Financial Audit and Reporting 2002-2003

Financial Audit and Reporting 2002-2003: General Report by the Comptroller and Auditor General for Northern Ireland

Mr John Dowdall, the Comptroller and Auditor General for Northern Ireland, and Head of the Northern Ireland Audit Office today reported the results of Financial Audit work undertaken over the last twelve months.

Resource Accounts

This is the second year in which departmental accounts have been prepared on a resource basis. Under the government Resources and Accounts Act (Northern Ireland) 2001, departments are required to prepare commercial style resource accounts. This represents the most fundamental change to financial reporting in central government since the mid 19th century. The new Resource Accounts are much more complex than the old style Appropriation Accounts which they replaced. The Appropriation Accounts simply showed the cash spend.

Mr Dowdall says “the quality of accounts submitted for audit has improved from last year. Qualified opinions were issued on seven resource accounts compared to ten in 2001-02. Although some accounts were qualified on more than one count, the nature of the qualifications was less severe than in the previous year.” However, the report concludes that with seven out of seventeen accounts for 2002-03 not receiving a clear audit opinion some departments have still considerable work to do to bring their financial reporting up to the standard the Assembly and Parliament have a right to expect.

Department for Social Development

Mr Dowdall was unable to form an opinion on the financial statements of this Department for the second consecutive year. The main reasons for this were:

• The Department’s Benefit Review Teams estimated losses of £121 million in Income Support, Jobseekers Allowance, Disability Living Allowance and Housing Benefit as a result of errors by officials and customers and fraudulent claiming of benefits. This area has been qualified and reported on for a number of years.
• Significant weakness in the financial control and monitoring of grants paid to Registered housing Associations.
• Significant weaknesses in financial control and monitoring of urban regeneration and community development grants to voluntary and community bodies.

Department of Health Social Services and Public Safety

Mr Dowdall qualified his opinion because of a material loss of income as a result of patients incorrectly claiming exemption from health service charges. The total loss of income in 2002-03 was estimated at between £8.9 million and £11.1 million. The report notes that as a result of various initiatives taken by the Department there has been a downward trend in the scale of potential losses in recent years.

Department of Employment and Learning

The report refers to the limited progress made by the Department on the recovery, from training providers, of irregular expenditure on the Individual Learning Accounts Scheme. The report on the previous years’ accounts had identified potentially irregular expenditure of between £1.3 million and £2 million over the lifetime of the scheme. Mr Dowdall says “it is disappointing to report that the Department has not yet engaged directly with relevant providers seeking recovery”.

Executive Agency and Non-Departmental Public Body Accounts

Invest Northern Ireland Accounts 2002-03

Mr Dowdall qualified his opinion because of insufficient evidence on the recording, monitoring and use of funds by third party organisations (TPOs). TPOs are private sector or voluntary bodies which Invest Northern Ireland contracts to deliver initiatives by means of financial assistance, advice or other services to customers who otherwise would have received such assistance from Invest Northern Ireland. On its formation on 1 April 2002, Invest Northern Ireland inherited contracts with TPOs from the Local Enterprise Development Unit (LEDU). In December 2001 anonymous written allegations of financial impropriety and poor value for money were received concerning one of these TPOs, “Into the West (Tyrone and Fermanagh) Limited’. An independent investigation into the allegations was carried out by a joint team from the Internal Audit Service of the Department of Enterprise Trade and Invest and Local Government Audit. The investigation report, which was published March 2003, questioned the adequacy of the supervision and control arrangements exercised by LEDU and the application of these by LEDU staff involved. Mr Dowdall’s report provides an update on further developments in the case. In 2002, following consideration of the wider implications of “Into the West”, Invest Northern Ireland commissioned consultants to conduct a review of other TPO contractual relationships inherited from LEDU. Twenty eight contracts were examined. The main findings were that:

• contracts were not clear as to the services required and the expected outputs were often omitted,
• a number of contracts were let without any tendering process; and
• there were no formal monitoring systems to provide Invest Northern Ireland with assurance that TPOs were complying with the terms and conditions grants.

These deficiencies were inherited by Invest Northern Ireland from it formation and applied to payments made in 2002-03. Revised procedures have been introduced over new contracts in 2003-04. The report also refers to other investigative work which is still in progress.

Northern Ireland Child Support Agency – Client Funds Accounts 2002-03

Mr Dowdall qualified his opinion on this account for the ninth consecutive year due to:

• Overpayments of maintenance by non-resident parents, and
• Inaccurate assessments of maintenance which led to significant errors in amounts owed by non-resident parents.

Department of Education – Accounting to parliament by Education and Library Boards

The report refers to delays in finalising the five Boards’ accounts over a number of years. Three of the five Boards’ accounts for 2001-02 along with all five 2002-03 accounts remain to be finalised. Mr Dowdall says “the Department has a responsibility to ensure the Boards are able to provide accounts and supporting information for audit on time and that they have been professionally prepared, subjected to comprehensive management review and that management has full confidence in them. This is a central requirement of accountability to Parliament”.

Private Finance Initiative: Reporting of Financial Commitments

The report records that estimated payments on signed PFI contracts in Northern Ireland over the period 2002-03 to 2027-28 will be in the region of £666 million and that this figure is likely to increase as Northern Ireland’s £2 billion strategic investment programme rolls out.

However, despite a call from the Assembly’s Finance and Personnel Committee in 2001 for the long-term spending implications of PFI to be made visible, and being a requirement of Department of Finance and Personnel guidance from 2000, the Audit Office found that no report on financial commitments had ever been made to the Assembly.

The Audit Office report highlights the action being taken by Treasury to increase transparency in relation to PFI in England and encourages the adoption of a similar approach in Northern Ireland.

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 Parliament on the economy, efficiency and effectiveness with which departments and public bodies use their resources. His reports are published as House of Commons papers.
2. The Comptroller and Auditor General's report on “Financial Auditing and Reporting 2002-03 “is published as NIA 41/03 and HC 673 of Session 2003-2004 and is available from the Stationery Office throughout the United Kingdom. The report is embargoed until 11.00 AM on Friday 25 June 2004.
3. Background briefing can be obtained from the Audit Office by contacting Kieran Donnelly (028 9025 1107) or Louise Mason (028 90 251048).