Summary of significant issues identified in recent reports of the Comptroller & Auditor General and the Public Accounts Committee

Transcription

1 Summary of significant issues identified in recent reports of the Comptroller & Auditor General and the Public Accounts Committee Government Accounting Section Department of Finance

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3 INTRODUCTION One of the recommendations of the Working Group on the Accountability of Secretaries General and Accounting Officers (the Mullarkey Working Group) was that an explanatory document should be drawn up from time to time by the Department of Finance summarising the most significant issues identified in recent reports of the Comptroller and Auditor General (C&AG) and of the Public Accounts Committee of Dáil Éireann (PAC) and the categories within which they fall. This document does not go into the detail of follow up actions taken by individual Departments or Offices. However, where Department of Finance circulars, or other rules or guidance etc. issued on foot of a report, these are cited. The appendix lists the titles of the reports mentioned in this document with ISBN and Government Publication numbers as well as hyperlinks to web based reports. 3

4 Contents Page Introduction 3 Chapter 1 Shortcomings in Financial Controls Failure to reconcile PMG Statements Poor management of fee income Incorrect disbursement of funds Advance payments in the absence of formal contracts Inefficient cash management Breakdown in internal financial control.6 Chapter 2 Procurement Breach of EU Guidelines Inadequate statement of requirements Project scope Inadequate assessment of operating environment Inadequate Governance and Management Compliance with good procurement practice Inadequate specification and costing Breach of procurement rules Obtaining best Value for Money. 8 Chapter 3 Grant & Scheme Administration Unauthorised Borrowing by companies Misappropriation of a VAT Refund Inappropriate issues from a grant-in-aid subhead Premature issues from a Grant subhead 9 Chapter 4 Internal Controls Shortcomings in Administration Internal control weaknesses Delay in submitting ESF applications Shortcomings in monitoring and control.. 10 Chapter 5 Economy, Efficiency and Effectiveness Need to improve performance More effective delivery of schemes. 11 Chapter 6 Project Management Need for a high degree of professionalism in project management Chapter 7 Consultancies Importance of clarity in consultancy contracts. 13 Appendix A 14 4

5 Chapter 1 Shortcomings in Financial Control 1.1 Failure to reconcile PMG Statements. Monthly statements from the Office of the Paymaster General were not reconciled to the Office s accounting records on a regular basis. Summary of the C&AG s findings At the end of the year, the reconciliation statement presented for audit was incorrect. The statement of outstanding payable orders supplied by the PMG did not reconcile with the figure for outstanding payable orders in the Appropriation Accounts. Suspense accounts were not reconciled on a monthly basis and some contained unexplained balances going back a number of years. 1.2 Poor management of fee income. Income for a week in November and also for a week in the January following had not been lodged due to a failure in control for prompt lodgement of receipts to the PMG. There must be effective financial control systems and procedures in Departments and Offices minimise the risk of financial loss It is essential to carry out regular reconciliations and to ensure the correct recording of financial records. 1.3 Incorrect disbursement of funds. Funding for a social scheme was enabled by paying the money direct from the Dormant Funds Account into a suspense account from which the funds were disbursed. Summary of the C&AG s findings The money should first have been surrendered to the Exchequer in the form of an Exchequer Extra Receipt and applied to the relevant Vote by means of a Supplementary Estimate. Note: - The Dormant Accounts (Amendment) Act 2005 provides that disbursements from the Dormant Funds Account are through monies provided by the Oireachtas, i.e. through a Vote. 1.4 Advance payments in the absence of formal contracts. Payments were made to the OPW to undertake projects on behalf of Departments remained unexpended by the end of the year. Summary of the C&AG s findings The level of advances by OPW and their timing should be aligned with outlays by the relevant Local Authority. Charging advances to a Vote as final expenditure does not comply with the requirements of Public Financial Procedures. 1.5 Inefficient cash management. The agency in question ran into severe cash-flow problems owing to delays in sending out sales invoices and in claiming recoupment from its parent department. Summary of the C&AG s findings Cheques produced to pay creditors could not be issued as there were insufficient cash resources to meet the cheques. 5

6 The bank overdraft limit had to be increased leading to unwarranted extra charges on their budget A significant prompt payment interest liability was incurred due to the delayed issue of cheques. 1.6 Breakdown in internal financial control. The Committee of Public Accounts learned that improper claims had been made and money paid in respect of journeys that had not been undertaken resulting in a nugatory spend out of the Agency s grant. Summary of PAC Recommendations The ethical conduct required of public servants should be communicated to all staff and management should put in place a framework for monitoring compliance. Departments and all State organisations should note that there is a requirement to carry out a specific review of internal financial control to support the statement of internal financial control issued with the Appropriation Accounts or annual financial statements. 6

