Report of the Select Com m ittee o n
PORT ST MARY COMMISSIONERS
REPORT OF THE SELECT COMMITTEE ON PORT ST MARY COMMISSIONERS
At the sitting of Tynwald Court on 19th May 2004 it was resolved that a Committee of three members be appointed, with powers to take written and oral evidence pursuant to sections 3 and 4 of the Tynwald Proceedings Act 1876 , to inquire into the conduct of the Treasury, the Auditors and the Department of Local Government and the Environment in relation to the affairs of Port St Mary Commissioners in the period from 1st April 1998 to 31st March 2004, having regard to their statutory and other responsibilities in relation thereto, and to report with findings and recommendations to the December 2004 sitting of the Court.
Mr P A Gawne MHK
Chairman
Mr D F K Delaney MLC
Mr L I Singer MLC
The powers, privileges and immunities relating to the work of a committee of Tynwald are those conferred by sections 3 and 4 of the Tynwald Proceedings Act 1876, sections 1 to 4 of the Privileges of Tynwald (Publications) Act 1973 and sections 2 to 4 of the Tynwald Proceedings Act 1984.
Copies of this Report may be obtained from the Tynwald Library, Legislative Buildings, Bucks Road, Douglas IM1 3PW (Tel 01624 685516, Fax 01624 685522) or may be consulted at www.tynwald.orgAm
All correspondence with regard to this Report should be addressed to the Clerk of Tynwald, Legislative Buildings, Bucks Road, Douglas IM1 3PW
To: The Honourable Noel Q Cringle MLC, President of Tynwald, and the Honourable Members of the Council and Keys in Tynwald assembled
REPORT OF THE SELECT COMMITTEE ON PORT ST MARY COMMISSIONERS
PARTI OVERVIEW OF THE COMMITTEE'S WORK
The Select Committee's remit
1.1 At the May 2004 sitting of Tynwald a Select Committee of three members
was established -
to inquire into the conduct of the Treasury, the Auditors and the Department
of Local Government and the Environment in relation to the affairs of Port St
Mary Commissioners in the period from 1st April 1998 to 31st March 2004,
having regard to their statutory and other responsibilities in relation thereto,
and to report with findings and recommendations to the December 2004
sitting of the Court. Meetings of the Committee
1.2 At its inaugural meeting held on 16fh June 2004 Mr Gawne was elected as
Chairman. Your Committee has met on 13 occasions of which four have
included public hearings in which oral evidence has been received from the
following -
Mrs S Wilson, former Chairman of Port St Mary Commissioners
Mr ] Hall, Chairman of Port St Mary Commissioners
Mr J Popper, former Clerk to Port St Mary Commissioners
Mr C Butler, Clerk to Port St Mary Commissioners
Mrs T Horne, former Deputy Clerk to Port St Mary Commissioners
Mr P Hughes, Deputy Clerk to Port St Mary Commissioners
Mr M Fayle, Director of KPMG
Mr M Gardner, Director of KPMG
Mr C J Tovell, Assistant Financial Controller of the Treasury
Mr K C McGreal, Chief Internal Auditor, Treasury
Mr P Whiteway, former Director of Corporate Services DoLGE
Mrs Y Mel lor, Director of Corporate Services DoLGE
Mr R A Hamilton, Chief Executive DoLGE
1.3 The Hansard records of this evidence are at Appendices A, B, C and D.
1.4 The Chairman of your Committee made a Statement to Tynwald Court in
February 2005 to explain that it had proved impossible to meet the deadline
of reporting to the Honourable Court by December 2004 because of the need
to take oral evidence from a number of individuals. 1.5 When Mr Delaney failed to be re-elected to Legislative Council the
Committee agreed to complete its task without seeking the appointment of a
replacement member
as it had already reached draft report stage.
Written evidence received
1.6 The written evidence received is listed at Appendix G. Due to the volume of
written evidence received it is not considered practical to include all evidence
with this report - all evidence is available for inspection in Tynwald Library.
Three items of written evidence referred to in this Report are reproduced and
appended for ease of reference at Appendix F
PART 2
STRATEGY
2.1 Your Committee agreed to set out a plan of action intended to provide
adequate information to enable it to comply with the Motion agreed by
Tynwald Court
(a) to determine statutory responsibilities in respect of the Treasury, the
Auditors, and the Department of Local Government and the
Environment (DoLGE) in respect of the financial affairs of Local
Authorities
(b) to determine the procedures normally undertaken by them having
regard to their statutory responsibilities
(c) to consider the performance of Port St Mary Commissioners in respect
of the management and preparation of its finances. Whilst the Motion
agreed by Tynwald Court does not specifically require determination
of the conduct of Port St Mary Commissioners your Committee agreed
3 that consideration of responsibilities and performance of the
Commissioners was necessary to provide a clear overall picture,
particularly with regard to their relationship with DoLGE and the
Auditors.
(d) to consider matters prior to 1st April 1998. Whilst the Motion required
inquiries into the conduct of the parties in the period from 1st April
1998 to 31st March 2004 your Committee deemed it necessary to
consider performance and relevant matters leading up to that period.
2.2 Your Committee is aware that the "Report On The Findings Of An Enquiry
Into The Exercise By Port St Mary Commissioners"' (the Kissack Report) had
already addressed the financial aspects of a deficit in the finances of Port St
Mary Commissioners and had no wish to revisit the financial issues.
PART 3
STATUTORY RESPONSIBILITIES
3.1 The two primary statutes are the Local Government Act 1985 and the Audit
Act 1983.
3.2 The responsibility for ensuring that audited Local Authority accounts are laid
before Tynwald rests with the Department of Local Government and the
Environment by virtue of the Local Government Act (1985) Section 3 (2)
which provides
/Every local authority shall annually deliver its accounts, together with the
auditor's report or reports thereon. to the Department, who shall lay the same
before Tynwald in pursuance of section 11 of the Audit Act 1983'
4 DoLGE's principal role is to ensure that audited accounts are laid before
Tynwald. DoLGE has no statutory responsibility to produce accounts for a
Local Authority which is an autonomous body.
3.3 The responsibility for the appointment of auditors rests with the Treasury by
virtue of the Audit Act 1983, which contains powers for Treasury to make the
Accounts and Audit Regulations 1984. Regulation 4(1) of those Regulations
requires
'AU relevant bodies shall ensure that all accounts are prepared as soon as
practicable after 31st March in each year, or such other date as the Finance
Board (Treasury) may direct in accordance with section 3 of the Act, and
presented for audit within six months following that date, unless agreed with
Finance Board (Treasury)'.
3.4 The Local Authority, or relevant body, is required to prepare its accounts and
present for audit. There is no statutory timescale for the completion of the
audit process.
PART 4
PORT ST MARY COMMISSIONERS
4.1 Oral evidence was received from Mrs S Wilson, Mr J Hall, Mr J Popper, Mr
C Butler, Mrs T Horne and Mr P Hughes on Friday 5 November 2004.
4.2 Mrs Wilson gave evidence to your Committee that she became a
Commissioner in May 2000 and became Chairman of the Commissioners in
2002 at which time the deficit problem had emerged. She advised that there
were staffing problems which were also causing difficulties and the
Commissioners had sought the help of DoLGE in addressing the deficit. She
was aware that administration costs had increased significantly since 1998. 4.3 Mrs Wilson felt that finances were the role of the office and the Board were
not closely involved. Prior to 2002 the Commissioners did not see accounts
before they were submitted to DoLGE
4.4 Mrs Wilson felt that there was not enough emphasis placed on financial
management advice in the DoLGE Induction Course that was attended by
newly elected members and officials.
4.5 Mrs Wilson felt that there was some doubt as to the precise role of the
auditors.
4.6 Mrs Wilson advised your Committee that
" the impression that the Board got, was that local authority reform was high
on the agenda and that Port St Mary would provide an appropriate scapegoat"
4.7 Mr Hall gave evidence to your Committee that he was elected to the Board as
Chairman in 2004. He was not a Commissioner during the time that the
deficit emerged. He found DoLGE very supportive, particularly mentioning
the Director of Corporate Services, Mrs Yvette Mellor, who had provided
assistance to the Commissioners and officers in producing monthly
management reports.
4.8 Mr Popper gave evidence to your Committee that he was Clerk for about 13
years from 1990 until May 2003. and came into the position without any
6 previous local authority experience or public sector experience or financial
qualification.
4.9 Mr Popper advised that he had been told on appointment that his
responsibility was to produce estimates but did not realise the extent of local
authority responsibilities and was not aware of the statutory timetable for
submission of draft accounts.
4.10 Mr Popper informed your Committee that he did not attend a DolGE
Induction Course until at least seven years into the position. When he
did go on a Course he did not feel-that emphasis was placed on financial
matters, more on the work of DoLGE.
4.11 Mr Popper appeared to be under the impression that the auditors role
was to balance the books as well as prepare accounts, he had no specialization
in finance and was not aware of any problem other than the late submission of
accounts which he believed was down to the auditors not completing in time.
He said that he was not aware of the deficit problem until the draft accounts
for 2002 were received, no one had ever drawn his attention to a potential
problem and once he was aware of the problem he discussed this with the
Chairman. He said that Crossley's accountants were brought in "and got us up
too date". Subsequently he and the Chairman met with Mr Peter Whiteway,
Direcor of Corporate Services DoLGE who, he said, did not seem unduly
concerned.
4.12 Mr Popper felt that the demands of his job did not allow sufficient time to
Carry out all his responsibilities "and this is where something like finance is too
important not to have someone who is specialist in it, someone who can bring in the
7 necessary change, someone who is aware of the sort of controls that are needed, and
unfortunately I was not".
4.13 Mr Popper recalled receiving a letter from Mr Tovell, Assistant Financial
Controller Treasury, dated 29th March 2000, advising that
"I regret therefore that I am unwilling to consider any further CLF (Coonsolidated
Loans Fund) advances for your Commissioners' rate funded services until your
1998-99 accounts are published and you have persuaded me that you have
persuaded me that you are committed to public accountability".
4.14 Mr Butler advised your Committee that he took up post as Clerk in May 2003.
There was no accounting experience or qualification requirement in the job
description although there was reference to the term 'accounts officer'.
4.15 Mr Butler went on the DoLGE Induction Course some time after his
appointment, but felt that due to the complexities of the role DoLGE could
only provide a brief synopsis of responsibilities over the scheduled two days
duration. He felt that to gain an understanding of local authority accounting
would need a completely separate course.
4.16 Mrs Horne gave evidence to your Committee that she had been responsible
for submitting draft accounts for audit for several years until the end of the
financial year 1998. She had always found the auditors cooperative in dealing
with any queries during the audit and there appeared not to have been any
problems raised by DoLGE or Treasury in relation to the timing of the
submission of signed off accounts, though she had to chase up accounts from
the auditors on several occasions.
8 4.17 Mrs Horne said that she had taken on the responsibility for management of
accounts since joining the Commissioners as an office clerk. There had never
been a deficit in the 19 years she had worked for the Commissioners until the
accounts for 1998 showed there to be a deficit.
4.18 Mrs Horne said that she did not get a satisfactory explanation from the
auditors why the figures brought forward from the previous year were a
deficit and not a surplus and felt that it was the auditor's responsibility to
explain this to the Commissioners.
4.19 Mrs Horne advised that the previous auditors, Coopers and Lybrand, would
raise queries and discuss problems with officers regularly. She felt that that
communication disappeared with the change from manual bookkeeping to
computer based accounting and the change of auditor.
4.20 Mr Hughes advised your Committee that he took up the position of Deputy
Clerk in October 1999. He had joined with a view to bringing his experience
and knowledge as maintenance manager of DoLGE estates and housing
section. He made it clear that he was not an accountant and was not aware of
the financial state of the Commissioners. He had agreed with the Clerk that
he would focus his duties in the housing and staffing side and leave the
accounting system to the Clerk.
4.21 Mr Hughes was aware of the letter from Mr Tovell to Mr Popper and the
possible effect on refurbishing work on properties in Fistard Road and Park
Road and assumed that the Clerk had responded appropriately to that letter
as funding for the projects was made available. He said that he felt it may
have been more appropriate for Treasury to take issue with the auditors over
lateness of accounts as it was Treasury that appointed them.
9 4.22 Mr Hughes advised that when the Commissioners contacted DoLGE in 2002
they were told that there were possibly in excess of 17 authorities that were
late in submitting audited accounts and said that DoLGE seemed not to be
unduly worried.
PART 5
THE TREASURY
5.1 Written evidence was received from Mr P M Shimmin, Chief Financial Officer
of the Treasury
5.2 Oral evidence was received from Mr C Tovell and Mr C McGreal on Friday 4th
February 2005
5.3 Treasury has no statutory responsibility for Local Authority accounts nor for
the external audit of those accounts. The Audit Act 1983 gives powers to
Treasury to appoint auditors and to make Regulations and it has exercised
those powers by provision of the Account and Audit Regulations 1984
5.4 Although it is a statutory obligation of DoLGE to lay Local Authority
accounts, together with the auditor's report, before Tynwald in each year,
Treasury undertook responsibility for that role up until 31 March 2001. In its
written submission Treasury states
"Although Treasury has no formal role in laying Local Authority Audit
Certificates before Tynwald, for practical reasons it undertook that role up to
and including Accounts drawn up for the year to the 31 March 2001
The submission further states
"The page for the year to 31 March 2001, which was laid before the February
2002 sitting of Tynwald, suggests that in general there is a widespread
in problem in Local Government Accounting and in particular it indicates that
Port St Mary Commissioners Accounts were missing for three years".
Mr Tovell advised in his evidence that this role was adopted by Treasury for
practical reasons as there are a number of papers to be laid before Tynwald
Court at the same time. Treasury handed back that responsibility to DoLGE
in 2001.
5.5 Mr Tovell advised your Committee in evidence that as Government chief
accountant he had a duty of care to the Islands taxpayers. He had raised
concerns about late submission of approved local authority accounts as far
back as 1992.
5.6 Mr Tovell advised your Committee that he had suggested to DoLGE on
several occasions the need to take appropriate action and emphasised that it
was DoLGE's statutory responsibility to ensure that local authority accounts
were delivered on time, not that of Treasury.
5.7 Mr Tovell advised that in 1996 he produced a Consultation Paper for the
purpose of a proposed review of the Accounts and Audit Regulations 1984.
Whereas the purpose was defined as the need to establish higher standards
for public sector accounting and the existing regulations being considered
inadequate, the paper referred to evidence of low standards of public sector
accounting. The paper acknowledged problems in Local Authority
accounting and the failure of several Authorities to produce accounts on time.
A copy of the Consultation document is at Appendix E.
5.8 Mr Tovell advised that the Paper was "labelled as being an internal, officer-
level, consultative document" and said that had there been a
recommendation by officers to do something he was quite sure that the
11 political process would have been engaged. However he was satisfied that
there was no appetite from DoLGE officers to proceed with any change of
regulation as DoLGE was in the process of local government reform. This
would appear to reflect the statement in a memorandum dated 25th
November 1996 from Mr Tovell to Mr Whiteway, Finance Officer DoLGE. A
copy of the memorandum is at appendix F.
5.9 In written evidence Mr Shimmin, Chief Financial Officer Treasury, stated -
"the conclusion of the interested parties following the last major review of the
Accounts and Audit Regulations were that:-
"changing the regulations was not addressing the fundamental
problem, which was touched upon in the consultation document. The
problem lies within the present structure and functions of Manx Local
Government in that there are too many Authorities, most of which are
too small to either acquire or retain the skills and knowledge base to
aspire to a higher quality of public accounting
However your Committee did not receive any evidence to support this
conclusion. When questioned Mr Tovell was unable to provide evidence to
support this conclusion.
5.10 Your Committee notes that Mr Tovell's consultation document proposed a
tiered structure of requirements, dependent upon the size of the authority,
and holds the view that a review of the Regulations could have proceeded on
this basis and that any proposed local authority reform was unrelated.
Audit Committee
5.11 An Audit Committee was established as an informal forum consisting of
representatives of DoLGE, Treasury and the auditors. It is acknowledged by
12 Mr Shimmin in Treasury's written submission dated 30 July 2004 that
"The Audit committee was an informal body with no identified remit or
constitution."
5.12 Mr Shimmin also stated
"The Committee initially met quarterly but that drifted into annual or even less
frequent meetings, probably because there was a commercial cost to the Auditors and
pressure of time in Treasury and DoLGE"
He also stated
"The main and routine issue before the Audit Committee when it did meet was the
worsening record of Local Authorities failing to submit their Accounts for audit on
time."
Proposed Review of Audit Regulations
5.13. Mr Tovell advised your Committee that he had instigated a consultation
process at his own initiative with a view to reviewing existing regulations. He
was of the opinion that the existing regulations may not be enforceable
although Treasury had urged DoLGE to prosecute.
5.14. Your Committee is satisfied that Treasury did recognise the problem of late
accounts and made efforts to urge DoLGE to take suitable action. However
the concern at the time appears to be solely on the lateness of presentation of
accounts and not on why they were late or indeed if there were any financial
problems with any particular local authority(ies).
5.15. Correspondence between Treasury and DoLGE and also with Port St Mary
Commissioners confirms that Treasury did take an active interest in the
problem with the lateness of Port St Mary accounts. In a letter dated 29
13 March 2000 to Mr Popper, Mr Tovell expressed his concern about the
persistent'failure of the Commissioners to publish accounts on time and
advised that he was unwilling to consider any further CLF Advances for rate
funded services until the accounts for 1998/99 were published. Mr Tovell
advised your Committee that this was not intended as a threat for the
purpose of ensuring the authority's compliance with the Departments'
responsibilities but for the purpose of exercising a duty of care to the taxpayer
in respect of central government loan funding. A copy of the letter is at
Appendix F
5.16. In a further letter dated April 2000 addressed to Mr Popper, Mr Tovell
explained the duties of the local authority and of the auditors in the
preparation of accounts. In that letter he stated
"your Commissioners appointed Auditors are simply engaged to Audit your
Accounts under the Audit Act 1983 and have no responsibility whatsoever to
prepare your Accounts. That responsibility lies completely with yourselves
and if for some reason you are unable to prepare your own Accounts ready for
Audit, it is a matter for you to engage someone to complete that task."
A copy of the letter is at Appendix F.
5.17 Your Committee has no evidence that either of these letters were passed on to
the Commissioners or made available to the Kissack Enquiry. In evidence Mr
Tovell stated that only correspondence which he considered important was
sent to the Kissack Enquiry.
5.18 The letter dated 10th April 2000 may suggest that prior to that letter Mr
Popper was not aware of his obligations as Clerk in preparing draft accounts,
either in house or by external accountants, until advised by Mr Tovell.
14 5.19 Mr McGreal advised that he has been tasked with the particular job of moving
forward the Audit Act working together with the auditors, the Treasury and
DoLGE and after consultation with local authorities and interested parties it is
envisaged that any proposed changes will be incorporated into the 2005-6
legislative programme.
5.20 Mr McGreal advised your Committee that in his view there is perhaps a lack
of clarity over what the auditors would have been able to bring to the
attention of Treasury or DoLGE, or what they actually did. In terms of any
new Audit Act the responsibilities of external auditors will be made quite
clear.
5.21 When questioned about the necessity (or not) to impose the same auditing
standards on all Local Authorities where the smaller authorities may have a
lesser risk compared to larger authorities, Mr McGreal replied
"/ do not think that a 'one size fits all' will work in those circumstances, and,
certainly, the smaller, lesser complex authorities, with lower turnover
thresholds, need not be subject to the same rigour and accounts regulations as
perhaps the larger ones
PART 6 THE AUDITORS
6.1 The Treasury appoints the Auditor in accordance with the requirements of
the Audit Act 1983. The current approved Auditor is KPMG Audit LLC who
has held the appointment since 1994.
1.S 6.2 KPMG provided your Committee with copies of its written submission to the
Kissack Enquiry.
6.3 Oral evidence was received from Mr M Gardner and Mr M Fayle, Directors
of KPMG on 6 December 2004.
6.4 The inadequacies of the process in producing audited accounts, whether or
not accounts are late because of laxity or being of unauditable quality and
what the actual role of the Auditor is as perceived by some Local Authorities,
has been well documented in the Kissack Report and your Committee does
not consider any repetition as being necessary.
6.5 In a letter dated 15th November 1999 from KPMG to Treasury (a letter setting
out the basis upon which KPMG were to act as auditors) they wrote:
We have a responsibility to report whether or not in our opinion the annual
accounts have been properly prepared in accordance with the Accounts and
Audit Regulations 1984 made under the Audit Act 1983.
We have a professional responsibility to report if the annual accounts do not
comply in any material aspect with applicable accounting standards, unless in
our opinion the non-compliance is justified in the circumstances.
The letter further states:
We shall obtain an understanding of the accounting system in order to assess
its adequacy as a basis for the preparation of the annual accounts and to
establish whether proper accounting records have been maintained. 6.6 In a letter dated 4th December 2002 from KPMG to Treasury to confirm the
terms of engagement to deliver audit services to Local Authorities, they write:
We have a responsibility to report whether in our opinion the annual accounts
have been properly prepared in accordance with the Accounts and Audit
Regulations 1984 made under the Audit Act 1983.
6.7 In a further written submission from Mr Gardner to Mr Kissack dated 24 May
2004 concerning the Public Enquiry into the financial affairs of Port St Mary
Village Commissioners which contains the statement:
"...we do not believe that it was the responsibility of the auditors appointed
under the terms of the Audit Act to report on the inadequacies in systems of
financial management and control".
This seems to highlight an unsatisfactory situation where they are not
required to report any inadequacy in systems which may cause the accounts
not to be properly prepared. In evidence Mr Fayle advised
"... and we would say that, under the Act, we do not believe our legal
responsibility and contracted responsibility was to make reports in that
fashion, at that time - certainly not at that time"
6.8 In a letter from Mr Gardner to Mr Tovell dated 6th April 2000 he made these
comments:
Although the audit is undertaken in August, the accounts we are presented
with only include those figures that the client can identify. There are many
gaps especially in the reserve accounts and balance sheet.
We do not contact the client on a regular basis with queries as we feel they would be unable to provide us with the answer in any case.
17 1 do not think that they are deliberately trying to avoid their public
accountability, it is just a lack of experience on the part of the staff especially
now that Mrs Horne has retired. They are making efforts to understand the
accounts and I hope the situation will improve further this year.
6.9 The letter also stated:
...this office is very busy with other client commitments in the January-
March period but every effort will be made by us to finalise these accounts in
the next few weeks.
6.10 Your Committee feels that it is appropriate that any concerns should be
reported immediately to DoLGE, the Treasury and directly to the
Commissioners where a perceived failure in the accounting system hinders
the audit process. It is not satisfactory to assume that all are aware there is a
problem because the accounts are not available for inclusion in the Orange
Book.
PART 7
THE DEPARTMENT OF LOCAL GOVERNMENT AND THE
ENVIRONMENT
7.1 Written evidence was received from the Chief Executive of DoLGE.
7.2 DoLGE states in its submission
'It is not easy to explain succinctly the role of the Department with respect to
Local Authorities as the relationship between the two is set out in more than a
dozen separate statutes.'
It further states
'Local Authorities are democratically -elected legal entities in their own right'
18 7.3 Oral evidence was received from the Chief Executive, Mr R A Hamilton, the
Director of Corporate Services, Mrs Y Mellor, and the former Director of
Corporate Services, Mr T P Whiteway on Monday 28th February 2005.
7.4 Mr Whiteway advised your Committee that he had held the position of
Finance Officer for the Department (latterly changed to Director of Corporate
Services) until his resignation in 2002. The Corporate Services Directorate
provided advice and assistance to local authorities . Accounting procedures
and responsibilities were included in an induction course available to local
authorities.
7.5 Mr Whiteway stated that he was aware that late submission of accounts was
widespread and that there could be a number of reasons for late submission.
He was also aware of the consultation paper from Mr Tovell in 1996
proposing amendment of audit regulations but did not agree that DoLGE
refused to consider any amendment pending local government reform.
7.6 Mr White way advised that the Audit Committee was established in 1999 with
representatives of DoLGE, the Treasury and the Auditors and that the subject
of lateness of audited accounts was discussed at meetings of the committee.
He stated in evidence
"The submission of accounts was a matter that was discussed at the Audit
Committees on a regular basis and if there were authorities that were late,
then we would contact them and try and progress it".
and
Usually, you would get a response; but, in the case of Port St Mary
specifically, it was never reported as being a major problem. There was
always a reason why they were not available."
19 7.7 Mr Whiteway advised that DoLGE had taken advice from the Attorney
General's Chambers concerning prosecution where there is a failure to submit
accounts and was advised that a prosecution could only be taken within six
months of the failure. He stated in evidence
“if the accounts have to be submitted by 30th September, under the Audit Act,
the offence can only be prosecuted until the 31st March. So, after that time,
you are finished basically. There is no power of prosecution under the Local
Government Act. The only power the Department has is to undertake an
investigation, or do the work in default of the local authority. The
Department had, previously, taken advice from the Attorney General's that,
in fact, you can only do things in default if there is a consistent failure. A
one-off is not sufficient."
7.8 Mr Whiteway made it clear that he did not subscribe to the view not to
proceed with the proposals in Mr Tovell's consultation paper in 1996 to
reform the audit regulations until local government reform had been
undertaken.
7.9 Mr Whiteway suggested that the problems at Port St Mary only occurred after
the departure of Mrs Horne who had been responsible for financial matters.
7.10 Mr Whiteway advised that previous auditors, Coopers & Lybrand, used to
provide accounting services to smaller authorities and, following the change
of auditor, the amount of work being undertaken became an issue when some
authorities almost expected the auditors to do the accounts for them.
7.11 Mr Hamilton advised your Committee that he took up the position of Chief
Executive in June 1996. He created the Local Government Unit in 1998 for the
20 purpose of providing a support system and advice for local authorities. Mr
Hamilton stated in evidence that
"It is my Department that is responsible for supervision of local authorities
7.12 Mr Hamilton stated that DoLGE was aware of late submission of local
authority accounts but although concern was expressed there was no reason
to believe that there was a serious financial difficulty with Port St Mary or
with any of the other authorities that were late.
7.13 Mr Hamilton advised your Committee that he was aware of the proposals by
Treasury for reform of the audit regulations and suggested that there was a
reluctance within the Treasury to do so.
7.14 Mrs Mellor advised your Committee that she joined DoLGE as Deputy Chief
Executive and Director of Corporate Services in December 2002 and only
became aware of the problems at Port St Mary when contacted in July 2003.
7.15 Mrs Mellor advised that the default Order was issued principally to give Port
St Mary some focus as to what they had to do to bring everything up to date.
She commented that she did not think the issue of the default Order was
politically motivated and confirmed that the Order was now lifted and that
Port St Mary now has a robust financial accounting system in place and
competent and trained staff.
7.16 Mrs Mellor advised that DoLGE can take a default action against a local
authority under the Local Government Act. She stated
21 " Under the Audit Act, if the auditors find there is something that is incorrect
in the accounts or there is a problem, then the auditors take the action, not the
Department
7.17 Mrs Mellor advised that she thought the role of DoLGE needs to be more
clearly defined. She stated
"J think the role that we (DoLGE) have needs to be more clearly defined,
because 1 think 'supervisor' is a very difficult, wide-ranging definition. It
probably needs to be more determined, as to what our role actually is and also
what the role of the local authority is, because Ï think they become very grey in
places
PART 8
COMMITTEE CONCERNS
8.1 Your Committee was concerned that the emphasis appears to have been only on
the timing of submission of audited accounts from a number of local authorities,
not on the quality of accounts or the reasons why they were late.
8.2 Your Committee was concerned that there appeared to be confusion about the
actual role of the auditor. Although KPMG did raise concerns at meetings of the
Audit Committee and had spoken to the Public Accounts Committee on a
couple of occasions there is no time limit on the audit process and no clearly
defined process or statutory requirement for reporting perceived failures
uncovered during that process. The role of the auditor needs to be clearly
defined.
8.3 A proposal by Treasury to review the Audit Regulations was not progressed.
Treasury and DoLGE expressed differing views on the reasons why the proposed review was not progressed, citing the possibility of local authority
reform. Your Committee was concerned that the decision not to proceed with
the new audit regulations was a significant political issue which should not have
. been decided at officer level.
8.4 Your Committee was concerned that DoLGE clearly failed in its obligation under
section 3 (2) of the Local Government Act 1985, namely
'Every local authority shall annually deliver its accounts, together with the
auditor's report or reports thereon, to the Department, who shall lay the same
before Tynwald in pursuance of section 11 of the Audit Act 1983'
It is a matter of conjecture whether, in the case of Port St Mary Commissioners,
the non receipt of accounts for three years would have highlighted any potential
problems at an earlier stage.
8.5 Your Committee is concerned that correspondence concerning any criticism of
performance of a Clerk or his/her staff should not be addressed to that Clerk
but to the Chairman of the Local Authority concerned.
8.6 Your Committee is concerned that there is no requirement for a Clerk or Deputy
Clerk to have financial experience or qualification. Your Committee is concerned
that DoLGE is required to approve the appointment of Clerks, but not Deputy
Clerks, in certain authorities without any responsibility for ensuring the
competency of the appointee to carry out the responsibilities of the post. Your
Committee feels that it is more important to ensure that a robust financial
management plan exists for each Local Authority and that the said Authorities
have access to qualified financial advice either in house or from external sources. 8.7 Your Committee is concerned about the actual role of DoLGE in respect of Local
Authorities. It is not satisfactory to make a case that Local Authorities are legal
entities in their own right when
• DoLGE has a supervisory role in respect of Local Authorities
• Local Authorities require DoLGE approval to borrow money
• Local Authorities require DoLGE approval in some cases to appoint a.Clerk
• Local Authorities do not have the right to appoint their own auditors
PART 9 CONCLUSIONS
9.1 In respect of the performance of Port St Mary Commissioners -
• There appears to have been a good working relationship between the
Deputy Clerk and the auditors when that function was undertaken by
Coopers & Lybrand. There appears to have been a change in the working
relationship following the appointment of KPMG with Mrs Horne having to
chase up accounts
• The elected Members relied heavily on the advice of the Clerk and staff.
• The role of the Clerk was not made clear in relation to financial management
at the time of appointment and still remains the case - it is clear that the
Clerk relied heavily on the competence of Mrs Home and her departure in
1999 was a significant loss to the authority's financial management.
9.2 In respect of the performance of the Treasury -
• Although Treasury has no statutory obligation in relation to Local Authority
accounts, save for the appointment of auditors, the making of Regulations
and provision of advice, it was aware at an early stage that there were
problems with late submission of accounts, whether or not those accounts had been properly prepared in accordance with the Regulations. Having
assumed the responsibility for laying auditors reports before Tynwald
Treasury should have ensured that adequate steps were taken by DoLGE to
ensure that the Local Authorities were made aware of their obligations and
offered advice if required.
• Treasury did put forward proposals to amend audit regulations which also
suggested that a tiered level of responsibility should be introduced to reflect
the size and capability of the authority , However there is disagreement
between Treasury and DoLGE at officer level over the reason why the
proposals were not progressed. Treasury officers made what the Committee
believe to be an important political decision not to proceed with amended
audit regulations.
• Officers should not be selective in providing documentation to an official
enquiry.
9.3 In respect of the performance of the Auditors -
• There appeared to be a good working relationship between the auditors and
Commissioners officers up until the appointment of KPMG. Your Committee
received no evidence of criticism of performance by the Commissioners up
to that time.
• It may be that the previous auditors did more than was required under the
terms of their appointment, whether or not additional fees were appropriate
• Whether or not the change of auditor affected how the accounts were
prepared, KPMG
o did undertake to examine accounting systems as part of their terms of
engagement but did not undertake to report on inadequacies in the
way in which the accounting system was operated
o stated that the accounting system was good but was not adequately
applied
2F, o did acknowledge problems at Port St Mary caused by staff changes
and inexperience
o chose not to contact the client with queries as they felt that the
Commissioners' staff would be unable to provide the answer in any
case
o were busy with other client commitments close to the financial year
end
• Your Committee considers that the auditors should, notwithstanding their
contractual obligations, have exercised a duty of care by ensuring that
DoLGE was fully aware of any problems which caused delay in completion
of accounts or which raised any concerns about mismanagement, before the
problems emerged. The Auditors did raise concerns at meetings of the Audit
Committee but as the Audit Committee had no formal remit and met only
sporadically any follow up action seems to have been ad hoc.
9.4 In respect of the performance of DoLGE
• DoLGE has recognised that it is not easy to explain its role in relation to local
authorities - so if DoLGE finds it difficult to define so may local authorities
• DoLGE has been clear in stating that Local Authorities are legal entities in
their own right - however your Committee feels it is not satisfactory for
DoLGE to use that fact to diminish the importance of DoLGE's role in
overseeing local authorities
• It is clear that the creation of the Local Government Unit has provided a
good source of help and advice to local authorities
• It is clear that the involvement of and assistance provided by Mrs Mellor is
appreciated by both officers and Commissioners and has been effective in
establishing good management practice and a monthly reporting system • However this line of help only came about after the problems at Port St
Mary had already commenced.
• There were occasional reminders sent by DoLGE about late submission of
accounts but this was not effective judging by the continuing number of late
authority returns.
• Concern only seemed to be about the lateness of accounts and did not
address the reasons why they were late. Early intervention may have
identified problems whether they were the lack of knowledge of officers, the
inability of officers or financial mismanagement.
• Officers and elected Members have stated that the Induction Course run by
the Department does not place enough emphasis on financial matters but
tries to address all the functions of the Department over two days
• The Department has a statutory responsibility to ensure audited accounts
are submitted and the introduction of a simple checklist to trigger reminder
letters could well have highlighted problems at a very early stage.
• Your Committee received no evidence to support the view that DoLGE used
Port St Mary Commissioners as a political scapegoat to progress local
authority reform.
9.5 Your Committee is disappointed to conclude that had the Audit Committee
been taken seriously by Treasury, DoLGE and the auditors, when it had
already recognised the worsening record of Local Authorities failing to
submit their accounts for audit on time, the Audit Committee could have
been put on a formal footing and any problems identified and addressed at
an earlier stage.
9.6 In respect of overall performance your Committee concludes that there was a
general failure of the Treasury, the Auditors and DoLGE to coordinate their
responsibilities until the problems at Port St Mary emerged. Until the Audit
27 Committee was established in 1999 there appears to have been little in the
way of communication on a formal footing, although it was clearly
recognised that local authority accounts were being presented late by a
number of authorities.
PART 10
RECOMMENDATIONS
10.1 DoLGE should submit a report to Tynwald by December 2005, with proposals
for any required legislative changes, to decide its future role in relation to
Local Authorities in respect of the following
a) a clearly defined supervisory role
b) a clearly defined statutory role
c) having no role,, recognising Local Authorities as being
completely autonomous and not required to seek DoLGE
approvals for any matters thus being accountable only to its
ratepayers
10.2 Treasury should take the lead in formally re-establishing the Audit
Committee, the Committee to comprise officers of the Treasury, DoLGE, and
the Auditors, reporting to the Treasury The Audit Committee should report
at least once per year to Tynwald
10.3 The review of the Audit Act currently being addressed by Treasury should be
progressed without delay.
10.4 Treasury in conjunction with the Audit Committee should undertake that
review of the Audit Act and Audit Regulations with particular focus on
• defining the role of the auditor
28 • defining a statutory timescale for the audit process
• the requirement for an auditor to report to the Audit Committee any
perceived failures in accounting standards or failure by an Authority to
present accounts within a statutory timescale
• defining the role of Treasury
• defining the role of DoLGE in relation to provision of financial training
and guidance
.• identifying who is to be responsible for ensuring that Local Authority
accounts and auditors reports are laid before Tynwald
10.5 Local Authorities should be required to satisfy DoLGE that the Authority has
in place a robust financial management plan and has access to qualified
financial advice either in house or externally.
10.6 Any concerns raised about the performance of a Local Authority and/or its
staff by any member of the Audit Committee should be addressed directly to
the Chairman of the Authority and if necessary a meeting held with the Local
Authority concerned.
10.7 Local Authorities should be able to appoint their own auditor if the existing
structures for supervising the auditing of local authorities is to be retained.
10.8 The DoLGE Induction Course needs to be overhauled with on going advice
and training, particularly at the time of personnel changes.
10.9 An individual or Department should ensure that all information,
documentation and evidence held on file is provided to any enquiry
established by Tynwald unless that enquiry is specific in its request.
79 P A Gawne Bsc MHK (Chairman)
L I Singer MR PharmS MLC
July 2005
.30 APPENDIX A
Official Hansard Report of Oral Evidence 5th November 2004 Mrs S Wilson Mr J Hall Mr J Popper Mr C Butler Mrs T Horne Mr P Hughes
TPSM, No. 1 2004
/V w K TYNWALD COURT OFFICIAL REPORT
RECORTYS OIKOIL QUAIYL TINVAAL
PROCEEDINGS DAALTYN
(HANSARD)
SELECT COMMITTEE ON PORT ST MARY COMMISSIONERS
BING ER-LHEH MYCHIONE BARRANTEE PHURT LE MOIRREY
Douglas, Friday, 5th November 2004
Published by the Office of the Clerk of Tynwald, Legislative Buildings, Bucks Road, Douglas, Isle of Man. © Court of Tynwald, 2004 Primed by The Copy Shop Limited, 48 Bucks Road, Douglas, Isle of Man Price Band H 2 TPSM SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004
Members Present:
Mr P A Gawne MHK (Chairman) Mr LI Singer MLC Mr D F K Delaney MLC
Clerk: Mr L Crellin
Business transacted
Page
Procedural...... 3
Evidence of M rs S Wilson, form er C hairm an, P ort St M ary Commissioners...... 3
Evidence of M r J Hall, Chairm an, Port St M ary Com m issioners...... 10
The Committee adjourned at 11J 3 a.m. and resumed its sitting at 11.28 a.m.
Procedural...... 13
Evidence of M r J Popper, form er Cle rk ...... 13
The Committee adjourned at 12.23 p.m. and resumed its sitting at 1.15p.m.
Procedural...... 22
Evidence of M r C Butler, C lerk...... 22 Evidence of M rs T Horne, form er Deputy C lerk ...... 30
Procedural...... ■...... 37
Evidence of M r PHughes, Deputy C lerk...... 37
The Committee sat in private at 3.45 p.m. Oral Evidence SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 3TPSM
variance between the answers that I gave to Mr Kissack and Tynwald Select Committee yourselves, it is because there w'ill be hindsight there, but I on Port St Mary Commissioners will try and point that out to you as we go along. The Chairman: That is very good. The Committee sal in public at ]0.00 a.m. Well, 1 think the reason the Committee wanted evidence in the Millennium Conference Room, from yourself is that, obviously, you were the Chairman at Legislative Buildings, Douglas the time when most of the issues started to come to light and be dealt with, I suppose. So I think it might be helpful, just for the record, if you [MR GAWNE in the Chair] could let us know when you joined the Commissioners, when you became Chairman, and -
Procedural Mrs Wilson: I became a Commissioner in May 2000 and I became Chairman of the Commissioners in 2002, The Chairman (Mr Gawne): Welcome everybody. which was a couple of months after we first began to become Thank you very much for coming. aware that there was a debt with Port St Mary, that there Can I begin by introducing the Committee: Leonard was a deficit, and so, at that point, we had started to make Singer, MLC; Dominic Delaney, MLC; our Clerk, Les, and contact w-ith the Department... Is this the right time to start the Hansard Clerk, of course, and myself, Phil Gawne. I am talking about that? the Chairman of the Committee. Before we begin, may I clarify the purpose of this The C hairm an: Yes, that is fine. Committee. We are required by Tynwald: Mrs Wilson: Well, the Department had already been ‘to enquire into the conduct of the Treasury, the auditors and the made aware that there was a problem with the finances of Department of Local Government and the Environment, in relation to Port St Man,'. the affairs of Port St Mary Commissioners in the period from 1st April That came about because our accounts had been returned 1998 to 31st March 2004, having regard to their statutory and other to us by KPMG. The Commissioners had been working on responsibilities in relation thereto...’ figures that indicated we were working to a surfeit, rather As part of our enquiries, we should be looking at than a deficit, and what actually came through, then, was the procedures carried out day-to-day by Port St Mary that we were actually working to a significant deficit. At that Commissioners, to help us determine how effective, or not, stage we thought it was around £90,000. the Port St Mary Commissioners’ business planning was, and When we looked through it all, it did appear that that what help and guidance was available to the Commissioners deficit had occurred through investment on machinery for over that period. the Golf Club, that the subscriptions had not covered it, that As T said earlier, we are very grateful to you for giving there had not been enough finances set up to, actually, cover up your time to come in today. the expenditure on the golf coursc. The other thing I have to mention is for Hansard. May I It was a difficult time. We did believe that the Department remind both fellow panel members and those giving evidence was working with us. We believed that, by alerting the that today’s proceedings are being recorded for Hansard, so Department to these concerns, that they would give us their would all contributors try not interrupt or speak at the same support. I know that Mrs Crowe has said that it is not the job time as others, because this makes the job of transcription of the Department to interfere in local authorities and I agree very difficult. with that. However, we had gone to the Department to ask for help and so we did not feel that it was interference. During that first year we had staffing problems within Port St Mary Commissioners, both within the officc and the maintenance team. We were given the indication that, whilst EVIDENCE OF MRS S WILSON it was worrying that there was this deficit, it was not the be-all and end-all of our difficulties and so we were getting The Chairman: So, with that said, could 1 ask Mrs on dealing with our other problems and, also, we had found Wilson to come forward and give her evidence? that, for example, procedures had lapsed. So, we were re introducing procedures for our staffing levels. Mrs Wilson: Good morning. At the end of that year, Mr Popper resigned and Mr Butler took his place and that was when we began to realise that The Chairman: Thank you very much for coming. Are the deficit was greater, because Mr Butler went through the there any introductory remarks that you would like to say? accounts with a fine tooth-comb and that is w’hen it appeared Any particular - ? that the deficit was much greater. As you know loo well, there have been a lot of figures M rs Wilson: I think there is one thing that 1 would like to bandied around and I think that the final figure that we have say. 1 am quite concerned that my answers may be different, come down to is about £135,000. But, at one point, there were to some of your questions, from those I gave to Mr Kissack, figures being bandied around in public of around £300,000, because 1 think I now have the value of hindsight, through £400,000, and a lot of those came from the Residents’ the PKF Report and through the public inquiry. Association. So, I did want to point out that, if there seems to be any But, even at that point, we still thought that wc were
Procedural Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mrs S Wilson 4TPSM SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 Oral Evidence working hand in hand with the Department. We felt that that year, one of the fundings that we had included, which we they must be satisfied with what we were doing, bccause should not have, was the accounting fees that we had been we were not being called to order in any particular way. We using for two years. So because we had that money we were had meetings with Mrs Mellon We had meetings with Mrs able to pay PKF to come in to help to set up the package that Sutherland. We were not directly in contact with the Minister they recommend and do the staff training. But without having a lot, although that did occur a bit later on and, really, it was included that money in that year’s rates, we would not have not until the debacle of the issuing of the default notice that had the finances to actually employ anybody to help us and the Board becamc aware, from the Department, that they were the Department was not forthcoming with help. dissatisfied with what we were doing. So I think my view on the Department is, that we actually As 1 said, up until that point, we had always thought that felt that we were working together but, at the end, it just it was a position of mutual rcspect and that the Department dissolved - any working relationship dissolved. was supporting us and Mrs Crowe made it very clear that she thought her Department was supporting us. The Chairm an: Well, that was a very helpful and full So, we were at a loss to know why the default notice account of a very important aspect of this whole issue. had gone into place, if they were so dissatisfied with our Just going back to when you first became elected as a performance. As 1 said, it was somewhat of a debacle around Commissioner. Did you ever avail yourself of the DoLGH the issuing of the default notice, because the Department training, local authority training? would not allow us to see the PKF Report. So we had absolutely no idea what charges we were answering to. We M rs Wilson: Yes, yes, the induction. Yes. I was able had nothing like that. to go to that. I think it was very much a sense that, when I There was an argument as to how the meeting should go became a Commissioner, that there was a strong dividing line as well. The Clerk, Mr Butler, was severely chastised, because between the Commissioners and the officers who served the he could not get all of the Commissioners to attend. Yet, at Commissioners. I think that for myself and Quintin Gill, who the same time, when he wanted to attend, because he is part was appointed at the same time, wc were voted at the same of that body corporate, the Department said no, he could not time, we were concerned that the office had more control attend because there were, according to them, matters relating than the Commissioners. There was that concern which we to Mr Butler in the Report and they wanted to talk to us without started to raise. any embarrassment. With regard to the finances, it was felt that that was the Well, as you know from the PKF Report, that is not role of the office and I am afraid that this is where I passed the the case and I did talk to PKF the next day to say, ‘What buck on those first two years and 1 will admit to that, because is going on?’ because, as far as we are concerned, this was I assumed that the accounts that we were given, the way that not supposed to be an investigation of, what was then, the the ratings were set, the fact that many of the Commissioners current Commissioners and we have a letter from Mrs Mellor had been there for a while, so this was how it all happened. categorically stating that as well. So we then went to what was I assumed; I made the assumption. It was incorrect to make regarded as an informal meeting, when the default notice was that assumption. issued on us. We were given pre-prepared minutes for that meeting, that did not reflect the actual content of the meeting The Chairman: So, on that basis, presumably, by and recommendations were made and it put the Board in the implication, I suppose, you are saying that the DoLGE position, that these recommendations were being made, but induction course did not give you a very clear view that it was we were unhappy about carrying them out. - actually the role of each individually elected Commissioner I am not talking about the default notice itself, 1 am talking to take responsibility. about other recommendations, because these recommendations were made, based on the Department’s interpretation of the M rs W7ilson: I would say that is very clear. I think there PKF report. But, as I say, we had not seen it, so we had no idea was not enough stress on the financial management of the about the allegations that had been made against the Board. authority and I do not know whether it is just typical of Port St We had no idea about the work that PKF had actually done, Mary, or whether it is typical of other authorities, I. do believe looking at our own accounting and managements systems, that, the actual finance side of the authority was very much left for which we were very grateful. with the Chair and the Deputy Chair and they fed back to the It would have been brilliant, if we had had them two years Board. But even that was pretty intermittent. prior to that, particularly if PKF had come in the moment that One thing that we changed when I became Chair, was that we went to the Department. There were systems already being the Board was up to date the whole time. I had to have them set up and there were procedures already going into place and there. I had to have the support of that Board and so it was I think what PKF then did was actually put those into a very vital that they made well-informed decisions, but, certainly, comprehensive package for the Commissioners. the induction training, I do not particularly remember any We were also in a difficult position that when we said to the stress on that. It always seemed to be that it was the officers Department, ‘Right, you have given us this timetable. Can we who should be dealing with that. have some help with this?’ the response that we got from the Department was that they were short-staffed and that, as PKF The Chairman: Dominic, do you want to ask - had been working and it was their recommendations, maybe we would like them? It was not'an instruction to employ PKF, M r Delaney: Yes, thank you, Chairman. but then why go to another company, when it was PKF who You have given a very lucid introduction, if I may say so. had already put together a comprehensive package? It has cleared up a couple of points for me straightaway, so I Now serendipity or luck or mismanagement, I do not know do congratulate you on the way you have come about seeing what words you would like to use, when we had set the rate the Committee.
Tyn wald Selcct Committee on Port St Mary Commissioners - Evidence of Mi s S Wilson Oral Evidence SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 5TPSM
M rs Wilson: Thank you. I am trying to ascertain, and I cannot find it in any evidence given so far to anybody, who asked... Did the auditors check Mr Delaney: I have a couple of questions which, the bank balances, the statements of the Commissioners obviously, we have all been there in local authority, before because the mistake, as I see it and we all see it and any layman we arrived at this illustrious position, so we know about the would see it, was that somebody misinterpreted a deficit for function of local authorities, so anything you say to me is just a credit in layman’s terms. Is that not so? like talking to another councillor, really, to some extent, the problems we all know about. M rs W7ilson: I think this is where hindsight comes into it, But I am interested in the way the audit was done. As because I think there is a very interesting part with the whole you probably know, in the past, I have been asking a series of the bookkeeping with Port St Mary Commissioners, in of questions over a number of years about accounts, so I am that it does appear from Mr Kissack’s inquiiy, that the brief coming from that angle with you and I am interested in the of the auditors changed, that the auditors, prior to KPMG, timescale for the preparation of audited accounts. Were you appeared to be able to do more work on the accounts that were aware of the dates that the accounts had to be in and were you submitted. I am sure that Mrs Hall will correct me on this one, aware of the timescale necessary to get those accounts in? if I have got it wrong, but it would appear that they were able to do more. When KPMG came in they stated that all they Mrs Wilson: Not at the beginning, no. Not at the were supposed to do was audit the submitted accounts. That beginning. And I... No, actually that is my answer. Not at the is what I believe from listening to their evidence and reading beginning. Towards the end and in my Chairmanship, yes. Mr Kissack’s report.
M r Delaney: Yes. In your introduction, you talked about M r Delaney: But could I ask you, did you think, as the the auditing money - I will use that expression - being Chairman of this particular body, that part of the auditor’s included in your rates money. (Mrs Wilson: Yes.) Could you responsibility, not afterwards, not in hindsight, but at the explain that, please, to the Committee. time, that they were checking to make sure that the balances of the local authority did have a balance and that a mistake M rs Wilson: Yes. What happened - such as where you talk about £90,000, for example, which might have risen to £250,000, that the situation, that they had M r Delaney: Bearing in mind that the auditing is paid checked the bank accounts, the statements, to make sure that for by the taxpayer. the answers given by the Clerk and his staff to the amount of money that was actually accredited to the local authority, had M rs Wilson: No, sorry, that was not audit money it was been checked with the bank balance and counter checked so accounting money. that the obvious discrepancy which showed up -
M r Delaney: Accounting money, thank you, yes, different Mrs W7iIson: As far as I am aware, those actual bank altogether. balances were not checked. What happened was that the accounts were submitted and they checked over the accounts M rs Wilson: Yes. What happened was, when we first that were submitted - the actual day-to-day accounts of the became aware of the deficit, the then Chairman, Mr Jackson, authority. called in Crossleys because there was, naturally, concern that there had been misappropriation of funds and they also felt M r Delaney: My purpose of asking this is from the Audit. that something had gone drastically wrong, that the Clerk Act, which we have all been over - and I am sure you have felt that we were in surfeit, when, in fact, we were in deficit. been over since - where it is quite clear that these make up He wanted Crossleys to go over that and have a look at our part of the audited documents. Statement of accounts have to records and look at the audited accounts that had been returned make up that situation, so I would have assumed, as a layman to us by KPMG. even, that they would have checked to make sure that, when At that point we were aware - as 1 became Chairman I was I was in business, they checked that even the optics carried aware, I was becoming concerned about the levels of stress the amount of liquid in an optic that I said was in there and, that Mr Popper was under. Crossleys remained in our employ therefore, I think that situation is unclear to me is that, what for two years. They prepared our accounts for the auditors actually, then, was the auditor doing? If they were doing what that went through. That should have stopped when we set a Clerk could have done by just adding up all the invoices, the 2004-05 budget. That money should have been excluded anyone could have done that, but I understood that an external from that budget, but we did not. That was an oversight on audit was to make sure that the guards were guarding and our part, on the Board’s part. not becoming the rubber stampers inside the authority (Mrs Wilson: Yes.) or any business even. Mr Delaney: Right, that obviously leads directly to another question, because when you had Crossleys in M rs W7ilson: I would entirely agree with you and that is looking at the KPMG audited accounts, I have got a series the role I see. of questions on that, which I will ask the auditors as well. I always understood, as a local authority, before I got here and M r Delaney: You were paying them to protect you really, as Minister of Local Government that, when the audit is done, were you not - the external audit is for the benefit to make sure, ‘guarding the guards’ is a good expression (M rs Wilson: Yes.) I always M rs W'ilson: Yes, yes. understood, even when I was Member of the Audit Committee at Lancaster University, that that is what the point was. M r Delaney: - and the ratepayers’ interests.
Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mrs S Wilson 6 TPSM SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 Oral Evidence
M rs Wilson: I agree with you on that entirely, but the... help (Mrs Wilson: Yes.) and Mrs Crowe said no. that the You know I have got to be careful, because I can remember Department would not interfere. I think those were your KPMG’s answers to this from the public inquiry. I felt, words. Did Mrs Crowe suggest anything to you or was she towards the end, that KPMG were Jacking, because we were just saying, ‘I am sorry, you are on your own’? not seeing accounts coming through as we wished to see them coming through. My understanding is that they did not check Mrs Wilson: At the beginning we worked most closely the bank balances. All they checked was the documentation with Mrs Sutherland and Mrs Mellor and most of our that went forward from the Clerk or, in previous years, from communication was with them and the Minister made it very the Deputy Clerk. I do not think they went back through the clear that she felt that they were being supportive. I think, bank books, but I cannot guarantee that. towards the end, when the default notice was issued, that was more along the lines of the officers saying that the help was M r Delaney: I will ask that question on your behalf, I not available, because they did not have the right amount of can assure you. staff, but I can only assume that they would do that with the backing of the then Minister. M rs Wilson: Thank you. Mr Singer: That was not the impression from what you M r Delaney: Thank you, Chairman, for the moment. I said, as I wrote it down, that you asked the Department for might want to come back on another question in a second. help, Mrs Crowe seemed to say ‘no’ and that they would not interfere in this matter at all. M r Singer: Thank you. My questions, basically, relate to the relationship between Mrs Wilson: That was an argument that came up after the Commission and DoLGE. From what you have said, as the default notice was given and when Mrs Crowe was interviewed - 1 think it was for Manx Radio - 1 think it was an overall impression, would you say that you felt that - 1 do in one of those interviews that she said that that was not the not want to put wQrds in your mouth but overall - you were role of the Department, to interfere in local government. My left isolated by DoLGE? view on that is: 'well, if you are the Department of Local Government, what is your role?’ M rs Wilson: At the end, yes. Not at the lime. Not during And, secondly, we had not asked her to interfere, we had the two years, no. It was more towards the end. The impression asked for help and we thought we were getting that. that the Board got, was that local government reform was high on the agenda and that Port St Mary would provide an M r Singer; So, no help, you felt, was forthcoming. What appropriate scapegoat and we felt, towards the end, that we would you have expected them to do, when you went to them were going to be scapegoated. But that only happened in the and said, ‘we need help’? last few months. I mean, by December of 2003, Mrs Mellor came in to us to talk to us about setting the rate. They knew Mrs W'ilson: I think they could have been more the rate was going to be high. We were also being told about proactive. getting rid of the deficit. So, even that late on, we still felt that the Department was Mr Singer: In what way? working with us. It really was not until about, I would say, the fortnight or so before the issuing of the default notice and, yes, Mrs Wilson: I think, well, for example, because when at that point I think we were isolated by the Department. PKF were brought in, that would have been an ideal moment to, actually, have somebody externally go over the systems M r Singer: Thank you. At the very beginning of your within Port St Mary and say, ‘Right, you need to do A, B, C comments you said, ‘When we looked through the returned and D’ and I think that would have been a tremendous help. accounts...’ Who is ‘we?’ Was it all the members of the To do it as part and parcel of an investigation following Commission? spurious allegations was still - although PKF did put together an incredibly good package - very demoralising. It would M rs Wilson: Not to begin with, no. What the Board was have actually just been of great help if either officers from led to believe by Mr Jackson, was that the accounts had been the Department had done that or if they had felt it appropriate returned to us for some time, that Mr Popper, when he had to bring in a company to help. seen the accounts, had been deeply concerned and he, himself had been going through the accounts to find out why it had M r Singer: You said you were not allowed to see the PKF gone wrong. Report. (M rs W7iIson: Yes.) Why? Do you know why? So he then went to Mr Jackson and Mr Jackson, I assume, informed his vice-chairman, but 1 am not sure and then we M rs W'ilson: We were told that it would be issued at the were told, at a full Board meeting, that the accounts had come time of the inquiry and that was all we were told. We were back, they did not match with what we had been working to told it was not - and that Mr Jackson had already called in Crossleys. Mr Singer: Were you aware of what was in it? (Mrs M r Singer: How much did you think, at that time, you Wilson: No.) So do you feel you were obstructed in that were in deficit? way?
M rs Wilson: It was about £90,000. M rs W7ilson: Yes. Oh, yes.
Mr Singer: You said you asked the Department for Mr Singer: So you then had a report by PKF (Mrs
Tynwald Selcct Committee on Port St Mary Commissioners - Evidence of Mrs S Wilson Oral Evidence SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 7 TPSM
Wilson: No.) or KPMG. You said you got your own report. obviously, the interesting thing there... I am interested in what the Commissioners obviously did, when they realised, instead M rs Wilson: No, what happened was that the - of being on the top of the world, they were at the bottom of it and, obviously, the shock that must have engendered you M r Singer: That you paid for. and the ratepayers but you particularly. Now I have... and I want to know if anybody asked, any Mrs Wilson: No, the Department refused to allow us of the Commissioners asked, or had seen a copy of the Audit to see the PKF Report. They said that it would not be made Act under which you were working,which is the amended public until the public inquiry and we were going backwards Act from 1985, the 1983 Act - and it was amended in 1985 and forwards about whether or not we would have a public - but particularly section 4, ‘General Duties of Auditors’? I inquiry, because we were being given different information will read one to you: from the Department about that, anyway. So, when the Department finalised that there would ‘Auditors’ Right to access documents. Auditors shall have the right to be a public inquiry, the PKF Report was issued to the access at all times to all such documents relating to the accounts.’ Commissioners and to the press at the same time. That was rather concerning, because when you have got the press Now, you have a lot of clever people down in the south, a phoning you and you have not had chance to read it, it put the lot cleverer than I will ever be. Surely pursers know that the Commissioners in a very difficult position, because we had accounts are also made up of the bank balance accounts of to come back with 'no comment’, which then does not help the Commissioners, so somebody had to know that they were the Commissioners who are already going through, publicly, part of the accounts and did anybody ask if the auditors got in Port St Mary, a very difficult time. access to them? That surely - and you tell me if 1 am wrong But, no, we were not allowed to see the PKF Report to - would have shown the discrepancy. begin with. Mrs Wilson: I do not think anybody asked that question Mr Singer: So you mentioned the word, you felt you specifically, no. were made a ‘scapegoat’, as a good reason for local authority reform. (M rs Wilson: Yes.) Mr Delaney: But you would agree with that, it would Do you think anybody else is going to be made a scapegoat have shown the discrepancy? during this next month? (Laughter) Mrs Wilson: Well, it would have done, yes, because M rs Wilson: The comment that was made to me by the then - Minister - 1 mean this was just us talking - that she felt that there are other authorities who are in difficult positions and, if M r Delaney: I will be asking the same question of other they did not get their act together, they would be in the same chairmen and other - position as Port St Mary. M rs Wilson: Yes, it would. It would have shown. The M r Singer: That was my final question that I have got problem with the accounts was, that if you actually looked written down here. Do you believe, though, that Port St at the balances, the accounts seemed to be healthy. Not in Mary were treated differently from any other local authority? comparison with the debt, but the general accounts did seem Because you use the word 'scapegoat1, but do you honestly to have significant amounts of money in them, but they bore feel that they were picked out? Any other authority might not-' no resemblance to what the actual accounts were saying. So necessarily have been treated the same? the bank accounts did not seem to bear any resemblance to the accounts. M rs Wilson: As far as I am aware, I am not sure that any other authority has gone directly to the Department for help Mr Delaney: Just explain a little bit further. 1 take it your and intervention in their affairs. I think if they had and they members or you, as the Chairman, have seen the bank accounts received the same treatment as Port St Mary, then I think it of the authority - (Mrs Wilson: Yes.) - and, therefore, looking has not been public. I just think that Port St Mary was made at those accounts, it showed a substantial difference in income terribly public and the Department did not support us and I expenditure, against real income expenditure, the actual. do think that they can say, ‘Well, if you look at the difference between the rates of Port St Mary and Port Erin’ - Mrs Wilson: I think that was one of the most difficult bits that I had to get my head round at the very beginning, M r Singer: You might not be able to answer this question because, looking through the bank accounts, you were looking and you may not want to answer the question. Who do you at significant sums of money in those accounts. But, when think made the decision to make Port St Mary a scapegoat? it actually came to the cash flow, that is when you had the Do you think it was a political decision or an officer’s problem. So we had the assets, but the cash flow was all over decision? the place.
• M rs "Wilson: I think it was a political decision. Mr Delaney: The overspend against the assets.
M r Singer: Thank you. M rs Wilson: Absolutely, and, at some stage, it was all going to catch up and 1 think we had been going along on a The Chairman: Dominic? wing and a prayer up until that point.
