House of Commons - Northern Ireland Affairs

Select Committee on Northern Ireland Affairs Third Report

1 Introduction

1. The Northern Ireland Affairs Committee set up a sub-committee in December 2003 to scrutinise areas of devolved government during the suspension of the Northern Ireland Assembly. Our inquiry focused on the Northern Ireland Departments' 2002-03 resource accounts, taking into consideration the 2003-04 accounts where appropriate.

2. We concentrated on two Northern Ireland departments: the first provides an overall picture of accounting practice; the second provides an example of specific, front-line delivery problems:

The Department of Finance and Personnel (DFP) is responsible for a wide variety of functions including, guidance to Northern Ireland Departments on financial practice and public accountability, and overseeing the introduction of resource accounting.
The Department for Social Development (DSD) has responsibility for urban regeneration, community and voluntary sector development, social legislation, housing, social security benefits, pensions and child support. The Department oversees two Executive Agencies: the Northern Ireland Housing Executive and the Child Support Agency. DSD's accounts were severely qualified in 2001-02, 2002-03 and 2003-04.

3. The Sub-committee took oral evidence from the leading officials of DFP and DSD on 8 September 2004. The transcript of evidence and subsequent correspondence between the Committee and Mr Ian Pearson MP, Parliamentary Under-Secretary of State at the Northern Ireland Office, are published with this report. We are grateful to the House of Commons Scrutiny Unit for its assistance, and to all those who contributed to this inquiry.

Department of Finance and Personnel

Qualified Resource Accounts

4. Northern Ireland departments received ten negative, or 'qualified', audit opinions on their resource accounts in 2001-02 (the first year of implementation), seven in 2002-03, and four in 2003-04, the most recently published set of statements.[3] In his General Report on the 2002-03 accounts, the Comptroller and Auditor General for Northern Ireland (C&AGNI) noted that "some departments still have considerable work to do to bring their financial reporting up to the standard the Assembly and Parliament have a right to expect."[4] Northern Ireland Departments are continuing to attract an unacceptably high level of negative audit opinions.

5. The Department of Finance and Personnel (DFP) accepted that "there have been difficulties in the implementation of resource accounting across Northern Ireland departments". The Department considered that these were "associated with the introduction of devolution" and pointed out that devolution was " a unique issue as far as Northern Ireland was concerned. It meant that we only had one dry run at resource accounts compared with two in Great Britain."[5] However, this was not the only problem. DFP noted that when " resource accounting was introduced in 2001-02 it was clear that, despite preparations, some departments did not have enough staff with the financial skills necessary to prepare sufficiently robust resource accounts."[6]

6. When asked about the level of oversight and control it exercises over departments and their resource accounts, DFP confirmed that it works closely with departments and "where we can support them we try to do so", but that the production of accounts "remains...the responsibility of the department concerned at the end of the day …."[7]

7. The preparations for devolution in 1999 placed additional strains on the civil service in Northern Ireland but this does not provide sufficient explanation for the unacceptably high number of Northern Ireland departments receiving negative audit opinions in 2002-03, three years later. We were also disappointed that departments had failed to deploy sufficient numbers of properly qualified staff to meet the challenge of resource accounts when the move from cash to resource accounting had been known about for some years. This appears to be the result of insufficient preparation on the part of DFP and departments. While the recruitment of staff with accounting expertise appears to have gone some way to addressing the staffing issue in 2003-04, we remain concerned about the rigour of financial management in Northern Ireland departments. The guidance offered by the Department of Finance and Personnel (DFP) to departments appears to have been ineffective at a time when resource accounting was being introduced and strong central guidance would have been particularly useful. We expect the DFP and departments to learn from this experience, and for the DFP to provide more focussed and effective leadership in future. It must be a clear priority for Northern Ireland departments to reduce the present level of negative audit opinions significantly.

The Accounting Services Programme

8. Northern Ireland departments are committed to meeting the HM Treasury timetables for 'faster closing' and Whole of Government Accounts (WGA). The intention of these programmes is to provide users with more up-to-date, transparent financial information, giving a clearer picture of the public finances as a whole. Both initiatives rely on the production of audited resource accounts by the summer recess for the 2005-06 financial year onwards.

