Public Accounts

Public Accounts Committee Legacy Report

On the last day of the last States meeting of the 21012-2016 term I presented the legacy report of the Public Accounts Committee. I have been proud and honoured to represent the Committee for 4 years and believe it is in a better place than at the start of the term. My speech is below.

 

Sir, I am pleased to present the legacy report of the PAC for this term. It is not my intention to go through the contents of the report given this late hour both in terms of the time of day and with respect to this meeting. It is a comprehensive record and members are only being asked to note it after all – and more on that later.

What I will do is focud on just 3 aspects of the report and then look to the future.

 

The present Committee had only just put its feet under the table when we were informed of a fraud committed against the States of £2.6m. In fact it was just a month into this term. This States has often been blamed for that event. However, sa I stated at the time the Committee published its report into the states of financial controls and risk management at the time, this was an incident waiting to happen.

Reports produced int he past, including those of previous PACs has, for whatever reason, been ignored. I am pleased that this States has acted on the findings of this PAC’s report which reflects the understanding particularly of the CM and PSD Minister of the time and the T&R Minister, in particular, as to the seriousness of the issue, as well as the pressure from the Committee to ensure our recommendations were acted upon.

Our second report on financial controls demonstrated the improvements made. However, the Committee is concerned that the focus on risk management will be lost as attention turns to public service reform. It is therefore critical that the Scrutiny Management Committee monitors developments closely.

I would no like to turn to the FTP, which has dominated much of this term. The Committee ha spent a considerable amount of time reviewing progress, or otherwise, of what was one of the most significant programmes of work ever undertaken by the States of Guernsey. The Committee took various approached in order to cover off various aspects of what was a complex area.

The Committee on a regular basis called in the T&R Minister and officers for updates as well as having a direct input on improving reporting for the Policy Council. The cost/benefit review which looked at the largest projects in the FTP acknowledged that savings has been made and found evidence of some excellent initiatives but expressed concern over some of the calculations and, more importantly whether certain savings would indeed be sustainable. And in addition, the Committee fought vociferously and successfully against the payment of commission to the consultant in respect of a transfer of £650k from general review to the Guernsey health service fund as it did not represent a saving to the taxpayer.

Finally, in relation to the FTP and subsequent to this report, the Committee held a public hearing where it questioned the T&R Minister and States Treasurer principally on the legacy of the programme and lessons learnt. More particularly on the transformational aspects.

I would like to thank the Minister for his openness at that hearing and I would recommend that the Hansard record be read by those involved in the Public Service Reform, both politicians and officers. I want to see public service reform work. I think we have a great opportunity to make it work but we need to understand lessons learnt.

Much of the Committee’s work as, by necessity, to be undertaken behind the scenes, this has included developing a more robust annual audit and accounts production process, providing greater value for money for the taxpayer as well as providing advice and recommendations which have considerably improved the States of Guernsey’ financial and resource management policies and procedures.

The last are I would like to focus on is post implementation reviews. Sir, recent headlines implied that projects undertaken by this States has been wasteful. However, I think it is important  to make clear that several projects we looked at took place in the previous term and one, the airport terminal , over a decade ago. There has been a significant improvement in the management of projects since then. However, it is true that lessons do still need to be  learnt and money is still being spent unnecessarily. It is for that reason that the Committee recommended that the Policy & Resources Committee in the next term look at placing PIRs in the public domain.

Before ending, I would like to leave a message for the future SMC.

 

  1. Firstly, work together as a team. It has been a pleasure working with a bunch of intelligent people who have worked together, can have robust conversations, but listen and respect each other’s views and come to a consensus. The PAC has certainly demonstrated that it can be done. We live in a consensus system and it is as important for the SMC as it is for every other Committee of the States. I just hope that continues in the next term.
  2. Secondly, don’t follow your own personal agenda. This will be even more important to be aware of where the whole scrutiny function is concentrated in just 3 Deputies and 2 Non-States Members; and
  3. Thirdly, Remember that what you want is to make government perform better. That can mean a balance between making a quick headline and working behind the scenes to make things happen. A recent report into the effectiveness of Westminster select committees in the last term stated that whist some committees took the big bang approach, they did not necessarily produce long term improvements. In fact it can lead to the bunker syndrome. A balance needs to be struck.

 

Sir, finally, and without wanting to make this sound like an Oscar acceptance speech, I would like to thank all those members of the Committee during this term. It has been a realtievely stable committee with changes only arising from the untimely death of Alderney Rep Paul Arditti and the departures of Deputies James and Le Clerc for an easier life on HSSD. I thank everyone for the positive contribution they have all made.  I have been honoured to represent you in this Assembly.

There is an old adage that says, It should be noted that if you have something to note, then note it. Do not note that the item you wish to note should be noted. With that in mind, I ask members to note this report.

Increasing the Powers and Resources of Scrutiny

The Public Accounts Committee and Scrutiny Committee laid a joint policy letter to the States at the February States meeting. This was very important to me as I had wanted to increase the powers and resources of the scrutiny function before I was elected and everything I have witnessed since I was elected as Chair of the Public Accounts Committee demonstrated to me why this was necessary.

I am pleased that the policy letter was passed, with an amendment on funding that we did not oppose. This means that the new Scrutiny Management Committee will be better placed under the new machinery of government. Below is my speech.

