Sir John Bourn, head of the National Audit Office, today published his report to Parliament on the results of his examination of the Public Health Laboratory Service Board Accounts for 1998-99. Sir John issued a report to Parliament on the account concerning the breakdown of financial controls following the contracting out by the Board of its central finance functions.
In his report, Sir John sets out the background to the contracting out process entered into by the Board, and provides details of the breakdowns in key controls which occurred at the contractor, CSL Ltd, after the contract went live on 1 April 1998. He particularly draws attention to
- a failure by CSL Ltd to perform timely and complete bank reconciliations;
- inaccurate accounting records for debtors and cash; and
- poor controls over the making of payments for goods and the creation of creditors on the CSL accounting system.
Sir John outlines the steps which officers of the Board and CSL took to rectify the problems. CSL initiated a recovery programme to introduce improved financial controls, whilst the Board employed an extra member of staff to improve credit control. More recently, in early 2000, the Board commissioned an external accounting firm to review all the major financial systems in place at CSL. Based on the results of this review, the Board informed Sir John that they were confident that key controls are now in place and operating over all key financial systems.
As a result of the control failures, the Board secured reductions in contract fees totalling £116,623 in 1998-99, compared to total contract payments of £615,453 plus VAT for services performed satisfactorily. Further reductions to contract payments of £88,728 were negotiated in 1999-2000. Set against this, however, were additional consultancy costs incurred by the Board as a result of delayed implementation of the remainder of the Financial Accounting Service project. These additional costs amounted to between £280,000 and £340,000.
Sir John concluded that, as a result of additional work undertaken by the Board, CSL and the National Audit Office, the breakdown in internal financial controls did not result in material mis-statement within the Board’s 1998-99 accounts. Accordingly, he did not qualify his opinion on the accounts.
"The Board have assured me of the importance they place on effective internal financial controls, and they are confident that these controls have now been restored. I remain concerned, however, that these problems arose.
The lesson for other public bodies from the Board’s experiences is that, when letting and managing such a contract, potential risks need to be identified, evaluated, mitigated and managed so that the fundamental responsibilities of the Board and its Accounting Officer for the proper management of its resources can continue to be discharged."Sir John
- HC: HC 874