Official Report: Minutes of Evidence

The Deputy Chairperson (Mr Dallat): I am pleased to welcome our witnesses. Do any members wish to declare an interest?

Mr Wells: Yes, Chair. When I was Health Minister, we availed of the scheme. None of the projects that I applied for came to fruition during my time, but I was involved in at least two.

The Deputy Chairperson (Mr Dallat): You are probably pleased about that.

Mr Wells: I certainly am.

The Deputy Chairperson (Mr Dallat): We have with us today David Sterling, accounting officer of DFP; Michael Brennan, budget director in DFP; and Jeff McGuinness, a grade 7 in the central expenditure division of DFP. Members, you will find biographies of our witnesses on pages 13 and 14 of your electronic packs. I welcome Ms Caldwell, the Treasury Officer of Accounts; and Mr Kieran Donnelly, the Comptroller and Auditor General. Thank you for joining us today. You are very welcome to the Committee.

I will begin. The idea of a ring-fenced invest-to-save scheme clearly has merit and has the potential to help Departments to identify innovative — I emphasise "innovative" — ways of delivering services more cost-effectively and to take managed risks to reduce costs. Mr Sterling, by way of background, can you explain the respective roles and responsibilities in relation to the invest-to-save schemes of the key players, particularly in your Department, the Departments funded through the three schemes and the Executive?

Mr David Sterling (Department of Finance and Personnel): Thank you, Chair. DFP's primary purpose is to provide advice to the Finance Minister when he or she brings proposals to the Executive. We all recognise that one of the most important functions of the Executive is the allocation of resources. In this case, we are talking about funds that had been set aside from the Budget for the purposes of invest to save. DFP invited bids from Departments, analysed those bids and provided advice to the Finance Minister, who then took proposals to the Executive. Obviously, it is for the Executive to decide how they wish to allocate resources, taking account of the advice from the Finance Minister. When decisions are finally taken and go through the Assembly process, the normal financial processes ensure that funds are allocated to Departments, and, then, in the normal way, Departments spend that money for the purposes for which it was voted and account for that spend in the normal way.

The Deputy Chairperson (Mr Dallat): Looking at figure 2, can you explain a bit more about the process and involvement of DFP in assessing, selecting and recommending the projects to be funded to the Finance Minister, initially, and then to the Executive? Of course, members will be listening particularly for reference to innovation and cost-cutting, things that are new and all of that stuff.

Mr Sterling: Figure 2 broadly summarises the process that I described. Is there a particular aspect of the process that you want me to focus on? Did I pick it up that you want to know about the way in which DFP analyses the bids that come forward?

The Deputy Chairperson (Mr Dallat): We are particularly interested in establishing how well the fund was used to promote something that was new and that it was not simply consumed as some kind of additional revenue by the Departments.

Mr Sterling: I understand the question. One of the issues that the Department faced, certainly with one of the most significant allocations of the three funds, was the limited time that was available, particularly in relation to the 2010 Budget process. I will ask Mike to talk a little about the context at the time because I think that it helps to explain why some things happened in the way that they did.

The Deputy Chairperson (Mr Dallat): All right, Michael. Members will need to be convinced that limited time was a sufficient reason for what happened.

Mr Mike Brennan (Department of Finance and Personnel): With the first scheme, it became clear to Ministers in the closing months of 2009 that the forthcoming spending review from the UK Government would be very tight, so there was a series of Executive discussions about what that was likely to mean for future Budgets of the Executive. It was decided then that an initiative should be taken for 2010-11 to carve out a small sum of money to get Departments to focus on policies that they would not normally take forward and that would generate significant savings in 2010-11 and in the years thereafter. The timescale for the first scheme was very tight: for example, the guidance issued only on 21 December 2009, yet the recommendations went to the Finance Minister on 8 March. Basically, in less than three months, a scheme was taken forward by officials and delivered to the Finance Minister, all of which was to be in place for the start of the 2010-11 financial year. That was the first scheme. The initiative was very focused on driving out savings in Departments on a recurring basis.

The Deputy Chairperson (Mr Dallat): You say that there was time pressure. Presumably, the projects were ranked and prioritised and the aim was to ensure the greatest bang for your buck.

Mr Brennan: The key issue was, first, to identify projects that were eligible in a short time. We were looking for projects that were genuinely deliverable in that period, projects that would generate additional savings and projects that were additional or, in other words, were outside the routine interventions that Departments would take forward anyway.

The Deputy Chairperson (Mr Dallat): Mr Brennan, you used the word "genuine" a number of times: unfortunately, that is not reflected in the report. Can you explain why, apart from the time pressure, which I accept, the scheme did not achieve the aims that were set out? Those were innovation and cost saving and not simply becoming subsumed into an ordinary budget.

Mr Brennan: I think that all three schemes were successful in that they generated significant additional savings.

The Deputy Chairperson (Mr Dallat): OK. We will come back to that.

Mr Ross, I throw the — Sorry, it is Jim Wells. Far be it from me to cut you out of this.

Mr Wells: The previous Chair would never have tried something like that, but anyhow thank you very much for letting me in.

Figure 3 makes a comparison between our invest-to-save scheme and that in the rest of the United Kingdom, particularly England and Wales. Theirs seem an awful lot more ambitious than ours and much broader, and they focus on potential savings, innovation, transformation etc. Did you examine other UK schemes before you devised ours?

Mr Sterling: No, I do not think that, at the time, a comparison was made with other schemes, but we have reflected on the findings and recommendations of the report. Indeed, we reflected on our experience ourselves. For example, there is a £30 million change fund in the 2015-16 Executive Budget, and that has a process and a set of criteria that are more aligned with what happened in Great Britain at that stage. Mike has already explained that the context was particularly difficult in 2010-11, but we accept that there are things that we can learn and, I would say, have learnt as a result.

Mr Wells: Forgive me, but that strikes me as something very obvious that has been missed. Are you telling me that, when designing a bespoke scheme for Northern Ireland, not one of the highly paid civil servants in DFP spent even five minutes examining how similar schemes in the rest of the UK operated?

Mr Sterling: The focus was on ensuring that we had something that met the particular circumstances confronting Ministers and the Executive at that time. We were attempting to design something that suited our purposes here. I do not know if you would like to come in —

Mr Brennan: I will give you an example of why a scheme had to be constructed that was in some regards unique to Northern Ireland. Budgets were tight, and the Welsh invest-to-save schemes focused on cash-releasing initiatives. If we had applied the Welsh criteria in Northern Ireland, many of the schemes that are praised in this report — non-cash releasing schemes, for example, such as the DARD land parcel improvement system (LPIS) — could not have come forward, because the non-cash releasing efficiencies would not have counted. The three Northern Ireland schemes in many ways had a wider remit than the Welsh ones.

Mr Wells: It still strikes me as a major omission not to give five minutes to see how innovative and successful schemes were run in the rest of the UK. Maybe that is one of the reasons that a report had to be issued on our schemes.

Mr Brennan: The other thing to note is that the English scheme, for example, ran over an 11-year period from 1999 to 2010. As David said, our schemes are evolving. This is the sixth year of the development of invest to save, and the emphasis has changed from generating savings. As David said, in the change fund for 2015-16 there is much more of a focus on innovative and reform-driven schemes. Those initiatives will constantly evolve.

Mr Wells: But you are admitting, of course, that you are going back to the drawing board. You are not going to reinvent the wheel, but you will look at the GB schemes as part of your overall assessment now.

Mr Sterling: No, I am saying that the processes in operation for the change fund already address some of the criticisms in the report. We have much clearer criteria; we have a much clearer process for analysing bids that came forward; we are producing a mid-year report; and we will carefully evaluate the outcomes of the schemes. That is not to say that there will not be evaluations of the invest-to-save funds, which are dealt with in the report. However, I am saying that the arrangements that were put in place for the 2015-16 change fund adhere, by and large, to the recommendations in the report.