 

Sir

This policy letter arises from an amendment placed by myself and the Chair of the Scrutiny Committee to ensure that the powers and resources of the new SMC were agreed before the end of this term. We could have decided to go with the original proposals in the SRC report, stating that this should be left to the new Committee to consider. However, we believed that it was important that it should be able to hit the ground running and get changes put in motion as soon into the new term as possible.

It is important to stress at the outset that this States has already agreed the structure of scrutiny that it wants for the future and that it should have more powers and resources. This policy letter is therefore following the direction of the States in setting out what it believes those powers and resources should be.

It is also important to make it absolutely clear that what we propose is not a pick and mix; our proposals set out the minimum requirement to give effect to the new scrutiny structure and reflects our 4 years of experience and more in some cases, of the current system.

We have concluded that specific areas require significant strengthening to ensure that effective scrutiny can be provided.

I am not going to go over all these now, they are clearly set out in the report, but I will focus on some key points.

Firstly, the power to compel, or to use the standard term, ‘the power to send for persons, papers and records’. A power that is standard in the UK and other Crown Dependencies.

The  appropriate legal infrastructure will need to be in place to ensure the enforceability and legality of the proposed approach. Powers to send for papers and records are already vested in various statutory bodies today, such as the GFSC, Children’s Convenor and CICRA. In our view, therefore, the drafting of such legislation should be relatively straightforward.

Secondly, rights of privilege should be extended to any person giving evidence to scrutiny panels and hearings.

At the moment a person attending to give evidence, or producing any document to the Scrutiny Committee or the Public Accounts Committee is entitled to the same immunities and privileges as if they were a witness before the Royal Court, whereas a Deputy enjoys absolute privilege. This may have been an error in the drafting of the legislation as it was intended to be provided for in the original Billet.

This will allow witnesses to be able to speak freely to their elected representatives, a fundamental democratic right.

Thirdly, in terms of  visible impartiality we  recommend that a memorandum of understanding should be in place between the Principal Scrutiny Officer and the Chief Executive that guarantees the operational independence of the former whilst providing him or her with the appropriate management support.

To provide the necessary balance, the Principal Scrutiny Officer must ensure that, any review undertaken complies with the SMC mandate, provides value for money, and is in the public interest. Where a review does not meet these tests, in the opinion of the Principal Scrutiny Officer, the Principal Scrutiny Officer can be formally instructed to proceed by the Committee through a written direction.

Now, we turn to a recommendation in this report that is certainly very timely. That is the ability, in certain contexts, to be able to be review the internal legal advice provided to Departments and Committees.

This is a complex area. However, at Westminster, legal advice has been questioned by Select Committees in certain circumstances. To allow for this to happen, UK Ministers, in effect, waive their insistence on the confidentiality of the legal advice their departments receive.  In the UK, the decision to disclose the Attorney General’s advice on the legality of military action in Iraq, has created a high level precedent which will make it difficult for governments to hide behind the claim that ‘we never make public the advice of our Law Officers’. To those who argue that this was an exceptional case, I would respond that the only thing that was exceptional about it was the level of political pressure which forced eventual disclosure.

Something to consider in light of recent events.

It is clear to both current Committees that the content and rationale of the advice provided to politicians and staff by the officials within St James’s Chambers, should be subject, when appropriate, to review by Parliament. And, standing here occupying the place he used to take I am reminded that this is something that the Late Alderney Representative Paul Arditti felt very strongly about it. I do think it is sad that he can’t be taking part in this debate.

 

Yes, the mechanisms need to be thought through carefully. However, a complete bar on the ability to scrutinise legal advice, is inconsistent with the principles of openness and transparency that lie at the heart of good government. The scrutiny arrangements and perhaps as importantly, the culture within government, must allow for parliamentary oversight of this type of material when it is appropriate.

Both Committees have also expressed a desire for additional clarity in situations where there is uncertainty as to whether advice is legal advice, or rather advice from a Law Officer on a non-legal matter. We believe that guidance on this matter should be clearly drawn to avoid a situation where appropriate parliamentary scrutiny is blocked by the refusal to release advice from a law officer on a non-legal matter.

Legal advice given to States Departments and Committees is primarily provided by the Law Officers of the Crown and lawyers working under their direction at the Law Officers Chambers. Where advice is given by a lawyer to a private or commercial client, that client could decide to “waive” privilege at their discretion and disclose the contents of the advice. However, different considerations arise in relation to advice given by, or on behalf of, a Law Officer to Departments, Committees and other public office holders.

However, as was demonstrated in the disclosure of Lord Goldsmith’s advice on the legality of the war in Iraq and of Jeremy Wright’s own recent advice on the legality of RAF drone strikes on British ISIL targets, there are “exceptional” circumstances when at least the fact of giving advice is disclosed. For the reasons set out above, it is suggested that the situation in Guernsey should mirror that described in England and Wales and, as that approach changes, so should ours.

The key point here is that in certain circumstances it should be possible to view the advice that led directly to decisions being made. This may be very rare but it is also essential. Advice is just that – advice; Boards take the decisions. And if political scrutiny is to mean anything, it has to be able to test the judgements which Boards have made based on the advice they have received.

