Examination of Witnesses (Question Numers
40-59)
FOREIGN AND
COMMONWEALTH OFFICE
21 OCTOBER 2009
Q40 Mr Bacon: Every six minutes is
my experience with lawyers.
Sir Peter Ricketts: It has to
be a light touch system. What we have been trying to do first
of all is have an accurate idea of what it costs us to maintain
each individual embassy, which is already quite complicated because
we have contributions from other departments, we get revenue for
our consular services, there is an awful lot of moving parts.
We have now got a pretty accurate idea of what it costs for each
embassy.
Q41 Mr Bacon: Is that a public figure?
Sir Peter Ricketts: Yes, I think
it is.
Q42 Mr Bacon: Could you send us a
chart?[1]
What would be interesting would be to see it ranked by cost with
the most expensive one at the top, which one would expect to be
one of the big countries where you have got the biggest staffs,
and then also if you could rank it by cost per member of staff
in that embassy.
Sir Peter Ricketts: We do have
that data now and I believe some of it at least has come out in
PQs but we can certainly let the Committee have that. We can now
calculate cost per member of embassy and then you have to apply
judgment on top of that as to whether the work that they are doing
in that place really is high priority as against somewhere else.
There is a certain amount of data, therefore, which you then have
to apply judgment to.
Q43 Mr Bacon: You have got a senior
accountant from KPMG, Alistair Johnston, on your board as a non-executive,
which I am very interested in, because when you look around in
Whitehall most departments now go through the motions of having
non-executives but looking at their backgrounds sometimes one
wonders what it is that they are bringing to the department they
are joining. Having somebody like the vice-chairman of KPMG as
a non-executive sounds like quite a good move.
Sir Peter Ricketts: Yes.
Q44 Mr Bacon: This may be one for
the Treasury or the National Audit Office might like to comment
as well, but what else is happening in Whitehall along those lines?
Does anyone have data—perhaps the Treasury—on how
many other major government departments have got a non-executive
with a similar background as Mr Johnson?
Mr Gallaher: We will certainly
look into it and see what we can find out in terms of information
on non-executives and forward that to the Committee.
Q45 Mr Bacon: That would be very
helpful. Have you found that Mr Johnson's presence has made a
big difference?
Sir Peter Ricketts: Yes, absolutely
essential. He also chairs our Audit and Risk Committee and so
he is challenging and holding to account the whole finance side
of the organisation, and I can say without disclosing secrets
that he does that pretty robustly. He has helped, with Mr Luck
and Mr Gardner, to raise standards, to challenge, to demand accuracy,
not to be satisfied with inadequate data and he has brought a
rigour to it that has been really important. The challenge that
these people can bring with their outside experience is very helpful,
not just in the Audit and Risk Committee but in the board as a
whole.
Mr Morse: Although I cannot quote
the information we have pretty good information on non-executives
across Whitehall. I just would like to say though that there are
plenty of non-executives who are capable of making a very good
contribution across Whitehall—in other words people who
have got a senior business background, and nowadays you would
not reach a senior position in business if you did not understand
basic accounting to quite a good level quite honestly. The question
is having a really receptive environment for them to function
in, and what I really give great credit to Sir Peter for is the
fact that they are functioning in an environment where their contribution
is really being drawn forward by the leadership of the department
and where it is echoing with this strong finance function. So
there are a number of things aligned to produce a good result.
It is much easier to be a good non-executive director if you are
in that position, to be quite honest. Quite a lot of talent is
being attracted into the non-executive ranks; it is giving it
the connections to allow it to really function well.
Q46 Mr Bacon: Some years ago we took
evidence on the resource accounts of the FCO and the instant cause
was the fraud in the Tel Aviv Embassy that had been dragging on
for 17 years. Presumably the Foreign Office has learnt something
from that particular fraud because it went on for such a long
time. Have there been any other frauds recently, if not ones that
have dragged on for that long, that you have identified?
