Home Office condemned by auditors

The Home Office has suffered one of the strongest censures ever of a government department from its auditors. This is not just embarrassing for the UK Government, but also humiliating for its then permanent secretary – Sir John Gieve, the new deputy governor of the Bank of England.

The Home Office did not maintain proper accounts and records for the 2004/5 financial year, the National Audit Office (NAO) has reported. As a result, the auditors could not reach an opinion on the truth and fairness of the Home Office’s accounts.

Problems for the department stemmed, to a large extent, on difficulties with a new accounting system, which led to the late completion of the accounts. In particular, the Home Office had problems with the transfer and cleansing of data. In addition, staff were not trained in time to use the new system and there was a widespread lack of understanding of it.

As a result, the Home Office could not use data from its new accounting system to produce full accounts in line with the shorter timetable now used by government departments. Further, there were ‘significant control weaknesses within key IT applications,’ said the NAO.

Its inability to implement its new accounting system meant that the department was unable to reconcile its cash position during 2004–05. A £3m discrepancy was fully investigated by the Home Office – causing it to make adjustments of £946 million to reconcile its cash position. Despite concerns that the department could not prove that it had not fallen victim to fraud, the Home Office found no evidence of fraudulent activity.

The NAO concluded that the poor quality of the financial statements and the delay to their production reflected a lack of skills within the accounts branch of the Home Office, compounded by late recognition by its management of the serious problems encountered. Management procedures to ensure the quality of the financial information produced were inadequate.

As a result of the NAO’s criticisms, the Home Office has recognised the need to strengthen its financial control framework and improve its preparation processes for financial statements. It has now redesigned and restructured its financial accounting function and has continued working on its 2004–5 accounts to provide a more robust basis for preparing the 2005/6 accounts. The Home Office has now commissioned its own review to increase its understanding of what went wrong and to improve its processes for future years’ accounts.

A Home Office spokesman said: ‘A great deal of work has been done over recent months to put right the problems highlighted by the NAO which arose from the introduction of a new accounting system in 2004-05. We have strengthened our system controls and financial accounting; we have more than doubled the number of qualified and experienced accountants and we are relocating the financial accounting function to our London headquarters.

‘The new permanent secretary and new director of finance are giving high priority to addressing these issues and Home Office senior management are fully committed to continuing to strengthen and improve its financial control framework and processes. In addition, we will appoint a firm of accountants to undertake an urgent review to establish whether any additional steps need to be taken.’

Sir John Bourn, comptroller and auditor general and head of the NAO, said: ‘It is disappointing that the Home Office had not maintained proper financial books and records for the financial year ending 31 March 2005 and has been unable to deliver its accounts for auditing by the statutory deadline. The Home Office has recognised the need to strengthen its financial control framework, and to improve its financial statements preparation processes to enable it to meet its accountability obligations to Parliament, and has taken or has in hand actions for this purpose. Senior management leadership and commitment will be vital to the department’s success in producing accounts for 2005/06 to meet the Treasury’s faster closing targets and statutory requirements.’