9. In order to improve departments' financial management and respond to these initiatives DFP is developing the Accounting Services Programme which the Department told us is "designed to provide the information that we need in a format which will enable us to better manage departments' resources, to post information more quickly and to complete the accounts more quickly."[8]

10. Unfortunately the DFP may fail to meet the Treasury's timetable. Officials told us that "rolling out the new management information system we think will take from April 2006 through to March 2008."[9] Consequently, DFP regards meeting the Treasury timetable as an "aspiration", and we were told that as " the Accounting Services Programme unfolds, the deadline looks difficult ... across Northern Ireland departments as a whole".[10]

11. The Committee welcomes the action taken by departments to address the weaknesses in financial management. However, we are concerned that the extended timetable for the Accounting Services Programme will mean that the deadlines for 'faster closing' and WGA are unlikely to be met by Northern Ireland departments, and that this will impede action to reduce the level of negative audit opinions. Meeting the 'faster closing' and WGA deadlines is extremely important, and we strongly recommend that the government ensures that these are met from 2006 onwards.

Use of consultants

12. The Department of Finance and Personnel has two main roles in the purchasing of consultancy services: first, to provide tendering and contract management services under Framework Agreements for all departments; and, second, monitoring and auditing departmental expenditure, and responding to Parliamentary Questions.

13. The Committee was troubled by the C&AGNI report in 2004 which concluded that "departments may have failed to secure savings in excess of £2 million per year because they are not using the Framework."[11] The report also found "a number of areas where the accuracy and completeness of DFP's database [for monitoring, auditing and responding to Parliamentary Questions] needs to be improved".[12]

14. DFP officials acknowledged "the need to improve performance across the piece in respect of engagement of consultants." We were assured that "new guidelines" are "well advanced which will strengthen the current policies." The Department was clear that the "old policies will be updated to take into account developments in procurement, practice and policy." [13] DFP said that new guidelines would be issued before the end of 2004, and that it "has now taken responsibility for the maintenance of a database of all consultancy assignments".[14]

15. Departments have failed to apply the existing rules on contracts and may have lost the opportunity to secure annual savings of £2 million as a consequence. Such laxity in procurement practice is unacceptable and there must be no repetition. The development of revised guidance for departments on the use of consultants is welcome. But revised guidance alone will not be sufficient. Departments need to be reminded forcibly of the need to act in accordance with the guidance, and without the proper training of staff and their commitment to implement the guidance, improvement is unlikely. In its response to this report we expect the government to set out in detail how it is addressing these issues. We expect the Department to meet its target of the end of 2004 for the issue of new consultancy guidelines.

Department for Social Development

Disclaimer Audit Opinion in 2001-02, 2002-03 and 2003-04

16. The Committee is concerned that the Department for Social Development (DSD) received a second consecutive 'disclaimer' qualified audit opinion in 2002-03, and we note with great unease that the situation remains unchanged in 2003-04. The failings cited in the 2002-03 audit report, customarily prepared to support a qualified opinion, were identical to those reported in 2001-02:

significant levels of fraud and error in certain social security benefits

limitations in the available evidence for Child Benefit payments

weaknesses in financial control and monitoring of Registered Housing Associations grants

weaknesses in financial control and monitoring of urban regeneration and community development grants, and

weaknesses in audit trails resulting in limited evidence to support significant social security debtor and creditor balances.[15]

With the exception of the limitation of available evidence for Child Benefit payments, the reasons set out above were again the cause of the 2003-04 qualification.

17. DSD conceded that this was "not a comfortable position to be in".[16] It elaborated on how it was addressing the causes of fraud and error in social security benefits, housing allowances and urban regeneration grants. The Department detected some "signs of improvement" in the case of social security benefits, but believes that "we will not be out of the woods this year". [17]

18. A pattern has developed in which the Department is repeating the same failures year after year. Insufficient attention is being directed towards financial control and monitoring. Despite almost identical causes for the audit qualification over the last three years, it remains unclear when DSD's actions will result in tangible and lasting improvements as no timetable appears to exist for remedial action.