M r Delaney: Yes. 1 am sorry 1 have to go back, but, M r Delaney: Sorry, Chairman, I seem to be hogging your
Tynwald Select Committee on Port St Mary Commissioners -Evidcncc of Mrs S Wilson 8TPSM SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 Oral Evidence time and I know how involved you are. Would you agree Commissioners had already approached DoLGE, asking for with me or not agree with me that, looking at that situation, help, would you agree that it seems a bit strange that DoLGE and as a lay person, you would have realised there was a would feel that it would need to use any particular statutory problem there? powers to then come in to help? Even if the Commissioners have already asked for help, DoLGE have powers, anyway, Mrs Wilson: I think if you looked at the bank accounts to provide assistance. It would seem a bit strange, perhaps, without looking at the accounts, then you would not think that they would need to find an excuse like this. there was a problem. If you looked at them side by side, then you would know there was a problem, yes. Mrs Wilson: As Chairman of the Board, that is when 1 feit as if I had been kicked in the stomach. I felt that the M r Delaney: That is the reason that has been given by the Department taking that action was highly inappropriate. We excellent Chairman here, why we are here and I, obviously, did actually seek legal advice, which, fortunately, was given being a lay person on this to some extent, as we all are, we to us free, because we felt that the Department really could have looked at the situation you found yourself in - I am not come in like this. looking at them now. He came up with the argument that they could argue that Unlike you, I am looking at them side by side and 1 am we did not ask the right questions or we did not ask at the trying to work out, who did not spot this, that the authority right time, we did not ask for the right help, or we did not was in trouble, until somebody... a whistle-blower, virtually, ask for the right help at the right time. He said that could situation and I have difficulty in that and that is why I need be their argument, so we would get involved in a long and somebody at the time. I was not there, but somebody at the highly costly process which we could not do and we certainly time, did they ask for a comparison to be made of how they could not do it to the ratepayers of Port St Mary, who were got to that position, because anyone, otherwise, could have already under a huge obligation, made the same mistake. But, no, I think, at that point, the Board felt that we had opened the door to DoLGE, that we had said to them, ‘We Mrs Wilson: I think that when it really came to light, need the help.’ They knew that they could come in, that it was when Mr Butler took over and started going through the would not be seen as interfering, we wanted that help and accounts with a fine tooth-comb and doing the comparisons, there were very frequent questions, when we were coming be was doing the comparisons and that is when he flagged up under a lot of pressure from the Residents Association. that we had a cash flow problem. There was one point when The questions were going backwards and forwards to the we were looking at the accounts and we were not sure that we Department, ‘What do we do with this? We have had yet could cover our bills and that is when it became very clear. But up until that point, no, that had not occurred. another 10 questions in in absolute finite detail to answer and we have got this clerk working on this and we have other Mr Delaney: Thank you for your time. Thank you people working,’ and there was this constant conversation indeed. going on between us. They knew' that we were going to be setting a high rate. The C hairm an: Just going back again now to the actual We had strong words from them about getting the rate right. Order, and you said that, up until the Order being made, you They did help and that is why the default notice just seemed felt that DoLGE had been quite co-operative. so inappropriate. 1 am just interested to know whether you were ever given an explanation as to why the Order was made. Certainly, the The Chairm an: Yes. I suppose it would not be fair if explanation that was given to me at the time was, that, under I did not ask a question like I am going to ask now. You section 5 or clause 5 of the 1985 Local Government Act - this mentioned before, the accounts were healthy and yet we is the section on default powers - subsection (2) gives the had a huge administration cost on the Commissioners. At Department powers to make orders and subsection (4) gives any time, either as a member or as Chairman, were you ever the Department powers, if they have made an Order, to then aware just how out of kilter the likes of, particularly, the hold a public inquiry. 1 was told that the reason they put the administration cost in Port St Mary was, as compared with Order out, was so that they could then go ahead and have a other local authorities in the Island? public inquiry. Was that explanation ever given to you? Mrs Wilson: That is a very interesting one, because Mrs Wilson: It was one of the explanations. It is a case I know that, certainly, the administration costs of Port St of take your pick, really, as to which explanation you want Mary leapt, in about, I think it was 1998. They went up, it to go with. One explanation that was given to us was that was something like 60 per cent. It was a huge leap and that because the Financial Crimes Unit had been involved, it was due to a different way of accounting and I think it took was an automatic process. The other explanation was that about a year to find out why that had occuiTed. So I think that because the Chief Internal Auditor had been involved, it was skewed our administration figures. I think, again, we went an automatic process. to the Department about this, as to what an appropriate size Another off-the-cuff remark was that, given that there would be and we were told categorically by Mrs Sutherland were local elections up and coming, it might put other people and Mrs Mellor in the new team that four members of staff in off from applying to be Commissioners, which was astutely an authority the size of ours was an appropriate number. picked up by one of the current Commissioners. Wc had a So, compared to other authorities, we were not doing the variety of reasons given to us, but we were never given one, comparison, but we were told that that was an appropriate very clear, specific reason. number of staff to have. The Board, however, were feeling uncomfortable and we had looked at how we could change The Chairman: Bearing in mind, of course, that the our administration costs. We were told by the Department
Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mrs S Wilson Oral Evidence SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 9TPSM
that redundancy was an absolute no-no word, that we could were, as a Board, not equipped to do the work that we not make people redundant from our administration, so what needed to do. We tried, under the circumstances, and we we were looking at, was trying to refine the processes, so certainly did a lot to try and rectify the situation and 1 think that through, quite simply, natural wastage... As the Deputy that is shown in the figures, that we started to bring down Clerk was due to retire in, 1 think it was two years, well, it the deficit, that we had started to put in place management was three years then, so we were looking that if he retired, structures, that we had started to put in place, again, Health or when heretired, he would not be replaced, but one of the and Safety structures. current members of staff would be upgraded to Deputy Clerk So we were doing it but we were doing it very slowly and so on and so forth. and we needed to act more rapidly. We also looked at whether, when one of the office workers left, we could actually employ book-keepers and M r Singer: When you say the Commissioners were not maybe a part-time book-keeper, which J think would have equipped to do that sort of work, did all the Commissioners .been very healthy for the authority. go on these training courses? So the Board was making decisions, but they were based on the fact that we were told that redundancy was not Mrs Wilson: Yes, but 1 think to actually have a review appropriate. In comparison to other local authorities, Mr of an authority you have got to have the management and Gawne, I cannot comment on that, because we did not make accounting skills and basic office skills to be able to do a . those direct comparisons. thorough review, as PKF did.
The Chairman: But, effectively, what you are saying is M r Singer: So the Commissioners relied on the advice that, rather than DoLGE advising the Commissioners that, in from the Clerk and - fact, certain areas of expenditure were quite high, compared with other local authorities, they were saying that they were Mrs Wilson: No, the Commissioners at this point were in line with other local authorities. the ones who were starting to put into place the various structures that went into place and we were asking the office M rs Wilson: They did not even say anything along those to do that. Rather than the office saying ‘This is what we lines, really that the actual administration costs came through need,’ we were saying ‘This is what you need and this is to us from the current Minister for the Department. He was what we have to do.’ the one who was flagging up to us that he had grave concerns about it. I would say the Department was not flagging that up M r Singer: Did the Commissioners see the accounts and it was our own concerns about this rise in administrative before they were submitted to DoLGE? costs that made us focus in, as to what exactly was happening, and again why that had happened and why it had occurred Mrs Wilson: No. at the time it did. But, no, it was the cunrent Minister who was actually very Mr Singer: So they did all the estimates, but they supportive and he was pointing out that this was something never saw the accounts before they were submitted to the that we would need to decrease, but I think we were able to Department of Local Government? say ‘Look, we do have plans, but they are not necessarily plans that you can put into action straightaway.’ Mrs Wilson: Prior to 2002, no. After that we were looking at the accounts...... ' — The Chairman: Again, I think 1 said at the start, our purpose is to look into the supervisory role of DoLGE, the M r Delaney: You just stole my question. auditors and Treasury', but I do not think it would be fair for us not to ask this question. Would it be fair to say that M r Singer: Sony. whilst there may be weaknesses in DoLGE, Treasury and the auditors’ supervision, the problem was also very much Mr Delaney: Actually that was a key one. So your of Port St Mary’s making and that w'hilst it may be that Commissioners did not see the accounts prior to 2002. others should have picked up the problem at different times, the Commissioners have to accept some responsibility as Mrs Wilson: No. well? M r Delaney: That is a very interesting one. My other Mrs Wilson: 1 think you go all the way back. 1 think question is that were you aware the accounts were not being if you start to look at the situation of Port St Mary, take submitted at all to DoLGE, as the laid-down regulation was. randomly 10 years ago, you are already facing issues with supposed to operate? the assets, so you have, literally, got the boating lake going down the drain, you have got the town hall falling to pieces, Mrs Wilson: No. Again, this was something, with the parks becoming a health and safety problem and so on hindsight, listening to the evidence of the public inquiry, that and so forth, and then you set a deficit budget, so you are not I became aware of where accounts had been sat on and where even covering your day-to-day expenditure, then it is quite information was not going through to the Department and simply 'goodnight, Vienna’ for that authority, isn’t it? And where the Commissioners were not receiving information I think the rot set in very early on. as well. I was aware that the Clerk, in 2002, had held on to I can see why the Commissioners made those decisions, the returned accounts for some time, but it w Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mrs S Wilson 10TPSM SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 Oral Evidence M r Delaney: Thanks very much for the helpful answers. I also gather, from what I have heard of the Kissack Thank you. Report, that Treasury had wanted to take action vis-à-vis Port St Mary’s deficit in 2002, but I believe DoLGE forestalled The Chairman: Well, thank you very much for that. It that action, quite why I do not know. has been very helpful. The C hairm an: Just to clarify that, effectively, Treasury did write to Mr Popper on 29th March 2000 and they, basically, stated that the Treasury was: EVIDENCE OF MR J HALL ‘unwilling to consider any further CLF advances for the Commissioners’ rate-funded services until your 1998-99 accounts arc published and you The Chairman: Okay, so could I ask Mr Hall to come have persuaded me that you are committed to public accountability,’ forward. Thanks very much for coming. I know you were here That was Chris Tovell, the Assistant Financial Controller. when I did the introductory remarks, so I will not repeat But, at the same time, he wrote to Peter White way in DoLGE everything. asking similar actions to be taken by DoLGE, which, Obviously, we had called you here, in the hope that you apparently, were not taken. That is just to clarify that. had been the Chairman of Port St Mary Commissioners. I think it might be helpful to the Committee if you could Sadly, we read in the newspapers that this is no longer just let us know when you first became a Commissioner, if the case, but I think we know that you have got plenty of you can remember - experience as a member of the Commissioners. You have been the Chairman in this difficult period, as well, so I think M r Hall: Oh, yes. if you have got any kind of general introductory remarks you would like to begin with, I would be very grateful. The Chairman: - and when you left and when you rejoined again. M r Hall: 1 do not know if you are aw'are or not, but we had a meeting on Monday with the Minister for DoLGH, M r Hall: Right, that was quite a few years ago, that was. Yvette Mellor and Carol Sutherland, and we have been told If you mean this time round or the previous time - that the default notice has now been lifted. Over the last six months we have gradually got to the The Chairman: Well, 1 think the previous and this stage where we are producing now monthly accounts to time. DoLGE, which they are satisfied with. We had a couple of meetings over the six months with Yvette Mellor, when she Mr Hall: Well, the previous time was... I cannot came down to speak to us, to point out one or two points remember exactly. It was 1977, I think, and I was a that, in the accounts we were submitting, needed to be altered commissioner for nine-and-a-half years, the half year being slightly one way or another, but we are now in a position to when they changed the election of local authorities from produce monthly accounts to DoLGE which are completely November to the spring. So that is how I ended up with to their satisfaction. an extra half year. Then I went off and did other things We are, of course, unfortunately, for the first year as a accordingly, but decided to have another go at it this year. It Board, to a certain extent, constrained by decisions made was really a last-minute decision, unfortunately. ] will not say by the previous Board, something which is inevitable, but unfortunately but it was very much a last-minute decision. we have tried to claim back certain moneys. We found, for instance, that certainly housing deficiencies had not been The Chairman: So you would have left in the late claimed. We have now got those back, with the exception of 1980s? the housing deficiency for 2003-04, which I believe we will get back once the 2003-04 accounts are signed off. There M r Hall: Yes, mid 1980s. also was some unclaimed VAT We have managed to recover part of that, but part of it was out of date, had been left too The Chairman: So back in again and then elected long, so we could not claim that back. Chairman by the new Board. I suppose, going back as far We have started now already looking towards next as the late 1970s, did DoLGE actually, at that stage, do you year’s budget and seeing what we would like to do and then, remember, run any induction courses for members? obviously, seeing what we can do for the coming year. We also discovered, in fact, that - 1 do not know whether this made M r Hall: No, they did not. any difference or not to the accounts, as they were presented in the past - on at least a couple of occasions, money which The Chairman: Have you ever yourself been on any should have been in the capital account had been put into courses? the revenue account. Some of that has been transferred over and those differences have been corrected. M r Hall: No, 1 have tried to, actually, attend two courses The only couple of points, and, as I say, I am not too sure in the last six months, but with my wife’s health problems, I about, but I believe from what Mr Rimington said in the have had to call them off on both occasions. But I think the public meeting in January this year, that he raised a question nine-and-a-half years I did previously as a Commissioner, of Port St Mary’s accounts as early as 2000,1 think it was, stand me in pretty good stead and I remember the Council maybe 2001, I am not exactly sure. I cannot remember at Port St Mary then were deemed to be excellent and the exactly what year it was. He raised this in Tynwald, but it was auditors would come down, they would spend about five never followed up, 1 do not think. Why, 1 do not know. days, at the most, going through the books and they would go Tynwald Select Committee on Port St Mary Commissioners-Evidence of Mrs S Wilson Tynwald Select Committee on Port St Mary Commissioners - Evidence of M r J Hall Oral Evidence SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 11 TPSM away quite happy and, as I say, we certainly never ever ran M r Delaney: Yes, therefore the accounts show that with a deficit because we were well aware that, legally speaking, the certificate down below, made out on the information we were not supposed to run deficits. given to us, that you certify these to be the true and correct record. The C hairm an: It is probably not that relevant to us what sort of advice and help you had all those years ago, but would M r Hall: Right. you say that since you have become a Commissioner this time round, DoLGE have been very supportive or generally Mr Delaney: Right, so you had. To your knowledge, supportive of the Commissioners? have you had them eveiy year or was it just one off or every year? Mr Hall: I must admit we have found Yvette Mellor particularly supportive. She has pointed out what they M r Hall: When I was previously on the Board, we had expected of us in producing these monthly accounts and them every year because the returns were submitted always she has helped us bring them on gradually over the months, on time, we got the finalised accounts back and they were so they are to the level they are now, which they find signed off, all within the specified time limits. satisfactory. M r Delaney: Right, so therefore - and I have got to ask Mr Singer: Can I just ask a simple question? I found this, as well - to your knowledge were the Commissioners it interesting that Mrs Mellor is coming down now and after you left supplied with the accounts in the same way? giving you advice, in view of what we heard earlier, that when DoLGE were asked for advice - when advice was M r Hall: That I could not say, but I know the 2002-03 needed - it was refused. Is this a difference in attitude then accounts we have signed those off, I think, about two or of DoLGE? three months ago. M r Hall: Well, I really could not say because, obviously, M r Delaney: Yes, it is before the fact I am looking, not I was not on the Board at that time, but I did get the after the fact, when the problem was there. impression - and it is purely a personal impression, I must admit - that what was happening to Port St Mary was: 'give M r Hall: Well, certainly up until I left the Commissioners, them enough rope they would hang themselves1 and then use yes, they were always supplied on time, they were always them as an example for amalgamating, for bashing the other signed off on time. What happened after that I cannot say. local authorities with. That is the impression I got. I might be wrong, but that is the impression I got. M r Delaney: The situation that you find yourselves in now, is that when you came down to it, it is so obvious Mr Singer: If that is your impression, then you would to me - or I think it is obvious to me, maybe I am wrong agree with the previous statement that you felt that Port St -but, when this first came about, you were not the Chairman Mary' was made a scapegoat by a political decision rather then - but in your enquiries since you became Chainnan than a decision by officers of DoLGE, not -•», - although you have left-d id you ask if anybody had called the accountants in to the Commissioners and said, ‘Why • Mr Hall: Well, whether it w'as political or whether it didn’t it strike you when you did the accounts that we were was the officers’ decision, that I cannot say, but I certainly running this authority at a deficit?’ think, yes, they probably were being used, as not so much a scapegoat, as an example of how local authorities are not M r Hall: I do not think we asked that specific question meant to be run. I think that was part of the problem, yes. of anybody. It is probably something we have thought about, but I do not think we actually - M r Delaney: Mr Hal), nice to see you again, sorry under these circumstances, I assure you. M r Delaney: But knowing it is illegal to do so, surely, I am going to ask a similar question asked before, but as when they found themselves with a huge deficit, somebody, somebody who has been around nearly as long as I have, 1 even for their own protection, would want to know why they am going to ask have you ever, as a local authority chairman were told everything was hunky-dory but it was not. Just to or member, been given a copy of the authority accounts? protect themselves they would have asked this question.' Mr Hall: Well, we have generally had the copies of the Mr Hall: 1 would have thought so, certainly, yes, but accounts when they have been prepared for signing off. because, as I say, we were certainly, when 1 was previously on the Board, always aware that we were never allowed to M r Delaney: You actually had them at the Commissioners’ run a deficit. meeting where the accounts were there for you to have and I remember, when we built some houses for sale, we to hold, to use the expression? were told you are not allowed to make a profit; you are not allowed to make a loss. I mean that it is like trying to walk M r Hall: Yes. on the edge of a piece of paper upright, but I think we made a profit of about £2,000 and that was acceptable, but certainly Mr Delaney: So you had them. we were never allowed to make a loss. M r Hall: Only when they have been finalised and they M r Delaney: You do not know whether or not anybody are there ready for signing off. called in the accountants for an explanation of why they did Tynwald Selcct Committee on Port St Mary Commissioners - Evidence of Mr J Hall 12TPSM SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 Oral Evidence not see the problem with the accounts and particularly with you will agree, that, since the introduction of the 1985 Local the bank statements? Government Act, which, effectively, was supposed to beef up DoLGE’s supervisor)' role, what you seem to have been M r Hall: In the past, no, not that I am aware of. I know saying to us this morning is that, prior to 1985, there did that you have got copies of all the minutes from the past. I not seem to have been a significant problem when you were do not think... I mean 1 had a quick run through them, I do on the Commissioners, but the problems have happened not think there is anything in there - subsequently. M r Delaney: According to the evidence, given at the M r Hall: To be perfectly honest, Mr Chairman, I think inquiry. I have to use that. I always have to use that as that, in those days, life was simpler. background and I am trying to wonder why these questions, It seems to be now that the local authorities are taking really, were not hammered home to people. If you knew you on more and more paperwork; the accounting system has were in trouble, why you never asked the obvious question: changed and everything else; and life has become for the how did we get into this position and why were the people local authorities a lot more complicated and they have tried who were paid for this, not making us aware that we had to deal with it, without putting too much of the burden of problems? cost onto the ratepayers. In a lot of cases, I think costs have been imposed, or duties have been imposed on the local M r Hall: This is why, I did wonder when Mr Rimington authorities. Looking to the future, 1 think that there is going got up in public and stated that he was aware of the problem, to be more and more of them being given back to the local 1 think it was about 2000 - authorities and they are going to have to find the money from the ratepayers to cover these costs. M r Delaney: Yes, that is right, 2000. The Chairman: Do you think it is again, using the previous experience and current experience... Do you think M r Hall: But it was never pursued. You know he asked that DoLGE, obviously they do have this supervisory role one question in Tynwald and that was it. He never went any and they have a certain duty of care to the local authority, but further. And also, why, in 2002, when the Treasury wanted I think that the question that is now being asked, certainly to take action, I believe, from what I hear, that DoLGE with the recent announcement from the DoLGE Minister of forestalled that. Now, why, I do not know. I am not privy to yet another stab at local government reform, the suggestion their thoughts. is being made that, effectively, local authorities are too small and incapable of running their own affairs in the way in which M r Delaney: I can give you an answer now, because it you are describing, that there is more and more paperwork is obviously worrying you as the ex-chairman now, because coming in, there is more and more responsibility. 1 asked a similar question about some other local authority Would it be fair, then, do you think, or do you think accounts and 1 was given a similar answer. Nobody wanted that the position that DoLGE has taken that, effectively no to know. So, you are not the only one to ask those sort of matter how strong DoLGE supervisory powers would be, questions of yourself, 1 assure you. that local authorities would never be capable of actually Thanks very much, Mr Hall. I do appreciate the time running and operating in the size they are at, at the moment you have given us. in this new - Mr Hall: That is okay, you are welcome. ■ Mr Hall: That of course, is debatable, but it does not matter what supervisory powers DoLGE has. If it does not The C hairm an: Now that we have got you here with all exercise them, they are useless and I think that is where the these years of early experience of local authority dealing, problem mainly stems from. If you have the supervisoiy do you actually recall the introduction of the 1985 Local power and you see something going wrong, if you do not Government Act? take action what is the use? M r Hall: I think that probably occurred just about the The Chairman: That is a question 1 have asked myself time J left the local authority, yes. (The Chairman: Yes.) I many times. do recall it was coming in, but I do not think that I actually bothered too much about it, because I was, as I say, off doing M r Delaney: 1 think, we do wish you well, whatever you other things then (The Chairman: Yes.) but, yes, I do recall do after the chairmanship, anyway. it coming in. M r Hall: Thank you very much. The Chairman: You do not remember whether local authorities at the time were consulted on the basis of the The Chairman: Okay, thanks very much. I think we Act, or - are not supposed to meet M r Popper for another 20 to 25 minutes so we will take - M r Hall: That I would not remember. I think it would certainly have been discussed amongst the local authorities Mr Delaney: Short break. at Whitley Council. It ccrtainly would have been discussed there. Quite what the replies were or all the thoughts about... The C hairm an: - a 20, well 15 minute break, okay. I really cannot remember. The Committee adjourned at 77.75 a.m. The Chairman: It just seems a little ironic, I am sure and resumed its silting at 77.25 a.m. Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mr J Hall Oral Evidence SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 13TPSM Procedural with the time, but I would say it was at least seven, eight years into the position. I did go on the two-day course, that The Chairman: May I welcome people back again. I became very popular with both officers and Commissioners notice that Mr Popper has arrived, so I had better read out and found that very helpful, but not, perhaps, relevant to the the introductory remarks again for his benefit. problems that Port St Mary ended up facing. So, first of all, I would like to introduce the committee, Dominic Delaney, MLC, and Leonard Singer, MLC. Wc The Chairman: Right, so you are saying mid to late have also got the Clerk, Les Crellin, and the Hansard Clerk 1990s, you would have gone on that induction course. and I am the Chairman, Phil Gawne. So before we begin may I clarify the purpose of this Mr Popper: Yes, I certainly was on the first course I committee. We are required by Tynwald: think, that was thrown open to the local authorities and, again, ] cannot comment because, obviously, I was not on ‘to enquire inlo the conduct of the Treasury, the auditors and the subsequent courses. I think initially it was based very much Department of Local Government and the Environment, in relation to on the Civil Service two-day induction course. Okay, perhaps the affairs ofPortStM ary Commissioners in the period from 1st April 199S to 31st March 2004, having regard to their statutory and other with the emphasis on the work of DoLGE, but it probably responsibilities in relation thereto...’ became more specialist as it evolved. As part of our inquiries, we shall be looking at the The C hairm an: So, on those induction courses you were procedures carried out day-to-day by Port St Mary not given an overwhelming impression of the importance Commissioners, to help us determine how effective, or not, of your role as Clerk, in terms, of finance and this sort of the Commissioners’ business planning was and what help thing? and guidance was available to the Commissioners over that period. Mr Popper: No. We are very grateful to you for giving up your time to come here today. 1 also need to read out for the Hansard The Chairman: Right. Then, I suppose, going back to Clerk that! need to remind fellow panel members and those when you were appointed, do you recall whether accounting giving evidence that today’s proceedings are being recorded experience or any accounting qualification, indeed, was a for Hansard. So will all contributors try not to interrupt or requirement in your actual job description? speak at the same time as others, because this makes the job of transcription very difficult. M r Popper: It was referred to, that you did the estimates and oversaw the role, but there was no detailed analysis. I think I did say to Mr Kissack at the public inquiry, I did not realise the full extent of the local authority’s responsibilities, EVIDENCE OF MR J POPPER until after it had all blown up, for want of a better phrase. The Chairman: So, could J ask Mr Popper to come The C hairm an: Yes. So at no time did any of the forward to give his evidence? Commissioners themselves, presumably the former Clerk Well, thank you very much for coming along today. I ,wbo you replaced, or any of the staff, give you a full picture, think I made it clear, with the introductory remarks there, we would you say, of the position? arc really trying to find out a little bit about the background from the Commissioners, so that we can properly undertake M r Popper: 1 think, again, they did. 1 do not think there our main task, which is to take a look at how the various was anything hidden in any way. I think that, certainly from scrutinising powers of different bodies have been carried my point of view, the problem was that, perhaps, I was out. unaware of the full responsibility. 1 think one of the things So if you could, maybe, begin by telling us how long you that certainly came out from the public inquiry was, that it have been the Clerk, when you started, when you finished, was felt, certainly within the village, that there, perhaps, approximately, and any other introductory remarks you should have been more input from the auditors and initially, might wish to make. certainly, I had no problems. I think the initial auditors were Coopers and Lybrand and we got on extremely well with M r Popper: Well, my name is Julius Popper. J was clerk them. If there were any problems, the one thing I would say to Port St Mary Commissioners for approximately 13 years, was I was unaware of them. finishing May 2003, so it means I started in April or May 1990. I came into the position without any previous local The Chairman: Right. On that specific issue then, I authority experience, or, in fact, any public sector experience know that there has been reference already made to this, and I think, at this point, that is all I can really say. that there was a change in the auditors. At that time, were Perhaps it is better if you ask me the questions. you aware of any significant change in the procedures or the way in which they were handled? The Chairman: Right, fair enough. So 1 think one of the questions we have asked of the previous Chairman, Mr Popper: Other than - and 1 must emphasise this was in relation, I suppose, to the support that DoLGE gave. is a personal view - I felt that, perhaps, KPMG had bitten Were you aware of, or, in fact, did you attend any induction off more than they could chew. I think Lhey thought they courses run by DoLGE? were going into what they thought was - again, forgive the phrasing - but a cushy little number, doing local authority M r Popper: I did, but, again, I could not be approximate audits and I think that, as a con sequence, there was more Procedural Tynwald Select Committee on Port St Mary' Commissioners - Evidence of Mr J Popper 14TPSM SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 Oral Evidence work involved than they realised. Again, I think I mentioned M r Popper: 1 do not really have an obvious answer for this in the inquiry, as well, under misconceptions myself, 1 that. I think, again I have been on record as saying I was felt that they, perhaps, were not doing what they should have under the impression that everything was okay. Maybe, the done, which obviously was not the case at all. auditors were failing a little bit, but, at no stage, did anyone tell me, 'Hang on, something is wrong’, either in a properly The Chairman: I can see Mr Delaney straining at the worded letter or a phone call, a quiet chat, anything. )eash here, so I will pass over to him. M r Delaney: You aré on record, virtually, as saying you Mr Delaney: Not straining at the leash, I am just thought the deficit - fascinated, but that is beside the point. Mr Popper, good morning to you. M r Popper: I did not think there was a deficit. M r Popper: Good morning, sir. M r Delaney: That is right and this is the point I am coming to. You did not think that, and yet, when you look at M r Delaney: I am going to go through this in a bit more the accounts and you look at the bank balance, it is obvious detail with you, because you were the person there at the head that there was a deficit there. Is that right? Would you agree of the ship when it foundered, if I may use that expression, with me on that? or perceived to be, at the head of the ship, Can I ask, first of all, were you given any advice or M r Popper: I cannot disagree, but, as I say, unfortunately, training on accounts when you went on the course with the I did not realise it. Local Government Department? M r Delaney: I am going back to what you have already M r Popper: No. As I say, I hate to keep referring to the said, just to make this clear for the record, nobody from public inquiry, but, obviously, it is the freshest thing in my outside your authority told you that that was possibly a mind, but, even on that course, I am sure that we were told it situation, that there was a warning light up, that you were was our responsibility to produce the accounts. But I did not trading in a deficit? realise that the whole emphasis was on us, even from that. It is a case of, basically, w hat] inherited. We carried on Mr Popper: No. doing what we were doing and no one was telling us that we were doing it wrong. Mr Delaney: Nobody at all? M r Delaney: 1 have asked - sorry Chairman, through you M r Popper: No. I just, as I say - - previous people sitting in that chair about the procedure of putting the accounts, once they were audited, which M r Delaney: I am not clear. 1 did not get that from the should have showed the situation in relation to the Board, Kissack Report. 1 did not get clarity on that. in front of the elected members on behalf of the people, the ratepayers. Mr Popper: No, I do not know. I faxed Les a copy of Did this occur, while you were the Clerk? my submission lo the Kissack Report and I must admit that I did not have a clue. I would be the first to admit that I was Mr Popper: It did every year when we received the not an accountant and I just carried on. I think that, again i t ' accounts. was referred to in the Pannell Kerr Forster report, you have things like the VAT when you are dealing with millions of M r Delaney: They had the accounts? pounds worth of projects, the VAT on that is tremendous and it gives false impressions at different times and it was M r Popper: Yes. When we received the draft accounts, probably even difficult to see what the actual bank balance they would be put before the Board to review. It was always was at any one time, bccause of it. a nightmare, because you had to photocopy 16 pages or whatever for nine people. So even the draft accounts were Mr Delaney: Yes. That takes me on to two things: put before them for approval, first of all, and then when the your submission which 1 found very useful. Could I just final accounts came out, they were also put before the Board ask a quick question? It says here, and this is one of your and then signed off. suggestions, ‘Each authority to have a finance clerk’. When I read that I thought, ‘well, hang on a minute’-a n d Mr Delaney: Right, and the reason 1 am asking the I am a man of experience. question, I like to tell people why I am asking questions if I You know the questions I was asking Tynwald about ever can, properly explaining it to them, but I am fascinated other local authorities and their accounts at that time in 2002- by reading the Kissack Report and listening to what was 03 and I would have thought that that is fine, but, surely, said and everything else about why we had a situation - and knowing that the authority I was asking about had several you obviously were not trained into it - but why it was that finance officers and still were not getting their accounts in nobody picked up the situation with the audited accounts on time, I wfas wanting to see what the benefit of it was, how against the financial responsibility of the authority in the you perceived the benefit of it. current financial year, after you had the audited accounts, why nobody said, ‘Hang on a minute, this docs not add Mr Popper: Basically, because then you would have up’ ? Because it is obvious lo me, now, (M r Popper: Yes.) someone who was specialist in that area. I cannot pretend to looking at it in - have had any specialisation in finance. I could not bring in, Tynwald Select Committee on Port St Mary Commissioners - Evidence of M r J Popper Oral Evidence SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 15TPSM perhaps, the necessary change. 1 did not have those skills. I Mr Popper: The cash balance at the end of the year. could have obtained those skills, purchased those skills, call it what you may, if I knew there were problems, but, certainly, J M r Delaney: On the audited accounts? would not have been competent to bring in change off the top of my head, whereas someone who has got a qualification or M r Popper: Yes and that was my first realisation. the experience in there, can see how accounting is evolving, could bring that in to a local authority. M r Delaney: Right, but is it true, Mr Popper, that the deficit was there from the year before as well, it was building Mr Delaney: But you would agree with me it does not up? guarantee the accounts are going to be done on time? M r Popper: Oh yes, yes, but I did not realise. This was Mr Popper: Oh, no, no. Again, one of the things I feel the trouble. very strongly about, there should be consistency in all the authorities’ accounts because I am sure that, defending M r Delaney: Is it an unfair question to say that you KPMG from my point of view, the 24 authorities they had had expected, had you, the deficit had been brought to your to audit, each one of them did things differently. None of attention by other persons? them were probably wrong, but - M r Popper: I would have liked to have thought so. Again, M r Delaney: This gives me the next question, actually, I think we touched on something that, as I say, I know was on this. 1 know that the Chairman and my colleague want to referred to in the past like the VAT. It was very difficult, at any time, to get an accurate cash balance, to know what was ask a large number of questions, so I will get through them, there or not there and, as I say, perhaps the figures were as quick as I can. Did you, when you were pressed about the ‘false’, because there is, perhaps, sometimes more money accounts, and you must have been pressed - 1 take it you were in the bank than should have been and, as I say, internally, pressed - (M r Popper: Yes.) did you enquire of the auditors it was difficult. why the delays were? Again, the benefit of hindsight, I did not realise that we did not, perhaps, have the controls and the checks in and, Mr Popper: On several .occasions. I think one of the again, if someone even had a quiet word with me, something things that was well reported, again, from the public inquiry, could have been done about it. We could have got to this I actually believed that KPMG had lost our data. much earlier and this is again, perhaps, one of the things You know, it was a series of misunderstandings, admittedly, why I feel that it is very- important that you do have someone but you try to ease up on people thinking, ‘Oh, they have got there, who can actually understand the figures, understand problems’, you do not think the problems are with you, you what is going on. think the problems are with them and so, perhaps, I was not pushing as hard, but I was also getting the impression from M r Delaney: My next question, Mr Popper, is one 1 have fellow clerks and, again I will say it was an impression, rather already touched on with previous people. Can you tell me, than factual, that I was not the only one in that situation. what did you think the purpose, as a Clerk to Commissioners Again, there were no alarm bells ringing. That was the with local responsibilities for the ratepayers, that the job of frustration that I had. It just sort of came totally out of the blue, external auditor was? when the draft accounts came up and suddenly I saw there was a deficit and they were from three years previously. ' Mr Popper: I believed it was to come in, verify the accounts that we could do, again this is... But there were Mr Delaney: You have jumped another question (Mr certain aspects of the accounts that I felt were specialist to the Popper: Sorry.) that I was going to ask you, actually. You auditors, for want of a better phrase. They were things that the have led into it actually. 1 read the Kissack Report and 1 have auditors did, that we did not really understand, for want of a listened to what has been said. When did the alarm bells better phrase, and this is why alarm bells never rang, because suddenly, not only start ringing, but the bomb went off, that Coopers and Lybrand before KPMG came in; did their checks; you had a deficit? What was the date of that? finished off all the bits that we could not do and I assumed that would carry on and, obviously, it did not. M r Popper: I could not tell you the date. I could not even tell you the month. It was around about estimate time the year M r Delaney: Did either of the two auditors, which you before I left, so it would be January,.. Now, let me see, if I had in your time as Clerk, come to you, when the accounts left in 2003, it would be January 2002. came to you and said, ‘Here are your accounts and, by the way, this needs to be kept an eye on, that needs to be kept an Mr Delaney: 2002? eye on and that could cause you a problem’? Mr Popper: Yes. The draft accounts from, 1 cannot even M r Popper: Coopers and Lybrand did but, ironically, remember which year it was now, came in, I looked at them when they came to us, it was never about accounting issues, and suddenly saw this deficit figure and, unfortunately, again it was things like having security locks on the doors, the it was - keying-in pads. It was always silly things. I think they expressed concern M r Delaney: Could you just explain? Could you imagine that we had a rent depot down in the village, where the tenants that you are back in 2002 and you are at your desk, the alarm came in to pay their rent on a Monday morning - bells have started ringing, the bomb has gone off, why? WhaL was there in front of you that told you that? M r Delaney: Did they ever say to you that if you carry Tynwald Selcct Committee on Port St Mary Commissioners - Evidence of M r J Popper 16 TPSM SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 Oral Evidence on like this you are going to be bankrupt? could not say that for definite. It will be on record somewhere, but it would not surprise me if it was about that time. M r Popper: No, no, definitely not. Mr Singer: You told us about different approaches M r Delaney: Thanks very much. between the former auditors and KPMG, but you said it was not really on financial matters. (Mr Popper: Yes.) But then The Chairm an: Mr Singer. you did say earlier on they had a different approach. So was that different approach just these little bits and pieces you Mr Singer: Good morning, Mr Popper. were telling us about, they had come back to you with? Mr Popper: Good morning, Mr Singer. M r Popper: No, as I say, bearing in mind that the first audit 1 had was with Coopers & Lybrand, they came in and Mr Singer: You commenced working for the authority finished the work that, well, it was Mrs Home behind me in 1990 and these problems blew up, really, which year was at the time had done, and I cannot recall at any tim e... the it? 1999? only argument that I had with Colin Cl ague, who was the audit manager, was’over whether we should have added a M r Popper: It started to, yes, but, of course, were not drainage reserve and, in the end, we got a letter from the realised until 2002. Department of Transport Drainage Division to say that we were - and Colin Clague admitted that he did not realise we Mr Singer: So, the years before 1999 then, there were were - actually a drainage authority still. no problems? M r Singer: So you had feedback each year on something M r Popper: Not that 1 was aware of. One of the classic from them, Coopers & Lybrand. things that, again, came out in the inquiry was that the Treasury wanted action taking against Port St Mary several M r Popper: Yes, that is it. As I say, we actually stopped years previously. I did not have a clue about that. That I the rent depot. read about in the paper. That was the first I had read about it so, as I say - M r Singer: From when KPMG took over, and your quote was you felt — obviously, this is your opinion - that they had Mr Singer: Does that imply, from what Treasury said, more work than they realised, from 1996-97, whenever they that they had seen the problem before 1999? took over, KPMG, did you ever have any feedback from them after they had audited the accounts or did they just audit the M r Popper: I would not say so much that they had seen accounts and send them off to Treasury or DoLGE? any problems, but there was concern that our accounts were late being filed. As I say, I believe at those times we did M r Popper: No. not have the problems. It could have been that our systems needed Improving and things like that or possibly changing, Mr Singer: They did not come back to you on but certainly I do not believe there were any problems prior anything? to whenever the problems started. M r Popper: Nothing. Mr Singer: Do you know what year your auditors changed from Coopers and Lybrand to KPMG? M r Singer: So you never heard from them? Mr Popper: 1 would have thought - again I am digging M r Popper: Nothing, even to the extent that I know I had into my memories here - but I think, if you say we had one conversation with the audit manager for KPMG, where roughly six years with Coopers andLybrand, so that would we were talking at cross purposes. This is when I thought be to 1996, so I believe it would be round about there. It they had lost the data and I asked her if she was anywhere could be one or two years either way. nearer... Because I was given the impression... again, 1 did not have the phone calls, it was members of my staff, but I M r Singer: And have you any idea when this report you was under the impression that they were the ones with the read about Treasury' being concerned, what year was that? problems, not ourselves and as 1 say, it was - M r Popper: That was after the inquiry. M r Singer: Can I come on to when DoLGE returned the accounts to you? We have heard previously from Mrs Mr Singer: No, but they said that they had been Wilson, was that 2002, when those accounts were returned, concerned before 1999. the original accounts, and Mrs Wilson said, ‘We looked through the returned accounts.’ M r Popper: Yes, again I think it might have been about 1996, but that is pure guesswork now. M r Delaney: That was when they found the error. Well, not the error, when they realised they were going - M r Singer: Could it have been... Is there a link between Treasury saying, ‘We were concerned at such and such a M r Singer: Yes, there was a deficit of, they thought it year,’ and that is the date the kind of audit changed? was £90,000. Mr Popper: It might well have been about that time. I M r Delaney: Yes, 2002. Tynwald Selcct Committee on Port St Mary Commissioners - Evidence of Mr J Popper Oral Evidence SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 17 TPSM Mr Singer: When those accounts were returned to you, It is on the statement you presented lo us that you made, I what conversations did you have with DoLGE at that time? think, to the inquiry, if you can answer this. You talk about Did you say to them ‘Can you help us? Can you give us how all this problem had a detrimental effect on your health, any advice?’ physically and mentally, and that is why you resigned. But it says you were spoken to in a manner that made you feel Mr Popper: Yes, again, you will have to forgive inhuman and, consequently, in fear of your life... Who were me becausc I am digging into my memory' here. When 1 the people - discovered there was a deficit, obviously the first thing I did was get the Chairman down. I think, either there was M r Popper: That was a member of the public. a Board meeting that night or one was called that night, I cannot remember w'hich. I got the Chairman down, he went M r Singer: It was a member of the public. straight to Crossley’s, took what we had. We got Crossley’s in, we got in touch with DoLGE, we had a meeting with Mr Popper: Yes, we had a public meeting in the Peter WHiiteway. Crossley’s then came in and got us up to boardroom to do with the drainage works that were going date and - to go on in the village and it was quite a major upheaval, because not only... If it had just been work on the IRIS M r Singer: Did you ask DoLGE for help? Rather than scheme, the disruption to the village would have been help, use the word advice. minimal. You would be talking two or three weeks’ work and 150 yards a day getting done, so you would have had Mr Popper: Yes, well, when J say that, we got Peter the pipeline through, but what they decided to undertake was Whiteway down, who spoke to me and the Chairman. He met a drainage separation, so you had a foul and a stormwater with me and the Chairman. Again, he did not seem unduly drain, which meant digging up roads. concerned. He said ‘You’ve got yourself into this mess.’ As They were killing two birds with one stone with it and far as he was concerned, how the authorities operate is not it was quite an important meeting, because I was aware that their problem. It is a case of they need to have the accounts. the traders in the village were very concerned. Then I had Whether wc are in deficit or credit was not really a DoLGE this man grab me. Ironically, I had just had a quiet chat with issue. Quintín Gill over an issue and this man came and collared me in the hallway and, as a result, I missed the public meeting, M r Singer: So, basically, they said to you, ‘You are going listening to this man’s rantings and ravings - ironically, lo have to sort this out yourself’ he was a neighbour of mine - and I just felt ‘Well, I don’t deserve to be spoken to like that,’ and - Mr Popper: Yes. M r Singer: Was it over this issue? Mr Singer: Even though they are the Department of Local Government. M r Popper: No, it was not actually over this issue. He M r Popper: The other thing that he said was that, I think, wanted to develop a golf course, if I remember rightly. 17 out of the 24 authorities were habitually late in having their accounts filed. M r Singer: All right, thank you. M r Singer: Weil, there is a difference in just having them The C hairm an: I know Dominic is quite keen to get in, late and filing a deficit. but I have got quite a list of questions myself. The first thing, Two more questions. When the draft accounts were I think you said earlier that you did not actually receive any placcd to the Board, or they were placed lo the Board, official letter saying there was a problem, yet we do have this and you said ‘approved by the Board’, but they were not letter which has emerged at different times - obviously, the submitted... Did you say, each year, the draft accounts were Kissack Inquiry had it and I had a copy previous to that as placed before the Board? well - where Chris To veil, the Assistant Financial Controller, wrote to you on 29th March 2000 and I will read out what M r Popper: Yes. he says, just so you can remember the letter: Mr Singer: But then, in fact, they were not submitted, ‘You may recall from our past conversations that I remain conccmed they were late in submission. Were they presented before the about the persistent failure of your Commissioners to publish Port St Mary’s accounts on time and in a few days’ time a whole year will Board at the correct time, but then submitted late? have elapsed since the end of 1998-99. Earlier this month Tynwald was formally notified that your accounts for that year were not yet in Mr Popper: I would say most years they were late. the public domain. 1 regret therefore that 1 am unwilling to consider any further CLK Mr Singer: Being presented to the Board? advances for your Commissioners’ rate-funded services until your 1998-99 accounts are published and you have persuaded me that you are committed to public accountability.’ M r Popper: Yes. Again, I cannot remember when the dates were, but I do not think that was unique to KPMG, but Do you recall that letter? you were talking months rather than years. It may have been the odd couple of months out but, again, the impression I was M r Popper: Yes. getting from colleagues wjas that this was not unusual. The Chairman: Did Treasury actually at any point ever Mr Singer: One more question, if I can ask you, please. follow up on that letter? Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mr J Popper 18 TPSM SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 Oral Evidence M r Popper: No. Again, I took that letter as more a case Mr Popper: No, because 1 do not know when they of this was nothing unusual. I know it sounds... Again, get presented to Tynwald or to DoLGE. We get sent the benefit-of-hindsight type thing, I, perhaps, did not attach the draft accounts and then we get the signed-off accounts, or importance to it that was there. Whether that was because I the accounts to be signed off, so I do not know what the had also thought the auditors had lost the data... It did not timetables are - well, 1 still do not - for them to be presented come as a total surprise, because it had been mentioned but, to Tynwald. again, at no time was I told ‘Hang on, it’s you, you’re the ones that have got to do something.’ I spoke to Chris Tovell The Chairman: In the earliest stages of your career as several times over the years on the phone, but I was not the Clerk, were there any significant delays, that you were aware that it was because we were doing anything wrong aw'are of in the accounts getting presented? Obviously, you from those conversations. are saying you are not really aware of the proccss but - The Chairman: The only thing, obviously, being that Mr Popper: I know this sounds silly but it was very you had not submitted the accounts, which was illegal. much, as far as I was concerned, the norm. Again, this probably would not have been minuted or anything, but M r Popper: Yes, but you know, as I say, that could well on occasions when it was discussed with the Board, I felt be bccause I thought the auditors had lost information. the Board had the feeling ‘Well, we’re a smaller authority; they’ve got to look after the bigger ones first.’ It seemed The Chairman: Yes, but you had actually spoken to to be very much the feeling of the Commissioners at any Chris Tovell subsequent to that letter, would you say or - particular time and, as I say, we were not necessarily aware that they were crucially late, if you know what I mean, and Mr Popper: I cannot remember who I spoke to that deadlines were missed elsewhere and things like that. / subsequent. You mean after? That letter does bring it up, but - I The Chairman: Afterwards. The Chairman: So, effectively, that would probably answer this question that I am going to ask. January 2002 M r P opper: Yes, I cannot remember if I did or not. seemed to be a time when the penny started to drop and it dropped really bccause late accounts for years back finally The Chairman: But, certainly, as far as you are aware, appeared. At no time did you ever think that perhaps some from March 2000 through to May 2003 there were no kind of - bearing in mind you had not had the copies of follow-up letters or - audited accounts for a year or two - bank reconciliation or some sort of work should have been done, just to check on M r Popper: Not that 1 am aware of, or conversations. the finances. The Chairman: Right. Did you actually notify the M r Popper: With the benefit of hindsight, yes, but as I Board of that letter? Because I know we looked through the say, at the time, I was not aware of any problems or that we minutes and at most meetings, letters received by the Board had any problems, so no. Again, Mr Delaney asked about are minuted, but this particular letter, there are no minutes why I suggested there should be a finance officer. I can referring to it. It would appear, certainly from my position, remember Ron McGuinness, who was the surveyor with that that is a fairly significant letter to get from the Treasury DoLGE, would come down to me on housing matters. Now, and yet it did not seem to... housing matters was his speciality, throughout the Island admittedly, he was dealing with 24 authorities. But housing M r Popper: If I did not put it before the Board... I think matters was something that took up 10 per cent, 20 per cent I was half expecting it anyway but again, it was not because of my time. Something else took up... and the one thing I ( 1 was aware of any problems and ironically, at the time, always found in that job, I was fighting time. The public we were looking at leasing and we had leased a few other demand your attention. I w’ould say three-quarters of every things, so it was not...As you say, the letter is significant, day was taken up either on the telephone or seeing members but 1 perhaps did not realise it at the time. As I say, I was of the public and it does not leave you a lot of time to do the half expecting the letter anyway, because I was aware the day job, so to speak, and this is where something like finance accounts were late, but I was not aw*are there were any is too important not to have someone who is specialist in it, problems. This was the trouble. If there were problems, 1 someone who can bring in the necessary change, someone thought they were elsewhere. who is aware of the sort of controls that are needed, and unfortunately 1 was not. The Chairman: And do you recall bringing the letter to the attention of the Chairman at that time? The Chairman: Obviously, our main focus is to look at the way in which the auditors, the Treasury and DoLGE Mr Popper: No, I do not. conducted their supervisory role, but to actually get a full understanding of that, w Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mr Popper Oral Evidence SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 19 TPSM advocate a bit - three-quarters of your time might have actually, are ones which have to be answered, as well, been spent on the phone, bul you did have very important because it is not clear in the other reports - and I will refer responsibilities to the Commissioners as well? to them as the other reports - exactly what the situation was. I am looking at when you got the letter from Mr Tovell and M r Popper: Yes, and I think I said after my resignation, he talks about stopping the CLFs, which no local authority, I I went 18 months before I had a week without an evening would put to you, can afford to have stopped, without having meeting. If you put it down to the hourly rates I was putting a financial problem, really, with the responsibility of your in, I was going in most weekends, sometimes only for an authority. What action, if any, were you aware was taken, to hour, just to do some of the desk work. But, of course, when actually do what he said he was going to do in that letter? you are not aware of any problems in the financial side of things, it was something I neglected. I never hid from that, M r Popper: Something has just come back to me now. I but, yes, I felt I lived up to my responsibilities and certainly am sorry I did not refer to this earlier. I did write to him after on an hourly rate, I do not think I was that well paid. I know that letter, explaining that we are doing these various IRIS it sounds silly now, but I am on half the salary I am on now projects and things like that, what is going to happen then and I am doing 37 hours a week and the hardest thing I had as a result of that? And he said, because they are overseen to do was realise that at five o ’clock my day was over. It took by the Department of Transport he had not got a problem me seven odd months after leaving the job before I reckoned , with that. ‘Hang on, I’m going home now.’ My last two years in the job, my flat became almost like a prison cell, because it was Mr Delaney: You understand why 1 am asking the the only time I had peace and quiet. question? The Chairman: Again, 1 suppose you have more or Mr Popper: No. less answered this question but I will ask it anyway. You did not really, at any point, have the time then to actually do a M r Delaney: When a Government says it is going to comparison, to look at the way in which the Port St Mary stop your tap - literally what it was doing to you, was stop Commissioners were spending... Obviously, there was this your credit. That is a serious matter and I am wondering if issue which has been highlighted now of the administration that part of the letter was discussed by the Commissioners costs of Port St Mary being hugely higher than most other at the time? The fact that they were going to be in default local authorities - of any payments from central Government, because of the non-supply of accounts. Mr Popper: But I do not think you will find that the salaries were that different, so I do not know why that is, M r Popper: Well, as I say, I do recall now that I did but - . write to Mr Tovell after that letter and asked him specifically, because of the IRIS works, probably as well as a housing The Chairman: Well, we are not going to get worried, scheme, that are we going to be able to have the funds for but as far as the general administration costs of Port St Mary, that and he wrote back in the affirmative, ‘ Yes, you would.’ they are very high, compared with most other authorities. I remember that. As I say, I have not got the letters here, obviously, but - M r Popper: Again, I am sure if that was looked into there would be a lot more questions and answers found, Mr Delaney: Did he or did he not can^ out his threat because, certainly, I do not think we were over-staffed and, in that letter?' ' ...... as I have just referred to. I do not think we were over paid, considering the hours. I think where the problem comes in, M r Popper: No, not in that sense because we got funds is that you cannot specialise. There are too many areas that for the IRIS Scheme that we petitioned for and whether Park need specialisation, that either Government departments Road came into it or not, 1 do not know. have or the bigger authorities have, but in Port St Mary you are the jack of all trades. M r Delaney: Yes, that is an interesting answer. The other question I am coming to now is that you know that central The Chairman: Yes, to be fair again, we have already Government pay for the cost of the external audit? heard evidence today which has suggested that, for members in the office, the DoLGE based, the advisers, the former M r Popper: They pay for it? Chairmen, that that was a reasonable figure. Another point which has been raised by the Clerk here, when you actually Mr Delaney: The audit. took over as the Clerk, did you have the benefit of working with the previous Clerk or were you effectively just - M r Popper: We used to get an audit bill every year. M r Popper: No, unfortunately he was finishing. I think Mr Singer: From KPMG? I started just after Easter of that particular year, which w'as April, middle of the month, and I think he finished at the M r Popper: From KPMG and from Coopers & Lybrand end of March. before them. The audit was actually budgeted for in our estimates. The Chairman: Poor Dominic has been restrained heavily here. M r Delaney: Could we just stop there, please? M r Delaney: I have enjoyed listening, My questions, Mr Popper: It was between £3,000 and £4,000. I Tynwald Select Committee on Port St Mary Commissioners - Evidence of M r J Popper 20 TPSM SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 Oral Evidence remember actually having to write to Peter'Whiteway on this. to actually see? Was it your fault? Was it the auditors’ fault? I could not tell you which year, because 1 cannot remember Was it some secret person’s fault? Whose fault was it? Did now, but we had an audit bill in the region of £3,000 to you supply your papers on time, your documents? £4,000. They had not done a week’s work, and the Board asked me to question it with Peter Whiteway, who turned M r Popper: As far as I believe w'e could, yes. We went round and said it is contracted out by Government, they put through as much of the work as we could. It was, perhaps, a in a bid. As far as I am concerned, we paid them. bit more difficult after Mrs Home went, but we went through as much .as we could. I did not realise, at the time, it was M r Singer: All right, they contract it out and then they nowhere near enough, because there were certain things that would give a bill. I did not understand, that Sharon did not understand. Again, I do not want to pre-empt anything Mrs Home would say, but M r Popper: If they are getting paid twice, then I would I know that Mrs Home spent a long time trying to appreciate ask a lot more questions but - how the sinking fund worked and, fine, I could do the figures for them, but I did not necessarily understand them. M r Delaney: This was claimed back from Government then? M r Delaney: The Chairman asked an excellent question which, obviously, begs another question, if I may, Chairman, M r Popper: No, it was actually budgeted for. It is part that, therefore, when eventually, it hit the fan, the situation of the administration costs. then, was it a case of the Commissioners sat round and said, whose fault is this? It is a normal, natural question to ask M r Delaney: We are just going to check something and - and did they ask this question I am going to ask you now? I hope I will be able to help ratepayers. I realise you have You got in Crossley’s to check. Did anyone at the same time got to be leaving the Island tonight, Mr Popper, and I do go back to the auditors and say, ‘We are in a lot of trouble { here. Why didn’t somebody pick this up before we picked apologise but this matter, it seems to me, is of importance. it up, sitting on my desk?’ {Interjection by Mr Popper) We will follow up on that question. I will leave it in abeyance until we get a clarity of Mr Popper: Yes, Mr Jackson - who was the Chairman exactly what is the situation. when this broke - and myself went to see the audit manager, who more or less... I do not know. M r Popper: No, 1 can assure you that, for every year that the accounts were submitted, Port St Mary Commissioners M r Delaney: What was his answer? had an audit bill from the auditors at that time. M r Popper: How come there was this misunderstanding? M r Singer: Dominic, we might be able to get this answer I actually asked her that and the answer came back, ‘I don’t later on. know.’ M r Delaney: Yes, we do not want to hold you up on your M r Delaney: ‘I don’t know.’? situation, but that is an interesting answer, Mr Popper, and you will appreciate why I asked it. M r Popper: No, unfortunately, I did get the figure from a telephone call. Not me, but someone else who came in with M r Popper: 1 do not know if Mrs Home has been on yet, the figure, which I needed for that year’s estimates, which but she will be far more specific on that than 1 can. was the end-of-year cash balance and what I believed was a positive figure turned out to be negative, but nothing in M r Delaney: That is on that one. We will try and clear writing again, nothing to say ‘Hang on, you have got this that up once and for all on that one. I am also interested with problem. ’ I do not believe, at the end of the day, I was a bad 1 when you had a situation that, again, you were getting a year Clerk to Port St Mary Commissioners, but, nevertheless, I behind plus in accounts, how could you have reasonably left there feeling like I was inept. expected your Commissioners - who change pretty regularly down there, if you look at the elections - to be up to date, if M r Delaney: That is not for this Committee. What we they are working on this year’s accounts, on what they are are trying to identify is - going to spend and they have not seen the audited accounts for a year or 18 months past? So howf do they know what M r Popper: No, I know that, but what I am trying to say they can afford to spend? That is my question. is, that if someone had just told me, something would have happened and I have got to be fair to the Commissioners, M r Popper: Well, again, this is something that came out they did not take a blame scenario, they attempted to resolve in the inquiry. I was, perhaps, going about that the wrong the situation. way. Mr Delaney: Who w'as with you when you went to see M r Delaney: You are not the only one, of course. Other the auditors or the manager? local authorities are the same. This brings me to the key question on this one. You said Mr Popper: Terry Jackson. you had discussions with the auditors about the delays, or you got the impression they were under pressure, the auditors, so M r Delaney: Terry Jackson. arc we clear or have we been made clear on what caused the delay in your accounts being there for your Commissioners Mr Popper: Yes, okay, and I think there were some Tynwald Selcct Committee on Port St Mary Commissioners - Evidence of Mr J Popper Oral Evidence SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 21 TPSM comments in the press from the inquiry on that, so - M r Singer: You do not need to be. M r Delaney: Mr Jackson was with you, so the situation... 1 will put this question again. You went to see the auditors The Chairm an: Just one final question from me. anyway. and you said, ‘Why weren’t we told of this? We are so far In Fred Kissack’s inquiry, you were certainly reported in the behind with the accounts,’ because, according to you, they newspapers as more or less holding your hands up and saying, were under too much pressure to produce the accounts. You ‘It’s a fair cop, it was me’. then were not aware of this six months or seven months later, But do you feel that, had you received the support that whenever the accounts came in. You then said. ‘Why weren’t you would expect from DoLGE, Treasury and the auditors, we told of this?’ Is that the question you asked or similar? things would have turned out the same way as they eventually did? M r Popper: It was similar. It was along the lines of, ‘How did this happen?’ and the answer was, ‘I don’t know.’ M r Popper: No, I think if 1 had known about the situation, as 1 have just remarked, the Commissioners were veiy positive M r Delaney: They said ‘I don’t know.’? about the whole thing, when it came to light. If I had had an inkling - 1 mean, the clues were there, do not get me wrong, Mr Popper: Yes, but that was more about, how come I but 1 was misinterpreting them - 1 thought the problems were thought it was a surplus, when, in fact, it was a deficit? We had elsewhere. If I had had an inkling, with or without DoLGE, if a figure over the phone. I cannot remember the exact figure, someone had just had a quiet word in my ear, I do not think but I thought it was a £67,000 credit and it turned out - those problems would be there now. Mr Delaney: Can we return to my last question, Mr The Chairm an: But you would agree that there were clear Popper, please. When you got the letter from Tovell, or others, failings in the way in which the Commissioners conducted or you were concerned about the accounts that were not on their affairs? time, which, under the law, had to be put in, you then spoke to the accountants, I take it? M r Popper: Oh, yes. You know I can only comment on this, as I say, with the benefit of hindsight. I cannot change M r Popper: No, we spoke to the accountants when we the past, much as I would dearly like to, but if the advice and realised there w'as a deficit. help or if someone had told me there was problem, 1 would not have even needed their help. We would have done something M r Delaney: No, I am talking about when the accounts about it, but - were late, you got the Tovell letter. The Chairm an: I suppose, really, that the crux of the M r Popper: The Tovell letter. question is, if you, as the Clerk, could not spot the problem, is it fair to have expected that Treasury, DoLGE or the auditors Mr Delaney: When the accounts were... Tovell was could? threatening lo stop your tap from the Government. M r Popper: Well, if someone had turned round, you see, M r Popper: Yes, 1 - as I say, again there was a lot of innuendo, speaking to a lot of my colleagues. I did not think I was the only one. I thought M r Delaney: So you must have spoken to somebody to this was universal. I remember there was one letter saying find out what was. that your accounts have to be in on time, and it was the first time I had got one, bearing in mind this was probably nine Mr Popper: I spoke to Caroline Caley on a couple or ten years into the job. And Colin Dawson said, everyone of occasions and said, ‘look, we are under pressure’. She gets one every year. You know, it was a standard letter, and, admitted that she was under pressure, too, and she was doing ‘Oh, you’ve been lucky not to have had one before’ type of her best. thing. So when you get that from colleagues, you think it is nothing to worry about, because, as I say, I genuinely did not M r Delaney: What answer did they give, why the accounts think there were any problems there. were -? The Chairman: Okay. Anything you want to-? M r Popper: They had to do the bank’s audits. M r Delaney: No, Mr Popper should be given time to get M r Delaney: Thank you. away. We know he has come here with his time schedule to suit the Committee. M r Popper: That was one of the things that was said to me, one of the excuses that was given to me. The C hairm an: Okay. Well, I would certainly like to thank you for coming along today. Mr Delaney: Thank you, indeed. That would be the bank’s audits. M r Popper: But if you have any queries, again, please do not hesitate to get in touch with me. You know, the one thing The Chairman: Obviously we are running five minutes you hear about these black holes - the Enrons, the Parmalats over now. and things like that - Port St Mary had its own, but, at the end of the day, I know how easy it is for something like that to M r Popper: I am ever so sorry, we had better move on. happen, and I hope that this Committee can find a way to make Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mr J Popper 22 TPSM SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 Oral Evidence sure this never happens to anyone again, because I can tell you, Mary. The past is something that I have had to trawl through, it is not the nicest thing that can happen to a person. to some extent, to assist an understanding of where we have actually come from. But, really, my involvement has just The Chairman: Thank you very much. been from 19th May onwards, 2003. Mr Popper: Thank you. The Chairman: When you actually applied for the job or saw the advertising and the whole appointment process, Mr Delaney: Thanks. at any point was accounting experience or qualifications in accounting a requirement of the job, or was that made clear The Chairman: Okay, so the deliberations of the to you? Committee stand adjourned until we have a bit of a feed and at 1.15 p.m. we are going to recommence. M r Butler: Accounts officer was one of the references in the job description. It was not emphasised as a bookkeeper or as an accountant and having previously had some experience The Committee adjourned, at 12.23 p.m. in regards to passing business certificates, having a degree and resumed its sitting at 1.15 p.m. in applied social studies, which deals with economics, statistics and things like that, I had some familiarity in regard to accounting systems, but I am not a bookkeeper or an accountant. So, when I came for the job, I explained Procedural what that situation was and they said: ‘Arc you familiar with computers?’ and I said, ‘Yes, I am familiar with computers The Chairman (Mr Gawne): Right, once again I would and I am also familiar with other types of systems like like to welcome everybody. Some of us have already heard Quicken and basic systems’. That seemed to be adequate my opening remarks, but I will make them again for those enough to understanding, to the Board at the time, as those who have not. So, to begin with I would like to introduce Mr credentials were more than sufficient. Singer, MLC and Mr Delaney MLC and myself, Phil Gawne, Chairman of the Committee. Mr Crellin is our Clerk and, of The Chairman: Since you have actually taken up your course, we have the Hansard Clerk here as well. appointment as Clerk, have you actually.had the opportunity Before we begin, may I clarify the purpose of this to go on any of the induction courses run by DoLGE? Committee: we are required by Tynwald M r Butler: Yes, I have been on the induction course, but, ‘to enquire into the conduct of the Treasury, the auditors and the Department of Local Government and the Environment in relation in regard to accounts, it does not actually cover anything to to the affairs of Port St Mary Commissioners, in the period from 1st do with accounts, in the induction course. April 1998 to 31st March 2004, having regard to their statutory and their other responsibilities in relation thereto..,1 The C hairm an: You have dived in and answered my next question. So, just to reiterate that then, there really is As part of our enquiries, we shall be looking at little, if any, mention of accounts? the procedures carried out day to day by Port St Mary Commissioners, to help us determine how effective or not the Port St Mary Commissioners’ business planning was, and M r B utler: Yes. what help and guidance was available to the Commissioners over that period. The C hairm an: Do you recall when you actually did go Obviously, we are very grateful to you for giving up your on the induction course? time and coming here today. I need to read out, as well, a piece prepared for us by the M r Butler: Approximately three months ago. I initially Hansard Clerk. I have to remind fellow panel members and tried to get on within the first couple of months of taking up those giving evidence that today’s proceedings are being the post; unfortunately, I was away at that time. The time recorded for Hansard, so would all contributors try not to after that the induction course was cancelled, so it was third interrupt or speak at the same time as others, because this time lucky. makes the job of transcription very difficult. So, about a year after I had been in post, prior to being on the induction course which, in some respects, I think is quite a good idea, because, by that time, you have a more... especially in regard to Port St Mar}'. It has been a very steep EVIDENCE OF MR C BUTLER learning curve over the last year and a half. The Chairman: Okay, so I think if I begin by asking The Chairman: Effectively, what you are saying is that Mr Butler: when did you, actually, take up the position as June/July time you went on the induction course this year, clerk and whether you have any other opening remarks you which is three/four months after DoLGE issued the default would like to make? notice and still there is little, if any, information about accounting and local authority finances? Mr Butler: Thank you. My position, as Clerk, I took up on ) 9th May, 2003, so M r Butler: The local government handout is fairly I have been in post just over a year. During that time there broad in regard to that, but, in respect to understanding local has been a lot of movement, a lot of progress within Port St authority finances, 1 think there is very little could be done Tynwald Select Committee on Port St Mary Commissioners - Evidence of M r J Popper Procedural Tynwald Select Committee on Port St Mary Commissioners - Evidence of M r C Butler Oral Evidence SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 23 TPSM on an induction course, anyway, (The Chairman: Right.) bookkeeping for Port St Mary Commissioners in year except as a very brief synopsis. But, actually understanding 2002. and working through different local authority accounts, you would need a completely separate coursc, I believe. It is not M r Delaney: Crossleys, we are talking about? something that you could actually do within two days and each local authority is different. I have had the opportunity Mr Butler: That is correct. They were very helpful of looking at other local authorities: Castletown, Malew and and gave me very good advice and guidance in regards to to some extent, when I first came in to try and ascertain what the state of the bookkeeping. This led to the Board being type of systems they had, prior to us setting up our recent made aware of the deficits, in regard to the problems that systems that are now working quite well in Port St Mary, seemed to have accumulated over the period of time, with and they are all different. the deficits increasing and the rates not meeting the annual expenditure and that accumulating over a period of time, and The Chairman: Right, Okay. I will hand over now to Mr they were aware that things had to be addressed, in regards Delaney, who I am sure will have some questions. to doing that. The difficulty I have found, from a newcomer’s point of M r Delaney: Thank you, Chairman. view, is that I would have expected accounts to be relatively Mr Butler, I realise, first of all, you are coming from after up to date. If I was in the business of accounts, I would have the fact of the problem, you are afterwards that the problems expected to have accounts a couple of months of year end, not came to light. But there are certain things which you might four years out of date accounts, from which you are going to shed some light on, even then because, coming in, a new have to draw information for setting the rates et cetera. So I brush does sweep clean. From my experience, I know that think everybody recognises that there were problems, there when the new brush comes in, it can brush out things that were problems recognised by the Treasury and DoLGE in have been hidden away for a while, and I am interested in 2002 and the Board and I think this accumulated eventually what happened in relation to the accountancy practices. to the changeover in staff or the leaving of staff and myself It has come clear now that the central Government, they taking up the post and addressing or trying to address and do. not pay, but they go out and get people to bid for the bring up to date the problems we had. accounts of local authorities, what for, we will find out from In response to the accountancy procedures you áre saying somebody else, I am sure, and you are the recipient of their in regard to KPMG - well, say the selected accountancy firm choice, the accountant. that the Government had - my interpretation of what one Therefore centra] Government, for some reason, tell you is expected to do, is to fit into their paradigm, their model who is going to do your job for you and, therefore, that takes of accountancy. So the breakdown, the VAT et cetera, they you out of the equation, when it comes to good or bad or have a system that you are supposed to try and tailor your indifferent. They tell you and I think you would agree with bookkeeping, and I gather since, that one of the big problems that, Mr Butler, at the moment, would you not? is the VAT that was not separated out and was put in office administration, which skewed considerably, because they Mr Butler: Yes, I think it is a five-year contract for the were not passed over, accruals were not made, transfers were accountants firm. not made and VAT was actually not being taken out of the accounts, which was causing a problem for making a gpod M r Delaney: Chosen by central Government. assessment of what rate was needed for the future. M r Butler: That is correct, yes. Mr Delaney: Thank you very much for that. That has cleared my mind up on certain things. It was about four M r Delaney: So you have to work with who they tell you years of accounts you say, using your term, had not been to work, you have no say in that. That point has to be made signed off? clear, so you have to work with the tools you are given. Can you tell me what the practice is now even when you come M r Butler: Yes. in or you ascertained were in, and the differences you are proposing, to what was happening in relation to accounts, M r Delaney: Had they not been signed off - maybe you when they are submitted and how they are submitted? In your do not know - but had they not been signed off, because they own words, are there any changes that you have brought in, were not accepted by the Board members or the Board? Or that were in practice in the bad old days, when the mistakes were they not signed off because of any errors or any reasons were picked up and made? at all in the accounts themselves? Mr Butler: When I actually took up the post, there had Mr Butler: I find it unusual that those three years of been no audited accounts signed off since 1999 and so the accounts had not been signed off. What I would assume is, accounts for year ending 2000, 2001, 2002, although they that you sign off one year and then the next year, because were present in the office and had been received in December you are gathering on information from the previous year 2002, they had not been signed off, or as I understand, put and then the following year. But to have three years of before the Board. accounts, all at once, to sign off, did not really make much Consequently, that was one of the first things that 1 sense to myself. was trying to ascertain the accuracy, as much as one could, The need to actually get on top of the accounts to some of accounts, which I was not particularly familiar with extent and start working with what we had, was a priority, and accounts systems. 1 subsequently took advice from I think, that the Board needed to know and also I needed to an appropriate firm of bookkeepers, who had done some know, as a Clerk, to get things up to date. Tynwald Select Committee on Port St Mary Commissioners - Evidence of M r C Butler 24 TPSM SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 Oral Evidence M r Delaney: Did you find the reason why you had three a solid foundation and, since then, that is where we have lots ai once, three years at once; did you come to a clear developed and got to a stage now where 1 have had a lot of picture why this was? help from KPMG recently, to ensure that our 2004 accounts, which are near completion - 1 am told I will be getting them M r Butler: There is a letter in April 2002 referring to, I on Monday - are available, so we should now have right up have the letter here - no it is December, 2002 sorry — which to date accounts. 1 referred to earlier on, of accounts being sent through from KPMG to Poit St Mary Commissioners for signing off. Mr Delaney: The unfair question to ask you; if that advice had come sooner, whether the problem might have M r Delaney: How long were they behind the preordained been less, but, obviously, you were not there to know that. date they should have been with you? M r Butler: I was not, no. All I can say is, that since I have M r Butler: Well, we were talking about three years’ been in office I have had, I feel, quite a lot of support. accounts, year ending 2000, 2001 and 2002 and talking December 2002. Mr Delaney: Thank you very much for your straightforward and understandable replies. Thank you, Mr Delaney: So the accounts which were supposed to indeed. be done were at least two years behind? The Chairman: Mr Singer. M r Butler: Yes. M r Singer: Hello, Mr Butler. 1 may be touching slightly Mr Delaney: Was the same set of accountants, just for on what Mr Delaney has also asked. Have you, before you the record, on these accounts? came into this job, had you had any experience in local government at all? Mr Butler: KPMG have been the Government accountants since 1995 and are currently the accountants Mr Butler: Notin local government as such. I have been and so that is the - in central government for over 22 years and that does involve quite a lot of mixing with local government, in regard to the M r Delaney: The Government appointed accountants? nature of the job I was doing and so I did have quite a lot of contact with the housing departments, with local authorities, M r Butler: The Government appointed accountants, but actually working per se in local authorities, no. that is correct. M r Singer: Whilst you went on the induction course, M r Delaney: Thank you very much. That is something which was the members’ induction course, was it not? that has not been clear to me, since I started reading documents on that. So, we have got that situation: you come M r Butler: That is correct, yes. It is the only induction in after that fact, leave that there. course. I am going to ask you, it may be a bit more difficult this question, but it is very important for the ratepayers down M r Singer: Did you expect, at any time, that there might there, no matter. When you came into office and obviously be some kind of course for you as an officer and clerk from everyone was trying to sort out the mess, that we know within DoLGE, to say," ‘This is what we expect of you’? everyone was trying to do. Did anybody go back to the Otherwise, how did you know what was expected of you? accountants - I asked somebody previous this question - and say, ‘We have got the accounts, we are behind by a M r Butler: In an ideal world, I think that would be an couple of years, when you were supposed to put them in, excellent approach to have. As a relatively green Clerk, if you are appointed by the Government, you knew the rules I can use that term, I was coming into a local authority. I, of accountancy in the Isle of Man, as far as the Audit Act perhaps, had a different perspective on local authority work is concerned, what are you going to do to help us clear up from somebody that had been in the local authority for a long this mess?’ period of time and I think, perhaps, that may have been one of the reasons why I was brought in, because of the approach M r Butler: I was contacting KPMG, the Government that I adopted to problem solving. accountants, trying to get accounts signed off in time to get There were direct problems that needed addressing and, the 2003 accounts. Also, there had been a set of management perhaps, that was the nature of how I addressed it. Whether accounts prepared for the year ending 2003 and so, to some that conforms with, necessarily, the way other people may extent, we had something to actually work with, but I was have addressed it, wrho had been in local authority for a longer contacting both KPMG and Crossleys, to try to get the period of time is hypothetical, but having a course that you accounts up to date at that time. So, yes, there was regular describe, I would have found very useful. contact, to some extent, with KPMG, trying to get the accounts, but also they needed to be signed off from the - M r Singer: If you had not been in Government and had been, say, in private practice and you had accepted this job M r Delaney: What was the answer? Did you get what and you had accounting, you knew about accounts et cetera, you asked for? how would you have coped in this job, how would you have found out what w'as expected of you? M r Butler: Well, I got the three years’ accounts signed off, so we could actually progress the 2003 accounts on M r Butler: From private - Tynwald Selcct Committee on Port St Mary Commissioners - Evidence of M r C Butler Oral Evidence SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 25 TPSM Mr Singer: Generally, you come and sit down at your Commissioners. desk and you know there is an induction course for elected members, but how would you have known how to proceed Mr Singer: How much have you paid them? with your job and what was expected of you? M r Butler: I would have to refer to finances for that. Mr Butler: It would have been very difficult. It was very difficult, never mind that, because the nature of local Mr Singer: Have you got any ballpark figure? government is so diverse, it is not like running a business as such. There is numerous business, there is legislation, there M r Butler: I would not like to say without referring, but are numerous roles that you have to action arid functions, that, it was not excessive, as far as I can see from accountancy in some respects, I picked up from working on the job and fees. looking at what had happened previously. Mr Singer: We know for example that you are paying Mr Singer: Flying by the seat of your pants, was it? £4,000, was it £3,000 to £4,000 for KPMG. Were you paying that sort of figure again, in addition, or was it half Mr Butler: That is an interesting term, yes. that amount. If not, could you possibly let us have that figure please? M r Singer: And can I ask you, on these accounts that were not signed off, you came and found three years’ accounts not M r Butler: Yes. signed off. What was the comment from the Commissioners, who must have said, why have these accounts not been signed M r Singer: So the 2003 accounts have now been signed off? What did the Commissioners say? off, have they? M r Butler: The Commissioners did not seem to be aware M r Butler: The 2003 accounts have been signed off and that they had the accounts in the office. we are waiting to receive the draft accounts for 2004, the final accounts for signing off. M r Singer: Right. So were the Commissioners aware that accounts should be signed off each year? M r Singer: For 2003? M r Butler: Oh, yes. The Commissioners were aware that M r Butler: The year ending 2003 accounts have been there was a problem and I think that had been highlighted signed off. I have them here. by myself after 1 had spoken with Crossleys, in regards to M r Singer: And so what is happening with this year the management accounts for the year ending 2003, which I had got a headache of trying to understand. But it was made now? fairly clear. M r Butler: The accounts for the year ending 2004 are supposed to be with me on Monday. M r Singer: So, where was the blame, do you think, for them not having been signed off? Was it with the former Clerk, M r Singer: It was interesting to hear you say that you the Commissioners, were they sent in on time, each year’s have received, you have contacted KPMG, since you have accounts returned on time by KPMG? ...... been there and they have been helping .you. Was that you going to ask them for help or them coming to you and saying, Mr Butler: As a statutory authority, one has a lot of do you want any help? functions to perform, DoLGE has a supervisory capacity and the Treasury do employ KPMG, or the Government M r Butler: What seemed to be a problem, speaking with accountants, to do that. 1 really think that, in a small authority KPMG, had been that, by the time that the accounts were like Port St Mary, there are so many functions, you are submitted, it was at the end of the six-month period, that covering similar functions to what a larger authority is, but you that was a very busy time as such. So what I tried to do was do not have the staff, you do not have the specialisation. ensure that, as near as year end, the management accounts So you do need support of DoLGE to some extent i.e. I had been assisted with by another accountant firm, would training, guidance, whatever. And you should also have be available, so we would have them back before September assistance, I think, from the Treasury accountants in assisting time and difficulties in that, so to keep on top of it for the with your accounts or problems within those accounts future. and I fee] that, perhaps, those three areas were actually That, combined with a new system that has been put in lacking in regard to assisting Port St Mary, that clearly had that seems to be user friendly and compatible, in regard to difficulties. bookkeepers and accountants, via the computer system that we have in - and DoLGE have supported that as being a Mr Singer: How many years now have you employed robust system - 1 feel that that has hopefully stopped the rot Crossleys - well, not you but the Commissioners - employed of the past for this year and for the forthcoming years. Crossleys for advice? M r Singer: Thank you, Chairman. M r Butler: Crossleys were only brought in in 2002 to help compile management accounts for year ending of that, which The Chairman: Just a few more questions from myself. they did and since then they had helped in understanding Confirmation of a date, which may be important I think. You that. They are not permanently employed by Port St Maty Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mr C Butler 26 TPSM SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 Oral Evidence said that the three sets of accounts were received in the office have assumed there would be - in December 2002, could you confirm that? I think there was evidence given this morning that it was, in fact, January 2002, M r Singer: I would have assumed that the accounts are it would be easy enough, I suppose, to confuse, submitted, they are audited and then signed off and sent to DoLGE (Mr Butler: Yes.) and that is supposed to be within Mr Butler: I have a letter here from KPMG. Shall I two months of the end of the year is it? present it - if I could have it back - to the Committee? M r Butler: Within six months, the management accounts M r Delaney: Thank you. are meant to go the Government auditors, that is the statutory requirement and then it is after that when we get the accounts The Chairman: Just for the record, I will read out the back, they get signed off - I do not believe there is a time letter and get the date right. So this is a letter from KPMG to on that. the former clerk, Mr Popper, dated 5th December 2002. M r Singer: What we are saying here, as far as you are ‘Reference to Port St Mary Village Commissioners, year ending 31st March 1999, 2000, 2001. Please find enclosed six sets of accounts for aware, is that Port St Mary sent the accounts to the auditors each of the above. If approved by the Commissioners, 1 would be grateful in the year 1999 and they were not returned in 1999 and 2000 if you could ensure that they are signed and dated as appropriate, and and 2001. It needs to be clear in Hansard that KPMG, for returned to me for completion of the audil report. whatever reason, did not, in fact, return the accounts to the As for previous years, could you please ensure the enclosed minutes local authority for three years and then expected all three to regarding auditing standards are also approved by the Board? I also enclose our fee note for your attention. Yours sincerely, Caroline Caley, be signed-off - Manager.’ Mr Butler: That is correct. Okay? Mr Singer: When it says here, ‘If you could ensure Mr Delaney: Can we copy that please, if we may? that they are signed and dated as appropriate’ - what does ‘appropriate’ mean? Does that mean in 2001 you sign them The Chairman: J think we are now pretty confident of as you have got them back in 1999 or not? the date, which is helpful. I think something, as well, I need to confirm here; there is a little bit of confusion about accountants Mr Butler: The ‘appropriate time’ would be when they and auditors. Just to confirm that, in fact, KPMG are not were presented to the Board and signed off. It would be the Government accountants, they are the auditors appointed by date that the Board - Government to - M r Singer: Signed three years later. M r Butler: They are the auditors, yes. Mr Butler: Yes. The Chairman: And Crossleys, of course, were acting as accountants preparing accounts for auditors. M r Singer: Right, okay. Thank you. M r Butler: Preparing management accounts, yes. Mr Delaney: Could I just? The Chairman: Did they actually involve themselves in The Chairm an: You can certainly come back in a bit, but preparing accounts for audit? there are a few other issues I want to deal with, ais well. We have touched briefly on the time-frame for the Mr Butler: The management accounts are the accounts production of accounts and audits, I wonder, ignoring the we put in for audit. financial difficulties, and all the problems and everything; in an ideal world, if Port St Mary' Commissioners were in such a The Chairman: Right. world, what would be the time-scales, in terms of when would estimates be presented, when would you be completing your Mr Singer: Can I just ask one question? KPMG said accounts to go to the auditors, who would see them, when they are sending the accounts for 1999, 2000 and 2001 for would they be expected back, when would they be signed, endorsing? would they be presented to the Board? Could you give, as far as you can, a time-frame for when these sorts of things M r Delaney: Yes, that is what was on the letter. should happen? Mr Singer: Why were they not sent each year, 1999 was M r Butler: Can I give you the projection for next year’s sent - am I right in thinking that KPMG had not submitted time-frame. We have had professionals set up a robust to Port St Mary the accounts for three years to be signed off? computer system. At the year-end, as in the end of March 2005, Not that they have been sent to be signed off and they have we hope, within a month, to be able to produce management been lying in the office? accounts. We are producing management accounts at the moment at the end of every month, which DoLGE are happy Mr Butler: Obviously, all three accounts were sent at with. At the end of this financial year, within a month, we the same time, that December date and it is the same concern will be able to produce our management accounts for audit, that 1 had, as 1 mentioned earlier on. Having the three years’ and hopefully, they will be robust accounts, that the auditors accounts did not seem to make any sense, at once. One would should have no problem in going through and acccpting. Tynwald Select Committee on Port St Mary Commissioners - Evidence of M r C Butler Oral Evidence SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 27 TPSM So, within a three-month period of year-end 2004,1 would ideal situation is, in terms of how we would like to proceed expect to have accounts presented to the auditors, audited in an ideal world. Obviously, you have done a trawl back and back for signing by the Commissioners. That is what I through the accounts of the past, to try to work out some of expect next year, and I do not see any reason why that should the actual financial position. Can you tell why it has been not happen. so difficult, apparently, for the auditors to manage to get the accounts back in time? The Chairman: Are you aware of the actual legal Is it, from your investigations, a problem in terms of requirement? I think there is one legal requirement in all of delays with the auditors, in terms of their ability to complete this - the work or would you say it could be well be down to the way in which the financial information is presented to the M r Delaney: Yes, there is. auditors? The Chairman: - relatively weak, but there is one M r Butler: Yes, I presume it is a mixture of both. It is particular legal requirement, with regard to this situation difficult because 1 was not there at the time, but it does appear, - are you aware of what that is? that whatever information is presented to the auditors, if they do not have complete information, they will not be happy M r Butler: You mean to submit them within six months? in giving a draft set of final accounts to sign off, which is (The C hairm an: Yes.) Yes, there is a difference between quite reasonable. submitting them and having them audited, though. I want them submitted within a month of the year-end M r Delaney: But that did not happen in this case, did it? and audited within two months of that and signed off. So, There was no complaint from the auditors that any of these way within, even just submitting them, I expect them to be accounts were not properly done? audited and signed off. The six month period is to actually submit your accounts to the Government auditors, and then, Mr Butler: Well, these accounts came in December. in the past, it is when the Government auditors have time to They all came in - actually audit those accounts and follow up the problems, because we are not professional bookkeepers as such or, in M r Delaney: No complaints from the auditors that they the past, they would have questions before they could be were not happy with what was given to them? happy with those audited accounts. They would have to come back to the Clerk to answer those questions and then there M r Butler: They were the final draft accounts that all would be an accumulation of other questions, until, finally,' came at once - which I find strange. there is a reasonable set of accounts that the professional auditors would be happy to put in for signing-off. The Chairman: You can confirm that there is no Whether Government auditors should be like accountants evidence of any such written approach from the auditors to and assist the unprofessional, or shall we say, untrained Port St Mary' Commissioners in any correspondence files, accountants or bookkeepers or clerks - whichever term you that the auditors have written to the Commissioners to say want to use - in guiding them through that maze, that would that information has not been provided in a sufficiently be very helpful. You do not seem to get much of that. acceptable form? If you cannot confirm that at the moment if you could, The Chairman: To be fair on you; 1 did say ‘in’an ideal maybe, have a traw) through - world’ and are you suggesting that you would like to see the audited accounts returned to you within three months M r Butler: I have information here from 6th April 2000 of the year-end, but, of course, there is no legal onus on the from KPMG. auditors to do any such thing. The Chairman: I think, actually, it may be helpful - M r Butler: That is a target I have set for next year and 1 do not see any reason why that should not be fulfilled. I M r Butler: I would have to go through all the information, think that is a realistic target and, if 1 was in business, that is because there is correspondence between KPMG and Port St the target that, if I were paying accountants, I would expect Mary Commissioners in the year 2000 and I think that all the to get, so that I could work on those accounts. way through that period of time, they seem to be concerned the accounts need to be in. From 2000 onwards to 2002 there The C hairm an: I suppose one of the crucial things that, seems to be very little correspondence - perhaps, the Committee is considering here, is that you, as a representative of the Commissioners, are paying the auditors, M r Singer: Can I ask, is that just saying that the accounts but, effectively, the auditors are employed by somebody else. should be in? You did say, that in your time-table, you would So, whereas you may not be happy with the turn round, there expect the auditors to follow-up, if there were any questions is not much, ultimately, you can do; it is down to Treasury to be asked, but those letters there are not asking questions to appoint the auditors - of the accounts, they are just saying that they are not in? M r Butler: Quite. If I was in business and not getting M r B utler: Well, no, they are asking questions - 22nd satisfaction from some accountants, I would obviously go November 2000 here, there are numerous figures that have to other accountants, which we cannot do. been broken down, which is obviously a response and a reply to KPMG regarding their queries. I do not know if you wish, The Chairman: Right. Now we have heard what the for the record, that would be for 22nd November? Tynwald Select Committee on Port Si Mary Commissioners - Evidence of Mr C Butler 28 TPSM SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 Oral Evidence The C hairm an: I think it would be helpful if we made a previous Chairman to DoLGE expressing concern that - formal request to have copies of all correspondence between the Commissioners and KPMG for the period that we are M r Delaney: Can 1 see that, please? looking into, in this investigation. M r B utler: Yes, I can find it, if you bide with me for a M r Delaney: Can 1 ask a question Chairman, were these moment. There is one. documents and this letter that I have got, were they supplied to the inquiry under Mr Kissack? Mr Delaney: Can you read it out for the record? M r B utler: Mr Kissack had acccss to all the documents; The Chairman: For the record, a letter to Mr Popper, he came into the office for a period of time and went through 12th September 2002: all the files which have the correspondence in. All I have done here is to photocopy all the information I could find ‘Dear Mi Popper, Re: Year-end 31 si March 2000 submission of from 1997 onwards. accounts. I would refer to previous correspondence regarding the requirement under the Audit Act to submit accounts for audit within 6 months of the end of any financial year. The Department has been Mr Delaney: This letter which you have been kind advised by the local authority auditors - KPMG, that the accounts enough to give us, on 5th December 2002, over the inquiry for your authority have not yet been received for audit and that they we have always had to read all these different things. I have at present no indication of the date upon which these accounts cannot remember seeing that letter - maybe I have missed will be submitted. it, but - 1 would remind you that there is a requirement for accounts to be submitted within six months of the financial year-end. Following 30th September, the Department will be reviewing with public auditors, the M r Butler: The files are quite large and so - position in relation to the submission of accounts and considering what action would be appropriate in respect of defaults. If arrangements have M r Delaney: It is very relevant, that letter. already been made for the submission of accounts or accounts have recently heen submitted, 1 should be grateful, if you would notify this Department accordingly. M r Butler: Well, these letters would have been available Yours sinccrely, T P Whiteway - Director of Corporate Services.’ to anybody, and were available to Mr Kissack and I understand he went through them all and saw them, as well. Mr Butler: That is not what you asked. 1 photocopied these from die file for my own reference to try to make sense of the chronic breakdown of things. Mr Delaney: No, that is not what I asked. I asked if there were any complaints made that the auditors were not The Chairman: Just, then, to confirm - I asked the doing their job, not that you were not doing your job. Your question, but 1 did not get a confirmation, could you just predecessor, 1 might say - confirm for the record, I have specifically now requested that we get copies of all correspondence that you can find - M r Butler: 1 appreciate that. M r Butler: You can take these copies, if the Committee Mr Delaney: There may be even conflicting evidence. feel that is appropriate or they would be of assistance. The reason I am raising this, we are getting conflicting They are something that has been available to the previous evidence here about the fact that the accounts were delayed, inquiry. - because the previous person who sat in that chair before you said because of the pressure they were under, KPMG could The Chairman: Can you confirm that those copies are not get the accounts on time - that has clearly been stated all the copies that are available to the Commissioners? here, but now we have the letter going the other way. I wish to know the truth of the situation. Mr Butler: I cannot confirm that. I can confirm that, having gone through the records as best I can, these are all Mr Butler: There was a letter on 14th February, that is the copies that 1 found to actually put up. If you have ever not to KPMG, that is to DoLGE, looked at the files in Port St Mary, you would realise that, in an ideal world - they are not ideal. ‘The Board has expressed its concerns and frustrations regarding the Government appointment of auditors KPMG — The Chairman: I think it would certainly be helpful if we could have that. Mr Delaney: That is the one I want. M r Delaney: What 1 am interested in here, Chairman The Chairman: 1 think, bearing in mind that we have - because, once again, this is something I did not see in any been formally asked for this, it will form part of our record document is there any record to your knowledge - if 1 had now, anyway, so I do not think we ought to go through it. known about this letter I would have asked this question early on. To your knowledge, is there any letter or any complaint Mr Delaney: 1 need to see it before 1 ask the next been put back to Government, that the auditors that they question. appointed, not you, they appointed, were not completing their work on time, for you to comply with the law, which is clearly The C hairm an: This is the last one I am going to read. stated that you have to supply the year-end accounts? This is a letter to the Minister for the Department of Local Government and Environment, Mrs Crowe, dated 14th M r Butler: Yes, I believe that there is a letter from the February 2003, Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mr C Butler Oral Evidence SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 29TPSM 'Dear Mrs Crowe. Thank you for your letter dated 3rd February 2003. to focus on. As I reiterate, I feel that the default notice has I have taken the liberty of replying to you, instead of Mr Popper, been of benefit. To some extent, whilst it has caused anxiety because I am concerned that there is an inference that the Port St and focused attentions of Commissioners and myself, it has, Mary Commissioners are unwilling to be publicly accountable. The Board has now expressed its concerns and frustrations regarding the at least, given us realistic targets, that we have managed to Government-appointed auditors KPMG to Mr Adrian Earnshaw, Mrs meet, that has, perhaps, assisted. So, perhaps, DoLGE in its Sutherland and Mr Whiteway, when he was in post. wisdom, used the default notice to keep the momentum or keep By spring 2002, we were still awaiting three years backdated accounts the pressure on and from that there has been progress. and we are now waiting for our audited accounts for the year-end 2002, despite sending draft accounts to the auditors in July. Consequently, in the past 3 2 months we have appointed Crossleys to manage our The Chairman: So, effectively, what we could say is, that accounts, in order that there is no confusion as a result of KPMG’s it was like shutting the stable door after the horse has bolted; incompetence. From the beginning of 2003, the Board decided that a!) but DoLGE had, at that stage, finally used its full powers to our accounts for payment should be made public and Mrs Sutherland assist the local authority. They were recognising their role, has now sanctioned this. their supervisory function and using it. Therefore, Mrs Crowe, may I respectfully request, that should any of our residents raise this issue with you again, that you robustly inform them of the Board of Port St Mary Commissioners’ commitment to public M r Singer: Yes, can I ask? Following this letter from accountability and transparency. Our ratepayers are more than welcome Mrs Wilson to Mrs Crowe, are you are at all aware whether to examine our accounts, if they so wish. DoLGE made any representations to KPMG about the delays Yours sincerely, Mrs S L Wilson - Chairman. ’ and, secondly, are you aware of any other local authority on the Island that was suffering the same problems of not receiving Now, I notice that this has not actually been signed and it their audited accounts back for a period of time? is not on headed paper, so - M r Butler: I am aware, through speaking with other local M r Butler: It is a copy on file. authorities and I understand also speaking to the deputy, he was made aware from Mr Whiteway that there were other The Chairm an: H is a copy on the file. Okay. So - authorities that were behind in their accounts and so Port St Mary was not alone. M r Singer: Was there a reply to that, from Mrs Crowe? Mr Butler: No. Mr Singer: Behind getting them audited? The C hairm an: On that point, I would like to mention Mr Butler: That is correct, yes. something which Mrs Wilson raised earlier. Mrs Wilson suggested that DoLGE had been particularly helpful initially, M r Singer: Do you know if that was up to three years? after a little bit of hcsitance, in coming forward with help. They did provide some help and she felt that the Commissioners Mr Butler: No, I understand since, that there are were working quite well with DoLGE, until the default order authorities that have significant delays. was placed on the Commissioners, at which point there was, I understand from Mrs Wilson this morning, the Commissioners M r Delaney: My question is this. Thank you very much, felt quite aggrieved. Could you maybe comment on that? you are like a breath of fresh air that is not coming from the window, I can tell you. The situation is, you have got some M r Butler: I would support that view,- in the sense that clarity on this now, got more clarity than I had before. when I actually came into office, I feel that, as Clerk, I have What I am trying to get at is, you were given a default had support in regard to guidance, to a certain extent, from notice as a local authority and. as the ex-Minister, I understand DoLGE, to be specific as an accountant, given the hardships what the rules are. However, you were getting beaten as the we have actually had. So it was a surprise when the default horse, even though there was a jockey that did not jump the notice came in, because as far as I could see we were fence virtually with you. You were delayed by the lack of complying, as best we could, offering information to DoLGE other people’s actions in getting your accounts in, is that not and working the best we could with DoLGE, not against them, correct? to try to get our accounts and our affairs in order. It was a shock and it has put a considerable amount of strain upon the Mr Butler: We could not get them audited. previous and present Board. Saying that, I feel the default notice has been very useful, M r Delaney: Yes, but, is that not correct, you could not as well, since it has focused attention and it has set realistic get the accounts in, because they did not come back to you? targets to be met. I think it was a two-edged sword. Yes, 1 was surprised and shocked, but, equally, I think a lot of Mr Butler: That is correct, yes. benefit has come from focusing, at a very difficult time, on what needed to be done and the default notice did that and M r Delaney: So, therefore, you were getting told off by has since been lifted. the teacher, even though somebody else was the person who committed the offence. Just think about that, will you, and if The Chairman: Mrs Wilson explained that it was never you think I am wrong, please get in touch with the Chairman fully explained to the Board why the default notice had been and tell him - but that is what I seem to gather from this. put in place. There were various half reasons - M r Butler: Perhaps the role of the Clerk is something that Mr Butler: I can help with that. I am also at a loss in regard has to take that with them in regards to dealing... the Clerk is to that, unless it is, perhaps, they felt that we needed targets something that goes on, whoever it is for an authority. Tynwald Selcct Committee on Port St Mary Commissioners - Evidence of Mr C Butler 30 TPSM SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 Oral Evidence M r Delaney: Working on the period we are talking about, EVIDENCE OF MRS T HORNE is that you could not put them in because you did not have them to put in. The Chairm an: Okay, if 1 could now call Mrs Home. M r Butler: The accounts I started on 19th May - M r Singer: She has been very patient. Mr Delaney: No, I am talking about the period of the The C hairm an: She has been very patient. Sorry, we are problem - is that not true? running a bit behind time. Okay, so you have heard all my Chairman’s introductory remarks - M r Butler: Yes that is correct - M rs Horne: That is right, yes. M r Delaney: If you find that that is untrue, please come back to me, because that is the picture I am getting here. Thank The Chairm an: - until you have been blue in the face, you very much Mr Butler, I have enjoyed talking to you. so I will not go through that again. Could you start by explaining to us, at what period you performed the functions M r Butler: Thank you for your interest, Mr Delaney. of Deputy Clerk and also, perhaps, mention when you became a Commissioner? The Chairman: I notice by the clock that we have extended your lime with the privileged time with the M rs Horne: Yes. I joined the office in 1980, but I was Committee by longer than anticipated, so thank you very just a clerk then. I am trying to think when I was made up much. Is there anything else you would like to add? to Deputy Clerk. It would be about 1989 and I have been a Commissioner since last May. M r Butler: It does seem, at present, that the change within local government seems to be very high on the agenda and The Chairman: And when did you leave as Deputy perhaps things that need to be done have been pre-empted prior Clerk? to this meeting - it seems that, whatever recommendations, DoLGE are very clear that things need to change in the future Mrs Horne: June 1999. and arc addressing that The C hairm an: 1999, so it was 10 years as Deputy The Chairman: It is a pity you said that, because it Clerk? brought in to mind another question which I think has to be asked. Both the former Chairmen who appeared this morning made clear that they felt a lot of the way in which DoLGE M rs Horne: That is right, about that, yes. had treated Port St Mary Commissioners was with regard to making Port St Mary as an example of what goes wrong, so The Chairman: So are there any introductory remarks that local authority reform should happen. that you would like to make? M r Singer: That is a good question. M rs Horne: I have, because I am not very good at public speaking, done a few notes on what your remit is. The Chairman: I recognise that it is apolitical question, First, the conduct of the Treasury, and this is just my but would you say that is a view that would be shared by other personal opinion. In the time that I worked in the office, our members of the Board or would you not like to -? accounts were audited and submitted to local government or Tynwald. This was up to and including year ending 1998. M r Butler: 1 think it is a very understandable view when These accounts were not signed off until 22nd March 1999, under pressure, but I could not say whether that is a fact or even though the accounts were audited in August 1998. not, because I would not know. I could understand people After this, the accounts do not appear to have been audited feeling that view, that Port St Mary was being used as a thin for some years. end of a wedge because of its situation, but I can understand I cannot understand why Treasury or Department of Local that view. Government did not ask where they were. As the Treasury appointed the auditors, surely they had a responsibility to The Chairman: Probably unfair to ask you that question. see that they were carrying out the duties as set out in their Thank you very much, again, for coming along. contract. I also believe the Treasury has not helped Port St Mary for the following reasons: a) although interest rates have M r Butler: Thank you. Can 1 be released? been quite low in the past 10 years, Government borrowings by Port St Mary have remained at seven per cent. Also The Chairm an: Yes. payments on borrowings used to be annually, but changed to six-monthly repayments. This obviously did not help the M r Delaney: You have not even been put into jail yet. village. (laughter) Rating and valuation. Port St Mary has not got a large rateable value. This has been made even lower by the The Chairman: Did we get copies of that file? •introduction of zero rating, even though the 1991 Rating and Valuation Act abolished all relief of unoccupied properties. M r Delaney: He could only give us these. We have the There is no provision in any of the Rating and Valuation Acts two relevant letters, but there may be more in there we have for zero rating. The implementation of this zero rate has, in not seen. I am sure there is. my opinion, been very damaging to the finances of the village. Tynwald Select Committee on Port St Mary Commissioners - Evidence of M r C Butler Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mrs T Horne Oral Evidence SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 31 TPSM That is my view on the Treasury. agree your figures, that is the time to ask you. They go away This is my view on the auditors. I believe the auditors are again. Months later, you get draft ones back and they are not aware of the importance that their actions, or rather their nothing like the ones that you have done. You know, there lack of action, has on local authorities. We still await our 2004 are so many differences. accounts, although these were audited in August. Their excuse Before I retired, I will be quite honest; when it came to is that management accounts were not available in the past, my retirement, I was up to here with the auditors, because do not stand up in this instance, as management accounts of this. It was so frustrating and, in 1998, if you look at the were prepared by PKF. figures, we had a deficit that year. It was not a deficit in the whole of the accounts, because of the surplus that we had The Chairman: I am sorry, could I just stop you there. brought forward, it was a deficit for that year. I could not You are saying that you do not have which accounts? understand that deficit for that year. Where did it come from? We had not had any great expenses. Mrs Horne: We do not have the current. The Clerk said I argued with the auditors about this, but I never got any he is hoping to get them on Monday. satisfactory explanation at all. I was just fobbed off all the time and, in the end, I was coming up to retirement, 1 will Mr Singer That was ending April 2003? be quite honest, 1 am sure I told the Commissioners of my worries but, at the end of the day they were the professionals Mrs Horne: No. and I was just the ordinary... who had come up from a clerk, so I gave in. But there was a deficit there in that year and I Mr Singer: 2004. still do not understand it. Mrs Horne: Yes. These are the ones I am talking about The Chairm an: When you say you were sure that you now. informed the Commissioners - The Chairman: Sorry, 1 thought you said 2002. M rs Horne: On my last meeting, I did not, in those words, but I did warn them. I warned them that we were Mrs Horne: He is hoping to get them on Monday. I heading down a slippery siope. I could see it. I did warn will believe it when I see it. This has been my experience them. with KPMG. Constant chasing did not produce results. 1 did not trust their figures, as changes to draft accounts without The Chairman: Right, okay. Just to confirm again, explanation was ongoing, so even when we got them, I did when would that have been? Your last meeting would have not trust them. been... ? M r Delaney: Can I stop you there? Mrs Horne: It would have been in either May or June 1999.1 could not give them any specifics, because I did not M rs H orne: Yes. understand it myself. Mr Delaney: This is on public record. (Mrs Horne: The C hairm an: So, sorry. Do you want to - Yes.) Could you tell me whether you questioned any of this information, that they were giving you or you wanted to hear M rs Horne: Yes, 1 now go on to the Department of Local either in writing or was it done in verbal? Government and the Environment. I can only speak from my persona] experience. Since becoming a Commissioner, Mrs Horne: No, over the telephone. I have found the Department to be very supportive. Yvette Mellor has been very helpful in dealing with the conditions Mr DeJaney: Thank you very much. Sorry to keep of the default notice. interrupting. In the past, when I was employed in the office, this support was not evident or, if it was there, I was not aware of it. I Mrs Horne: I am sorry, if I am saying something that believe the effect on the morale of the staff during this time I should not. was not good due to ‘Time for Change’, local government reform, et cetera, all was looming in the background. M r Delaney: No, you carry on, you carry on. This is I do not know whether you want to ask me questions what you are here for. before I do my conclusions. I know this is on Hansard, but I do not care, I am going to say it. Mr Singer: When you say changing figures with no My conclusions: 1 feel the ratepayers of Port St Mary' explanation, do you mean - have been let down badly through no fault of their own. We have been selected and highlighted, given bad publicity Mrs Horne: Well, we were given a pro-forma. The and used as an example. I blame the auditors, Treasury and auditors actually tell you when they are coming, not you Department of Local Government, who should have been tel) them when they are coming. They will say they are more vigilant. coming down to do your audit in August. They send you a I also feel the burden of the deficit should be borne by pro-forma. This was in my day. I do not know about now. all parties concerned, not by the innocent ratepayers. I. They send you a pro-forma, you fill it in - 1 used to fill it therefore, call for a surcharge to be placed on the Treasury, in - you fill it in, it goes back. They come down and do the auditors and Department of Local Government who, at the audit. Well, that was their chance to ask you, if they do not end of the day, failed in their duty of supervision. Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mrs T Horne 32 TPSM SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 Oral Evidence The Chairman: Thanks very much for that. Commissioners? Obviously, well, maybe not obviously, would you agree that whilst there may well be failings with Treasury, Mrs Horne: I think he had to work his notice or auditors, DoLGE, that there was clearly also a failing with something like that. the Commissioners? Obviously you were the people who were on the spot. You were the ones who had the figures The Chairman: A few little points just to clarify the day-to-day, access to the bank accounts, would you not have position. When you actually took up post in 1989, at any thought that if anyone was going to spot- point did you have the opportunity at that stage to go on any training programme from DoLGE on Government Mrs Horne: But there was not... we never had a deficit finances? all the time ] worked in the Commissioners. I worked there for 19 years. We never had a deficit until this last year that I Mrs Horne: No, I do not think they had them in those was there and that was a deficit that suddenly appeared for days. I did go on the induction course in the 1990s, I cannot that year. It still was not a deficit, becausc we had a surplus remember exactly when, I did go on the two-day course. brought forward but now, after the inquiry - of course, i have got the inquiry in my head, as well - it seems as if those The Chairman: And when you actually attended that figures that were being carried forward were not correct. course was there any specific information given to you about Well, if they were not correct, why did not the auditors local authority finances? tell us? I blame the auditors, If they were not correct, why were we not told? Mrs Horne: No, it was more of a general ‘what your And even when that deficit was there, there was no letter functions are’ but not into sinking funds and things like that to the Commissioners saying, ‘Hang on, you are going or any of that, no. bankrupt.’ There was nothing from the auditors to even say, and 1 argued with them about this deficit, because I could M r Singer: So you were there... When was it... Did not agree it and I honestly cannot remember what happened they just have one year of Coopers and Lybrand? Was it over that. I asked for new accounts to be drawn up and for it just a single year? to be shown, but I have not got that in writing, but 1 was in contact with Caroline Caley saying, ‘I do not believe this. Mrs Horne: Oh, no, no. Where has this deficit come from? Is it something that has been left out another year and brought forward or what?’ M r Singer: So what difference did you find? Did you because 1 could not,.. We had money in the bank. The bank have the same sort of arguments with Coopers and Lybrand reconciliations did not show it. when you were there? M r Singer: Mr Popper actually said that he had misread Mrs Horne: No, they were most helpful. them and what he read as a surplus was a deficit. Mr Singer: And if you did not, what was the M rs Horne: No, that was after I left. Sorry, that was the difference? year following and I was gone by that time. Mrs Horne: Coopers.and Lybrand used to come down The Chairman: Who was responsible, or who actually and... I cannot remember if we had a pro-forma with them. carried out the day-to-day running of the accounts while you We used to total everything and put everything ready for them were working in the office? and then if there was any queries, they would ask you face to face and you would work it out between you and so they Mrs Horne: Well, you see, this is another thing. In the went away quite happy and we were quite happy, whereas, last year that I was there, they changed from bookwork, when KPMG came down, it is like a couple of girls with a which I was always involved in, to computer, I did not have laptop and it was not the same. It was entirely different. anything to do with that, because 1 knew I was coming up to retirement. I am not computer literate, so I did not get The Chairman: Mr Delaney. involved in that and a Sage system was set up and the young lady did it and the person who took over my job, I just thought M r Delaney: Yes, and good afternoon to you. You must he would carry on where I had left off. be weather-worn sitting there all the morning! I have got some questions. The first one is an obvious The Chairman: And who was that? question. If you were to get a copy for us of those accounts you queried and sat down with the members here (Mrs Mrs Horne: Mr Hughes, Mr Peter Hughes. He had been Horne: Yes.) and be able to point out what your old concerns in housing in Government, so 1 was quite confident that he were on those particular counts, would that collect your would be able to carry on where I left off, but it seems it all memory and would you be able to go through that with went pear-shaped. us? Mr Singer: Did he take over as you left? Mrs Horne: I do not know, to be honest. Mrs Horne: No, there was a month or two in between. Mr Delaney: Well, we are not asking you to be exact (M rs Horne: Yes.) but just if you could point out to us how... The Chairman: But he had not been working for the That would do more for me than reading everything. Tynwald Select Committee on Port St Mary' Commissioners - Evidence of M rs T Horne Oral Evidence SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 33 TPSM M rs H orne: Yes, I will try, anyway. M r Delaney: Yes, I understand the degree of frustration. We have all been there as local authority people, so we all M r Delaney: That would be helpful, because that is the know - start, I feel that is start of all this, you see. Mrs Horne: Yes, 1 do get very frustrated. M rs H orne: Yes, that is right. M r Delaney: Yes, you heard me say that. M r Delaney: Because there has to be a start and there has to be a finish and fortunately we are hoping to come near Mrs Horne: I have not got, 1 am sorry I have not got the finish now, but that is the start and I would like someone time for people who say - to explain where that situation is coming from. M r Delaney: You heard me say, when I opened up this M rs H orne: Yes, oh yes, certainly. M r Delaney: The next question is dealing with what the M rs Horne: I am a bit outspoken, I am afraid. other two members will touch on, I am sure, is that we have a situation, where you were not there, you have left, you M r Delaney: You heard me, when I opened this, this have come back as a Commissioner, which is very nice of morning, my opening words were we have all been there as you and, obviously, your experience will help, but what I am local Commissioners, so we know what is - trying to understand, all the way through this you have heard the question I have been asking, is that if the Government, M rs Horne: Yes, that is right. as you know, appoint the auditors - Mr Delaney: And as far as your public speaking is M rs H orne: The auditors, yes. concerned, it is excellent, (M r Singer: Yes.) so do not worry about it; you have not got that problem. I might have that Mr Delaney: - you have to go with the people they problem; you have not got that problem. appoint - Can I go back now to this situation. You left w'ith a query, you were out. Can you tell me, before you left, whether the M rs H orne: I know. accounts, and you heard me ask this question, the accounts audited were shown, then, to the Commissioners each year, Mr Delaney: Can you, as the past Clerk and now a prior to this mess happening. They were shown and the Commissioner, give me some idea how you see that tallying members then had the documents in front of them of which in responsibility quotas? You pay, they choose - they could say, ‘Ah, eureka, we are in profit’ or, in the case of the last year you were there, ‘We are in deficit’? Mrs Horne: I know. I never agreed with that. I used to sound off quite often about it, because, if you are not satisfied Mrs Horne: Yes. with something, you cannot do anything, as it has previously been said, you cannot do anything about it, because you did M r Delaney: So they had them in full? not appoint them. Mrs Horne: They have always had the accounts for M r Delaney: Could you give me an idea, then. You heard signing off. the other question I asked the other people involved here because 1 am trying to get some picture of (Mrs Horne: Yes.) M r Delaney: With that knowledge, you believe that had who was looking at sanity here, is that the situation is that the accounts been in front of the Commissioners after you should anyone, to your knowledge, since you left as a Clerk left, that, probably, any deficit would have been spotted? and to come back, was complaining in any way, officially or unofficially, to anybody about the delay that there was in M rs Horne: I would imagine so, yes. complying with the law of the land? M r Delaney: Thank you very much for your answers. Mrs Horne: I do not know after my time. I know 1 kept Thank you, indeed. ringing the... But since 1 have been a Commissioner, I have been in that office, at the Clerk, to get to the auditors and I The Chairm an: Obviously, our remit is to look into have even stood there, while he has been making a telephone the role which the auditors, Treasury and DoLGE played, call to get progress - but, clearly, we need to understand, perhaps, some of the weaknesses that existed, or may or may not have, existed Mr Delaney: Where was this from? with the Commissioners, (M rs Horne: Yes.) with the benefit of hindsight, which Mr Popper was keen to talk about. Mrs Horne: From KPMG, from Caroline Caley. Would you agree that, perhaps, the financial structure, which the Commissioners were operating, should have been M r Delaney: When, roughly, are we talking about? better and that the Commissioners at the time also had a responsibility for that, that it could have been - Mrs Horne: This is for the 2003 accounts, even though 1 was not involved in the 2003... 1 mean, we had still got to M rs Horne: Well, up until the time 1 left, we had never have them, it had still got to be done. had a problem, you see. Until those last accounts we had not Tynwald Select Committee on Port St M aty Commissioners - Evidence of Mrs T Horne 34 TPSM SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 Oral Evidence had a problem. We prided ourselves. We got 100 per cent rate M r Delaney: Just one thing I want to correct. You opened collection. We were prudent. We were so proud of our record up your remarks and mentioned empty properties and the and, for it to be like it is today, that is why I have become a rating not being right. It was my - 1 must say for the record Commissioner, because it really hurts and I am sure it has - it was my changing of the Act, my personal changing of hurt all the previous Commissioners who have given their the Act, that actually did have empty properties rated, so that time, voluntarily. They have sat there in the evenings until the Commissioners would get the benefit of the rate. - and especially when setting the rate - midnight sometimes, you know. I do not know what else I can say. M rs Horne: Wei], actually could you answer for me, what is zero rating then? The Chairman: Again, looking at - M r Delaney: Zero rating properties are outside certain Mrs Horne: But I think the changeover... I am sorry, areas. Properties that lie empty now are rated by local I know 1 am old-fashioned, but the changeover from the authorities as long as they have got there with a roof on. books, where you could go to the books and see exactly and And I can assure you, because why should they get away it is now on computer. with it - Now Mr Butler says we have got a robust system and everything, but it still does not convince me, because I Mrs Horne: There is a lot on ours that are zero rates worked in there for 19 years with books and 1 could go to which - books and I could,.. 1 am sorry, but that is just me. M r Delaney: Like speculators get away with empty The Chairman: So, would you say that - properties. M rs H orne: We did have a good system. There were cross Mrs Horne: Yes, well thank you very much for doing checks. There was a lot of book work and the youngsters that - that used to come in as junior clerks and that used to say, ‘I have already done that, why have I got to do that again? Mr Delaney: 1 am sorry. I just wanted to clear the Why have I got to do that?’ but, at the end of the day, you record. see the whole picture. It all cross checks, it all totals, it all balances and this was what we used to do and I was proud Mrs Horne: - you have gone up in my estimation, of it and proud of our records and this has ail gone... Well, because rating was one of my - you know, 1 am sorry. M r Singer: I thought he was high in your estimation, The Chairman: Are you suggesting, then, that the anyway. transfer from a - M rs H orne: Well, I did not know him until today. But, M rs H orne: A manual based, yes. yes that 1991... Well, the 1981 was a very good Act, too, when that was brought in, but that has gone by-the-by, too. The Chairman: A paper based - The C hairm an: You were saying that, effectively, there M r Delaney: Hard copy. was a tight financial ship up to 1999, but, according to the Fred Kissack Inquiry, the 1997-98 accounts seem to show M rs Horne: A manual, yes, it did not help. an overspend of £10,000, so that would have been the year before. The Chairman: Would you go so far as to say that that was the significant turning point, in terms of the Mrs Ilorne: Yes, this is where I did not believe the Commissioners, that, perhaps, it was not possible for people figures. This is where my arguments with the auditors came to access the information in book form and the - in. 3 used to go home to my husband and say, ‘I am tearing my hair out here4. You know, if they could have explained to M rs Horne: 3 think it may have been more difficult for me why and... Now, in hindsight, and going to the Inquiry, 1 the Clerk. can see that, perhaps, we kept things too low and did not take account of the bigger picture, you know, of the new world. M r Singer: Do you think that that was because people I came into the Commissioners when it was very basic were, when you are talking about a few years ago, were and our costs were low and, perhaps, I did not go either, with not .computer literate and suddenly it is a new system, that, the rise in the costs of everything. Perhaps, looking back, I maybe, nowadays, because people are more computer should have foreseen, you know. literate, they can do the same sort of work, the double I tell you something else that had an effect and it is the checking, whatever (Mrs Horne: Yes.) but computerised, pension scheme for the manual workers. That came in and but it is a case of because they are trained how to use it suddenly hit us and that is quite an expensive item. I think properly? it is 21.5 per cent that you pay for pension. I am not saying that it is wrong, but if we had had more warning of it, or had Mrs Horne: That is right. 1 do not think the training been made aware that it was going to hit us. was there. The Chairman: Again, it was towards the end of this M r Singer: Yes. period. Looking in the section that Fred Kissack entitles: TVnwald Select Committee on Port St Mary Commissioners - Evidence of Mrs T Horne Oral Evidence SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 35 TPSM ‘The highest local authority rate on the Island’, when you financial problem, prior to 1999 and yet, certainly, the figures actually look at the expenditure and at 3.2 there is a table seem to indicate that two of three years before that, there here, we had 1995-96 expenditure of £147,818; this increased was a significant increase in expenditure. quite significantly to £176,022 in 1996-97 - M rs H orne: Well, the rates did go up quite a bit - Mrs Horne: That would be bringing in this pension sum of - M r Delaney: That is right, that is right. The Chairman: Right, and then, of course, 1997-98 it Mrs Horne: - in comparison to what they had done increased to £249, 567 which was the last set of accounts previously, so the Commissioners were trying to, you know, that you received, which was a huge increase. 1 mean it is a they took that into account because they did - £70,000 increase - The Chairman: Do you recall at any point either the M rs Horne: That is right. Commissioners agreeing to effectively use the reserves to, effectively - The Chairman: - on £176,000 - M rs H orne: Yes, they did. Mrs Horne: - Yes, but the golf course did contribute to that, to the added expenses. We bought a lot of machinery The C hairm an: - cover - and different things. M rs H orne: Yes. It has only come out in the inquiry and The Chairman: Were the Commissioners aware of just I must admit to being... I mean, I am not an accountant or how significant the increase was, do you feel at the time? anything, I just came up from a clerk, I had no experience of bookkeeping, only what I have learned while 1 was in Mrs Horne: I do not think they were, no. the Commissioners and I can see now - I forget what I was going to say now - that they did not put the rates up high The Chairman: Would you not agree that that should enough and we should not have used the surplus, you know. have been the responsibility, perhaps, of the Clerk or the I can sec - it came out at the Inquiry - but it was always, Deputy Clerk to have brought that to the attention, just how from when I was there the surplus was taken into account, significant the increase in expenditure was at the time? the estimates were done. Wc allowed for a credit balance and that was how it was done. M rs Horne: Yes, but you do not get your accounts back for the year ending... You are another year before you get The Chairman: So there was no - those accounts back. (The Chairman: Yes.) So you do not get that picture. Mrs Horne: - so you used, in effect, your sutplus. The Chairman: But, in terms of day-to-day expenditure, The C hairm an: You do not think that - though, you must have realised how - Mrs Horne: - and now, in hindsight, I can see that is M r Singer: But those would have been in the estimates dangerous. ' for that year? The C hairm an: As far as you would understand it, the Mrs Horne: Well, I did not have anything to do with Commissioners were never really made aware that they were the estimates. The Clerk did the estimates. I attended the effectively spending more money than they were getting in meetings and the Commissioners and the Clerk did the each year, would you say that that was fair? They were not estimates. I did not have any input into the estimates. aware that they were actually using reserves to top up their rate to meet - M r Singer: Would it mean, though, that the Commissioners would have been aware at estimate lime, that this money was M rs H orne: Yes, they did know - due to be spent? The Chairman: They did, actually - Mrs Horne: Oh, yes, yes. M rs H orne: - they did know they w'ere using their The Chairman: Obviously, 1 am trying to be fair on surplus, when they set the estimate, yes. everybody here - The C hairm an: Right. Is that something that you would M rs Horne: I think - have thought would be appropriate? The Chairman: - we have got to highlight these Mrs Horne: I have never questioned it, because that is issues. how I have been brought up with it. That is how it had always been done in the Commissioners. 1 had no reason to question M rs Horne: - in hindsight - it, because that is how it bad always been done in the past. The Chairman: You are saying there was no particular The Chairman: But the Commissioners, you are fairly Tynwald Sclect Committee on Port StM aiy Commissioners -Evidence of Mrs T Horne 36 TPSM SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 Oral Evidence confident, were fully aware that they were using their Was there never any thought, at any point, while you reserves. were Deputy Clerk, to look at the actual comparison with other local authorities either in the area or generally in the M rs H orne: Yes, but they would not have questioned it Island and see how far out the figures were? either, because it had always been done like that. M rs Horne: I think probably the Clerk did that and found Mr Delaney: I take it you would agree with me with he was not getting as much as some of the others and I think the way you have expressed yourself, that you can only use that is where the salaries went up. reserves once and, if you have not got your accounts for what reserves you have got accurately, you may be spending The Chairman: Right. money you have not got? Mrs Horne: Because we had worked on a shoestring, M rs Horne: That is right, yes. there is no doubt about it, years previous we had. I mean I was very poorly paid and it was only afterwards that you... M r Singer: Does the Commission - 1 do not know how well, no, I was aware, but it was convenient for me living in your Commissioners worked, 3 was on Ramsey, so it was • Port St Mary. It was convenient, so I accepted the situation, different - have a Finance Committee, or a person who is but I do not think the ratepayers of Port St Mary' realise that responsible for finance? they have had it so good all those years and now they are going to have to pay. Mrs Horne: No, the full Board is the Finance Board. When they discuss finances it is the full Board. The C hairm an: So I suppose to sum up, then, obviously, we heard your conclusion at the start on your- thoughts, M r Singer: It is the same now? generally, of what happened, but would you agree - M rs Horne: Yes. Mrs Horne: - 1 do think somebody is accountable - M r Singer: So who presents the... so who makes the The Chairman: - yes, but would you not agree, though, presentation to the Board on finance and the budget? that, to say the very least, the Port St Mary Commissioners have to shoulder some of the blame for the way in which Mrs Horne: The Clerk. the things have actually turned out, or would you say that really this is down to - M r Singer: The Clerk does. Mrs Horne: Well, Commissioners come and M r Delaney: Thank you, Chairman. Commissioners go, don’t they? I mean they are not all the same people. The Chairman: Another point, which I think I have raised previously, since looking at the Kissack Report figures The C hairm an: But, in law, ultimately they are the ones here since, expenditure and office administration increased who are responsible? from £71,876 in 1995-96 to £144,424 in 2003-04. This is .more than a doubling in expense in administration in eight M rs H orne: Yes, I agree with that. Yes, I agree that they years. had a responsibility, yes. Mrs Horne: In the time before I became a Commissioner The Chairman: It is that, perhaps, Port St Mary and the time after leaving, when all this came out, 1 went Commissioners are not entirely without a blemish? into the office, because it worried me. I mean I had been responsible for, it worried me. I went in to ask to look at Mrs Horne: No, but the buck stops at the top doesn’t the accounts and I belong to the Port St Maty Residents it? Association, who we had an accountant as a member. PRF did their figures, everybody’s figures were different, I. do The Chairman: Right. And, certainly, that would have not know even if Mr Kissack’s figures are the correct ones, been your understanding, as you were working as Deputy because everybody - Clerk, that you always understood the auditors were there (Mrs Horne: Yes.) and DoLGE was there, to ensure that Mr Delaney: - I am not the only one that has found if things were going wrong, they would be picking up that out - on it and they would report back to you. Was that your understanding? M rs Horne: - they are all different, so where does a lay person like me come from? Even professional accountants Mrs Horne: I was not so aware of the local government are all saying something different. until all the inquiry came out, but, to me, the auditors were there, they were employed, they were paid well and they The C hairm an: I think that the point I was going to go on should have pointed out these tilings and made us aware, to make was, bearing in mind the size of the administration because I am sure we would have done something about... budget and, certainly, when you look at it comparatively with Well, I could not personally, I was only Deputy Clerk, but other local authorities in the area, it is a significant additional 1 did say, on my last meeting to the Commissioners, that I expense for administration in Port St Mary. was worried. Tynwald Sclect Committee on Port St Mary Commissioners -Evidence of Mrs T Horne Oral Evidence SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 37 TPSM Mr Delaney: I did ask, as you know, thank you very The Chairm an: When were the... arc you aware when much, I did ask if those last accounts that you were concerned the actual accounts were submitted for audit this year? about, I would love you to sit down here and show us what your concern was. Mrs Horne: August they were audited. Yes. Mrs H orne: Yes. The Chairman: Okay. Right, well, thank you very much for that. Mr Delaney: I think that is necessary so we get a clarity of what your worries were at that time, because it is from M r Delaney: Thank you, indeed. that time when this whole issue, obviously, was starting to rebound on the ratepayers - Mrs Horne: Thank you. M rs H orne: Yes, that is w'hen it started, yes. The Chairm an: Okay, so we are not doing too bad, we are only running ten minutes late. M r Delaney: Yes, so thank you very much indeed for the way you have given the answers you have given. M r Delaney: Just ten. The C hairm an: Could I just finally, really, I think we have been focusing particularly on your role as Deputy Clerk, but, obviously, now you are a Commissioner and whether we Procedural could, perhaps, have some thoughts as to the last six months or so, the way in which you have been supported by DoLGE The Chairman: At this stage, I would like to welcome and the auditors. the current Deputy Clerk, Mr Hughes, and ask him to come forward to present his evidence. Mrs Horne: I feel if I am worried, as a Commissioner, 1 can ring Yvette and tell her my worries and I am sure she M r Delaney: Good afternoon, Mr Hughes. would help. The Chairman: Now, first of all, may I introduce the Mr Singer: Was she there... she was there from... how Committee; Mr Singer MLC, Mr Delaney MLC and myself, long has Yvette been there? Phil Gawne the Chairman, Les Crellin is the Clerk and of course we have a Hansard Clerk as well. Mrs Horne: I do not know. Before we begin, may I clarify the purpose of this Committee; we are required by Tynwald: Mr Delaney: How long has Yvette Mellor been there? ‘to enquire into the conduct of the Treasury, the auditors and the M rs H orne: Yes, not very long, I think. Department of Local Government and the Environment in relation to the affairs of Port St Mary Commissioners in the period from 1 st April 1998 to 31st March 2004, having regard to their statutory and other Mr Delaney: No, not that long, just about a year isn’t responsibilities in relation thereto...’ it? As part of our enquiries, we shall be looking at Mrs Horne: Yes, but she is vejy supportive. the procedures carried out day to day by Port St Mary Commissioners, to help us determine how effective or not Mr Delaney: In that job I know she has been there about was the Commissioners’ business planning and what help a year. and guidance was available to the Commissioners over that period. Mrs Horne: Yes, yes. I had never met her until the Obviously, we are very grateful for you giving up the inquiry. time to come in today. Another little piece I have to read out here from the The Chairman: As far as the auditors are concerned, are Hansard Clerk; may I remind fellow panel members and you aware of any significant change now, as a Commissioner, those giving evidence that today’s proceedings are being compared with when you were Deputy Clerk? recorded for Hansard, so would all contributors try not to interrupt or speak at the same time as others, because this M rs H orne: Well, as I say, I am still waiting to see these makes the job of transcription very difficult’. 2004 accounts. I mean, they cannot say they have not been Okay, so that is the formal set of words out of the way. • done properly this time, because we have paid for PKF to do them. I mean this is the trouble, the ratepayers are getting hammered left, right and centre, because of all these accountancy... you know ... what it is costing the village. EVIDENCE O F M R P HUGHES Mr Singer: I would think, after today’s comments, the The Chairman: So, welcome to today’s Committee. I audited accounts probably will arrive very quickly. think if you could, perhaps, begin by telling us when you actually took up your position as Deputy Clerk and also any Mr Delaney: Probably waiting outside for you. other introductory remarks you would like to begin with. Mrs Horne: Well, I will believe it when I see it. Mr Hughes: Yes, 1 took up the position of Deputy Tynwald Select Committee on Port St Mnry Commissioners -Evidence of Mrs T Horne Procedural Tynwald Select Committee on Port St Mary Commissioners -Evidence of M r P Hughes 38 TPSM SELECT COMMUTEE, FRIDAY, 5th NOVEMBER 2004 Oral Evidence Clerk in Octobcr 1999, having taken early retirement from offered and is still offering a two-day course, I would wonder the Department of Local Government and the Environment whether there is sufficient information made available to the (DoLGE), where I had worked for 13/14 years as the housing participants. A lot of the Commissioners and, certainly, some maintenance manager of the estates and housing section. I of the staff who attend that induction course are new; they are joined with a view lo trying to offer the very best that 1 could coming, perhaps in quite a few cases, blind out of the public to Port St Mary Commissioners and possibly bringing any arena and to be not necessarily bombarded, but there is a lot information or knowledge that I had obtained from the years of information to absorb in two days. They are also given of working in the Department. a booklet, which is based on the statutory requirements of 1 think it was a valuable exercise to be able to join the Commissioners, literally how they conduct themselves and Commissioners. Having worked in tlie Department, I was that really is it. There is no sort of follow up and one would aware of the complexities of local authorities and the different have hoped that there might have been a follow up service aspects of the Department of Local Government. I think the available to see, perhaps after six months or twelve months, to situation where you have got eight or nine dedicated divisions see how the Commissioners are absorbing all the information within the Department, able to offer all the local authorities that is literally thrown at them, legislation coming through on advice, help et cetera and having been able to develop on a pretty regular basis. that, I felt that it would be useful and helpful for Port St Mary Commissioners. The Chairman: So: just to clarify for the record, have you yourself received any specific training as Deputy Clerk? The Chairm an: Okay. One of the points that the previous speaker made was that, when she retired as Deputy Clerk - 1 M r Hughes: Yes, very early on - what 14-odd years ago, understand it was either May or June - she had warned the or even more than that. Yes 1 went on the initial induction Commissioners at her final meeting that the finances were a course. little bit shaky; I am paraphrasing' there, but were you aware when you actually joined that this was the case? The Chairman: Right, but that was as a member of DoLGE. M r Hughes: I was not actually aware of the financial state of Port St Mary Commissioners when I joined in October. M r Hughes: That was as a member of DoLGE, yes. Yes, the previous Deputy Clerk did retire early. I was interviewed at the beginning of, 1 think it was around April/ The C hairm an: But you have never had any specifically May time or May/June time, but I could not, or would not as Deputy - have been able to, be released from the DoLGE until October. 1 was not made aware, at that time, that there were problems M r Hughes: Not as Deputy Clerk, but J had already on the accounting side for the Commissioners. attended the induction courses as a member of the DoLGE. The Chairman: So when did you first become aware of M r Delaney: Mr Hughes, it is nice to see you again. the problems? Right, 1 am going to be coming from when you started and I am looking at a letter, which is on record for everyone, it Mr Hughes: 1 think one was obviously aware of the fact is to Mr Popper and it is dated 29th March 2000, which has that, dealing on a day to day basis with the Clerk, it was a been referred to here and I am going to read the last part of matter of getting one’s feet under the table and that took a few it. I take it that date, for you have said you were in being, months, but once it got into 20001 think we were aware that you were in office? there were problems. There was correspondence backwards and forwards between ourselves, the auditors and the DoLGE M r Hughes: Yes. and I think, at that time, it was highlighted that there were serious problems in the accounting system, or at least the M r Delaney: Right: lack of accounts. ‘I regret that therefore I am unwilling to consider any further CLF The Chairman: I will leave others to pursue some of advances for your Commissioners’ rate-funded services until your 1998-99 accounts arc published and you have persuaded me that you those threads, but, just to begin with, if I could ask, have you are committed to public accountability.’ ever been on any of the DoLGE training sessions, induction days, or - You are the Deputy Clerk, you are in office, were you aware of that letter? Mr Hughes: The induction course? M r Hughes: I was aware of that letter, yes. I think it came The C hairm an: Yes. from Mr Tovell, was it Mr Tovell? Yes, it did, indeed. M r Hughes: Yes, it was always classed, 1 think, that I was M r Delaney: So, therefore, you realised the significance on the graveyard section of the induction course, because I of that letter? had to do a presentation on the estates and housing side of the induction course. That was always on the second afternoon M r Hughes: Yes, and that was, as I explained, in the early and, by that time, 1 think, the candidates were pretty worn out part of 2000 that we were alerted to the fact that, because one and usually running late and, therefore, it was a bit of a rush of the briefs that 1 brought from the DoLGE w’as to continue lo get through the information. with the refurbishing work that was going on in Park Road 1 would think, though, that although the Department has and Fistard Road in Port St Mary and the expertise that I Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mr P Hughes Oral Evidence SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 39 TPSM was bringing from the Department was to be used in that view’. In the private sector you would expect your accountant situation, I was aware that there was a problem in being able to say, ‘Look, you are in trouble here, your costs are going to continue that refurbishing work and that is, that letter then up, your income is low, your overheads are too high, if you highlighted - carry on like this, by the end of the year you are going to be liquidated’. Mr Delaney: That is my second question. Mr Delaney: You were not here earlier on in the day, Mr Hughes; - that highlighted the problem and that were you? Did you not hear any evidence earlier on in the brought forward the question of what is happening? day? Thank you, Mr Hughes for that, that answer is the clearest situation I have had on this one. Can you tell me, to M r Delaney: I have got to ask you this, because I am your knowledge, when this letter came in and other concerns not clear: Mr Popper did not have an answer to this, really, were flagged up, whether anybody got back to the Treasury you remember, Mr Chairman. What was their response to and said, ‘Will you tell your accountants to get their fingers that letter? Were the Commissioners informed of it and the out and get the accounts back to us, so that we can comply seriousness of that letter and its enclosures? with the law1? Mr Hughes: 1 am not sure whether they were, in fact, Mr Hughes: Not in 2000, but it was only flagged up informed of the content of that letter to the full degree that towards the end of 2001, maybe 2002 when, finally, I suppose there was a problem of the lack of audited accounts coming it is difficult to say, the penny dropped and we decided that - through from 1998, 1999 and 2000. or the Commissioners decided that - yes, there was a serious problem and that the then Chair got in touch with DoLGE, Mr Delaney: Your knowledge, all those years that you not so much into Treasury, but certainly to the Department were at local Government, you knew that the auditors were to be able to decide how to develop the situation that was appointed by the Government, Treasury. occurring, but that was not until the end of 2001-02. Mr Hughes: Yes. M r Delaney: On the letter which I have just referred to and read out, what action by Mr Tovell or his Department M r Delaney: This letter is from Mr Tovell. was taken, if any, to carry' out the threat that was concerned in that letter against the properties that you were constructing Mr Hughes: Yes. and refurbishing? M r Delaney: I will be asking him this, by the way, so M r Hughes: There must have been contact back with do not worry. It is something we will ask him: that, as they from the Clerk, otherwise we would not have had funding to appointed - ‘they’ being the Government - appointed the carry out the work. Therefore, some contact must have been auditors and that you did not have the accounts in from the made somewhere, w'hether it was verbal or in written form, auditors, did anybody say to him, ‘Hang on a minute, Mr back to the Treasury' to point out that, ‘Okay, the accounts arc Tovell. You are handicapping us for somebody else’s fault being prepared, they might be coming forward, we should be - your appointees’? getting something,’ you know the ‘what if’ factor. Otherwise my refurb would have come to an almighty halt. M r Hughes: I do not think anybody asked that question, buL then one could ask the question of the appointment of Mr Delaney: That is very clear, Mr Hughes, because the auditors by Treasury. Perhaps, if we had spread it a little my concern, on reading everything, was, this letter which wider and ask: ‘are Treasury right in appointing the auditors threatens - and it concerns me when letters of a threatening in the manner in which they were appointed.’ It is all very nature are sent to anybody, that no threat, then, w'as carried well saying that, if they are going to audit, the figures or the out, no action was carried out, so, therefore, they had to agree accounts, as presented. I think, in the private sector, if one somewhere that there was no further concern, otherwise you is getting involved with accountants, one has to, you would would not have got the money - ask your accountants to do two things: one to audit your figures, but also, if they could see that there is a problem, M r Hughes: It would not have continued at all. they would ask the auditors or your accountants to flag up that there is a problem and I think this is where there has Mr Delaney: So they had to be happy with something. been a shortfall. So I am asking you this, is it not correct? It is all very well getting a letter from Treasury, but, perhaps, Treasury should have been saying to the auditors, M r Hughes: But, obviously, there is nothing in hard copy ‘why have you left Port St Mary Commissioners out on a to prove that contact was made, but something, dialogue limb since ] 998-2000? Now you are coming to tell us, or must have taken place to relieve and release the funds for now you are suggesting that there are no more funds from continuation of the refurbishing works, as you rightly say, the capital schemes or to fund the capital schemes, when otherwise Mr Tovell would have shut the purse. the auditors, perhaps, have not been doing their complete brief. M r Delaney: lean find nowhere, Mr Hughes, anywhere, I do not know what their brief was that was raised even in the other inquiry, where this question was not asked, by Treasury. Auditors may say, ‘Well, all we were doing because if the concern was there by the Government, by was auditing the figures as presented, w(c were not told by the Department of Government, w-ho virtually employed Treasury to expand it to say we need to give an accountant’s the auditors, who had said who you had to employ, you Tynwald Select Committee on Port St Mary’ Commissioners - Evidence of Mr P Hughes 40 TPSM SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 Oral Evidence paid them, the concern went away, because they carried same position? on funding you, so the conccms contained in that, had be alleviated by somebody. M r Hughes: When we went to the Department in 2002, and when we highlighted the problems, at least, and the then M r Hughes: Yes, I am not aware whether that happened Chair, Mr Jackson, contacted the Department, the Department or not, but it would look as if they could well be condoning came down and explained to us what the problems were. the situation. They appreciated the contact from the Commissioners and, at that time, I think we were told there were possibly in excess M r Delaney: 1 will come back on that later on, but I of 17 authorities that were behind, in one way or another, will let - with their accounting system. I think this was firmed up in the Kissack Report, that I think it was, I will not actually be M r Singer: We have got a letter dated 5th December quoted on this, five in 1999, 11 in 2000 and eight in 2001 2002 from KPMG to Mr Popper signed by Caroline Caley that were behind. In fact, I believe - saying, ‘Please find enclosed six sets of accounts for 1999- 2001’. You were obviously aware that the 1999 ones had M r Singer: Behind because of the auditors? not been returned and the 2000 had not been returned, and 2001 - M r Hughes: Behind with their audited accounts. M r Hughes: - as far as,.. Yes. M r Singer: Meaning the audited accounts had not been returned? M r Singer: Well, surely, you would have known by the end of 1999 or at the end of 2000 that the 1999 ones had Mr Hughes: Correct, and I believe there was one not been returned. What advice, if any, did you, as officers, authority that was two years behind. give to the Commissioners to tell them, ‘Look ,the accounts of this year have not been back’ or did you, in fact, not do M r Singer: So, when you say they came down and anything over those three years? explained the reasons, what were the reasons? Mr Hughes: I am led to believe that they were not M r Hughes: We got that information from the Department, presented back to the Commissioners until 2003, the early yes. part of 2003. M r Singer: You said they came and explained the reasons M r Singer: No, but you knew each year that you had why the audited accounts were not being returned. What sent them in and they had not been returned - were those reasons? M r Hughes: Oh, we knew, yes - M r Hughes: No, all they did was to flag up that there were those authorities that were behind, they did not give M r Singer: Did you take - any specific reason as to why they were behind, just that they were. M r Hughes: We would have to know that fact, as it was One of the problems, I think, was highlighted, that it running on from one year to another. was extremely difficult to produce accounts for all the local * authorities and on top of that, the Statutory Boards, within a M r Singer: So, but you did not... Was any action taken, six month period. Really, you have to take out the first six to either ringing DoLGE or Treasury and saying, ‘Look we have eight weeks, or certainly the first six weeks, April-May, by not had these returned’? the time you are actually getting your figures together. So, you arc really only left with four and a half months and for M r Hughes: I think the dialogue really went on between the auditors to prepare audited accounts in that short period the Clerk and KPMG, the auditors, to see where they were of time, I think was considered optimistic. up to and if there was any further information that was required. M r Singer: Did the Department of Local Government, when they made these comments, seem worried at all that M r Singer: Are you aware, whenever the accounts were they were not coming back for three years? sent to the auditors, whether they just audited the accounts, or, before the)' were audited, did they come back with any M r Hughes: They were not over duly concemcd at that queries? time. M r Hughes: 1 think they did come back with some M r Singer: Just to change the subject. When, as Deputy queries, yes, and I think those queries were answered and Clerk, do you have delegated certain responsibilities that are referred to and comments were put down on the draft copies split between you and the Clerk? and sent back to the auditors. But there was a continuing delay and I know that there is correspondence, or has been M r Hughes: The job descriptions were drawn up correspondence, where the Clerk has pointed out to the originally and then what I did with the Clerk was to be more auditors that they are still waiting for the draft responses. defined, on what our duties would be. When I first joined the Board and at interview stage, 1 made it quite clear that I was M r Singer: Were you aware of other authorities in the not an accountant, I was more coming from the Estates and Tynwald Select Committee on Port St Mary Commissioners -Evidence of M r P Hughes Oral Evidence SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 41 TPSM Housing Division of the Department. I would look after the a debt that you did not even know about, because you did not operatives, the men, the housing side - we had got this big have the accounts in, that is the way I look at it, because they refurbishment that was getting under way, we were spending were not there in black-and-white. £1.4 million on a refurbishment and, therefore. I felt that it Looking at that situation, can you tell me what, on these would be better if I could deflect my interest and abilities in notes, is 'as in previous years, could you please ensure that that direction and leave the accounting system to the office the enclosed minutes regarding auditing standards arc also and to the Clerk. approved by the Board.5? That is an interesting paragraph because they are three Mr Singer: So, the day-lo-day finance and the putting years behind with your accounts and they are actually referring together of the estimates, who did that? to three years before - that is the last time you have seen the notes on the accounts. Mr Hughes: That was very much in the hands of the Clerk and his very' able assistant. M r Hughes: You would have great difficulty in being able to sign them off or agree to them, because, presumably, M r Singer: Yet, Mr Popper put his hands up and said that the last actual signed accounts would be 1998. he did not know anything about finance, he couid not read the figures, so I mean, how does that - M r Delaney: That is right and you were not there and I doubt that some of the Commissioners had not been there, M r Hughes: I cannot speak for Mr Popper. because there is a turnover of Commissioners down there. So, you would not even know, you are signing for something M r Singer: We have also been told that the Commissioners which is three years out of date. work as a finance committee, so that there is nobody to properly brief them on what the estimates mean. M r Hughes: Out of date, correct. Mr Hughes: The Clerk used to attend the finance M r Delaney: With the best will in the world, I cannot see committees and he would have presented the figures to that can be good practice? them. M r Hughes: Not good practice, no, indeed. Mr Singer: Prepared by himself? M r Delaney: I am sorry, I just had to clear that one and 1 Mr Hughes: Yes, I did not attend those meetings. would be grateful if you can get that information for me. Mr Delaney: Can I ask one question before you come M r Hughes: I most certainly will find that out. Yes, in, Mr Chairman? You have a lot to ask, 1 know you have. I indeed. am looking at the 1999, 2000 and the 2001 accounts and the letter covering them on 5th December 2002 when you are in The C hairm an: To follow up on that, can you confirm, being, and it is from the auditors and I will read it again - you to the best of your knowledge, since you have been Deputy were not hear when it was read before: Clerk, the prepared accounts plus supporting information has been provided to the auditors within the six months statutory ‘Please find cncloscd six sets of accounts for each of the above,-and time-frame from the year-end, as far as you are aware, for if approved by the Commissioners, I would be grateful if you could each of the years. ensure they are signed and dated as appropriate and returned to me for completion of the Audit Report As for previous years, could you please ensure the enclosed minutes regarding auditing standards, are also M r Hughes: As far as 1 am aware it would be, but then approved by the Board. I also enclose our fee note for your attention.’ it would flag up why there has been a delay and to where the delay might have occurred. It might well be that the original Now, first question, going backwards; does the fee for the information would have been presented, but then it is the three years account to... or was it just for that 2001, or was follow-up and the other information they have been seeking, it for all the accounts? may not have been responded to, either quickly or otherwise and possibly that is why the delay has occurred. M r Hughes: I thought it would have been for all the three years, but without - The C hairm an: Certainly, as far as you understand it, the information has been presented. Mr Delaney: Would you check that one? M r Hughes: It may have well been in the third year, M r Hughes: I would have to check that. perhaps, the whole situation was snowballing and getting out of hand. M r Delaney: Let me know on that. That is an interesting one and I just want to see you were two years behind, when The Chairm an: Perhaps I am being a bit silly, but I would you were paying, then, even. You see my question: they were have thought that, by the time you were getting up to three two years behind getting the money in, and so, then, those fees years’.worth of accounts, 1 am making an assumption that the were outstanding to the Commissioners. So they would have auditors did not have all the information they required. If that had to be carried over each year and you would not know they was the ease, then, surely, by the time we got year three - were being carried over, because they do not seem to show anywhere. 1 am sorry they do not show, so therefore you had M r Hughes: At the end of 2001, when we were beginning Tynwald Select Committee on Port St Mary Commissioners -Evidence of Mr P Hughes 42 TPSM SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 Oral Evidence lo flag up there was a problem and we did go back to the It may well be a matter of deflecting the letter that came Board and explain, that early pail of 2002 was when we then in and keeping it away from the Commissioners - that might brought in the Department to seek advice on how to resolve have been a reason that they did not see it - perhaps it was the matter. not actually presented to them. The Chairm an: But you are not aware of any significant The Chairman: Would it be fair to say - I am losing correspondence from the auditors? my thread now... M rHughes: No, other than just the normal correspondence Mr Singer: Were you aware of the misreading of the that you all have on file. accounts, as we hear what w'e thought were in the black were in the red, were you aware of all this? The Chairman: Okay. 1 suppose another point, you mentioned earlier that you discussed with the Clerk about M r Hughes: I think I was made aware, once the position your particular talents and my understanding from what you was made clear and, in 2002, when the present Chairman, said, is that you suggested to the Clerk that he would do the Mr Jackson, brought in his own accountants to try and finance and you would carry on with the housing. Was this prepare an independent audit, because we were not aware, something that the Commissioners weie aware of, when at the time of this problem, whether there was a deficit, you were appointed, that, effectively, you did not have any whether, in fact, there was still a surplus coming through specific financial qualification? from previous years. Port St Mary, over the years, has benefited from, perhaps, M r Hughes: 1 think I made that clear at the onset of the a low rate and whether it has, in fact, been using the reserves interview and at the appointment time. The responsibility that it has built up to soften the blow. and division of duties was written out, it was an agreed list of opportunities and commitments that was held on our Mr Singer: We have heard that, over the years, Port personal files. Whether, in fact, it got to the Commissioners, St Mary has tended to use their reserves to reduce the rate. I doubt it. Whose responsibility was it within the Commissioners to I know I did a five-year rolling programme for the advise, maybe: ‘we should be keeping reserves’? Were you Commissioners which was based very much on the activities aware of anybody, or whose idea was it that they should for the whole Commissioners’ responsibilities and the like, continue to use the reserves? but 1 do not think we attached to it the breakdown of our responsibilities. Mr Hughes: The using up of the reserves would have been going on from the early part of 1991, going through lo The Chairman: In the job which you originally applied perhaps 1996, 1997. for, was it made clear at any point that there would be a responsibility for finance? Mr Singer: That must have been on the advice of somebody, that advice must have continued each year, who M r Hughes: In the initial information package, there would that be? was a statement there that did indicate there would be responsibility for all aspects of running the office, which Mr Hughes: I could not comment on whose advice, one included a degree of book-keeping...... way or another, would present that to the Board. One could assume that it should come from the Clerk. The Chairman: Effectively, subsequently between yourself and Mr Popper you decided - Mr Singer: When you said that Mr Jackson brought somebody in, that was Crossleys was it? M r Hughes: We felt there was sufficient book-keeping available there. The accounts clerk had been ably and well Mr Hughes: No, Crossleys came in in 2002, yes. trained by the previous Deputy Clerk and she took over and had excellent ability to continue. Mr Singer: Have you any idea what they were paid for their services? The Chairman: Okay. Again, bearing in mind your experience within DoLGH, your understanding of the way, Mr Hughes: I think either £10,000 or £12,000 has been to a certain extent, the Government finances work, when mentioned. I would not want to be quoted on that, but I think you became aware of the letter from Chris Tovell, did you that was the figure that was mentioned. not think that it was something that you must make sure the Board were notified of? Mr Delaney: I would like to go back to this, because this seems to be the hub of it. We have already heard about Mr Hughes: Yes, one would have expected that the deficits, or how things were going through the 1990s, correspondence to have been projected through to the then we got to the stage of the 1998,1999 period and things Commissioners for further consideration. The only thing started getting questionable, to some extent. with that is, as I have explained before, the fact that we were When you are on rate making day, talking as an old rate allowed to continue with the capital works, would indicate maker, you get there and you have in front of you a list of that some communication had been carried out with Treasury all the expected costs for the next year and with that you and Treasury were obviously satisfied somewhere that we have the recommendations of the Committee and you have could continue. the bank statement and we are not talking rocket science Tynwald Select Committee on Port St Mary Commissioners - Evidence of M r 1* Hughes Oral Evidence SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 43 TPSM here and you have to get it to balance. Can you tell me, you that is a problem - were there in 2002 - latterly, anyhow - how anybody got to associate what you are going to spend on the running of Mr Singer: Make provision. the village, against what you had in reserves, and what your expected rate income was. How was that done? M r Hughes: - yes, make provision. Mr Hughes: I think one of the problems was the way M r Singer: In reply to my question I asked you, did the the accounting system was set up. At the time, Port St Mary auditors ever comc back, after they received the accounts, Commissioners were involved in the IRIS scheme, being one; to make any comments and you said ‘yes they did’. (Mr another capital scheme of realigning the pipe work in Port St Hughes: yes.) But they did not come back with these sorts Mary and there was a tremendous amount of funding going of comments, which were very important ones? through on capital schemes. One had to pay the contractors out of capital and there was the problem of paying the VAT M r Hughes: They did not actually comc back with that out of revenue. one, because the VAT element has been a major tripwire I believe, and looking at some of the costs and the figures, for us and other Commissioners, as well. I think it has been that there was a problem between the accountability and highlighted in a recent report by DoLGE, that, perhaps, VAT trying to balance the bank balance, because of this problem in the future should be taken out of the accounting system of VAT going from one financial year to another. I think it was altogether. highlighted and again in the Kissack Report and, perhaps, in PKF, where there was a figure of £140,000 between Mr Delaney: For local authorities. (Laughter) Not one financial year and another, which threw a completely overall for everybody! different picture on your bank balance. M r Hughes: No, no! M r Singer: That is exactly what I spotted and why I am going to ask the next question of you. Would you have not Mr Singer: Have you, since your appointment, gone on expected, if you had your accounts coming in in a regular any training courses and what soil of courses are they? fashion, that somebody doing your accounts would have spotted the VAT and pointed out that it was in the wrong M r Hughes: I have not been on any training courses other column? than the ones I have attended from the Department. Mr Hughes: One would have hoped that, rather than Mr Singer: So the authority has never sent you on KPMG being auditors and auditing, if their brief had extended training courses for various... (M r Hughes: No.) nor, as to the point of being able to advise the Commissioners that far as you know, the Clerk? there was a problem on VAT and it should have been dealt with in, perhaps, a different manner, that might have resolved M r Hughes: Not that I am aware of. He might well have the problem a lot earlier. I do not think, at the time, they done before I started. Obviously there was the normal anti- highlighted that as a problem. It was purely a figure going money-laundering courses and the like. from one financial year to another. They never actually stated that it was a problem. M r Singer: Since the arrival of the new Clerk, have your responsibilities changed in any way, or are you still doing • Mr Delaney: Unless I am going doolally, when what you did under the old Clerk? somebody does your figures for you, you expect, when you are doing a private business, somebody, whether or not they M r Hughes: I think we are trying to work a lot closer and have been briefed, they do your figures and, for tax purposes, now that we do know and have identified where problems they say that you cannot claim that or you can claim that. could occur, then I think we are getting more hands-on to They would advise you one way or the other, or you have the problems. I would say that the local government unit to pay tax on that - it is the same with VAT - it is a tax and, that has been developed within the Department of Local therefore, it was in the wrong column and somebody would Government has been very supportive of everything we have have said you cannot do that. That is not acceptable in law. looked into. As a result of the default order being placed You have to pay that VAT as a tax. upon the Commissioners, we work very closely with them, to be able to satisfy them, to satisfy the accounting system. Mr Hughes: One would think that, when the accounts Hopefully, and 1 am very confident now that we do have a were presented, they were, 1 would not dare say bland, but robust system in place. they were without comment. Mr Singer: So the attitude has actually changed from M r Delaney: You signed the notes of accounts, you are what it was when you first went to the Department of Local expected to sign those accounts, but the notes of accounts Government under Mrs Crowe and said we need some did not carry any of them. help and were told that it was not the responsibility of the Department. Mr Hughes: It did not carry any of that information forward. Even if it had said from one financial year to M r Hughes: Yes, it has turned round. I have explained another, it should be noted that there is a VAT element of before that from the help point of view from the Department £140,000, which will be recovered in June 2003 or the 2003- of Local Government, they have eight or nine very dedicated 04 period. Then you could associate with that and accept Divisions within their Department. Each one is available Tynwald Select Committee on Port St Mary Commissioners -Evidence of Mr P Hughes 44 TPSM SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 Oral Evidence for any loca) authority or Statutory Board to call upon and The Chairman: I certainly made this point to Mrs Horne when you do so, they rcact very well and are supportive. earlier, you will be aware, by the fact that you are writing Whether it be Environmental Health, Health and Safety out cheques and you can check back through bank balances Inspectorate, all those aspects of DoLGE are available and and the like, you will be aware yourselves as officers dealing very supportive. with finances - I would say that the local government unit, as it is now being developed, is equally supportive and 1 think it has Mr Hughes: You are aware of those problems, yes. now addressed or is addressing the problems that have been occurring in local authorities for some time. The Chairman: - obviously, to be fair on the three bodies that we arc specifically looking at, we have to make sure that it Mr Singer: Thank you. is made clear that there were weaknesses, would you agree? The Chairman: I think I mentioned this previously M r Hughes: There were weaknesses in the system, yes. to other contributors. Did it never occur to you, as Deputy Clerk, or were you ever aware, that the expenditure, in a The Chairman: They were not really weaknesses, that number of areas in the local authority had. been increasing you would say anyone was aware of, but did not do anything quite significantly over the course of the period we are about. looking at? M r Hughes: If you had been aware of them, you would Mr Hughes: 1 think this was an issue that was always be able to address them and perhaps put them in place. considered, when we would be preparing the estimates, that one was very conscious of trying to keep the expenditure to The Chairman: I suppose what I am suggesting is, that an acceptable level. there was not a slack attitude with the officers or with the Commissioners, that is was not a case of knowing there was a As we all know, expenditure can run on, unless you have problem and not doing anything about it. It was just ignorance got a very careful check over it and it is one of the exercises of the problem; would you say that is fair? we are doing at the moment with the present Board, is to ensure that expenditure is kept to a minimum. We do not want M r Hughes: I think it is a continuation of the problem to lose the facilities that we are providing for the port, but we as it runs on, from month to month, it is very difficult, with have to keep a very tight rein on expenditure, because it can everything that goes on within a small authority, to be able run away. As I explained before, as we know that expenditure to provide all the services. You are still having to keep an eye can run ahead, if we have not got the income in lo support it, on the expenditure. we will get into a deficit, that will happen. M r Singer: That is a case for local government reform The Chairman: So you would be aware of the conclusions then, for bigger authorities? and recommendations of the PKF review, which highlight what they would describe as significant weaknesses, in terms Mr Hughes: Indeed. When you look at the local of financial control and financial management. Were you, as government reform, I remember that in December 1991, there Deputy Clerk, aware that there were significant weaknesses was a paper produced then entitled, ‘Time for Change’, it has in the system? got a clock on the front of it and here we are in 2004 and that clock is still running and we remember that clock well and I Mr Hughes: Obviously, the late arrival of the audited think that is the problem. accounts signified that there were problems, because - M r Singer: That was my slogan in my first election. The Chairman: In a way, that is a separate issue. 1 think the issue, in terms of financial management, is Mr Hughes: The other problem is, that we must have more to do with the significant increases in expenditure over 200 politicians, one way or another, whether they be the period and these are issues that, perhaps, had there been Commissioners, your good selves and the like running 76,000, a tighter financial management in place, might have been at 77,000,78,000 people which does seem to be a little top heavy. least addressed to a certain extent? One would think that if you could regionalise the running of the Island, as it is suggested now, into four regions and Mr Hughes: Yes I think PKF have highlighted those as perhaps Douglas, as long as the local authorities have still got problems. I know they have been addressed currently, but, an input. Each one, rather than just opening fetes and having yes, it was a problem that we did notice. coffee mornings or tea dances or something in the afternoon. That they still have a responsibility to their village and to their The Chairman: When did you notice? town, and I think it would be - Mr Hughes: It would have been towards the end of The Chairm an: I think it is important, at this stage, to 2000-01, when these accounts were late in coming back; we make it clear that we are not here to debate would have had to be preparing the next set of estimates, very difficult to do those, if you have not got the accounts from M r Hughes: That is another matter. the previous years. Therefore, the problem is what do you work on? What M r Delaney: I blame Leonard for that. have you got to work on, other than, perhaps, a bank balance and knowing what our costs are. The Chairman: I would certainly disagree that having Tynwald Sclect Committee on Port St Mary Commissioners -Evidence of Mr P Hughes Oral Evidence SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 45 TPSM elected representatives and allowing democracy is a bad thing, It was not ignorance, I think it was purely the lack of which I think is possibly what you are suggesting there. I information that was tantamount to creating this problem. think the more elected representatives the better. (Laughter and interjections) But that is another matter, really. The Chairman: Yes, I know, obviously ignorance has other connotations. What I mean is not being aware of the Mr Delaney: I have kept the - like eating cream cake financial information. - the biggest to the last. Two questions. We have got a situation... I asked Mr Popper, in relation Mr Hughes: I think they were not made aware of the to what was going on at the time about the accounts, because situations as they occurred and, because they escalated from this is what it all hinges on, and he said the excuse he was one year to another, the problem got bigger. given - and this is on the record - that, possibly, there was a problem of the auditors being under pressure, and he actually The Chairman: I am just interested to know how the mentioned banks, the reason he was given was, that they were fact that the auditors and, perhaps, DoLGE and Treasury doing banks at the time, or words to that effect. It is on the conspired in a way to keep the Commissioners unaware of record. Were you aware of this reason, that your accounts the financial information, how that is a good case for local had not been coming in? government reform. M r Hughes: I was not given any impression that their M r Hughes: I do not know whether they actually kept activities were being deflected in any other way, other than the information away from them. knowing that they had to produce in excess of what could The Chairman: No, but ultimately that was the effect. be 30 sets of accounts within six months, but I was not aware of any other outside force that was pulling them in a M r Hughes: That would be appear to be the effect, yes. different direction. It is really a matter of, perhaps we go back to say how much involvement Treasury, the auditors and DoLGE have over Mr Delaney: Would it be reasonable, I am asking local authorities and you can say that, within Treasury, you for an opinion from the Deputy Clerk of Port St Mary know, they have got an award winning, top-flight team called Commissioners: had you - the three years accounts - had Internal Audit. I know, too, when 1 was in the Department, they been in earlier, particularly the first one, accounts in a knock on the door from Internal Audit and the file stood area when you started on the refurbishment and the IRIS et up. They were extremely keen. cetera, and the VAT problem, which is obvious for anyone Could Treasury not have had some form of external audit to see who reads the accounts, that you might have spotted or external team, be it, it might be a couple of accountants that error quick? within Treasury that could be made available to help, to assist, to bring it forward, because, at the end of the day, Treasury M r Hughes: That is a possibility, yes. is still holding the purse strings. They are still involved with the purse strings of the Isle of Man Government pic. M r Delaney: A reasonable possibility. The Chairman: I am just trying to help you defeat the M r Hughes: A reasonable possibility. That could have... argument a little bit. (Laughter) Effectively then, what you because it would have been highlighted or, perhaps, would are saying is that if DoLGE, the auditors and Treasury had, not have been highlighted by the letter from Mr Tovell. perhaps, given more support, the Commissioners would have been aware at a much earlier stage. I am focusing on this local Mr Delaney: Thanks very much, Mr Hughes. I am government reform issue, because it had been mentioned, grateful for your time and answers. Thank you. earlier on in the day, by the two previous Chairmen, that they felt DoLGE was using this particular problem with Port St The Chairman: I cannot let the local government reform Mary as a stick to beat local authorities with. So, really - (Laughter) thing go without some clarity here. Perhaps, effectively, what you have been saying thus far, well, up Mr Hughes: If you go back to what I said previously, until you made your political statement on local government where the Department came down and told us that there were reform - (Laughter) in excess of approximately seventeen authorities that were behind, the Kissack Report has already pointed out, over the M r Hughes: On behalf of the rate payers! period that we are talking about, that there were still people behind. Then how many of those authorities there have said, The Chairman: - up until that point, you seemed to ‘Well, there but for the grace of God, go I?’ be implying that this was, largely - the financial problems So why did Port St Mary get pulled out of the hat and - down to an ignorance on the part of the Commissioners, we got the default order and got clobbered? Yes, it could be and that ignorance seemed to be created by lack of support, that we have been used as the fall guys to promote, perhaps, particularly from the auditors, in Terms of returning the a bigger picture, or a different picture of local government audited accounts. Is that an accurate reflection? reform. M r Hughes: Well, I would not say ‘ignorance’ on the part The Chairman: But would you agree, perhaps, that, of the Commissioners. I would not, perhaps, put that in those without a sort of larger area authority, smaller authorities terms. I think it was, perhaps, that they were working on the are never going to be able, in the current financial world in information given at the time, and the lack of information which we live, to cope. Is that the point you are trying to at the time. put across here that - Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mr P Hughes 46 TPSM SELECT COMMITTEE, FRIDAY, 5th NOVEMBER 2004 Oral Evidence M r Hughes: I think with... Yes, 1 think, possibly coupled M r Delaney: Thank you, Mr Hughes. with local government reform and with the legislation and the situation in the workplace out there. Mr Hughes: Thank you. Perhaps an idea is to form larger authorities, because, then, they can employ professional people, and they can employ The Chairman: I think that has been very helpful. It lawyers or accountants to be able to aid the accountability. concludes our business. Is there anything else that you want From a lawyer’s point of view, with all the litigation and to add to what you have said? the health and safety aspects, the risk assessments that are coming through at the moment, and there is a vast minefield M r Hughes: No, I do not think there is. out there, you know. When we have looked at it before, I do not think there It is the American syndrome, that we sue before we know is a blame culture anywhere. I think that we have got to what we are suing about, and this is why, perhaps, local make fairly clear that it is very much a ‘what if’, and I think authorities are a little bit vulnerable, if they are really relying that is how we look at it, and that is how I have looked at on the expertise of appointed clerks, or, perhaps, myself, as it, following the reports; now the two reports that are on a Deputy Clerk, who have not had, really, that basic, hard the table for local reform, that it is very much a ‘what if’ training, to be able to fend off what is coming in. scenario. What if Treasury had done something? What if the The Chairman: But, equally, is it possible that, perhaps, auditors had given more information? What if? And I think the current system, with an increased support from DoLGE, we have learned a lesson, be it painful, but I think a lesson Treasury or the auditors, could potentially cope? has been learned, and, possibly, taken on board by other local authorities. I hope something will come out of this in M r Hughes: Yes, that could be, yes. the future. You know, there are training courses available, as I In defence of the Clerk, I do feel that he has come under mentioned. 1 think that about the only one that was mentioned severe pressure. I do not think we want to forget the good was the induction course. If we go back to very early - 1 think things that he has done. 1 will leave it at that. it was January or February 1992 - the Chief Executive of the Department of Local Government offered all local authorities The Chairman: That is the former Clerk? the opportunity of picking up any training courses that were available to the Civil Service side. M r Hughes: Yes, Mr Popper. If we want to go down that route now, there is a cost implication which has to borne by the ratepayers, and, The Chairman: Well, thank you very much. Thanks to therefore, that only aggravates the situation of trying to keep everybody who has attended today. I think we will now be your rates down. If that could be supported by Government sitting in private. So thank you very much. and by either DoLGE, or funded from somewhere else, and given this basic and advanced training, it would be certainly beneficial and then that might keep the feet on the ground for the local authorities in any specific area. The Committee sat in private at 3.45p.m. Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mr P Hughes APPENDIX B Official Hansard Report of Oral Evidence 6th December 2004 Mr M Fayle Mr M Gardner TPSM, No. 2 2004 TYNWALD COURT OFFICIAL REPORT RECORTYS OIKOIL QUAIYL TINVAAL PROCEEDINGS DAALTYN (HANSARD) SELECT COMMITTEE ON PORT ST MARY COMMISSIONERS BING ER-LHEH MYCHIONE BARRANTEE PHURT LE MOIRREY Douglas, Monday, 6th December 2004 Published by the Office of the Cferk of Tynwald, Legislative Buildings, Bucks Road, Douglas, Isle of Man. © Court of Tynwald, 2004 Printed by The Copy Shop Limited, 48 Bucks Road, Douglas, Isle of Man Price Band C 48 TPSM SELECT COMMITTEE, MONDAY, 6th DECEMBER 2004 Members Present: Mr P A Gawne MHK (Chairman) Mr LI Singer MLC Mr D F K Delaney MLC Clerk: M r L Creili n Business transacted Page Committee rem it...... 47 Procedural...... 47 Evidence of M r M Fayle and M r M Gardner, KPMG L td ...... 47 The Committee sat in private at 4 p.m. Oral Evidence SELECT COMMITTEE, MONDAY, 6th DECEMBER 2004 49 TPSM Mr Gardner: It is to perform an independent review Tynwald Select Committee of a set of financial statements, and to report, usually in a on Port St Mary Commissioners corporate context, to the shareholders or the members, on whether that set of financial statements presents a true and fair view. So, that is not to say that the accounts are supposed to The Committee sat in public at 2 p.m. be accurate to the penny, and there are, usually, significant in the Millennium Conference Room, items of judgement in any set of financial statements. So, it Legislative Buildings, Douglas is really to provide the readers of the accounts - generally the members of the company - with an independent opinion that those accounts present a true and fair view. (MR GAWNE in the Chair] But it is at a particular point in time, which is, clearly, at the balance sheet date. The Chairman: And are you reasonably confident that Committee remit the auditing of Port St Mary accounts has given a true and fair picture? The Chairman (Mr Gawne): The remit of our Select Committee follows a Tynwald motion, in May 2004, and Mr Gardner: Well, no, because the circumstances in that motion was: this - ‘That, in addition to the announced Department of Local Government Mr Delaney: Sorry, could you just say that again, and the Environment Inquiry under section 4(d) of the Local please? Government Act 1985, a committee of three members with powers to take written and oral evidence pursuant to sections 3 and 4 of M r Gardner: Well, it is not that they do not give a true the Tynwald Proceedings Act 1876 be appointed to enquire into the and fair view; it is just that we are not asked to opine on conduct of the Treasury, the Auditors and the Department of Local Government and the Environment in relation to the affairs of Port St whether they give a true and fair view. Maiy Village Commissioners in the period from 1 st April 1998 to 31 st March 2004, having regard to their statutory and other responsibilities Mr Fayle: I think, if I might, to be more specific, in in relation thereto, and to report the findings and recommendations to this case, what Mike was describing was the nature of a the December 2004 sitting of the Court’, commercial audit, and ‘true and fair’ is very much associated with the wider backdrop of accounting standards and although we are unlikely to meet that particular bit, bearing commercial reporting for the financial markets. in mind we are only one week away from that! What we have with the local authorities is a very specific remit for audit under a piece of legislation. Clearly, that piece of legislation is the Audit Act 1983. Now, what that does not do is embrace the remit of Procedural accounting standards. It does not even go as far as to say, really, what should be in the set of accounts. It gives The Chairman: So, I suppose I ought to introduce the some guidance in the regulations, but they are very, very panel. Les Crellin is our Clerk; Dominic Delaney, MLC; unspecific. and myself, Phil Gawne, Chairman. Leonard Singer, So, in this context, the report under the Audit Act is unfortunately, does not seem to be able to join us today, confined very strictly to what the Audit Act requires the but that should not stop us from giving the issues a fair and auditors to report on. I guess we could read those, but I reasonable grounding. am sure you will have done so, which is, basically, two I need to, also, read out a little piece for the Hansard paragraphs, I think, under section 4. It is an extremely Clerk: May 1 remind fellow panel members and those giving narrow remit. evidence that today’s proceedings are being recorded for Hansard, so would all contributors try not to interrupt or Mr Delaney: Sorry, Chairman, I am getting a bit speak at the same time as others, because this makes the job confused, already, and we have just opened this up. Which of transcription very difficult. one of you two gentlemen... ? You have given us two separate answers there. M r G ardner: No, no. EVIDENCE OF MR M FAYLE AND MR M GARDNER M r Delaney: There are not two separate answers? Your answer has been amended by - The Chairman: Okay, I think it would be helpful if we started off from a very, very basic question, really, and that is: Mr Fayle: It is a development of the general statement I have spent some time in my life as a farmer, I know exactly of what an audit is. what a farmer does, and Mr Delaney has-been involved in public relations, he knows what public relations people do; M r Delaney: Well, would you agree, then, with your if I asked either, or both, of you what exactly the role of an colleague, who gave the first answer, in this case, regardless auditor is, what would you tell me? of the fact one is for the public, that the shareholders in Port Committee remit Procedural Tynwald Select Committee on Port St Mary Commissioners - Evidence of M r M Fayle and Mr M Gardner 50 TPSM SELECT COMMITTEE, MONDAY, 6th DECEMBER 2004 Oral Evidence St Maiy Commissioners are the ratepayers. say an external audit, or an internal audit... the external audit is to guard the guards? M r G ardner: I was using ‘shareholders’ in the corporate context, i.e. - M r Fayle: An external audit... If by ‘guards’ you mean the public representatives, if they are the guards, then I M r Delaney: They are not shareholders, in your suppose, yes, the audit is - opinion? Mr Delaney: The answer is ‘yes’. Mr Gardner: They are stakeholders, they are not shareholders. M r Fayle: An audit of the guards. Yes. Mr Delaney: They are stakeholders, they are not M r Delaney: So, we paid it - the ratepayers, in this case shareholders, Then there is a very fine line between those - pay for somebody to guard the guards. That is, basically, two, isn’t there? what they would see, the public. M r Gardner: But there is a difference. Mr Fayle: For the financial statements that the guards produce. M r Delaney: Of course, there is a difference, there always is a difference, or the word would be the same. Mr Delaney: Yes, but that is... Never mind the But are you saying that the Port St Mary Commissi oners ‘geriatrics’ of it. I use the word ‘geriatric’, because it is an had a right to see the reports, the same as a shareholder in a old adage that it is going on and on and on. company, to ascertain whether their organisation was being It has gone all through the Kissack Report, it has gone all run in a proper and fair manner? through the public, this particular unsatisfactory matter, and it comes out, why did we have external auditors? And the M r Fayle: They are certainly public documents, and so, answer, as you have quite rightly said, to make sure that the as interested readers, they are entitled to read them. There figures that are produced by a local authority are checked by is an interesting question as to whom the auditors report, somebody outside to ensure that they add up. Is that right? because, again, the Act does not specify it. Mr Gardner: Broadly. M r Delaney: We will come back to the Act in a minute. Mr Delaney: Thank you - broadly. Thank you very much, indeed. Okay, if we get that identified. The Chairman: 1 am sure we will explore this issue in greater depth, as wc proceed. The C hairm an: Well, I am sure we will come back to Really, what 1 was trying to establish, at the start, was these matters, but I think it would be only fair to give you both there is a public view as to what an audit should do, and the opportunity to, maybe, talk us through the involvement there is, certainly, a view in Port St Mary that, perhaps, the which KPMG has had with local authority audit, generally, audit, as carried out, has not achieved that. and, perhaps, most specifically, with KPMG... So, I do not Now, your defence of KPMG’s position is that KPMG know, do you want to kick off with some thoughts on that? were not actually asked to provide the sort of audit that the public would expect. Would that be fair? M r Fayle: I think I was going to raise a backdrop issue, which, frankly, 1 think your questions have gone straight to Mr Fayle: Well, I think to say that ‘the public would the point of, because we will be, 1 think, stressing, time and expect’, I think you are right, to this extent. We work to the again, that our remit is bounded by the Audit Act, and that, Act of Tynwald that appoints us, and, without wishing to be whilst we have been fairly strong proponents of change, dismissive of other views, that is a statutory responsibility, have .been involved in promoting the discussion for that so we take that limitation very seriously. change, we have also said, right through the process with The commercial usage of ‘audit’ wraps up so many Treasury, through the last two rounds of process to appoint different aspects of auditing, of reporting, that are auditors, that - and, indeed, they have encouraged this - our not just based in statute, in professional practice, in appointment is clear under the Audit Act. international standard settings, in the capital markets view So, any question of amending that remit - across the of life, that these are very, very much broader regulations, board - of saying, ‘It is the Audit Act, plus we would like influences, recommendations, and many, many things in you to do this, or we would like you to do that’, has simply the auditing world are not specifically mandated. They are not been an option. It has been: ‘You are auditors, under the recommendations and advice that you take into account Audit Act, and that is the report that we expect to get’. for any given set of circumstances. So, that is a very, very broad area. The Chairman: On that very issue, was there a time The Audit Act is very precise, and, to that extent, if there when KPMG were undertaking audits, where Treasury and is a public view that ‘audit’, in a generic term, is something KPMG had come to an understanding that, perhaps, the you can apply to any time that it is used, then they may very auditors would do slightly more than was required under well expect something different. the Audit Act? But 1 think, in this context, it is quite clear where it is being used, and that is in relation to a piece of legislation. M r Fayle: Not in terms of local authorities. M r Delaney: Just to clear it, in the contcxt. Would you M r Gardner: Not in terms of local authorities, no. Tynwald Select Committee ou Port St Maiy Commissioners - Evidence of Mr M Fayle and M r M Gardner Oral Evidence SELECT COMMITTEE, MONDAY, 6th DECEMBER 2004 51 TPSM Mr Fayle: Our first appointment as public auditors to M r Delaney: Can you tell the Inquiry Committee who the Government was at a time when the tender process itself that was that made that complaint? encouraged, if you like, additional services. And by those, it was more in the nature of - although I use the phrase carefully M r Fayle: I believe it was Mr Jackson, and the reason - value for money type assessments of things we may or may I say ‘I believe’ is because we do not have a record of this not see, and we were in situ for one round of appointment, complaint, but we believe that he has stated that he contacted and, on renewal, we were not reappointed and another firm either a partner or a manager, and I am not clear which, to was appointed now. So, that had been our history, if you like, complain about certain issues to do with the audit. of the first phase of public auditors. But, as I say, we do not have a recollection or record of When we were reappointed and, at the same time, or it. Now, other than that, I do not believe we have had any shortly afterwards, when we took on the local authorities as complaint, certainly not that has been made in writing, about well, under, effectively, a single appointment, the landscape the audit of the Port St Mary Commissioners. had changed. It was very much that the additional services that could be built around the audit process were not required, M r Delaney: On that specific complaint, although you because the Audit Act did not require them, and we were, have no account of it, what was the nature of the complaint, specifically - ‘warned’ is not the right word, but - ‘suggested’ and what was the date of the complaint? that our approach should simply be to meet our statutory requirements. M r G ardner: Well, we have no record of it -1 think you would, probably, have to ask Mr Jackson. The Chairman: And, obviously, the Treasury would, really, have to answer this question, but, presumably, the M r Delaney: You admit that a complaint came. reasons for dropping the additional services would be purely financial. M r Gardner: No, we believe - M r Fayle: I think the financial landscape had changed M r Delaney: You believe? and the attitude of Government was that it was quite clear what it was tendering for, and that is precisely what we M r Fayle: Because we have heard it in evidence, both should have provided. at the Kissack Inquiry and I heard it here - The Chairman: But, in the early days, there was never M r Delaney: Have you made any efforts to find out how any additional auditing or reporting done on local authorities, it was made from the complainer, since the inquiry? specifically? M r Fayle: From Mr Jackson? No, we have not. M r Fayle: No. M r Delaney: Well, would it not have been of interest to M r Gardner: I think that’s true. you, bearing in mind that is part of this particular agreement, to find out why it was not followed through? Mr Delaney: Could I just go in there. I am just going through the tendering documents which you submitted to M r Fayle: I think that is a difficult one, because I think the Kissack Report. I am looking at the last paragraph, that this was already in train in part of the public inquiiy, and ‘Complaints’. I think we were just prepared to let things take their course. I I know it is a very small item, but it is very relevant think the events and the timing that they were being referred here. It says: to were some time ago, and so that, really, I think, there was little that we could have done to rectify any perceived ‘and if at any time you would like Lo discuss with us how the services problem. The fact is that we have no record of that problem can be improved, or if you have a complaint about them, you are invited being recorded with us. to telephone the directors identified in the engagement letter. If your problem is not resolved you can refer the matter to the Institute of Chartered Accountants, England and Wales’. M r Delaney: I am sorry, Mr Chairman, this is really important to me. Fine, could 1 ask, on record - because I have been through You are a big company .and you have a complete, in every • all the documents and relevant- information and evidence contract I see, agreement - you have that little paragraph - where, during this period - and I will identify the period as which may be very good businesswise. It says ‘here we are, up to where the Port St Mary Commissioners identified this ready to help you, if you have a problem’. problem of a large sum of money not being regulated - and I Here we-had an enquiry, where somebody said he made am using that word! - can you tell me, were any complaints this complaint; you have no record of it. It would have or problems brought to you by the Commissioners? been worthwhile in your business acumen, on your good welfare of your business, to have checked, to find out if he Mr Gardner: Not that I recollect, and, certainly, I do had, or how he had, made this complaint to you, so that you not recall one in writing. would have followed it through, to plug up the gap, in case somebody else could not get through to you, in the future M r Fayle: I think, we, certainly, were aware, because it - 1 mean, for good business reasons. has been quoted that there was one complaint made, and I • think we have to say, we do not have a formal record of that M r Gardner: We have systems in place for complaints complaint. That, I guess, does not mean that - that come into the office. Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mr M Faj'le and M r M Gardner 52 TPSM SELECT COMMITTEE, MONDAY, 6th DECEMBER 2004 Oral Evidence M r Delaney: Yes, but this is what I am saying. You have that will do their audit for them. The structure is that Treasury complaints, but this man said he made the complaint and, appoints the auditors. therefore, it would have been in your interest to find out if Now, obviously, the Minister at DoLGE was given a veiy your complaints system was working, would it not? Is that specific letter here, which clearly showed the frustrations not a reasonable question? which the local authority felt they had, with regard to the auditors, and they, naturally, you would have thought, would M r Fayle: It is a reasonable question, but I think, with have expected that that complaint, perhaps, would have been respect, from the information that we have had - and I accept passed on, or — that we have not followed it up - there has not been any indication from that complainant as precisely who he did Mr Gardner: Could I just pick up a point there, speak to. I have heard two versions of who he has claimed Chairman? to have spoken to, and it is very difficult for us to prove a negative. The C hairm an: Yes. All we can say is we checked our records, and we checked with all the personnel involved, who could have had the M r G ardner: I think the quote from the letter says that, conversation that was claimed, and they had no recollection ‘as a consequence, they then appointed Crossley Y. of it. I think we, really, cannot be any more precise about Well, Crossley vs were there, specifically, to do the it than that. accounts, (The Chairman: Yes,) not to undertake the audit. M r Delaney: So, could we follow that one up, Clerk, and find out from the gentleman, because he may have positive The Chairman: No, I appreciate that. ability to show how and where he made the complaint. Sorry about that, but I need to clear that, from the evidence. M r Gardner: So, I am not quite sure what the criticism of the audit process was. If they had had to appoint The Chairman: On a very much related issue, then, on Crossley’s - 14th February 2003, Mrs Wilson, the Chairman of Port St Mary Commissioners, wrote to the then Minster, Mrs Crowe, The Chairman: Again, there is no specific criticism, it and I will quote from the letter, the second paragraph: does not highlight or identify what the problem is, but it does identify that they feel there was a problem. ‘The Board has now expressed its conccms and frustrations regarding the Government appointed auditors KPMG to Mr A Eamshaw, Mrs M r Fayle: But, surely, if they have appointed Crossley’s Sutherland and Mr Whiteway’, to undertake the accounts, that is entirely our point, because we are only there to undertake the audit. and then, further, in the third paragraph, it says: The Chairman: But would you agree, though, that the ‘consequently, in the past 12 months we have appointed Crossley’s to manage our accounts in order that there is not confusion, as a result of fact that, effectively, we have DoLGE having some kind of KPMG’s incompetence.’ a supervisory role, not entirely determined with regard to accounts, anyway. You have got Treasury who have got the Were you aware of that letter? Did the Minister make ultimate ‘hire and fire’ position, with regard to the auditors, you aware of the letter, at the time, and how would you but then the local authority who actually pay for it. Would respond? it be unfair, perhaps, to suggest that, because of the rather unwieldy structure in place, perhaps, this is why there have Mr Gardner: Again, I do not think we have had any been some of the difficulties, with regard to local authorities formal notification, no. identifying - The Chairman: Right. Mr Fayle: Could I suggest that that goes back a step further, in fact, Chairman, and I think it is for this reason. M r Fayle: And I think by way of backdrop, clearly, we It is something that came out very clearly, I think, from Mr knew there were issues surrounding Port St Mary, and who Kissack’s report, and it is something that I think, again with regarded what as being their responsibilities. 1 think this is, the benefit of hindsight, you could see how things may very obviously, a very, very key area. well have been different. That letter, I believe - certainly, as far as I am concerned But, typically, our relationship, as auditors, is with the - only came to light during this recent process. There was officers of the authority. The very nature of many, many correspondence and discussion between Treasury and of the local authorities is that they are not available during ourselves. Again, from my knowledge, that specific question working hours, they meet in evenings, and, to all intents and about our competence was never raised. The questions as to purposes, the people we need to talk to, and to interact with, what was happening with the Commissioners’ accounts and are the officers of the authorities, the process that we were going through was discussed, but Now, I think, what, to me, had been abundantly not in the context of complaint. clear, at least, is that the officers of Port St Mary and the Commissioners were not communicating, because, time and The Chairman: 1 am trying to understand exactly how again, we have heard in evidence at the Inquiry - and I heard the relationship of everything works here. here - representatives, both from the Commissioners and for Obviously, the local authority pays for your services, but the officers, saying things that, frankly, I do not think they they do not have the power to agree that you are the people have any evidence to support. Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mr M Fayle and Mr M Gardner Oral Evidence SELECT COMMITTEE, MONDAY, 6th DECEMBER 2004 53TPSM The key one, to me, goes back to the flow of information M r Fayle: Yes. relating to draft accounts for 1999, which, it was claimed, time and again, were not recognised or seen by the Commissioners M r Delaney: Well, I am looking at just a few things here. - nor was their importance recognised - until 2002. I am looking at a letter from you to Chris Tovell. This is in We have - and you have, because we have, I think, the year 2000,6th April. You have it in front of you, haven’t supplied it to you - some of the few documents - and I accept you? No? 1 will just read one clause from it: there are few documents, because of the nature of our work - that show, at a point in time, that the Commissioners had, ‘The accounts currently balance within themselves, but the balance on the general revenue account cannot be reconciled to the balance through their officers, clear accounts - albeit draft - but on the bank account’. advanced draft accounts, that showed, precisely, the position they were in. Could you agree with me that such a thing like that would For 15 months, those accounts were not, as it were, appear on that year’s balance sheet, as a note? acknowledged as being in the possession of the Commissioners - and we still, really, have that position being maintained, that Mr Fayle: No, because that is only part of the process. the first they knew about it was January or February 2002. This was part way through the audit process. This was not Now, that might very well have been the case, but the an end result; this was just to say, ‘At the point we are at fact was the information was in the Commissioners’ hands now, the accounts add up, but they have not been audited to much, much earlier. independent verification, so there are gaps there’. Now, with the benefit of hindsight, then, we could, I think, say that that is far from ideal, and that one would, perhaps, Mr Delaney: So what was the cause, do you think, of have seen a better attempt at communication, but from where that inaccuracy in the statements? we were, at the time, we believed we had worked very hard to get them into a position where they had good information M r Fayle: There were a number of causes. available to them. Fundamental to the issues, I suppose, are the processes of bank reconciliation. That is, saying what you have in your The Chairman: On the whole communication issue, physical records - the things that the clerks write out, as then, perhaps, this is another example. The Clerk wrote, on they go through a day-to-day operation - from the other end 17th September 2002, to Mr Whiteway in DoLGE, and he of saying, ‘Here we have a set of bank records’, where we says here: can, independently, say, The bank agrees that this balance is correct’, and then saying, ‘What is the difference between ‘1 can confirm that our prior year accounts are now ready for signing the two, and why is there a difference between the two?’ off, subjcct to your confirmation that we can borrow from our reserve to counter the deficit in our revenue account’. The ‘whys’ can be many, many, many. They can simply be a - Now, this letter was copied to Miss Caley of KPMG. Presumably, if the Commissioners were aware, at that stage, M r Delaney: So, why was that, then, put in that letter, that they were running deficits - they were actually budgeting if you did not worry, at that time, or it was not the end of for deficits - they may have been a little.bit alarmed, at that i t - ? particular point. But I am surprised, perhaps, that Miss Caley was copied Mr Fayle: No, but that - into that letter - perhaps, at that point, would the auditors not have been expected to point out to somebody that this was, Mr Gardner: I think - perhaps, not the most appropriate way for public finances? M r Delaney: Why was that included in that letter, when M r Fayle: With respect, I do not think that is our role, they were asking, specifically, on the 4th for something which no, As things stand, no, because that is bordering on political was nothing to do with that, really. decisions. How an authority chooses to budget, within the 1 will read that letter to you, if you wish, if you have not confines of the law, is its business. If we do not approve got it, or if you have not seen it. of it, from a financial point of view, providing it is within their powers, we should not comment. We should simply M r Fayle: No, we have seen it. Indeed, I recognise it. report on it. M r Delaney: So, why did it include, as the second major M r Delaney: Yes, that is a fine explanation on that one. item, in the reply, ‘The accounts currently balance within You do not mind, really, because it is nothing to do with you, ' themselves...’, as I have read out. So, why did we include how the accounts are done, and how the monies are spent, that there, in that? or brought in, as long as they all balance up on the accounts, more or less, is it not? M r G ardner: It is a progress report. M r Fayle: And providing it is within their powers. M r Fayle: Yes, it is just an indication of what stage we were at. M r Delaney: As long as it is within their powers, but as long as it balances.. Mr Delaney: And does that indicate a matter in their accounting procedures to be wrong? M r G ardner: Yes. M r Fayle: It is not uncommon, in many businesses, never M r Delaney: ‘Yes’ is the answer to that. mind local authorities, during the progress of the audit, to Tynwald Select Committee on Port St Mary Commissioners -Evidence of Mr M Fayle and Mr M Gardner 54 TPSM SELECT COMMITTEE, MONDAY, 6th DECEMBER 2004 Oral Evidence find things that are either not in the right place, have been one year’s accounts to the other, without it. omitted, mis-described. There are any number of reasons why the reconciliation may not work first time. M r Delaney: Could I just go back to the contract, again, Ideally, they would be in a position where they were, but which I find fascinating reading through. it is not uncommon for them not to be. You have got the safeguarding of the client’s assets and thus, for my benefit and everyone else’s benefit, I will read Mr Delaney: Thank you. Are you aware of whether it: that matter then was brought to the attention of the Commissioners, in that immediate time? 'The responsibility for safeguarding the assets of the client, and for prevention and detection of fraud, error and non-campliance with the law or regulation, rests and shall rest with the directors’. M r Fayle: It would not be brought to the Commissioners1 attention, no; it would be brought to the office holders. I take it, that would be you, under your contract here? M r Delaney: And was it? Mr Gardner: No. M r Fayle: Undoubtedly. M r Fayle: No, those are general terms - Mr Gardner: Absolutely. M r Gardner: Corporate directors’ conditions. M r Delaney: Sorry? M r Delaney: Sony? M r Fayle: Undoubtedly. M r Fayle: Those are general terms and conditions which, in fact, relate to the client. M r Delaney: Undoubtedly, it was brought to the attention of the officers. M r Delaney: So, who would we take would be under this contract, for the record? M r Fayle: Because the whole process of our interaction with them would be to reiterate... certainly, at this stage, Mr Gardner and Mr Fayle: The Commissioners. where the whole process of the account was that the Port St Mary Commissioners, for whatever reason, were not M r Delaney: The Commissioners themselves? That is capable of bringing the accounts into the state for audit to an interesting answer, that. us unassisted, so there would be a reiteration of ‘process, correction, explanation, next stage’. ‘ We shall endeavour to plan our audit, so that we have a reasonable expectation of delecting material mis-statement in the financial M r Delaney: Now, I am just going back to the... Thanks statements, including those resulting from fraud, error or non- very much for that, 1 am pleased to get that answer. compliance with the law or regulations’. The Chairman: On that particular point, obviously, Mr Now, I take it you know, same as we all know, that there Fayle, you sat through the previous round of oral evidence is the law of the land that accounts have to be done each that we took. The evidence was quite clear from the Clerks year, at a certain date? and the Deputy Clerks that they felt that, in fact, the auditors were not as cooperative as, perhaps - M r Fayle: The accounts do, yes. M r Fayle: I know. M r Delaney: Can you tell me: at any time, is there any record of you, as the auditors on that agreement, bringing The Chairman: - they might have been, and they to the attention of the Treasury that these people you were were not reporting back and they were not giving them the auditing for were acting illegally? assistance — M r Fayle: We had a meeting, reasonably regularly, with M r Fayle: 1 heard that at the inquiry, and I heard it ■ Treasuiy and with DoLGE, at which issues such as that would here. have been raised. I think there are two things that I would say to that: one is that one can never produce absolute proof when you are M r Delaney: Did you put a note on any of the accounts talking about personal interaction. - a note, again, this time - to say that they could be acting What 1 can say is, though, that the very process of doing illegally, or were acting illegally, so that the people who were these accounts brought about end results. They have brought the... As you put it, they were not shareholders, according about end accounts, irrespective of the timing and view to what you told me, but they had an interest in this, they one might take of that timing, enabling them to move from were paying the bills - so that they were notified that a local one year to the other. It would be absolutely impossible for authority was not complying with the law? them to move one year to another, without some interaction between us and them. M r Fayle: In respect of that timetable, no. Again, that does not indicate what the level of that may be, but it must have been more than the evidence' that was Mr Delaney: There was no note anywhere, of any given, because it simply would not be possible to move from kind? Tynwald Select Committee on Port St Mary Commissioners - Evidence of M rM Fayle and M rM Gardner Oral Evidence SELECT COMMITTEE, MONDAY, 6th DECEMBER 2004 55 TPSM M r Fayle: No, quite clearly. No there is no such note. course, that one could argue we have got three clients, maybe even four clients - M r Delaney: I am pleased you said that, because I thought I had missed something, when I read them all! (Laughter) M r Delaney: I am aware of that. So, that situation is clear: that you never notified them in writing on the accounts, with a note, that they were breaking M r Fayle: So, I think that, in the context of that letter, the law. ‘clients’ would be Commissioners. M r Fayle: Not in the accounts - that is not to say it was Mr Delaney: I am aware of that. That is one of the not brought to their attention by other means. things this Committee, hopefully, will sort out - well, the Government will sort out, on our advice. M r Delaney: No, I am being specific - But what we are trying to work out is why... the people that you were auditing the accounts of - because you did not M r Fayle: Specifically, not in the accounts - have it - you said: Mr Delaney: The first question I asked you: so the "We do not contact the client on a regular basis with queries as we feel ratepayers did not know, officially, when they read the they would be unable to provide us with an answer in any case’, accounts - which they are entitled to by law, as well - they did not know that their local authority was acting illegally. That yet, before that, you were just telling us about the problems was the point, I want to make it quite clear on that one. with the accounts. And the other one is that, when we get down to the letter which I referred to before, of where Chris To veil wrote to you, M r Fayle: No, but I think what wc were saying is - on 4th April 2000, and you replied in the context of the letter I have just quoted from, why do you think he wrote to you? Mr Delaney: Our contact report... Mr Gardner: For a status report. M r Fayle: We do contact the officers, frequently. Mr Delaney: Just purely for a status report? M r Delaney: But if it is a status report back to the Treasuiy, who were querying it, surely, if you have the status report, Mr Gardner: I believe so. would not it have been advisable to tell the client the same information, so that they could improve their situation? M r Delaney: It says here, and it is quoted: M r G ardner: The officers of the client were aware of the ‘We do not contact the client on a regular basis with queries, as we feel situation - fully aware of the situation. they would be unable to provide us with an answer in any case’. The Chairman: Presumably, the contact with Treasury That is a strange statement to make, isn’t it? The people and DoLGE was at an officer level, as well? It was not at a that you are working for? political level. Mr Gardner: That depends whether that context was M r Delaney: Not in 2000,1 do not think - were they? meaning the Commissioners or not. We would not routinely contact the Commissioners. Mr Fayle: Oh, I think they were. Mr Delaney: But you just told me you had regular M r Delaney: Well, that will be interesting to get that meetings - found but. M r G ardner: With Treasury and DoLGE. M r Fayle: During 2000 - during the summer of 2000 - we were doing the work to make the 1999 accounts available: Mr Delaney: Why did you not... I mean these are the period. Not the Commissioners. At the end of the day, we people whose accounts you are doing. I read that, and unless did it. you are telling me... Mr Gardner: We did the work, and there is evidence ‘Wc do not contact the client on regular basis’ of that. - who is the client, then? M r Delaney: When you say you did the work, over and above what you were contracted - Mr Fayle: I believe the context of that letter is the Commissioners. M r Fayle: We did, absolutely. We did - a great deal of work over and above what we were contracted for. Mr Delaney: Thank you very much, because we were getting a bit confused, there, weren’t we? The client is the Mr Gardner: And did not charge. Commissioners, but you said, ‘We do not contact the client on a regular basis’, M r Delaney: And did not charge? Mr Fayle: The trouble with this terminology is, of M r Fayle: No, we did not charge. Tynwald Selcct Committee on Tort St Mary Commissioners - Evidence of Mr M Fayle and Mr M Gardner 56 TPSM SELECT COMMITTEE, MONDAY, 6th DECEMBER 2004 Oral Evidence M r Delaney: That is alright for the moment, you crack do not - on. M r Fayle: No, but I think, back in the context of the time, The Chairman: Right. In your letter dated 15th where I think the history of our experience with Port St Mary November 1999 to the Treasury - this is the letter setting out Commissioners, previously, and just general experience of the basis on which you were to act as auditors - you state: local authorities, in interacting with the officers, is that, typically, it was relatively trouble free. 'We shall obtain an understanding of the accounting system, in order I think, in this particular case, the benefit of hindsight, to assess its adequacy as a basis of Ihc preparation of final accounts certainly, shows that the change in personnel, which was, and to establish whether or not proper accounting records have been actually, probably far wider and far deeper, in terms of maintained*. experience, exposed greater weaknesses than were apparent, at the time. So, a simple question: did you obtain such an understanding of Port St Mary’s accounting system, and when? The Chairm an: As far as the legal position is concerned, you do not feel that you were required to formally notify Mr Gardner: Well, to the extent necessary, yes. You the Commissioners that you felt that their accounting have got to remember that this does apply to all the local officers were incapable, perhaps, of running the accounting authorities, so you are going from the very small authorities system? - Santon, for instance - which may only keep a simple cash book, up to Douglas Corporation, which has a fairly complex M r Fayle: I think not, under the legislation. accounting system. So, there are all stages in between, which the Commissioners may be. Mr Delaney: Yes, I am sitting here, really learning So, in Port St Mary’s case, it is not an overly complex something here. One of the reasons you are saying, as I accounting system, so, yes, we would have had an ■ understand, we were a couple of years behind for the accounts understanding of the accounting system, in order to enable down there is that you were not gening the information, us to do the audit. because of the incompetence of the officers. That is what you have just stated - is that right? So, on The Chairman: So, then, the next question is: did you that basis, all the other authorities which you were behind find their accounting system lacking? with, as well, they were incompetent, too, were they? Mr Gardner: The accounting system per se, no. The M r Fayle: No, no, I think - people who were running it, maybe. Mr Gardner: Not necessarily, no. The Chairman: Right. Is that something that, perhaps, you ought to make statements to somebody about, or is that M r Delaney: So, why were you behind, then, not only not the sort of thing - ? with the Port St Mary Commissioners, but all the others, bearing in mind they were all breaking the law? Mr Gardner: Well, unless you are suggesting that Treasury and DoLGE were not aware of that. M r G ardner: 1 do not think we were behind with all the others, with all due respect. The Chairman: Is that not something that, perhaps, should have been part of the auditors’ report on the front of M r Delaney: Most of the others - 1 have got a list here the accounts? of that time, through that period. M r Fayle: I think, if it should, though, that would require Mr Gardner: But that does not mean to say they were the law to say so, because it would require us to take those breaking the law. The law only requires them to produce the steps over all 70-odd authorities that fall under the remit of accounts for audit within six months of the year end. that Act, not just individual ones. So, that would have an impact - quite a significant impact M r Delaney: That is right. Well, they did not, most of - on the statement, and the work we would be required to them, did they? do. M r Fayle: No, I think most of them did. The Chairman: So, bearing in mind what you have said, there, that you felt the accounting system was adequate, but Mr Gardner: You will find most of them did. the officers were lacking, what did you do to bring that to The lists I think you may be referring to... I do not have the attention of the Commissioners? ' your papers, but I suspect those are the lists for those who had not yet been presented to Tynwald. M r Gardner: I think, at that stage, we were relying on the officers. 1 mean, obviously, with hindsight - M r Delaney: Yes. The C hairm an: But it is a bit... You reckon that - M r G ardner: Well, that does not mean to say they were breaking - Mr Gardner: But we are five years down the line. . Mr Delaney: And their reason was they had not been The Chairman: - they are not capable, and then you audited. Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mr M Fayle and Mr M Gardner Oral Evidence SELECT COMMITTEE, MONDAY, 6th DECEMBER 2004 57 TPSM M r Fayle: That is right - of the local authorities, recently. It seems to have indicated... Well, their response is that M r G ardner: That is right, but that is not the requirement they managed to submit their accounts within the period, of the Act. The Act requires the accounts to be prepared as laid out in the law, and that they were, on the whole, ready for audit within six months of the year end. There is submitting their accounts at that specific time, as requested no timetable on the audit process. by the auditors. Would that be the general...? M r Delaney: So, how many local authorities on the Mr Gardner: Not necessarily at those times, but they Island were then in that state? were generally submitted to us, within the timescale allowed, yes. Mr Fayle: I just have not got that information, I am Where the deficiency in the legislation is, I think, is in afraid. not setting a timetable for the audit to be completed. M r Delaney: You do not know? The Chairman: And is there anything specific in the legislation with regard to what quality the accounts are? M r G ardner: Very few - Because, again - M r Fayle: Well, I have not got that information - M r Fayle: None at all - Mr Gawne: - obviously, it is very easy to submit M r Delaney: Very few? accounts, but if those accounts are not — M r Fayle: It would be very few, but the issue about the M r Fayle: It, basically, talks about there should be the timing of the presentation of the accounts was that the Orange cash book entries - essentially, a cash basis - but it does Book, in which these were included, at the time, was set for not specify that they should be, as it were, error free, in publication around about February. the sense that they should, themselves, be internally self Now, again, the issue of timing is one that is open to standing, and they should not require additional accounting discussion, and 1 think is well worthy of discussion, but the work to bring them into a state where they can be signed as fact remains that, if most of the accounts are pushed fairly audited accounts. late in the process of submission, which, again, would not be That latter position would be the exception, rather than untypical, then the accounts would, to be cleared and signed the rule. Very, very few are in a state where the audit can be off - all signed off, because that is also a process, particularly performed and signed and amended. where the authorities, perhaps, only meet monthly - to get them all ready, published, signed and in the hands of Treasury The Chairman: In your -1 think it was - submission to for publication in the Orange Book was more difficult. the Kissack Inquiry, I think you mentioned, specifically, that you felt that officers of the majority of local authorities would M r Delaney: So, you have been through all this, and you not be capable of complying with more stringent audits - must have, in some detail... You have read all this, all the Kissack Report. You have sat through it - 1 know you have M r Fayle: I think this is in the context of describing what sat through it - and you are telling me, again - just get this alternatives of standards there would be, and I think, in that right - that the local authorities who were a couple of years, particular instance, we were talking about the application of minimum - 1 am not using the extreme - two years behind, what are called generally accepted accounting standards, or were all signed off ready to go? accounting practices, where the understanding of those does require you to have, frankly, some form of formal accounting M r Fayle: No, I said there were very few - qualification - be that a chartered, certified or otherwise, or possibly, in these cases, to an acceptable standard, perhaps, M r Delaney: Very few. at accounting technician levels — but they all require some degree of qualification. Mr Fayle: - that were two years behind - behind in The point we were making is that, without those qualities terms of publication in the Orange Book. It did happen, and, on board, it would be very difficult for authorities to meet for particular cases, for reasons - you may not accept they those standards. But that, in itself, would bring out a very were good reasons, but there were reasons why they were great problem for a lot of authorities, because of the cost of in that condition. providing the skill in-house, in the first place. So, it was really There would be a rather greater number who would miss a development of matching the need and the requirement, on the Orange Book for one year - that would be the deadline one hand, and the cost of providing it, on the other. for publication. So, I do not think there is quite the same thing about them being submitted late. M r G ardner: 1 think it would be very easy to say all the local authority accounts should be prepared in accordance The C hairm an: So, just to confirm on that one, basically, with UK Generally Accepted Accounting Principles. what you are saying is that there were very few local It is a simple statement to make, and it would set a authorities actually submitted their accounts late? benchmark for everybody, but I think the point Mike is making is that, for some of the local authorities... the . M r Fayle: By and large, that would be true. middle sire to the smaller local authorities, just would not have the resource available to be able to apply that level of M r Gawne: Yes, certainly, that is the trawl that we had standard. Tynwald Select Committee on Pori St Mary Commissioners - Evidence oi M r M Fayle and Mr M Gardner 58 TPSM SELECT COMMITTEE, MONDAY, 6th DECEMBER 2004 Oral Evidence The Chairman: There is kind of an implication there, to say that there is an absolute consequence of changing and it, certainly, seems to be supported by DoLGE, at the accounting standards. As I say, the Audit Act is at one end moment, that, effectively, small and medium-sized local of that spectrum, and that Generally Accepted Accounting authorities could not exist in their existing form, if there Principles are at the other. were significant revisions to the Audit Act, in the way that I mean, just because of our profession, we must sustain you suggest - that that is the ideal, but we are not in an ideal world, and I think it would be tenable to say, ‘If you take these M r Fayle: I think that is quite difficult, because I think, consequences, if you insist on that being the standard, yes, you could draw that conclusion. there will be consequences upon it’ - absolutely. But that is I think what it does not take into the equation is, basically, not to say that you could not have another set of reporting I suppose, what is, in common parlance, ‘risk assessment’ standards. - looking at what it is those local authorities are doing, what Who makes that decision is certainly not us, and, to that sort of level of funding they are controlling, perhaps both extent, it is, clearly, a political decision of where the lines in total and in flows, to really, then, say, ‘Well, is it the tail of accountability need to be drawn. wagging the dog?’ Are you going to set accounting standards to determine M r Delaney: Can I just continue, since the Chairman is that a local authority cannot exist because of cost, or do losing his voice! 1 am interested in a letter you sent to the you look at a local authority and its responsibilities and Kissack Inquiry, and I quoted from it: say, ‘Yes, this is acceptable, but we then need to define a standard’? And it might not be as extensive as the general ‘We do not believe that it was the responsibility of the auditors accounting principles, but it is more than the very, very appointed under the terms of the Audit Act to report the inadequacies minimal approach of the Audit Act.. in systems of financial management and control1, So, 1 think, between the two, there is also a possible answer, but it, clearly, has to take in more than just black yet, from what we already know, you are already saying, in and white, and two extremities. your contract, that you will do that. The Chairman: So, effectively, in that, you are saying, M r G ardner: No, we say we will look at them in the whereas there is a degree of support for DoLGB’s existing audit. position... Obviously, we have a report going to Tynwald next M r Delaney: You will look at them? Well, that is very week in which DoLGB calls for four area authorities, plus nice, but what do you do with them, if you do not do anything Douglas. One of the reasons for that is that, if we introduce at all? What, exactly, do you think the role is? You are giving more stringent auditing standards, we would need to have two lots of different advice. authorities of that size, for them to be able to adequately manage and look after their finances. M r Fayle: What we do with them is define and set our Effectively, what you are saying is, whereas, to a certain own parameters for how we will undertake the audit. extent, that may be the case, there are other possibilities as w'ell, with regard to the way in which auditing and local M r Delaney: But if you... Why did you not tell them? authorities can be dealt with. We are all lay people here, on this issue, except when I get my own accounts done, but I would hope my accountant... M r Fayle: I think that is absolutely right, and I think it and I am talking on behalf of the vast majority of.people really focuses, again, on moving away from perceptions to out there in the wide world of the Isle of Man, when they specifics. I think, if there is anything that is coming out of get their accountant, he would tell them, firstly, if they were this, that I am much more aware of, it is that the perception going bankrupt. of what is expected, or not, can be very different from what They would expect their accountant to tell them if they is actually written down, as specified. were going bankrupt or not, and they would certainly expect, 1 think, whatever comes out of this process, be it general if they were not happy with the situation of how the accounts accounting principles or not, or something else, it must be were done, to give them some advice, so that the following specific. This general fuzziness around expectations is not year they could do them better, so that would keep everyone going to help anybody. happy, including the tax man - as we know here, from the VAT problems, and everything else. The Chairman: You sat here and heard the same as we So, w'hy did you indicate that any faults you would point did: 1 think both the Chairmen who appeared before us, at out to them, and yet, here, you did not do anything at all, the last sitting, claimed that DoLGE was using the situation when we are seeing a doubt with it? in Port St Maiy for political means to push forward the idea of local authority reform. M r Fayle: I think there are two things: one is, I think, We have also got evidence from Treasury that they are not we, perhaps, differ on the interpretation of what we are saying, prepared to move, with regard to amendments to the Audit in our terms and conditions, because I do not think we are Act, until local authorities are restructured. Would you say saying, in that, that we are going to report to you. that that is more of a political call than an actual hard fact But, from your question, the answer is very simple: you are auditing call? a private individual employing an accountant under a contract between you and him. You are agreeing with him what he will M r Fayle: I think that is very much in the political arena, do for you, and paying a fee for that service. and I think it would be... it just simply would not be correct We are doing what we have been contracted to do, by Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mr M Fayle and M r M Gardner Oral Evidence SELECT COMMITTEE, MONDAY, 6th DECEMBER 2004 59 TPSM Treasury, under an Act of Tynwald, and we are maintaining We have to - or, sorry, you have to - in some way, shape the position ~ or form, be able to say how do each of those, how does central Government, how does the Statutory Boards and how does M r Delaney: So, it is the system’s fault? the whole raft of local authority government audits, how are we going to fit those into one framework? That is going to Mr Fayle: No, no, it is not the system’s fault, but Tynwald be very, very difficult. defined it. So, I do not think it is a matter of fault - Now, in the UK, in the local authority arena, they have actually split the local authorities up, so small local authorities M r Delaney: So, it is Tynwald’s fault! (Laughter) are actually exempt certain requirements. I cannot remember the exact definition, but I think ‘small’ is defined as less than M r Fayle: No, not fault at all! Tynwald set the Audit half a million turnover. A c t- Wei), again, that does just not apply in an Isle of Man context, because ‘less than half a million turnover’ would M r Delaney: Well, it is obviously some fault, because it take out, virtually, all your local authorities. So, you have should not happen. We all knew it was wrong, but nobody got to define your own limits, and what does it mean to be a has done anything. small local authority and what does it mean to be a large local authority, and does it have separate accounting requirements? M r Fayle: But I think you are asking us, then, to say that But that is where the discussion starts. we should re-interpret, to take Tynwald’s intentions, and I do not believe that is our role. M r Delaney: Yes, in some of your evidence you gave to the Kissack Report, I will read it out: The Chairman: To a certain extent, though... I think this is, probably - well, it is certainly, a directly related issue ‘On 16th August 1999, we attended the Commissioners’ offices to - KPMG has, certainly, made very clear representations, as commence the audit. It became apparent that the accounts were not in a sufficiently advanced state to be submitted for audit There were far as 1 can see, anyway, to Treasury on the merits of the significant gaps in the financial statements and important audit evidence Audit Act. missing - critically, the bank reconciliations for the whole year.’ Do you want to talk to us, a little bit, about the sorts of discussions you have had with Treasury, and the general views Now even I, as a village idiot, if you want, would agree of the Public Auditor on the development of the audit - that you cannot do an audit if you have not got your bank statements. Mr Gardner: How long have you got? I mean, yes, you You went on, further: are right. ‘At this stage, such were the deficiencies we were obliged lo Mr Delaney: Bearing in mind we have all read your withdraw from the audit for a process pending remedial work by the Commissioners. We note that Mr Popper,’ paper. (Laughter) - and this is the relevant piece - M r G ardner: Yes, I will keep it short. You are right, we have spoken to Treasury and, indeed, we have spoken to ‘in his letter lo Treasury on 30 th March 2000, believed it was KPMG rather the Public Accounts Committee on a couple of occasions, than the Commissioners who were at fault. The later correspondence, as well, about other matters, but it sort of impinged on the particularly in November 2000, and the latter appointment of Crosslcy’s, Audit Act. indicate that whilst we clearly had difficulties in conducting a satisfactory audit, the root cause was not inaccuracies on our part, but in the lack of 1 do not think there is any doubt that we feel that the Audit accounting skills of the Commissioners’ officers.’ Act is too narrowly defined, and Mike has already referred to that. As Mike has said, our ultimate ideal would be to move You are still completely of that opinion, obviously? towards Generally Accepted Accounting Principles, because that is what we are brought up on, if you like. Indeed, in Mr Fayle: Yes, the private sector, you musl adhere to Generally Accepted Accounting Principles, and I see no reason why the public M r Delaney: With that situation in mind, bearing in sector should not move some way towards meeting that mind the financial statements, which are crucial to know ideal. exactly how much you have or have not got in the bank, do But, effectively, when you look at the public sector audit I understand that, in its proper context, when you got to the appointment, you have, broadly, got three different types of offices - or your officers got to the offices - that they could entities, each with their own separate requirements. You have not produce the bank statements? got central Government, you have got the Statutory Boards, which are almost akin to commercial enterprises, and you Mr Gardner: No. have got a whole raft of local authorities. In overall terms, you have got 70 different entities, M r Fayle: No. What they could not produce is the bank within the public sector appointment, and just blandly or reconciliations; it is a very different thing. broadly saying, ‘Every entity must adopt Generally Accepted The bank statements, clearly, are the pieces of paper Accounting Principles’ is not going to apply to things like the that the bank send you with the records. The cash books are Royal British Legion Housing Association, the Endowment where they should be recording, initially, the transactions Committee Funds and all that sort of thing. The smaller entities they undertake. The reconciliation, if you like, is the trail are just not going to be able to meet Generally Accepted between one and the other, that helps you identify where Accounting Principles. they disagree. Tymvald Select Committee on Port St Mai'}' Commissioners - Evidence of Mr M Fayle and Mr M Gardner 60 TPSM SELECT COMMITTEE, MONDAY, 6th DECEMBER 2004 Oral Evidence Now, there are two things you can say about that: either and could have contained a lot of fraud, that situation, where bank reconciliations are done, but not retained - now, from you could not identify where the money was and going, and an audit point of view, that means that we cannot look to any whether it was cleared. evidence that is contemporaneous with the actions, to say, ‘Yes, we can see you have been doing that' ; or they have not Mr Fayle: 1 think, just taking the timetable again, from been done. May to August, there would have been no contact, because the Now, what was clear in the case of that point in time is that first scheduled visit would not have been till August. So, there there were not reconciliations available to us, to reconcile the would be no reason for any communication, in that period. balances - or the financial statements, in terms of the accounts From August through to a date - 1 cannot give you a precise - to the underlying records. date - but some months following, we had expected - we did expect - that the Commissioners would be doing work to M r Delaney: I am looking through, obviously, the reports, rectify the shortcomings, and to come back to us when they and I read through it all. I am still looking for an answer to were ready for us. this: what was the answer, at the Commissioners’ office, to you or your representatives - when you talk about ‘you’, I M r Delaney: Now, what I am trying to identify for us, lake it you are talking about your representatives there - to in a layman’s terms - the Chairman has admitted he is a them, why this trail was not there? farmer - my business acumen is limited - but, nevertheless, I do understand a certain amount of this. And the warning Mr Fayle: Perhaps we just, again, if I may just step back flags going up, here, must have been up with you, if you one layer, because I think thé preamble to this was our letter could not identify that particular trail on the finance of the to the Commissioners of, 1 think it was round about, 15th connection. May 1999. I think a copy of that letter is in that pack, and Did it not conccm you, to an extent that you would have that letter set out -1 have re-read it many times now - 1 think to tell somebody that this potential dangerous situation was very, very clearly what we had agreed, what it was that the in existence? Commissioners should be providing to us, what the dates would be, and, I think, the final item was actually what the Mr Gardner: It would have come up as part of our fee was. Treasury meetings. Now, that was not just an initial letter; it was a letter confirming the contents or the subjects of a telephone call, that M r Delaney: Well, 1 have asked the question before. Did was setting up the meeting. This was setting it up for August, you bring it up to the Treasury? and Ï did hear evidence, again, that, perhaps, our letters were not taken terribly seriously. M r G ardner: Have I got evidence to say so? No. Now, I find that fairly astonishing, 1 have to say. The letter is quite precise as to what its intention was, what it was we Mr Delaney: No. were expecting, and the timetable in which we expected it to happen, by agreement - not by imposition - by agreement. M r Gardner: But I am sure it would have been - Now, when we, then, arrive to undertake work which is pre-planned and, basically, none of those things were available M r Delaney: You are sure you did. That is what I feel. or delivered, our initial response - and, again, this is where 1 cannot document it to you, I can only give you the scenario M r G ardner: Yes. We discussed with both Treasury and - would have been to say: ‘These are the things you were DoLGE those accounts that were becoming late, in terms of committing to do, these were the things you were going to the process. prepare for us, we cannot do our job without them, so we are going to have to go, and you will have to provide them’. M r Fayle: And 1 think the.generic reasons - but I suspect Now, that is very much a sort of précis, but, insofar as we' the answer is that there would not have been a specific can, we have gone back to thè staff involved, and that is the conversation that said, ‘This set of officers have not done x, tenor of the conversation that, really, having established that y a n d z ’. none of the things, by agreement, had been prepared, we would simply have to withdraw until they were available. M r Delaney: There are two different answers, if I may say so, that I am getting here. M r Delaney: Thank you very much for that. Now, clarify One says, ‘I am pretty sure we did.’ Remember the in my mind only. seriousness of this, now. You have got a local authority You wrote a letter on the 15th. (Mr Fayle: Yes.) They had spending large amounts of money, and you cannot identify if that information. The trail was not there. You were having any of this money, under this system, has been spent properly regular meetings with the Treasury - you have confirmed that. - 1 use that word. That must worry anyone who is going to Did you bring that matter up to the Treasury? do an audit. Mr Fayle: At what timeframe? M r Fayle: But only at that point in time. Mr Delaney: At any timeframe during that period. M r Delaney: Now, I am saying - he is agreeing, your colleague - Mr Fayle: No, well, because from the 15th May to August - M r G ardner: Clearly, it is very important, absolutely. M r Delaney: That is a very serious matter, if 1 may says so, M r Delaney: It is very important. It has to be. Tynwald Select Committee on Port St Mar}' Commissioners -.Evidence of Mr M Fayle and M r M Gardner Oral Evidence SELECT COMMITTEE, MONDAY, 6th DECEMBER 2004 61 TPSM M r G ardner: But the Commissioners... that is not to say - the public - the people who were paying - the ratepayers that the Commissioners did not have systems in place. did not know there was any difficulty. Mr Delaney: But you were not prepared to do the audit Mr Fayle: No, but let me take that, then - until it was put right. That is what you told us, (M r Fayle: Correct.) and I can understand why. M r Delaney: So, why should they continue in the future But to me, as an ordinary layman, and I am sure to anybody to have someone doing the books when they are never going else in the Isle of Man, it would put up warning lights that, to find out if any mistakes have been made? maybe, there was something amiss, and therefore, somebody should be told about this. I am not saying you were the person Mr Fayle: You have identified one element that is not in to put the warning flags up, but you knew enough people to the accounts, which it is arguable that it should be there - and have put the warning flags up. And J think you follow my that is the late delivery of the accounts for audit. But that, in point. itself, tells the reader absolutely nothing. The accounts tell them what was spent, what was received, where it went, and M r Fayle: I follow the point. what the balances are. Now, in this particular case, the reader 1 think that, going back to the time that the processes - at would not like what they saw. But the fact is they expressed the time those decisions were being made - I think that first what happened. failing, if you like, the first milestone that was not met, did And now, the crucial times - in terms of public not set those warning flags going. accountability - I think this, clearly, gives a case for saying With hindsight, should it have done? I think it is impossible that, come what may, there should be a cut off date for the to be certain about that. With what wc know now, I think the publication of audited accounts - whatever state they are answer might be different! But, generally, 1 am trying to be in. Our traditional approach to this would be to say that, open about our processes then- then, no, it did not set up that typically, we do not want to sign qualified audited accounts kind of warning flag. for people. Yes, we do not want that sort of hare running, as a matter M r Delaney: I am actually speechless on that one because, of course. So, what we attempt lo do is to get to a stage where therefore, I would ask the final question and, gentlemen, you we can get clean reports, in a timely fashion. have been kind to me and very tolerant of me - the answers, Now, clearly, the timely fashion of this particular process therefore - I have to ask the question: why have external did not happen. In the first case, the accounts were not ready. audits? It progressed to a stage where we, actually, then, stepped out You told us this afternoon, and what is all in the evidence, of our box - and we accept that we stepped out of our remit is that, really, other than doing the ‘add-ups and take-aways’ - to do the work to get them to a state of completion. of local authorities, which is done internally, what is the point We then got those accounts of the Commissioners. Now, of having the external audit? for whatever reason, which we have never had explanation, they then sat again for months - inactive. And that repeated M r Fayle: I think you have answered the question, partly. itself, time and time again, through this story, even to the The add-ups and ticks - stage where one of the later complaints about us to DoLGE was, actually, at a point when they had had all three sets - all Mr Delaney: Take-aways. three years - of accounts, in their hands, for two months, waiting to be signed - and they still took another five months M r Fayle: Take-aways - sorry! (Laughter) - do actually to sign them. end up in a set of accounts that, if there were no auditors, and Now, 1 think, again, that the question that had been is that we did not nothing, 1 suspect, in a number.of cases, would not if there had been a absolute deadline for the signing of the be showing the correct position, because it is not unusual for accounts, then we would have been forced to qualify, because us to find things that need adjustment - have to be presented we would simply have had a set of accounts which we were differently. not satisfied with, and we would have said that wc cannot In this particular case, and in the generality, ‘what is the give an opinion on these accounts. point of the audit?’ The point of the audit is what the Audit Now, as a process, I think one could look at it, and say that Act says it is: that is to show to whoever the stakeholders are is something that could have been considered - could have - be it Government, Treasury, DoLGE, the readers - that what been done. The view we took was that we needed to get the they are reading is an accurate statement of what has gone on, accounts up to date, as quickly as possible, to sign off, so that up to a certain point in time - and, frankly, no more and no they could be presented to the public, albeit late. less. It is a correct statement of financial affairs. But the key thing, to my mind, is that, in terms of information to those who need it - principally, those who need Mr Delaney: With due respect, that tells me why you it, i.e. the Commissioners - is that they had draft accounts right are working, but does not tell me who you are working for, through the process. And, for whatever reason, that is then in reality, because we have already identified, if I may say outside of our control - and, again, I think, in the context of the so, that the people - the payers of the local taxes - were not audit, out of our rem it- the breakdown of communication was, being told anything. actually, between the Commissioners and their officers. Now, I am not making any assertions about what the M r Fayle: No, but - Commissioners did or did not do - it is simply a matter of fact that they did not reach the board table for discussion and Mr Delaney: They did not... because of the lateness of decision. And that, I think, is very unfortunate. the accounts, and because there were no notes on the accounts 1 think 1 would just like to stress, at this point, that 1 Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mr M Fayle and Mr M Gardner 62 TPSM SELECT COMMITTEE, MONDAY, 6th DECEMBER 2004 Oral Evidence think that the importance of the draft accounts is far more legal background, rather than an accounting background, important, actually, than the signed accounts. and, as ultimately transpired, they could have employed Crossley’s or, indeed, another firm, PKF, anybody else lo M r Delaney: in short, you are saying - it is pretty clear actually undertake the accounting work on their behalf. that - some of the faults, the major financial faults, of this So, that, to a large extent, is down to the Commissioners little authority would have been identified, had the accounts, to decide who should be responsible for the accounts. It does or draft accounts, got to the Board members much earlier? not have to be the Clerk. Is that what you are saying? The C hairm an: Yes, so, effectively, for example, if all M r Fayle: Oh, absolutely. I think the Commissioners the local authorities in the south wished to club together have made it plain, time and again, that they were not aware and take on the services of one particular finance agent or of the position. accountant, or whatever, they could quite easily do that, Now, there are various things - and comments which I and comply with either the basic standards we have at the think may be made about the backdrop of the scenario of the moment, or even more advanced. Port St Mary Commissioners, because they set the budgets. But setting that part of it aside, if they did not have accounts Mr Fayle: Well, I think it would be - particularly in put before them, then they, clearly, could not have been aware the sense of enhanced standards - an entirely realistic of- what was in them. proposition, because then... it would need some discussion So, as a matter of fact, that would appear to be the case. and agreement, but one could entirely envisage a single The Board was not presented with accounts - at any time. system, operated by a tenderer, who could predefine the accounting headings - they are all the same for all the local M r Gardner: But it does also beg the question - just to authorities - and, simply, operate a single system to the expand on that - what financial information would they get right standard, and issue perfectly standard reports, in an throughout the year - not just at the audit time? extremely routine manner. M r Delaney: That was going to be my question to you! The Chairman: I suppose the other question, which, (Laughter) 1 do not think... That was my question to you, but I suppose, we really need to address - I think we have that is going back to my point, three points back, was that if heard already and, certainly, some of the evidence we have any - and 1 will use the word - ‘problems’ were arising - a received would indicate this - that, on the whole, most local misappropriation or misuse or misdirection of funds - they authorities do present some form of accounts within the legal were not being picked up by anybody, am I not correct? timescale to the auditors. That is a fair assessment, is it? (M r Because you did not have any way of clarifying where the Fayle: Yes.) Yes. money was and was not spent. Perhaps it would also be fair to say that the authorities which do not present within the legal timescale are not, M r Fayle: I think the answer to that question is that necessarily, the very smallest authorities but, on the whole, had there been any, then, clearly, there could not have been they tend to be the authorities with more complicated financial anybody picking them up. arrangements and, perhaps, some of the larger authorities are the ones that would be least likely to comply. Mr Delaney: Could not have been. Thank you very much, gentlemen. I am sorry I have held you up on that Mr Gardner: It does vary enormously, to be fair. problem. I'wanted that clear. Probably, the medium sized ones are the ones that have the most difficulty, because they are a large enough authority The Chairman: Right. I am interested-well, concerned that they may have lots of different areas of expenditure, is probably not quite the w ord... We, as a Select Committee, and yet they are not large enough to be able to afford a fully have to report back to Tynwald with recommendations, so qualified accountant, who can deal with those. 1 think it would be possible to, maybe, focus on the Audit So, the smaller ones do not, generally, have very complex Act, the general compliance of local authorities and with patterns of expenditure. So, maintaining a simple cash book their auditing procedures and the like. I think that would be is really sufficient for those type of entities. helpful, just for a little while, anyway. The large ones - the Douglas Corporation, at the other I am interested, first of all, in the issue... Effectively, in end, has sophisticated computer systems to be able to do Port St Mary, from what we have heard today, regardless a lot of their own work for them. So, it is the ones in the of the auditing standards, if the officers are not capable of middle that, potentially, could be the ones that have got the doing the basic accounting procedures, then it, really, would most difficulties. not have mattered what audit standards you had in place, they would still not have been able to do the job. Is that a The Chairman: Douglas have had problems with their fair statement? accounts. Mr Gardner: Well, at that particular point, that is M r Gardner: They have had problems, yes. Part of that potentially right, but that does not stop the Commissioners w'as due to the implementation of a new accounting system, employing somebody else to do that role. unfortunately, but they did have problems. The C hairm an: Yes, yes. M r Fayle: I think, if I may, the key differentiator, in my mind, is whether or not they have borrowing authority of any Mr Gardner: I think Mr Popper, from memory, had a significance. I think, as soon as you bring in capital schemes Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mr M Fayle and M r M Gardner Oral Evidence SELECT COMMITTEE, MONDAY, 6th DECEMBER 2004 63 TPSM and, it has to be said, probably a rather archaic - and 1 do Treasury did produce a revised set of Financial Regulations, not mean that in a derogatory sense - but the very old public I think, at one stage, which did include some requirements authority system of sinking funds which to, probably, anyone in there, as well, which we did look at. bom in the second half of the 20th century, is a complete And we are currently in conversation with the Internal confusion. That is something which is just way out of the Audit team, who now have been given the remit to look at every-day occurrence of a professional accountant, never changing the Audit Act. mind officers. So, I think, those who arc borrowers often have So, there has been a steady trickle of stuff over the more difficulties with the processes than any other. years. The Chairman: Effectively, those issues could be M r Fayle: I think the context setting for that is that we addressed within a new Audit Act. I mean, you could have been willing participants but, at the end of the day, we incorporate an amended Audit Act. You could actually iron cannot drive that change. out a lot of these problems. So, when there has been a momentum to do something, we have been right there doing the discussing and making Mr Gardner: I am not sure that the Audit Act would the suggestions, but if the impetus to make the change has actually iron out those problems. I think it comes back died off, then we have not then continued, as it were, to bang to what you were saying before, Chairman, in that there a drum of initiating change. So, we have been reactive to is nothing stopping local authorities clubbing together, to that extent, albeit very willingly reactive. get professional advice in those areas, and it is that that is required, not necessarily changing the Audit Act. The Chairman: But do I understand that you have For the housing issue that Mike has mentioned, I think actually made, or invited submissions to Treasury on these it is in terms of the public accountability, at the end of the issues, and you have actually expressed your concerns as process, where the Audit Act heeds to be enhanced. ' auditors? Mr Fayle: 1 am not sure how much, if this helps at all, M r Fayle: Yes, 1 think that, the longer times goes on, but I have in my mind the sort of differentiation between the and the more complex the world is, then, clearly, this not very basic cash basis of accounting that we have now - that the most useful or productive Audit Act, and I think we have is just the only thing that is mandated by the Audit Act - to felt that, fairly acutely, for some time. the other end which we discussed, the full blown accounting principles approach. The Chairman: Going back to the ownership of the In the middle, J think there is a sort of generic description audit in terms of the authority pays, Treasury appoints and of accounting that, I think, perhaps, fits this middle ground, DoLGE has sort of a role in here, but not quite a defined role if the middle ground is where the authority sizes end up, in - they have a role to assist the local authorities in various terms of the argument of how big they need to be - and that is matters, including finance - is this an area that really needs really accruals accounting. That is acknowledging, as part of to be, perhaps, clarified? the way the accounts are presented, things that are incurred, but not paid - debtors and creditors, the VAT movement. M r Fayle: I do not see where there is any difficulty, at Crucially, in Port St Mary - in terms of how it was all, in specifying who the reporting line should be to. understood or not understood - those things, if the accounting In fact, they are not specified. Indeed, there are no standards had been to an accruals basis, would have been reporting lines, as such, specified. I think they should be, presented within the revenue statements, whereas, on a cash and I do not see any difficulty in that being bilateral between basis, they were not. Treasury and DoLGE. I think the remit of the two may I think, in terms of the biggest single issue that caused need to be clearly defined, so that, again, you do not get the misunderstanding in reading the accounts, it was the lack of situation that if you have got two masters, the two masters an accruals basis, and that gave, certainly in retrospect, huge might not know who has got the responsibilities. misinterpretations on what were cash balances and debtors But I think that is a problem with the bilateral approach and losses and otherwise. This shift over from year ends but, given that DoLGE have got the operational responsibility was, as a matter of timing, just all at the wrong time for the for local authorities and, if you like, Treasury the financial Commissioners, in this case. side of it, that might be inevitable. So, accruals accounting, without being full blown I think the question of... sorry, I have lost my thread Generally Accepted Accounting Principles is something, I there! think, that there is a good deal of scope for. M r Delaney: You were doing well, too. M r G ardner: It would be a good start. M r Fayle: I was, yes, I was doing very well - 1 was on The Chairman: And, on that specific issue, has the a roll! (Laughter) Treasury at any point ever asked you specifically to come up with suggested amendments to the Audit Act, or have you M r Gardner: Sounded good, didn’t it? ever offered such suggestions? M r Fayle: The difficulty, I think, is where the financial M r G ardner: Not in great detail. We have - 1 think you reporting lines come into it - and, indeed, 1 think the point may already have a copy of my letter that I wrote to the is, really, who is the client, when it comes in terms of local Public Accounts Committee, probably three or four years ago authorities? now, I suppose, which outlined some ideas. I am aware that There have been suggestions made and, clearly, it has Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mr M Fayle and Mr M Gardner 64TPSM SELECT COMMITTEE, MONDAY, 6th DECEMBER 2004 Oral Evidence been one that the Port St Mary Commissioners have had some discussed this with Mike, and he might frown at me, later sympathy with, that they would like to appoint somebody else - but it does not seem to me, either, impossible, or even to be their auditors. unreasonable, to require that the local authority - the members But I think that slightly misses the point, 1 have to say, and the auditors - should meet, formally, at least once a year. becausc it seems to me that the reason the Audit Act makes (The C hairm an: Yes.) (M r G ardner: Absolutely.) Because the appointment is, in very many respects, because it is seen the reality is that that does not happen. as central Government’s role to monitor the financial aspects Now, again, one might look at different types of authority of local authorities. Whether that is right or not, I think that and say, well, perhaps for the Lonan Burial Grounds, that is is the route that has been taken. not a necessary requirement; but, above a certain classification of authority, then it is mandatory. And you might even go so The Chairm an: On that basis, I think, this was my final far as to say what might be covered in that meeting, in quite question, before 1 hand over to my colleague - a formal way. M r Delaney: You carry on, Chairman! Mr Delaney: Actually, you have just jumped on one of the three questions 1 have. You appoint yourselves. There was The Chairman: No, no, you are okay! Obviously, you are no clear indication of who you were answerable to. That was going to be in a position to want to defend your position as your answer, wasn’t it? That was your answer. the public auditors here, perhaps, but is there any reason why Treasury could not effectively appoint a shortlist of two or M r Fayle: In terms of what the answer was, yes. three auditors, from which the local authority could then pick and choose, as to which auditor they, specifically, wanted? M r Delaney: So, therefore, on the old adage of ‘he who pays the piper calls the tune’, and it is the ratepayers who M r Fayle: I think, no reason at all. are paying you, through the local authority: would it not be correct and proper that, at least, their representatives - who Mr Gardner: No reason. I do not think it is the most are the Commissioners - you see up front, face to face, and efficient way of doing it, but, in theory, no - no reason why have a chance for them to ask you questions on what is going not. You would have a panel of, as you say, three or four on in their accounts? firms that the local authority could choose. As I say, 1 just do not think it is a particularly cost effective or efficient way Mr Fayle: We have always been perfectly willing for of doing it. that to happen. What we are suggesting is that it might be a good idea to mandate it, but it is, certainly, something that M r Fayle: I think that what you might gain is, clearly, a very few take the opportunity to do. Some do. Some do seek feeling that the authorities are better bought into the process, but I am not sure that is the only way of ensuring that. to speak to us. What you would undoubtedly lose, 1 think, - it is an M r Delaney: My second question is that, in a past life, extremely fragmented process, as it is - 1 mean, you are talking about 70 different bodies - there has, clearly, previously, I did 20 years at Lancaster University - I was elected to the been a slip between central Government and non-central Audit Committee and, after a couple of months of working Government audits. And even that became felt to be... and, out exactly where we stood, and what our job was, it was to again, it is not for us to say whether it was right or wrong - but look at all the different departments’ accounts, as they were even that, split between two different firms, was actually less used, and came forward, and regarding the expenses and productive, because of the interactions between the two, and, incomes, whether they were used for the proper purposes. particularly, with larger authorities and the Boards. Would you...? But it is very fragmented and if you ended up with three 1 am not asking for an instant answer, but I did not see it in or four, inevitably, probably, one each of the panel would be any of your recommendations, of the possibility - bearing in involved in public audits across 70 largely small authorities, inind.what we have learned through these dreadful mistakes, w'hich would probably be pretty inefficient and fragmented as far as the ratepayers are concerned - that some sort of and, perhaps, the price would be higher (The Chairman: Audit C o m m itte e is established under Treasury, to keep an Yes.) - inevitably. eye - bearing in mind, again, the number of people you are auditing, on behalf of the Treasury, even though they are not The Chairm an: Yes, that is the Government’s question, I paying for it - to keep an eye, to make sure that the accounts suppose, but I think it was just, really, to get to the point that, of all these authorities are kept in order? if the local authority is paying the money, it needs to have some sort of ownership in the process and, at the moment, M r G ardner: I think it is something I would support, effectively, Treasury says, These are the people you will wholeheartedly. I think a forum for us to have a reporting have1. line like that is very important and, in the private sector If the Commissioners fall out with the auditors in any environment, it is becoming much more common. I mean, particular way, they are still stuck with them. They have to pay the vast majority of large organisations, now, will have an the money, regardless of whether they have lost confidence, Audit Committee. or whatever. But, effectively, what you are saying is that it is not M r Delaney: It would give you someone to go back to, impossible - in fact, it is quite practical that it could happen (M r G ardner: Absolutely.) and put complaints to, if you had - but the chances are that it would cost - them, on behalf of the taxpayers, which are the ratepayers. M r Fayle: If I may, in terms of suggestions ~ I have not M r Fayle: Indeed, could I, perhaps, add a comment to that, Tynwald Sclect Committee on Port St Mary Commissioners - Evidence of M rM Fayle and Mr M Gardner Oral Evidence SELECT COMMITTEE, MONDAY, 6th DECEMBER 2004 65 TPSM because I think there is an issue that 1 have, certainly, heard M r Fayle: 1 think it would be wrong for us to say that expressed in general terms - and 1 think Mr Kissack, himself, we had done that absolutely contemporaneously with those raised it - and that is being clear about who is responsible, processes. because if it puts Treasury in a position - or the Audit Committee, whatever the components of that committee M r Delaney: It all hangs on this, you see: who knew are - does that, then put them at a degree of ownership and what and whom; and who was doing what to whom, and responsibility for the actions of a local authority, beyond at what time? their legal remit? 1 think, again, it has, at least, the potential to confuse M r Fayle: Could 1 say, though, that I think this is also responsibilities, because local authorities might well say, key, in terms of how this... and you will reach your decisions ‘Well, actually, it is not our problem - they are the ones about allocating responsibilities, and we would say that, responsible. They should be telling us if we are doing under the Act, we do not believe our legal responsibility something wrong.’ That is partly at the root cause of this, and contracted responsibility was to make reports, in that that if - fashion, at that time - certainly not at that time. For this reason, because we believe that, in order to do Mr Delaney: Can I give an answer to that? that, you would, then, be saying that it is our responsibility to check all systems and report on them, rather than report Mr Fayle: Please, yes! on the financial statements after they have been produced. We see that as an absolutely key distinction, and that, if we Mr Delaney: The answer is very simple: by rotation, are responsible to make interim reports, if you like, that to have the committee selected or brought in from the local imposes on us a much greater deal of work. authorities themselves, and that body then represents all the local authorities, and then can overview, by rotation, what Mr Delaney: You see, I, as a lay person - and the is going on each year, by year, in their very great area of Chairman will forgive me -1 see this is where it hinges: that responsibility that they have. we, the public, think that you are guarding the guards, and 1 said it in my opening remarks here. My last question - and 1 know we have kept you quite Therefore, when you are guarding the guards,'if you a long time, gentlemen, and I appreciate your sufferance of find somebody has got his hand in the till, or is potentially us, Chairman - I am going back, again, to something that going to the till, somebody has to put up the warning light. really sticks in my mind. At the Treasury - and you have You actually identified it, because you would not audit the sent this original application to be the auditors on the Isle accounts, because the bank statements were not in unison, of Man - and it says here: ‘Scope of services’, and I want shall 1 say - I use those lovely words ‘in unison’! - and you to make this clear, again: said, ‘No, we are not touching them, until you get this right’, and that is what you told this, gentlemen, and I appreciate ‘We shall act as auditors of the entities set out in appendix 1’ the straightforward way you have told us that. The fact is, then, we have to say, ‘Right, who then, in - which is quite a vast number of small authorities. future, when we come to report, should be waving up the ‘We have a responsibility to report whether, in our opinion, the annua] flag?1 That is why I come to the Audit Committee - that is accounts have been properly prepared in accordance with the Accounts why I come to that decision. and Audit Regulations 1984, made under the Audit Act 1983', M r Fayle: Oh, I entirely see that. which we have gone through ad infinitum, here today. I have to ask this, again: if you take that as your M r Gardner: But, also, if I could just expand that first primary piece of your contract, on the Port St Mary point, you also need to think about, in terms of your Commissioners, when you have seen things were going recommendations, what sanctions do the authorities then wrong, and they were going wrong in the year 2000 - from have, should that be flagged up? Because, at the moment, I what you have said in communications, and I have read think that is very unclear. out - do you not think that you had a duty to inform the Treasury, who had appointed you - and that is who you were M r Delaney: That is one my thinking challenges. writing to with that contract - to say, ‘There is something wrong here’? The Chairman: Let us put one final question from me. Effectively, what we have heard here is that, if there is M r G ardner: But 1 would maintain that they were aware, another local authority out there which has officers who are, as were DoLGE. in your opinion, not capable of carrying out their accounting responsibilities, there is no obvious mechanism for you, as M r Delaney: They were aware. In that year? auditors, to report that, other then reporting it, directly, to those officers themselves. Mr Gardner: In that year? Mr Fayle: I think the reality now is that we are in Mr Delaney: That is a hard question. If you think about something of an interregnum. it, you can always write and tell the Committee, if you We have what, in everybody’s view, I think, is an want, but I do think that is an important pan of this whole inadequate piece of legislation. We have some degree process. of commonality about what the ideal would be, but, in the interim, we have no formal structures for changing Mr Gardner: Certainly not - anything. Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mr M Fayle and M r M Gardner 66 TPSM SELECT COMMITTEE, MONDAY, 6th DECEMBER 2004 Oral Evidence I think the reality has to be that everybody is conscious of Just one, it is only, really, for clarification, bccause we that, including us, and if the scenario that you describe came have probably gone through all these points in the last hour up again, we would not be waiting for 18 months to decide to and a half or so. I am, really, concerned about the motion rectify the problem for them. (The C hairm an: Yes.) of the Committee in looking at the conduct of the auditors But what leaves a gap is: it still leaves that doubt as to and the Treasury and DoLGE in the process, and I think whom, when, with what authority behind it, and then who the inadequacies of the system and the legislation has been follows it up? I mean, those things are still pretty unclear. highlighted enough. One would hope that everybody would react in a way that But, in your letter to the Treasury, where you state you might fix it, but there is, actually, no formal sanction to make have a responsibility to report, whether, in your opinion, the it happen. annual accounts have been properly prepared in accordance with the Accounts and Audit Regulations. Do you not think The Chairman: So, effectively, you are telling us that there is a responsibility on yourselves that, if the accounts have lessons have been learned, that, it is unlikely that another Port not been properly prepared, and not submitted to you within St Mary situation will crop up, but - six months of the requirement of the Audit Regulations, there is a responsibility on you to flag that up somewhere? M r Fayle: Can I just put you in this context: we are sitting now in December 2004, current financial year March 2005. M r Fayle: I think there are two aspects to answer that. The earliest we are likely to see anything is August 2005. A One is, I think, that, through discussions, rather than a formal lot can happen, in any authority, in that period and we, as ‘here is a letter that makes a certain statement’, these issues auditors, have absolutely no chance of seeing it, because we were flagged up, because, I think, it was a matter of debate will have nothing to do with it, until that point. and discussion that those were .issues of concern.. So, this whole issue about... I mean it, perhaps, is even In terms of the impact of the set of accounts that are opening up a new thread of discussion that we have not really presented to us for audit, if every set of accounts we got - not touched on, and that is: what is management reporting? just from local authorities, but from companies - in the state That is the thing that is going to capture those problems, that they are given to us for audit were, in fact, the de facto not financial accounts. It is what happens day to day, month set that we had to report on, nobody would have a report on to month, what reports are presented, who gets them, who acts anything, because there are very, very few organisations that on them, and those are about management reporting systems, do present accounts in absolutely the right format, given all which are very, very different from financial accounts. the things they have to report on, and all the issues there are about presentation, and all those fine things, that are in their The Chairm an: Yes, but that is not an auditing issue, final state. as such. So, I guess, again, your point is: at what point does our influence in getting them into the right state be something M r Fayle: No, it is a management issue. that we should be saying beforehand, ‘These are just not adequate’? Mr Gardner: It is a control issue, from the centre. The Clerk: I am not commenting on the structure of the The Chairman: It is an issue we will, undoubtedly, be accounts, as presented. It is the actual problem where you have raising with DoLGE and, perhaps, Treasury. a contract to fulfil, and you are required to be presented with accounts, from a number of authorities, within six months, Mr Delaney: I think we will put ‘with double assurity’ which is in the legislation. on that one! (Laughter) In very basic terms, if I do not submit my income tax return, I am reminded; but there seems to be a lack of any kind The C hairm an: But we are... Well, obviously, Port St of reminding, and, even in the Kissack Report, it identifies Mary, if it has done nothing else, it has; made us aware that numbers of local authorities with late accounts. there is a very big problem, so that, in terms of accounts not being signed off for two or three years, you, as auditors, will M r Gardner: Just a couple of points on that, though. endeavour to, perhaps, do more than you did do in Port St In terms of the accounts that are submitted to us, as we Mary’s case, now. Would that be correct? have already touched on, there is nothing in the legislation to say what state those accounts have to be in, and we do know M r Delaney: If they get paid for it! (Laughter) that when we went in, to start the audit, we were presented with something - but they were totally incorrect. M r Fayle: 1 think that is the point The question you raise Now, does that meet the needs of the legislation? is: would flags, perhaps, be raised earlier? I think that has to be, inevitably, yes. Would we be doing more work for the M r Delaney: No, only with your contract, you see. Raising authorities? I am afraid that is: not unless we are paid, because, it with somebody else: that is the point the Clerk is making, like anything, we are a business, and we have our bills to pay. and 1 have made several times, this afternoon. You had it under So, between those two, there is an answer. the contract. You had a duty to indicate to somebody - 1 am not saying who - I presume it is the Treasury1 - that there is M r Delaney: I think our learned Clerk now must have a something wrong with the accounts. load of questions. Now, it is quite clear in the contract, and the Clerk raised — The Clerk: No, I think you have pretty well covered everything. M r Gardner: But they are aware, they were aware. Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mr M Fayle and M r M Gardner Oral Evidence SELECT COMMITTEE, MONDAY, 6th DECEMBER 2004 67 TPSM Mr Delaney: And you are saying quite clearly that times, have acted in the proper, wholly professional, manner, Treasury was made aware. with regard to the auditing of Port St Mary accounts? M r Gardner: Treasury and DoLGE. They had to be Mr Gardner: Absolutely 100 per cent - and over and aware. They knew the accounts were not in the Orange Book. above, in terms of the work we performed, In order to get It is quite clear there was a problem. those accounts to a state where they could be signed off, we performed well outside of our responsibilities. M r Delaney: 1 would like to say, at this point, because we have put you through an hour and a half of... Well, The C hairm an: Thank you. Okay, well, thank you very me, in particular, I agree, but I would like to thank you, much for coming along, and I am sure, if we have any more gentlemen, for the straightforward way you have answered questions, we will let you know. Thank you. these questions, and it has been a pleasure - under the wrong circumstances - to meet you! (Laughter) Mr Gardner and M r Fayle: Thank you. The Chairman: Just one final point that, I suppose, I ought to put, because it has, in effect, been put to us in oral evidence. Are you absolutely convinced that your staff, at all The Committee sat in private at 4.00 p.m. Tynwald Select Committee on Port St Mary’ Commissioners - Evidence of Mr M Fayle and Mr M Gardner APPENDIX C Official Hansard Report of Oral Evidence 4th February 2005 Mr C J Tovell Mr C McGreal TPSM, No. 3 2005 A 'w ^ TYNWALD COURT OFFICIAL REPORT RECORTYS OIKOIL QUAIYL TINVAAL PROCEEDINGS DAALTYN (HANSARD) SELECT COMMITTEE ON PORT ST MARY COMMISSIONERS BING ER-LHEH MYCHIONE BARRANTEE PHURT LE MOIRREY Douglas, Friday, 4th February 2005 Published by the Office of the Clerk of Tynwald, Legislative Buildings, Bucks Road, Douglas, Isle of Man. © Court of Tynwald, 2005 Printed by The Copy Shop Limited, 48 Bucks Road, Douglas, Isle of Man Price Band C 70 TPSM SELECT COMMITTEE. FRIDAY, 4th FEBRUARY 2005 Members Present: Mr P A Gawne MHK (Chairman) Mr L I Singer MLC Mr D F K Delaney MLC Clerk: Mr L Crellin Business transacted Page Committee rem it...... 71 Procedural...... ;...... 71 Evidence of M r C J Tovell, Assistant Financial C ontroller...... 71 Committee rem it...... 84 Procedural...... 84 Evidence of M r C M cGreal, Chief Internal A u d ito r...... 84 The Committee sat in private at 3.45 p.m. Oral Evidence SELECT COMMITTEE, FRIDAY, 4th FEBRUARY 2005 71 TPSM over, to the current state, where I think most people, including Tynwald Select Committee our auditors, will agree, we are as compliant as is appropriate for a national Government with the SORPs and GAAPs that on Port St Mary Commissioners apply to bodies in the United Kingdom. Sol feel that the Isle of Man Government, in accounting terms, has led the way, by showing that we are interested in The Committee sat in public at 2 p.m. fast, transparent and accurate public sector reporting. I hope in the Millennium Conference Room, that we have actually given a lead in that direction. Legislative Buildings, Douglas At the same time, I have been sitting on the Audit Committee, which has been engaging auditors for both central Government and local government and that was Treasury’s [MR GAWNE in the Chair] involvement at the time with what we are now talking about today, Port St Mary Village Commissioners. I have another role and this is the role, which I think, in our evidence to you, I have been exercising. That is, I have Committee remit a duty of care to taxpayers - not to the ratepayers of Port St Mary - and I have money to lend to local authorities for both The Chairman (Mr Gawnc): Thank you very much, rate-funded and central Government funded services. everybody, for coming along to this hearing of the Port St As you know from the evidence I have given you, in March Mary Commissioners Select Committee. 