 

So, last, but by no means least, we get onto the sticky matter of funding. It is very difficult for me, as Chair of Public Accounts Committee to come here and request extra money, but I knew that would inevitably be the case at the start. I would hazard a guess that all members would have expected that, more powers and resources would come at a cost. But, remember, it is not about cost, rather value for money. It will not mean more of the same, but the ability to undertake urgent hearings and respond faster than is possible at present. We are only going to get a stronger scrutiny function if we allocate more resources to it.

 

If this assembly wishes to have effective political, financial and legislative scrutiny then it will cost more money. If members believe that this level of additional expenditure is unjustifiable then so be it, but please do not then constantly reprimand the new SMC for not addressing the numerous areas of public concern that arrive throughout the next political term. This month and next we will be debating areas of huge strategic importance: the alphabet soup of SLAWS, CYPP, SCIP as well as Waste, perhaps CHP and dare I say education?

As things stand the current resources are woefully inadequate. From a financial scrutiny perspective alone, we have just 3 staff to scrutinise 1/2bn of States general and SSD annual expenditure. That’s when no one is ill or on holiday. Compare that with Jersey with spends nearly £800k on the Auditor-General’s office, £311k on Scrutiny, excluding staff costs which are probably a conservative £500k, plus a dedicated building and all that excludes the child abuse enquiry for which £20m has been set aside. Yes it has a ministerial system, but that doesn’t mean that scrutiny should be funded any the less. And in the next term, with a more powerful centre and fewer Deputies, a stronger scrutiny function will become even more important.

It’s not as if what we are asking for is unreasonable. It represents 3 more staff, one of which is for legislation, which currently has no resource and £150k for specialist advice which will be necessary as the SMC focuses on complex areas, where generalist knowledge will be inadequate.

And don’t forget the Deputy resources that will be lost from scrutiny as a result of the new machinery of government. In fact, we have calculated that the loss in terms of Deputy and Non-States members’ time comes to the equivalent of £191k.

Also, remember that in the last budget we agreed to pay an extra £900k for SCIP programme and £200k for additional Policy Council resources. Why is that OK, but not the resources to scrutinise it?

 

As William Gladstone famously pointed out – ‘Men are apt to mistake the strength of their feeling for the strength of their argument. The heated mind resents the chill touch and relentless scrutiny of logic.’

Gladstone correctly identified that many well-meaning politicians cannot see the weaknesses in their own arguments – this is why Scrutiny is so important

And, In the words of Arthur Conan Doyle’s famous fictional detective, Sherlock Holmes “It is a capital mistake to theorize before one has data. Insensibly one begins to twist facts to suit theories, instead of theories to suit facts.”

This is where Scrutiny comes in – no individual member has, or will have, the time or supporting resources to fully investigate a significant portion of government policy.

Independent political scrutiny is essential and a properly-resourced scrutiny system empowers the individual Deputy as a member of a scrutiny panel.

The recommendations made to the States in this Policy Letter provide for a future scrutiny function with greater capacity, powers and resources to ensure Committees and their agents can be effectively held to account by the SMC.

I believe we have provided an appropriate balance in the context of the changing machinery of government and therefore ask that all members fully support increasing the powers and resources as set out in this policy letter.

SRC – 3rd Policy Letter – SMC powers

I was delighted that an amendment I laid against the policy letter, seeking to extend the powers of the new Scrutiny Management Committee to agents of government, was approved in November. This will definitely strengthen scrutiny in the next term. My speech is below.

Sir,

In a nutshell this amendment seeks to ensure that the scrutiny function’s powers are not weakened, but enhanced, in the next term.

Paragraph 6.1.3 states that the States Review Committee was reluctant to impose too many qualifications on what and whom the Scrutiny Management Committee should scrutinise. However, the duties and powers  of the Scrutiny Management Committee as set out in Appendix 1 only enable it to scrutinise legislation, policies, services and the use of money and other resources for which committees are responsible.

However, under section 9.4.4 of the Stares Review Committee’s second policy letter it states that ‘the powers of the Scrutiny Management Committee would be strengthened further by affording it the right to scrtuinise, and to call in witnesses ane evidence from a greater range of roganisations where are in receipt of public funds or which has been established by legislation.

This amendment merely seeks to replicate that statement.

Without this amendment the powers of scrutiny will be weakened as, to some extent the Public Accounts Committee has powers to scrutinise the spending of public funds provided to other bodies and an example is the review of the contract with MSG in 2011. The powers must explicitly state that the Scrutiny Mgt Committee can continue to investigate public bodies in receipt of states funds, such as SJARS, GHA and other providers.

However, this is not just about money. Members will be all too aware how the government service model is moving to a concept of a partnership with outside bodies. Indeed, the public sector reform document we approved recently makes that clear;

 

‘Civil service must enable government to involve the community in developing policy. A good example of this is SOG’s formal partnership for working with the 3rd sector through the Association of Guernsey Charitieis, the Social Compact signed in Autumn 2014’.

Of course, with policy development with external parties will come outsourcing of those services to those bodies.

The agencies and organisations involved in delivering government policy have evolved significantly since the original mandate was agreed in 2004 when the Public Accounts and Scrutiny Committee were created.

Since 2004 the methods of delivery of government programmes have diversified to encompass third sector organisations, private sector providers and a number of other agents of government, where agents are defined as organisations created or commissioned by government to undertake functions or supported by government to supply services but are not Departments or Committees. In 2012 the government provided grants and subsidies totalling over £30 million to such organisations in Guernsey.

The reviews undertaken by the current Committees have highlighted the problem that agencies and organisations essential to the delivery of government policy or services, which the Committee is mandated to review, are beyond the current remit. As a consequence democratic oversight is curtailed.

A number of agencies and public offices have been created to minimise the risk of political interference in certain types of decision-making. Where agencies have been set up with a governance structure created to minimise the risk of political interference, it should  not be the intention of the Scrutiny Management Committee to introduce it. The changes suggested are not intended to limit the autonomy to act independently or curtail the commercial freedom of any agencies or organisations.

BUT organisations of this type are granted operational independence whilst operating under the direction of government at a policy level. Many of these agencies do undertake functions that should be subject to appropriate scrutiny. In the UK, select committees regularly question government agencies, regulators, and commercial organisations (and their legal advisors) on their activities. This is seen as an essential part of Parliament’s retrospective oversight of the work of these agents of government.

We only have to remember the recent revelations over the charity Kids Company, something that the PAC in the UK recently described as a failed 13 year experiment.

Now, that doesn’t mean what happened there wil happen here, and under our system of government  it would be very difficult to see how that same exact scenario could be repeated. BUT if SMC is to be and I quote from policy letter, ‘be empowered to shape scrutiny as it sees fit, it needs to be able to do so with as much flexibility as possible.

That is why the powers as set out in the report are insufficient and why I urge memebrs to support this amendment.

SRC – 3rd Policy Letter – annual uprating report

My third successful amendment against the SRC report set the same restrictions on amendments to the SSD annual uprating report as the budget. My speech is below.

Sir, a minor amendment, but it is important nevertheless. Basically this requires that amendments to the annual uprating report have to follow the same rules as the budget and be submitted in advance. I suppose the need for this report crystallised itself for me last month, when we debated both the budget and uprating report at the same sitting, but that budget amendments has to be submitted 7 clear working days before the debate, whereas there was no such restriction for the uprating report and we received these right up to a day or 2 before the debate.

But that does reflect the inconsistency of treatment between revenue managed by T&R and that managed by Social Security. We only have to see how in the secondary healthcare debate how HSSD has to come to the States for funding for its half of the costs to negotiate the contract, whereas SSD does not. Perhaps that is for another day, but this amendment at least provides some inconsistency whenit comes to 2 important annual financial policy letter that come to this Assembly.

I urge members to support this amendment.

SRC 3rd Policy Letter – States’ accounts

I laid a successful amendment against the policy letter to ensure that specific time is set aside every year to debate the States’ accounts. My speech is below.

Sir,

I think it would be useful to clarify the effect of this amendment. It is not to set aside a whole day to debate the accounts, unlike the budget. All it does is ensure that the first item of business on the last States meeting before the recess is the debate on the States accounts. That is why, unlike for the budget, it does not refer to the ordinary business starting on the next day. It is presumed that ordinary business will follow on from that debate.

 

It will come as little surprise to members that I have laid this amendment, certainly given in the September meeting I expressed my and the Public Accounts Committee’s dissatisfaction at debating the 2014 accounts in September, the day in fact that the budget for 2016 was published!And it was pigeonholed between other States business.

This meant the numbers were less important than our ability to judge the T&R Minister’s ability as a fortune teller by comparing the foreword to the accounts and budget at the same time.

The effect of this amendment is to ensure that what we experienced this year, and last is not repeated and a specific slot is set aside for the States accounts.

Public Sector Reform – PAC comment

I made the following speech on behalf of the Public Accounts Committee during the debate on public sector reform in September 2015.

Sir, I will begin by speaking on behalf of the Public Accounts Committee and then I have a few comments speaking on my own behalf.

Sir, on behalf of the Public Accounts Committee, I would first like to pay tribute to those who have enabled this paper to be brought forward before the Assembly today. The Committee appreciates their endeavours and would wish to publically acknowledge that the Chief Executive has kept the Committee informed of progress, which has been very much appreciated.

The Committee supports the inclusion of the value for money work-stream as one of the central pillars of this programme and I can confirm that the current PAC and, I hope, the new Scrutiny Management Committee will be keeping a close eye on the effectiveness of this element of the programme.

I do think it is excellent in demonstrating how value for money does not mean cost. Many times, I am asked to investigate expenditure because of the cost. Last month there was a call on the bus service, on how much it had cost the taxpayer. However, as I pointed out to those people, cost is only one element of value for money. You need to think of need and quality. By way of example, the bus service subsidy was cut, but you could question whether that resulted in better value for money.

The Committee notes with interest that the Report states that the FTP made every public sector worker cost-conscious. We need to be reassured that this programme will now empower each and every worker to take the actions necessary to improve value for money. We also note that the consultation on this work-stream starts in the quarter four of this year, with the establishment of a value-for-money team in quarter one of next year. Now, this is a positive step and the Committee is willing offer its full support.

We have just spoken about the need for internationally-recognised accounting standards and, again, I will say that the Committee believe this in integral to enabling the calculation of the true cost of service provision.

Just to pick up on Deputy Gillson’s comments, this morning, regarding financial training for Deputies, I think it should be extended to the public sector and that such training for non-financial managers is essential for those with budgets they are expected to manage.

Now, once the value-for-money work-stream is established, the consultation completed and the framework developed, we would call upon the Chief Minister to support the production of a report to be brought forward for consideration by the States as soon as is practicable.