Sir Peter Ricketts: Well, there
have been some rather small ones but I am actually rather proud,
Mr Bacon, of the track record of the last five or six years. The
graphs in the NAO Report and then in the supplementary note that
they did for you show that the levels of fraud that we discovered
in the organisation had fallen to absolutely historic lows—£20,000
last year. £20,000 is still too much but nonetheless on an
organisation with a budget of £2 billion it is not bad. The
NAO say that this may be because of improved and tighter financial
controls or it may be because there are not enough whistle blowers
coming forward to disclose fraud. Of course, I would never be
complacent about that and we do keep encouraging whistle blowing
because it is a very good way, but it correlates with the introduction
of our new management information system, PRISM, which is an Oracle
system which has forced everybody dealing with money around the
world through a rigorous system, getting the right sort of permissions
to purchase and all those things. I believe that the introduction
of this management information system has something to do with
this steep decline in frauds in the organisation; we have not
had a major fraud in the organisation for some time. I am absolutely
not complacent, but the direction of travel is right.
Chairman: I am afraid there is a division
in the House so we have to break for about eight minutes. We will
be back as soon as we can.
The Committee suspended from 4.01 pm to 4.07
pm for a division in the House.
Chairman: We are now quorate. Mr Richard
Bacon?
Q47 Mr Bacon: Sir Peter, I would
like to ask about the paragraph in the Report entitled "Unexpected
expenditure charged to budget holders" at 2.55 on page 23.
It says: "It is always clear to budget holders where all
the accounting entries relating to the expenditure against their
budget have come from. The principal contributory factor is that
the accounting system is set up so that it is possible, if correct
purchase to pay procedures are not followed, for anyone to post
items to any budget codes increasing the risk of erroneous entries."
It goes on to say that 24% of purchase orders at the beginning
of January 2009 were charged to budget holders outside the directorate
which had raised them. It does not really sound like you have
completely got a grip of this, does it?
Sir Peter Ricketts: Might I ask
Mr Luck to respond to that.
Mr Luck: It is true that we have
had difficulties with the way that PRISM, our Oracle-based financial
system, was originally set up but it is something that the board
has returned to time and time again to try and ensure that budget
holders understand their budgets, so in signing off now each month
the resource management officers go through with the budget holders
any movements to their budgets so that they can understand items
here. In turn, directors review their budgets and directors general
are now signing them off. You have hit on a difficulty we have
had because of the way the system has been implemented.
Q48 Mr Bacon: This is not merely
budget holders failing to comprehend what is going on. It is things
being charged to their budget that should not be charged to their
budget, is it not?
Mr Luck: It is and therefore being
in a position to challenge those and have those corrected and
then to improve the system so that does not happen in future.
Sir Peter Ricketts: In some cases
I think it is people charging items to budgets entirely legitimately
but catching the budget holders out.
Q49 Mr Bacon: I can quite see if
the Ambassador to Rio, or what is the capital of Brazil—I
should know?
Sir Peter Ricketts: Brasilia.
Q50 Mr Bacon: Let me take a better
example because who would want to hold a party there! I can quite
see why the Ambassador to Paris would want to throw a big party
and charge it to the Embassy in Berlin, that would make perfect
sense, but that is not what has happened.
Sir Peter Ricketts: I think what
this is referring to is where you are holding a budget as a regional
director and then the personnel side put into your budget personnel
costs or the estate side put into your budget the costs for renting
and maintaining property, so it is parts of the organisation putting
costs on the budget holders that perhaps they were not expecting
and therefore it makes it difficult to keep control of your costs
particularly towards the end of the year.
Q51 Mr Bacon: I hope part of the
answer to this will come when you send us the figures of the staff
and where they are distributed. What is your headcount now? It
was 16,000.
Sir Peter Ricketts: It is about
15,000 now.
Q52 Mr Bacon: To what extent in trying
to allocate them around the world do you take a global view of
Britain's financial and economic interests and say, "Well,
trade with China is X% and trade with India is X% and we are expecting
it to grow in the following way over the next five to 10 years
so our representation in China and India, particularly on the
trade side, should be X." Is there a correlation? Does it
match in terms of where the staff are versus where the economic
interests are?
Sir Peter Ricketts: The answer
is yes, essentially. First of all, UKTI have done that exercise
for the specific people who do trade and investment work abroad
and their strategy is now concentrating on the 20 or so largest
markets in the world. That has moved UKTI staff to India, China,
South Africa, Brazil and those sort of countries. On our own side
when the Foreign Secretary came to us two and a half years ago
we did a strategy review and part of that was to look at where
we had got our diplomats, are they in the right places in relation
to where British interests are now, both economic interests but
also foreign policy interests, and we moved a significant number
out of European posts towards these same countries—India,
China, Afghanistan, South Africa, Brazil and others—so we
have not shut embassies in Europe because it is still important
to keep them but we can do it with fewer people. We have pushed
more people out to the fast-growing economies and the conflict
areas.
Q53 Mr Bacon: As a Committee we visited
the British Embassy in Italy and met the Ambassador there and
I was very impressed by the villa and its potential for entertaining.
It seems that the Embassy hires it out to big companies like BP
who hold board meetings there, which is very impressive. How widespread
is that and how much of a push is there from you at the top and
the board to make sure that all the Ambassadors across the world
are being that enterprising? That was the initiative of one particular
Ambassador in Italy but presumably everybody ought to be doing
it?
Sir Peter Ricketts: It is normal
and they are doing it. The instruction from the top is sweat the
asset and make the maximum use of these wonderful embassy buildings
and houses and, where you can, get commercial companies to sponsor
events so that we get the benefit as well. It is standard practice
now to use the residences for all sorts of commercial events.
Q54 Mr Bacon: I was very reassured
by your answer to the Chairman where you said there was not any
proposal to get rid of them because they did often come for free
in many cases and we would not want an accounting change to require
you to get rid of them for any reason.
Sir Peter Ricketts: I think they
are real assets and it is smaller and less prestigious places
that we would consider getting rid of.
Q55 Mr Bacon: But you did do that
in the case of the British Ambassador's residence in the Holy
See? You got rid of a cheaper and better residence and replaced
it with one that is best described—it is quite a grand garret—as
an attic flat. Although it has a good view of Rome it is still
an attic flat and is more expensive than the previous one which
was better. Why did that happen?
Sir Peter Ricketts: I am afraid
it was before my time, Mr Bacon, and I do not know the detail
of it. I am surprised if the flat is cheaper.
Q56 Mr Bacon: The present flat where
the British Ambassador to the Holy See now is is more expensive
but not as good as the previous British Ambassador's residence.
Sir Peter Ricketts: As I say,
it happened before my time and I would need to look into it.
Q57 Mr Bacon: Could you send us a
note?[2]
Sir Peter Ricketts: Of course.
Q58 Mr Bacon: I have only one more
question and that is about the theft of satellite telephones because
you may remember when we last looked at the resource accounts
a batch of satellite telephones was stolen in Iraq and the thieves,
one presumes, then used these phones to dial up betting lines
and indeed sex chat lines resulting in bills of several hundred
thousand pounds, which the Foreign Office just merrily paid, you
signed the cheques and no-one seemed to look askance at the fact
that there was a £200,000 phone bill each month. Why would
that not happen now?
Sir Peter Ricketts: We have learned
some very painful lessons from that. Part of it is about proper
purchase to pay arrangements, proper receipting of goods received
because part of the problem was that phones were sent out to Iraq
but were never received.
Q59 Mr Bacon: They were by somebody!
Sir Peter Ricketts: They were
intercepted on the way.
1 Ev 18 Back
2
Ev 17 Back
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