Sir,  I understand that each of these Motions have to be debated separately. However, what I say now applies to both Motions and I will re-iterate this at the appropriate time.

Whilst I have already briefed Members as to my reason for placing both these Motions to Debate I should also like to place this on record today and elaborate further on certain points.

Under the States Trading Companies Ordinance 2001, the accounts of States trading companies and the reports on them, must be placed in the Appendices to a Billet.

It is my belief that this is insufficient to give the accounts the prominence they deserve.  Certainly, as Chair of the Public Accounts Committee, this is a concern in terms of accountability and the ability of Members to comment on those accounts in the same way that they can on the general accounts of the States of Guernsey.

Not only that but, in contrast, under paragraph 6(1) of the Financial Services Commission (Bailiwick of Guernsey), Law 1987 the accounts of the Guernsey Financial Services Commission have to be submitted as a report by the Treasury and Resources Minister and I quote ‘as soon as practicable for consideration by the States’.

There is an obvious inconsistency here and I can see no valid reason why States Trading Companies should not also be treated in the same way as the Commission or the general states accounts and be presented in the main body of the Billet where they will be available for consideration as a report by default.

Aside from accountability, I believe that such accounts should be presented to Members in a more timely manner. These accounts were signed off in June and July 2012 and readily available on both companies’ websites, but we only have the ability to debate them 7 months after sign off and 10 months after the accounting year end. This is far too late. The timetable for the preparation and audit of accounts are set well in advance of the companies’ year ends. Indeed, the Department is given 10 days notice of when the AGMs will be held and there should be no reason why the accounts are not submitted  as soon as possible after they have been approved by the shareholders.

The Public Accounts Committee continues to strive to ensure proper scrutiny is applied within its mandate, balanced within the finite resources available to it. To this end, I and my fellow Public Accounts Committee members are committed to continually reviewing how appropriate and proportionate level of scrutiny can be applied in the future.

Finally, I should like to advise that I will, on behalf of the Public Accounts Committee, continue to place a Motion to Debate until such time as the Ordinance is amended.

Sir, I would firstly like to say how useful I found this report in providing a very clear impression of the challenges facing not only the department, but the States as a whole. Whilst many of the problems are well known to many of us,

Whilst I believe it is right to set a timescale I would question the ability to get such structural changes sorted within 7 years, especially given it has taken 2 years to get to this point. It is made clear in the report that HSSD believes that a truly effective health and social care system can’t be created through gradual change and that this will mean considerable work to make sure services are linked financially and contractually.

What is missing here, as was missing at the start of the FTP and that is the absence of any recognition of the importance of the change management process. And, the faster you want to bring a completely new system, the more important that process will be. It will certainly be impossible without the buy-in of every affected organisation internal and external to the States of Guernsey.

I would also like to raise the issue of the States outsourcing work to third party organisations. This has been an issue raised by the Chair of the PAC in the UK, Margaret Hodge. She has voiced serious concerns in the UK about the problems of effective scrutiny where funds are passed to third sector and other external organisations. I would like to echo her concerns and believe there should be a States-wide policy regarding financial reporting requirements placed on organisations as a condition of them receiving public money.

Finally, I would like to advise Members that the Public Accounts Committee will shortly be following up the previous PAC’s review into Secondary Healthcare in 2011 to determine actions taken against its recommendations at that time.

In anyone’s book the FTP is a massive undertaking. Trying to make 10% recurring cost savings would result in a sharp intake of breath from any self-respecting COO.  However, when an income stream dries up overnight  radical measures do have to be undertaken to reduce costs. The question is what to do and how to do it. The former has been considered by many today so I am going to concentrate on aspects of the latter that have raised concerns for me.

What surprised me when reading the report was that whilst a key aim of the FTP was to  create ‘a culture of cost consciousness and shared responsibility for delivery’ the FTE failed to engage those who basically held all the cards. I welcome the honesty in admitting that, and hope that lessons have been learnt that are disseminated across and within Departments.

Samuel Johnson is often good for a quote and he comes up trumps here again . He said,’ Change is not made without inconvenience, even from worse to better.’

He was right but attempts should be made to reduce that inconvenience as far as possible. Change can be frightening.  The status quo is comfortable, known and doesn’t challenge.  As Deputy Lester Queripel makes clear frequently, communication is key to enable real change to happen and it works both ways. Clearly this has been a lesson learnt.