Learning lessons: the Committee’s rallying call has been that the States of Guernsey must learn the lessons – good as well as those not to be repeated – from the various initiatives undertaken. The Committee looks forward to such lessons related to change management, being fully embedded into the processes, culture and psyche of the Public Service, as it moves forward with the implementation of these reforms.

To answer Deputy Laurie Queripel, I can say that Public Accounts Committee has been pushing for a post implementation review for SAP from T&R and we want it by the end of this term. We have recently been sent draft terms of reference so things are moving but, like Deputy Queripel, I would like assurance from the Minister that the review can be completed within this term.

States of Guernsey Accounts 2014

Below is the speech I made on behalf of the Public Accounts Committee in September 2015.

Sir, speaking on behalf of the Public Accounts Committee, I would like to state up front that whilst the Committee does have a query surrounding the numbers, from the Committee’s perspective a big issue is not the numbers, rather the process around them.

For the third year running, the audited accounts overran the proposed internal timetable and a financial penalty is likely to be imposed by the external auditors. The Committee believes that the audit needs a greater level of support to ensure slippage from the timetable does not occur again and incur financial penalties – appropriate people, not volume of staff, push individuals in the correct fashion to enable them to achieve deadlines. Due to this slippage, the accounts were signed three weeks after the Committee was formally notified that they were going to be and, despite requests, no updates were forthcoming.

However, once they were signed they were circulated to the media but not to the Committee, the States’ financial watchdog. This is unacceptable. The Committee has written to the Minister expressing its dissatisfaction with this process this year and hopes that the Minister will ensure that this will not happen again.

I would like to continue by again covering some areas that the Committee has highlighted in previous years. The Committee is still concerned that there is no specific time set aside to consider and debate the States’ financial affairs, apart from within the agenda of the scheduled monthly States’ Meeting. The fact that the accounts are delayed two months and are once again being shoehorned into a packed agenda is unacceptable.

As an aside, although I am aware that the original intention was to submit the accounts to the June States’ Meeting, had the audit been completed in a timely manner this would have been achieved and Members would have been able to debate the accounts in a rather less busy meeting.

The Committee feels that the States’ financial affairs should have more priority within the Assembly and I will be making the submission to SACC, in addition to including this as one of the proposals in the upcoming policy letter on how the Scrutiny Management Committee should operate moving forward.

Deputy St Pier expects me to speak about the structure of the accounts and I am pleased I am not going to let him down again. Within the balance sheet on page 9 it once again states it is, and I quote:

‘not the policy of the States to capitalise fixed assets.’

– and –

‘The States made a decision in 2012 to adopt International Public Sector Accounting Standards and the intention is that this will be incrementally introduced commencing with fixed asset valuation and accounting.’

– but no comment as to when or how the Department intends to do so.

Although the Minister recently informed the Assembly that the plan for moving to a new set of standards was already underway, the Committee, through the work of its audit panel, does not believe that there has been any tangible response to its enquiries in this regard and does not have confidence that it is being given the priority it deserves.

In addition, the Minister stated in his response to me last year in this same debate that it was the Department’s expectation that, as a minimum, the trading entities would be FRS 102-compliant this year. This has not happened and the Committee would like the Minister to confirm that there will be substantial movement on this issue within the coming months, and keep the Committee informed of progress.

In terms of presentation, there is still no clear explanation as to the rationale for the uplift from Original Budget column to Total Authorised column within the main Income and Expenditure section, despite the Minister agreeing last year to consider some changes for this year’s accounts.

In fact, the overall clarity of the content within the accounts is still poor and does not appear to have improved. For example, within pages 3 and 6 there are three paragraphs giving explanations for the increase in both income and expenditure as relating to the revision to the funding arrangements for the corporate housing programme. This is very opaque and does not help the reader to understand what has actually occurred. This lack of transparency within the accounts prompted the Committee to conduct a review of how similar jurisdictions and large organisations produce their annual accounts, with recommendations for improvement to be published later this year.

For the last three years the external auditors have supported the Committee’s concern that the States of Guernsey does not have a current comprehensive set of financial directives in place. This was also highlighted in the Committee’s report on Financial Controls which was published in July. This issue has been raised to the Treasury & Resources Department by the Committee on a regular basis, as the Committee believes that this should be a fundamental priority for any organisation, but especially one that has gone through the transition to centralising the finance function as the States did in 2013. Whilst the Committee has been informed that that this is in hand, it would like confirmation that this is a priority of the Department and will be completed with some expediency and certainly before the end of this term.

The total authorised budget for routine capital expenditure in 2014 was £14.759 million but actual costs were just over £8 million; therefore over £6 million was authorised for departmental usage but not spent. The Committee questions whether this means that the departments are initially over budgeting or not maintaining the properties under their care, as scheduled to do. However, the Committee is also concerned that departments are unclear what actually constitutes maintenance or routine capital expenditure, and feel that the clarity of accounting standards would help rectify this uncertainty.

Also in respect of capital generally, the Committee is concerned that although £36 million was transferred to the Capital Reserve, the level of capital expenditure was only £18 million and falls woefully short of the fiscal policy framework parameter of 3% of GDP. The level of GDP at approximately £2.2 billion, that figure should approximately be about £66 million.