Mr Wells: So the world ends at Donaghadee. In other words, you did not look outside your own little territory in the UK until now, when you realise that you should have done it years ago.

Mr Sterling: We accept that we did not look beyond Northern Ireland in 2010-11, but at the time we were focused on creating something that met our particular circumstances. I accept, with the benefit of hindsight, that it would have been sensible to look at what had been done elsewhere.

Mr Wells: There were three separate schemes, starting at £26 million and working their way up to funding now of £300 million. Did you evaluate the initial scheme before you moved on to 2 and 3?

Mr Sterling: My colleagues can confirm it, but I think that the second scheme followed so closely on the first that it would not have been possible to evaluate the outcomes of the allocations made in the first scheme.

Mr Brennan: Indeed, the third scheme was commissioned while the second was still running. They were all brigaded together in a very close timescale. After evaluation, 31 schemes were taken forward. Seven were due to be evaluated by DFP, and those evaluations are ongoing. Jeff can confirm that three concluded and three are not due yet.

Mr Jeff McGuinness (Department of Finance and Personnel): Yes.

Mr Brennan: So there is an evaluation process in place.

Mr Wells: Would it not have been better to have stopped, had a look, learned your lessons and then moved on to 2 and 3?

Mr Brennan: The key issue is that this was an initiative driven by the Executive. The Executive were determined to drive out savings over the 2011-15 spending review period. For example, the second scheme — the largest, the £300 million scheme — was very much an Executive-driven agenda. DFP was given a list, after ministerial discussions, and asked to engage with Departments to take forward the bids that came from that Executive discussion.

The Deputy Chairperson (Mr Dallat): Mr Brennan, I was not entirely happy with the answer that you gave me. The value of this invest-to-save scheme was £311 million. Only £254 million was invested in those types of scheme, and only two Departments were involved. Even if you take the two Departments, a substantial sum of money was reallocated. Some £108 million went into structural maintenance. Can you tell me what was innovative about tarring roads?

Mr Brennan: I did not say that it was innovative; I said that it generated savings. The key issue in the report —

The Deputy Chairperson (Mr Dallat): Sorry, Mr Brennan; for the record, we need to know exactly what the official answer is because these reports, hopefully, will be of value in the future.

Mr Brennan: Sorry, can you repeat the question so that I can clarify it?

The Deputy Chairperson (Mr Dallat): I am trying to get answers that will be useful to someone in the future who may read the reports.

Mr Brennan: If the question is whether I believe that the £108 million that was allocated to DRD for structural maintenance —

The Deputy Chairperson (Mr Dallat): Would you explain to us how that produced innovation, was overarching and achieved the purpose for which the scheme was introduced in the first place?

Mr Brennan: From recollection, I did not say that that specific scheme was innovative.

The Deputy Chairperson (Mr Dallat): That was the question that I was asking.

Mr Sterling: We accept that it was not particularly innovative. Nonetheless —

The Deputy Chairperson (Mr Dallat): Sorry, David, what do you mean by "particularly innovative"? Was it innovative at all?

Mr Sterling: The allocation was designed to secure savings. DRD had commissioned a report in 2009. Going back to my time in DRD, earlier in the decade, there is clear evidence showing that investment in structural maintenance saves money in the future. I think that the ratio was 1 to 4: if you spend £1 on maintaining the roads, you avoid, potentially, a £4 cost later. In that sense, allocating money to structural maintenance has delivered a return; it has delivered savings for the Executive.

The Deputy Chairperson (Mr Dallat): Was it not just a handy way to find money that the Executive might have been short of?

Mr Wells: I blame the Minister.

The Deputy Chairperson (Mr Dallat): Be careful. I will call Roy, and then I will go back to you, Jim. Behave yourself.

Mr Beggs: On a couple of occasions, you used the language "determined by the circumstances facing the Executive Ministers". What were the circumstances that they faced?

Mr Sterling: As Mike said, in late 2009 there was an understanding that the spending round that followed the general election in 2010 would be particularly tight and that, therefore, the Executive needed to anticipate that and take decisions. They needed to do things that would help to save money.

Mr Beggs: How was that any different from the situation of all the other devolved regions or, for that matter, decisions made at Westminster? They faced equally difficult circumstances.

Mr Sterling: Indeed, all the devolved Administrations and the UK Government addressed the challenges in different ways. That is a feature of devolution. We have a choice to do things as we see best fitting our circumstances.

Mr Beggs: What assessment have you made of the choices made?

Mr Sterling: I do not think that any high-level assessment has been made of who coped best with austerity, if you like. That is an interesting question. However, I am not sure that we have done any research on it.

Mr Beggs: Do you not need to assess the choices that your Ministers made, compared with the choices made elsewhere? Have you worked out whether the right decisions were taken?

Mr Sterling: There would be so many variables in play that it would be difficult to make a judgement on which Administration —

Mr Beggs: So, there has been no assessment. Is that correct?

Mr Sterling: There has been no assessment of which Administration used resources best to cope with austerity. I will put it like that.

Mr Wells: The questions from Roy have covered my last question, but it is clear that, if you stopped to think how invest to save was working out, you would have realised — I say this as someone who was involved at one stage — that Departments were frantically running around looking to find extra money. Therefore, they saw invest to save as a way of getting money for things that they could not otherwise afford, and they tailored their application to match that. I do not want to impugn the integrity of the Minister responsible, but I suspect that there was desperation for extra road maintenance. Therefore, a clever, cunning plan was brought together to create something that fitted the invest-to-save criteria, but it was just to get extra money. Therefore, it was not doing what was going on in England and Wales, which was genuinely innovative and groundbreaking new projects.

Mr Sterling: I acknowledge all that. At the same time, I have to say that there was nothing underhand about it. When Ministers were taking decisions about how the invest-to-save fund should be allocated, they were fully aware of the pros and cons of the schemes. In that regard, the process was pretty open and transparent.

Mr Wells: I agree, but had you compared it with your colleagues in the rest of the UK, you would have seen that they were adopting a rather different approach, and it was genuinely novel projects.

Mr Sterling: Yes, but, at the risk of repeating myself, the focus here was on delivering cost savings. Plenty of other activity has been going on in recent years that is all about promoting innovation, change and the reform of public services. There is a long list of things and a long list of initiatives designed to do that, starting with the voluntary exit scheme (VES) in the Civil Service, which will have reduced the Civil Service by April this year by 17% in two years. We have departmental restructuring, major reform in the health service and major reform in education. We have reduced the number of councils. We have a cross-cutting reform programme with 30 separate projects designed to promote better interdepartmental working and better delivery of services to the citizen. I do not want to get into a long list, but there is a lot of innovative activity going on, and I do not want this report to suggest that we put all our innovation eggs into one basket. That would not be fair.

The Deputy Chairperson (Mr Dallat): I will take an intervention from Edwin. I remind members that interventions should be short, succinct and relevant to a particular point so that we do not get into the difficulty of pinching each other's questions.

Mr Wells: I have no complaints.

Mr Poots: I do not think that I will take anybody else's question. You mentioned invest to save in relation to the VES scheme. It seems somewhat ironic that someone can leave the Civil Service and join a health trust and someone can leave the health trust under VES and join the education board. Why is public money being allowed to be used in that way? Why are those people able to apply for other jobs in the public sector?

Mr Sterling: I am not aware of that particular case, but I would be happy to look into it. The voluntary exit scheme for the Civil Service was designed to reduce Civil Service costs, and, by April of this year, we will have allowed 2,800 people to go at a cost of about £86 million. That will pay for itself within 14 months. If there are cases like that, I would be happy to look into them.

Mr Poots: This Committee has been asked to address one such case. I am just saying that the credibility of the scheme will be damaged if people walk out the front door with a large wad of money in their hip pocket only to come in through the back door of another place to find further employment in the public sector.