Having said that,  it does appear that the programme has moved from one extreme to another.  It seems that the FTP has morphed into an enormous black hole that sucks up everything in its path and from which nothing re-emerges.

It was always appreciated that Departments had to accept resources would be needed and Members resolved to accept the necessary diversion of staff resources away from routine work in order to deliver change. However, I feel this has gone beyond the original understanding and the approach taken has significantly impacted on the day to day operations of Departments.  As staff haven’t been able to be brought in to cover there has been a rise in overtime and more pressures on departments.

Of additional concern is the amount of senior officer time taken on FTP.  The Chief of Police is head of the procurement review of the FTP and I wonder how he can now fit that with his new role as Head of Law Enforcement.

I believe it was thought that things would improve after the implementation of the STSC and the upgraded SAP system. However, from what I have heard from different departments, it would appear that this won’t happen any time soon. Financial accounts for January haven’t been able to be produced and there are problems with various aspects of the system that are having knock on effects for departments.  I would therefore like to seek the CM’s assurance that matters are being resolved as quickly as possible and that issues are prioritised on a risk basis.

In relation to the STSC, I would  like to raise an issue that came out of the presentation given to Deputies on 9^th January.

It was explained that credit would be given to Departments for those staff transferred or lost as a result of the creation of the Hub, with costs being retained within T&R. This means it will be far harder for anyone outside T&R to know whether savings have been made. Bearing in mind we were advised that the £7.9 million cost of the STSC would be recouped largely through the reduction of 50 posts, whereas we are now being told 30 posts are going, does the Chief Minister agree with me that, in order for greater transparency, a recharge of the cost of the Hub should be made to each Department.

Finally, and despite the issues I have raised, I am happy to support the FTP as I believe that it is the only way of bringing its costs under control. I think it has resulted in a slow gradual change of culture from spend, spend, spend to a more business-like footing.  That will be its ultimate legacy.

Firstly Sir I would like to declare my interest in this debate as Patron of GASP, the Guernsey Adolescent Smokefree Project.

I welcome this amendment. In the debate on tobacco licensing last month I requested that the Minister of HSSD confirm that, if he was not able to direct resources on services that prevent young people from smoking, his Department would think laterally as to how it could raise those funds, either through fees or duties to ensure that we do not see a reversal of all the good work that has been done over recent years to reduce the prevalence of smoking in under 18s.

I didn’t get any assurance that that would be the case and the Deputy Minister said there was no chance of getting any funding. This is despite the fact the solution is simple and easy to implement.

Members may know that there was a 2011 update report to the Tobacco Strategy for 2009-2013. In  section 11 of that report it states that the HSSD Minister wrote to the T&R Minister requesting tobacco duty increase from RPI+3% to RPI+5% for 2012 and 2013 and that this was accepted and incorporated in the December 2011 budget for 2012. However, both this year and last year the proposed increase was actually RPI+3%. I am still awaiting an answer from HSSD regarding this anomaly. It may well be therefore, that it was always the intention to raise duty by more than that proposed by T&R.

Guernsey has seen great success in reducing the incidence of teenage smoking due, in no small part, to the educational programmes which have been in place over the last 15 years. It seems only right and proper that we raise and ringfence what is a relatively small amount of money to ensure that the educational and other associated programme providers can continue their good work.

Without any States funding GASP will cease to exist. This will be cruelly ironic in this Olympic year when it has played a big role in bringing the Olympics alive in Guernsey, for example GASP organised for 300 youngsters to have pride of place in the Smokebuster fanzone during the Torch Relay, producing the good luck banner for our 3 Olympians –Heather Watson, Karl Hester and Lee Merrien  and producing a booklet ‘From Torteval to London: How to become a Guernsey Olympian, written about Lee, who, incidentally, is a GASP Ambassador,

None of the people I know who smoke want to smoke. They all of them started smoking when they were at school. Peer pressure and wanting to look cool amongst your friends are strongest influences on young people and this will always be the case. Whilst there are smokers I have talked to  who have reservations about the efficacy of a licensing regime there hasn’t been one I have met who has objected to paying more for a packet of cigarettes if it meant that the extra funds raised would go toward tobacco education and to help protect the health of their children.

I would urge members to support this amendment which is fully aligned to the Future 2020 Vision of promoting, improving and protecting the health and social wellbeing of all.

Sir, I am making this statement to update Members about progress in terms of the investigation into the July Fraud and its Review. Having spoken to the Minister of Treasury and Resources Department and Minister of Home Department, we have agreed that, in the absence of any material changes, we shall alternate the updates we provide to this Assembly between us. These will be provided every 2 months and the next update will be provided by the Home Minister.

