Public Accounts Committee

Report on
Excess Votes (Northern Ireland)
2009-2010

Together with the Minutes of Proceedings of the Committee Relating to the Report

Ordered by The Public Accounts Committee to be printed 24 February 2011
Report: NIA 52/10/11R Public Accounts Committee

Session 2010/2011

Seventh Report

Membership and Powers

The Public Accounts Committee is a Standing Committee established in accordance with Standing Orders under Section 60(3) of the Northern Ireland Act 1998. It is the statutory function of the Public Accounts Committee to consider the accounts, and reports on accounts laid before the Assembly.

The Public Accounts Committee is appointed under Assembly Standing Order No. 56 of the Standing Orders for the Northern Ireland Assembly. 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 has 11 members including a Chairperson and Deputy Chairperson and a quorum of 5.

The membership of the Committee since 9 May 2007 has been as follows:

Mr Paul Maskey (Chairperson) 5
Mr Roy Beggs (Deputy Chairperson)
Mr Gregory Campbell MP 16
Mr John Dallat
Mr William Irwin 14
Mr Trevor Lunn
Mr Patsy McGlone 2 & 8
Mr Mitchel McLaughlin
Mr Adrian McQuillan 15
Mr Stephen Moutray 12
Ms Dawn Purvis

1 Mr Mickey Brady replaced Mr Willie Clarke on 1 October 2007

2 Mr Ian McCrea replaced Mr Mickey Brady on 21 January 2008

3 Mr Jim Wells replaced Mr Ian McCrea on 26 May 2008

4 Mr Thomas Burns replaced Mr Patsy McGlone on 4 March 2008

5 Mr Paul Maskey replaced Mr John O’Dowd on 20 May 2008

6 Mr George Robinson replaced Mr Simon Hamilton on 15 September 2008

7 Mr Jim Shannon replaced Mr David Hilditch on 15 September 2008

8 Mr Patsy McGlone replaced Mr Thomas Burns on 29 June 2009

9 Mr David Hilditch replaced Mr George Robinson on 18 September 2009

10 Rt Hon Jeffrey Donaldson replaced Mr Jim Wells on 18 September 2009

11 The Lord Browne replaced Rt Hon Jeffrey Donaldson on 19 April 2010

12 Mr Stephen Moutray replaced Mr Jonathan Craig on 19 April 2010

13 Mr Jim Shannon resigned from the Public Accounts Committee on 1 August 2010

14 Mr William Irwin replaced Mr David Hilditch on 13 September 2010

15 Mr Adrian McQuillan replaced The Lord Browne on 13 September 2010

16 Mr Gregory Campbell MP was appointed as a member of the Committee on 13 September 2010

Table of Contents

List of abbreviations used in the Report

Report

Summary

Conclusions and recommendations

Excess Votes in 2009-2010

Appendix 1:

Minutes of Proceedings

Appendix 2:

List of Witnesses

List of Abbreviations used in the Report

DFP - Department of Finance and Personnel

PAC/the Committee - Public Accounts Committee

Summary

1. This report by the Public Accounts Committee (PAC) on Excess Votes is part of the Northern Ireland Assembly’s control framework over government spending. The Committee considers the reports by the Comptroller and Auditor General on resource accounts of departments that have exceeded the limits of expenditure authorised by the Assembly.

2. The Committee recommends whether the Assembly should approve further grant to the departments concerned in order to regularise the excess expenditure. Where the excesses are the results of failures in control within departments, the Committee may make recommendations for improvements.

3. Resource–based Supply requires departments to estimate and manage the resources they will need during a financial year on an accruals basis, as well as the cash they will need as commitments mature. The Assembly authorises both cash spending and the use of resources.

4. In 2009-2010 two departments incurred excess expenditure. The specific cases were:

• the Department of Agriculture and Rural Development incurred a cash excess of £23.3 million and a resource excess of £14.1 million; and
• the Department of Education Teachers’ Superannuation Scheme incurred a resource excess of £3.7 million.

5. On the basis of its examination, the Committee recommends that the Northern Ireland Assembly provides the necessary amounts by means of an Excess Vote.

Conclusions and recommendations

6. Resource excesses in two departments in 2009-2010 totalled £17.8 million. One of the two departments also had a cash excess of £23.3 million. In 2008-09 there had been no resource excesses but there were cash excesses of £16.3 million.

