Transcript created by WordWave Event: Public Accounts Commission Meeting Date: 18 October 2005 Commission: Rt Hon Alan Williams MP - Chairman Mr Edward Leigh MP - Member Mr John McFall MP - Member Mr Austin Mitchell MP - Member 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 Richard Duck Partner, Haines Watts Mr John Dowdall CB Comptroller and Auditor General for Northern Ireland Deputy Comptroller and Mr Ciaran Moore Auditor General for Northern Ireland Mr Robert Hutcheson Director - Northern Ireland Audit Office [Mr Richard Bacon MP attended as an observer]. 020 7404 1400 [email protected] www.wordwave.co.uk Smith Bernal WordWave, 190 Fleet Street, London EC4A 2AG CHAIRMAN: May I remind witnesses that, they’re covered at this meeting only by qualified privilege? And, secondly, may I apologise for the small membership here today? This, again, isn’t our fault. Neither set of whips have yet put three replacements on the order paper and so we have a bare quorum, and Mr McFall has to leave for another meeting fairly quickly. So, my apologies for that. Welcome to Richard Bacon, who does know he’s coming on to the Commission and, is as you know, a very enthusiastic member of the Public Accounts Committee. Such is his enthusiasm that, although he doesn’t have to be here today he’s come here to watch you wipe the floor with us. So, welcome to you all. And may we start on the obvious question about the additional 6% increase in your resources? Year 1 - 6%, Year 2 - 6%, Year 3 - 6%. It’s getting a bit repetitive and it looks a bit coincidental rather than precisely thought through. Why is it that you’re consistently putting forward the 6%, and what is the prospect of it varying in the future, hopefully downwards? SIR JOHN BOURN: Well, thank you, Chairman. As far as the 6% is concerned, for the first two years they were in the plan that the Commission considered last year, so it repeats the figures that you had before you then and which you agreed. As far as the third year is concerned, we don’t yet have the figures for government expenditure in that year. We usually do, but on this occasion the government have not announced their expenditure figure for the year 2008/2009, so it’s been necessary to put a figure in our corporate plan which, as we say in the plan, is subject to review when government plans become available. So, in going for 6%, when we do have the government’s figures, we shall be able to look again at that third year. And, certainly, by the www.wordwave.co.uk 2 time that we come to you next year, we will have been able to analyse and see whether 6% is justified. Of course, Chairman, as the Commission know, all these figures are subject to review when they become the Estimates. And therefore the Commission’s view on the figures is subject to their re-examination year by year for the Estimate. CHAIRMAN: And, of course, some concern to the Commission is that all the successive years of a similar uplift mean that there will have been an increase of nearly a third over that period, which is quite a significant increase, isn’t it? JOHN BOURN: Well, it is, Chairman. But, of course, in the years where we have direct evidence, it is essentially in line with the increases in government expenditure, which, over the first two years in the plan, come to 11.8%. As for the really significant expenditure programmes, like the health service and education, in each year health service expenditure goes up 10% and in each year education expenditure goes up 7%. CHAIRMAN: We’ll explore in a moment the coincidence of public expenditure and your costs because I must admit I’m a bit puzzled by it. Now you’ve put forward in your proposition the 2.5% efficiency gain, but that only covers a limited part of your budget, doesn’t it? So, in effect, that efficiency gain will only apply to one-fifth of your budget. Over the budget as a whole, therefore, it becomes smaller than 2.5%. www.wordwave.co.uk 3 JOHN BOURN: In fact, Chairman, the savings, which are implicit in the plan, are more than the 2.5% for corporate services. There are savings on the financial audit, which are referred to in paragraph 3.56 and there are savings on value for money audit, which are in paragraph 4.62. Together they total another 2%. So, it is 2.5% on corporate services and 2% on the rest of our work, that is financial audit and value for money work. So, that is a larger sum simply than corporate services. And, of course, in terms of the savings that come from the work, they are eight times the cost of running the office. And therefore that is a real savings figure which is achieved as a consequence of our work. CHAIRMAN: You see, there’s a bit of quandary for us because in the last few years the proposition has been that it’s the change in complexity of delivery, risk factors and so on, resulting from changes taking place within the accounting procedures. And now suddenly we still have the same figure but for a completely different reason. And that’s where I’m a bit nervous about it. And I really don’t see the necessary correlation between increase in expenditure and increase in your financial requirements. I mean, it doesn’t matter how big the expenditure is; it’s a matter of whether it’s straightforward or simple accounting, isn’t it? JOHN BOURN: Well, as we say in the plan, Chairman, there isn’t a direct correlation between the expenditure of the government as a whole and audit expenditure. It is not an exact correlation. But there are a number of developments which are taking place which are new and which have come to the fore since the last plan came before the Commission. www.wordwave.co.uk 4 For example, the government have now accepted the Commission’s proposal that the Comptroller and Auditor General should be the auditor of non-departmental public bodies which are plcs. So, the government’s acceptance of the Commission’s proposal will bring in another 50 accounts which we have to audit. CHAIRMAN: How is that proportionately? That many accounts added to how many accounts? JOHN BOURN: That’s added to 500 accounts. So, another 10% more accounts. There is also faster closing of accounts. The Treasury now want all the resource accounts to be completed by departments and audited by us before the House rises for the summer. That means that in the summer of 2006 there’ll be 55 resource accounts which have to be completed and audited by the summer break. CHAIRMAN: Is there any logic in that requirement? Is it just a matter of convenience to Treasury or is there some pressing requirement there, causing this extra pressure on time – and also on cost? JOHN BOURN: Well, it certainly does have a cost, Chairman, because in this financial year only 25 departments have managed to get the accounts ready so that we could audit them before the House rose. The reason for the -- CHAIRMAN: Before you leave that. If that many are outstanding how long do you have for them? I mean if you have to clear them by the beginning of the summer recess, by when do you need them from a department, www.wordwave.co.uk 5 and are the departments under pressure to deliver by the required date? JOHN BOURN: Well, the departments certainly are under pressure. Of course, we’re working with the department during the preparation of the accounts. It isn’t, as it were, that we stand back until a finished set of accounts come. Of course, we are engaged in the discussion with the department for a considerable time before the accounts are completed. But you asked for the reason why the Treasury want to do it. They want to do it because it’s thought to be both in the private sector and the public sector an example of good governance to complete the accounts as soon as possible after the end of the financial year and get them audited as soon as possible. CHAIRMAN: Why? JOHN BOURN: Well, in the private sector, so that the users of the accounts should have the earliest possible information about how the last financial year has turned out. And the Treasury believe that it’s valuable for all those who are interested in government departments that they should have that information early rather than wait until the turn of the calendar year. CHAIRMAN: With Public Accounts Committee hats on, when I see in the Treasury’s view or in a department’s view that such and such is the outcome, that usually means that’s in their view but not in your view. Is there a coincidence of thought on this or do you differ on the requirement? www.wordwave.co.uk 6 JOHN BOURN: Well, I don’t differ, Chairman, because I accept the general logic of the idea of producing audited accounts sooner rather than later. I do recognise, of course, that if that is required there is a cost to it. And that is one, but it is only one, of the features that lie behind the case we put before you.