The Work of Committees in Session 2008-09 - Liaison Committee Contents

Appendix 1: Letter from the Chair of the Public Accounts Committee

  • Work of the Committee of Public Accounts in 2008-09
  • 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.

  • Programme & Project Management
  • 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.

  • Risk Management and Control
  • 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.

  • Financial Management
  • 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.

  • Skills to deliver
  • 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
  • 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.

  • Outreach
  • 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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