Sir John Bourn, head of the National Audit Office, has today reported to Parliament that he is qualifying the Home Office 2005-06 Resource Accounts because Accounting Standards require these accounts to include the 2004-05 results. But for this, and the qualification relating to its accruals at 31 March 2006, and the corresponding expenditure, he would have been able to give an unqualified opinion on the truth and fairness of the Home Office 2005-06 Resource Accounts.
Today’s report shows that the Home Office has worked to address many of the fundamental problems in the 2004-05 accounts and has been able to provide a much improved set of accounts for 2005-06. This situation represents a significant step forward for the Home Office.
The Home Office has been unable to provide sufficient evidence that there is not significant duplication between the different methods of recording on its accounting system its liabilities to suppliers. Weaknesses in the system have also meant that the Home Office cannot easily match its records to supplier records and that invoices to the Department can be paid without their being properly matched to purchase orders. The Home Office is working to address these issues and hopes to be able to fully support this balance in the 2006-07 accounts.
Sir John has also qualified the accounts because of the knock on impact of his disclaimed opinion for its 2004-05 accounts. The Home Office has, however, revised the 2004-05 balance sheet and Sir John was content that the comparative balance sheet included in these accounts presents a true and fair view.
Many of the system and control weaknesses from 2004-05 remained present in 2005-06. In particular, there were inadequate controls to match payroll and personnel records to determine exact staff numbers within the department. Furthermore, due to ineffective cash management procedures the Home Office failed to draw down sufficient funding from the Exchequer, which resulted in a technical overdraft of £246 million with the Office of the Paymaster General.
The Home Office faces significant challenges in 2006-07 given that many underlying system weaknesses have continued into the current financial year and a full assessment of remedial action is only now taking place. The focus at senior levels will need to be sustained to drive through the process and cultural changes necessary, including enhancing in-house capabilities, to support effective financial management across the Department’s activities.