NI Legal Services Commission Account 2011-12

12 December 2012

NI Legal Services Commission Account 2011-12

Results of the Audit of the  Northern Ireland Legal Services Commission's Accounts for 2011-12

Mr Kieran Donnelly, the Comptroller and Auditor General (C&AG) for Northern Ireland and Head of the Northern Ireland Audit Office (NIAO) has reported the results of the annual audit work carried out on the Northern Ireland Legal Services Commission’s (NILSC) financial statements for 2011-12.

Mr Donnelly stated that, “I am pleased NILSC has been able to produce more timely financial statements for 2011-12. I reported on the previous year’s accounts only in March of this year. My qualifications on legal aid expenditure continue again in 2011-12 as they have since the formation of the Commission in 2003. My concerns relate to two areas. Firstly, the controls in place to prevent and detect fraud do not provide me with the assurance I need to establish the level of fraud or error. NILSC has no estimate of the likely level of fraud or error relating to legal aid expenditure of £98m in 2011-12.  Secondly, there is insufficient evidence to support the estimation technique used to calculate outstanding liabilities at the year-end for unbilled services provided by legal practitioners.

I would strongly recommend that improvements are made to controls over civil legal aid.  Although I welcome the actions being taken by NILSC to date, particularly in relation to criminal legal aid reforms, NILSC and its sponsor, the Department of Justice, acknowledge that it will take some time to put sufficient mechanisms in place to provide me with the assurance I need to provide an unqualified report on these accounts.”

The accounts of the Northern Ireland Legal Services Commission (NILSC) which record the payment and use of legal aid funds (“the Grant Account”) have been qualified every year since it was established due to a lack of sufficient audit evidence on the level of potential fraud and the amount of legal aid liabilities.

It is important to recognise that the nature of the legal aid scheme, in making payments to legal advisors for services which are directly provided to Legal Aid claimants, creates difficulties for NILSC in checking the accuracy of claims. In addition, means tested Legal Aid also carries a risk that Legal Aid is granted to individuals who are not eligible if income details are misstated on initial application, or if changes in financial circumstances that arise during the case are not reported by the claimant.  Statute requires NILSC to depend significantly upon third parties to verify the eligibility of Legal Aid applications.

In 2011-12 there was evidence of progress being made by NILSC in relation to reducing the risk of fraud and error in criminal Legal Aid payments. Of the £45 million criminal Legal Aid bill, £21 million related to the new standard fees Standard fees adopted in the 2009 Magistrates’ Courts rules. arrangement. As a result this has reduced the risk of overpayments in almost half of the criminal Legal Aid costs. The standard fee arrangement has also led to a reduction in the uncertainty around the amount of outstanding liabilities at the year-end for criminal cases where standard fees now apply. There has been less progress on addressing other factors leading to the qualification. For instance, the small Counter Fraud Unit operating at NILSC did not have an inspection regime in place, to verify payments to legal practitioners (solicitors and barristers) and therefore could not provide the level of assurance that is present in Legal Aid bodies in other parts of the UK.  As a result, there is insufficient audit evidence to demonstrate that material fraud or overpayment did not exist.

This issue was also referred to a Public Accounts Committee (PAC) Report NIA 20/11-15 Public Accounts Committee – Managing Criminal Legal Aid, session 2011-12, dated 26 October 2011 report in October 2011. It stated that the absence of a cohesive counter-fraud strategy, based on established best practice, meant that the Commission is not well placed to manage the risk of fraud and it recommended that the NILSC take urgent action. In response to this recommendation NILSC is introducing a Registration Scheme (a register of all providers of publicly funded legal services) and a Code of Practice which is currently being discussed with the Law Society of Northern Ireland.

Since the inception of the NILSC in 2003, there have been significant issues in the way NILSC estimates liabilities for services provided by legal advisors but unbilled at the financial year end.  These liabilities, referred to as Legal Aid provisions, were estimated to be £106 million at 31 March 2012. Legal Aid provisions are challenging to estimate but ensuring that the basis and assumptions used to estimate provisions are reasonable is also important for ensuring robust budgeting systems. Given the on-going concerns over these liabilities, Mr Donnelly recommended that NILSC re-assesses whether the current basis is fit-for-purpose or whether an alternative approach should be sought.

NILSC stated that this is a priority stream of work for both the Commission and its Sponsor which, due to its complexity, will require an action plan over the next 3 to 5 years. Included are proposed legislation changes, the introduction of more standard fees within Civil Legal Aid; changes to the IT infrastructure and requirements for legal bills to be submitted more quickly.

Mr Donnelly confirmed that he will monitor the NILSC’s progress in implementing these improvements in future audits.  

Notes for Editors

The NIAO Report, “Managing Criminal Legal Aid” was published on 29 June 2011.

Report NIA 20/11-15 Public Accounts Committee – Managing Criminal Legal Aid, Session 2011/2012, dated 26 October 2011.

Department of Finance and Personnel Memorandum dated 26 January 2012 on the 1st Report from the Public Accounts Committee Mandate 2011-2015.

The Northern Ireland Legal Services Commission (NILSC) was established in 2003 to provide Legal Aid in Northern Ireland. Following the devolution of policing and justice functions in April 2010, NILSC became a Non Departmental Public Body of the Department of Justice.  

The NILSC prepares accounts for both its use of Legal Aid funds (the “Grant Account”) and for its administrative operations (the “Grant-in-Aid Account”). Prior to devolution the accounts were audited by the C&AG heading the National Audit Office.

The Comptroller and Auditor General is Head of the Northern Ireland Audit Office (the Audit Office). He and the NIAO are totally independent of Government. He certifies the accounts of Government Departments and a range of other public sector bodies. He has statutory authority to report to the Assembly on the economy, efficiency and effectiveness with which departments and public bodies use their resources. His reports are published as Assembly papers.

The report relevant to this Press Release is attached and is published with the 2011-12 NILSC Annual Report and Accounts which can be obtained from the NILSC website at

www.nilsc.org.uk/uploads/publications/documents/annualreport_2011_2012.pdf

from 12 December 2012.

Background briefing can be obtained from the Northern Ireland Audit Office by contacting Stephen McCormick (028 90251067).