Looking at pay costs, and more particularly the Senior Employees Gross Cost Analysis on page 25, the 2013 analysis and total number of employees shown are different from what appeared in the 2013 accounts. These accounts show a reduction of 16 new employees compared to the 2013 comparative. However, taking the 2013 figure, there has actually been an increase of two. The Committee would appreciate some clarification on this, in respect of… the Committee believes that there should be much more detail in this area and that the higher paid posts should be identified in the accounts, as the States of Jersey details theirs.

As mentioned in my speech on the GFSC accounts earlier this year, the Committee wrote to the organisation last year on this very issue and is grateful that it has taken on the Committee’s comments and made improvements.

In closing, the Committee would like to comment on the bond issue. The Investment Panel of the Committee met with the State’s Treasurer to discuss the governance arrangements around the bond issue and to try to comprehend returns anticipated in both the lending and investment of the surplus funds.

The Committee also wrote to the Department for further clarification on particular concerns it had and, although a reply has been received, feels that it needs to highlight some of its concerns to the Assembly.

Firstly, the Committee finds it surprising that there was no commitment from the trading bodies as to amounts intended to borrow before the bond was finalised, as this would surely have helped to determine how much the States would need to raise.

The external auditors informed the Committee that as of May 2015 no external borrowings have been repaid, nor have any loans been made by T&R to the respective States bodies to utilise the monies raised. It said the proceeds had been invested in the short term in the general investment pool.

The Department, in its response to the Committee’s recent enquiry, advised that approximately £100 million of both internal – that is Cabernet, JamesCo and HSSD – a combination loan, an external GHA £52.9 million borrowings have been, or are in the process of being, transferred to be funded from the bond issue proceeds.

However, some States entities still have external borrowings guaranteed by the States where it would not be cost effective to break existing arrangements and utilise the bond issue, and others where the timing of funding arrangements have changed and the funds are not now required.

A major concern of the Committee is that the States may now have found itself in a position where the overarching debt limit, as detailed in the current fiscal policy framework, has been reached, whilst there is also additional external borrowing on behalf of some of the trading bodies.

The Committee is therefore disappointed that there is no narrative included in the accounts regarding post balance sheet events and would appreciate an up-to-date position being given to the Assembly, as soon as practically possible.

Secondly, the Department informed the Committee – again in response to the Committee’s recent enquiry – that there was no direct benefit to the States in having issued a bond; rather lowering the cost of capital to the entities to which loans are made could result in a significant downstream saving to their customers. But this is in contrast to the Minister’s Budget speech last October when he stated that the States would be acting like a bank:

‘We will borrow on the one hand and then we will lend on with a small mark up on the other. The taxpayers will have obtained a small return in the process and the entities and their customers will be better off.’

Finally, information given to the Committee has resulted in some uncertainty over the returns currently being made on the bond proceeds and we would welcome confirmation from the Minister that these do at least match the costs of finance.

SRC Second Policy Letter – amendment 2

My second successful amendment related to the introduction of recognised accounting standards and making T&R to action what they had already been instructed to do. This is a subject I have raised several times in the States and I set out my speech below.

Sir,

I take members back to March 2012 a time when some of us were here and other of us were keeping a close eye on what was going on here. I was in the latter camp and I remember very well when the States resolved to adopt Internationally recognised accounting standards and gave T&R the resources to bring them in.

Whilst for some this might not seem much to get excited about, for me, I saw this as one of the more important decisions of the last States.  BUT I can hear some of you say – that’s cos you’re an Accountant. BUT I would argue that this whole Assembly should get excited about this.

Why? Well, the report of the time makes it very clear. Paragrpah 1.2 states that;

The current accounting model has a number of deficiencies, the most significant of which is the failure to account for our fixed assets that is, our land, buildings and equipment which together are thought to be valued at in excess of £2 billion. Without this ability, neither the ongoing value of those assets nor the true cost of their use by Departments can be properly represented in our accounts. This leads to an opaque picture regarding the true cost of the services we deliver, a lack of focus on driving the best value from these assets and an inability to compare costs and financial performance year on year.

The benefits were stated as falling within 4 broad categories;

  • Accountability
  • Decision making
  • Comparability
  • And; better use of assets

 

In addition, the letter from the previous PAC appended to the report at the time is quite explicit. The accounts exclude the cost and details of assets held by SOG, as well as its contingent liabilities, such as pensions. And it is not just about what is set out in the revenue account or balance sheet, but also the notes to the accounts in order to compliant, which would include analysis of pay costs.

Remember this was a major feature of the Fundamental Spending Review, a spend to save initiative whereby better decisions could be made as a result of more accurate and complete information.

BUT the truth is that debate has happened, the policy letter was approved. It now needs to be actioned.

T&R were expected to report in the annual budgte about progress. Aside from welcoming the project and the move to multi-year budgets, there has been no report. Each year when the accounts have been debated I have stood up and said this could not happen soon enough but given no assurances that it would start any time soon.

 

I appreciate there have been a lot of other things happening, with the FTP and new SCIP process as an example. I am also acutely aware that this is not a simple task and needs suitably qualified and experienced personnel to make it happen.

However, the resources have already been agreed. They were sitting in the Fundeamntal Spending Review Fund but , as members will recall, have now moved to the Transformation and Transition Fund and the fact that they are is explicitly mentioned in paragraph 5.20 of the 2015 budget.