Mr Sterling: Our focus is on reducing costs in the Northern Ireland Civil Service. When somebody leaves, obviously you cannot forbid them from gaining employment in other areas, so there are limits to the restrictions that we can put on people once they leave our employment. However, I am happy to look into the case that you mentioned.

The Deputy Chairperson (Mr Dallat): We may be drifting a wee bit.

Mr Hussey: Gentlemen, paragraphs 2.6 to 2.9 on pages 20 and 21 of the report suggest that DFP's assessment of projects and application of selection criteria was vague and not always clear. Would you accept that DFP could have done more to improve the selection and recommendation process for projects to receive funding to make it more consistent, transparent and understandable?

Mr Sterling: Yes, I accept that we could have taken a more structured approach. I go back to the point that the £30 million change fund now in place for 2015-16 has more clear-cut criteria. There is a better structured assessment methodology and analysis, so I take on board that general comment.

Mr Hussey: You are referring to the here and now, whereas I want to deal with what happened in the past. Yes, you may be able to learn lessons. Are you saying that you accept that there were mistakes made, there were aspects that were vague and not always clear and you have learned from those mistakes?

Mr Sterling: I accept that we could have perhaps done it in a more structured and consistent way. There was still a significant approach taken to appraisal of the projects. There was a lot of interaction between the people in supply division in DFP and Departments. Advice that went to Ministers was constructed following careful assessment of the projects.

Mr Hussey: Several times, the comment was made that it was driven by the Executive: is that a suggestion that the Ministers did not listen to the advice they were given?

Mr Sterling: No, not at all.

Mr Hussey: I want to get this right in my head. The civil servants who were allowing that to go forward and giving advice to Ministers were aware of the circumstances and that it really was not driven by the Executive. The Executive were advised by senior civil servants on how to progress.

Mr Sterling: The Finance Minister got clear advice on each project. It was on the basis of that advice that the Finance Minister would have taken advice to other Ministers.

Mr Hussey: That is why I want clarity on this. Comments were made about it being driven by the Executive and other comments were made along those lines, which does not seem to be the case. It seems to me that advice was still given. You have accepted that you have learned from your mistakes. Therefore, it was not as crystal clear as that. It was not always driven by the Executive. The Executive were still receiving advice from you.

Mr Sterling: There were different approaches taken at different stages. For part of the schemes, the process was as I described it. Projects came in, they were analysed by DFP supply division and advice was given to Ministers. When we talked about the Executive having, in a sense, driven part of this, there was one occasion — I will ask Mike to comment in detail — when Ministers came back to officials, having looked at a range of projects, and said, "These are the ones we wish to support". I think that some of those had not been appraised by officials.

Mr Hussey: Hold on. We are going to move on to another paragraph, and your answer may come in on this. Paragraph 2.8 provides some reasons why DFP rejected some proposed projects from Departments, and they seem reasonable enough. If you subsequently seem to have ditched such criteria, a lot of the projects funded thereafter did not identify savings. They seem to be simply a bid for additional funding and were not genuine invest-to-save candidates. What happened there? How can you justify funding the projects mentioned in paragraph 2.10 such as the Ilex City of Culture project or the Northern Ireland Direct bids? Where were the savings to be made there? I am not criticising the actual projects, but I want to know whether you can identify where the savings were.

Mr Sterling: The Ilex City of Culture project is a good example that, in a sense, demonstrates the points that I was trying to make. DFP looked at that, and we identified that, whilst it had considerable merits, it was not going to deliver significant cost savings. That advice was given to the Finance Minister. Nonetheless, Ministers, as is entirely their right, decided that they wanted to support that project. In that sense, you have the normal approach to government, which is that civil servants advise and Ministers decide.

Mr Hussey: Figure 6 shows that the structural maintenance of roads programme received £108 million from the invest-to-save fund. Invest-to-save funding was also provided to your Department's Land and Property Services rating project to enable the baseline to be set at a reasonable level. Do both those projects not just increase the overall conventional funding available? Was it really the purpose of invest to save to simply fund ongoing mainstream activities and help them to survive a budget cut?

Mr Sterling: I understand the criticism, but I emphasise the point that I have made already: in both those cases, significant savings were realised. A return was achieved on the moneys invested.

Mr Brennan: The other key point to bear in mind is that, if the bids put forward had been assessed in the context of the general budget process and evaluation, Roads Service might not have received £108 million for structural maintenance and DFP may not have received the money it was looking for in terms of a general bid for LPS. Those were ring-fenced funds that, in many ways, made it more straightforward to justify their application because they generated significant savings over the long term. As I said, they were funded from ITS specifically because they generated savings. The bid ranking under the general bid assessment as part of the Budget process may have scored them lower.

Mr Hussey: Again, it is back to the point that it looks as though, in those circumstances, you were just increasing the overall conventional funding available. When you look at it coldly, you are saying that they might not have passed the other criteria and so you put them in under plan B. It is like the plans that Mr Wells was talking about earlier. It seems like a Baldrick plan: it is a cunning plan, so we will use it. Do you see where I am coming from? Someone thought, "If it doesn't fit into that one, we'll slip it into that one".

Mr Sterling: I accept that the outcome was as you describe: £108 million extra went into structural maintenance funding. However, what was happening was understood. There was no subterfuge or attempt to hide what was happening. It was recognised at the time that that was the nature of the decision that was being taken.

Mr Brennan: It reflects the wider ministerial discussions that you referred to earlier as part of that scheme 2, which was the large £300 million scheme. There were ministerial and Executive decisions on allocations, whether it be the City of Culture or the DCAL sports community programmes. Those were the outworkings of ministerial and Executive decisions.

Mr Hussey: Paragraph 3.8 states that it appears that some potential applicants were put off because their schemes were capital in nature. Do you agree that upfront capital investment is often a good way of generating future savings?

Mr Brennan: Indeed, yes.

Mr Hussey: So, overall, what lessons can you draw from this? How can you improve the operation of future schemes so that capital projects are encouraged, supported and given time to develop their applications?

Mr Brennan: The key point is to make sure that there is sufficient time. That is the point that David made earlier about the change fund, for example, that we are taking forward now. The Minister has announced that that will be determined in June monitoring, so the opportunity to bid for capital has been flagged up to Departments well in advance.

Mr Hussey: I have made several notes. Do you believe that you are now at the stage of having innovation and managed risk taking? Is that what you are doing? Are you more supportive of projects that are innovative and where there is managed risk?

Mr Sterling: If you look at the projects being funded by the £30 million change fund for 2015-16 and the projects that will be funded by the £7 million that has been allocated so far for the change fund in 2016-17, you will see that they are designed to promote innovative approaches to long-standing problems. In that sense, we can show evidence of us working to promote innovative activity across the public sector.

Mr J McGuinness: One of the key aims of the change fund is to encourage innovation in the public sector and to support the introduction of new and more proven ways of working. One of the essential criteria is that the proposal is reform-orientated and innovative. That is very much the focus of the change fund.

Mr Beggs: I would like to go back initially to the road structural maintenance funding. From previous PAC hearings, I am well aware that it is more efficient to do planned maintenance than to regularly fill in potholes and to keep filling them in, as that can be very expensive. I note in the application for funding for structural maintenance that there was not even an attempt to estimate the savings expected from that application, nor did it report when any specific savings were subsequently delivered. Why not?

Mr Sterling: I think that the report shows that an estimation of the savings accrued has been made. I take your point. I do not know if you want to pick up on —

Mr Beggs: Nothing has been reported, but what is the estimate of the savings?

Mr Brennan: As the Audit Office report flags up, previous independent academic studies show the savings that you get from pre-emptive rather than reactive structural maintenance — for every pound invested, you generate £4 worth of savings. From a DFP supply perspective, officials are well aware of that research.