19. The Department for Social Development needs to make a sustained effort to improve its financial control over the grants, benefits and payments for which it is responsible. This should go some way to addressing the causes of its unacceptably poor audit qualification record. In its response to this report, we expect the government to set out clear and measurable milestones for the Department to achieve a clear audit opinion.

High Fraud and Error Levels

20. In 2002-03, the Department for Social Development (DSD) experienced losses resulting from fraud and error of £120.9 million.[18] This was a significant increase over 2001-02, where total fraud and error was £120.5 million or 6.5% of social security expenditure, despite reductions to fraud and error in both Income Support and Jobseeker's Allowance.[19]It is alarming that the Department excused losses amounting to 7.6% of total benefits expenditure in 2002-03 as the product of "a very difficult set of schemes to administer".[20]This response suggested to us that the Department lacks a clear strategy for reducing these losses.

21. The two areas where total fraud and error increased in 2002-03 were Disability Living Allowance and Housing Benefit. Difficulties in producing case papers within agreed timescales contributed to the high fraud and error rates in Disability Living Allowance claims.[21] We were told originally by officials that during 2002-03 problems contributing to Housing Benefit administration arose from the employment of 300 "inexperienced, casual, temporary staff dealing with Housing Benefit" at the Housing Executive. [22] In later correspondence, the Minister corrected this point and explained that the increased errors in Housing Benefit payments were exacerbated by recruitment difficulties throughout the period 2001-02 to 2003-04.[23] We are grateful for this clarification, and for the information Mr Pearson provided to explain how DSD proposes to address the causes of fraud and error and improve staff training.[24]

22. Whilst performance has improved in 2003-04, with total fraud and error levels declining to £112.3 million or 3.2% of total benefits expenditure, fraud and error rates on individual benefits fluctuate each year. [25] The Department appears unable to maintain reductions in fraud and error across all benefits year-on-year.

23. Fraud and error levels are unacceptably high and senior officials in the Department for Social Development have not conveyed the sense of urgency that these matters clearly warrant. We are disappointed that the Department's efforts to improve performance have not resulted in significant improvements. We expect the government to put in place effective measures to ensure that the present unacceptable haemorrhage of public funds is stemmed.

Child Support Agency

24. The Committee was pleased to hear that the operation of both old and new Child Support Agency (CSA) schemes "exceeds the ministerial target" and is better than the CSA performance in Great Britain.[26] However, we received disturbing evidence about the operation of the CSA's computer.

25. The Child Support Agency began processing cases on a new computer system, the integrated computer and telephony system (CS2), on 25 November 2002. DSD explained that it eventually hopes to transfer existing cases to the new scheme.[27] However, the Minister told us that the new computer system is "beset by … considerable and unacceptable problems" and is likely to require system fixes until 2005. Consequently, "there is no assurance" that the new system will work sufficiently well for existing cases to be transferred in bulk to it.[28]

26. Action is needed to rectify unacceptable delays to the Child Support Agency's new integrated computer and telephony system (CS2) which is preventing the effective administration of benefits. In addition, cases administered under the old system must be transferred to the new system as soon as possible. This can only happen when the technical problems currently plaguing the new system have been solved. In its response to this report, we expect the government to set out clearly what specific steps are being taken to address these problems, and in particular by when they expect the Department to have transferred all Child Support Agency cases to the new system.

3 Appendix 2 Back

4 Northern Ireland Audit Office, Financial Auditing and Reporting: 2002-2003, General Report by the Comptroller and Auditor General for Northern Ireland, June 2004, HC 673 2003-2004, page 9, hereafter referred to as the 'General Report 2002-2003' Back

5 Qq 1, 3 Back

6 Appendix 2 Back

7 Q 24 Back

8 Q 4 Back

9 Q 19 Back

10 Q 30 Back

11 Northern Ireland Audit Office, Use of Consultants by Northern Ireland Government Departments, June 2004, HC641 2003-2004, page 11 Back

12 ibid, page 12 Back

13 Q 34 Back

14 Appendix 2 Back