The question is, can we afford to wait? The longer this is delayed the longer we will perpetuate the current situation and, as far as I’m concerned, that is not acceptable. We will in the near future receive the 2014 accounts, great but be aware that these accounts don’t include a proper audit opinion. They do not state that they are true and fair. They can’t as they are not prepared in accordance with recognised accounting standards . All that our auditors can say is that they have been properly prepared in accordance with accounting policies of the States of Guernsey.

By the end of this year, States of Guernsey should have been preparing financial statements that are widely recognised and accepted on island and internationally that will result in making major improvements to information, accountability and basis on which decisions are made.  This is a spend to save initiative that, the longer we leave it the longer we can’t be sure whether or not we are wasting taxpayers’ money and so the sooner it begins in earnest the better.

 

I urge members to support this amendment.

SRC Second Policy Letter – amendment 1

I laid a successful amendment against the policy letter that meant that, instead of delaying a review of the power and resources required by the new Scrutiny Management Committee until its formation in May 2016, that this should be done by the current scrutiny committees. My speech is below.

Sir, Whilst I am the one that is laying this amendment this should very much be seen as a joint amendment with the Chair of the Scrutiny Committee and has been discussed by both PAC and Scrutiny Committees.

Before I begin, I should make it clear that both Committees are grateful to the SRC for taking on board the comments submitted by them and incorporating them into its policy letter.

 

However, members will remember that as a result of the amendment passed last year that the States Review Committee was directed to propose to the States before the introduction of the new committee system ways of strengthening the powers, resources and impartiality of the scrutiny committees and panels”

Whilst I understand the reasoning behind the proposal to wait for the new Scrutiny Management Committee to be formed before consideration of the its powers and resources, I do not believe that this is the most effective way forward .

Proposition 29, as it stands, would require the newly formed SMC to lay a policy letter with recommendations on such areas as;

  • Ability to call/compel witnesses to attend
  • Potential increase in scope of scrutiny to include all non-States bodies which are in recepity of public funds
  • Clearly identifiable responsible persons within each of the new Principal Committees
  • Resources, budgets and expectations of the SMC.

 

The purpose of this amendment is to bring forward the drafting of the policy letter so that it can be laid before this Assembly and a decision made before the end of this term.

Why? Well

I’d like for a moment for us just to take a step back and consider the wider context and the effect that this policy letter will have should it be passed in substantive form.

Let us not delude ourselves here.  There will be significant change that takes place from 1 May next year, not only  in terms of a reduction in Deputies but, probably more importantly, a change in departmental or committee structures and mandates.

Against this background of considerable change, a newly constituted SMC, is expected to determine the resources it will need. Now times of considerable change can be the times of highest risk and therefore a time when we need a scrutiny function focussed on its core role.

Whilst the  SMC will be experiencing the new arrangements, the argument given for it to do the work,  I would argue that, whatever the new structure, the breadth of work will be broadly similar.

Waiting until the next term will mean that, given the time to let Members get their feet under the table, prepare the report and then get it to the States, it is highly unlikely anything will be decided within a year. And that’s before anything that is agreed can be actioned.

 

The present PAC and Scrutiny Committees believe, with the experience they have had over the last 3 years, they are ideally placed to provide the necessary input to such a States’ report. I made it very clear when we debated the first policy letter, the last 3 years have been intensely frustrating with the lack of resources. Our budget has been reduced by 30% over the last 3 years,  placing severe limitations on what we could do and we have even had to go to the Department that we were to scrutinise to request funds to scrutinise them! That really can’t be right. So, when we look at resources and budgets it won’t just be the quantum required, that is just part of the story, but how we obtain those resources and how budgets are developed. What may work for Government Departments may not be right for a Parliamentary Committee.

This isn’t about wanting to take on more work, but we believe we can do it in the timescale and in the most effective and efficient way. We are also conscious how much more important it will be to allow the SMC to hit the ground running. With the reduction in Deputies, the level of political oversight will reduce unless we can beef up the scrutiny function as quickly as possible to compensate.

So on behalf of the future SMC, please support this amendment and let us get moving now.

FTP – end of programme report

The States debated the FTP following it’s closure in October 2014. This followed the PAC’s review as per my earlier post.  My speech during the debate is set out below.

Sir, on behalf of the Public Accounts Committee, I would firstly like to pay tribute to all those across the States of Guernsey who have made significant contributions to the FTP process. Specifically to those individuals on the shop floor of the organisationwho have invested vast amounts of their time and effort in supporting this initiative over the last five years.

As the largest financial programme of this, or any other States, this Public Accounts Committee has been closely monitoring developments. The Committee continues to believe that the core principles of the FTP programme remain sound, as I have stated previously,running a fiscal deficit albeit as a consequence of funding our capital requirements,is not sustainable and the States must seek to return to a balanced budget. The FTP was a significant tool in the quest to achieving this specific aim.

However, the original vision of the fundamental spending review was focused on a cultural transformation throughout the States. Financial change being one of the key areas in the suggested first phase. The requirement for increased financial discipline through a cultural transformation is still needed today,as it was in 2009, and the Committee believes it is even more necessary now, with the increasedexternal scrutiny arising from the multi-million-pound bond issue late last year.

