Transcript created by WordWave Event: Public Accounts Commission Meeting Date: 28 February 2006 Chairman: Rt Hon Alan Williams MP Members present: Richard Bacon MP Edward Leigh MP John McFall MP Austin Mitchell MP Andrew Tyrie MP Witnesses: Sir John Bourn KCB Comptroller and Auditor General Mr Michael Whitehouse Assistant Auditor General - National Audit Office Mr Phil Woodward Director of Finance - National Audit Office Mr Jim Rickelton Assistant Auditor General - National Audit Office Comptroller and Auditor Mr John Dowdall CB General for Northern Ireland Assistant Auditor General for Mr Ciaran Moore Northern Ireland 020 7404 1400 [email protected] www.wordwave.co.uk WordWave International, 190 Fleet Street, London EC4A 2AG NATIONAL AUDIT OFFICE CHAIRMAN: Can I, as usual, remind witnesses that the proceedings are only covered by qualified privilege? Before we start, may I on behalf of the Commission express our regrets at the tragic accident to Mary Radford, one of your directors, and I hope you will pass our thoughts on to her family. SIR JOHN BOURN I will. Thank you. CHAIRMAN: Thank you very much. Sir John. We approved the 6% increase at an earlier meeting in October and we’ve got the works-based project, which you’ve undertaken to do at our request, an estimate of another £500,000. Are you now at the stage where you’re able to give us any details of how you expect that £500,000 to be disbursed? Do you expect it to be enough or too much, too little? SIR JOHN BOURN: I expect, Chairman, it to be exactly right and we made the commitment to you that we would do the planning and bring it to the Commission for the Corporate Plan discussion. Perhaps I could ask Mr Rickleton, as the Assistant Auditor General who will be the project manager for it, to give further details. CHAIRMAN: Exactly. There’s a degree of precision that’s almost incomprehensible in that sort of context. Yes, please explain to us. JIM RICKLETON: Well, perhaps exact is too precise but certainly in terms of taking it forward following the Commission’s approval to go to the next stage, www.wordwave.co.uk 1 we reappointed King Sturge, our advisers on the project, to act as our project managers for the detailed planning and primary contractors for this stage. They’ve put together, in discussion with us, a team of experts, including structural engineers, mechanical engineers, surveyors, architects and the like, to cover all aspects of the next stage of detailed planning for the proposal, with the aim of coming back to you in July with a detailed proposal. The work that we’ve procured from King Sturge will be done in accordance with the Royal Institute of British Architects’ quality assurance processes. It’s what they term in the technical jargon a “stage C”, an outline proposal for the refurbishment project. Although called “outline”, it will be quite detailed by nature. We got approval for £500,000 from the Commission to take this work forward. The initial proposal from King Sturge was somewhat over that - not too far over but slightly over - and we’ve now negotiated that we will get all the information we require within the £500,000 envelope. CHAIRMAN: Again, without any scepticism about the precision of the estimate, how are you going to ensure value for money on this expenditure? Is there any chance -- no chance at all you may be able to economise on it? JIM RICKLETON: Well, certainly the first stage was to negotiate with King Sturge on their initial budget proposals, which we’ve already done and we’ve secured savings from that. The other way we’re securing value for money is that we have set up a Project Steering Board in line with best practice, which, as senior www.wordwave.co.uk 2 responsible owner appointed by Sir John, I chair and we meet at least once a month to review progress on the work of our contractors. All our contractors - either those directly employed by us, i.e. King Sturge, or subcontractors on the project employed by King Sturge on our behalf - are all on fixed price contracts, so any additional work or any additional effort that they’ve not priced, they will have to bear the cost. They fully understand that and that’s the basis on which we are going forward. We are also applying GOGC Gateway process, which helps to ensure the quality of what we’re doing, the completeness of the assessment and that the risks are correctly identified and they are properly managed throughout this stage of the project. And we are applying that process as we go through the project. CHAIRMAN: Sir John, because of the unusual expenditure we’re about to incur, when we have our July meeting would it be possible to give us projections for your Estimates considerably beyond the three years? Is that a practicable thing for us to ask for? SIR JOHN BOURN: Chairman, I will certainly see what I can do there but, of course, the most important piece of information one needs to do that is some indication of what public expenditure is likely to be. If one doesn’t have that, one can make various forecasts of assumptions about growth rates in public expenditure. One could do two or three scenarios with different and feasible growth rates and, if it would help the Commission, I will do that. CHAIRMAN: But would they be meaningful? www.wordwave.co.uk 3 SIR JOHN BOURN: Well, of course the growth rates in government expenditure in the last two or three years have been 6%, 7%, 8% higher. Ministers have said that can’t continue at that level but they haven’t said what that would actually mean. But it may be that the Budget on 22 March will give us some further clues. CHAIRMAN: Sorry, it was my fault for not putting it into context. I was still talking in the context of the accommodation. It’s more a matter of the longer- term impact of that on the Estimate. We understand you can’t anticipate the Chancellor’s future projections. Would it be possible to cover the whole period of construction, for example? SIR JOHN BOURN: Yes, we could certainly do that. CHAIRMAN: Okay, thanks. EDWARD LEIGH: Sir John, just leaving accommodation for one second, there was something you said yesterday, which slightly worried me. Just because the Government is increasing spending so markedly on, say, health and education, there’s no particular that that should lead you to increase your spending, is there, just because you’re the Auditor? There isn’t a direct link, is there? There’s some sort of link but a lot of that spending shouldn’t necessarily result in the same increase in spending as far as you’re concerned, should it? SIR JOHN BOURN: The particular feature is the nature of the increase of spending and the complex schemes into which the extra expenditure is invested. www.wordwave.co.uk 4 It’s not clear exactly how the reorganisation of the National Health Service - the amalgamation of some bodies and the separation of others - will actually develop. Similarly with education. So it isn’t just the fact that more money will be spent on these things. It is the way in which it is spent. So if everything stayed in a static state and you just did more of the same things, then your point has great force. It’s the difference. It’s the change. It’s the volatility. It’s the unpredictable factors. CHAIRMAN: The £60 million you are going to spend on refurbishing will obviously appear in the balance sheet as substantially less than that figure. Now, how far is this affected by the possibility of an impairment charge or how far is this likely to lead to the imposition of an impairment charge under Financial Reporting Standard 15 and what would that mean for you in practice? JIM RICKLETON: As I explained, or tried to explain, to the Commission when we met the last time, a key part of this next stage in the project will be to determine what expenditure will constitute capital expenditure for accounting purposes and what will be revenue expenditure. In so doing, we would apply closely FRS 15 in terms of classifying expenditure as to whether it is restoration of the building to its desired state or whether it is in terms of enhancement to the capital asset. That will determine how much will actually be borne on the balance sheet as an increase in the capital value of the asset. So we will determine the capital element of the investment. We will then need, with our valuers, to determine what impact that has actually got on the value of the asset on the balance sheet. The www.wordwave.co.uk 5 difference will be required to be written down as we actually carry our assets according to existing use market value. So we would need to adjust for that. At this point in time, as to the impact of any write-down or impairment of that nature, we can’t really say until we’ve been through the next stage of the process. SIR JOHN BOURN: Chairman, I would also make the point that these matters will be reviewed by our external auditor, who will look at the accounting treatment of the programme for extended works in due course. CHAIRMAN: Explain to someone who’s ignorant in accounting terms like myself.