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PUBLISHED BY AUTHORITY OF THE NORTHERN IRELAND ASSEMBLY
SESSION 2001/2002 EIGHTH REPORT
Ordered by the Public Accounts Committee to be printed
16th May 2002
PUBLIC ACCOUNTS COMMITTEE
EIGHTH REPORT FROM PUBLIC ACCOUNTS COMMITTEE
Standing Orders under Section 60(3) of the Northern Ireland Act 1998 have provided for the establishment of the Public Accounts Committee. It is the statutory function of the Public Accounts Committee to consider the accounts and reports of the Comptroller and Auditor General laid before the Assembly.
The Public Accounts Committee is appointed under Standing Order No. 56. It has the power to send for persons, papers and records and to report from time to time. Neither the Chairperson nor Deputy Chairperson of the Committee shall be a member of the same political party as the Minister of Finance and Personnel or of any junior minister appointed to the Department of Finance and Personnel.
The Committee Members were appointed by the Assembly on 24 January 2000. They will continue to be Members of the Committee for the remainder of the Assembly, unless it orders otherwise. The Chairperson Billy Bell and Vice-Chairperson Sue Ramsey were previously appointed on 15 December 1999. The full membership of the Committee is as follows:-
All publications of the Committee (including press notices) are on the internet at archive.niassembly.gov.uk/accounts.htm
All correspondence should be addressed to The Clerk of the Public Accounts Committee, Room 371, Parliament Buildings, Stormont, BELFAST, BT4 3XX. The telephone number for general inquiries is: 028-9052-1532. The Committee's e-mail address is: firstname.lastname@example.org
Mr John Dowdall, Comptroller and Auditor General (C&AG)
THE PUBLIC ACCOUNTS COMMITTEE HAS AGREED
PROGRESS ON THE IMPLEMENTATION OF RESOURCE ACCOUNTING
1The Public Accounts Committee met on 6 March 2002 to consider the Comptroller and Auditor General's guide on "An Introduction to Resource Accounting for MLAs" and the Department of Finance and Personnel's Composite Report on "The Preparation of Departmental Resource Accounts for the Financial Year 2001-02". Our witnesses were:
2DFP is responsible for overseeing the introduction of resource accounting across departments in Northern Ireland. The Committee recognises the significance of this initiative and the important contribution resource accounting will make to the way public expenditure is planned, controlled and monitored. We also note the C&AG's comments on how much more complex resource accounts are than commercial-style accounts. In addition the Treasury Officer of Accounts has made it clear that there are special factors contributing to difficulties in implementing resource accounting in Northern Ireland as a result of devolution.
3Having listened to the evidence of the C&AG and the Treasury Officer of Accounts the Committee is concerned with the progress made to date with regards to the implementation of this important initiative.
4The results of the dry run exercise are not reassuring but we do appreciate that an important outcome of the dry run is that the C&AG reported separately to departments on detailed issues which need to be addressed in taking this initiative forward.
5DFP's Report reviewed how Northern Ireland departments executed their responsibilities in the preparation of departmental resource accounts. In taking evidence, the Committee focused on a number of issues raised by the Report. These were:
6.1We expect DFP to continue to monitor departments' progress, and to ensure that the action plans drawn up by departments fully identify, as appropriate, the technical, staffing, training, and systems problems that face departments, and the steps to be taken to resolve these problems.
Main Report, paragraph 8
6.2We agree with DFP that the involvement of senior management is essential in ensuring that sufficient progress is made to deliver the 2001-02 resource accounts within the statutory timetable. We recommend and expect to see evidence that senior management in departments give priority to rectifying the deficiencies identified during the dry run process prior to the preparation of the 2001-02 resource accounts.
Main Report, paragraph 9
6.3We are pleased to note that departments have action plans in place. These must address the difficulties identified particularly those leading to qualified audit opinions and should set a timescale in each case for resolving them.
Main Report, paragraph 10
6.4It is the Committee's expectation that all departments will aim to produce good quality accounts supported by the necessary documentation by 31 July 2002. However, we welcome DFP's assurance that where significant difficulties remain at 31 July, they will work alongside departments in the subsequent period to address residual concerns that departments, DFP and the Audit Office have identified.
Main Report, paragraph 11
6.5We are reassured to hear that all departments have said that they are working to meet the deadline of 31 July, and that those at the head of all departments understand and appreciate that this timetable must be achieved. We emphasise again that the timetable to deliver resource accounts will remain under scrutiny by this Committee and the Assembly, and we expect DFP to monitor the progress of departments towards this deadline.
Main Report, paragraph 12
6.6We look to Accounting Officers to address difficulties that may cause delays in the production of the accounts and to ensure that good quality resource accounts, supported by the necessary documentation, are delivered by the statutory date.
Main Report, paragraph 13
6.7It is important that departments take responsibility for ensuring the relevant subsidiary organisations provide the necessary information to allow each department to meet it's statutory timetable.
Main Report, paragraph 14
6.8The Government Resources and Accounts Act (NI) 2001 gives DFP the authority to change the target date of 31 July for delivery of resource accounts, after consultation with the C&AG. We would also expect this Committee to be advised of the reasons for, and the expected benefits of, any change in the delivery date of resource accounts for 2001-02.
Main Report, paragraph 15
6.9It is the Committee's view that if departments are to ensure proper and effective accounting for taxpayer's money, staffing issues must be given priority. We welcome DFP's assurance that they are to take the lead in an urgent review, in collaboration with all departments, of how the public sector trains and/or recruits the professional accountants it needs, and how they are provided with proper career management and development.
Main Report, paragraph 16
6.10While the use of consultants can provide a useful addition to existing departmental resources during peak times, it is essential that they provide a clear audit trail - that the work they do is fully documented, and that key consultant personnel are available to address queries that may arise on their work. It is also important that suitable arrangements are put in place by management to review and monitor the output from consultants to ensure that it meets departmental requirements.
Main Report, paragraph 17
6.11In the longer term departments should strive to deliver resource accounts using their own staff. This will require the transfer of skills and knowledge of consultants to the appropriate staff within departments, either by working in parallel with the consultants, or from a review of their work, or, where necessary, from formal training.
Main Report, paragraph 17
6.12The Committee has asked for further detail from DFP on the qualified accounting personnel in place within departments. The written submission from DFP should identify the qualified accounting personnel currently working on the resource accounting initiative and any shortfall between this and the level of qualified staff needed if all aspects of resource accounting are to be delivered to the required standard. The Committee expects that individual departments will take immediate steps to address any shortfall in accounting staff complements.
Main Report, paragraph 18
6.13In future, departments should establish procedures using suitably qualified staff to carry out a review and quality control of their resource accounts before submission for audit. This review must be clearly documented.
Main Report, paragraph 19
6.14Allocation of staff over more than one department is likely to result in competing priorities. Departments should clearly determine when staff directly involved in the preparation of resource accounts will be available to complete the resource accounts of each department.
Main Report, paragraph 20
6.15We look to DFP to ensure suitable training programmes on resource accounting and budgeting are available for all staff within departments.
Main Report, paragraph 21
6.16We take the view that the updated accounting systems needed, as identified by the Accounting Services Review, should be available to departments as soon as possible and no later than the operational target date of 2004. We ask DFP, therefore, to update us on the progress in implementing the new accounting systems.
Main Report, paragraph 22
6.17We are reassured that DFP is examining whether issues need to be addressed regarding the existing accounting systems in the short term and we look to DFP to ensure departments address any problems identified in their action plans.
Main Report, paragraph 23
6.18Departments must ensure that the data, calculations and assumptions on which estimates in their accounts are based are reasonable and are clearly documented together with the management review of the process.
Main Report, paragraph 24
6.19If members of PAC and MLAs more generally are to use resource accounts to best advantage it is the Committee's view that specific training should be offered to them. We ask DFP, therefore, to develop appropriate training for MLAs in the areas of resource accounting and budgeting.
Main Report, paragraph 25
6.20We recognise the benefits in focusing the time and resources of departments on the remaining difficulties which have to be resolved in order to produce resource accounts to the required standard. However, we are concerned that accountability to the Assembly should not be weakened. It is important that the strengths of the existing system are maintained and that departments retain at least the same level of financial accountability to the Assembly. We expect everyone concerned with this exercise to ensure that there is no reduction in the quality of basic accounting for public money.