Mr Beggs: Would you acknowledge that this does not seem to the public to be very innovative and is really just another form of funding, given that you have not actually looked at the invest-to-save criteria that are meant to be a key bit of the funding?

Mr Brennan: I acknowledge that it is a method of investing in roads that generates significant savings.

Mr J McGuinness: Sorry, can I add to that? That was the second scheme that ran across 2011-15. The criteria that we provided to Departments focused on the savings generated as opposed to innovation. It was more focused on savings than innovation.

Mr Beggs: OK. Paragraph 2.10 illustrates quite a number of projects that were allocated invest-to-save funding. Given what has just been said, perhaps it should have been given a different title, as this does not necessarily seem to be about investing to save. When you look at those numerous projects, you see that not one of them identified or quantified the savings that would be made. Would you acknowledge that the title is different from what you have been doing?

Mr Sterling: The allocations were made on the basis that savings were expected, and a calculation has been made of the savings accrued from each of the projects. You are right: we did not set a target for the savings to be delivered from those allocations at that time, but that does not deflect from the fact that savings have been delivered.

Mr Beggs: I turn to one bid from DFP for NI Direct. The report states:

No savings were delivered in that invest-to-save scheme. Do you find it strange that the Department is meant to be driving innovation through invest to save, yet it did not attempt to quantify any savings?

Mr Sterling: As far as the allocation to NI Direct was concerned, there were no immediate cash-releasing savings. We were creating a website and a contact centre. The establishment of that contact centre, in due course, released about, I think, £2·4 million worth of cash, which was reinvested, and I think that about £350,000 worth of efficiency saving per annum has been generated as well.

Mr Beggs: Why was that not recorded as part of the bid process?

Mr Sterling: Those were benefits that accrued afterwards and would not have been reasonably anticipated at the time.

Mr Beggs: As a local councillor, when I previously allocated local strategic partnership (LSP) funding or Peace funding there would have been a grid matrix and you would have to assess carefully every bid and award a certain number of points to every application. Was there no grid at all, or was it left entirely flexible? Was a scoring mechanism used for each project?

Mr Brennan: In the assessment of the projects?

Mr Beggs: In determining which ones were funded.

Mr Brennan: I am not sure if a matrix was used, but each project was assessed against the criteria that applied at the time.

Mr Beggs: If it was good enough for assessing projects for thousands of pounds, why was a matrix not used for those million-pound projects?

Mr Sterling: Again, at the time, the process was seen to be appropriate for what we were trying to do. I accept that we have learned lessons from that and have applied them, as I described earlier, to subsequent reform-related allocations.

Mr J McGuinness: We have learned those lessons for the change fund in 2015-16. We have clear assessment criteria and a scoring matrix that ranks each of the essential and desirable criteria through a points system. A mechanism was also put in place to ensure standardisation of scoring and consistency of approach right across.

Mr Beggs: I noted that the executive summary of the report states:

Why was such a scoring mechanism not put in early? Would it not have assisted things if the mechanism that you have just spoken of had been put in right from the start?

Mr Sterling: As I explained earlier, we accept that the appraisal process that we applied at the time could have been more consistent and structured. We have learned that lesson.

Mr Beggs: At the time, each Department had its efficiency or savings delivery programme. How was the so-called invest-to-save programme different from what individual Departments were doing?

Mr Sterling: It was different because the Executive decided to set aside funds that, when allocated, would yield savings. That would have been complementary to what Departments were doing. As I said, there is a range of reforming activity going on, and it has been going on for some time. Some of it is cross-cutting, some results from the allocation of funds that were set aside for a specific purpose and some is taken forward by Departments with their own resources.

Mr Brennan: The other important difference is that, from 2007, all Departments have been obliged to follow what were initially called efficiency delivery plans and then became known as savings delivery plans. Effectively, they imposed budget restrictions of initially 2%, 2·5% and then 3%. The imperative was on the Departments to live within those savings delivery plan constraints.

The benefit of the system was that a fund was carved out and held at the centre. Departments could then make applications to generate savings to the betterment of that Department and the block. That was the key fundamental difference. One was internalising savings within Departments; the other created an opportunity to take forward something that probably would not have happened and generate savings to the betterment of the Department and the block.

Mr Beggs: Mr Sterling, can you give me an illustration of projects that were funded through invest to save that were different from projects that Departments could or would have funded on their own steam?

Mr Sterling: Off the top of my head, the land parcel identification scheme in DARD was a scheme that would not have gone ahead without that funding but that, the Audit Office report acknowledged, delivered significant benefits by putting in place arrangements that helped us to avoid significant infraction fines.

Mr Beggs: Do you acknowledge that the majority of them were not in such a specialist area where significant savings were generated or fines avoided and that most of them were more run-of-the mill projects that people could run to produce some savings?

Mr Sterling: Our estimation of the saving that has accrued to 2015-16 is in the region of £456 million. I think I am right in that, Jeff. The investment has produced significant benefits, notwithstanding some of the issues that I acknowledged in earlier discussions.

The Deputy Chairperson (Mr Dallat): Sorry for interrupting, Roy. Did I pick up from what you said that the invest-to-save scheme money was used to provide resources to DARD to avoid infraction fines and that you call that a saving?

Mr Sterling: I think that I called it a benefit.

The Deputy Chairperson (Mr Dallat): No, you said "saving", but it does not matter; I am happy to accept the correction. It seems bizarre that ring-fenced money that was provided to encourage genuine savings is now being claimed as a resource to avoid infraction fines.

Mr Sterling: I would be the first to accept that this seems a little strange in the way that it is described. Nonetheless, the reality in those days was that, when resources were extremely tight, there was a recognition that, without some action, we would incur those infraction fines. The allocation that was made for this project allowed a very good system to be developed that has meant that we have not had any disallowance or incurred any infraction fines.

The Deputy Chairperson (Mr Dallat): In your personal assessment and professional judgement, do you believe that that is what the fund was intended for?

Mr Sterling: The fund was intended to help the Executive manage their limited resources at that time. This allocation allowed the Executive to avoid a significant infraction fine. I would be the first to accept your point that it may not accord with what most people would regard as being a normal invest-to-save scheme, but it provided significant benefits.

The Deputy Chairperson (Mr Dallat): I am worried, David, as time goes on, that it is sounding more and more like a slush fund, rather than something that was attached to innovation. Roy, go ahead.

Mr Beggs: Yes, if this fund had not been around, would that scheme have been prioritised by the Department of Agriculture because of the huge significant cost that would have fallen upon it?

Mr Sterling: I do not know. Again, I cannot comment on what other pressures the Department faced at that time and what steps it would have taken if it had not received that allocation.

Mr Beggs: Do you accept that most people could easily get the impression that this was entirely flexible funding with vague criteria that you could use for whatever you wanted?

Mr Sterling: Again, at the risk of repeating myself, this was all entirely open. Ministers knew what they were allocating the funds to and the purpose of those allocations at the time.

Mr Beggs: Are you saying that it suited the Ministers to have a slush fund?

Mr Sterling: No, I do not accept that it was a slush fund; that is unfair. It was an invest-to-save fund. As Jeff has described, the criteria for the main fund were that the allocations were to be designed to produce savings. By and large, the report shows that significant savings and benefits accrued.

Mr Beggs: OK. I turn now to paragraph 2.11. We are told that about one fifth of the invest-to-save funding was used for voluntary exit and voluntary redundancy schemes. Do you accept that those seem to have delivered more tangible and, ultimately, longer-term savings?

Mr Sterling: I think that they were successful schemes. Again, this is an example of where the invest-to-save fund provided Departments with an opportunity to do things that they otherwise would not have been able to do and produced savings. The outcomes are recorded in the report.

Mr Beggs: How confident are you that the figures that have been provided are robust and that the savings indicated have been delivered in an ongoing reduced headcount and ongoing savings?