2000 I decided that I was going to withdraw that finance lo I think it would be helpful, perhaps, if I just read out the Port St Mary Village Commissioners. That was not acting in remit of the Committee, the motion that was approved in my capacity in relation to the Audit Act or the regulations, but Tynwald on 19th May 2004. In that motion it said that: in relation to my responsibility as a custodian of taxpayers’ funds and that, really, is Treasury’s involvement. ‘In addition to the announced Department of Local Government and You said at the beginning, sir, that your remit was - and the Environment inquiry under section 40 of the Local Government Act please refresh my memory of the dates from 1998 to... In our 1985, a Committee of three members with powers to take written and oral evidence pursuant to sections 3 and 4 of the Tynwald Proceedings written evidence lo you today, I alluded to the fact that the Act \ 876, be appointed to inquire into the conduct of the Treasury, the problems with Port St Mary had been going on previous to auditors and the Department of Local Government and the Environment that: If you are prepared to stray outside of your time period, in relation to the affairs of Port St Mary Village Commissioners in the I can give you evidence where the accounts 1992-93 were (a) period from 1st April 1998 to 31st March 2004, having regard to their qualified by the previous then public auditors, who were not statutory and other responsibilities in relation thereto and to report with findings and recommendations to the December 2004 sitting of KPMG, who were not Deloitte’s, it was Coopers and Lybrand the Court.’ and, (b) I was telling them that I was not satisfied with their ■ accounting performance then, so the problems in Port St Mary So it looks as though we have missed that one. we are seeing today seem to stem from 12 or 14 years ago. They have been ongoing. I am a bit surprised at some of the... The trouble is we are getting information from all sources. We are getting information from the Kissack Report, the PKF Report and Procedural from what has appeared in the press, but the suggestion I am getting from that evidence is that poor Mr Popper did not The Chairman: I also need to read out some information know what was going on or - from Hansard. May I remind the fellow panel members and those giving evidence that today’s proceedings are being M r Delaney: I am sorry, who was that again? recorded for Hansard, so would all contributors try not to interrupt or speak at the same time as others, because this M r Tovell: Mr Popper. makes the job of transcription very difficult. . - M r Delaney: Mr Popper. M r Tovcll: - did not know what to do. Well, from 1992 EVIDENCE OF MR C .1 TOVELL onwards, I think he had a fair indication that things were not being done as w'as proper. The Chairman: So, if I can welcome Mr Tovell to our Following the correspondence which you have in hand, sir, proceedings and I suppose if I could just ask you to let us know dated March 2000, there was further correspondence with Mr a little bit about what it is that you do and your involvement, Popper, which I have not let you have - but I can - in which thus far, with the Port St Mary Commissioners issue. I set out very clearly to him who does what, that it was the Commissioners’ responsibility for preparing their accounts. MrTovell: Okay, sir. My name is Christopher John Tovell Some of the evidence I have heard - 1 am not too sure and 1 am’ a chartered public finance accountant. My official where, but 1 think it is talked about in the Kissack Report title is Assistant Financial Controller, but I suppose it is much - is saying that the Commissioners were unclear as to their easier to say I am Government’s Chief Accountant and have role and unclear as to the role of the auditors. I do not accept been Government’s Chief Accountant for quite a number of that. They had clear correspondence from me setting out who years, since 1991,1 believe. does what. In that intervening period I have attempted to take the Isle of Man Government’s form of accounts from, as when I took The Chairman: When you say the Commissioners had... Committee remit Procedural Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mr C J Tovell 72 TPSM SELECT COMMITTEE, FRIDAY, 4th FEBRUARY 2005 Oral Evidence I think there seems to be a certain amount of difficulty, that something which your Committee might be interested to the Commissioners did not necessarily get everything that review. I have not actually seen the copy, because the Order was sent to Mr Popper, so, to a certain extent, there is an issue Paper has only come out today, to see, in fact, whether there there. This was something that was highlighted, I think, in has been any improvement. the evidence that we had from the auditors, that - But Treasury was consistently reporting the position every year and every year we were saying, in effect, there is M r Tovell: Well, can I take that up. I think that if you were a problem, not just with Port St Mary, but there is a problem to criticise Treasury at all, it is that 1 did not say to Mr Popper, with Manx local government accounting. ‘and you must take this letter to your Commissioners’. If you look at the correspondence which we have not submitted yet, The Chairman: And, as far as enforcing the regulations, that is exactly what Coopers and Lybrand said in their last w ho...? correspondence to Mr Popper, that you must show this to the Commissioners before signing their accounts. M r Tovell: Well, first of all, the Act and the regulations I think one would naturally assume that if you write to the have never been tested in the courts. Secondly, there is some Clerk, then that is, then, going to go on to the Commissioners. doubt as to whether, in fact, they are enforceable. That doubt I would hold my hands up and say, no we did not say that, has been expressed to me from the Department of Local but - Government and the Environment. Why is that? The Regulations are drafted in veiy simple The Chairman: I think it is a reasonable assumption layman’s terms. They say things like you have to deliver to make, and I think the same assumption was made by your accounts to the auditors by 30th September after the the auditors, that information would be passed on to the end of each year. Commissioners. However, I think that there are couple of What actually constitutes ‘laying accounts’ or ‘putting points before I let Mr Delaney off his leash. accounts to the auditors’? There is no check or balance, or You mentioned that issues were of concern back in 1992 description of saying whether the auditors think that the and yet the first sort of concrete action that seems to have accounts that are being presented are in an acceptable form. been taken, if any - I do not know whether there was any In other words, the regulations are not as extensive as they other particular action, was in March 2000, when you wrote should be, to enable proper enforcement. this letter, saying that you are no longer going to get access Secondly, it was suggested to me, and I have no idea to the Government pot. I think, as well, in the paper - the why, that any prosecution has to take place within six consultation paper on improving the audit regulations - that months of the offence. Again, that came to me from DoLGE. there is mention in there that the regulations as were, or as Presumably they had legal advice to tell me that, I do not still are, are now, to some extent, belittled, because they know. Notwithstanding that, there did come a point... and have not been enforced. So who would actually be doing you can tell that if problems with Port St Mary have been the enforcing? going on since 1992, by the year 2000, as the Kissack Report comments, we were frustrated by what was going on and we M r Tovell: Can 1 take several issues there. were interested in testing the Regulations to see if, in fact, First of all, to clarify, Treasury has a role in lending we could enforce.,. have a prosecution. to local authorities for two types of services, rate-funded It is a matter for DoLGE to explain to you why they services and others which are aided by central grants at the were unwilling to go down that route, sir. I imagine - and time - this is just for clarity. I am putting words into their mouth now - it is to do. with Port St Mary was a sewage authority and was conducting the feeling that we want mature relationships between the the IRIS project. In fact, that is where these large amounts of central Government and the local government in the Island VAT come from, which are distorting their accounts. and that you want local authorities who are autonomous and 1 could not refuse to lend to them for the capital works locally accountable, and that a prosecution is not necessarily on IRIS, because that was a Government scheme which we the sort of done thing in that relationship. But, as I say, that wanted them to continue, so my letter of March 2000 was is up to the Department to tell you why they did not want to quite precise. It said, ‘I will not lend to you for rate-funded go down that route. services.’ Okay, can I just clarify that? So, now, under the Act it has never been established, but, presumably, it is Treasury that would have to take the M r Delaney: We would like a copy of that one. prosecution - and I was not prepared to take a prosecution if the Department that had care, control and management of M r Tovell: The period between 1992 and 2000,1 have not Manx local government was not prepared to back me. So researched the Orange Books over that period, but I imagine, that is why no action was taken. following my intervention in 1993, that they brought their accounts up lo date and were performing normally, so I do The Chairman: Right, so effectively this was deemed not think there was any particular issue there. to be one of your reasons... or problems in local authority As you know, we have laid the Orange Book before accounting on page two of your consultation paper and the Tynwald every year over that period. Those Members who final point, or the final problem, was the failure to enforce are present here, who are actually in the Court, will have past breaches in existing regulations, which leaves them with received those eveiy year. We have made it very clear, in reduced credibility. the front of the Orange Book, that there have been problems So, effectively, one of the reasons why you are saying with Manx local government. that the local government accounting system is not working I have not seen the latest submission by DoLGE, which is that central Government has not been enforcing the is on the February Tynwald Order Paper, but I think that is regulations and you are also, then, saying that - or maybe Tynwald Select Committee on Port St Mary Commissiouers - Evidence of Mr C J Tovell Oral Evidence SELECT COMMITTEE, FRIDAY, 4th FEBRUARY 2005 73 TPSM you are not saying - I get the impression that what you are M r Tovell: If you want copies to read just for yourself. saying to me is that Treasury would have been prepared to proceed with enforcement of these regulations, but DoLGE The C hairm an: Yes. I think just to clarify, we did ask was, for various reasonably good reasons, not so keen to for evidence. proceed with those - M r Delaney: We asked for evidence. Mr Tovcll: I am glad,'sir, that you have put the qualification in. They felt that was impractical and not a M r Tovcll: I overwhelmed you, sir, with evidence. I am route they particularly wanted to go down. sorry, I know there were lots of bits of paper. The Chairman: It was, effectively, to a certain extent... The Chairman: We asked for evidence for the period the responsibility for taking any action would lay with which 1998 to 2004, but, of course, this would be pre-dating that, of the Departments? would it? Mr Tovell: Local Government and the Environment. M r Tovell: No. M r Gill: Right. So it would not have been the Treasury. The Chairman: Oh, no, oh right. Go on, Dominic. M r Tovell: I have some other papers which pre-date your M r Delaney: Yes, well, first of all, Chairman, thank you period, but this is... If I can ask you to look at the paragraph very much. starting, ‘However’. I am going to change the pattern of my questioning from what has been said to Mr Tovell. I am interested in The Chairman: Well, I think I will read out the the statements you have made, particularly in transparently paragraph, or would you like to? clear guide et cetera. What I am aware of is the statements you have made M r Tovell: I will read it, sir. about what they thought - the Local Government Department ‘However’- this is to the Clerk - - and we thought. You thought, as the Treasury, about the fact that people were not complying with the laid down statutes, M r Delaney: Could I just stop you there please, Mr as far as local government is concerned, that is what you Tovell? I want to get. clear about this, get our heads around have said. Can you tell me when that was said, who to and this. We are laymen to some extent, but we have been in what context? through all the Report there. Was this evidence given to the Kissack Inquiry? M r Toveil: Sir, I was talking specifically about Port St Mary, not generally, and - M r Tovcll: It is part of the correspondence which was 10 days earlier about me declining to lend to the Port St Mary M r Delaney: Just Port St Mary? Village Commissioners. M r Tovell: Yes. M r Delaney: Was it not given to the Kissack Inquiiy? M r Delaney: Well, you referred to indications that other M r Tovell: It was not given to the Kissack Inquiiy. local authorities were not complying, either, on reports going into Tynwald. M r Delaney: That is a fascinating statement, Mr Tovell, if you do not mind me saying so, Chairman. It is very M r Tovell: Yes, sir, I am just stepping back from that a important, this letter. moment - The Chairman: Why, particularly, was it not given to M r Delaney: Well, I am not stepping back, because you them? made a statement, M r Tovell; I have just picked out one letter from a time M r Tovell: Well, no, because I am talking about sequence. two things: one specifically Port St Mary; secondly the generality. So, talking about the generality, Mr Whilew'ay The Chairman: Right. was responsible for, and did issue, a variety of circulars to local authorities, reminding them of their responsibilities Mr Tovell: I suppose we could have had the whole and that was done every so often. file. M r Delaney: Yes, let us just stick with specifics. The Chairm an: Yes, it might have been helpful, but, anyway, could you read out that particular paragraph? M r Tovell: Okay, sir, well if I may, this is a letter dated 10th April 2000 and it has not been given as evidence, but I M r Tovell: Okay. am quite happy that it should. ‘However, this does not alter the fundamental issue here. Your The Chairm an: Yes, I think I would be happy, too. Commissioners appointed auditors are simply engaged to audit Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mr C J Tovell 74 TPSM SELECT COMMITTEE, FRIDAY, 4th FEBRUARY 2005 Oral Evidence your accounts under the Audit Act 1983 and have no responsibility my colleagues in Tynwald, are trying to understand - that, whatsoever to prepare your account That responsibility lies completely if you were the whistle-blower somewhat in letters, in with yourselves and if, for some reason, you are unable to prepare your own accounts ready for audit, it is a matter for you to engage somebody communications, you were the whistle-blower on this mistake to complete that task. Any failure to have accounts presented for audit - you actually point out, one time, you were going to stop under the terms of the 1984 Accounts and Audit Act Regulations, is their tap, stop any payment, as you have said here, ‘the care the sole responsibility of yourselves.’ of the public funds’, and we understand that - why did you not carry out that threat that was in that letter? I think there is a typing mistake: where it says 'in’ it should say ‘is’. M r Tovell: I did carry it out, sir. ‘If you choose to engage the auditors to provide that accountancy service, that is a matter entirely for yourseives, although ] would have M r Delaney: How would that be, because, according to cxpected a local authority of your size to be able to complete that task the evidence we have got, payments continued on the IRIS, in-house.’ for example, and things like that. So I hope that makes it quite clear to Mr Popper what his Mr Tovell: Well, if I can just go back to my evidence responsibilities were. a few minutes ago, sir, I did distinguish between IRIS and rate-funded services. M r Delaney: Yes, you must forgive us, this is the first we have heard of this particular communication. M r Delaney: So what tap were you going to stop, if it was not to do with the IRIS? M r Tovell: I can only apologise, sir, I - M r Tovell: Any capital expenditure that required to be - M r Delaney: - and it might have made a difference on the outcome, if I might say so, Chairman, of Mr Kissack’s M r Delaney: And what kind of expenditure was on the synopsis. horizon, any? M r Tovell: I accept that criticism completely. I pickcd Mr Tovell: I have no idea, sir. some letters from a file, rather than taking the whole - Mr Delaney: So that was a blank threat, that, was it? M r Delaney: Thank you, Mr Tovell, you do appreciate that some of the questions 1 was going to ask you, this sort of, M r Tovcll: It is the sort of threat which I would have not clears them, it sort of fogs them a little bit, because some thought was a wake up call to anybody, if your major sponsor of the answers we were given to this earlier on, our secretary in Government is saying that they are so dissatisfied with you, will have a better recollection of them, but it certainly... they are not going to lend to you any more. Anyhow I am going to leave that to one side because the There will have been an application, no doubt, for the sort chairman will no doubt come back to that. You have other of things that Port St Mary does, whether it is something to letters on file, you say? do with the golf club or whether it is equipment for that sort M r Tovell: Which pre-date the terms of your terms of of thing, I do not know. reference? M r Delaney: You did not know what tap (M r Tovcll: M r Delaney: Could we, 1 think we can ask for it? No.) you were going... when you said you were going to stop their tap, you did not know what tap it was you were The Chairm an: Yes, I think so. going to stop? M r Delaney: That helps to clarify this letter, or it leads M r Tovell: Unfortunately, sir, it is a blunt instrument, if up to one of these communications. you threaten to do something, which I did. If you then do it, you have got nothing left in the locker. M r Tovell: That mainly refers to the fact that there were problems for the accounts 1992-93. M r Delaney: Well, you have actually achieved the object by stopping any miscarriage on behalf of the ratepayers or M r Delaney: Well, that leads up to the problem. the taxpayers, possibly? Right, if I can now go back, get my head around that and go back to the questions. We have had a lot of communications. M r Tovell: Taxpayers. We had a copy of your original report, that is referred to in the Kissack Inquiry' and has been referred to by yourself this Mr Delaney: You have stopped any errors in local morning. I am particularly interested in the report - it was government, which was part of our responsibility, was it the Financial Controller you were then, when you did the not? No? report in 1996? Mr Tovell: I am sorry. 1 do not understand the question. M r Tovell: My career has not advanced any since then. Mr Delaney: Well, if you actually used the blunt M r Delaney: 1 would not say that, You have not had a rise. instrument you referred to, by stopping their tap and saying (Laughter) The situation there is 1 am trying to understand that you would recommend to the Treasury that no further - and the Committee and we are all trying and Members, financial assistance be given, until this matter was cleared up, Tynwald Sclect Committee on Port St Mary Commissioners - Evidence of Mr C J Tovell Oral Evidence SELECT COMMITTEE, FRIDAY, 4th FEBRUARY 2005 75 TPSM surely that would have been a better job of whistle blowing Mr Delaney: What was their response to it? and waving the flag a bit higher than you did wave it? M r Tovell: There is no response that 1 can recall. I did M r Tovell: I am still not sure that I am understanding the not just send it within the Audit Committee - that clearly question. First of all - involved DoLGE - but I formally copied it to the public auditors, as well. M r Delaney: But you wrote a letter threatening to cut off their financial assistance from Government. M r Delaney: So it never got any further that we know of? M r Tovell: Yes, sir, yes. M r Tovell: Well, no further than that, sir, no. M r Delaney: Right. That is true, You then did not carry that out. The Chairm an: It did not go to a political level? M r Tovell: That is not true. I did carry it out. I stopped M r Tovcll: No, sir, no. lending them, as the letter was quite specific, sir, and it is in evidence. M r Delaney: It never got to a political level, yes. These are the questions not only us, Mr Tovell, will be M r Delaney: Yes, we have got that. asking. It is our colleagues who will be asking these, too, to understand what actually did happen here. We do thank you M r Tovell: And it talks, in the last part of the sentence, for that. about 'your rate-funded services’. M r ToYell: I will do as much as I can, sir. M r Delaney: Right. So what money did you stop? M r Delaney: I just want to hold off for a second, because M r Tovcll: Well, had they been applying for - I want a chance just to think back and look at some of these papers that have been submitted, just to check out. M r Delaney: Have you stopped none, then? The Chairman: Leonard? M r Tovell: That is speculation, sir. I have no idea what Port St Mary Commissioners capital programme was over the M r Singer: Your quote was the problem with all local intervening period between 2000 and 2004. authority accounting. You said that the Treasury... I think you were talking about the view of local authorities and I have put M r Delaney: So your action did not stop any taxpayers’ down here, ‘the problem with all local authority accounting’. money going to Port - Would you confirm that is what you believe? M r Tovell: I think, sir, from memory - and I am not M r Tovell: I do not think, sir, I have found anybody who really too much into Port St Mary Commissioners’ accounts shares my commitment to fast, transparent public-sector - they bought a refuse vehicle via either leasing or from a reporting. That criticism sounds unduly harsh on the ones loan from the bank or something. That is the sort of thing that come close to it. that would have been financed, with a cheaper loan, from central Government. Mr Singer: But, basically, you are not happy with any local authority accounting? M r Delaney: And that - M r Tovell: I think, sir... I am sure some of them are M r Tovell: But, please, sir, I really have not investigated acceptable. It is context sensitive, because - it that closely. Mr Singer: Well, why did you say, then, there is a M r Delaney: Will you let me finish the question? So, problem with all local...? You actually said all local authority therefore, we are saying that that letter stopped them applying accounting. for monies from central Government, is that what we are saying? Mr Tovell: Because the current standards, sir, have moved on. M r Tovell: Yes. Mr Singer: Right. And why have their standards not M r Delaney: Okay. Then did you bring the attention of moved on? that letter to anyone higher than your level in the Treasury? M r Tovell: Well, siT, I cannot answer that. That is a matter M r Tovell: The Audit Committee, sir, yes. for the Department of Local Government and the Environment to tell you why their accounts have not moved on. Mr DelaDcy: And what was their response. Mr Singer: When was Treasury aware of accounting Mr Tovell: I think everybody was aware of the problems at Port St Mary? Was it 1991, was it 1992, did you situation. say? Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mr C J Tovell 76 TPSM SELECT COMMITTEE, FRIDAY, 4th FEBRUARY 2005 Oral Evidence M r Tovell: 1992, yes. They had their accounts qualified Mr Tovell: Can I undertake to do that later, but it is that year. essentially within Treasury, the Audit Committee. When I say Treasury, 1 am talking about officer level: it was an officer M r Singer: And does Treasury have any responsibility level consultative document. in saying to a local authority: ‘look, we have looked at your accounts, your methods of accounting, there are problems.. M r Singer: So Treasury believe there was need for a We believe you should be doing it this way and we would prosecution, but it was up to DoLGE, who chose not to like to help you’, or do you just say, you know, that is not prosecute. your duty? Mr Tovell: And there were technical difficulties with Mr Tovell: Emphatically, sir, this is not our it. There were supposed technical difficulties with the responsibility. regulations. Yes. M r Singer: So, you are happy then - Treasury is happy Mr Singer: I am trying to understand why it should get - to see a local authority, knowing they could offer them to a stage, where there should be a choice not to prosecute some advice, they are happy to see them go through this rather than, I would think, go to the particular authority mess? and say: ‘look you need help and advice. We know you are autonomous, but you need advice and here it is to put you M r Tovell: Sir, first of all - on the straight and narrow.’ Why should it have to resort back to a prosecution? M r Singer: That is what you did. M r Tovell: Well, that is why the Department, who are M r Tovell: Well, if I can tell it from my side of the the lead in this, decided that they did want to go down that story, sir, 1 think that there is no point in having two people route. I am speculating now, sir, on their motives. doing the same job, but this is very clearly: care, control and management of Manx local government lies ultimately with Mr Singer: We mentioned the Kissack Report and I want the Department of Local Government and the Environment, to come back to two statements. not with Treasury. The Kissack Report said that Port St Mary were unclear as to their role and you said they were not unclear, but we M r Singer: Are the Department of Local Government can see why they were not unclear, in your view, because and the Environment as qualified as Treasury, perhaps, to of this letter, be advising people that you have got accounting problems, you need - M r Tovell: That is right. M r Tovell: Yes, sir, I believe they are. They have a fully- M r Singer: But this letter was not sent to the Kissack qualified Director of Finance. Report, so - 1 do not know what the word is - 1 am amazed that a letter of such importance should not have been thought M r Singer: Was Treasury’s... Coming back again to to go to the Kissack Report, because that became a major ‘there is a problem with all local authority accounting’. Is it plank of one of their comments. Treasury’s view it would be better off with a fewer number of authorities, maybe smaller authorities who have not got Mr Tovell: Can I, first of all, apologise again and, the accountancy skills? secondly, can 1 refresh my - M r Tovell: Sir, the question of the structure of Manx M r Singer: Apologise to Mr Kissack. local government, we acknowledge, is deeply divisive and I do not want to stray into the political field too much. Having M r Tovell: I think that, if I am trying to remember what put that caveat on it, I think that a smaller number of larger the terms of reference of Mr Kissack’s Report were, 1 did local authorities will have sufficient breadth to develop a not necessarily think that it was something that was going skills base, to enable continuity, to be able to adopt higher to be important. accounting standards. M r Singer: Clearly. Mr Singer: Is that your view, or is that a Treasury view? Mr Tovell: Well, clearly, from what we are talking about today, manifestly it is becoming important. I fully Mr Tovell: It is a view that was accepted by all of the accept that. people that I circulated the consultative document to in - 1996 was it? Mr Singer: Who chose who should get what correspondence? Obviously there is a lot of correspondence. The Chairman: Who did you circulate that to? Again, Whose decision was it to say - ? we have got no information, all we have is the document that was produced. We do not even know it was circulated. M r Tovell: Mine, sir. We do not know who to. We do not know what information came back and there was no sort of updating report, which M r Singer: So you decided what... They were not given is quite surprising. other correspondence to look through, to find what was Tynwald Selcct Committee on Port St Mary Commissioners - Evidence of Mr C J Tovcll Oral Evidence SELECT COMMITTEE, FRIDAY, 4th FEBRUARY 2005 77 TPSM relevant. You picked and chose what they should have. M r Singer: Now he is at Ramsey, they should not have any problems with their local authority accounting! Mr Tovell: But they could have, had they so wished, yes. M r Tovell: I wonder, and I am speculating whether he had the resources at the time to focus on this issue. 1 understand Mr Singer: Did they know there was a lot more that there is now a unit within the Department, that focuses on correspondence - monitoring local authority performance, so it may have been a resources issue. As to Mr Whiteway’s personal capability, M r Tovcll: I do not think so. I fully understand he was criticised in the Kissack Report, but, so far as I am concerned, he was (a) a personal friend, Mr Singer: - or did they just... So they just accepted and (b) somebody for whom I have professional respect. that what you sent them could have been the total amount of correspondence? The Chairman: Thanks. The next issue is, I suppose, just highlighting the problem that I think we are identifying, M r Tovell: I cannot answer that, sir. in terms of central Government’s role in all this. First of all, you set the rules in Treasury, then KPMG check to see if M r Singer: I am interested in this, because this is where the rule is being complied with and then DoLGE enforces we are getting, quite clearly, and this is why we have had the the rules. We can see, perhaps, from those three separate need somewhat for this Committee. Because of the Kissack organisations all having a separate role in the procedure, Report, we were not particularly happy with - or some of us how things have, perhaps, not been as well responded to as were not happy with... so, in retrospect, do you think they they might have been. should have had this letter? Would you say that there are weaknesses within the whole set up, in terms of central Government’s responsibilities here, M r Tovell: I think, sir, it would have helped clarify a in terms of it being, perhaps, there are not any particular grey relatively minor point. areas, but having, certainly, two Departments of Government I do not think that it would alter the thrust of MrKissack’s with responsibility for the same thing, but different bits of Report, but that is my opinion and ~ responsibility for the same thing? Is this something which is inherently going to be a problem? Is it something that, M r Singer: I would have thought it is rather major, ultimately, needs to be changed at some point? that Mr Kissack said that the local authority were unclear of their role. Yet this letter from you quite clearly explains M r Tovell: Can I pick up on several aspccts, again? First their role to them. of all, I do not think the relationships are as simple as that. The auditors are appointed under the Audit Act and they have M r Tovell: Absolutely, sir, I accept that fully, but would certain hurdles to jump over, before they can be appointed, it have, in fact, changed the recommendations? namely to be qualified in certain bodies. Secondly, those auditors are guided and constrained M r Singer: Well yes, it could have done, if Mr Kissack by their own professional requirements, which are the thought they were unclear of their role, if he knew why it requirements of the Auditing Practice Standards Board and could well have made a change to his recommendations, I their own chartered accountants’ - if they are chartered would have thought. I will leave it there. accountants - procedural rules. But notwithstanding that, the relationships are difficult. Why is Treasury involved at The C hairm an: Right, yes, leaving all this aside, I think all, sir? the first thing that I need, really, is if we could have a copy of a file with all the correspondence that Treasury has had M r Delaney: Sorry, I missed that. Just say that again, with Port St Mary Commissioners. Certainly, by the sounds that last statement. of what you are saying, it would be, ideally, dating back to 1992. That may be a very large file, but I think we need to Mr Tovell: Why is Treasury involved at all in this see this, because, ultimately, whereas I think we all respect process? My view is simply that it requires somebody your judgement, we need to know what is in there and, in independent to appoint external auditors. If DoLGE were to this particular case, there is one letter, at least, that has gone appoint their own auditors, it might be seen to be something through, which we feel, perhaps, ought to have gone to the too close to Manx local government. Kissack Inquiry. Just picking up, well there are a few points I want to go The Chairman: Yes, but, of course, DoLGE are not on. The first point, with regard to DoLGE, you mention that appointing their own auditors, they are appointing auditors they have, in your view, a competent finance officer. It is to somebody else. probably unfair to ask the question and I would understand if you did not wish to answer it, but I think I ought to ask Mr Tovell: Sorry, I accept that, sir, but it is about the question, anyway: have they always had a competent transparency and being seen to be. I think that is just a finance officer working for DoLGE? view, sir. Treasury’s involvement really does stop with appointment Mr Tovell: I have, sir, the highest regard for Peter of the auditors. Whiteway, the former finance officer. I cannot speak of his predecessor: I cannot think who it was and I think he was The Chairman: They do not set the Regulations under highly competent. the Audit Act? Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mr C J Tovell 78 TPSM SELECT COMMITTEE, FRIDAY, 4th FEBRUARY 2005 Oral Evidence M r Tovell: Well they - sorry, sir - they have done that, would have said, well, that argument just does not stack up. but - Then you have seven points here, many of which seem to relate to the actual rules and regulations, procedures and The Chairman: Which really gets me on to a point which legislation, which is something under the control of Treasury J am itching to ask questions on, which is this review, the and DoLGH. Those are areas that Treasury and DoLGE consultation paper, the review of the Accounts and Audit really ought to be moving on and it would appear, certainly Regulations 1984, which your name is put to. Where did since 1996, when this was produced, that there has been no this review come from? Who initiated it? movement whatsoever. So you have identified there is a problem and it would M r Tovell: At the start of this afternoon’s session, sir, appear Treasury and DoLGE have not done anything about I introduced myself as Government’s Chief Accountant, it. Is that - who has a vision of where I want public accountability to be and to go. 1 felt that, as part of that process, I ought to M r Tovell: I would like to separate those two and say that try and show a lead in relation to the existing Accounts and DoLGE has not done anything about it. Treasury manifestly Audit Regulations, so that was at my volition to produce was doing something about it, in terms of this consultative that document. document, and it got nowhere. The Chairman: So there was never any political The C hairm an: But why did it get nowhere? Who made involvement - the decision not to proceed with this? M r Tovell: There is no political involvement at all, sir. Mr ToYell: In essence, the Department of Local It is labelled as being an internal, officer-level, consultative Government and the Environment were saying to me at that document time - and I accept that there has been plenty of time passed since then - ‘look, we are in the process of local government The Chairman: I think it is probably important that, reform.’ I am sure Mr Delaney, as a former Minister for at this stage, I put on record that I have a view about local Local Government and the Environment, will confirm how authorities, which is that I like the current system and I often this happened, but this process, in fact, has gone on a am quite happy with small local authorities and large ones number of times over a number of years, so, at the time of and medium-sized ones. That said, I am going to try to be this document, I cannot remember now, was it called ‘A time completely neutral on this, but I do find it quite surprising for change’? Was that the then current - ? that there are so many statements in your review, which seem to be very political in their nature. M r Delaney: There were two versions. When you talk about evidence of ‘low standards of public sector accounting and accountability* thus far - I M r Tovell: Whatever it was and the people in DoLGE mean, obviously, lateness of accounts, the issue with Port were saying, ‘look, a change in the regulations is not actually St Mary, these things are things that we have been made going to alter anything, it is the structure that has got to aware of, but we have not really been made aware of any change’. other significant reports or any documents with evidence in, which show that local authorities are failing, so I was Mr Delaney: Can I ask - surprised that a statement like that would be made, without backing it up with evidence. The Chairman: Can I just finish - Also a very political statement, ‘there are too many authorities, most of which are too small/That is a political Mr Delaney: I do have a question just to clarify that. judgement, surely, and there does not seem to be any evidence, This was in writing you had this communication from the again, to back this up, so I am quite surprised, really, that Local Government Department? what, apparently, is a very political document, does not seem to have been circulated to political representation in M r Tovell: No, sir. the Treasury. Mr Delaney: It is all verbal. Who with, then? Can we M r To veil: Well, 1 can answer that, first of all, sir, by have on evidence, who with? saying this is a consultative document at officer level and, if you are looking for evidence, on page two of this report Mr Tovell: Mr Peter Whiteway, for certain and it is it talks about lateness in producing accounts, Peel Town probable that Mr Anthony Hamilton was there, but I cannot Commissioners having their accounts qualified for two recall that, sir, for certain. successive years, the fact that Ramsey Town Commissioners do not understand the sinking fund accounts, the resignation The Chairman: Local government reform, surely that of public... I mean that page there is evidence, 1 would is a political issue? Effectively, you are letting very much thought, sir, with respect. a political issue to be decided amongst officers without letting - The Chairman: Okay, well, on that issue then, you are talking about there are too many, too small local authorities M r Tovell: With respect, sir, we are not deciding, we and the three examples which are here, are larger local are doing the opposite. I issued a consultative paper, a authorities, so if this is being circulated to a politician, consultative document at officer level and there was no even, if they were supportive of what you were saying, they appetite to do anything with it. I think, if there had been Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mr C J Tovell Oral Evidence SELECT COMMITTEE, FRIDAY, 4th FEBRUARY 2005 79 TPSM a recommendation - officers to go on with a positive presently saying ‘put this on hold’, then we have got two recommendation to do something - then I am quite sure complete bodies. One is central Government, who are clearly that the political process would have been engaged, but a sailing over minimum requirements of high-quality, public- negative decision, a decision to do nothing - sector reporting - we do not need regulations to tell Treasury what to do, because Treasury is abiding by those and more; The C hairm an: I think that the thing that is so striking - and local authorities, who are under the care, control and about this is that we had evidence from the auditors - and I management of the Department of Local Government and can sort of ask the question: would it be possible to impose the Environment, so - much more stringent audit procedures on local authorities? The auditors seemed to be veiy clearly of a view that, yes, The Chairm an: But Treasury sets the auditing rules for this would be possible and, depending on risk, you could, the local authorities. perhaps, have three levels of audit requirements, based on starting with the very low risk authorities, such as some of M r Tovell: Well, Treasury did then, sir, yes. the rural parishes, where there, obviously, is not a big risk - they are a relatively straightforward set of accounts - very The Chairman: They do not now? small up to the larger accounts, where there is greater risk, which would have more restrictive requirements placed on Mr Tovell: They, sir... I think we would have to be them. Has that view ever been expressed to Treasury? guided by whatever the Department of Local Government and the Environment would want. Treasury is moving M r Tovell: At the political level, no, sir, but, in fact, forward quite a lot faster than local authorities. the scenario that you are outlining is precisely what these draft regulations are saying, yes. So the auditors are really The Chairman: Who has responsibility for the Audit repeating what we were saying. Act? The Chairman: That seems to make sense. It seems to be M r Tovell: Sorry. a fairly straightforward and easy thing to do and I still cannot get my head round why the decision was taken, on what The Chairman: Who has responsibility for the Audit is effectively a political issue, at officer level. Effectively, Act? Is that the Treasury? you are saying that we should wait until local government reform happens. M r Tovell: That is the Treasury, sir, yes. M r Tovell: Sir, I am not saying that. I am saying that the The Chairman: Are the regulations issued under the Department advised us. Audit Act? The Chairman: So, at a political level? M r Tovell: Yes, sir. M r Tovell: No, sir. At an officer level, we were advised The Chairman: So how is it DoLGE’s responsibility, to wait. then? The Chairman: So who could... I mean you are M r Tovell: We would be guided, sir, I believe I said, by saying... I find this quite amazing, because I think this is whatever goal you wanted. a hugely important issue. I think you think it is a hugely important issue. The Chairman: But would you not agree... Could you tell me whether the officers within Treasury would have M r Tovell: Sir, manifestly I spent a lot of time and effort been, at this time, of a view that they should progress with to prepare that document and I did that in a, hopefully, new regulations but, effectively, were persuaded by DoLGE conscientious and properly motivated manner. not to? Is that - The Chairman: And yet a decision, based on what M r Tovell: That is correct, sir, yes. another Department might be doing — which was a hugely contentious political issue, which even the most fervent The Chairman: That is correct. Now, at that point, I supporters of local government reform would have had to would have thought... I mean, I have not really worked that admit was unlikely to proceed with a degree of ease through much within Government, but I have worked briefly within Tynwald - you decided, or Treasury, internally amongst its a sort of Civii Service role. If, at that stage, something that officers, decided, to put on hold what was a very important 1 wanted to progress, effectively the stops were being put updating in the regulations and without any political input on it by another department, I would, at that stage, go to whatsoever. my political masters and say: ‘This has happened, we think this is important, at this stage DoLGE are telling us not to M r Tovell: Well, sir, in answer to a question from Mr proceed. What do you think, Minister?’ That is what we have Singer, I have tried to identify Treasury as only having the politicians there for, is it not? responsibility for appointing the auditors and for, in this case, the drafting of regulations, as well. M r Tovcll: Well, I accept that viewpoint, sir, but 1 think The sponsoring department is the Department for Local we are exaggerating the importance of Tovell’s document Government and the Environment and if their officers are in this year. It was an internal consultative document. Two Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mr C J Tovel) 80 TPSM SELECT COMMITTEE, FRIDAY, 4th FEBRUARY 2005 Oral Evidence parties, central Government and local government. What I The Chairm an: And from what I have heard you say, you wanted for central Government I was doing myself. If the still feel strongly on that issue, that this is a major weakness Department of Local Government and the Environment and your Minister is responsible for the law, which is that did not want their bit upgraded, that is a matter for them. major weakness. Okay. Clearly, Treasury would still have had to agree and make the regulations, but - M r Singer: Can I? The Chairman: But we have identified that it is not M r Delaney: Can I? DoLGE’s bit. You are responsible for the Audit Act, not DoLGE. The Chairman: Dominic? M r Tovell: With respect, sir, I would have to be guided M r Delaney: I will not be a minute. I want to establish, by what DoLGE wanted on this. I am just trying to get my head around this evidence. For the benefit of the long suffering, I am trying to work this out M r Delaney: Can I just get this clear, an answer for in my head. I am going to leave that, because I am going your question. I have been a long time, too long in the tooth, to go back and see the Attorney General about it, just to maybe, but I understand the law of the land is that you have clarify myself. an Act to enforce, How can somebody else alter the law of I am interested in the letter you wrote on 29th March 2000. the land, whether it be a Government Department or not? It is an interesting letter and you have a footnote here and Their guidance notes are relevant to you, you have to comply it says: ‘Peter, why not refuse, as it is my understanding the with the law. So, how can they change that law? borrowing petition, if their accounts are persistently late...1 If you just read that, it is written by you, as I understand it, M r Tovcll: 1 fully accept that, sir, but I still would put on the letter of 29th March 2000. { the qualification on: surely we would not be doing our Do you have that letter? It is a letter from you and it goes job properly, if we were not guided by whatever DoLGE to the Clerk of the Commissioners, Mr Popper. wanted. M r Tovcll: Yes. M r Delaney: That does not answer my question. If they told you that the sun wasn’t coming out tonight, that would M r Delaney: Is that your footnote that is on that letter? be irrelevant to you, because you say: ‘yes, it is because it says so in the law.’ That is the situation, that is the law of the M r Tovell: I have not got a copy with a footnote on it, land. You cannot be guided by them, the law is the law. sir. I have got a copy with a blank. The Chairman: It is interesting, as well - M r Singer: ‘Peter, why do we not refuse the borrowing petition if their accounts are persistently late, Chris. 29.3’ M r Delaney: No, can I just get an answer there? M r Tovell: Okay, my file copy, clearly, did not have that The Chairman: You would be guided by DoLGE one but, yes. officers, but you did not think it was important to be guided by your own policy? M r Delaney: It is your footnote? M r Delaney: Being guided is a dangerous position where M r Tovell: That is my note, yes. the law is, because the law is either right or it is wrong and you cannot be guided by somebody else, a third party. M r Delaney: What did you mean by that, Mr Tovell? i. What did you mean by that? I am trying to work that into M r Tovell: I fully accept it is Treasury’s responsibility the letter, why that was not included in the letter, why it is to make the regulations under the Act, sir. a footnote in a letter which you have not got a copy of, but you have got a copy now. The Chairman: Ultimately, your Minister at the time is responsible for this. You found that - 1 would dispute, M r Tovell: It was clearly an idea to communicate it from perhaps, some of your findings, as to how strong the evidence me to Peter Whiteway, saying... presumably, did they see is - local government’s accounting or the auditing of local . that evidence? As I say, that is not in my - government and, indeed, the accounting is inadequate. Your Minister is responsible for that and yet you have allowed M r Delaney: Could you just read out... Is my reading officers from another department to guide you not to proceed of that correct? Have you got it? Has he got a copy of it? I with an improvement. just want to make sure that reads as I read it. M r Tovell: I think, sir, if I can, at the risk of repeating M r Tovell: What we are saying is a suggestion and I myself, this is a consultation document. believe there has been a paper that has, in fact, gone to Council of Ministers on this, at some point, from DoLGE, The Chairman: But you felt strongly enough to produce suggesting - the consultation document. M r Delaney: It may very well be, but I am not privileged M r Tovell: Indeed I did, yes. to that higher echelon of politicians. Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mr C J Tovell Oral Evidence SELECT COMMITTEE, FRIDAY, 4th FEBRUARY 2005 81 TPSM Mr Tovell: Okay, what it is saying is - and, as a Air Delaney: It came from them, right. It is okay on that, former DoLGE Minister - you know there are two things then. You see my point is there. before a local authority can contractually enter into capital expenditure. One is getting permission to borrow, which is M r Singer: It is not signed. This letter is not signed, so granted by the Department and, secondly, is then to exercise did you write and return it before...? You must have signed it those borrowing powers. eventually, we have got the copy, but you have got the... 1 am Those borrowing powers can be exercised by getting a wondering why you have written this on the bottom, why we consolidated loans fund from the Treasury, or they can go to have got that, but we have not got your signature on it. the bank, or they can issue mortgages or bonds, or they can do something like that - M r Tovell: It is clearly a file copy, because there is no crest on the top, so presumably I would have taken a piece of paper, M r Delaney: You see what - a copy of it and just put it in the internal post to Peter. That letter, presumably, is mainly for information, but - M r Tovell: So what I am saying to Peter, as a suggestion, is, to Lry and put pressure onto Port St Mary to improve their Mr Delaney: Yes, but it docs not contain all the accounting performance, why do you not stop - rather than information, does it, as far as your file is concerned, because relying on Treasury to do it - their borrowing? you have not got the footnote? M r Delaney: You see, Mr Tovell, that is why 1 am going M r Tovell: Well, that is right, yes. Can I just, with respect, back to your original answer to me, when you said that sir, this is an informal communication between myself and - when I asked why you did not really put the screws on, a colleague. you made a threat and then you did not have a threat - ‘we did not do it’. Mr Delaney: You should know, from past records of Yet here, on that footnote, you not only have made a threat, when an inquiry has been made, there is no such thing as you suggest another threat, do you not? ‘informal’. Notes are being kept by the Treasury Minister to the Chief Executive which affected the Mount Murray Inquiry, M r Tovell: Indeed, yes. notes that were put - is that not correct? - and telephone conversations, so there is no such thing as informal. We get M r Delaney: You do. So, therefore, we were not, to put over that, I can assure you. your words to me, I was not being the big stick, the situation Can I just finish off here, just on this section of it? In was that you had already thought of a second big stick to hit layman’s terms here - now, forgive me, 1 am a layman them with, did you not? - everyone was running around and shouting ‘fire’ with this Port St Mary problem. Apart from the ratepayers, who were M r Tovell: Well, I am not sure it is a competition here, burning, nobody was grabbing a fire extinguisher, because you sir. were talking to DoLGE, years before, everyone was talking M r Delaney: You suggested one in the letter, then, as a about the problems of local authorities and the difficulties footnote, you put a second big stick down there. that become involved. Treasury internally definitely knew it, your officers M r Tovell: Can 1 just qualify this evidence, by the way. knew it, the Local Government Department knew it and the That, clearly, has come from evidence, presumably from local Commissioners obviously knew it and other people, DoLGE, not from my office. It has got copy to TBL. because other questions were being asked in Tynwald and other places about local accounts. You had written it in your M r Delaney: But you have a copy, it is your letter, so you letter, it had been made public, the fact that the accounts must have a copy on file. were late, but nobody was doing anything to make sure this crisis that happened in Port St Maiy was prevented. Is that M r Tovell: Maybe this was a footnote, I do not know. not correct? I am not blaming you, as I am saying, you were one of the M r Delaney; You wrote the footnote. fire fellows shouting ‘fire’, but nobody was doing anything. M r Tovell: I did indeed, yes. M r Tovell: I agree. M r Delaney: So if you have not got it on file, why not is M r Delaney: Thank you. a question you will have to ask internally of where you keep your files, because you wrote it. You did not write it after the M r Singer: Where do you see the responsibility lying for fact, did you? reporting inadequacies in the preparation of accounts? M r Tovell: It is dated 29th March 2000, sir, no. M r Tovell: Sorry, can you repeat the question? M r Delaney: Yes, so I take it that letter went to Kissack M r Singer: Where do you see the responsibility lying Inquiry, did it? for actually reporting the inadequacies in the preparation of the accounts? The Chairman: Yes. M r Tovcll: Are you talking about somebody producing The Clerk: It came from DoLGE. an overview of how things could be improved? Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mr C J Tovell 82 TPSM SELECT COMMITTEE, FRIDAY, 4th FEBRUARY 2005 Oral Evidence M r Singer: Yes, something for local authorities, that is my responsibility is to the Treasury Minister - make it clear seen by the auditors and that the accounts are inadequate - that this was not a matter that Treasury was responsible for and we invited the Department of Local Government M r Tovell: Well, I think there is - and the Environment to undertake their own statutory responsibilities. M r Singer: Should they be reporting it to a Department, or do they just ignore it? M r Singer: Two more points. Whose responsibility is it to chase up late accounts? M r Tovell: I think the Department of Local Government and the Environment have care, control and management M r Tovell: DoLGE’s. of Manx local government. That is the beginning and the end of it. M r Singer: And that is the published accounts, basically, There are a number of places for advice, on the sort it is DoLGE’s responsibility? of reporting they should aspire to, in addition to the Department’s own departmental finance officer. There are a M r Toveil: Yes, and they do. number of... I think Mr McGreal is going to come and talk to you, with a far more informed view than ] can give you M r Singer: Okay, well, why did you write to Mr Popper, on the latest developments on corporate governance, the the Clerk to Port St Mary Commissioners on 20th March Turnbull report and that sort of thing, but - 2000 about the persistent failure to publish accounts? Mr Singer: KPMG saw inadequacies in the report, in Mr Tovell: Because, as I mentioned in my evidence the accounting. Should they have reported to cither yourself earlier on, sir, I also stand, in relation to Port St Mary, as or to DoLGE? Do they have any responsibility to do that? a holder of taxpayers’ funds, that is the consolidated loans And did they have any responsibilities when they saw the funds advances, and it was my concern that their accounts inadequacies? were not in the public domain that led to me, as a matter of prudence, not to lend to them. M r Tovell: My judgement says they had no responsibilities. Mr Singer: Did you ask DoLGE why they had not Notwithstanding that, sir, they have, on record, made submissions to the Standing Committee on Public Accounts chased it up? with their views on this. M r Tovcll: DoLGE were involved in the process, yes, sir. Mr Singer: So, they did not actually report any inadequacies to Treasury? M r Singer: So this was just putting extra pressure? M r Tovcll: No, sir. M r Tovcll: Indeed. Now that Mr Delaney is showing you this note, clearly DoLGE were part of the process. M r Singer: Why did Treasury undertake DoLGE’s role in laying audit reports before Tynwald and then it reverted M r Singer: And because of the Port St Mary situation, back to the Department in March 2000? has Treasury... have there been any lessons for Treasury to leam in response, changing auditors’ responsibilities et M r Tovell; Can 1 take those two things separately. cetera. Is there anything that Treasury can leam from the First of all, the Tynwald Order Paper is cluttered, anyway. whole situation of Port St Mary? There are a number of documents, which are required to be laid before Tynwald, of a financial nature each year. There Mr Tovcll: I think Treasury is engaging in the process are a number of documents, which it may be helpful to lay of revising the Accounts and Audit Regulations in light, before Tynwald - that is the information which adds detail possibly, of Port St Mary, but also in light of changes in to information which was not in the public domain, when the public reporting generally, which has been going on the last accounts are published, and we are talking here things like, four or five years. Again, Mr McGreal will be talking to you the Department of Education endowment funds, the various about statements of internal control, statements of internal trust funds that are run by the different divisions of DHSS, financial control, corporate governance. statements from General Registry on the various court funds There will be issues, sir, with that, about how you they hold, that sort of thing. actually fit that into the Manx structure. Are Bride Parish Rather than lay them separately before Tynwald Court, it Commissioners or Arbory Parish Commissioners really is easier and more convenient, I think, for Members to have going to be wanting to talk about corporate governance and an annual document which just pulls all these things together. Tumbull and... I am sorry, sir, Mr Delaney is laughing, but It is called the Orange Book and it is called accounts and this was really what we were saying in 1995, that it is - miscellaneous financial information. That vehicle is also used for local authority accounts for quite a long while. M r Delaney: The same as your letter, to repeat what you Clearly, there came a point in about 2000, 2001, are saying in your report, virtually. where Treasury was not particularly comfortable with the situation in Manx local government and the performance of M r Tovell: 1 am glad, sir, we are consistent. accounting and decided it wanted, for reputational reasons, to - when I say Treasury, I am talking about myself there, M r Delaney: Yes, you are consistent in that. Tynwald Select Committee on Port St Mary Commissioners - Evidence of M r C J ToVcll Oral Evidence SELECT COMMITTEE, FRIDAY, 4th FEBRUARY 2005 83 TPSM The C hairm an: Yes, just on to that issue then, sorry - you are saying is, you would accept that you do not necessarily have to have a system which imposes the same regulations M r Singer: No, I am finished. on all local authorities. You can have a system which takes account of the size and risk. The Chairman: - do you see any merits in what the auditors were telling us at the last oral hearing, that, in fact, M r Tovell: Can 1 just say, sir, that I do not want you to you can actually have a range of stringency of requirements, think that I am too critical of Manx local government. I am depending on the risk of the particular authority and that, a great enthusiast of independent, autonomous and locally in fact, an organisation - you mentioned Bride or Arbory reporting local authorities. - organisations of that size, with relatively modest amounts of But it is not just about regulations, it is about inculcating things in which they have to engage, is it necessary to enforce an environment where people want to engage in public sector fully the same regulations that you would be enforcing on reporting, they want to show the ratepayers what has happened Douglas, Braddan and Onchan? to their funds over the previous 12 months, they want to show what the year end position is, to show whether they are doing M r Tovell: Indeed, sir, this is an interesting question in well or doing badly, they want to, as I do in my job, I want the debate for how the change is effected, but, just repeating to show that... I am responsible for a considerable amount myself, that was actually the proposal in this draft in whatever of money and I want to show that there is proper public year it was. stewardship of that, so that nobody can say, when I have walked out of the door, well, there are things missing. The C hairm an: Well, it was not, was it? Well, you were But it is about creating the ethos where people will certainly proposing three levels (M r Tovell: Yes.) but all the actually want to engage in that type of high-quality public local authorities were in at level two - sector reporting and Mr Singer asked me whether I thought, earlier on, my criticisms of Manx local government were for M r Tovell: Oh, were they, sir? Well, I have to say that, everybody. Well, in that context, 1 think, sir, yes. I do not even though I was the author of this, I have not read it for a know of anybody who actually wants to come out and say: number of years. (Laughter) ‘these are our accounts, this is what we did’, have our reports picking out key features of the year, this sort of thing and I The Chairman: Come on now, it was only nine years do not know how you do that. ago. (Laughter) The Chairm an: Well, hopefully, we will, in the course M r Tovell: Clearly, there is another layer below this, of our deliberation, come up with some ideas. as well, which needs considering. It is not just Arbory and There were two points that I think we need to just clarify Bride, there is also these other -1 call them local authorities, for the record. The first one was with regard to the Audit perhaps that is not the right term - bodies, such as Castletown Committee, which you were talking about. and Malew Elderly Persons Housing Committee, the Cooil Certainly, the evidence that Treasury has provided to Roi Housing Authority and Marashen Crescent Housing us, through Mark Shimmin, is that the Audit Committee Committee, Peel and Western District, we have got two was never very much of a formal body. It met infrequently swimming pool boards already and we have got another one and the infrequentness bccame even more infrequent until it on its way. We are actually increasing the number of bodies disappeared off the record. that need to be audited and I fully understand, in the Manx context, why it has to be done. M r Tovell: That is correct. 1 was taken to one side many years ago by the late Mr Percy Radcliffe, saying we will not have a swimming pool The Chairman: Would such a committee... a formal in the north of the Island, if you do not have a Northern structure for such a committee be helpful, or do you not really Swimming Pools Board and it will get the local authorities of see much value to that committee? Bride and Lezayre and Ramsey and whatever to all contribute a rate product to do it, so I understand that, but it then means M r Tovell: I think it would be useful, but, again, it depends that you have got a body which, again, has perhaps, and I on how far Treasuiy and Tynwald Court go with things like do not know about the Northern Swimming Pool Board, but the Audit Commission. Clearly, if you are having an Audit certainly the Peel and Western, or the Western Swimming Pool Commission, then that sort of overtakes that. I am not too sure Board, has only got one lady running it and if she changes where that lies, again; Mr McGreal is an expert on that. her job, or if there is a break, or if she is ill, then, clearly, there is an information gap, the skills base is lost, so there The Chairman: And then I think the final point for me, are challenges. anyway, is the issue, and you mentioned, perhaps a little In addition to that, for any new regulations, there is also bit defensively, I do not know, how relatively low key your the challenge of... there is going to be cost involved to the consultation document was: it was an internal document local authorities in doing this and there must be some sort of amongst officers and that may well have been what you payback in terms of assurance of their financial stability or intended. whatever. It is a difficult area but, sony, that is all. However, Mark Shimmin, again, in his evidence from Treasury says that changing the regulations was not addressing The Chairman: Yes, 1 obviously appreciate that point and the fundamental problems, which were touched upon in the I think that is certainly very helpful. consultation document. So he is actually using the consultation I think it is fair to say that nothing is ever easy, particularly document as a fairly weighty plank in Treasuiy’s defence of when it comes to local authorities, but I think, basically, what its position, so would you say that it is fair to use it in such a Tynwald Select Committee on Port St Mary Commissioners - Evidence of M r C J Tovell 84 TPSM SELECT COMMITTEE, FRIDAY, 4th FEBRUARY 2005 Oral Evidence way, or do you feci that it is, perhaps, its merits were - we have got, that things relating to the issues we have been talking about... so thank you very much. M r Tovell: 1 do wonder in retrospect, sir, at the wisdom of writing it at all, but (Laughter) - M r Tovell: Thank you, sir. I do see this as an opportunity towards, perhaps, making more progress than I did in The Chairman: I suggest that the wisdom was lacking 1995. in not progressing it at the time, but that is just my view. Dominic? Mr Delaney: Try applying for a job in the Local Government Department (Laughter). M r Delaney: Yes, 1 just want to clear, for the record, two things. The Chairman; Thank you very much. First one is on the note that I made reference to on your letter: are you aware - you might not be - was any action M r Tovell: Thank you, sir. taken by the officer you submitted that footnote to, of that suggestion? The C hairm an: Okay, M r Tovell: I believe not at the time, sir, but 1 do M r Tovell: And I will get the files copied. believe that there has been a suggestion in a paper from the Department to the Council of Ministers, at some time in the M r Delaney: Thank you indeed. Thank you. intervening years and I think it may have been within the last two years that one way of encouraging better accounting forms was to withhold approval to petitions and I really do not know, sir, what Council did. Committee remit Mr Delaney: That is interesting. Have we got a copy The Chairman: Okay, moving swiftly on, then, If Mr of that? Can we have the copy of that? Can we get a copy McGreal could join us. of that? Yes, I will skip some of this, just do the more relevant bit. Basically, Tynwald decided that: Mr Tovell: 1 think, sir, that would come from Mrs Mellon 'A committee of three members ■with powers to take written and oral evidence pursuant to sections 3 and 4 of the Tynwald Proceedings Act 1876 be appointed to inquire into the conduct of the Treasury, M r Delaney: Yes, I would like to see that. The second the auditors and the Department of Local Government and the thing is: some professional people have been sitting where Environment, in relation to the affairs of Port St Mary Village you are sitting, Mr Tovell, and I am always clear, when I am Commissioners for the period 1st April 1998 to 31st March 2004, on committees, some hard questions were asked of them and I having regards to their statutory and other responsibilities in relation need to ask this, just for the record, to make sure that, in your thereto and to report with findings and recommendations to December professional opinion, as a representative of the taxpayer, if 2004 sitting of Tynwald.’ you like, a goalkeeper, are you happy with the performance of the professionals, the accountants, during this period? Procedural M r Tovell: If 1 can put modesty aside, sir, I think that... Are you talking about myself, or are you talking about the The Chairman: Have we got the thing for Hansardl others? Thanks. I have also got to read this from Hansard. May I remind fellow panel members and those giving evidence M r Delaney: No, I am talking about the other sort of that today’s proceedings are being recorded for Hansard, so body. You arc one of us, if 1 may put it that way. would all contributors try not to interrupt or speak at the same time as others because this makes the job of transcription M r Tovell: Oh, right, sir. very difficult. Okay. M r Delaney: You are a goalkeeper. M r Tovell: I would not like to comment on that, sir. EVIDENCE OF MR C McGREAL M r Delaney: You would not like to comment. The Chairman: Well, thank you very much for coming M r Tovell: 1 would not like to. along today. We have had a veiy interesting session with your colleague, Mr Tovell, and I understand that your particular M r Delaney: Okay, thank you very much indeed. role, w'ith regard to our interest, is that you are progressing ideas, in terms of updating audit regulations and things of this The Chairman: Right, well, apologies for putting you area. Perhaps if you would like to begin by just explaining a through the mill a bit. We have run over time by half an hour, little bit about who you are, what you do and, maybe, begin so you must have had some very interesting things to say to introduce the new thoughts. to us. It was certainly very interesting for me, as many of the questions that I have had, in terms of the evidence that M r M cGrcal: Well, I am Clive McGreal. I am the Chief Tynwald Select Committee on Port St M ary Commissioners - Evidence of M r C J Tovcll Committee rem it: Procedural Tynwald Select Committee on Port St Mary Commissioners - Evidence of M r C McGrcal Oral Evidence SELECT COMMITTEE, FRIDAY, 4th FEBRUARY 2005 85 TPSM Internal Auditor for Government, which happens to be based individuals that I went to, to try and validate some of the within a Division of the Treasury, although it is a completely instances, and it was most unfortunate, in that it was in independent unit. So, 1 suppose the Treasury is its home, but the PKF Report, which actually, perhaps, divulged some that could be anywhere. confidentiality of information, which, again, it was beyond In relation to the current remit that I have, I have been in my particular kind of capability to keep that out of the remit. post since 1999 and, in relation to the subject matter that is of Yes, a most unfortunate situation. interest to you today, I have been tasked with the particular job of moving forward the Audit Act, in terms of reform The Chairm an: And, as far as going back to our remit and amendment and Accounts and Audit Regulations that now, as far as your role as Chief Internal Auditor, what will flow therefrom. responsibility do you have as Chief Internal Auditor, in terms Picking up this particular issue about a year ago now, of local authority accounting procedures? actually, in terms of some of the issues that came out of the Mount Murray debate, in terms of the prospect, maybe, M r McGreal: Absolutely none. My role as Chief Internal of an Audit Commission, the issues highlighted by Port St Auditor extends only to central Government and its Statutory Mary - for which 1 claim no credit, but I suspect the scenario Boards and slops at those boundaries. actually started off with myself having interviews with some whistle-blowers who raised some concerns at Port St Mary The C hairm an: So your involvement in this was purely and having then a minimal amount of investigation, passed on the basis that there was an assumption that, perhaps, on the concerns to the Chief Executive at the Department taxpayers’ money was not being looked after. of Local Government, who then instigated the PKF review and there onwards, obviously, we have had Fred Kissack’s M r M cGreal: That is right. inquiry and thence to yourselves. So, perhaps, the initial part of this is going to stem from The Chairman: Okay, Dominic. our activity, but, notwithstanding that, there have been several issues that have emerged over the last 12 months, M r Delaney: Yes, and Mr McGreal. Thanks very much. that, perhaps, have given rise to moving forward the Audit I have very few questions for you, but I am just thanking Amendment Act and the Council Audit Regulations. As I say, you for the effort you and your section put in on this one, I am primarily the lead officer in pulling together external because I have read all the evidence. audit, KPMG are assisting us in that respect and, obviously, There is only one thing that is unclear to me and I am our colleagues from Treasury and Local Government amazed it was not picked up by anybody else. I am not Department. going to embarrass you by making public all your whistle blowers here, but you will probably see the necessity for my The Chairman: So, just briefly dealing, then, with the Chairman and members to have the whole story, in relation to issue of what you refer to as whistle-blowers and the initial the whistle-blowing that went on, without revealing it, if that involvement there, what prompted you to get involved in is possible under our powers, to make sure we know where Port St Mary Commissioners? the story came from, where it began, where it stopped. Other people are claiming certain... as you heard, they M r McGrcal: Well, actually, the whistle-blowers and were the whistle-blowers and I have heard other stories and I certainly the voicing kind of public - and there is not any am sure the Chairman, as a Member of that area, has had lots whistle-blowers policy as such, we have not got anything of other stories, so I need from you, with your permission, formal which says, complaints strategy this way or whistle written, of times and who these people were, if that could blowers that way - having obviously some concern for be kept confidential. Can we do that under our powers? You public funds, the whistle-blowers actually approached see it never came out in the Kissack report. myself and, naturally, 1 listened, recorded what they had to say, made some minimal enquiries in trying to validate M r M cGreal: No, indeed, I do not think it is appropriate some of the allegations that were being presented and then, for a public forum, but I am quite happy to share that having turned over that particular information to the Chief information with the Committee. Executive at the Department of Local Government, whose responsibility it was then to convcne an inquiry and a report M r Delaney: I do not want to embarrass the people. I into those matters. want to stop whistle blowing, where it is necessary for the public good. The Chairman: Two points on them. The one which certainly was a concern to one of the alleged whistle M r McGreal: Indeed. blowers was that he was being termed a ‘whistle-blower’ and yet his view was that you approached him, asked him M r Delaney: So you see my difficulty, Chairman (The for information. He was happy to provide information, but Chairm an: Yes.) and, therefore I would never have a go at purely on the basis that he had only heard what other people the Kissack Report. Yet I think that was one of the questions had been telling him, it was hearsay evidence and that he did that should have been asked, so that we get the story of what not feel that he was in a position to give you any facts. actually did happen at that time, for the history, if nothing else. That is it really on that one. Mr McGreal: Indeed. I think the circumstances The other one is, that, although it was seen to be outside surrounding that are a little unfortunate at this stage. He of the Chairman’s - outside of your - responsibility and was not one of - I know the individual you arc speaking you answered that all public expense is your responsibility about - the initial whistle-blowers, yet he was one of the somewhat on that there, when you eventually did pull into Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mr C McGreal 86 TPSM SELECT COMMITTEE, FRIDAY, 4th FEBRUARY 2005 Oral Evidence this - I am asking you now as a professional - were you draw together those initial findings and conclusions, from surprised at what was going on in local authorities? Not only having put those through the sieve to that extent. this local authority, in relation to public accounts being late, Then we intend to go out to some extensive consultations the lateness of their accounts et cetera? with local authorities, interested parties and, obviously, anyone who would like to voice an opinion on this, to that M r McGreal: Well, 1 had been privy to, obviously, the extent, with a view towards bringing forth a Bill for the Orange Book, as published, so I was aware that certain local 2005-06 legislative programme. We are optimistic to try authorities were in default, in lateness, in bringing forward and get that in before the summer recess. It will, obviously, their accounts. But some of the findings that came out of the be dependant upon what appetite and what consultation PKF Report and the Kissack Report, yes, I think were a little feedback we actually get, but, given that there is already a enlightening, were a little bit surprising, as a professional. raft of good practice elsewhere, which really suits probably our jurisdiction and meets a lot of the findings that have M r Delaney: 1 look at your vitae, you do not mind me come forward from the Kissack Report and from other mentioning this, but you have somewhat of a history with voiced concerns, 1 am fairly confident that we can do that local authorities also, as I understand it. in the timeframe. M r McGreal: Local authorities in the UK? Mr Singer: Where were we deficient? Where are we deficient compared to what you call good practice across M r Delaney: Yes, the UK? M r McGreal: Indeed, I have been involved with local M r McGreal: I think, in the majority, it is the governance authorities, prior to coming to the Island. 