Main Report, paragraph 26
7.1We certainly agree with the Treasury Officer of Account's comments that there is no room for complacency. The past year has been a dry run to test the preparedness of departments but we are now expecting the accounts for this financial year to be ready in the new format by the statutory July date. This is a most important exercise and it is right that PAC should take the lead in monitoring progress.
7.2It is clear that these accounts are very much more complex than those they replace and departments are having to commit considerable expertise and resources to producing them. It is important that this expensive exercise results in an enhancement of accountability to the Assembly. For that to happen departments must deliver good quality accounts on time and we as MLAs must make appropriate use of them.
7.3The complexity of resource accounts will require Audit Office staff to concentrate on the many technical issues that these accounts produce. The Committee is concerned that the very important matters that normally concern the Committee, such as irregular expenditure, probity and the control of fraud continue to be addressed. We welcome the assurance of the C&AG that the audit work of his office will be planned to ensure adequate coverage of issues such as regularity, probity and fraud, as necessary.
7.4We have the impression, from the evidence provided, that departments have not given sufficient priority to this exercise throughout the trigger point strategy. We want to emphasise that the response to this report must be different. We welcome the commitment from all departments that they are working to meet the 31 July deadline.
7.5The C&AG and Treasury Officer of Accounts have advised us of the difficulties that departments are facing. The experience in GB, which has benefited from additional dry run years, has identified a wide range of problems in the early years. It is not unexpected therefore that some of the Northern Ireland difficulties cannot be resolved in the timescale for this year's resource accounts. We do, however, expect that departments will have plans in place to deal with the residual difficulties and welcome the assurance from DFP that they will continue to monitor and work with departments in addressing these problems.
7.6Both the C&AG and the Treasury Officer of Accounts have cautioned us that there may be more qualifications in the first year of resource accounting. This has been the experience in GB. Given the nature of some of the problems, they may prove difficult to resolve in the short term. We welcome the C&AG's assurance that each qualification will include a report explaining why the account has been qualified, and that there will be an opportunity to review and consider the range of qualifications arising from resource accounts this year. Where qualifications arise related to the new accounting regime, it will be important for this Committee to be assured that the underlying level of integrity of transactions has not diminished.
8In our Committee meeting in January with DFP and the C&AG we emphasised the importance of the move to resource accounting and asked DFP to produce a report on departments' progress in implementing this exercise. DFP have told us that they are putting in place measures to ensure that departments focus on addressing outstanding issues. We expect DFP to continue to monitor departments' progress, and to ensure that the action plans drawn up by departments fully identify, as appropriate, the technical, staffing, training, and systems problems that face departments, and the steps to be taken to resolve these problems.
DFP Report, paragraph 6.5, Minutes of Evidence, paras 48 and 62-64.
9The DFP report sets out the "trigger point implementation strategy" for managing the transition from cash based appropriation accounts to accrual based resource accounts, and the specific challenges faced by Northern Ireland departments following re-structuring and devolution. We are concerned to hear that the outcome of this strategy has not been successful. We were told, however, that the process has been beneficial in that it has identified the range of difficulties which departments still have to overcome to successfully deliver resource accounts to acceptable standards. We agree with DFP that the involvement of senior management is essential in ensuring that sufficient progress is made to deliver the 2001-02 resource accounts within the statutory timetable. We recommend and expect to see evidence that senior management in departments give priority to rectifying the deficiencies identified during the dry run process prior to the preparation of the 2001-02 resource accounts.
DFP Report, paragraphs 4.2 and 4.3, Minutes of Evidence, paras 54-55 and 71.
10The Treasury Officer of Accounts indicated that some departments may find the statutory date for the preparation of the accounts achievable with some difficulty while others will have significant difficulties in meeting the requirements within the timescale available. The scale of the difficulties is clear from the outcome of the trigger point exercise and is reflected in the C&AG's opinion on the dry run accounts with only two of the seventeen accounts receiving unqualified audit opinions. We are pleased to note that departments have action plans in place. These must address the difficulties identified particularly those leading to qualified audit opinions and should set a timescale in each case for resolving them.
DFP Report, paragraph 5.5, Minutes of Evidence, paras 26-28 and 48.
11It is the Committee's expectation that all departments will aim to produce good quality accounts supported by the necessary documentation by 31 July 2002. However, we welcome DFP's assurance that where significant difficulties remain at 31 July, they will work alongside departments in the subsequent period to address residual concerns that departments, DFP and the Audit Office have identified.
DFP Report, paragraph 6.5, Minutes of Evidence, paras 51-52 and 78.
12The final stage of the trigger point strategy set target dates for the delivery of the 2000-01 resource accounts for audit to the Audit Office by 31 July 2001 and then for the preparation of a written assurance from departments by 30 November 2001. The factual record is that most Northern Ireland departments did not meet these dates. We are concerned that any similar delay in delivery of the 2001-02 resource accounts could have a significant impact on the work of the Audit Office, and ultimately the timely delivery of accounts to the Assembly. We are reassured to hear that all departments have said that they are working to meet the deadline of 31 July, and that those at the head of all departments understand and appreciate that this timetable must be achieved. We emphasise again that the timetable to deliver resource accounts will remain under scrutiny by this Committee and the Assembly, and we expect DFP to monitor the progress of departments towards this deadline.
DFP Report, paragraph 5.5, Minutes of Evidence, paras 63-64.
13It is important that departments appreciate that the requirement to produce resource accounts by 31 July 2002 is a statutory obligation. We look to Accounting Officers to address difficulties that may cause delays in the production of the accounts and to ensure that good quality resource accounts, supported by the necessary documentation, are delivered by the statutory date.
Minutes of Evidence, para 78.
14One of the issues reported by DFP, as a cause for delay in producing resource accounts, is the reliance on the receipt of timely accounts and other information from departments' agencies and other bodies. Departments' ability to meet the statutory deadline depends upon these other bodies producing the necessary information within much earlier timeframes. It is important that departments take responsibility for ensuring the relevant subsidiary organisations provide the necessary information to allow each department to meet it's statutory timetable.
DFP Report, paragraph 5.6, Minutes of Evidence, paras 79-82.
15The Government Resources and Accounts Act (NI) 2001 gives DFP the authority to change the target date of 31 July for delivery of resource accounts, after consultation with the C&AG. We would also expect this Committee to be advised of the reasons for, and the expected benefits of, any change in the delivery date of resource accounts for 2001-02.
DFP Report, paragraph 5.2 (d), Minutes of Evidence, paras 67-68.
16The resource accounting project is a major reform of public sector financial reporting and requires all departments to produce accrual based accounts for the 2001-02 financial year. It is clear that this is proving a complex exercise and departments have had particular difficulties with the availability and retention of staff with the necessary professional accountancy skills to implement this initiative. A picture has emerged of skill shortages leading to poaching of key accountancy staff between departments. This raises the question of why the system is in such an exposed position. It is the Committee's view that if departments are to ensure proper and effective accounting for taxpayer's money, staffing issues must be given priority. We welcome DFP's assurance that they are to take the lead in an urgent review, in collaboration with all departments, of how the public sector trains and/or recruits the professional accountants it needs, and how they are provided with proper career management and development.
DFP Report, paragraph 5.8, Minutes of Evidence, paras 99,102-104 and 158-159.
17Accounting Officers have, as part of their assurance statement, indicated to DFP that they now have the requisite resources in place, which in some cases will be complemented by the use of consultants. While the use of consultants can provide a useful addition to existing departmental resources during peak times, it is essential that they provide a clear audit trail - that the work they do is fully documented, and that key consultant personnel are available to address queries that may arise on their work. It is also important that suitable arrangements are put in place by management to review and monitor the output from consultants to ensure that it meets departmental requirements. In the longer term departments should strive to deliver resource accounts using their own staff. This will require the transfer of skills and knowledge of consultants to the appropriate staff within departments, either by working in parallel with the consultants, or from a review of their work, or, where necessary, from formal training.
DFP Report, paragraph 5.8, Minutes of Evidence, paras 95-97.
18Departments have stressed to DFP their perceived exposure to any loss of the accounting and professional staff that they have in place at present. However, the Committee would have expected that professional accountancy skills were always available throughout all departments to ensure that proper and effective use was made of taxpayer's money. The Committee has asked for further detail from DFP on the qualified accounting personnel in place within departments. The written submission from DFP should identify the qualified accounting personnel currently working on the resource accounting initiative and any shortfall between this and the level of qualified staff needed if all aspects of resource accounting are to be delivered to the required standard. The Committee expects that individual departments will take immediate steps to address any shortfall in accounting staff complements.
