Ninth Report of Session 2008-09, Protecting the Public: the
work of the Parole Board, 17 March 2009, HC 251 Back
232
Sixteenth Report of Session 2008-09, Department for International
Development: operating in insecure environs, 2 April 2009,
HC 334 Back
233
Thirty-first Report of Session 2008-09, The Nationalisation
of Northern Rock, 25 June 2009, HC 394 Back
234
Committee of Public Accounts, Forty-third Report of Session 2007-08,
Managing financial resources to deliver better public services,
HC 519 Back
235
Committee of Public Accounts, Forty-sixth Report of Session 2008-09,
Financial Management in the Home Office, HC 640 Back
236
Tenth Report of Session 2008-09, New Dimension - Enhancing
the Fire and Rescue Services' capacity to respond to terrorist
and other large scale incidents, 12 March 2009, HC 249 Back
237
Fourteenth Report of Session 2008-09, HM Revenue and Customs:
Tax Credits and Income Tax, 24 March 2009, HC 311 Back
238
Twenty-second Report of Session 2008-09, Financial Management
in the NHS: Report on the NHS Summarised Accounts 2007-08,
21 May 2009, HC 225 Back
239
Forty-third Report of Session 2008-09, Learning and Innovation
in Government, 10 September 2009, HC 562 Back
240
Thirty-first Report of Session 2008-09, The Nationalisation
of Northern Rock, 25 June 2009, HC 394 Back
241
Twelfth Report of Session 2008-09, Selection of the new Comptroller
and Auditor General, 24 February 2009, HC 256 Back
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