1 have worked in arrangements. It is those that Kissack referred to as the the Health Service and a number of local authorities across, internal accounting standards and mechanisms and the so, yes, I have experience of - competence within local authorities, which, currently, the external auditors are not obliged to comment upon. It is M r Delaney: Yes, but you give just an indication to really - us. Where local authorities across - and my knowledge is going back when my time as Minister was referred to by M r Singer: Will the external auditors’ responsibilities Mr Tovell - looking at how they operated their system, possibly be recommended for change? there is a statute there and it is a, I am going to use the word punishment, of local authorities who do not produce their M r McGreal: Most certainly. Currently - accounts, is there not? M r Singer: So they cannot say ‘it is nothing to do with Mr McGreal: It is. It is more punitive than what we us’? have here. Quite right. M r McGreal: No, most certainly. I think that is not a grey M r Delaney: Right, I would be obliged if you could, area at the moment, I think there is, perhaps, a lack of clarity through your connections, get a copy of that statute for the over what they would have been able to bring to the attention Chairman and the members, so - of Treasury or DoLGE, or what they actually did. I think, in all fairness to them, there was, perhaps, a gap between the M r McGreal: I have actually got a copy of the Accounts two stools, which they did not quite bridge. and Audit Regulations for the UK 2003 with me. In terms of any new Audit Act, the responsibilities of the external auditors will be quite clear and we are currently out M r Delaney: Thank you very much indeed. to tender for external audit of the auditor services, which will come effective from 1st April 2005 and any new appointment M r McGreal: Perhaps if I leave that with you. will address that particular failing. The Chairman: Leonard? The Chairman: Why is it felt - and, presumably, it will be obvious when and if we get to see it - that a completely M r Singer: No, I am okay. new Act is required and, perhaps, not amendments and updates in Regulations? The Chairman: So, as far as the work in terms of trying to update the existing legislation and regulations, what is the Mr McGreal: It may well be an Audit (Amendment) sort of process ahead of us now? Act or it may well be a new Act. I am just saying it will be a new branch of legislation, because I think whichever one M r McGreal: I went to Treasury in November of this meets the bill. previous year, 2004, to set out a timetable and actions that we would anticipate going through. First of all, it really is The Chairman: So, basically, what I was trying to get the engagement of ourselves, the external auditors currently at, are you... Can we get an implication for what you are and the Department of Local Government to look at existing saying, that there is a huge problem with the 1983 Act, or is accounts and audit regulations, as we currently have in the it just the case of whichever is the easiest legislatively? existing Audit Act, looking at the best practice that has come out in the UK and other jurisdictions, so we are not confining M r M cGreal: Indeed. I think the world has matured in it just to that. We will then, at the end of this particular month, the 22 years since we had the last Audit Act. Certainly, there Tynwald Select Committee on Port St Mary Commissioners - Evidence of M r C McGrcal Oral Evidence SELECT COMMITTEE, FRIDAY, 4th FEBRUARY 2005 87 TPSM are new international accounting standards. There are new we had better move forward on the new Audit Act and new audit regulations, which will impact, and we could, I suppose accounts and audit regulations, irrespective of what reform as Treasury, just issue new accounts and audit regulations in local authority brings at this point of time. under the existing legislative framework. I think what we need to understand is how best to actually fit a new audit The Chairm an: So, there is a change, really, in view. regime together, whether it be through a new Audit Act, an In the past it was felt it was not appropriate to proceed until Audit (Amendment) Act, I am not quite certain which of the the local government reform happened. There is a view changes may need primary legislation, or which may, or can, that this is a problem which needs to be resolved, where the be dealt with through regulation and, within that process, at Department w’ould resolve our problem and, if and when the moment, so I am a little bit obscure. 1 am sorry about local Government reform happens, then we can adapt our the answer. legislation so it fitted. Is that... ? The Chairman: The reason I ask the question is that, Mr McGreal: Indeed, I think the current landscape sometimes, we tend to overplay and try to reinvent something has changed it a little bit. We have had the Port St Mary that is already there. episode. We have had difficulties in other local authorities, I think, which have focused upon the need, at this point of Mr McGrcal: I am very much a minimalist. If we can time, to make it a priority to change the accounts and audit get away with the least amount of work and effort to go regulations. through the branches that still meets the objectives we are I think it was equally valid back in 1996-97, when the going forward to, then I am in that camp. original consultation paper came up, but it may well have been that the Department of Local Government, at that The Chairman: You mentioned earlier - 1 am hoping I time, would have the view that, perhaps, it had better sit am quoting correctly, we have not actually got Hansard yet on the backbumer, whilst it struggled with local authority of the interviews we had with the auditors - my recollection reforms. Again, not being privy to, perhaps, the consultation is that the auditors gave an understanding that, in their view, that went on at that stage, it is difficult to determine what it would not be necessary to impose the same auditing precedent was set. standards on all local authorities, that, in fact, you could base it on how much risk is deemed to be in a particular authority. The Chairm an: So, is there a change in view being taken Obviously, the smaller authorities that have relatively small by the Department of Local Government at the moment? overall accounts and responsibilities would have a low Are they... ? risk, compared with the larger authorities, which do larger amounts of things. Is that something that - M r M cGreal: I think that will only come out in the consultation, but they are quite happy to be part of the M r McGreal: Indeed, I am of a similar opinion. I do not working party at this stage, which is introducing and moving think a ‘one size fits all’ will work in those circumstances forward some amendments. So, I would say, at officer level, and, certainly, the smaller, lesser complex authorities, with certainly, there is more of an appetite to move it forward. lower turnover thresholds, need not be subject to the same rigour and accounts regulations, as, perhaps, the larger ones. The Chairman: As far as the Kissack Inquiry... So, I think that will certainly come out in the interpretation obviously, there are some very interesting recommendations of the Accounts and Audit Regulations which apply to which there. I particularly felt that the idea that we should have a body. It is no different to a similar set up that they have in kind of benchmarking system, whereby each ratepayer in the UK at present. each area had at least some idea, admittedly perhaps not as . So, yes, I hope that we can adopt some similar principles tight an idea as we might like, but at least have some idea, in our local government system. as to how costly their authority was in particular areas... Is that something that is likely to be incorporated in the new The Chairman: So, going back, I suppose, to this Regulation? 3996 consultation document that we have been talking about earlier, would you say that the reason stated in that Mr McGreal: Yes, I think the Audit Regulations can document - obviously you have done some digging around actually specify the detail in which the reports on the local and investigation so far on this issue - that local authorities... authorities... the detailed level at which those reports that there are too many local authorities, they are too will come forward, which will make benchmarking, and small, therefore we have got to wait for local government performance management and monitoring across the various reform, before we proceed... Are those reasons now being ones, an easier exercise. superceded with a different sort of thinking? The Chairman: Right. We have also heard talk of the M r McGreal: Well, I think probably the same scenario Audit Committee and possible audit commissions. What is exists at the moment. the... is there any particular benefit in one or the other? We have only just gone through the December Tynwald with a new report put forward by Local Government for local M r M cGreal: Yes, two separate factions here. authority changes and, yes, I think it is a legitimate argument The audit commission is an animal, a body, which to say: ‘Well, let’s have local authority reform and then we is being promulgated as replacing, perhaps, the existing will see which context we need to put a new accounts and Internal and External Audit function. So, that is yet to be auditing regulations to.’ reported upon, but, in terms of Audit Committee, the one I think, probably, we are of the opinion at this stage that that became defunct in the previous life, I think the current Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mr C McGreal 88 TPSM SELECT COMMITTEE, FRIDAY, 4th FEBRUARY 2005 Oral Evidence public auditors’ tender documents that have come back, the M r Delaney: I am asking a professional on that. idea is lo reinstall those both for local authorities and central Government appointments from April of this year. M r M cGrcal: I would quite agree that it would seem that So, I think, yes, there is a good reason to actually have there was nobody within the Commissioners who understood those particular committees. They should be more formally the accounts or their financial position. based, have a specific remit, in terms of reference and be more committed, perhaps, in their oversight of those M r Delaney: And I am wondering - and I have made particular issues. this one run from the start, it is nothing new and I am sure the general public, certainly the people in Port St Mary, were The Chairman: So, would this be specific to... would, wondering - how you can run anything and not understand for example, you have an Audit Committee, which was the accounts, because even a housewife who is doing her specifically established to deal with local government, or shopping, and 1 am doing it with her, as daft as 1 am, I can would you have an Audit Committee, which consisted of understand what the cost of anything is and whether I have various departments, for which you had responsibilities for got money in my bag, my purse or my back pocket or I have other boards, charities, whatever, or - not. What I cannot understand is, how a local authority could not understand that. M r McGrcal: No, I think what is envisaged is an Audit I am a past councillor myself, a lifetime back, and it was Committee that would have oversight of local authority difficult learning how the accounts work, but you had to operations or auditors and, perhaps, comprise largely the leam them, so that you knew what they were talking about people who, or the personnel who, were identified formally - at estimates time each year. What I am trying to work out representatives from Treasury, local government, department here is how nobody picked up on that. Could you...? Did and external auditors primarily - not necessarily the local you...? You must have read all of this - authorities themselves, although, again, it is a potential. M r M cG real: Yes, indeed. The Chairman: Because I think one of the weaknesses in the existing system which - I feel, anyway - that we have Mr Delaney: - so could you give me a professional identified, is the fact that, effectively, we have got Treasuiy insight of somebody who is a goalkeeper, why do you think making the rules and the appointments, we have got the that happened? . auditor doing the checking and reporting, we have DoLGE with responsibility for enforcing any regulations, we also M r McGreal: My own personal opinion is that they have the Commissioners, who pay the auditor formally, were not close enough to the facts or the operations, perhaps though they have no say over who that auditor might be. linked to the fact that they did not have a competent financial Ideally, an audit commission, I think, in my view, would need manager to interpret or brief them at that stage. It probably to have some involvement for the local authorities in that, effectively, it is their money that is paying the auditor and, just compounded the two. perhaps, they need to have some say. Would that be a - M r Delaney: Thanks. It is just something that will haunt M r M cG real: Indeed, I think there is an opportunity for me to the grave, I suppose, but I never did understand that a local authority representation on that Audit Committee. I part of it. think it is how and who is, perhaps, part of the consultation to think about, but I quite agree. The Chairman: One other issue which has, I think, It is perhaps a little overkill to expect an audit committee concerned us was the evidence given that Clerks, or certainly for each individual local authority, given the size of some of the Clerk of the time, was given certain information, which them. I do not think that is warranted, but, certainly, some was not passed on to the Commissioners. Clearly, it would local authority representation on that body, I think would be unreasonable for either the auditors, Treasury or DoLGE be a bonus. to expect that strongly-worded letters to the Clerk would be passed on to the Commissioners. How do you think issues M r Delaney: There is one question that has come up and like that could effectively be addressed in the future? thanks very much for that, it was very informative. I have enjoyed that question. M r McGreal: A part of the corporate governance I have just come up w ith... going back - and I read this arrangements would, obviously, look at internal structures, for everyone’s interest, I suppose, who has been involved in systems, not just for financial management systems, but for this sad case - when the initial thing was set off and reading management systems generally. the Kissack Report and everyone else is going through the So, if there were items of correspondence of particular whole lot. One thing I have not understood, and 1 have asked importance, you would expect them to have some providence our Clerk and he is probably fed up with me asking: when from either Treasury or Department of Local Government. It they went through the initial accounts, the deficit of £130,000 does not take a great deal of rocket science for the external that appeared, it seemed to me quite strange that, where they auditors of the time to actually complete the loop and see thought they were in cash in the bank - and you tell me when whether there are any material issues, cither from local I go wrong here, will you? - they were actually in deficit? government or Treasury that should, perhaps, be passed I am right in that surmise of what was said and what has on to the Commissioners, at the various sites and that is been said and what has been given as evidence, aren’t I? It another duty within their remit of a new audit Act, new audit seems to me nobody understood the accounts? regulations that would address that particular feeling. M r M cG real: I understand that. The Chairman: Section 5 of the 1985 Local Government Tynwald Select Committee on Port St Mary Commissioners - Evidence of M r C McGreal Oral Evidence SELECT COMMITTEE, FRIDAY, 4th FEBRUARY 2005 89 TPSM Act allows for notices, 1 think, to be placed, or orders to be Would you say that, perhaps, if the existing procedures had placed, or just Orders lo Tynwald. Obviously, these would been implemented, we may not have been in the - receive publicity, so if the Commissioners were operating in the dark and were not aware that, in fact, their officers M r M cGreal: It is very difficult to say in hindsight, but I were pursuing various reckless courses of action with the think it could have certainly helped contribute to the problems ratepayers’ money, that Treasury auditors, DoLGE were that we have experienced. aware of this and were writing to the officers, but the officers were then not passing this information on. The Chairman: Dominic? If an Order was put to Tynwald, it would receive huge amounts of publicity, so that facility already exists. M r Delaney: No, I am grateful to you for the answers Presumably that would be quite capable of dealing with the you have given. problems that were dealt with. The Chairman: Certainly, I think from what you are M r M cGreal: Indeed, I think it is all about the scale and saying... I mean, obviously, we will await with great interest size of those, isn’t it? How often would you want to publish what eventually does come out in terms of consultation, but it those particular notices? How often do material issues need certainly sounds similar to the areas that we would, potentially, to be brought to the attention of Commissioners? It may well be looking in, in terms of our recommendations, because we be that, perhaps, some of these important notices should also need to tighten up in certain areas. But it was very helpful to go to the chairman of certain authorities, as well as the Clerk, the Committee, so thank you very much. which would then, again, obviate that problem. M r McGreal: A pleasure, Chairman. The Chairm an: This is a particular hobbyhorse of mine, this particular facility, in that, effectively since the 1985 Local Government Act came into being, there has actually only been The Committee sat in private at 3.45 p.m. one notice and that was issued in April last year, I think it was April, May - and yet we are being told today that we knew back in ’92 there were serious problems with the accounts with Corrigendum Port St Mary. Other, dare I say it, larger authorities have had similar problems, indeed, some smaller ones, too, but, on the On page 48 TPSM remove the reference to Mr L I Singer, whole, it seems to be larger-to-medium sized ones. who was not present. Tynwald Sclcct Committee on Port St Mary Commissioners - Evidence of M r C McGrcal APPENDIX D Official Hansard Report of Oral Evidence 28th February 2005 Mr P Whiteway Mr R A Hamilton Mrs Y Mellor TPSM, No. 4 2005 TYNWALD COURT OFFICIAL REPORT RECORTYS OIKOIL QUAIYL TINVAAL PROCEEDINGS DAALTYN (HANSARD) SELECT COMMITTEE ON PORT ST MARY COMMISSIONERS BING ER-LHEH MYCHIONE BARRANTEE PHURT LE MOIRREY Douglas, Monday, 28th February 2005 Published by the Office of the Clerk of Tynwald, Legislative Buildings, Bucks Road, Douglas, Isle of Man. © Court of Tynwald, 2005 Printed by The Copy Shop Limited, 48 Bucks Road, Douglas, Isle of Man Price Band C 92 TPSM SELECT COMMITTEE, MONDAY, 28th FEBRUARY 2005 Members Present: M r P A Gawne MHK (Chairman) Mr L I Singer MLC ' Mr D F K Delaney MLC Clerk: Mr L Crellin Business transacted • Page Committee rem it...... 93 Procedural...... 93 Evidence of Mr P Whitcway, former Director of Corporate Services DLGE...... 93 Evidcncc of Mr R A Hamilton, Chief Executive, DLGE...... 103 Committee rem it...... 108 Evidence of Mrs Y Mellor, Director Corporate Services DLGE...... 108 Corrigendum...... 114 The Committee sat in private at 4.40 p m . Oral Evidence SELECT COMMITTEE, MONDAY, 28th FEBRUARY 2005 93 TPSM Corporate Services in the Department of Local Government Tynwald Select Committee and the Environment. The role was, predominantly, to do on Port St Mary Commissioners with the Department’s finance function - internal accounting, estimate preparation - and, also, in the Corporate Services Directorate, we were involved in giving advice and assistance The Committee sat in public at 2.30 p.m. to local authorities, predominantly. in the Legislative Council Chamber, St George !r Court, Douglas The Chairm an: And in relation to the work that you had there and, obviously, with Port St Mary Commissioners, in particular, were there quite a number of concerns within the Department, or had you generally, on the whole, been quite [MR GAWNE in the Chair] satisfied with Port St Mary’s submission of accounts, or the general supervisory role you had with Port St Mary? Mr Whiteway: I think, for a while, there has been Committee remit some concerns about local authorities and the preparation The Chairman (Mr Gawne): Thank you very much, of accounts for audit. There have been, over a number of everybody, for coming along to this hearing, in the Legislative years, some concerns about them. There were Questions Council Chamber, of the Port St Mary Commissioners Select raised in Tynwald. There were audit reviews undertaken Committee. by Treasury, and proposals for reviewing the Accounts and I think it would be helpful, perhaps, if I just read out the Audit Regulations. I think a lot of them are covered by remit of the Committee, that was approved in Tynwald on Mr Kissack’s report and also by the Pannell Kerr Forster 19th May 2004, which said: Report. In practice, at Port St Mary, at the time while I was there, ‘That, in addition (o ihe announced Department of Local Government the Commissioners’ accounts had not been signed off for a and the Environment Inquiry under section 4(d) of the Local number of years, and we had been advised that there were Government Act 3985, a Committee of three Members with powers delays in the audit process, which explained that delay. There to take written and oral evidence pursuant to sections 3 and 4 of the was never a suggestion that there was anything wrong with Tynwald Proceedings Act 1876, be appointed to inquire into the the accounts until - 1 think it was 2002 - when I was advised conduct of the Treasury, the Auditors and the Department of Local Government and the Environment, in relation to the affairs of Port St by. the Clerk and the Chairman of the Commissioners that Mary Village Commissioners in the period from 1 st April 1998 to 31st they had a deficit of about £30,000. March 2004, having regard to their statutory and other responsibilities Now, at that time, £30,000 was not a great deal of in relation thereto, and to report with findings and recommendations money, in terms of the overall expenditure of the accounts to the December 2004 sitting of the Court’. for the Commissioners and, in fact, at that time, again, in the PKF Report, the reply identifies, at that stage, that the 1 also need to read out some information from Hansard. Commissioners, at that point, changed the manner in which May I remind fellow panel members and those giving they prepared their estimates, and prepared an estimate to evidence that today's proceedings are being recorded for allow for expenditure, which brought things up, as expected, Hansard, so would all contributors try not to interrupt or and brought things into place. speak at the same tune as others because this makes the job At the time, also, the Commissioners - I think it was of transcription very difficult. December prior to that - appointed Crossleys, to undertake a review of their previous accounts, to bring them up to date, which, it now transpires, was a result of inquiries raised by KPMG. Crossleys were also appointed to provide Procedural management accounting services to the Commissioners. The Chairman: Okay, I would like to welcome Mr The Chairman: Did you say this in your opening Whiteway, who was the former Director of Corporate introduction - 1 may have missed it - when did you actually Services for DoLGE, and I suppose J ought to introduce the take up the role of Director of Corporate Services with Committee. I am sure most of you will know the Committee: DoLGE? Mr Singer; Mr Delaney; the Clerk, Les Crellin; and myself, the Chairman, Phil Gawne. M r White way: I am not actually certain what the date was. It was a revised job description that got introduced. (The Chairman: Right.) I think it was, probably, early 1990s (The C hairm an: Right.) — 1993 or 1994 time-ish. EVIDENCE OF MU P WHITEWAY The Chairman: So, during the course of the period that The Chairman: So, I think it might be helpful if we you were in that role, did you have any concerns about any could begin with Mr Whiteway, if you could tell us a little bit other local authorities, or was it mainly Port St Mary? about your role with DoLGE and the sort of things that you were doing in relation to the... just the general background, M r Whiteway: No, there were a variety of authorities in relation to what we are investigating. who failed to submit accounts in time - for audit, anyway. The Orange Book that is produced records the accounts M r Whiteway: Where do I start? 1 was the Director of which have had an audit certificate issued, and there were Committee remit Procedural Tynwald Select Committee on Port St M aty Commissioners - Evidence of M r P Whiteway 94.TPSM SELECT COMMITTEE, MONDAY, 28th FEBRUARY 2005 Oral Evidence always some authorities where the audit certificate was not M r Whiteway: Certainly never one that has been raised issued in time, for varying reasons: sometimes because there that I can remember. There were discussions about revised was a delay in finalising the audits; sometimes because there accounting/audit regulations. were queries; or it was just not hit in time. Accountancy is covered by the Audit Act itself, so it is There were some authorities where they were progressed not a departmental function, but there was some discussion, or they were chased, looking for specific things to be in the mid-1990s, about that. I think, from memory, the completed, and they were reviewed on a six-monthly basis, conclusion was that they might wait until local government or roundabout six months, with the Audit Committee. That reform took effect, before they changed things, because was set up in 1999 and involved myself, the Chief Executive, they felt some authorities might be too small to actually Chris Tovell, and I am not sure whether Clive McGreal used deal with - to attend or not - 1 cannot remember off the top of my head. I am sure the minutes of the Committee will show that. The Chairm an: You say ‘they’. Who, specifically, do Those meetings, basically, went through the various you think ‘they’ would have been? authorities - which ones were compliant, and which ones were falling behind and chased. M r Whiteway: The Accounts and Audit Regulations are It is an interesting one, because the only offence that a Treasury matter under the Audit Act. is there is the failure to submit accounts, and that can only be taken within six months of the failure. The Department The Chairman: Right. Just that we had evidence from had advice from Ken Gumbley at the Attorney General’s -w h o was it? - Chris Tovell, in which he, basically, stated Chambers on the... I have forgotten the name of the that he had been given advice by officers of DoLGE - I . legislation - there is a limitation on it, and you can only, think you were certainly mentioned and, possibly, the Chief effectively, prosecute within six months of the failure. Executive, Mr Hamilton - that it was DoLGE’s officers’ So, if the accounts have to be submitted by 30th view - not the political view - that no further action should September, under the Audit Act, the offence can only be be taken in terms of developing new audit regulations until prosecuted until 31st March. So, after that time, you are local Government reform had taken place. finished, basically. There is no power of prosecution under That was certainly the evidence that we received. Would the Local Government Act. The only power the Department you agree or disagree with that? has is to undertake an investigation, or to do the work in default of the local authority. The Department had,, M r WTiiteway: No, I do not recall having been involved previously, had advice from the Attorney General’s that, in in a discussion about, whether they should lay it. There is no fact, you can only do things in default if there is consistent reason why the Accounts and Audit Regulations, which, at failure. A one-off is not sufficient. the end of the day, are 1984 - is it 1984? - and run to three pages could not be reviewed. There is no reason why a set The Chairman: Right. of appropriate accounting standards could not be introduced for parish authorities, and for larger authorities. M r Singer: So, can 1 just ask for clarity - The Chairman: Right. I am interested to hear you say The Chairman: Sorry, no, there are just a couple - that because, effectively, that is more or less the question we put to the Treasury, (Mr Whitcway: Well...) and they Mr Singer: - on that position. said that DoLGE had advised them not to proceed until local government reform had taken place. The Chairman: Go on. M r WTiiteway: I would not agree with that viewpoint. M r Singer: If they do not submit the accounts within six Historically, the previous auditors, Coopers Lybrand, months of the date they should do, they can be prosecuted, used to undertake the audit on behalf of local authorities. but if it takes longer than six months, then nobody was... I know that they, to some extent, were probably not... it Was anybody ever prosecuted? is not fair to say that they were the cause of it, but they were contributory, in that Coopers Lybrand used to provide Mr Whiteway: I do not think there has ever been a accounting services to local authorities through the small prosecution under the Audit Act. parishes. Now, what they used to do was take the books in, and The Chairman: A variety of questions are springing out produce a set of accounts on a pro forma, which was, from what you have said. Bearing in mind that, seemingly, basically, the parish authorities and the burial authorities. under both the Audit Act and the Local Government Act, These are small local authorities, it is a single page income I understand from what you are saying, there is limited, if and expenditure account, and it was always seen by Coopers any, opportunity for the Department to actually take any that that made it easier for them to do the audit, because it prosecutions. was standardising things. Now, during the course of - 1 am not sure whether it was M r Whiteway: There is no provision for prosecution KPMG’s or whether it was... I have forgotten the name of that I am aware of. them, now - there was another auditor between Coopers and KPMG’s. Issues got raised as to the amount of accountancy The Chairman: Was there never any thought within work that was being done by the auditors on behalf of the the Department that, perhaps, the legislation needed to local authority, and, quite rightly, the auditors who would be revised, so that prosecutions could be taken in certain be appointed to perform a particular function were saying, areas? ‘Well, look, we can fulfil that function, but why should we do Tynwald Select Committee on Port St Mary Commissioners - Evidence of M r P Whiteway Oral Evidence SELECT COMMITTEE, MONDAY, 28th FEBRUARY 2005 95 TPSM all the accountancy work on top of it, for free? The accounts amount of time with the new vicar, chasing, backwards and should be produced in a format which is able to be audited forwards, trying to get things up to date. easily1. That, I think, is one of the issues. Some authorities M r Singer: What was DoLGE’s view expressed..;? almost expected the auditors to do the accounts for them, What was Treasury’s view expressed to DoLGE about what which is not fair. they should do in regard to the late submission of accounts? We understand - The Chairman: Now, the issues... I mean, we have now had two views, so I want to make this absolutely clear for the Mr Whiteway: The submission - record: as far as you are aware, you never advised Treasury not to proceed with reform of the Audit Regulations. You M r Singer: - that they suggested prosecution. never, at any time, suggested that such reform should not take place until local government reform had been undertaken. M r Whiteway: That would be the gift of Treasury. M r Whiteway: The person present never had such... Mr Singer: Right, but what we understand... I think to subscribe to that view; I would not agree that that was we were told, if I am right, that Treasury’s advice was the case. to prosecute and DoLGE ignored that. Are you aware of I do not see that there is any reason why an appropriate that? set of standards could not be introduced, maybe not the same for small authorities as larger authorities but there is no M r Whiteway: No. I think it has got to be clear here reason, whatsoever, why it should not be there. (Interjection that the Department has not got a power to prosecute under by the Chairman) the Audit Act. The prosecution in the Audit Act is a matter for Treasury and, in fact, in 1999, when the Question was M r Delaney: Do you want to go first? I bow to the long asked of the Treasury Minister, he said that it would be the term member. I might be short-term. intention that prosecutions, if necessary, would be invoked in 1999, and that was the case. M r Singer: It is just that this is, really, going on from In respect of the Audit Act itself, Regulation 4 provides the accounts - a general question on the accounts. (The that all relevant bodies shall ensure that all accounts are Chairman: Yes.) I think Port St Mary, we hear, were not prepared as soon as practical after, and presented within six unique in not signing off their accounts. What other local months. The Act, then, provides that a contravention is liable authorities... ? How many, on average, were not signing off on summary conviction to a fine not exceeding £1,000, and their accounts in time? Regulation 9 of the Regulations says that contravention is an offence. Again, as I mentioned before, that offence cannot be Mr Whiteway: It is hard to say an average, There prosecuted after six months of it being committed. were various... I think Mr Kissack makes mention of it, at one point, and, certainly, as far back as 1999, in March, M r Singer: So, in practice, if a local authority had not the Treasury Minister reported unsigned accounts for the submitted accounts by the due date, would DoLGE inform year ended 30th September 1998, as at February . 1999: 15 Treasury? authorities. But they were unsigned accounts. At that time, also, M r Whiteway: No, because the accounts are required the Treasury Minister clarified by saying only one of those to be submitted under the Audit Act, not under the Local authorities had actually failed to submit the accounts on Government Act. The Local Government Act only provides time. There is a difference between submitting the accounts that the accounts, when audited, must be laid before for audit - which is six months after the financial year end, Tynwald. which is 30th September for local authorities and 30th June for burial authorities - and having the audit completed and M r Singer: I am trying to find... yes, I find this a little bit having the accounts signed. confusing here. We were told - if 1 am right, I do not know if Now, obviously the accounts cannot be signed until the other members agree - that Treasury advised prosecution the audit has been completed. One of the things that seems and DoLGE ignored it. Now, you are telling us that it was to be apparent is that, again, with the standards: what do not DoLGE’s position to prosecute, but it was Treasury’s to you call submission of accounts, to what standard are they prosecute. But how would Treasury know that... who would prepared to? let Treasury know that... sorry, I will start again. Were the accounts submitted to DoLGE or to Treasury? M r Singer: Was DoLGE monitoring lateness of accounts? M r Whiteway: The accounts are submitted to Audit. M r Wrhiteway: The submission of accounts was a matter M r Singer: To Audit? Right, so, if they were not that was discussed at the Audit Committees on a regular submitted to Audit, how would you know, and how would basis, yes, and if there were authorities that were late, then Treasury know? we would contact them and try and progress it. There were a couple of notable ones, from my recollection: M r Whiteway: Because, on 30th September, or near after one of the burial authorities, where the incumbents left and that date, there would be a meeting held with the auditors on took the books with them, and that sort of thing. The auditors the Audit Committee, where the question of any outstanding spent quite a time... In fact, the lady who was in chargc in accounts would be raised. In fact, during the course of 2002, the Audit section, Caroline Caley, spent quite a considerable there were some inquiries made. For instance, the audit Tynwald Select Committee on Port St Mary Commissioners - Evidence of M r P Whiteway 96 TPSM SELECT COMMITTEE, MONDAY, 28th FEBRUARY 2005 Oral Evidence meeting on 8th October 1999, there was reference that those As I understood it, and understand it, having asked a that were outstanding were reported - which did not include number of Questions in Tynwald in the last three or four Port St Maiy, at that time. In December 2000, Port St Mary years, about public accounts - and that is where I think most accounts were reported as being ‘almost complete’, and the of your answers are coming from - it is clear on record that 2000 accounts, at that meeting, were not submitted due to whether a prosecution,if it was... actually, we would be the 1999 audit not being complete - because, obviously, the prosecuting the ratepayers of that area for something that was opening figures were being relied on for that. done by their representatives. That is what would happen, in real terms, wouldn’t it? Mr Singer: So Audit would let both DoLGE and Treasury know that they had not been submitted. M r W hiteway: It is - M r Whiteway: It would not be a formal letter saying Mr Delaney: If they were fined, who would pay the they had not been submitted. It would be a matter that was fine? raised as an item of business on the Audit Committee. Mr W'hiteway: If they were fined - unless, under the M r Singer: Would it have been anybody’s responsibility Audit Act, the auditors took an order to the High Court, to to chase it up and find out why? say that the authority was in default, in which case there could be a charge served against individual members of the M r W hiteway: Well, after those meetings, generally, if authority, for being in default. there were any that were out of date, we would either ring them or write to them, saying, ‘What is going on? Where M r Delaney: I asked that question, if you can remember, are the accounts?’ about charging individuals for non-compliance with their responsibilities as public representatives, of your Minister. M r Singer: And who would decide, then, on whether I will come back to that one. (M r W hiteway: Okay.) there should be a prosecution? Can I just ask you this: has there been - I know there was... At that time, was there a particular political Member M r W hitcway: Well, I do not think that it ever got to the responsible for local authorities? stage where a decision was taken. Mr Whiteway: Well, there will have been, yes. The M r Singer: But the law says that there could be. lead Member in the Department at the time will have been M r- M r Whiteway: Strictly speaking - M r Delaney: There was. M r Singer: So, who would make that decision? M r W hiteway: - Eamshaw, as the Member with overall M r Whitcway: Strictly speaking, if the Audit Act is the responsibility for local authorities. I think, at the time, both he Treasury’s Act, so under the Audit Act, if, six months after and the Minister were.actively meeting local authorities. the date... or after the date on which the accounts arc due to be done, they are not in, then it is a matter for the Audit Mr Delaney: So, therefore, matters affecting local Act whether they should be prosecuted or not. authorities, which, I presume, automatically affects their accounts, would have been brought to them, or would have M r Singer: And Treasury never took that decision, but been brought, at a political level, to that Member, before it was DoLGE there. it - ' M r W hiteway: Other than in 1999, the Treasury Minister Mr Whiteway: It would then be brought to the board said prosecutions would take place. (Interjection by Mr or the Department. Singer) Not to date, no. (Interjection by Mr Singer) To some extent, it depends why they are not there. You M r Delaney: Can I ask you this, then? In a letter -1 am might well have said there were cases where people who talking about, we are going back... tell me if it is nothing would be responsible for the accounts were no longer there, to do with you... We have a letter written to you, on 9th or there was a delay, or someone was ill, or there was - December 1993, and it says: M r Singer: Whose responsibility was it to find out why ‘Further to our recent conversation about the recently submitted they were not in? borrowing petitions, 1 apologise they are retrospective and admit it is partly due to the lack of experience on my part as, until last w eek,) never had the methodology fully explained.’ M r Whiteway: The actual responsibility is vested in local authorities to submit them for audit by 30th September, Could I ask you: after receiving that - this from the in terms of responsibilities, but if it is an offence, then, Clerk to the Commissioners down there - what action, when 1 suppose, it would have to come either between the that was told you...? Could you tell me if anyone took any Department and Treasury and the auditors. action, to make sure... ? After being told that by a person in situ, what action was taken to acquaint them with what was Mr Delaney: Yes, thank you, Mr Whiteway, just to expected of them, in relation to these petitions? clarify here, because we want to get the right message going out. Mr Whiteway: Well, before that time, certainly, the Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mr P Whiteway Oral Evidence SELECT COMMITTEE, MONDAY, 28th FEBRUARY 2005 97 TPSM Department has, for a number of years, run training courses Committee has spent a lot of time going through that report, for local authority officers and members, and, certainly, as and going through, and it has come to light that certain far as the petitions are concerned, since 1985, there has been information was not, or has not been noticed, or was not a handbook or an information book available on the petition submitted to the Kissack Inquiry. Looking at this particular procedure. Certainly, if that was the case, then we would have letter, that we have brought to light, Mr Tovell had written a sent him a copy of that procedure straight away. footnote on that letter to you, which I will show you now. It is quite clear and specific, and it says: M r Delaney: For clarification for the Chairman and us, when you get time - I know you have left, now, the ‘Peter, why not refuse the borrowing petition if their accounts are persistently late? Chris', authority - could you possibly bring it to the attention of your past employer, the situation...? Could you find out for and it is signed on 29th of the third. us: what was the situation, when that statement was made, in a letter by the Clerk to the Commissioners, that he does M r Whiteway: On 29th of the third? not understand? Something really has to be done to make sure he does understand, because he is dealing with public M r Delaney: Of the third month 2000. money. I cannot find out. I am sure something was done. 1 hope something was done, because - M r Whiteway: In 2000. What - ? M r Whiteway: He would have been given, or had his Mr Singer: It was a letter to Mr Popper, which - attention drawn to what, at the time, was what we called ‘petition procedures’. I think now, the Department has a more M r Delaney: You had a copy. The footnote was written in-depth information booklet for local authority members, to you. but, certainly, the petition procedures book, which has been issued for a number of years, tells him what - M r Whiteway: What was the petition? M r Delaney: You would agree with me, when somebody Mr Delaney: I am sorry. I am going to give you the as responsible as a clcrk to a local authority writes and says letter now, actually. he does not understand, that the flag is starting to wave, the warning flag starts waving. Mr Whiteway: Oh, right, okay - M r Whiteway: That would depend on how long he has been in post, at that stage. It is quite possible, he has just M r Delaney: You tell me if you... 1 am going to show started - you that, and I want you to tell me what you did about that footnote. It does not appear on the original one at all, but it M r Delaney: What should he do? Yes. appears on the one we have. M r Whileway: - and there may be a book on the shelf The Clerk: I am sony, I cannot get a copy for you. that he has not had drawn to his attention. It would dépend very much on what information is available within the M r Whiteway: No, these are alright. I am not sure which authority. petition it is referring to, or whether or not the petition went If there is a book there, and Mr Jones knows about it, on. I mean, about that time - Mr Bloggs takes over, and he does not get told the book is there - M r Delaney: Just leave it there - the footnote... the note, Mr Tovell has said in front of the committee, that it is Mr Delaney: I would love to know, after getting a his footnote (M r W hitew ay: Yes.) that was on that petition, statement like that, what was done to say, ‘Hang on a minute, and I would just like if... obviously, it is to you, personally; you have got these books, or there is a training course you it is on a copy to Mr Popper, but it is to you* personally, for can do, or there is something to actually get you au fait with your file, and I am wondering whether... You obviously how to run a local authority’s... ’ — cannot recall it. M r Whiteway: I think, in fairness, since that day, 1 am M r W hitcway: Not at this stage, no, not directly. pretty certain that Port St Mary had a number of petitions, following that date, which they submitted, which they did Mr Delaney: Bearing in mind what it says in the successfully, in relation to local government schemes, which footnote, and the concern expressed by Mr Tovell, I would is what he will have done. like to know what was done about that footnote? M r Delaney: Yes, that is what worries me. That is how Mr W7hiteway: I will probably have to look at the he did not know, and I would like to know what we did to other correspondence that is referred to in the letter, to get make sure he did know. it in context. I am not really sure what the application was The next one is quite... a letter was written to you on 29th about. March 2000, and it is from Mr Tovell, from the Assistant Financial Controller. Have you got a copy of that letter? M r Delaney: You can see the importance of why I am (Interjections) Can we let him have a copy? We will show asking that question, can’t you? you this letter. It is just in the Kissack Inquiry... the Chairman of this M r Whiteway: I am not entirely certain that there would Tynwald Sclect Committee on Port St Mary Commissioners - Evidence of M r P Whiteway 98 TPSM SELECT COMMITTEE, MONDAY, 28th FEBRUARY 2005 Oral Evidence have been any petitions there at that time, but there could Mr Delaney: No, I am sorry. I would like to move on, have been. but it is quite clear, it is crucial to me, to find out exactly why we have senior officers, one with this petition... M r Delaney: Well, it is. It mentions them. It mentions It has come to you, your committee, sir, and just to make the fact that the accounts were late, and its about petitions. sure that, if we are to be blamed for anything, we can have That is why he has written it to you. time to clear ourselves. The officer, Mr Tovell, did not write that for the fun of it; M r W hiteway: Yes. he wrote it, because he had seen a problem. He recommended a course of action, and then it was up to somebody to either M r Singer: On 28th March, we have a letter from the discharge it, and say, ‘No, I’m not going to do it,’ or to do Clerk to Mr Tovell: something, because that, with due respect, was in time to have stopped some of the damage that might have been the ‘Please find enclosed a letter from Peter White way giving us permission consequence put upon the ratepayers of the area. That is why to borrow a sum of £107,000 repayable within seven years to defray I am keen to have this cleared. the cost of the purchase of a new refuse vehicle’ - Mr Whiteway: The other thing there, as well, looking (.Interjection by Mr Whiteway) at it, the accounts you refer to are the accounts for 1998-99. The previous year’s accounts were signed on 25th March ‘I should be grateful if, once again, the Treasury will consider lending 1999, and at the audit meeting on 8th October 1999, the this money to us.' Port St Mary accounts were not reported as having been outstanding, so, presumably, they had been submitted for Now, this letter to Mr Popper from Mr Tovell is the next audit at that time. day. (M r Whiteway: Right,) So, do you think it refers to that money for that refuse vehicle? Mr Delaney: Yes, that is not what his notes said, though. M r Whiteway: It looks like it refers to the refuse vehicle. M r Whiteway: No, it says the accounts are persistently late, I do not know in what context he means late. They were M r Singer: Are you aware if, in fact, you took any action not late in October 1999, which is the date prior to this one, on that, or whether that borrowing petition just went through, when their accounts will have been submitted for, so they and they got the money? obviously had complied with the requirement in respect of M r W hiteway: Well, I do not think they actually did, in the year end 1999 accounts for submission. But at the time the end. 1 think, from looking at the stuff in here, if it was his letter was written, the audit letter had not been signed, the same vehicle, they actually leased it in the end. They did but there is no - not borrow for it. M r Delaney: Do you understand, then, the Committee’s M r Delaney: Yes, whether or not they leased.it, or it difficulty of trying to get this into some sort of clear went through or not, from one officer to another we have a picture? direct communication, written on a letter going to someone I follow what you are saying with the accounts, but I am as a third party, which indicates action. What I am trying to trying to work out why an officer in the Treasury, who is, identify, Mr Whiteway, is: what action did the administration as wfe have found out, and we know to be, responsible for take, lo try and block this potential dangerous situation that organising the audit et cetera, sees a danger. He puts a note was occurring? on a letter to a third party, who has applied for Government funding, to bring the attention of you, or the officer in your M r Whitcway: It would be retrospective at this stage. position, to that particular fault, and nobody seems to have The petition had already been approved by the time Chris done anything to wave up... had sent a letter. He would have to look to see what happened My next question, actually, Chairman, would be: would when the next petition came in. you agree that should have been brought to the attention of the political Member responsible, at least? M r Delaney: Yes, that is not talking about it that way. Just taking it, it talks about petitions. It does not talk about M r Whitcway: I would not know whether it has or it has a specific one; it is talking about the problem that they can not, to be honest, Mr Delaney. I cannot recall that far back. see. We have asked this of Mr Tovell, by the way. I am not (Interjection by M r Singer) asking you to - M r Delaney: But you agree it should have been? If it M r Singer: Do you think he was suggesting that this be was not, we do not know, but should it have been? for future petitions, if the accounts continue to be late? Mr Singer: Can I...? There is another letter just a M r Whiteway: Well, the actual borrowing petition, at few days later, 4th April, to Mr Gardner, KPMG, from Mr this stage, he is referring to, from the previous letter you Tovell: have just shown me, had been approved, so you cannot retrospectively take something back. Chris, obviously, has ‘Port St Mary Commissioners: decided, in this case, not to allow them to take an advance ‘I have recently declined to act as lender of last resort to the above against a new CLF [Consolidated Loans Fund] at that time, authority for non grant-aided services, because they cannot put their 1998-99. accounts into the public domain within a reasonable period of time. Tynwald Select Committee on Port St Mary Commissioners - Evidence of M r P Whitcway Oral Evidence SELECT COMMITTEE, MONDAY, 28th FEBRUARY 2005 99 TPSM 1 have indicated that I not only need their accounts to be published M r Whiteway: He does not have to approve a loan. on time, I need to be convinced of their commitment to public accountability.' M r Singer: So, you can have approved it, and Mr Tovell can then refuse the money, which he did, and that is, probably, So, that is after he has suggested to you that you do not why they leased it. lend them any money. He then says he has declined to act as lender. Mr Whiteway: Well, possibly, yes, but I do not know why they leased it, as such. They did have approval to borrow Mr Whiteway: From his diktat. the money. It was funny - M r Singer: So, what has he declined to lend on? M r Singer: Peculiar is that he wrote to you saying, ‘Peter, why not refuse it?’ - M r Whiteway: It is two specific things. The approval of the Department is required to borrow money. That is under M r Delaney: That is the point. section 51 of the 1985 Act. The Treasury, under the Loans Act, advances money to local authorities. M r Singer: - and you said, ‘I cannot do that, it’s already . Now, in this ease, what has happened is the authority has been granted,’ - brought forward a request to the Department for approval to borrow money to defray expenses, because the alternative to M r Whiteway: It had already been granted. defraying expense over, say, three or five years for, in this case, a refuse vehicle, would be to charge the whole cost to Mr Singer: - so he then refused it. the rates, or find other ways of getting it. Nowadays, what they do is lease it, because a lease M r Whiteway: Yes, but it does not follow that he has to does not fall within the remit of borrowing any more. lend the money to them, anyway. So, if an authority comes forward and says, ‘We want to lease a vehicle,’ it is not a borrowing, which is something M r Singer: No, I understand that. which... Again, it has been questioned in the past, and the M r Whiteway: He is generally a lender of last resort, Attorney General’s Chambers have said that a lease is not and it usually happened in cases where authorities could not a borrowing. raise the money through bonds. One is to say: is it appropriate for this expenditure to be funded through borrowing, to defray the expense and, M r Singer: Did he realise that you had already granted therefore, to make sure you do not have peaks and troughs it at that time, when he wrote this message? in the rate fund? Obviously, if you want a rate for £100,000 in year 1, as opposed to borrowing it over five years, and M r Whiteway: When he wrote that, there was a letter spreading the cost over a five-year period, or the life of the from Julius Popper, showing a copy of our letter of approval, asset... or the Department’s letter of approval, at the time. The second part is to actually get the money from the Treasury. Now, in that case, whilst the Treasury has refused M r Delaney: We have actually hit the nail on the head to act as lender of last resort, the authority could raise now, Chairman, the point being: why, then, would somebody money by any means. It could go to the bank, it could go to write a note, having had that correspondence, ‘Yes, we have Conister Trust, it could go to a debenture issue, bonding, if approved it, no we don’t need to lend it,’ and then write a note it wished to do so. to you to say why not stop giving any moneys out? M r Singer: Maybe I am being simple here. You sent a M r W hiteway: Well, the Department does not give any letter to Mr Popper on 16th February saying: money out, anyway, Mr Delaney. ‘1 refer to our telephone conversation in relation to your Commissioners’ acquisition of a new vehicle. I can confirm that my Department has M r Delaney: But he is asking you there. formally approved the petition.’ M r W hiteway: Yes. Mr Whiteway: The petition to borrow, yes. M r Delaney: He is asking you, specifically, there. M r Singer: Borrow, okay. And then there is that letter to Mr Tovell from the Clerk saying, ‘Please find enclosed M r Whiteway: That is the second part - why not stop a letter giving us permission to borrow the money.’ (Mr them borrowing? Whiteway: Right.) Then there is a letter from M r Popper to Mr Tovell about M r Delaney: Would you agree I have got a right to be the accounts, and he has put a copy to you saying, ‘Why not confused? refuse it?’ and you said, ‘Well, we cannot refuse it, because we have already granted it’; and then there is this letter on M r Whiteway: 1 can see where you are coming from, 4th April saying, ‘1 have recently declined to act as lender.’ yes, but you have got to wonder what the benefits of them This is from Chris Tovell. borrowing would be. If you stopped them borrowing,to So, you can approve it. You cannot withdraw your defray expenses, it means they have to fund everything that approval, but Mr Tovell, having received your approval - they want to purchase, which is not preventative, anyway. Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mr P Whiteway 100 TPSM SELECT COMMITTEE, MONDAY, 28th FEBRUARY 2005 Oral Evidence M r Singer: But Mr Tovell still did that. Department on lateness of accounts, yes. M r Whiteway: Well, no. He did not advance them the M r Singer: So, that was at a Department meeting. money himself, but that does not stop them from going somewhere else to get the money. Mr Whiteway: Because, obviously, what would generally happen is that if you had... The Orange Book Mr Delaney: Yes, but getting away with that side of was published. There would be a list in the Orange Book how local authorities can bypass getting permission to of the accounts that were not there, and, obviously, also borrow moneys by getting something on lease, let us go to there were a number of times when there were Tynwald the situation here on that specific letter. Why would a senior Questions raised, or Keys Questions raised, so the matter officer - again, I ask, and you say, ‘I do not know’ - write was regularly raised. to you, on a footnote on a letter to a third party, virtually Whenever that came up, and when the Orange Book saying, ‘Let us stop giving them money1? That is what they would come up, you would do a briefing note to the Minister are saying. saying, ‘You need to know this is on the Agenda, and this is the situation with the accounts.’ M r Whiteway: Presumably, he feels there is reason to stop giving them money, yes. I would agree. The Chairman: You mentioned briefly the Audit Committee. Now, we have had a version of what the Audit M r Delaney: And you do not know what we did about Committee was dping, and how regularly it was meeting. I that? wonder whether you could just remind us how... or perhaps, when was the Audit Committee established, as far as you can Mr Whiteway: I cannot recall what was done. remember, who were the members of the Audit Committee, how often would they have met? Mr Delaney: Thank you, Mr Whiteway. I am still as You mentioned that we could see, from their minutes, confused as ever, by what has been going on. . what they were talking about, but we have not received any minutes, as far as I am aware, from the Audit Committee. The Chairman: Just, I suppose, moving on from some Could you tell us a little bit more about the Audit of that position of confusion, you seem to be fairly clear Committee? about the roles and responsibilities of, certainly, your own position and of your Department. Likewise, the Treasury M r Whiteway: I think Treasury had, for a long time, officials were completely sure about their position. Was regular meetings with the auditors, because, obviously, they there any time, during your term as Director of Corporate make an appointment under the Audit Act, and the meetings Services, or working within the Department, that you ever would be held to review the performance of the auditors. I felt that there was confusion as to who was and who was not am not 100 per cent certain of the dates, but I think it was responsible for specific areas? about 1999. The Department was invited to go, and myself and Anthony Hamilton used to attend the meetings. Mr Whiteway: That is a difficult question, I suppose. They were intended to be held twice a year. Sometimes, I think, to my mind, the position is always fairly clear. The they would slip a bit beyond the actual submit date, but the Audit Act is a Treasury responsibility, and, certainly, the timing was generally supposed to be March and September Department has had advice from the Attorney General’s - significant because September was the date by which Chambers on the question of the Audit Act, and the the accounts were supposed to be submitted, and March implications of it would be the date by which the audit would be completed. In fact, there were even questions raised as to whether or The Orange Book would be submitted in March and then, not we should require local authorities to submit accounts in latterly, in February. a shorter timescale, say three months - for audit within three months - and the advice we got on that one, which came M r Singer: So the members of the Audit Committee from the Chamber, was that, ‘to do so you would have to were drawn from DoLGE and from Treasury. apply that to all Government bodies and that might not be a position that you might want to promote’. Mr Whitcway: Well, there were the Department, Whether, within Treasury, there was a clear understanding Treasury and the auditors themselves and - of that, I could not say. I was not a Treasury official at the ■time, but it was always my understanding that, as far as the M r Singer: And officers from DoLGE? Acts were concerned, the Local Government Act required the audited accounts to be laid before Tynwald, and the Audit M r Whiteway: Officers, yes, they were all officers. Act was the method by which regulation of the production of the accounts and the submission of the accounts for audit M r Singer: Yes, officers from DoLGE, Treasury and was managed. from KPMG. M r Singer: When you received, or did not receive, the M r Whiteway: And KPMG. And, basically, we reviewed accounts - or you knew they had not been submitted - how the situation in respect of the... The agenda included the did that go further up the line to your senior officers, so they performance of the audit, how far the audit was going and were aware of it? submission of accounts, and that, usually, was mostly what the meeting was about. M r Whiteway: There were reports that were sent to the There were some discussions, on occasion, about the Tynwald Sclect Committee on Port St Mary Commissioners - Evidence of M r P Whiteway Oral Evidence SELECT COMMITTEE, MONDAY, 28th FEBRUARY 2005 101 TPSM audit of accounts and Audit Regulations and when they need M r Whiteway: Whether it is a silly reason or not, I do to be reviewed, but not in any great detail that I recall. not know. In practice, if they introduced new regulations, it seems to be suggesting here that some authorities would The Chairman: A couple of other questions I have got, I not be big enough to do it, and that to be putting in place am afraid. I go back to the issue that was raised with us when an accounting standard that might apply requires small we last-met with Chris Tovell, where he, quite specifically, authorities to employ accountants. But there is no reason said that the Audit Regulations that he was consulting on why an appropriate form of accounting could not have been were not progressed, because he had advice from officers produced. of DoLGE that we should not move forward with this, until local government reform had taken place. The Chairm an: Do you recall whether DoLGE, actually, Would you think that that would be an inappropriate made a formal response to that consultation? thing? Making the assumption that an officer had given such advice, would that be an appropriate bit of advice, or should M r W hiteway: I cannot recall. You would have to ask. that really have been dealt with at a political level, would you have thought? The Chairman: Were you ever involved in that? M r W hiteway: This is in 1996-97? (The C hairm an: M r Whiteway: Not to my knowledge. You would have Yes.) It depends at what level the consultation took place. If to look at thè Department minutes, and see whether it was it was raised at officer level, during the course of one of the ever raised as a minute item. audit meetings, then it would be then. The Treasury would have had the option of writing to the Department, formally, Mr Singer: Can you remember when... you were a as a political body, saying we wished to do that. member of the Audit Committee, were you? It is surprising, though, in Mr Kissack’s Report, the conclusions are listed from that review, and the conclusions M r Whiteway: I attended meetings, yes. actually state: M r Singer: Who else attended with you? ‘the present regulations arc not being properly enforced’. M r Whiteway: I know Anthony came to some of the It also says that changing the regulation was not meetings with us, yes. I think possibly Clive McGreal addressing the fundamental problem which was touched might have been at some of the meetings - Colin Kniveton, upon in the consultation document. In the Report, it stated Christopher Allen - that the structure and functions of local government... that there were too many authorities, M r Singer: I am thinking from the DoLGE side. There was you and - ‘most of which are too small to either require retaining skills and knowledge base necessary to aspire to a high quality of public accounting and many authorities are not complying with the very M r Whiteway: Just me. modesl requirements.’ M r Singer: Right, okay, and so you were sitting there It is contradictory to have statements like that in the with the auditors, and you knew that there were delays Report, and then to follow up by saying that, therefore, of submission of accounts. Did the auditors ever raise the new regulations have been abandoned. So, 1 cannot concern about the quality of what they were being provided understand that myself. with, or did they know the reasons why the accounts were completed? The Chairman: The only reason that was given to us for abandoning those new regulations was that advice had been Mr Whiteway: Mostly it would be a case of going given at officer level that these should not be progressed with, through the list of accounts and seeing what was going until local government reform had taken place, and you are on: ‘are these ones missing altogether?’ or ‘these ones are completely unaware of that advice ever being given. delayed because we know the previous year’s accounts aré still under audit’ or, as I say, there was a particular case where Mr Whiteway: 1 would subscribe to the view there is the incumbent of a burial authority had moved on, and the no reason why a revised form of accounting practice could accounts just were not there. not be put in place that was appropriate to the size of the But, really, it was a case of going through and seeing authorities, if necessary. what was going on, and, if necessary, we would write to the various authorities, or contact them, and say, ‘Look, where The Chairman: And effectively, as well - I do not want are the accounts?’ Usually, you would get a response; but, in to put words into your mouth, so correct me if 1 am wrong the case of Port St Mary specifically, it was never reported - what you have just said is that, effectively, the reasons as being a major problem. There was always a reason why given for not progressing... there are some very good reasons they were not available. there why we should, perhaps, have progressed with the new revised regulations, back in 1996-97. There is evidence M r Delaney: Well, I suppose the one question, in fairness that there was a problem, and it needed to be changed and, to you, Mr Whiteway, we should ask... you have been here effectively, if the only reason not to do that was because we and around, since this saga started, to the detriment of the were going to wait for local government reform, that is a people down there. Could you tell me, in your opinion - and bit of a silly reason. this is a leading question, but you have left the employ of Tynwald Select Committee on Port St M ary Commissioners - Evidence of M r P Whiteway 102TPSM SELECT COMMITTEE, MONDAY, 28th FEBRUARY 2005 Oral Evidence local government now, you are in a local authority - what the situation within the authority at the time, in detail, how was the reason, in your belief, after seeing the Kissack Report they were doing it, it would have been a different situation. - and you must have read it, bccause you were part of it - that The fact, now, the Department has regular returns from local we have found ourselves in this position, at Port St Mary? authorities on expenditure will make it easier to identify problems. M r Whiteway: A leading question, yes! Obviously, a lot of things that have taken place since the time I left the The Chairman: You have made reference that the Department I have not been privy to, and I have not had the appointment of a new deputy clerk has been one of the major benefit of having access to all the files, all the time, so it is causes of the problem. difficult. Having read through it, 1 suspect that the problems really M r Whiteway: I do not think it is a major cause of the started when they lost their Deputy Clerk, and they did not problem. I think that is possibly where things have gone make an appropriate appointment, or the appointment of an wrong. I suspect that, previously, the finance function was appropriate person to the post. being fulfilled by somebody who understood the role, and it Now, whether that was because the job description, or was clear what their job was, and I am not certain, looking the skill requirements, were not clearly identified when at it, that that continued to be the case. It looks to me as if they made the appointment, or whether they just appointed Julius Popper might have taken on some of the financial somebody who just was not able to do it, I do not know, responsibilities - but it seems to me that, from what I have seen in here, that, at the time Mrs Home was there, as the Deputy Clerk, the The Chairman: Under the Local Government Act,. finances were up to date, and they seem to have reasonably though, DoLGE, actually, has the function of approving the kept on top of themselves, and they seem to have gone astray appointment of officers in the parishes. after that point. M r W hiteway: That is the appointment of the clerk, not M r Delaney: Thank you, Mr Whiteway. the deputy clerk. M r Whiteway: 1 think, really, it comes down to having The C hairm an: Right. Would you think that, perhaps... an appropriate person in the job. Well, first of all, it is only for the parishes, anyway. Would you think that, maybe, to - ? The Chairman: The follow-up to that question, then: you arc entirely content that your role, and, indeed, the role M r Whiteway: No, I think it is all clerks. of DoLGE, has been exemplary, in terms of supervising Port St Mary Commissioners over the period? The Chairman: Well, maybe you have got a different version of the 1985 Local Government Act! But do you think M r Whitcway: I think, at the time, the Department and that, perhaps, it would be appropriate for DoLGE to approve myself were fairly satisfied with what was going on. It is only clerks and deputy clerks, so that your Department can be sure since, in retrospect, things have become more clear. that at least one or other of the senior officers of the local For instance, when the matter was brought to my authority will have a reasonable knowledge of finance? attention, in early 2002, it was £30,000, and they had taken steps to remedy the situation. They had appointed M r W hiteway: I am just trying to think if I have got the an appropriate firm of accountants, which you would have bits and pieces here. I think the appointment of the clerk is expected to have changed things. an important thing. I am not too sure whether you need to It is surprising, since then, that things seem to have go to the extent of requiring Government approval for every continued to decline. You would have thought having, as Mr single appointment within an authority, but it should be a Kissack points out... In 2002, they set a rate which met their requirement for the authority to have regard for its functions, expenditure requirements, but it seems strange that things when it is making appointments. Things like having in placc have still got worse. I am not really sure what the reasoning the model standing orders for financial responsibilities, that behind that is. sort of thing, are useful to be in place. Obviously, at the end of the day, whatever they expend If you went down the route of every single appointee, has been approved by the authority, at some point, and it could be quite difficult. There could be quite a high whether they have done it by having incorrectly estimated turnover of staff in some areas and, certainly, in my current what the costs were, and incorrectly estimated their expense, employment, we have probably changed seven or eight staff is a different thing. in the last year and a half, and to be going backwards and I notice, in Mr Kissack’s Report, that there is mention forward on that process could be difficult. of them running a deficit in certain years, and, in fact, that I suppose probably more important in this case is to happens in most authorities. It happens in Government. If you make sure you have got a proper job description and a proper have got a surplus the previous year, you do not necessarily person specification or skill requirements specification, when budget, and disregard the surplus. It makes sense. you are making the appointments, so that you know you are Mr Delaney knows, and Mr Singer, from their previous getting the right person in, or you are getting the right skills experience, and yourself, if there is a surplus at the end of one coming in in the first place. year, then you make an account of that when you are setting the rate for the following year, and, in fact, that is provided The Chairman: So, would it be fair to say that, certainly for in the 1916 Act - that is expected to done. while you were working for DoLGE, DoLGE took a kind of What seems to be the case here is they have misund'erstood a soft approach to its supervisory role to local authorities, the situation and, 1 suppose, in hindsight, if we had known or was it - Tynwald Selcct Committee on Port St Mary Commissioners - Evidence of M r P Whiteway Oral Evidence SELECT COMMITTEE, MONDAY, 28th FEBRUARY 2005 103 TPSM M r Whiteway: 1 would not say it was soft, no. I think Mr Hamilton: No. it took an appropriate level of responsibility. Certainly, things like appointments were very closely looked at, and The C hairm an: Right. Are you aware where the Treasury we would look at who was proposed to be appointed, what might have got that understanding from, that DoLGE officers their experience was, what their background was. had advised them to that effect? The Chairman: Yes, but really what I am trying to get M r Hamilton: No, I do not. Actually, I was surprised at... ‘Appropriate’ - what is appropriate? Now, some people to hear that statement. I did not know what had been said might say that a soft touch would be appropriate, others might in evidence previously. I have not brought all my files with say that, perhaps, a much harder line should be taken, and I me - there are rather a lot of them - but my recollection is suppose that is really the political dilemma in all this. that it was the other way round. I seem to recall that the Treasury took a view that we M r Whiteway: Harking to what Mr Kissack says, there should wait until local government reform, because everyone are two levels of approach, aren’t there? Is the Department always thinks that local government reform is imminent and, a strong supervisor, or are local authorities autonomous having been involved for some 38 years now, I do not take in their own right? In law they are autonomous. They are that view any more. There was a feeling at the time, there statutory bodies in their own right, and they have to accept was an impetus at the time, towards bringing about reform that responsibility. They are appointed by the ratepayers or of local government and my recollection is - and I would the voters in the area, they are accountable to the electorate need to check the file - that the Treasury took that view and in that sense, and they have duties and responsibilities which not the Department. are clearly identified in statute. I certainly was not involved in giving that advice. 