DFP Report, paragraph 5.8, Minutes of Evidence, paras 95-98 and 102-103.
19The quality of 2000-01 accounts submitted for audit was, in some instances, significantly below the standard required. In future, departments should establish procedures using suitably qualified staff to carry out a review and quality control of their resource accounts before submission for audit. This review must be clearly documented.
DFP Report, paragraph 6.4, Minutes of Evidence, paras 40-48 and 53.
20The creation of additional departments has resulted in the need for additional professional accountancy expertise. Currently, some departments are having to rely on technical, administrative and accounting support from pre-devolution structures. Allocation of staff over more than one department is likely to result in competing priorities. Departments should clearly determine when staff directly involved in the preparation of resource accounts will be available to complete the resource accounts of each department.
DFP Report, paragraph 5.8, Minutes of Evidence paras 100-103.
21One of the issues identified in the DFP report was that all departments emphasised the need not only for professional resources but also for suitable training for other financial staff. If management are to obtain the maximum benefit from resource accounting and budgeting, all staff within departments will need to be aware of the increased information now available and how it can best be used to manage the work of the department. We look to DFP to ensure suitable training programmes on resource accounting and budgeting are available for all staff within departments.
DFP Report, paragraph 5.8, Minutes of Evidence, para 101
22The DFP report draws attention to the difficulties caused by the restructuring of departments due to devolution and specifically the adequacy of the existing accounting support systems. Some departments continue to rely on other departments for the provision of these accounting systems. We take the view that the updated systems needed, as identified by the Accounting Services Review, should be available to departments as soon as possible and no later than the operational target date of 2004. We ask DFP, therefore, to update us on the progress in implementing the new accounting systems.
DFP Report, paragraphs 5.9 and 5.10, Minutes of Evidence, paras 129-133.
23There are concerns over the reliability and robustness of the current accounting systems that are operated by departments and their ability to deliver the quality of accounting information required for resource accounting purposes between now and the new systems coming on stream. We are reassured that DFP is examining whether issues need to be addressed regarding the existing systems in the short term and we look to DFP to ensure departments address any problems identified in their action plans.
DFP Report, paragraph 5.11, Minutes of Evidence, para 133.
24The DFP report indicated that to achieve the timetable required for resource accounting a much higher degree of estimation will be required by departments than was the case previously with cash-based Appropriation Accounts. Departments must ensure that the data, calculations and assumptions on which estimates in their accounts are based are reasonable and are clearly documented together with the management review of the process.
DFP Report, paragraph 5.7.
25The move to resource accounting and budgeting changes the way public expenditure is planned and controlled, with appropriation accounts being replaced by a resource account for each department. We welcome the "Introduction to Resource Accounting for MLAs" that the C&AG has provided for us. This has proved most useful and it is clear that an advantage of resource accounting is that the accounts will provide more information. They are however much more complicated. If members of PAC and MLAs more generally are to use resource accounts to best advantage it is the Committee's view that specific training should be offered to them. We ask DFP, therefore, to develop appropriate training for MLAs in the areas of resource accounting and budgeting.
Minutes of Evidence, para 127.
26We asked DFP why they took the decision to terminate the production of the old style appropriation accounts, which gave the traditional degree of accountability, before a successful dry run was completed. There are considerable risks to an approach that removes the tried and tested system before the new system has successfully been put in place. We recognise the benefits of focusing the time and resources of departments on the remaining difficulties which have to be resolved in order to produce resource accounts to the required standard. However, we are concerned that accountability to the Assembly should not be weakened. It is important that the strengths of the existing system are maintained and that departments retain at least the same level of financial accountability to the Assembly. We expect everyone concerned with this exercise to ensure that there is no reduction in the quality of basic accounting for public money.
Minutes of Evidence, paras 14-15 and 135-136.
Members present:Mr Bell (Chairperson)
Mr John Dowdall, Comptroller and Auditor General (C&AG) was examined
Mr Leo O'Reilly, Treasury Officer of Accounts was examined.
The Comptroller and Auditor General's report on "An Introduction to Resource Accounting for MLA's" and the Department of Finance and Personnel's Composite Report on "The Preparation of Departmental Resource Accounts for the Financial Year 2001-02" were considered.
[Adjourned until Wednesday 17th April at 10:30am]
* * * *
PROCEEDINGS OF THE COMMITTEE
Mr John Dowdall, Comptroller and Auditor General (C&AG) was further examined
Draft Report (Resource Accounting) proposed by the Chairman, brought up and read.
Ordered, That the draft Report be read a second time, paragraph by paragraph.
Paras 1 to 5 read and agreed to
Paras 6.1 to 7.6 postponed
Paras 8 to 26 read and agreed to
Paras 6.1 to 7.6 read and agreed to
* * * *
[Meeting adjourned until Wednesday 22 May 2002 at 10:30am]
Wednesday 6 March 2002
The Chairperson: I acknowledge the unusual nature of today's evidence session. Rather than departmental accounting officers giving evidence on a Northern Ireland Audit Office report, we are taking evidence from the Comptroller and Auditor General, Mr John Dowdall, and the Treasury Officer of Accounts, Mr Leo O'Reilly. Both you and your teams are welcome here this morning.
We want to hear about progress made by Northern Ireland Departments towards the production of resource accounts. As I understand it, Departments have been preparing for the introduction of resource accounts since the publication of the Treasury Green Paper on Resource Accounting and Budgeting in July 1994. The Government Resources and Accounts Act (Northern Ireland) 2001 was passed by the Assembly in March 2001, and provides a statutory framework for the introduction of resource accounting and budgeting. The move to resource accounting and budgeting changes the way public expenditure is planned and controlled. Appropriation accounts are being replaced by a resource account for each Department.
At our January meeting I asked Mr Dowdall, on behalf of the Committee, to provide a non-technical note on resource accounting, and I thank him for the report before us today.
Mr Dowdall: This is a seven-page note, explaining what resource accounts are, and how they should be helpful to MLAs. As an introduction, I will pick out a couple of key points to explain what we have done.
Page 3 explains that resource accounts are commercial accounts applied to Government. This means that instead of the old cash accounts, which simply recorded receipts and payments, these new accounts are based on accruals. Accrual accounting records expenditure as it is incurred - when the goods and services are received rather than when they are paid for - and it records income as it is earned. Further down the list, it treats capital expenditure as an asset, and records it on a balance sheet. For the first time now, Departments have a balance sheet showing all of their assets, which is a very big gain in extra information. It treats the utilisation of an asset as an expenditure over its useful working life, as any company would do with its assets. This is supposed to focus public sector managers much more on the real cost of using the assets they have created with taxpayers' money.
Resource accounts are intended to give a more complete picture of the resources that the Department is using, and to provide much more financial information than the old cash accounts. The nature of the accounts is shown on page 4, paragraph 9, where we have set out the five key schedules that make up any resource account. The first is a summary of resource outturn, which is a primary interest as a control mechanism for the Assembly. It summarises how resources have been used against what the Assembly voted the Department. The second is an operating cost statement. The third is the balance sheet I just referred to. The fourth is a cash flow statement, and the fifth - another useful one - is a statement of resources by departmental aims and objectives. This breaks down the resource package to show how the Department is using them towards its key objectives. Members might find it helpful to use this document for reference.
I have attached the Audit Office's resource accounts for the last financial year, so that you can see an actual example - albeit a pretty straightforward and small scale one - of those schedules. If the advantage of resource accounts is more and better information, the disadvantage is that they are more complex. It has proved a great deal more challenging to adapt commercial- style accounts to fit the business of Government than anybody envisaged when the public sector embarked on this exercise in the early 1990s.
There are also concerns about whether these new accounts are user friendly for MLAs. On page 6, I have set out some of the basic questions that any MLA should ask if he were thumbing through a Departments resource account. For example, at paragraph 12 "Has the Department properly accounted for the resources voted by the Assembly?" My certificate at the front of the accounts will answer that. Departments will either get a clear certificate, or a qualified certificate if there are problems - and the qualified certificate will report those problems to you.
What is the real cost of each of the Department's key objectives? Every Department has a spectrum of objectives, which will show how the sizeable budget is allocated, and allow you, as MLAs, to make your political judgements of whether it looks the right set of priorities for the Department's spending.
