Official Report: Minutes of Evidence

The Chairperson (Mr McCrossan): Welcome to the meeting. We are delighted to have with us, from the Department for the Economy, Ian Snowden, accounting officer; Sharon Hetherington, finance director; and Iain McFarlane, deputy finance director. Also joining us are Dorinnia Carville, Comptroller and Auditor General (C&AG), and her team from the Northern Ireland Audit Office (NIAO); and Julie Sewell, from the public audit and accountability branch in the Department of Finance, who is here on behalf of the Treasury Officer of Accounts (TOA).

Mr Snowden, Ms Hetherington and Mr McFarlane, you are welcome back to the Public Accounts Committee. Thank you for agreeing to attend at short notice. I am sure that you will appreciate the urgency with which the Committee would like to discuss the matters that are before us. With that said, I invite you to make brief opening remarks. Members will have a number of questions on the matter at hand. We will refer to those questions following your briefing. Mr Snowden, you are welcome to begin.

Mr Ian Snowden (Department for the Economy): Thank you, Chair and members, for the opportunity to address the Committee regarding the disclaimer of opinion from the Audit Office on our 2023-24 annual report and accounts.

I will say first that I and the senior management team of the Department fully acknowledge the seriousness of a disclaimer on the accounts. That outcome has understandably raised concerns with you regarding the accuracy, completeness and reliability of the Department's financial reporting processes. I hope that, in the course of today's session, I will be able to give you an assurance that we are fully committed to doing whatever we can to address the issues that have been identified. I will take a few minutes to set out the factors that contributed to the disclaimer, the steps that have been taken to address the identified weaknesses and the action plan that is being implemented to restore confidence in our financial accounting and reporting.

What led to the disclaimer? I would like to make it clear that the issues identified by the Audit Office are not issues of value for money, fraud, propriety or loss of public funds. The disclaimer opinion is, in part, related to the process of consolidating the accounts of the core Department and its arm's-length bodies (ALBs) into a single set of accounts. The disclaimer of opinion indicates that the Audit Office was unable to obtain sufficient audit evidence to provide a basis for an opinion on the financial statements. Specifically, the Comptroller and Auditor General has disclaimed her opinion on prior-period adjustments that the Department made to the 31 March 2023 comparative figures in the accounts to the year ended 31 March 2024. Without getting into all the technical details, the adjustments arose as a result of the Department implementing a new model to produce the group accounts for the year ended 31 March 2024. The Committee will be aware that a new financial reporting process has been introduced. That went live in 2022-23, and the Department experienced a lot of challenges and issues in producing the accounts for that financial year.

Learning the lessons from that, we put a lot of effort into improving the process. A significant part of that was a new IT model that we developed in association with EY consultancy. That model substantially improves the transparency and reliability of the accounts. When we inputted the information from prior years through the new model, the Department found a significant number of differences from the information that was already reflected in the certified accounts for 2022-23. The Department is required to correct material errors in accounts where we identify them. To do that, finance staff spent significant resources and time investigating the origins of those errors in prior years, but several balances have remained unexplained. The Department took a decision at the end of last year that we had effectively exhausted all reasonable avenues to attempt to identify those prior-year errors, and that our resources and those of the Audit Office would be better allocated to ensuring the completion of the annual account and reports for the year and ensuring that adequate processes are in place to deliver robust figures for 31 March 2024 and beyond. That approach was endorsed by the audit and risk assurance committee of the Department, and it was agreed with the Audit Office.

The Comptroller and Auditor General noted the considerable efforts that the Department had made to produce accounts and facilitate the audit procedures. She acknowledged that the Department delivered what it had committed to do following the 2022-23 audit. We continue to work to improve our processes to produce group financial statements. She also acknowledged the complexity of the DFE's group accounts and how that makes the production of our financial statements challenging. I will talk about that complexity.

The group comprises 18 component bodies in addition to the core Department. Ten of the 18 component bodies do not share the same financial year end. In fact, we have four financial year ends amongst the group. Two of the component bodies are North/South bodies, which are not wholly controlled by DFE and use euro as their main currency of transaction. None of the ALBs shares the same accounting system or chart of accounts (COA) as the core Department. If we were a private-sector organisation, we could address some of those issues, but that is not possible given the way that public bodies are established and how the system operates. Therefore, we have to implement different accounting policies and identify subsidiary companies' intra-group transactions. There is a complex set of issues to resolve.

I understand that, last week, the Committee asked whether we are aware of more complex accounts. We have not been able to identify any. It is important to note that our accounts include FE colleges. The Department for Education in England has a derogation from the Treasury not to include the FE sector in its consolidated accounts. Therefore, our accounts are, as far as we can make out, some of the most complex in the UK and Ireland. To help us manage that complexity, the Department has implemented several improvements to the preparation of the accounts for 2023-24. It is those improvements that identified the prior-year errors that needed to be corrected. They also added to the delay that meant we did not complete the audit process on time.

I assure the Committee, again, that we are fully committed to ensuring that the deadline for 2024-25 accounts is met. The finance team has already implemented several improvements in preparation for next year's accounts to try to deal with the issues that we have encountered, including further increasing the capacity and capability of the finance team. We now have a second finance director post. From 1 April, Sharon Hetherington will be solely responsible for producing the annual report and accounts. The budgeting part of her post is being given to another member of staff. We have increased support to and communications with our arm's-length bodies. We are maximising the use of IT solutions to improve communication channels with all the stakeholders, and implementing more rigorous procedures to ensure accuracy and completeness of the financial data.

My colleagues and I are committed to working closely with the NIAO to ensure that the process is improved, progress is made and lessons are learned from this year's experience. As the Comptroller and Auditor General set out to the Committee last week, given the complexities, it is likely to be a couple of years before everything is fully addressed and before producing the group accounts becomes more straightforward and business as usual. I am fully committed to making sure that we make significant improvements in the coming year. My aim is to ensure that future financial statements are prepared to the highest standards, can withstand the scrutiny of independent audit and are produced on time. I am confident that the measures that we are putting in place will address the deficiencies and help us move forward.

The second issue that led to the disclaimer on the account related to the student loan outstanding balance. The background to that is that, in 2022, the Department for Education in England, which manages the Student Loans Company, moved to a new financial model for calculating the basis of the loan values. However, that applied only to student loans in England. Devolved Administrations were not included in that model, because, at that time, the model did not have the capacity to include them. Therefore, we are still working on the old model, which produces the estimates. As time has progressed, a divergence has emerged between the old and new models and the figures that are produced. We will be moving to the new model from November this year, and we are engaging with the Student Loan Company to make sure that that happens as smoothly as possible. However, the consequence of the move is that we will not be in a position to address that issue of student loans for the current year's financial accounts, and, therefore, the same issue will, most likely, emerge in this year's accounts.

That is the end of the statement. I am happy to take any questions that the Committee has on any aspect of the report.

The Chairperson (Mr McCrossan): Thank you for keeping that concise and to the point. We will have a number of questions, and I will start. As you have pointed out, it is highly unusual for a Department to have disclaimed audit opinions on its accounts. In fact, it is a point of great concern. There were a number of issues on which appropriate explanations were not provided to the Comptroller and Auditor General, and a significant number of adjustments was required to the draft accounts that were submitted for audit. Why did the Department find it so difficult to complete group accounts to an appropriate quality? Have you any indication of where you compare with other Northern Ireland Departments in financial governance and compliance?

Mr Snowden: On your first question, I touched briefly on the challenges. It is an extremely complex set of accounts that we have to consolidate into one account. We work with 18 component bodies. I mentioned the two different currencies, the four financial year ends and the fact that the bodies do not operate the same accounting system. In addition, several of the bodies operate under different financial reporting standards, which have to be reconciled. It is an incredibly complex set of accounts from which to pull in the reconciliations. We have to draw millions of transactions from all the component bodies into the accounts, consolidate them across the board and, then, address any issues that arise because of the complexity. That is why it is proving to be exceptionally difficult. We did not have a full dry run before the new reporting system was introduced. The production of the consolidated accounts in 2022-23 was the first time that we attempted to pull together that information from all the component bodies. The Department acknowledges that it completely underestimated the difficulty of that task and the amount of effort needed to perform it.

I mentioned in my opening statement that, in the course of producing the 2023-24 accounts, we attempted to learn the lessons from that. I mentioned the new reporting system that we put in place. That new system has arrangements built into it by which it takes in information automatically and produces control totals that cannot be overwritten. Any adjustments that need to be made are produced in journal entries. The consequence is that the system is a great deal more transparent, and the information a great deal more reliable than that in the previous system. The production of that additionally reliable and transparent information has thrown up the fact that there were errors in previous years' accounts, which we need to try to address. We are working through the difficulties of those complexities and the issues that we have encountered. As I said, we are making a lot of progress, but it may be a couple of years before we completely resolve and identify all the issues.

On your question about comparisons with other departmental accounts systems, we can say with confidence that ours is the most complex set of accounts amongst the Northern Ireland Departments. I also have to put my hands up and say that it is the only set of accounts in Northern Ireland for many years that has been disclaimed. We acknowledge that that is a problem that we need to address.

The Chairperson (Mr McCrossan): Although I appreciate the complexity of what is required, particularly given that there are 18 bodies, other Departments have arm's-length bodies that they are responsible for in accounting terms. Are you aware of similar issues anywhere else in the system? Other Departments may not have 18 such bodies, but they certainly have a number of them.

Mr Snowden: Other Departments do not have the same extent of complexity. For example, where the financial year ends with academic year ends, we have to address that with Stranmillis University College and the further education colleges. We have the two cross-border bodies, which operate in euro and have a financial year end of 31 December. We do not think that other Departments have those particular complexities to deal with. For example, I understand that, because of the complexities involved, the Department of Education does not consolidate the accounts for all the directly grant-funded schools, for which it has responsibility and that are otherwise treated as component bodies. There is not an equivalent level of complexity in other Departments.

The Chairperson (Mr McCrossan): I appreciate that. The Department in the South of this island has similar functions to those of the Department for the Economy in Northern Ireland. Are you aware of whether it has ever encountered similar accounting difficulties with its arm's-length bodies?

Mr Snowden: There are three Departments in the South that map on to ours: Enterprise, Trade and Employment; Further and Higher Education, Research, Innovation and Science; and Environment, Climate and Communications. I am not aware of their having experienced such issues.

The Chairperson (Mr McCrossan): We are certainly in a unique situation.

Mr Snowden: Yes.

The Chairperson (Mr McCrossan): You mentioned that you did not have a full dry run. Will you clarify what that means, for the sake of the public record?

Mr Snowden: The change to the financial reporting system was agreed in 2021. The system was to go live in 2022-23. There should have been an opportunity the year before — the 2021-22 financial year — to do a dry run of the process. Unfortunately, we were not able to do it because we could not bring all the component bodies into the system in the right way. There were particular issues with the cross-border bodies. The first time that we attempted to do it was when it went live in 2022-23. We had not had a dummy run, essentially. We would have done a parallel process the year before to pull those things together, had we been able to, but the first time that we did the full system was the first year of going live with those reports.

The Chairperson (Mr McCrossan): When was that?

Mr Snowden: That was 2022-23.

Ms Sharon Hetherington (Department for the Economy): There was never a dry run that operated to the timescales that need to be delivered to in a live year. What happened was that three years of figures were audited in the live year: those for the dry run, the comparatives and last years' figures.

The Chairperson (Mr McCrossan): Explain that again. How long was the dry run?

Mr Snowden: Had we been able to do the dry run, it would have been in the 2021-22 financial year. One would attempt to run the process in parallel with the normal accounting procedures before going live with the new consolidated process, but we were not able to do that.

The Chairperson (Mr McCrossan): The TOA's briefing suggests that the Department prepared three dry runs: 2018-19, 2020-21 and 2021-22. The dry run that was planned for 2019-2020 was cancelled due to the pandemic, but the rest —.

Ms Hetherington: Yes, but the point is that the dry runs were not done within the timescales that would have been needed, with hard closes for each of the ALBs, consolidation of that and it then being presented to the Audit Office. Ideally, the whole audit process would be completed before starting the live year, so that those learnings could be built in. It predates me, but my understanding is that, although there were some dry runs, they were not done with that hard-close nature.

The Chairperson (Mr McCrossan): Surely the dry runs would have picked up the issues that we are dealing with now.

Ms Hetherington: I do not think that they would have. One of the challenges for our component bodies, particularly those that do not have the same year end, has been the ability to produce 31 March year-end information within the timescales that we need them to. We ask our component bodies to produce that information by 30 April, so they have four weeks in which to do it. That is significantly different from a dry run that was not operating with those time frames.

Mr Iain McFarlane (Department for the Economy): To further explain the complexity point: none of the 18 ALBs are on-system. A lot of other Departments have subsidiaries, agencies, non-departmental public bodies (NDPBs), arm's-length bodies or whatever that are on their accounting system. The information is there already, and those Departments are able to run reports and do other things. All of these 18 bodies are off-system and have their own accounting systems, charts of accounts and everything else. We rely on them to provide us with information. We then have to remap that information and process it through our systems to try to get a comparable, consistent consolidation.

The Chairperson (Mr McCrossan): It is all a bit messy, Mr Snowden, is it not? Ultimately, the buck stops with you, as accounting officer for the Department. The process must be frustrating.

Mr Snowden: It is difficult and time-consuming not only for us but for the Audit Office. A lot of effort has to be applied to the delivery of the accounts, and the process has been frustrating for us all; there is no question about that. It is not unreasonable to use the adjective "messy" to describe the process as it was. Our job is to make sure that we tidy it up as fast and as far as we can.

The Chairperson (Mr McCrossan): And ensure good governance of public money.

Mr Snowden: Tidy it up to achieve that end, yes.

The Chairperson (Mr McCrossan): I am glad that you acknowledged that the Northern Ireland Audit Office and the C&AG and her team have spent a substantial amount of time — more than any of us would have expected — dealing with the situation. I acknowledge the work of that team in trying to make sense of the entire situation.

Ian, you have been clear, honest and forthright about a number of things. What steps are you, as accounting officer for the Department for the Economy, taking to ensure that the matter is addressed? Can all the accounts be aligned to one deadline, for instance?

Mr Snowden: In law, no: we would have to change legislation to change the year end for some of them. We will do that for the further education sector, but there are other component bodies for which we would not be able to do that. There is a particular issue with the North/South bodies — InterTradeIreland and Tourism Ireland — in that it is not within our gift to make that change.

If the Department were a private-sector corporation with 18 subsidiary companies, we could require everybody to move to one IT system, as Iain mentioned. That is not possible under our current arrangements because the Account NI system is being changed to the new Integr8 programme, and it will not be able to onboard us any time in the next number of years. That would substantially help the system, but, unfortunately, we are not able to be onboarded. In any event, some arm's-length bodies would not be able to move to that system. I do not think that the FE sector or the cross-border bodies, for example, could ever be onboarded to the central Northern Ireland Civil Service (NICS) system.

There are constraints on what we are able to do; however, within them, we have got control in our organisation and of our arm's length bodies. In January, I sent a letter to the accounting officers of all the arm's-length bodies saying that missing the statutory deadline for the laying of the consolidated accounts two years in a row was unacceptable and that we could not tolerate it happening for a third year. I asked them to make sure that their teams were set up to deal with the closure on 31 March and produce the figures according to the timeline that we require, which, as Sharon mentioned, is by 30 April.

I mentioned that the finance director post has been split. We will now have a budgeting director and an audit and account director. Sharon will be responsible for audit and account, and another finance director will be responsible for budgeting. That will help to produce additional capacity in the system to enable us to give this the attention that it needs. We will continue to make IT improvements to the system that is in place in order to get the information in more smoothly and move forward more quickly. That having been said, it will take us a number of years to wash remaining residual issues through the accounts.

The Chairperson (Mr McCrossan): Were you met with any resistance, or are the bodies entirely cooperating with your request?

Mr Snowden: They are all cooperating. I have had letters from some of them saying that they will ensure that they do whatever is necessary to achieve that.

The Chairperson (Mr McCrossan): OK. Thank you.

Ms Forsythe: Thank you, all, for coming to address this really serious issue. As we have heard, it is unprecedented for a Department to have a disclaimed audit opinion. The Department for the Economy has failed to meet its statutory deadlines for certification and laying of accounts for the last two financial years. Mr Snowden, as accounting officer, you are personally responsible for producing accounts that are suitable for audit and for ensuring that the statutory deadlines are met. That failed to happen. We have heard that you put additional measures in place this year, but, clearly, they were not effective in delivering improvements. What assurances can you give the Committee that you will be able to fulfil your obligations as accounting officer going forward?

Mr Snowden: I have mentioned some of the things that we are doing, such as the creation of the additional finance director post with particular responsibility for the audit and account role. We have additional resources in the Department to tackle this. The C&AG's report mentioned particular issues at Northern Regional College. We have liaised closely with the college on what needs to be done to improve those, including weekly progress meetings. We have provided it with additional resources and [Inaudible.]

The issues with Northern Regional College were probably the primary reason that we were delayed again this year and did not provide evidence on time. We have brought in external review to look at Northern Regional College's financial processes to make sure that the same thing does not happen again this year, as far as is possible, and we are pressing it to increase capacity in its accounts team. It is having some difficulty with recruitment. We have done everything short of putting that college into special measures to help us move forward on that.

As I mentioned, I reiterated to all accounting officers that they need to provide the information by 30 April to allow us to pull together the accounting packs and to produce the information that the Audit Office needs to do its part of the process.

Ms Forsythe: The C&AG explained to the Committee that it is likely that her audit opinion next year will also be qualified, given that the roll-forward of the opening balances is dependent on the close of the accounts that have just been disclaimed. What work do you intend to do on the current year's figures to ensure that the starting point for next year is correct?

Mr Snowden: I have already mentioned some of the work that we are doing to improve the quality of that. There are no net errors identified in the 2023-24 financial year accounts. The adjustments were all in prior years, and that is what has given rise to that portion of the disclaimer opinion. We are confident that we will be able to pull together accurate information that will allow that to happen.

I will pick up on the point about what the implications of that will be. I have already mentioned the student loans issue. We will not be able to get that resolved until November 2025 and the Department of Education and the Student Loans Company are able to move us on to the new model. The consequence of that is that the figures for the current financial year, 2024-25, will also be produced in the old model, so the same issue that gave rise to that part of the disclaimer of the accounts will be in place for the current financial year. From the logic of that position, my expectation is that the accounts will be disclaimed again for the same reason.

Ms Forsythe: As I said before, it is your responsibility, as accounting officer, to make sure that the accounts presented are capable for audit and of the appropriate standard. Specifically on the £137·4 million that was noted in the prior period adjustments, no evidence was able to be provided for that. Some of the feedback on that was that you put a lot of resource into investigating what the basis of those adjustments was that the Audit Office was not able to give assurance on. Effectively, those adjustments were made by Department for the Economy staff or systems, so somebody changed those prior period adjustments. Somebody did that with no explanation. I want to know how, in your role as accounting officer, you felt that presenting figures in front of the Audit Office and the C&AG as suitable for audit was appropriate when there was no evidence for that amount of money.

Mr Snowden: That arises from the complexity of the accounts and the consolidation process. Each one of those arm's-length bodies and the core Department itself in prior years had been audited and had had, generally speaking, unqualified or unmodified accounts produced for each. However, as Iain mentioned, there is no unified chart of accounts. We have to try to bring all that information together into a single chart of accounts and a single form of presentation. In the course of doing that, the IT system that we put in place identified that there had been errors in the prior year accounts. We have to correct those errors. Essentially, it is items that are in certain lines in the accounts and that should be in other lines and need to be moved. The net effect of all of that is not £137 million, but, when you move information between one line and the next, you have to count the absolute value of £137 million. That is value of the debit from one line and the credit onto the other. We ended up with £15 million, I think, in one of the years and £1·6 million pounds in one of the other years where we could not trace the reasons why the error had been made in the first place. That is the position that we have got to. To reassure the Committee, that is not the risk of an overspend but is £15 million that is potentially overstated, so it would be an underspend against what we had previously reported. There would be no loss of money.

Ms Forsythe: The point that I am trying to make, given the Committee's responsibility to the public for transparency and accuracy of accounting of public-sector funds, is that we are talking about the Audit Office not being able to stand over and disclaiming amounts in the region of £1 billion and errors of £137 million. You as accounting officer are presenting those accounts as suitable for audit with those huge numbers, and it is our duty to challenge that and make sure that, as we go forward, we do not see those numbers again. We want to see the accounts in and meeting the statutory deadline so that we as a Committee, the other Committees and the public can have confidence in what is happening with the accounts.

Mr Snowden: On the figure of £1 billion, that is the absolute value of the adjustments that were made. The biggest single component of that was roughly £337 million, which was associated with impairment on student loans. That had been recorded in our accounts as other programme costs, and we agreed with the Audit Office that it ought to be recorded as an impairment in the accounts. That was in the same section of the accounts. The net effect of that at the bottom line is zero, but the absolute value of that adjustment is £670 million. Those are the types of changes that have given rise to those quite large sums of money. It is not that the information is not available on what has happened or that there are errors to that value in the accounts: it is adjustments that have been made inside the totals and which often end up with a net zero. As I said, we have an issue with £15 million that we cannot reconcile and explain.

Ms Forsythe: That is £15 million too much.

Mr Snowden: It is quite a lot; it is a lot, yes, but, again, it is because of prior year adjustments. It is not due to errors in the year to which the accounts relate.

Ms Forsythe: OK. Thank you.

Mr Boylan: You are very welcome; thanks very much for coming at short notice. Obviously, this is unprecedented. I want to clarify some things. You may have answered some of these questions for the Chair, but I would like clarity. Is this a case of money being inappropriately used or lost?

Mr Snowden: No.

Mr Boylan: Last week, we heard the C&AG say that it was a complex process — there was no doubt about it. We are trying to get clarity, because it is about public spend and accountability to the Committee. I want clarity on that.

I have another few issues. You mentioned a number of additional things that you are doing. Do you feel that you will be able to get back on track with those additional changes?

Mr Snowden: We will make a substantial improvement for the current year's financial accounts, compared with last year's, which, themselves, were a substantial improvement on the position of the year before. We are making a lot of progress, but, at this point, I am not in a position to say that it will be 100% perfect, because there may still be some issues and complexities to emerge out of the consolidation process.

Mr Boylan: To be fair, the C&AG said that you were working with them to try to address some of those outstanding issues.

You talked about a derogation. Was that in England — Westminster? Will you explain that?

Mr Snowden: The Department for Education in England is responsible for further education, whereas it sits with the Department for the Economy here. Treasury has given the English Department for Education a derogation — in other words, a bypass on having to consolidate the accounts of the FE sector in England, because of the complexities of doing that. Therefore, our nearest counterpart in England does not have to consolidate some of what we have to consolidate in our accounts.

Mr Boylan: Is that an option on the table for us?

Mr Snowden: I suppose that we could approach the Department of Finance and ask that, but I think that we will be able to make progress towards consolidating all of those.

Mr Boylan: This is my final question — it is about getting back on track. Does the Department have the capacity and capability to address the issue? It may take a longer time.

Mr Snowden: I think that we have. I will caveat that by saying that, as, I am sure, the Committee is aware, recruitment to some professions in the Civil Service is proving to be difficult. It is proving to be especially difficult to recruit for accountancy grades, because the salary on offer in private practice is currently much higher than that in the Civil Service. We currently have around 80 accountants working in the Department. We should have the capacity to be able to pull these things together and make the improvements that we need to make over the coming year. It is a strong team.

Mr Boylan: Thank you very much.

The Chairperson (Mr McCrossan): Pádraig Delargy is joining us remotely. Pádraig, can you hear us OK?

Mr Delargy: Yes. Thanks for your responses, so far.

The report highlights that there was irregular expenditure of £18·3 million from 2023-24, and audit queries have been raised about an additional £65·3 million of retrospective approval in order to avoid further irregular expenditure. I appreciate that you have highlighted and answered several queries around this, but I have three questions. You have highlighted a number of steps, but what steps are you taking currently to ensure that there is a clear understanding by DFE staff of instances in which Department of Finance approval is required?

Mr Snowden: I do not think that we have talked about that regularity point, so I will explain the background to it. A change to financial reporting standards — the European System of Accounts 2010 (ESA10) — was introduced a number of years ago. That allows expenditure on research and development to be classified as capital expenditure as opposed to revenue. In 2022, the Department moved from classifying its expenditure on research and development, including expenditure on the postgraduate award scheme, as resource expenditure and transferred that over to capital. The postgraduate award scheme had been in operation since 2002. It was pretty much a steady state service that was provided by the Department. What we had not anticipated and staff had not appreciated, at the time, was that, because the expenditure had been reclassified from resource expenditure to capital expenditure, it needed to be treated as a new capital project. They assumed that it was simply a change in the classification of the expenditure, since nothing else had changed in the expenditure in the programme. The same thing applied to the other research and innovation expenditure that you mentioned and for which retrospective approval was received.

Therefore, because they did not appreciate that it had to be treated as if it was new as opposed to a continuation programme, they did not realise that they had to produce a business case and seek DOF approval for it. That became apparent only during the past 12 months. At the same time, we were reviewing how the postgraduate award scheme operated, and changes to be implemented were agreed by the Minister and will be more directive about how the funding is used to support economic development in Northern Ireland. We produced a business case that reflects that change of approach, as well as seeking to regularise the expenditure, and that has been passed to the Department of Finance.

The fact that we did not have a business case in place in 2002 meant that I could not ask for retrospective approval for that, so we just have to accept that that expenditure is irregular and that it will be irregular in the current financial year as well. We did have business cases in place for the other expenditure and were able to approach the Department of Finance and understand that.

Your question asked what we have done to ensure that staff are aware of that. We updated our guidance on all of this and ensured that people are aware of the processes. This is a pretty obscure set of circumstances because it is unusual. A steady state service that is transferred from one type of expenditure to another and ought to be treated as new is not a commonplace occurrence, so it is not particularly surprising that people were not aware of the requirements around it. We have reminded people that, when something such as that changes, they need to be aware of the potential implications and seek DOF advice.

Mr Delargy: It is reassuring that that has now been put in place. You strongly emphasised that it was not inappropriate use but was based on the complexities around that, and I appreciate that. To follow on from a point that Cathal raised, how will you now ensure that there is capacity in your internal financial division and that that information will cascade down to everyone who is going to be involved in those processes? How will that information be communicated so that it is crystal clear and understood?

Mr Snowden: The Department uses a number of communication methods. When something such as this arises, we organise online seminars for staff. They are called DFE Inform You, and they could be on any one of a variety of things. When significant lessons are to be learned or when something happened that people may not be aware of, we use those Inform You sessions to disseminate information as well as through the written guidance that is issued. We find that that kind of briefing session is more effective to get a message across than relying on a written briefing alone.

Mr Delargy: Thanks for that. On the capacity issue —?

Mr Snowden: I mentioned that we split the finance director post to create additional capacity at senior management level to take this forward. We will have a team that will be focused on and dedicated to producing the annual report on accounts. The other finance director will manage the in-year budgetary management. That particular senior level focus on the issue will help us.

Mr Delargy: I appreciate that. Thanks for your clarification of those points.

Mr Gildernew: You covered part of my question in your answer to Pádraig. How are you going to monitor and assess the internal improvements that you set out to ensure that they are certainly happening, so that this process will be addressed and brought into line and into more regularity?

Mr Snowden: The team has produced a comprehensive plan for the coming months to ensure that we do everything in our power to achieve the statutory deadline. We will monitor our progress against the plan as the year progresses. I have already mentioned our close liaison with the Northern Regional College, where we have had a number of issues around the capacity there in meeting some of our requirements and deadlines, and those weekly meetings will continue to make sure that we get that delivered. We will keep a close eye on that. The Department's audit and risk committee is chaired by an independent member, and he is a qualified accountant. He is very closely exercised on all those issues, and he questions us closely on what we are doing to make sure that we achieve all those things. The independent board members and I will give a lot of scrutiny and attention to that over the course of the year.

Mr Gildernew: Can you outline the steps that you took to keep the Department of Finance informed about the issues with the 2023-24 audit in advance of the C&AG's report?

Mr Snowden: We knew that the accounts were going to be delayed, and we advised the Department of Finance and the Economy Committee of that in November, when it became apparent that we would not meet the statutory deadline, and we kept them up to date on progress as we moved through the year. We first became aware of the disclaimer opinion at the audit and risk assurance committee meeting on 5 February, at which it was indicated that the accounts would have a disclaimer opinion on the true and fair financial position for the reasons that we have discussed today. That was the first time that I heard from the Audit Office that it was going to happen. On 31 January, Sharon had a meeting with the team and that possibility was discussed, although it was not entirely clear whether it would be the 2023-24 financial year or the subsequent year in relation to the student loan issues. I first became aware of that on 5 February.

The draft audit certificate and report came to us on 26 February, and that is when the Comptroller and Auditor General phoned me to let me know the opinion. We advised the Department of Finance and the Economy Committee as soon as possible thereafter. I think, 26 February was a Friday, so it was at the beginning of the following week, which was the start of March.

Mr Gildernew: Thank you.

The Chairperson (Mr McCrossan): For clarification, when the C&AG phoned you to let you know of the intended action that the Audit Office was about to take, how many months had passed since the deadline?

Mr Snowden: It would have been three and a half months.

The Chairperson (Mr McCrossan): Did you expect that or was it a shock?

Mr Snowden: As I said, the audit manager had outlined on 5 February that it was the expected opinion. That was the first indication that we had about what it was going to be.

The Chairperson (Mr McCrossan): OK. Thank you.

Mr Crawford: I thank the panel for their time and answers so far. I have a follow-up question that relates to Colm's question. What specific advice and support did the Department of Finance offer to your Department to ensure compliance with the financial regulations?

Mr Snowden: Guidance is issued by the Department of Finance on a wide range of issues, and there is the financial reporting manual and all the other guidance that we are required to follow. Specifically on the issues mentioned in the C&AG's report, there were two things that we sought DOF advice on. One was the issue that Mr Delargy raised: the postgraduate award scheme and the need for business case approval. Once we identified the possibility that business case approval may be required, we sought DOF confirmation on whether it was required. The second issue related to pensions in FE colleges. We approached the Department of Finance for guidance on that, once the issue had been raised, and we did not get much beyond it pointing us to the guidance that was available at the time. On reflection, the lesson that we learned was that we could have gripped the matter sooner, rather than waiting for DOF to come back with advice. We accept that there is something to learn from that.

Mr Crawford: You touched on NRC, but, so that I have clarity, I want to go back to that. The C&AG reported that, in the last two years, there have been particular difficulties in getting appropriate information and explanations from NRC to support your group accounts production. Does the Department, and do you as the chief financial officer, have suitable controls in place over NRC to ensure that it fulfils its financial reporting obligations?

Mr Snowden: We have the usual arrangements in place. As with any arm's-length body, we have a partnership agreement and a sponsor team. The sponsor team liaises closely with all the colleges regularly, especially on financial issues and other governance matters: for example, when complaints are made by students or parents. We have quite close oversight arrangements in place with them.

I do not intend this to sound like an excuse or anything, but I will provide part of the explanation of the context. During the 2023-24 financial year, Northern Regional College had two large capital build projects under way. We suspect that its attention was directed more towards the completion of those two large capital build projects than the completion of the accounts and that, perhaps, it did not give the attention that was required to the provision of the financial information that we needed to allow the accounts to be completed.

From my discussions with the chief executive of the college, I know that he is fully aware of the significance and importance of the issues. He is a professional accountant, so he understands. He has put in place measures in order to achieve what needs to be done. I mentioned that we continue to have very close liaison meetings specifically on that issue and to provide assistance and help where we can.

The college continues to experience some difficulties in getting capacity into the team and recruiting people. Really, the people who have been recruited only replaced those who had left, so there is still some work to do there. We will keep a very close eye on it. We brought in additional external scrutiny by way of a review of its financial processes to give us some recommendations on other things that we may do.

If it continues to be the case that the college is not able to deliver what we need it to do, the next step under the further education legislation will be for the Department to put the college into what are called special measures whereby we take over responsibility for the financial management of the college. We do not want to do that, because, essentially, it absolves the college of responsibility for the management, plus it gives us the work to do, which we really do not feel that we are in a position to take on. However, if it becomes necessary because we are not getting the progress that we need, it is a measure that we will consider.

The Chairperson (Mr McCrossan): At what point will you make that decision?

Mr Snowden: If, in the middle part of this year, we are on the same trajectory as we were on in the past two years, we will have to make a decision on it.

The Chairperson (Mr McCrossan): Is the college conscious of the very serious risk of that happening?

Mr Snowden: Yes, it is.

The Chairperson (Mr McCrossan): Is it cooperating?

Mr Snowden: Yes, it is absolutely cooperating. There is no question about that. There is still the question of whether it has the capacity in the college finance team to deliver what we need.

The Chairperson (Mr McCrossan): Has it made any adjustments to ensure that that is the case?

Mr Snowden: It brought in some agency accountants last year in order to help to pull together the pack of information that was required. It has made some attempts to recruit, but those have not been successful. We continue to press it on those issues.

The Chairperson (Mr McCrossan): Why have they not been successful?

Mr Snowden: Again, it is because of how pay levels in the public sector compare with those now available in private practice for accounting professionals at the grades and levels at which the college requires staff to be in place.

The Chairperson (Mr McCrossan): OK.

Mr Honeyford: Thank you for coming in. Your Department oversees the economy. Every small business looks to you and the Department to set the agenda for where they work. Small businesses' accounts are late from time to time, but they face a financial consequence for that. Every plumber, spark or whatever the small business is will pay a fine. What are the consequences of this for the Department?

Mr Snowden: In financial terms, we have to apply a large amount of resource and time to deal with these issues, and we would rather spend that time and resource to do other things. There is a cost to that in the work that the Department has to do. We do not operate under the same arrangements as the private sector. Whereas a private company may be fined for the late lodgement of accounts, the consequence for the Department is that I am here when I should not be to answer the questions that the Committee has about why we have not achieved what we have to achieve. The inference behind your question is about whether somebody has messed up to the extent that disciplinary action is required. I have to say that I am 100% satisfied that the reason why those errors have been identified and brought through has been our attempts to make the system better. It is not a failure. We have done absolutely the right thing. It would be very unfair on staff who have done the right thing to find themselves being punished for taking that action.

Mr Honeyford: The consequence that you mentioned is actually the detriment to the economy. People look to your Department for help. What you are saying is that you have to put more resource into it and that your time is taken up by that. I am just sticking up for the small business. The small business guy gets fined. There is a financial consequence of that delay. How can this just be a matter of shrugging your shoulders and saying that you will work towards that? It is always about looking forwards, but there have to be consequences in the Civil Service when stuff is not lodged in time.

Mr Snowden: I understand entirely the perspective that you bring. I do not dispute that some people would look at it like that. I would say, however, that the difference between the Department and a small business is that a small business would never have to do a consolidation exercise of the kind that we have had to do. If we had been operating under the old system and accounts were not consolidated, this meeting would not be taking place and the disclaimer would not have happened, except possibly on the student loans issue. We have to deal with the situation that is in front of us, make improvements and fix things. That is what stepping up and taking responsibility are about.

Mr Honeyford: Can you assure us that lessons have been learnt as we move forward? I appreciate that you were not there at the time, Ian, but your Department is the Department of the renewable heat incentive (RHI). Has effective learning happened and been applied so that the public and businesses can be assured that that will not happen again?

Mr Snowden: Some of the critique of the RHI scheme related to the transparency of financial information and whether risks were being managed properly. I reiterate a point that I have made a couple of times already: the errors that have been identified in the prior year accounts have arisen because of work that we had done to make the accounting system more transparent and the information more accurate and reliable. The lessons have been learned and applied, but the consequence of that work is that we have identified prior year mistakes and errors and adjustments that need to be made. Therefore, the assurance of the lesson, counter-intuitively, may be the fact of my having to sit here now and explain that we have had to make those adjustments and the difficulties that we have had trying to resolve them in our attempt to make the system more transparent and accountable.

Mr Honeyford: I appreciate that you are saying that you are making it more transparent. Yesterday, the public heard that the most vulnerable people will have money taken off them, yet we are sitting here unable to account for £136 million, effectively. That is the bit that the public sees. I do not know how those two things balance. They need assurance that it will not happen again. That is what I am getting at.

Mr Snowden: Let me be 100% clear: there is no indication that £137 million has gone missing anywhere. What has happened is that, in the accounts, we have adjusted how that is recorded in the equivalent of the balance sheet and the profit and loss statement. We cannot trace the reasons why it was in the wrong place to start with. That is essentially what has happened. However, that is not to say that any money has gone missing, been misspent or been defrauded, or that there has been poor value for money in delivery.

Ms Brownlee: Thank you so much for coming to the Committee. I want to follow on from what David said. We have covered slightly the key legal and reputational risks. What impact has this had on public trust in the Department for the Economy? What risks do you envisage will come from this, and how do you plan to mitigate them?

Mr Snowden: On public trust in accounting, the Department, as Mr Honeyford mentioned, has the legacy of RHI to deal with.

The main risk that I have to manage is, because we have issues related to RHI to resolve, to ensure that we can demonstrate to people that the course of action that we propose to take is the correct one, that it is supported by evidence and that it is, in fact, the best thing to do financially and for value for money. Having a disclaimer on our accounts makes it more difficult to persuade people that we can be trusted with that information. It makes our job more difficult; there is no question about that. We have to do a lot of work on that in the Department, and the only way to resolve that is by becoming much more effective in our delivery against what we are expected to achieve and demonstrating that we are doing the work well. There is no alternative to hard work in pushing through all of that. There is no easy solution to recovering that trust; we have to earn it.

Ms Brownlee: Are there risks that you can see, and have you mitigated those? Are you aware of what could come down the line as a result of these accounts? Are you aware of what could happen and how to mitigate it?

Mr Snowden: We have a number of significant pieces of work in policy changes that we want to bring forward and that may be affected by this. For example, I mentioned the RHI. The previous Minister made a commitment in the Assembly to bring about the closure of the scheme. I imagine that this will feed into the discussions about the reliability of information that the Department provides. We will introduce a new renewable electricity support scheme to help us to achieve the target of 80% electricity generation from renewable resources by 2030. Again, that is a complex piece of work. We will need to work hard to make sure that people are satisfied that what we propose is robust, workable and will be delivered. Those are the two things that come up.

If we are making changes to student loans — student loans are one of the reasons why our accounts have been disclaimed — that is an issue on which we will have to work hard to persuade people that the financial information is accurate, reliable and correct.

Ms Brownlee: I have one last question. What improvements have you identified to restore public confidence and trust with key stakeholders and arm's-length bodies that your Department can manage financial accounts going forward?

Mr Snowden: I will go back to the point that I made in response to your previous question: the only way to do that is through hard work and effective delivery. That is how we will satisfy stakeholders in the business sector that we are working in the correct way. Some of it is about explaining how we have ended up in the position that we have, and I hope that I have attempted to explain that clearly today. Other times, it will be about making sure that we are effective in the delivery of what we set out to do. That piece of work will be taken forward over the next number of years. It will not be fixed in any straightforward way around anything to do with accounts. It is more about, holistically, how the Department performs.

The Chairperson (Mr McCrossan): I have a number of follow-up questions. When David Honeyford asked about the consequences earlier, you said that the consequence is that you are before us. You are right: I do not think that any permanent secretary looks forward to sitting before this Committee.

How are resources and time quantified and measured when it comes to accountability? I am conscious that the Northern Ireland Audit Office has spent significant time and resources dealing with the situation when it could have been putting its energy and focus on other problems across the system. There is a cost to this. Significant resources from the NIAO and your Department were used to try to rectify the situation. That comes at a cost to the public purse. If this were a private organisation or business, it would be resolved quite quickly, because it costs money. How do we move this along in a timely fashion in the interest of public money and resources?

Mr Snowden: To quantify how much would be quite difficult, although we have discussed it internally, and it may be approaching £1 million of staff time spent in the Department on dealing with it. In a meeting that we had before Christmas with the Audit Office, the director estimated that it had spent around £400,000 working on it. The staff time involved comes at a substantial cost.

The Chairperson (Mr McCrossan): Is that each year?

Mr Snowden: For the past years: that is the total for the accounts that we are talking about today. We want to get those numbers substantially reduced. Some of the things that we are doing will automate the processes that produce the information that will go into the accounts. Hopefully, that will provide information that will allow the Audit Office to do its part of the job more quickly and with fewer resource allocations.

It is a big Department, and there are a lot of arm's-length bodies, so it is a complex task for us. It will always be resource-intensive and time-consuming, but we can put in place measures that will allow that to be sped up.

The Chairperson (Mr McCrossan): For clarification, £1 million is the cost to your Department, and £400,000 is the estimated cost to the Audit Office, so it is £1·4 million on audit.

Mr Snowden: It would not be that far away. There is no precise way of calculating the cost in the Department, but, given the amount of time spent by everybody involved in working on it, including mine, I would say that it is not far away.

The Chairperson (Mr McCrossan): I have no doubt, although £1·4 million is a significant waste of public money on something that should not be as difficult or as messy, which is the only word that I can use to describe it.

Mr Snowden, a word that you have used continually throughout the evidence session to other members — it has probably been used more than any other — is "complex". It is a word that has been shared with the Committee by the NIAO, which has been very helpful to the Committee in helping us to understand how this came about, as you have today by providing answers to the questions that you have taken from us. I appreciate that it is complex, but there is an expectation from the public that the issues are rectified. You are the accounting officer responsible, and, while I appreciate the complexity, I have no doubt that it is an extremely difficult position for you to find yourself in. Is it an impossible task, in the immediate term, to resolve the issue? What is your estimated time to try to resolve it? Will we be having this conversation in two or three years' time? When will it be resolved?
I appreciate that you are saying that you are responsible for the Department and that the Department has 18 component bodies, but you are the centre spoke of the wheel, so how do we get this all in shape?

Mr Snowden: Is it impossible? No, I do not believe that it is, but that does not mean that it will be easy. The C&AG, in her report, said that it could take several years to resolve. It is important to be upfront and clear with the Committee that the prior year adjustments will continue to have an impact on our statement of financial position. Those will continue to appear in the annual report of accounts.

I mentioned the student loan issue. Unless we can identify what information would allow the Audit Office to be satisfied about the reliability and accuracy of the information in the old model of the student loan before we move to the new one in November, that will continue to be an issue that will affect the accounts.
The issues may be severe enough to require the 2023-24 accounts to be disclaimed — we will not have them resolved before 31 March. Although the C&AG has to form her opinion on it, it seems to me to be inevitable that they will be disclaimed on the same basis for 2024-25. It is not a position that I am very happy about, but we are limited in what we can do at this point to change that outcome. Hopefully, we will be able to get that issue resolved for the 2025-26 financial accounts. When the new model is in place, we will have a much clearer position, and then we will be able to provide the satisfactory assurance that the NIAO needs. Part of the reason for this being difficult is that, in previous years, the NIAO could rely on information provided by the National Audit Office when it looked at the model operated by DFE England. That assurance is not now available for the old model, so we find ourselves in the position where the Northern Ireland Audit Office cannot get the assurance from the national authorities that would allow it to form an opinion. That will persist in the current year. I expect student loans to be an issue for the current financial year reports. Hopefully, we will get those certified and laid in November of this year.

On the other issues, we will have made substantial progress in resolving how the consolidation works. We cannot predict whether new issues will emerge and be identified out of that, but, given that we have committed ourselves to a process of making sure that the accounts are more transparent and accurate, there is always the possibility that that will happen. We should make substantial progress on that issue over the next few years and, I hope, should not be in a position, beyond 2025-26, where I am talking to you about this.

Ms Forsythe: I have a further comment. When we found out about the disclaimed audit opinion, it came as quite a shock. It was unprecedented: we have not seen something like that come through before. I will take this opportunity to ask whether we should expect anything else coming down the line from your Department in the near future. There appears to be a lack of openness and transparency around some accounting information, and that is key. I am the sort of person who likes to look at departmental accounts as I review Budget proposals coming through, and I could not find those for the Department, despite having asked a few times where they were.

Another one of your component bodies is Tourism NI, and I am concerned that there is no reference on its website to the fact that it is two years behind on its annual accounts. I had to send an email to it. I also submitted a question for written answer and received a response from the Minister this week. It said that the 2022-23 accounts are finished and should be laid soon and that the 2023-24 accounts are in process. However, those accounts are two years behind. They are for one of the component bodies. Is any serious opinion on Tourism NI or any other body coming down the line that we should expect to hear about from your Department?

Mr Snowden: There is an ongoing issue in Tourism NI about the legal vires for the fees charged to businesses for the registration certification process. Some of that is connected to the fact that fees were not collected from bodies during COVID and the question of whether there was legal authority to do that. Some of it is about the actual legal vires to collect the fees at all. That is an ongoing issue that still has not been legally and substantially resolved. There is also an issue in Tourism NI with a scheme that was run in prior years to promote tourism businesses in Northern Ireland and the Republic of Ireland. That was delivered through an arrangement with the Northern Ireland Hotels Federation, and it transpired that the legislation governing Tourism NI, which is about 40 years old, had not envisaged that kind of arrangement being in place. The arrangement was therefore outwith that legislation.

Those are known issues that will come through. As part of the annual assurance process, I ask all groups in the Department and all arm's-length bodies to submit six-monthly assurance reports in which they have to identify any emerging issues that ought to be brought immediately to my attention. Nothing has been brought immediately to my attention around that. We are coming into a difficult budgetary period in the next financial year. It is possible that the outworkings of the Budget for that year will create financial stresses that give rise to new issues, but I have not been made aware of any at this stage, and I am not aware of any.

The Chairperson (Mr McCrossan): Dorinnia, do you have anything to add? No, you are happy enough. Julie, are you happy? OK. Thank you. Ian, have you anything further to add?

Mr Snowden: No, other than to say that I hope not to see you next year, although I suspect that I probably will.

The Chairperson (Mr McCrossan): Thank you for being with us today, Mr Snowden, Ms Hetherington and Mr McFarlane. We appreciate that the situation is entirely complex. Nonetheless, we have a responsibility to provide answers for the public to those important questions and to ensure good governance of public funds. That is the clear reason why you are before us. We appreciate your being here and hope that you can find a resolution to the problem speedily in order to provide confidence to the public, who expect us to be above these issues and on top of them. Thank you very much for giving your time to be with us today.