With regards to the police investigation, members will be aware of the recent arrests carried out by Lincolnshire Police as part of Operation Infinity. We have been advised that there is no further information to report at this time.

In relation to the review of the specific incident of fraud, as I said in my last statement, this will not be able to start until we are advised that it will not prejudice the ongoing criminal investigation. As I am sure members will understand, given the current stage of the investigation, this continues to be the case. I will advise Members as soon as circumstances change.

In my last statement in relation to the broader review into the effectiveness of financial controls in place to minimise the risk of fraud I notified this Assembly that external reviewers were to be appointed and that I would advise who these would be, the timeframe for the review and the cost by the end of October 2012. This target was met and Members were advised that the local practice of Ernst & Young were appointed at a cost not exceeding £25k. Members were also advised that we were expecting completion of their work in December and that the Committee would receive its findings in January.

I am pleased to be able to advise this Assembly that Ernst & Young commenced work on 1 November 2012. I am also happy to be able to report that their work is ahead of schedule and we now expect to receive their report by the end of the year.

It will then be for the Committee to review and consider these findings before setting a date for a public hearing.

Finally, I should like to advise that whilst all the news coming out of the Public Accounts Committee thus far has been in relation to the Fraud Review, we have been undertaking a number of workstreams and activities which will be made public over the coming months and, whilst I have advised that we intend to hold a public hearing in relation to the fraud, it is envisaged that this will not be the first or the last undertaken by this Committee.

It is a perfect fit for me, as someone with a varied business background, and I am very much looking forward to helping make Guernsey develop a strong and diversified economy.

Sir

Further to the November States Meeting, the Public Accounts Committee met to discuss the Statement made by the Minister of the Health and Social Services Department. A key part of the Committee’s mandate is

“to ensure that proper scrutiny is given to the States’ assets, expenditure and revenue to ensure that States’ bodies operate to the highest standards in the management of their financial affairs”.

The Committee was particularly concerned that information provided by the Minister in the Statement, and in the subsequent question and answer session, raised serious questions regarding the Department’s management of their financial affairs. The letter from the Treasury and Resources Department, appended to this report, further substantiates this concern in concluding that:

“the HSSD does not have an adequate financial monitoring and forecasting regime in place such that expenditure pressures are properly identified and quantified at an early stage and thus allow appropriate action to be taken”.

The Committee therefore resolved that it would, as soon as practicable, undertake a review of the Health and Social Service Department which will consider the standard of financial management in the Department, with particular focus on the information available to monitor and forecast budgetary variances.

The Committee is mindful that the Chief Executive is initiating a review which it is stated will ‘at a minimum, consider the adequacy of financial management within the Department’ and will take this into account when proceeding.

The purpose of the Committee’s review will be not only to provide an independent assessment of the standard of the financial management in place at HSSD but also to produce positive recommendations that could be applied corporately in order to develop ‘best practice’ across the States of Guernsey.

Once finalised, the Committee will circulate to all States Members the review terms of reference. I can also confirm the final report with any recommendations will be made public.

Thank you.

Question

1. 1.      Could the Chairman of the Public Accounts Committee please explain why the Committee felt it preferable to inform Members of this Assembly that Ernst & Young had been appointed to undertake the investigation into the £2.6m fraud by copying a press release to Members rather than by making a Statement to the Assembly, especially considering that the Assembly was in session at the time the press release was circulated to Members.

Answer

A press release was circulated to announce the appointment of Ernst & Young to undertake the external review because the Committee considered that it was not necessary to request the permission of the Presiding Officer under Rule 8 of the Rules of Procedures to make such a statement.

The Committee used the Rule 8 procedure in the September States Meeting, at which I provided a detailed statement explaining the scope of the review and the Committee’s intention to appoint external reviewers. The media release issued to the Members of the States on 31^st October 2012 sought only to confirm the name of the appointed reviewers, the maximum budget and timeframe for the first stage of the review. Given the limited amount of new information to be communicated, the Committee did not consider a formal statement to the States was necessary, in addition to the circulated release.

As you know, the media release was circulated to all Deputies on Wednesday 31^st October.  It was subsequently provided to the media embargoed until Friday 2^nd November. The release was also uploaded onto States of Guernsey website on Friday 2^nd November and may be accessed through the Public Accounts Committee website.