7. The causes for the excesses in 2009-2010 were:

• the Department of Agriculture and Rural Development breached its net cash requirement limit by £23.3 million as the Department requested insufficient cash due to a number of administrative errors;
• the Department of Agriculture and Rural Development also breached its net resource outturn limit by £14.1 million due to the need to include certain liabilities for financial corrections imposed by the European Commission which the Department had not expected to materialise in the 2009-2010 financial year; and
• the Department of Education – Teachers’ Superannuation Scheme breached its net resource outturn limit by £3.7 million as the Department failed to operate adequate internal controls to manage the estimating process.

8. The Committee expects that all Northern Ireland departments should have robust procedures in place to estimate and monitor their use of cash and resources. We note that the departments concerned have indicated that they have taken the necessary steps to address the issues that caused these excesses.

9. The Committee recommends that the Northern Ireland Assembly provides the necessary amounts by means of an Excess Vote, as set out in Figure 1.

Excess Votes in 2009-2010

10. Resource-based Supply requires departments to estimate and manage the resources they will need in a financial year on an accruals basis[1], as well as the cash they will need as commitments mature. The Northern Ireland Assembly authorises spending on both a cash and accruals basis.

11. In 2009-2010, the Assembly granted total net resources of £15,567,071 million and total cash of £13,772,054 million in Supply Estimates to 19 departments, pension schemes and other vote-funded bodies. The difference in the provision of cash and resources is primarily due to including non-cash charges in resources for items such as depreciation of assets and changes in the value of assets or liabilities.

12. In 2009-2010 two departments incurred resource excesses totalling £17.8 million and a cash excess of £23.3 million. Details of the excesses are summarised in Figure 1.

Figure 1: Summary of 2009-2010 Excess Votes required

Department of Agriculture and Rural Development

13. The Committee has considered the Comptroller and Auditor General’s report on the excesses in the accounts of the Department of Agriculture and Rural Development for 2009-2010.

14. The reasons for the cash excess of £23.3 million were:

• in preparation for the Spring Supplementary Estimates, the Department of Finance and Personnel (DFP) issued departments with spreadsheets populated with illustrative figures to assist them in preparing their Estimates. However, DFP placed one of these figures in an incorrect row. The error in the template was not detected by the Department when it completed its return;
• the Department used the illustrative figures supplied by DFP to calculate a reduced cash requirement rather than using its own internal in-year changes; and
• the situation was compounded by a second clerical error which resulted in the Department erroneously requesting a reduction in its overall cash requirement.

15. As a result of these serious mistakes, the Department had insufficient cash to meet its liabilities as they fell due and consequently had to seek emergency funding of some £19.3 million from the Contingency Fund.

16. The Department advised the Comptroller and Auditor General that the following action has been taken to prevent recurrence:

• cash flow forecasting has been improved;
• it is monitoring and reporting cash draw-downs more strictly;
• checking and quality reviewing of submissions to DFP by senior management; and
• training of staff in the budgeting and estimating processes.

17. Cash management is a basic but essential control for all organisations, both private and public sector, and therefore needs careful attention. It is a serious matter when a Government department is unable to meet its financial commitments because it has run out of money. Although the cash shortfall faced by the Department has been explained as having arisen as a result of clerical errors, nevertheless this caused considerable embarrassment for the Department. This serious situation clearly resulted from poor preparation and a lack of senior management supervision. The Committee notes the actions being taken by the Department to prevent recurrence of this situation and will look for early confirmation that these have been implemented. The Committee is astonished that training in budgeting and estimates processes was not already embedded in the Department. The Committee recommends that the next Public Account Committee examines this issue in greater detail.

18. The reason for the resource excess of £14.1 million was due to the need to include certain liabilities for financial corrections being imposed by the European Commission in respect of the administration of European Agricultural Funds. The financial corrections totalled £64 million and covered schemes administered from 2004 to 2008. The Department had set aside approximately £11million to cover such corrections and had an underspend in normal expenditure thus the resource excess reduced to £14.1 million. The Department had not expected these to materialise in the 2009-2010 financial year and therefore had not included any liability for these financial corrections in its 2009-10 Supply Estimates.