At schedule 5, on page 30, five objectives for the office have been set out alongside resources. The largest amount, as you would expect, has been put into the financial audit work we have to do with all the Departments. The second largest is for the reports we produce for the Committee. The page shows how the budget is spread so that members can see some of the detail.
Another important question you can ask of the resource accounts is "Have there been any significant overspends or underspends in the sums voted by the Assembly?" If substantial sums of money have been allocated, it would be of interest, particularly to departmental Committees, to see whether the Departments have managed to spend the budgets they have been given. Schedule 1 allows you to make that comparison.
Finally, perhaps the most interesting question is "What assets has the Department invested in to deliver its objectives?" These are apparent from the balance sheet in schedule 3. However, it is not just the balance sheet itself that should be examined. The balance sheet will be supported by notes, particularly a fixed asset note as mine is. The note provides a summary of new purchases and disposals of different categories of assets, including land holdings, buildings, vehicles, offices and computer equipment. One can get some sense from the balance sheet of how a Department is using the enormous public sector assets it controls.
The Chairperson: Thank you very much, Mr Dowdall. You have told us how complex resource accounts are. As your staff will have to concentrate on many technical issues that these accounts produce, I am concerned that the Northern Ireland Audit Office will still be able to cover the very important traditional matters that usually concern the Committee, such as irregular expenditure, probity and the control of fraud.
Mr Dowdall: It is true that a great deal more work is involved in the audit of a resource account, but it does not dilute our focus. There will continue to be two parts to the audit opinion that I will put on the accounts. The first will be to decide whether in disclosure terms they are a true and fair view of the Department's use of the Assembly's resources. The second will be that there are no irregularities, and that is just as important with resource accounts. Our audit work will be planned to ensure adequate coverage of issues such as regularity, propriety and fraud, if necessary.
The Chairperson: I am pleased to hear your response, as it is important that the strengths of the existing system are maintained and that Department's financial accountability to the Assembly - particularly for cash - is not weakened.
The Deputy Chairperson: Thank you for your presentation, Mr Dowdall. You made it clear that resource accounts provide more information and can be seen as an advantage but on the other hand, that they are more complicated. Will they be more useful to us as MLAs?
Mr Dowdall: Yes. The fact that they give more information is a significant bonus. Resource accounts are technically more complex; it is much harder for a layman to interpret the information provided than in the old receipts and payments accounts, which were not easy at a glance. Two provisions may help with this problem. First, as I have explained, anyone can ask basic questions about a resource account and get an answer. MLAs with an appetite for minimal training could move beyond that and make more use of the accounts. If there were a demand for that kind of training, it would probably be a good idea. Secondly, as you know, it is our job as your auditors to ensure that any significant accountability issues arising from the accounts are not lost in the figure work but are drawn to your attention. We will continue to do that for this Committee.
Mr Dallat: As Chairperson of the Audit Committee, I welcome resource accounting. For the first time we will have a 'health chart' for each Government Department, in the form of the balance sheet. What impact and implications will resource accounting have for the Audit Office and its work?
Mr Dowdall: Resource accounting is a challenge for us and for Departments, as it is one of the biggest accountancy developments that officers have had to deal with in my memory of public sector audit work. It is a big increase in our workload, and I confess that we are going to be stretched to cope with it in the coming year, because the first year is always a peak as everybody moves up the learning curve. Resource accounts are more demanding and, therefore, we have had to upgrade our skills base. It is not fully appreciated that they are more demanding than those required in the private sector; Government resource accounts have more schedules attached and more disclosures involved. That means that I cannot top up my staff by bringing in some private sector auditors and putting them to work on resource accounts. Although they would know the accruals, and would be able to find their way around balance sheets, they would not be familiar with the schedules unique to Government like schedule 1 and schedule 5. They would need familiarisation training. We have been working to develop our own internal skills base, increasing the proportion of our own professionally qualified auditors and putting our own staff through substantial training for this exercise.
Mr Dallat: Paragraph 6.2 of the composite report describes the experience in Great Britain. Great Britain is well ahead of Northern Ireland in implementing resource accounting. Are there any lessons you can learn from the GB experience so as to avoid similar problems here?
Mr Dowdall: Yes. I think Mr O'Reilly will come back to that later. It was certainly a key point of the GB experience that they had considerable problems in delivering good quality accounts on time. Lessons can be learnt from that. A key lesson is that we cannot expect everything to be perfect in Northern Ireland in the first year of resource accounting.
Mr Dallat: I cannot resist asking a more general question. Recently, difficulties have come to light as a result of the work of the Public Accounts Committee in relation to credit cards. Does the Northern Ireland Audit Office operate a credit card or a corporate procurement card scheme?
The Chairperson: Although it is a very important matter, I suggest we hold that question until later.
Mr Dallat: I am happy to take your instruction.
The Chairperson: Thank you, Mr Dowdall, and the Northern Ireland Audit Office for providing this note, which I hope will be of interest to all MLAs. It is very helpful to have the composite report and the points made this morning.
I welcome Mr O'Reilly and Mr Delaney from the Department of Finance and Personnel. We are now moving towards the review of Departments' progress in putting resource accounts in place. The past year has been a dry run to test their preparedness, but we expect the accounts for this financial year to be ready in the new format by July.
This is a most important exercise, and it is right that the Public Accounts Committee should take the lead in monitoring progress. That is why I asked Mr O'Reilly to produce a progress report. Before Mr O'Reilly summarises his report for the Committee, will Mr Dowdall tell the Committee how Departments performed during the dry run just completed?
Mr Dowdall: Yes. As I said in reply to Mr Dallat, some teething problems are expected with an exercise of this complexity, and the dry run revealed those problems. Two of the 17 dry run accounts were fine. Four were qualified; if the problem issues are addressed, it is likely that they will receive satisfactory certificates when Departments come to the proper sets of accounts. The remainder showed a wide range of problems, so we did not give even a qualified opinion on them. Therefore, most Departments still have a long way to go to produce good quality accounts. The dry run also served to identify to Departments what they need to do to produce a good set of accounts this year.
Mr O'Reilly: As you mentioned earlier, the report resulted from a Committee session in January, when you asked me to report back on the position on the implementation of resource accounting in Northern Ireland Departments. Since that session I have followed up the request in two ways. First, I have had a series of bilateral meetings with the principal finance officers in all Departments. Secondly, I have sought assurance statements from accounting officers in all Departments on their progress towards the new resource account regime for the current financial year. The report before the Committee is the outcome of that process.
Before I outline the content of the report, with permission Mr Chairperson, the Clerk to the Assembly has asked me to place a point on record with the Committee. In annex A of the report, the Northern Ireland Assembly is listed as one of the public bodies covered by the report. That is accurate in the sense that the Assembly is, also moving to produce its accounts on a resource basis. However, the Clerk wishes the Committee to acknowledge the Assembly's unique position within the Northern Ireland administrative system. He has asked me to record that under the terms of the Northern Ireland Act 1998, the Northern Ireland Assembly has established a corporate body known as the Assembly Commission to provide the Assembly with the property, staff and services required for the Assembly's purposes. The Commission is aware of the move towards resource accounting and is content that the Assembly Secretariat adopts the same procedures as those specified for Northern Ireland Departments, their agencies and non-departmental public bodies in preparing its accounts. Therefore, the Assembly is moving in the same direction, but wishes to record its separate position within the system.
The Chairperson: It is subject to the same deadlines.
Mr O'Reilly: Yes.
The Chairperson: That is useful information; thank you for placing that on record.
Mr O'Reilly: I want to outline the structure of the report, but I will not go into the details as those can be addressed during questions.
Section one is the introduction. Section two addresses resource accounting and budgeting, which is relatively short. However, a key message that I want to emphasise is the linkage between resource accounts, which are the focus of the Committee, and the wider budgeting process in Government. This is not only an accounting issue; it affects the entire way that the Government set about planning, controlling and monitoring public expenditure. Therefore it is not only an issue for the Public Accounts Committee, but for all Committees who are interested in how Departments regulate planning in public expenditure. In future this will no longer be planned on a cash basis, but on a resource basis, and that is the key message of section two of the report.
Section three explains the background to the process under which resource accounts are being introduced in Northern Ireland. The key message in this section concerns the trigger-point implementation strategy, which was introduced in parallel with GB, and Members will be interested in the timetable and the performance of Departments against the timetable. However, I stress that the timetable was running in parallel with the GB timetable, particularly with regard to producing resource accounts across the UK by the target date for the current financial year.