Mr Sterling: I take at face value the savings that have been reported. It would be for each accounting officer responsible for the individual allocations to satisfy themselves that those savings were being generated. That is the way I would look at it.

Mr Beggs: Would you have to be advised, for instance, if somebody decided to backfill some of the vacancies that were created? Is there any formal mechanism by which you would have to be notified if, having made some savings, an additional post was not created and filled again?

Mr Sterling: I do not believe that was the case in these voluntary exit schemes, but what I would say is that —

Mr Beggs: Does that mean they would not have had to notify you?

Mr Sterling: I do not know.

Mr Brennan: I suppose the key issue in all the schemes was that, when the bids were approved, the onus was very much on individual Departments to deliver the savings, because, if they did not deliver them, they would breach their budget. The onus is on each Department to ensure that they implement and deliver what they said they would on the 31 schemes.

Mr Beggs: Did those schemes contribute to your knowledge and design of the ultimate voluntary exit scheme that has just been implemented?

Mr Sterling: Yes. The point I was going to make is that, as you will know, the Executive created a transformation fund that is using the funds allocated through the Stormont House Agreement — the £700 million — to fund the Civil Service voluntary exit scheme and a large number of other exit schemes across the public sector. We will put in place central monitoring arrangements to ensure that the savings that those schemes are designed to deliver will be delivered.

Mr Beggs: I turn now to appendix 2 of the report, which is on the savings that were claimed, the amount of funding that went towards that and the actual outcome. How robust do you think the figures that were provided are? I notice there are occasions when no specific savings for a programme or project are recorded.

Mr Sterling: Is that the DARD scheme?

Mr Beggs: There are a number of schemes. There is the City of Culture, NI Direct and the DARD scheme.

Mr Sterling: On the DARD scheme, the report acknowledges that £41·2 million of EU fines have been avoided for the three years in question. We discussed the City of Culture project. When that allocation was made, it was recognised that there were not going to be any specific cost savings as a result of it, but significant benefits have been realised for the city.

Mr Beggs: When you look at the summary of the invest-to-save schemes over the 2011-15 period, you see that, for quite a number of them, it says that no specific savings for the programme are available. As DFP accounting officer, do you not feel embarrassment that you or your predecessors have overseen a scheme that is meant to be about savings but from which no specific savings can be identified?

Mr Sterling: Again, I quoted the figure of £456·4 million of savings, which we believe have been accrued to date from the allocations that were made. The fact is that some schemes may not have had specific savings; nonetheless, every one of the allocations has yielded some benefit.

Mr Brennan: I will just say that, for example, you referred to there being no specific savings for NI Direct to 2014-15, but, as David clarified, that scheme has actually generated cash, releasing savings.

Mr Beggs: Yet that was on the grounds that the funding was allocated. You are recording here that no specific savings were recorded during the period. My understanding is that, in business, if somebody goes to their board or business owner and wants to get investment for a project to get savings, they would have to provide a business plan for when those savings would come in. It is difficult to even go to a bank to get investment unless savings are tangible, relatively upfront and come early in the scheme so that you can deliver and show results. Is it not rather strange that the summary of the scheme frequently says that "No specific savings" were identified?

Mr Sterling: We could go through each of the projects and identify the benefits that accrued. All have provided value for money. Some have provided significant savings and some not so much, but, if you take it in the round, you see that the investment has yielded a significant return.

Mr Beggs: What was the role of DFP and the accounting officer in monitoring the schemes when what we are getting in the report is that there were no specific savings? What was DFP doing to monitor the scheme?

Mr Sterling: Again, at that stage, there was no central monitoring of the allocations. The allocations were being —

Mr Beggs: There was no monitoring.

Mr Sterling: Sorry, there was no central monitoring of the allocations. The allocations were made to Departments, and it was for accounting officers to ensure that the allocations delivered value for money and the savings that were projected for the schemes.

Mr Beggs: Who do the accounting officers report to?

Mr Sterling: Their Minister.

Mr Beggs: Ultimately, where does all the financial information go back to?

Mr Sterling: Accounting officers report to their Minister; they do not report to anybody else.

The Deputy Chairperson (Mr Dallat): Sorry, David. Maybe I could be of help here. Obviously, DFP was the central Department that best knew the objectives of the scheme.

Mr Sterling: Yes.

The Deputy Chairperson (Mr Dallat): Is it not amazing that that Department did not have a central monitoring system where it could, if you like, validate the outcomes against the objectives? Instead, you are telling Roy and the rest of the Committee that there was no central monitoring; in other words, there was nobody in control of the scheme. Each person or accounting officer did their own wee thing in their own Department. Then you get crazy things like the £3·5 million that was allocated to eating disorders. I would think that the public would think, "Now, isn't that clever? We have serious problems with anorexia, obesity and so on". We then discover that the money was handed back and the scheme was never implemented. Nobody was monitoring or controlling this.

Mr Sterling: As I explained, there was no central monitoring of the allocations at that time, but certainly —

The Deputy Chairperson (Mr Dallat): How can you claim success for the scheme when the key point of any scheme is that there is somebody in control?

Mr Sterling: The normal process and the way things work is that it is for individual accounting officers to account for all the allocations that are made to their Department. The invest-to-save fund was no different in that regard. DFP does not produce an overall assessment of the value for money delivered by the allocations to individual Departments.

The Deputy Chairperson (Mr Dallat): So, nobody really knows what happens until the Audit Office comes along and does a report, by which stage the horse has bolted.

Mr Sterling: What happened with this scheme is as I described. Again, as I pointed out, for the 2015-16 change fund, we put in place arrangements to monitor the savings and benefits that accrue, and there will be central reporting and mid-year assessments. In that sense, we have changed the procedures that applied at the time —

The Deputy Chairperson (Mr Dallat): Does anybody take responsibility for what I believe was a huge gaffe? Is anybody accountable for what I presume are the errors of omission in this case? That is putting it nicely. There was no central monitoring and no assessment of what was happening or how the money spent was matching the objectives of the scheme.

Mr Sterling: There is very clear accountability. The accountability rests with the accounting officer.

The Deputy Chairperson (Mr Dallat): We know. Sorry; I mean accountability in the sense that the scheme represented value for money and lived up to its objectives.

Mr Sterling: At the time, there was no collation of the impact of the individual projects, but we are doing that now with the recent change fund. I am at risk of repeating myself, but it is a fundamental principle that accounting officers are responsible for the funds allocated to them. DFP does not take that responsibility away from accounting officers.

The Deputy Chairperson (Mr Dallat): That is maybe an issue for a future Assembly, but, in your opinion, is it time that you took some responsibility for what your Departments do?

Mr Sterling: I cannot personally be responsible for what other Departments do. With the change fund in 2015-16, we have taken responsibility by asking Departments to provide a return on the benefits that accrue. We are monitoring that, and we will report on it.

The Deputy Chairperson (Mr Dallat): But you have a monitoring role in the Budget.

Mr Sterling: Yes, that is what I am saying: we have been exercising that with the change fund in 2015-16.

The Deputy Chairperson (Mr Dallat): I welcome any clarification you could give me. It would absolutely horrify me to hear that you doled out £311 million but then took no responsibility for how Departments spent it.

Mr Sterling: Again, it is still for accounting officers to be accountable for the moneys allocated to them.

The Deputy Chairperson (Mr Dallat): I apologise; I am a slow learner. The public will probably want to know the answer to that question, particularly those who have, in many ways, suffered as a result of the hard times that you referred to.

Mr Beggs: I have one final question on this. DFP distributed the money in the scheme —

Mr Sterling: I am sorry; Ministers decided on the allocations.

Mr Beggs: The process was managed by DFP, and you did the assessment and the matrix etc.

Mr Sterling: Yes.

Mr Beggs: OK. DFP had a key role in the scheme. Was it not your role to safeguard the integrity of the scheme and to ensure that it delivered savings?

Mr Sterling: I am repeating myself here: DFP provided advice on the projects to the Finance Minister, and the Finance Minister —

The Deputy Chairperson (Mr Dallat): Did you provide direction?

Mr Sterling: It is not our role to provide direction.

The Deputy Chairperson (Mr Dallat): That explains the Horlicks that we ended up with. You provided no direction at all, even though you were the money-bags — you were the people who had the money. Was there no direction to Departments on how to spend it?

Mr Sterling: I am sorry, Deputy Chairperson; there appears to be a misunderstanding of the role of DFP officials and Ministers etc.

The Deputy Chairperson (Mr Dallat): What I pick up is that you were taking no responsibility.

Mr Sterling: No. We are responsible for providing advice to the Finance Minister, and we did that.

The Deputy Chairperson (Mr Dallat): Did you provide direction? There was direction provided in England and Wales.

Mr J McGuinness: We provided guidance to Departments.

Mr Sterling: I cannot provide direction to Ministers. I am very clear: my role is that I am under the direction and control of my Minister, as are all accounting officers.

The Deputy Chairperson (Mr Dallat): You are the permanent government.

Mr Sterling: No, I most certainly am not.

The Deputy Chairperson (Mr Dallat): You know you are.

Mr Sterling: I am under the direction and control of my Minister.

Mr Beggs: Are you saying that you can give good advice and Ministers can choose to ignore that good advice?

Mr Sterling: I would not put it in that way. Ministers are entirely free to decide on matters such as how resources are allocated on the basis of political priorities, the advice that we give and the advice that others give. My role is simply to make sure that we give advice that is balanced, fair, proportionate and objective, and I think we did in this case.

Mr Beggs: Would you accept that the distribution of funding under the scheme, showing the political priorities that were determined from the outcomes, would appear to be different from the concept of an invest-to-save scheme?

Mr Sterling: No, I do not think I would.

Mr Beggs: You are being incredibly loyal. Having examined any of the projects where no savings were identified, with little potential for establishing funding, I do not understand how some of them were funded under the scheme.

Mr Sterling: The outcomes of the decisions that were taken by Ministers are set out before us. The impact of those allocations, again, has been set out before us. I have made the point that our estimation of the savings that have accrued in total as a result of the investments is around £456 million.

On that high-level basis, the investment has provided value. If you look at the individual projects, you will see that each has provided value. Even if some have not resulted in cash-releasing savings, they have nonetheless provided a return.

Mr Beggs: I will just go back to it being more difficult to manage such a scheme in this jurisdiction. Was there bartering going on between Ministers? Were they saying, "We will let you do this, if we get this"? Was that what was happening?

Mr Sterling: I do not know what was going on, but —

Mr Beggs: You do not know what was going on.

Mr Sterling: I was not there at the time; I joined the Department only in July 2014.

Mr Beggs: Were any of your colleagues who are here there at the time?

Mr Brennan: I was there. As the report makes clear, some of the schemes that were advanced were ministerial commitments and had been agreed in ministerial bilaterals and in Executive discussions. It was the outworkings of the Executive's determination on where the invest-to-save funds would go.

On the reference to the political environment, I suppose that, when you have a mandatory coalition, you will have a different sense of priorities, whereas, if you have a single-party government, you have an agreed single view of what the priorities should be and you advance on that basis.

Mr Beggs: If there had been a robust matrix from the start, that would have made it self-evident what the priority projects were. Do you accept that?

Mr Brennan: And we have moved to that basis for the change fund.

Mr Beggs: Why did you establish such a large scheme in the first place without that basis?

Mr Sterling: I think, again, that it was Ministers who determined the size of the funding envelope that was to be made available. Again, you seem to be suggesting that, if there had been a matrix with a very careful objective analysis of all projects, it would have led to an easy set —

Mr Beggs: To meet the aims of the scheme.

Mr Sterling: I still say that, even if you had that entirely objective analysis of all the projects, you would still have a certain amount of political discussion about what the priorities are. As Mike said, parties have different priorities, and, when they decide how allocations are to be made, there will be debate about the relative priorities.

The Deputy Chairperson (Mr Dallat): Before I call on Conor, lest it is thought that I might be trying to be controversial, I refer you to paragraph 5 of the report:

That is the point I was making earlier. Because this was a specific scheme that was designed with particular objectives, I ask whether the same flexibility should have been available for Ministers to barter over it. It was there for a particular reason. I suggested that your Department had a responsibility to provide direction.

Mr Sterling: Forgive me, Deputy Chair, for bridling at the word "direction"; it sits very uncomfortably with a senior official. We give guidance, but it is not our role to direct.

The Deputy Chairperson (Mr Dallat): I understand where you are coming from in your normal role, but, because this was a specific scheme, am I wrong in suggesting that you should have been providing direction?

Mr Sterling: Direction to?

The Deputy Chairperson (Mr Dallat): Direction on how the scheme would meet its aims and objectives.

Mr Sterling: Direction to Ministers?

The Deputy Chairperson (Mr Dallat): Yes, to Departments.

Mr Sterling: We provided guidance to Departments, which they then used to construct the bids that came to us. We discussed the adequacy of that guidance. We accepted that, with hindsight, we might have made it slightly tighter, but at the time it was designed to reflect the context and circumstances that applied.

The Deputy Chairperson (Mr Dallat): I am sure that no one would want to believe for a moment that Ministers hijacked the fund in the year before an election and did their own thing with it. I hope that is not what you are suggesting.

Mr Sterling: Not at all. Absolutely not.

Mr Murphy: I suppose what we are agreed on is that, in a time of tightened finances, schemes like this are a good idea if they are designed to save money for Departments and to promote innovation and risk taking. Risk taking seems to have disappeared in this. It is clear from the outworkings of it that innovation and risk taking very much took a back seat and that savings became the dominant view.

I think we are agreed that schemes like this are a good idea if they are properly delivered, the outputs are measured and their value can be shown. We are also agreed that in this one there were shortcomings. We do not need a crystal ball to agree that there are going to be further tightened finances across the public sector for at least the next number of years. Schemes of this nature and other schemes that are in the system are going to have to deliver effectively. That is part of the analysis of where this scheme came up short.

I accept that DFP's role is to provide advice to the Minister. It also has another role through its relationship with other Departments. Mike mentioned the across-the-board cut. DFP does that. It has the watchdog, policing role over the other Departments — some civil servants used to refer to DFP as "the dark side" — to make sure that they deliver that. DFP does not just simply channel through its own Minister into the Executive; it channels through permanent secretaries and the head of the Civil Service into the other Departments.

When a scheme like this is devised; its origins are in DFP, because that is where the money-saving initiatives have to come from. It is a well-intentioned scheme. You sell it to your own Minister, the permanent secretary or whoever, and the Minister sells it to the Executive. You are up and ready to go with the scheme, and you have designed it to have decent outcomes. I presume that a meeting takes place at some stage between the head of the Civil Service and the permanent secretaries of the Departments and that they discuss the scheme that is being rolled out, as well as that the Executive have agreed it. Is an instruction then given to permanent secretaries to bring forward schemes that reflect what everybody understands to be the intention of this? I am talking not about the Executive meeting but the meeting of senior civil servants. Do they say, "Right, we understand the nature of this scheme and what it is designed to achieve. The Executive have approved this. We are good to go with it, and we want to see this type of scheme come forward"? Does that happen in those discussions?

Mr Sterling: No, it would not work quite like that. The permanent secretaries meet weekly, but that would not be on the agenda. I cannot think of an example in recent times where a meeting like that would have been used to explain a fund like this or to direct other permanent secretaries to do anything as a result of a fund, for example the change fund, being created. However, there are meetings of finance directors of all Departments. If a scheme like this came forward, Mike's team would explain to the finance directors what it is all about. Mike, maybe you want to pick up how you would deal with that.

Mr Brennan: The schemes would have been an item on the agenda of the finance director meetings. Departments would have had an opportunity to discuss the roll-out and timetable of the scheme and the guidance on it. Those are all the issues that would have been raised. At those meetings, there were no substantive concerns raised. In addition to all that, regular interaction takes place between the Departments and their individual supply officers in DFP at their stocktake sessions. There is quite an interactive process between DFP and the Departments on the roll-out of these schemes, so there is —

Mr Murphy: The Departments, through whatever means of communication, are clear what the nature of the scheme is and what it is intended to achieve. They are also clear what projects they need to bring forward to their Minister for approval to be part of the scheme. DFP holds the carrot and the stick. The stick is your 3% or whatever percentage cut across the board. The carrot is schemes like this where you incentivise Departments to make further savings with the reward of getting money to invest in things that will achieve all that. Departments are clear about what is intended at whatever level it comes through. If it comes through at finance director level, it goes back up to the permanent secretary so that they understand what game is going on here.

Mr Sterling: Yes.

Mr Murphy: Do you consider that, because of the deficiencies in the outcome of all this — some of it did not do what it was designed to do, and some of the money was spent on things that stretch the trade description of invest to save — there was perhaps not that level of buy-in in the senior levels of the Civil Service to how the scheme was devised in and intended by DFP?

Mr Sterling: There may well not have been at the time. I will slightly correct something that I said by way of example.

In the recent Budget, the Executive allocated £4·5 million for a cross-cutting reform programme and, as I mentioned, there are 31 projects in that. A lot of them are about increasing the use of digitalisation across the service, enhancing the shared services and doing other innovative things. I can go through them in detail. In that instance, there was a discussion amongst the permanent secretaries when the projects were being put forward, and there was encouragement that people should focus on developing and bringing forward good projects. There is also a commitment now that we will bring quarterly reports to the permanent secretary group setting out the progress against these projects. In that sense, yes, we have changed it.

Mr Murphy: Is that a consequence of the experience of this scheme?

Mr Sterling: Not directly. We were aware of the report, but it is fair to say that, over the last year, under Malcolm McKibbin's leadership, there has been a clear recognition amongst permanent secretaries that Departments and senior officials need to be more cooperative and more collaborative, particularly if we are to deliver the next Programme for Government. We will have a reduced number of Departments. Quite clearly, there is a sense amongst Ministers now that we need to tackle some of the major issues that have bedevilled us for a long time and that, if we are to do that, we need to work better across government and across the different sectors such as the community and voluntary sector, local government and the private sector. That means that permanent secretaries need to be more collaborative, and we are working in that way much more. That has been evident over the last year.

Mr Murphy: I am interested in getting better outcomes in the future. Is there a recognition that, if a scheme like this comes forward, Departments will not throw a new overcoat on old projects and dress them up to match whatever DFP is offering?

Mr Sterling: Yes.

Mr Murphy: Part of ensuring that that happens is the other function of DFP, namely its monitoring of Departments. It surprises me that, as you said, there is no central monitoring function. I presume that that has now been corrected and that DFP, through the perm secs meeting or through DFP's normal official engagement, will ensure that there is regular monitoring of programmes. In some cases, it seems clear to me that you do not have that level of buy-in at certain levels. I accept that Ministers are complicit in this, because the officials recommend a series of projects and say, "We could get money if we do this," but in some of these cases money clearly should have been got through the Department's own budgets or, even with a stretch, did not meet invest-to-save criteria. It did not encourage innovation or risk-taking, and it is questionable whether some of the projects actually had any savings materialise as a consequence. What will happen in the future? What will DFP's role be in making sure that in future, when budgets are going to be even tighter, there is proper buy-in across the Civil Service; that schemes are brought forward genuinely out of Departments and match what they are intended to do; and that those schemes are put forward to the Minister to approve, rather than schemes where people think, "We need to spend this. Let us tinker this up, put a few ribbons on it, dress it up a bit and stick it out there as invest to save, and maybe we will be lucky."?

Mr Sterling: My personal view is that it is highly unlikely that there will be another invest-to-save scheme of the magnitude — £300 million — of the one that we have here. It is more likely that we will have more schemes like the 2015-16 change fund, which has £30 million attached to it, and the cross-cutting reform programme, which has 30 projects at a value of £4·5 million. In both those cases, there are clearer criteria, better assessment and better reporting. That is the way that we will take these things forward in the future. To that extent, the concerns that members have aired today have been recognised and are being addressed. I cannot see us doing something like this again.

Mr Brennan: As David said, these three schemes were really Departments operating in their little individual silos, which, in many ways, constrains opportunities to maximise savings in the future. The whole approach has changed significantly over the last year or so. For example, the asset management strategy that the Executive have taken forward is now set up with all the Departments working. There is a programme board which reports directly to OFMDFM on a quarterly basis on the outworkings of the work that the asset management unit is taking to deliver that, so it is more cross-cutting in its approach and in reporting the outcomes.

Mr Murphy: That brings me on to the last point, which has been raised a couple of times. I am not saying that it is a justification or an excuse, but mandatory coalition was floated and a clear reference to different political priorities — even in a single party, Ministers will have ambitions to protect their own Department and spend money on projects that reflect well on them. That is the nature of any Administration. In this case, I am not sure. I would like to hear some further explanation of why you feel that, in a mandatory coalition, there are differences between the political parties and a tug of war, given that one of the principal transgressors in taking this money and, without even trying to dress it up, spending it on other issues was the Health Department and that Minister's ministerial colleague was in the same party as the Finance Minister at the time. I am not sure how valid it is even to float the notion here, because it gets picked up as if the problem was not really that there was buy-in at senior level in the Civil Service or that these silos were operating but was something to do with politics. I would like some further explanation of how that added to some of the factors that you have already outlined about Departments doing their own thing anyway.

Mr Sterling: It is a good point. When we made that observation to the Audit Office, we were sensitive that it could be misconstrued, and I do not want it to be. We were simply seeking to explain that our context is very different from many other jurisdictions. It was not an attempt to make a political comment in any way; it was simply a reflection that we have four parties in the Executive at the moment, which, it is fair to say, have different ideologies in many areas and different —

Mr Wells: Is it not actually five?

Mr Sterling: In the Executive at the moment? I am wary about saying the wrong thing here, but I think that it is four at the moment. There are different priorities and different objectives. When it comes to the fundamental function of allocating resources, it is probably a bit more difficult than in jurisdictions where you have a single party, albeit that I accept that there are often differences within a single party that can be just as great as between parties, but, when you have that collection of people with different backgrounds, it is inherently more difficult. I make no particular point other than the contextual one.

Mr Murphy: The actual outcome was not a battle over spending money in different communities; the outcome was Departments spending money that they should not have spent on the scheme. There was no political ideology to how the money was spent. The money was spent within Departments on things like roads maintenance and health priorities. They were not political priorities; they were not schemes that advantage one political party over another. That makes me wonder at the reference at all, because the actual outcome that is drawn attention to in this report is that there were no politics attached to the spending. It is just Departments dressing up money that they wanted to spend — not in all cases, but in some cases, and some of them were obvious cases — in invest-to-save schemes and firing it out there, and DFP not properly following up its own idea.

Mr Sterling: I accept that. There was never meant to be any suggestion on our part that there were party politics being played in the way in which the funds available were actually allocated. I accept that that was not the case at all.

Mr Wells: Paragraph 3 of the executive summary highlights how, in a previous report from 2011, we emphasised the importance of your Department properly tracking and monitoring ring-fenced funds. However, paragraph 2.14 shows that the Department of Health — I emphasise that I was not the Minister at that stage — took £52 million of invest-to-save funding and used it in other areas. I have absolutely no doubt, knowing the Department, that that was to meet absolutely essential pressures within the budget and that the money had to be found. However, how can you say that you were monitoring when that was allowed to happen? Was it within the rules of the scheme?

Mr Sterling: I do not think that we said we were monitoring. We have taken this up with DHSSPS, and its explanation is that it believed that it was entitled to allocate freely the resources available to it. We differ on that. Our view — I think it is clearly the Audit Office view as well — is that there was not full flexibility. These were ring-fenced funds, and permission should have been sought before they could have been reallocated to other priorities. The Department advises us that this was a genuine error on its part; it has accepted that the money should have stayed within its ring fence. On the back of that, we have reinforced the guidance to Departments about the use of ring-fenced funds, and the Department of Health has accepted that it needs to be very careful with this type of funding in the future.

Mr Wells: When did you become aware that the £52 million had wandered, as it were?

Mr Sterling: This was a goal for the Audit Office. We did not spot it; it was the Audit Office that caught this one when it was conducting this review.

Mr Wells: It was only £52 million that went astray — presumably to a very good cause. I have no idea what it was spent on, but I am certain, knowing the Department, that there were incredibly important pressures that simply had to be dealt with and the money was spent accordingly. However, it lends itself to Mr Murphy's contention that cunning plans were going on all over the place within the 11 Departments. They desperately needed the money; the application was tailored to meet the criteria; and then it was spent on pressures that were going to be coming up anyhow and which were not particularly innovative or money-saving.

Mr Sterling: I have no reason to believe that there was anything cynical about this. I have been assured that those who reallocated the funds reallocated them to the very intense pressures in the health service that you are very aware of from your time as Minister: pressures on A&E, elective care, domiciliary care and a whole range of difficult pressures that it faces. I am satisfied. I have no reason to doubt that this was not being done with the best of intentions, but it reflects something that we need to act on, and we have corrected our guidance. Fifty-two million pounds is a very big sum of money, but in the Health budget, again as you will be well aware, it probably equates to three or four days' spend.

Mr Wells: It is 1%. It worries me slightly, mind you, that you have the oversight of departmental spending. It is well above any threshold where there would not be an eye kept on it. It strikes me as a bit odd that £52 million went AWOL, even to a good cause, without your Department actually knowing it.

Mr Sterling: A sum of that nature could not go AWOL, as you describe it, in a Department with a smaller budget. I said that this was about four days' spend for Health but in my old Department, DETI, it would have been about three months' spend and I do not think that we could have reallocated £52 million and not been caught on. It does flag up a point —

Mr Wells: It was not caught on; it was only the Audit Office that caught it.

Mr Sterling: Again, I would make an argument that the Audit Office is part of the wider control mechanism that is in place. The Comptroller and Auditor General may wish to debate that with me later. I accept that we did not catch it, but we are not actually set up to police intensely every pound that is spent by Departments. We are simply not resourced to do so. DFP is often seen as being all-seeing, but the number of people actually involved in budget management activities is very small, and they are intensely busy with a whole range of issues. We simply are not equipped to start policing what Departments do.

Mr Wells: Have you checked to see whether the £52 million of expenditure was value for money? Did you find out where it went?

Mr Sterling: It went to front-line services.

Mr Wells: Whether it was for A&E etc, have you dug slightly deeper to see whether it was effectively spent, given that it was not actually meant for A&E pressures in the first place?

Mr Sterling: The short answer is that we have not done that. I question whether you would be able to trace that £52 million.

Mr Wells: Knowing the previous Minister, I am sure that it was very well spent. It is just that I think it is important that you have that assurance.

Mr Sterling: We have been assured that it did go to priority front-line services. As I said, I have no reason to doubt that.

Mr Wells: It is an awfully high proportion of the overall budget — not the overall Department of Health budget, but overall in monetary terms. There must be a threshold above which you would keep an eye on a specific pot of money. Obviously, £5 million or £10 million might be too small, but would you not watch where £52 million is going?

Mr Sterling: The Department of Health has considerable flexibility.

Mr Brennan: It does. I was just going to say that it was part of Department of Health officials' misinterpretation of the guidance, because the Executive have given that Department what is known as full budget discretion. It can move resource money wherever it wants, effectively, at its own discretion without recourse to the Executive. Obviously, this was a ring-fenced fund, and it should not have done that; it should not have moved from a ring-fenced into a non-ring-fenced area. The key issue is that, yes, it was £52 million, but it was over two years, 2013-14 and 2014-15. It was roughly £23 million in both those years. That was what it was. You will also recollect that that was a period when that Department had some incredible pressures; in fact, it actually overspent in one of those years. So there was an issue there with how tight it was, and that is why it diverted all available resources towards what it called front-line services.

Mr Wells: I accept that and, from my experience, I am absolutely certain that the money was spent on the right thing. However, it does flag up for other Departments the ability to do the same, where it may have gone to some pet project that may not have been as beneficial to the community or as deserving.

Mr J McGuinness: I think that there are three issues moving forward that will probably preclude that. The first is that we have tightened up the guidance on ring-fenced funding, so Departments cannot misinterpret it moving forward. We have introduced mid-year evaluation for the change fund. We go to the Department in the middle of the year and find out what it has done with the funding at that stage, and then we do ex-post evaluation as well. After the end of the financial year we will go back to the Department and see how it has done in the change fund going forward. I think that we have learnt some lessons there.

The Deputy Chairperson (Mr Dallat): I propose at this stage to wind up the session. Looking to the future and picking up on what Jeff has said, am I to believe that in the future there might be other schemes like this, which will encourage risk-taking, innovation and working in partnership? Can we accept that perhaps, in the past, the permanent secretaries were not up to it and that in the future there will be a new culture that encourages risk-taking and all the things that modern government is expected to do? Perhaps reflecting on this session, Mr Sterling, you can summarise for the Committee what you see as the main benefits and outcomes from the invest-to-save funding provided in Northern Ireland and whether you feel that it operated to best effect.

Mr Sterling: Thank you, Deputy Chair. I think that this has been a useful discussion. Some important issues have been aired. Members have flagged up some concerns with the way the invest-to-save scheme operated. We have acknowledged — we have certainly explained — what actually happened with a lot of them. We have acknowledged that there were some weaknesses. We have explained that, as far as some recent reform-type funds are concerned, we have learnt many of the lessons that are set out in this report and have applied them. There are eight recommendations in the Audit Office report, which we accept and which, again, will inform the way in which we operate existing and future schemes. My last point would be that, despite all the concerns that were expressed, I still think that there has been value for money from the funding that was allocated to the invest-to-save scheme.

The Deputy Chairperson (Mr Dallat): Members, we have all had the opportunity to ask questions of witnesses. Are there any final issues that you wish to address before we conclude the session? Ms Caldwell and the C&AG, is there anything that you wish to add to the evidence that we have just received?

Mr Kieran Donnelly (Northern Ireland Audit Office): Chair, I will just come back on a point that Mr Sterling made earlier about whether or not the Audit Office is part of the control arrangements. I see the Audit Office as sitting outside the Civil Service's internal control arrangements, as I am really the Assembly's auditor. It was just by chance that we picked up the £52 million anomaly. Had we not done an audit on invest to save, nobody would ever have known about it. I think that it is worth making that point. Secondly, figures have been quoted on what savings actually materialised. Our report talks at paragraph 3.10 about surveying Departments. We totted the figures up and reached about £150 million. A higher figure of £400 million was quoted today. It would be helpful to get a breakdown of that figure. It may be more up to date than the one in our report. That is all I have to say.

The Deputy Chairperson (Mr Dallat): Members, is there anything that you would like the C&AG or Ms Caldwell to clarify?

Mr Murphy: It would be helpful to get those figures for the breakdown.

The Deputy Chairperson (Mr Dallat): I thank you all for your attendance before the Committee today. It has been extremely useful, and information received will be taken aboard as we develop our report. We may need to write to you seeking clarification on issues raised today and on other issues as they arise during our deliberation.