7 Chapter 2 Procurement 2.1 Breach of EU Guidelines. This instance involved the procurement of road transport services through negotiated tendering. The value of the contract meant that an open tendering competition should have been held. The contractual agreement took the form of an exchange of letters without referring to any terms or conditions relating to the contract, including the meeting of statutory obligations by the supplier, leading to the possibility of inadequate protection of the State s financial and legal interests. 2.2 Project management failure. The procurement of a personnel management computer system did not take account of the different business needs of a separate agency within the Department. Significant nugatory expenditure was incurred as a result of attempting to implement an unsuitable system. The system employed was noticeably weaker than the old system in some key areas. The reporting suite contained in the new system meant that staff were not able to fulfil their reporting requirements. 2.3 Project Scope. The procurement of an integrated ticketing system has to be abandoned as no tenderer was able to meet the requirements set out on the RFT. Added to this, stakeholders were unclear as to how the adoption of such a system would affect their operations which led to their being unwilling to commit to the project. Significant additional cost was incurred as a result of this unsuccessful procurement exercise. A further consultancy exercise has to be carried out to benchmark the system and assess the deliverability of the benefits. Government Departments that initiate projects involving a number of bodies should ensure that the role of each of those agencies in relation to the project is clearly defined and that, overall, an effective governance structure is put in place. 2.4 Inadequate assessment of operating environment. A project to install a personnel and payroll management system was carried out without adequate research and analysis into the environment in which it was to operate. Employee terms and conditions between and within the health agencies had been seriously underestimated. A clear vision of what strategic human resource management actually meant had not been developed for the health service. The project leader did not have the power to make and enforce decisions across the range of autonomous agencies. The project failed to deliver the original planned scope within the initial planned timeframe. 7

8 2.5 Inadequate Governance and Management. A project to install common management information systems in a number of agencies suffered from weak governance and management structures. The board represented only a few of the agencies which would be implementing the systems. A risk review noted significant weaknesses with regard to planning and governance as a result of which the project had to be restructured, re-scoped and re-planned. There were known deficiencies in one of the computer systems to be installed but the project proceeded because of assurances received from the supplier. 2.6 Compliance with good procurement practice. A body acquiring technical equipment breached procurement rules and restricted itself in the procurement exercise by the terms and conditions in the RFT and in its failure to use independent expertise. The body failed to publish a contract award notice within the times specified and to give adequate reasons for the award decision made within the specified time. The whole of the pilot testing programme was conducted on the basis of a single equipment solution. Certain pilot stage acquisitions were not the subject of competitive tendering. 2.7 Inadequate specification and costing. The estimate for a capital programme for road building doubled over a period of 2 years. The procuring body did not have the expertise to properly estimate the costings involved. There was no clear specification of the set of projects which it was planned to fund from the programme. There should be a greater alignment between the funding provision and planned measures so that overall programme achievement can be monitored and measured. 2.8 Breach of procurement rules. The organisation s internal audit unit investigated allegations of impropriety in procurement activities of the organisation and found that, as a result, the procurement process in question was effectively undermined. A contract was awarded to a company in the absence of the company submitting a tender for the contract in question. A contract was awarded to a company two weeks before the outcome of the tender evaluation process was communicated to it. Significant nugatory expenditure occurred as a viable case for proceeding with the development in question had not been made. 2.9 Obtaining best Value for Money START HERE 8