Section four deals with the outcome of the dry run resource accounts and the audit for last year's accounts, which ran parallel to Departments' production of their traditional appropriation accounts for that year. Mr Dowdall has already given an overview of the outcome of that exercise from the perspective of the Audit Office.
In section 5, I have sought to highlight the key issues and challenges we face. There are a number of key issues in that section.
Finally, the 'Conclusion and Next Steps' section of the report identifies the action to be taken. In January the Committee asked me to say whether I was confident that Departments would be able to meet the various statutory deadlines specified for the production of resource accounts. Having completed this exercise, I have a greater degree of confidence than I had then. However, without pre-empting further discussion, the key point is there is absolutely no room for complacency in this exercise and there will need to be a continuing focus on it over the coming months.
The Chairperson: Thank you, Mr O'Reilly. In paragraph 6.4 of the report you state that
"some departments will be able to produce good quality Resource Accounts with relative ease; some should be able to do so with some difficulty; while others may find it difficult to meet the first statutory deadline on 31 July for the production of good quality Resource Accounts."
How confident are you that Departments will deliver good quality accounts in line with the statutory timetable? What percentage of them will deliver good quality accounts on time? What will happen to the rest if they do not deliver?
Mr O'Reilly: The statements in the report reflect the views of accounting officers and Departments. It would be inappropriate for me to presume to pre-judge the outcome of Departments' performance by 31 July and more particularly the subsequent audit of their accounts by the Northern Ireland Audit Office.
The Chairperson: I am asking you how confident you are about this.
Mr O'Reilly: Dividing the Departments into three categories reflects the varying degrees to which they are exposed to the issues, difficulties and challenges that I have identified in the report. There is a category of Departments, the nature of whose business is relatively straightforward as regards expenditure: OFMDFM, for example. It has relatively little programme expenditure; it is not involved in running an organisation like the Water Service, or the social security system. Its expenditure is mainly administrative. It is relatively easy for Departments such as that to produce good quality accounts. They still face challenges - all Departments have their own problems.
The second category of Departments have more complex issues to address and are operating in a scenario in which they have a very complex range of expenditure: the Department of Health, Social Services and Public Safety, for example. It has complex interfaces with bodies such as the health trusts. Similar Departments have complex inter-relationships with their agencies, though such relationships are long established. They have been affected by devolution to some extent but, by and large, the systems are in place - for example, health trusts have been operating on an accruals basis for some time. Therefore, although such Departments face very significant and complex issues, they also have the infrastructure in place to address those issues.
The third category mostly comprises the new Departments arising from devolution.
Every Department was new under devolution, but a number of them came from the components of the six older pre-devolution Departments, and worked to establish, almost from scratch, an accounting and financial infrastructure. Those Departments have had to rely on technical, administrative and accounting support from pre-devolution infrastructures, and are therefore working hard to have appropriate accounts in place by 31 July.
Having talked to the Departments and heard the views of their accounting officers, I am now more reassured that they are aware of the deadline and the difficulties to be faced. They have action plans in place to address those problems, and I can discuss those plans if necessary with Members.
Mr B Bell: Are you confident about the situation?
Mr O'Reilly: Yes, but not complacent.
Mr B Bell: What will happen if the accounts are not produced by July? Apart from the fact that they will be sitting in that chair you are in, that is.
Mr O'Reilly: The Northern Ireland Audit Office and we will expect all Departments to have produced good quality resource accounts, supported by the necessary documentation, by 31 July. The Northern Ireland Audit Office will subsequently audit those accounts. For most accounts that process may be as straightforward as it is at present under the appropriation accounts system. In the case of some Departments' accounts the Audit Office may wish to pursue particular issues or concerns they have, which may be resolved relatively quickly. For Departments with more significant difficulties by 31 July we would work along with them in the period after that to address residual concerns that the Audit Office has identified in the accounts it has received. The objective is for the Audit Office to be able to produce an opinion by 31 October on all the accounts it has received, in order to facilitate the tabling of the accounts before the Assembly by early November.
Mr Dowdall: Mr O'Reilly has described the process well. The judgement made in October will be that the good accounts submitted will get a clear opinion. If some present problems, they will have a qualified opinion. However, if the accounts were really so problematic that a judgement cannot be made, I would issue a disclaimer stating that there are problems with those accounts and that I cannot give an assurance on them.
Ms Ramsey: Mr O'Reilly, in paragraph 3.1 of your report, you mentioned
".a phased 'trigger point implementation strategy' involving close collaboration between Departments and their auditors to ensure that the various components of the new resource accounts were being put in place in time and to acceptable standards."
You have already touched on this matter, but do you consider that they have been successful?
Mr O'Reilly: No, not to date. First, the trigger point strategy mentioned in annex c of my report included a series of target dates. The strategy was amended part way through to take account of devolution. The final stage, stage 3 of the trigger point strategy, set some target dates for the delivery of resource accounts for dry run audit purposes to the Audit Office and then for the preparation of a written assurance. The factual record is that those dates were not met by the system.
We have now been delayed by several months, and I received the final part of that process - which is the written assurance for accounting officers - in February rather than November. That late submission of the dry-run accounts also affected the work that the Audit Office was able to do on that first set of accounts. The outcome of that exercise is reflected in the C & AG's opinions of the dry-run accounts. It is not the outcome that we wanted, and we must make up some distance before we are ready for the preparation of the full-resource accounts for this financial year.
Ms Ramsey: You mentioned the difficulties with this year's dry run, and the Comptroller and Auditor General also touched on those. How will you ensure that Departments have good quality resource accounts in place by 31 July?
Mr O'Reilly: Several actions are in hand. First, we have engaged with Departments - and I have personally engaged with all Departments - on this issue over the past weeks. The Department of Finance and Personnel has also reinforced what all accounting officers already know, which is that this is now a serious business because we are in the process of producing accounts for the current financial year. Accounting officers must also identify their difficulties, or those that they perceive themselves to have, and seek to resolve those where possible. For example, there are difficulties with consolidation that often raise technical accounting issues, and I listed those in section five of the report. The key point is not that everyone acknowledges that the difficulties exist, it is that we are satisfied that Departments focus on addressing those.
There are also significant concerns about the level and availability of expertise in the system, and again we are monitoring that carefully. All of the Departments have now said that they have sufficient professional expertise, but they qualify that by saying that they are exposed if any of that is lost. That key issue cuts across all Departments.
We are putting that type of measure in place to ensure that Departments address the specific points that the Audit Office helpfully identified in its management letters.
Ms Ramsey: We have looked several times at those Audit Office reports that concern Departments' accounts and value for money. You suggested that this year would be the dry run and that you would seek to find and resolve the problems with the help of the accounting officer. I may be putting you on the spot, but what is your judgement of the Departments' assurances? Are you confident that those are realistic?
Mr O'Reilly: I accept the assurances that I have been given, and they cover those Departments that are confident that they will meet the deadlines to those that have recorded their significant concerns. However, all Departments have said that they are working to meet the statutory deadline of 31 July.
My own view is that, having worked intensively on this for the past couple of weeks, the system is more focused on resource accounting than it was several months ago. Those at the head of all Departments understand and appreciate that this important issue must be addressed. Therefore, it is now more likely that Departments will be able to provide accounts by 31 July and will also be able to provide accounts on which the C & AG can give coherent opinions by 31 October. However, I qualify that statement by saying that it would be surprising if we ended this process with a full set of unqualified resource accounts this year.
For various reasons, which I can go into in further detail with you, we must expect that some accounts will be qualified after the end of this process, and by the time we get to laying accounts before the Assembly at the beginning of November.
Ms Ramsey: We are in the business of ensuring that there is accountability and value for money to the taxpayer. The Committee should therefore stress its message that we will not be happy if Departments do not meet that deadline. I would be concerned if they seemed to be ignoring DFP on that deadline.
Mr B Bell: From what we have heard from Mr O'Reilly, I feel that his Department will be making sure that these deadlines are met.
Mr Dallat: I hope that the Departments do not leak quite as much as the Water Service, except to give you good information on their accounts. Post-direct rule, there is an insatiable public appetite for good information on how taxpayers' money is spent. That is a healthy thing, and it is encouraging to participants in public life to know that the public really are concerned. Of course, that also creates problems.
We have experienced resistance to change from at least one Department. All the bad practices that existed during direct rule must be stamped out, if that is not perhaps too violent a word to use. Clearly the difficulties are formidable, so does the Great Britain experience assist in ensuring a smooth transition?
Mr O'Reilly: The Great Britain experience assists at a number of levels. At a simple technical level, this new method of accounting raises a formidable range of issues for professional accountants in translating the principles of commercial accounting into Government spending. Those issues are being addressed at a national level through the Financial Reporting Advisory Board, on which we are represented. We continue to learn from that experience. My Department provides a yearly update to our resource accounting manual to all Departments drawing on the technical issues that are raised in Great Britain.
More generally, the most significant lesson we can learn from Great Britain is at two levels. First, the involvement and focus of senior management in Departments is essential to ensuring that these processes work well. The GB Departments which perform best are those that have not only addressed the issues of having professional accountants in place, but whose senior management has taken a real interest in both resource accounts and resource budgeting. Those Departments seek to use the information that has now been produced to assist them both in transition and in using the material. For example, I recall reading a document that mentions the monthly board meeting of a Customs and Excise Department that actually considers updates on their financial position on a resource basis in-year. That illustrates the necessary detailed commitment. Secondly, the interest shown by this Assembly and its Committees in the subject is significant. Both are seeking to explore and understand better the implications of this process for their Departments. The expenditure profiles in their Departments will also assist in creating the necessary focus from the legislature on this key issue.
Therefore, it is a mixture of drawing upon their expertise, and learning lessons from Departments that have done well in Great Britain. The key lesson there is the focus of top management on the issues. The interest of Parliament - and in parallel here the Northern Ireland Assembly - in the whole subject also assists the process of achieving the benefits of this new method of accounting for public expenditure.
Mr Dallat: At the risk of sounding negative while you are obviously upbeat, you will appreciate that some of the recent reports from the Audit Office have led to great public concern - and, I suspect, a degree of impatience - about the way in which some Departments are run. LEDU and the Tourist Board, to name but two agencies, exemplify that. What procedures have you considered to ensure that there will not be problems? Can you draw on GB experience to ensure that Departments comply with the new procedures without dragging their feet?
Mr O'Reilly: I refer Mr Dallat back to the trigger point implementation strategy. I have acknowledged that that process required Departments to produce dry-run accounts to submit for a dry-run audit and then to receive comments from the Audit Office on the outcome of that process. All Departments have now received detailed management letters from the Audit Office setting out the various issues that it has identified in those dry-run resource accounts. Those letters were addressed directly to accounting officers, so they have gone to the top of the Departments.
To be ready by 31 July, Departments must focus great attention on the issue over the coming months. It is no longer an option to evade or fail to address the issue. The concluding slide that we have used for several recent presentations to Departments on this said that there is no escape from the process now. We are on a timetable that is under close scrutiny, both by my Department, this Committee and the Assembly.
Mr Dallat: I am now positive, but I hope that all accounting officers read the Hansard report of this meeting.
The Chairperson: I would say "amen" to that. We must bear in mind that these gentlemen are here to help us.
Mr Close: I want to focus on the difficulties that you highlight and the difficulties referred to by different Departments in achieving the local statutory date of 31 July. First, I emphasise that that is a statutory date; it is not a moving or arbitrary target. Perhaps I am being facetious, but I get the impression that there might be an attempt to claim crown immunity in the avoidance of that date. I want to absolutely lay that to rest; it is important that that date is adhered to because of the obvious ramifications. If it is not adhered to, then everything else slips back, and the whole thing becomes an absolute mess.
As an example, in paragraph 5.6 you refer to the resource accounts relying "on the consolidation of their agencies and other bodies' accounts" as being one of the potential reasons why that date may not be achieved. Who sets the timetable for delivery of those other bodies? Who is in charge? As Departments have a statutory duty to fulfil, I hope that they have a large say in ensuring that those other bodies present the accounts to them to enable them to comply with the statutory date.
Mr O'Reilly: The sole statutory dates are those specified in the Government Resources and Accounts Act (Northern Ireland) 2001. The responsibility for ensuring that those dates are met rests with the relevant accounting departments and accounting officers.
To answer your question on the consolidation problem, the responsibility for setting the dates by which the agencies and other bodies report to the parent Department lies with the lead Department in each case. For example, the Department of Health, Social Services and Public Safety has set timetables back from 31 July to ensure the timely submission of reports from the health trusts. That allows the Department to consolidate the information into its accounts.
At one level, that process creates difficulties in the system. If the statutory date is 31 July, then the date for the consolidation and provision of agency accounts has to be set earlier than that. That narrows timescales for those agencies and other bodies. I know that some of those bodies have registered concerns about that. However, they acknowledge the requirement to produce the information.
Mr Close: Before you go on to your second point, was it the other bodies that highlighted the problems, following information supplied on the Departments' requirements? Are those bodies telling the Departments that they cannot meet the earlier date?
Mr O'Reilly: I am not aware that they are saying that they cannot meet the earlier date. There is a process of co-operative working and consultation between the parent Departments and the other organisations, with a view to meeting the statutory dates.
Mr Close: Is it fair to assume that those potential difficulties have been highlighted in the management letters that were sent out?
Mr O'Reilly: I am not aware of the content of the management letters. However, some of the Departments for whom this is an issue have highlighted those difficulties to me in their assurance statements.
Mr Close: It might be useful for us to have copies of those management letters. We could then satisfy ourselves that the relevant details have been drawn to the attention of Departments, particularly as they relate to other bodies. That would enable us to ensure that all loopholes and difficulties are covered.
Mr Dowdall: I have copies of those letters because they are issued from my office. They are our views on what needs to be done. You can certainly see any of the management letters to Departments, if you are interested. They represent the auditor's view of what needs to be done to get the accounts to a satisfactory state by 31 July.
Mr Close: I shall redirect my question to Mr Dowdall then. Has specific reference been made in those letters to the need for other bodies to have satisfactory earlier dates to ensure that the lead Departments can comply with the statutory date of 31 July?
Mr Dowdall: Yes. I am not sure that the reference is as specific as you have suggested. The problem is so obvious on the face of the accounts that we will be referring the bodies generally to the problems of consolidation and expecting them to address those.
The problem is so large that we would have been working in the knowledge that Departments are trying to bring their subsidiary accounts forward. Mr O'Reilly highlighted the problem. It is not because there are any difficulties around the system in acknowledging that this needs to be done, it is just that it is a more difficult thing to do than for Departments that do not have a consolidation problem. It creates difficulties for subsidiary bodies which, for many years, have been preparing their accounts in a satisfactory fashion, but now find that they have to do so to a much tighter, externally imposed, timetable.
Mr Close: You told us earlier that 11 sets of accounts did not even reach the starting gate for qualification. I am concerned that the Departments might use that as a reason for stepping back and saying "It was their fault, not ours. We were doing our best."
Mr Dowdall: You have identified the key point in the matter. The responsibility rests entirely with the Department concerned, as does the means of controlling it, because the Department controls its subsidiary bodies.
I imagine that if a Department were pleading this as an excuse for not having met the deadline, or produced satisfactory accounts, the Committee would not be sympathetic.
Mr Close: Correct. Paragraph 5.5 refers to key reasons identified for potential difficulties in achieving the statutory date of 31 July, such as the availability and retention of staff with the necessary professional accountancy and other skills. Paragraph 5.8 states that accounting officers have indicated that they now have the requisite professional resources in place, which, in some instances, will be complemented by the use of consultants.
Are adequate numbers of staff with appropriate technical knowledge in place to ensure that good quality resource accounts will be produced in line with the statutory timetable?
Mr O'Reilly: Yes, accounting officers have given us an assurance on that. However, they have also stressed their perceived exposure to any loss of the accounting and professional staff that they have in place at present.
That raises the question of why the system is in such an exposed position. It also raises the more general issue of the way in which we have gone about resourcing the system with professional accounting staff, and other finance staff who, although not professional staff, have the necessary financial skills. One specific issue that has arisen from this round of consultation, resulting from the Public Accounts Committee's work, is that we will be undertaking, in collaboration with Departments, an immediate review of the processes by which we obtain - and more importantly retain - professional accounting skills and other associated financial skills in the system. That has been identified as a particular problem, and it will be followed up.
Mr Close: I appreciate that reply. However, I am somewhat concerned that it is only now that the need for professional staff with an accountancy background has come to the fore. Perhaps I am misinterpreting what you said, but I would have anticipated, expected and required that proper professional accountancy was always available throughout all the Departments to ensure that proper effective and efficient use was made of taxpayers' money, and that it was not down the list of priorities. I would have thought that it should have been near the top of the list. Does that explain why, in the dry-run experiment referred to earlier, only two of the 17 accounts got a clean bill of health, four of them were qualified, and 11 did not even reach the starting gate?
Mr O'Reilly: Yes, it is a fair assumption that some of the difficulties experienced by Departments were due to the lack of professional accounting staff in place, or available, and also the lack of professional accounting staff who were familiar with the workings and business of the individual Departments.
On the earlier questions, I would draw a distinction between acknowledging the need, and the action that was taken to address the need. The need for professional accounting staff in the system has been identified and acknowledged for some years now, particularly since the mid-1990s and the planned introduction of resource accounting. The action taken to address that has, however, varied in its effectiveness. For example, there has been a mixture of in-house professional training, combined with Departments simply going out to the marketplace and recruiting professional accounting staff. The difficulty in latter years has been the creation of additional Departments - that has, understandably, created a need for additional professional accountancy expertise. The ability of the Civil Service to attract and retain accountants from the commercial market has varied, depending on the state of the labour market in that area.
Another factor that has affected this issue is what is described as "poaching within the system", where one Department openly recruits three or four accountants, has them in place, and then another Department runs an internal competition for accountants - possibly offering a higher salary - thus attracting accountants from one Department to another.
That has also had a negative effect on the availability of resources in particular Departments. There is clearly an issue of cross-departmental co-ordination and management that also needs to be addressed.
Mr Close: It would help us all to have further detail on the full list of accounts, including information on those Departments with qualified and trained professionals in place, so that we can identify any gaps and be alert to any potential qualifications that may come in the future.
The Chairperson: Have there been any attempts to poach staff from the Northern Ireland Audit Office?
Mr Dowdall: I sympathise with Mr O'Reilly. Managing a group of professional accountants on the scale that we do in the Audit Office is very challenging. It is difficult to keep a significant core of professionals in place. There was a very high rate of attrition of our professional core last year. That no doubt is related to an increasing awareness across the public sector - not just in Departments in relation to resource accounting - of the need to upgrade professional accountancy expertise. I hope that it is also a recognition of the value of the training and experience that the staff get in our office. I believe that that is recognised by Departments and public bodies when our staff move into more conventional accountancy work.
Ms Morrice: I want to go "off script" and get back to basics. I want to understand what resource accounting is. Tell me if I am correct. Let us say that I spend £50 cash shopping in Tesco each week. Does resource accounting mean that I now have to take into account the bus fare or the cost of the petrol used to get there, the depreciation of the car and the cost of childminding if I do not bring my child with me? Does resource accounting consider all those things that I never accounted for before? Is it as simple as that?
Mr Dowdall: Bringing it down to the level of a household is quite revealing. I will give two examples to reinforce Ms Morrice's point that resource accounting is much more comprehensive. One obvious aspect of that more comprehensive nature is that, in determining how much is really spent per week, some major capital items should be added in. In addition to the petrol used to get you to the shop, the depreciation on your car should be included - to reflect the depreciation on holding an asset such as that. The capital cost of your house over the weekly period should also be included. Resource accounting tries to bring the cost of all capital that a Department owns into the picture.
I will give another household example of how accruals works. It is an interesting concept that is the basis of all commercial accounting. If you get your quarterly electricity bill in April, you think of it as something that you have to pay in April. However, in accruals terms, the cost is spread over the previous two months because that is when the cost was incurred. You may pay the bill in April, and that is very important for your cash flow, but in terms of living costs over the year it is spread monthly. That is what accruals is trying to capture.
Ms Morrice: You mentioned the depreciation of the car. But for the Department for Regional Development, for example, how do you put a value on a road?
Mr Dowdall: The Department would very much like to know that.
Ms Morrice: Are roads included in resource accounting?
Mr Dowdall: Absolutely. The biggest asset on any Department's balance sheet in Northern Ireland is the road system, which is worth around £12 billion.
The Chairperson: It costs £100 million for repairs to roads.
Mr Dowdall: Yes, there are maintenance costs as well. The Roads Service is having great difficulty in getting an accurate estimate of the value of the roads. The Roads Service may think that I, as its auditor, am causing problems for it, but I have great sympathy for its difficulties. The Roads Service runs the road system in Northern Ireland. That is all roads - not just main roads and motorways, which are easy to value because there is a methodology to that.
Ms Morrice: Are there guidelines in England for A class and B class roads?
Mr Dowdall: There are engineering guideline equivalents in Great Britain. However, the problem in Northern Ireland is that the Roads Service uniquely includes all minor roads in its assets, and all country lanes that it has adopted. Valuing those is proving to be troublesome.
Ms Morrice: The value of each road in Northern Ireland would make wonderful press.
Mr Dowdall: The Roads Service has to produce a reasonable estimate. "Reasonable" means that it satisfies me that it is free from material error. It does not have to be absolutely accurate, but it must not have a material error of above 1% or 2%. That is difficult for the Roads Service. You picked the most difficult valuation problem for any Government Department in Northern Ireland in that example.
The Chairperson: You would have great difficulty valuing the Garvaghy Road and the Ormeau Road.
Ms Morrice: Perhaps we could add the Bangor to Belfast Road. What assets does the Audit Office have?
Mr Dowdall: The dominant asset in our balance sheet is the building, and Parliament was kind enough to endow us with it.
Ms Morrice: That has to be included.
Mr Dowdall: That is included. It is not just included in the balance sheet, it is depreciated as a cost for me every year, and that appears as a resource cost.
Ms Morrice: Should it not appreciate?
Mr Dowdall: It goes up in value, but I am using its services every year. Any increase in the value is reflected in the balance sheet, but usage means that the annual cost is increasing. Therefore, approximately £500,000 a year in my resource cost is attributable to the building.
Ms Morrice: Again, "off script", I am sure that MLAs would appreciate a brainstorming/training session on resource accounting, if possible.
The Chairperson: I would appreciate it if you would go "on script".
Ms Morrice: OK, I will. I know that Departments are upgrading existing accounting systems. Given the magnitude of the transition from cash to resource accounting, it was inevitable that major changes would take place. When will Departments have the systems in place? We have been talking about deadlines, but are the systems in place to facilitate the delivery of these accounts?
Mr O'Reilly: Are you talking about technical accounting support systems?
Ms Morrice: Yes.
Mr O'Reilly: There are adequate technical accounting support systems in place in all Departments. Some Departments continue to rely on other Departments for the provision of those support systems. That is a hangover from the pre-devolution structures. After devolution there was a review of accounting services provision in all Northern Ireland Departments, called the accounting services review (ASR). As a result of that review, recommendations were made on the procurement of a new accounting system for all Departments to simplify and streamline the provision of accounting services under the new devolved structures. It would also take account of the fact that there are large and small Departments. The purpose is to streamline, introduce consistency and reduce processing costs for payments. That exercise is ongoing, and the operational target date is 2004.
Without going into too much detail, the second issue is that virtually all Departments are currently operating a version of a software package about which there are concerns over reliability and robustness. We also have concerns as to its ability to provide the quality and sophistication of accounting information required for resource accounts purposes between now and the coming on-stream of the new systems. We are, therefore, also examining whether that issue needs to be addressed in the short term.
Ms Morrice: Why did the Department of Finance and Personnel decide to terminate the old-style appropriation accounts, which obviously gave the traditional degree of accountability, before a successful dry run was completed, or there was some kind of transitional period? Why move immediately into this complex issue?
Mr O'Reilly: Various factors led to that decision. The first one was, as I mentioned earlier, that Northern Ireland was following a parallel implementation strategy with the rest of the United Kingdom, as it must do, because our public expenditure systems are tied into that. However, there was a fault or a shift in our parallel running timetable with that implementation because of devolution, which effectively took up to two years out of the process due to the creation of new Departments.
Our absolute requirement was to have full-blown resource accounts in place for the current financial year, parallel to the position in Great Britain. However, in Great Britain they have had two years of parallel running and, I think, one year of dry-run accounts. The first year in which we could have had a dry-run account under the new Northern Ireland departmental structures was 2000-01. That is what happened, and the Comptroller and Auditor General has given the Committee an outline of the outcome of that exercise. Because of the UK dimension, one choice was to say that the first year in which we must produce full resource accounts was 2001-02, but we could have also said that in that year we would continue to produce, in parallel with that, appropriation accounts. A balanced decision was made not to do that because it was felt that if we had continued to produce appropriation accounts the necessary focus and energies would not have been created to address and resolve the difficulties that we knew were in the system, and which had to be resolved in order to produce resource accounts. Our concern was that we would have continued for another year or two producing appropriation accounts, without really getting to grips with the problems and challenges of resource accounts.