Now, I would firstly like to focus on the financial details of the FTP contained in he report. Members will be aware that the recent report issued by the Public Accounts Committee that analysed nine major projects of the programme that representing 35% of the total claimed savings. In that report the Committee has made a number of specific and broader reaching recommendations, and we welcome the T&R Minister’s public recognition and broad acceptance of the key findings. As such it is not the Committee’s intention to cover these in any detail within this statement, rather just a very brief summary where they directly relate to this report.

We note the Policy Council Report acknowledges the financial rules were not documented,nor widely communicated,at the start of the programme, and the Chief Minister has addressed this today. This led to the level of uncertainty surrounding some of the claimed savings that prevailed afterwards. It is the

Committee’s belief that this was unacceptable for such a major programme, and wishes to emphasise again that it is essential that clearly defined rules are in place before the commencement of similar cross-departmental programmes in the future.

Now the Committee’s position on the inclusion of the £650,000 relating to visiting consultants is well known,and summarised well today by Deputy Gillson, and we note with interest that this figure is now classified within the Policy Council’s Report as an internal transfer. However, similar concerns arise from the effective transfer of costs to Aurigny,as part of the air subsidy project. Whilst not specifically against the contract, the understanding of those within the FTP team was that internal savings were not within the scope of the programme. At the very least they were certainly against the spirit of the rules. Now one of the Committee’s most significant areas of concern is the non-evoking of an advantageous contractual clause,relating to the use of the cost of capital.

Significant capital costs could have been considered when calculating the net savings for a project. The decision not to use this clause to minimise a saving, and by definition the reward fee,does appear at odds with the premise of financial restraints of the FTP.

 

Now moving on to future transformation. The original plan to deliver the 107 initial opportunities through seven work streams can hardly be claimed to have been an overwhelming success, as the Policy Council’s own report acknowledges. Indeed the key focus on a holistic delivery mechanism, and the drive away from silo mentality, may have been compromised in the 2012 re-boot of the programme. The concentration on annual targets for individual Departments resulted in a focus on short term tactical savings rather than truly transformational change.

The three recommendations of the Fundamental Spending Review Phase Two Report were to:

  1. establish a States’ transformation programme,
  2. articulate and communicate a vision for the States of Guernsey and,
  3. three embed a sustainable way of working.

Within the details of the first recommendation the FSR Report states that the financial change programme should be initiated whilst and I quote:

‘The organisational structures are established to enable the integrated transformation programme.’

The T for transformation is an area that still requires further effort. Now one of the key cornerstones of the third recommendation,to embed a sustainable way of working, was the implementation of internationally recognised accounting practices. An area the Committee has constantly championed. While the States resolved in 2012 to phase in resource accounting and budgeting and authorised T&R to use a fundamental spending review fund to enable it to happen. Three years later this has not happened. That is not acceptable, and consequently I will be laying an amendment against the SRC second policy letter,to ensure that under a new Government structure the move towards generally accepted accountancy standards takes place, and I will speak more on that in a couple of weeks’ time.

With regard to next steps,within such a sizable programme as the FTP issues are bound to arise. We would therefore call upon the T&R Minister, and the Chief Minister,to ensure that the lessons learnt from the years of working within the FTP, from the fundamental spending review through to today are acknowledged and embedded within the chosen future direction. In terms of identifying lessons learnt the Policy Council’s end of Programme Report, whilst an extremely useful and informative document is self-reflective by its very own nature, and being largely written by Capita, for which they will have been remunerated. The Public Accounts Committee has actively encouraged Policy Council to agree to undertake further reviews connected to the FTP,and in particular,and probably most importantly, that of the SAP and Shared Transaction Service Centre.

We understand this will commence within the next couple of months and are grateful to the T&R Minister for responding to our request that it is competed by the end of the year. We also welcome the Chief Minister’s statement today that there will be a full closure report on the FTP. Something again the Committee has requested. The Committee will continue to focus on aspects of the FTP Programme where it believes it can add value within the bounds of PAC’s limited resources. The Committee still requires assurance that all identified savings have been pursued to their fullest, those savings made are being appropriately monitored, the legacy of the investment in to the Project Management Office and transfer of skills in the consultants has been successfully embedded in the organisation,and finally that further programmes embrace the need for changed management if cultural transformation is to be truly achieved.

The Chief Minister referred to adjustments being made to savings subsequent to their being banked,it is essential this Assembly continues to be kept informed of these changes.

In conclusion, in terms of financial transformation is the work finished? Well clearly not, and the Chief Minister, give him his due, has made that very clear today. Irrespective of whether savings should have been included in the first place,it is clear than an increased level of ongoing monitoring is required if we are to be assured of their sustainability, and if we are to fully reap the benefits of the significant investment into the Programme. Public Accounts Committee wishes to be assured that ongoing, robust monitoring of the claimed savings will be undertaken, calls upon the Chief Minister to commit to providing detailed performance monitoring through the annual budgeting report.

The management of change and performance within the whole organisation is going to be increasingly important for a truly effective and efficient service provision to the public to be maintained on an ongoing basis. Cultural transformation will be key, but at this stage the Committee is concerned that there is no substantive link to what happens next. The Project Management Office has been disbanded and there does appear to be somewhat of a vacuum. The Committee, and I hope any future Scrutiny Management Committee that supersedes it, will continue to take a keen interest in monitoring developments, as given the high cost of running the Financial Transformation Programme we can only be sure of value for money if you know that what began in 2009 is sustained,and indeed built upon over the next five years and beyond.



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