Question

1. 2.      The independence of the review is vital to public confidence, therefore could the Chairman please provide the following information:

a)      The nature of any contract Ernst & Young currently have with the States of Guernsey, in particular those with Treasury & Resources, and provide the total value* of these, if any.

b)      The nature of any contracts Ernst & Young have had with the States of Guernsey for each of the past 5 years, again, providing the total value of these, if any*.

c)      Are Ernst & Young in the tender or pre tender stage and contracts with the States of Guernsey? if so what are they?

d)      Are any Partners or members of the Senior Management Team of Ernst & Young members of any States Departmental or Committee Board, or members of any of the Boards of any States owned trading company?

(* to protect commercial confidentiality, providing the total value of contracts to the nearest £50k for each of questions 1, 2 and 3 will suffice, i.e. below £50k, or between £50k and £100k, etc. etc.)

Answer

In response to part (a) of the question, I can confirm that Ernst & Young presently have only two contracts with the States of Guernsey, including the contract with the Public Accounts Committee under which they are carrying out this review. The other contract is for ICT consultancy work and has no bearing on the Committee’s review.

Further, ahead of PAC’s engagement Ernst & Young reviewed its available records to determine whether potential conflicts might arise out of its performance of the Services and no such conflicts were identified.  However, I should note that given the very nature, diversity, magnitude, and size of the Ernst & Young organisation and its past and present professional relationships it does not allow the organisation to be certain that each and every possible relationship or potential conflict has come to its attention, but the letter of engagement requires Ernst & Young to promptly notify the Committee if additional relevant relationships or potential conflicts come to its attention.

In response to part (b), I can inform you that Ernst & Young have reviewed their global billing system and identified three invoices in the last five years. Two invoices related to the ICT consultancy work mentioned above and one relates to a one-off assignment performed under a separate engagement letter for an independent States body seeking advice on a tax matter. These invoices amount to less than £50,000 and the work was performed between April 2008 and November 2009.

In response to part (c), I can inform you that the only formal pre-tender Ernst & Young has identified is the submission of a Pre-Qualification Questionnaire entitled “Professional services to develop and implement a corporate approach to risk management across the States of Guernsey”. The outcome of the submission of this pre-Qualification Questionnaire is not currently known. Ernst & Young has informed the Committee it is not aware of other formal tender.  The current contracts have already been detailed.

In response to part (d), the Committee has made enquiries of Ernst & Young who have confirmed that no partners or executive directors are members of any States Departmental or Committee Board, or members of any of the Boards of any States owned trading company. However, for completeness, please note that one partner/executive director of Ernst & Young has confirmed he is a Commissioner and Treasurer of the Guernsey Arts Commission.

Finally, I can confirm the Public Accounts Committee is not aware of any possible conflicts of interest and it is assured of the independence of Ernst & Young in conducting this review.

Sir, I’m going to be brief and just ask 2 questions of the Minister.

In relation to Table A on page 35, bearing in mind the level of Tax on Real Property for office accommodation being used for regulated activities is 3 times that of unregulated activities, how can his department be satisfied that it is collecting the maximum tax due?

Given the vast majority of office accommodation is rented, and landlords may not be experts in what is, or isn’t a regulated activity, how are they expected to know whether their tenant is undertaking such an activity?

My second point is in relation to the wording used in section 4.17 regarding the cash limits for the Public Accounts Committee. Reading this is would be easy to get the mistaken impression that the Committee has increased its budget for the financial controls review.

A look at the Committee’s budget  for 2013 on page 69 makes it abundantly clear that this is far from the case and has been reduced by 20%. I would therefore be grateful if the Minister will affirm that this is the case and that the Public Accounts Committee can rightly be seen to be leading by example.

I just want to make a few brief points. Firstly,  it is clear that there has been considerable consultation.  I had seen various earlier proposals during the consultation process that I wasn’t sure about, but am satisfied that the changes outlined now seem sensible.

In particular, the expansion of those professionals who will be able to incorporate a company is logical. At the moment it is expensive to have to go to a CSP when you want to set up a company. Widening those eligible should have the effect of bringing down costs and allow those requiring a company, for whatever reason, to receive a more joined up service.

I also welcome the areas that seek to dispense with certain requirements for small companies and to make the audit exempt waiver indefinite.  These can only help smaller businesses as it effectively reduces red tape, even if just in a small way. I hope that  in the next few years we will see similar changes that help our small businesses even more.