Financial Auditing and Reporting 2010

General Report by the Comptroller & Auditor General - 2010

Kieran Donnelly, the Comptroller and Auditor General for Northern Ireland and Head of the Northern Ireland Audit Office (NIAO), today reported the results of financial audit work undertaken primarily on the accounts for 2009-10 of government departments and other public sector bodies. The report covers a range of topics and issues. It does not include the results of his examination of the accounts of bodies within the health and social care sector. A separate report on this sector will be published.

Mr Donnelly said that “although the standard of financial reporting across central government remains high, 2009-10 was a year when a larger number of accounts than usual received qualifications”. His report noted that seven out of the seventeen departmental resource accounts received qualified audit opinions. One of the main reasons was failure to obtain proper approvals for the procurement of services. Three departments had their accounts qualified for this.

Some of the key issues noted in the report are:

Department of Culture, Arts and Leisure

Irregular expenditure was incurred on the Grand Opera House Extension/Refurbishment Project amounting to £1.7m for which the Department had not obtained the necessary Department of Finance and Personnel (DFP) approval. DFP advised that retrospective approval had not been granted because neither it nor the Department had the opportunity to challenge the post tender cost over-run or the subsequent client changes. DFP was of the view that had those challenges materialised much of the expenditure might not have been incurred. A similar qualification was attached to the 2009-10 accounts of the Arts Council for Northern Ireland.

The Department also incurred irregular expenditure of £188,000 due to a disallowance by the European Commission of EU funding which will be met by the taxpayer.

The audit opinion was also qualified on the basis of insufficient appropriate evidence to support the legal ownership of certain land and buildings, sporting and fishing rights.

Department of Education

Irregular expenditure of £2.1m was incurred in respect of external consultancy fees on six projects which specifically required the approval of DFP. Approvals were not retrospectively granted due to the Department’s failure to comply with specific conditions as defined in Managing Public Money Northern Ireland. The Department incurred further irregular expenditure amounting to £2.3m on consultancy projects in prior years.

Department for Regional Development

Irregular expenditure was incurred by Northern Ireland Water which amounted to £5.3m in 2009-10, £9.2m in 2008-09 and £6.5m in 2007-08. Significant exceptions in the procurement and contract management framework of control and application of the financial delegations framework were identified. These issues are currently being considered further by the Public Accounts Committee.

Department of Finance and Personnel

The regularity opinion was qualified on the basis of EU financial corrections amounting to £25m incurred in relation to closure of the Special Support Programme for Peace (Peace 1) and the Northern Ireland Single Programme Document (NISPD) 1994-99 programmes. The European Commission advised there were weaknesses in the audit trails of two funding programmes, for instance, formal compliance with regulations could not be evidenced for all projects audited. The corrections represent a shortfall of EU funding which will be met by the taxpayer.

Department of Agriculture and Rural Development

Irregular expenditure arose as financial corrections were imposed by the European Commission (EC) due to weaknesses in controls relating to the administration of the Common Agriculture Policy payments that did not comply with the EC’s regulations. The Commission advised that three financial corrections were being applied to the Department primarily due to weaknesses in systems, procedures and processes. The liability of £64m represents a loss of public funds that falls outside the Assembly’s intentions. The regularity opinion was qualified.

The Department incurred irregular expenditure, known as excess votes, of £23.2m and £14.1m in cash and resource terms respectively, as actual spend exceeded the spend authorised by the Northern Ireland Assembly. These excesses were due to clerical errors, for cash, and timing considerations, for resource, as the EU disallowance liability had not crystallised when the estimates’ submissions were drafted.

Mr Donnelly’s report also expresses concern about how a badger population survey was procured. The report concludes that there was a clear conflict of interest in the award of the contract where one tenderer was privy to information on the preferred methodology and that there were significant flaws in the execution of the procurement process.

Teachers Superannuation Scheme

The Department of Education incurred irregular expenditure of £3.7m on an excess vote on the Teachers Superannuation Scheme. This was caused by the Department’s failure to operate adequate internal controls to manage effectively the estimating process.

Department for Social Development

The regularity opinion has been qualified for a considerable number of years in relation to the material levels of estimated fraud and error in benefit expenditure administered by the Social Security Agency and in housing benefit expenditure administered primarily by the Northern Ireland Housing Executive. The estimated level of losses due to overpayments of benefits amounted to £56.1m. A further estimated amount of £19.5m was underpaid to customers. The corresponding annual accounts of the Agency and the Housing Executive were also qualified.

The Department’s accounts include expenditure of £64m on the Supporting People Programme. £2.2m related to Special Needs Management Allowance where payments have not been appropriately monitored by either the Department or the Northern Ireland Housing Executive since 2003. The regularity audit opinion was also qualified because of this. The corresponding annual accounts of the Housing Executive were also qualified on this matter.

The audit opinion was also qualified on the basis of insufficient appropriate evidence to confirm whether the correct accounting treatment had been applied to account for certain information technology assets and intangible assets. The corresponding annual accounts of the Social Security Agency were also qualified on this matter.

Since 1993 the audit opinion has been qualified on the Child Maintenance and Enforcement Division Client Funds Account. The qualification was applied again in 2009-10 due to errors in the calculation of maintenance assessments inadequate accounting records to support the level of outstanding maintenance arrears totalling £80.7m.

Notes for editors

1. The Comptroller and Auditor General is Head of the Northern Ireland Audit Office (the Audit Office). He and the NIAO are totally independent of Government. He certifies the accounts of Government Departments and a range of other public sector bodies. He has statutory authority to report to the Assembly on the economy, efficiency and effectiveness with which departments and public bodies use their resources. His reports are published as Assembly papers.
2. The report is available from the Stationery Office throughout the United Kingdom. It is also available on the Audit Office website at www.niauditoffice.gov.uk. The report is embargoed until 00.01 hrs on 22 December 2010.
3. Background briefing can be obtained from the Audit Office by contacting Rodney Allen (028 9025 1122) or Christine Burns (028 9025 1083).