Sir John Bourn, head of the National Audit Office, reported to Parliament today that the Home Office had not maintained proper financial books and records for the financial year ending 31 March 2005. Sir John therefore concluded that, because the Home Office failed to deliver its accounts for audit by the statutory timetable and because of the fundamental nature of the problems encountered, he could not reach an opinion on the truth and fairness of the Home Office’s accounts.
The Home Office is now taking steps to strengthen its financial control framework, and to improve its financial statements preparation processes.
The implementation of a new accounting system contributed to late delivery of the Home Office’s accounts. Difficulties encountered in the transfer and cleansing of data and the fact that staff were not trained to use the new system on a timely basis, together with a lack of understanding of the new accounting system, meant that the Home Office could not use data from its new accounting system effectively to produce a cogent set of accounts to the required faster closing and statutory timetables. In addition, during 2004-05, there were significant control weaknesses within key IT applications which the Home Office has now taken significant steps to address.
Because of the difficulties in implementing the new accounting system, the Home Office was unable to reconcile its cash position during 2004-05, i.e. match its own records of cash payments and receipts with those shown on its bank statements. This is a key control for the prevention and detection of fraud. Following significant work by the Home Office to investigate a £3.035 million discrepancy, it had to make adjustments of £946 million to reconcile its cash position. However the Home Office found no evidence of fraud following this work.
The report points out that the poor quality of the financial statements and the delay to their production reflected a lack of skills within the accounts branch compounded by late recognition by management of the serious problems being encountered. Management procedures to ensure the quality of the financial information produced were also inadequate.
The Home Office has recognised the need to strengthen its financial control framework and to improve its preparation processes for financial statements to enable it to meet its accountability obligations to Parliament. Actions taken to address the problems include:
- the redesign and restructuring of its financial accounting function;
- continuing work on 2004-05 account in order to provide a more robust basis for preparing a timely account for 2005-06;
- commissioning a review to determine the factors that prevented the timely preparation of the 2004-05 accounts and the further action that is required, which will report to the Audit Committee; and
- ensuring that focus is maintained on financial control environment through close monitoring.