9 Chapter 3 Grant & Scheme Administration 3.1 Unauthorised borrowing by companies. Under legislation establishing the company in question, the consent of the Minister of the parent Department and the Minister for Finance was necessary for all borrowings. The company had taken out 3 unauthorised loans over a 2-year period. The matter had to be rectified by the sale of a company asset. There should be regular monitoring of the performance of companies under the aegis of Departments 3.2 Misappropriation of a VAT Refund. Funding was given to the organisation to make a capital purchase and the grant included money to pay VAT on the purchase. In the event, a successful appeal was subsequently made against the application of VAT to the purchase which resulted in a refund of VAT to the organisation. An unexpected refund of this nature constitutes a windfall receipt and, as such, the amount should be lodged to the Exchequer as an Exchequer Extra Receipt or, alternatively, the amount used to reduce the grant-in-aid for the year in which the purchase is made. Such money cannot be used to make purchases of items for which funding had already been provided. From the date the VAT refund was received in this case, neither the organisation nor its parent Department operated on the basis of Public Financial Procedures. 3.3 Inappropriate Issues from a grant-in-aid subhead. Monthly payments were made to the State Body from its Grant-in-aid subhead although the State Body in question held significant cash balances. Checks carried out on the cash flow projections of the State Body by a parent Department must address the issue of the cash surplus held by the grantee. Smaller institutions to which a grantee, in turn, provides funds must be able to submit progress reports and audited cost statements in order to qualify for payments. 3.4 Premature issues from a Grant subhead. The Department issued funds in support of a scheme for Health and Safety Technology upgrades. The Department was premature in putting the VECs in funds for such expenditure at a time when no expenditure planning had taken place. Allocating scarce resources to projects before they are clearly in a position to proceed may unnecessarily delay other projects of equal merit due a perceived lack of availability of funding. 9

10 Chapter 4 Internal Controls 4.1 Shortcomings in Administration This issue arose due to the absence of key staff leading to an error in licence administration. The owner of a facility suitable for the storage of certain waste products was unaware of the specific nature of the waste being stored by a contractor because a licence had not been issued to the store owner by the Department. As a consequence, a lengthy legal case was taken against the Department resulting in a multi-million euro settlement being paid. 4.2 Internal control weaknesses. The organisation had I.T. equipment costing significantly in excess of its needs and incurred substantial losses on foot of I.T. services not provided to it. Summary of the C&AG s findings Key administrative functions in the I.T. area were not separated. This allowed the same person to order goods, approve payments and sign cheques. Only one of over 100 individual purchases was the subject of a tender process. Substantial professional fees were incurred in investigating and dealing with the matter. 4.3 Delay in submitting ESF applications. Certain Agencies can benefit from grants under the European Social Fund (ESF). However, due to delays in submitting certification of expenditure, the Committee of Public Accounts found that 9m allocated to the Department as grants to Agencies for schemes under the ESF remained uncollected. Summary of PAC Recommendations Greater efforts should be made by Departments and implementing agencies for the orderly administrative processing of applications to minimize the delay in the receipt of available EU moneys. There should be greater co-ordination among Departments and between the central and local sectors to facilitate the spending of available Departmental moneys for much needed projects without unnecessary delay. 4.4 Shortcomings in monitoring and control. While the obligation to provide services rests with the State, some Departments have non-profit organisations under their aegis which provide certain services on a Department s behalf. It is incumbent on these Departments to monitor these organisations and to evaluate the services delivered by them. In a case examined by the Comptroller & Auditor General, numerous administrative deficiencies were discovered. Summary of G&AG findings There was an absence of written procedures and service agreements with grantaided non-profit organisations. There was a failure to maintain registers and files relating to the grants. There was non review of compliance with conditions attaching to funding. There were instances of overpayment of grant amounts 10

11 Chapter 5 Economy, Efficiency and Effectiveness 5.1 Need to improve performance. The C&AG reviewed a number of previously published Value-for-Money reports to see where improvements in performance had been made. Progress in addressing economy issues was disappointing. Resource minimisation issues are difficult to address where they involve organisational issues. In order to make efficiency gains, there is a need to introduce proper project management and the setting of targets to be achieved should be built into investment proposals. There is a general absence of systems to deliver improved effectiveness that can be measured and reported upon. Effectiveness measurements are also hindered by the lack of development of non-financial performance indicators It is highly desirable that targets set for future reform initiatives should be capable of assessment 5.2 More effective delivery of schemes. In its examination of a disadvantage initiative scheme, the Committee of Public Accounts made several findings in relation to its views on how such schemes could be managed to greater effect. Summary of PAC recommendations The Department should seek to ensure that schemes are developed so that resources are aimed at benefiting those most in need. Efforts should be made to improve the coordination and cooperation between all of the agencies and personnel involved in the delivery of services. The Department should examine mechanisms to reduce the time spent on administration by personnel involved in the programme. The Department should continue to explore, with sensitivity, different tools through which measurement and evaluation can be undertaken so as to achieve better outcomes. Key performance indicators should be set and progress on them monitored, on an ongoing basis, so as to determine whether the resources allocated are having a beneficial effect. Mechanisms for disseminating information on proven successful interventions should be devised. 11