Ms Morrice: Did dry runs take place in England?
Mr O'Reilly: Yes, there were several years of dry runs in England.
Ms Morrice: So it was a risk that you decided to take?
Mr O'Reilly: That is the case. The pattern in England, as reported in my document, is that in the first year of dry runs there were a large number of qualifications. In the second year there were much fewer qualifications, and in the third year even less. We expect a similar pattern to be followed here.
Ms Morrice: But it would happen all in one chunk.
Mr O'Reilly: Yes, all in one chunk - it is a more risky or challenging approach to adopt. A conscious decision was taken to make up the distance and create a focus for Departments to concentrate on the production of their resource accounts and leave the old appropriation accounts behind.
Ms Morrice: Good luck to you. Thank you.
Mr Beggs: As a non-accountant, I am trying to make myself as competent as possible. Most people in Northern Ireland are also non-accountants, and there is a danger that some of the complex, technical language will not bring people along in relation to the procedures that are being developed. Can the Comptroller and Auditor General confirm that the new changes are likely to result in more departmental accounts being qualified?
Given that there clearly are concerns of a technical nature, how will he ensure that when he is qualifying accounts that have particular concerns for the public and the Public Accounts Committee, that those will continue to be drawn to our attention? How will he ensure that the more technical qualifications do not mask the important issues that the Committee has to deal with?
Mr Dowdall: This is an important point, because Mr O'Reilly and I are saying that we must expect more qualifications in the first year of resource accounts. That has been the experience of Whitehall. Although Departments are currently doing a lot to get up to speed, experience suggests that, given the nature of some of the problems, the difficulties are going to be hard to deal with within the timescale. If that happens, it will be regrettable, because any public accounts qualification is serious. It is worth spelling out, however, that it will not be a crisis of accountability if it turns out in November that a significant number of accounts are qualified that were not qualified previously. I will explain that. In the old form of receipts and payment accounts, accounts that were qualified were almost never qualified on transaction issues - on the actual accounting for receipts and payments. Generally, Northern Ireland Departments have been good at accounting for cash.
In the new accounts, there will be a whole range of extra information. The qualification issues are going to lie with that new information. Problems will occur with balance sheet issues similar to those that we have been discussing with Ms Morrice in relation to the Roads Service, and with issues, such as the treatment of debtors, which have not been taken into account previously. In some respects those issues could be regarded as technical qualifications. I do not like the use of that term, but they are issues of a specific nature relating to the new information. The qualifications do not imply that the integrity of transactions recording the inflow and outflow of cash in Departments has deteriorated. I appreciate that it is important for MLAs to be able to distinguish between those. Where there is an increased incidence of qualifications, I expect all such qualifications to be in the latter category. That means that Departments have not reached the new, and much more demanding, disclosure standards that resource accounts require. It does not mean that they have slipped up on cash accounting, which they have always been good at.
The assurance for the Committee is that I do not just qualify the accounts. When I qualify them, I always produce a report for you explaining why they have been qualified. I envisage that at the annual stocktaking with the Public Accounts Committee, when we review issues that should come before the Committee, or issues which might be dealt with in other ways, such as through correspondence, I will inform the Committee of which qualifications arise from technical matters. If there are any in a different category that might merit Committee attention, they will get attention in the way that you have handled them in the past - through involving the accounting officers. It will be my job to indicate the issues to the Committee.
Mr Beggs: Regarding the practical issues of resource accounting - the Fire Authority investigation found that the authority had purchased computers that became obsolete. As I understand it, that is the kind of issue that resource accounting will highlight because there is a cost associated with it. Previously that cost would have been hidden but for the investigation that you carried out, and which the Committee subsequently reported on.
Another matter that has come to my attention recently is that the Housing Executive holds sizeable acreages of greenfield sites within areas of approved housing but has no plans to develop them. The new resource accounting methods, as I understand them, will highlight to civil servants the costs of holding such assets - in particular, the costs relating to assets that are not being used. Is that correct?
Mr Dowdall: Yes.
Mr Beggs: Is it expected that in the future - as a result of the new resource accountancy methods - the number of matters being drawn to your, and our, attention will be reduced, given that the information will be drawn out within each Department's accountancy methods, and Departments should then take suitable action without being embarrassed into doing so?
Mr Dowdall: That is one of the key practical benefits of resource accounts. If management uses them properly, they will bring home to management the cost of the capital assets that it holds. If any capital assets are not being properly utilised, that will be compared with the annual resource cost of holding those assets, which has to be charged in the accounts. That should focus minds on the disposal of surplus assets, such as land.
Mr Close: We are embarking on a three-year Treasury spending review. The issue of the use of resources could be a pertinent point in seeking additional resources from the Treasury, particularly regarding Mr Beggs's point about using and disposing of capital assets. Is that likely to be used as a whip against us to reduce the amount that we receive, or make the argument more difficult for getting additional resources from the Treasury?
Mr O'Reilly: Mr Close has put his finger on a very significant issue. In relation to holding assets, the Treasury applies nationally a capital charge of 6%, which is included in accounts. It reflects the economic cost to the Government of their holding assets. The major change for this year, and for the forthcoming spending review, is that that 6% charge on net assets held is now included in departmental budgets. It is something that Departments must pay for - against using money to do other things. If a Department is using the 6% charge to hold assets that it does not need, then real resources are unavailable for other uses. That is now a reality because of a technical change that was made this year.
Previously, those charges, under the transition to resource accounting, were held in a category of expenditure called "annually managed expenditure", which did not directly impinge on Departments' day-to-day spending decisions because it was considered to be expenditure outside their control. That money has now been moved into departmental expenditure limits (DELs), and it is a real, live charge on Departments' activities. It will bring home to Departments the cost of holding assets, particularly unnecessary assets. Holding unnecessary assets will mean forgoing the opportunity to use those resources for other purposes. That is a major change, and the implications of it are only beginning to dawn right across the system.
Mr Beggs: Having read the reports from both the Comptroller and Auditor General and the Treasury Officer of Accounts, and having listened to the responses - particularly the comments regarding the poaching of staff, and the possibility of there being a shortage within the Civil Service of people with that expertise - I am concerned about the ability of Departments to produce resource accounts to the required standard by November 2002. How does the Department of Finance and Personnel propose to manage outstanding difficulties to avoid a repetition in later years?
Mr O'Reilly: As I mentioned earlier, we are now going to look at the availability and deployment of professional and other financially aware staff across the system.
The Committee has already asked for details of the deployment of professional staff across the system. During the next month or so we will carry out that review and determine whether the difficulties that have been highlighted by Departments require further co-ordinated action across the system. However, we must first scale the problem against two matters. One is the difficulties highlighted by accounting officers, and the other is the fact that accounting officers say that they have sufficient professional resources in place at the moment but would feel exposed if they were to lose one or two key people.
Mr Beggs: Will the idea of resource accounts filter down to the level of further education colleges? If so, I would express a degree of concern - a concern that has already been highlighted to this Committee and to the Committee for Employment and Learning. For a sizeable period, one college did not have an accountant to direct its finances. Given the complexity of the issues, and importance that resource accounting may have in the colleges, how will the information and the skills be transmitted down the lines of the various Departments, their non-departmental public bodies, and other outside bodies that are receiving public funding?
Mr O'Reilly: The answer is "Yes". You have identified a key issue that we are aware of. The lead responsibility for ensuring that organisations, including further education colleges, have those resources in place rests with the designated accounting officers. The Department of Finance and Personnel, however, has an acknowledged responsibility for overseeing that where concerns are raised, as they have been now, they are addressed in a co-ordinated way.
The Chairperson: The accounts appear to be much more complex than those that they are replacing. Departments are having to commit considerable expertise and resources to produce them. It is important, therefore, that this expensive exercise results in an enhancement of accountability to the Assembly. For that to happen, Departments must deliver good quality accounts to the Assembly. That will enable MLAs to make good and proper use of them. Thank you for your attendance today. Your advice and information have been helpful.
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