1 would not agree with that advice and I do feel that there were changes taking place in the UK, to do with the Nolan The Chairman: I think at that point, unless... Has Committee and various other things, that tended to give a anyone got any other particular question? I am sure we could steer that we should be trying to improve the way things are keep you here until 5 o’clock, but we have plenty of other managed here, as far as financial regularity is concerned. It questions to ask yet. So, thank you very much. certainly would not have been my view to have put things off and wait until one day, perhaps, local authority reform M r Whiteway: Thank you. takes place. The Chairman: Do you recall being given a copy of the Mr Hamilton was called at 3.30 p.m. consultation document, which specifically looked at revising the Audit Regulations? EVIDENCE OF MR R A HAMILTON M r H am ilton: I think I remember seeing it, but it is a long time ago and I cannot remember anything about it The Chairman: Okay, could I ask Mr Hamilton to come now. forward, then. Could we begin, first of all, by welcoming you to the Committee. The Chairm an: I think the main conclusion that seems to If you could, perhaps, tell us a little bit about your role as have been reached, for not proceeding with these regulations, Chief Executive: how long you have been in post and how was ‘we do not proceed until local government reform has your role as Chief Executive of DoLGE has brought you into taken place’, w hich... Would you think that, bearing in mind contact with the area that we are considering. the evidence that was available, that the Audit Regulations perhaps needed improving, would you have thought that a Mr Hamilton: I was appointed Chief Executive on decision like that should be taken at officer level, or would 24th June 1996 of the Department. As Chief Executive, I that have been something that really ought to have gone to have overall responsibility to the Minister for the day-to- the Department or Minister to make a decision? day functioning of the Department and carrying out the Department’s policy decisions and advising on policy matters Mr Hamilton: The decision to changc the Audit to the Department. Regulations would have been a Treasury decision and not So far as this particular area is concerned, I do not have my Department’s decision. Nothing unusual about officers, a day-to-day close involvement with local authorities. I do, certainly senior officers, taking a view on a particular issue from time to time, become involved, if matters are drawn and then taking it forward, but I just do not know whether to my attention or if local authorities, as they do from time the letter that we received at the time, and I have only got the to time, contact me directly about particular issues, but vaguest recollection of it, but I do not remember whether that normally my deputy, Peter Whiteway, now Yvette Mellor, indicated that it was a political view or an officer view. head up the local authority unit, local government unit, and they are more likely to be involved in day-to-day issues to M r Singer: We have heard that you attended the Audit do with local authorities than I would be normally. Committee. The Chairman: Getting into the crux of the matter, as far Mr Hamilton: Only once or twice. I was appointed in as I am concerned, did you, at any time, advise the Treasury June 1996 and I certainly attended the first two, or maybe that it would be inappropriate for them to proceed with three, of those meetings but that was more from the point of improvements to the Audit Regulations and that they should view that I was interested to find out what happened at the wait until local government reform had taken place? meetings, what sort of issues were discussed. Tynwald Select Committee on Port St Mary Commissioners - Evidence of M r P Whiteway Tynwald Select Committee on Port St Mary Commissioners - Evidence of M r R A Hamilton 104TPSM SELECT COMMITTEE, MONDAY, 28th FEBRUARY 2005 Oral Evidence Normally, Peter Whiteway represented the Department accounts for quite a long period of time. Even back in 1996 on the Committee, Chris Tovell represented the Treasury and when I attended my first meetings with this Audit Committee, Mike Gardner, if I remember rightly, was the person who one of the themes of those meetings... Well, there were two represented the auditors normally, but there would normally main themes, as I recall. One was the lateness in submitting be the audit manager there as well. accounts and the other was about the competence of some of the authorities, particularly the smaller authorities, to M r Singer: Would there noimally be three people? produce accounts to an acceptable standard, to make them suitable for audit. Mr Hamilton: Four. I think from my memory, it was usually about four. Mr Singer: And would it be your responsibility to issue instructions how things should be proceeded with, M r Singer: But only one member from the Department for example, that lateness should be monitored or the local of Local Government? authorities should be written to, to find out were there any problems? M r Hamilton: One from the Department, yes. M r Hamilton: Well, lateness was monitored and there Mr Singer: We have had conflicting evidence about were periodic reminders sent to local authorities by Peter prosecution. We were told that DoLGE ignored Treasury Whiteway, reminding them of their responsibilities and advice to prosecute and we have also heard today that, in reminding them of the rimescale within which they were DoLGE’s view, Treasury were the Department to prosecute. required, under the Act, to submit their accounts. The Where do you come down? Department was made aware of this from time to time. It was an issue of concern, but it was not a major concern. M r Hamilton: It is my understanding that if a prosecution The Department took the view throughout this period is brought, it is brought by the Treasury. that, because there were varying degrees of competcnce with local authorities, to be too heavy-handed with them would M r Singer: So, sitting on the Audit Committee, you have not actually achieve what was desired and what was desired got a member of DoLGE, a member of the auditors and a was to get the accounts submitted, and so the Department member of Treasury. Are you aware of whether they would adopted rather a patient approach and tried to encourage discuss... Surely they would know, they would discuss compliance and discussion with the auditors. whether prosecution should take place, because they could I remember at one meeting that I was at, making the do it within that Committee? They would know who was suggestion that perhaps a standard, simplified form of responsible. It this a ease of passing the buck? accounts could be produced that local authorities, especially thè smaller ones, could use as a format, as a pro forma almost, Mr Hamilton: They would certainly know who was but the advice that I was given, by way of response was that responsible, yes, but not at the meetings that I attended, was that would not really work very successfully, because of the that discussed. different natures of the functions of some local authorities. The Chairman: It may not be the responsibility of M r Singer: Did DoLGE feel there was any responsibility DoLGE to take a prosecution, but could DoLGE, perhaps, on them to talk to local authorities, if there was a problem, to have advised that it would be unwise to take a prosecution find out what the problem was and to help them or did they for various reasons, for example that, effectively, the people simply say, ‘Well, it’s up to you to sort yourself out.’? who would suffer would be the ratepayers, not the local authority? Do you think, perhaps, that is where the confusion M r Hamilton: Not the latter, certainly. But, politically, has come in? no, the Department did not enter into discussions with local authorities, but the local government unit that I established M r Hamilton: I do not know, is the honest answer. I to improve communications with local authorities, through do not know, but I would have thought, if a prosecution is that unit there was regular contact between the Department’s being contemplated, the Treasury would take a view from officers and local authorities on a range of issues, but our Department and I would expect that to be a political including such things as the submission of accounts. view normally, before a prosecution was taken, because it is my Department that is responsible for supervision Mr Singer: And presumably why the problems were of local authorities, so I would not really have expected there? the Treasury to have taken a policy decision to bring a prosecution, without consulting our Department first I do M r H am ilton: Yes. not remember the Department ever being consulted on that particular issue. The Chairman: When was the local government unit established? M r Singer: Whilst you say you did not have any direct input into local government as such, you must have Mr Hamilton: If I remember rightly, it was about been aware of these reports that came to your Department 1999. meetings, when they did come, about lateness of accounts and non-payment of accounts. Mr Delaney: Good afternoon, Mr Hamilton. Excuse me, 1 have got a bit of a cold. You must excuse me up there. Mr Hamilton: Yes, there was a problem over late A lot of the work of the Committee has been looking in Tynwald Select Committee on Port St Mary Commissioners - E vidence of M r R A Ham ilton Oral Evidence SELECT COMMITTEE, MONDAY, 28th FEBRUARY 2005 105 TPSM retrospect, at what was said at the Kissack Inquiry, and what that the accounts were late was not a satisfactory situation was in writing and some of the interesting things which have to be facing, but the fact that they are late, equally does not come to light, and particularly myself and my Chairman, mean there is anything necessarily wrong in the financing of I am sure, is that we have got a situation where, here we those local authorities, but, of course, until the accounts are were in 1984, talking about reviewing the Regulations and submitted, it is not possible to see whether there is or not. going through - So there was a conccm, but there was no reason for the Department to believe that there was a serious financial Mr Hamilton: Did you say 1984? difficulty with Port St Mary or with any of the other authorities that were also late, until the meeting was arranged M r Delaney: Audit Regulations 1994,1 beg your pardon. with the Chairman and the Clerk with Mrs Mellor. It was Excuse me, my fault. Then we came to a stop. We did not only then that the Department became aware of the deficit really do anything, did we, and you said clearly here, and situation. rightly so, that you did not believe it, you said something should have happened. Did you ever put this in writing to the Mr Delaney: That is a good answer and I accept that Treasury, because you were communicated with on 25th July totally. You heard me ask your colleague - you were 1996, just after you took your appointment up, specifically on sitting there when I asked your past colleague, actually, Mr the review of the accounts and the Audit Regulations 1994. Whiteway - a question in relation to a letter. Can 1 show you Did you communicate back to them any particular position that letter? Do you mind if I take it over? of you or your Department? M r Hamilton: I think 1 have a copy of it. Mr Hamilton: I do not recall that I ever wrote, but I do recall the discussion with Peter Whiteway and, more M r Delaney: Okay, you have got it? recently, with Yvette MeJlor, my belief that there is a need to have these Regulations updated, but there was a reluctance Mr Hamilton: I think so, yes. to do so. M r Delaney: 1 think this one was crucial because when M r Delaney: By? the Chairman and the Committee get down to writing the Report, we are looking, obviously, to make sure we are fair Mr Hamilton: Within Treasury. There has been a to everybody, but at the same time we have to bear in mind reluctance within the Treasury to do so and they did see a link the evidence that is submitted to us and this evidence was not between that - and I think there is genuinely a link between virtually in its form put to the Kissack Inquiry, and yet - that and local government reform - because I think if you had, to take one extreme, four local authorities for the Isle M r Hamilton: I cannot actually remember whether that of Man, the Regulations would be framed rather differently, is the case. Are you talking about the letter of 29th March than if you have got 24, 25 or 35, so there is a link between 2000? the two. But there has been a reluctance in the Treasury that I am aware of, to bring forward the Regulations and there M r Delaney: That is the one, yes. have been reminders issued, but I do not think I have actually personally done that, but I have arranged for reminders to Mr Hamilton: I submitted that to you, to this Select be issued from time to time. Committee, and I honestly do not remember whether that is the same copy that was submitted to Mr Kissack, when he Mr Delaney: You see the documentation, obviously the was conducting his inquiry. I just do not remember. Minister is the Department and you are his Chief Executive, so you are as much the Department as he is and you take M r Delaney: As we understand it - Chairman, you may responsibility, which you said. You see, we are trying to get want to speak on this yourself - this letter, this footnote that down, and I am trying to get down, to look at how eveiything is here, is not at all the document that was put to the Kissack seemed to be, that we knew... and you know from my own Inquiry. We have had that more or less substantiated now. view, after the Questions 1 have asked in another place, in relation to accounts not turning up and they cannot be seen, The Clerk: I thought that bit was. is that everyone seemed to be concerned. Everyone was saying ‘There is a fire out there’ -1 will use Mr Delaney: No, not the footnote. Mr Tovell said that expression again - but nobody was pointing anywhere the copy he had did not have this on. Is that not correct, in the position of a fire extinguisher to put the fire out and I Clerk? cannot understand how it was. I was trying to identify where the sudden breakdown went of somebody... We all know The Clerk: Yes. something is wrong, which you quite clearly knew there was, your officers knew, everyone seemed to know, but nobody M r Delaney: So the situation is that when you take the was prepared to move and I am trying to identify when it date of that letter and the fact that it went to your officer, got to the state, where nobody decided to move. at that time, in the Department, and what it says, could you just read out again what it says there? Mr Hamilton: I would not have put it quite like that. What I have said to you today, and what I would confirm, is Mr Hamilton: It says: ‘Peter, why not refuse the that the Department was concerned about the late submission borrowing petition, if their accounts are persistently late? of accounts, but did not regard it as a major concern. The fact Chris. 29th March 2000.’ Tynwald Selcct Committee on Port St Mary Commissioners - Evidence of M r R A Hamilton 106TPSM SELECT COMMITTEE, MONDAY, 28th FEBRUARY 2005 Oral Evidence M r Singer: Mr Tovell knew then, didn’t he, that Mr authority: ‘You’re behind with your accounts, we’re not Whiteway had already approved it, in the letter of 28th prepared to consider a request for borrowing powers.’ I March? think that was the point that we said, ‘I don’t think you can do that.’ M r Hamilton: To be correct, the Department has to approve petitions for borrowing powers. I do not know Mr Singer: So come forward to the present day. whether that note relates to a specific petition or whether Somebody has not sent in last year’s accounts and they it is a comment of a more general nature, but that is quite come to you n o w , at this very time, for permission to borrow different from a decision that will be taken by the Treasury, money. Would your Department today refuse them the as to whether or not a local authority can borrow money money, because they had not submitted their accounts? from the Treasury. That is an entirely different thing. So we are talking about a petition for borrowing powers under the M r Hamilton: My personal view is that the Department Local Government Act here. could not do that. My view is that the Department would have to consider other issues to do with whether it was M r Singer: Is it feasible, or would it be the duty of appropriate to grant borrowing powers and just the fact that DoLGE to refuse a petition, if the accounts are not submitted, accounts were late being submitted, I do not think would be because the accounts actually go to Treasury, don’t they? a sufficient reason to say no. M r Hamilton: Well, I might be able to help you with M r Singer: So what is the difference between then and that, because my recollection is that that particular issue was now? raised with the Department and may even have been drawn to the attention of the Council of Ministers. My recollection M r Hamilton: I do not think there is any difference, is that there was some question mark raised over the legality really. of the Department refusing to accept petitions for borrowing powers. M r Singer: Then why should Mr Tovcll in Treasury be making this suggestion, if he knows it cannot be done? M r Singer: So Treasury was suggesting that, even though M r H am ilton: Well, we are presuming that he knows it it might not have been able to be done? cannot be done, when he made the suggestion and I do not know whether that is true. I do not know what knowledge M r Ham ilton: Well, I think there is nothing wrong with he had at the time. that. They are quite entitled to make suggestions, but it is not something that comes within the authority of the Treasury. Mr Singer: While he wrote it on here, surely there That is a matter for my Department and Chris Tovell, I think would have been some follow-up, maybe back in the Audit probably to be helpful, is making a suggestion here to my Committee, to say ‘You know, this sort of thing cannot be Department. done, why did you make the suggestion?’Were you not aware My recollection is that that was followed up, it was he had made the suggestion? Was this suggestion only seen raised with the Department and I think it may even have by Mr Whiteway and nobody else in the Department? been drawn to the attention of the Council of Ministers, but my recollection is that there was some legal advice, which M r Hamilton: 1 think I may have seen it at the time and I may not have been in writing, which questioned whether am pretty sure it was raised with the Department at the time, that was legally possible. or shortly afterwards. Mr Singer: Legal advice to whom? To your M r Singer: With the Treasury? Department? Mr Hamilton: No, with my Department. M r Hamilton: To the Department. It may have actually been to the Council of Ministers. I only have a recollection M r Singer: Did you raise it with Treasury if you felt it of it. was not right, because certainly Mr Tovell did not say to us that he did not believe this could be done, even though it is The Chairman: Does that not sound a little bit peculiar his suggestion? That confuses me. then, if you have a power to approve borrowing, but, according to the legal advice, you do not have the power to M r Hamilton: I would have to say that I would be very refuse? It seems very strange. surprised indeed if the Treasury was not made aware of the advice that was given, the legal advice, questioning the M r Hamilton: 1 wish I could remember this exactly. ability of the Department to do this. 1 really do not think that is likely to be the case. M r Delaney: You would be a clever man if you could remember all of it. M r Singer: And you are not aware, in this particular case, that somebody contacted Mr Tovell and said, ‘Look, you M r Hamilton: After such a long time it is difficult, but have made this suggestion and, as far as we are concemcd, Chris Tovell’s note is saying, ‘Why not refuse the borrowing that cannot be done.’ Because he then refused it later on. petition?’ - quite specific. I think the point that was raised was whether the M r Hamilton: Well, I think I have tried to answer that, Department could, without considering, just say to a local as best I can. I think it was raised with the Department and I Tynwald Select Committee on Port St Mary Commissioners - Evidcncc of M r R A Hamilton Oral Evidence SELECT COMMITTEE, MONDAY, 28th FEBRUARY 2005 107 TPSM think it may have been raised with the Council of Ministers. role of the Department, which is one of supervising and ] think there was legal advice, that was to the effect that oversight, where the Department has a duty to act on things you cannot just have a blanket refusal to approve a petition, that are brought to its notice which obviously have gone purely because the accounts are late. The Treasury would wrong, which is very much a retrospective responsibility, have been involved, I am quite certain, in that process. They and stepping over that line, and that is the interfering with certainly would have been aware, if anything had gone to the day-to-day operation of local authorities. the Council of Ministers. That is the best help I can give Local authorities, as has already been said, I am sure, you on it. many times, are legal entities in their own right and their elected members are elected by the ratepayers of the area. M r Delaney: Thank you, Mr Hamilton. Actually, I can The elected members are responsible to the ratepayers of the sleep now, because I have been worrying about this for some area for the good running of that local authority. It is not the time, as you know, we all have. I am thanking you. You have Department’s role to be stepping in all the time and taking brought some light into this, because what I have never over and interfering with the day-to-day operations. understood is why officers, I say it to you, send notes to each Clearly, if someone draws the Department’s attention other on footnotes on letters and, knowing the importance to the fact that something is wrong, the Department will do of the subject, that affects so many people’s lives, no action something about that and that would normally be initially was taken. sitting down alongside people and trying to help them and Will you do something for the Committee? Could I ask trying to find out what has gone wrong and seeing what you - through you, Chairman, please - could you check to see advice can be given. That is the role that we play all the if there is any written record of you discussing this particular time with all local authorities. I do not think the Department item or similar item in your records in your Department? I could have done more. know it is extra work and I realise how much pressure you are under, but it is crucial. I have always considered this The Chairman: The view has already been expressed crucial to what has gone on, because this puts a different in this meeting today that, perhaps, there is no doubting light on things - 1 have always thought it did — and I will what you have said in terms of DoLGE supervising in these check from another source, if we can get from the Council areas, but there are different degrees of supervision. There of Ministers, if this was discussed there. I always felt that it is the soft-touch approach where you keep a light hand on had to have been because of the amount of money involved, the tiller and there is a heavier approach which is available as far as the public was concerned and - to the Department. Would you say that the Department has been consistent, M r Hamilton: I have a record in my files of that whole throughout your time, anyway, in its approach? Has it process. always taken the same sort of approach to looking after local authorities? Mr Delaney: Yes, if you could do that, Mr Hamilton. We arc not after - 1 must say this, because a lot of people M r Hamilton: I can only speak from 1996 onwards but, seem to think - we are not after a witch hunt in any shape yes, I believe there has been an even-handed approach in the or form. We are trying to get some clarity for the people of way the Department has approached its responsibilities. It Port St Mary, through the Chair here, and also what we are has become more involved, more closely involved of late, trying to do is make sure it does not happen again and we because of the problems that arose in Port St Mary, to try to cannot do that unless we find out what the process is and this ensure that it does not happen elsewhere. is part of the process. Thank you, Mr Hamilton. The submission of quarterly reports, for example, which Mr Kissack comments on in his Report, is fairly recent, and The Chairman: You mentioned earlier that you had the reason for that was, hopefully, to enable us to pick up asked for reminders to be issued to the Treasury with regard at an earlier stage, if something appears to be going wrong, to updating the Audit Regulations and it would be helpful to but I must admit I share Mr Kissack’s view, that that is a see any copies of those particular things, as well. step down a road that we have never gone down before and I will ask the same question, really, that 1 asked of the where the Department is getting much more heavily involved previous informant we have had. Are you content that in supervisory work, than perhaps it should. DoLGE were completely compliant with all their duties In an ideal world, what you have is local authorities and powers in relation to the Port St Mary Commissioners that are of sufficient size and capability, with competent issue here before us? Are you entirely content that there staff, who are able to carry out their functions effectively was nothing more that your Department could, or indeed and efficiently and the Department only then needs to get should, have done? involved, if they highlight a problem or if somebody else highlights a problem and there should not be too many of Mr Hamilton: I believe the Department acted quite those, because the local authorities should be conducting properly throughout this whole period and 1 think that the their own affairs in a proper manner. Department has spent much more time and effort in trying to support Port St Mary Commissioners, probably, than The Chairman: I have got two further questions, the any other set of Commissioners. All of the meetings and first one in relation to, I think, the first public hearing that discussions that have taken place throughout this period, we took, whereby both former chairmen of Port St Mary since the problem came to light, are not documented, there Commissioners made quite strong statements concerning are so many of them, but I believe the Department has bent your previous Minister - basically, on the lines that the way over backwards in trying to help the Commissioners and the in which Port St Mary had been dealt with was as much to Commissioners’ staff in trying to put their house in order. do with using Port St Mary Commissioners as an example But there is a fine line to be drawn between the proper for why local government reform should be conducted, Tynwald Sclcct Committee on Port St Mary Commissioners - Evidence of M r R A Hamilton 108TPSM SELECT COMMITTEE, MONDAY, 28th FEBRUARY 2005 Oral Evidence rather than purely helping them with their particular issue. EVIDENCE OF MRS Y MELLOR Do you think there is any weight in the argument of those former chairmen? The Chairman: Okay, so thanks very much for coming. I have asked all the other contributors just to tell us briefly Mr Hamilton: I have no reason to believe that, a little bit about their role within the Department and how Chairman, their jobs have brought them into contact with Port St Mary Commissioners, so if I could ask you to do the same. The Chairman: And, finally, the question 1 have got is: from this we have to come forward with recommendations as M rs Mellor: 1 am Deputy Chief Executive and I am also to how things might be improved in the future; has DoLGE Director of Corporate Services. In the Corporate Services conducted an exercise to do this in relation to Port St Mary Directorate is a local government unit, which has the more and have you any suggestions as to how things could be or less daily contact with many of the local authorities. improved? I joined the Department in December 2002 and my role has been involved quite closely with Port St Mary, since the M r Hamilton: Well, there are ongoing considerations problems arose and also a lot of contact with regards to the within the Department by the Minister who now heads up local authorities generally. It is one of the main units within the local government issues within the Department. He has the Department. retained that responsibility, rather than delegating it to one of his political colleagues. I know that he is closely involved The Chairman: Obviously, with regard to Port St Mary, in looking at local government issues at the moment and you joined the Department when things started to happen, considering a number of issues that may well be incorporated very much so. Could you, maybe, give us some insight in the new legislation that the Department is proposing to into how you first became aware of the issues and what the bring forward later this year for consultation. Department did with that? It is more about trying to clarify what the Department’s role is and give the Department, perhaps; clearer powers Mrs Mellor: I first became aware of the Port St Mary to deal with things when they go wrong than it has at the issue when both the previous chairmen of the Commissioners moment. Just how far those discussions have gone, I do not and what is the now the current Clerk to the Commissioners, know because they have not yet come back with specific contacted me when they heard in July 2003 - items for the Department as a whole to consider. M r Delaney: Sorry, could you just speak a bit slower? The Chairman: I think certainly yourself, having sat here today and heard the conflicting evidence that we have M rs M ellor: - sorry, 1 have got the same cold you have had from DoLGE and Treasury, perhaps the first thing that we will be recommending is that yourself and Mark Shimmin - to say that they had some concerns, because they had get together and have a chat. now brought their accounts up to date. I think the last set of accounts that had been filed was the year ended 31st March M r Delaney: I will pay for the lunch. 1999 and now the accounts had been brought up to date, they found themselves in a deficit position for four years at least The Chairman: Anyway, thank you very much for that. and they were obviously very concerned. Len, anything else? Les? No, well, thanks very much. The Chairman at the time had not been the Chairman when this state of affairs had started to happen and, therefore, wanted advice from the Department on how they could go Mrs Mellor was called at 4.05 p.m. forward and what they could do to remedy the position. So I became involved quite closely, then, with various meetings between both the Clerk and the Commissioners and the Committee remit Chairman and the members of the Department as to how we were going to resolve the situation for Port St Mary. The Chairman: So, if 1 could ask Mrs Yvette Mellor, It also became very public, of course. There was a Director of Corporate Services, to come forward. I would just residents’ association formed and a lot of publicity, both like to welcome Mrs Mellor lo the Committee. You missed plus and minus, for the problems that Port St Mary had. So the formal announcements that I made at the start, so I will I had weekly contact, if not more, with Port St Mary in one briefly go through them again. form or another over that period. The first thing, the Hansard Clerk has requested that, if at all possible, we tiy to speak separately, rather than all at the The Chairman: Why do you think it was that, in same time, for obvious reasons, and the other thing I need this particular case, and, as far as I am aware, no other, to probably read out is the actual remit of the Committee DoLGE decided to exercise its statutory powers and and that is: actually bring forward an Order effectively to get Port St Mary Commissioners to comply with certain accounting ‘to inquire into the conduct of the Treasury, the Auditors and the procedures? Department of Local Government and the Environment in relation to the affairs of Port St Mary Village Commissioners in the period from M rs Mellor: It is the first time, I think, they have ever 1 st April i 998 to 31 st March 2004, having regard to their statutory and done it, put them into default, which is basically what they other responsibilities in relation thereto, and to report with findings and recommendations...' did towards the end of that year. When we got to the position of actually looking at the problems that had arisen there, PKF I will not mention the December 2004 Tynwald bit. went in to do their research into what problems had arisen Tynwald Select Committee on Port St Mary Commissioners - Evidence of M r R A Hamilton Committee remit Tynwald Select Committee on Port St M ary Commissioners - Evidence of Mrs Y Mellor Oral Evidence SELECT COMMITTEE, MONDAY, 28th FEBRUARY 2005 109 TPSM and why and there was a definite problem with the accounting I will pick it up, which we have done on odd occasions. But in ihe authority: the accounts themselves, the knowledge of, generally, yes, I think their systems are quite good now and maybe, accounting generally within the staff of the authority they can produce monthly accounts within two to three days and possibly even within the Commissioners. They are a big after the end of the month. board, a lot of them have been there for quite a number of years, but there had been a changeover at the election before The Chairman: So the Department is pretty much that and a new chairman. satisfied? We decided, when we had been down to have various meetings with them, that the board themselves were Mrs Mellor: I am actually comfortable with the struggling to see a way forward. The default Order was issued accounting systems they have in place and with the staff. principally to give them some focus as to which way to go and what they had to do and some deadlines to meet, to get The Chairman: Okay, thanks. Leonard? themselves up and running and sound accounting systems put in place, a proper rate-setting process put in place and M r Singer: Did you say you were appointed in July - bringing everything up to date. So the default Order was seen, by the officers of the M rs Mellor: No, December 2002. Department, anyway, at that point in time, as being something that would focus them in the right direction, rather than being Mr Singer: What did you do before you had this a heavy-handed stick to hit them with. position? The C hairm an: Two follow-ups to that. The first one is, M rs Mellor: Nothing in the public sector. I was 12 years, as I mentioned to Mr Hamilton, the former chairmen have or 10 years in the offshore life industry before that and 1 given a view that, in fact, there was a political motivation for was also with an investment manager before that. I am an bringing this forward and that, in fact, it was much more to do accountant by trade. with trying to provide an example as to why local government reform should proceed, rather than any particular caring role M r Singer: So when you came in and you found out from the Department for Port St Mary Commissioners. that there had been no accounts since 1999 for Port St Maiy - so it was three years at that time, getting on for four years Mrs Mellor: I do not think that was the case. This is the - what questions did you ask? Did you ask any questions first time, I think, a local authority has been in the situation of the Department? that Port St Mary was in. By that time, it was very public. They were struggling to actually think about how they were M rs Mellor: I asked. I am a gamekeeper-tumed-poacher, going to do things and the Department felt that if they were because I used to do local authority audits in my heyday, in going to have a supervisory role that was strong enough to the 1980s, so I was well aware of the requirement of local help them and assist, if they gave them deadlines to meet authority accounting. and the assistance to do it, that the sort of regimentation 1 asked the question because, being new, it seemed of a default order would allow them to do that. There was strange that there were some accounts years behind, but no hidden agenda on local government reform, because, then, obviously, they are legal entities in their own right in reality, with the problems Port St Mary has got, people and I asked of the auditors and they had reasons why things may not want to reform them into them. Do you know what had not been completed. At that point in time, I left it at I mean? It is a sort of a chicken-and-egg on that scenario, that. My knowledge of the Local Government Act, at that really. point in time, on appointment, was not probably as good as it definitely is now. But the questions were asked and I was The Chairman: The final point on the Order, then. I given valid reasons why Port St Mary’s figures were not understand the default Order has now been lifted? available and up to date and they informed me that the Port St Mary Commissioners themselves had employed Crossley’s M rs M ellor: It has. in Ballasalla, which were a firm of accountants, to help them to bring their accounting systems up to date. The Chairman: Is the Department entirely satisfied now that there is a completely financially competent board and M r Singer: What do you do now? If a local authority set of officers in place and that Port St Mary Commissioners’ does not submit its accounts now, what does the Department finances are being properly run? do? Mrs Mellor: They now have a very robust financial Mrs Mellor: We write to the chairman of the accounting system. They have trained both their members Commissioners involved to explain their statutory duty. of staff who are involved on the financial side, which is the We have a similar situation in Peel. They are a couple of Clerk and they have an office assistant, who is actually a years behind. very competent computer accounting person now, who has been trained to do so. M r Singer: So they are a couple of years behind, but They still have some problems. The board have decided there are no thoughts of prosecution? still to submit to me monthly accounts, so I get a full detailed set of Port St Mary accounts on a monthly basis, at their Mrs Mellor: No. request, not mine, to make sure that, if there is anything that has been accounted for, not quite the way it should have been, M r Singer: I do not really want to talk about Peel, but as Tynwald Select Committee on Port St Mary Commissioners - Evidence of Evidence of Mrs Y Mellor 110TPSM SELECT COMMITTEE, MONDAY, 28th FEBRUARY 2005 Oral Evidence a general local authority. So somebody is two years behind. could be withheld purely on the grounds of them being late So what do you do to try and get this sorted out? accounts and I would agree with him there. 1 think if you had trouble, if you thought that there were late accounts Mrs Mellor: Well, I have bad meetings with - Port St and there were some financial difficulties or irregularities Mary was a specialist case; really - but I have had meetings there, you may want to not grant petitioning. But, purely on with other Commissioners, where they have been behind, the fact that they arc late, which there could be a variety of to see if we could help them to get up to date. Peel is one of reasons for, 1 do not think you could go out and say, ‘No, those that is currently behind - in fact, that is the only one you cannot borrow.’ - and they now have new accounting systems put in place. They have got a new finance officer and they are working M r Singer: What we know now is you are more likely, towards... They should be up to date relatively shortly. the way you are conducting the business with the local authorities now, to know the reason why, than they were Mr Singer: So 1 am saying to you that is really good in the past. that you are not letting it run on, you are going to talk to them. Why, in your opinion, was there a different attitude M rs Mellor: I am now, possibly, yes. in previous years, that they were just allowed to... it seems to me that they are saying, 'Well, not our problem, you deal M r Singer: On the capital loans, have you ever been in with it, you know, and you take the consequences,’ and there contact with the Council of Ministers or anybody over this were very big consequences in the end. So what has brought matter of capital loan funding and - about this change in the Department? M rs Mellor: No, I have never had the need to. M rs Mellor: I suppose there are various reasons why the change will have come about. I am not Peter; I am different. M r Delaney: The Chairman has indicated, and, obviously I have come from a different background, so I may look at from our questioning, we realise you have come in after the things slightly differently and, obviously, Port St Mary has fact, than before the problem arose. You are after the fact, happened, so the issue arising in Port St Mary will have so please, wc understand that. focused a lot more thought, I would have thought. 1 am coming down now to w hat... First of all, I will start 1 would naturally, as an accountant, assume things to backwards, because you have actually answered in part, one be presented in a timely manner and done in a certain way of the questions I was going to ask. From the start of this and so 1 will look at it probably slightly differently to other Committee’s investigation we have spoken to people and members of the Department, that is all. I have been at some difficulty, as a layman, to understand t- why nobody was shouting fire, when the accounts... I myself M r Singer: One more question from me. On this capital raised the question in another place - in Tynwald in actual loan funding, so DoLGE now, as far as you are concerned, fact, as you well know - in relation to accounts being late you will still agree to capital loan funding even if the and why accounts were two or three years late. accounts are late? What I could not understand - and maybe you will answer this question - if we have authorities who have officers M rs Mellor: Dependent on if you knew why the accounts responsible and they have a year to go through, you indicate were late. Sometimes accounts are late, not because of any there might be reasons when you look at that, officers are fault of the authority. At the moment, 24 authorities plus paid to do a job, if the job is not done and it is identified various joint boards submit accounts within a six-month they have not done their job, obviously it is a matter, then, period after the year end. They then have to be audited by for hiring and firing, to put it nicely, okay, because there has KPMG and that can have a time-lag involved. to be some level brought in where people are paid to do a It may not be the Commissioners’ fault that they are job and do not do their job that has to be brought in, and I actually late. It might be the fact that they have had a delay understand that. in the audit that has caused them to be late. If I had concerns In this case, you have indicated it could be the fault of about any local authority being in deficit or having problems, the accountants, because they are snowed under with 23 I may then want to have a look rat the petition process for authorities putting all their accounts in at one time. There are what they are borrowing for. two questions on that. When you look back at what went on, when you took over and you realised the problem was there M r Singer: Do you believe, therefore, that you could, and you were given the problem to handle, did you identify, if you felt that you were justified, do you feel you could please, in your mind, whether the problem had been caused withhold that funding, because their accounts were late? by them not doing their accounts properly or that there were delays on the part of accountants getting through the work Mrs Mellor: 1 would not say it was because their that they had commissioned and been paid to do? accounts were late. 1 would say you may be able to withhold funding, if you were worried that they were having financial M rs Mellor: It was not doing the accounts properly. They difficulties, which is not the same thing. had not actually had them presented to them for audit. M r Singer: So, from what we heard from your Chief M r Delaney: That is clear there, so we can take away Executive before, who said that he did not think that it could from that. The second tiling, which I ask from that, is be withheld, you now think it could be withheld? when you get down to that question, if the officers of a Department do not get their accounts right - whether it be Mrs Mellor: No, I think he said he did not think they them or somebody else - if it is raised, have you identified Tynwald Sclcct Committee on Port St Mary Commissioners - Evidence of Mrs Y Mellor Oral Evidence SELECT COMMITTEE, MONDAY, 28th FEBRUARY 2005 UlTPSM what procedure now should have been and will be used to down for blocks of local authorities so that the auditors would make sure that some action is taken, that local authorities, not have all this pressure on them at one time? whether they be large or small, on this Island, carry out their paid-for responsibilities? M rs M ellor: Well, the problem is that, at the moment the Audit Act does actually stipulate that they have to have Mrs Mellor: Are you wanting to know what the everything in within six months of the financial year end, Department would do if that happened? so by 30th September in any year, they need to have their figures in to the auditors for auditing. Mr Delaney: Yes, I want to know what the modus The Audit Act has not been looked at since I have been operandi is to make sure this does not happen again, or on in the Department. It has been up for debate, I think, at odd reflection of what experience you have had from Port St times, but it has not actually been looked at. Obviously, they Mary. will drift in, in dribs and drabs over that six months, they will not all come at the end of six months, but the audit then M rs M ellor: It is a difficult one. has to start and if the bigger ones come in first they get done first, so, after that date, you probably might have an awful M r Delaney: But it has to be answered. lot of accounts to still audit, six months after the financial year end. M rs M ellor: Well, our role, it is supervisory under the M r Delaney: Yes, that is fine, I follow that. The other one Local Government Act and supervisory can be read in many ways, I suppose. The Kissack Report did say that possibly which I am not so clear about, coming up, is that we have a situation where... And this is the question I am asking you, me introducing the likes of the quarterly returns was a touch because you are fresh. You are looking at this as a fresher, heavy-handed - not in my opinion, actually, but it is Mr with due respect, coming in from 2002. Kissack’s - and I can see why. He feels that they are legal What I cannot understand on the questions I have asked entities in their own right, therefore they are accountable in and all members have asked and myself in public, is that if their own right to their ratepayers and I appreciate that and, we have a power to actually prosecute a local authority, it from my viewpoint, I just wanted to be comfortable that is pointless having that power if you know you are never things were ticking along nicely, as a supervisor, nothing going to do it, particularly in this case, and you tell me if I more than that. I was not wanting to do their job for them am wrong here. If we prosecuted the body corporate, which by any stretch of the imagination. is a local authority, or Douglas Corporation, or whoever If it happened now I think I would like to hope the it might be, that is a charge against those people. That is Department could pick it up much quicker, because we do correct, isn’t it? get regular returns and they are all good to do it. There were a couple of them that took a step back and said ‘Hang on, it’s Mrs Mellor: It depends on what you are using to not your job to do that,’ and I can understand their viewpoint prosecute. If you have got the Local Government Act, if they but they now always submit quarterly returns on time. had gone into default, which we put Port St Mary into and We still are in a position that some accounts are not fully they had not been able to turn round the situation to make it up to date, but we are a lot better than we were and the one better, we could have then taken court action, but the action area, the one authority that is still causing us problems is then is to remove the functions from them, until they are being rectified, so I would hope that this will not get into this capable of doing so. If you arc actually taking it under the position again, but I could not guarantee it, but as long as I Audit Act, it is the auditors that would take the prosecution am there, I am hoping that I will keep an eye on it. on that basis. M r Delaney: You indicated earlier to my friend and Mr Delaney: Say that slowly because this will be very colleague that it could be that it is not the local authority’s important. fault, it could be because the accountants have not got the time or the staff to do all the accounts at the one time. Mrs Mellor: Under the Audit Act, if the auditors find there is something that is incorrect in the accounts or there M rs Mellor: Well, the role that the auditors are currently is a problem, then the auditors take the action, not the taking on is probably not as you would define it in the Audit Department. There are two sides: the default action, the Act. They are not just auditing. Nine out of ten times, on Department takes the notice forward; Audit Act, the auditors some of the smaller authorities, they are actually putting the take the prosecution forward. accounts together. They get very basic information from the clerks or deputy clerks, or whoever, from each local authority. The Chairman: Not the Treasury? The bigger authorities compilc their own accounts, the likes of Douglas, Ramsey et cetera that have their professional Mrs Mellor: Not that I am aware of. The Treasury staff within their... KPMG, for some of the smaller ones, appoint the auditors. I do not know where the Treasury are definitely actually doing an accountancy function, as in come into all this, actually, to be perfectly honest. I only compiling the accounts from the raw data and then having know that the - to audit, so they are doing a duplicate task. Mr Delaney: I am just going to ask the Chairman, M r Delaney: It seems to me, as a simple man - and I am a you picked that up quickly, did you? We now have three simple man, I can assure you - that I looked at this and when options. I looked at the dates that were fixed for all these accounts and if that was the question, why didn’t we put separate dates The Chairman: We only have two. Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mrs Y Mellor 112TPSM SELECT COMMITTEE, MONDAY, 28th FEBRUARY 2005 Oral Evidence Mrs Mellor: I am not sure of the Treasury’s position of the accounts, that does not necessarily mean that the within that. If you are looking at accounts and the Audit accounts themselves have been prepared by KPMG. The Act, with regard to auditors finding irregularities in local parishes may well have produced the accounts which the authority accounts, the auditors’ role is for them to take the auditors have - default action to the court. Mrs Mellor: They may well produce a trial balance Mr Singer: So they take it on irregularities but any before that, which a lot will have done, but they are not in prosecution on late submission is not the auditors, that is... the format to be actually so you could go along and tick Well, we cannot decide whether it is DoLGE or Treasury. everything off and put them into a set of accounts and produce them, i.e. they are not in a statutory account format. Mrs Mcllor: 1 do not know where that fits, actually. They have not got all the pages and the notes and annexations et cetera to the back of them. M r Delaney: And, therefore, the one that I actually raised in public to that, if you have got this other alternative, M r Singer: The figures that are in the notes and the odd which nobody seems to want to talk about, for some strange pieces of paper, or however they are done, are accepted by reason, we have a surcharge situation if officials, that is the KPMG and they are really, basically, just typing it up in a local council, are not doing their job. It is still an ability of particular form? the Local Government Act to do a surcharge against them, isn’t it? Mrs Mellor: They have been. This year they have actually charged some of the local authorities an additional M rs M ellor: Yes. fee for putting them together. I think they have realised they have, maybe, overstretched themselves. M r Delaney: It is? M r Singer: They are not actually checking, though, the Mrs Mcllor: It is, yes. accuracy of them? M r Delaney: Was that contemplated at all? Mrs Mellor: Well, they will in the audit, hopefully. I would hope that is what they do when they audit. Mrs Mellor: No, not by me. M r Singer: They obviously did not do this in the case, M r Delaney: Not by you, but do you know if it was in the years we are talking about for Port St Mary. contemplated... You are after fact. At the time, was it? Mrs Mellor: Well, I think you might find that they M rs Mellor: I have no idea if it was beforehand, no, I probably checked the accuracy, but the fact that they were in have no idea. deficit is not an issue that they are actually asked to address. The audit themselves will check the accuracy of what is being M r Delaney: You do not know? accounted for, i.e. what they have spent and what income they have earned. They will check that all those are correct. Mrs Mellor: No. Whether the authority themselves have actually managed their financial affairs properly, i.e. that they have not M r Delaney: On that there, and that would be a charge overspent, is not down to the auditors to determine. That is against the persons rather than against the Authority as a down for the local authority to determine. whole, wouldn’t it? M r Singer: One of the misunderstandings of the Clerk, Mrs Mellor: 1 do not know that, either. for example, of Port St Mary, that he did not understand particular things and this was then transmitted into the M r Delaney: Well, I assure you that is as I understand accounts. Would you not have thought that these sort of it arid I asked that question. Thanks very much. I am happy figures should have been found by the auditors, who were with the answers 1 have been given. professional accountants? The Chairman: 1 have got a few more questions here. M rs Mellor: I cannot really comment, because I do not The first one comes out of one of the comments you made know the background. Obviously I was not there at the time. to Mr Delaney. At one point you said nine out of ten smaller You have got to bear in mind that they did three years of authorities have their accounts effectively prepared for them accounts together, i.e. they audited all three sets of accounts by the auditors and then later you modified that to ‘some of’. for the first three years up to 2001 together. Therefore, one Which one is it? Is it some of, or is it nine out of ten? would suggest that they probably had not got the information to know that they were in deficit until it got three years down Mrs Mellor: I am not aware of any of the smaller the line, the auditors. The accounts just were not prepared. authorities and some of the towns that do not actually have the figures put into... The accounts are actually presented The Chairman: A couplé of other points, then. Another to the Department in KPMG folders. They are actually put issue that has been raised today, or seems to have been made together and typed up and drawn up by KPMG. There are very clearly today, is that there is a degree of uncertainty about five, I think towns, that actually do their own. between DoLGE and Treasury, certainly in terms of the The Chairman: Right, but as far as the preparation answers that we have been given, as to who is responsible Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mrs Y Mellor Oral Evidence SELECT COMMITTEE, MONDAY, 28th FEBRUARY 2005 113TPSM for which areas. Are you aware of that at all, or are you fairly Mrs Mellor: Yes. sure that you know what you are doing and you feel confident thal Treasury knows what arc Treasury’s responsibilities? Mr Delaney: Because I am trying to jingle that together. Mrs Mellor: I do not want to speak for Treasury, particularly, because 1 do not know the answer there, but I am The Chairman: That is the final point that I would like to fairly comfortable with what DoLGE’s responsibilities are make clear. Have you actually seen a copy of Chris Tovell’s with relation to local authority accounting and the accounts consultation document? and the functions of the local authority and - M rs Mellor: I have. The Chairm an: But, as far as your dealings with Treasury on local authority matters, you are convinced that- The Chairman: - and are you aware, effectively, the reason for not proceeding seems to have been, certainly in Mrs Mellor: In fairness, I have very little contact with the way that I read it, that until local government reform takes Treasury on local authority matters. The only area I come place, it is inappropriate to proceed with improvements in into contact with them on a regular basis, I suppose, is when the Audit Regulations? they petition for capital borrowing, because Treasury give approval as well. Other than that I have got very little contact M rs Mellor: Only aware in that I have heard it said. with Treasury on the local authority side of things, because I am not aware of the reasons behind it, because the they are outside of a lot of what the Treasury do, really. consultation document went out a long time before I joined the Department, but I have read it since then. It is difficult The Chairman: Do you actually sit on the Audit to update audit regulations if you ... Some of the things are Committee at all? going to be quite onerous on some of the smaller authorities and the reasoning behind not wanting to change it, could Mrs Mcllor: No, I have never been to an Audit be that it is going to put some of the authorities in a very Committee meeting. difficult position. Mr Singer: Who sits on it then from DoLGE, do you The Chairman: But is it possible to update the Audit know? Regulations, taking account of the risk for a smaller authority, being fairly minimal compared with the larger authority being Mrs Mellon I have no idea. quite great and actually having a set of regulations, depending on the size and functions of a particular authority? The Chairman: Does the Audit Committee sit? M rs Mellor: Possibly, but I think it was quite a new Mrs Mellor: No, 1 do not think it does. I think that is the change to the Audit Act as well, because the Audit Act is answer to the question. 1 have been to one meeting where very generic. It is the general principle for all local authorities we have had auditors and Treasury and DoLGE present and that they all combined... sort of comply with. If you are I went to represent the Department. Chris Tovell and Colin going to change the regulations’ definition, as to what they Kniveton were there from the Treasury and there was Mike should do, accounting standards worldwide, audit standards Gardner from KPMG and that was to discuss some new audit worldwide are common, whether you are the grocer down provisions that were coming out in the UK and the impact the road or you are a very big national company. There is no it would have on local authorities, hence my being there. difference, so why would you want to differentiate between 1 would not call that an Audit Committee meeting as such authorities, I suppose? because I have never been asked to go to one, but I have had meetings with them. The Chairman: But, as far as improvements to the Audit Regulations, local government reform is not a prerequisite. Mr Delaney: Sorry, can I come in there? They were We would not, actually, have to wait for local Government discussing something that was coming out, new order reform to get on and - provisions, in Britain - M rs Mellor: No. Mrs Mellor: Yes, and - M r Singer: Would you think that the Tovell Report was Mr Delaney: - and the impact it would have on local an argument, certainly under financial reasons, an argument authorities here? for local government reform? Mrs Mellor: Potentially, yes. Mrs Mellor: I do not think it is an argument for local government reform, but it would probably be a lot easier to Mr Delaney: Was that automatically binding on our implement new regulations, if there were a lot less of the local authorities? smaller local authorities and a bigger authority to do - Mrs Mellor: No, you would need to change the Audit M r Singer: A question of competence really? A ct M rs M ellor: Well, you - Mr Delaney: I am sorry. Do you understand why I am asking the question? M r Singer: Smaller authorities. Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mrs Y Mcllor 114TPSM SELECT COMMITTEE, MONDAY, 28th FEBRUARY 2005 Oral Evidence Mrs Mellor: In a larger authority you have suitably we should. So, I think the definition of what we should be qualified staff, who would probably be able to manage the doing should be more defined in the new supervisory powers larger finances of that authority. that come out of this and that they have the responsibility themselves. M r Singer: But, in fact, you have said to us that you now The local authorities are a legal entity in their own right. get accounts every three months? It is not for me to be doing Peel’s accounts or Port St Mary’s accounts or anybody else’s. It is for them and I think the Mrs Mellor: Quarterly. emphasis on their responsibilities probably needs to be a bit stronger, because I do not think a lot of Commissioners that Mr Singer: Quarterly, and the vast majority are in come in, sometimes realise what they have, actually, got to order? do and the amounts of money that they are dealing with and it is ratepayers’ money. M rs M ellor: Yes, they are. The Chairman: Are you content that, in the time that Mr Singer: And that is large authorities and small you have been Director of Corporate Services for DoLGE, authorities? DoLGE has done as much as it possibly could, under terms of its statutory functions, to support Port St Mary M rs M ellor: Yes. Commissioners? Mr Singer: Therefore there is no real need for local Mrs Mellor: I think we have. Since it has become government reform, if they are doing it well now? known to the Department, I think we have done as much as we possibly can to help and probably more than we would Mrs Mcllor: Well, that is one element of local normally do, because we have got our hands dirty and gone government reform, but not necessarily all of it, is it? in and actually helped out. 1 think it has been very productive, because now they are back on an even keel with the financial M r Singer: Just one other question. So, what is DoLGE side of their business, which is very good news. doing now, as far as improving the local authority induction The reporting is good now and they have a good standard. programme for clerks and deputy clerks and senior officers, I think the education side of the Commissioners still needs to in order that what happened before, when Mr Popper was be there. They still struggle sometimes on the financial side appointed and, really, appeared to be left on his own, relying of it, but it is much improved from where it was. on his deputy? What does DoLGE now do to ensure that the senior officers are well aware of their responsibilities? The Chairman: Do you think, possibly, the extension of the 1985 Act provisions, to require the towns and villages to Mrs Mellor: On an induction course now we actually ran have their rates approved by DoLGE would assist in terms of - or I do - the presentation on the Commissioners’ financial the overall supervision of local authorities’ accounts? responsibilities and that goes from appointing a suitably - the word in the Government Act is a ‘fit’ person - 1 make Mrs Mcllor: Yes, I think it probably would. It is one the emphasis, it does not mean he can rurt around the block where there is an anomaly, that parishes have to have theirs faster than me, it means that he is capablc, rather than fit and approved and towns and villages do not. Why? I presume it is 1 actually do a presentation on their responsibilities, what going back to the days when they were considered lots more they have to do, what they have to receive, the reasons why, or a lot less inexperienced, et cetera. I think they should all in fact, robust financial systems need to be in place, how they be done on a consistent basis and all gone through the due set their rates, how the housing revenue capital are all very process. They have got nothing to hide, I would imagine. different and how to account for them all differently and what falls into each box. So, their responsibilities are laid out at The Chairman: Okay. Is everyone happy? the course that they attend for the local authority induction and that can be a combination of both Commissioners and M r Delaney: Yes, sir. clerks. In fact, it usually does tend to be. The Chairman: Anything else you would like to add, The Chairman: Are there any... one of the functions o r... ? that our Committee has to fulfil, is to report back with recommendations on how things could be improved. Are Mrs Mellor: I do not think so. (Laughter) there any particular areas you think that you would like to see, in terms of the role of your Department, which ought to The Chairman: Right, thanks very much, then. be introduced to try to improve the situation? Anything? Right, 1 think that formally concludes the public bit of our meeting today. Thank you veiy much for attending. Mrs Mellor: I think the role that we have needs to be more clearly defined, because I think ‘supervisor’ is a veiy difficult, wide-ranging definition. It probably needs to be The Committee sat in private at 4.40 p.m. more determined, as to what our role actually is and also what the role of the local authority is, because I think they become very grey in places. Some of the local authorities seem to think DoLGE’s role Corrigendum is very different to what theirs is and sometimes there is an overlap. They feel that they should be doing something or ON page TPSM 73 for Mr Gill read Mr Gawne. Tynwald Select Committee on Port St Mary Commissioners - Evidence of Mrs Y Mellor Corrigendum APPENDIX E CONSULTATION PAPER REVIEW OF THE ACCOUNTS AND AUDIT REGULATIONS 1984 July 1996 CONSULTATION PAPER REVIEW OF THE ACCOUNTS AND AUDIT REGULATIONS 1984 The Treasury, Yn Tashtey, Finance Division, Fo-Rheynn Argidys, Isle of Man. Elian Vannin. REVIEW OF THE ACCOUNTS AND AUDIT REGULATIONS INDEX Page Review 1 Problems in Local Authority Accounting 2 Proposed Regulation Changes 3 Appendix I - The Audit Act 4 Appendix II - The existing Regulations 17 Appendix III - The new draft Regulations 21 Review of the Accounts and Audit Regulations 1984 1. The basis of the accounting arrangements and audit arrangements for Government Departments, Statutory Boards, Local Authorities and certain other bodies is set out in the Audit Act 1983, and in the Accounts and Audit Regulations 1984. 2. The Audit Act and the Regulations are reproduced as Appendix I and Appendix II respectively. 3. Over the last twelve years, Public Sector Accounting and Financial Reporting Standards have evolved to higher standards, and the existing Regulations may no longer be considered as being adequate. These higher standards can and in some cases are applied voluntarily, without the need for new Regulations. However, as the existing Regulations are silent in a number of areas, and there is evidence of low standards of public sector accounting and accountability, it is appropriate for Treasury to give a public lead on the issue, whether by publishing advice on good practice or by issuing revised Regulations. 4. Whilst any new Regulations will require higher accounting standards, they may well fail to address the present problems in public accounting in Manx local government, which are briefly examined on page 2 of this report. The resolution of those problems is likely to be impeded because of the wider issue of the present structure and functions of local government. There are too many authorities, most of which are too small to either acquire or retain the skills and knowledge base necessary to aspire to a higher quality of public accounting. Perhaps this is best addressed by continuing the existing education and training initiatives, rather than by attempting to remedy deficiencies by issuing new and more demanding Regulations. For the future, it is important to resolve that any new Regulations will be enforced. 5. A draft of new Regulations has been prepared, modelled loosely upon the 1996 UK Local Government Accounts and Audit Regulations, and is shown in Appendix III. Given the diverse range of bodies covered by the Audit Act, it is difficult to pitch the public accounting requirements at a level appropriate to all without diluting those standards to the lowest common denominator. To get around that, the draft has been framed to set high and demanding standards, but they are selectively applied to three new categories of audit. Also there is a "let out" option under Regulation 2(3) for those from whom compliance cannot reasonably be expected. There is a short note on page 3 of the areas visited by new Regulations. 6. The main purpose of this initial consultation paper is to stimulate debate between Officers of the Treasury and DOLGE, and both firms of Public Auditors with a view to identifying the problems in Manx public accounting and auditing, and any omissions or deficiencies in the present Accounts and Audit Regulations. Some of the problems so identified may be addressed by new Regulations, some may need to be addressed by new Legislation, and some may need to await local government reorganisation. 7. You are invited to let me have an informal note of your views. C.J.Tovell Assistant Financial Controller Finance Division 25th July 1996 1 Problems in Local Authority Accounting (i) The general feeling is that there is a widespread lack of commitment to the concept of public accounting and public accountability. For example, some Authorities are most reluctant to allow rate payers to exercise their legitimate Statutory rights of inspection of the accounts. (ii) There should be no instances of failure to meet the 30th September deadline set for submitting accounts for audit. At the 22nd March 1996, the following Accounts for the year ended 31st March 1995 were not available for publication in the Orange Book Rushen Parish Commissioners Peel and Western District Housing Committee Southern Local Authorities Swimming Pool Board Royal British Legion Housing Association (I.O.M.) Ltd. This is not exceptional as there were ten Authorities outstanding at the previous comparable point twelve months earlier, and even the Island's premier Authority has significantly failed for two years to produce its Accounts on time. (iii) There is a low standard of accounting competence at virtually all levels. This manifests itself in a number of ways - (a) engaging the Auditors to produce the Authorities’ accounts. (b) Peel Town Commissioner employ a CIPFA Officer and yet their Accounts have been qualified for the last two years as follows - "However the evidence available to us was limited because controls over the Authority’s Mortgage Bond system are not operating effectively. The total value shown as outstanding by the Authority's computerised bond system remains unreconciled to the Accounts figure of £1,947,131 to the extent of £3,366." (c) It is clear from requests for advice that Ramsey Town Commissioners Officers do not understand the accounting for the Sinking Funds that they operate; (iv) The previous Public Auditors attempted to resign from their appointment because they were unable to obtain necessary information and accounts from Peel T.C., Peel and Western District Housing association and the Royal British Legion Housing Association; and (v) A review of Local Authority Accounts reveal widely diverging treatment of similar items, and anachronistic accounting practices. Only part of the variation is due to the size and functions of the sponsoring body. (vi) The reporting date for Burial Authorities of the 31st December each year is out of step with all other public accounts. (vii) The failure to enforce past breaches in the existing Regulations leaves them with reduced credibility, although it is encouraging to note the recent increase in the concern shown by the Department of Local Government and Environment. Proposed changes in the new Accounts and Audit Regulations 1. In adapting the U.K. Regulations for Manx use, three local reporting categories are suggested Category 1 - IOM Government and the Statutory Boards. Category 2 Local Government - Town and Village Authorities, Parish Districts, Burial Authorities and all other Local Authorities Category 3 - Other Bodies, Miscellaneous Accounts, Endowment Committees, Prize Funds Trust Accounts and other Funds, split between those with a turnover of under or over £5,000 p.a.. 2. High standards of public accounting are required, and these are set out in Regulations 6, 7 and 8. Attention is drawn to the following key phrases:- Statement of Accounts (Regulation 6) " ....in accordance with proper practices" means the "CIPFA Code of Practice on Local Authority Accounting in Great Britain", which in turn brings in a variety of G.A.A.P.s. Signing of Accounts (Regulation 8(3)} " ...... shall certify that it presents fairly", again means the CIPFA Code in the U.K.. 3. There are time limits (nine months after the year end) on the publication of audited accounts. Also there is a requirement for authorities not presenting their accounts for audit within the six month time limit, to publicly announce the position. 4. Detailed arrangements are specified to enable rate payers to exercise their Statutory rights to inspect and object to the accounts. 3 APPENDIX F CORRESPONDENCE Memorandum dated 25th November 1996 Correspondence 29th March 2000 Correspondence 10th April 2000 The Treasury Finance Division Government Office, Douglas, Yn Tashtey laie of Man, British laies. IM1 3PX Financial Controller Telephone: (01624) 685654 R. B. Brieicliffe Fax: (01624) 685662 Your Ref. 25th November, 1996 Memo to: T. P. White way Esq., Finance Officer/Administrator, DOLGE Dear Peter, Draft Accounts and Audit Regulations 1. Thanks for your Memo of the 15th November 1996 under your reference TPW/JC/111, conveying your Department's views on the draft Accounts and Audit Regulations. 2. I have carefully noted your suggestions and I agree with the accompanying comments. 3. As you know from our discussions in the Audit Committee Meeting, further consideration of the draft Régulations is defened until the question of Local Government reform is revisited. drafting a standard form or specimen of Accounts, „ aller Authorities. However, I cannot undertake to give such a project a high priority, so please do not hesitate if you would like to take a lead in that regard. I IOEPTC I ;AW 1 Finance Division The Treasury Government Office, Douglas Isle of Man, British Isles Yn Tashtey IM1 3PX Telephone (01624) 685654 Fax (01624) 685662 29,h March, 2000 J.D .Popper Esq., Clerk to the Commissioners, The Commissioners Office IM9 5DA Dear Mr Popper, . Isle of Man Loans Act 1974 Thank you for your letter and enclosure under your reference M/4851/BB dated the 28th March 2000. You may recall from our past conversations that I remain concerned about the persistent failure of your Commissioners’ to publish Port St Mary’s Accounts on time, and in a few days time a whole year will have elapsed since the end of 1998/99. Earlier this month, Tynwald was formally notified that your annual Accounts for that year were not yet in the public domain. I regret therefore that I am unwilling to consider any further CLF Advances for your Commissioners rate funded services until your 1998/99 Accounts are published and you have persuaded me that you are committed to public accountability. Yours Sincerely, C J Tovell Assistant Financial Controller (J T Z û .r c<_c_ Finance Division The Treasury Government Office, Douglas Isle of Man, British Isles Yn Tashtey IM1 3PX Telephone (01624) 685654 Fax (01624) 685662 Isle of Man Government 10lh April, 2000 J.D.Popper Esq., Clerk to the Commissioners, The Commissioners Office Port St Mary Isle of Man IM9 5DA Dear Mr Popper, Isle of Man Loans Act 1974 Thank you for your letter of the 30th March 2000 your reference M/4869/BB. There were some aspects of your letter which required further clarification with your external Auditors and I with their consent I have enclosed a copy of their letter to me for your information. Incidentally, I am to some degree reassured by their comments about your Accounts. However this does not alter the fundamental issue here; your Commissioners’ appointed Auditors are simply engaged to Audit your Accounts under the Audit Act 1983 and have no responsibility whatsoever to prepare your Accounts, That responsibility lies completely with yourselves and if for some reason you are unable to prepare your own Accounts ready for Audit, it is a matter for you to engage someone to complete that task. Any failure to have Accounts presented for audit under the terms of the 1984 Accounts and Audit Regulations in the sole responsibility of yourselves. If you choose to engage the Auditors to provide that accountancy service, that is a matter entirely for yourselves, although I would have expected a Local Authority of you size to be able to complete that tack “in house”. No doubt you will let me have a copy of your 1998/99 Accounts when they are completed. APPENDIX G List of those providing written evidence and submissions List of written evidence and submissions Treasury Department of Local Government and the Environment KPMG Hon J Rimington MHK Mrs T Horne Whitley Council Port St Mary Commissioners Under Standing Order 3.23(8) this material has, on account of its volume, not been printed with this Report but has been, and remains, available for examination in the Tynwald Library. I L Parliamentary Copyright available from: The Tynwald Library Legislative Buildings DOUGLAS Isle of Man IMI 3PW British Isles July 2005 Tel: 01624 685520 Fax: 01624 685522 e-mail [email protected] Price: £8.00 C U s s it DFS, 12 pm for 91-120 sheets 402 Www.bindüR3tic* con