Financial Auditing and Reporting 2012

06 November 2012

Financial Auditing and Reporting 2012

Kieran Donnelly, the Comptroller and Auditor General for Northern Ireland and Head of the Northern Ireland Audit Office (NIAO), today reported the results of financial audit work undertaken primarily on the 2011-12 accounts of government departments and other public sector bodies.  The report covers a range of topics and issues.  It does not include the results of his examination of the accounts of bodies within the health and social care sector.  A separate report on this sector will be published in due course.

His report notes that five The five departments concerned are the Department of Agriculture and Rural Development, Department of Culture, Arts and Leisure, Department of Education, Department for Social Development and the Office of the First and Deputy First Minister. out of the nineteen departmental resource accounts received qualified audit opinions.  Mr Donnelly said that “the standards of financial reporting continue to remain high, demonstrated by the quality and timeliness of financial reporting.  However, in the past two years he has seen an increasing failure to comply with instructions from governing authorities, including failure to obtain Department of Finance and Personnel (DFP) expenditure approvals.  In particular, a number of audited bodies have taken decisions to award salary increases without the appropriate approvals from DFP or their sponsoring department”.  

Some of the key issues noted in the report are:

Failure to obtain appropriate approvals

The accounts of the five Education and Library Boards (ELBs) were qualified for 2009-10 and 2010-11 as they paid honoraria to teaching and non-teaching staff totalling £1.1 million across both financial years without proper approval from the Department of Education (DE) or DFP. The five ELB accounts for 2010-11 were also qualified because a pay increase of £2.8million was paid to non-teaching staff before formal approval had been obtained from DE or DFP. Formal approval for the pay increase was received from DFP in December 2011.
During 2010-11 Ilex incurred expenditure of £0.4 million on a number of projects where it did not obtain the necessary approvals from its sponsor departments (the Office of the First Minister and Deputy First Minister and the Department for Social Development) or DFP.

In 2011-12 the Office of the First Minister and Deputy First Minister (OFMDFM) spent £1.6 million on Phase II of the Maze Long Kesh Remediation Project for which approval was rescinded and a further £4.6 million on the Ebrington Parade Ground Project where there was a change in the scope of the project which did not receive DFP approval.  In both of these cases the breach of approvals occurred first during the 2010-11 financial year and had previously been reported by the C&AG Financial Auditing and Reporting.  General Report by the Comptroller and Auditor General for Northern Ireland – 2011..

Prompt Payment of Invoices

The report reviews the prompt payment performance of a range of public sector bodies including Central Government Departments, Health and Social Care Trusts, Education and Library Boards and Local Councils and highlights the need for improvement in some areas. Central Government Departments have improved in their achievement of the 10 day prompt payment target – moving from 81 per cent of valid invoices being paid within 10 days in 2010-11 to 89 per cent in 2011-12.  The Health and Social Care Trusts’ performance also improved by seven per cent between 2010-11 and 2011-12 but are still significantly behind Central Government Departments with only 48 per cent of valid invoices paid within the 10 day target compared to 89 per cent in Central Government.  The average percentage of invoices paid within 10 days for ELBs reduced from 52 per cent in 2010-11 to 51 per cent in 2011-12.

Mr Donnelly concluded “Although prompt payment performance has improved over the last two years across all sectors of government there are still areas where performance is far from satisfactory.  Given the Assembly’s commitment to prompt payment, in particular the 10 day target, it is essential that public bodies review their processes and procedures to increase the speed at which payments are made”.  

Department for Social Development

The audit opinion for the Department for Social Development (DSD) has been qualified for a considerable number of years and is qualified again for 2011-12 because of significant levels of fraud and error in benefit expenditure.  Total benefit expenditure (excluding state pension) paid by DSD in 2011-12 was £3.3 billion and of this, DSD estimated losses due to fraud and error of £53.9 million (1.6 per cent) in overpayments and of £14.2 million (0.4 per cent) in underpayments due to official error.  The corresponding annual accounts of the Agency and the Housing Executive were also qualified on the material levels of estimated fraud and error in benefit expenditure.

Department of Agriculture and Rural Development

Mr Donnelly reported in previous years that weaknesses in controls relating to the administration of Common Agriculture Policy payments led to irregular expenditure by the Department.  During 2011-12 the Department included a further £12.1 million as amounts due to be paid to the European Union in respect of financial corrections and the C&AG again qualified his audit opinion because of this.

Child Maintenance and Enforcement Division Client Funds

The audit opinion for the Department for Social Development’s Client Funds Account has been qualified every year since 1993 because of the level of error in the calculation of maintenance assessments.  The opinion was qualified for this reason again this year since, despite showing some improvement, the estimated level of error was still around 3.6 per cent of assessments made in 2011-12.  The C&AG also qualified his opinion due to inadequate accounting records to support the level of outstanding maintenance arrears totalling £83 million.

Belfast Metropolitan College (BMC) 2010-11

The report refers to the College’s significant level of deficits incurred since its formation on 1 August 2007.  The net cumulative operating deficit at the end of the 2010-11 financial reporting period was £14.8 million.  The C&AG commented that the significant level of deficits incurred by BMC since its formation represents one of the most serious examples of financial difficulty he has found in the public sector.  However, the C&AG noted that the College is making progress through the development and implementation of the College Improvement Plan and he intends to continue monitoring its implementation and in attaining financial stability.

Briefing may be obtained from Lousie Mason, Assistant Auditor General 028 9025 1046 or Richard Emerson Audit Manager 028 9025 1060.