Official Report: Minutes of Evidence

The Deputy Chairperson (Ms Brownlee): I welcome to the meeting Stuart Stevenson, the Treasury Officer of Accounts (TOA) in the Department of Finance; Julie Sewell from the public audit and accountability branch in the Department of Finance on behalf of the Treasury Officer of Accounts; and Dorinnia Carville, Comptroller and Auditor General (C&AG) from the Northern Ireland Audit Office (NIAO).

Mr Stevenson, you are welcome to the PAC, and thank you for agreeing to attend the Committee today. I invite you to briefly make any opening remarks, and we will then open the floor for questions.

Mr Stuart Stevenson (Department of Finance): Thank you, Chair and members, for the opportunity to be here today to discuss the Department for the Economy's accounts for 2023-24, which received a disclaimed audit opinion from the C&AG. The Department of Finance agrees that such an opinion from the C&AG is very rare and a very serious matter. Indeed, the DFE accounting officer acknowledged that when he was in front of the Committee last week.

I assure the Committee that I believe that all Departments are aware of the importance of producing true and accurate accounts on a timely basis, and I feel that, in my role as Treasury Officer of Accounts, that is a consistent message that we issue in our guidance and try to reinforce at every opportunity. It is disappointing that, on this occasion, we collectively have not achieved our aim, and it is good that the Committee has been swift to engage with the relevant witnesses and hold them to account on the issue.

I hope that my briefing has been helpful to the Committee over the past couple of weeks, and I am sure that, as we get into questions, we will tease out some of those issues further. That is all that I have to say at the outset, Chair, and I am very happy to get involved in the questions.

The Deputy Chairperson (Ms Brownlee): Thank you very much, and thank you for your time and for the briefing. You said yourself that this is a totally unprecedented situation. We have reiterated that a number of times. Getting to the crux of why it has happened and understanding that is critical when it comes to public money.

I have a number of questions, and I will then pass to Committee members. The Department of Finance sets out the process that is to be followed by Departments and their component bodies to prepare for the introduction of group accounts. Given the C&AG's disclaimed audit opinion on the Department for the Economy's 2023-24 group accounts, did the dry-run process prepare all Departments sufficiently for the change? Was sufficient time allowed for that exercise?

Mr Stevenson: We have been looking back at what we did in preparation, and it might be helpful if I set out some of those steps in a little more detail for the Committee. The dry runs were a key component, and I will come to that in a minute. There was an Executive decision back in 2016 to press ahead with the review of financial processes, and the aim was to align budgets, Estimates and accounts on a more readable, comparable basis, which is the right thing to do. We were following an earlier Treasury project called 'Alignment (Clear Line of Sight) Project', which also tried to create less misalignment across those three data sets. It was certainly important for us to try to get that comparison moving. We set up a project team in DOF to drive that exercise. Over the four- or five-year period of planning ahead of the project's going live, that team met on 38 occasions. We followed a PRINCE2 methodology approach and had all the usual stuff, such as minuted meetings and risk registers.

Alongside the project team, there was a group to engage with the Departments. All nine Departments were invited to attend those meetings. DOF and the NIAO attended all those meetings, of which there were, I think, 11 in total. When we look back, we find that there were good opportunities for communication, raising issues and trying to address them. Throughout the process, as we came across challenges and misalignments, we in the Department issued 18 guidance notes specifically to address the queries. When you look at that bank of evidence, you find that, in some ways, it was a good project that appeared to have the architecture to capture the problems. We had three dry runs across four years. We missed the second year, which was when the pandemic struck. However, that gave us another 12 months to think about and deal with issues. Looking back, I think that that was a very good structure, and it should have captured the salient issues.

The seasonal nature of the production of accounts is always a challenge, and, when we ask Departments to produce their resource accounts before the review of financial processes, it dominates certain times of the year. From this time of year right through to the end of June and July, when we got the draft accounts from Departments to the Audit Office, there was no opportunity to do any work on the dry run. The instructions for Departments were very much our saying, "Produce your accounts in the autumn months, when you have the opportunity for the experts to work on preparing accounts". Our target date to get those dry-run accounts across to the Audit Office was always November. While the Audit Office was reviewing them, it was not a full audit and there were no certificates as such, but it was really helpful to get that level of feedback on the observations and to then try to respond to it and to maybe issue guidance notes or find some kind of solution.

Having three years of dry runs should have resolved the issues. Looking back at it, we are asking ourselves this: why did it not throw up the difficulties that we have found ourselves in? We have to acknowledge that there was certainly a missed opportunity, which is disappointing.

The Deputy Chairperson (Ms Brownlee): I appreciate that, and that is the point. How did it not show up with three dry runs? Given the financial control issues in DFE, did that Department seek any early intervention or guidance from DOF to prevent those audit failures?

Mr Stevenson: The communication with DFE has been good. My observations are that there was a very healthy communication and relationship with its audit team, which is helpful given the stresses and strains that this issue and the circumstances around it have caused.

Certainly, I am not aware that there was any direct request for us to get involved. Looking back, the guidance that we issued is not really the challenge or part of the problem. Financial reporting is a collaborative effort. We all have clear roles and responsibilities. That means us in DOF, the Departments and those who do the preparations, the Audit Office and, indeed, the Committee. In that spirit of collaboration, again, there were missed opportunities that we were unable to get involved in. Even managing expectations around this Committee would have been important.

Looking back, maybe we could have handled things slightly differently when managing expectations. A lot of the evidence last week was about the reasons for and complexity of the issue. There is no quick fix to what could have been done there.

Maybe we could have worked with the Department on its resources and capacity, but, again, we have limited levers there because of the pressures under which the finance profession finds itself.

The Deputy Chairperson (Ms Brownlee): You said that nothing was flagged during the dry runs. Why do you think that nothing was raised at that stage? Were there any concerns at all that could have led to us understanding what happened?

Mr Stevenson: Just to clarify, there was feedback from the Department for the Economy on all three of the years. The complexities and challenges that it faced from non-coterminous year ends for some of its arm's-length bodies (ALBs) were mentioned, but that was more about the fact that they caused delays. Certainly, validating the figures and providing the source evidence to enable a full audit on them was not clearly projected at that stage. The Department was aware that it was going to be difficult, but we did not really get the severity of the challenge. Even the fact that some of those issues did not really emerge until the 2023-24 accounts were prepared highlights the fact that we underestimated the difficulties and complexities that were involved.

The Deputy Chairperson (Ms Brownlee): I appreciate that.

Ms Forsythe: Thank you, Stuart, for coming to speak to us today on the matter. Following on from what you said, what concerns did it raise for you as TOA that the issue presented in the 2023-24 accounts, with the Department for the Economy missing the statutory deadline for the 2023-24 accounts and the C&AG's report on those accounts outlining the delays that were encountered in 2022-23?

Mr Stevenson: Any delays in laying accounts are flagged up on our dashboard, and we engage with the Department concerned immediately to see what is going on. We would have been aware of the fact that the consolidation was challenging in the 2022-23 accounts. We were aware of the steps that the Department was trying to take to improve its processes. We know now that the draft 2023-24 accounts were presented to the Audit Office much earlier in the process, so it appeared to us that the actions that were being taken were effective, but that masked the fact that there was a lack of evidence to enable the Audit Office to validate the key elements.

Ms Forsythe: The accounting officer was here last week. It is his personal responsibility to make sure that each year's accounts are ready for audit and that he can stand over them. What are the consequences for accounting officers who miss statutory deadlines, produce accounts with no audit trail and get disclaimed audit opinions?

Mr Stevenson: There are several sanctions that we can look to in such a situation. One practical way is to look at the delegations that are passed to a Department from DOF. Similarly, a Department always has the power to sanction an organisation, such as one of its ALBs. Certainly, in the past, we have worked with Departments when we have had concerns. Ultimately, that could lead to our putting an organisation into special measures. That is the most extreme version of it.

As for individual officers, disciplinary action is always a possibility, if the evidence points to the need for it. For financial reporting, it is worth mentioning that our accountants are all members of professional bodies that have disciplinary codes and codes of ethics that have to be met. If someone is not performing to the required standard, they could be disciplined or even struck off, if needs be. Those options exist in financial reporting. DOF appoints the departmental accounting officers. I have to issue a letter when a new permanent secretary is appointed, and permanent secretaries appoint the accounting officer for each of their ALBs. The letter highlights the rationale that, if we feel that someone's standard of fitness to operate as an accounting officer is not being met, it can be withdrawn. That is a very powerful sanction and is hugely challenging for the individuals who are involved. I am not aware of any cases of our having got to that stage with a departmental accounting officer, but I know that it has happened in arm's-length bodies on occasion. That is another sanction.

The most common sanction is public censure. That is where the Committee comes into its own by holding individuals to account and challenging them on the failings and shortcomings of their organisation. I would point to those areas, Ms Forsythe.

Ms Forsythe: Thank you very much. That is really useful, because, when I asked the accounting officer that question, he said that the consequence was that he would end up here, so it is good to know that there is a full range of other things that can be done. That is really important for us to know, so thank you very much.

Mr Honeyford: What steps did DOF take to ensure that DFE's processes were suitably improved in 2023-24?

Mr Stevenson: The personal assurances that we sought were in answer to this question: how are we going to improve on the delays? For us, the problem at that stage was the delays. The Department put plans in place for its process, pressing the component bodies to get their accounts completed and audited on a shorter timescale to enable it to do the consolidation earlier in the cycle. When we became aware that the draft accounts had gone to the Audit Office much earlier than they had in 2022-23, we were maybe a little complacent. At that point, we said, "This is good progress. They are getting it organised". We did not anticipate the issues that have emerged in recent weeks, and that was a missed opportunity.

Mr Honeyford: Is it your intention as TOA to provide any additional advice or other services and support for DFE ahead of the 2024-25 reporting deadlines?

Mr Stevenson: We have several lines of communication with the Department. Formally, the Department meets its Supply team to resolve any issues relating to public expenditure, budgets and business cases and any financial reporting issues. I also have two occasions for informal contact with Economy. I sit on the finance directors forum with Miss Hetherington, who was a witness here last week, and we sit on the finance directors subgroup, which looks at the finance profession. We are in regular contact about its needs and requirements.

Our focus at this stage is on increasing capacity in the finance directorate. I know that Mr Snowden is looking at a new structure, with a separation at finance director level between the accounts side and the budget side, so we will work with him and help with that. It is also about looking at the ongoing accountancy competitions to prioritise how we can fill vacancies as effectively and quickly as possible. Of all the Departments, Economy has the highest number of accountants, and it carries a substantial number of vacancies.

Mr Honeyford: He told us last week that there are 80 accountants.

Mr Stevenson: Yes, that is correct.

Mr Honeyford: Is 80 the number that there are meant to be, or is 80 the number that there currently are?

Mr Stevenson: On an annual basis, we ask for an accountancy return. It is a bit like a census of the professionally qualified accountants working in a Department.

That gives us some helpful data that allows us to look at where our accountants are, their grade, the split across Departments and with which institution they are. I am familiar with the figure of 80 accountants that you mentioned. I think that we requested those returns last May. I may have the figures with me. Give me a second. The Department for the Economy has 79 accountants in accountancy posts and a further 30 accountants in non-finance roles, or in posts that are not specific accounting posts. By that, I mean that they may be working in other finance roles. In total, that is —.

Mr Honeyford: There are 110 accountants in the Department.

Mr Stevenson: That was the case as of last May, yes.

Mr Honeyford: That is absolutely staggering. That has to be more than in every firm in Belfast.

Mr Stevenson: Yes. By way of a brief analysis in order to give you a comparison, the next highest is the Department for Communities, which has 82 accountants in total, 22 of whom are in non-accounting roles and 60 of whom are in specific professional finance roles. The Department of Justice is next, with 71, and then comes the Department of Finance, with 73. Across the profession, we have 500 accountants in total. I think that the figure was 498 as of May last year. You can see how they are spread across Departments. As I said, however, the Department for the Economy has the biggest proportion of accountants. In that Department's defence, you can see from its accounts — I am sure that members have been having a look at them — the complexities that there are with its annual report and accounts. Its are the most complex of the annual reports that we see. Many of the posts are therefore required, but it is very difficult to get a handle on the workforce model that would be ideal for the Department. The number of vacancies is over and above that number. The figure that I have given you represents people in post.

Mr Honeyford: How many vacancies are there?

Mr Stevenson: I do not have the figures for the number of vacancies by specific Department. I can, however, give you a couple of numbers, by grade, across the entire block. We are in the process of finalising a grade 7 accountant competition, for which there are 37 vacancies.

Mr Honeyford: You talked about 500 accountants.

Mr Stevenson: Yes, those 37 vacancies are on top of that. Traditionally, our entry grade for accountants has been at staff officer level. We recruit newly qualified accountants at that grade. Generally, people bounce out of that grade fairly quickly because there are better salaries available in the private sector, and the younger people in the posts, who have just come out of college or just completed their professional exams, move on. It may be unfair of me to say this about the younger generation, but there is a culture now of not staying with one employer for a very long period. The younger generation tends to move about more. They are a more mobile workforce. We therefore see people moving for salary reasons, but if our accountants choose to stay in the Northern Ireland Civil Service, they generally do very well in general service competitions. It is, of course, a loss to us in the finance community when they are successful in a general service competitions for deputy principal or grade 7 posts but then move on. There are risks there for us. Our staff officer grade is a critical grade. A lot of the people at that grade are on the front line of accounts production. We currently have 45 vacancies at staff officer grade across the block. That is a significant risk for us — it is almost 10% of our total number of accountancy posts — but the situation has been like that for several years. Sorry, I am going on a bit.

The Deputy Chairperson (Ms Brownlee): Thank you. That is very interesting.

Mr Gildernew: I will build on David's question. Last week, we heard about the complexities with the Department for the Economy's accounts, including for arm's-length bodies. We heard about different year-end account times and about some groups being all-Ireland bodies and therefore having the euro as their currency. Do you accept that there is significant complexity involved in the work that the Department is doing to try to draw all that together?

Mr Stevenson: I absolutely agree with last week's comments from the Department for the Economy, as well as those from the Audit Office previously, about the complexities. There is no question that having 18 component parts, 10 of which have a misalignment of year-end account times, is extremely difficult. We can but point to a lot of success over the years, particularly with the North/South bodies. Although, yes, the review of financial processes was the first time that we had to consolidate them in departmental accounts, we have always been able to deal with their budget complexities and so on. We have had to adapt to the lack of alignment at year end. We had some experience prior to the review of financial processes, which we hoped would have helped, but we know at this stage that it was not enough.

Mr Gildernew: We have heard that work is ongoing to try to address the issues. That work will take time. Do you feel as though the Department is working with you proactively in that sense to ensure that things improve?

Mr Stevenson: Very much so. We have a good working relationship. The relationship between the Department and the Audit Office will also be critical in getting us back on an even keel. I can see that relationship yielding success in the time ahead. We stand ready to help where we can. We will keep the lines of communication open. The Department for the Economy has some big decisions to make. I know that, last week, there was mention of perhaps looking to legislate in order to change year ends for the colleges. We stand ready to help in that regard. We have been trying to do our own research to see how the like of that would be benchmarked. I sit on the UK Financial Reporting Advisory Board (FRAB), so I have contacts in the other devolved authorities. My understanding is that, for example, the Scots changed their college year ends to March, but, after a few years, they reverted to the end of July deadline. That is very interesting. I am keen to find out more information about that, as it could feed into the Department for the Economy's deliberations. A key point to make is that we try to learn from others.

Mr Gildernew: That would be useful. Given the Department of Finance's role in coordinating whole-of-government accounts, do you foresee any knock-on impact there, or is any work being done to ensure that any impact is minimised?

Mr Stevenson: Yes. We play a key role in leading on and coordinating whole-of-government accounts. It is difficult for us now that the Department for the Economy's 2023-24 accounts will create a real problem for us with consolidation into whole-of-government accounts. We have other issues with the teachers superannuation scheme, which continues to be beset with delays as a result of the IT system that is used. We will therefore be adding to our problems, which is a real shame, because that was an area of success for us in recent years. We had far greater completion and validation at a UK whole-of-government level than the other devolved authorities, so that represents a step back for us. We will try our best to get that issue resolved.

The Deputy Chairperson (Ms Brownlee): Will there be any consequence for the block grant because of the disclaimed audit opinion? Has any funding been lost as a result? Has the Treasury been advised of the disclaimed audit opinion? If so, has it raised any concerns?

Mr Stevenson: At this point, there is no evidence of any risk of an actual overspend or of any control totals being breached.

The resource departmental expenditure limit (DEL), the resource annually managed expenditure (AME), the capital DEL and the capital AME that were reported in the group accounts for 2022-23 were, we understand, overstated by £11·5 million. In the 2023-24 year, they were overstated by £2·5 million. Although the Audit Office has not fully validated and certified those accounts, given the magnitude of the figures, there is no risk of an actual overspend, based on the control totals.

We maintain a watching brief, however. I have asked the Department for the Economy finance team whether it wants to reinstate any of its final out-turns for those two years, but the team feels that that is not necessary at this point. My colleagues in the central expenditure division will be watching that position very closely. They manage forecast out-turn, provisional out-turn and final out-turn, which are the key exercises that feed into the process.

As I said, I sit on the UK FRAB, so I feel that, as a courtesy, I need to reach out to the Treasury's financial reporting team. I am hoping to have a meeting with the deputy director on Tuesday to alert him to the fact that we have a disclaimed audit opinion for one of our Departments. I will also try to reach out to Treasury to see what its experiences of anything similar have been. It is good to open that line of communication. At this point, however, we are not aware of any evidence that points to an issue that is in breach of control totals.

The Deputy Chairperson (Ms Brownlee): I take it that the Treasury has had no communication with you in which it has raised any concerns. The story was in the media, and it is a significant and unprecedented event. Has there been no communication yet?

Mr Stevenson: The fact that we have a meeting scheduled for Tuesday has perhaps kept that at bay. I am very happy to update the Committee on how the meeting goes.

The Deputy Chairperson (Ms Brownlee): That would be appreciated. Thank you.

Mr Stevenson: We are doing the right thing by reaching out to Treasury and alerting it to the fact.

The Deputy Chairperson (Ms Brownlee): Definitely.

I have a final question before I bring Diane back in. The C&AG's report highlighted the fact that there was irregular expenditure of £18·3 million in 2023-24. Following audit queries that were raised, an additional £65·3 million required retrospective approval in order to avoid further irregular expenditure. Given the magnitude of the expenditure reported, is there an onus on DOF to take proactive steps to ensure that DFE fully understands the approvals that are required?

Mr Stevenson: There absolutely is. It is a very important question, and my colleagues in Supply division, who are also on the public spending group, issue the DOF approvals. The Audit Office has flagged the issue of retrospective approval. Only in a very special set of circumstances, in which a business case has been prepared but simply not sent to the Department of Finance — that is, if there has been an administrative oversight in sending it to DOF — will we traditionally consider retrospective approval. That was not the case in that instance. I understand that the Department for the Economy is not submitting a business case for the historical spend. The irregularity will therefore remain in place for those past years. I understand, however, that the Department for the Economy has produced a business case for future spend. That business case is with my colleagues in Supply, who are working through it at the minute and will hopefully get a response of some sort back to the Department in due course.

Ms Forsythe: I have one final question. You said that there are 500 accountants across the Civil Service, with different numbers across Departments. Those accountants are at different grades. When was the last time that there was a review done, either internally or externally, of the Northern Ireland Civil Service's need for accountancy roles? Where do those roles sit?

