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.