12 Chapter 6 Project Management 6.1 Need for a high degree of professionalism in project management. A refurbishment project to carry out structural work as well as to address concerns re electrical installations and fire safety had to be cancelled because proper procedures were not followed. Approval for the expenditure was given in advance of sanction for an increased overdraft to meet the cost. The CEO of the company selected a contractor before the tender design had been finalised. The Board was not advised that a tender had been conducted and a preferred contractor appointed. It is highly desirable that targets set for future reform initiatives should be capable of assessment. 12

13 Chapter 7 Consultancies 7.1 Importance of clarity in consultancy contracts. The C&AG s examination set out to review the extent to which the terms of a contract had been implemented included how employing authorities had monitored the contractual commitments. Key elements of the contract were undefined or lacked sufficient clarity to allow for a smooth implementation. There were differences in interpretation about the number of hours to be worked by the consultants. There was insufficient information at local level for local managers to satisfy themselves that consultants contractual commitments were being discharged. New contractual arrangements need to specify the administrative and governance changes that are required to achieve effective implementation. 13

14 Appendix A 14

15 Chapter Valuation Office Chapter 4.1 Shortcomings in Financial Controls C&AG Annual Report Office of Public Works Chapter 4.1 Discrepancies at two heritage sites fn=/documents/annualreports/2006/annualreport_2006.pdf C&AG Annual Report Gnóthaí Pobail, Tuaithe agus Gaeltachta Chapter 8.1 Financing of Rural Social Scheme C&AG Annual Report Office of Public Works Chapter 4.2 Flood Relief Projects fn=/documents/annualreports/2007/annualreport2007b.pdf C&AG Annual Report C&AG Special Report Number 4 (December 2002) Financial Control and Management in the Irish Blood Transfusion Service ISBN PAC 5 th Interim Report for 2003 (March 2006) Teagasc; Department of Agriculture & Food; and the Department of Community, Rural & Gaeltacht Affairs fn=/documents/committees29thdail/pacdocuments/fifth_report.pdf (Prn. A6/0485) Chapter Foreign Affairs Chapter 10.1 EU Presidency C&AG Annual Report Prison Service Chapter 6.1 Human Resource Management System C&AG Annual Report Transport Chapter 11.1 Integrated Ticketing System fn=/documents/annualreports/2005/2005_report_eng.pdf C&AG Annual Report Value for Money Report Number 51 (December 2005) Development of Human Resource Management System for the Health Service (PPARS) ISBN:

16 2.5 Value for Money Report Number 59 (October 2007) Management Information Systems in the Institute of Technology Sector ISBN: C&AG Special Report Number 5 (December 2002) Garda Interview Recording Systems ISBN C&AG Special Report Number 6 (April 2004) Primary Routes Improvement Programme ISBN C&AG Special Report Number 10 (April 2008) General matters arising on audits of NCSSB s, Health Sector Bodies and VEC s ISBN Chapter Transport Chapter 11.2 Dundalk Port Company corporate governance issues fn=/documents/annualreports/2005/2005_report_eng.pdf C&AG Annual Report C&AG Special Report Number 10 (April 2008) General matters arising on audits of NCSSB s, Health Sector Bodies and VEC s ISBN Chapter Agriculture and Food Chapter 12.1 Damages for storage of BSE tallow C&AG Annual Report C&AG Special Report Number 8 (September 2007) National Education Welfare Board Lapses in Internal Control ISBN PAC 6 th Interim Report for 2002 (November 2005) Department of Arts, Sport & Tourism; and Sport fn=/documents/committees29thdail/pacdocuments/6thinterimrep.pdf (Prn. A5/1873) 4.4 C&AG VFM Report Number 52 (December 2005) Health Service Executive - Provision of Disability Services by Non-profit Organisations ISBN X 16

17 Chapter C&AG Value for Money Report Improving Performance Public Service Case Studies ISBN: PAC Report on the 2005 Appropriation Accounts; C&AG Annual Report 2005; and VFM Reports of the C&AG (November 2007) Chapter 1: Department of Education & Science C&AG VFM Report No. 54 Education Disadvantage in the Primary Sector (Prn. A7/2127) Chapter C&AG Special Report Number 9 (March 2008) Bord na gcon Arrangements for the Procurement of Certain Capital Works and Services and Related Matters ISBN Chapter Value for Money Report Number 55 Medical Consultants Contract (March 2007) ISBN: