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National Audit Office Press Notice

Foreign and Commonwealth Office: Contingent Liabilities in the Dependent Territories

Report by the Comptroller and Auditor General
HC 13 1997/98
30 May 1997
ISBN: 0102610983
Price: £10.75

Sir John Bourn, head of the National Audit Office today reported on the *Foreign and Commonwealth Office’s control over the **UK Dependent Territories. Over the last six years £153 million has been provided in aid to the less prosperous Dependent Territories ranging from £39 a head of population a year in the British Virgin Islands to nearly £3,700 a head for the Pitcairn Islands with its resident population of only 55.

The National Audit Office examination was undertaken against a background of the earlier support to the Gibraltar Pension fund (NAO report HC 227 of 1989-90), an internal review by the Foreign Office of the management of the Caribbean Dependent Territories in 1991 and the setting up of a Ministerial group in 1992. The investigation focused on the action taken by the Foreign Office to minimise the risk of potential contingent liabilities falling on the UK. The National Audit Office found that the Foreign Office have extensive responsibilities but limited power. The Foreign Office have undertaken or promoted a number of significant initiatives since 1991 to identify and minimise the risk of contingent liabilities in the Dependent Territories. The National Audit Office nevertheless consider that the UK remains exposed, especially from financial sector failures, corruption, drug trafficking, money laundering, migrant pressures and natural disasters.

The National Audit Office’s findings in the key potential risk areas of governance, law and order, and financial issues include:

Governance

• In 1993 the Department set an objective to introduce jointly agreed Country Policy Plans in the Caribbean Territories. Three have so far been agreed and a further plan agreed with St Helena. Strategic policy plans need to be developed further to enable priorities and targets to be identified and monitored more closely.
• The technical aid provided has brought about significant improvements to key risk activities such as police, customs, finance and public administration. Other aspects, such as offshore finance, have benefited from much needed expertise in technical areas not available locally. More needs to be done to assess the impact.

Law and Order

• The drugs threat in the Caribbean Dependent Territories remains serious but some notable success had been achieved in seizing drugs and apprehending traffickers. Initiatives are being taken to gather and disseminate drug-related intelligence from which improved results are expected. Gibraltar and the Cayman Islands have introduced “all crimes” money laundering legislation and other Caribbean Dependent Territories and Bermuda plan to do so this year.

Finance

• The Territories’ ability to produce timely audited accounts has generally been poor and there is a lack of fully functioning Public Accounts Committees in some Territories. Assistance has been provided to some of the Territories to encourage improvements in financial control and reporting, and steps are being taken to revitalise Public Accounts Committees. Steps have also been taken to modernise accounting systems and to strengthen financial control but further progress is needed as standards continue to vary. Significant progress has been made by the Gibraltar Government in rationalising government companies and in improving public accountability.
• The offshore financial services sector has grown significantly in a number of the Territories. Although supervisory bodies to control and monitor company activities are developing, their nature and size vary. The secondment of experienced UK personnel has helped improve supervisory controls and upgraded the quality of the regulators.
• The Foreign and Commonwealth Office have promoted new financial regulatory legislation and are seeking to ensure that the Territories meet international standards. The effectiveness of this legislation will depend on the mechanisms introduced to monitor compliance and the need to give increased attention to enforcement procedures.
• The winding up of the Gibraltar Social Insurance Fund and the Gibraltar government’s decision not to pay pension liabilities to some Spanish workers has resulted in a UK commitment of up to £9 million a year, reducing over time.

Notes for Editors

*The Foreign and Commonwealth Office are responsible to Parliament for the good government of the territories, including their proper financial management, and for the international consequences of their action. They aim to provide the territories with security and political stability, to ensure that local governments provide efficient and honest government and to help them achieve economic and social development.

**There are 14 UK Dependent Territories: Anguilla, British Virgin Islands, Cayman Islands, Montserrat, Turks and Caicos Islands, Bermuda, British Antarctic Territory, British Indian Ocean Territory, Hong Kong, Falkland Islands, Gibraltar, St Helena and dependencies, Pitcairn Islands and South Georgia. Under an agreement between Britain and the People’s Republic of China, signed in December 1984, Hong Kong will cease to be a British dependency on 1 July 1997.

The Comptroller and Auditor General, Sir John Bourn, is the head of the National Audit Office, employing some 750 staff. He, and the National Audit Office, are totally independent of Government. He certifies the accounts of all Government departments and a wide range of other public sector bodies; and he has statutory authority to report to Parliament on the economy, efficiency and effectiveness with which departments and other bodies have used their resources.

Press Notice 28/97
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