Mr Stevenson: I do not think that we have ever had, and certainly not in my time in the profession, a comprehensive workforce plan across Departments. Part of the reason for that is our accountability model. We have individual accounting officers who are responsible for their respective Departments, and it is their personal responsibility to ensure that the administrative finance functions are fit for purpose. It is in their gift to deploy resources and prioritise investment in their finance teams. We now work collectively on our recruitment competitions, so there is some cut-across. Some of that is getting mopped up a little bit through the Integr8 project as we look to what the future holds for the finance profession and the commonality of processes that we are hoping for, which include becoming more consistent in our approach. The work from the Integr8 project and the work on benefits realisation provide opportunities to look at how many accountants we should need and how we streamline that work to get away from some of the processes and misalignments in certain areas. There are therefore opportunities there. The head of the finance profession is Joanne McBurney, and she is building on the good work of Richard Pengelly before her. There is a focus at the top of the house on what our future model should look like.

Ms Forsythe: You talked about the numbers. As David said, there are 110 qualified accountants in the Department for the Economy, yet we are still faced with this issue. How many accountants are you therefore saying that the Department needs in order to have the answer? It would be useful to have an idea of what best practice would be, and it would not do any harm to have some sort of review of what best practice is and of what other people are doing. As you say, that is being looked at as part of the Integr8 model, and it provides me with some degree of reassurance that there is attention being paid to it.

Mr Stevenson: Integr8 is adding another pressure to the finance profession, because so many people are needed to feed into that project to make it a success. We will probably see a temporary increase in the number of accountants, but, once that project is in place and the new system is operating, we are hopeful that we will see a reduction. It is all wrapped up in the benefits realisation piece, however. That is our hope for the future.

The Deputy Chairperson (Ms Brownlee): Thank you, Stuart, for being with us today and answering all our questions.

C&AG, if you have any comments to make, I ask you to come to the table. Stuart and Julie, thank you so much for attending today. We really appreciate it. We will be in further contact if we require anything else.

Ms Dorinnia Carville (Northern Ireland Audit Office): I will pick up on three small points. First, the TOA noted that issues were not flagged until the 2023-24 accounts. I remind the Committee that, although 2023-24 was the first year for which I disclaimed my opinion, I put out a lengthy report on the previous year's accounts that flagged the problems and the delays experienced. At that stage, I very much flagged those issues to the Department as well. The Committee should bear in mind that, although 2023-24 is the first year of a disclaimed audit opinion, the issues from the previous year were flagged by way of my report.

Secondly, we, and the whole machinery of government, are rightly focused on statutory timetables. The TOA made the point that, in the 2023-24 year of accounts, draft accounts were presented to us much earlier in the process, but we very much have to think about the quality of accounts that are submitted. Timetables are absolutely to be adhered to, and we need to concentrate on them, but we also have to think about quality.

I attached my report to the 2023-24 accounts, which are the disclaimed accounts. In the three paragraphs about the future at the end of that report, I note the finance director letter that DOF issued, which stated that it had the met the full requirements for the quality of accounts that were submitted for audit. Although the TOA is absolutely correct to say that we received the accounts that had been submitted for audit much earlier in the process, they were not of a quality, and the underlying records were not in there. That is what started the problems, or that is certainly what led to many of the issues.

My third point is about the conversation on the workforce plan. I remind the Committee that your predecessor Public Accounts Committee considered the 2020 Audit Office report 'Capacity and Capability in the Northern Ireland Civil Service'. There was a recommendation in its subsequent report that a workforce plan be produced. That was in 2020. We are currently revisiting that piece of work. That recommendation also covered the required key skills as well. A recommendation to have a workforce plan is therefore already in place.

I can go into more detail about the dry runs and the issues that were flagged earlier. If, however, you are content that you have enough information, I am OK with that.

The Deputy Chairperson (Ms Brownlee): Thank you very much for outlining the key points. No members wish to make any other comments or ask any more questions at this point. Everyone is happy enough. I really appreciate that. Thank you very much to Dorinnia and the team.

Ms Carville: Thank you.