19. The financial corrections are being applied by the European Commission due to weaknesses in;

• the mapping systems used to record and determine the area of land eligible for payment of grant aid;
• the procedures used by the Department’s inspectors to carry out spot checks to ensure ineligible land was excluded from claims for payment of grant aid; and
• the processes for implementing recovery of overpayments of grant aid.

20. The Department advised the Comptroller and Auditor General that, in response to the financial corrections and to ensure greater compliance with the Commission’s requirement’s it has taken a range of actions which include the following:

• substantial investment in a new mapping system which is being developed in partnership with Land and Property Services; and
• improving the quality of on-farm inspections by providing better training for inspectors, increasing the resources available for inspection and issuing new guidance for inspectors.

In addition, the Department is taking a legal challenge to the Commission’s decision to the European Court of Justice.

Department of Education - Teachers’ Superannuation Scheme

21. The Committee has considered the Comptroller and Auditor General’s report on the excess in the accounts of the Department of Education Teachers’ Superannuation Scheme for 2009-2010. The reason for the excess was the Department’s failure to operate adequate internal controls to manage effectively the estimating process.

22. The Department advised the Comptroller and Auditor General that:

• the biannual exercise for updating the Estimates for the Teachers’ Superannuation Scheme involves intricate interactions between a number of business units within the Department and with the Government Actuary Department; and
• the process for agreeing the updates to the figure-work is currently not fully documented and this gave rise to ambiguity regarding relevant responsibilities for confirming the Estimate figures.

23. The Department advised the Comptroller and Auditor General that the following action has been taken to prevent recurrence:

• following identification of the Excess Vote by the Finance Directorate, an immediate review of the Estimate processes was undertaken by the Department’s Internal Audit Service; and
• recommendations made for enhancements to the internal controls will be implemented and these will be kept under review.

24. The Department advised that these recommendations include the development of a process map, documented procedures, clarification of responsibilities for management sign-off of the key inputs to the process and an independent management check on the accuracy and completeness of the figures to be forwarded to DFP.

[1] The accruals basis of accounting requires revenues and costs to be recognised as they are earned or incurred not as money is received or paid.

Appendix 1

Minutes of Proceedings
relating to the Report

Tuesday, 24 February 2011
Room 29, Parliament Buildings

Present: Mr Paul Maskey (Chairperson)
Mr Gregory Campbell MP
Mr John Dallat
Mr Trevor Lunn
Mr Patsy McGlone
Mr Mitchel McLaughlin
Mr Adrian McQuillan

In Attendance: Ms Aoibhinn Treanor (Assembly Clerk)
Mr Phil Pateman (Assistant Assembly Clerk)
Miss Danielle Best (Clerical Supervisor)
Mr Darren Weir (Clerical Officer)

Apologies: Mr Roy Beggs (Deputy Chairperson)
Mr William Irwin
Mr Stephen Moutray
Ms Dawn Purvis

2:03 pm The meeting opened in public session.

5. Excess Votes 2009 – 2010

The Committee was briefed by the C&AG on the issue of Excess Votes.

2:50 pm Mr Lunn left the meeting.

Agreed: Members agreed to consider the draft report on Excess Votes in closed session.

2:53 pm Mr Lunn entered the meeting.

3:08 pm The Committee went into closed session.

5. Excess Votes 2009 – 2010

The Committee considered the draft Committee Report on Excess Votes.

3:21 pm Mr McGlone left the meeting.

Paragraphs 1 – 9 read and agreed.

3:25 pm Mr McGlone entered the meeting.

Paragraphs 10 – 12 read, amended and agreed.

Paragraphs 13 – 19 read and agreed.

Agreed: The Committee agreed the summary of the report and ordered it to be printed.

Agreed: The Committee agreed to request some further information from the Treasury Officer of Accounts.

[EXTRACT]

Appendix 2

List of Witnesses
who gave Oral Evidence
to the Committee

1. Mr Kieran Donnelly, Comptroller and Auditor General, Northern Ireland Audit Office;

2. Mrs Colette Kane, Director, Northern Ireland Audit Office;

3. Mr Joe Campbell, Audit Manager, Northern Ireland Audit Office; and

4. Ms Fiona Hamill, Treasury Officer of Accounts, Department of Finance and Personnel (DFP).